10-Q
Table of Contents
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Table of Contents
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
 
 
FORM
10-Q
 
 
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2021
OR
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
                    
to
                    
Commission File Number:
001-35618
 
 
LegalZoom.com, Inc.
(Exact Name of Registrant as Specified in its Charter)
 
 
 
Delaware
 
95-4752856
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
   
101 North Brand Boulevard,
11
th
Floor Glendale
, California
 
91203
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code: (323)
962-8600
 
 
Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class
 
Trading
Symbol(s)
 
Name of each exchange
on which registered
Common Stock, par value $0.001 per share
 
LZ
 
The Nasdaq Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes
  ☐    No  ☒ 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes
  ☒    No  ☐ 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule
12b-2
of the Exchange Act.
 
Large accelerated filer      Accelerated filer  
       
Non-accelerated
filer
    
Smaller reporting company
 
       
Emerging growth company           
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  
Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2
of the Exchange Act).     Yes  ☐    No  
As of July 31, 2021, the registrant had 196,904,824 shares of common stock, $0.001 par value per share, outstanding.
 
 
 

Table of Contents
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form
10-Q
contains forward-looking statements. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended, or Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or Exchange Act. All statements other than statements of historical facts contained in this Quarterly Report on Form
10-Q
may be forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “targets,” “projects,” “contemplates,” “believes,” “estimates,” “forecasts,” “predicts,” “potential” or “continue” or the negative of these terms or other similar expressions. Forward-looking statements contained in this Quarterly Report on Form
10-Q
include, but are not limited to statements regarding our future results of operations and financial position, industry and business trends, stock compensation, business strategy, plans, market growth and our objectives for future operations.
The forward-looking statements in this Quarterly Report on Form
10-Q
are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. Forward-looking statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements, including, but not limited to, the important factors discussed in “Risk Factors” included in our prospectus, dated June 29, 2021, filed with the Securities and Exchange Commission, or the SEC in accordance with Rule 424(b) of the Securities Act on June 30, 2021, or the Prospectus, in connection with our initial public offering, or IPO and Part II, Item 1A, “Risk Factors” in this Quarterly Report on Form
10-Q
for the quarter ended June 30, 2021. The forward-looking statements in this Quarterly Report on Form
10-Q
are based upon information available to us as of the date of this Quarterly Report on Form
10-Q,
and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.
You should read this Quarterly Report on Form
10-Q
and the documents that we reference in this Quarterly Report on Form
10-Q
and have filed as exhibits to this Quarterly Report on Form
10-Q
with the understanding that our actual future results, levels of activity, performance and achievements may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements. These forward-looking statements speak only as of the date of this Quarterly Report on Form
10-Q.
Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained in this Quarterly Report on Form
10-Q,
whether as a result of any new information, future events or otherwise.
 
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Table of Contents
TABLE OF CONTENTS
 
 
  
Page
 
  
 
 
     
Item 1.
 
  
 
 
     
 
 
  
 
 
     
 
 
  
 
 
     
 
 
  
 
 
     
 
 
  
 
 
     
 
 
  
 
 
     
 
 
  
 
 
     
Item 2.
 
  
 
 
     
Item 3.
 
  
 
 
     
Item 4.
 
  
 
 
   
  
 
 
     
Item 1.
 
  
 
 
     
Item 1A.
 
  
 
 
     
Item 2.
 
  
 
 
     
Item 3.
 
  
 
 
     
Item 4.
 
  
 
 
     
Item 5.
 
  
 
 
     
Item 6.
 
  
 
 
   
  
 
 
 
3

Table of Contents
PART I. – FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (Unaudited)
LegalZoom.com, Inc.
Unaudited Condensed Consolidated Balance Sheets
(In thousands, except par values)
 
    
June 30,
2021
   
December 31,
2020
 
Assets
                
Current assets:
                
Cash and cash equivalents
   $ 166,972     $ 114,470  
Accounts receivable
     10,866       8,555  
Prepaid expenses and other current assets
     12,565       10,536  
    
 
 
   
 
 
 
Total current assets
     190,403       133,561  
Property and equipment, net
     48,973       51,374  
Goodwill
     11,415       11,404  
Intangible assets, net
     490       815  
Deferred income taxes
     22,859       22,807  
Restricted cash equivalent
     —         25,000  
Available-for-sale
debt securities
     1,022       1,050  
Other assets
     12,529       6,053  
    
 
 
   
 
 
 
Total assets
   $ 287,691     $ 252,064  
    
 
 
   
 
 
 
Liabilities, redeemable convertible preferred stock and stockholders’ deficit
                
Current liabilities:
                
Accounts payable
   $ 36,727     $ 28,734  
Accrued expenses and other current liabilities
     47,877       41,028  
Deferred revenue
     151,775       127,142  
Current portion of long-term debt
     3,041       3,029  
    
 
 
   
 
 
 
Total current liabilities
     239,420       199,933  
Long-term debt, net of current portion
     510,830       512,362  
Deferred revenue
     2,094       2,937  
Other liabilities
     10,312       16,558  
    
 
 
   
 
 
 
Total liabilities
     762,656       731,790  
    
 
 
   
 
 
 
Commitments and contingencies (Note 8)
           
Series A redeemable convertible preferred stock, $0.001 par value; 30,512 shares authorized at June 30, 2021 and December 31, 2020; 23,081 shares issued and outstanding at June 30, 2021 and December 31, 2020.
     70,906       70,906  
Stockholders’ deficit:
                
Common stock, $0.001 par value; 264,720 shares authorized; 125,538 and 125,037 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively
     126       126  
Additional
paid-in
capital
     151,109       102,417  
Accumulated deficit
     (687,566     (639,348
Accumulated other comprehensive loss
     (9,540     (13,827
    
 
 
   
 
 
 
Total stockholders’ deficit
     (545,871     (550,632
    
 
 
   
 
 
 
Total liabilities, redeemable convertible preferred stock and stockholders’ deficit
   $ 287,691     $ 252,064  
    
 
 
   
 
 
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
 
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Table of Contents
LegalZoom.com, Inc.
Unaudited Condensed Consolidated Statements of Operations
(In thousands, except per share amounts)
 
    
Three Months Ended June 30
   
Six Months Ended June 30
 
    
2021
   
2020
   
2021
   
2020
 
Revenue
   $  150,432     $  111,007     $  285,064     $  216,802  
Cost of revenue
     49,859       35,759       93,819       70,871  
  
 
 
   
 
 
   
 
 
   
 
 
 
Gross profit
     100,573       75,248       191,245       145,931  
Operating expenses:
        
Sales and marketing
     65,431       40,173       136,792       83,654  
Technology and development
     28,426       10,165       38,925       20,708  
General and administrative
     33,845       12,612       47,010       25,273  
Impairment of long-lived and other assets
     379       —         379       555  
Loss on sale of business
     —         1,764       —         1,764  
  
 
 
   
 
 
   
 
 
   
 
 
 
Total operating expenses
     128,081       64,714       223,106       131,954  
  
 
 
   
 
 
   
 
 
   
 
 
 
(Loss) income from operations
     (27,508     10,534       (31,861     13,977  
Interest expense, net
     (9,312     (8,857     (17,966     (18,127
Other income
 
(expense), net
     420       (355     668       (1,461
Impairment of
available-for-sale
debt securities of $4,912, net of $94 loss recognized in other comprehensive loss
     —         (4,818     —         (4,818
  
 
 
   
 
 
   
