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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 September 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)
Delaware95-4752856
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
 Identification No.)
 
101 North Brand Boulevard,
11th Floor Glendale, California
91203
(Address of principal executive offices)(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 shareLZ
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 x No o
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 x No o
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 fileroAccelerated filero
 
Non-accelerated filerxSmaller reporting companyo
 
Emerging growth companyx
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. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
As of October 31, 2021, the registrant had 197,048,778 shares of common stock, $0.001 par value per share, outstanding.


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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 final prospectus filed pursuant to Securities Act Rule 424(b)(4) on June 30, 2021, our Prospectus, and other discussed in this Quarterly Report on Form 10-Q. 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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PART I. – FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (Unaudited)
LegalZoom.com, Inc.
Unaudited Condensed Consolidated Balance Sheets
(In thousands, except par values)
September 30, 2021December 31, 2020
Assets
Current assets:
Cash and cash equivalents$310,704 $114,470 
Accounts receivable, net11,595 8,555 
Prepaid expenses and other current assets16,338 10,536 
Total current assets338,637 133,561 
Property and equipment, net47,112 51,374 
Goodwill11,392 11,404 
Intangible assets, net438 815 
Deferred income taxes26,362 22,807 
Restricted cash equivalent 25,000 
Available-for-sale debt securities1,123 1,050 
Other assets9,408 6,053 
Total assets$434,472 $252,064 
Liabilities, redeemable convertible preferred stock and stockholders’ equity (deficit)
Current liabilities:
Accounts payable$43,196 $28,734 
Accrued expenses and other current liabilities42,958 41,028 
Deferred revenue152,314 127,142 
Current portion of long-term debt 3,029 
Total current liabilities238,468 199,933 
Long-term debt, net of current portion 512,362 
Deferred revenue1,697 2,937 
Other liabilities3,263 16,558 
Total liabilities243,428 731,790 
Commitments and contingencies (Note 8)
Series A redeemable convertible preferred stock, $0.001 par value; 30,512 shares authorized at December 31, 2020; 23,081 shares issued and outstanding at December 31, 2020
— 70,906 
Stockholders’ equity (deficit):
Preferred stock, $0.001 par value; 100,000 shares authorized at September 30, 2021, none issued or outstanding at September 30, 2021
 — 
Common stock, $0.001 par value; 1,000,000 and 264,720 shares authorized; 197,048 and 125,037 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively
197 126 
Additional paid-in capital919,712 102,417 
Accumulated deficit(727,241)(639,348)
Accumulated other comprehensive loss(1,624)(13,827)
Total stockholders’ equity (deficit)191,044 (550,632)
Total liabilities, redeemable convertible preferred stock and stockholders’ equity (deficit)$434,472 $252,064 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
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LegalZoom.com, Inc.
Unaudited Condensed Consolidated Statements of Operations
(In thousands, except per share amounts)
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
Revenue$147,879 $131,595 $432,943 $348,397 
Cost of revenue47,267 43,841 141,086 114,712 
Gross profit100,612 87,754 291,857 233,685 
Operating expenses:
Sales and marketing72,572 46,833 209,364 130,487 
Technology and development26,865 10,911 65,790 31,619 
General and administrative28,192 10,424 75,202 35,697 
Impairment of long-lived and other assets493  872 555 
Loss on sale of business   1,764 
Total operating expenses128,122 68,168 351,228 200,122 
(Loss) income from operations(27,510)19,586 (59,371)33,563 
Interest expense, net(9,957)(8,658)(27,923)(26,785)
Other (expense) income, net(368)1,610 300 149 
Loss on debt extinguishment
(7,748) (7,748) 
Impairment of available-for-sale debt securities of $4,912, net of $94 loss recognized in other comprehensive loss
   (4,818)
(Loss) income before income taxes(45,583)12,538 (94,742)2,109 
(Benefit from) provision for from income taxes(5,908)3,126 (6,849)1,634 
Net (loss) income$(39,675)$9,412 $(87,893)$475 
Net (loss) income per share attributable to common stockholders – basic:$(0.20)$0.06 $(0.59)$ 
Net (loss) income per share attributable to common stockholders – diluted:$(0.20)$0.05 $(0.59)$ 
Weighted-average shares used to compute net (loss) income per share attributable to common stockholder – basic:196,351 124,846 149,207 124,647 
Weighted-average shares used to compute net (loss) income per share attributable to common stockholder – diluted:196,351 127,238 149,207 127,339 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
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LegalZoom.com, Inc.
