LEGALZOOMCOM INC
For the period ended Sep 30, 2024. Filed Nov 6, 2024.
View on SEC.govAbout this filing
A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Sep 30, 2024 · Filed Nov 6, 2024
LZ$5.24-12.1%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-06-30; filed 2024-08-07.
0001286139-24-000093
Item 2. Management's Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-09-30; filed 2024-11-06.
0001286139-24-000117
Item 2. Management's Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 175 previous paragraphs and 171 current paragraphs.
114 unchanged; 44 reworded; 12 added; 17 removed; 0 previous and 1 current paragraphs rearranged.
Tables are not compared: 30 previous and 31 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (12)
Current report
We are continuing to evaluate the ways we commercialize and deliver our tax and bookkeeping solutions. While we continue to serve our existing tax subscribers, we have paused offering our tax solutions to new subscribers. We expect this shift in our tax strategy to result in a subscription revenue headwind throughout the remainder of 2024 and into 2025.
Current report
ARPU declined 1% as of September 30, 2024 compared to September 30, 2023 driven primarily by pricing changes to our compliance related subscriptions and virtual mail subscription. ARPU as of September 30, 2024 decreased 3% sequentially compared to June 30, 2024.
Current report
Transaction revenue declined 7% year-over-year for the three months ended September 30, 2024 primarily due to an 18% decline in business formations, partially offset by the introduction of our beneficial ownership information report product.
Current report
Subscription revenue increased 5% year-over-year for the three months ended September 30, 2024 primarily due to our compliance related subscriptions and legal advisory subscriptions, partially offset by the pausing of new customer acquisition for our tax offering and the exit of certain channel partner relationships.
Current report
General and administrative expenses for the three months ended September 30, 2024 increased by$2.9 million mainly due to a $5.8 million increase in restructuring costs primarily related to the reduction of our U.S. headcount in August 2024, partially offset by a $1.6 million decrease in stock-based compensation expense and a $0.7 million decrease in consulting costs compared to the three months ended September 30, 2023.
Current report
Other income (expense), net
Current report
Comparison of the Nine Months Ended September 30, 2024 and 2023
Current report
Transaction revenue decreased 2% year-over-year for the nine months ended September 30, 2024 primarily due toan 18% decline in business formations and reduction in fees earned from third-party providers from leads generated from such providers through our online platform, partially offset by the introduction of our beneficial ownership information report product and an increase in other small business related transactions including annual reports and dissolutions.
Current report
Subscription revenue increased 7% year-over-year for the nine months ended September 30, 2024 primarily due to our compliance related subscriptions and legal advisory subscriptions, partially offset by the discontinuation of new customer acquisition for our tax offering and the exit of certain channel partner relationships.
Current report
Other income (expense), net
Current report
In August 2024, we committed to a restructuring plan resulting in a reduction of our global workforce. As of September 30, 2024, we incurred $5.2 million in severance and other termination benefits in conjunction with the foregoing restructuring plan, which was substantially complete by September 30, 2024.
Current report
(2) For 2023, certain non-recurring expenses included costs incurred in conjunction with the secondary offering of 16,100,000 shares of our common stock by a selling stockholder during the three months ended September 30, 2023.
Removed paragraphs (17)
Previous report
Recent Developments
Previous report
•On July 8, 2024, our board of directors appointed Jeff Stibel, the current Chair of the Board, to serve as Chief Executive Officer, effective July 9, 2024.
Previous report
•In August 2024, we committed to a restructuring plan as part of our re-alignment of our business and cost structure. The restructuring plan will reduce the size of our workforce by approximately 15% of our employees as compared to our headcount as of June 30, 2024. We expect to incur charges of approximately $5.0 million in connection with the restructuring plan, which consist primarily of severance and termination benefits offered to the impacted employees. We expect substantially all of these charges to be cash expenditures and to incur the majority of these charges in the third quarter of 2024. We also expect these changes to drive approximately $10.0 million in savings in 2024. We also intend to reduce our planned hiring efforts.
Previous report
We are also re-evaluating LZ Tax. We are reviewing opportunities to reorient our tax offerings by offering necessary pieces of our tax product early in a business’ lifecycle and selling our more robust tax offerings via our online customer platform and sales team during later stages of that business’ lifecycle. We expect this shift in our LZ Tax strategy to result in a subscription revenue headwind throughout the remainder of 2024.
