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Date

Wednesday, Nov. 5, 2025 at 4:30 p.m. ET

Call participants

Executive Chairman — Jeffrey Stibel

Chief Financial Officer — Noel Watson

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Takeaways

Total Revenue – $190 million in revenue for Q3 2025, up 13% year over year, setting a third-quarter record and representing a third consecutive quarter of sequential growth.

Subscription Revenue – Increased 13% year over year, driven largely by compliance and virtual mail offerings, marking double-digit subscription revenue growth for a second consecutive quarter.

Subscription Units – Ended the quarter at approximately 1,960,000, representing a 14% year-over-year increase, attributed to bundling, virtual mail, and the Formation Nation acquisition.

ARPU – $256, ARPU was $256, down 3% year over year and flat sequentially; decline in ARPU due to a mix shift toward lower-priced bundled offerings, though compliance products saw ARPU gains.

Transaction Revenue – $65 million in transaction revenue for Q3 2025, up 12% year over year, driven by Formation Nation and growth in annual report and trademark filings, partially offset by a BOIR revenue decline.

Transaction Units – Increased 2% to 259,000, due to Formation Nation inclusion and higher annual report filings, partially offset by lower BOIR transactions.

Business Formations – 126,000 business formations processed, marking a 12% year-over-year increase, primarily from Formation Nation contribution.

Average Order Value – $251, up 11% compared to Q3 2024, supported by elimination of low-value VOR transactions and higher volumes for premium concierge services.

Gross Margin – 71% on a non-GAAP basis, flat compared to Q3 2024.

Sales and Marketing Expense – Sales and marketing costs (non-GAAP) were $61 million, or 32% of revenue, reflecting a 40% year-over-year increase; customer acquisition spending rose by $10 million (30%) (non-GAAP).

Technology and Development Cost – $15 million in technology and development costs, down 2% compared to Q3 2024, demonstrating efficiency gains despite increased AI and product investment.

General and Administrative Cost – General and administrative expenses (non-GAAP) were $13 million, a decrease of $2 million or 11% from the prior year (non-GAAP).

Adjusted EBITDA – Adjusted EBITDA was $46 million with a 24% margin.

Free Cash Flow – Free cash flow was $47 million, up 114% from $22 million the prior year, supported by better deferred revenue change, reduced capital expenditures, and lower severance and cash tax costs.

Cash and Equivalents – $237 million in cash and cash equivalents as of Q3 2025, Cash and equivalents increased $20 million sequentially, net of $17.6 million in share repurchases (1,800,000 shares at $9.91 each).

Partner Channel Growth – Approximately 25% year-over-year increase in the partner channel, attributed to enhanced channel initiatives and embedded offerings.

Formation Nation Contribution – $9 million in transaction revenue and over $5.5 million in subscription revenue.

OpenAI Partnership – LegalZoom.com is now the first online legal services provider for SMBs to sign an enterprise deal with OpenAI, with integration into their platform forthcoming.

2025 Full-Year Outlook Raised – Revenue guidance increased to $748-$752 million (10% growth at midpoint), and adjusted EBITDA (non-GAAP) guidance maintained at $168-$170 million (23% margin midpoint).

Q4 Outlook – Revenue expected at $182-$186 million (14% growth midpoint), adjusted EBITDA (non-GAAP) at $46-$48 million (26% margin midpoint).

Summary

LegalZoom.com (LZ +2.57%) reported record third-quarter revenue, subscription unit growth reached 14%, and strong free cash flow, highlighting execution of its subscription model and expansion through partnerships and acquisitions. The company emphasized a tangible shift toward AI adoption, a new enterprise collaboration with OpenAI, and strategic diversification into compliance and adjacent business services. Management raised the full-year revenue outlook and outlined plans to reinvest cost savings into growth-oriented initiatives, while maintaining their adjusted EBITDA margin target.

Jeffrey Stibel said, “we have transitioned beyond stabilizing the business, having now built a strong foundation for accelerating growth,” underscoring confidence in the ongoing strategy shift.

Noel Watson detailed a 25% year-over-year increase in the partner channel, attributed to investments in affiliate capabilities, embedded product flows, and new strategic relationships.

Formation Nation integration delivered sequential improvements, directly contributing meaningful subscription and transaction revenues and enhancing operational scale.

