LegalZoom.com, Inc. Q1 FY2025 earnings call

• Focused on driving subscription adoption by testing pricing changes, reorienting products, and bundling lower-end subscriptions. For example, adjusted registered agent pricing and introduced higher-priced do-it-for-me products.
• Launched a new brand campaign positioning LegalZoom as the premier online legal services provider, with a multichannel media plan and investments in AI-driven SEO and partnerships.
• Accelerated integration of Formation Nation, reallocated marketing budget to increase Formation Nation's spend by over 30%, and saw ~$8.6 million in revenues from Formation Nation in Q1.
• Welcomed new Chief Technology Officer to expand the technology ecosystem and leverage generative AI for legal process simplification.

Total revenue for the first quarter was $183 million, a 5% year-over-year increase. Transaction revenue was $67 million, up 1% due to a $6 million improvement from the Formation Nation acquisition and higher Beneficial Ownership Information Report (BOIR) filings. Business formations were 131,000, with roughly 6% attributed to Formation Nation, and business formation volume decreased 6% year-over-year. Subscription revenue grew 8% to $116 million, driven by compliance pricing initiatives, virtual mail subscriptions, and the 1-800Accountant partnership. Subscription units increased 20% due to bundling lower-end products, but ARPU decreased 7% due to a mix shift towards lower-priced offerings.

• Reiterated full-year revenue outlook of 5% year-over-year growth, with double-digit subscription revenue growth expected in the fourth quarter.
• Reaffirmed adjusted EBITDA margin outlook of 23%, implying approximately $165 million in adjusted EBITDA for the year.
• Projected second-quarter revenue to be in the range of $181 million to $185 million (3% year-over-year growth midpoint) and adjusted EBITDA to be in the range of $37 million to $41 million (21% margin midpoint).

• Macroeconomic uncertainty, including shifting conditions, potential tariffs, and policy changes affecting business formations and customer behavior.
• Compliance risks, such as the FinCEN ruling eliminating BOIR filing requirements, which impacted transaction revenue.
• Challenges in integrating Formation Nation successfully and managing synergies effectively across businesses.

Q: Could you speak to what contributed to the strong subscription unit growth numbers?

A: Strong subscription unit growth was due to reorienting to quality share, reorienting products/pricing, bundling lower-end subscriptions, and introducing higher-priced do-it-for-me products. We're creating a barbell strategy on subscriptions, moving customers up the value chain through upsell and cross-sell.

Q: Should we expect overall marketing spend to be elevated going forward?

A: No, it's a shift in marketing spend rather than an increase. We're being more efficient, leveraging brand to drive authority, and shifting spend to Formation Nation to capture certain customers while remaining cost-conscious.

Q: Will Formation Nation's revenue contribution grow going forward?

A: Formation Nation is highly integrated. We're focused on quality share, and growth depends on effective cross-selling and upselling. Numbers are convoluted as the business is highly integrated, and we're execution-driven rather than segmented.

Q: What are the key priorities on the consumer side of the business?

A: Key priorities include leveraging consumer expectations, diversifying go-to-market through products like virtual mail, and using expertise and AI to offer better services at scale. We're looking at consumer legal services, including estate planning, as a demand area.

Q: How confident are you in achieving subscription guidance and market share progress?

A: Confident in double-digit subscription growth. We're shifting to quality share to improve ARPU and subscription mix. We expect market share improvement in quality formations as we focus on viable, growing businesses.

Q: Will pricing changes expand to other parts of the portfolio?

A: There's confidence to expand pricing changes to other products, but we'll ensure value is added alongside pricing. We've seen success with registered agent pricing changes and will look at other products like virtual mail and compliance.

Q: How is the 1-800Accountant partnership performing and how is the partner strategy shifting?

A: 1-800Accountant is performing better than expected, offsetting some decline from removing our own tax product. The partner strategy is shifting to drive top-of-funnel customers to us rather than just leveraging consumers for margins.