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LegalZoom.com Inc (NASDAQ:LZ) presented its strategic refocus at the Jefferies 2025 Software & Internet Conference on Wednesday, 28 May 2025. The company highlighted its shift towards core legal services for small and medium-sized businesses (SMBs), emphasizing a subscription-based model and margin expansion. While the outlook is optimistic, challenges remain in transitioning away from non-core products.
Key Takeaways
- LegalZoom is refocusing on core legal services, moving away from non-core products.
- The company aims for a 100% subscription revenue mix within five years.
- EBITDA margin is projected to reach 23% for 2025, up from 22% in 2022.
- The Formation Nation acquisition supports lower-priced product offerings.
- LegalZoom is testing pricing and bundling strategies to improve customer retention.
Financial Results
- LegalZoom’s EBITDA margin improved from 18% in 2021 to 22% in 2022, with a 23% target for 2025.
- The margin expansion is driven by a shift to higher-margin subscription products and infrastructure investments.
- Strong free cash flow in Q1 was partly due to deferred revenue improvements.
Operational Updates
- The company is focusing on "quality share" by targeting higher-value SMB customers.
- LegalZoom is enhancing its subscription model, with double-digit growth expected by year-end.
- Headcount management includes a mix of full-time and outsourced employees for flexibility.
Future Outlook
- LegalZoom aims to increase subscription revenue and customer retention through concierge services.
- The company is in early stages of testing pricing and bundling strategies to increase average revenue per user (ARPU).
- The Formation Nation acquisition adds a new brand for lower-priced products and service expertise.
Q&A Highlights
- Concierge product pricing is significantly higher than core DIY products due to added value.
- Price increases on renewals are yielding positive results.
- LegalZoom plans to leverage Formation Nation’s service expertise for subscription model transition.
For a deeper understanding, readers are encouraged to refer to the full transcript.
Full transcript - Jefferies 2025 Software & Internet Conference:
John Biannon, Executive, LegalZoom: Hi. Welcome, everyone. This is John Biannon. Executives from LegalZoom. We have, Jeff Stibel, CEO, and Noel Watson, who’s CFO and COO.
So there’s two roles, very busy. Yeah. Jeff has been CEO since July of last year, so almost a year now. And before that, he was on the board for about ten years. And then Noel was CFO since before the IPO, right, and took on the role as CEO as well.
So, you know, maybe just to get started, I mean, for those who are maybe a little less familiar with LegalZoom, maybe just touch very briefly on the products, the main products and the customer segments that you serve.
Jeff Stibel, CEO, LegalZoom: Sure. So we focus on the online legal services sector. We’re principally focused in two categories, on the SMB side and consumer side. On SMBs, our top of funnel is small business formation. So business starts and needs to incorporate, they come to us.
And then the longer tail is with us offering compliance services and other various legal products, including a legal service where we offer a legal plan. On the consumer side, we’re principally focused on estate planning, so wills and trusts. And there too, we have a transactional product in the form of getting a will or a trust, and then offer various legal services on top of that that are subscription oriented.
John Biannon, Executive, LegalZoom: Okay. And then in terms of the revenue mix, I mean, it’s primarily more on the non consumer side. I mean, is there revenue or a way to think about that?
Jeff Stibel, CEO, LegalZoom: Correct. So our principal focus is on small and medium sized businesses, and it is largely subscription. So we’re deeply focused on driving that small business subscription business, which is our core. And then the rest are ancillary businesses, either to drive people into our funnel or to service those customers once they’ve already become customers.
John Biannon, Executive, LegalZoom: Okay, great. You know, as I mentioned earlier, so July 24, you took on as CEO after having watched over the company for a long time. I mean, what were, I guess, some of the major changes that you’ve made since you took over, things that had observed maybe, you know, maybe needed to be redirected a little bit. So, you know, in terms of major changes that you’ve made since.
Jeff Stibel, CEO, LegalZoom: Sure. I’d I’d say the the biggest is in terms of our focus. Said another way, what what we are not going to do on a go forward basis. So if, you know, if you look at the history of this company, we we really created this category. And in many ways, the LegalZoom name has become synonymous with online legal services.
