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What changed in LEGALZOOM.COM, INC.'s 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of LEGALZOOM.COM, INC.'s 2023 and 2024 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 2024 report.

+374 added−406 removedSource: 10-K (2025-02-26) vs 10-K (2024-02-29)

Top changes in LEGALZOOM.COM, INC.'s 2024 10-K

374 paragraphs added · 406 removed · 313 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

46 edited+16 added−25 removed34 unchanged
Biggest changeWe 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.
Biggest changeOur 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.
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.
While service industries like accounting, 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.
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.
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. Our customers have access to live help from customer care representatives by phone, online chat, text, email, or via our mobile applications.
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.
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 6 purchase such services on our websites.
Robust CRM platform Our account executives, customer care and sales organization, fulfillment specialists, and tax advisors leverage a multi-channel customer relationship management platform, powered by integrating a variety of tier one contact center technologies.
Robust CRM platform Our account executives, customer care and sales organization, fulfillment specialists, and tax advisors leverage a multi-channel customer relationship management platform, powered by integrating a variety of tier 4 one contact center technologies.
In addition, we are subject to numerous foreign and domestic laws, regulations, and standards regarding privacy and data security governing the personal information and other data that we may collect, store, use, or process.
In addition, we are subject to numerous foreign and domestic laws, regulations, and standards regarding privacy and data security governing the personal information and other data that we collect, store, use, or process.
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 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, insurance, tax, credit cards, website design, and payment processing, among others.
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.
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 Mountain View, California.
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 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. Virtual mail subscriptions.
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 position at business formation gives us unparalleled knowledge of our customers’ needs, oftentimes 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.
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 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, subscription offerings, virtual mail, the processing of legal documents, commercial registered agents, the provision of online payment services and other matters, which are continuously evolving and developing.
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.
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; and • large platform companies that could develop competing technology solutions to address the needs of our small business or consumer customers.
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 have various trademark registrations in the U.S. and in foreign jurisdictions, as well as pending trademark applications in the U.S. and internationally. We have no issued patents, but we have a patent-pending application that we are pursing in the U.S. and internationally. We also license intellectual property from third-parties, such as software used to support our technology and operations.
Our primary subscription services 3 are listed in the following table, and a more detailed description of certain of our subscription services is provided below: Small Business Subscriptions Consumer Subscriptions Registered Agent Compliance Attorney Advice through our Legal Plans Tax Advice & Preparation Accounting eSignature Legal Forms Virtual Mail and Check Deposit Services Trademark Monitoring Attorney Advice through our Legal Plans Estate Planning Bundle Legal Forms Virtual Mail and Check Deposit Services Registered agent subscriptions .
Our primary subscription services are listed in the following table, and a more detailed description of certain of our subscription services is provided below: Small Business Subscriptions Consumer Subscriptions Registered Agent Compliance Attorney Advice through our Legal Plans Bookkeeping eSignature Legal Forms Virtual Mail and Check Deposit Services Trademark Monitoring Attorney Advice through our Legal Plans Estate Planning Bundle Legal Forms Virtual Mail and Check Deposit Services Registered agent subscriptions .
Transaction 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.
Transaction 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 Consumer, Estate Planning and Other Last Will and Testament Living Will Living Trust Power of Attorney Subscription services At December 31, 2024, we h ad approximately 1.8 million subscription units outstanding.
However, laws and regulations defining UPL, and the governing bodies that enforce UPL rules, differ among the various jurisdictions in which we operate. The regulatory environment in the U.S. is evolving slowly with two states so far, Arizona and Utah, approving regulatory reform that permits non-lawyers to co-own law firms and other legal service operations.
However, laws and regulations defining UPL, and the governing bodies that enforce UPL rules, differ among the various jurisdictions in which we operate. The regulatory environment in the U.S. is evolving slowly with only a few states approving regulatory reform that permits non-lawyers to co-own law firms and other legal service operations.
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.
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 strategic priorities: Optimizing Our Subscription Business .
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.
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.
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.
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, and 401k match. Government Regulation We operate in a particularly complex legal and regulatory environment.
We offer other subscriptions, including unlimited access to our library of customizable legal forms, electronic storage of applicable LegalZoom documents, and document revisions. We also offer eSignature subscriptions, which allow customers to upload their own documents or draft new documents using one of our attorney-drafted legal form templates and then sign and manage those documents online, all in one place.
We also offer eSignature subscriptions, which allow customers to upload their own documents or draft new documents using one of our attorney-drafted legal form templates and then sign and manage those documents online, all in one place.
Such privacy and data security laws and regulations, including with respect to the European Union's General Data Protection Regulation and the California Consumer Privacy Act of 2018, and the interpretation and enforcement of such laws and regulations, are continuously developing and evolving and there is significant uncertainty with respect to how compliance with these laws and regulations may evolve and the costs and complexity of future compliance.
Such privacy and data security laws and regulations, as well as the interpretation and enforcement of such laws and regulations, are continuously developing and evolving and there is significant uncertainty with respect to how compliance with these laws and regulations may evolve and the costs and complexity of future compliance.
The rise of the gig economy and the increase in remote work have resulted in an increasing number of small businesses operating out of a home or personal address. Our virtual mail subscription, or LZ Virtual Mail, protects our customers’ personal information by providing an independent business address.
The rise of the gig economy and remote work have resulted in an increasing number of small businesses operating out of a home or personal address. Our virtual mail subscription protects our customers’ personal information by providing an independent business address. It also provides our customers flexibility by allowing them to check their mail from anywhere.
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 seven employee resource groups today, including Pride Zoomer Alliance Network, Lift Every Voice Black Network, RiseUp Women’s Network, Women in Tech Network, Asian Pacific American Zoomer Association, Nos Unimos LatinX Network, and LZ Veterans, each with dedicated internal funding and executive sponsorship.
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 also continue to fuel our organization’s passion for social good, with our employee giving program and platform that provides dollar-for-dollar matching and paid time off for volunteering. We believe we are thriving when every voice is nurtured and heard.
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.
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.
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.
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.
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.
Currently, our ABS primarily supports our intellectual property business, and its experienced attorneys help guide customers through the trademark registration process. Our legal services are provided across all 50 states in the U.S. Our partners.
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.
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. We utilize our office locations in multiple states for engagement events, in-person meetings, team offsites, leadership conferences, and more to build connection and productivity.
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.
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 2024, we refreshed our employee recognition program that rewards and provides visibility to our employees’ accomplishments.
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.
We believe we earn our customers’ trust and drive significant organic traffic through our brand name recognition and reputation. Our small business customers’ initial purchase is typically a business formation product that streamlines the process of starting a business. As of December 31, 2024, we had formed over 4.6 million businesses since our inception.
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.
Our independent attorney network provides customers access to attorneys licensed in their jurisdiction and experienced in the types of legal matters that impact our customers at a significant discount to traditional offline alternatives. 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.
We monitor the state of our employees’ happiness with regular engagement surveys, open feedback forums, and action planning based on results. We continue to see favorable engagement scores, particularly in overall satisfaction or OSAT, and Net Promoter Score, or NPS, when our employees are asked the likelihood of recommending LegalZoom as a great place to work.
We continue to see positive engagement scores, particularly in overall satisfaction, or OSAT, and Net Promoter Score, or NPS, when our employees are asked the likelihood of recommending LegalZoom as a great place to work. In 2021, we adopted our remote-first model.
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.
Our technology 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.
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.
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’ve designed our compensation approach so that every U.S. based employee has a component of their compensation that is performance or incentive driven.
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.
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. Our consumer offerings range from estate planning to legal advice, and there is overlap in our small business and consumer offerings.
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.
We continue to engage our employees with in-person and social impact events, like our annual Impact Week, where we come together to volunteer, learn about causes, and fundraise.
At LegalZoom, our values are Lift Each Other Up, Champion Our Customers, See the Whole Picture, Focus on Results, and Keep It Simple. These values shine through in all that we do to foster an inclusive and empowering culture, as we continue to focus on the well-being and success of our employees.
These values shine through in all that we do to foster an inclusive and empowering culture, as we continue to focus on the well-being and success of our employees. We monitor the state of our employees’ happiness with regular engagement surveys, open feedback forums, and action planning based on results.
As we grow our ecosystem, we aim to continue to improve the lifetime value of our customers by maintaining ongoing engagement post-formation and cross-selling our offerings. We will also continue to strategically partner with leading brands that can improve our partner ecosystem by offering small business solutions outside of our core offerings. Integrate experts.
Further, we intend to continue to strategically partner with leading brands that can improve our partner ecosystem by offering small business and consumer solutions outside of our core offerings. Leveraging Artificial Intelligence to Deliver Expertise to Our Customers .
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.
In addition, participating law firms can leverage our brand awareness, as well as the customer feedback and testimonials, to market their own practice. 1 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.
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.
During the year ended December 31, 2024, we had staffed registered agent locations covering all 50 states. 3 Compliance subscriptions . 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.
It also provides our customers flexibility by allowing them to check their mail from anywhere. Our virtual mail services include mail receipt, sorting, digitization, check depository services, and shipment or storing of select mail. Legal forms and eSignature subscriptions.
Our virtual mail services include mail receipt, sorting, digitization, check depository services, and shipment or storing of select mail. Legal forms and eSignature subscriptions. We offer other subscriptions, including unlimited access to our library of customizable legal forms, electronic storage of applicable LegalZoom documents, and document revisions.
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.
These networks, which are open to all employees, 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. In 2024, we remained committed to our principles of taking care of our employees holistically while continuously looking for ways to improve our overall benefits offering.
Item 1. Business Overview LegalZoom is a leading online platform for business formation in the United States, or U.S.
Item 1. Business Overview LegalZoom is a leading online platform for legal services, transforming how individuals and small businesses navigate the legal system.
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.