Previous report
ARPU increased 4% as of June 30, 2024 compared to June 30, 2023 driven primarily by a shift in mix towards our higher priced subscription offerings, partially offset by an increase in our forms and e-signature subscription offerings, both of which carry lower price points. ARPU was also impacted by the exit of certain channel partner relationships in the third quarter of 2023. ARPU as of June 30, 2024 was flat compared to March 31, 2024.
Previous report
Interest expense
Previous report
Transaction revenue for the three months ended June 30, 2024 increased due to a 3% increase in transaction units for the three months ended June 30, 2024. The increase in transaction units during the three months ended June 30, 2024 resulted primarily from the introduction of our beneficial ownership information report product in December 2023 along with increases in other small business related transactions, including annual reports and corporate dissolutions. The increase in transaction units was partially offset by a 17% reduction in business formations primarily due to a 12% decrease in direct channel LLC formations driven partly by a challenging macroeconomic environment, as well as due to the exit of certain channel partner relationships in the third quarter of 2023.
Previous report
Subscription revenue for the three months ended June 30, 2024 increased primarily due to a 4% increase in the number of subscription units and a 4% improvement in ARPU compared to June 30, 2023. The increase in subscription units was primarily driven by an increase in forms and e-signature subscriptions resulting from bundling of these products in certain business formation offerings, as well as an increase in virtual mail subscriptions. This growth was partially offset by a decline in registered agent and compliance subscriptions driven by the exit of certain channel partner relationships in the third quarter of 2023. ARPU as of June 30, 2024 increased 4% compared to June 30, 2023 driven primarily by a shift in mix towards our higher priced subscription offerings, partially offset by an increase in our forms and e-signature subscription offerings, both of which carry lower price points. ARPU was also impacted by the exit of certain channel partner relationships in the third quarter of 2023.
Previous report
Customer acquisition marketing spend was $47.1 million and $36.0 million for the three months ended June 30, 2024 and 2023, respectively.
Previous report
Interest expense
Previous report
Other (expense) income, net
Previous report
Comparison of the Six Months Ended June 30, 2024 and 2023
Previous report
Transaction revenue for the six months ended June 30, 2024 increased due to a 6% increase in the number of transactions, partially offset by a 5% decrease in average order value compared to the six months ended June 30, 2023. The overall increase in transaction units during the six months ended June 30, 2024 resulted primarily from the introduction of our beneficial ownership information report product in December 2023 along with the increase in other small business related transactions, including annual reports and corporate dissolutions. The increase in transaction units was partially offset by an 18% reduction in business formations primarily due to a 12% decrease in direct channel LLC formations driven partly by a challenging macroeconomic environment, as well as due to and the exit of certain channel partner relationships in the third quarter of 2023. The 5% decrease in average order value for the six months ended June 30, 2024 was driven primarily by a higher mix of lower priced small business related transactions, including annual reports and beneficial ownership information reports, and a reduction in fees from third-party providers through our online platform, partially offset by an increase in average order value of our consumer transaction products due to commercialization changes within our consumer product suite.
Previous report
Subscription revenue for the six months ended June 30, 2024 increased primarily due to a 4% increase in the number of subscription units as of June 30, 2024 compared to June 30, 2023 and a 4% increase in ARPU compared to June 30, 2023. The increase in subscription units was driven primarily by an increase in forms and e-signature subscriptions resulting from bundling of these products into certain business formation offerings, as well as an increase in virtual mail subscriptions. This growth was partially offset by a decline in registered agent and compliance subscriptions driven by the exit of certain channel partner relationships in the third quarter of 2023. ARPU increased 4% compared to June 30, 2023 driven primarily by a shift in the mix of our higher priced subscription offerings. ARPU was also impacted by the exit of certain channel partner relationships in the third quarter of 2023 and the increased mix of our forms and e-signature subscription offerings, both of which carry lower price points.
Previous report
General and administrative expenses for the six months ended June 30, 2024 decreased by$3.7 million primarily due to a $6.6 million decrease in stock-based compensation expense, partially offset bya $1.3 million increase in consulting costs, a $0.8 million increase in payroll and related benefits, and a $0.5 million increase in depreciation and amortization expense compared to three months ended June 30, 2023.
Previous report
Other (expense) income, net
Previous report
In August 2024, we committed to a restructuring plan as part of our re-alignment of our business and cost structure. We expect to incur charges of approximately $5.0 million in connection with the restructuring plan, the majority of which will be incurred in the third quarter of 2024. We also expect these changes to drive approximately $10.0 million in savings in 2024. See “Recent Developments” above for additional information.
