UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

___________________________________

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the three months ended September 30, 2023

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from   to

Commission file number 001-35618

LegalZoom.com, Inc.

(Exact name of registrant as specified in its charter)

___________________________________

Delaware	95-4752856
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
101 North Brand Boulevard, 11th Floor, Glendale, California 91203
(Address of Principal Executive Offices, including Zip code)

(323) 962-8600

Registrant's telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.001 per share	LZ	The Nasdaq Global Select Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes ☒ No  ☐ 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).                 Yes ☒ No  ☐ 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer	☒	Accelerated filer	o
Non-accelerated filer	o	Smaller reporting company	o
		Emerging growth company	o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes   ☐   No  ☒

As of November 2, 2023, the registrant had outstanding 187,934,053 shares of common stock, $0.001 par value per share, outstanding.

1

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q may be forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “targets,” “projects,” “contemplates,” “believes,” “estimates,” “forecasts,” “predicts,” “potential” or “continue” or the negative of these terms or other similar expressions. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements regarding our future results of operations and financial position, industry and business trends, stock compensation, business strategy, plans, market growth and our objectives for future operations.

The forward-looking statements in this Quarterly Report on Form 10-Q are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. Forward-looking statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements, including but not limited to those factors discussed below under “Summary of Risk Factors” and in Part II, Item 1A, “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q, as well as those in our subsequent filings with the Securities and Exchange Commission, or SEC. The forward-looking statements in this Quarterly Report on Form 10-Q are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.

You should read this Quarterly Report on Form 10-Q and the documents that we reference herein and have filed as exhibits to this Quarterly Report on Form 10-Q with the understanding that our actual future results, levels of activity, performance and achievements may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained in this Quarterly Report on Form 10-Q, whether as a result of any new information, future events or otherwise.

Summary of Risk Factors

Our business involves significant risks and you are urged to carefully consider the risks discussed under Part II, Item 1A, “Risk Factors” in this Quarterly Report on Form 10-Q prior to making an investment in us. These risks include, but are not limited to, the following:

•Our recent growth may not be indicative of our future growth and, if we continue to grow, we may not be able to manage our growth effectively.

•Our business primarily depends on business formations and fluctuations or declines in the number of business formations may adversely affect our business.

•Our business depends substantially on converting our transactional customers to subscribers and our subscribers renewing their subscriptions with us and expanding their use of our platform.

•Our future quarterly results of operations may fluctuate significantly due to a wide range of factors, which makes our future results difficult to predict.

•We have a history of net losses, we anticipate increasing expenses in the future, and we may not be able to maintain profitability.

•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.

•If we do not continue to innovate and provide a platform that is useful to our customers, we may not remain competitive, and our results of operations could suffer.

•The legal solutions market is highly competitive and our failure to effectively compete successfully could materially and adversely affect our business, results of operations, financial condition and future prospects.

•Our business depends on our brand and reputation, which could be adversely affected by numerous factors.

•If our marketing efforts are unsuccessful, our ability to attract new customers or retain existing customers may be adversely affected, which may adversely affect our business, results of operations, financial condition and future prospects.

•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 business and success depend in part on our strategic relationships with third parties, including our partner ecosystem, and our business would be harmed if we fail to maintain or expand these relationships.

•We have identified material weaknesses in our internal control over financial reporting and, if we fail to remediate these material weaknesses, we may not be able to accurately or timely report our financial condition or results of operations, which may adversely affect investor confidence and the price of our common stock.

•The recent restatement of certain of our prior quarterly financial statements may affect investor confidence and raise reputational issues and may subject us to additional risks and uncertainties, including increased professional costs and the increased possibility of legal proceedings and regulatory inquiries.

•Our business and services subject us to complex and evolving U.S. and foreign laws and regulations regarding the unauthorized practice of law, legal document processing, legal plans, tax preparation and other related matters, and any failure or perceived failure by us to comply with applicable laws and regulations may subject us to regulatory inquiries, claims, suits, and prosecutions, as well as changes in our service offerings, potential liabilities, or additional costs.

Note Regarding Third-Party Information

This Quarterly Report on Form 10-Q includes market data and certain other statistical information and estimates that are based on reports and other publications from industry analysts, market research firms, and other independent sources, as well as management's own good faith estimates and analyses. We believe these third-party reports to be reputable, but have not independently verified the underlying data sources, methodologies, or assumptions. The reports and other publications referenced are generally available to the public and were not commissioned by LegalZoom.com, Inc. Information that is based on estimates, forecasts, projections, market research, or similar methodologies is inherently subject to uncertainties, and actual events or circumstances may differ materially from events and circumstances reflected in this information.

TABLE OF CONTENTS

		Page
Part I	FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Financial Statements (Unaudited)	4
	Condensed Consolidated Balance Sheets	4
	Condensed Consolidated Statements of Operations	5
	Condensed Consolidated Statements of Comprehensive Income (Loss)	6
	Condensed Consolidated Statements of Stockholders’ Equity	7
	Condensed Consolidated Statements of Cash Flows	9
	Notes to Condensed Consolidated Financial Statements	10
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	26
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	45
Item 4.	Controls and Procedures	46
Part II	OTHER INFORMATION
Item 1.	Legal Proceedings	48
Item 1A.	Risk Factors	48
Item 2.	Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities	71
Item 3.	Defaults Upon Senior Securities	71
Item 4.	Mine Safety Disclosures	71
Item 5.	Other Information	71
Item 6.	Exhibits	72
Signatures		73

3

Part I

Item 1. Condensed Consolidated Financial Statements (Unaudited)

LegalZoom.com, Inc.