With over two decades of experience and millions of customers served, LegalZoom helps individuals and small businesses navigate legal needs with confidence. The LegalZoom Ecosystem Millions of people in the U.S. start small businesses every year. Many small businesses operate without forming a legal entity, unintentionally introducing financial risk to the owners’ personal assets.
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.
At December 31, 2024, we also engaged approximately 600 contractors and consultants globally and no seasonal workers. 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. Our primary compensation strategy is to promote a pay-for-performance culture.
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.
We offer customers ongoing access to experts to help handle complex matters, including through a network of independent law firms. As of December 31, 2024, we had over 1,000 attorneys in our independent attorney network.
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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.
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By combining intuitive technology with access to experienced attorneys—whether through our vast independent attorney network or LegalZoom Legal Services (LZLS) law firm—we offer the tools and guidance people need to confidently manage everything from business formation and compliance to estate planning and ongoing legal support. We operate across all 50 states and in over 3,000 counties in the U.S.
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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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For example, as forming a business is an important life event for the entrepreneurs that we support, some of our small business customers opt to purchase an estate plan after they form their business. See below under “ Our Products and Services ” for additional information regarding our transaction products and subscription offerings. Our technology platform.
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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.
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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 customer experience. See below under “ Our Technology ” for additional information. Our experts.
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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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We are prioritizing our subscription products over our transaction products in order to focus on customer lifetime value and to help accelerate and sustain our subscription revenue over the long term. Our goal is for customers to grow their use of our platform as their businesses evolve and that, in turn, customers increase their cumulative spend with us over time.
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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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We are testing and implementing ways to better reorient our products towards subscription offerings. We are also continuing to optimize our product line-up with the goal of improving the quality of our subscriber base.
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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.
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This includes enhancing the value of our subscription products and increasing the price of certain of our LegalZoom branded offerings to better reflect the value we believe we provide. In addition, our recent acquisition of Formation Nation, Inc., or Formation Nation, will allow us to drive cross-sell opportunities of our complementary ecosystems of legal and business services.
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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.
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See Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Annual Report on Form 10-K for additional information regarding our acquisition of Formation Nation. Reorienting Our Go-to-Market Strategy .
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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.
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We are diversifying our customer acquisition strategy, which includes testing a mix of marketing channels with the goal of diversifying our marketing investments across overall brand, small business and consumer customers, and product categories versus our historical focus on business formations.
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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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In addition, we recently acquired Formation Nation, which we believe accelerates our strategy of attracting higher value customers and positioning LegalZoom as a premium brand.
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We will also continue to invest in further improving our customer experience, such as upgrading our mobile experience, in order to reduce friction and increase conversion across our existing products and services. 2 Build a business ecosystem . As we innovate for small businesses, we aim to become their trusted partner during all stages of their business lifecycle.
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We will leverage Formation Nation’s “Inc Authority” brand, which provides business formation offerings at a lower priced alternative, to service customers seeking “do-it-yourself” solutions, ensuring the appropriate level of service across our customer base and reserving the LegalZoom brand for more premium offerings.
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We intend to provide more value to our customers during and post-formation by continuing to expand our ecosystem to include business management solutions that keep small businesses compliant, protected and financially organized.
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In addition, through this acquisition, we are reinvesting in our sales capabilities, which will include leveraging Formation Nation’s 2 best-in-class customer service team to improve our cross-selling, up-selling, bundling, and packaging to our customers.
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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.
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We will further invest in artificial intelligence in an effort to drive growth and efficiencies in our business and to improve our customer experience. We also aim to better leverage artificial intelligence into our solutions to promote the value and services of our attorney network, given artificial intelligence cannot provide direct legal advice.
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Since our initial public offering in June 2021, we have integrated five new services into our ecosystem: our LZ Tax subscription service in July 2021, our LZ Virtual Mail subscription service in October 2022, an eSignature subscription service in April 2023, our LZ Books accounting solution subscription in August 2023 and a business licenses offering in November 2023.
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Our Products and Services Our transaction products and subscription services are designed to support the legal, compliance, and business management needs of small businesses and consumers. We continue to evaluate new ways to commercialize both our transaction and subscription offerings, which may include the bundling of certain of our products and offering certain of our historical transaction offerings as subscriptions.
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We aim to provide our customers affordable access to expert advice. Our expert offerings are higher-cost services that provide professional expertise to our customers as they navigate complicated legal and compliance processes. Our expert offerings include attorney and CPA “assisted” solutions alongside our “do it yourself” offerings for legal, compliance and tax and personal needs.
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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.
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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.
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In addition, we acquired Formation Nation in February 2025, which will allow us to benefit from the immediate onboarding of over 140 seasoned small business service experts. 5 Human Capital Management At December 31, 2024, we, together with all our subsidiaries, had 964 employees worldwide.
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We aim to increase the consumption of our expert offerings by existing customers through targeted cross-selling and promotion of our products, as well as by improving the platforms through which our customers and experts interact. We also aim to attract new customers to our expert offerings by enhancing and creating new top of funnel entry points to these offerings.
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We offer competitive compensation that we believe is aligned with the market and fair relative to our peers. At LegalZoom, our values are Lift Each Other Up, Champion Our Customers, See the Whole Picture, Focus on Results, and Keep It Simple.
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For example, our proprietary patent-pending artificial intelligence-powered document summarization tool, Doc Assist, and our newly revamped library of attorney vetted legal forms help drive traffic to our website and promote our expert offerings. Our Products and Services Our transaction products and subscription services are designed to support the legal, compliance, and business management needs of small businesses and consumers.
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During the year ended December 31, 2023, we had staffed registered agent locations covering all 50 states. Compliance subscriptions .

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeThe 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.
Biggest changeThe risks and uncertainties we face in connection with the recent acquisition of Formation Nation or any future acquisitions or investments, whether or not they are consummated, include, but are not limited to: • an acquisition may require us to incur charges or assume substantial debt or other liabilities, cause adverse tax consequences, expose us to claims and disputes by stockholders and third parties, 14 including intellectual property claims and disputes, or may not generate sufficient financial return to offset additional costs and expenses related to the acquisition; • encountering difficulties or unforeseen expenditures in integrating the business, technologies, products, personnel or operations of any acquired company, particularly if key personnel of the acquired company decide not to work for us; • inability to retain personnel, key customers, distributors, vendors and other business partners of the acquired business; • our inability to realize the financial and strategic goals or anticipated synergies of the acquisition or investment on a timely basis, if at all; • incurring higher than anticipated costs to effectively integrate an acquired business, to bring an acquired company into compliance with applicable laws and regulations or due to additional compensation issued or assumed in connection with an acquisition; • disruption to our ongoing business, diversion of resources and distraction of our management; • delays or reductions in customer purchases for both us and the company acquired due to customer uncertainty about continuity and effectiveness of service from either company; • challenges integrating the employees of the acquired company into our company culture; • exposure to litigation or other claims in connection with, or inheritance of claims or litigation risk as a result of, an acquisition; • potential identified or unknown security vulnerabilities in acquired products or technologies that expose us to additional security risks or delay our ability to integrate the products or technologies into our offerings; • difficulty in maintaining controls, procedures and policies during the transition and integration and inability to conclude that our internal controls over financial reporting are effective; • 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 • the issuance of a significant amount of equity securities in connection with any future acquisitions, existing stockholders may be diluted and earnings per share may decrease.
We have in the past and may in the future determine to exit certain partnership relationships, and we may also fail to retain and expand partnership relationships for many reasons, including third parties’ failure to maintain, support, or secure their technology platforms in general, restrictions imposed by regulatory compliance, and our integrations in particular.
We have in the past and may in the future determine to exit certain partnership relationships. We may also fail to retain and expand partnership relationships for many reasons, including third parties’ failure to maintain, support, or secure their technology platforms in general, restrictions imposed by regulatory compliance, and our integrations in particular.
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.
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 15 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 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 provisions would not apply to suits brought to enforce a duty or liability created by the Securities Exchange Act of 1934, as amended, or the Exchange Act. Furthermore, Section 22 of the Securities Act of 1933, as amended, or the Securities Act, creates concurrent jurisdiction for federal and state courts over all such Securities Act actions.
The provisions would not apply to suits brought to enforce a duty or liability created by the Securities Exchange Act of 1934, as amended. Furthermore, Section 22 of the Securities Act of 1933, as amended, creates concurrent jurisdiction for federal and state courts over all such Securities Act actions.
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.
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, and the Tax 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.
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.
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, regulatory obstacles, changes in law (including changes in tax laws and regulations), changes in the business environment from inflation, interest rates, government assistance, increased compliance or operating costs (including wage and benefit pressures) and dissatisfaction with our services.
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.
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 distribute 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.
These adverse impacts can include attrition beyond the intended reduction 12 in workforce, delays in the development of new products or services due to gaps in knowledge transfer and new employee ramp up time, an increased risk of litigation, the distraction of employees, and reduced employee morale, any of which could also adversely affect our reputation as an employer and make it more difficult for us to hire new employees in the future.
These adverse impacts can include attrition beyond the intended reduction in workforce, delays in the development of new products or services due to gaps in knowledge transfer and new employee ramp up time, an increased risk of litigation, the distraction of employees, and reduced employee morale, any of which could also adversely affect our reputation as an employer and make it more difficult for us to hire new employees in the future.
Compliance with U.S. and foreign privacy and data security requirements could result in additional costs and liabilities to us or inhibit our ability to collect and store data, and the failure to comply with such requirements could subject us to significant fines and penalties, which could adversely affect our business, financial condition and reputation In the ordinary course of business, we collect and otherwise process information from and about our customers and others, which may include personal information and other data.
Compliance with U.S. and foreign privacy and data security requirements could result in additional costs and liabilities to us or inhibit our ability to collect and store data, and the failure to comply with such requirements could subject us to significant fines and penalties, which could adversely affect our business, financial condition and reputation In the ordinary course of business, we collect and otherwise process information from and about our customers and others, which include personal information and other data.
