Part I. FINANCIAL INFORMATION [Item 1. Condensed Consolidated Financial Statements (Unaudited)](index=4&type=section&id=Item%201.%20Condensed%20Consolidated%20Financial%20Statements%20(Unaudited)) Presents unaudited condensed consolidated financial statements, including balance sheets, income, cash flows, and notes for Q2 2025 and 2024 [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Condensed Consolidated Balance Sheets (in thousands) | Metric | June 30, 2025 | December 31, 2024 | | :----------------------------------- | :------------ | :------------------ | | Cash and cash equivalents | $217,035 | $142,064 | | Total current assets | $254,561 | $191,223 | | Goodwill | $139,570 | $63,318 | | Total assets | $543,030 | $373,883 | | Total current liabilities | $326,507 | $265,582 | | Total liabilities | $348,978 | $280,626 | | Total stockholders' equity | $194,052 | $93,257 | [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Condensed Consolidated Statements of Operations (in thousands, except per share amounts) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenue | $192,509 | $177,362 | $375,619 | $351,576 | | Gross profit | $125,111 | $113,753 | $241,661 | $219,583 | | (Loss) income from operations | $(3,100) | $1,146 | $5,866 | $6,201 | | Net (loss) income | $(266) | $1,314 | $4,861 | $6,058 | | Net (loss) income per share — basic | $(0.00) | $0.01 | $0.03 | $0.03 | | Net (loss) income per share — diluted | $(0.00) | $0.01 | $0.03 | $0.03 | [Condensed Consolidated Statements of Comprehensive (Loss) Income](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20(Loss)%20Income) Condensed Consolidated Statements of Comprehensive (Loss) Income (in thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net (loss) income | $(266) | $1,314 | $4,861 | $6,058 | | Total comprehensive (loss) income | $(846) | $1,464 | $4,361 | $6,504 | [Condensed Consolidated Statements of Stockholders' Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) - Total stockholders' equity increased from **$93.3 million** at December 31, 2024, to **$194.1 million** at June 30, 2025, driven by common stock issuance for stock options and acquisition, stock-based compensation, and net income, partially offset by stock repurchases and accumulated deficit[22](index=22&type=chunk)[23](index=23&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Condensed Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $89,842 | $61,440 | | Net cash used in investing activities | $(26,818) | $(19,351) | | Net cash provided by (used in) financing activities | $11,800 | $(148,981) | | Net increase (decrease) in cash and cash equivalents | $74,971 | $(106,924) | | Cash and cash equivalents, at end of the period | $217,035 | $118,795 | [Notes to Condensed Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) [Note 1. Description of the Business](index=11&type=section&id=Note%201.%20Description%20of%20the%20Business) - LegalZoom.com, Inc. is a leading online platform for legal services, offering tools and guidance for business formation, compliance, estate planning, and ongoing legal support through intuitive technology and access to experienced attorneys[29](index=29&type=chunk) [Note 2. Summary of Significant Accounting Policies](index=12&type=section&id=Note%202.%20Summary%20of%20Significant%20Accounting%20Policies) - Revenue is primarily derived from two sources: Transaction revenue (customized legal document services, lead generation) and Subscription revenue (registered agent, compliance, attorney advice, SaaS, etc.)[41](index=41&type=chunk)[42](index=42&type=chunk) - Payments are generally collected upfront, with unearned amounts recorded as deferred revenue[43](index=43&type=chunk) Revenue by Type (in thousands) | Revenue Type | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Transaction | $72,611 | $68,537 | $139,464 | $134,854 | | Subscription | $119,898 | $108,825 | $236,155 | $216,722 | | Total revenue | $192,509 | $177,362 | $375,619 | $351,576 | - The company early adopted ASU 2024-01 (Stock Compensation) and ASU 2024-02 (Codification Improvements) effective January 1, 2024, with no material impact[46](index=46&type=chunk)[47](index=47&type=chunk) - It is currently evaluating the impact of ASU 2023-09 (Income Tax Disclosures), ASU 2024-03 (Expense Disaggregation), ASU 2024-04 (Convertible Debt), and ASU 2025-05 (Credit Losses for Accounts Receivable), which are effective in future periods[48](index=48&type=chunk)[49](index=49&type=chunk)[50](index=50&type=chunk)[51](index=51&type=chunk)[52](index=52&type=chunk) [Note 3. Other Financial Statement Information](index=15&type=section&id=Note%203.%20Other%20Financial%20Statement%20Information) - Goodwill increased significantly from **$63.3 million** at December 31, 2024, to **$139.6 million** at June 30, 2025, primarily due to the acquisition of Formation Nation, Inc[55](index=55&type=chunk) - Deferred revenue increased from **$175.0 million** at December 31, 2024, to **$214.2 million** at June 30, 2025[58](index=58&type=chunk) Total Depreciation and Amortization Expense (in thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total depreciation and amortization expense | $11,339 | $8,426 | $21,745 | $16,096 | [Note 4. Sale of Assets Held for Sale](index=17&type=section&id=Note%204.%20Sale%20of%20Assets%20Held%20for%20Sale) - The company completed the sale of its operational headquarters property in Austin, Texas, on March 31, 2025, for net cash proceeds of approximately **$37.1 million**, recognizing a gain of **$14.3 million**[62](index=62&type=chunk)[63](index=63&type=chunk) [Note 5. Acquisition (Formation Nation, Inc.)](index=17&type=section&id=Note%205.%20Acquisition) - On February 10, 2025, LegalZoom acquired Formation Nation, Inc. (including Inc Authority, LLC and Nevada Corporate Headquarters, Inc.) for **$83.5 million**, comprising cash, net working capital adjustments, and **2.2 million** restricted common shares[64](index=64&type=chunk) - The acquisition aims to accelerate the strategy of attracting higher-value customers, expand offerings, and reach a broader customer base by leveraging Formation Nation's customer service teams[65](index=65&type=chunk) Preliminary Allocation of Purchase Consideration (in thousands) | Asset/Liability | Amount | | :----------------------------------- | :----- | | Cash and cash equivalents | $1,953 | | Intangible assets | $17,300 | | Goodwill | $76,251 | | Total assets acquired | $101,892 | | Deferred revenue | $9,582 | | Net assets acquired | $83,527 | - Formation Nation contributed approximately **$12.6 million** in revenue and a net loss of **$1.7 million** for the three months ended June 30, 2025, and **$21.2 million** in revenue and a net loss of **$2.5 million** for the six months ended June 30, 2025, since the acquisition date[74](index=74&type=chunk) [Note 6. Long-term Debt](index=19&type=section&id=Note%206.%20Long-term%20Debt) - The company has a Revolving Facility, initially for **$150.0 million**, with no amounts outstanding as of June 30, 2025, and was in compliance with all financial covenants[76](index=76&type=chunk)[81](index=81&type=chunk) [Note 7. Commitments and Contingencies](index=19&type=section&id=Note%207.%20Commitments%20and%20Contingencies) - The company is not currently a party to any material legal proceedings and is unaware of any pending or threatened litigation that could materially adversely affect its financial condition[82](index=82&type=chunk) - Indemnification obligations under third-party service provider agreements are considered immaterial, with no amounts accrued or paid during the periods presented[83](index=83&type=chunk)[84](index=84&type=chunk) [Note 8. Stockholders' Equity](index=20&type=section&id=Note%208.%20Stockholders'%20Equity) - In May 2025, the board approved a **$100.0 million** increase to the stock repurchase program, bringing the total authorized to **$315.0 million**[85](index=85&type=chunk) - As of June 30, 2025, approximately **$129.6 million** remained available under the stock repurchase program[86](index=86&type=chunk) - During the three and six months ended June 30, 2025, the company repurchased **2.2 million shares** for **$20.4 million** at an average price of **$9.33 per share**[86](index=86&type=chunk) - No excise tax liability was recognized as of June 30, 2025, as stock issuances exceeded repurchases during the six-month period[87](index=87&type=chunk) [Note 9. Stock-based Compensation](index=20&type=section&id=Note%209.%20Stock-based%20Compensation) Stock-based Compensation Expense (in thousands) | Category | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Cost of revenue | $1,478 | $1,747 | $2,738 | $3,340 | | Sales and marketing | $4,473 | $1,906 | $8,240 | $3,485 | | Technology and development | $4,658 | $6,525 | $8,682 | $12,228 | | General and administrative | $20,029 | $8,737 | $40,734 | $14,718 | | Total stock-based compensation expense | $30,638 | $18,915 | $60,394 | $33,771 | | Amount capitalized to internal-use software | $1,580 | $1,627 | $2,920 | $3,044 | | Total stock-based compensation | $32,218 | $20,542 | $63,314 | $36,815 | - Total stock-based compensation expense increased for both the three and six months ended June 30, 2025, compared to the prior year, primarily due to RSU grants in 2024 and 2025[88](index=88&type=chunk)[89](index=89&type=chunk) [Note 10. Income Taxes](index=21&type=section&id=Note%2010.%20Income%20Taxes) Income Tax (Benefit from) Provision and Effective Tax Rate | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | (Benefit from) provision for income taxes | $(278) | $2,046 | $5,209 | $5,276 | | Effective tax rate | 51% | 61% | 52% | 47% | - The difference from the federal statutory rate of **21%** is primarily due to significant non-deductible stock-based compensation and other discrete adjustments[91](index=91&type=chunk) - Gross unrecognized tax benefits were **$15.7 million** at June 30, 2025, an increase from **$13.4 million** at December 31, 2024[92](index=92&type=chunk) [Note 11. Net (Loss) Income Per Share](index=21&type=section&id=Note%2011.