Unaudited Condensed Consolidated Balance Sheets

(In thousands, except par values)

	September 30, 2023		December 31, 2022
Assets
Current assets:
Cash and cash equivalents	$	212,147	$	189,082
Accounts receivable, net of allowances of $5,703 and $4,730, respectively	14,417		13,177
Prepaid expenses and other current assets	17,494		16,699
Current assets held for sale	22,722		22,722
Total current assets	266,780		241,680
Property and equipment, net	43,763		30,823
Goodwill	63,318		63,229
Intangible assets, net	15,026		18,900
Operating lease right-of-use assets	9,199		11,148
Deferred income taxes	18,570		29,380
Available-for-sale debt securities	1,237		995
Other assets	8,620		9,240
Total assets	$	426,513	$	405,395
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	32,311	$	25,312
Accrued expenses and other current liabilities	55,375		57,373
Deferred revenue	176,867		164,200
Operating lease liabilities	2,269		2,317
Total current liabilities	266,822		249,202
Operating lease liabilities, non-current	7,346		8,958
Deferred revenue	560		892
Other liabilities	4,443		3,968
Total liabilities	279,171		263,020
Commitments and contingencies (Note 8)
Stockholders’ equity:
Preferred stock, $0.001 par value; 100,000 shares authorized at September 30, 2023 and December 31, 2022, none issued or outstanding at September 30, 2023 and December 31, 2022	—		—
Common stock, $0.001 par value; 1,000,000 shares authorized; 187,776 shares and 190,822 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively	187		190
Additional paid-in capital	1,086,222		1,032,550
Accumulated deficit	(940,550)		(891,862)
Accumulated other comprehensive income	1,483		1,497
Total stockholders’ equity	147,342		142,375
Total liabilities and stockholders’ equity	$	426,513	$	405,395

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

4

LegalZoom.com, Inc.

Unaudited Condensed Consolidated Statements of Operations

(In thousands, except per share amounts)

	Three Months Ended September 30,					Nine Months Ended September 30,
		2023		2022		2023		2022
				(Restated)				(Restated)
Revenue		$	167,274	$	155,277	$	502,064	$	473,353
Cost of revenue		59,213		50,314		183,356		163,647
Gross profit		108,061		104,963		318,708		309,706
Operating expenses:
Sales and marketing		51,071		67,369		164,746		215,964
Technology and development		21,491		17,457		61,074		51,613
General and administrative		25,243		30,103		78,683		88,560
Impairment of long-lived and other assets		—		237		—		237
Total operating expenses		97,805		115,166		304,503		356,374
Income (loss) from operations		10,256		(10,203)		14,205		(46,668)
Interest income, net		2,623		535		6,357		511
Other (expense) income, net		(882)		(2,536)		436		(6,102)
Income (loss) before income taxes		11,997		(12,204)		20,998		(52,259)
Provision for (benefit from) income taxes		4,463		(223)		14,427		(1,782)
Net income (loss)		$	7,534	$	(11,981)	$	6,571	$	(50,477)
Net income (loss) per share attributable to common stockholders—basic:		$	0.04	$	(0.06)	$	0.03	$	(0.26)
Net income (loss) per share attributable to common stockholders—diluted:		$	0.04	$	(0.06)	$	0.03	$	(0.26)
Weighted-average shares used to compute net income (loss) per share attributable to common stockholders—basic:		191,033		194,906		191,222		196,984
Weighted-average shares used to compute net income (loss) per share attributable to common stockholders—diluted:		197,454		194,906		194,953		196,984

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

5

LegalZoom.com, Inc.

Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss)

(In thousands)

	Three Months Ended September 30,					Nine Months Ended September 30,
		2023		2022		2023		2022
				(Restated)				(Restated)
Net income (loss)		$	7,534	$	(11,981)	$	6,571	$	(50,477)
Other comprehensive income (loss), net of tax:
Change in foreign currency translation adjustments		980		2,644		(187)		6,255
Change in available-for-sale debt securities due to unrealized gains		173		—		173		38
Total other comprehensive income (loss)		1,153		2,644		(14)		6,293
Total comprehensive income (loss)		$	8,687	$	(9,337)	$	6,557	$	(44,184)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

6

LegalZoom.com, Inc.

Unaudited Condensed Consolidated Statements of Stockholders’ Equity

(In thousands)

	Common Stock			Additional Paid-In Capital		Accumulated Deficit		Accumulated Other Comprehensive Income		Total Stockholders’ Equity
	Shares	Amount
Balance at December 31, 2022	190,822	$	190	$	1,032,550	$	(891,862)	$	1,497	$	142,375
Issuance of common stock upon exercise of stock options	28	—		22		—		—		22
Issuance of common stock upon vesting of restricted stock awards	1,164	1		(1)		—		—		—
Stock-based compensation	—	—		17,378		—		—		17,378
Repurchased common stock	(771)	(1)		—		(6,767)		—		(6,768)
Other comprehensive loss	—	—		—		—		(631)		(631)
Net loss	—	—		—		(2,358)		—		(2,358)
Balance at March 31, 2023	191,244	$	190	$	1,049,948	$	(900,987)	$	866	$	150,017
Issuance of common stock upon exercise of stock options and ESPP	362	—		2,951		—		—		2,951
Issuance of common stock upon vesting of restricted stock awards	661	1		(1)		—		—		—
Shares surrendered for settlement of minimum statutory tax withholdings	(232)	—		(2,469)		—		—		(2,469)
Stock-based compensation	—	—		20,031		—		—		20,031
Repurchased common stock	(378)	—		—		(3,041)		—		(3,041)
Other comprehensive loss	—	—		—		—		(536)		(536)
Net income	—	—		—		1,395		—		1,395
Balance at June 30, 2023	191,657	$	191	$	1,070,461	$	(902,633)	$	330	$	168,349
Issuance of common stock upon exercise of stock options	326	—		3,011		—		—		3,011
Issuance of common stock upon vesting of restricted stock awards	824	1		(1)		—		—		—
Shares surrendered for settlement of minimum statutory tax withholdings	(312)	—		(3,884)		—		—		(3,884)
Stock-based compensation	—	—		16,635		—		—		16,635
Repurchased common stock	(4,719)	(5)		—		(45,159)		—		(45,164)
Stock repurchase excise tax	—	—		—		(292)		—		(292)
Other comprehensive income	—	—		—		—		1,153		1,153
Net income	—	—		—		7,534		—		7,534
Balance at September 30, 2023	187,776	$	187	$	1,086,222	$	(940,550)	$	1,483	$	147,342

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

7

LegalZoom.com, Inc.