If a court were to find either exclusive-forum provision in our amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur further significant additional costs associated with resolving the dispute in other jurisdictions, all of which could seriously harm our business. Item 1B. Unresolved Staff Comments None 29
If a court were to find either exclusive-forum provision in our amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur further significant additional costs associated with resolving the dispute in other jurisdictions, all of which could seriously harm our business. Item 1B. Unresolved Staff Comments None
Circumvention of our security measures or those of our service providers may result in access, misappropriation, deletion, alteration, publication, modification or other compromise of our information, which could cause interruptions in our business and operations, fraud or loss to third-parties, regulatory enforcement actions, litigation, indemnity obligations and other possible liabilities, as well as negative publicity.
Circumvention of our security measures or those of our service providers may result in access, misappropriation, deletion, alteration, publication, modification or other compromise of our information or information security systems, which could cause interruptions in our business and operations, fraud or loss to third parties, regulatory enforcement actions, litigation, indemnity obligations and other possible liabilities, as well as negative publicity.
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.
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.
For instance, in September 2023 we announced the beta launch of Doc Assist, a document summarization product that uses generative AI to help small businesses review documents. This technology, which is a new and emerging technology that is in its early stages of commercialization, presents a number of risks inherent in its use.
For instance, in September 2023 we announced the launch of Doc Assist, a document summarization product that uses generative AI to help small businesses review documents. This technology, which is a new and emerging technology that is in its early stages of commercialization, presents a number of risks inherent in its use.
Any of these developments could adversely affect our results of operations. 20 Changes in tax laws or regulations that are applied adversely to us or our customers may have a material adverse effect on our business, cash flow, financial condition or results of operations New tax laws, statutes, rules, regulations or ordinances could be enacted at any time.
Any of these developments could adversely affect our results of operations. Changes in tax laws or regulations that are applied adversely to us or our customers may have a material adverse effect on our business, cash flow, financial condition or results of operations New tax laws, statutes, rules, regulations or ordinances could be enacted at any time.
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.
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.
We have found material weaknesses in our internal control over financial reporting in the past and our prior material weakness related to our income tax provision resulted in the restatement of our unaudited condensed consolidated financial statements for the quarters and year-to-date periods ended March 31, 2022, June 30, 2022 and September 30, 2022.
We have found material weaknesses in our internal control over financial reporting in the past and our prior material weakness related to our income tax provision resulted in the restatement of our unaudited condensed consolidated financial statements for the quarters and year-to-date periods ended March 31, 2022, 18 June 30, 2022 and September 30, 2022.
We depend on top talent, including our senior management team, to grow and operate our business, and if we are unable to hire, retain or motivate our employees, we may not be able to grow or operate effectively, which may adversely affect our business and future prospects Our future success will depend upon our continued ability to identify, hire, develop, motivate and retain top talent.
We depend on top talent, including our senior management team, to grow and operate our business, and if we are unable to hire, retain or motivate our employees, we may not be able to grow or operate effectively, which may adversely affect our business and future prospects 12 Our future success will depend upon our continued ability to identify, hire, develop, motivate and retain top talent.
Identifying and negotiating new and expanded partner relationships requires significant resources and we cannot guarantee that the parties with which we have relationships can and will continue to devote the resources necessary to operate and expand our platform. In addition, integrating third party technology can be complex, costly and time-consuming.
Identifying and negotiating new and expanded partner relationships requires significant resources and we cannot guarantee that the parties with which we have relationships can or will continue to devote the resources necessary to operate and expand our platform. In addition, integrating third party technology can be complex, costly and time-consuming.
We have in the past invested resources and introduced new products and services that have failed to produce the customer interest that we expected. We may fail to attract new customers or lose existing customers if current or future development efforts or services fail to meet customer expectations on a timely basis if at all.
We have in the past invested resources and introduced new products and services that have failed to produce the customer interest or results that we expected. We may fail to attract new customers or lose existing customers if current or future development efforts or services fail to meet customer expectations on a timely basis if at all.
This reliance on third party providers also subjects us to risks 13 arising from the loss of control over processes, and potentially, termination of these services by the third parties. A failure of our third party providers to perform services in a satisfactory manner may have a significant adverse effect on our business.
This reliance on third party providers also subjects us to risks arising from the loss of control over processes, and potentially, termination of these services by the third parties. A failure of our third party providers to perform services in a satisfactory manner may have a significant adverse effect on our business.
As a result of the restrictions described above, we will be limited as to how we conduct our business and we may be unable to raise additional debt or equity financing to take advantage of new business opportunities. The terms of any future indebtedness we may incur could include more restrictive covenants.
As a result of the restrictions described above, we may be limited as to how we conduct our business and we may be unable to raise additional debt or equity financing to take advantage of new business opportunities. The terms of any future indebtedness we may incur could include more restrictive covenants.
Such non-U.S. dollar-denominated debt may not necessarily correspond to the cash flow we generate in such currencies. We are subject to fluctuations in interest rates Any borrowings under the 2021 Revolving Facility will be subject to variable rates of interest and expose us to interest rate risk.
Such non-U.S. dollar-denominated debt may not necessarily correspond to the cash flow we generate in such currencies. 19 We are subject to fluctuations in interest rates Any borrowings under the 2021 Revolving Facility will be subject to variable rates of interest and expose us to interest rate risk.
We have in the past identified material weaknesses in our internal control over financial reporting, and if we are unable to maintain effective internal control over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock may decline We are required to maintain internal control over financial reporting and to report any material weaknesses in such internal control.
We have in the past identified material weaknesses in our internal control over financial reporting, and if we are unable to maintain effective internal control over financial reporting in the future, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock may decline We are required to maintain internal control over financial reporting and to report any material weaknesses in such internal control.
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.
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.
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.
It is also possible that we could face claims of joint employment from the independent professionals who 22 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.
We may face claims from others claiming ownership of open source software or patents reading on that software, rights to our intellectual property or breach of open source license terms, including a demand for release of material portions of our source code or otherwise seeking to enforce the terms of the applicable open source license.
We may face claims from others claiming ownership of open source software or patents reading on 25 that software, rights to our intellectual property or breach of open source license terms, including a demand for release of material portions of our source code or otherwise seeking to enforce the terms of the applicable open source license.
In addition, any failure of our solutions to operate effectively with these business applications could reduce the demand for our solutions and harm to our business and we may also be held responsible for obligations that arise from the actions or omissions of third parties.
In addition, any failure of our solutions to operate effectively with these 13 business applications could reduce the demand for our solutions and harm to our business and we may also be held responsible for obligations that arise from the actions or omissions of third parties.
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.
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 or intellectual property needs.
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.
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.
Further, existing tax laws, statutes, rules, regulations or ordinances could be interpreted differently, changed, modified, or repealed at any time. Any such enactment, interpretation, change, modification, or repeal could adversely affect us, possibly with retroactive effect.
Further, existing tax laws, statutes, rules, regulations or ordinances 20 could be interpreted differently, changed, modified, or repealed at any time. Any such enactment, interpretation, change, modification, or repeal could adversely affect us, possibly with retroactive effect.
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.
The quality and value of our services, customer care and customer experience, as well as the quality and accuracy of the services provided by 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.
The success of any new products or services or enhancements to existing products or services depends on several factors, including timely completion, competitive pricing, adequate quality testing, introduction, integration with existing products and services, and market acceptance.
The success of any new products or services or enhancements to existing products or services depends on several factors, including timely completion, competitive pricing, adequate quality testing, introduction, integration with existing products and services, and market awareness and acceptance.
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.
Other companies that focus on the online legal services market or business formations, including law firms that may elect to pursue the online legal services market, can and do directly compete with us.
Our 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.
Our 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 UPL, 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.
In the United States, federal, state and local governments have enacted or introduced comprehensive data privacy laws and regulations, including the California Consumer Privacy Act of 2018, or CCPA.
In the United States, federal, state and local governments have enacted or introduced comprehensive data privacy laws and regulations, including the California Consumer Privacy Act of 2018.
Accordingly, we may lose a corporate opportunity or suffer competitive harm, which could negatively impact our business, operating results, financial condition and future prospects.
Accordingly, we may lose a corporate opportunity or 28 suffer competitive harm, which could negatively impact our business, operating results, financial condition and future prospects.
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.
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, elevated inflation and interest rates and their respective impacts on consumer spending patterns, the success of existing small businesses and the formation of new small businesses.
At December 31, 2023, holders of approximately 65 million shares of our common stock, are entitled to rights pursuant to an investors’ rights agreement, subject to some conditions, to require us to file registration statements covering their shares or to include their shares in registration statements that we may file for ourselves or other stockholders.
At December 31, 2024, holders of approximately 65 million shares of our common stock, are entitled to rights pursuant to an investors’ rights agreement, subject to some conditions, to require us to file registration statements covering their shares or to include their shares in registration statements that we may file for ourselves or other stockholders.
Patent and Trademark Office, to process business formation documents, tax filings and intellectual property applications. These agencies have in the past and may in the future be unable or refuse to process submissions in a timely manner, including as a result of any government shutdowns, slowdowns or staffing shortages.
Patent and Trademark Office, to process business formation documents and related filings and intellectual property applications. These agencies have in the past and may in the future be unable or refuse to process submissions in a timely manner, including as a result of any government shutdowns, slowdowns or staffing shortages.
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.
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 on July 2, 2021, or the 2021 Revolving Facility, contains affirmative and negative covenants, indemnification provisions and events of default.
The 2021 Revolving Facility also contains a financial covenant that requires us to maintain a total net first lien leverage ratio of 4.50:1.00 on the last day of any fiscal quarter during which our 2021 Revolving Facility usage exceeds 35% of the 2021 Revolving Facility capacity.
