Earnings call transcript: LegalZoom Q2 2025 revenue beats forecast, stock dips

LegalZoom reported its second-quarter earnings for 2025, meeting earnings per share (EPS) expectations and surpassing revenue forecasts. The company recorded an EPS of 0.15 USD, aligning with analysts’ predictions, and reported revenue of 192.5 million USD, exceeding the forecasted 182.72 million USD by 5.35%. According to InvestingPro analysis, LegalZoom currently appears undervalued, with a "GOOD" overall financial health score. Despite this financial outperformance, LegalZoom’s stock fell 2.22% to 8.37 USD in aftermarket trading, reflecting mixed investor reactions.

Key Takeaways

• LegalZoom’s revenue exceeded expectations by 5.35%.
• Subscription revenue grew by 10%, highlighting a shift towards recurring income.
• Adjusted EBITDA increased by 35%, improving operational efficiency.
• Stock price declined by 2.22% post-earnings, indicating mixed market sentiment.

Company Performance

LegalZoom demonstrated robust performance in Q2 2025, with total revenue reaching 193 million USD, marking a 9% increase year-over-year. The company emphasized its strategic shift towards subscription-based services, which now contribute over 60% of its revenue. This focus on recurring income, coupled with operational efficiencies, has positioned LegalZoom as a market leader in online legal services.

Financial Highlights

• Revenue: 193 million USD, up 9% year-over-year.
• Earnings per share: 0.15 USD, meeting expectations.
• Adjusted EBITDA: 39 million USD, a 35% increase from the previous year.
• Free cash flow: 32 million USD, up 82%.

Earnings vs. Forecast

LegalZoom met EPS expectations with 0.15 USD and exceeded revenue forecasts by 5.35%, reporting 192.5 million USD against a forecast of 182.72 million USD. This revenue beat highlights the company’s strong sales performance and effective cost management.

Market Reaction

Despite surpassing revenue expectations, LegalZoom’s stock fell by 2.22% to 8.37 USD in aftermarket trading. The decline suggests investor concerns, possibly related to future guidance or broader market conditions. However, the stock has shown resilience with a 43.32% return over the past year, and analyst targets range from $8 to $12 per share. InvestingPro subscribers have access to 14 additional exclusive insights about LegalZoom’s valuation and growth prospects.

Outlook & Guidance

LegalZoom raised its full-year revenue guidance to reflect 8% growth, maintaining an adjusted EBITDA margin target of 23%. For Q3, the company anticipates revenue between 182 and 184 million USD and adjusted EBITDA in the range of 44 to 46 million USD, underscoring continued confidence in its strategic initiatives.

Executive Commentary

"AI is not optional at LegalZoom, and we’re just scratching the surface here," stated CEO Jeff Stibel, emphasizing the role of AI in driving innovation. CFO Noel Watson added, "Our strategy centers on doubling down on our core strengths, legal and compliance subscription services tailored to high-quality customers."

Risks and Challenges

• Volatile business formation trends could impact revenue consistency.
• Shifts towards subscription models may face market resistance.
• Broader economic conditions and market volatility could affect investor sentiment.
• Technological advancements require ongoing investment and adaptation.

Q&A

During the earnings call, analysts inquired about LegalZoom’s growth drivers, particularly the strength in compliance subscriptions and improved retention rates. The company’s AI partnerships and recent acquisition of Formation Nation were highlighted as key strategies for market expansion and reducing customer churn.

Full transcript - LegalZoom.com Inc (LZ) Q2 2025:

Conference Operator: Good day and thank you for standing by. Welcome to the LegalZoom’s Second Quarter twenty twenty five Earnings Call. At this time, all participants are in a listen only mode. After the speakers’ presentation, there will be a question and answer session. To ask a question during the session, you will need to press 11 on your telephone.

You will then hear an automated message advising your hand is raised. To withdraw your question, please press 11 again. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your first speaker today, Tyler Drew, Investor Relations. Please go ahead.

Tyler Drew, Investor Relations, LegalZoom: Thank you, operator. Welcome to LegalZoom’s second quarter twenty twenty five earnings conference call. Joining me today is Jeff Stibel, our Chairman and Chief Executive Officer and Noel Watson, our Chief Operating Officer and Chief Financial Officer. As a reminder, we will be making forward looking statements on this call. These forward looking statements can be identified by the use of words such as believe, expect, plan, anticipate, will, intend, and similar expressions and are not and should not be relied upon as a guarantee of future performance or results.

Such forward looking statements are based on management’s assumptions and expectations and information available to us as of today’s date. These forward looking statements are also subject to risks and uncertainties that could cause actual results to differ materially from such statements. These risks and uncertainties are referred to in the press release we issued today and in the Risk Factors section of our most recent quarterly report on Form 10 Q filed with the Securities and Exchange Commission. Except as required by law, we do not plan to publicly update or revise any forward looking statements, whether as a result of any new information, future events, otherwise. In addition, we will also discuss certain non GAAP financial measures.