But in, you know, in our preparation towards our IPO, we started to realize that we could sell other value added services across the SMB ecosystem more broadly. We had done that through partnership. As part of the IPO, we started to build some what I would call non core products in house. So tax services, bookkeeping services, etcetera. And that became a primary focus of ours, to bring people in through legal services and then cross sell and upsell them on other value added SMB services.
What that did was twofold. Number one, it diluted our brand. Number two, it allowed us to think of our legal services as non core, such that we were more willing to bring those customers in as transactional as opposed to subscription. So the, you know, I’d say the singular biggest thing was was refocus all of our efforts on what we do best, legal services. So we have now divested the vast majority of our product lines that are non legal focused by partnering with others, with third parties who are best in class at those things.
And then redoubling our efforts on our core legal services, in particular revolving around subscription opportunities to bring people in through formation, and then move them up the channels into into value added subscriptions. If if I had a second one to add, it would be to move from what we have thought notionally as our market share, which is the amount of formations each quarter that we that we participate in to to quality share. It is in line with this notion of focusing on legal services for small businesses, But but it’s relevant because what it does is it allows us to go more upmarket to a different addressable market that has principally been served historically by local lawyers and main street law firms.
John Biannon, Executive, LegalZoom: Great. Great. So I think some of the you know, you you mentioned subscriptions and you made a lot of progress in increasing the mix of that. I mean, was just below 50% in fiscal twenty twenty and then went up by 15 points to 64%. Well, I think that’s what we’re progressing maybe this year.
Where do you think this could go, let’s say, the next three to five years? I mean, is the ultimate potential to reach 100%? And what are some of the major product drivers that’ll help you get to a higher state in subscription?
Jeff Stibel, CEO, LegalZoom: Sure. Mean, look, if I’m looking back five years from now, aspirationally, it should be a %. This, you know, these these products and services are recurring. And, you know, what we have done historically was pick apart the products and sell features. And, you know, and we sold those features in a transactional way.
But but but these services lend themselves to a subscription business. Subscription economics are far stronger for, you know, for our business. And having a recurring relationship with a company that provides legal services is also beneficial to small businesses. So, you know, as as we as we look ahead, subscription as a function of our overall revenues should be growing at a faster rate than our revenues as a whole. And, you know, you’re seeing that even today.
You know, we’re we’re saying this year we’ll do about 5% growth, but we’re also saying that our subscription revenues towards the end of the year should be in the double digit range. And we said that deliberately because we think that we have a sustainable model for driving accelerated subscription growth.
John Biannon, Executive, LegalZoom: I mean in terms of reaching, I guess that was kind of a tail end, I asked a multi part question. But in terms of the drivers, both on the product side and maybe on the go to market side, that will help shift that subscription mix higher. I mean, what are some of the things that you’re working on?
Jeff Stibel, CEO, LegalZoom: It it’s aligned with the first question they asked me or at least how I answered it with respect to focus. It it is it it it finding areas of opportunity where we can solve problems for our customers. We we we think of the average small business and assume that that actually exists. You know, that that pushes a pizza shop owner into the same category as a chiropractor. These are very different customers with very different needs.
So the the average and the modality is is, you know, orders of magnitude apart from one another. So what we need what we need to do is figure out the things in those businesses that overlap where we can solve problems and give those individuals back their time, those business owners back their time. That’s ultimately what’s gonna drive our subscription business and and lead to higher ARPU, average revenue per user, and lower churn. And examples of that that we’ve already done, which has helped to shift that share already, and why you’ve seen accelerated growth in the subscription line for the first time in, I think, four or five quarters, are things that we’re doing around moving from do it yourself to do it for me. So, you know, we are taking more of a concierge like approach to more sophisticated customers.
We’re, you know, we’re also leaning in on products and services that, you know, that help customers remain compliant. And, you know, and not just calendaring for them, but actually helping them do these things that need to be done, that, you know, but but are woefully ignored typically by the average small business.