Cost-saving initiatives were redirected to brand marketing, product, and AI investment, which the company asserts do not compromise profitability metrics.

The enterprise partnership with OpenAI is framed as central to embedding artificial intelligence “in everything we do,” according to Jeffrey Stibel, supported by organizational restructuring to mandate AI adoption across all business units.

Industry glossary

SAM: Serviceable Addressable Market; the segment of the total available market targeted by the company’s products/services for potential revenue.

TAM: Total Addressable Market; the entire revenue opportunity available for a product or service.

BOIR: Beneficial Ownership Information Reporting; regulatory filings related to business ownership transparency.

DIFM: Do-It-For-Me; service model where the provider executes business or legal tasks on the customer’s behalf.

SKUs: Stock Keeping Units; unique product or service identifiers used for targeting and performance tracking.

ROAS: Return on Ad Spend; a metric evaluating revenue generated for each dollar spent on advertising.

LLMs: Large Language Models; advanced AI systems capable of generating or interpreting text-based legal and business advice.

Full Conference Call Transcript

Jeffrey Stibel: Good afternoon, Madeleine. Welcome back. I want to thank you all for joining our third quarter earnings conference call. We are very pleased with our performance and the progress we have made against our key focus areas. Our third quarter results both validate the strategic shift we made to our subscription business and exemplify the outstanding execution by the team. The proof points we are seeing across the business give us confidence that we have transitioned beyond stabilizing the business, having now built a strong foundation for accelerating growth. Turning to highlights of our third quarter financial results, we achieved record third quarter revenue of $190 million, an increase of 13% year over year, well exceeding expectations.

Accelerating from the second quarter and marking our third consecutive quarter of sequential growth. Subscription revenue growth was again led by our compliance offerings, demonstrating the strong demand for our expanding compliance concierge product suite. Further, our compliance offerings continue to show encouraging improvement in first-year retention rates, demonstrating that more established customers are recognizing the incremental value of our premium products. Profitability remains strong, with an adjusted EBITDA margin of 24%, resulting from disciplined execution and continued efficiency gains. This is despite incremental investment in product and AI. We generated solid free cash flow of $47 million in the quarter, further strengthening our balance sheet and financial flexibility.

With our strong third quarter performance and the momentum in our business, we are raising our full-year revenue growth outlook to 10%, effectively doubling our initial full-year guidance. We are maintaining our 23% adjusted EBITDA outlook as well. As we continue to identify cost savings, we plan to redeploy much of these gains into strategic investments that position the business for future growth. Turning now to our three strategic focus areas. When we initially laid out these key focus areas last summer, our objective was to attract quality share by strengthening our subscription business and offering greater value to customers.

This strategy not only fueled our turnaround, it has allowed us to attract more established businesses, activating a larger portion of our SAM and helping us accelerate growth. Building on this progress, we are now expanding our focus area beyond business formation to serve existing businesses. We believe we are best positioned to capture this opportunity through our core competencies of technology and AI supported by our vast data set and large network of attorneys and other experts. We believe this positions us to capture a greater share of our serviceable addressable market by broadening our customer base and driving higher wallet share.

Our goal is to activate the existing SMBs who today do not act on legal and compliance needs due to cost, access, or fear. We expect to achieve this goal through the continued introduction of higher value products and investments in AI, both in our people and in the tools that enhance productivity and decision making. This strategy is rooted in integrating human experts into the workflow at critical junctures that AI cannot fully address to ensure accuracy and customer confidence. Importantly, our AI tools will provide a level of customization to help businesses focus on their goals while LegalZoom.com, Inc. supports the back end. Turning now to the progress we have made across our three strategic focus areas.

Our first focus area is delivering innovation across the subscription business. On our last call, we talked about the early success of our Compliance Concierge product offering, and we continue to see greater opportunities here. We are also in the testing phase for several new concierge products for SMBs: Nonprofit, reinstatement, dissolution, and entity conversion concierge. Each of these high-end products enables them to focus on running their businesses. We saw encouraging signs of adoption across these offerings. Notably, we are also testing a subscription-only formation product bundle.

We have been testing two offerings: First, business concierge, which serves compliance and business expansion needs, and second, business concierge plus legal concierge, which adds access to our independent attorney network for additional legal guidance. The strong early adoption of these products demonstrates our ability to provide accounting and business guidance professionals at a cost that is significantly lower than that of a traditional offline attorney, accountant, or business manager. As an example, traditional lawyers can charge $100 per hour or more, whereas our DIFM products are typically under $1,000 for an entire year, even when they include access to an attorney. It is also worth noting our 1-800 account partnership continues to surpass our expectations.