We use non GAAP measures in making decisions regarding our business, and we believe these measures provide helpful information to investors. These non GAAP financial measures are not intended to be considered in isolation or as a substitute for results prepared in accordance with GAAP. Reconciliations of all non GAAP measures to the most directly comparable GAAP measures are set forth in the Investor Relations section of our website at investors.legalzoom.com. I will now turn the call over to Jeff.

Jeff Stibel, Chairman and Chief Executive Officer, LegalZoom: Good afternoon, and thank you for joining our second quarter earnings conference call. We are very pleased with the accelerated progress that was made this quarter and believe it will benefit us going forward. As I complete my first full year as CEO, I want to take a brief moment to reflect on the accomplishments we have achieved at LegalZim. When I stepped into this role, my objective day one was clear, to build a more consistent, predictable, and profitable business, one that could support sustainable, long term growth resilient to changing economic cycles. Our second quarter results demonstrate the work we have done to achieve these objectives, notably ahead of plan.

First, we stabilized the business and reignited subscription revenue growth. Second, we’re building a premium brand and new suite of products that cater to the diverse needs of high quality small business owners and individuals. Third, we’re delivering operating efficiencies and expanding margins, strengthening our financial profile. All of this rolls into our second quarter strong results. Total revenue reached $193,000,000 up 9% year over year, ahead of expectations.

Subscription revenue grew 10%, marking our second straight quarter of sequential growth and early achievement of our double digit growth target, two quarters ahead of schedule. It is worth noting that our subscription revenue growth was led by our compliance offerings, including our new Compliance Concierge product suite, which we will talk about later. Further, our compliance offering showed encouraging improvement in first year retention, indicating that customers are appreciating the incremental value that we are delivering. With respect to our new Concierge solutions, we launched and saw strong adoption of products that have shifted upmarket by adding additional value, leveraging artificial and human intelligence to allow us to offer the highest service levels to customers. On profitability, similar to Q1, we continue Our adjusted EBITDA margin reached 20%, a 400 basis point improvement year over year, reflecting strong operating discipline and strategic efficiency gains.

We also continued to generate healthy free cash flow, reaching $32,000,000 in the quarter, further strengthening our balance sheet. Given our strong performance and momentum, we are raising our full year revenue guidance from 5% growth to 8% while maintaining our 23% adjusted EBITDA margin outlook. We attribute the achievement of these milestones to the work we have done to realign our organization to focus on subscription based growth and improve operational efficiencies to create a more profitable business model. As part of this strategic realignment, we executed across the three key focus areas we outlined when I first joined as CEO. One, optimize our subscription business.

Two, reorient our go to market approach. Three, leverage artificial and human intelligence to deliver expertise to our customers. We made solid progress across these three areas over the last year. In addition, we made a strategic acquisition, Formation Nation, that was not only accretive and enabled us to bring in a world class team of sales and service experts, but also sets us up to further advance our market position and realign our premium brand messaging. Let me now walk through updates across our three key focus areas.

First, subscription model optimization. To put it bluntly, our subscription strategy is working. We drove a 22% increase in total subscriptions in Q2, powered by enhancements in packaging, pricing and personalization. We continue to bundle services that deliver incremental value, like forms, e signatures and bookkeeping, into premium tiers, driving stronger early engagement and longer term cross sell opportunities. Last quarter, we launched our most comprehensive subscription suite of products to date, The Concierge Plan, a full service white glove suite of solutions driven by artificial and human intelligence designed for the sophisticated small business owner that prefers a hands on solution.

The first product, Compliance Concierge, has been a strong success and includes a do it for me solution to filings, permits, and alerts alongside a dedicated advisor at a price that’s still significantly lower than traditional legal services. We also soft launched four other concierge products that are currently being tested. Each affords customers the ability to offload their business’ legal and compliance work to our team. Strong initial traction from our Do It For Me products, including early adoption and customer response, validates demand and reinforces product direction as we scale through expanded offerings and long term capabilities. Importantly, DIFM products garner significantly higher prices, or ARPU, attract higher quality customers, and we believe create greater customer stickiness.

This is central to our strategy of delivering intelligent, expert led, proactive legal support at scale, which we believe will support renewal and retention trends over time. Second, evolving our go to market strategy. Our go to market strategy is focused on positioning LegalZoom as the trusted legal brand for small businesses to drive awareness and consideration. This spring, we launched a new brand campaign that frames LegalZoom as a legal companion for every step of customers’ journey. Our message, technology when you want it, human support when you need it, reinforces the principle behind AI augmented expertise.

