LegalZoom.com(LZ) - 2023 Q4 - Annual Report

Business Formation and Growth - In 2023, the number of business formations increased by 23% to 581,000 compared to 474,000 in 2022, driven by the rollout of free LLC formations[245]. - The exit from certain channel partnerships in 2023 is expected to negatively impact business formations and subscription unit growth in the first half of 2024[220]. - The number of transactions increased by 12% from 929,000 in 2022 to 1,043,000 in 2023, primarily due to a rise in business formations and compliance-related transactions[248]. Revenue and Profitability - Total revenue increased by 7% from $619,979,000 in 2022 to$660,727,000 in 2023, with subscription revenue accounting for 62% of total revenue in 2023[262][263]. - Subscription revenue rose by 15% from $359,198,000 in 2022 to$412,947,000 in 2023, driven by both an increase in subscription units and ARPU[265]. - Gross profit increased by 3% from $408,884,000 in 2022 to$421,464,000 in 2023, driven by a $40.7 million increase in revenue[268]. - The net income for 2023 was$13.9 million, compared to a net loss of $48.7 million in 2022, resulting in a net income margin of 2$259 in 2022 to $277 in 2023, attributed to a shift towards higher-priced subscription offerings[256]. - The annual small business retention rate was approximately 63$70,434,000, a decrease of $12,747,000 or 18$83,181,000 in 2022, primarily due to increased payroll and related benefits from higher headcount[270]. Cash Flow and Financial Position - Cash and cash equivalents increased by $36,637,000 to$225,700,000 as of December 31, 2023, primarily due to cash provided by operating activities[280]. - Net cash provided by operating activities was $124,308,000 in 2023, up from$73,837,000 in 2022, resulting from a net income of $14,000,000[293]. - Free cash flow for 2023 was$92.7 million, an increase of $41.0 million from$51.7 million in 2022, driven by a $50.5 million increase in net cash provided by operating activities[310]. Market and Economic Conditions - The company does not believe that inflation has had a material effect on its business or financial condition to date[355]. - There is a risk that significant inflationary pressures could lead to higher costs that may not be fully offset by price increases[355]. - Sustained inflationary pressures could adversely impact the success of existing small businesses and the formation of new small businesses, potentially harming the company's future prospects[355]. Tax and Interest - The provision for income taxes was$16,481,000 in 2023, an increase of $1,060,000 or 1555$17,541,000 in 2022, driven by higher taxable income[278]. - Interest expense increased by $233,000 or 90$493,000 in 2023, primarily due to amortization of debt issuance costs related to the 2021 Revolving Facility[273]. - Interest income rose significantly by $7,504,000 or 416$9,307,000 in 2023, primarily from dividend income generated from money market investments[274]. Stock and Debt Management - The 2022 stock repurchase program was exhausted in September 2023, and a new program was approved in October 2023, allowing for repurchases of up to $100,000,000[283]. - The company had no borrowings outstanding under the 2021 Revolving Facility as of December 31, 2023, with$150,000,000 available for use[286]. - The company has non-cancelable agreements with vendors requiring $46.5 million in payments over four years, with$32.8 million remaining as of December 31, 2023[302]. Accounting and Valuation - The company recognizes subscription revenue ratably over the subscription term, which generally ranges from thirty days to one year[314]. - Revenue recognition for subscription-based services is generally on a straight-line basis over the subscription term, while transaction-based services recognize revenue at the point of delivery[325]. - The company has performed valuations of assets acquired in business combinations, requiring significant judgment and estimates, particularly for intangible assets[332].