Given the strength of this partnership, we are looking at ways to deepen the relationship. For example, we will begin to test bundling their tax advice with our legal advice to create a seamless, easy-to-navigate, and economical way to support businesses. We expect this offering to fully roll out next year. This provides a competitive advantage because we have learned that many of the questions asked of our legal advisers are actually tax-related, and vice versa. This speaks strongly to our ability to diversify our business model and capture more of our SAM by entering near adjacencies such as tax and accounting. This brings us to our second strategic focus area, reorienting our go-to-market strategy.

Our go-to-market strategy is focused on positioning LegalZoom.com, Inc. as the trusted legal brand for small businesses. We launched a highly successful marketing campaign in May, “Technology when you want it, human support when you need it,” reinforcing the principles behind AI-augmented expertise. We believe this campaign helped to drive aided and unaided awareness, both of which improved sequentially from the second quarter. We continued to shift our marketing spend away from SEM to brand marketing and other initiatives. By the end of Q3, we delivered a double-digit increase in return on ad spend, or ROAS, as compared to before the launch of the new brand campaign.

It is clear that our message is resonating with SMBs and the strategy is working. Building on this momentum, we plan to continue to reinvest cost savings we have realized elsewhere into brand marketing. And as we move toward activating a larger portion of our SAM opportunity through diversification, our new campaign is scheduled for later this year and will hone in on existing SMBs. We are also expanding visibility through strategic partnerships and driving new customers through growth in our channel partner program. As a reminder, last quarter, we announced two collaborations of our legal support with Perplexity and OpenAI.

This quarter, we are deepening our relationship with OpenAI and have become the first online legal services provider for SMBs to sign an enterprise deal with the firm. Among other areas, we will be collaborating with OpenAI to further integrate our product experience into their platform. So expect to hear more on this in the near future. Our comprehensive efforts, including the modernization of our affiliate platform, the development of an embedded flow that allows partners to seamlessly integrate LegalZoom.com, Inc.’s business legal services, and the establishment of new strategic partnerships have successfully fueled a roughly 25% year-over-year increase in our partner channel for the third quarter.

Shifting to our progress in leveraging artificial human intelligence to deliver expertise to our customers, our strategic priority is to use AI to augment human expertise and create a more personalized experience. Our OpenAI deal mentioned previously is a step in that direction, as were our earlier collaborations with Perplexity and OpenAI. One of the key tenets of this strategy is to leverage AI to create higher value do-it-for-me offerings that improve compliance and efficiency. This area, in particular, is critical to our shift to addressing the needs of existing and established SMBs. Last quarter, we talked about introducing the capability to autofile compliance requirements. Our first release was a state annual report product.

We have been rolling this out on a state-by-state basis, and we expect to have roughly 80% coverage by the end of the year. We have also developed AI tools to augment our experts and to drive internal efficiency. Our AI voice training call simulator increases agent efficiency and shortens onboarding time. We also deployed a LegalZoom.com, Inc. Salesforce Wizard to reduce customer response times. And our AI trademark classifier now automates processes that were previously manual. In addition, we have worked with 1-800 accountants to launch an AI-driven appointment center, which will deploy under our partnership for the upcoming tax year.

Lastly, as part of our commitment to our AI strategy, we made an organizational change that I believe will help us to advance product innovation and the integration of AI and human expertise. As part of this change, we are instituting AI mandatory standards, including training, testing, and utilization across the entire organization. We have also reorganized our teams to ensure that AI sits alongside our human experts and becomes deeply integrated into how we deploy technology and product. To effectuate this, Erin Steibel now serves as our Chief and Customer Officer, where he will oversee technology, product, sales, and service, creating a division at LegalZoom.com, Inc. that fully integrates the customer, the expert, and our artificial intelligence work.

We believe that under this unified vision, from development to customer delivery, we can leverage Aaron’s deep experience and comprehensive track record of building technology platforms that drive a rich customer experience throughout the product side. As a reminder, Aaron has held similar previous roles at Dun and Bradstreet, including divisional chief technology officer and head of the small and medium-sized business unit. As part of this change, our former CTO, Prathik Subhai, is no longer with the company. This was not an easy decision. However, we believe this is the right move to deliver on what we believe is an outstretched opportunity in human and artificial intelligence to transform our business long term.