Without increasing our overall ad budget, we delivered a multichannel, full funnel brand media campaign, driving awareness, consideration and conversion under a single brand narrative. The campaign deployed across Connected TV, digital and mobile with strong early results that we expect will build steadily over time. Of particular note, we saw sequential improvement in site traffic and engagement trends in June and July following the launch. We maintained a healthy return on ad spend, or ROAS, despite a longer brand payback curve. And we maintain marketing discipline with low commitments to brand spend and return hurdles for performance channels.

We plan to launch additional phases of the campaign across social and offline channels to build on that momentum. In addition, we will continue to deepen channel tests and diversification to optimize full funnel performance. Given the early success, we may consider incrementally adding to our marketing budget, but would do so within the confines of our overall expense schedule and margin profile. We’re also expanding visibility through strategic partnerships and driving new customers through growth in our channel partner program. Most notably, we teamed up with two AI pioneers.

First, with Perplexity. We launched a tailored legal support program for Perplexity Pro users, an innovative move that places LegalZoom at the intersection of legal expertise and emerging AI led search behavior. More recently, we’ve announced a new relationship with OpenAI. OpenAI is launching agentic capabilities inside ChatGPT, which they will be rolling out to 30,000,000 users. Our collaboration enables ChatGPT agents to access LegalZoom’s robust legal resources through advanced AI capabilities to ensure users are given high quality legal information and insight.

The system can intelligently navigate legal resources, run analysis, and even deliver editable documents and spreadsheets. We believe collaborations such as these will be instrumental in boosting LegalZoom’s brand presence and driving new customer acquisition. Finally, AI augmented innovation and service delivery. AI is becoming a fundamental differentiator for us, particularly as we build out our DIFM product suite that I spoke to earlier. We see a strategic opportunity to lead by combining proactive legal insights with automated execution, leveraging twenty years of robust data.

Our AI tools will enable customers to address their needs faster, more efficiently, and with greater personalization. With AI being utilized throughout many parts of the organization, we have enabled higher speed, satisfaction and scalability with shorter fulfillment times and improved resolution rates. With this foundation in place, we’re turning our focus toward customer innovation, applying AI to create higher value, do it for me offerings that improve compliance and efficiency. A recent example of that is automatic annual reporting within our compliance offerings. With this new launch, all compliance customers, as well as concierge customers, can have their annual reports filed automatically using intelligent software, with little to no need to intervene.

The net result of our push toward deeper engagement thus far has been significantly more annual reports filed and more businesses remaining compliant, which we believe has contributed to the improved retention previously discussed. We have a pipeline of DIFM and Do It With Me products being launched as we accelerate our offerings with improved AI, automation and service levels. This is in keeping with our focus on quality share, finding the best customers and providing the best subscription offerings available. AI, to be clear, is not optional at LegalZoom, and we’re just scratching the surface here. And I’m personally excited about the AI product road map.

Lastly, I’d like to touch on our recent acquisition of Formation Nation. This strategic acquisition brings complementary brands and core capabilities that align seamlessly with LegalZoom’s vision. We are extremely pleased with the transaction for several key reasons. First, integration efforts have been swift and successful. We’ve onboarded a sales team of more than a 130 experienced professionals as of q two, significantly strengthening our customer service capabilities and leveraging a brand strategy to differentiate between value and premium product offerings.

We’ve also initiated cross sell and upsell opportunities within our respective customer bases. Notably, we’ve repositioned one of the Formation Nation’s sales centers, representing approximately 17% of the sales team, and who are now focused on selling LegalZoom products, enhancing our ability to deliver higher touch formation and compliance services, an important part of our strategy to attract and retain higher LTV customers and sell more DIFM products. Second, our strategic marketing investments are already yielding results, driving increased traffic and engagement to the Formation Nation platform while reaffirming LegalZoom’s brand ethos. Finally, we acquired an amazing team. The leadership is bar none in sales and service, and the broader team continues to teach us best practices.

In short, this acquisition is already delivering meaningful value, and we are comfortable stating that we are now one team with a singular mission and focus. In summary, we are ahead of schedule on our strategy, and the business is on a stronger foundation than it was a year ago. Looking ahead, we remain confident in our growth trajectory. I would like to also take a moment here to thank our tremendous team, whom I personally owe a large debt of gratitude. This has been a difficult year with a lot of transition and change.

It has also been a hugely successful year, and I’m proud of that. The speed at which we’ve executed is a testament to the strength of the team here at LegalZoom. And this team, I firmly believe, is still being underutilized. They are that good. I deeply believe in all of this, and that with this team, I’m convinced we can do even more together.

With that, I’ll now turn the call over to Noelle, who will take you through the Q2 financials and updated guidance in more detail. Noel?