 
 
   
 
 
 
Loss before income taxes
     (36,400     (3,496     (49,159     (10,429
Provision for (benefit from) from income taxes
     1,995       563       (941     (1,492
  
 
 
   
 
 
   
 
 
   
 
 
 
Net loss
   $  (38,395   $ (4,059   $  (48,218   $ (8,937
  
 
 
   
 
 
   
 
 
   
 
 
 
Net loss per share attributable to common stockholders – basic and diluted:
   $ (0.31   $ (0.03   $ (0.38   $ (0.07
  
 
 
   
 
 
   
 
 
   
 
 
 
Weighted-average shares used to compute net loss per share attributable to common stockholder – basic and diluted:
     125,423       124,681       125,245       124,546  
  
 
 
   
 
 
   
 
 
   
 
 
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
 
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Table of Contents
LegalZoom.com, Inc.
Unaudited Condensed Consolidated Statements of Comprehensive Loss
(In thousands)
 
    
Three Months Ended June 30
   
Six Months Ended June 30
 
    
2021
   
2020
   
2021
   
2020
 
Net loss
   $  (38,395   $  (4,059   $  (48,218   $  (8,937
Other comprehensive
 (loss) income, net of tax
:
                                
Change in foreign currency translation adjustments:
     (204     302       (351     2,574  
    
 
 
   
 
 
   
 
 
   
 
 
 
Change in
available-for-sale
debt securities:
                                
Unrealized
loss from available-for-sale debt securities
     (41     —         (28     —    
Loss on impairment
     —         (94     —         (94
    
 
 
   
 
 
   
 
 
   
 
 
 
Total net changes in
available-for-sale
debt securities
     (41     (94     (28     (94
Change in unrealized gain (loss) on cash flow hedges:
                                
Unrealized gain (loss) on interest rate cap and swaps
     270       (2,020     2,351       (9,306
Reclassification of prior hedge effectiveness and losses from interest rate cap to net loss
     1,298       787       2,315       909  
    
 
 
   
 
 
   
 
 
   
 
 
 
Total net changes in cash flow hedges
     1,568       (1,233     4,666       (8,397
Total other comprehensive income (loss)
     1,323       (1,025     4,287       (5,917
    
 
 
   
 
 
   
 
 
   
 
 
 
Total comprehensive loss
   $  (37,072   $  (5,084   $  (43,931   $  (14,854
    
 
 
   
 
 
   
 
 
   
 
 
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
 
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Table of Contents
 
LegalZoom.com, Inc.
Unaudited Condensed Consolidated Statements of Redeemable Convertible Preferred Stock
and Stockholders’ Deficit
(In thousands)
 
    
Series A

Redeemable

Convertible

Preferred Stock
    
Common Stock
    
Additional

Paid-In

Capital
   
Accumulated

Deficit
   
Accumulated

Other

Comprehensive

Loss
   
Total

Stockholders’

Deficit
 
    
Shares
    
Amount
    
Shares
   
Amount
 
Balance at December 31, 2020
     23,081      $ 70,906        125,037     $ 126      $ 102,417     $  (639,348   $  (13,827   $  (550,632
Issuance of common stock upon exercise of stock options
     —          —          244       —          151       —         —         151  
Issuance of common stock upon vesting of restricted stock awards
     —          —          27       —          —         —         —         —    
Stock-based compensation
     —          —          —         —          3,799       —         —         3,799  
Shares surrendered for settlement of minimum statutory tax withholdings
     —          —          (9     —          (100     —         —         (100
Net interest and repayment of full recourse notes receivables
     —          —          —         —          44       —         —         44  
Special dividends
     —          —          —         —          (23     —         —         (23
Other comprehensive income
     —          —          —         —          —         —         2,964       2,964  
Net loss
     —          —          —         —          —         (9,823     —         (9,823
    
 
 
    
 
 
    
 
 
   
 
 
    
 
 
   
 
 
   
 
 
   
 
 
 
Balance at March 31, 2021
     23,081      $  70,906        125,299     $  126      $  106,288     $  (649,171   $  (10,863   $  (553,620
Issuance of common stock upon exercise of stock options
     —          —          213       —          136       —         —         136  
Issuance of common stock upon vesting of restricted stock awards
     —          —          32       —          —         —         —         —    
Stock-based compensation
     —          —          —         —          44,810       —         —         44,810  
Shares surrendered for settlement of minimum statutory tax withholdings
     —          —          (6     —          (109     —         —         (109
Special dividends
     —          —          —         —          (16     —         —         (16
Other comprehensive income
     —          —          —         —          —         —         1,323       1,323  
Net loss
     —          —          —         —          —         (38,395     —         (38,395
    
 
 
    
 
 
    
 
 
   
 
 
    
 
 
   
 
 
   
 
 
   
 
 
 
Balance at June 30, 2021
     23,081      $ 70,906        125,538     $ 126      $ 151,109     $  (687,566   $ (9,540   $  (545,871
    
 
 
    
 
 
    
 
 
   
 
 
    
 
 
   
 
 
   
 
 
   
 
 
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
 
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Table of Contents
LegalZoom.com, Inc.
Unaudited Condensed Consolidated Statements of Redeemable Convertible Preferred Stock
and Stockholders’ Deficit (continued)
(In thousands)
 
    
Series A

Redeemable

Convertible

Preferred Stock
    
Common Stock
    
Additional

Paid-In

Capital
   
Accumulated

Deficit
   
Accumulated

Other

Comprehensive

Loss
   
Total

Stockholders’

Deficit
 
    
Shares
    
Amount
    
Shares
   
Amount
 
Balance at December 31, 2019
     23,081      $  70,906        124,382     $  125      $  92,916     $  (644,305)     $  (5,727)     $  (556,991
Issuance of common stock upon exercise of stock options
     —          —          410       —          158       —         —         158  
Issuance of common stock upon vesting of restricted stock awards
     —          —          136       —          —         —         —         —    
Stock-based compensation
     —          —          —         —          4,102       —         —         4,102  
Shares surrendered for settlement of minimum statutory tax withholdings
     —          —          (197     —          (2,124     —         —         (2,124
Net interest and repayment of full recourse notes receivables
     —          —          —         —          (6     —         —         (6
Special dividends
     —          —          —         —          (73     —         —         (73
Other comprehensive loss
     —          —          —         —          —         —         (4,892     (4,892
Net loss
     —          —          —         —          —         (4,878     —         (4,878
    
 
 
    
 
 
    
 
 
   
 
 
    
 
 
   
 
 
   
 
 
   
 
 
 
Balance at March 31, 2020
     23,081      $ 70,906        124,731     $ 125      $ 94,973     $ (649,183   $  (10,619   $  (564,704
Issuance of common stock upon exercise of stock options
     —          —          218       1        112       —         —         113  
Issuance of common stock upon vesting of restricted stock awards
     —          —          32       —          —         —         —         —    
Stock-based compensation
     —          —          —         —          3,099       —         —         3,099  
Shares surrendered for settlement of minimum statutory tax withholdings
     —          —          (90     —          (865     —         —         (865
Special dividends
     —          —          —         —          (58     —         —         (58
Notes receivable from shareholder
     —          —          —         —          (1     —         —         (1
Other comprehensive loss
     —          —          —         —          —         —         (1,025     (1,025
Net loss
     —          —          —         —          —         (4,059     —         (4,059
    
 
 
    
 
 
    
 
 
   
 
 
    
 
 
   
 
