# LEGALZOOM.COM, INC. (LZ) Informational only - not investment advice. CIK: 0001286139 SIC: 7374 Services-Computer Processing & Data Preparation SIC breadcrumb: [Services](/division/I/) > [Business Services](/major-group/73/) > [SIC 7374 Services-Computer Processing & Data Preparation](/industry/7374/) Latest 10-K filed: 2026-02-23 SEC page: https://www.sec.gov/edgar/browse/?CIK=1286139 Filing source: https://www.sec.gov/Archives/edgar/data/1286139/000128613926000012/lz-20251231.htm ## Selected Fundamentals | Metric | Value | Unit | FY | Filed | | --- | ---: | --- | ---: | --- | | Revenue | 756043000 | USD | 2025 | 2026-02-23 | | Net income | 15427000 | USD | 2025 | 2026-02-23 | | Assets | 511522000 | USD | 2025 | 2026-02-23 | ## Financials Annual standardized facts from SEC companyfacts as of latest extracted filing date 2026-02-23. Source: https://data.sec.gov/api/xbrl/companyfacts/CIK0001286139.json. Derived margins are computed from the extracted annual SEC facts. | Metric | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | 2024 | 2025 | | --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | | Revenue | | 408,380,000 | 470,636,000 | 575,080,000 | 619,979,000 | 660,727,000 | 681,881,000 | 756,043,000 | | Net income | | 7,443,000 | 9,896,000 | -108,664,000 | -48,733,000 | 13,953,000 | 29,963,000 | 15,427,000 | | Operating income | | 46,265,000 | 48,934,000 | -85,076,000 | -41,739,000 | 21,059,000 | 35,581,000 | 24,976,000 | | Gross profit | | 271,465,000 | 316,073,000 | 385,716,000 | 408,884,000 | 421,464,000 | 441,788,000 | 498,083,000 | | Diluted EPS | | 0.04 | 0.06 | -0.67 | -0.25 | 0.07 | 0.16 | 0.08 | | Assets | | | 252,064,000 | 431,015,000 | 405,395,000 | 447,818,000 | 373,883,000 | 511,522,000 | | Liabilities | | | 731,790,000 | 233,464,000 | 263,020,000 | 278,984,000 | 280,626,000 | 339,640,000 | | Stockholders' equity | -556,535,000 | -556,991,000 | -550,632,000 | 197,551,000 | 142,375,000 | 168,834,000 | 93,257,000 | 171,882,000 | | Cash and cash equivalents | | 49,180,000 | 114,470,000 | 239,297,000 | 189,082,000 | 225,719,000 | 142,064,000 | 203,100,000 | | Net margin | | 1.82% | 2.10% | -18.90% | -7.86% | 2.11% | 4.39% | 2.04% | | Operating margin | | 11.33% | 10.40% | -14.79% | -6.73% | 3.19% | 5.22% | 3.30% | ## Quarterly Quarterly standardized facts from SEC companyfacts as of latest extracted filing date 2026-05-06. Source: https://data.sec.gov/api/xbrl/companyfacts/CIK0001286139.json. Flow metrics use discrete quarter-length periods from 10-Q/10-Q/A filings. Q4 revenue and net income are derived only when annual FY and nine-month YTD facts exist for the same fiscal year; derived Q4 values are labeled. EPS Q4 is not derived. | Quarter | End date | Revenue | Net income | Diluted EPS | Method | | --- | --- | ---: | ---: | ---: | --- | | 2022-Q2 | 2022-06-30 | | | -0.07 | reported discrete quarter | | 2022-Q3 | 2022-09-30 | | | -0.05 | reported discrete quarter | | 2023-Q2 | 2023-03-31 | | -2,358,000 | | reported discrete quarter | | 2023-Q1 | 2023-03-31 | | | -0.01 | reported discrete quarter | | 2023-Q2 | 2023-06-30 | 168,854,000 | | 0.01 | reported discrete quarter | | 2023-Q3 | 2023-06-30 | | 1,395,000 | | reported discrete quarter | | 2023-Q3 | 2023-09-30 | 167,274,000 | | 0.04 | reported discrete quarter | | 2023-Q4 | 2023-12-31 | 158,663,000 | 7,382,000 | | derived Q4 = FY annual - nine-month YTD | | 2024-Q1 | 2024-03-31 | 174,214,000 | 4,744,000 | 0.02 | reported discrete quarter | | 2024-Q2 | 2024-03-31 | | 4,744,000 | | reported discrete quarter | | 2024-Q3 | 2024-06-30 | | 1,314,000 | | reported discrete quarter | | 2024-Q2 | 2024-06-30 | 177,362,000 | | 0.01 | reported discrete quarter | | 2024-Q3 | 2024-09-30 | 168,599,000 | | 0.06 | reported discrete quarter | | 2024-Q4 | 2024-12-31 | 161,706,000 | 12,854,000 | | derived Q4 = FY annual - nine-month YTD | | 2025-Q1 | 2025-03-31 | 183,110,000 | 5,127,000 | 0.03 | reported discrete quarter | | 2025-Q2 | 2025-03-31 | | 5,127,000 | | reported discrete quarter | | 2025-Q3 | 2025-06-30 | | -266,000 | | reported discrete quarter | | 2025-Q2 | 2025-06-30 | 192,509,000 | | 0.00 | reported discrete quarter | | 2025-Q3 | 2025-09-30 | 190,158,000 | | 0.02 | reported discrete quarter | | 2025-Q4 | 2025-12-31 | 190,266,000 | 6,057,000 | | derived Q4 = FY annual - nine-month YTD | | 2026-Q1 | 2026-03-31 | 206,781,000 | 1,104,000 | 0.01 | reported discrete quarter | ## Macro Cross-References - [CPIAUCSL](/indicator/CPIAUCSL/): Consumer Price Index for All Urban Consumers: All Items in U.S. City Average - [UNRATE](/indicator/UNRATE/): Unemployment Rate - [FEDFUNDS](/indicator/FEDFUNDS/): Federal Funds Effective Rate - [CES0500000003](/indicator/CES0500000003/): Average Hourly Earnings of All Employees, Total Private - [DFEDTARU](/indicator/DFEDTARU/): Federal Funds Target Range - Upper Limit - [DFEDTARL](/indicator/DFEDTARL/): Federal Funds Target Range - Lower Limit - [DGS3MO](/indicator/DGS3MO/): Market Yield on U.S. Treasury Securities at 3-Month Constant Maturity - [DGS2](/indicator/DGS2/): Market Yield on U.S. Treasury Securities at 2-Year Constant Maturity - [DGS10](/indicator/DGS10/): Market Yield on U.S. Treasury Securities at 10-Year Constant Maturity - [DGS30](/indicator/DGS30/): Market Yield on U.S. Treasury Securities at 30-Year Constant Maturity - [T10Y2Y](/indicator/T10Y2Y/): 10-Year Treasury Constant Maturity Minus 2-Year Treasury Constant Maturity - [CPILFESL](/indicator/CPILFESL/): Consumer Price Index for All Urban Consumers: All Items Less Food and Energy - [CPIUFDSL](/indicator/CPIUFDSL/): Consumer Price Index for All Urban Consumers: Food - [CPIENGSL](/indicator/CPIENGSL/): Consumer Price Index for All Urban Consumers: Energy - [CUSR0000SAH1](/indicator/CUSR0000SAH1/): Consumer Price Index for All Urban Consumers: Shelter - [PCEPI](/indicator/PCEPI/): Personal Consumption Expenditures: Chain-type Price Index - [PCEPILFE](/indicator/PCEPILFE/): Personal Consumption Expenditures Excluding Food and Energy: Chain-type Price Index - [PPIACO](/indicator/PPIACO/): Producer Price Index by Commodity: All Commodities - [T10YIE](/indicator/T10YIE/): 10-Year Breakeven Inflation Rate - [U6RATE](/indicator/U6RATE/): Total Unemployed, Plus All Marginally Attached Workers Plus Total Employed Part Time for Economic Reasons - [PAYEMS](/indicator/PAYEMS/): All Employees, Total Nonfarm - [CIVPART](/indicator/CIVPART/): Labor Force Participation Rate - [EMRATIO](/indicator/EMRATIO/): Employment-Population Ratio - [UNEMPLOY](/indicator/UNEMPLOY/): Unemployed - [CE16OV](/indicator/CE16OV/): Employment Level - [ICSA](/indicator/ICSA/): Initial Claims - [JTSJOL](/indicator/JTSJOL/): Job Openings: Total Nonfarm - [JTSQUR](/indicator/JTSQUR/): Quits: Total Nonfarm - [GDPC1](/indicator/GDPC1/): Real Gross Domestic Product - [A191RL1Q225SBEA](/indicator/A191RL1Q225SBEA/): Real Gross Domestic Product: Percent Change from Preceding Period - [INDPRO](/indicator/INDPRO/): Industrial Production: Total Index - [TCU](/indicator/TCU/): Capacity Utilization: Total Index - [HOUST](/indicator/HOUST/): New Privately-Owned Housing Units Started: Total Units - [PERMIT](/indicator/PERMIT/): New Privately-Owned Housing Units Authorized in Permit-Issuing Places: Total Units - [RSAFS](/indicator/RSAFS/): Advance Retail Sales: Retail Trade - [PCE](/indicator/PCE/): Personal Consumption Expenditures - [DSPIC96](/indicator/DSPIC96/): Real Disposable Personal Income - [PSAVERT](/indicator/PSAVERT/): Personal Saving Rate - [M2SL](/indicator/M2SL/): M2 - [BOPGSTB](/indicator/BOPGSTB/): U.S. International Trade in Goods and Services: Balance - [MSPUS](/indicator/MSPUS/): Median Sales Price of Houses Sold for the United States - [HSN1F](/indicator/HSN1F/): New One Family Houses Sold: United States - [RHORUSQ156N](/indicator/RHORUSQ156N/): Homeownership Rate in the United States - [TTLCONS](/indicator/TTLCONS/): Total Construction Spending: Total Construction in the United States - [RRVRUSQ156N](/indicator/RRVRUSQ156N/): Rental Vacancy Rate in the United States - [TOTALSL](/indicator/TOTALSL/): Total Consumer Credit Owned and Securitized - [REVOLSL](/indicator/REVOLSL/): Revolving Consumer Credit Owned and Securitized - [DRCCLACBS](/indicator/DRCCLACBS/): Delinquency Rate on Credit Card Loans, All Commercial Banks - [GDP](/indicator/GDP/): Gross Domestic Product - [GPDI](/indicator/GPDI/): Gross Private Domestic Investment - [GCE](/indicator/GCE/): Government Consumption Expenditures and Gross Investment - [PCEC](/indicator/PCEC/): Personal Consumption Expenditures - [NETEXP](/indicator/NETEXP/): Net Exports of Goods and Services - [GFDEBTN](/indicator/GFDEBTN/): Federal Debt: Total Public Debt - [GFDEGDQ188S](/indicator/GFDEGDQ188S/): Federal Debt: Total Public Debt as Percent of Gross Domestic Product - [FYFSD](/indicator/FYFSD/): Federal Surplus or Deficit - [FGRECPT](/indicator/FGRECPT/): Federal Government Current Receipts - [FGEXPND](/indicator/FGEXPND/): Federal Government: Current Expenditures - [MANEMP](/indicator/MANEMP/): All Employees, Manufacturing - [USCONS](/indicator/USCONS/): All Employees, Construction - [USTRADE](/indicator/USTRADE/): All Employees, Retail Trade - [USFIRE](/indicator/USFIRE/): All Employees, Financial Activities - [USGOVT](/indicator/USGOVT/): All Employees, Government - [AWHAETP](/indicator/AWHAETP/): Average Weekly Hours of All Employees, Total Private - [DGORDER](/indicator/DGORDER/): Manufacturers' New Orders: Durable Goods - [NEWORDER](/indicator/NEWORDER/): Manufacturers' New Orders: Nondefense Capital Goods Excluding Aircraft - [BUSINV](/indicator/BUSINV/): Total Business Inventories - [EXPGS](/indicator/EXPGS/): Exports of Goods and Services - [IMPGS](/indicator/IMPGS/): Imports of Goods and Services - [IR](/indicator/IR/): Import Price Index (End Use): All Commodities - [PPIFIS](/indicator/PPIFIS/): Producer Price Index by Commodity: Final Demand ## Latest quarter (10-Q) Latest 10-Q source: https://www.sec.gov/Archives/edgar/data/1286139/000128613926000022/lz-20260331.htm Extracted between Part I Item 2 and the next Item 3/4 or Part II heading after HTML sanitization. Confidence: high Filing date: 2026-05-06 Report date: 2026-03-31 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q, as well as Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operation” and Part II, Item 8, “Financial Statements and Supplementary Data” included in our 2025 Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on February 23, 2026 and our other filings with the SEC. The following discussion contains forward-looking statements based upon current plans, expectations and beliefs and that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth in the "Risk Factors" section of this Quarterly Report on Form 10-Q. See “Forward-Looking Statements” preceding Part I of this Quarterly Report on Form 10-Q. Overview LegalZoom is a leading online platform for legal services, transforming how individuals and small businesses navigate the legal system. By combining intuitive technology with access to experienced attorneys—whether through our vast independent attorney network or our own law firm—we offer the tools and guidance people need to confidently manage everything from business formation and compliance to intellectual property protection and ongoing business management and legal support. Our ongoing business management services include virtual mail, legal forms, bookkeeping and estate planning services, among others. We operate across all 50 states and in over 3,000 counties in the U.S. With over two decades of experience and millions of customers served, LegalZoom helps individuals and small businesses navigate legal needs with confidence. Key Factors Affecting Our Performance We believe that our future performance will depend on many factors, including the following: •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. •Our share of small and medium-sized businesses (SMBs). In the three months ended March 31, 2026 and 2025, 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. However, AI-driven search is reshaping customer acquisition dynamics and the ways in which customers find and engage with LegalZoom. As a result, we are diversifying our customer acquisition channels via strategic partnerships and collaborations, including with AI platforms, and expanding our go-to-market strategy to focus on both higher intent customers and emerging and established business. Over time, we expect partnerships to drive a greater share of high-value customer acquisition. 