Noel Watson, Chief Operating Officer and Chief Financial Officer, LegalZoom: Thanks, Jeff, and good afternoon, everyone. We are very pleased with our second quarter results, which reflected continued progress in our key focus areas. As Jeff mentioned, our business has stabilized. We’re seeing solid growth in our core and we’ve reached key financial targets ahead of schedule. I’ll now turn to a review of our second quarter financial performance.

Unless otherwise stated, all comparisons will be on a year over year basis. Total revenue was $193,000,000 for the quarter, up 9% and ahead of our expectations. Looking at our revenue performance in more detail, we generated 10% subscription revenue growth, which resulted in roughly $120,000,000 from subscription revenue in the quarter. Achieving double digit growth in subscription revenue two quarters ahead of schedule is a strong indicator that our strategic shift is gaining traction and delivering results. Subscription revenue benefited from higher compliance related subscriptions, as well as the Formation Nation acquisition and our one-eight 100 account in partnership.

We will maintain our focus on our core strengths in legal and compliance services while also leveraging partnerships with top tier providers to address the additional needs of our customers. We ended the quarter with approximately 2,000,000 subscription units, a 22% increase. In addition to the inclusion of Formation Nation, the strong unit growth was driven primarily by higher forms, e signature and bookkeeping subscriptions as we bundle these products into certain business formation packages. We continue to expect this growth to moderate as we have seen lower renewal rates with these initial cohorts. ARPU was two fifty six dollars for the quarter, down 6% year over year and up 2% from the first quarter.

The year over year decrease was primarily the result of the aforementioned mix shift of lower subscription offerings related to the bundling of forms and e signature and bookkeeping subscriptions into our higher end Formation SKUs. We expect to maintain similar ARPU dollar levels in the second half of the year. Turning to transaction revenue. We saw an increase of 6% to $73,000,000 The increase was due to an $8,000,000 improvement in transaction revenue from our acquisition of Formation Nation, largely offset by a decline in BOIR revenue. We also saw a decrease in business formations in line with our shift in focus toward higher quality customers.

We expect similar transaction revenue growth rates in the back half of this year. We recorded a 5% decrease in transaction units to $278,000 primarily due to a decrease in BOIR filings, partially offset by Formation Nation transactions. We processed 131,000 business formations in the second quarter. The 2% year over year decrease in business formations, again, reflects our ongoing focus on targeting quality share, partially offset by the addition of Formation Nation. Average order value was $262 for the quarter, up 12% versus the same period last year.

Finally, deferred revenue increased by $2,800,000 from Q1, reflective of the typical seasonality in our business and the success of our subscription initiatives. Turning to expenses and margins, where all of the following metrics are on a non GAAP basis. Second quarter gross margin was 69%, up from 68% in prior year. Sales and marketing costs were $63,000,000 or 33% of revenue, an increase of 9% from prior year. Customer acquisition marketing costs decreased $400,000 or 1%.

Non CAM sales and marketing expenses increased $5,700,000 or 56 percent, which is primarily a result of the addition of the Formation Nation sales team. Technology and development costs were $15,000,000 down $3,000,000 or 15%. General and administrative expenses were $15,000,000 a decrease of $1,000,000 or 6%. Both technology development and G and A costs were primarily driven by efficiencies built into the business that started in the third quarter of last year. Our execution drove adjusted EBITDA of $39,000,000 This represents a 35% year over year increase as compared to adjusted EBITDA of 29,000,000 for the same period last year.

Adjusted EBITDA margin of 20% increased 400 basis points year over year. As a reminder, our adjusted EBITDA margins are generally lower in the first half of the year due to higher CAM spend levels that align with our business’ seasonality. Free cash flow was $32,000,000 in the quarter, up 82% compared to $17,000,000 for the same period in 2024. Our free cash flow improvement was primarily due to the increase in adjusted EBITDA and increased subscriptions as well as lower cash taxes. While we are in the process of fully evaluating the implications to our business from the recently passed One Big Beautiful Bill Act, our initial expectation is that we will see a positive impact on our cash flow for the year.

This is primarily a result of the provision enabling accelerated tax deductions for research and development expenditures. We ended the quarter with cash and cash equivalents of $217,000,000 Our cash position increased by $7,000,000 versus Q1 twenty twenty five, benefiting from strong free cash flow generation, partially offset by share repurchases. Subsequent to quarter end, we renewed and amended our credit agreement, which among other things extends the maturity date to July 2030 and lowers this revolving credit facility to $100,000,000 The facility remains undrawn. As a reminder, last quarter, our Board of Directors approved a 100,000,000 increase to our existing share repurchase program. During Q2, we repurchased approximately 2,200,000.0 shares at an average price of $9.33 per share for a total of $20,400,000 We now have approximately $130,000,000 remaining under our existing authorization.