Reworded paragraphs (44)
Previous wording
LegalZoom is a leading online platform for business formation in the U.S. 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. Driven by a mission to unleash entrepreneurship, we deliver comprehensive legal, tax, accounting and compliance products and expertise for small business owners through easy-to-use technology. We operate across all 50 states and in over 3,000 counties in the U.S., with over two decades of experience in simplifying the legal and compliance process for our customers and empowering entrepreneurs to make their dream a reality.
Current wording
LegalZoom is a leading online platform for business formation in the U.S. 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. Driven by a mission to unleash entrepreneurship, we deliver comprehensive legal, accounting and compliance products and expertise for small business owners through easy-to-use technology. We operate across all 50 states and in over 3,000 counties in the U.S., with over two decades of experience in simplifying the legal and compliance process for our customers and empowering entrepreneurs to make their dream a reality.
Previous wording
Optimizing Our Subscription Business. We intend to prioritize our subscription products over our transaction products in order to focus on customer lifetime value. 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. In order to achieve this goal, we will be evaluating ways to better reorient our products towards subscription offerings, including revisiting certain of our historical transaction offerings, such as our free business formation. Further, we are continuing to optimize our product line-up with the goal of improving the quality of our subscriber base as we seek to increase customer lifetime value. Our subscription revenue growth rate decelerated during the six months ended June 30, 2024 and, more recently, we have experienced softer retention rates in our compliance subscriptions, particularly in our freemium customers. We believe the prioritization of our subscription products over transaction products will help accelerate and sustain our subscription revenue over the long term.
Current wording
Optimizing Our Subscription Business. We intend to prioritize 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. Our subscription revenue growth rate has decelerated in recent periods. As a result, we are evaluating ways to better reorient our products towards subscription offerings, including revisiting certain of our historical transaction offerings, such as our business license offering and our free business formation, as we have in the past experienced soft retention rates from our freemium customers. We are also continuing to optimize our product line-up with the goal of improving the quality of our subscriber base as we seek to increase customer lifetime value. This includes enhancing the value of our subscription products and increasing the price of our offerings to better reflect the value we believe we provide.
Previous wording
•Macroeconomic factors. Adverse changes in general macroeconomic, political, regulatory and market conditions can negatively impact consumer spending patterns, the success of existing small businesses and the rate of new small business formations. We believe downward macroeconomic pressure contributed to the increase in corporate dissolutions and the deceleration in business formations that we experienced in the six months ended June 30, 2024, which, in turn, negatively impacted our ability to upsell and retain our customers. While we continue to actively monitor the impacts of the evolving macroeconomic environment on all aspects of our business, we expect the macroeconomic environment to remain challenging throughout the remainder of 2024.
Current wording
•Macroeconomic factors. Adverse changes in general macroeconomic, political, regulatory and market conditions can negatively impact consumer spending patterns, the success of existing small businesses and the rate of new small business formations. We believe downward macroeconomic pressure contributed to the increase in corporate dissolutions and the deceleration in business formations that we experienced in the nine months ended September 30, 2024, which, in turn, negatively impacted our ability to upsell and retain our customers. While we continue to actively monitor the impacts of the evolving macroeconomic environment on all aspects of our business, we expect the macroeconomic environment to remain challenging throughout the remainder of 2024.
Previous wording
•Our share of business formations. In the three and six months ended June 30, 2024 and 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. 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.
Current wording
•Our share of business formations. In the three and nine months ended September 30, 2024 and 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. 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.
Previous wording
•Ability to enhance customer lifetime value. Our future performance depends on our ability to integrate new products and services into our LegalZoom ecosystem and to increase recurring revenue through subscription offerings. As we continue to test new and existing products and services in order to optimize our core product line-up, including converting certain transaction offerings to subscription offerings and testing various commercialization strategies for those offerings, we expect increased volatility across our key business metrics. In addition, in an effort to enhance customer lifetime value, we intend to continue to invest in improving our customer experience, which includes investments in our educational content and improving our website and mobile experience.
Current wording
•Ability to enhance customer lifetime value. Our future performance depends on our ability to integrate new products and services into our LegalZoom ecosystem and to increase recurring revenue through subscription offerings. As we continue to test new and existing products and services in order to optimize our core product line-up, including converting certain transaction offerings to subscription offerings and testing various commercialization strategies for those offerings, we have experienced and we expect to continue to experience increased volatility across our key business metrics. In addition, in an effort to enhance customer lifetime value, we intend to continue to invest in improving our customer experience, which includes investments in our educational content and improving our website and mobile experience.