 
   
 
 
   
 
 
 
Balance at June 30, 2020
   $  23,081      $ 70,906        124,891     $ 126      $ 97,260     $ (653,242   $  (11,644   $  (567,500
    
 
 
    
 
 
    
 
 
   
 
 
    
 
 
   
 
 
   
 
 
   
 
 
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
 
8

Table of Contents
LegalZoom.com, Inc.
Unaudited Condensed Consolidated Statements of Cash Flows
(In thousands)
 
    
Six Months Ended June 30
 
    
2021
   
2020
 
Cash flows from operating activities
    
Net loss
   $  (48,218   $ (8,937
Adjustments to reconcile net loss to net cash provided by operating activities:
    
Depreciation and amortization
     7,829       9,747  
Amortization of debt issuance costs
     1,273       1,292  
Amortization of prior hedge effectiveness
     3,076       1,094  
Stock-based compensation
     48,584       7,178  
Impairment of long-lived assets
     379       555  
Impairment of investments
     —         4,818  
Loss on sale of business
     —         1,764  
Deferred income taxes
     (1,612     (1,755
Change in fair value of financial guarantee
     (150     (1,000
Change in fair value of derivative instruments
     28       125  
Unrealized foreign exchange (gain) loss
     (401     2,498  
Other
     4       (5
Changes in operating assets and liabilities, net of effects of disposal of business:
    
Accounts receivable
     (2,308     (1,263
Prepaid expenses and other current assets
     (1,693     (160
Other assets
     (668     (186
Accounts payable
     7,891       13,478  
Accrued expenses and other liabilities
     3,195       (1,600
Income tax payable
     (276     12  
Deferred revenue
     23,763       21,665  
  
 
 
   
 
 
 
Net cash provided by operating activities
     40,696       49,320  
Cash flows from investing activities
    
Purchase of property and equipment
     (6,004     (4,491
Sale of business, net of cash sold
     —         (1,175
  
 
 
   
 
 
 
Net cash used in investing activities
     (6,004     (5,666
Cash flows from financing activities
    
Repayment of capital lease obligations
     (16     (16
Repayment of 2018 Term Loan
     (2,675     (2,675
Proceeds from 2018 Revolving Facility
     —         40,000  
Repayment of 2018 Revolving Facility
     —         (40,000
Repayment of hybrid debt
     (1,332     (339
Payment of initial public offering costs
     (2,794     —    
Payment of contingent consideration
     (500     —    
Payment of special dividends
     (47     (179
Repurchases of common stock for tax withholding obligations
     (209     (2,813
Proceeds from exercise of stock options, net of cash paid for employee tax withholding
     327       93  
  
 
 
   
 
 
 
Net cash used in financing activities
     (7,246     (5,929
Effect of exchange rate changes on cash, cash equivalents and restricted cash equivalent
     56       (243
Net increase in cash, cash equivalents and restricted cash equivalent
     27,502       37,482  
Cash, cash equivalents and restricted cash equivalent, at beginning of the period
     139,470       74,180  
  
 
 
   
 
 
 
Cash, cash equivalents and restricted cash equivalent, at end of the period
   $ 166,972     $ 111,662  
  
 
 
   
 
 
 
Reconciliation of cash, cash equivalents, and restricted cash equivalent reported in the consolidated balance sheets
    
Cash and cash equivalents
   $  166,972     $ 86,662  
Restricted cash equivalent
     —         25,000  
  
 
 
   
 
 
 
Total cash, cash equivalents, and restricted cash equivalent shown in the condensed consolidated statements of cash flows
   $ 166,972     $  111,662  
  
 
 
   
 
 
 
Non-cash
investing and financing activities
    
Purchase of property and equipment included in accounts payable and accrued expenses and other current liabilities
   $ 584     $ 1,282  
Change in fair value of hedged interest rate swaps and interest rate cap
     (3,133     49  
Transfer of interest rate swaps derivative liability to hybrid debt
     —         12,345  
Deferred offering costs included in accounts payable and accrued expenses and other current liabilities
     2,678       —    
Deferred financing costs included in accounts payable and accrued expenses and other current liabilities
     742       —    
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
 
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LegalZoom.com, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
Note 1. Description of Business
LegalZoom.com, Inc., was initially formed as a California corporation in 1999 and reincorporated as a Delaware corporation in 2007. LegalZoom.com, Inc., and its wholly owned subsidiaries, or referred to herein as “we,” “us,” or “our” has its executive headquarters in Glendale, California, its operational headquarters in Austin, Texas and additional locations in Frisco, Texas and London in the United Kingdom, or U.K. We are a provider of services that meet the legal needs of small businesses and consumers. We offer a broad portfolio of legal services through our online legal platform that customers can tailor to their specific needs. In the United States, or U.S., we also offer several subscription services, including legal plans through which businesses and consumers can be connected to an experienced attorney licensed in their jurisdiction, registered agent services, tax and compliance services and unlimited access to our forms library.
Note 2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the U.S., or GAAP, for interim financial information. Certain information and disclosures normally included in consolidated financial statements prepared in accordance with GAAP, have been condensed or omitted. Accordingly, these condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements for the year ended December 31, 2020 and the related notes thereto, which are included in our prospectus dated June 29, 2021 filed with the Securities and Exchange Commission, or SEC, pursuant to Rule 424(b) of the Securities Act of 1933, as amended on June 30, 2021, or Prospectus, relating to our initial public offering, or IPO which closed on July 2, 2021. The December 31, 2020 condensed consolidated balance sheet was derived from our audited consolidated financial statements as of that date. Our unaudited condensed consolidated financial statements include, in the opinion of management, all adjustments, consisting of normal and recurring items, necessary for the fair statement of the condensed consolidated financial statements. All intercompany balances and transactions have been eliminated in consolidation. There have been no significant changes in accounting policies during the three and six months ended June 30, 2021 from those disclosed in the annual consolidated financial statements for the year ended December 31, 2020 and the related notes.
The operating results for the three and six months ended June 30, 2021 are not necessarily indicative of the results expected for the full year ending December 31, 2021.
Segment Reporting and Geographic Information
Our Chief Executive Officer, as the chief operating decision maker organizes our company, manages resource allocations, and measures performance on the basis of one operating segment.
Revenue outside of the U.S., based on the location of the customer, represented 0.8% and 1.2%, for the three months ended June 30, 2021 and 2020, respectively and 0.9% and 2.0% of our consolidated revenue for the six months ended June 30, 2021 and 2020, respectively. Our property and equipment located outside of the U.S. was 1% of our consolidated property and equipment as of June 30, 2021 and December 31, 2020.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires estimates and assumptions that affect the reported amounts of assets and liabilities, revenue and expenses, and related disclosures of contingent liabilities in the unaudited condensed 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, valuation of long-lived assets and goodwill, income taxes, commitments and contingencies, valuation of assets and liabilities acquired in business combinations, fair value of derivative instruments and stock-based compensation. Actual results could differ materially from those estimates.
 