Unaudited Condensed Consolidated Statements of Stockholders’ Equity (continued)

(In thousands)

	Common Stock			Additional Paid-In Capital		Accumulated Deficit		Accumulated Other Comprehensive (Loss) Income		Total Stockholders’ Equity
	Shares	Amount
Balance at December 31, 2021	198,084	$	198	$	947,160	$	(748,012)	$	(1,795)	$	197,551
Issuance of common stock upon exercise of stock options	202	—		225		—		—		225
Issuance of common stock upon vesting of restricted stock awards	392	—		—		—		—		—
Stock-based compensation	—	—		22,346		—		—		22,346
Repurchased common stock	(79)	—		—		(1,102)		—		(1,102)
Other comprehensive income	—	—		—		—		1,440		1,440
Net loss	—	—		—		(25,753)		—		(25,753)
Balance at March 31, 2022 (Restated)	198,599	$	198	$	969,731	$	(774,867)	$	(355)	$	194,707
Issuance of common stock upon exercise of stock options and ESPP	174	—		1,262		—		—		1,262
Issuance of common stock upon vesting of restricted stock awards	268	1		(1)		—		—		—
Shares surrendered for settlement of minimum statutory tax withholdings	(1)	—		(30)		—		—		(30)
Stock-based compensation	—	—		23,596		—		—		23,596
Repurchased common stock	(2,961)	(3)		—		(38,050)		—		(38,053)
Other comprehensive income	—	—		—		—		2,209		2,209
Net loss	—	—		—		(12,743)		—		(12,743)
Balance at June 30, 2022 (Restated)	196,079	$	196	$	994,558	$	(825,660)	$	1,854	$	170,948
Issuance of common stock upon exercise of stock options	46	—		195		—		—		195
Issuance of common stock upon vesting of restricted stock awards	350	—		—		—		—		—
Shares surrendered for settlement of minimum statutory tax withholdings	(2)	—		(11)		—		—		(11)
Stock-based compensation	—	—		20,326		—		—		20,326
Repurchased common stock	(2,625)	(3)		—		(24,873)		—		(24,876)
Other comprehensive income	—	—		—		—		2,644		2,644
Net loss	—	—		—		(11,981)		—		(11,981)
Balance at September 30, 2022 (Restated)	193,848	$	193	$	1,015,068	$	(862,514)	$	4,498	$	157,245

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

8

LegalZoom.com, Inc.

Unaudited Condensed Consolidated Statements of Cash Flows

(In thousands)

	Nine Months Ended September 30,
	2023		2022
			(Restated)
Cash flows from operating activities
Net income (loss)	$	6,571	$	(50,477)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	18,061		16,187
Amortization of right-of-use assets	2,011		1,290
Amortization of debt issuance costs	170		170
Impairment of other equity security	—		170
Impairment of long-lived assets	—		237
Stock-based compensation	51,005		64,490
Deferred income taxes	10,818		(2,637)
Change in fair value of contingent consideration	(836)		(150)
Unrealized foreign exchange (gain) loss	(179)		5,958
Other	(39)		(1)
Changes in operating assets and liabilities, net of effects of business combination:
Accounts receivable	(946)		(3,024)
Prepaid expenses and other current assets	(785)		(296)
Other assets	345		(863)
Accounts payable	5,992		(6,417)
Accrued expenses and other liabilities	(992)		7,585
Operating lease liabilities	(1,723)		(1,599)
Income tax payable	16		22
Deferred revenue	12,325		21,370
Net cash provided by operating activities	101,814		52,015
Cash flows from investing activities
Acquisition, net of cash acquired	—		(2,532)
Proceeds from acquisition working capital adjustment	—		307
Purchase of property and equipment	(23,220)		(16,441)
Other	38		—
Net cash used in investing activities	(23,182)		(18,666)
Cash flows from financing activities
Repayment of capital lease obligations	(27)		—
Payment of contingent consideration	—		(600)
Repurchase of common stock	(54,873)		(61,736)
Shares surrendered for settlement of minimum statutory tax withholding	(6,353)		(41)
Proceeds from issuance of stock under employee stock plans	5,690		1,682
Net cash used in financing activities	(55,563)		(60,695)
Effect of exchange rate changes on cash and cash equivalents	(4)		(139)
Net increase (decrease) in cash and cash equivalents	23,065		(27,485)
Cash and cash equivalents, at beginning of the period	189,082		239,297
Cash and cash equivalents, at end of the period	$	212,147	$	211,812
Non-cash operating, investing, and financing activities:
Accrued stock repurchase excise tax	$	292	$	—
Receivable from issuance of stock under employee stock plans	295		—
Purchase of property and equipment included in accounts payable and accrued expenses and other current liabilities	1,548		1,124
Capitalized stock-based compensation	3,039		1,779
Right-of-use assets under operating leases	—		13,165
Contingent consideration for acquired business	—		850

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

9

LegalZoom.com, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

Note 1. Description of the Business

LegalZoom.com, Inc. was initially formed as a California corporation in 1999 and reincorporated as a Delaware corporation in 2007. LegalZoom.com, Inc. and its wholly owned subsidiaries are referred to herein as the “Company”, “we,” “us,” or “our”.

We are a provider of services that meet the legal needs of small businesses and consumers. Our position at business inception allows us to become a trusted business advisor, supporting the evolving needs of a new business across its lifecycle. Along with business formation, our offerings include ongoing compliance and tax advice and filings, business licenses, accounting, virtual mailbox and e-signature solutions, trademark filings, and estate plans. Additionally, we have insights into our customers and leverage our offerings as a channel to introduce small businesses to leading brands in our partner ecosystem, solving even more of their business needs.

Note 2. Restatement

As previously disclosed on February 17 and February 27, 2023, in connection with the preparation of our consolidated financial statements for the year ended December 31, 2022, we identified tax errors within our previously issued unaudited condensed consolidated financial statements as of and for the quarterly and year to date periods ended March 31, 2022, or Q1 2022, June 30, 2022, or Q2 2022, and September 30, 2022, or Q3 2022, as included in our previously filed Quarterly Reports on Form 10-Q. Management concluded that such errors resulted in the previously issued Q1 2022, Q2 2022 and Q3 2022 unaudited condensed consolidated financial statements, including the respective year-to-date periods, being materially misstated and therefore requiring restatement.

Specifically, within our income tax provision there was an error relating to the identification of named executive officers subject to limitation on the deductibility of executive compensation under Internal Revenue Code Section 162(m), or Section 162(m). The Section 162(m) error had the impact of a $1.2 million overstatement of the benefit for income taxes and a $2.8 million overstatement of the provision for income taxes for the three and nine months ended September 30, 2022, respectively, and the associated impacts on deferred tax assets.

In connection with the tax errors noted above, we are also correcting other previously identified immaterial errors related to: i) $1.2 million of a late customer acquisition marketing, or CAM credit, that should have been recognized as a reduction to sales and marketing expense in Q2 2022, and which was initially corrected for as an out of period adjustment in Q3 2022; and ii) $0.9 million of revenue and $0.3 million of associated costs of revenue that should have been recognized in Q3 2022.

Description of Restatement of Financial Information

In the following tables, we have presented a reconciliation of our unaudited condensed consolidated financial information as originally reported, to the as restated amounts as of and for the three and nine months ended September 30, 2022.

