• Revenue: $169 million, up 1% year-over-year, at the high end of guidance.
• Subscription Revenue: $111 million, up 5% year-over-year.
• Transaction Revenue: $58 million, down 7% year-over-year.
• Adjusted EBITDA: $47 million, representing a 28% margin, up 40% year-over-year.
• Gross Margin: 71%, compared to 67% in Q3 2023.
• Free Cash Flow: $22 million, compared to $19 million in the same period in 2023.
• Cash and Equivalents: $112 million, with no outstanding debt.
• Share Repurchase: 3.8 million shares repurchased for $25 million, reducing share count by approximately 2%.
• Business Formations: 113,000, an 18% decline year-over-year.
• Average Order Value (AOV): $227, down 13% year-over-year.
• Subscription Units: Over 1.7 million, up 10% year-over-year.
• ARPU (Average Revenue Per User): $264, down 1%.

• Warning! GuruFocus has detected 5 Warning Signs with LZ.

Release Date: November 06, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• LegalZoom.com Inc (NASDAQ:LZ) achieved third-quarter revenue at the high end of their guidance, reaching $169 million.
• Subscription revenue grew by 5% year-over-year, driven by strength in compliance-related subscriptions.
• The company reported a record adjusted EBITDA margin of 28%, reflecting strong bottom-line performance.
• LegalZoom.com Inc (NASDAQ:LZ) is focusing on shifting its business model towards high-margin subscription offerings, which is expected to drive long-term growth.
• The company is leveraging AI to enhance customer service and efficiency, with plans to introduce more AI-powered tools to support their offerings.

Negative Points

• Transaction revenue declined by 7% year-over-year, primarily due to a decrease in business formations.
• The company experienced a decline in market share for business formations, attributed to strategic testing and a focus on high-value customers.
• Average order value decreased by 13% year-over-year, influenced by a higher mix of lower-priced transactions.
• LegalZoom.com Inc (NASDAQ:LZ) is facing challenges in the overall business formation environment, which is currently soft.
• Despite hitting the top end of revenue guidance, year-over-year revenue growth was only 1% for the quarter.

Q & A Highlights

Q: Can you discuss the pricing tests conducted during the quarter and the potential direction for pricing going forward? A: Jeffrey Stibel, Independent Chairman of the Board: The pricing strategy is about aligning prices with the value we offer. We've conducted various tests, both increasing and decreasing prices. There's potential for higher pricing on high-value services, while some areas may see lower prices. The notion of a market shift towards free products is misleading, as many "free" offerings come with conditions. Our focus is on ensuring pricing reflects the strategic value we deliver.

Q: How is LegalZoom approaching market share versus quality share, and what impact does this have on the business? A: Jeffrey Stibel, Independent Chairman of the Board: We are focusing on quality share rather than just market share. This involves targeting high-value customers who are more likely to engage with our services long-term. By educating customers and offering value-added services, we aim to attract quality customers who will grow with us, rather than just increasing market share through free offerings.

Q: Can you elaborate on the competitive environment and LegalZoom's positioning against competitors like Zen Business? A: Jeffrey Stibel, Independent Chairman of the Board: Our main competition is not just online platforms like Zen Business but also traditional law firms. We aim to capture a larger share of the market by offering high-value products and services at a lower cost than traditional attorneys. Our unique combination of technology and a network of legal experts positions us well to address customer needs effectively.

Q: How are you leveraging customer education to enhance your product offerings and customer engagement? A: Jeffrey Stibel, Independent Chairman of the Board: We focus on educating customers during the initial sign-up process and through our MyLZ platform. This involves introducing necessary products like compliance services early in the customer journey. Our sales and service teams also play a crucial role in educating and upselling customers, helping them understand the value of our offerings.

Q: What is driving the strength in compliance subscriptions despite a challenging business formation environment? A: Jeffrey Stibel, Independent Chairman of the Board: The strength in compliance subscriptions is due to our focus on quality customers who understand the importance of compliance. We educate customers on the necessity of compliance services, which are more cost-effective than potential fines or shutdowns. This approach has led to early success in upselling compliance products at higher prices.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.