LEGALZOOM.COM, INC.

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 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.

Current wording

•Macroeconomic factors. Adverse changes in, or uncertainty with respect to, general macroeconomic, political, regulatory and market conditions can negatively impact consumer spending patterns, the success of existing small businesses and the formation of new small businesses. While we continue to actively monitor the impacts of the evolving macroeconomic environment on all aspects of our business, future negative or decelerating impacts from factors such as inflation, tariffs, higher interest rates, regulatory obstacles or changes in laws and regulations remain uncertain.

Previous 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.

Current wording

•Our share of business formations. In the three months ended March 31, 2025 and 2024, business formations represented the largest share of our total transaction orders. Business formations act as an entrance point for many customers to the LegalZoom ecosystem, where they then often purchase a mix of transaction and subscription offerings alongside and after the initial formation transaction. 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 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.

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 product line-up, including 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

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

Current wording

In addition to the measures presented in our unaudited condensed consolidated financial statements, we regularly monitor the financial and operating metrics below to evaluate the growth of our business, measure the effectiveness of our marketing efforts, identify trends, formulate financial forecasts and make strategic decisions. For the three months ended March 31, 2025, Formation Nation is included in the key business metrics below starting on February 10, 2025, the date we acquired Formation Nation. Prior periods have not been recast.

Previous wording

The below table sets forth the number of business formations for the three and nine months ended September 30, 2024 and 2023:

Current wording

The below table sets forth the number of business formations for the three months ended March 31, 2025 and 2024:

Previous 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.

Current wording

We experienced a 6% decrease in business formation transactions during the three months ended March 31, 2025 compared to the three months ended March 31, 2024, in part due to a continuing challenging macroeconomic environment, partially offset by our Formation Nation acquisition. Formation Nation contributed approximately 6% of total business formations during the three months ended March 31, 2025. Overall U.S. business formations declined by 5% during the three months ended March 31, 2025, compared to the three months ended March 31, 2024, 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 nine months ended September 30, 2024 and 2023:

Current wording

The below table sets forth the number of transactions for the three months ended March 31, 2025 and 2024:

Previous wording

The below table sets forth the average order value for the three and nine months ended September 30, 2024 and 2023:

Current wording

The below table sets forth the average order value for the three months ended March 31, 2025 and 2024:

Previous 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.

Current wording

We achieved a 20% increase in subscription units from March 31, 2024 to March 31, 2025, primarily driven by an increase in forms and e-signature and accounting solution subscriptions from the bundling of these products into certain business formation offerings, and the inclusion of subscription units from our Formation Nation acquisition. This growth in subscription units as of March 31, 2025 was partially offset by the discontinuation of new customer acquisition for our tax offering.

Previous 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.

Current wording

On a sequential basis, the number of subscription units as of March 31, 2025 increased 9% from 1,766 thousand subscription units as of December 31, 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, 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%.

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 virtual mail, forms and eSignature solutions and our small business legal advisory plan, and exclude subscriptions from our enterprise customers, our prior operations in the U.K. and our consumer legal advisory plan. Annual small business retention rate includes both monthly and annual subscription units and reflects all subscription unit attrition, including as a result of actual business failures of certain of our customers. Our annual small business retention rate as of March 31, 2025 was approximately 60%, which was impacted by the anniversarying of non-renewing annual forms and e-signature subscriptions that were bundled into certain business formation offerings.

Previous wording

We generate revenue from the sources identified below. Beginning in the fourth quarter of 2023, we no longer present partner revenue on a standalone basis and partner revenue is now included within transaction and subscription revenue. This change had no impact on total revenue. Prior period disclosures and amounts have been conformed to the current period presentation.

Current wording

We generate revenue from the following sources:

Previous wording

Transaction revenue—Transaction revenue is primarily generated from our customized legal document services upon fulfillment of these services. Transaction revenue includes filing fees and is net of cancellations, promotional discounts, sales allowances and credit reserves. Tax preparation services are recognized at the point in time when the customer’s tax return is filed and accepted by the applicable government authority. We also earn fees from third-party providers from leads generated to such providers through our online legal platform.