%20Net%20(Loss)%20Income%20Per%20Share) Net (Loss) Income Per Share (in thousands, except per share amounts) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net (loss) income per share — basic | $(0.00) | $0.01 | $0.03 | $0.03 | | Net (loss) income per share — diluted | $(0.00) | $0.01 | $0.03 | $0.03 | - For the three and six months ended June 30, 2025, **42.2 million** and **32.2 million** potentially dilutive securities (options, RSUs, ESPP) were excluded from diluted EPS calculation as they were anti-dilutive[95](index=95&type=chunk) [Note 12. Fair Value Measurements](index=22&type=section&id=Note%2012.%20Fair%20Value%20Measurements) - As of June 30, 2025, financial assets recorded at fair value on a recurring basis consist of **$187.9 million** in money market funds (Level 1 inputs)[98](index=98&type=chunk) - During the three months ended June 30, 2025, the company sold its available-for-sale debt security (investment in LegalVision Pty Ltd) for **$1.5 million**, recognizing a net gain of **$0.6 million**[97](index=97&type=chunk) [Note 13. Segment Information](index=23&type=section&id=Note%2013.%20Segment%20Information) - The company operates as a single operating segment, providing an online platform for business formation in the U.S., generating revenue from customized legal document services and subscriptions[102](index=102&type=chunk) Revenue by Reportable Segment (in thousands) | Revenue Type | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Transaction | $72,611 | $68,537 | $139,464 | $134,854 | | Subscription | $119,898 | $108,825 | $236,155 | $216,722 | | Total revenue | $192,509 | $177,362 | $375,619 | $351,576 | [Note 14. Subsequent Events](index=24&type=section&id=Note%2014.%20Subsequent%20Events) - In July 2025, the 'One Big Beautiful Bill' (H.R.1) was signed into law, permanently extending certain Tax Cuts and Jobs Act provisions and modifying international tax frameworks, with the company evaluating its impact[106](index=106&type=chunk) - On July 14, 2025, the Revolving Facility was amended, reducing the commitment from **$150.0 million** to **$100.0 million** and extending the maturity date from July 2, 2026, to July 14, 2030, also adjusting interest rate margins and commitment fees[107](index=107&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=25&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management's discussion and analysis of financial condition, operations, liquidity, and non-GAAP measures for Q2 2025 and 2024 [Overview](index=25&type=section&id=Overview) - LegalZoom is a leading online platform for legal services, assisting individuals and small businesses with business formation, compliance, estate planning, and ongoing legal support across the U.S. through technology and attorney networks[110](index=110&type=chunk) [Key Factors Affecting Our Performance](index=25&type=section&id=Key%20Factors%20Affecting%20Our%20Performance) - Future performance depends on macroeconomic factors, the company's share of business formations, ability to enhance customer lifetime value through new products and subscriptions, and effective integration of expert offerings[112](index=112&type=chunk) [Key Business Metrics](index=26&type=section&id=Key%20Business%20Metrics) [Number of business formations](index=26&type=section&id=Number%20of%20business%20formations) Number of Business Formations (in thousands) | Period | 2025 | 2024 | | :----- | :--- | :--- | | Three Months Ended June 30 | 131 | 134 | | Six Months Ended June 30 | 262 | 273 | - Business formations decreased by **2%** for the three months and **4%** for the six months ended June 30, 2025, year-over-year, primarily due to a reduction in direct channel formations, partially offset by the Formation Nation acquisition[116](index=116&type=chunk) [Number of transactions](index=26&type=section&id=Number%20of%20transactions) Number of Transactions (in thousands) | Period | 2025 | 2024 | | :----- | :--- | :--- | | Three Months Ended June 30 | 278 | 292 | | Six Months Ended June 30 | 619 | 628 | - The number of transactions decreased by **5%** for the three months and **1%** for the six months ended June 30, 2025, year-over-year, mainly due to the elimination of beneficial ownership information report filings following a FinCEN ruling, partially offset by the Formation Nation acquisition[118](index=118&type=chunk)[119](index=119&type=chunk) [Average order value](index=27&type=section&id=Average%20order%20value) Average Order Value | Period | 2025 | 2024 | | :----- | :--- | :--- | | Three Months Ended June 30 | $262 | $234 | | Six Months Ended June 30 | $225 | $215 | - Average order value increased by **12%** for the three months and **5%** for the six months ended June 30, 2025, year-over-year, primarily driven by a decrease in lower-value beneficial ownership information report filings[121](index=121&type=chunk) [Number of subscription units](index=27&type=section&id=Number%20of%20subscription%20units) Number of Subscription Units (in thousands) | As of June 30, | 2025 | 2024 | | :------------- | :--- | :--- | | Subscription units | 1,955 | 1,609 | - Subscription units increased by **22%** from June 30, 2024, to June 30, 2025, mainly due to forms and e-signature and accounting solution subscriptions bundled into business formation offerings, and the inclusion of Formation Nation's subscription units[124](index=124&type=chunk) [Average revenue per subscription unit](index=27&type=section&id=Average%20revenue%20per%20subscription%20unit) Average Revenue Per Subscription Unit (ARPU) | As of June 30, | 2025 | 2024 | | :------------- | :--- | :--- | | ARPU | $256 | $271 | - ARPU decreased by **6%** as of June 30, 2025, compared to June 30, 2024, primarily due to a shift in mix towards lower-priced subscription offerings, such as forms and e-signature, bundled into business formation offerings[128](index=128&type=chunk) [Annual small business retention rate](index=28&type=section&id=Annual%20small%20business%20retention%20rate) - The annual small business retention rate was approximately **59%** as of June 30, 2025, impacted by non-renewing annual forms and e-signature subscriptions bundled into business formation offerings[130](index=130&type=chunk) [Key Components of our Results of Operations](index=28&type=section&id=Key%20Components%20of%20our%20Results%20of%20Operations) [Revenue](index=28&type=section&id=Revenue) - Revenue is generated from Transaction services (customized legal documents, filing fees, lead generation) and Subscription services (registered agent, compliance, attorney advice, SaaS)[133](index=133&type=chunk)[134](index=134&type=chunk) [Cost of revenue](index=29&type=section&id=Cost%20of%20revenue) - Cost of revenue includes government filing fees, fulfillment costs, customer care (including credentialed professionals), independent contractor costs, data center costs, amortization of acquired technology, depreciation, and credit/debit card fees[137](index=137&type=chunk) [Gross profit and gross margin](index=29&type=section&id=Gross%20profit%20and%20gross%20margin) - Gross profit and margin are influenced by the mix of transaction and subscription revenue, with long-term expansion expected from automation and digitization[138](index=138&type=chunk) - Acquisitions can negatively impact gross margin[138](index=138&type=chunk) [Operating expenses](index=29&type=section&id=Operating%20expenses) - Operating expenses primarily consist of sales and marketing, technology and development, general and administrative expenses, and gains/impairments on asset sales[139](index=139&type=chunk) [Sales and marketing](index=29&type=section&id=Sales%20and%20marketing) - Sales and marketing expenses include customer acquisition media costs (search engine, TV, social media), personnel costs, public relations, and business development[140](index=140&type=chunk) - These are expected to remain the largest operating expense category[141](index=141&type=chunk) [Technology and development](index=29&type=section&id=Technology%20and%20development) - Technology and development expenses cover personnel, consultants, depreciation, and overhead for product development, website/app maintenance, R&D, and infrastructure[142](index=142&type=chunk) - Excluding stock-based compensation, these are expected to remain consistent as a percentage of revenue[143](index=143&type=chunk) [General and administrative](index=30&type=section&id=General%20and%20administrative) - General and administrative expenses include compensation for executive and corporate personnel, professional fees, depreciation, and legal costs[144](index=144&type=chunk) - These are expected to decrease as a percentage of revenue over the longer term[145](index=145&type=chunk) [Gain on sale of assets held for sale](index=30&type=section&id=Gain%20on%20sale%20of%20assets%20held%20for%20sale) - This gain relates to the sale of the company's operational headquarters on March 31, 2025[146](index=146&type=chunk) [Interest expense](index=30&type=section&id=Interest%20expense) - Interest expense primarily consists of amortization of debt issuance costs related to the Revolving Facility[147](index=147&type=chunk) - It is expected to remain insignificant in the near term due to no outstanding indebtedness[147](index=147&type=chunk) [Interest income](index=30&type=section&id=Interest%20income) - Interest income is primarily generated from investments in money market funds[148](index=148&type=chunk) [Income taxes](index=30&type=section&id=Income%20taxes) - Income tax provision includes current and deferred federal, state, and foreign income taxes[149](index=149&type=chunk) - The effective tax rate can fluctuate due to pre-tax income/loss, tax law changes, audit outcomes, and non-deductible expenses[150](index=150&type=chunk) [Results of Operations](index=31&type=section&id=Results%20of%20Operations) [Comparison of the Three Months Ended June 30, 2025 and 2024](index=32&type=section&id=Comparison%20of%20the%20Three%20Months%20Ended%20June%2030,%202025%20and%202024) Revenue Comparison (Three Months Ended June 30, in thousands) | Revenue Type | 2025 | 2024 | $ Change | % Change | | :------------- | :--- | :--- | :------- | :------- | | Transaction | $72,611 | $68,537 | $4,074 | 6% | | Subscription | $119,898 | $108,825 | $11,073 | 10% | | Total revenue | $192,509 | $177,362 | $15,147 | 