John Biannon, Executive, LegalZoom: Yeah. I think that concierge extension or enhancement to an existing product, especially on compliance, seems very promising. Mean, it looks like the ARPU could be much higher. Don’t know if you could maybe touch on that potential of, you know, from the early tests that you’ve done in the concierge product, you know, I mean, it looks like it could be a sign of things that could be repeated to other products in terms of a higher ARPU, better retention.
Jeff Stibel, CEO, LegalZoom: I I think it’s a I think it’s a great point and call out. And we we sort of teased this in our last quarterly announcement because these products are quite new. You know, I’ve I’ve been, CEO for nine months. We we had some cleanup to do and some stabilization to do. So really, we didn’t start on some of these product features and enhancements until, you know, until this year.
So think of these as as MVPs, but the demand is actually quite high. Because once you have a business who’s past the hard period of staying in business and then scaling their business, it usually takes about a year, all of a sudden the elasticity curve flips from being quite price sensitive to being time sensitive. There, you know, these these business owners are all of a sudden willing to spend their money to get back time on things that they’re either not good at, they don’t want to do, they don’t care about, but they know needs to be done for your business. It’s it’s one of the points that I think we made very early on, which is we’re doing a disservice forming someone’s business and then leaving them. Because there is a lot that you have to do after you form.
It is not just a function of a filing with the secretary of state. So, you know, when you look at these concierge products and, you know, I’ll give you I’ll give you two two examples. Our compliance concierge product that we are test marketing right now, what it effectively does is it gives someone a service agent some technology in the form of AI and traditional technology, and, and the ability to offload a lot of the regulatory, issues that, you know, that are facing a individual small business on the state, local, and federal side to someone who’s looking over their business, and proactively making sure that they stay, in compliance before they get hit with fines. And, you know, and the cost of that is significantly greater than our do it yourself calendaring or any other technology provider, but significantly lower than what you would get at a traditional main street law firm or with a lawyer. So it fits in that Goldilocks, you know, sin scenario where it is it is high enough quality and low enough price that a real going concern business is gonna gravitate to a product like that.
The other example I’ll use, which which I I I sometimes had hesitate to use, but it’s it’s an important reminder. I hesitate to use it because it’s transactional, not subscription, but the demand was there. We were asked to do this is a compliance dissolution service. Yeah. The the number one cause of of churn with small businesses is usually them going out of business.
They usually don’t have the time inclination, and it’s depressing because you’re, you know, you’re effectively putting your business in a in a box and burying it. So we have a now compliance product that does this for our customers. It is very expensive relative to doing nothing or even using our do it yourself product, but it is far cheaper than a lawyer or doing it the wrong way and finding out that you’re still being taxed and you still have have fines. And one of the things that we know, it’s obvious, but but that we know is that most entrepreneurs and small business owners are serial small business owners. They start a business, it fails, they learn, they get the itch again.
If we serve that need at an attractive enough price, even though it is higher than what we would have done otherwise, ultimately they come back to us. So those are two good examples.
Noel Watson, CFO and COO, LegalZoom: And I would just add, one of the areas that we’re seeing early success is with customers that maybe formed with us but didn’t leverage some of our compliance products and have fallen out of compliance. Right? And we’re able to tell through the Secretary of State that they’re out of compliance, and we reach out. There’s a reinstatement process that they need to go through. As you can imagine, it can be intimidating and complex.
So that’s an area where they’re already in a bit of of trouble, and and there’s risk around that. There’s business disruption risk. There’s fines. There’s, you know, you could lose your your liability protection. So it’s really important that people get back into compliance, that’s where they’re at the stage where, hey, I’ve kind of failed with the responsibility of my own.
Can you guys take it over and sort of, you know, hold my hand through this?
John Biannon, Executive, LegalZoom: Yeah. Mean, it it does sound like another source of potential that you could mine at some point, more aggressively. Maybe just a quick follow-up on on the concierge product. I mean, in terms of the, you know, potential average uplift, in software we like to think, okay, when you upsell, how much money are going spend? Is it 20%, thirty %?