10

Table of Contents
The extent to which
COVID-19
impacts our business and financial results will depend on numerous continuously evolving factors including, but not limited to, the magnitude and duration of
COVID-19,
including resurgences; the impact on our employees; the extent to which it will impact worldwide macroeconomic conditions, including interest rates, employment rates, and health insurance coverage; the speed and degree of the anticipated recovery, as well as variability in such recovery across different geographies, industries, and markets; and governmental and business reactions to the pandemic. We assessed certain accounting matters that generally require consideration of forecasted financial information in context with the information reasonably available to us and the unknown future impacts of
COVID-19
as of June 30, 2021 and through the date of issuance of these unaudited condensed consolidated financial statements. The accounting matters assessed included, but were not limited to, our allowance for doubtful accounts, sales allowances, and the carrying value of goodwill and other long-lived assets. While there was not a material impact on our unaudited condensed consolidated financial statements at and for the three and six months ended June 30, 2021, our future assessment of the magnitude and duration of
COVID-19,
as well as other factors, could result in material impacts to our unaudited condensed consolidated financial statements in future reporting periods.
Certain Risks and Concentrations
We maintain accounts in U.S. and U.K. banks with funds insured by the Federal Deposit Insurance Corporation, or FDIC, and the Financial Services Compensation Scheme, or FSCS. Our bank accounts may, at times, exceed the FDIC and FSCS insured limits. Financial instruments that potentially subject us to credit risk consist principally of cash and cash equivalents. Management believes that we are not exposed to any significant credit risk related to our cash or cash equivalents and have not experienced any losses in such accounts.
No single customer comprised 10% or more of our total revenue for the three and six months ended June 30, 2021 and 2020. No single customer had an account receivable balance of 10% or greater of the total receivable as of June 30, 2021. At December 31, 2020 there was one customer who accounted for 20% of our accounts receivable balance.
Foreign Currency
British Pound Sterling, or GBP, is the functional currency for our foreign subsidiaries. The financial statements of these foreign subsidiaries are translated to U.S. Dollars using period-end rates of exchange for assets and liabilities, historical rates of exchange for equity, and average rates of exchange for the period for revenue and expenses. Translation gains and losses are recorded in the accumulated other comprehensive loss as a component of our unaudited condensed consolidated statements of redeemable convertible preferred stock and stockholders’ deficit. We recognized foreign currency transaction gains of $
0.3
 million and losses of $
0.1
 million during the three months ended June 30, 2021 and 2020, respectively and gains of $
0.4
 million and losses of $
2.5
 million during the six months ended June 30, 2021 and 2020, respectively. 
Revenue Recognition
For the three and six months ended June 30, 2021 and 2020, revenue was comprised of the following (in thousands):
 
    
Three Months Ended June 30
    
Six Months Ended June 30
 
    
2021
    
2020
    
2021
    
2020
 
Transaction
   $ 73,360      $ 50,429      $  134,748      $ 96,015  
Subscription
     69,384        53,832        134,877        108,067  
Partner
     7,688        6,746        15,439        12,720  
    
 
 
    
 
 
    
 
 
    
 
 
 
Total revenue
   $  150,432      $  111,007      $ 285,064      $  216,802  
    
 
 
    
 
 
    
 
 
    
 
 
 
 
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Deferred Offering Costs
Deferred offering costs of $5.5 million have been recorded as other assets on the unaudited condensed consolidated balance sheet as of June 30, 2021 and consist of costs incurred in connection with the sale of our common stock in our initial public offering, or IPO, including certain legal, accounting, printing, and other IPO related costs. Upon the completion of our IPO in July 2021, deferred offering costs are recorded in stockholders’ deficit as a reduction from the proceeds of the offering. There were no deferred offering costs as of December 31, 2020.
Recent Accounting Pronouncements
Recently Adopted Accounting Pronouncements
In December 2019, the Financial Accounting Standards Board, or FASB, issued Accounting Standard Update, or ASU,
No. 2019-12,
Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes,
or ASU
2019-12.
This Update removes certain exceptions for performing intraperiod tax allocations, recognizing deferred taxes for investments, and calculating income taxes in interim periods. The guidance also simplifies the accounting for franchise taxes, transactions that result in a
step-up
in the tax basis of goodwill, and the effect of enacted changes in tax laws or rates in interim periods. We early adopted ASU
2019-12
in the first quarter of 2021 and the adoption had no material impact to our unaudited condensed consolidated financial statements.
Accounting Pronouncements Not Yet Adopted
In February 2016, the FASB issued ASU
No. 2016-02,
Leases (Topic 842
), the first accounting standard update in connection with Topic 842,
Leases
, or Topic 842. The guidance requires lessees to recognize most leases as right of use assets and lease liabilities on the balance sheet and also requires additional qualitative and quantitative disclosures to enable users to understand the amount, timing and uncertainty of cash flows arising from leases. The original guidance required application on a modified retrospective basis to the earliest period presented. In August 2018, the FASB issued ASU
2018-11,
Leases (Topic 842): Targeted Improvements
, which includes an option to not restate comparative periods in transition, however, to elect to use the effective date of ASU
2016-02,
as the date of initial application of transition. In March 2019, the FASB issued ASU
No. 2019-01,
Leases (Topic 842): Codification Improvements
, which made further targeted improvements including clarification regarding the determination of fair value of lease assets and liabilities and statement of cash flows and presentation guidance. In June 2020, FASB issued ASU
2020-05,
Revenue from Contracts with Customers (Topic 606) and Leases (Topic 842): Effective Dates for Certain Entities
, which extended the effective date of this guidance for
non-public
entities to fiscal years beginning after December 15, 2021. Topic 842 is effective for our annual reporting period beginning on January 1, 2022. We are currently evaluating the impacts of the adoption on our consolidated financial statements.
In June 2016, the FASB issued ASU
No. 2016-13,
Financial Instruments – Credit losses: Measurement of Credit Losses on Financial Instruments (Topic 326)
, or Topic 326, as amended, which revises the impairment model to utilize an expected loss methodology in place of the currently used incurred loss methodology, which will result in more timely recognition of losses on financial instruments, including, but not limited to,
available-for-sale
debt securities and accounts receivable. Topic 326 is effective for our annual reporting period beginning on January 1, 2023. We are currently evaluating the impacts of the adoption on our consolidated financial statements.
In March 2020, the FASB issued ASU
No. 2020-04,
Reference Rate Reform (Topic 848) — Facilitation of the Effects of Reference Rate Reform on Financial Reporting
, that provides optional relief to applying reference rate reform to contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate, or LIBOR, which will be discontinued by the end of 2021. Also, in January 2021, the FASB issued ASU
No. 2021-01,
Reference Rate Reform (Topic 848) — Scope
, to clarify that cash flow hedges are eligible for certain optional expedients and exceptions for the application of subsequent assessment methods to assume perfect effectiveness as previously presented in ASU
2020-04.
Topic 848 effective immediately and may be applied through December 31, 2022. We are currently evaluating the impacts of the adoption on our consolidated financial statements.
 