9% | - Transaction revenue increased **6%** due to **$8.4 million** from Formation Nation acquisition, partially offset by a decline in beneficial ownership information report revenue[155](index=155&type=chunk) - Subscription revenue increased **10%** due to a **6%** rise in compliance-related subscriptions and revenue from the 1-800 Accountant partnership[156](index=156&type=chunk) - Cost of revenue increased by **$3.8 million (6%)** due to higher filing fees and third-party fulfillment costs, partially offset by a decrease in payroll and related benefits[157](index=157&type=chunk)[158](index=158&type=chunk) - Sales and marketing expenses increased by **$9.5 million (16%)** due to higher payroll (Formation Nation acquisition) and depreciation, partially offset by a decrease in customer acquisition marketing spend[160](index=160&type=chunk) - Technology and development expenses decreased by **$4.2 million (16%)** primarily due to a reduction in headcount[161](index=161&type=chunk) - General and administrative expenses increased by **$10.3 million (39%)** mainly due to an **$11.3 million** increase in stock-based compensation[162](index=162&type=chunk) - Other income, net, increased significantly due to a gain on the sale of an available-for-sale debt security (LegalVision Pty Ltd)[165](index=165&type=chunk) [Comparison of the Six Months Ended June 30, 2025 and 2024](index=35&type=section&id=Comparison%20of%20the%20Six%20Months%20Ended%20June%2030,%202025%20and%202024) Revenue Comparison (Six Months Ended June 30, in thousands) | Revenue Type | 2025 | 2024 | $ Change | % Change | | :------------- | :--- | :--- | :------- | :------- | | Transaction | $139,464 | $134,854 | $4,610 | 3% | | Subscription | $236,155 | $216,722 | $19,433 | 9% | | Total revenue | $375,619 | $351,576 | $24,043 | 7% | - Transaction revenue increased **3%** due to **$14.3 million** from Formation Nation acquisition, offset by a decline in beneficial ownership information report revenue[169](index=169&type=chunk) - Subscription revenue increased **9%** due to a **6%** rise in compliance-related subscriptions and the 1-800 Accountant partnership, partially offset by discontinuation of a tax offering[170](index=170&type=chunk) - Cost of revenue increased by **$2.0 million (1%)** due to higher filing fees (Formation Nation), third-party fulfillment, and depreciation, partially offset by decreased payroll and stock-based compensation[171](index=171&type=chunk) - Sales and marketing expenses increased by **$17.1 million (15%)** due to higher payroll (Formation Nation), stock-based compensation, customer acquisition marketing, and depreciation[173](index=173&type=chunk) - Technology and development expenses decreased by **$6.8 million (14%)** due to reduced payroll and headcount[174](index=174&type=chunk) - General and administrative expenses increased by **$26.5 million (53%)** primarily due to increased stock-based compensation[175](index=175&type=chunk) - A **$14.3 million** gain on sale of assets held for sale was recognized from the sale of the operational headquarters[176](index=176&type=chunk) - Other income, net, increased significantly due to the gain on the sale of an available-for-sale debt security (LegalVision Pty Ltd)[179](index=179&type=chunk) [Liquidity and Capital Resources](index=37&type=section&id=Liquidity%20and%20Capital%20Resources) [Overview](index=37&type=section&id=Overview) - As of June 30, 2025, cash and cash equivalents were **$217.0 million**, an increase of **$75.0 million** from December 31, 2024, primarily from stock option exercises, asset sales, and operating activities, partially offset by the Formation Nation acquisition[181](index=181&type=chunk)[182](index=182&type=chunk) - The company expects current cash, cash equivalents, and operating cash flows to meet operational needs for at least the next twelve months[182](index=182&type=chunk) - The stock repurchase program was increased by **$100.0 million** in May 2025, totaling **$315.0 million** authorized, with **$129.6 million** remaining available as of June 30, 2025[184](index=184&type=chunk) [Borrowings (Revolving Facility)](index=38&type=section&id=Borrowings) - The Revolving Facility, amended in July 2025 to **$100.0 million** and extended to July 14, 2030, had no outstanding borrowings as of June 30, 2025[185](index=185&type=chunk) - The facility includes covenants, such as a total net first lien leverage ratio not to exceed **4.50 to 1.00**, tested quarterly if usage exceeds **35%** of total commitments[191](index=191&type=chunk) [Cash flows](index=39&type=section&id=Cash%20flows) Summary of Cash Flows (Six Months Ended June 30, in thousands) | Cash Flow Activity | 2025 | 2024 | | :----------------------------------- | :--- | :--- | | Net cash provided by operating activities | $89,842 | $61,440 | | Net cash used in investing activities | $(26,818) | $(19,351) | | Net cash provided by (used in) financing activities | $11,800 | $(148,981) | | Net increase (decrease) in cash and cash equivalents | $74,971 | $(106,924) | - Net cash provided by operating activities increased to **$89.8 million** in H1 2025, driven by net income adjusted for non-cash expenses (**$62.9 million**) and changes in operating assets/liabilities (**$22.1 million**), primarily deferred revenue growth[194](index=194&type=chunk) - Net cash used in investing activities was **$26.8 million** in H1 2025, mainly for the Formation Nation acquisition (**$48.5 million**) and property/equipment purchases (**$16.9 million**), partially offset by **$37.1 million** from asset sales[196](index=196&type=chunk) - Net cash provided by financing activities was **$11.8 million** in H1 2025, primarily from stock option exercises (**$44.7 million**), offset by common stock repurchases (**$20.4 million**) and tax withholdings (**$11.2 million**)[198](index=198&type=chunk) [Material Cash Requirements](index=40&type=section&id=Material%20Cash%20Requirements) - The company has non-cancelable vendor agreements requiring **$26.9 million** in payments over five years as of June 30, 2025[199](index=199&type=chunk) - Total minimum operating lease maturities are **$16.3 million** as of June 30, 2025, with **$2.1 million** maturing within six months[200](index=200&type=chunk) [Non-GAAP Financial Measures](index=40&type=section&id=Non-GAAP%20Financial%20Measures) [Adjusted EBITDA and Adjusted EBITDA Margin](index=40&type=section&id=Adjusted%20EBITDA%20and%20Adjusted%20EBITDA%20Margin) - Adjusted EBITDA is a key performance measure used by management to evaluate financial performance, excluding interest, taxes, depreciation, amortization, other income/expense, stock-based compensation, and certain non-recurring items[202](index=202&type=chunk)[203](index=203&type=chunk) Adjusted EBITDA and Margin (in thousands, except percentages) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Adjusted EBITDA | $38,965 | $28,912 | $75,977 | $56,814 | | Adjusted EBITDA margin | 20% | 16% | 20% | 16% | - Adjusted EBITDA increased by **$10.1 million** (QoQ) and **$19.2 million** (YoY) due to revenue growth, partially offset by increases in cost of revenue and operating expenses (excluding non-cash/non-recurring items)[206](index=206&type=chunk)[207](index=207&type=chunk) [Free cash flow](index=41&type=section&id=Free%20cash%20flow) - Free cash flow is a liquidity measure representing cash generated by operations after capital expenditures, used for strategic opportunities[208](index=208&type=chunk) Free Cash Flow Reconciliation (Six Months Ended June 30, in thousands) | Metric | 2025 | 2024 | | :----------------------------------- | :--- | :--- | | Net cash provided by operating activities | $89,842 | $61,440 | | Purchase of property and equipment | $(16,908) | $(19,351) | | Free cash flow | $72,934 | $42,089 | - Free cash flow increased from **$42.1 million** in H1 2024 to **$72.9 million** in H1 2025, driven by a **$28.4 million** increase in net cash from operating activities and a **$2.4 million** decrease in capital expenditures[210](index=210&type=chunk) [Critical Accounting Estimates](index=42&type=section&id=Critical%20Accounting%20Estimates) - There were no significant changes to critical accounting estimates during the three and six months ended June 30, 2025[211](index=211&type=chunk) [Recent Accounting Pronouncements](index=42&type=section&id=Recent%20Accounting%20Pronouncements) - Refer to Note 2 for information on accounting standards adopted and those not yet required to be implemented[212](index=212&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=42&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) Discusses exposure to market risks, including interest rate, foreign currency, and inflation, and their financial impact - The company's interest rate risk is low due to no outstanding debt as of June 30, 2025, but would be subject to fluctuations if it draws on its Revolving Facility[214](index=214&type=chunk)[215](index=215&type=chunk) - Foreign currency exchange risk is related to revenue, expenses, and intercompany balances denominated in GBP, but the transaction gain was immaterial for the six months ended June 30, 2025[216](index=216&type=chunk)[217](index=217&type=chunk) - Inflation has not had a material effect on the business to date, but sustained inflationary pressures could adversely impact costs, small business success, and new business formations[218](index=218&type=chunk) [Item 4. Controls and Procedures](index=43&type=section&id=Item%204.%20Controls%20and%20Procedures) Confirms the effectiveness of disclosure controls and procedures, with no material changes in internal control over financial reporting - Management concluded that disclosure controls and procedures were effective at a reasonable assurance level as of June 30, 2025[219](index=219&type=chunk) - There were no changes in internal control over financial reporting during the three months ended June 30, 2025, that materially affected or are reasonably likely to materially affect internal control over financial reporting[220](index=220&type=chunk) Part II. OTHER INFORMATION [Item 1. Legal Proceedings](index=44&type=section&id=Item%201.