The table below sets forth the unaudited condensed consolidated balance sheet information, including the balances as reported, adjustments and the balances as restated (in thousands, except per share amounts):

	September 30, 2022
	As Reported	Adjustments	As Restated
Assets
Current assets:
Cash and cash equivalents	211,812	—	211,812
Accounts receivable, net of allowances of $4,419	13,578	122	13,700
Prepaid expenses and other current assets	16,624	(264)	16,360
Current assets held for sale	22,722	—	22,722
Total current assets	264,736	(142)	264,594
Property and equipment, net	29,012	—	29,012
Goodwill	63,184	—	63,184
Intangible assets, net	13,552	—	13,552

10

	September 30, 2022
	As Reported		Adjustments		As Restated
Operating lease right-of-use assets	11,796		—		11,796
Deferred income taxes	27,473		2,803		30,276
Available-for-sale debt securities	1,183		—		1,183
Other assets	12,877		(1)		12,876
Total assets	423,813		2,660		426,473
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	25,805		—		25,805
Accrued expenses and other current liabilities	59,916		(21)		59,895
Deferred revenue	168,705		(738)		167,967
Operating lease liabilities	2,054		—		2,054
Total current liabilities	256,480		(759)		255,721
Operating lease liabilities, non-current	9,568		—		9,568
Deferred revenue	1,013		—		1,013
Other liabilities	2,926		—		2,926
Total liabilities	269,987		(759)		269,228
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.001 par value; 100,000 shares authorized; 0 issued or outstanding at September 30, 2022	—		—		—
Common stock, $0.001 par value; 1,000,000 shares authorized; 193,848 shares issued and outstanding at September 30, 2022	193		—		193
Additional paid-in capital	1,015,068		—		1,015,068
Accumulated deficit	(865,933)		3,419		(862,514)
Accumulated other comprehensive income	4,498		—		4,498
Total stockholders’ equity	153,826		3,419		157,245
Total liabilities and stockholders’ equity	$	423,813	$	2,660	$	426,473

The table below sets forth the unaudited condensed consolidated statements of operations, including the balances as reported, adjustments and the as restated balances (in thousands, except per share amounts):

	Three Months Ended					Nine Months Ended
	September 30, 2022					September 30, 2022
	As Reported		Adjustments		As Restated	As reported		Adjustments		As restated
Revenue	$	154,416	$	861	$155,277	$	472,492	$	861	$473,353
Cost of revenue	50,050		264		50,314	163,383		264		163,647
Gross profit	104,366		597		104,963	309,109		597		309,706
Operating expenses:
Sales and marketing	66,145		1,224		67,369	215,964		—		215,964
Technology and development	17,457		—		17,457	51,613		—		51,613
General and administrative	30,103		—		30,103	88,560		—		88,560
Impairment of long-lived and other assets	237		—		237	237		—		237
Total operating expenses	113,942		1,224		115,166	356,374		—		356,374
Loss from operations	(9,576)		(627)		(10,203)	(47,265)		597		(46,668)
Interest income, net	535		—		535	511		—		511
Other expense, net	(2,536)		—		(2,536)	(6,102)		—		(6,102)
Loss before income taxes	(11,577)		(627)		(12,204)	(52,856)		597		(52,259)
(Benefit from) provision for income taxes	(1,469)		1,246		(223)	1,040		(2,822)		(1,782)

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	Three Months Ended						Nine Months Ended
	September 30, 2022						September 30, 2022
	As Reported		Adjustments		As Restated		As reported		Adjustments		As restated
Net loss	$	(10,108)	$	(1,873)	$	(11,981)	$	(53,896)	$	3,419	$	(50,477)
Net loss per share attributable to common stockholders—basic and diluted:	$	(0.05)	$	—	$	(0.06)	$	(0.27)	$	—	$	(0.26)
Weighted-average shares used to compute net loss per share attributable to common stockholders—basic and diluted:	194,906		—		194,906		196,984		—		196,984

The table below sets forth the unaudited condensed consolidated statements of comprehensive loss, including balances as reported, adjustments and balances as restated amounts (in thousands):

	Three Months Ended						Nine Months Ended
	September 30, 2022						September 30, 2022
	As Reported		Adjustments		As Restated		As reported		Adjustments		As restated
Net Loss	$	(10,108)	$	(1,873)	$	(11,981)	$	(53,896)	$	3,419	$	(50,477)
Total other comprehensive income	2,644		—		2,644		6,293		—		6,293
Total comprehensive loss	$	(7,464)	$	(1,873)	$	(9,337)	$	(47,603)	$	3,419	$	(44,184)

The table below sets forth the unaudited condensed consolidated statements of stockholders’ equity, including balances as reported, adjustments and balances as restated amounts (in thousands):

	Common Stock			Additional Paid-In Capital		Accumulated Deficit		Accumulated Other Comprehensive Income		Total Stockholders’ Equity
	Shares	Amount
Balance at September 30, 2022 as reported	193,848	$	193	$	1,015,068	$	(865,933)	$	4,498	$	153,826
Cumulative adjustments to net loss	—	—		—		3,419		—		3,419
Balance at September 30, 2022 as restated	193,848	$	193	$	1,015,068	$	(862,514)	$	4,498	$	157,245

The table below sets forth the unaudited condensed consolidated statement of cash flows, including balances as reported, adjustments and balances as restated amounts (in thousands):

	Nine Months Ended September 30, 2022
	As Reported		Adjustments		As Restated
Cash flows from operating activities
Net loss	$	(53,896)	$	3,419	$	(50,477)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	16,187		—		16,187
Amortization of right-of-use assets	1,290		—		1,290
Amortization of debt issuance costs	170		—		170
Impairment of other equity security	170		—		170
Impairment of long-lived assets	237		—		237
Stock-based compensation	64,490		—		64,490
Deferred income taxes	166		(2,803)		(2,637)
Change in fair value of contingent consideration	(150)		—		(150)
Unrealized foreign exchange loss	5,958		—		5,958
Other	(1)		—		(1)