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 attract new and existing businesses to our platform via various acquisition channels. •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. We are continuing to optimize our subscription business, including by testing various commercialization and pricing strategies for our offerings and introducing new, higher value, full-service do-it-for-me (“DIFM”) subscription offerings, including our concierge suite of offerings. As a result, we have experienced and we expect to continue to experience increased volatility across our key business metrics. •Ability to integrate augmented legal expertise. We believe that the future of legal and small business services involves a combination of AI and human expertise. We aim to utilize AI to drive efficiency and scale, while relying on our team of concierge managers and our independent network of attorneys to provide the judgment and trust that customers need. The extent to which we are able to combine AI with our human expertise in order to drive cost efficiencies and increase the consumption of our DIFM offerings will impact our future results of operations. 21 Key Business Metrics 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. Except with respect to annual small business retention rate, Formation Nation, Inc. (“Formation Nation”) has been included in the key business metrics below starting on February 10, 2025, the date we acquired Formation Nation. Number of business formations We define the number of business formations in a given period as the number of limited liability company (“LLC”), incorporation, not-for-profit and doing business as (“DBA”) orders placed on our platform in such period. We consider the number of business formations to be an important metric considering that it is typically the first product or service small business customers purchase on our platform, creating the foundation for additional products and subsequent subscription revenue as customers adopt additional products and services throughout the lifecycle of their business. We believe that including customers filing DBAs on our platform provides a more accurate representation of the number of newly formed businesses we serve. These transactions are most often completed by sole proprietors who represent potential future transaction and subscription cross-sell opportunities as their businesses mature. Furthermore, we believe our definition of the number of business formations is most closely aligned with U.S. Census reporting of new applications for Employer Identification Numbers (“EINs”), which we believe to be the most relevant source of publicly available U.S. market data. The below table sets forth the number of business formations for the three months ended March 31, 2026 and 2025: Three Months Ended March 31, 2026 2025 (in thousands) Number of business formations 142  131  We experienced an 8% increase in business formation transactions during the three months ended March 31, 2026 compared to the three months ended March 31, 2025, primarily due to an increase in formations through our partnership channel as well as the inclusion of a full quarter of formations from Formation Nation. Number of transactions We define the number of transactions in a given period as gross transaction order volume, prior to refunds, on our platform during such period. Transactions may include one or more services purchased at the same time. For example, a customer of our business formation services may choose to form an LLC and purchase an operating agreement and business licenses at the same time. This constitutes a single transaction. Refunds, or partial refunds, may be issued under certain circumstances pursuant to the terms of our customer satisfaction guarantee. We consider the number of transactions to be an important metric considering that our customers generally begin their LegalZoom journey with a transaction, creating the foundation for generating subsequent subscription revenue. The below table sets forth the number of transactions for the three months ended March 31, 2026 and 2025: Three Months Ended March 31, 2026 2025 (in thousands) Number of transactions 375  341  22 We experienced a 10% increase in the number of transactions during the three months ended March 31, 2026 compared to the three months ended March 31, 2025, primarily due to an increase in Annual Report filings within our compliance offerings as a result of filing automation and an increase in business formations. The increase was partially offset by a decline in beneficial ownership information report filings following a Financial Crimes Enforcement Network (“FinCEN”) ruling on March 21, 2025 that eliminated this filing requirement for U.S. companies. Average order value We define average order value for a given period as total transaction revenue divided by total number of transactions in such period. We consider average order value to be an important metric given that it indicates how much customers are spending on average on our platform per transaction. The below table sets forth the average order value for the three months ended March 31, 2026 and 2025: Three Months Ended March 31, 2026 2025 Average order value $ 205  $ 196  Average order value increased 5% for the three months ended March 31, 2026 compared to the three months ended March 31, 2025. This increase was primarily driven by the impact of bundling changes within our business formation products and a decline in lower value beneficial ownership information report filings following a FinCEN ruling on March 21, 2025 that eliminated this filing requirement for U.S. companies. Average order value was partially offset by an increase in Annual Report filings, which carry lower average transaction values and represented a larger share of total transactions in the current period. Number of subscription units We define the number of subscription units in a given period as the number of paid subscriptions at the end of such period, including those that are not yet 60 days past their subscription order dates. Refunds, or partial refunds, may be issued under certain circumstances pursuant to the terms of our customer satisfaction guarantee. We consider the number of subscription units to be an important metric since subscriptions enable us to increase the lifetime value of a customer through deeper, longer-term relationships. In addition, as we continue to innovate our product line-up, including by testing varying price points for our products and evaluating our commercialization strategy, we believe the number of subscription units, when viewed together with the number of business formations during a particular period, provides insight into the effectiveness of our efforts to drive growth in our subscription business. Subscriptions typically range from 30 days to one year in duration and the vast majority of our new subscriptions originate from business formation orders and have an annual term. Our customers can have multiple subscriptions at the end of a period. For example, a popular combination for a new small business owner is attorney advice and registered agent subscriptions. The below table sets forth the number of subscription units as of March 31, 2026 and 2025: As of March 31, 2026 2025 (in thousands) Number of subscription units 1,920  1,924  The number of subscription units was flat from March 31, 2025 to March 31, 2026. This was primarily driven by a decrease in accounting, forms, e-Signature and registered agent subscriptions, partially offset by increases in compliance subscriptions, legal advisory subscriptions, subscriptions from our partnership channel and virtual mail subscriptions. Average revenue per subscri [Excerpt truncated for page length; source filing is linked above.] ## Latest 10-K MD&A Extracted between Item 7 and the next Item 7A/8 heading after HTML sanitization. Confidence: high Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements based upon current plans, expectations and beliefs involving risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth in the "Risk Factors" section of this Annual Report on Form 10-K. See “Forward-Looking Statements” preceding Part I of this Annual Report on Form 10-K. Overview LegalZoom is a leading online platform for legal services, transforming how individuals and small businesses navigate the legal system. By combining intuitive technology with access to experienced attorneys—whether through our vast independent attorney network or our own law firm—we offer the tools and guidance people need to confidently manage everything from business formation and compliance to intellectual property protection and ongoing business management and legal support. We operate across all 50 states and in over 3,000 counties in the U.S. With over two decades of experience and millions of customers served, LegalZoom helps individuals and small businesses navigate legal needs with confidence. Key Factors Affecting Our Performance We believe that our future performance will depend on many factors, including the following: •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. •Our share of small and medium-sized businesses (SMBs). In 2025, business formations represented the largest share of our total transaction orders. Business formations act as an entrance point for many customers to the LegalZoom ecosystem, where they then often purchase a mix of transaction and subscription offerings alongside and after the initial formation transaction. In addition, we are expanding our go-to-market strategy to focus on emerging and established business, which we believe will decrease our dependence on business formations over time. 