Or could it be multiples of that? Obviously, it’s still being very disruptive to the pricing of going to an attorney. But I don’t know if you can.
Jeff Stibel, CEO, LegalZoom: So I’ll caveat by saying we are in the very early innings. But all of our testing shows that it is orders of magnitude greater than our core DIY products. So we talk about price and elasticity, we’re talking our core existing products. And there there’s probably 20 to 30% of a degree of freedom for us to do pricing changes when we offer greater value. When we’re talking about concierge, you’re talking about two, three, four times the pricing opportunity because we’re delivering so much value and giving back so much time.
John Biannon, Executive, LegalZoom: Great. Maybe very interesting to watch how that progresses, especially into next year when you have more running smoothly. Maybe some questions for Noel. So EBITDA margin, obviously, made some great progress. It was as low as 8% in ’21, ’20 ’2 percent last year, guided for 23% this year.
So that would almost take you back to where it was pre COVID in 2019. What are some of the key sources of operating leverage, especially in the current environment where you’re still kind of fairly low growth, mid single digits? And where could this go in the long term or medium term? And what’s the potential in terms of EBITDA margin?
Noel Watson, CFO and COO, LegalZoom: You want me to answer all six of those questions?
John Biannon, Executive, LegalZoom: Take the best, too.
Noel Watson, CFO and COO, LegalZoom: I think first and foremost, we’re really pleased with the success we’ve had with the margin expansion, as you mentioned, from to 18% to 22 and now projecting 23% for this year. A lot of that has to do with the mix shift that you talked about earlier towards subscription. Our subscription products are generally much higher margin than servicing the initial transaction. So as we’ve shifted that mix, that’s created some upward pressure. We’ve also made a lot of investment from an infrastructure standpoint over the last five years that is bearing fruit and allowing our back office to be much more effective and efficient in how we fulfill and service our orders and our customers.
And we still think that there’s more opportunity there, especially as we start leverage AI more in how we deliver those services. So we think that’s going to produce some leverage. We added a lot of resource as we built out the teams over the last handful of years as well. And we feel like we are kind of where we need to be from a staffing standpoint and would expect to gain leverage from here. So we feel pretty confident.
We’ve said this year, we guided to the expanded margin and basically doubled down on that and said, hey, we’re going to hit our absolute EBITDA target for this year regardless of the macro outcome or the revenue outcome, and we’ll steward the business in a way to make sure we deliver that. And we feel pretty confident in our line of sight or visibility into improving margins in that medium to long term. Noncommittal right now in terms of what exactly the ultimate goal or target is. We’ll come back to the market at some point with that. But we feel confident that there is a steady path of improvement.
John Biannon, Executive, LegalZoom: Great. No, it’s definitely great to see that combination of stabilizing business and improving margin. I mean, factor, I guess, was your your headcount levels have decreased quite a bit, right, in the last couple of years. I mean, it was almost 1,422 down to 1,200 the year after that, and then just under a thousand last year, not including some contractors. I mean, I think you just mentioned that you might be settling there.
I mean, but you think that’s the right level? Do you see net hiring resuming at some point? How do think about that?
Noel Watson, CFO and COO, LegalZoom: Yeah, mean, there’s always going be puts and takes on hiring. I think the important piece is what you mentioned toward the end there, where there’s a badge headcount number versus outsourced headcount. We’ve shifted that mix over time to have much more of a blended mix, which is great for us because it gives us an additional level of flexibility to scale up and scale down as the business needs. And there’s some cost benefit as you you know, some of the the resources are are from offshore locations, so it’s helped to kinda blend down our overall average cost per head. But as I said earlier, I think from a from a general headcount level, we’re where we need to be right now.
There’s areas where we’ll make some investment. There’s areas where we’ll get more efficient over time. And those things will largely net out.