As we look ahead, we continue to believe our strong cash position and healthy free cash flow generation will enable us to continue to invest in our business as well as evaluate strategic M and A opportunities. Before turning to our outlook, I want to take a moment to discuss how we think about the macro environment. Over the past year, we’ve made a deliberate effort to decouple our business performance from the unpredictability of the broader industry trends. While business formation trends continue to be volatile and difficult to forecast, we’ve taken proactive steps to build greater resilience into our model. Our strategy centers on doubling down on our core strengths, legal and compliance subscription services tailored to high quality customers with long term value potential.

Through this focus, we aim to reduce our exposure to short term macro fluctuations and instead build a more stable recurring revenue base. We believe that the company is executing well against this strategy, and it can be seen in our stable results during an otherwise volatile macroeconomic period. Looking ahead, as we shift away from one off free formation transactions toward durable premium solution based subscription services, we also anticipate the stabilization in market share trends. Ultimately, our goal is to deliver durable results through the strength of our offerings, the loyalty of our customers and the operational flexibility we’ve built into the business regardless of macro trends. Now turning to our outlook.

We are pleased to have outperformed our second quarter expectations and with the clear progress we are making across our key focus areas. As such, we are raising our full year revenue guidance. For the full year 2025, we now expect revenue to grow by approximately 8%. We continue to expect an adjusted EBITDA margin of 23%. For the third quarter, we expect revenue between $182,000,000 and $184,000,000 representing growth of approximately 9% at the midpoint of the range, with similar growth rates to the second quarter across both subscription and transaction revenues.

For the same period, we expect to achieve adjusted EBITDA in the range of $44,000,000 to $46,000,000 which reflects a 25% margin at the midpoint. In closing, despite the uncertain economic environment, we’re demonstrating clear progress against our key focus areas, including achieving double digit subscription revenue growth ahead of expectations. With strong execution and a focused strategy, we’re well positioned to continue delivering results through the remainder of the year regardless of macro conditions. Long term, we remain confident in our ability to deliver sustainable, profitable growth for several reasons. We are the market leader in online legal services with unmatched brand recognition.

Over 60% of our revenue is subscription based, providing predictability and resilience. We are just beginning to tap the potential of AI and data to deliver smarter, more personalized legal solutions. And we have a flexible operating model and a strong balance sheet, giving us the ability to invest while staying nimble. As always, we’d like to thank the entire LegalZoom team for their efforts this quarter. And with that, let’s now open up the call for questions.

Conference Operator: Thank you. At this time, we will conduct the question and answer session. As a reminder, to ask a question, you’ll need to press 11 on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. Please stand by while we compile the Q and A roster.

Our first question comes from the line of Brent Thill of Jefferies. Your line is now open.

John, Analyst, Jefferies: Hi, thank you. This is John for Brent Thill. So, a lot of positive comments there. Wanted to see if you could maybe dig in a little bit more on the confidence in raising the growth for the full year by three points. Obviously the trends are good, but the macro is still somewhat volatile.

And so I don’t know if you could dig into a little bit in terms of the drivers beyond your confidence. Thank you.

Jeff Stibel, Chairman and Chief Executive Officer, LegalZoom: Sure. And thank you for that, John. Why don’t I start at the high level and then turn over to Noel to dig in on the details? But we’re now running a more predictable subscription driven business that isn’t fully beholden to small business starts. And you’re seeing that with some of the trends that are developing within the business.

And that gave us confidence at the beginning of the year. It gave us confidence that the Q1 trends would continue and persist. It allows us to maintain margins and accelerate growth. I won’t say irrespective of the formation macro, but with a much wider range so that we’re not so limited. We’re range bound now such that we can operate our business within our control in a way that we couldn’t previously.

Noel Watson, Chief Operating Officer and Chief Financial Officer, LegalZoom: Yeah, and I would say importantly, the increasing guide is driven by performance that’s sort of multifaceted if you look underneath the covers. Saw strength, as we mentioned in our remarks, we saw strength in our core compliance subscriptions, which is really important and that’s partly due to pricing to value, but also we’re starting to see some positive signs on retention here as we look at year one renewals and that’s tied to a lot of the work that the team has been doing to improve engagement with our compliance hubs. We’ve seen strength in our virtual mail offering, specifically with renewals outperforming our expectations. We continue to be very happy with our one-eight 100 partnership and that’s driving growth. We have some added benefit for Formation Nation that still continues to represent a near term opportunity as we look to shift a largely transactional business to subscription.

So importantly, it’s coming from a bunch of different areas. Some, to be frank, of the raise is built into performance that we’ve already delivered year to date, but we’re seeing consistent, visible and predictable improvement in the initiatives that are underlying the guide increase.