Previous wording
The below table sets forth the number of business formations for the three and six months ended June 30, 2024 and 2023:
Current wording
The below table sets forth the number of business formations for the three and nine months ended September 30, 2024 and 2023:
Previous wording
We experienced a 17% and 18% decrease in business formation transactions during the three and six months ended June 30, 2024, respectively, compared to the three and six months ended June 30, 2023. The decrease in business formation transactions during the three and six months ended June 30, 2024 was primarily due to a 12% decrease in direct channel LLC formations driven partly by the challenging macroeconomic environment, as well as due to the exit of certain channel partner relationships in the third quarter of 2023. This compares to an overall U.S. business formations decline of 6% and 4%, respectively, during the three and six months ended June 30, 2024, compared to the three and six months ended June 30, 2023 based on a review of U.S. Census data revealing new applications for EINs.
Current wording
We experienced an 18% decrease in business formation transactions during the three months ended September 30, 2024 compared to the three months ended September 30, 2023 due to a combination of a challenging macroeconomic environment and a reduction in customer acquisition marketing spend. For the nine months ended September 30, 2024, we experienced an 18% year-over-year decrease in business formation transactions, primarily driven by a challenging macroeconomic environment and the exit of certain partner channel relationships in the third quarter of 2023. Overall U.S. business formations declined by 9% and 5%, respectively, during the three and nine months ended September 30, 2024, compared to the three and nine months ended September 30, 2023 based on a review of U.S. Census data revealing new applications for EINs.
Previous wording
The below table sets forth the number of transactions for the three and six months ended June 30, 2024 and 2023:
Current wording
The below table sets forth the number of transactions for the three and nine months ended September 30, 2024 and 2023:
Previous wording
We experienced a 3% and 6% increase in the number of transactions during the three and six months ended June 30, 2024, respectively, compared to the three and six months ended June 30, 2023. The increase in the number of transactions during both the three and six months ended June 30, 2024 resulted primarily from the introduction of our beneficial ownership information report product in December 2023, along with increases in other small business related transactions, including annual reports and corporate dissolutions. These increases were partially offset by the decrease in business formations discussed above.
Current wording
We experienced an 8% and 7% increase in the number of transactions during the three and nine months ended September 30, 2024, respectively, compared to the three and nine months ended September 30, 2023. The increase in the number of transactions during both the three and nine months ended September 30, 2024 resulted primarily from the introduction of our beneficial ownership information report product in December 2023, and to a lesser extent an increase in other small business related transactions, including annual reports and corporate dissolutions. These increases were partially offset by the decreases in business formations discussed above.
Previous wording
The below table sets forth the average order value for the three and six months ended June 30, 2024 and 2023:
Current wording
The below table sets forth the average order value for the three and nine months ended September 30, 2024 and 2023:
Previous wording
Average order value was flat for the three months ended June 30, 2024 compared to the three months ended June 30, 2023, and down 5% for the six months ended June 30, 2024 compared to the six months ended June 30, 2023, primarily driven by a higher mix of lower priced small business related transactions, including annual reports and beneficial ownership information reports, and a reduction in fees earned from third-party providers from leads generated for such providers through our online platform. These decreases were partially offset by an increase in average order value related to our consumer transaction products due to commercialization changes within our consumer product suite.
Current wording
Average order value decreased 13% and 8% for the three and nine months ended September 30, 2024, respectively, compared to the three and nine months ended September 30, 2023. The decreases in average order value were primarily driven by a higher mix of lower priced small business related transactions, including beneficial ownership information reports, and a reduction in fees earned from third-party providers from leads generated for such providers through our online platform.
Previous wording
We achieved 4% growth in subscription units from June 30, 2023 to June 30, 2024, primarily driven by an increase in forms and e-signature subscriptions resulting from bundling of these products into certain business formation offerings, as well as an increase in virtual mail subscriptions. This growth was partially offset by a decline in registered agent and compliance subscriptions driven by the exit of certain channel partner relationships in the third quarter of 2023.
Current wording
We achieved 10% growth in subscription units from September 30, 2023 to September 30, 2024, primarily driven by an increase in forms and e-signature and accounting solutions subscriptions resulting from bundling of these products into certain business formation offerings, as well as an increase in virtual mail subscriptions and commercializing our business licenses product as a subscription. This growth in subscription units as of September 30, 2024 was partially offset by a decline in registered agent and compliance subscriptions driven by the exit of certain channel partner relationships in the third quarter of 2023.
Previous wording
On a sequential basis, the number of subscription units as of June 30, 2024 slightly increased from 1,605 thousand units as of March 31, 2024.