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	Nine Months Ended September 30, 2022
	As Reported		Adjustments		As Restated
Changes in operating assets and liabilities, net of effects of business combination:
Accounts receivable	(2,902)		(122)		(3,024)
Prepaid expenses and other current assets	(560)		264		(296)
Other assets	(864)		1		(863)
Accounts payable	(6,417)		—		(6,417)
Accrued expenses and other liabilities	7,606		(21)		7,585
Operating lease liabilities	(1,599)		—		(1,599)
Income tax payable	22		—		22
Deferred revenue	22,108		(738)		21,370
Net cash provided by operating activities	52,015		—		52,015
Cash flows from investing activities
Acquisition, net of cash acquired	(2,532)		—		(2,532)
Proceeds from acquisition working capital adjustment	307		—		307
Purchase of property and equipment	(16,441)		—		(16,441)
Net cash used in investing activities	(18,666)		—		(18,666)
Cash flows from financing activities
Payment of contingent consideration	(600)		—		(600)
Repurchase of common stock	(61,736)		—		(61,736)
Shares surrendered for settlement of minimum statutory tax withholding	(41)		—		(41)
Proceeds from issuance of stock under employee stock plans	1,682		—		1,682
Net cash used in financing activities	(60,695)		—		(60,695)
Effect of exchange rate changes on cash and cash equivalents	(139)		—		(139)
Net decrease in cash and cash equivalents, and restricted cash equivalents	(27,485)		—		(27,485)
Cash and cash equivalents, and restricted cash equivalents, at beginning of the period	239,297		—		239,297
Cash and cash equivalents at end of the period	$	211,812	$	—	$	211,812

Note 3. Summary of Significant Accounting Policies

A summary of the significant accounting policies we follow in the preparation of the accompanying unaudited condensed consolidated financial statements is set forth below.

Basis of Presentation and Consolidation

The accompanying unaudited condensed consolidated financial statements are presented in accordance with accounting principles generally accepted in the United States of America, or GAAP, for interim financial information. Certain information and disclosures normally included in consolidated financial statements prepared in accordance with GAAP have been condensed or omitted. Accordingly, these unaudited condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and the related notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2022. The December 31, 2022 unaudited condensed consolidated balance sheet was derived from our audited consolidated financial statements as of that date. Our unaudited condensed consolidated financial statements include, in the opinion of management, all adjustments, consisting of normal and recurring items, necessary for the fair statement of the unaudited condensed consolidated financial statements. All intercompany balances and transactions have been eliminated in consolidation. There have been no significant changes in accounting policies during the three and nine months ended September 30, 2023 from those disclosed in the annual consolidated financial statements for the year ended December 31, 2022 and the related notes, except as noted below in the Recently Adopted Accounting Pronouncements.

The operating results for the three and nine months ended September 30, 2023 are not necessarily indicative of the results expected for the full year ending December 31, 2023.

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Use of Estimates

The preparation of financial statements in conformity with GAAP requires estimates and assumptions that affect the reported amounts of assets and liabilities, revenue and expenses, and related disclosures of contingent liabilities in the consolidated financial statements and accompanying notes. Estimates are used for, but not limited to, revenue recognition, sales allowances and expected credit loss allowances, available-for-sale debt securities, other equity securities, recoverability of long-lived assets and goodwill, income taxes, commitments and contingencies, and stock-based compensation. Actual results could differ materially from those estimates. On an ongoing basis, we evaluate the estimates compared to historical experience and other factors including the current economic and regulatory environment, which form the basis for our judgments about the carrying value of assets and liabilities.

Significant Accounting Policies

Significant accounting policies are detailed in "Note 2. Summary of Significant Accounting Policies" of our Annual Report on Form 10-K for the year ended December 31, 2022. On January 1, 2022, we adopted Financial Accounting Standards Board, or FASB, Accounting Standards Codification No. 842, Leases, or ASC 842, with application to leases that existed as of the adoption date. On January 1, 2022, we also adopted Accounting Standard Update, or ASU, No. 2016-13, Financial Instruments—Credit losses: Measurement of Credit Losses on Financial Instruments (Topic 326), or ASU 2016-13, using the modified-retrospective transition method for assets measured at amortized cost other than available-for-sale debt securities, which was adopted using a prospective transition approach. The adoption of ASU 2016-13 did not have a material impact on our unaudited condensed consolidated financial statements.

Segment and Geographic Information

Our Chief Executive Officer, as the Chief Operating Decision Maker, organizes our company, manages resource allocations, and measures performance on the basis of one operating segment.

Revenue outside of the U.S., based on the location of the customer, represented less than 1% of our unaudited consolidated revenue for the three and nine months ended September 30, 2023 and 2022. Our property and equipment and right-of-use, or ROU, assets located outside of the U.S. were immaterial as of September 30, 2023 and December 31, 2022.

Foreign Currency

The British Pound Sterling is the functional currency for our foreign subsidiaries domiciled in the U.K. The financial statements of these foreign subsidiaries are translated to U.S. Dollars using period-end rates of exchange for assets and liabilities, historical rates of exchange for equity, and average rates of exchange for the period for revenue and expenses. Translation gains and losses are recorded in accumulated other comprehensive income (loss) as a component of our unaudited condensed consolidated statements of stockholders’ equity. We recognized foreign currency transaction loss of $0.9 million and gain of $0.2 million during the three and nine months ended September 30, 2023, respectively, and losses of $2.6 million and $6.0 million during the three and nine months ended September 30, 2022, respectively.

Concentrations of Credit Risk

We maintain accounts in U.S. and U.K. banks with funds insured by the Federal Deposit Insurance Corporation, or FDIC, and the Financial Services Compensation Scheme, or FSCS, respectively. Our bank accounts may, at times, exceed the FDIC and FSCS insured limits. Financial instruments that potentially subject us to credit risk consist principally of cash and cash equivalents. Management believes that we are not exposed to any significant credit risk related to our cash or cash equivalents and have not experienced any losses in such accounts.

Due to a large and diverse customer base, no individual customer represented more than 10% of total revenue for the three and nine months ended September 30, 2023 and 2022. At September 30, 2023 and December 31, 2022, there were no customers with an outstanding balance of 10% or more of our total accounts receivable balance.

Accounts Receivable and Allowance for Credit Losses

Our accounts receivable balances, which are not collateralized and do not bear interest, primarily consist of amounts receivable from our credit and debit card merchant processors, customer receivables, and fees due from third-parties for services purchased by our customers from such third-parties. We reduce our accounts receivable for sales allowances and a reserve for potentially uncollectible receivables. We determine the amount of the allowances based on various factors, including historical collection experience, the age of the accounts receivable balances, credit quality of our customers, current economic conditions, reasonable and supportable forecasts of future economic conditions, and other factors that may affect our ability to

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collect from customers. Account balances are charged off against the allowance when we determine that it is not probable we will collect the receivable. At September 30, 2023 and December 31, 2022 the allowance for credit losses was not material.