The 2021 Revolving Facility also contains a financial covenant that requires us to maintain a total net first lien leverage ratio not to exceed 4.50:1.00 on the last day of any fiscal quarter during which our 2021 Revolving Facility usage exceeds 35% of the 2021 Revolving Facility capacity.
Declines in the overall number of business formations or the number of business formations on our platform have adversely affected, and may in the future adversely affect, our business, results of operations, financial condition or future prospects. To the extent the growth rate of new business formations declines, these impacts can be expected to intensify.
Declines in the overall number of U.S. business formations or the number of business formations on our platform have adversely affected, and may in the future adversely affect, our business, results of operations, financial condition or future prospects. To the extent the growth rate of new business formations declines, these impacts can be expected to intensify.
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.
On the other hand, some of our tax offerings and our intellectual property offerings are currently 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.
Although we remediated our material weaknesses and management concluded that our internal control over financial reporting was effective as of December 31, 2023, we cannot assure you that there will not be additional material weaknesses in our internal control over financial reporting in the future.
Although we remediated our material weaknesses and management concluded that our internal control over financial reporting was effective as of December 31, 2024, we cannot assure you that there will not be additional material weaknesses in our internal control over financial reporting in the future.
This policy, which results in a predominantly remote workforce, poses additional data security risks to our information technology systems and data, as more of our personnel work from home and utilize network connections outside our premises.
This policy, which results in a predominantly remote workforce, poses additional data security risks to our information technology systems and data, as our personnel work from home and utilize network connections outside our premises.
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.
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. Any failure or perceived failure by us to comply with applicable laws and regulations may subject us to regulatory inquiries, claims, suits and prosecutions.
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.
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 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.
Additionally, changes in regulations or the business practices of third parties could limit our ability and the ability of search engines and social media platforms, including Google and Meta Platforms, to collect data from users and engage in targeted advertising, making them less effective in disseminating our advertisements to our target customers.
Additionally, changes in regulations or the business practices of third parties have in the past and could in the future limit our ability and the ability of search engines and social media platforms, including Google and Meta Platforms, to collect data from users and engage in targeted advertising, making them less effective in disseminating our advertisements to our target customers.
You should not rely on the results of any given quarter as an indication of future performance. 9 We have a history of net losses, we anticipate increasing expenses in the future, and we may not be able to maintain profitability Since inception, we have incurred an accumulated deficit and may incur net losses in the foreseeable future.
You should not rely on the results of any given quarter as an indication of future performance. 9 We have a history of net losses and we may not be able to maintain profitability Since inception, we have incurred an accumulated deficit and may incur net losses in the foreseeable future.
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.
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; • our ability to effectively and successfully integrate the operations of Formation Nation into our existing business; • our ability to successfully implement our strategic execution priorities; • the operating and financial projections we may provide to the public, any changes in these projections or our failure to meet these projections; • 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; 26 • 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; • general macroeconomic, political, regulatory and market conditions, such as those related to recessionary fears, tariffs, inflation and/or elevated interest rates; and • 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.
If our executive officers, directors and affiliated stockholders acted together, they may be able to significantly influence all matters requiring stockholder approval, including the election and removal of directors and approval of any merger, consolidation or sale of all or substantially all of our assets.
If our executive officers, directors and affiliates acted together, they may be able to significantly influence matters requiring stockholder approval, including the election and removal of directors and approval of any merger, consolidation or sale of all or substantially all of our assets.
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.
Regulatory proceedings, consumer claims, false and misleading advertising claims, litigation, customer complaints or negative publicity through word-of-mouth, social media outlets, blogs, and other third party 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.
Our business depends substantially on our customers expanding their use of our platform, including converting our transactional customers to subscribers and our subscribers renewing their subscriptions with us For the past few years, a significant amount of our revenue has been derived from our subscriptions for small businesses and individuals. In 2023, approximately 62% of our revenue came from subscriptions.
Our business depends substantially on our customers expanding their use of our platform, including converting our transactional customers to subscribers and our subscribers renewing their subscriptions with us For the past few years, a significant amount of our revenue has been derived from our subscriptions for small businesses and individuals. In 2024, approximately 64% of our revenue came from subscriptions.
We face intense competition from law firms and solo attorneys, online legal document services, legal plans, secretaries of state, tax preparation companies and other service providers. The online legal solutions market is evolving rapidly and is becoming increasingly competitive.
We face intense competition from law firms, solo attorneys, online legal document services, legal plans, secretaries of state and other service providers. The online legal solutions market is evolving rapidly and is becoming increasingly competitive.
There have been significant new regulations and heightened focus by the government on many of these areas. As we expand our products and services and evolve our business models, we may become subject to additional government regulation or increased regulatory scrutiny.
In recent years, there have been significant new regulations and heightened focus by the government on many of these areas. In addition, as we expand our products and services and evolve our business models, we may become subject to additional government regulation or increased regulatory scrutiny.
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.
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.
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.
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 and attorneys to support our attorney assisted legal offerings, or if these attorneys 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 or other assisted legal solutions and, as a result, our business, revenue, results of operations and future prospects may be adversely affected.
Additionally, potential government regulation related to AI use and/or related ethics issues may expose us to legal liability and/or increase the burden and cost of research and development in this area, and failure to properly remediate AI usage or ethics issues may cause public confidence in AI to be undermined, which could slow adoption of AI in our solution.
Additionally, present and future government regulation related to AI use and/or related ethics issues may expose us to legal liability and/or increase the burden and cost of research and development in this area, and failure to properly remediate AI usage or ethics issues may cause public confidence in AI to be undermined, which could slow adoption of AI in our solutions.
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 fail to provide high-quality 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 the growth of our subscription business falls below the expectations of the public market, securities analysts or investors, the price of our common stock could also be harmed.
If the growth of our subscription business, including our subscription revenue growth rate, falls below the expectations of the public market, securities analysts or investors, the price of our common stock could also be harmed.
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 developed and may continue to develop competing online legal services.
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 UPL, compete with us offline and have developed and may continue to develop competing online legal services.
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.
For example, we currently partner with a variety of third-parties to provide our customers with tax solutions, website development, credit card and banking services, productivity tools and business insurance, among others. Our sales and customer experience depend on our ability to connect and integrate easily to such third party solutions.
If our financial and operating metrics are not accurate representations of our business, or if we discover material inaccuracies in our metrics, our reputation may be harmed, and our business, results of operations, financial condition and future prospects could be adversely affected.
If our financial and operating metrics are not accurate representations of our business, or if investors do not perceive our operating metrics to be accurate, or if we discover material inaccuracies in our metrics, our reputation may be harmed, and our business, results of operations, financial condition and future prospects could be adversely affected.
A security breach or other interruption could result in unauthorized, unlawful, or accidental acquisition, modification, destruction, loss, alteration, encryption, disclosure of, or access to our sensitive information. We may expend significant resources or modify our business activities to try to protect against security breaches.
A security breach or other interruption could result in unauthorized, unlawful, or accidental acquisition, modification, destruction, loss, alteration, encryption, disclosure of, or access to our sensitive information. We have in the past and may in the future expend significant resources or modify our business activities to try to protect against security breaches.
Additionally, future or past business transactions (such as acquisitions or integrations) could expose us to additional cybersecurity risks and vulnerabilities, as our systems could be negatively affected by vulnerabilities present in acquired or integrated entities’ systems and technologies. Any of the previously identified or similar threats could cause a security breach or other interruption.
Additionally, future or past business transactions, acquisitions or integrations, including our recent acquisition of Formation Nation, could expose us to additional cybersecurity risks and vulnerabilities, as our systems could be negatively affected by vulnerabilities present in acquired or integrated entities’ systems and technologies. Any of the previously identified or similar threats could cause a security breach or other interruption.
The failure or perceived failure of these attorneys and accountants to satisfy customer expectations could negatively impact our brand and reputation. 11 We are incorporating generative AI into some of our products, which may present both compliance risks and reputational risks We have incorporated and intend to continue incorporating a number of generative AI features into our products.
The failure or perceived failure of these third parties to satisfy customer expectations could negatively impact our brand and reputation. 11 We are incorporating generative AI into some of our offerings, which may present both compliance risks and reputational risks We have incorporated and intend to continue incorporating a number of generative AI features into our offerings.
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.
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 and third parties with whom we work are vulnerable to a variety of evolving threats.
At December 31, 2023, we had an accumulated deficit of $933.1 million. We will need to generate and sustain increased revenue levels in future periods in order to maintain or increase our level of profitability.
At December 31, 2024, we had an accumulated deficit of $1,069.3 million. We will need to generate and sustain increased revenue levels in future periods in order to maintain or increase our level of profitability.
These laws and regulations could also make it more difficult for us to convert our transactional customers to subscribers or attract new subscribers to grow our subscription services.
These laws and regulations to which we are subject could also make it more difficult for us to convert our transactional customers to subscribers or attract new subscribers to grow our subscription services.
Changes in corporate tax rates, the realization of net deferred tax assets, the taxation of foreign earnings or any future reform legislation, could potentially have a material impact on the value of our deferred tax assets, could result in significant one-time charges, and could increase our future tax expense.
Changes in corporate tax rates, the realization of net deferred tax assets, the taxation of foreign earnings and the deductibility of expenses, could potentially have a material impact on the value of our deferred tax assets, could result in significant one-time charges, and could increase our future tax expense.
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.
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: • our ability to successfully implement our updated strategic execution priorities; • the ongoing integration of the operations of Formation Nation, which we acquired in February 2025; • 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 any new or discontinued products, pricing changes, the bundling of certain product offerings and our testing of new product line-ups; • the mix of subscriptions and transactional products 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 or uncertainty with respect thereto, including economic conditions specifically affecting industries in which our customers operate; and • general geopolitical events and conditions, both domestically and internationally.
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.
Breaches and other types of security incidents of our data, networks or systems, or those of the third parties with whom we work, could negatively impact our ability to conduct our business, our brand and reputation, 23 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 are sensitive, personal and/or confidential.