Current wording
On a sequential basis, the number of subscription units as of September 30, 2024 increased 7% from 1,609 thousand units as of June 30, 2024.
Previous wording
We define annual small business retention rate as the percentage of small business subscription units active as of the last day of the quarter one year ago that were still active subscriptions 12 months later. Small business subscription units represent our subscriptions targeted at our small business customers and include subscriptions for our registered agent and compliance services, LZ Tax, our small business legal advisory plan and subscriptions acquired through our purchase of Earth Class Mail and Revvsales Inc., and exclude subscriptions from our enterprise customers, our operations in the U.K. and our consumer legal advisory plan. Annual small business retention rate includes both monthly and annual subscription units and reflects all subscription unit attrition, including as a result of actual business failures of certain of our customers. Our annual small business retention rate as of June 30, 2024 was approximately 63%.
Current wording
We define annual small business retention rate as the percentage of small business subscription units active as of the last day of the quarter one year ago that were still active subscriptions 12 months later. Small business subscription units represent our subscriptions targeted at our small business customers and include subscriptions for our registered agent and compliance services, our tax solution, our small business legal advisory plan and subscriptions acquired through our purchase of Earth Class Mail and Revvsales Inc., and exclude subscriptions from our enterprise customers, our prior operations in the U.K. and our consumer legal advisory plan. Annual small business retention rate includes both monthly and annual subscription units and reflects all subscription unit attrition, including as a result of actual business failures of certain of our customers. Our annual small business retention rate as of September 30, 2024 was approximately 64%.
Previous wording
Gross profit, or revenue less cost of revenue, and gross margin, or gross profit as a percentage of revenue, have been and will continue to be affected by various factors, primarily the mix between transaction and subscription revenue. Our long-term gross margin expansion is also expected to be driven by automation improvements and digitization efforts. Further, our acquisitions of other companies have negatively impacted our gross margin in the short term, and any such future acquisitions could have a similar effect. Our gross margin could fluctuate from period to period due to fulfillment rates and seasonality.
Current wording
Gross profit, or revenue less cost of revenue, and gross margin, or gross profit as a percentage of revenue, have been and will continue to be affected by various factors, primarily the mix between transaction and subscription revenue. Our long-term gross margin expansion is also expected to be driven by automation improvements and digitization efforts. Further, our acquisitions of other companies have negatively impacted our gross margin in the past, and any such future acquisitions could have a similar effect. Our gross margin could fluctuate from period to period due to fulfillment rates and seasonality.
Previous wording
The increase in total revenue for the three months ended June 30, 2024 was primarily driven by an increase in subscription revenue. Subscription revenue was 61% of total revenue for both the three months ended June 30, 2024 and 2023 and transaction revenue was 39% of total revenue for both the three months ended June 30, 2024 and 2023.
Current wording
The increase in total revenue for the three months ended September 30, 2024 was primarily driven by an increase in subscription revenue. Subscription revenue was 66% and 63% of total revenue for the three months ended September 30, 2024 and 2023, respectively, and transaction revenue was 34% and 37% of total revenue for the three months ended September 30, 2024 and 2023, respectively.
Previous wording
Cost of revenue for the six months ended June 30, 2024 increased by $7.9 million mainly due to a $5.4 million increase in payroll and related benefits, a $3.5 million increase in depreciation and amortization expense, and a $1.3 million increase in filing fees, partially offset by a $4.5 million decrease in third-party staffing fees. The increase in filing fees was primarily driven by filing fees related to business formations during the six months ended June 30, 2024 in certain states that temporarily halted charging filing fees in the first half of 2023, partially offset by the decrease in overall business formations during the six months ended June 30, 2024.
Current wording
Cost of revenue for the three months ended September 30, 2024 decreased by $4.5 million mainly due to a $5.2 million reduction in filing fees and a $1.5 million decrease in payroll and related benefits, partially offset by a $1.5 million increase in depreciation and amortization expense. The decrease in filing fees was primarily driven by the decrease in business formations during the three months ended September 30, 2024 compared to the same period in 2023.
Previous wording
Gross profit for the three months ended June 30, 2024 increased by $8.6 million compared to three months ended June 30, 2023 due to a $8.5 million increase in revenue and a $0.1 million reduction in cost of revenue.
Current wording
Gross profit for the three months ended September 30, 2024 increased by $5.8 million compared to three months ended September 30, 2023 due to a $1.3 million increase in revenue and a $4.5 million reduction in cost of revenue.
