• Revenue: $162 million for Q4, at the high end of guidance.
• Subscription Revenue: $109 million, up 2% year over year.
• Adjusted EBITDA: $44 million for Q4, representing a 27% margin.
• Gross Margin: 71% for Q4, up from 68% in Q4 2023.
• Free Cash Flow: $36 million for Q4, compared to $14 million in Q4 2023.
• Cash and Cash Equivalents: $142 million at the end of Q4.
• Business Formations: 96,000 in Q4, a 15% decline year over year.
• Average Order Value: $220 for Q4, down 9% year over year.
• Transaction Revenue: $53 million, up 2% year over year.
• Subscription Units: Approximately 1.8 million, up 14% year over year.
• ARPU (Average Revenue Per User): $263 for Q4, down 5% year over year.
• Share Repurchases: 0.4 million shares for approximately $2 million in Q4.
• Full Year Adjusted EBITDA: $148 million, a 25% increase year over year.
• Full Year Adjusted EBITDA Margin: 22%, up 380 basis points year over year.

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

Release Date: February 26, 2025

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

Positive Points

• LegalZoom.com Inc (NASDAQ:LZ) achieved fourth quarter revenue of $162 million, hitting the high end of their guidance.
• Subscription revenue grew by 2% year over year, driven by strength in compliance-related subscriptions.
• The company delivered a fourth quarter adjusted EBITDA of $44 million, representing a strong margin performance of 27%.
• LegalZoom.com Inc (NASDAQ:LZ) is focusing on optimizing its subscription business, aiming for sustainable revenue performance and increased profitability.
• The acquisition of Formation Nation is expected to positively contribute to adjusted EBITDA in the first year, enhancing customer service and expanding the portfolio of offerings.

Negative Points

• LegalZoom.com Inc (NASDAQ:LZ) experienced a 15% decline in business formations in the fourth quarter.
• Average order value decreased by 9% due to a higher mix of lower-priced transactions.
• The company is facing challenges with the beneficial ownership filing requirement, which is subject to continued judicial review.
• There is a potential headwind to revenue growth in 2025 due to the discontinuation of new customer acquisition related to their tax offering.
• LegalZoom.com Inc (NASDAQ:LZ) is experiencing a decline in deferred revenue, which could impact future subscription growth.

Q & A Highlights

Q: Jeff, you mentioned raising the registered agent price from $199 to $249. How is that going, and how does LegalZoom differentiate this product from competitors? A: Our registered agent product is backed by LegalZoom's 24 years of experience, offering a reliable service that competitors can't match. We provide strong technology and service elements, including 24/7 support for some customers. The price change was a return to previous levels, aligning with the value we offer. We're pleased with the change and believe it will enhance retention and long-term value. - Jeff Stibel, CEO

Q: Noel, your Q4 free cash flow exceeded expectations by $15 million. What drove this performance, and what are your thoughts on free cash flow conversion moving forward? A: Our adjusted EBITDA exceeded expectations, and we saw favorable deferred revenue outcomes and working capital changes. These factors contributed to strong free cash flow in Q4. Looking forward, we expect continued strong conversion from adjusted EBITDA into free cash flow, potentially at the same or better levels than in 2024. - Noel Watson, CFO

Q: Regarding the Formation Nation acquisition, how much revenue and EBITDA is expected for fiscal '25, and how will it impact transaction and subscription revenues? A: The acquisition is included in our Q1 and full-year guidance. We're integrating quickly to leverage synergies, shifting from a transactional to a subscription model. This will impact both businesses, and we're focusing on blended performance. The integration will allow cross-selling and upselling opportunities, enhancing overall performance. - Noel Watson, CFO

Q: Jeff, can you elaborate on the partnership strategy and its impact over the next 2-3 years? A: Our partnership strategy aims to diversify our go-to-market approach, reducing reliance on top-of-funnel formations. We're focusing on legal services and leveraging partnerships for ancillary services. This strategy will help us reach a broader market and provide customers with comprehensive solutions, enhancing our value proposition. - Jeff Stibel, CEO

Q: How should we think about LegalZoom's market share going forward, especially with the focus on customer quality over market share? A: We're prioritizing quality share over market share, focusing on high-value customers. This approach may impact perceived market share but not actual market share. Formation Nation will add to our formation count, and we're confident in stabilizing and potentially increasing our market share over time. - Jeff Stibel, CEO

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