Leases

On January 1, 2022, we recorded operating lease ROU assets of $5.7 million and operating lease liabilities of $5.9 million. The difference between the leased assets and lease liabilities represents the existing deferred rent liabilities balance at adoption of ASC 842, resulting from historical straight-line recognition of operating leases, which was reclassified upon adoption to reduce the measurement of the leased assets. The adoption of the standard did not have a material impact on our stockholders’ equity, results of operations, or cash flows.

The standard provides several optional practical expedients in transition. We elected the package of practical expedients permitted under the transition guidance, which eliminates the requirement to reassess whether a contract contains a lease and lease classification.

We have also made accounting policy elections, including a short-term lease exception policy, permitting us to not apply the recognition requirements of this standard to short-term leases, which are leases with expected terms of 12 months or less, and an accounting policy to account for lease and certain non-lease components as a single component for certain classes of assets. Additionally, we used the portfolio approach when applying the discount rate selected based on the dollar amount and term of the obligation.

We determine whether an arrangement is a lease, or contains a lease, at inception if we are able to identify an asset and can conclude we have the right to control the identified asset for a period of time. Leases are included in operating lease ROU assets and operating lease liabilities in the accompanying unaudited condensed consolidated balance sheets. Leases with an initial term of 12 months or less are not recorded on the condensed consolidated balance sheets.

ROU assets represent our right to control an underlying asset for the lease term, and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and operating lease liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. As our leases do not provide an implicit rate, we use the incremental borrowing rate based on the information available at the commencement date in determining the discount rate used to present value lease payments. We used the incremental borrowing rate on January 1, 2022 for operating leases that commenced on or prior to that date. The incremental borrowing rate used is estimated based on what we would be required to pay for a collateralized loan over a similar term. Our leases typically do not include any residual value guarantees, bargain purchase options, or asset retirement obligations.

Our lease terms are only for periods in which we have enforceable rights. A lease is no longer enforceable when both the lessee and the lessor each have the right to terminate the lease without permission from the other party with no more than an insignificant penalty. Our lease terms are impacted by options to extend or terminate the lease when it is reasonably certain that we will exercise that option. We generally use the base, non-cancelable lease term when determining the lease assets and liabilities.

Our agreements may contain variable lease payments. We include variable lease payments that depend on an index or a rate and exclude those which depend on facts or circumstances occurring after the commencement date, other than the passage of time.

Revenue Recognition

We derive our revenue from the following sources:

Transaction revenue—Transaction revenue is primarily generated from our customized legal document services upon fulfillment of these services. Transaction revenue includes filing fees and is net of cancellations, promotional discounts, sales allowances and credit reserves.

Subscription revenue—Subscription revenue is generated primarily from subscriptions to our registered agent, compliance packages, attorney advice, legal forms, tax, virtual mail and e-signature services, and software-as-a-service, or SaaS, accounting solution subscriptions and SaaS subscriptions in the U.K. We generally recognize revenue from our subscriptions ratably over the subscription term. Subscription terms generally range from thirty days to one year. Subscription revenue includes the transaction price allocated to bundled free trials for our subscription services and is net of promotional discounts, cancellations, sales allowances and credit reserves and payments to third-party service providers such as legal plan law firms.

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

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concessions, charge-backs, sales credits and refunds, which are accounted for as variable consideration when estimating the amount of revenue to recognize.

Partner revenue—Partner revenue consists primarily of one-time or recurring fees earned from third-party providers from leads generated to such providers through our online legal platform. Revenue is recognized when the related performance-based criteria have been met. We assess whether performance criteria have been met on a cost-per-click or cost-per-action basis.

Revenue from our transaction, subscription and partner revenue is as follows (in thousands):

	Three Months Ended September 30,					Nine Months Ended September 30,
		2023		2022		2023		2022
				(Restated)				(Restated)
Transaction		$	57,351	$	58,411	$	180,084	$	189,027
Subscription		104,457		91,397		303,967		267,069
Partner		5,466		5,469		18,013		17,257
Total revenue		$	167,274	$	155,277	$	502,064	$	473,353

Recent Accounting Pronouncements

Prior to December 31, 2022, we qualified as an emerging growth company, or EGC, and were allowed by the Jumpstart Our Business Startups Act to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements were made applicable to private companies. We became a large accelerated filer and no longer qualified as an EGC at the conclusion of the fiscal year ended December 31, 2022. The adoption dates discussed below for recently adopted accounting pronouncements reflect the transition periods required as a result of becoming a large accelerated filer as of December 31, 2022. We will be required to adopt all future new or revised accounting pronouncements in accordance with public company timelines.

Recently Adopted Accounting Pronouncements

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit losses: Measurement of Credit Losses on Financial Instruments (Topic 326), which revises the impairment model to utilize an expected loss methodology in place of the currently used incurred loss methodology, which results in more timely recognition of losses on financial instruments, including, but not limited to, available-for-sale debt securities and accounts receivable. We adopted ASU 2016-13 effective January 1, 2022. The adoption of this accounting standard did not have a material impact on our unaudited condensed consolidated financial statements.

In June 2022, the FASB issued ASU No. 2022-03, Fair Value Measurement—Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions (Topic 820), or ASU 2022-03, which clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. The amendments are effective for fiscal years beginning after December 15, 2023. We early adopted ASU 2022-03 during the three months ended June 30, 2023. The adoption of this accounting standard did not have a material impact on our unaudited condensed consolidated financial statements.

In September 2022, the FASB issued ASU No. 2022-04, Liabilities—Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations, which requires that a buyer in a supplier finance program disclose qualitative and quantitative information about its supplier finance programs. We adopted ASU 2022-04 effective January 1, 2023. The adoption of this accounting standard did not have a material impact on our unaudited condensed consolidated financial statements.

In March 2023, the FASB issued ASU No. 2023-01, Leases (Topic 842): Common Control Arrangements, which amends certain provisions of ASC 842 related to the accounting for leasehold improvements in common-control arrangements. ASU 2023-01 is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. We early adopted ASU 2023-01 effective January 1, 2023. The adoption of this accounting standard did not have a material impact on our unaudited condensed consolidated financial statements.

In March 2023, the FASB issued ASU No. 2023-02, Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method, which allows reporting entities to elect to account for qualifying tax equity investments using the proportional amortization method, regardless of the program giving rise to the related income tax credits. ASU 2023-02 is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. We early adopted ASU 2023-02 effective January 1, 2023.

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The adoption of this accounting standard did not have a material impact on our unaudited condensed consolidated financial statements.