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Note 3. Other Financial Statement Information
Accounts Receivable
Changes in the allowance consisted of the following (in thousands):
 
    
Three Months Ended June 30
    
Six Months Ended June 30
 
    
2021
    
2020
    
2021
    
2020
 
Beginning balance
   $ 4,709      $  1,366      $ 5,256      $ 2,461  
Add: amounts recognized as a reduction of revenue
     1,445        930        3,027        2,813  
Add: bad debt expense recognized in general and administrative expense
     16        680        30        680  
Less: write-offs, net of recoveries
     (1,056      (529      (3,199      (3,507
    
 
 
    
 
 
    
 
 
    
 
 
 
Ending balance
   $ 5,114      $ 2,447      $ 5,114      $ 2,447  
    
 
 
    
 
 
    
 
 
    
 
 
 
The allowance recognized as a reduction of revenue primarily relates to our installment plan receivables for which we expect we will not be entitled to a portion of the transaction price based on our historical experience with similar transactions. The allowance recognized against general and administrative expense represents an allowance relating to receivables from partners that are no longer considered collectible.
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consisted of the following (in thousands):
 
    
June 30,

2021
    
December 31,

2020
 
Prepaid expenses
   $  7,797      $  7,177  
Deferred cost of revenue
     2,452        1,967  
Other current assets
     2,316        1,392  
    
 
 
    
 
 
 
Total prepaid expenses and other current assets
   $  12,565      $  10,536  
    
 
 
    
 
 
 
Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following (in thousands):
 
    
June 30,

2021
    
December 31,

2020
 
Accrued payroll and related expenses
   $  15,530      $  16,135  
Accrued vendor payables
     17,714        10,854  
Derivative liabilities and hybrid debt
     5,554        5,131  
Sales allowances
     4,676        4,856  
Accrued sales, use and business taxes
     1,816        1,789  
Accrued advertising
     —          173  
Other
     2,587        2,090  
    
 
 
    
 
 
 
Total accrued expenses and other current liabilities
   $ 47,877      $ 41,028  
    
 
 
    
 
 
 
Depreciation and Amortization
Depreciation and amortization expense of our property and equipment, including capitalized
internal-use
software, and intangible assets consisted of the following (in thousands):
 
    
Three Months Ended June 30
    
Six Months Ended June 30
 
    
2021
    
2020
    
2021
    
2020
 
Cost of revenue
   $  1,398      $  1,934      $  3,076      $  3,892  
Sales and marketing
     1,323        1,762        2,798        3,611  
Technology and development
     584        667        1,171        1,317  
General and administrative
     358        464        784        927  
    
 
 
    
 
 
    
 
 
    
 
 
 
Total depreciation and amortization expense
   $ 3,663      $ 4,827      $ 7,829      $ 9,747  
    
 
 
    
 
 
    
 
 
    
 
 
 
 
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Deferred Revenue
Deferred revenue as of June 30, 2021 and December 31, 2020 was $153.9 million and $130.1 million, respectively. We recognized $77.5 million and $57.7 million of revenue during the three months ended June 30, 2021 and 2020, respectively, that was included in the deferred revenue balances as of March 31, 2021 and 2020, respectively, and $102.3 million and $83.1 million during the six months ended June 30, 2021 and 2020, respectively, that was included in the deferred revenue balances as of December 31, 2020 and 2019, respectively. We expect to recognize substantially all of the remaining deferred revenue as of December 31, 2020 as revenue in 2021. We expect substantially all of the deferred revenue at June 30, 2021 will be recognized as revenue within the next twelve months.
We have omitted disclosure about the transaction price allocated to remaining performance obligations and when revenue will be recognized as revenue as our contracts with customers that have a duration of more than one year are immaterial.
Note 4. Disposition of Business
Beaumont ABS Limited
In April 2020, we sold our conveyancing business in the United Kingdom, Beaumont ABS Limited, to a third-party buyer and paid $1.2 million in working capital to the buyers. Our loss on sale of business was $1.8 million for the three months ended June 30, 2020.
Note 5. Investments
Impairment of
Available-for-sale
Debt Securities
In June 2020, we fully impaired our
available-for-sale
investment in firma.de Firmenbaukasten AG and we incurred a loss of $4.8 million because the present value of cash flows expected to be collected is less than the amortized cost basis of the investment. Therefore, we recognized an other-than-temporary impairment of EUR €4.3 million ($4.8 million) in our condensed consolidated statements of operations during the three months ended June 30, 2020.
 
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Note 6. Long-term Debt
A reconciliation of the scheduled maturities to the condensed consolidated balance sheets is as follows (in thousands):
 
    
June 30,
2021
    
December 31,
2020
 
Current portion of 2018 Term Loan
   $ 5,350      $ 5,350  
Current portion of discount and unamortized debt issuance costs
     (2,309      (2,321
    
 
 
    
 
 
 
Total current portion of long-term debt
     3,041        3,029  
    
 
 
    
 
 
 
Noncurrent portion of 2018 Term Loan
     516,275        518,950  
Noncurrent portion of discount and unamortized debt issuance costs
     (5,445      (6,588
    
 
 
    
 
 
 
Total long-term debt, net of current portion
   $  510,830      $  512,362  
    
 
 
    
 
 
 
At June 30, 2021, aggregate future principal payments are as follows (in thousands):
 
2021 (remaining six months)
   $ 2,675  
2022
     5,350  
2023
     5,350  
2024
     508,250  
    
 
 
 
Total long-term debt, net of current portion
     521,625  
Less: current portion of 2018 Term Loan
     (5,350
    
 
 
 
Outstanding principal of 2018 Term Loan, net of current portion
   $  516,275  
    
 
 
 
In November 2018, we entered into an amended first lien credit and guaranty agreement, or the 2018 Credit Facility, which consists of a first lien term loan facility, or 2018 Term Loan, with a principal amount of $535.0 million and a 2018 Revolving Facility of $40.0 million, or the 2018 Revolving Facility. The 2018 Term Loan matures in November 2024 and the 2018 Revolving Facility matures in November 2023.
At June 30, 2021, total borrowings under our 2018 Term Loan was $521.6 million. We determined that the fair value of our long-term debt approximates its carrying value as of June 30, 2021 and December 31, 2020. We estimated the fair value of our long-term debt using Level 2 inputs based on recent observable trades of our 2018 Term Loan. The effective interest rate of the 2018 Term Loan is 5.0% and 5.1% for June 30, 2021 and December 31, 2020, respectively. At June 30, 2021 and December 31, 2020, we had no amounts outstanding under our 2018 Revolving Facility or any outstanding letters of credit. We were in compliance with all financial covenants as of June 30, 2021 and December 31, 2020.
In March 2020, in response to the World Health Organization’s declaration of
COVID-19,
we drew down the full $40.0 million available from our 2018 Revolving Facility. The 2018 Revolving Facility was paid in full in May 2020.
In July 2021 we repaid the outstanding principal of
 
$
521.6
 
million of our 2018 Term Loan in full from the proceeds from our IPO. We also amended and restated our 2018 Revolving Facility by increasing the availability to
$
150.0
 
million over a five-year period. See Note 15. Subsequent Events.
Note 7. Derivatives
In June 2021, our financial guarantee of the personal loan of a former executive officer was waived and we recognized a gain of $0.1 million from the cancellation of our financial guarantee derivative in other income (expense), net in the accompanying condensed consolidated statements of operations for the three months ended June 30, 2021. The associated restricted cash equivalent of $25.0 million became unrestricted and was reclassified to cash and cash equivalents.
 