Current wording

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

Previous wording

Subscription revenue—Subscription revenue is generated primarily from subscriptions to our registered agent, compliance packages, attorney advice, legal forms, tax and accounting, virtual mail and e-signature services, and software-as-a-service, or SaaS, accounting solution subscriptions and SaaS subscriptions in the U.K. We generally recognize revenue from our subscriptions ratably over the subscription term. 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.

Current wording

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

Previous wording

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

Current wording

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

Previous wording

We expect our technology and development expenses to remain relatively consistent as a percentage of our revenue for the foreseeable future, although our technology and development expenses may fluctuate as a percentage of our revenue from period-to-period due to seasonality and the timing and extent of these expenses.

Current wording

Excluding stock-based compensation, we expect our technology and development expenses to remain relatively consistent as a percentage of our revenue for the foreseeable future, although our technology and development expenses may fluctuate as a percentage of our revenue from period-to-period due to seasonality and the timing and extent of these expenses.

Previous wording

We account for income taxes in accordance with ASC 740, Income Taxes, which requires an estimate of the annual effective tax rate for the full year to be applied to the interim period, taking into account year-to-date amounts and projected results for the full year. Our effective tax rate could fluctuate significantly from quarter to quarter based on recurring and nonrecurring factors including, but not limited to: variations in the estimated and actual level of pre-tax income or loss by jurisdiction; changes in enacted tax laws and regulations, and interpretations thereof, including with respect to tax credits and state and local income taxes; developments in tax audits and other matters; recognition of excess tax benefits and tax deficiencies from stock-based compensation and certain nondeductible expenses. Changes in judgment from the evaluation of new information resulting in the recognition, derecognition, or remeasurement of a tax position taken in a prior annual period are recognized separately in the quarter of the change.

Current wording

We account for income taxes in accordance with Accounting Standard Codification 740, Income Taxes, which requires an estimate of the annual effective tax rate for the full year to be applied to the interim period, taking into account year-to-date amounts and projected results for the full year. Our effective tax rate could fluctuate significantly from quarter to quarter based on recurring and nonrecurring factors including, but not limited to: variations in the estimated and actual level of pre-tax income or loss by jurisdiction; changes in enacted tax laws and regulations, and interpretations thereof, including with respect to tax credits and state and local income taxes; developments in tax audits and other matters; recognition of excess tax benefits and tax deficiencies from stock-based compensation and certain nondeductible expenses. Changes in judgment from the evaluation of new information resulting in the recognition, derecognition, or remeasurement of a tax position taken in a prior annual period are recognized separately in the quarter of the change.

Previous 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.

Current wording

The increase in total revenue for the three months ended March 31, 2025 was primarily driven by an increase in subscription revenue. Subscription revenue was 63% and 62% of total revenue for the three months ended March 31, 2025 and 2024, respectively, and transaction revenue was 37% and 38% of total revenue for the three months ended March 31, 2025 and 2024, respectively.

Previous wording

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 wording

Subscription revenue increased 8% year-over-year for the three months ended March 31, 2025 primarily due to a 6% year-over-year increase in revenue from our compliance-related subscriptions, an increase in our virtual mail subscriptions and revenue earned from the 1-800Accountant partnership entered into in December 2024. These increases were partially offset by our discontinuation of new customer acquisition for our tax offering.

Previous 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.

Current wording

Gross profit for the three months ended March 31, 2025 increased by $10.7 million compared to three months ended March 31, 2024 due to a $8.9 million increase in revenue and a $1.8 million reduction in cost of revenue.

Previous wording

Technology and development expenses for the three months ended September 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 three months ended March 31, 2025 decreased primarily due to a decrease in payroll and related benefits largely due to decreased technology and development headcount.