Unaudited Condensed Consolidated Statements of Comprehensive (Loss) Income
(In thousands)
Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
Net (loss) income$(39,675)$9,412 $(87,893)$475 
Other comprehensive (loss) income, net of tax:
Change in foreign currency translation adjustments:1,452 (1,060)1,101 1,514 
Change in available-for-sale debt securities:
Unrealized gain from available-for-sale debt securities72  44  
Loss from impairment   (94)
Total net changes in available-for-sale debt securities72  44 (94)
Change in unrealized gain (loss) on cash flow hedges:
Unrealized (loss) gain on interest rate cap and swaps(903)(432)1,448 (9,738)
Reclassification of prior hedge effectiveness and losses from interest rate cap and swaps to net (loss) income 882 2,315 1,791 
Reclassification to net (loss) income upon discontinuance of interest rate swaps and prior hedge effectiveness
7,295  7,295  
Total net changes in cash flow hedges6,392 450 11,058 (7,947)
Total other comprehensive income (loss)7,916 (610)12,203 (6,527)
Total comprehensive (loss) income$(31,759)$8,802 $(75,690)$(6,052)
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
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LegalZoom.com, Inc.
Unaudited Condensed Consolidated Statements of Redeemable Convertible Preferred Stock
and Stockholders’ Equity (Deficit)
(In thousands)
Series A
Redeemable
Convertible
Preferred Stock
Common StockAdditional
Paid-In
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Loss
Total
Stockholders’
Equity (Deficit)
SharesAmountShares 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 — — — — — 
Shares surrendered for settlement of minimum statutory tax withholdings— — (9)— (100)— — (100)
Stock-based compensation— — — — 3,799 — — 3,799 
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, 202123,08170,906125,299126106,288(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 — — — — — 
Shares surrendered for settlement of minimum statutory tax withholdings— — (6)— (109)— — (109)
Stock-based compensation— — — — 44,810 — — 44,810 
Special dividends— — — — (16)— — (16)
Other comprehensive income— — — — — — 1,323 1,323 
Net loss— — — — — (38,395)— (38,395)
Balance at June 30, 202123,08170,906125,538126151,109(687,566)(9,540)(545,871)
Issuance of common stock upon exercise of stock options— — 82 — 93 — — 93 
Issuance of common stock upon vesting of restricted stock awards— — 112 — — — — — 
Shares surrendered for settlement of minimum statutory tax withholdings— — (49)— (1,669)— — (1,669)
Stock-based compensation— — — — 38,150 — — 38,150 
Conversion of redeemable convertible preferred stock to common stock in connection with initial public offering(23,081)(70,906)46,162 46 70,859 — — 70,905 
Issuance of common stock in connection with initial public offering, net of underwriting discounts and commissions
— — 21,989 22 581,811 — — 581,833 
Private placement of common stock, net of underwriting discounts and commissions
— — 3,214 3 85,047 — — 85,050 
Deferred offering costs— — — — (5,636)— — (5,636)
Special dividends— — — — (52)— — (52)
Other comprehensive income— — — — — — 7,9167,916
Net loss— — — — — (39,675)(39,675)
Balance at September 30, 2021
 $ 197,048 $197 $919,712 $(727,241)$(1,624)$191,044 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
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LegalZoom.com, Inc.
Unaudited Condensed Consolidated Statements of Redeemable Convertible Preferred Stock
and Stockholders’ Equity (Deficit) (continued)
(In thousands)
Series A
Redeemable
Convertible
Preferred Stock
Common StockAdditional
Paid-In
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Loss
Total
Stockholders’
Deficit
SharesAmountShares 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 options410158158
Issuance of common stock upon vesting of restricted stock awards136
Shares surrendered for settlement of minimum statutory tax withholdings(197)(2,124)(2,124)
Stock-based compensation4,1024,102
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, 202023,08170,906124,73112594,973(649,183)(10,619)(564,704)
Issuance of common stock upon exercise of stock options2181112113
Issuance of common stock upon vesting of restricted stock awards32
Shares surrendered for settlement of minimum statutory tax withholdings(90)(865)(865)
Stock-based compensation3,0993,099
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, 202023,08170,906124,89112697,260(653,242)(11,644)(567,500)
Issuance of common stock upon exercise of stock options— — 140 — 57 — — 57 
Issuance of common stock upon vesting of restricted stock awards— — 54 — — — — — 
Shares surrendered for settlement of minimum statutory tax withholdings— — (69)— (683)— — (683)
Stock-based compensation— — — — 2,724 — — 2,724 
Special dividends— — — — (45)— — (45)
Notes receivable from shareholder— — — — (1)— — (1)
Other comprehensive loss— — — — — — (610)(610)
Net income— — — — — 9,412 — 9,412 
Balance at September 30, 2020
23,081$70,906 125,016 $126 $99,312 $(643,830)$(12,254)$(556,646)
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
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LegalZoom.com, Inc.