With our more direct focus on driving AI-specific technology into our product, we are also announcing that Matt Heumann joined the company as Senior Vice President and Head of Product. Matt joins LegalZoom.com, Inc. from Amazon, where he served as head of Alexa subscriptions growth, most recently leading the subscription launch of Alexa Plus, an AI-driven personal assistant. Matt brings more than thirty years of experience in the software and technology industry, with deep knowledge of AI and customer-centric digital innovation. We believe his expertise will be instrumental in accelerating LegalZoom.com, Inc.’s ability to leverage AI and human expertise to increase value for customers.

In addition, to drive our momentum forward, we continue to bolster and expand our sales and service organization. To enhance cross-sell and upsell opportunities while elevating customer engagement, we have appointed Julie Mann as Vice President of Sales and Service. Julie brings nearly twenty years of experience building and scaling high-growth technology-driven teams, having led organizations at companies such as TapJet, Expedia, and Optimizely. She excels at creating systems that drive velocity, operational discipline, and world-class team performance. Her data-driven leadership and expertise at the intersection of human and artificial intelligence will further accelerate our sales momentum.

We are very confident that this organizational realignment will both accelerate and broaden our ability to deliver AI-powered technology when customers want it and high-touch human-powered service when they need it. In closing, we have never been more energized about the future of LegalZoom.com, Inc. With a fully aligned organization, a strong balance sheet, and accelerating growth, we are poised for even greater success and to unlock the next chapter of value creation. I would like to thank the entire team for their efforts. Your dedication continues to drive our success. I will now turn the call over to Noel to discuss our third quarter results outlook in more detail. Noel?

Noel Watson: Thank you, Jeffrey. Good afternoon, everyone. As Jeffrey mentioned, we delivered another quarter of strong financial performance and operational execution. We continue to build a solid foundation for sustainable growth and profitability. We once again accelerated growth in our core subscription business, while coming in above our expectations across key financial targets. We believe that the work we are doing positions us well to address the needs of existing and established small businesses and will enable us to broaden our customer base and capture greater wallet share. Based on our better-than-expected performance in the third quarter and increased confidence in the remainder of the year, we are raising our 2025 revenue outlook.

Before discussing our guidance in more detail, I will review our third quarter financial results. Unless otherwise stated, all comparisons will be on a year-over-year basis. We achieved record third quarter revenue of $190 million, reflecting 13% growth. Subscription revenue also increased 13%, reflecting both accelerating growth and representing the second consecutive quarter of double-digit growth. Subscription revenue benefited from outperformance in our compliance and virtual mail offerings, in addition to contribution from our important 1-800 accounting partnership and the addition of Formation Nation. We ended the quarter with approximately 1,960,000 subscription units, a 14% increase as compared to the third quarter of last year.

This growth was driven by the bundling of our bookkeeping solution and legal advisory subscription into certain business formation offerings, an increase in virtual mail subscriptions, as well as the inclusion of subscription units from our Formation Nation acquisition. We expect moderation in unit growth in Q4 from lower renewal rates of these initial bundled cohorts. ARPU was $256 for the quarter, down 3% year over year, and flat with the second quarter. The year-over-year decrease was driven by a continued mix shift toward lower-priced subscription offerings, related to the bundling of forms in eSignature, bookkeeping, and legal advisory subscriptions into our higher-end formation SKUs. Of note, we continue to see ARPU gains in our compliance offering.

Transaction revenue increased 12% to $65 million, driven largely by the acquisition of Formation Nation, along with growth in annual report and trademark filings. This was partially offset by the expected decline in BOIR revenue. We expect transaction revenue to grow at a similar rate in the fourth quarter. We recorded a 2% increase in transaction units to 259,000, due to the inclusion of Formation Nation transactions and higher annual report filings, partially offset by a decline in BOIR transactions. We processed 126,000 business formations in the third quarter. The 12% year-over-year increase in business formations was primarily due to our Formation Nation acquisition.