Previous wording

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

Current wording

The change in other income, net, between 2025 and 2024 was primarily due to changes in foreign currency movements related to our intercompany loans which were denominated in British Pound Sterling, or GBP.

Previous 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.

Current wording

There was a $2.3 million increase in the provision for income taxes for the three months ended March 31, 2025 compared to the three months ended March 31, 2024. The change was primarily due to an increase in non-deductible stock-based compensation for the three months ended March 31, 2025.

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 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.

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 March 31, 2025, our principal sources of liquidity were cash and cash equivalents of $210.0 million, which consisted of cash on deposit with banks and money market funds, of which approximately $3.6 million related to our foreign subsidiaries. Our cash and cash equivalents increased by $67.9 million from December 31, 2024 to March 31, 2025, primarily as a result of proceeds from stock option exercises primarily by former executive officers, proceeds from the sale of a property held for sale, and cash provided by operating activities, partially offset by cash paid for the acquisition of Formation Nation.

Previous wording

We currently anticipate that our available cash, cash equivalents and cash provided by operating activities will be sufficient to meet our operational cash needs for at least the next twelve months and in the foreseeable future. We have the ability to supplement our liquidity needs with borrowings under our 2021 Revolving Facility. In addition, we previously announced our intention to sell our operating headquarters in Austin, Texas, which is discussed in more detail in Note 4 to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Current wording

We currently anticipate that our available cash, cash equivalents and cash provided by operating activities will be sufficient to meet our operational cash needs for at least the next twelve months and in the foreseeable future. We have the ability to supplement our liquidity needs with borrowings under our 2021 Revolving Facility.

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. 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.

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 and November 2024, our board of directors approved increases of $75.0 million and $40.0 million, respectively, in the stock repurchase program, bringing the aggregate amount authorized to $215.0 million as of March 31, 2025. Approximately $50.0 million remained available for future repurchases under the stock repurchase program as of March 31, 2025. Subsequent to March 31, 2025, in May 2025, our board of directors approved a $100.0 million increase in our stock repurchase program, bringing the aggregate amount authorized to $315.0 million. For additional information regarding our stock repurchase program, refer to Note 8 to our unaudited condensed consolidated financial statements.

Previous wording

On July 2, 2021, we entered into our 2021 Revolving Facility with JPMorgan Chase Bank, N.A., as the administrative agent. The 2021 Revolving Facility, as amended, provides for the issuance of up to $20.0 million of letters of credit as well as borrowings on same-day notice, referred to as swingline loans, in an amount of up to $10.0 million. As of September 30, 2024, we had no borrowings outstanding and $150.0 million was available for use under our 2021 Revolving Facility.

Current wording

On July 2, 2021, we entered into our $150.0 million 2021 Revolving Facility with JPMorgan Chase Bank, N.A., as the administrative agent. The 2021 Revolving Facility, as amended, provides for the issuance of up to $20.0 million of letters of credit as well as borrowings on same-day notice, referred to as swingline loans, in an amount of up to $10.0 million. As of March 31, 2025, we had no borrowings outstanding and $150.0 million was available for use under our 2021 Revolving Facility.

Previous 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.

Current wording

In the three months ended March 31, 2025, cash provided by operating activities was $50.7 million resulting from net income of $5.1 million, adjusted for stock-based compensation and other non-cash expenses of $28.4 million and net cash flows provided by changes in operating assets and liabilities of $17.2 million. The $28.4 million of stock-based compensation and other non-cash expenses resulted primarily from $29.8 million in stock-based compensation expense, $10.4 million in depreciation and amortization expense, and $0.6 million in amortization of right-of-use assets expense, partially offset by a $14.3 million gain on disposal of property and equipment. The $17.2 million of net cash flows provided from changes in our operating assets and liabilities resulted primarily from a $26.8 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 a $9.1 million increase in accounts receivables, and a $2.2 million increase in prepaid and other current assets.

