LegalZoom.com, Inc. (LZ) Q3 2025 Earnings Call Transcript

Access earnings results, analyst expectations, report, slides, earnings call, and transcript.

Overview

The earnings call summary presents strong financial performance with increased revenue guidance, double-digit subscription growth, and strategic acquisitions. The Q&A section highlights positive developments like partnerships and successful integrations. Despite some uncertainties, the overall sentiment is positive, supported by strong financial metrics and optimistic guidance. Considering the market cap, a positive stock price movement (2% to 8%) is expected over the next two weeks.

Key Financial Performance

Third Quarter Revenue $190 million, an increase of 13% year-over-year. The growth was driven by strong performance in subscription revenue, compliance offerings, and the 1-800 accountant partnership.

Subscription Revenue Grew 13% year-over-year, marking the third consecutive quarter of sequential growth. Growth was led by compliance offerings and virtual mail services.

Adjusted EBITDA Margin 24%, maintained due to disciplined execution and efficiency gains despite incremental investments in product and AI.

Free Cash Flow $47 million, up 114% year-over-year. Improvement was due to better deferred revenue changes, lower capital expenditures, and reduced severance costs.

Subscription Units 1.96 million, a 14% increase year-over-year. Growth was driven by bundling of bookkeeping and legal advisory subscriptions and the Formation Nation acquisition.

ARPU (Average Revenue Per User) $256, down 3% year-over-year due to a mix shift towards lower-priced subscription offerings.

Transaction Revenue $65 million, an increase of 12% year-over-year. Growth was driven by Formation Nation acquisition and higher annual report and trademark filings.

Transaction Units 259,000, a 2% increase year-over-year due to Formation Nation transactions and higher annual report filings.

Business Formations 126,000, a 12% increase year-over-year, primarily due to the Formation Nation acquisition.

Average Order Value $251, up 11% year-over-year, driven by the elimination of low-value transactions and an increase in higher-priced concierge services.

Gross Margin 71%, flat year-over-year.

Sales and Marketing Costs $61 million, a 40% increase year-over-year, driven by increased customer acquisition marketing and the addition of the Formation Nation sales team.

You have reached the limit Upgrade to access full content

Get started

Operating Highlights

Compliance Concierge Product Suite: Subscription revenue growth was led by compliance offerings, showing strong demand for the expanded compliance concierge product suite.

New Concierge Products: Testing several new concierge products for SMBs, including nonprofit, reinstatement, dissolution, and entity conversion concierge, with encouraging adoption signs.

Bundled DIFM Services: Testing subscription-only formation product bundles, including business concierge and business concierge plus legal concierge, with strong early adoption.

AI-Driven Appointment Center: Launched in partnership with 1-800 accountant for the upcoming tax year.

Strategic Partnerships: Deepened relationship with OpenAI, becoming the first online legal services provider for SMBs to sign an enterprise deal with the firm.

Channel Partner Program: Achieved a 25% year-over-year increase in partner channel growth.

Revenue Growth: Achieved record third-quarter revenue of $190 million, a 13% year-over-year increase.

Profitability: Adjusted EBITDA margin of 24%, with $47 million in free cash flow.

Marketing Efficiency: Shifted marketing spend to brand marketing, achieving a double-digit increase in return on ad spend.

AI Integration: Implemented AI tools for internal efficiencies, including voice training simulators, legal wizards, and trademark classifiers.

Focus on Existing SMBs: Expanding beyond business formation to serve existing businesses, aiming to activate SMBs that currently do not act on legal and compliance needs.

AI and Human Expertise Integration: Reorganized teams to integrate AI and human expertise, appointing new leadership to drive this strategy.

You have reached the limit Upgrade to access full content

Get started

Risk or Challenges

Market Conditions: The company faces potential risks from economic uncertainties and market conditions that could impact small business formation rates and demand for its services.

Competitive Pressures: LegalZoom operates in a competitive market with other legal service providers and technology companies, which could pressure pricing and market share.

Regulatory Hurdles: The company may face challenges related to compliance with evolving legal and regulatory requirements, particularly as it expands its offerings and partnerships.

Supply Chain Disruptions: No explicit mention of supply chain disruptions was made in the transcript.

Economic Uncertainties: Economic downturns or uncertainties could reduce the willingness of small businesses to invest in legal and compliance services, impacting revenue growth.

Strategic Execution Risks: The company’s reliance on AI and technology for product innovation and customer service poses risks if these initiatives fail to meet customer expectations or encounter technical challenges.