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.
Our ability to use our NOL carryforwards may be limited 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.
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.
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 have a material adverse effect on our business, results of operations, financial condition and future prospects.
We have experienced security breaches (such as unauthorized access to customer information) for which we may have been or were legally required to notify individuals, customers, regulators, the media and others. Data breach notification disclosures are costly, time consuming, and could lead to adverse consequences.
We operate in an industry that is prone to cyberattacks. We have experienced security breaches (such as unauthorized access to customer information) for which we may have been or were legally required to notify individuals, customers, regulators, the media and others. Data breach notification disclosures are costly, time consuming, and could lead to adverse consequences.
However, subscriptions may be terminated at any time, and the rate at which we retain our subscribers may decline or fluctuate as a result of a number of factors, including subscribers’ satisfaction or dissatisfaction with our platform, the effectiveness of our customer support services, the quality and perceived quality of the services provided by our tax professionals and the independent attorneys who participate in our legal plan network, our pricing and the pricing of competing products or services, the lifecycle of our customers’ businesses and their evolving needs, and the effects of global economic conditions, regulatory changes and reductions in subscribers’ discretionary income and spending levels.
However, subscriptions may be terminated at any time, and the rate at which we retain our subscribers may decline or fluctuate as a result of a number of factors, including subscribers’ satisfaction or dissatisfaction with our platform, the effectiveness of our customer support services, the quality and perceived quality of the services we provide, our pricing and the pricing of competing products or services, the lifecycle of our customers’ businesses and their evolving needs, and the effects of global economic conditions, regulatory changes and reductions in subscribers’ discretionary income and spending levels.
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.
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 and we may be required to revise or cease reporting such metrics or figures.
As a result, we cannot accurately predict subscription renewal rates or the number of our existing or new customers that will subscribe to our subscription services, including whether customers will continue to subscribe at the same rate as they have historically.
As a result, we cannot accurately predict subscription renewal rates or the number of our existing or new customers that will subscribe to our subscription services, including whether customers will continue to subscribe at the same rate as they have historically. During 2024, we experienced a deceleration in our subscription revenue growth rate.
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.
If our subscription revenue growth rate does not improve or if we are unable 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.
If the assumptions regarding these uncertainties, which we use to plan our business, are incorrect or change in reaction to changes in our markets, our results of operations and financial condition could differ materially from our expectations, our business could suffer and the trading price of our stock may decline.
If the assumptions regarding the growth of our business are incorrect or change in reaction to changes in our markets, our results of operations and financial condition could differ materially from our expectations, our business could suffer and the trading price of our stock may decline.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeIn an effort designed to provide for the availability of critical data and systems, manage our material risks from cybersecurity threats, and protect against, detect, and respond to cybersecurity incidents, as such term is defined in Item 106(a) of Regulation S-K, we also undertake the below listed activities: • closely monitor emerging data protection laws and implement any necessary changes to our processes; • conduct annual security training for all our employees; • conduct annual cybersecurity management and incident training designed for certain employees such as those who handle sensitive data; • conduct phishing email simulations for personnel with access to corporate email systems in an effort to enhance awareness and responsiveness to such possible threats; • through policy, practice and contract (as applicable) require employees, as well as third-parties who provide services on our behalf, to treat customer information and data with care; • hold regular meetings of an internal multidisciplinary working group to discuss our cybersecurity incident preparedness; • run tabletop exercises to simulate a cybersecurity incident and use findings from such exercises in an effort to improve our processes and technologies; • maintain and regularly review and test a framework designed to help us identify, protect, detect, respond, and recover when there is an actual or potential cybersecurity incident; • carry information security risk insurance designed to mitigate potential losses arising from cybersecurity incidents.
Biggest changeTo help inform our cybersecurity risk identification, assessment and management, we also employ a range of tools and services, including network and endpoint monitoring, vulnerability assessments, periodic penetration testing, bug bounty program and tabletop exercises. 29 In an effort designed to provide for the availability of critical data and systems, manage our material risks from cybersecurity threats, and protect against, detect, and respond to cybersecurity incidents, as such term is defined in Item 106(a) of Regulation S-K, we also undertake the below listed activities: • closely monitor emerging data protection laws and implement any necessary changes to our processes; • conduct annual security training for all our employees; • conduct annual cybersecurity management and incident training designed for certain employees such as those who handle sensitive data; • conduct phishing email simulations for personnel with access to corporate email systems in an effort to enhance awareness and responsiveness to such possible threats; • periodically evaluate customer support interactions to help ensure compliance with security protocols and service standards; • through policy, practice and contract (as applicable) require employees, as well as third-parties who provide services on our behalf, to treat customer information and data with care; • hold regular meetings of an internal multidisciplinary working group to discuss our cybersecurity incident preparedness; • run tabletop exercises to simulate a cybersecurity incident and use findings from such exercises in an effort to improve our processes and technologies; • maintain and regularly review and test a framework designed to help us identify, protect, detect, respond, and recover when there is an actual or potential cybersecurity incident; • carry information security risk insurance designed to mitigate potential losses arising from cybersecurity incidents.
We perform diligence on certain service providers that have access to our systems, data or 30 facilities that house such systems or data. This diligence may include a review of the service providers’ internal and/or external security audits and certifications. Additionally, we may impose specific cybersecurity obligations on certain service providers.
We perform diligence on certain service providers that have access to our systems, data or facilities that house such systems or data. This diligence may include a review of the service providers’ internal and/or external security audits and certifications. Additionally, we may impose specific cybersecurity obligations on certain service providers.
For a description of the risks from cybersecurity threats that may materially affect the Company and how they may do so, see Item 1A, “Risk Factors” of this Annual Report on Form 10-K. Cybersecurity Governance Cybersecurity is an area of focus for our board of directors and management.
For a description of the risks from cybersecurity threats that may materially affect the Company and how they may do so, see Part I, Item 1A, “Risk Factors” of this Annual Report on Form 10-K. Cybersecurity Governance Cybersecurity is an area of focus for our board of directors and management.
Our enterprise risk management committee, a multidisciplinary committee that includes our Chief Financial Officer, Chief Operating Officer and Chief Technology Officer and is chaired by our General Counsel, collaborates with internal subject matter specialists in an effort to gather information for identifying, assessing and managing material cybersecurity risks, such as information related to their severity, likelihood of occurrence and potential mitigation strategies.
Our enterprise risk management committee, a multidisciplinary committee that includes our Chief Financial & Operating Officer and Chief Revenue Officer and is chaired by our Chief Legal Officer, collaborates with internal subject matter specialists in an effort to gather information for identifying, assessing and managing material cybersecurity risks, such as information related to their severity, likelihood of occurrence and potential mitigation strategies.
At least quarterly, our Chief Information Officer and Senior Director, Information Security, meet with our enterprise risk management committee, together with the rest of our senior leadership team, to present and discuss a cybersecurity risk assessment. Key cybersecurity risks are then incorporated into our enterprise risk management framework.
At least quarterly, our Chief Information Officer and Senior Director, Information Security, meet with our enterprise risk management committee to present and discuss a cybersecurity risk assessment. Key cybersecurity risks are then incorporated into our enterprise risk management framework.
Our audit committee also receives an annual information security report, which contains information regarding, among other things, the data security processes and procedures that have been implemented across company business units. Our cybersecurity risk management and strategy processes, which are discussed in greater detail above, are led by our Chief Information Officer and Senior Director, Information Security.
Our 30 audit committee also receives an annual information security report, which contains information regarding, among other things, the data security processes and procedures that have been implemented across company business units. In addition, our full board of directors is presented with updates on our cybersecurity threat risk management and strategy processes at least annually.
Removed
To help inform our cybersecurity risk identification, assessment and management, we also employ a range of tools and services, including network and endpoint monitoring, vulnerability assessments, and periodic penetration testing and tabletop exercises.
Added
Our cybersecurity risk management and strategy processes, which are discussed in greater detail above, are led by our Chief Information Officer and Senior Director, Information Security.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeItem 2. Properties Our corporate headquarters are located in Glendale, California, under a lease expiring in 2024. We currently own approximately 209,000 square feet of space in Austin, Texas, which is our operating headquarters.
Biggest changeItem 2. Properties Our corporate headquarters are located in Mountain View, California, under a lease expiring in 2029. We currently own approximately 209,000 square feet of space in Austin, Texas, which is our operating headquarters.

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 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
Biggest changeFor more information on our material pending legal proceedings and governmental inquiries, see Note 12 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 changeThe 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.
Biggest changeAt December 31, 2024, approximately $50.0 million remained available for future repurchases of our common stock under the stock repurchase program. The stock repurchase program authorizes us to repurchase our common stock through any manner, including open market transactions, accelerated stock repurchase agreements, or in privately negotiated transactions with third parties, and in such amounts as management deems appropriate.
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.
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, 2024, relative to the cumulative total returns of the Nasdaq Composite Index and Nasdaq CTA Internet Index.
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.
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 may also from time to time enter into Rule 10b5-1 plans to facilitate repurchases of our shares of common stock under this authorization.
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 stock repurchase 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 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
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 December 31, 2024 LegalZoom.com, Inc. $ 100.00 $ 42.46 $ 20.45 $ 29.85 $ 19.84 Nasdaq Composite $ 100.00 $ 108.20 $ 73.00 $ 105.58 $ 136.81 Nasdaq CTA Internet $ 100.00 $ 84.20 $ 44.15 $ 71.27 $ 92.64 Item 6. [Reserved] 33
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 repurchase activity during the three months ended December 31, 2024 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, 2024 through October 31, 2024 358,706 $ 6.41 358,706 $ 9,986,329 November 1, 2024 through November 30, 2024 — — — $ 49,986,329 December 1, 2024 through December 31, 2024 — — — $ 49,986,329 Total 358,706 $ 6.41 358,706 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.