Unaudited Condensed Consolidated Statements of Cash Flows
(In thousands)
Nine Months Ended September 30,
20212020
Cash flows from operating activities
Net (loss) income$(87,893)$475 
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization11,604 14,162 
Amortization of debt issuance costs1,335 1,943 
Amortization of prior hedge effectiveness3,095 2,226 
Stock-based compensation86,725 9,890 
Impairment of long-lived assets872 555 
Impairment of available-for-sale debt securities 4,818 
Loss on debt extinguishment 7,955  
Discontinuance of interest rate swaps and write-off of prior hedge effectiveness8,688  
Loss on sale of business 1,764 
Deferred income taxes(7,218)(141)
Change in fair value of financial guarantee(150)(1,100)
Change in fair value of derivative instruments392 169 
Change in fair value of other equity security(1,031) 
Unrealized foreign exchange loss1,002 1,039 
Other4 11 
Changes in operating assets and liabilities, net of effects of disposal of business:
Accounts receivable(3,040)(2,997)
Prepaid expenses and other current assets(5,562)374 
Other assets(2,283)1,102 
Accounts payable14,635 11,354 
Accrued expenses and other liabilities7,416 4,431 
Income tax payable(368)17 
Deferred revenue23,978 31,977 
Net cash provided by operating activities60,156 82,069 
Cash flows from investing activities
Purchase of property and equipment(8,500)(7,819)
Payment upon extinguishment of interest rate swaps
(3,283) 
Sale of business, net of cash sold (1,194)
Net cash used in investing activities(11,783)(9,013)
Cash flows from financing activities
Repayment of capital lease obligations(24)(24)
Payment of debt issuance costs(767) 
Repayment of 2018 Term Loan(524,300)(4,012)
Proceeds from 2018 Revolving Facility 40,000 
Repayment of 2018 Revolving Facility (40,000)
Repayment of hybrid debt(1,332)(757)
Payment upon extinguishment of hybrid debt(9,774) 
Payment of contingent consideration(1,049) 
Payment of special dividends(115)(239)
Proceeds from issuance of common stock in initial public offering, net of underwriting discounts and commissions581,833  
Proceeds from private placement, net of underwriting discounts and commissions85,050  
Payment of stock issuance costs(5,634) 
Repurchases of common stock for tax withholding obligations(1,462)(3,459)
Proceeds from exercise of stock options, net of cash paid for employee tax withholding412 113 
Net cash provided by (used in) financing activities122,838 (8,378)
Effect of exchange rate changes on cash, cash equivalents and restricted cash equivalent23 (89)
Net increase in cash, cash equivalents and restricted cash equivalent171,234 64,589 
Cash, cash equivalents and restricted cash equivalent, at beginning of the period139,470 74,180 
Cash, cash equivalents and restricted cash equivalent, at end of the period$310,704 $138,769 
Reconciliation of cash, cash equivalents, and restricted cash equivalent reported in the consolidated balance sheets
Cash and cash equivalents$310,704 $113,769 
Restricted cash equivalent 25,000 
Total cash, cash equivalents, and restricted cash equivalent shown in the condensed consolidated statements of cash flows$310,704 $138,769 
Non-cash investing and financing activities
Conversion of Series A redeemable convertible preferred stock into common stock in connection with initial public offering$70,906 $ 
Purchase of property and equipment included in accounts payable and accrued expenses and other current liabilities486 1,282 
Change in fair value of hedged interest rate swaps and interest rate cap(5,817)49 
Transfer of interest rate swaps derivative liability to hybrid debt 12,345 
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, 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.

Initial Public Offering
The registration statement related to our initial public offering, or IPO, was declared effective on June 29, 2021, and our common stock began trading on the Nasdaq Global Select Market on June 30, 2021. On July 2, 2021, we completed our IPO for the sale of 19,121,000 shares of our common stock, $0.001 par value per share at an offering price of $28.00 per share, for proceeds of $505.9 million, net of underwriting discounts and commissions. In addition, we sold 2,868,150 shares of our common stock for net proceeds of $75.9 million pursuant to the full exercise of the underwriter’s option to purchase additional shares in connection with the IPO. In addition, on July 2, 2021, we sold 3,214,285 shares of our common stock in a private placement with an existing related party stockholder for proceeds of $85.0 million, net of underwriting discounts and commissions. We raised aggregate proceeds of $666.9 million from our IPO and private placement after deducting underwriting discounts and commissions. We incurred stock issuance costs of $5.6 million. Proceeds raised from our IPO were used to repay the full outstanding balance of $521.6 million on our 2018 Term Loan.