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 new business formations and to attract existing businesses to our platform. •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 optimize our subscription business, including by testing various commercialization strategies for our offerings and introducing new, higher value DIFM subscription offerings, we have experienced and we expect to continue to experience increased volatility across our key business metrics. •Ability to integrate augmented legal expertise. We believe that the future of legal and small business services involves a combination of AI and human expertise. We aim to utilize AI to drive efficiency and scale, while relying on our team of concierge managers and our independent network of attorneys to provide the judgment and trust that customers need. The extent to which we are able to combine AI with our human expertise in order to drive cost efficiencies and increase the consumption of our DIFM offerings will impact our future results of operations. Key Components of our Results of Operations Revenue We generate revenue from the sources identified below. 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. 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 eSignature 36 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. For transaction and subscription revenue, we generally collect payments and fees at the time orders are placed and prior to services being rendered. We record amounts collected for services that have not been performed as deferred revenue on our consolidated balance sheet. The transaction price that we record is generally based on the contractual amounts and is reduced for estimated sales allowances for price concessions, charge-backs, sales credits and refunds, which are accounted for as variable consideration when estimating the amount of revenue to recognize. See the section titled “—Critical Accounting Estimates—Revenue Recognition” below for a description of the accounting policies related to revenue recognition, including arrangements that contain multiple deliverables. Cost of revenue Cost of revenue includes all costs of providing and fulfilling our services. Cost of revenue primarily includes government filing fees, costs of fulfillment, customer care, and payroll services, and related benefits, including stock-based compensation, and costs of independent contractors for document preparation, telecommunications and data center costs, amortization of acquired developed technology, depreciation and amortization of network computers, equipment and internal-use software, printing, shipping and handling charges, credit and debit card fees, allocated overhead, legal document kit expenses, and sales and use taxes. We defer direct and incremental costs primarily related to government filing fees incurred prior to the associated service meeting the criteria for revenue recognition. These contract assets are recognized as cost of revenue in the same period the related revenue is recognized. Gross profit and gross margin Gross profit, or revenue less cost of revenue, and gross margin, or gross profit as a percentage of revenue, have been and will continue to be affected by various factors, primarily the mix between transaction and subscription revenue. 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. Operating expenses Our operating expenses consist primarily of sales and marketing, technology and development, general and administrative expenses, and to a lesser extent, impairments of goodwill, long-lived assets, other assets and gain on sale of assets held for sale. Sales and marketing Sales and marketing expenses consist of customer acquisition media costs, compensation and related benefits, including stock-based compensation for marketing and sales personnel, media production, public relations and other promotional activities, general business development activities, an allocation of depreciation and amortization and allocated overhead. Customer acquisition media costs consist primarily of search engine marketing, television and social media costs. Marketing and advertising costs to promote our services are expensed in the period incurred. Media production costs are expensed the first time the advertisement is aired. Customer acquisition media spend has historically been highest in the first quarter of the year to align with business formation seasonality and we expect this trend to continue to invest in sales and marketing to drive additional revenue, further penetrate our expanding addressable market, and build on our digital brand leadership and awareness. We anticipate that sales and marketing expenses will continue to be our largest operating expense category for the foreseeable future. Technology and development Technology and development expenses consist primarily of personnel costs and related benefits, including stock-based compensation for technology and development personnel, expenses for outside consultants, an allocation of depreciation and amortization and allocated overhead. These expenses include costs incurred in the development and implementation of our products, websites, mobile applications, online 37 legal platform, research and development and related infrastructure. Technology and development expenses are expensed as incurred, except to the extent that such costs are associated with internal-use software costs that qualify for capitalization. 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. General and administrative Our general and administrative expenses relate primarily to compensation and related benefits, including stock-based compensation, for executive and corporate personnel, professional and consulting fees, an allocation of depreciation and amortization, allocated overhead and legal costs. We expect our general and administrative expenses to decrease as a percentage of our revenue over the longer term. However, our general and administrative expenses may fluctuate as a percentage of our revenue from period-to-period due to seasonality and the timing and extent of these expenses. Gain on sale of assets held for sale Gain on sale of assets held for sale relates to the sale of our operational headquarters on March 31, 2025. Interest expense Interest expense consists primarily of amortization of debt issuance costs related to our amended and restated credit and guaranty agreement, or, as amended, the Amended Revolving Facility as well as interest incurred on the deferred cash consideration associated with the acquisition of Formation Nation. We expect interest expense to remain insignificant in the near term as we have no outstanding indebtedness. However, we would incur interest expense in the longer term should we draw down on our Amended Revolving Facility or incur other indebtedness. Interest income Interest income consists primarily of interest income generated from our investment in money market funds. Other income, net Other income, net consists of realized and unrealized foreign currency gains and losses, change in fair value of other equity security, gain on sale of available-for-sale security as well as the loss on debt extinguishment related to the Amended Revolving Facility. Income taxes Our provision for income taxes consists of current and deferred federal, state and foreign income taxes. 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. At December 31, 2025, we had federal net operating loss, or NOL, carryforwards of $27.5 million, which will begin to expire in 2036. At December 31, 2025, we had state NOL carryforwards of $41.3 million, which will begin to expire in 2026 and we had foreign NOL carryforwards of $32.8 million, which can be carried forward indefinitely and are not subject to expiration. In general, under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, or the Code, if a corporation undergoes an “ownership change,” generally defined as a greater than 50% change, by value, in its equity ownership by certain stockholders over a three-year period, the corporation’s ability to use its pre-change NOLs and other pre-change tax attributes, such as research tax credits, to offset its post-change income or taxes may be limited. 38 We had an ownership change in prior years, and as a result certain federal and state NOLs were limited pursuant to Section 382 of the Code. This limitation has been accounted for in calculating our available NOL carryforwards. Key Business Metrics In addition to the measures presented in our consolidated financial statements, we regularly monitor the following financial and operating metrics to evaluate the growth of our business, measure the effectiveness of our marketing efforts, identify trends, formulate financial forecasts and make strategic decisions. For the year ended December 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. Number of business formations We define the number of business formations in a given period as the number of limited liability company, or LLC, incorporation, not-for-profit and doing business as, or DBA, orders placed on our platform in such period. We consider the number of business formations to be an important metric considering that it is typically the first product or service small business customers purchase on our platform, creating the foundation for additional products and subsequent subscription revenue as customers adopt additional products and services throughout the lifecycle of their business. We believe that including customers filing DBAs on our platform provides a more accurate representation of the number of newly formed businesses we serve. These transactions are most often completed by sole proprietors who represent potential future transaction and subscription cross-sell opportunities as their businesses mature. Furthermore, we believe our definition of the number of business formations is most closely aligned with U.S. Census reporting of new applications for Employer Identification Numbers, or EINs, which we believe to be the most relevant source of publicly available U.S. market data. The below table sets forth the number of business formations for the years ended December 31, 2025 and 2024: Year Ended December 31, 2025 2024  (in thousands) Number of business formations 500 482 We experienced a 4% increase in business formation transactions during the year ended December 31, 2025 compared to the year ended December 31, 2024, primarily due to formations driven by our Formation Nation acquisition. Overall U.S. business formations grew by 9% during the year ended December 31, 2025 compared to the year ended December 31, 2024, based on a review of U.S. Census data revealing new applications for EINs. Number of transactions We define the number of transactions in a given period as gross transaction order volume, prior to refunds, on our platform during such period. Transactions may include one or more services purchased at the same time. For example, a customer of our business formation services may choose to form an LLC and purchase an operating