LegalZoom.com(US:LZ)2025-11-05 22:16Business Performance - LegalZoom reported a 12% increase in business formation transactions for the three months ended September 30, 2025, totaling 126,000 compared to 113,000 in the same period of 2024 [124]. - The number of transactions increased by 2% to 259,000 for the three months ended September 30, 2025, driven by the Formation Nation acquisition and an increase in Annual Report filings [126]. - Total revenue for the three months ended September 30, 2025, was $190,158,000, representing a 13% increase from $168,599,000 in the same period of 2024 [160]. - Subscription revenue increased by 13% to $125,359,000, driven by approximately $5.6 million from the acquisition of Formation Nation and a 10% increase in compliance-related subscriptions [165]. - Transaction revenue rose by 12% to $64,799,000, primarily due to $9.1 million from Formation Nation and increased revenue from Annual Report and Trademark filings [164]. - Total revenue for the nine months ended September 30, 2025 was $565.8 million, a 9% increase from $520.2 million in 2024, with subscription revenue accounting for 64% of total revenue [177]. - Transaction revenue increased by 6% year-over-year, primarily due to $23.4 million from the acquisition of Formation Nation [178]. - Subscription revenue grew by 10% year-over-year, driven by $12.5 million from the acquisition of Formation Nation and a 7% increase in compliance-related subscriptions [179]. Financial Metrics - Average order value rose by 11% to $251 for the three months ended September 30, 2025, compared to $227 in the same period of 2024 [130]. - Average revenue per subscription unit (ARPU) decreased by 3% to $256 as of September 30, 2025, compared to $264 in 2024, attributed to a shift towards lower-priced subscription offerings [136]. - The annual small business retention rate was approximately 57% as of September 30, 2025, influenced by the bundling of lower-retaining subscriptions into business formation offerings [138]. - Gross profit for the three months ended September 30, 2025, was $127,887,000, reflecting a 12% increase from $113,884,000 in the prior year [168]. - Net income for the three months ended September 30, 2025, was $4,509,000, down from $11,051,000 in the same period of 2024 [160]. - The adjusted EBITDA for the nine months ended September 30, 2025, was $122.3 million, with an adjusted EBITDA margin of 22% [216]. - Adjusted EBITDA decreased from $47.1 million for the three months ended September 30, 2024 to $46.3 million for the three months ended September 30, 2025, primarily due to a $15.5 million increase in operating expenses [218]. - Adjusted EBITDA increased from $103.9 million for the nine months ended September 30, 2024 to $122.3 million for the nine months ended September 30, 2025, driven by a $45.6 million increase in revenue [219]. - Free cash flow increased from $64.1 million for the nine months ended September 30, 2024 to $119.9 million for the nine months ended September 30, 2025, primarily due to a $51.0 million increase in net cash provided by operating activities [222]. Expenses and Costs - Cost of revenue for the three months ended September 30, 2025, was $62,271,000, a 14% increase from $54,715,000 in 2024, mainly due to a $5.7 million rise in filing fees [166]. - Operating expenses for the three months ended September 30, 2025, totaled $121,394,000, compared to $97,615,000 in 2024, with sales and marketing expenses being the largest category [160]. - Stock-based compensation expense increased to $28,369,000 for the three months ended September 30, 2025, compared to $15,715,000 in 2024, due to new RSUs granted [161]. - Sales and marketing expenses for the three months ended September 30, 2025 increased by $21.5 million, a 47% increase year-over-year, primarily due to a $10.3 million rise in customer acquisition marketing spend [169]. - Technology and development expenses decreased by $3.7 million, or 16%, for the three months ended September 30, 2025, mainly due to a reduction in headcount [170]. - General and administrative expenses rose by $5.9 million, or 21%, for the three months ended September 30, 2025, driven by a $13.1 million increase in stock-based compensation [171]. - Cost of revenue increased by $9.5 million, or 5%, for the nine months ended September 30, 2025, mainly due to a $11.5 million rise in filing fees related to the Formation Nation acquisition [181]. - General and administrative expenses for the nine months ended September 30, 2025 increased by $32.4 million, or 42%, primarily due to a $39.1 million rise in stock-based compensation [185]. Cash Flow and Liquidity - As of September 30, 2025, the company had cash and cash equivalents of $237.2 million, an increase of $95.1 million from December 31, 2024, primarily due to stock option exercises and cash from operating activities [192]. - Net cash provided by operating activities for the nine months ended September 30, 2025, was $144.1 million, up from $93.1 million in the same period of 2024 [204]. - The company reported a net income of $9.4 million for the nine months ended September 30, 2025, with stock-based compensation and other non-cash expenses totaling $114.8 million [206]. - Net cash used in investing activities was $34.1 million, primarily due to the acquisition of Formation Nation for $48.5 million and $24.1 million in property and equipment purchases [208]. - The company utilized $15.0 million in financing activities, mainly for $37.6 million in stock repurchases and a $20.0 million settlement of RSU tax withholding [210]. - The company has a stock repurchase program with approximately $112.0 million remaining for future repurchases as of September 30, 2025 [196]. - The Amended Revolving Facility provides for $100.0 million in available borrowings, with no outstanding borrowings as of September 30, 2025 [197]. - The company anticipates that its available cash and cash equivalents will be sufficient to meet operational cash needs for at least the next twelve months [194]. Economic and Market Factors - LegalZoom's future performance is expected to be influenced by macroeconomic factors, the share of small and medium-sized businesses, and the ability to combine AI with human expertise [119][120]. - The company continues to monitor the impacts of the evolving macroeconomic environment on its business operations [120]. - Inflation has not had a material effect on the company's business, but significant inflationary pressures could harm its financial condition and results of operations [230]. - The foreign currency transaction gain was immaterial during the nine months ended September 30, 2025, with a 10% adverse change in foreign exchange rates expected to be immaterial [228][229]. - The company does not expect to be exposed to fluctuations in interest rates for the foreseeable future due to no outstanding debt subject to interest rate risk [227].