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.
Purchases of Equity Securities In October 2023, our board of directors approved a stock repurchase program, or the stock repurchase program, authorizing us to repurchase up to $100.0 million of our common stock, with no fixed expiration.
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.
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 14, 2025, there were 112 holders of record of our common stock.
Removed
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 May 2024, our board of directors approved a $75.0 million increase in the stock repurchase program, bringing the aggregate amount authorized to $175.00 million. In November 2024, our board of directors approved an additional $40.0 million increase in the stock repurchase program, bringing the aggregate amount authorized to $215.0 million.

Item 7. Management's Discussion & Analysis

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

114 edited+18 added−33 removed101 unchanged
Biggest changeGeneral and administrative Year Ended December 31, 2023 2022 $ change % change (in thousands, except percentages) General and administrative $ 106,352 $ 116,057 $ (9,705) (8 %) General and administrative expenses for the year ended December 31, 2023 decreased primarily due to a $14.1 million decrease in stock-based compensation, partially offset by a $2.7 million increase in severance and related termination benefits costs primarily related to a reduction in headcount in our U.S. workforce. 42 Impairment of long-lived assets Year Ended December 31, 2023 2022 $ change % change (in thousands, except percentages) Impairment of long-lived assets $ — $ 248 $ (248) (100 %) In 2022, we recorded non-cash charges related to the impairment of certain customer relationship assets.
Biggest changeTechnology and development Year Ended December 31, 2024 2023 $ change % change (in thousands, except percentages) Technology and development $ 89,584 $ 83,181 $ 6,403 8 % Technology and development expenses for the year ended December 31, 2024 increased primarily due to an increase in payroll and related benefits largely due to increased technology and development headcount during the year ended December 31, 2024 . 41 General and administrative Year Ended December 31, 2024 2023 $ change % change (in thousands, except percentages) General and administrative $ 108,939 $ 106,352 $ 2,587 2 % General and administrative expenses for the year ended December 31, 2024 increased primarily due to a $1.4 million increase in severance and related termination benefits costs primarily related to the reduction of our global workforce during the year ended December 31, 2024 , and a $1.3 million increase in stock-based compensation.
Number of subscription units We define the number of subscription units in a given period as the paid subscriptions at the end of such period, including those that are not yet 60 days past their subscription order dates. Refunds, or partial refunds, may be issued under certain circumstances pursuant to the terms of our customer satisfaction guarantee.
Number of subscription units We define the number of subscription units in a given period as the number of paid subscriptions at the end of such period, including those that are not yet 60 days past their subscription order dates. Refunds, or partial refunds, may be issued under certain circumstances pursuant to the terms of our customer satisfaction guarantee.
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.
Adjusted EBITDA and Adjusted EBITDA Margin We define Adjusted EBITDA as net income (loss) adjusted to exclude interest expense, interest income, provision for (benefit from) income taxes, depreciation and amortization, other expense (income), net, stock-based compensation, impairment of goodwill, long-lived and other assets, restructuring expenses, legal expenses, transaction-related expenses and certain non-recurring income and expenses from time to time.
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.
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.
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.
In general, under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, or the Code, if a corporation undergoes an “ownership change,” generally defined as a greater than 50% change, by value, in its equity ownership by certain stockholders over a three-year period, the corporation’s ability to use its pre-change NOLs and other pre-change tax attributes, such as research tax credits, to offset its post-change income or taxes may be limited.
In general, under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, or the Code, if a corporation undergoes an “ownership change,” generally defined 36 as a greater than 50% change, by value, in its equity ownership by certain stockholders over a three-year period, the corporation’s ability to use its pre-change NOLs and other pre-change tax attributes, such as research tax credits, to offset its post-change income or taxes may be limited.
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 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 — — Restricted stock units .
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.
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 at maturity on July 1, 2026.
We have elected to treat stock-based payment awards with graded vesting schedules and time-based service conditions as a single award and recognize stock-based compensation on a straight-line basis, net of estimated forfeitures, over the requisite service period. Awards with performance or market conditions are recognized using graded vesting. Options .
We have elected to treat stock-based payment awards with graded vesting schedules and time-based service conditions as a single award and recognize stock-based compensation on a straight-line basis, net of estimated forfeitures, over the requisite service period. Awards with performance or market conditions are recognized using graded vesting.
Therefore, the participating independent law firms in our legal plans control the service to the customer and have the primary service obligation to provide attorney consultations to our customers, for which we pay the law firms a monthly fee. For these arrangements, we recognize revenue on a net basis as an agent.
Therefore, the participating independent law firms in our legal plans control the service to the customer and have the primary service obligation to provide attorney consultations to our customers, for which we pay the law firms a monthly fee. 49 For these arrangements, we recognize revenue on a net basis as an agent.
We are presenting these non-GAAP measures to assist investors in seeing our financial performance using a management view and because we believe that these measures provide an additional tool for investors to use in comparing our core financial performance over multiple periods with other companies in our industry.
We are presenting these non-GAAP 45 measures to assist investors in seeing our financial performance using a management view and because we believe that these measures provide an additional tool for investors to use in comparing our core financial performance over multiple periods with other companies in our industry.
At contract inception, we assess the services promised in our contracts with customers and identify performance obligations for each promise to transfer to the customer a service or bundle of services that is distinct. The identification of distinct performance obligations within our packages may require significant judgment.
At contract inception, we assess the services promised in our contracts with customers and identify performance obligations for each promise 48 to transfer to the customer a service or bundle of services that is distinct. The identification of distinct performance obligations within our packages may require significant judgment.
We consider ARPU to be an important metric because it helps to illustrate our ability to provide and monetize higher value subscriptions. In addition, when viewed together with subscription units, ARPU provides insight into the impact that higher-value subscriptions have on our ability to grow our subscription units.
We consider ARPU to be an important metric because it helps to illustrate our ability to provide and monetize higher value subscriptions. In addition, when viewed 38 together with subscription units, ARPU provides insight into the impact that higher-value subscriptions have on our ability to grow our subscription units.
Net cash provided by operating activities Our largest source of operating cash is cash collections from our customers for our transaction and subscription services. Our primary uses of cash in operating activities are for our fulfillment, production and customer care costs, employee salaries and benefits, sales and marketing expenses and third-party consulting expenses.
Net cash provided by operating activities Our largest source of operating cash is cash collections from our customers for our transaction products and subscription services. Our primary uses of cash in operating activities are for our fulfillment, production and customer care costs, employee salaries and benefits, sales and marketing expenses and third party consulting expenses.
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.
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.
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.
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. 51 • Common stock valuation.
Net cash provided by operating activities is impacted by our net income (loss) adjusted for certain non-cash items, including depreciation and amortization expense, stock-based compensation and impairments of long-lived assets, as well as the effect of changes in operating assets and liabilities.
Net cash provided by operating activities is impacted by our net income adjusted for certain non-cash items, including depreciation and amortization expense, stock-based compensation and impairments of long-lived assets, as well as the effect of changes in operating assets and liabilities.
See the section titled “—Critical Accounting Estimates—Revenue Recognition” for a description of the accounting policies related to revenue recognition, including arrangements that contain multiple deliverables. Cost of revenue Cost of revenue includes all costs of providing and fulfilling our services.
See the section titled “—Critical Accounting Estimates—Revenue Recognition” below for a description of the accounting policies related to revenue recognition, including arrangements that contain multiple deliverables. Cost of revenue Cost of revenue includes all costs of providing and fulfilling our services.
Income taxes We account for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in our consolidated financial statements.
Income taxes We account for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been 50 recognized in our consolidated financial statements.
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.
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.
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.
See Note 18 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.
There are a number of limitations related to the use of Adjusted EBITDA rather than net income (loss), which is the 47 nearest GAAP equivalent of Adjusted EBITDA.
There are a number of limitations related to the use of Adjusted EBITDA rather than net income (loss), which is the nearest GAAP equivalent of Adjusted EBITDA.
Our general and administrative expenses may fluctuate as a percentage of our revenue from period-to-period due to seasonality and the timing and extent of these expenses. 36 Interest expense Interest expense consists primarily of amortization of debt issuance costs related to our Amended and Restated Credit and Guaranty Agreement, or 2021 Revolving Facility.
However, our general and administrative expenses may fluctuate as a percentage of our revenue from period-to-period due to seasonality and the timing and extent of these expenses. Interest expense Interest expense consists primarily of amortization of debt issuance costs related to our Amended and Restated Credit and Guaranty Agreement, or 2021 Revolving Facility.
The determination of the likelihood of loss or the range of loss requires significant management judgment. We expense legal costs for defending legal proceedings as incurred. See Note 13 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further information.
The determination of the likelihood of loss or the range of loss requires significant management judgment. We expense legal costs for defending legal proceedings as incurred. See Note 12 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further information.
In 2023, business formations represented the largest share of our total transaction orders. Business formations act as an entrance point for many customers to the LegalZoom ecosystem, where they then often purchase a mix of transaction and subscription offerings alongside and after the initial formation transaction.
In 2024, business formations represented the largest share of our total transaction orders. Business formations act as an entrance point for many customers to the LegalZoom ecosystem, where they then often purchase a mix of transaction and subscription offerings alongside and after the initial formation transaction.
At December 31, 2023, the interest rate applicable to the 2021 Revolving Facility was subject to a 1.0% floor and was at a rate equal to the greatest of: (i) the administrative agent’s prime rate; (ii) the federal funds effective rate plus 1/2 of 1.0%; and (iii) the secured overnight financing rate, or SOFR, plus a 0.10% credit spread adjustment to the SOFR benchmark, or Adjusted Term SOFR, plus 1.0%; provided that if the Adjusted Term SOFR is less than zero, the Adjusted Term SOFR shall be deemed to be zero.