John, Analyst, Jefferies: Great, that’s very helpful. And maybe a quick follow on. On your announcements with Perplexity and OpenAI, don’t know if you’re able to discuss any of the financial aspects or benefits that could be driven there without getting into the details that you can’t disclose. Thank you very much.

Jeff Stibel, Chairman and Chief Executive Officer, LegalZoom: Yeah, great question. Without getting into the details, I mean, what you’re seeing here is a signal that AI is incredibly critical to what we’re going to be doing going And if you look from those companies’ perspectives, they’re choosing the market leader, which is us. And with twenty years plus of data, robust history, strong brand, and this ability to move up market. It’s a natural fit for us to start working with the best in this field. OpenAI, Perplexity, there are others that we’re going to try to continue to work with.

Probably more importantly, as we look to the future, it’s a strategy that lends itself to what we’re doing with Do It For Me, DIFM. And this concierge model of being able to leverage AI, not to replace, but to augment our expertise, is something that we believe is unique to LegalZoom. And something that only we can deliver. And then the last thing that I will say is that it speaks to a last mile problem, which most technology has. We believe AI does as well, which is something we’ve been talking about for a number of quarters.

AI has the ability to do a lot of things in our space, and in legal tech generally. But when it comes to that last mile, just before a contract is signed, that’s when you need to introduce some level of service and some level of product that is very tailored to the individual customer. We’re uniquely positioned to drive that forward. And some of the pivot that we have made over the last year and most of what we’re doing go forward is designed to actually align with that. Because we think that as the market evolves, that’s where we’re going to be able to sit and create real differentiation for LegalZoom.

John, Analyst, Jefferies: Thank you again.

Jeff Stibel, Chairman and Chief Executive Officer, LegalZoom: You bet. Thank you.

Conference Operator: One moment for our next question. Our next question comes from the line of Patrick McGilley of William Blair. Your line is now open.

Patrick McGilley, Analyst, William Blair: Hi, team. Nice results this quarter. So my first question, I may have missed this, but I didn’t catch you mention your retention rates this quarter. So first, if you wouldn’t mind sharing those, that would be great. And then second, can you provide an update on how the retention or attrition rates you’ve seen in some of those initial bundled cohorts has progressed now that I believe you’re kind of lapping some of the changes you made to those SKUs last year?

Noel Watson, Chief Operating Officer and Chief Financial Officer, LegalZoom: Yeah. Hey, Pat. This is Noel. Thanks for the question. So our aggregated retention rate for the quarter was 59 That’s down from prior quarter of 60%.

So we signaled this, I think, on prior calls, and we’ve mentioned a few times that it really relates to the fact that we started bundling these lower price, lower retention subscriptions in our pro and premium SKUs, specifically forms, e signature and bookkeeping. So we’ve lapped forms in e signature rollout, which was really in the first and second quarter of last year, and we’ll be lapping the bookkeeping rollout, which was more kind of end of third, early fourth quarter of prior year. And that we’ll start to see absent further changes in commercialization, retention rates stabilize thereafter. I will say when you look at it’s largely this, the change in retention is largely this mix in product. And when you look individually at our respective products, we’re actually happy with the retention rates that we’re seeing.

As we mentioned in our prepared remarks, we’re seeing some positive signals within our core compliance subscriptions, which are the products that matter most to us.

Jeff Stibel, Chairman and Chief Executive Officer, LegalZoom: Yeah, and specific to those compliance products, which are the majority of our revenues in subscription, we’re seeing positive trends both in retention and in engagement. So, it gives us a proof point on retention, which speaks to what we’ve done in the past. But that engagement number speaks to our ability to drive retention higher, churn lower, over time. In those core products, which are the products that we want some of these bundles to graduate into anyways. Because what we’re trying to do is actually cross on up to them ultimately into those compliance products.

Patrick McGilley, Analyst, William Blair: Right, okay. Thank you both. And then my second question, Noel, I think you mentioned that formation Nation contributed $8,000,000 in revenue this quarter, if I caught that correctly. But I believe there’s a decent amount of seasonality in that business. So I just wanted to ask if you could frame expectations for that in the second half just so we can kind of back into a more organic growth rate.

Noel Watson, Chief Operating Officer and Chief Financial Officer, LegalZoom: Yeah. So Formation Nation delivered 8,000,000 in the transaction revenue side of the business for the quarter. In total, it was a little over $1,212,000,000 dollars that they contributed. And you’re right. Because it’s more heavily transaction oriented, there’s more seasonality in the in in the business than LegalZoom.