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Due to the impact of
COVID-19
and decreases in LIBOR, in March 2020, we entered into two
blend-and-extend
transactions to modify our initial swaps where the derivative liability of $12.3 million was carried over to the modified swaps, the fixed rate of 2.3% on the initial swaps was modified to a new average fixed interest rate of 1.7% and the maturity date was extended by two years to April 2024. The notional amount of each modified swap was $96.6 million. At the time of modification, the initial swaps were
de-designated
as cash flow hedges and amounts in other comprehensive income were frozen and are amortized to interest expense over the life of the original hedge relationship. As the modified swaps were considered
off-market,
they were accounted for as a debt host, and an embedded
at-market
derivative was bifurcated from the debt host. The
at-market
portion of the modified swaps were designated as cash flow hedges. The hybrid debt host is accounted for at amortized cost basis and will be amortized as we settle our modified swaps over the extended term with related interest recognized in interest expense, net in the accompanying condensed consolidated statements of operations.
Derivative financial instruments and hybrid debt consisted of the following (in thousands):
 
    
June 30, 2021
    
December 31, 2020
 
Interest rate swap derivative liability, current portion
   $  2,289      $  2,177  
Interest rate swaps
     395        3,640  
Financial guarantee
     —          150  
  
 
 
    
 
 
 
Total derivative liability, net of current portion
   $ 395      $ 3,790  
  
 
 
    
 
 
 
Hybrid debt, current portion
   $ 3,265      $ 2,954  
  
 
 
    
 
 
 
Hybrid debt, net of current portion
   $ 6,510      $ 8,152  
  
 
 
    
 
 
 
The impact from losses from our interest rate cap, interest rate swaps, and hybrid debt on our condensed consolidated statements of operations were as follows (in thousands):
 
    
Three Months Ended June 30
    
Six Months Ended June 30
 
    
2021
    
2020
    
2021
    
2020
 
Net payments upon settlement of interest rate swaps
   $ 608      $ 113      $  1,052      $ 442  
Amortization of prior hedge effectiveness
     1,748        996        3,076        996  
Amortization of interest rate cap premium
     —          53        28        115  
Interest expense on hybrid debt
     180        211        368        222  
  
 
 
    
 
 
    
 
 
    
 
 
 
Total, recorded in interest expense, net
   $  2,536      $  1,373      $ 4,524      $  1,775  
  
 
 
    
 
 
    
 
 
    
 
 
 
Note 8. Commitments and Contingencies
Operating Leases
We conduct operations from certain leased facilities in various locations. At June 30, 2021, we had various
non-cancelable
operating leases for office space and equipment, which expire between December 2021 and December 2022. Future minimum payments under operating leases at June 30, 2021 are as follows (in thousands):
 
    
Operating
Leases
 
2021 (remaining six months)
   $  1,625  
2022
     1,787  
  
 
 
 
Total minimum lease payments
   $ 3,412  
  
 
 
 
Advertising, Media and Other Commitments
We use a variety of media to advertise our services, including search engine marketing, television and radio. At June 30, 2021, we had
non-cancelable
minimum advertising and media commitments for future advertising spots of $2.0 million, substantially all of which will be paid during 2021. We also have
non-cancelable
agreements with various vendors, which require us to pay $13.8 million over a five-year period, of which $9.7 million remains to be paid as of June 30, 2021.
 
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Table of Contents
Legal Proceedings
We received a demand letter dated April 20, 2020 from service partner Dun & Bradstreet alleging that Dun & Bradstreet had overpaid us for services. The letter alleges these overpayments occurred between 2015 and 2019, amounted to $5.6 million, and were caused by overreporting by us. The parties have continued to negotiate, and no claim has been filed. We deny and will continue to deny all of the allegations and claims asserted by Dun & Bradstreet, including, but not limited to, any allegation that the respondent has suffered any harm or damages. We believe we have meritorious defenses to the claims and will vigorously defend any action. We are unable to predict the ultimate outcome of this matter. We have not recorded any loss or accrual in the accompanying condensed consolidated financial statements at June 30, 2021 for this matter as a loss is not probable and reasonably estimable. There is at least a reasonable possibility that a loss may have been incurred for this contingency, however, we cannot make an estimate of the possible loss or range of loss. If this matter is not resolved in our favor, the losses arising from the result of litigation or settlements may have a material adverse effect on our business, results of operations, cash flows and financial condition.
We initiated an arbitration on October 28, 2020 against one of our vendors. The demand for arbitration alleges breach of contract, breach of covenant of good faith and fair dealing, and seeks declaratory relief and at least $5.6 million in damages. On December 7, 2020, the vendor filed a counterdemand alleging breach of contract and breach of the covenant of good faith and fair dealing, seeking declaratory relief and at least $6.1 million in damages. We replied to the counterdemand on January 19, 2021. A hearing has been scheduled for November 19, 2021. We deny and will continue to deny all of the allegations and claims asserted in the counterdemand, including, but not limited to, any allegation that the respondent has suffered any harm or damages. We believe we have meritorious defenses to the claims and will vigorously defend any action. We are unable to predict the ultimate outcome of this matter. We have not recorded any loss or accrual in the accompanying condensed consolidated financial statements at June 30, 2021 for this matter as a loss is not probable and reasonably estimable. There is at least a reasonable possibility that a loss may have been incurred for this contingency, however, we cannot make an estimate of the possible loss or range of loss. If this matter is not resolved in our favor, the losses arising from the result of litigation or settlements may have a material adverse effect on our business, results of operations, cash flows and financial condition.
We were served on February 9, 2021 with a class action complaint, filed in Los Angeles Superior Court and removed to federal court on March 11, 2021, from a Florida resident who claims to have visited the www.legalzoom.com website. The plaintiff alleges that the website’s use of session replay software was an unlawful interception of electronic communications under the Florida Security Communications Act. The plaintiff sought damages on behalf of the purported class as well as injunctive and declaratory relief. On May 7, 2021, the plaintiff filed a notice of dismissal without prejudice. We are unable to predict the ultimate outcome of this matter. We have not recorded any loss or accrual in the accompanying condensed consolidated financial statements at June 30, 2021 for this matter as a loss is not probable and reasonably estimable. There is at least a reasonable possibility that a loss may have been incurred for this contingency, however, we cannot make an estimate of the possible loss or range of loss. If this matter is not resolved in our favor, the losses arising from the result of litigation or settlements may have a material adverse effect on our business, results of operations, cash flows and financial condition.
We are involved in inactive state administrative inquiries relating to the unauthorized practice of law or insurance. Because these are inquiries and no claims have been alleged or asserted against us, we cannot predict the outcome of these inquiries or whether these matters will result in litigation or any outcome of potential litigation.
From time to time, we may become subject to legal proceedings, claims and litigation arising in the ordinary course of business. Other than described above, we are not currently a party to any material legal proceedings, nor are we aware of any pending or threatened litigation that would have a material adverse effect on our results of operations, cash flows, and financial condition, should such litigation be resolved unfavorably.
 
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Indemnifications
Indemnification provisions in our third-party service provider agreements provide that we will indemnify, hold harmless, and reimburse the indemnified parties on a
case-by-case
basis for losses suffered or incurred by the indemnified parties in connection with any claim by any third-party as a result of our website, advertising, marketing, payment processing, collection or customer service activities. The maximum potential amount of future payments we could be required to make under these indemnification provisions is undeterminable.
Note 9. Stock-based Compensation
Stock-based Compensation Cost
We recorded stock-based compensation cost in the following categories in the accompanying condensed consolidated statements of operations and balance sheets (in thousands):
 
    
Three Months Ended June 30
    
Six Months Ended June 30
 
    
2021
    
2020
    
2021
    
2020
 
Cost of revenue
   $ 762      $ 46      $ 821      $ 83  
Sales and marketing
     5,143        144        5,350        787  
Technology and development
     17,619        603        18,145        1,553  
General and administrative
     21,430        2,568        24,580        5,265  
    
 
 
    
 
 
    
 
 
    
 
 
 
Total stock-based compensation expense
     44,954        3,361        48,896        7,688  
Amount capitalized to
internal-use
software
     13        8        26        23  
    
 
 
    
 
 
    
 
 
    
 
 
 