agreement and business licenses at the same time. This constitutes a single transaction. Refunds, or partial refunds, may be issued under certain circumstances pursuant to the terms of our customer satisfaction guarantee. We consider the number of transactions to be an important metric considering that our customers generally begin their LegalZoom journey with a transaction, creating the foundation for generating subsequent subscription revenue. The below table sets forth the number of transactions for the years ended December 31, 2025 and 2024: Year Ended December 31, 2025 2024 (in thousands) Number of transactions 1,117 1,123 We experienced a 1% decrease in the number of transactions during the year ended December 31, 2025 compared to the year ended December 31, 2024, primarily from the decline in beneficial ownership information 39 report filings following a FinCEN ruling on March 21, 2025 that eliminated this filing requirement for U.S. companies, partially offset by the inclusion of transactions from our Formation Nation acquisition and an increase in annual report filings. Average order value We define average order value for a given period as total transaction revenue divided by total number of transactions in such period. We consider average order value to be an important metric given that it indicates how much customers are spending on average on our platform per transaction. The below table sets forth the average order value for the years ended December 31, 2025 and 2024: Year Ended December 31, 2025 2024 Average order value $ 236  $ 219  Average order value increased by 8% during the year ended December 31, 2025 compared to the year ended December 31, 2024. The increase in average order value was primarily driven by a decrease in the volume of lower-value beneficial ownership information report filings, as well as our acquisition of Formation Nation, which includes higher-value DIFM business formation services. Number of subscription units We define the number of subscription units in a given period as the number of paid subscriptions at the end of such period, including those that are not yet 60 days past their subscription order dates. Refunds, or partial refunds, may be issued under certain circumstances pursuant to the terms of our customer satisfaction guarantee. We consider the number of subscription units to be an important metric since subscriptions enable us to increase the lifetime value of a customer through deeper, longer-term relationships. In addition, as we continue to innovate our product line-up, including by testing varying price points for our products and evaluating our commercialization strategy, we believe the number of subscription units, when viewed together with the number of business formations during a particular period, provides insight into the effectiveness of our efforts to drive growth in our subscription business. Subscriptions typically range from 30 days to one year in duration and the vast majority of our new subscriptions originate from business formation orders and have an annual term. Our customers can have multiple subscriptions at the end of a period. The below table sets forth the number of subscription units as of December 31, 2025 and 2024: As of December 31, 2025 2024 (in thousands) Number of subscription units 1,939 1,766 We achieved 10% growth in the number of subscription units from December 31, 2024 to December 31, 2025, primarily driven by an increase in compliance, legal advisory and accounting subscriptions from the bundling of these products into business formation offerings, as well as an increase in virtual mail subscriptions and the inclusion of subscription units from our Formation Nation acquisition. On a sequential basis, the number of subscription units as of December 31, 2025 decreased 1% from 1,959 thousand subscription units as of September 30, 2025. Average revenue per subscription unit We define average revenue per subscription unit, or ARPU, as of a given date as subscription revenue for the twelve-month period ended on such date, or LTM, divided by the average of the number of subscription units at the beginning and end of the LTM period. We consider ARPU to be an important metric because it helps to illustrate our ability to provide and monetize higher value subscriptions. In addition, when viewed together with subscription units, ARPU provides insight into the impact that higher-value subscriptions have on our ability to grow our subscription units. The below table sets forth ARPU as of December 31, 2025 and 2024: 40 As of December 31, 2025 2024 Average revenue per subscription unit $ 266  $ 263  ARPU increased by 1% as of December 31, 2025 as compared to December 31, 2024 driven primarily by the acquisition of Formation Nation in February 2025, partially offset by our prior discontinuation of new customer acquisition for our tax offerings as well as a shift in mix towards our lower priced subscription offerings, including forms and eSignature, accounting solutions, and legal advisory subscriptions, due to the bundling of these products into certain business formation offerings. On a sequential basis, ARPU as of December 31, 2025 increased 4% compared to September 30, 2025. Annual small business retention rate We define annual small business retention rate as the percentage of small business subscription units active as of the last day of the quarter one year ago that were still active subscriptions 12 months later. 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 December 31, 2025 was approximately 58% which was impacted by the anniversary of the bundling of annual forms and eSignature subscriptions into certain business formation offerings, which are typically lower retaining. The annual small business retention rate as of December 31, 2025 does not include the impact of Formation Nation, as we had no active Formation Nation subscriptions on the last day of the quarter one year ago. We expect annual retention rate to fluctuate as we continue to test new products, subscription term lengths and price points and seek to optimize our product offerings across our lineup. While there may be a general correlation between annual small business retention rate and our ability to increase customer lifetime value and the growth of our customer base, we do not view it as a predictor of future revenue given the varying needs of a small business during its lifecycle and the varying use cases of the products underlying our subscription units. 41 Results of Operations The table below sets forth our consolidated statement of operations data for each of the periods indicated. The period-to-period comparison of financial results should not be considered as a prediction or indicative of our future results. Year Ended December 31, 2025 2024 (in thousands) Revenue $ 756,043  $ 681,881  Cost of revenue(1)(2) 257,960  240,093  Gross profit 498,083  441,788  Operating expenses: Sales and marketing(1)(2) 261,745  207,684  Technology and development(1)(2) 81,941  89,584  General and administrative(1)(2) 143,758  108,939  Gain on sale of assets held for sale (14,337) —  Total operating expenses 473,107  406,207  Income from operations 24,976  35,581  Interest expense (1,294) (446) Interest income 7,569  7,850  Other income, net 1,187  98  Income before income taxes 32,438  43,083  Provision for income taxes 17,011  13,120  Net income $ 15,427  $ 29,963  (1)Includes stock-based compensation expense as follows: Year Ended December 31, 2025 2024 (in thousands) Cost of revenue $ 5,538  $ 5,833  Sales and marketing 16,810  8,077  Technology and development 15,097  19,573  General and administrative 76,263  38,027  Total stock-based compensation expense $ 113,708  $ 71,510  Stock-based compensation expense increased for the year ended December 31, 2025 compared to the year ended December 31, 2024 primarily due to a full year of expense recognition in 2025 for our awards with performance conditions as well as those with market-based conditions, or, collectively, PSUs, granted in 2024, compared to a partial year of expense in 2024. Refer to Note 14 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K. 42 (2)Includes depreciation and amortization expense for our property and equipment, including capitalized internal-use software and intangible assets as follows: Year Ended December 31, 2025 2024 (in thousands) Cost of revenue $ 20,687  $ 18,902  Sales and marketing 9,261  3,736  Technology and development 8,516  7,688  General and administrative 5,659  4,601  Total depreciation and amortization expense $ 44,123  $ 34,927  Comparison of the Year Ended December 31, 2025 and 2024 Revenue Year Ended December 31, 2025 2024 $ change % change (in thousands, except percentages) Revenue by type Transaction $ 263,582  $ 245,692  $ 17,890  7 % Subscription 492,461  436,189  56,272  13 % Total revenue $ 756,043  $ 681,881  $ 74,162  11 % The 11% increase in total revenue for the year ended December 31, 2025 compared to the year ended December 31, 2024 was driven by an increase in subscription revenue. Subscription revenue was 65% and 64% of total revenue for the years ended December 31, 2025 and 2024, respectively, and transaction revenue was 35% and 36% of total revenue for the years ended December 31, 2025 and 2024, respectively. Transaction revenue increased 7% year-over-year for the year ended December 31, 2025 primarily due to approximately $33.2 million in revenue from transactions derived from our acquisition of Formation Nation in February 2025 and an increase in revenue from annual report filing fees and trademark filings, partially offset by a decline in beneficial ownership information report revenue due to the FinCEN ruling on March 21, 2025 that eliminated this filing requirement for U.S. companies. Subscription revenue increased 13% year-over-year for the year ended December 31, 2025 primarily due to approximately $18.2 million in revenue from subscriptions derived from our acquisition of Formation Nation in February 2025, as well as an 11% increase in revenue from compliance-related subscriptions, an increase in revenue from our virtual mail offering and revenue earned from the 1-800 Accountant partnership entered into in December 2024. Subscription revenue growth was partially offset by our prior discontinuation of new customer acquisition for our tax offering. Cost of revenue Year Ended December 31, 2025 2024 $ change % change (in thousands, except percentages) Cost of revenue $ 257,960  $ 240,093  $ 17,867  7 % Cost of revenue for the year ended December 31, 2025 increased by $17.9 million mainly due to a $15.0 million increase in filing fees primarily due to our acquisition of Formation Nation and annual report filings, a $3.7 million increase in third-party fees for customer fulfillment services, a $3.1 million increase in other cost of service primarily related to acquisition of Formation Nation, a $1.8 million increase in depreciation and amortization expense, and a $1.1 million increase in credit card fees. These increases were partially offset by a $6.8 million decrease in payroll and related benefits due to a decrease in average headcount. 