%20Legal%20Proceedings) States the company is not involved in any material legal proceedings or aware of any significant pending litigation - The company is not a party to any material legal proceedings and is unaware of any pending or threatened litigation that could have a material adverse effect on its results of operations, cash flows, and financial condition[222](index=222&type=chunk) [Item 1A. Risk Factors](index=44&type=section&id=Item%201A.%20Risk%20Factors) Outlines significant risks and uncertainties affecting business, financial condition, operations, growth, and stock price [Risks Relating to Our Business and Industry](index=44&type=section&id=Risks%20Relating%20to%20Our%20Business%20and%20Industry) - The business heavily relies on business formations, which are subject to unpredictable declines due to macroeconomic factors, competition, and regulatory changes[224](index=224&type=chunk) - Future performance depends on converting transactional customers to subscribers and retaining existing subscribers, with subscription revenue growth rate potentially decelerating[225](index=225&type=chunk) - Failure to effectively manage growth, including integrating new acquisitions like Formation Nation, could adversely impact service quality, customer satisfaction, and costs[227](index=227&type=chunk) - The legal solutions market is highly competitive, with risks from law firms, online services, and new entrants using technologies like generative AI[239](index=239&type=chunk)[240](index=240&type=chunk) - Incorporating generative AI into offerings presents compliance and reputational risks due to potential accuracy issues, biases, and UPL allegations[245](index=245&type=chunk) - Reliance on third-party providers (government agencies, independent attorneys, cloud infrastructure like AWS) for fulfillment and operations exposes the company to risks from service disruptions or failures[256](index=256&type=chunk)[257](index=257&type=chunk)[258](index=258&type=chunk) [Risks Relating to Our Financial Condition, Indebtedness and Capital Requirements](index=53&type=section&id=Risks%20Relating%20to%20Our%20Financial%20Condition,%20Indebtedness%20and%20Capital%20Requirements) - Revenue recognition over subscription terms means downturns in sales may not be immediately reflected, and growth in new customers can lead to higher costs and lower revenue in earlier periods[273](index=273&type=chunk) - Inaccuracies in internally tracked financial and operating metrics (e.g., transactions, subscription units, ARPU) could harm reputation and business[274](index=274&type=chunk)[275](index=275&type=chunk) - Past material weaknesses in internal control over financial reporting, if recurring, could lead to loss of investor confidence and regulatory sanctions[276](index=276&type=chunk)[279](index=279&type=chunk) - The revolving credit facility imposes covenants and restrictions that could limit operational and financial flexibility, with potential for default if not met[280](index=280&type=chunk)[281](index=281&type=chunk)[283](index=283&type=chunk) - The ability to use Net Operating Loss (NOL) carryforwards may be limited by ownership changes (Section 382) or state-level restrictions[286](index=286&type=chunk) [Risks Relating to Legal, Compliance and Regulatory Matters](index=57&type=section&id=Risks%20Relating%20to%20Legal,%20Compliance%20and%20Regulatory%20Matters) - The business is subject to complex and evolving U.S. and foreign laws and regulations, including those related to labor, advertising, consumer protection, and subscription billing, with non-compliance potentially leading to regulatory inquiries, claims, and significant costs[293](index=293&type=chunk)[294](index=294&type=chunk)[297](index=297&type=chunk) - The Arizona Alternative Business Structure (ABS) subsidiary may not fully insulate the company from unauthorized practice of law (UPL) claims and is subject to restrictions under the Arizona Code of Judicial Administration, including ownership limits[298](index=298&type=chunk)[299](index=299&type=chunk)[300](index=300&type=chunk)[301](index=301&type=chunk) - Mischaracterizing independent professionals (attorneys, accountants) or contractors as non-employees could lead to employment and withholding liabilities, penalties, and UPL/CPL allegations[302](index=302&type=chunk)[303](index=303&type=chunk) - Compliance with U.S. and foreign privacy and data security requirements (e.g., CCPA, GDPR) is costly and complex, with potential for significant fines, penalties, and reputational harm from non-compliance or data breaches[304](index=304&type=chunk)[306](index=306&type=chunk)[309](index=309&type=chunk) [Risks Relating to Intellectual Property](index=61&type=section&id=Risks%20Relating%20to%20Intellectual%20Property) - The use of open-source software (OSS) could obligate the company to release proprietary source code or license it under open-source terms, leading to potential litigation or increased development costs[321](index=321&type=chunk)[322](index=322&type=chunk) - Inadequate protection of intellectual property (trademarks, copyrights, trade secrets) could diminish brand value, allow competitors to mimic services, and adversely affect business[323](index=323&type=chunk) [Risks Relating to Ownership of Our Common Stock](index=62&type=section&id=Risks%20Relating%20to%20Ownership%20of%20Our%20Common%20Stock) - The market price of common stock may be volatile due to fluctuations in revenue, strategic changes, competition, analyst expectations, and broader macroeconomic conditions[324](index=324&type=chunk)[328](index=328&type=chunk) - Sales of a substantial number of outstanding shares by existing holders could depress the market price and impair the ability to raise capital[326](index=326&type=chunk) - Concentrated ownership by executive officers, directors, and affiliates (approximately **20%**) may limit new investors' influence on significant corporate decisions[327](index=327&type=chunk) - Provisions in corporate charter documents and Delaware law could make an acquisition more difficult and prevent stockholders from replacing current management[330](index=330&type=chunk)[331](index=331&type=chunk) [Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities](index=65&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities,%20Use%20of%20Proceeds,%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Details the company's stock repurchase program and activity during the three months ended June 30, 2025 - The board approved a **$100.0 million** increase to the stock repurchase program in May 2025, bringing the total authorized to **$315.0 million** with no fixed expiration[339](index=339&type=chunk) Stock Repurchase Activity (Three Months Ended June 30, 2025) | Period | Total Number of Shares Purchased | Average Price Paid per Share | Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans | | :----------------------------------- | :------------------------------- | :--------------------------- | :----------------------------------------------------------------------- | | April 1, 2025 through April 30, 2025 | — | $— | $149,986,329 | | May 1, 2025 through May 31, 2025 | 1,396,771 | $9.40 | $136,858,158 | | June 1, 2025 through June 30, 2025 | 791,205 | $9.21 | $129,567,711 | | Total | 2,187,976 | $9.33 | | [Item 3. Defaults Upon Senior Securities](index=66&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) States there were no defaults upon senior securities - None[341](index=341&type=chunk) [Item 4. Mine Safety Disclosures](index=66&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) Indicates mine safety disclosures are not applicable to the company - Not applicable[341](index=341&type=chunk) [Item 5. Other Information](index=66&type=section&id=Item%205.%20Other%20Information) Discloses Rule 10b5-1 trading arrangements adopted by the Chief Legal Officer and COO/CFO - Nicole Miller (Chief Legal Officer) adopted a Rule 10b5-1 trading arrangement for up to **98,874 shares**, with sales permitted from August 18, 2025, to November 21, 2025[341](index=341&type=chunk) - Noel Watson (COO and CFO) adopted a Rule 10b5-1 trading arrangement for up to **241,816 shares**, with sales permitted from August 18, 2025, to August 18, 2026[342](index=342&type=chunk) [Item 6. Exhibits](index=67&type=section&id=Item%206.%20Exhibits) Lists exhibits filed or furnished as part of the Quarterly Report on Form 10-Q - Key exhibits include the Amended and Restated Certificate of Incorporation, Amended and Restated Bylaws, Amendment No. 2 to the Revolving Facility, CEO and CFO certifications (31.1, 31.2, 32.1), and Inline XBRL financial statements[343](index=343&type=chunk) [Signatures](index=67&type=section&id=Signatures) Contains signatures of the registrant's principal executive and financial officers, certifying the report - The report is signed by Jeffrey Stibel, Chief Executive Officer, and Noel Watson, Chief Financial Officer, on August 7, 2025[349](index=349&type=chunk)

Financial Performance - LegalZoom's GAAP revenue for Q2 2025 was $193 million, a 9% increase year-over-year[17] - Adjusted EBITDA for Q2 2025 was $39 million, representing a 20% margin, a 400 bps increase[17] - Subscription revenue for Q2 2025 reached $120 million, a 10% increase year-over-year[17] - Non-GAAP net income for Q2 2025 was $28 million, a 51% increase year-over-year[17] - Adjusted gross profit for Q2 2025 was $132 million, a 6% increase year-over-year, with a margin of 69%[17,47] - The company projects revenue growth of approximately 8% year-over-year for FY25 and anticipates an Adjusted EBITDA margin of approximately 23%[68] Market Opportunity and Strategy - LegalZoom operates in a large market with a total addressable market (SAM) of $51 billion[22] - The company estimates the Life & Business Planning SAM to be $13 billion and the Business Management SAM to be $15 billion[18,19] - LegalZoom estimates it holds approximately 9% market share in the digital formations market[18] - Three key focus areas are optimizing the subscription business, reorienting the go-to-market strategy, and leveraging AI to deliver expertise[29]