Upon the completion of our IPO, 23,081,080 outstanding shares of redeemable convertible preferred stock with a carrying value of $70.9 million converted into an aggregate of 46,162,160 shares of common stock. Following the completion of the IPO, we have one class of authorized and outstanding common stock. Immediately upon the completion of our IPO, we filed an Amended and Restated Certificate of Incorporation, which authorized a total of 1,000,000,000 shares of common stock, $0.001 par value per share and 100,000,000 shares of preferred stock, par value $0.001 per share.
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 unaudited 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. 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 unaudited condensed consolidated financial statements. All intercompany balances and transactions have been eliminated in consolidation. There have been no significant changes in accounting policies during the three and nine months ended September 30, 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 nine months ended September 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 0.9% of our consolidated revenue for the three months ended September 30, 2021 and 2020, respectively, and 0.9% and 1.6% of our consolidated revenue for the nine months ended September 30, 2021 and 2020, respectively. Our property and
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equipment located outside of the U.S. was approximately 1% of our total property and equipment as of September 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.
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 September 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 nine months ended September 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, respectively. Our bank accounts may, at times, exceed the FDIC and FSCS insured limits. Financial instruments that potentially subject us to credit risk consist principally of cash and cash equivalents. Management believes that we are not exposed to any significant credit risk related to our cash or cash equivalents and have not experienced any losses in such accounts.
No single customer comprised 10% or more of our total revenue for the three and nine months ended September 30, 2021 and 2020. No single customer had an account receivable balance of 10% or greater of the total accounts receivable balance as of September 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’ equity (deficit). We recognized foreign currency transaction losses of $1.4 million and gains of $1.4 million during the three months ended September 30, 2021 and 2020, respectively, and losses of $1.0 million and $1.0 million during the nine months ended September 30, 2021 and 2020, respectively.
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Revenue Recognition
For the three and nine months ended September 30, 2021 and 2020, revenue was comprised of the following (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
Transaction$66,873 $63,850 $201,621 $159,865 
Subscription73,317 59,348 208,194 167,415 
Partner7,689 8,397 23,128 21,117 
Total revenue$147,879 $131,595 $432,943 $348,397 

Deferred Offering Costs
Deferred offering costs of $5.6 million have been recorded in additional paid-in capital against the proceeds received from our IPO during the three months ended September 30, 2021 and consist of costs incurred in connection with the sale of our common stock in our IPO and private placement, including certain legal, accounting, printing and other IPO related costs. 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 intra-period 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 did not have a 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 impact of the adoption of Topic 842 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, 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 impact of the adoption of Topic 326 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, or Topic 848, 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
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presented in ASU 2020-04. Topic 848 is effective immediately and may be applied through December 31, 2022. We are currently evaluating the impact of the adoption of Topic 848 on our consolidated financial statements.
In August 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity's Own Equity. This standard eliminates the beneficial conversion and cash conversion accounting models for convertible instruments. It also amends the accounting for certain contracts in an entity’s own equity that are currently accounted for as derivatives because of specific settlement provisions. In addition, the new guidance modifies how particular convertible instruments and certain contracts that may be settled in cash or shares impact the diluted EPS computation. For public business entities, it is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years using the fully retrospective or modified retrospective method. Early adoption is permitted but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. We are currently evaluating the impact of the adoption on our consolidated financial statements.
In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. This standard addresses diversity in practice and inconsistency related to recognition of an acquired contract liability, and payment terms and their effect on subsequent revenue recognized by the acquirer. For public business entities, it is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Entities should apply the provisions of the new standard prospectively to business combinations occurring on or after the effective date of the standard. Early adoption is permitted, including adoption in an interim period. We have not adopted the provisions of the new standard and will assess its impact on our consolidated financial statements upon adoption.
Note 3. Other Financial Statement Information
Accounts Receivable
Changes in the allowance consisted of the following (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
Beginning balance$5,114 $2,447 $5,256 $2,461 
Add: amounts recognized as a reduction of revenue1,884 1,487 4,911 4,300 
Add: bad debt expense recognized in general and administrative expense146 348 177 1,028 
Less: write-offs, net of recoveries(2,415)(720)(5,615)(4,227)
Ending balance$4,729 $3,562 $4,729 $3,562 
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 that are no longer considered collectible.
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consisted of the following (in thousands):
September 30, 2021December 31, 2020
Prepaid expenses$11,221 $7,177 
Deferred cost of revenue2,369 1,967 
Other current assets2,748 1,392 
Total prepaid expenses and other current assets$16,338 $10,536 
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Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following (in thousands):
September 30, 2021December 31, 2020
Accrued payroll and related expenses$17,740 $16,135 
Accrued vendor payables16,010 10,854 
Derivative liabilities and hybrid debt 5,131 
Sales allowances4,952 4,856 
Accrued sales, use and business taxes1,711 1,789 
Other2,545 2,263 
Total accrued expenses and other current liabilities$42,958 $