Total stock-based compensation
   $  44,967      $  3,369      $  48,922      $  7,711  
    
 
 
    
 
 
    
 
 
    
 
 
 
Stock Options
Stock option activity for the six months ended June 30, 2021 is as follows (in thousands, except weighted-average exercise price and remaining contract life):
 
    
Number of

Options
    
Weighted-

Average

Exercise

Price
    
Weighted-

Average

Remaining

Contractual

Life

(in Years)
    
Aggregate

Intrinsic

Value
 
Outstanding at December 31, 2020
     15,235      $ 8.78        8.7        15,873  
Granted
     971        28.00                    
Exercised
     (456      0.63                    
Cancelled/forfeited
     (84      4.81                    
    
 
 
    
 
 
    
 
 
    
 
 
 
Outstanding at June 30, 2021
     15,666      $  10.23        8.4      $  432,727  
    
 
 
    
 
 
    
 
 
    
 
 
 
Vested and expected to vest at June 30, 2021
     15,628      $ 10.24        8.4      $ 431,496  
Exercisable at June 30, 2021
     5,637      $ 7.99        7.7      $ 168,307  
At June 30, 2021, total unrecognized stock-based compensation expense is $93.3 million, which
is
 expected to be recognized over a weighted-average period of 2.9 years.
 
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The weighted-average assumptions used to calculate the grant-date fair value of our stock option grants using the Black-Scholes Option Pricing Model were as follows:
 
    
Three Months Ended June 30
    
Six Months Ended June 30
 
    
2021
   
2020
    
2021
   
2020
 
Expected life (years)
     5.4       —          5.4       5.1  
Risk-free interest rate
     0.97     —          0.97     1.62
Expected volatility
     45.6     —          45.6     43.1
Expected dividend yield
     0.0     —          0.0     0.0
In June 2021, we granted 970,970 options to our executive officers that were contingent on the effectiveness of our IPO, which occurred on June 29, 2021, or IPO options. Because the number of options and exercise price of the IPO Options were based on the IPO price to the public, the grant date for accounting purposes was not established until the effective date of our IPO. As the IPO was a performance condition, no stock-based compensation expense was recognized until our IPO was declared effective. Stock-based compensation expense for the three months ended June 30, 2021 was $0.2 million and stock-based compensation of $11.2 million will be recognized over a weighted-average requisite service period of approximately 4.1 years.
 
There were no awards granted for the three months ended June 30, 2020.
Restricted Stock Units
A summary of restricted stock unit, or RSU, activity for the six months ended June 30, 2021 is as follows (in thousands, except weighted-average grant-date fair value):
 
    
Number of

Options
    
Weighted-

Average

Grant-

Date Fair

Value
 
Unvested at December 31, 2020
     2,499      $ 9.53  
Granted
     1,771        16.51  
Cancelled/forfeited
     (145      10.78  
Vested
     (330      21.29  
    
 
 
    
 
 
 
Unvested at June 30, 2021
     3,795      $  19.20  
    
 
 
    
 
 
 
The fair value of vested RSUs for the six months ended June 30, 2021 and 2020 was $8.4 million and $2.3 million, respectively. Our RSUs consist of time-based RSUs and various performance RSUs. For the three and six months ended June 30, 2021, total stock-based compensation expense related to RSU’s was $11.7 million and $12.2 million, respectively. For the three and six months ended June 30, 2020, total stock-based compensation expense related to RSU’s was $0.8 million and $2.4 million, respectively. At June 30, 2021, total remaining stock-based compensation expense for unvested RSU awards was $67.7 million, which is expected to be recognized over a weighted-average period of 3.4 years.
In June 2021, we granted 388,389 RSUs with a value of $10.8 million to our executive officers that were contingent on the effectiveness of the registration statement of our IPO, or IPO RSUs. As the IPO was a performance condition, no stock-based compensation expense was recognized until our IPO was declared effective. Stock-based compensation expense for the three months ended June 30, 2021 was $0.2 million and stock-based compensation of $10.6 million will be recognized over a weighted-average requisite service period of approximately 4.1 years.
In June 2021, we granted 14,284 RSUs to a new director of our board of directors. The RSUs have a grant-date fair value of $0.4 million.
At June 30, 2021, there were 256,936 RSUs that vested upon the effectiveness of our IPO. Such shares of common stock will not be settled until after the
lock-up
period relating to our IPO ends in the fourth quarter of 2021.
 
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During the six months ended June 30, 2021, we granted 1,338,028 liquidity event RSUs, or LERSUs, to various employees, which only vest upon the achievement of up to four-years of service and upon the consummation of a change in control, or CIC event, which includes an IPO, merger, acquisition, or sale of more than 50% of our assets. Employees will be eligible to retain any vested awards up to a period of 6.5 years from their respective grant date. If the recipient employee terminates for any reason other than for cause, the employee shall retain any service-vested LERSUs until 6.5 years from the date of grant or the earlier settlement of the service-vested LERSUs upon the consummation of a CIC event. For the LERSUs, recognition of expense does not occur until the consummation of a CIC event and thereafter for any remaining service period, as such events are not considered probable of occurring prior to the CIC event for stock-based compensation purposes.
Upon the effective date of our IPO on June 29, 2021, we commenced recognition of stock-based compensation for all LERSUs as the performance and service conditions for vested RSUs were satisfied. Stock-based compensation expense for these LERSUs of
 
$
10.6
 
million was recognized on a graded vesting basis during the three months ended June 30, 2021 for the portion of service completed by the employee from the grant date through June 30, 2021.
In March 2021, we granted 30,434 RSUs to various employees where the RSUs will vest depending upon the appreciation of the fair value of our common stock compared to the grant-date fair value of our common stock upon the consummation of a CIC event, which includes an IPO, merger, acquisition, or sale of more than 50% of our assets, or performance RSUs. The performance RSUs vest on a linear basis, starting at 0% with a fair value of our common stock equal to $19.64 per share and ending at 100% upon reaching a fair value of our common stock of $29.46 per share. The performance options were subsequently modified in June prior to the effective date of our IPO as
discussed below.
Stock-option and RSU activity described above, including total stock-based compensation expense recognized and total remaining stock-based compensation expense is inclusive of awards modified during the period as discussed below.
Modification of Stock-Based Compensation Awards 
In June 2021, we modified the vesting conditions of certain stock options and RSUs as described below.
We modified the vesting conditions of 4,477,218 outstanding performance options of certain executive officers and employees so that the performance options do not fully vest immediately upon an IPO. Instead, subject to and contingent upon the effective date of an IPO, the modified performance options for executive officers will vest monthly over a four-year period from their original vesting commencement dates and the modified performance options of certain employees will vest 25% on the first anniversary from the vesting commencement date, and then vest monthly over the remaining service period, subject to continued employment through the applicable vesting dates. As the modified awards contain a performance condition that is satisfied upon an IPO, we remeasured the fair value of the performance options on the date of modification. This new fair value of $76.6 million will be recognized as stock-based compensation expense using the graded vesting method, with an immediate stock-based compensation expense recognized on the effective date of our IPO for the modified performance options for which the service vesting condition was satisfied through the effective date of the IPO, and all remaining compensation will be recognized thereafter over the remaining service period. We recognized stock-based compensation expense of $23.3 million from the effective date of our IPO through June 30, 2021, and remaining compensation of $53.3 million will be recognized over a remaining weighted-average service period of 3.0 years.
We modified the vesting conditions of 3,627,936 outstanding 2019 performance options of an executive officer so that in the event of an IPO the modified 2019 performance options will vest monthly over a four-year period from the original vesting commencement date in 2019, subject to continued employment of the executive officer, rather than vesting upon the fourth anniversary of the original date of grant based on achieving certain stock price thresholds. Incremental stock-based compensation expense as a result of this modification was $11.4 million and was measured using a Monte Carlo simulation immediately prior to the modification date and a Black-Scholes Option Pricing Model immediately after the modification date. Upon an IPO, we recognize stock-based compensation expense for the modified 2019 performance options for which the service vesting condition was satisfied through the effective date of the IPO, and all remaining compensation will be recognized thereafter over the remaining service period using the graded vesting method. We recognized stock-based compensation expense of $6.6 million from the effective date of our IPO through June 30, 2021, and remaining compensation of $12.6 million will be recognized over a remaining weighted-average service period of 2.3 years.
 