43 Gross profit Year Ended December 31, 2025 2024 $ change % change (in thousands, except percentages) Gross profit $ 498,083  $ 441,788  $ 56,295  13 % The increase in gross profit was driven by a $74.2 million increase in revenue partially offset by a $17.9 million increase in cost of revenue. Sales and marketing Year Ended December 31, 2025 2024 $ change % change (in thousands, except percentages) Sales and marketing $ 261,745  $ 207,684  $ 54,061  26 % Sales and marketing expenses for the year ended December 31, 2025 increased by $54.1 million largely due to a $20.0 million increase in payroll and related benefits resulting from an increase in average sales and marketing headcount primarily related to our Formation Nation acquisition, an $18.0 million increase in customer acquisition marketing spend, an $8.7 million increase in stock-based compensation expense, and a $5.5 million increase in depreciation and amortization expense primarily due to the amortization of intangible assets. Customer acquisition marketing spend was $175.6 million and $157.6 million for the year ended December 31, 2025 and 2024, respectively, primarily due to lower performance marketing spend during the year ended December 31, 2024. Technology and development Year Ended December 31, 2025 2024 $ change % change (in thousands, except percentages) Technology and development $ 81,941  $ 89,584  $ (7,643) (9 %) Technology and development expenses for the year ended December 31, 2025 decreased primarily due to a decrease in payroll and related benefits largely due to a decrease in average technology and development headcount including a $4.5 million decrease in stock-based compensation expense during the year ended December 31, 2025. General and administrative Year Ended December 31, 2025 2024 $ change % change (in thousands, except percentages) General and administrative $ 143,758  $ 108,939  $ 34,819  32 % General and administrative expenses for the year ended December 31, 2025 increased by $34.8 million primarily due to an increase of $38.2 million in stock-based compensation expense due to time-based RSUs as well as PSUs granted to eligible employees and members of our senior leadership team in 2024. These increases were partially offset by a $5.2 million decrease in restructuring costs compared to the year ended December 31, 2024. 44 Gain on sale of assets held for sale Year Ended December 31, 2025 2024 $ change % change (in thousands, except percentages) Gain on sale of assets held for sale $ (14,337) $ —  $ (14,337) N/A Gain on sale of assets held for sale for the year ended December 31, 2025 was $14.3 million due to the sale of our operational headquarters on March 31, 2025. Interest expense Year Ended December 31, 2025 2024 $ change % change (in thousands, except percentages) Interest expense $ 1,294  $ 446  $ 848  190 % Interest expense consists primarily of amortization of debt issuance costs related to our Amended Revolving Facility as well as interest incurred on the deferred cash consideration associated with the acquisition of Formation Nation. Interest income Year Ended December 31, 2025 2024 $ change % change (in thousands, except percentages) Interest income $ 7,569  $ 7,850  $ (281) (4 %) The change in interest income was primarily due to interest income generated from our money market investments for the year ended December 31, 2025. Other income, net Year Ended December 31, 2025 2024 $ change % change (in thousands, except percentages) Other income, net $ 1,187  $ 98  $ 1,089  1111 % The change in other income, net, between 2025 and 2024 was primarily due to change in fair value of other equity security of $0.3 million and gain on sale of available-for-sale debt security of $0.8 million. Provision for income taxes Year Ended December 31, 2025 2024 $ change % change (in thousands, except percentages) Provision for income taxes $ 17,011  $ 13,120  $ 3,891  30 % Effective tax rate 52  % 30  % There was a $3.9 million increase in the provision for income taxes in 2025 as compared to 2024 primarily due to higher nondeductible tax benefits from stock-based compensation and lower research and development tax credits for the year ended December 31, 2025 compared to the year ended December 31, 2024. 45 Comparison of the Years Ended December 31, 2024 and 2023 For a discussion related to the results of operations and changes in financial condition for the year ended December 31, 2024 compared to the year ended December 31, 2023, refer to Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2024, which was filed with the SEC on February 26, 2025. Liquidity and Capital Resources Overview 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 December 31, 2025, our principal sources of liquidity were cash and cash equivalents of $203.1 million, which consisted of cash on deposit with banks and money market funds, of which approximately $4.4 million related to our foreign subsidiaries. Our cash and cash equivalents increased by $61.0 million from December 31, 2024 to December 31, 2025, primarily due to cash provided by operating activities, proceeds from stock option exercises primarily by former executive officers in the first quarter of 2025, and proceeds from the sale of a property held for sale, partially offset by repurchases of our common stock, cash paid for the acquisition of Formation Nation, cash paid for shares surrendered for settlement of minimum statutory tax withholding, and purchases of property and equipment. 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 Amended Revolving Facility. We have historically considered the undistributed earnings of our foreign subsidiaries to be indefinitely reinvested, and accordingly no taxes have been provided on such earnings. We continue to evaluate our plans for reinvestment or repatriation of unremitting foreign earnings. We have not repatriated funds to the U.S. to satisfy domestic liquidity needs, nor do we anticipate the need to do so. If we determine that all or a portion of our foreign earnings are no longer indefinitely reinvested, we may be subject to foreign withholding taxes and U.S. state income taxes. In October 2023, our board of directors approved a stock repurchase program authorizing the repurchase of shares of our common stock from time to time. 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. At December 31, 2025, approximately $69.5 million remained available for future repurchases of our common stock under the stock repurchase program. In addition, in February 2026, our board of directors approved an additional $100.0 million increase in our stock repurchase program, bringing the aggregate amount authorized to $415.0 million. For additional information regarding our stock repurchase program, refer to Item 5, “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities,” and Note 13 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K. Borrowings Revolving Facility On July 2, 2021, we entered into a $150.0 million amended and restated credit and guaranty agreement with JPMorgan Chase Bank, N.A., as the administrative agent. On July 14, 2025, we entered into an amendment to the amended and restated credit and guaranty agreement that, among other things, decreased the revolving loan commitments to $100.0 million and extended the maturity date of the revolving loan commitments to July 14, 2030. We refer to the amended and restated credit and guaranty agreement, as amended from time to time, as the Amended Revolving Facility. The Amended Revolving Facility provides for the issuance of up to $20.0 million of letters of credit as well as borrowings on same-day notice, referred to as swingline loans, in an amount of up to $10.0 million. At December 31, 2025, we had no borrowings outstanding and $100.0 million was available for use under our Amended Revolving Facility. Subject to the satisfaction of certain criteria, we will be able to increase the Amended Revolving Facility by an amount equal to the sum of (i) the greater of $90.0 million and 75% of consolidated last twelve months cash earnings before interest expense, tax, depreciation and amortization, or LTM CEBITDA, plus (ii) unused amounts under the general debt basket (i.e., an amount equal to the greater of $50.0 million and an equivalent percentage of consolidated LTM CEBITDA), plus (iii) an unlimited amount so long as we are in pro forma compliance with the Financial Covenant (as defined below), in each case, with the consent of the lenders participating in the increase. We are required to pay a commitment fee in respect of unutilized commitments under the Amended Revolving Facility. The commitment fee is, initially, 0.35% per annum. The commitment fee is subject to a 46 reduction of 0.10% if the total net first lien leverage ratio does not exceed 3.50 to 1.00 and an additional reduction of 0.05% if the total net first lien leverage ratio does not exceed 1.00 to 1.00. We are also required to pay customary letter of credit fees and agency fees. U.S. dollar borrowings under the Amended Revolving Facility bear interest at a rate per annum equal to, at the borrower’s option, either (a) the Secured Overnight Financing Rate, or Term SOFR, plus a margin ranging from 2.00% to 1.25% or (b) a margin ranging from 1.00% to 0.25% plus the highest of (i) the administrative agent’s prime rate, (ii) the Federal Funds rate plus 0.50% or (iii) one-month Term SOFR plus 1%. The interest rate margins under the Amended Revolving Facility are subject to one reduction of 0.25%, a second reduction of 0.25% and a further reduction of 0.25% each upon achieving total net first lien leverage ratios of 3.50 to 1.00, 2.50 to 1.00 and 1.00 to 1.00, respectively. We have the option to voluntarily repay outstanding loans at any time without premium or penalty, other than customary “breakage” costs with respect to SOFR loans. There is no scheduled amortization under the Amended Revolving Facility. The principal amount outstanding is due and payable in full at maturity on July 14, 2030. Obligations under the Amended Revolving Facility are guaranteed by our existing and future direct and indirect material wholly-owned domestic subsidiaries, subject to certain exceptions. The Amended Revolving Facility is secured by a first-priority security interest in substantially all of the assets of the borrower and the guarantors, subject to certain exceptions. The Amended Revolving Facility contains a number of covenants that, among other things and subject to certain exceptions, restrict our ability and the ability of our restricted subsidiaries to incur additional indebtedness and guarantee indebtedness; create or incur liens; pay dividends and distributions or repurchase capital stock; merge, liquidate and make asset sales; change lines of business; change our fiscal year; incur restrictions on our subsidiaries’ ability to make distributions and create liens; modify our organizational documents; make investments, loans and advances; and enter into certain transactions with affiliates. The Amended 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 Amended Revolving Facility on the last day of such fiscal quarter. Cash flows The following table sets forth a summary of our cash flows for the periods indicated: Year Ended December 31, 2025 2024 (in thousands) Net cash provided by operating activities 178,197  135,639  Net cash used in investing activities (40,077) (35,696) Net cash used in financing activities (77,256) (183,285) Effect of exchange rate changes on cash and cash equivalents 172  (313) Net increase (decrease) in cash and cash equivalents 61,036  (83,655) For a discussion of our cash flows for the year ended December 31, 2023, refer to Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2024, which was filed with the SEC on February 26, 2025. Net cash provided by operating activities Our largest source of operating cash is cash collections from our customers for our transaction products and subscription services. Our primary uses of cash in operating activities are for our fulfillment, production and customer care costs, employee salaries and benefits, sales and marketing expenses and third-party consulting expenses. 