Executive Summary LegalZoom's strong Q2 2025 results show accelerated revenue and subscription growth, leading to an increased full-year revenue outlook to 8% [Introduction and Management Commentary](index=1&type=section&id=Introduction_Management_Commentary) LegalZoom achieved strong Q2 2025 results with accelerated revenue and subscription growth, prompting an increased full-year revenue outlook to 8% - LegalZoom accelerated revenue growth for the third consecutive quarter and delivered **double-digit subscription growth** two quarters ahead of plan, while maintaining **strong profitability** and a **healthy balance sheet**[4](index=4&type=chunk) - The company is raising its **2025 revenue growth outlook from 5% to 8%** due to better-than-expected performance and traction in key focus areas, while maintaining Adjusted EBITDA margin expectations of **23%**[4](index=4&type=chunk) [Company Profile](index=4&type=section&id=Company_Profile) LegalZoom is a leading online platform for legal services, assisting individuals and small businesses with various legal needs through technology and attorney networks - LegalZoom is a leading online platform for legal services, transforming how individuals and small businesses navigate the legal system[21](index=21&type=chunk) - The platform combines intuitive technology with access to an independent attorney network or LegalZoom Legal Services (LZLS) law firm, offering tools and guidance for business formation, compliance, estate planning, and ongoing legal support[21](index=21&type=chunk) - With over two decades of experience and millions of customers served, LegalZoom helps individuals and small businesses manage legal needs with confidence[22](index=22&type=chunk) Second Quarter 2025 Performance Highlights LegalZoom exceeded Q2 2025 revenue outlook with 9% growth, driven by subscriptions, and significantly improved Adjusted EBITDA by 35% [Key Financial and Operational Highlights](index=1&type=section&id=Key_Financial_Operational_Highlights) LegalZoom exceeded Q2 revenue outlook with $192.5 million, up 9% year-over-year, and Adjusted EBITDA improved 35% to $39.0 million Second Quarter 2025 Revenue Highlights | Metric | Q2 2025 (Millions) | YoY Change | | :----------------- | :----------------- | :--------- | | Total Revenue | $192.5 | +9% | | Subscription Revenue | $119.9 | +10% | | Transaction Revenue | $72.6 | +6% | Second Quarter 2025 Profitability Highlights | Metric | Q2 2025 (Millions) | Q2 2024 (Millions) | YoY Change | | :--------------------- | :----------------- | :----------------- | :--------- | | Net (Loss) Income | $(0.3) | $1.3 (Income) | (120%) | | Net (Loss) Income Margin | <1% | 1% (Income) | (100%) | | Adjusted EBITDA | $39.0 | $28.9 | +35% | | Adjusted EBITDA Margin | 20% | 16% | +25% | Second Quarter 2025 Cash Flow Highlights | Metric | Q2 2025 (Millions) | Q2 2024 (Millions) | YoY Change | | :----------------------------- | :----------------- | :----------------- | :--------- | | Cash from Operating Activities | $39.1 | $27.2 | +44% |\ | Free Cash Flow | $31.6 | $17.4 | +82% | - Cash and cash equivalents ended the quarter at **$217.0 million**, compared to **$142.1 million** as of December 31, 2024[6](index=6&type=chunk)[7](index=7&type=chunk) - Repurchased **2.2 million shares** of common stock for a total cost of **$20.4 million**, at an average price of **$9.33 per share**[7](index=7&type=chunk) Detailed Financial Results and Key Metrics This section provides a comprehensive breakdown of LegalZoom's Q2 2025 financial performance, including revenue, profitability, cash flow, and key business metrics [Revenue Performance](index=2&type=section&id=Revenue_Performance) LegalZoom's total Q2 2025 revenue increased 9% year-over-year to $192.5 million, primarily driven by a 10% rise in subscription revenue Revenue Performance (in thousands) | Metric | Q2 2025 (Thousands) | Q2 2024 (Thousands) | YoY Growth | YTD 2025 (Thousands) | YTD 2024 (Thousands) | YTD Growth | | :----------------- | :------------------ | :------------------ | :--------- | :------------------- | :------------------- | :--------- | | Total revenue | $192,509 | $177,362 | 9% | $375,619 | $351,576 | 7% | | Transaction revenue| $72,611 | $68,537 | 6% | $139,464 | $134,854 | 3% | | Subscription revenue| $119,898 | $108,825 | 10% | $236,155 | $216,722 | 9% | [Profitability Metrics (GAAP & Non-GAAP)](index=2&type=section&id=Profitability_Metrics) Q2 2025 saw a GAAP net loss of $0.3 million, but Non-GAAP net income surged 51% to $28.3 million, and Adjusted EBITDA grew 35% Profitability Metrics (in thousands, except percentages) | Metric | Q2 2025 (Thousands) | Q2 2024 (Thousands) | YoY Growth | YTD 2025 (Thousands) | YTD 2024 (Thousands) | YTD Growth | | :----------------------------- | :------------------ | :------------------ | :--------- | :------------------- | :------------------- | :--------- | | Gross profit | $125,111 | $113,753 | 10% | $241,661 | $219,583 | 10% | | Gross margin | 65% | 64% | 2% | 64% | 62% | 3% | | Net (loss) Income | $(266) | $1,314 | (120%) | $4,861 | $6,058 | (20%) | | Net (loss) income margin | —% | 1% | (100%) | 1% | 2% | (50%) | | Net (loss) Income per share — basic | $(0.00) | $0.01 | (100%) | $0.03 | $0.03 | —% | | Non-GAAP net income | $28,329 | $18,810 | 51% | $52,151 | $37,154 | 40% | | Non-GAAP net income per share — diluted | $0.15 | $0.10 | 50% | $0.29 | $0.20 | 45% | | Adjusted EBITDA | $38,965 | $28,912 | 35% | $75,977 | $56,814 | 34% | | Adjusted EBITDA margin | 20% | 16% | 25% | 20% | 16% | 25% | [Cash Flow and Liquidity](index=2&type=section&id=Cash_Flow_Liquidity) LegalZoom generated strong cash flow in Q2 2025, with operating cash increasing 44% to $39.1 million and free cash flow surging 82% to $31.6 million Cash Flow Performance (in thousands) | Metric | Q2 2025 (Thousands) | Q2 2024 (Thousands) | YoY Growth | YTD 2025 (Thousands) | YTD 2024 (Thousands) | YTD Growth | | :-------------------------------------- | :------------------ | :------------------ | :--------- | :------------------- | :------------------- | :--------- | | Net cash provided by operating activities | $39,139 | $27,245 | 44% | $89,842 | $61,440 | 46% | | Free cash flow | $31,609 | $17,372 | 82% | $72,934 | $42,089 | 73% | - Cash and cash equivalents were **$217.0 million** as of June 30, 2025, compared to **$142.1 million** as of December 31, 2024[7](index=7&type=chunk)[25](index=25&type=chunk) [Key Business Metrics](index=2&type=section&id=Key_Business_Metrics) Q2 2025 saw a 22% increase in subscription units and a 12% rise in Average Order Value, despite slight declines in transaction units Key Business Metrics (in thousands, except AOV, ARPU and percentages) | Metric | Q2 2025 | Q2 2024 | YoY Change | YTD 2025 | YTD 2024 | YTD Change | | :-------------------------------------- | :------ | :------ | :--------- | :------- | :------- | :--------- | | Transaction units | 278 | 292 | (5%) | 619 | 628 | (1%) | | Business formations | 131 | 134 | (2%) | 262 | 273 | (4%) | | Average order value (AOV) | $262 | $234 | 12% | $225 | $215 | 5% | | Subscription units at period end | 1,955 | 1,609 | 22% | 1,955 | 1,609 | 22% | | Average revenue per subscription unit (ARPU) at period end | $256 | $271 | (6%) | $256 | $271 | (6%) | Financial Outlook LegalZoom provides its financial guidance for the third quarter and full year 2025, reflecting continued revenue growth and strong Adjusted EBITDA margins [Third Quarter and Full Year 2025 Guidance](index=2&type=section&id=Q3_Full_Year_2025_Guidance) LegalZoom projects Q3 2025 revenue between $182M-$184M and Adjusted EBITDA of $44M-$46M, raising full-year revenue growth to 8% Third Quarter 2025 Outlook | Metric | Range | Midpoint YoY Growth | | :--------------------- | :------------------ | :------------------ | | Revenue | $182M to $184M | 9% | | Adjusted EBITDA | $44M to $46M | | | Adjusted EBITDA Margin | | 25% | Full Year 2025 Outlook | Metric | Outlook | Previous Outlook | | :--------------------- | :------------------ | :--------------- | | Revenue Growth | Approximately 8% YoY| 5% YoY | | Adjusted EBITDA Margin | Approximately 23% | 23% | Non-GAAP Financial Measures This section defines and reconciles non-GAAP financial measures, including Adjusted EBITDA, Non-GAAP net income, and free cash flow, for clarity [Definition and Purpose of Non-GAAP Measures](index=3&type=section&id=NonGAAP_Definition_Purpose) LegalZoom uses non-GAAP measures like Adjusted EBITDA and free cash flow to clarify core operating performance and liquidity, complementing GAAP results - Non-GAAP financial measures are used to better understand and evaluate core operating performance, provide useful information about financial performance and liquidity, and enhance the overall understanding of past performance and future prospects[14](index=14&type=chunk) - Adjusted EBITDA is defined as net income (loss) adjusted to exclude interest expense/income, income taxes, depreciation and amortization, other expense/income, stock-based compensation, and certain non-recurring items[15](index=15&type=chunk) - Non-GAAP net income is defined as net income (loss) adjusted to exclude amortization of acquired intangible assets, stock-based compensation expense, and certain non-recurring items, net of related income tax impacts[17](index=17&type=chunk) - Free cash flow is a liquidity measure defined as cash generated by operations after purchases of property and equipment, including capitalized internal-use software[18](index=18&type=chunk) - These non-GAAP measures should not be considered in isolation of, or as a substitute or an alternative to, measures prepared and presented in accordance with GAAP, and have limitations such as potential differences in calculation by other companies and exclusion of significant cash or recurring expenses[14](index=14&type=chunk)[16](index=16&type=chunk)[18](index=18&type=chunk)[23](index=23&type=chunk) [Adjusted EBITDA Reconciliation](index=7&type=section&id=Adjusted_EBITDA_Reconciliation) The reconciliation of net income to Adjusted EBITDA shows that Adjusted EBITDA for Q2 2025 was $39.0 million, a 35% increase, adjusted for stock-based compensation and other non-recurring items Reconciliation of Net (Loss) Income to Adjusted EBITDA (in thousands, except percentages) | Metric | Q2 2025 (Thousands) | Q2 2024 (Thousands) | YTD 2025 (Thousands) | YTD 2024 (Thousands) | | :-------------------------------------- | :------------------ | :------------------ | :------------------- | :------------------- | | Net (loss) income | $(266) | $1,314 | $4,861 | $6,058 | | Interest expense | 165 | 112 | 347 | 173 | | Interest income | (2,069) | (2,315) | (3,552) | (5,202) | | (Benefit from) provision for income taxes | (278) | 2,046 | 5,209 | 5,276 | | Depreciation and amortization | 11,339 | 8,426 | 21,745 | 16,096 | | Other income, net | (652) | (11) | (999) | (104) | | Stock-based compensation | 30,638 | 18,915 | 60,394 | 33,771 | | Transaction-related expenses (1) | — | — | 1,543 | — | | Gain on sale of assets held for sale | — | — | (14,337) | — | | Restructuring costs (2) | 88 | 425 | 766 | 746 | | **Adjusted EBITDA** | **$38,965** | **$28,912** | **$75,977** | **$56,814** | | Adjusted EBITDA margin | 20% | 16% | 20% | 16% | - Transaction-related expenses for 2025 are related to the acquisition of Formation Nation[31](index=31&type=chunk) - Restructuring costs for 2025 and 2024 are related to the reduction of U.S. headcount[32](index=32&type=chunk) [Non-GAAP Net Income Reconciliation](index=8&type=section&id=NonGAAP_Net_Income_Reconciliation) Non-GAAP net income for Q2 2025 increased 51% to $28.3 million, adjusted for amortization, stock-based compensation, and tax effects Reconciliation of Net (Loss) Income to Non-GAAP Net Income (in thousands, except per share amounts) | Metric | Q2 2025 (Thousands) | Q2 2024 (Thousands) | YTD 2025 (Thousands) | YTD 2024 (Thousands) | | :-------------------------------------- | :------------------ | :------------------ | :------------------- | :------------------- | | Net (loss) income | $(266) | $1,314 | $4,861 | $6,058 | | Amortization of acquired intangible assets | 2,381 | 1,271 | 4,028 | 2,541 | | Stock-based compensation | 30,638 | 18,915 | 60,394 | 33,771 | | Transaction-related expenses (1) | — | — | 1,543 | — | | Restructuring costs (2) | 88 | 425 | 766 | 746 | | Gain on sale of assets held for sale | — | — | (14,337) | — | | Income tax effects (3) | (4,512) | (3,115) | (5,104) | (5,962) | | **Non-GAAP net income** | **$28,329** | **$18,810** | **$52,151** | **$37,154** | | Non-GAAP net income margin | 15% | 11% | 14% | 11% | | Non-GAAP net income per share — diluted | $0.15 | $0.10 | $0.29 | $0.20 | - Transaction-related expenses for 2025 are related to the acquisition of Formation Nation[33](index=33&type=chunk) - Restructuring costs for 2025 and 2024 are related to the reduction of U.S. headcount[34](index=34&type=chunk) - The estimated income tax effect of the non-GAAP pre-tax adjustments is determined by applying the statutory rate of the originating jurisdiction[34](index=34&type=chunk) [Free Cash Flow Reconciliation](index=9&type=section&id=Free_Cash_Flow_Reconciliation) Free cash flow for Q2 2025 significantly increased to $31.6 million, reflecting strong operating cash generation offset by capital expenditures Reconciliation of Net Cash Provided by Operating Activities to Free Cash Flow (in thousands) | Metric | Q2 2025 (Thousands) | Q2 2024 (Thousands) | YTD 2025 (Thousands) | YTD 2024 (Thousands) | | :-------------------------------------- | :------------------ | :------------------ | :------------------- | :------------------- | | Net cash provided by operating activities | $39,139 | $27,245 | $89,842 | $61,440 | | Purchase of property and equipment | (7,530) | (9,873) | (16,908) | (19,351) | | **Free cash flow** | **$31,609** | **$17,372** | **$72,934** | **$42,089** | Unaudited Condensed Consolidated Financial Statements This section presents LegalZoom's unaudited condensed consolidated balance sheets, statements of operations, and cash flows for the reported periods [Condensed Consolidated Balance Sheets](index=5&type=section&id=Consolidated_Balance_Sheets) As of June 30, 2025, total assets grew to $543.0 million, driven by cash, goodwill, and intangibles, with corresponding increases in liabilities and equity Condensed Consolidated Balance Sheets (in thousands) | Metric | June 30, 2025 (Thousands) | December 31, 2024 (Thousands) | | :------------------------------ | :------------------------ | :---------------------------- | | Cash and cash equivalents | $217,035 | $142,064 | | Total current assets | $254,561 | $191,223 | | Goodwill | $139,570 | $63,318 | | Intangible assets, net | $21,926 | $8,653 | | Total assets | $543,030 | $373,883 | | Deferred revenue (current) | $213,908 | $174,643 | | Total current liabilities | $326,507 | $265,582 | | Total liabilities | $348,978 | $280,626 | | Total stockholders' equity | $194,052 | $93,257 | [Condensed Consolidated Statements of Operations](index=6&type=section&id=Consolidated_Statements_Operations) Q2 2025 revenue rose 9% to $192.5 million, but increased operating expenses led to a net loss of $0.3 million compared to prior year income Condensed Consolidated Statements of Operations (in thousands, except per share amounts) | Metric | Q2 2025 (Thousands) | Q2 2024 (Thousands) | YTD 2025 (Thousands) | YTD 2024 (Thousands) | | :-------------------------------------- | :------------------ | :------------------ | :------------------- | :------------------- | | Revenue | $192,509 | $177,362 | $375,619 | $351,576 | | Cost of revenue | $67,398 | $63,609 | $133,958 | $131,993 | | Gross profit | $125,111 | $113,753 | $241,661 | $219,583 | | Sales and marketing | $69,580 | $60,130 | $130,958 | $113,883 | | Technology and development | $21,635 | $25,798 | $42,957 | $49,755 | | General and administrative | $36,996 | $26,679 | $76,217 | $49,744 | | Total operating expenses | $128,211 | $112,607 | $235,795 | $213,382 | | (Loss) income from operations | $(3,100) | $1,146 | $5,866 | $6,201 | | Net (loss) income | $(266) | $1,314 | $4,861 | $6,058 | | Net (loss) income per share — diluted | $(0.00) | $0.01 | $0.03 | $0.03 | [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Consolidated_Statements_Cash_Flows) YTD 2025 operating cash flow increased 46% to $89.8 million, with investing activities including an acquisition and financing from employee stock plans Condensed Consolidated Statements of Cash Flows (in thousands) | Metric | YTD 2025 (Thousands) | YTD 2024 (Thousands) | | :-------------------------------------- | :------------------- | :------------------- | | Net cash provided by operating activities | $89,842 | $61,440 | | Net cash used in investing activities | $(26,818) | $(19,351) | | Net cash provided by (used in) financing activities | $11,800 | $(148,981) | | Net increase in cash and cash equivalents | $74,971 | $(106,924) | | Cash and cash equivalents, at end of the period | $217,035 | $118,795 | - Key adjustments to reconcile net income to operating cash flow include **stock-based compensation ($60.4 million)** and **depreciation and amortization ($21.7 million)**[29](index=29&type=chunk) - Investing activities included **$48.5 million** for an acquisition (Formation Nation) and **$37.1 million** from the sale of assets held for sale[29](index=29&type=chunk)[31](index=31&type=chunk)[33](index=33&type=chunk) - Financing activities included **$20.4 million** for common stock repurchases and **$44.7 million** from proceeds from issuance of stock under employee stock plans[29](index=29&type=chunk) Additional Information This section provides details on the webcast, forward-looking statements, and investor contact information [Webcast and Conference Call Information](index=3&type=section&id=Webcast_Conference_Call) LegalZoom scheduled a webcast and conference call for August 7, 2025, to discuss Q2 results, with access details on its Investor Relations website - A webcast and conference call to discuss second quarter 2025 results is scheduled for **August 7, 2025, at 4:30 p.m. Eastern time/1:30 p.m. Pacific time**[10](index=10&type=chunk) - A live audio webcast of the event will be available on the LegalZoom Investor Relations website: https://investors.legalzoom.com, with an archived replay available shortly after[10](index=10&type=chunk) [Forward-Looking Statements Disclaimer](index=3&type=section&id=Forward_Looking_Statements) This press release contains forward-looking statements subject to risks and uncertainties, and investors are cautioned against undue reliance without public updates - The press release contains forward-looking statements intended to be covered by safe harbor provisions, identifiable by terms such as 'expects,' 'plans,' 'anticipates,' or similar expressions[11](index=11&type=chunk) - Forward-looking statements involve known and unknown risks, uncertainties, and other important factors that may cause actual results to be materially different, including dependence on business formations, customer expansion, macroeconomic challenges, and competitive markets[12](index=12&type=chunk) - Investors are cautioned not to unduly rely upon these statements, and the company does not plan to publicly update or revise any forward-looking statements except as required by applicable law[13](index=13&type=chunk) [Investor Contact](index=4&type=section&id=Investor_Contact) For investor relations inquiries, LegalZoom provides a dedicated email contact - Investor Relations contact: investor@legalzoom.com[23](index=23&type=chunk)

Core Viewpoint - LegalZoom.com, Inc. is set to report its financial results for the second quarter of 2025 on August 7, 2025, after market close, indicating ongoing transparency and communication with investors [1]. Group 1: Financial Reporting - The financial results for the second quarter ended June 30, 2025, will be announced on August 7, 2025 [1]. - A conference call and webcast will be hosted by the CEO Jeff Stibel and COO/CFO Noel Watson at 4:30 p.m. ET on the same day to discuss the results [1]. Group 2: Company Overview - LegalZoom is a leading online platform for legal services, aimed at transforming how individuals and small businesses navigate the legal system [3]. - The company combines technology with access to experienced attorneys, providing tools for business formations, compliance, estate planning, and ongoing legal support [3]. - With over two decades of experience and millions of customers served, LegalZoom has established itself as a trusted resource for legal needs [4].