Previous wording
Sales and marketing expenses for the three months ended June 30, 2024 increased by $6.6 million primarily due to a $11.1 million increase in customer acquisition marketing spend, partially offset by a $4.3 million reduction in payroll and related benefits largely due to a reduction in sales and marketing headcount.
Current wording
Sales and marketing expenses for the three months ended September 30, 2024 decreased by $4.8 million primarily due to a $4.0 million decrease in payroll and related benefits largely due to a reduction in sales and marketing headcount anda $1.5 million decrease in customer acquisition marketing spend. Customer acquisition marketing spend was $34.0 million and $35.4 million for the three months ended September 30, 2024 and 2023, respectively.
Previous wording
There was a $4.7 million favorable change in the provision for income taxes for the six months ended June 30, 2024 compared to the six months ended June 30, 2023. The change was primarily due to lower nondeductible stock-based compensation and higher excess tax benefits on stock-based compensation for the six months ended June 30, 2024. This resulted in a lower effective tax rate.
Current wording
There was a $3.8 million unfavorable change in the provision for income taxes for the three months ended September 30, 2024 compared to the three months ended September 30, 2023. The change was primarily due to an increase in pretax book income for the three months ended September 30, 2024.
Previous wording
The increase in total revenue six months ended June 30, 2024 was primarily driven by an increase in subscription revenue. Subscription revenue was 62% and 60% of total revenue for the six months ended June 30, 2024 and 2023, respectively, and transaction revenue was 38% and 40% of total revenue for the six months ended June 30, 2024 and 2023, respectively.
Current wording
The increase in total revenue for the nine months ended September 30, 2024 was primarily driven by an increase in subscription revenue. Subscription revenue was 63% and 61% of total revenue for the nine months ended September 30, 2024 and 2023, respectively, and transaction revenue was 37% and 39% of total revenue for the nine months ended September 30, 2024 and 2023, respectively.
Previous wording
Cost of revenue for the three months ended June 30, 2024 decreased by $0.1 million mainly due to a $1.9 million reduction in filing fees and a $1.8 million decrease in third-party staffing fees, partially offset by a $1.6 million increase in depreciation and amortization expense, a $1.5 million increase in payroll and related benefits, and a $0.6 million increase in stock-based compensation expense. The decrease in filing fees was primarily driven by the decrease in business formations during the three months ended June 30, 2024 compared to the same period in 2023.
Current wording
Cost of revenue for the nine months ended September 30, 2024 increased by $3.4 million mainly due to a $5.0 million increase in depreciation and amortization expense, a $3.9 million increase in payroll and related benefits, and a $1.4 million increase in stock-based compensation expense, partially offset by a $3.9 million decrease in filing fees and $3.9 million decrease in third-party staffing fees. The decrease in filing fees was primarily driven by the decrease in business formations during the nine months ended September 30, 2024 compared to the same period in 2023.
Previous wording
The increase in gross profit was driven by a $16.8 million increase in revenue partially offset by a $7.9 million increase in cost of revenue.
Current wording
The increase in gross profit was driven by an $18.1 million increase in revenue partially offset by a $3.4 million increase in cost of revenue.
Previous wording
Sales and marketing expenses for the six months ended June 30, 2024 increased by $0.2 million primarily due to an $11.0 million increase in customer acquisition marketing spend, partially offset by a $10.3 million reduction in payroll and related benefits. The decrease in payroll and related benefits was largely due to decreased sales and marketing headcount. Customer acquisition marketing spend was $87.7 million and $76.7 million for the six months ended June 30, 2024 and 2023, respectively.
Current wording
Sales and marketing expenses for the nine months ended September 30, 2024 decreased by $4.6 million primarily due to a $14.3 million reduction in payroll and related benefits due to a reduction in sales and marketing headcount, partially offset by a $9.4 million increase in customer acquisition marketing spend. Customer acquisition marketing spend was $121.7 million and $112.2 million for the nine months ended September 30, 2024 and 2023, respectively.
Previous wording
Technology and development expenses for the six months ended June 30, 2024 increased primarily due to an increase in payroll and related benefits largely due to increased technology and development headcount.
Current wording
Technology and development expenses for the nine months ended September 30, 2024 increased by$11.9 million primarily due to an increase in payroll and related benefits largely due to increased technology and development headcount.
Previous wording
General and administrative expenses for the three months ended June 30, 2024 decreased by$0.3 million mainly due to a $2.8 million decrease in stock-based compensation expense, partially offset by a $1.2 million increase in consulting costs, a $0.7 million increase in payroll and related benefits, and a $0.4 million increase in depreciation and amortization expense compared to three months ended June 30, 2023.