At December 31, 2024, the interest rate applicable to the 2021 Revolving Facility was subject to a 1.0% floor and was at a rate equal to the greatest of: (i) the administrative agent’s prime rate; (ii) the federal funds effective rate plus 1/2 of 1.0%; and (iii) the secured overnight financing rate, or SOFR, plus a 0.10% credit spread adjustment to the SOFR benchmark, or Adjusted Term SOFR, plus 1.00%; provided that if the Adjusted Term SOFR is less than zero, the Adjusted Term SOFR shall be deemed to be zero.
The determination of stock-based compensation is inherently uncertain and subjective and involves the application of valuation models and assumptions requiring the use of judgment. If we had made different assumptions, our stock-based compensation expense, and our net income (loss) for 2023 and 2022 may have been materially different.
The determination of stock-based compensation is inherently uncertain and subjective and involves the application of valuation models and assumptions requiring the use of judgment. If we had made different assumptions, our stock-based compensation expense, and our net income (loss) for 2024, 2023 and 2022 may have been materially different. Options .
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.
For our goodwill impairment test performed in the fourth quarter of 2024 and 2023, 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 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.
For additional information regarding our stock repurchase programs, refer to Note 13 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K. 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.
We consider the number of transactions to be an important metric considering that our customers generally begin their LegalZoom journey with a transaction, creating the foundation for generating subsequent subscription and partner revenue.
We consider the number of transactions to be an important metric considering that our customers generally begin their LegalZoom journey with a transaction, creating the foundation for generating subsequent subscription revenue.
Annual small business retention rate includes both monthly and annual subscription units and reflects all subscription unit attrition, including as a result of actual business failures of certain of our customers. Our annual small business retention rate as of December 31, 2023 was approximately 63%.
Annual small business retention rate includes both monthly and annual subscription units and reflects all subscription unit attrition, including as a result of actual business failures of certain of our customers. Our annual small business retention rate as of December 31, 2024 was approximately 63%.
While we continue to actively monitor the impacts of the evolving macroeconomic environment on all aspects of our business, future negative or decelerating impacts from factors such as inflation, higher interest rates, regulatory obstacles or changes in laws (including changes in tax laws and regulations) remain uncertain. • Our share of business formations .
While we continue to actively monitor the impacts of the evolving macroeconomic environment on all aspects of our business, future negative or decelerating impacts from factors such as inflation, tariffs, higher interest rates, regulatory obstacles or changes in laws and regulations remain uncertain. • Our share of business formations .
We are also required to pay customary letter of credit fees and agency fees.
We are also required to pay 43 customary letter of credit fees and agency fees.
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.
For other services provided by third parties, including deed transfer, accounting, business data protection, revenue is recognized net of fees payable to third-parties. For partner revenue, we receive a fee for the referral of our customer to the partner or we retain a portion of the fee paid by the customer and share the remainder with the partner.
Small business subscription units represent our subscriptions targeted at our small business customers and include subscriptions for our registered agent and compliance services, LZ Tax, our small business legal advisory plan and subscriptions acquired through our purchase of Earth Class Mail and Revvsales, and exclude subscriptions from our enterprise customers, our operations in the U.K. and our consumer legal advisory plan.
Small business subscription units represent our subscriptions targeted at our small business customers and include subscriptions for our registered agent and compliance services, our tax solutions, our small business legal advisory plan and subscriptions acquired through our purchase of Earth Class Mail Inc. and Revvsales Inc., and exclude subscriptions from our enterprise customers, our operations in the U.K. and our consumer legal advisory plan.
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.
Forfeitures are estimated based on our historical experience and future expectations. If any of the assumptions used in the Black-Scholes option pricing model and the Monte Carlo simulation model change significantly, stock-based compensation for future awards may differ materially compared with the awards granted previously.
As our business grows, we expect our capital expenditures to continue to increase. In 2023, net cash used in investing activities was $31.6 million, resulting primarily from purchase of property and equipment, including capitalized internal-use software.
As our business grows, we expect our capital expenditures to continue to increase. In 2024, net cash used in investing activities was $35.7 million, resulting primarily from purchase of property and equipment, including capitalized internal-use software. In 2023, net cash used in investing activities was $31.6 million, resulting primarily from purchase of property and equipment, including capitalized internal-use software.
At December 31, 2023, we had no borrowings outstanding and $150.0 million was available for use under our 2021 Revolving Facility.
At December 31, 2024, we had no borrowings outstanding and $150.0 million was available for use under our 2021 Revolving Facility.
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.
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.
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.
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.
The 2021 Revolving Facility requires compliance with a total net first lien leverage ratio of 4.50 to 1.00, or the Financial Covenant.
The 2021 Revolving Facility requires compliance with a total net first lien leverage ratio not to exceed 4.50 to 1.00, or the Financial Covenant.
ARPU as of December 31, 2023 was up 4% sequentially compared to September 30, 2023. Annual small business retention rate We define annual small business retention rate as the percentage of small business subscription units active as of the last day of the quarter one year ago that were still active subscriptions 12 months later.
ARPU as of December 31, 2024 was flat sequentially compared to September 30, 2024. Annual small business retention rate We define annual small business retention rate as the percentage of small business subscription units active as of the last day of the quarter one year ago that were still active subscriptions 12 months later.
As a result, our operating results depend on the continuation of new business formations in the U.S. and even more so, on our ability to increase our share of these formations.
As a result, our operating results depend on the continuation of new business formations in the U.S. and even more so, on our ability to increase our share of these formations. • Ability to enhance customer lifetime value .
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.
Subscription revenue —Subscription revenue is generated primarily from subscriptions to our registered agent, compliance packages, attorney advice, legal forms, tax and accounting, virtual mail and e-signature services, and software-as-a-service, or SaaS, accounting solution subscriptions and SaaS subscriptions in the U.K. We generally recognize revenue from our subscriptions ratably over the subscription term.
We expect annual retention rate to fluctuate as we continue to test new products, subscription term lengths and price points and seek to optimize our product offerings across our lineup in connection with our “freemium” strategy.
We expect annual retention rate to fluctuate as we continue to test new products, subscription term lengths and price points and seek to optimize our product offerings across our lineup.
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.
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.
Adverse changes in general macroeconomic, political, regulatory and market conditions can negatively impact consumer spending patterns, the success of existing small businesses and the formation of new small businesses.
Adverse changes in, or uncertainty with respect to, general macroeconomic, political, regulatory and market conditions can negatively impact consumer spending patterns, the success of existing small businesses and the formation of new small businesses.
The increase in filing fees was primarily driven by the increase in business formations during the year ended December 31, 2023 compared to the year ended December 31, 2022 .
The decrease in filing fees was primarily driven by the decrease in business formations during the year ended December 31, 2024 compared to the year ended December 31, 2023 .
The total fees collected by us for our services include, as applicable, expedited services fees, government filing fees and shipping fees. Subscription services are generally paid monthly or annually in advance of the subscription period except for SaaS services in the U.K., which are invoiced monthly in arrears. Amounts collected in advance of revenue recognition are recorded in deferred revenue.
The total fees collected by us for our services include, as applicable, expedited services fees, government filing fees and shipping fees. Subscription services are generally paid monthly or annually in advance of the subscription period except for SaaS services in the U.K. and virtual mail subscriptions, which are invoiced monthly in arrears.
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.
Income taxes Our provision for income taxes consists of current and deferred federal, state and foreign income taxes. At December 31, 2024, we had federal net operating loss, or NOL, carryforwards of $16.6 million, which will begin to expire in 2036.
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.
These assumptions, 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.
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.
The below table sets forth the average order value for the years ended December 31, 2024 and 2023: Year Ended December 31, 2024 2023 Average order value $ 219 $ 238 Average order value decreased by 8% during the year ended December 31, 2024 compared to the year ended December 31, 2023.
Our cash and cash equivalents increased by $36.6 million from December 31, 2022 to December 31, 2023, primarily as a result of cash provided by operating activities, partially offset by purchases of property and equipment and stock repurchases during the year.
Our cash and cash equivalents decreased by $83.7 million from December 31, 2023 to December 31, 2024, primarily as a result of purchases of property and equipment and stock repurchases, partially offset by cash provided by operating activities during the year.
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.
In 2024, net cash used in financing activities was $183.3 million, primarily for the repurchase of common stock under our stock repurchase program. In 2023, net cash used in financing activities was $56.2 million, primarily for the repurchase of common stock under our 2022 stock repurchase program.
While there may be a general correlation between annual small business retention rate and our ability to increase customer lifetime value and the growth of our customer base, we do not view it as a predictor of future revenue given the varying needs of a small business during its lifecycle and the varying use cases of the products underlying our subscription units. 39 Results of Operations The following table sets forth our consolidated statement of operations data for each of the periods indicated.
While there may be a general correlation between annual small business retention rate and our ability to increase customer lifetime value and the growth of our customer base, we do not view it as a predictor of future revenue given the varying needs of a small business during its lifecycle and the varying use cases of the products underlying our subscription units.
Interest expense Year Ended December 31, 2023 2022 $ change % change (in thousands, except percentages) Interest expense $ 493 $ 260 $ 233 90 % Interest expense consists primarily of amortization of debt issuance costs related to our 2021 Revolving Facility.
Interest expense Year Ended December 31, 2024 2023 $ change % change (in thousands, except percentages) Interest expense $ 446 $ 493 $ (47) (10 %) Interest expense consists primarily of amortization of debt issuance costs related to our 2021 Revolving Facility.
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.
Other income (expense), net Year Ended December 31, 2024 2023 $ change % change (in thousands, except percentages) Other income (expense), net $ 98 $ 1,621 $ (1,523) (94 %) The change in other income (expense), net, between 2024 and 2023 was primarily due to changes in foreign currency movements related to our intercompany loans which were denominated in British Pound Sterling, or GBP.