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We modified the vesting conditions of 111,902 outstanding performance RSUs of certain employees so that the modified performance RSUs do not vest immediately upon an IPO. Instead, subject to and contingent upon the effective date of an IPO, the modified performance RSUs will vest 25% on the first anniversary from their respective vesting commencement dates, then vest monthly over the remaining service period, subject to the continued employment through the applicable vesting dates. As the modified RSUs contain a performance condition that is satisfied upon an IPO, we remeasured the fair value of the performance RSUs on the date of modification. This new fair value of approximately $2.9 million will be recognized as stock-based compensation expense using the graded vesting method, with an immediate stock-based compensation expense recognized on the effective date of our IPO for the performance RSUs for which the service vesting condition was satisfied through the effective date of the IPO, and all remaining compensation will be recognized thereafter over the remaining service period. We recognized stock-based compensation expense of $0.2 million from the effective date of our IPO through June 30, 2021, and remaining compensation of $2.7 million will be recognized over a remaining weighted-average service period of 3.3 years.
We modified the vesting conditions of 1,725,942 outstanding LERSUs and 1,706,888 outstanding time-based options of certain executive officers to amend the severance vesting acceleration benefit applicable for the LERSUs and remove the CIC vesting acceleration benefit for the time-based options. There was no incremental stock-based compensation associated with the modification of the time-based options. We remeasured the fair value of the LERSUs on the date of modification and this new fair value of approximately $43.3 million will be recognized using the graded vesting method, with an immediate stock-based compensation expense recognized on the effective date of an IPO for the modified LERSUs that have satisfied the service-vesting condition through the effective date, and all remaining compensation will be recognized thereafter over the remaining service period. We recognized stock-based compensation expense of $7.4 million from the effective date of our IPO through June 30, 2021, and remaining compensation of $35.9 million will be recognized over a remaining weighted-average service period of 3.2 years.
We modified 48,300 vested options to extend the exercise period for terminated employees who are not able to exercise during the IPO
lock-up
period. We recognized $0.9 million in incremental stock-based compensation in June 2021.
The fair value of the modified 2020 performance options, 2019 performance option, performance RSUs and LERSUs were remeasured using the fair value of our common stock, as approved by the Pricing Committee of our board of directors, which was $25.50 per share, the midpoint of the price range set forth on the cover page of the preliminary prospectus filed with the SEC on June 21, 2021.
2021 Equity Incentive Plan
In June 2021, our board of directors adopted our 2021 Equity Incentive Plan, or 2021 Plan. All equity-based awards going forward will be granted under the 2021 Plan.
 
18,946,871
 shares of our common stock are reserved for future issuance under our 2021 Plan, as well as any future automatic annual increases in the number of shares of common stock reserved for issuance under our 2021 Plan. 
2021 Employee Stock Purchase Plan
In June 2021, our board of directors adopted our 2021 Employee Stock Purchase Plan, or 2021 ESPP. We authorized the issuance of 3,552,538 shares of common stock under the 2021 ESPP. Our 2021 ESPP is implemented through a series of offerings under which eligible employees are granted purchase rights to purchase shares of our common stock on specified dates during such offerings at a discounted price per share.
 
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Note 10. Income Taxes
We account for income taxes in accordance with Accounting Standard Codification, or ASC, 740,
Income Taxes
, which requires an estimate of the annual effective tax rate for the full year to be applied to the interim period, taking into account
year-to-date
amounts and projected results for the full year. Our effective tax rate could fluctuate significantly from quarter to quarter based on recurring and nonrecurring factors including, but not limited to: variations in the estimated and actual level of
pre-tax
income or loss by jurisdiction; changes in enacted tax laws and regulations, and interpretations thereof, including with respect to tax credits and state and local income taxes; developments in tax audits and other matters; recognition of excess tax benefits and tax deficiencies from stock-based compensation and certain nondeductible expenses. Changes in judgment from the evaluation of new information resulting in the recognition, derecognition, or remeasurement of a tax position taken in a prior annual period are recognized separately in the quarter of the change.
We recorded a provision for income taxes of $2.0 million and $0.6 million for the three months ended June 30, 2021 and 2020, respectively. For the six months ended June 30, 2021 and 2020, we recorded a benefit from income tax of $0.9 million and $1.5 million, respectively. The effective tax rate for the three months ended June 30, 2021 and 2020 was 5.5% and 16.1%, respectively. For the six months ended June 30, 2021 and 2020, the effective tax rate was approximately 1.9% and 14.3%, respectively. The difference from the federal statutory rate of 21% primarily due to the valuation allowance against foreign losses, the recognition of significant excess tax benefits of stock-based compensation and other discrete adjustments.
Gross unrecognized tax benefits were $7.6 million and $7.2 million as of June 30, 2021 and December 31, 2020, respectively. The gross unrecognized tax benefits, if recognized by us, will result in a reduction of approximately $7.6 million to the provision for income taxes thereby favorably impacting our effective tax rate. Our policy is to recognize interest and penalties related to income tax matters in income tax expense. For the periods presented, interest and penalties related to income tax positions were not material to our unaudited condensed consolidated financial statements.
We are subject to taxation and file income tax returns in the U.S. federal, state, and foreign jurisdictions. The federal income tax return for the years 2017 through 2019 and state income tax returns for the tax years 2008 through 2019 remain open to examination. We are under examination in one state and it is not expected to have an impact on our results of operations, cash flows and financial condition.
Note 11. Basic and Diluted Earnings Per Share
Basic net loss attributable to common stockholders per share is computed by dividing the net loss by the weighted average number of common stock outstanding for the period. For periods in which we have reported net losses, diluted net loss per share attributable to common stockholders is the same as basic net loss per share, since the impact of potentially dilutive common stock and other equity instruments is anti-dilutive.
The following table presents the number of options, restricted stock units and restricted stock excluded from the calculation of diluted net loss per share attributable to common stockholders because they are anti-dilutive (in thousands):
 
    
June 30,
 
    
2021
    
2020
 
Options to purchase common stock
     15,666        12,134  
Restricted stock units
     3,795        1,030  
Restricted stock
     50        100  
    
 
 
    
 
 
 
Total
     19,511        13,264  
    
 
 
    
 
 
 
 
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Note 12. Fair Value Measurements
Fair value is defined as the price that would be received from selling an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date. The standard establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The fair value hierarchy is as follows:
Level 1 — Quoted prices in active markets for identical assets and liabilities.
Level 2 — Quoted prices for identical assets and liabilities in markets that are not active, quoted prices for similar assets and liabilit