LegalZoom.com(US:LZ)2025-05-08 20:42FINANCIAL INFORMATION Condensed Consolidated Financial Statements (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 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 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 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 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 goodwill646872 - 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 million6263 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 202586104 Management's Discussion and Analysis of Financial Condition and Results of Operations 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 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 subscriptions126 Results of Operations 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 Nation159 - Technology and development expenses decreased by 11% YoY due to reduced headcount in that department158 Liquidity and Capital Resources 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 million167 - The company has a $150.0 million revolving credit facility, with no borrowings outstanding as of March 31, 2025171 - 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 date170104 Non-GAAP Financial Measures 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 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 facility200 - 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 quarter201202 - 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 business203 Controls and Procedures 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, 2025204 - No material changes in internal control over financial reporting were identified during the quarter ended March 31, 2025205 OTHER INFORMATION Legal Proceedings 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 condition82207 Risk Factors 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 changes209 - Future success relies on converting transactional customers to subscribers and retaining them, noting a deceleration in subscription revenue growth rate210 - The recent acquisition of Formation Nation presents integration challenges and risks, including diverting management attention and potential difficulties in realizing synergies212244 - 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 law228 - The company is vulnerable to security breaches and cyberattacks, which could lead to significant liabilities, reputational harm, and loss of customers292293 Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities 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, 2025322 - As of March 31, 2025, approximately $50.0 million remained available for future repurchases under the existing program322 - 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 million323 Other Information Items 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: None324 - Item 4, Mine Safety Disclosures: Not applicable324 - Item 5, Other Information: None324