In July 2023, the FASB issued ASU 2023-03 to amend various paragraphs in the Accounting Standards Codification to align with the previously issued SEC guidance. ASU 2023-03 did not provide any new guidance, and there is no transition or effective date associated with it resulting in the ASU 2023-03 being effective upon issuance. Consequently, the adoption of this accounting standard did not have a material impact on our unaudited condensed consolidated financial statements.

Note 4. Other Financial Statement Information

Accounts Receivable

Changes in the allowances consisted of the following (in thousands):

	Three Months Ended September 30,					Nine Months Ended September 30,
		2023		2022		2023		2022
				(Restated)				(Restated)
Beginning balance		$	5,734	$	4,508	$	4,730	$	4,060
Add: amounts recognized as a reduction of revenue		1,271		2,099		7,349		6,291
Add: allowance for credit losses recognized in general and administrative expense		493		2		981		143
Less: write-offs, net of recoveries		(1,795)		(2,190)		(7,357)		(6,075)
Ending balance		$	5,703	$	4,419	$	5,703	$	4,419

The allowance recognized as a reduction of revenue primarily relates to our installment plan receivables for which we expect we will not be entitled to a portion of the transaction price based on our historical experience with similar transactions. The allowance recognized against general and administrative expense represents an allowance relating to receivables from partners that are no longer considered collectible.

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of the following (in thousands):

	September 30, 2023		December 31, 2022
Prepaid expenses	$	11,195	$	10,624
Deferred cost of revenue	2,551		1,915
Capitalized cloud computing development costs	1,011		1,407
Income tax receivable	575		760
Other current assets	2,162		1,993
Total prepaid expenses and other current assets	$	17,494	$	16,699

Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following (in thousands):

	September 30, 2023		December 31, 2022
Accrued payroll and related expenses	$	27,082	$	27,822
Accrued vendor payables	15,684		15,531
Accrued advertising	13		1,071
Sales allowances	4,672		4,426
Accrued sales, use and business taxes	4,800		3,838

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	September 30, 2023		December 31, 2022
Other	3,124		4,685
Total accrued expenses and other current liabilities	$	55,375	$	57,373

Depreciation and Amortization

Depreciation and amortization expense of our property and equipment, including capitalized internal-use software, and intangible assets consisted of the following (in thousands):

	Three Months Ended September 30,					Nine Months Ended September 30,
		2023		2022		2023		2022
				(Restated)				(Restated)
Cost of revenue		$	3,307	$	1,966	$	8,940	$	6,220
Sales and marketing		1,400		1,754		4,011		5,508
Technology and development		1,168		694		2,867		2,112
General and administrative		780		840		2,243		2,347
Total depreciation and amortization expense		$	6,655	$	5,254	$	18,061	$	16,187

Deferred revenue

Deferred revenue as of September 30, 2023 and December 31, 2022 was $177.4 million and $165.1 million, respectively. Revenue recognized in the three months ended September 30, 2023 and 2022 that was included in deferred revenue as of June 30, 2023 and 2022 was $86.5 million and $81.7 million, respectively. Revenue recognized in the nine months ended September 30, 2023 and 2022 that was included in deferred revenue as of December 31, 2022 and 2021 was $154.6 million and $146.5 million, respectively.

We have omitted disclosure on the transaction price allocated to remaining performance obligations and estimated timing of revenue recognition as our contracts with customers that have a duration of more than one year are immaterial.

Note 5. Assets Held for Sale

During the quarter ended September 30, 2022, following an evaluation of our office space and business requirements, we commenced a plan to sell our operational headquarters in Austin, Texas, consisting of land, a building and building improvements, and determined that these assets met the held for sale criteria. We ceased recording depreciation on these assets upon meeting the held for sale criteria. At September 30, 2023, the total carrying value of the assets held for sale was $22.7 million. The estimated fair value less costs to sell the assets held for sale exceed their carrying values and hence no impairment was necessary during the quarter ended September 30, 2023.

Note 6. Acquisitions

United Agent Services Corp

In August 2022, we acquired certain assets and liabilities of United Agency Services Corp, or UA Services, a company providing registered agent services and corporate compliance solutions for $3.5 million, of which $2.6 million was paid in cash on the acquisition date and up to $1.0 million was payable in cash within twelve months from the acquisition date based upon the achievement of certain earnout metrics. During the three and nine months ended September 30, 2023, we recorded a $0.1 million and $0.8 million, respectively, reduction in fair value of contingent consideration as a component of cost of revenue because the earnout metrics were not achieved. Furthermore, an additional payment of up to $0.4 million to the seller of UA Services was contingent on certain service conditions being met. This amount was excluded from the purchase consideration and was recorded as compensation expense in 2022.

The acquisition was completed in order to build a more durable registered agency platform and has been accounted for as a business combination. The purchase price was allocated to the assets acquired and liabilities assumed. Goodwill of $3.3 million arising from the acquisition consisted largely of the assembled workforce and synergies expected from combining our operations. The acquired goodwill was deductible for tax purposes. There were no intangible assets acquired in connection with this acquisition. Acquisition costs related to this transaction of approximately $0.4 million were expensed as incurred and are included in general

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and administrative expenses on the accompanying unaudited condensed consolidated statements of operations.

The revenue and earnings of the acquired business were included in our results of operations since the acquisition date and were not material to the consolidated financial results for the three and nine months ended September 30, 2022. Pro forma revenues and results of operations for this acquisition are not presented as the impact on our unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2022 was immaterial.

Note 7. Long-term Debt

In 2021, we entered into an amended and restated credit and guaranty agreement, or 2021 Revolving Facility, providing for revolving borrowings of up to $150.0 million with an availability period of five years. Under the 2021 Revolving Facility, we can use up to $20.0 million in letters of credit and up to $10.0 million in borrowings on same-day notice, referred to as swingline loans. Additional debt issuance costs of $0.8 million were allocated to the 2021 Revolving Facility.

On May 5, 2023, we entered into an amendment to the 2021 Revolving Facility to replace the LIBOR interest rate benchmark with the Secured Overnight Financing Rate, or SOFR, benchmark, with a 0.10% credit spread adjustment to the SOFR benchmark, or Adjusted Term SOFR, for all available interest periods, provided that if the Adjusted Term SOFR is less than zero, the Adjusted Term SOFR shall be deemed to be zero. Other than the foregoing, the remaining terms of the 2021 Revolving Facility remained unchanged. The interest rate applicable to the 2021 Revolving Facility is subject to a 1.0% floor and is a rate equal to the greatest of (i) the administrative agent’s prime rate (ii) the federal funds effective rate plus 1/2 of 1.0% or (iii) Adjusted Term SOFR plus 1.0%.