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 gain on sale of assets held for sale, as well as the effect of changes in operating assets and liabilities. In 2025, cash provided by operating activities was $178.2 million resulting from net income of $15.4 million, adjusted for stock-based compensation and other non-cash expenses of $153.5 million and net cash flows provided by changes in operating assets and liabilities of $9.3 million. The $9.3 million of net cash flows provided by changes in our operating assets and liabilities included a $19.3 million increase in deferred revenue largely due to the growth of our subscription units, which are predominantly billed in advance of our revenue 47 recognition, partially offset by a $12.1 million increase in accounts receivable, prepaid expenses and other current assets. In 2024, cash provided by operating activities was $135.6 million resulting from net income of $30.0 million, adjusted for stock-based compensation and other non-cash expenses of $104.9 million and net cash flows provided by changes in operating assets and liabilities of $0.8 million. The $0.8 million of net cash flows provided by changes in our operating assets and liabilities included a $6.6 million increase in deferred revenue largely due to growth of our subscription units, which are predominantly billed in advance of our revenue recognition, and a net $0.5 million decrease in accounts receivable, prepaid expenses and other current assets, partially offset by a $6.9 million decrease in accounts payable, accrued expenses and other liabilities, and operating lease liabilities due to the timing of our payments. Net cash used in investing activities Our primary investing activities have historically consisted primarily of capital expenditures to purchase property and equipment necessary to support our customer contact center, network and operations, the capitalization of internal-use software necessary to develop and maintain our platform and deliver new products and features, which provide value to our customers, business acquisitions and investments in other companies. As our business grows, we expect our capital expenditures to continue to increase. In 2025, we engaged in additional investing activities in regards to our acquisition of Formation Nation and the sale of our operational headquarters. In 2025, net cash used in investing activities was $40.1 million, resulting primarily from $48.5 million used for the acquisition of Formation Nation, net of cash acquired and $30.3 million in purchases of property and equipment, including capitalized internal-use software, partially offset by $37.1 million in proceeds from the sale of our operational headquarters. In 2024, net cash used in investing activities was $35.7 million, resulting primarily from purchase of property and equipment, including capitalized internal-use software. Net cash used in financing activities 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 issuances of common stock. In 2025, net cash used in financing activities was $77.3 million, primarily resulting from $80.5 million in repurchases of common stock under our stock repurchase program and a $40.4 million settlement of minimum statutory tax withholding upon vesting of RSUs, partially offset by $45.8 million in proceeds from the issuance of stock under employee stock plans. In 2024, net cash used in financing activities was $183.3 million, primarily for the repurchase of common stock under our stock repurchase program. Material Cash Requirements We believe our current cash and cash equivalents, as well as cash expected to be generated by future operating activities, will be sufficient to meet our material cash requirements for the next twelve months. Our material cash requirements include the below contractual and other obligations: Commitments We have non-cancelable agreements with various vendors, which require us to pay $55.1 million over a four-year period, of which $41.2 million remains to be paid as of December 31, 2025. Lease Obligations At December 31, 2025, we had various non-cancelable operating leases for office space, which expire between June 2026 and June 2033. At December 31, 2025, we had total minimum operating lease maturities of $16.3 million, $4.5 million of which mature within twelve months. See Note 8 of our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information regarding our future operating lease payments. Non-GAAP Financial Measures To supplement our consolidated financial statements, which are prepared and presented in accordance with U.S. generally accepted accounting principles, or GAAP, we use certain non-GAAP financial measures, as described below, to understand and evaluate our core operating performance. We believe that these non-GAAP financial measures provide investors with useful information about our financial performance and liquidity, 48 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. Adjusted EBITDA and Adjusted EBITDA Margin We define Adjusted EBITDA as net income 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 margin as net income as a percentage of revenue based on our consolidated financial statements. 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 performance. 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, which include that Adjusted EBITDA: •may be calculated differently by other companies in our industry, limiting its usefulness as a comparative measure; •does not reflect our capital expenditures, future requirements for capital expenditures or contractual commitments; •excludes depreciation and amortization and, although these are non-cash expenses, the assets being depreciated may be replaced in the future; •does not reflect changes in, or cash requirements for, our working capital needs; •excludes stock-based compensation expense, which has been, and will continue to be, a significant recurring expense for our business and an important part of our compensation strategy; and •does not reflect certain expenses that we do not consider representative of our underlying operating performance, but that reduce cash available to us. The following table presents a reconciliation of net income to Adjusted EBITDA for each of the periods indicated: Year Ended December 31, 2025 2024 (in thousands) Reconciliation of net income to Adjusted EBITDA Net income $ 15,427  $ 29,963  Interest expense 1,294  446  Interest income (7,569) (7,850) Provision for income taxes 17,011  13,120  Depreciation and amortization 44,123  34,927  Other income, net (1,187) (98) Stock-based compensation 113,708  71,510  Acquisition and related expenses(1) 2,869  —  Gain on sale of assets held for sale (14,337) —  Restructuring costs(2) 854  6,096  Adjusted EBITDA $ 172,193  $ 148,114  Net income margin 2 % 4  % Adjusted EBITDA margin 23 % 22  % (1)     For 2025, acquisition and related expenses are primarily related to our acquisition of Formation Nation. Additional costs incurred are related to the evaluation and pursuit of strategic transactions. 49 (2)    For 2025 and 2024, restructuring costs related to the reduction of our U.S. headcount. Restructuring expenses include salary and benefits for the impacted employees and are included in general and administrative expenses in the accompanying consolidated statements of operations appearing elsewhere in this Annual Report on Form 10-K. The increase in Adjusted EBITDA of $24.1 million for the year ended December 31, 2025 reflects an increase in revenue of $74.2 million, which was partially offset by an increase in cost of revenue, excluding non-cash and non-recurring items, of $16.4 million, and a $33.7 million increase in operating expenses, excluding non-cash and non-recurring items. Free cash flow 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. The following table presents a reconciliation of net cash provided by operating activities, the most directly comparable GAAP measure, to free cash flow: Year Ended December 31, 2025 2024 (in thousands) Reconciliation of Net Cash Provided by Operating Activities to Free Cash Flow Net cash provided by operating activities $ 178,197  $ 135,639  Purchase of property and equipment (30,277) (35,696) Free cash flow $147,920 $ 99,943  The increase in our free cash flow of $48.0 million for the year ended December 31, 2025 was primarily due to a $42.6 million increase in net cash provided by operating activities. The increase in net cash provided by operating activities resulted from a $34.1 million increase in net income after adjusting for stock-based compensation and other non-cash items, and an $8.5 million favorable change in our operating assets and liabilities. Free cash flow was also impacted by lower capital expenditures for the purchase of property and equipment, including capitalization of internal-use software. Recent Accounting Pronouncements See Note 2 to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K for further information on certain accounting standards adopted in 2025 and recent accounting announcements that have not yet been required to be implemented and may be applicable to our future operations. Critical Accounting Estimates The preparation of financial statements in conformity with GAAP requires estimates and assumptions that affect the reported amounts of assets and liabilities, revenue and expenses, and related disclosures of contingent liabilities in the consolidated financial statements and accompanying notes. Estimates are used for, however not limited to, revenue recognition, sales allowances and credit reserves, available-for-sale debt securities, recoverability of long-lived assets and goodwill, income taxes, commitments and contingencies, valuation of assets and liabilities acquired in business combinations and stock-based compensation. Actual results could differ materially from those estimates. Our most critical accounting policies and estimates are summarized below. See Note 2 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for a discussion of our other significant accounting policies. Revenue recognition We derive our revenue from the following sources: Transaction revenue—Transaction revenue is primarily generated from our customized legal document services upon fulfillment of these services. Transaction revenue includes filing fees and is net of cancellations, 50 promotional discounts, sales allowances and credit reserves. We also earn fees from third-party providers in connection with lead generation activities, where referred customers purchase services that are transactional in nature. 