LegalZoom Conference Call Summary Company Overview - **Company**: LegalZoom.com (LZ) - **Industry**: Online legal services for small businesses - **Market Position**: Market leader in the online legal services space, offering a comprehensive suite of services and products for individuals and businesses across the United States [2][4] Core Business Model and Services - **Service Offerings**: LegalZoom started with estate planning and has expanded to include small business formation, compliance support, legal service plans, and partnerships with service providers like Bank of America and Wix [4][6][7] - **Market Opportunity**: Only 4% of legal services are delivered online in the U.S., indicating significant growth potential due to underinvestment in technology within traditional legal firms [8][9] Competitive Landscape - **Competition**: LegalZoom faces competition from: - Secretary of state sites offering free formation services [11] - Online DIY legal services without attorney support [12] - Traditional offline attorneys, which still account for the largest portion of legal spending [13] Strategic Shifts - **Transition to Subscription Model**: LegalZoom is shifting from a transactional model to a subscription-based model, with nearly two-thirds of the business now subscription-based. This change aims to provide predictability in revenue and improve operational efficiency [14][17] - **Partnership Strategy**: The company has narrowed its focus on core competencies and has engaged in partnerships to enhance service offerings, such as moving its tax service to a partner, which improved margins [21][24][25] Financial Performance and Guidance - **Revenue Growth**: LegalZoom is guiding for a 5% top-line growth this year, with subscription revenue growth at 8% in Q1, indicating a reacceleration after previous slowdowns [31][32] - **Business Formations**: Business formations are currently 50% higher than pre-pandemic levels, although they saw a 5% decline in Q1. The company aims to focus on quality customer acquisition rather than sheer volume [46][47][48] Technology and Innovation - **AI Integration**: LegalZoom is focusing on leveraging AI to enhance customer service and operational efficiency, with a new CTO prioritizing AI initiatives [53][55] - **Search Engine Partnership**: The company has partnered with an AI-driven search engine to improve its visibility and service offerings in the legal space [57][58] Capital Allocation and Future Plans - **Cash Flow and Share Repurchases**: LegalZoom has over $200 million on its balance sheet and has been active in share repurchases, with $165 million repurchased last year. The company plans to maintain flexibility for potential M&A opportunities [60][61][62] - **M&A Interests**: The company is interested in acquiring services or products that align with customer needs, particularly smaller formation players with existing subscriber bases [63] Additional Insights - **Customer Experience Improvements**: LegalZoom has made significant investments in infrastructure to enhance customer experience and operational efficiency [19][20] - **Pricing Strategy**: The company has reverted pricing on certain products and is testing price increases, indicating a focus on aligning pricing with value [38][39][41]

LegalZoom Conference Call Summary Company Overview - **Company**: LegalZoom.com (LZ) - **Industry**: Online Legal Services - **Key Executives**: Jeff Stibel (CEO), Noel Watson (CFO and COO) [1][2] Core Products and Customer Segments - **Focus Areas**: - Small and Medium-sized Businesses (SMBs): Business formation, compliance services, and various legal products including subscription-based legal plans [3][4] - Consumer Side: Estate planning services such as wills and trusts, with a focus on transactional and subscription-oriented products [4][5] Revenue Mix and Business Strategy - **Revenue Composition**: Primarily from SMB subscriptions, with ancillary services to drive customer engagement [5] - **Strategic Refocus**: Shifted focus back to core legal services, divesting non-core products like tax and bookkeeping services to strengthen brand identity [9][10] - **Market Share Strategy**: Transitioning from quantity-based market share to quality share, targeting higher-value customers traditionally served by local law firms [11] Subscription Growth and Future Potential - **Subscription Revenue Growth**: Increased from just below 50% in fiscal 2020 to 64% in the latest fiscal year, with aspirations to reach 100% in the next five years [12][14] - **Projected Growth**: Anticipated double-digit growth in subscription revenues by year-end, outpacing overall revenue growth [15] Product Development and Customer Engagement - **Concierge Services**: Introduction of concierge-like services aimed at providing compliance assistance, which is expected to enhance average revenue per user (ARPU) and reduce churn [17][20] - **Compliance Products**: New offerings such as compliance concierge and compliance dissolution services to address customer needs and reduce churn rates [23][26] Financial Performance and Margin Expansion - **EBITDA Margin Improvement**: Increased from 8% in 2021 to a projected 23% for the current year, driven by a shift towards higher-margin subscription products [30][32] - **Operational Efficiency**: Investments in infrastructure and AI to enhance service delivery and operational efficiency [33] Headcount and Resource Management - **Headcount Reduction**: Decreased from 1,422 to just under 1,000 over the past few years, with a focus on a blended mix of in-house and outsourced resources for flexibility [36][37] - **Formation Nation Acquisition**: Added over 40 sales experts to enhance service capabilities and leverage technology for scaling operations [46][49] Deferred Revenue and Pricing Strategy - **Deferred Revenue Growth**: Accelerated to 12% year-over-year, attributed to seasonal factors, the Formation Nation acquisition, and successful price testing [39][41] - **Pricing and Bundling Opportunities**: Early positive results from price adjustments and bundling strategies, indicating a strong potential for ongoing revenue growth [42][44] Conclusion - LegalZoom is strategically refocusing on its core legal services, enhancing subscription offerings, and leveraging new acquisitions to drive growth and improve margins. The company is optimistic about future revenue streams and operational efficiencies, positioning itself for sustained success in the online legal services market.

Group 1 - Morgan Stanley's report highlights the mixed performance of GoDaddy, the improvement in Wix.com, and the continued deterioration of LegalZoom's data in April's internet traffic trends [1][2] - GoDaddy acknowledges pressure on its customer base related to economic outlook but emphasizes stable channel trends and historical resilience during macroeconomic headwinds [2] - LegalZoom faces increased pressure on new business formation, with management now expecting a decline in new business formation for fiscal year 2025, despite noting that dissolution rates have not increased [2] Group 2 - April traffic trends indicate that GoDaddy's homepage traffic accelerated while login page traffic declined, reflecting a mixed trend [3] - Wix.com shows an upward trend despite high baseline comparisons, building confidence in the demand for its portfolio ahead of its Q1 earnings report [3] - LegalZoom's month-over-month comparative trend has further deteriorated, although the baseline comparison remains relatively lenient [3] Group 3 - Morgan Stanley maintains a cautious outlook on the potential for downward adjustments in booking guidance for fiscal year 2025, which could negate acceleration expectations for the second half of the year [2] - The strong performance of the tech portfolio and the acceleration of future innovations create a compelling narrative for investors, despite the ongoing search for sustained improvement in network traffic [2] - Recruitment trends across the three companies remain weak, with hiring levels hovering near historical lows, below pre-pandemic trends [2]

FINANCIAL INFORMATION [Condensed Consolidated Financial Statements (Unaudited)](index=4&type=section&id=Item%201.%20Condensed%20Consolidated%20Financial%20Statements%20(Unaudited)) This section presents LegalZoom.com, Inc.'s unaudited condensed consolidated financial statements as of March 31, 2025, and for the three months then ended, compared to prior periods [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The balance sheet as of March 31, 2025, shows a significant increase in total assets to $532.7 million from $373.9 million at the end of 2024, primarily driven by a substantial rise in goodwill to $141.1 million from $63.3 million, resulting from the Formation Nation acquisition, while total liabilities also increased to $345.5 million from $280.6 million, mainly due to higher deferred revenue and accrued expenses Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $209,973 | $142,064 | | Goodwill | $141,131 | $63,318 | | **Total assets** | **$532,666** | **$373,883** | | **Liabilities & Equity** | | | | Deferred revenue (Current) | $211,094 | $174,643 | | **Total liabilities** | **$345,454** | **$280,626** | | **Total stockholders' equity** | **$187,212** | **$93,257** | [Condensed Consolidated Statements of Operations](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) For the three months ended March 31, 2025, revenue increased 5% to $183.1 million, gross profit grew 10% to $116.5 million, and net income rose to $5.1 million, with diluted EPS increasing to $0.03, significantly impacted by a $14.3 million gain on asset sale Condensed Consolidated Statement of Operations (in thousands, except per share amounts) | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Revenue | $183,110 | $174,214 | | Gross Profit | $116,550 | $105,830 | | Income from operations | $8,966 | $5,055 | | Gain on sale of assets held for sale | ($14,337) | — | | Net income | $5,127 | $4,744 | | Net income per share — diluted | $0.03 | $0.02 | [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) In Q1 2025, net cash from operating activities increased to $50.7 million, investing activities used $20.5 million primarily for the Formation Nation acquisition offset by an asset sale, and financing activities provided $37.6 million, leading to a $67.9 million increase in cash and cash equivalents Condensed Consolidated Statement of Cash Flows (in thousands) | Cash Flow Activity | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $50,703 | $34,194 | | Net cash used in investing activities | ($20,450) | ($9,477) | | Net cash provided by (used in) financing activities | $37,604 | ($22,271) | | **Net increase in cash and cash equivalents** | **$67,909** | **$2,410** | [Notes to Condensed Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) The notes detail the $83.2 million Formation Nation acquisition, the $37.1 million Austin property sale with a $14.3 million gain, revenue breakdown into transaction and subscription streams, and the status of the stock repurchase program - On February 10, 2025, the company acquired Formation Nation, Inc. for a total consideration of **$83.2 million**, consisting of cash and equity. The acquisition added **$77.8 million** to goodwill[64](index=64&type=chunk)[68](index=68&type=chunk)[72](index=72&type=chunk) - The company sold its Austin, Texas property on March 31, 2025, for net cash proceeds of approximately **$37.1 million**, resulting in a recognized gain of **$14.3 million**[62](index=62&type=chunk)[63](index=63&type=chunk) Revenue by Source (in thousands) | Revenue Type | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Transaction | $66,853 | $66,317 | | Subscription | $116,257 | $107,897 | | **Total