The interest rate margins under the 2021 Revolving Facility are subject to a reduction of 0.25% and a further reduction of 0.25% upon achieving total net first lien leverage ratios of 3.50 to 1.00 and 2.50 to 1.00, respectively. We are required to pay a commitment fee in respect of unutilized commitments under the 2021 Revolving Facility. The commitment fee is, initially, 0.35% per annum. The commitment fee is subject to a reduction of 0.10% if the total net first lien leverage ratio does not exceed 3.50 to 1.00. We are also required to pay customary letter of credit fees and agency fees. We have the option to voluntarily repay outstanding loans under the 2021 Revolving Facility at any time without premium or penalty, other than customary “breakage” costs with respect to SOFR loans. There is no scheduled amortization under the 2021 Revolving Facility. Any principal amount outstanding is due and payable in full at maturity, five years from the closing date of the 2021 Revolving Facility. Obligations under the 2021 Revolving Facility are guaranteed by our existing and future direct and indirect material wholly-owned domestic subsidiaries, subject to certain exceptions.

The 2021 Revolving Facility contains a number of covenants that, among other things, subject to certain exceptions, restrict our ability and the ability of our restricted subsidiaries to incur additional indebtedness and guarantee indebtedness; create or incur liens; pay dividends and distributions or repurchase capital stock; merge, liquidate and make asset sales; change lines of business; change our fiscal year; incur restrictions on our subsidiaries’ ability to make distributions and create liens; modify our organizational documents; make investments, loans and advances; and enter into certain transactions with affiliates.

The 2021 Revolving Facility requires compliance with a total net first lien leverage ratio of 4.50 to 1.00, or Financial Covenant. The Financial Covenant will be tested at quarter-end only if the total principal amount of all revolving loans, swingline loans and drawn letters of credit that have not been reimbursed exceeds 35% of the total commitments under the 2021 Revolving Facility on the last day of such fiscal quarter.

At September 30, 2023 and December 31, 2022, we had no amounts outstanding under our 2021 Revolving Facility or any outstanding letters of credit and we were in compliance with all financial covenants.

Note 8. Commitments and Contingencies

Commitments

We have non-cancelable agreements with various vendors, which require us to pay $46.0 million over a 5-year period, of which $35.0 million remains to be paid as of September 30, 2023.

Legal Proceedings

From time to time, we may become subject to legal proceedings, claims and litigation arising in the ordinary course of business. We are not currently a party to any material legal proceedings, nor are we aware of any pending or threatened litigation that could have a material adverse effect on our results of operations, cash flows, and financial condition, should such litigation be resolved unfavorably.

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Indemnifications

Indemnification provisions in our third-party service provider agreements provide that we will indemnify, hold harmless, and reimburse the indemnified parties on a case-by-case basis for losses suffered or incurred by the indemnified parties in connection with any claim by any third-party as a result of our website, advertising, marketing, payment processing, collection or customer service activities. The maximum potential amount of future payments we could be required to make under these indemnification provisions is undeterminable.

No amounts have been accrued or have been paid during any period presented as we believe the fair value of these indemnification obligations is immaterial.

Note 9. Stockholders’ Equity

Stock Repurchase Program

On March 1, 2022, our board of directors approved a 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 funds available for future repurchases under the 2022 stock repurchase program. In October 2023, our board of directors approved a new stock repurchase program authorizing repurchases of up to $100.0 million of our common stock, with no fixed expiration. Stock repurchases under this new program may be made through any manner, including open market transactions, accelerated stock repurchase agreements, or privately negotiated transactions with third parties, and in such amounts as management deems appropriate. Open market repurchases will be structured to occur in accordance with applicable federal securities laws, including within the pricing and volume requirements of Rule 10b-18 under the Securities Exchange Act of 1934, as amended. 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. This program does not obligate us to acquire any particular amount of common stock and may be modified, suspended or terminated at any time at the discretion of our board of directors. Shares repurchased under our share repurchase program are purchased for immediate retirement.

During the three months ended September 30, 2023, we repurchased a total of 4,718,755 shares of our common stock for a total repurchase of $45.1 million directly from a selling stockholder, who is a related party due to selling shareholder’s ownership, in a private, non-underwritten transaction at a price of $9.55 per share, which was equal to the price paid by the underwriters to the selling stockholder in a concurrent secondary public offering. The repurchase was recorded as a reduction to stockholders' equity. Upon this repurchase, no further repurchases were available under our 2022 stock repurchase program. The secondary offering of 16,100,000 shares of our common stock by a selling stockholder was completed at a price to the public of $10.00 per share before underwriting discounts and commissions. All direct and incremental costs incurred in connection with the secondary offering were expensed because we did not receive any proceeds from the sale of shares of common stock in the secondary offering.

During the nine months ended September 30, 2023, we repurchased a total of 5,867,835 shares of our common stock through open market purchases using Rule 10b5-1 plans and in the above private, non-underwritten transaction, at an average per share price of $9.35 for a total repurchase of $54.9 million including broker commissions. The repurchases were recorded as a reduction to stockholders' equity.

The Inflation Reduction Act of 2022, enacted in August 2022, imposed a 1% non-deductible excise tax on net repurchases of shares by domestic corporations whose stock is traded on an established securities market. Consequently, this excise tax is applicable to our stock repurchase program beginning in 2023 and represents a cost of the repurchases of our common stock. We have recognized $0.3 million excise tax liability as of September 30, 2023 because the fair market value of stock repurchases exceeded the fair market value of stock issuances during the nine months ended September 30, 2023.

Note 10. Stock-based Compensation

Stock-based Compensation Expense

We recorded stock-based compensation expense in the following categories in the accompanying unaudited condensed consolidated statements of operations and balance sheets (in thousands):

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	Three Months Ended September 30,					Nine Months Ended September 30,
		2023		2022		2023		2022
				(Restated)				(Restated)
Cost of revenue		$	1,115	$	597	$	3,094	$	2,205
Sales and marketing		1,623		2,972		$	4,602	$	9,633
Technology and development		4,706		3,857		$	13,901	$	12,303
General and administrative		8,138		12,352		$	29,408	$	40,349
Total stock-based compensation expense		15,582		19,778		$	51,005	$	64,490
Amount capitalized to internal-use software		1,054		549		$	3,039	$