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 eSignature services, and 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 purchase 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. For transaction and subscription revenue, we generally collect payments and fees at the time orders are placed and prior to services being rendered. We record amounts collected for services that have not been performed as deferred revenue on our consolidated balance sheet. The transaction price that we record is generally based on the contractual amounts and is reduced for estimated sales allowances for price concessions, charge-backs, sales credits and refunds, which are accounted for as variable consideration when estimating the amount of revenue to recognize. We determine revenue recognition through the following five steps: identification of a contract with a customer; identification of the performance obligations in the contract; determination of the transaction price; allocation of the transaction price to the performance obligations in the contract; and recognition of revenue when or as the performance obligations are satisfied. Our customers generally pay for transactions in advance by credit or debit card except for certain services provided under installment plans where we allow customers to pay for their order in three or twelve equal payments. The first installment due under the installment plans is charged to the customer’s debit or credit card on the date the order is placed, and the remaining installments are generally charged on a monthly basis thereafter. We recognize revenue for the amount we expect to be entitled to for providing the services to our customers. The total fees collected by us for our services include, as applicable, expedited services fees, government filing fees and shipping fees. Subscription services are generally paid monthly or annually in advance of the subscription period except for virtual mail subscriptions, which are invoiced monthly in arrears. Amounts collected in advance of revenue recognition are recorded in deferred revenue. Customers may pay for services, however, may not provide the necessary information to complete a transaction. We attempt to contact the customer to complete the abandoned order. We recognize revenue on abandoned services, or breakage, when it is likely to occur and the amount can be recognized without significant risk of reversal. We recognize breakage in proportion to the pattern of rights exercised by the customer. Judgment is required to determine the amount of breakage and when breakage is likely to occur, which we estimate based on historical data of breakage for similar services. Services we offer can generally either be purchased on a stand-alone basis or bundled together as part of a package of services. Accordingly, a significant number of our arrangements include multiple performance obligations, such as the preparation of legal documents combined with related document revision, document storage, registered agent services, and free trial periods of our subscriptions. At contract inception, we assess the services promised in our contracts with customers and identify performance obligations for each promise to transfer to the customer a service or bundle of services that is distinct. The identification of distinct performance obligations within our packages may require significant judgment. The transaction price allocated to each separate performance obligation represents the amount of consideration to which we expect to be entitled in exchange for the services we provide. The transaction price is based on the contractual amounts in our contracts and is reduced for estimated sales allowances for price concessions, charge-backs, sales credits and refunds, which are accounted for as variable consideration when estimating the amount of revenue to recognize. We only include variable consideration in the transaction price to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur. We estimate sales allowances using the expected value method. We recognize a liability or a reduction of accounts receivable, and a reduction to revenue based on the estimated amount of sales allowances. We record sales allowances as a reduction of accounts receivable where we expect not to collect the full amount of the outstanding accounts receivable and we record sales allowances as a liability for estimated refunds or credits where we have collected the amounts due from the customer. We have established a sufficient history of estimating sales allowances given the large number of homogeneous transactions. The majority of our allowances and reserves are known within a relatively short period of time following our balance sheet date. The estimated provision for sales allowances has varied from actual results within ranges consistent with management’s expectations. The transaction price excludes sales taxes. For arrangements that contain multiple performance obligations, such as our bundled arrangements, we allocate the transaction price to each performance obligation based on estimates of the standalone selling 51 price of each performance obligation within the bundle. For the services we sell on a standalone basis, we use the sales price of these services in the allocation of the transaction price in bundled arrangements. Where we do not sell the service on a standalone basis, we estimate the standalone selling price based on the adjusted market assessment approach or the expected cost plus a margin approach when market information is not observable. In these cases, the determination of the standalone selling price may require significant judgment. We recognize revenue when we satisfy the performance obligation by transferring the promised good or service to the customer. For our transaction-based services, we generally recognize revenue at a point-in-time when the services are delivered to the customer. For our subscription-based services we generally recognize revenue on a straight-line basis over the subscription term. For our partner-based services, we recognize revenue at a point-in-time when the related performance-based criteria have been met. We do not have significant financing components in arrangements with our customers. Principal agent considerations In certain of our arrangements, another party may be involved in providing services to our customer. We evaluate whether we can recognize revenue gross as a principal or net as an agent. We record revenue on a gross basis when we are the principal in the arrangement. To determine whether we are a principal or an agent, we identify the specified good or service to be provided to the customer and assess whether we control the specified good or service before that good or service is transferred to the customer. We evaluate a number of indicators of whether we control the good or service before it is transferred to the customer, including whether we have primary fulfillment responsibility and obligation to perform the services being sold to the customer; we have latitude in establishing the sales price; and we have inventory risk. In arrangements in which we are the principal, we record as revenue the amounts we have billed to our customer, net of sales allowance, and we record the fee payable to the third party as cost of revenue. We are the principal in most of our legal document preparation, tax advisory and preparation, and registered agent services, including legal entity formations and similar arrangements and formation. For these services, revenue includes filing and similar fees. Our alternative business structures, or ABS, offer legal advisory services that are marketed through our websites. Our ABS provides independent legal advice to our customers and is directly responsible for, and control the fulfillment of, the legal services. Accordingly, for services provided by our ABS, we recognize revenue as the principal. In arrangements in which we are not the principal, we record revenue on a net basis, which is equal to the amount billed to our customer, net of sales allowances and the fee payable to the third party or partner that is primarily responsible for performing the services for the customer. Except for our Arizona ABS, we are not a law firm in the U.S. and cannot provide legal advice through our U.S. entities. Therefore, the participating independent law firms in our legal plans control the service to the customer and have the primary service obligation to provide attorney consultations to our customers, for which we pay the law firms a monthly fee. For these arrangements, we recognize revenue on a net basis as an agent. For other services provided by third parties, including deed transfer, accounting, revenue is recognized net of fees payable to third-parties. For partner revenue, we receive a fee for the referral of our customer to the partner or we retain a portion of the fee paid by the customer and share the remainder with the partner. Our partner controls the service to the customer and the partner is responsible for fulfilling the referred service to the customer, accordingly, we recognize revenue for these arrangements on a net basis. Revenue includes shipping and handling fees charged to customers. Business combinations The results of businesses acquired in a business combination are included in our consolidated financial statements from the date of the acquisition. Purchase accounting results in assets and liabilities of an acquired business being recorded at their estimated fair values on the acquisition date. Any excess purchase consideration over the fair value of assets acquired and liabilities assumed is recognized as goodwill. We perform valuations of assets acquired and liabilities assumed for an acquisition and allocate the purchase price to their respective net tangible and intangible assets. Determining the fair value of assets acquired and liabilities assumed requires management to use significant judgment and estimates. Intangible assets consist primarily of customer relationships and developed technology. Judgment and estimates include the selection of valuation methodologies, estimates of future revenue and cash flows, the rate of customer subscription non-renewals, discount rates, the estimated level of effort and related costs of reproducing or replacing the assets acquired, and selection of comparable companies. We generally engage the assistance of third-party valuation specialists in determining fair values of assets acquired and liabilities assumed and contingent consideration, if any, in a business combination. Amounts recorded in a business combination may change during the measurement period, which is a period not to exceed one year from the date of acquisition, as additional information about conditions existing at the acquisition date becomes available. 