Previous 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.

Current wording

In the three months ended March 31, 2025, net cash used in investing activities was $20.5 million resulting primarily from $48.1 million used for the acquisition of Formation Nation, net of cash acquired and $9.4 million in purchases of property and equipment, including capitalization of internal-use software, partially offset by $37.1 million in proceeds from the sale of our operational headquarters.

Previous 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.

Current wording

In the three months ended March 31, 2025, net cash provided by financing activities was $37.6 million, primarily resulting from $43.5 million in proceeds from the exercise of stock options primarily by former executive officers and a $5.9 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 $46.3 million over a four-year period, of which $28.7 million remains to be paid as of September 30, 2024.

Current wording

We have non-cancelable agreements with various vendors, which require us to pay $35.1 million over a five-year period, of which $22.8 million remains to be paid as of March 31, 2025.

Previous 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.

Current wording

At March 31, 2025, we had various non-cancelable operating leases for office space, which expire between July 2025 and February 2033. As of March 31, 2025, we had total minimum operating lease maturities of $16.6 million, $2.8 million of which mature within nine months. See Note 8 of our consolidated financial statements included in our 2024 Annual Report on Form 10-K for additional information regarding our future operating lease payments.

Previous wording

To supplement our unaudited condensed consolidated financial statements, which are prepared and presented in accordance with U.S. generally accepted accounting principles, or GAAP, we use certain non-GAAP financial measures, as described below, to understand and evaluate our core operating performance. These non-GAAP financial measures, which may be different from similarly titled measures used by other companies, are presented to enhance investors’ overall understanding of our financial performance and liquidity and should not be considered a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP. We believe that these non-GAAP financial measures provide useful information about our financial performance and liquidity, enhance the overall understanding of our past performance and future prospects and allow for greater transparency with respect to important measures used by our management for financial and operational decision-making. We are presenting these non-GAAP measures to assist investors in seeing our financial performance using a management view and because we believe that these measures provide an additional tool for investors to use in comparing our core financial performance over multiple periods with other companies in our industry.

Current wording

To supplement our unaudited condensed consolidated financial statements, which are prepared and presented in accordance with U.S. generally accepted accounting principles, or GAAP, we use certain non-GAAP financial measures, as described below, to understand and evaluate our core operating performance. We believe that these non-GAAP financial measures provide investors with useful information about our financial performance and liquidity, enhance the overall understanding of our past performance and future prospects and allow for greater transparency with respect to important measures used by our management for financial and operational decision-making. We also believe that these measures provide an additional tool for investors to use in comparing our core financial performance over multiple periods with other companies in our industry. These non-GAAP measures should not be considered in isolation of, or as a substitute or an alternative to, measures prepared and presented in accordance with GAAP.

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 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 and certain non-recurring income and expenses from time to time. We define Adjusted EBITDA margin as Adjusted EBITDA as a percentage of revenue. We define net income (loss) margin as net income (loss) as a percentage of revenue based on our consolidated financial statements.

Previous wording

Adjusted EBITDA is one of the primary performance measures used by our management and our board of directors to understand and evaluate our financial performance and operating trends, including period-to-period comparisons, prepare and approve our annual budget, develop short and long-term operational plans and determine appropriate compensation plans for our employees. Accordingly, we believe that Adjusted EBITDA provides useful information to investors and others in understanding and evaluating our results of operations in the same manner as our management team and board of directors. In assessing our performance, we exclude certain expenses that we believe are not comparable period over period or that we believe are not indicative of our underlying operating performance. Adjusted EBITDA should not be considered in isolation of, or as an alternative to, measures prepared and presented in accordance with GAAP. There are a number of limitations related to the use of Adjusted EBITDA rather than net income (loss), which is the nearest GAAP equivalent of Adjusted EBITDA. Some of these limitations include that the non-GAAP financial measure:

Current wording

Adjusted EBITDA is one of the primary performance measures used by our management and our board of directors to understand and evaluate our financial performance and operating trends, including period-to-period comparisons, preparing and approving our annual budget and operational planning. In assessing our performance, we exclude certain expenses that we believe are not comparable period over period or that we believe are not indicative of our underlying operating performance. There are a number of limitations related to the use of Adjusted EBITDA rather than net income (loss), which include that Adjusted EBITDA:

Previous wording

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

Current wording

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

Previous wording

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 wording

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

Previous wording

Adjusted EBITDA increased from $33.7 million for the three months ended September 30, 2023 to $47.1 million for the three months ended September 30, 2024. The increase of $13.4 million resulted primarily from an increase in revenue of $1.3 million, a $6.1 million reduction in cost of revenue, excluding non-cash items, and a decrease in operating expenses, excluding non-cash and non-recurring items, of $6.0 million.

Current wording

Adjusted EBITDA increased from $27.9 million for the three months ended March 31, 2024 to $37.0 million for the three months ended March 31, 2025. The increase of $9.1 million resulted primarily from an increase in revenue of $8.9 million, a $2.1 million reduction in cost of revenue, excluding non-cash items, and an increase in operating expenses, excluding non-cash and non-recurring items, of $1.9 million. Changes in cost of revenue, excluding non-cash items, and operating expenses, excluding non-cash and non-recurring items, reflect a $14.9 million increase in stock-based compensation and a $14.3 million gain on the sale of our operational headquarters.

Previous wording

Free cash flow is a liquidity measure used by management in evaluating the cash generated by our operations after purchases of property and equipment including capitalized internal-use software. We consider free cash flow to be an important measure because it provides useful information to management and investors about the amount of cash generated by our business that can be used for strategic opportunities, including investing in our business and strengthening our balance sheet. Once our business needs and obligations are met, cash can be used to maintain a strong balance sheet and invest in future growth. The usefulness of free cash flow as an analytical tool has limitations because it excludes certain items that are settled in cash, does not represent residual cash flow available for discretionary expenses, does not reflect our future contractual commitments, and may be calculated differently by other companies in our industry. Accordingly, it should not be considered in isolation or as a substitute for analysis of other GAAP financial measures, such as net cash used in or provided by operating activities.

Current wording

Free cash flow is a liquidity measure used by management in evaluating the cash generated by our operations after purchases of property and equipment including capitalized internal-use software. We believe free cash flow provides useful information to management and investors about the amount of cash generated by our business that can be used for strategic opportunities, including investing in our business and strengthening our balance sheet, once our business needs and obligations are met. The usefulness of free cash flow as an analytical tool has limitations because it excludes certain items that are settled in cash, does not represent residual cash flow available for discretionary expenses, does not reflect our future contractual commitments, and may be calculated differently by other companies in our industry.

Previous wording

We experienced a decrease in our free cash flow from $78.6 million for the nine months ended September 30, 2023 to $64.1 million for the nine months ended September 30, 2024, primarily due to a $8.8 million decrease in net cash provided by operating activities. The decrease in net cash provided by operating activities resulted from a $13.1 million unfavorable change in our operating assets and liabilities, partially offset by a $4.4 million increase in net income after adjusting for stock-based compensation and other non-cash items. Free cash flow was also impacted by a $5.8 million increase in capital expenditures for the purchase of property and equipment, including capitalization of internal-use software.

Current wording

We experienced an increase in our free cash flow from $24.7 million for the three months ended March 31, 2024 to $41.3 million for the three months ended March 31, 2025, primarily due to a $16.5 million increase in net cash provided by operating activities. The increase in net cash provided by operating activities resulted from a $12.6 million favorable change in our operating assets and liabilities and a $3.9 million increase in net income after adjusting for stock-based compensation and other non-cash items. Free cash flow was also impacted by a $0.1 million decrease in capital expenditures for the purchase of property and equipment, including capitalization of internal-use software.