You have reached the limit Upgrade to access full content

Get started

Guidance & Outlook

Full Year Revenue Growth Outlook: LegalZoom has raised its full year revenue growth outlook to 10%, effectively doubling its initial full year guidance.

Adjusted EBITDA Outlook: The company is maintaining its 23% adjusted EBITDA outlook for the full year.

Future Strategic Investments: LegalZoom plans to redeploy cost savings into strategic investments to position the business for future growth.

Expansion Beyond Business Formation: The company is expanding its focus areas beyond business formation to serve existing businesses, aiming to capture a greater share of its serviceable addressable market (SAM).

AI and Technology Integration: LegalZoom plans to introduce higher-value products and invest in AI to enhance productivity, decision-making, and customer confidence. This includes integrating human experts into workflows and providing customized solutions for businesses.

New Product Offerings: The company is testing several new concierge products for SMBs, including nonprofit, reinstatement, dissolution, and entity conversion concierge services. These products are expected to carry profit margins at or above those of DIY solutions.

Bundling Services: LegalZoom is testing the bundling of do-it-for-me (DIFM) services into subscription-only formation product bundles, such as business concierge and business concierge plus legal concierge.

Partnership with 1-800 Accountant: The company plans to deepen its partnership with 1-800 Accountant by testing the bundling of tax advice with legal advice, with a full rollout expected next year.

AI-Driven Compliance Solutions: LegalZoom is rolling out an auto-file compliance capability for state annual reports, aiming for 80% coverage by the end of the year.

Revenue and EBITDA Guidance for 2025: For the full year 2025, LegalZoom expects revenue between $748 million and $752 million, representing 10% growth at the midpoint, and adjusted EBITDA in the range of $168 million to $170 million, reflecting a 23% margin at the midpoint.

Q4 2025 Revenue and EBITDA Guidance: For Q4 2025, the company expects revenue between $182 million and $186 million, representing 14% growth at the midpoint, and adjusted EBITDA in the range of $46 million to $48 million, reflecting a 26% margin at the midpoint.

You have reached the limit Upgrade to access full content

Get started

Shareholder Return Plan

Share Repurchase: During Q3, the company repurchased approximately 1.8 million shares at an average price of $9.91 per share for a total of $17.6 million. As of quarter end, there was approximately $112 million remaining under the authorization.

You have reached the limit Upgrade to access full content

Get started

Key Q&A

Q:To what extent is pricing and bundling contributing to subscription growth, and how important is it for forward growth?

A:Pricing and bundling are important levers contributing to subscription growth. They are not the only levers but are significant as they are within the company's control. The company sees itself as a market leader, with competitors following its pricing strategies.

Q:Can you explain how the white glove concierge offering works and its components?

A:The white glove concierge offering combines human expertise (attorneys, accountants, lawyers) with artificial intelligence to address customer needs cost-effectively. It includes products like compliance concierge, nonprofit concierge, reinstatement, dissolution, entity conversion, and a tax concierge in partnership with 1-800 Accountant. These offerings aim to provide value at a higher price point.

Q:Can you elaborate on the enterprise deal with OpenAI and its implications?

A:The enterprise deal with OpenAI is new and aims to integrate AI deeply into the company's operations. The focus is on tracking tangible returns, launching integrated products, and expanding the total addressable market (TAM). The partnership is in its early stages, with teams from both companies collaborating closely.

Q:What are the early indicators of traffic and volume from partnerships with Perplexity and GPT?

A:The company has seen a significant shift in traffic and quality from traditional search to AI-driven technologies. Customers coming through these partnerships are better educated, have a higher propensity to pay, and stay longer. The partnerships aim to diversify go-to-market strategies and attract higher-quality customers.

Q:What is the revenue contribution of Formation Nation to subscription and transaction revenues?

A:Formation Nation contributed approximately $9 million in transaction revenue and over $5.5 million in subscription revenue during the quarter. The integration with LegalZoom has exceeded expectations and driven growth through collaboration.

Q:How will the deeper integration with 1-800 Accountant work economically?

A:The integration will involve a minimum revenue threshold and a revenue share model. The economics will vary by product offering, with most being highly accretive to the bottom line. The partnership builds on lessons learned from previous tax product launches.

Q:What is the company's perspective on LLMs providing legal advice and their impact on LegalZoom's strategy?

A:The company expects LLMs to provide legal advice and sees this as an opportunity. LegalZoom aims to bridge the gap between AI-generated advice and human expertise, leveraging its technology and expert network to validate and complete legal solutions. This strategy positions LegalZoom as a differentiated leader in the market.

Q:How much of the recent outperformance is macro-driven versus internal initiatives?

