Legalzoom.com (LZ) risk factors, FY2024 10-K

Risks Relating to Our Business and Industry

1. 01Our business primarily depends on business formations
2. 02Our business depends substantially on our customers expanding their use of our platform, including converting our transactional customers to subscribers and our subscribers renewing their subscriptions with us
3. 03Failure to effectively manage our growth could adversely impact our business
4. 04Our future quarterly results of operations may fluctuate significantly due to a wide range of factors, which makes our future results difficult to predict
5. 05We have a history of net losses and we may not be able to maintain profitability
6. 06If we fail to provide high-quality products and services that meet our customers’ expectations, we may not be able to attract and retain customers
7. 07If we do not continue to innovate and provide a platform that is useful to our customers, we may not remain competitive, and our results of operations could suffer
8. 08The legal solutions market is highly competitive and our failure to effectively compete successfully could materially and adversely affect our business, results of operations, financial condition and future prospects
9. 09Our business depends on our brand and reputation, which could be adversely affected by numerous factors
10. 10We are incorporating generative AI into some of our offerings, which may present both compliance risks and reputational risks
11. 11If our marketing efforts are unsuccessful, our business, results of operations, financial condition and future prospects may be adversely affected
12. 12We depend on top talent, including our senior management team, to grow and operate our business, and if we are unable to hire, retain or motivate our employees, we may not be able to grow or operate effectively, which may adversely affect our business and future prospects
13. 13Our business and success depend in part on our strategic relationships with third parties, including our partner ecosystem, and our business may be harmed if we fail to maintain or expand these relationships
14. 14Our reliance on third party providers could adversely affect our business
15. 15The acquisition of Formation Nation and any future acquisitions or investments may divert our management’s attention, result in additional dilution to our stockholders or adversely affect our operating results
16. 16Our focus on the long-term best interests of our company and our consideration of our stakeholders, more broadly, including our stockholders, customers, employees, and other stakeholders that we may identify from time to time, may conflict with short- or medium-term financial interests and business performance, which may negatively impact the value of our common stock
17. 17We may not effectively ensure that online services and physical locations are protected from significant outages, denial or degradation of service attacks, natural disasters, including adverse weather conditions, and other disruptions, any of which could adversely affect our brand and reputation, business, results of operations, financial condition and future prospects
18. 18We may from time to time become involved in litigation, arbitration or government investigation matters that are expensive and time consuming and, if resolved adversely, could harm our brand and reputation, business, results of operations, financial condition or future prospects
19. 19We are subject to risks related to accepting credit and debit card payments that may harm our business or expose us to additional costs and liabilities

Risks Relating to Our Financial Condition, Indebtedness and Capital Requirements

1. 20Our results of operations may not immediately reflect downturns or upturns in sales because we recognize revenue from our customers over the term of their paid subscriptions with us
2. 21We track certain financial and operating metrics with internal systems and tools and do not independently verify such metrics. Certain of our financial and operating metrics are subject to inherent challenges in measurement, and real or perceived inaccuracies in such metrics may harm our reputation and negatively affect our business
3. 22We have in the past identified material weaknesses in our internal control over financial reporting, and if we are unable to maintain effective internal control over financial reporting in the future, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock may decline
4. 23The agreement governing our revolving credit facility requires us to meet certain operating and financial covenants and places restrictions on our operating and financial flexibility. If we raise additional capital through debt financing, the terms of any new debt could further restrict our ability to operate our business
5. 24We are subject to fluctuations in interest rates
6. 25Our ability to use our NOL carryforwards may be limited
7. 26Changes in our effective tax rate or tax liability may have an adverse effect on our results of operations
8. 27Changes in tax laws or regulations that are applied adversely to us or our customers may have a material adverse effect on our business, cash flow, financial condition or results of operations

Risks Relating to Legal, Compliance and Regulatory Matters

1. 28Our business and services subject us to complex and evolving U.S. and foreign laws and regulations
2. 29Our Arizona subsidiary, which is licensed as an ABS, may not insulate us from claims of the unauthorized practice of law and is subject to restrictions under Arizona Code of Judicial Administration
3. 30If the independent professionals who participate in our or our partners' networks, or otherwise work with LegalZoom as a consultant or contractor, are characterized as employees, we would be subject to employment and withholding liabilities and regulatory risks
4. 31Compliance with U.S. and foreign privacy and data security requirements could result in additional costs and liabilities to us or inhibit our ability to collect and store data, and the failure to comply with such requirements could subject us to significant fines and penalties, which could adversely affect our business, financial condition and reputation

Risks Relating to Intellectual Property

1. 32Our use of open source software could negatively affect our proprietary technologies and our ability to offer and sell subscriptions to our products and could subject us to possible litigation
2. 33If we are unable to adequately protect our intellectual property to prevent unauthorized use or appropriation, the value of our brand and other intangible assets, as well as our business, results of operations, financial condition and future prospects may be adversely affected

Risks Relating to Ownership of Our Common Stock

1. 34The market price of our common stock may be volatile or may decline regardless of our operating performance, resulting in substantial losses for our investors
2. 35A significant portion of our total outstanding shares may be sold into the market in the near future, which could cause the market price of our common stock to drop significantly, even if our business is performing well
3. 36Concentration of ownership of our common stock among our existing executive officers, directors and other affiliates may prevent new investors from influencing significant corporate decisions
4. 37Provisions in our corporate charter documents and provisions under Delaware law could make an acquisition of us, which may be beneficial to our stockholders, more difficult and may prevent attempts by our stockholders to replace or remove our current management
5. 38Our amended and restated certificate of incorporation provides that the doctrine of “corporate opportunity” will not apply with respect to certain stockholders
6. 39Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware and the federal district courts of the United States of America will be the exclusive forums for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, or employees