52 Transaction costs associated with business combinations are expensed as incurred and are included in general and administrative expenses in the accompanying consolidated statements of operations. Goodwill Goodwill represents the excess of the aggregate fair value of the consideration transferred in a business combination over the fair value of the assets acquired, net of liabilities assumed. Goodwill is not amortized, however, it is subject to impairment testing at the reporting unit level annually during the fourth quarter of our fiscal year or more frequently if events or changes in circumstances indicate that goodwill may be impaired. In assessing impairment, we have the option to first assess qualitative factors to determine whether or not a reporting unit is impaired. Alternatively, we may perform a quantitative impairment assessment or if the qualitative assessment indicates that it is more-likely-than-not that the reporting unit’s fair value is less than its carrying amount, a quantitative analysis is required. The quantitative analysis compares the estimated fair value of the reporting unit with its respective carrying amount, including goodwill. If the estimated fair value of the reporting unit exceeds its carrying amount including goodwill, goodwill is considered not to be impaired. If the fair value is less than the carrying amount including goodwill, then a goodwill impairment charge is recorded by the amount that the carrying value exceeds the fair value, up to the carrying amount of goodwill. For our goodwill impairment test performed in the fourth quarter of 2025 and 2024, the fair value of our consolidated reporting unit significantly exceeded our carrying value. Loss contingencies We record loss contingencies in our consolidated financial statements in the period when they are probable and reasonably estimable. If the amount is probable and we are able to reasonably estimate a range of loss, we accrue the amount that is the best estimate within that range, and if no amount is better than any other in the range, we record the amount at the low end in the range. We disclose those contingencies that we believe are at least reasonably possible but not probable regardless of whether they are reasonably estimable. The likelihood of a loss is determined using several factors including the nature of the matter, advice of our internal and external counsel, previous experience and historical and relevant information available to us. The determination of the likelihood of loss or the range of loss requires significant management judgment. We expense legal costs for defending legal proceedings as incurred. See Note 12 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further information. Income taxes We account for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in our consolidated financial statements. Deferred income tax assets and liabilities are measured using enacted tax rates anticipated to be in effect when those tax assets and liabilities are expected to be realized or settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in the consolidated statements of operations in the period that includes the enactment date. We make judgments in evaluating whether deferred tax assets will be recovered from future taxable income on a jurisdictional basis. A valuation allowance is established if, based upon the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. We consider all available evidence, both positive and negative, including historical levels of income. We also consider expectations and risk associated with estimates of future taxable income in assessing the need for a valuation allowance. If our assumptions and consequently our estimates, change in the future, the valuation allowance may be increased or decreased, resulting in an increase or decrease, which may be material, to our provision for income taxes and the related impact on our net income. We recognize tax benefits from an uncertain position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits. If this threshold is met, we measure the tax benefit as the largest amount of the benefit that is greater than fifty percent likely to be realized upon ultimate settlement. We recognize penalties and interest accrued with respect to uncertain tax positions as a component of the income tax provision. See Note 18 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further information on our income taxes. Stock-based compensation We estimate the fair value of employee stock-based payment awards on the grant-date and recognize the resulting fair value, net of estimated forfeitures, over the requisite service period. We use the Black-Scholes option pricing model for estimating the fair value of options granted under our stock option plans that 53 vest based on service and performance conditions. The fair value of restricted stock units, or RSUs, that vest based on service and performance conditions is determined based on the value of the underlying common stock at the date of grant. For awards that contain market conditions, we estimate the fair value using a Monte Carlo simulation model. We record expense for awards that contain performance conditions only to the extent that we determine it is probable that the performance condition will be achieved. Expense for awards containing market conditions is not reversed even if the market condition is not achieved. We have elected to treat stock-based payment awards with graded vesting schedules and time-based service conditions as a single award and recognize stock-based compensation on a straight-line basis, net of estimated forfeitures, over the requisite service period. Awards with performance or market conditions are recognized using graded vesting. The Black-Scholes option pricing model and the Monte Carlo simulation model requires us to make certain assumptions including the fair value of our underlying common stock, the expected term, the expected stock price volatility, the risk-free interest rates and the expected dividend yield of our common stock. These assumptions, other than the fair value of our common stock, are estimated as follows: •Expected term. The expected term of employee stock options represents the weighted-average period that the stock options are expected to remain outstanding. The expected term of options granted is estimated based upon actual historical exercise and post-vesting cancellations, adjusted for expected future exercise behavior. The expected term of RSUs is defined as the remaining term from the grant date to the end of the performance period. •Risk-free interest rate. The risk-free interest rate assumption is based upon observed interest rates on the U.S. government securities appropriate for the expected term of our stock options and RSUs with market condition. •Expected volatility. Because our common stock has limited publicly traded history, we estimate the expected volatility from the historical volatility of selected public companies with comparable characteristics to us, including similarity in size, lines of business, market capitalization and revenue and financial leverage. We determine the expected volatility assumption using the frequency of daily historical prices of comparable public companies’ common stock for a period equal to the expected term of the options. We periodically assess the comparable companies and other relevant factors used to measure expected volatility for future stock options and RSUs with market conditions grants. •Expected dividend yield. The dividend yield assumption is based on our history and expectation of dividend payouts. Other than the special dividends declared in 2015, 2017, 2018, 2020 and 2021 which resulted in corresponding reductions in the exercise price of the stock options, we have not declared any cash dividends on our common stock, and we do not anticipate paying any cash dividends in the foreseeable future. •Common stock valuation. We utilize our common stock values as traded in the public market as an input into our valuation models. Stock-based compensation expense is recognized based on awards that are ultimately expected to vest. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Forfeitures are estimated based on our historical experience and future expectations. If any of the assumptions used in the Black-Scholes option pricing model and the Monte Carlo simulation model change significantly, stock-based compensation for future awards may differ materially compared with the awards granted previously. The determination of stock-based compensation is inherently uncertain and subjective and involves the application of valuation models and assumptions requiring the use of judgment. If we had made different assumptions, our stock-based compensation expense, and our net income for 2025, 2024 and 2023 may have been materially different. 54 Options. We did not grant any stock options during the year ended December 31, 2025 or 2024. The weighted-average assumptions that were used to calculate the grant-date fair-value of our stock options granted during the year ended December 31, 2023 were as follows: Year Ended December 31, 2023 Expected life (years) 5.9 Risk-free interest rate 3.4%-3.8% Expected volatility 50.4%-50.7% Expected dividend yield —  Restricted stock units. RSUs that vest upon the satisfaction of service-based vesting conditions, which is typically over a four-year period. For these RSUs, we recognize stock-based compensation expense on a straight-line basis over the vesting period of 4 years. RSUs with performance or market conditions are recognized using graded vesting. The assumptions that were used to calculate the grant-date fair value of our RSUs with a performance and market conditions granted during the year ended December 31, 2024, using a Monte Carlo simulation model were as follows: Year Ended December 31, 2024 Expected life (years) 0.4-0.8 Risk-free interest rate 5.2%-5.4% Expected volatility 47.4%-66.1% Expected dividend yield — The assumptions that were used to calculate the grant-date fair value of the RSUs with a market vesting condition granted in July 2024 using a Monte Carlo simulation model were as follows: Year Ended December 31, 2024 Expected life (years) 5 Risk-free interest rate 4.2  % Expected volatility 59.4  % Expected dividend yield —  The assumptions that were used to calculate the grant-date fair value of the RSUs with a market vesting condition granted in November 2024 using a Monte Carlo simulation model were as follows: Year Ended December 31, 2024 Expected life (years) 3 Risk-free interest rate 4.2  % Expected volatility 60.9  % Expected dividend yield —  55