Our material cash requirements include the below contractual and other obligations: Other Commitments We have non-cancelable agreements with various vendors, which require us to pay $46.5 million over a four year period, of which $32.8 million remains to be paid as of December 31, 2023.
Our material cash requirements include the below contractual and other obligations: Commitments We have non-cancelable agreements with various vendors, which require us to pay $36.4 million over a three-year period, of which $25.2 million remains to be paid as of December 31, 2024.
Our ability to further integrate experts into our LegalZoom ecosystem and to increase the consumption of our expert offerings by new and existing customers is key to our future success. Key Components of our Results of Operations Revenue We generate revenue from the sources identified below.
The extent to which we are able to integrate experts into our LegalZoom ecosystem and increase the consumption of our expert offerings by new and existing customers will impact our future results of operations. Key Components of our Results of Operations Revenue We generate revenue from the sources identified below.
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.
At December 31, 2024, our principal sources of liquidity were cash and cash equivalents of $142.1 million, which consisted of cash on deposit with banks and money market funds, of which approximately $3.3 million related to our foreign subsidiaries.
(2) For 2023, certain other non-recurring expenses included costs incurred by us in conjunction with secondary offerings of shares of our common stock by a selling stockholder in September 2023 and November 2023. For 2022, certain other non-recurring expenses included costs related to the departure of a member of management.
(2) Certain non-recurring expenses included costs incurred by us in conjunction with secondary offerings of shares of our common stock by a selling stockholder in September 2023 and November 2023.
The increase in net cash provided by operating activities resulted from a $48.9 million increase in net income after adjusting for stock-based compensation and other non-cash items and a $1.5 million favorable change in our operating assets and liabilities.
The increase in net cash provided by operating activities resulted from a $24.1 million increase in net income after adjusting for stock-based compensation and other non-cash items, partially offset by a $12.8 million unfavorable change in our operating assets and liabilities.
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.
Subscription revenue was 64% and 62% of total revenue for the year ended December 31, 2024 and 2023, respectively, and transaction revenue was 36% and 38% of total revenue for the year ended December 31, 2024 and 2023, respectively.
For 2022, restructuring expenses related to a phased severance event to reduce the U.S. headcount in June and August 2022. Restructuring expenses include salary and benefits for the impacted employees and are included in general and administrative expenses in the accompanying consolidated statements of operations appearing elsewhere in this Annual Report on Form 10-K.
For 2023, restructuring costs related to the reduction of our U.S. and U.K. headcount. Restructuring expenses include salary and benefits for the impacted employees and are included in general and administrative expenses in the accompanying consolidated statements of operations appearing elsewhere in this Annual Report on Form 10-K.
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.
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 expect our general and administrative expenses to decrease as a percentage of our revenue over the longer term.
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.
In 2024, cash provided by operating activities was $135.6 million resulting from a net income of $30.0 million, adjusted for stock-based compensation and other non-cash expenses of $104.9 million and net cash flows provided by changes in operating assets and liabilities of $0.8 million.
We consider the number of business formations to be an important metric considering that it is typically the first product small business customers purchase on our platform, creating the foundation for additional purchases of transaction and subscription offerings throughout the lifecycle of their business, deepening our relationship with our customers.
We consider the number of business formations to be an important metric considering that it is typically the first product or service small business customers purchase on our platform, creating the foundation for additional products and subsequent subscription revenue as customers adopt additional products and services throughout the lifecycle of their business.
Our business formation transactions outpaced the 8% increase in overall U.S. business formations during the year ended December 31, 2023 compared to the year ended December 31, 2022, based on a review of U.S. Census data revealing new applications for EINs.
Overall U.S. business formations declined 5% during the year ended December 31, 2024, compared to the year ended December 31, 2023, based on a review of U.S. Census data revealing new applications for EINs.
We expect our technology and development expenses to remain relatively consistent or increase as a percentage of our revenue over the long-term, although our technology and development expenses may fluctuate as a percentage of our revenue from period-to-period due to seasonality and the timing and extent of these expenses.
Excluding stock-based compensation, we expect our technology and development expenses to remain relatively consistent as a percentage of our revenue for the foreseeable future, although our technology and development expenses may fluctuate as a percentage of our revenue from period-to-period due to seasonality and the timing and extent of these expenses.
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.
At December 31, 2024, we had state NOL carryforwards of $28.8 million, which will begin to expire in 2025 and we had foreign NOL carryforwards of $35.1 million, which can be carried forward indefinitely and are not subject to expiration.
Lease Obligations At December 31, 2023, we had various non-cancelable operating leases for office space and equipment, which expire between January 2024 and November 2029. At December 31, 2023, we had total minimum operating lease maturities of $10.1 million, $2.4 million of which mature within twelve months.
Lease Obligations At December 31, 2024, we had various non-cancelable operating leases for office space, which expire between June 2025 and February 2033. At December 31, 2024, we had total minimum operating lease maturities of $8.8 million, $1.9 million of which mature within twelve months.
The following table presents a reconciliation of net cash provided by operating activities, the most directly comparable GAAP measure, to free cash flow: Year Ended December 31, 2023 2022 (in thousands) Reconciliation of Net Cash Provided by Operating Activities to Free Cash Flow Net cash provided by operating activities $ 124,308 $ 73,837 Purchase of property and equipment (31,593) (22,098) Free cash flow $ 92,715 $ 51,739 The increase in our free cash flow of $41.0 million for the year ended December 31, 2023 was primarily due to a $50.5 million increase in net cash provided by operating activities.
The following table presents a reconciliation of net cash provided by operating activities, the most directly comparable GAAP measure, to free cash flow: Year Ended December 31, 2024 2023 (in thousands) Reconciliation of Net Cash Provided by Operating Activities to Free Cash Flow Net cash provided by operating activities $ 135,639 $ 124,308 Purchase of property and equipment (35,696) (31,593) Free cash flow $99,943 $ 92,715 The increase in our free cash flow of $7.2 million for the year ended December 31, 2024 was primarily due to an $11.3 million increase in net cash provided by operating activities.
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.
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.
Operating expenses Our operating expenses consist primarily of sales and marketing, technology and development, general and administrative expenses, and to a lesser extent, impairments of goodwill, long-lived assets and other assets.
In addition, our gross margin could fluctuate from period to period due to fulfillment rates and seasonality. 35 Operating expenses Our operating expenses consist primarily of sales and marketing, technology and development, general and administrative expenses, and to a lesser extent, impairments of goodwill, long-lived assets and other assets.
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.
The $0.8 million of net cash flows provided by changes in our operating assets and liabilities included a $6.6 million increase in deferred revenue largely due to the growth of our subscription units, which are predominantly billed in advance of our revenue recognition, and a net $0.5 million decrease in accounts receivable, prepaid expenses and other current assets, 44 partially offset by a $6.9 million decrease in accounts payable, accrued expenses and other liabilities, and operating lease liabilities due to the timing of our payments In 2023, cash provided by operating activities was $124.3 million resulting from a net income of $14.0 million, adjusted for stock-based compensation and other non-cash expenses of $96.8 million and net cash flows provided by changes in operating assets and liabilities of $13.6 million.
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 .
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.
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.
Gross profit Year Ended December 31, 2024 2023 $ change % change (in thousands, except percentages) Gross profit $ 441,788 $ 421,464 $ 20,324 5 % The increase in gross profit was driven by a $21.2 million increase in revenue partially offset by a $0.8 million increase in cost of revenue as discussed above.
Services we offer can generally either be purchased on a stand-alone basis or bundled together as part of a package of services. Accordingly, a significant number of our arrangements include multiple performance obligations, such as the preparation of legal documents combined with related document revision, document storage, registered agent services, and free trial periods of our legal plans.
Accordingly, a significant number of our arrangements include multiple performance obligations, such as the preparation of legal documents combined with related document revision, document storage, registered agent services, and free trial periods of our subscriptions.
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.
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 2024 and recent accounting announcements that have not yet been required to be implemented and may be applicable to our future operations. 47 Critical Accounting Estimates The preparation of financial statements in conformity with GAAP requires estimates and assumptions that affect the reported amounts of assets and liabilities, revenue and expenses, and related disclosures of contingent liabilities in the consolidated financial statements and accompanying notes.
The expected term of options granted is estimated based upon actual historical exercise and post-vesting cancellations, adjusted for expected future exercise behavior. • Risk-free interest rate . The risk-free interest rate assumption is based upon observed interest rates on the U.S. government securities appropriate for the expected term of our stock options. • Expected volatility .
The risk-free interest rate assumption is based upon observed interest rates on the U.S. government securities appropriate for the expected term of our stock options and restricted stock units with market condition. • Expected volatility .

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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 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.
Biggest changeHowever, 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, expenses, and intercompany balances denominated in currencies other than our functional currency, the U.S. Dollar, principally GBP.
We have experienced and will continue to experience fluctuations in our net (loss) income as a result of transaction gains and losses related to translating certain cash balances, trade accounts receivable and payable balances and intercompany loans that are denominated in currencies other than the U.S. Dollar.
We have experienced and will continue to experience fluctuations in our net income as a result of transaction gains and losses related to translating certain cash balances, trade accounts receivable and payable balances and intercompany loans that are denominated in currencies other than the U.S. Dollar.
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
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. 53
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.
Interest rate fluctuation risk At December 31, 2024 and 2023, we had cash and cash equivalents of $142.1 million and $225.7 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 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.
We had no outstanding debt subject to interest rate risk as of December 31, 2024 and 2023, and, as a result, we do not expect to be exposed to fluctuations in interest rates for the foreseeable future.
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.
We recognized foreign currency transaction loss of $0.6 million in the year ended December 31, 2024. A 10% adverse change in foreign exchange rates on foreign-denominated accounts for the year ended December 31, 2024, including intercompany balances, would have resulted in a $0.5 million increase in our reported foreign currency loss for the year ended December 31, 2024.

Other LZ 10-K year-over-year comparisons