revenue** | **$183,110** | **$174,214** | - No common stock was repurchased during Q1 2025. As of March 31, 2025, approximately **$50.0 million** remained available under the stock repurchase program. The program was subsequently increased by **$100.0 million** in May 2025[86](index=86&type=chunk)[104](index=104&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=23&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Q1 2025 performance, financial condition, and key business metrics, highlighting a 5% revenue growth to $183.1 million, a 20% increase in subscription units, and the impact of the Formation Nation acquisition and a $14.3 million asset sale gain [Key Business Metrics](index=24&type=section&id=Key%20Business%20Metrics) In Q1 2025, business formations decreased 6% to 131,000, subscription units grew 20% to 1.92 million, and Average Revenue Per Subscription Unit (ARPU) declined 7% to $252, influenced by macroeconomic factors and product bundling Key Business Metrics Comparison | Metric | Q1 2025 | Q1 2024 | % Change | | :--- | :--- | :--- | :--- | | Number of business formations (thousands) | 131 | 139 | (6%) | | Number of transactions (thousands) | 341 | 336 | 1% | | Average order value | $196 | $198 | (1%) | | Number of subscription units (thousands) | 1,924 | 1,605 | 20% | | Average revenue per subscription unit (ARPU) | $252 | $272 | (7%) | - The annual small business retention rate was approximately **60%** as of March 31, 2025, impacted by the anniversarying of non-renewing bundled subscriptions[126](index=126&type=chunk) [Results of Operations](index=29&type=section&id=Results%20of%20Operations) Total revenue increased 5% to $183.1 million in Q1 2025, driven by 8% subscription revenue growth, while gross profit rose 10%, and operating expenses increased significantly due to higher stock-based compensation and acquisition costs, partially offset by a $14.3 million asset sale gain Revenue Comparison (in thousands) | Revenue Type | Q1 2025 | Q1 2024 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Transaction | $66,853 | $66,317 | $536 | 1% | | Subscription | $116,257 | $107,897 | $8,360 | 8% | | **Total revenue** | **$183,110** | **$174,214** | **$8,896** | **5%** | - General and administrative expenses increased by **$16.2 million** (70% YoY), mainly due to a **$14.7 million** increase in stock-based compensation and **$1.5 million** in acquisition-related costs for Formation Nation[159](index=159&type=chunk) - Technology and development expenses decreased by **11%** YoY due to reduced headcount in that department[158](index=158&type=chunk) [Liquidity and Capital Resources](index=33&type=section&id=Liquidity%20and%20Capital%20Resources) As of March 31, 2025, cash and cash equivalents increased by $67.9 million to $210.0 million, driven by operating cash flow, stock option exercises, and an asset sale, partially offset by the Formation Nation acquisition, with a $150.0 million undrawn revolving credit facility and an increased stock repurchase program - Principal sources of liquidity at March 31, 2025, were cash and cash equivalents of **$210.0 million**[167](index=167&type=chunk) - The company has a **$150.0 million** revolving credit facility, with no borrowings outstanding as of March 31, 2025[171](index=171&type=chunk) - The stock repurchase program authorization was increased to **$315.0 million** in May 2025, with approximately **$150.0 million** available for future repurchases as of the filing date[170](index=170&type=chunk)[104](index=104&type=chunk) [Non-GAAP Financial Measures](index=35&type=section&id=Non-GAAP%20Financial%20Measures) The company uses non-GAAP measures like Adjusted EBITDA and Free Cash Flow to evaluate core performance, with Adjusted EBITDA increasing to $37.0 million (20% margin) and Free Cash Flow rising to $41.3 million in Q1 2025 Reconciliation of Net Income to Adjusted EBITDA (in thousands) | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Net income | $5,127 | $4,744 | | Adjustments (Interest, Taxes, D&A, etc.) | $31,885 | $23,158 | | **Adjusted EBITDA** | **$37,012** | **$27,902** | | Adjusted EBITDA margin | 20% | 16% | Reconciliation of Net Cash to Free Cash Flow (in thousands) | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $50,703 | $34,194 | | Purchase of property and equipment | ($9,378) | ($9,477) | | **Free cash flow** | **$41,325** | **$24,717** | [Quantitative and Qualitative Disclosures About Market Risk](index=37&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company identifies primary market risks as interest rate fluctuations, foreign currency exchange risk (principally GBP), and inflation risk, noting minimal interest rate exposure due to no outstanding debt, immaterial foreign currency impact, and no material inflation effect to date - Interest Rate Risk: The company had no outstanding debt as of March 31, 2025, minimizing exposure to interest rate fluctuations, though risk would arise if they draw down on their **$150.0 million** revolving credit facility[200](index=200&type=chunk) - Foreign Currency Risk: Exposure is primarily to the British Pound (GBP), with a **10%** adverse change in foreign exchange rates having an immaterial impact for the quarter[201](index=201&type=chunk)[202](index=202&type=chunk) - Inflation Risk: Inflation has not had a material effect to date, but sustained pressure could harm the small business sector, which could in turn harm LegalZoom's business[203](index=203&type=chunk) [Controls and Procedures](index=38&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2025, with no material changes to internal control over financial reporting identified during the quarter - Management concluded that disclosure controls and procedures were effective as of March 31, 2025[204](index=204&type=chunk) - No material changes in internal control over financial reporting were identified during the quarter ended March 31, 2025[205](index=205&type=chunk) OTHER INFORMATION [Legal Proceedings](index=38&type=section&id=Item%201.%20Legal%20Proceedings) The company is not currently a party to any material legal proceedings and is unaware of any pending or threatened litigation that would materially adversely affect its financial condition or results of operations - The company is not currently a party to any material legal proceedings that would have a material adverse effect on its operations or financial condition[82](index=82&type=chunk)[207](index=207&type=chunk) [Risk Factors](index=39&type=section&id=Item%201A.%20Risk%20Factors) This section details significant risks including dependence on business formations, challenges in converting transactional customers to subscribers, managing growth and acquisitions like Formation Nation, competition, generative AI risks, reliance on marketing and third-party providers, potential litigation, data security breaches, and stock price fluctuations - The business is highly dependent on new business formations, which are subject to unpredictable declines due to economic conditions, competition, and regulatory changes[209](index=209&type=chunk) - Future success relies on converting transactional customers to subscribers and retaining them, noting a deceleration in subscription revenue growth rate[210](index=210&type=chunk) - The recent acquisition of Formation Nation presents integration challenges and risks, including diverting management attention and potential difficulties in realizing synergies[212](index=212&type=chunk)[244](index=244&type=chunk) - The incorporation of generative AI into offerings presents compliance, reputational, and legal liability risks, including potential for inaccuracies or being deemed the unauthorized practice of law[228](index=228&type=chunk) - The company is vulnerable to security breaches and cyberattacks, which could lead to significant liabilities, reputational harm, and loss of customers[292](index=292&type=chunk)[293](index=293&type=chunk) [Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities](index=60&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%2C%20Use%20of%20Proceeds%2C%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company did not repurchase common stock in Q1 2025, with $50.0 million remaining under authorization, which was subsequently increased by $100.0 million in May 2025, bringing the total authorization to $315.0 million - No shares of common stock were repurchased in the three months ended March 31, 2025[322](index=322&type=chunk) - As of March 31, 2025, approximately **$50.0 million** remained available for future repurchases under the existing program[322](index=322&type=chunk) - In May 2025, the board increased the stock repurchase program authorization by an additional **$100.0 million**, bringing the total authorized amount to **$315.0 million**[323](index=323&type=chunk) [Other Information Items](index=60&type=section&id=Other%20Items) This section covers standard SEC filing requirements, reporting no defaults upon senior securities, no mine safety disclosures, and no other information requiring disclosure under Item 5, with Item 6 listing the exhibits filed - Item 3, Defaults Upon Senior Securities: None[324](index=324&type=chunk) - Item 4, Mine Safety Disclosures: Not applicable[324](index=324&type=chunk) - Item 5, Other Information: None[324](index=324&type=chunk)

Core Insights - LegalZoom reported revenue of $183.11 million for the quarter ended March 2025, reflecting a 5.1% increase year-over-year and surpassing the Zacks Consensus Estimate of $176.51 million by 3.74% [1] - Earnings per share (EPS) for the quarter was $0.13, consistent with the consensus estimate, compared to $0.09 in the same quarter last year [1] Financial Performance Metrics - Average revenue per subscription unit (ARPU) was $0.25 million, slightly below the average estimate of $0.26 million [4] - Subscription units at period end totaled 1,924, exceeding the average estimate of 1,788 [4] - Average order value (AOV) was $196, lower than the average estimate of $205.58 [4] - Transaction units reached 341, surpassing the average estimate of 317 [4] - Business formations were reported at 131, matching the average estimate [4] - Subscription revenue amounted to $116.26 million, exceeding the average estimate of $112.16 million, representing a year-over-year increase of 7.8% [4] - Transaction revenue was $66.85 million, above the average estimate of $64.13 million, with a year-over-year change of 0.8% [4] Stock Performance - LegalZoom's shares have returned -0.6% over the past month, contrasting with the Zacks S&P 500 composite's increase of 10.6% [3] - The stock currently holds a Zacks Rank 4 (Sell), indicating potential underperformance relative to the broader market in the near term [3]

Company Performance - LegalZoom reported quarterly earnings of $0.13 per share, matching the Zacks Consensus Estimate, and an increase from $0.09 per share a year ago [1] - The company posted revenues of $183.11 million for the quarter ended March 2025, exceeding the Zacks Consensus Estimate by 3.74% and up from $174.21 million year-over-year [2] - LegalZoom has surpassed consensus EPS estimates three times over the last four quarters [1][2] Market Outlook - LegalZoom shares have declined approximately 3.2% since the beginning of the year, compared to a 4.7% decline in the S&P 500 [3] - The current consensus EPS estimate for the upcoming quarter is $0.15 on revenues of $180.1 million, and for the current fiscal year, it is $0.66 on revenues of $710.65 million [7] Industry Context - The Industrial Services industry, to which LegalZoom belongs, is currently ranked in the bottom 37% of over 250 Zacks industries, indicating potential challenges ahead [8] - The performance of LegalZoom's stock may be influenced by the overall outlook for the industry [8]