Current wording
General and administrative expenses for the nine months ended September 30, 2024 decreased by$0.8 million primarily due to a $8.2 million decrease in stock-based compensation expense, partially offset by a $5.9 million increase in restructuring costs, a $1.0 million increase in depreciation and amortization expense, and a $0.6 million increase in consulting costs compared to the nine months ended September 30, 2023.
Previous wording
The change in interest income, net, was primarily due to interest income generated from our money market investments during the six months ended June 30, 2024.
Current wording
The change in interest income, net, was primarily due to interest income generated from our money market investments during the nine months ended September 30, 2024.
Previous wording
There was a $4.1 million favorable change in the provision for income taxes for the three months ended June 30, 2024 compared to the three months ended June 30, 2023. The change was primarily due to lower nondeductible stock-based compensation and higher excess tax benefits on stock-based compensation for the three months ended June 30, 2024. This resulted in a lower effective tax rate.
Current wording
There was a $0.9 million favorable change in the provision for income taxes for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. The change was primarily due to lower nondeductible stock-based compensation for the nine months ended September 30, 2024. This resulted in a lower effective tax rate.
Previous wording
We fund our operations and capital expenditures from cash flows from operating activities. Our primary requirements for liquidity and capital are to finance working capital, capital expenditures and general corporate purposes. At June 30, 2024, our principal sources of liquidity were cash and cash equivalents of $118.8 million, which consisted of cash on deposit with banks and money market funds, of which approximately $1.7 million related to our foreign subsidiaries. Our cash and cash equivalents decreased by $106.9 million from December 31, 2023 to June 30, 2024, primarily as a result of stock repurchases and purchases of property and equipment, partially offset by cash provided by operating activities during the six months ended June 30, 2024.
Current wording
We fund our operations and capital expenditures from cash flows from operating activities. Our primary requirements for liquidity and capital are to finance working capital, capital expenditures and general corporate purposes. At September 30, 2024, our principal sources of liquidity were cash and cash equivalents of $112.5 million, which consisted of cash on deposit with banks and money market funds, of which approximately $2.1 million related to our foreign subsidiaries. Our cash and cash equivalents decreased by $113.2 million from December 31, 2023 to September 30, 2024, primarily as a result of stock repurchases and purchases of property and equipment, partially offset by cash provided by operating activities during the nine months ended September 30, 2024.
Previous wording
In October 2023, our board of directors approved a new stock repurchase program, pursuant to which our management is authorized to repurchase up to $100.0 million of shares of our common stock from time to time. In May 2024, our board of directors approved a $75.0 million increase in the stock repurchase program, bringing the aggregate amount authorized to $175.0 million. At June 30, 2024, approximately $37.0 million remained available for future repurchases of our common stock under the stock repurchase program. For additional information regarding our stock repurchase program, refer to Note 7 to our unaudited condensed consolidated financial statements.
Current wording
In October 2023, our board of directors approved a new stock repurchase program, pursuant to which our management is authorized to repurchase up to $100.0 million of shares of our common stock from time to time. In May 2024, our board of directors approved a $75.0 million increase in the stock repurchase program, bringing the aggregate amount authorized to $175.0 million. In November 2024, our board of directors approved an additional $40.0 million increase in the stock repurchase program, bringing the aggregate amount authorized to $215.0 million. Prior to the increase in the stock repurchase authorization in November 2024, approximately $12.3 million remained available for future repurchases of our common stock under the stock repurchase program as of September 30, 2024. For additional information regarding our stock repurchase program, refer to Note 7 to our unaudited condensed consolidated financial statements.
Previous wording
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 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.
Current wording
The 2021 Revolving Facility requires compliance with a total net first lien leverage ratio not to exceed 4.50 to 1.00, or the Financial Covenant. The Financial Covenant will be tested at quarter-end only if the total principal amount of all revolving loans, swingline loans and drawn letters of credit that have not been reimbursed exceeds 35% of the total commitments under the 2021 Revolving Facility on the last day of such fiscal quarter.
Previous wording
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. 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.
Current wording
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. 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.
Previous wording
In the six months ended June 30, 2024, cash provided by operating activities was $61.4 million resulting from net income of $6.1 million, adjusted for stock-based compensation and other non-cash expenses of $50.8 million and net cash flows provided by changes in operating assets and liabilities of $4.6 million. The $4.6 million of net cash flows provided from changes in our operating assets and liabilities included a $21.2 million increase in deferred revenue largely due to growth of our subscription units, which are predominantly billed in advance of our revenue recognition and a $1.9 million increase in accounts payable, partially offset by a $3.4 million increase in accounts receivable, a $7.3 million increase in prepaid and other current assets, and a $7.5 million reduction in accrued expenses and operating lease and other liabilities due to the timing of our payments.