John Biannon, Executive, LegalZoom: That’s right. And and obviously, that didn’t include the the formation nation acquisition, the headcount increase on that. Maybe one more on the financial side. I mean, deferred revenue in q one had a I mean, initially said a nice acceleration, actually a very sizable acceleration to 12% growth year over year. And you had been running about 2% to 5% growth in the prior six quarters.
Just curious if you could kind of delve into what were some of the main drivers for that acceleration in deferred revenue growth, and is that sustainable?
Noel Watson, CFO and COO, LegalZoom: Yeah. And I think you saw the deferred revenue improvement flow through to free cash flow, So that was one of the drivers of the really strong free cash flow we saw in the quarter. And so there’s a few drivers. Would say one is if you’re looking at it sequentially, there’s some seasonality in our business. And Q1 is our strongest quarter in terms of the bookings that we generate, which tie to deferred revenue.
Acquired Formation Nation during the quarter, so bringing on their opening balance sheet obviously helped our deferred revenue balance. But I think most meaningfully, some of the early price testing that we’ve been doing both on the the upfront acquisition side of the transaction with some of our subscription services as well as starting to roll out price increases on renewals, you’re seeing that in the deferred revenue. And that’s partly what gives us the confidence in holding our guidance for the full year given that that creates a level of visibility and certainty, that gives us that reassurance that what we’re seeing is working. And I will say that the price testing that we’ve been doing is on a cohort basis. So as we gain the confidence in the results we’re seeing from that test, we know that as we roll that out through the year, we’ll see some benefit.
John Biannon, Executive, LegalZoom: So pricing and bundling, something that we’ve touched on several times here. How big is that opportunity from better pricing and bundling? And how early are you in the process? It seems still very early.
Jeff Stibel, CEO, LegalZoom: Yeah. I think I think we are early. I mean, we’ve we’ve, at this point, tested rolling back to pre COVID pricing on some of our some of our current products. We’ve tested now with at least registered agent increasing pricing on renewals. And, you know, in both of those have been net positive.
And, you know, and we feel we feel that that gives us a lot of leverage within the business to do that on an ongoing basis across the entire suite of products. What what it what it shows is once a customer gets through that early life cycle of getting in business, staying in business, The profile of the customer is pretty sticky, and there’s a relatively high propensity to pay.
John Biannon, Executive, LegalZoom: Quite a few things to watch out in terms of pricing bundling, concierge upselling, good momentum on the deferred and subscription. And I guess another new vector this year is a Formation Nation acquisition. And they added some staffing as well, you know, a 40 plus selling experts. I’m wondering if you could talk about how you’re leveraging, you know, that new headcount, the new sales force that’s been added? And where do you think you’re going to optimize their usage as you kind of integrate through the rest of LegalZoom?
Jeff Stibel, CEO, LegalZoom: Sure. So look, apart from that acquisition being accretive, which makes for a good purchase generally, there were a couple of key reasons we did that purchase strategically. The first was it actually gave us another brand that we could leverage for the lower priced product suite that we were already in market with, and have been trying to deprioritize, because it was it was hurting our brand reputation. And We want to make sure that LegalZoom is always referenced and known as the premium brand. So by buying Formation Nation, it gave us another brand, Inc.
Authority, that has a free formation product. So we can now start pushing more and more customers over to the free side. The second thing is we are a technology powerhouse in the legal services space, but we don’t have strong internal service. You know, as Noah was saying, most most of our service team is is outsourced, which is great from an efficiency standpoint. But as we move up market to, you know, to attack that quality share proposition, we needed to have real expertise.
And, you know, and Formation Nation is largely oriented towards service. So, you know, we we gained a 20 effectively experts in formation and compliance and and other areas that we can then leverage with our technology and with AI to scale them even further. So those were the two key pieces. The added benefit that we got was this business is largely transactional, whereas we’re more subscription. And if we can apply the lessons that we’ve learned transforming our transactional business to subscription, we get the benefit of shifting that business to subscription effectively for free.
John Biannon, Executive, LegalZoom: Great. Well, I think we’re out of time. Thanks, Jeff and Noel to Yeah. Thank you.
Operator: Presentation has now finished. Please check back shortly for the archive.
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