We’re not breaking out the guide, but you would expect that seasonally, the first half of the year is stronger than the second half of the year generally in our category. So we would expect the contribution to be somewhat similar to slightly lower than what you saw in Q2. And I’ll just caution you on a couple of things because we’ve been doing deep integrations with Formation Nation. So, number one, we’ve been accelerating our marketing efforts towards Formation Nation. And that complicates that decoupling, if you’re trying

Jeff Stibel, Chairman and Chief Executive Officer, LegalZoom: to do that. Number two, we’ve been rebranding LegalZoom and then Formation Nation’s lead brand Inc. Authority. With LegalZoom being premium, Inc. Authority being discount and free.

And then number three, we’ve now taken a sales center from Formation Nation and redeployed them on LegalZoom’s higher end products. So it is not a clean look when you’re trying to do an apples to apples.

Patrick McGilley, Analyst, William Blair: Okay, understood. Thanks, Jeff. And thank you, Noel, for the thoughts.

Jeff Stibel, Chairman and Chief Executive Officer, LegalZoom: You bet. Thanks for the comments.

Noel Watson, Chief Operating Officer and Chief Financial Officer, LegalZoom: Thank you.

Conference Operator: One moment for our next question. Our next question comes from the line of Elizabeth Porter of Morgan Stanley. Your line is now open.

Elizabeth Porter, Analyst, Morgan Stanley: Great. Thank you so much. Jeff, I wanted to follow-up on your comment about moving some of those sales heads over from over at Formation Nation. I wanted to touch on just the success you may be seeing thus far around attaching subscriptions to Formation Nation’s higher value customers. So I know it might be early, but what are the signs of success you’re seeing so far?

And what products do you think may have the highest attach rates to this type of customer base?

Jeff Stibel, Chairman and Chief Executive Officer, LegalZoom: Sure. Good question, something we are deeply focused on. Let me unpack it a little What we’ve done is redeployed a sales center focused on LegalZoom’s selling model, which is disproportionately more subscription than what Formation Nations was historically and even is today. That by default, by pulling those customers through our funnel, will immediately move people into a subscription base more quickly than with Formation Nation. In terms of where we think we can take these Formation Nation customers over time, I think it is very similar to what we have done historically with LegalZim.

So first and foremost, it’s our core product offerings. Those compliance offerings. Some of which Formation Nation had but didn’t lean on, because they were more focused on being cash generative day one. Because they were run with being cash constrained. Number two, some of the products that they didn’t have.

So some of the things that we’re creating around DIFM, some of the compliance calendaring, some of the automatic filings that we’re doing now. And then some of the product lines like virtual mail, that they weren’t able to offer prior. So I think that there are a lot of areas where we will be upselling and cross selling both the existing base and porting over new customers. But I’ll reiterate, we’re very, very early in that process. We’re going after low hanging fruit right now, because it’s there, it’s available.

And that integration is already proving very successful. But over time, I think that there’s a lot of opportunity. And it points to our ability to do that with potentially other M and A opportunities, and within our core base as we grow as well.

Elizabeth Porter, Analyst, Morgan Stanley: Great. And then maybe a follow-up for Noelle. Great to see the revenue upside. I was wondering if there are incremental areas that you’re pushing the lever of investment on that just may be mitigating some of the upside to margins that we have for the full year outlook? Thank you.

Noel Watson, Chief Operating Officer and Chief Financial Officer, LegalZoom: Yeah, I think Jeff hit on one of the areas that we’re pretty excited about, which is in the concierge or do it for me offering, which is much more of a hands on white glove service that we’re providing. And this is part of our march towards focusing on higher value subscriptions toward higher quality customers. We’re having really good early success there. And as you start to scale new products like that, it generally takes a larger investment. And so that’s the mode that we’re in right now.

And you’re seeing that in the results, but we’re expecting it to continue scale quickly. And so we’ll invest behind it. As we build the tools and automation to create efficiencies in supporting it, we’ll see leverage from a margin standpoint as we move forward. So that’s a particular area of focus for us right now in terms of investment.

Jeff Stibel, Chairman and Chief Executive Officer, LegalZoom: Yeah. And I’ll give another one as well, which is less clear from financial perspective, I can give something very tangible. Engagement. Because we know engagement will reduce churn. And if you think about what we do on the compliance side, if you have everyone trying to do it yourself, it’s like herding a bunch of meowing cats.

I mean, it just doesn’t happen. So, what we’ve done is we’ve started to build a bunch of technology oriented automation that allows us to do this deep engagement in our compliance products. And we’re already seeing proof points that that is reducing churn. And the example I think that we mentioned in the prepared remarks was what we’re doing for annual reports. And we’ve seen a dramatic uptick in annual reports.

Ironically, that falls in our compliance line, the dollars, because there are filing fees associated with it. It sits over on the transaction side. But what it does is we deliver those transactions in an automated way, and they reoccur naturally, it ends up reducing churn in our subscription products.