Current wording
In the nine months ended September 30, 2024, cash provided by operating activities was $93.1 million resulting from net income of $17.1 million, adjusted for stock-based compensation and other non-cash expenses of $74.8 million and net cash flows provided by changes in operating assets and liabilities of $1.1 million. The $1.1 million of net cash flows provided from changes in our operating assets and liabilities resulted primarily from a $17.8 million increase in deferred revenue largely due to the growth of our subscription units which are predominantly billed in advance of our revenue recognition, partially offset by an $11.6 million unfavorable change in accounts payable, accrued expenses and other liabilities, including operating leases, and a $5.3 million increase in prepaid and other current assets.
Previous wording
In the six months ended June 30, 2024, net cash used in investing activities was $19.4 million resulting primarily from purchases of property and equipment, including capitalization of internal-use software.
Current wording
In the nine months ended September 30, 2024, net cash used in investing activities was $29.0 million resulting primarily from purchases of property and equipment, including capitalization of internal-use software.
Previous wording
Our primary uses of cash in financing activities are for repurchases of common stock and settlements of stock options and RSUs. Net cash provided by financing activities is primarily impacted by exercises of stock options by our employees and issuance of common stock.
Current wording
Our primary uses of cash in financing activities are for repurchases of common stock and settlements of stock options and restricted stock units, or RSUs. Net cash provided by financing activities is primarily impacted by exercises of stock options by our employees and issuance of common stock.
Previous wording
In the six months ended June 30, 2024, net cash used in financing activities was $149.0 million, primarily resulting from $136.5 million in repurchases of our common stock under our stock repurchase program and a $14.2 million settlement of minimum statutory tax withholding upon vesting of RSUs.
Current wording
In the nine months ended September 30, 2024, net cash used in financing activities was $177.3 million, primarily resulting from $162.0 million in repurchases of our common stock under our stock repurchase program and a $17.2 million settlement of minimum statutory tax withholding upon vesting of RSUs.
Previous wording
We have non-cancelable agreements with various vendors, which require us to pay $47.5 million over a four-year period, of which $28.0 million remains to be paid as of June 30, 2024.
Current wording
We have non-cancelable agreements with various vendors, which require us to pay $46.3 million over a four-year period, of which $28.7 million remains to be paid as of September 30, 2024.
Previous wording
At June 30, 2024, we had various non-cancelable operating leases for office space and equipment, which expire between July 2024 and November 2029. As of June 30, 2024, we had total minimum operating lease maturities of $8.8 million, $1.0 million of which mature within six months. See Note 8 of our consolidated financial statements included in our 2023 Annual Report on Form 10-K for additional information regarding our future operating lease payments.
Current wording
At September 30, 2024, we had various non-cancelable operating leases for office space, which expire between April 2025 and February 2033. As of September 30, 2024, we had total minimum operating lease maturities of $9.0 million, $0.5 million of which mature within three months. See Note 8 of our consolidated financial statements included in our 2023 Annual Report on Form 10-K for additional information regarding our future operating lease payments.
Previous wording
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. Our Adjusted EBITDA financial measure differs from GAAP in that it excludes certain items of income and expense. We define Adjusted EBITDA margin as Adjusted EBITDA as a percentage of revenue. We define net income (loss) margin as net income (loss) as a percentage of revenue based on our consolidated financial statements.
Current wording
We define Adjusted EBITDA as net income (loss) adjusted to exclude interest expense, interest income, provision for (benefit from) income taxes, depreciation and amortization, other expense (income), net, stock-based compensation, impairment of goodwill, long-lived and other assets, restructuring expenses, legal expenses, transaction-related expenses and certain non-recurring income and expenses from time to time. Our Adjusted EBITDA financial measure differs from GAAP in that it excludes certain items of income and expense. We define Adjusted EBITDA margin as Adjusted EBITDA as a percentage of revenue. We define net income (loss) margin as net income (loss) as a percentage of revenue based on our consolidated financial statements.
Previous wording
The following table presents a reconciliation of net income (loss) to Adjusted EBITDA for each of the periods indicated:
Current wording
The following table presents a reconciliation of net income to Adjusted EBITDA for each of the periods indicated:
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Current report — wording carried from elsewhere
Interest expense consists primarily of amortization of debt issuance costs related to our 2021 Revolving Facility.