A:While small business formations remain a key component, the company is diversifying its growth levers. Internal initiatives like brand marketing, partnerships, AI integration, and product diversification are driving performance, reducing reliance on macroeconomic factors.

Q:What strategies are being used to target existing businesses?

A:The company uses concierge products like compliance concierge to target existing businesses. It listens to customer needs, collaborates with partners, and markets directly to existing businesses. These businesses are more stable and willing to spend more, providing a higher share of wallet.

Q:What drove the 25% growth in the partner channel, and how does the embedded flow contribute?

A:The 25% growth in the partner channel is driven by diversification, including embedded flows, affiliate channels, deeper integrations with partners like Design.com and Wix, and AI ecosystem partnerships. The strategy focuses on creating multiple growth opportunities rather than relying on a single source.

Q:What impacts has the new brand campaign had, and what learnings are being applied for next year?

A:The brand campaign has improved aided and unaided awareness, ROAS, traffic, and conversion metrics. It has diversified marketing efforts away from performance marketing, strengthened brand authority, and positioned the company to capitalize on platform shifts like AI.

Q:What factors should be considered for modeling subscription growth next year?

A:Subscription growth is driven by bundling, churn reduction, and ARPU improvements. While unit growth may vary due to testing, core products like compliance subscriptions show positive trends. The company expects durable growth opportunities to continue into next year.

Q:How has the integration of Formation Nation's sales reps into LegalZoom's sales team performed?

A:The integration has been successful, with Formation Nation's sales reps bringing valuable customer education and onboarding expertise. Organizational changes have enabled the company to quickly launch new products and improve operational efficiency.

Q:Review of Unclear Management Responses

A:Management avoided directly answering the question about the deeper integration with 1-800 Accountant, providing a general explanation of the revenue model but not detailing the shared burden of costs or specific economic arrangements for customer acquisition.

You have reached the limit Upgrade to access full content

Get started

Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

LZ Transcript

LegalZoom.com, Inc. (LZ) Presents at Barclays 23rd Annual Global Technology Conference Transcript

Neutral12-11

LegalZoom.com, Inc. (LZ) Q3 2025 Earnings Call Transcript

Positive11-5

LegalZoom.com, Inc. (LZ) Presents At Citi's 2025 Global Technology, Media And Telecommunications Conference Transcript

Neutral9-3

LegalZoom.com, Inc. (LZ) Q2 2025 Earnings Call Transcript

Positive8-8

LegalZoom's earnings call shows solid financial performance with 9% revenue growth and a 400 basis point improvement in adjusted EBITDA margin. The company is also making strategic investments in AI and partnerships, which are expected to enhance future growth. Despite a slight decline in retention rates, there is confidence in subscription growth and efficiency gains. The share repurchase program and positive guidance further support a positive outlook. Given the market cap and these factors, the stock is likely to see a positive movement of 2% to 8% over the next two weeks.

LZ Slides

LegalZoom Q1 2025 slides: Subscription growth drives 33% EBITDA expansion

2025-05-07

LegalZoom Q2 2025 slides: revenue growth accelerates, subscription model strengthens

2025-08-07

LZ Report

LEGALZOOM.COM, INC. 10-Q

10-Q

2024-11-06

LEGALZOOM.COM, INC. 10-Q

10-Q

2024-08-07

LEGALZOOM.COM, INC. 10-Q

10-Q

2024-05-07

LEGALZOOM.COM, INC. 10-K

10-K

2024-02-29

Frequently Asked Questions

Where does this earnings call transcript come from?

All transcripts are sourced directly from the official live webcast or the company’s official investor relations website. We use the exact words spoken during the call with no paraphrasing of the core discussion.

How soon is the transcript available after the earnings call ends?

Full verbatim transcripts are typically published within 4–12 hours after the call ends. Same-day availability is guaranteed for all S&P 500 and most mid-cap companies.

Is the transcript edited or altered in any way?

No material content is ever changed or summarized in the “Full Transcript” section. We only correct obvious spoken typos (e.g., “um”, “ah”, repeated 10 times”, or clear misspoken ticker symbols) and add speaker names/titles for readability. Every substantive sentence remains 100% as spoken.

Why do some answers appear as “Unclear” or “Inaudible”?

When audio quality is poor or multiple speakers talk over each other, we mark the section instead of guessing. This ensures complete accuracy rather than introducing potential errors.

Who creates the AI Summary and Key Q&A highlights shown above the transcript?

They are generated by a specialized financial-language model trained exclusively on 15+ years of earnings transcripts. The model extracts financial figures, guidance, and tone with 97%+ accuracy and is regularly validated against human analysts. The full raw transcript always remains available for verification.