Noel Watson, Chief Operating Officer and Chief Financial Officer, LegalZoom: Yeah, I think one other important piece And that

Jeff Stibel, Chairman and Chief Executive Officer, LegalZoom: is an investment sorry, that is an investment that is a lower margin because of the pilot fees.

Noel Watson, Chief Operating Officer and Chief Financial Officer, LegalZoom: Yeah, one ongoing investment that we’ve been making and we continue to see bear fruit is just around our operations, the tools, the automation, some of it leveraging AI to help our team deliver our services to customers. It’s just driven a lot of efficiency in how we deliver and improvements in customer experience. And so that is an offset to any investment that we’re making as we’re driving more efficiencies there.

Jeff Stibel, Chairman and Chief Executive Officer, LegalZoom: And that’s also an important point. Just to put a pin on this because we’re leveraging the economies of scale. So we’re still working on margin improvement. We’re not talking about deterioration here, which is why we reiterated our margin target.

Elizabeth Porter, Analyst, Morgan Stanley: Great. Thank you for the very thorough answer. Thanks.

Conference Operator: You bet. One moment for our next question. Our next question comes from Michael McGovern of BofA. Your line is now open.

Michael McGovern, Analyst, BofA: Hey, guys. Thanks for taking my question. When we think about your AI partnerships and even agents creating documents for users that aren’t necessarily in your ecosystem yet, can you just discuss what the playbook looks like for creating a longer term customer there or monetization of that use case? And then second question, with that last mile delivery piece from your prior answer, does that lend itself to adding more AI partners in the future if you’re really focused on that last mile?

Jeff Stibel, Chairman and Chief Executive Officer, LegalZoom: Yeah, great question. And this is a real opportunity to expand our addressable market. AI can be a very big TAM expander if you have something differentiated. And in this case, what we see is many people have legal questions and legal problems that they don’t know are legal in nature. So by leveraging these partnerships, they will lend itself to prompts that the customer themselves might not think is legal.

And that can pivot them to, you need to get legal help for this. And that’s where LegalZoom comes in. That really is our differentiator. So, the short response to your question is yes, expect more of these. Part of the reason why we did press releases for these is we want to signal that we are open for business.

We see the opportunity and the value of doing this. And what we give away to the extent that we give away anything, is an opportunity to expand TAMP. Because that’s a marginalized part of what we do. It is not core to our business. What is core to our business is solving that last mile problem that we don’t think anyone but LegalZoom can solve.

And what that ends up meaning is, we open our aperture from the addressable market standpoint. And then we start going after the old line lawyers and law firm market that we weren’t addressing prior, because we were focused on top of funnel formations. So we think this is a really exciting new opportunity for us. We’ve even seen this in some of our marketing efforts to date.

Noel Watson, Chief Operating Officer and Chief Financial Officer, LegalZoom: Great. Thank you.

Jeff Stibel, Chairman and Chief Executive Officer, LegalZoom: You bet.

Conference Operator: One moment for our next question. Our next question comes from the line of Matt Condon of Citizens. Your line is now open.

Matt Condon, Analyst, Citizens: Thank you so much for taking my questions. My first one is just on Jeff, talked about engagement multiple times on this call. Can you just talk about maybe how improvements in engagement with your products is informing your future product roadmaps and how you can cross sell into that base of users? And then just a follow-up also on cross sell. Can you just talk about how you’re optimizing the purchase flow to just increase attach rate and what’s really working there?

Thank you.

Jeff Stibel, Chairman and Chief Executive Officer, LegalZoom: You bet. And good insight here in terms of how our customers more than anyone are driving our product experience and where we’re headed. I mean, this concierge suite of products was an out prop of what we were hearing from customers and what they needed. What we realized was a surprisingly high percentage of small businesses are out of compliance. And unfortunately, that includes customers who have our compliance products.

And the reason is because this isn’t easy. This isn’t fun. This isn’t anyone’s expertise as a small business owner. Instead, we’re giving them the tools to do something that they don’t have the time, wherewithal, or inclination to do. So they just fall out of compliance until fees build up and say, now I have to do something.

So what we have realized is, if we make it simple and seamless for real functioning businesses to remain compliant, they’re willing to pay more for that. Because they see value in getting back their time. And as we begin to tease this out, we’re going to learn more and more about what it is that customers need. And we’ve got a very good model for testing, very cost effectively, the next do it for me product. Determine whether it works.

Then build automation and AI to make sure that it’s streamlined and margin accretive. And then relaunch it as a fully fledged product. So I think you will see much more here in that respect. And DIFM will be a larger and larger percentage of total revenues over time.

Matt Condon, Analyst, Citizens: Thank you so much.

Jeff Stibel, Chairman and Chief Executive Officer, LegalZoom: You bet. I

Conference Operator: am showing no further questions at this time. Thank you for your participation in today’s conference. This concludes the program. You may now disconnect.

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