Average order value was $251 for the quarter, up 11% versus the same period last year, driven by the elimination of low-value VOR transactions coupled with a volume increase in our higher-priced concierge services. Finally, deferred revenue decreased by $100,000 from Q2, reflective of the typical seasonality in our business. Turning to profitability, all of the following metrics are on a non-GAAP basis. Third quarter gross margin was 71%, flat with the prior year. Sales and marketing costs were $61 million or 32% of revenue, an increase of 40% from the prior year. Customer acquisition marketing costs increased $10 million or 30%. You may recall last year, we tested lower performance marketing spend levels to evaluate efficiencies.

Non-Kilometers sales and marketing expenses increased $7 million or 75%, which is primarily a result of the addition of the Formation Nation sales team. Technology and development costs were $15 million, down 2%, and general and administrative expenses were $13 million, a decrease of $2 million or 11%. Our strong execution drove adjusted EBITDA of $46 million, representing a margin of 24%. Free cash flow was $47 million in the quarter, up 114% compared to $22 million for the same period in 2024.

Our free cash flow improvement was in part due to an improvement in change in deferred revenue, lower capital expenditures, lower severance costs versus 2024, where we executed a restructuring, and lower cash taxes from the impact of the One Big Beautiful Bill Act. We ended the quarter with cash and cash equivalents of $237 million. Our cash position increased by $20 million versus Q2 2025, benefiting from strong free cash flow generation partially offset by share repurchases. During Q3, we repurchased approximately 1,800,000 shares at an average price of $9.91 per share, totaling $17.6 million. As of quarter end, we had approximately $112 million remaining under our authorization. Our $100 million revolving credit facility remains undrawn.

With our strong cash position and healthy free cash flow generation, we plan to continue investing into our business in areas with strong growth potential, while also evaluating strategic M&A opportunities. We are pleased to have outperformed our third quarter expectations. As a result of our performance over the year and momentum in the business, we are increasing our full-year revenue outlook for the second consecutive quarter. For the full year 2025, we now expect revenue between $748 and $752 million, representing growth of 10% at the midpoint of the range. For the same period, we expect to achieve adjusted EBITDA in the range of $168 to $170 million, which reflects approximately a 23% margin at the midpoint.

For the fourth quarter, we expect revenue between $182 and $186 million, representing growth of 14% at the midpoint of the range. For the same period, we expect to achieve adjusted EBITDA in the range of $46 to $48 million, which reflects approximately a 26% margin at the midpoint. In closing, we continue to demonstrate progress against our three focus areas as we set the foundation for future growth. We have effectively repositioned our business to drive predictability, sustainability, and profitable growth. We continue to be excited by the long-term potential of our business as we now focus our efforts towards serving both new and established small businesses. Thank you for your time today.

I will now turn the call over to the operator for Q&A. Operator?

Operator: Thank you. At this time, we will conduct a question and answer session. As a reminder, to ask a question, you need to press 11 on your telephone, and wait for your name to be announced. To withdraw your question, please press 11 again. Please stand by while I compile the Q&A roster. Our first question comes from Ella Smith from JPMorgan Chase. Please go ahead.

Ella Smith: Good evening, Jeffrey, Noel, and Madeleine, and welcome back, Madeleine. Thank you for taking my question. So first, I was hoping to ask about pricing and bundling. To what extent is pricing and bundling contributing to your subscription growth? And how important of a lever is that as you think about your forward growth?

Jeffrey Stibel: I’ll take that, Ella. It is an important lever. It is by no means the only lever, but it’s a contributor. And it’s, you know, it’s something that we’re pleased with because it is in our control. And, you know, candidly, we have started to act like market leaders again. And, you know, as we look at even what’s in the competitive landscape, we’re seeing pricing going up with our competitors now as well. So they’re, you know, they’re following in our footsteps. So we feel like we are doing our job as leaders in this space and continue to drive both price and value in the right place.

Ella Smith: Got it. That’s very helpful. Thank you. And, maybe we’re throwing in a question about the oh, sorry. Did I cut you off?

Jeffrey Stibel: No. I said thank you.

Ella Smith: Okay. Great. Thank you. For my second question, I was hoping to ask about the white glove concierge offering, since it’s newer. You employ and have a network of combination of attorneys, accountants, and lawyers. Can you tell us how all these different players factor into the offering?

Jeffrey Stibel: Yeah. It’s a great question. And a broad one that starts with us really coming into our SAM and TAM. The idea here is we have got this massive addressable market. And we have been so myopically focused on a small piece of it. Those customers who are new formers who want to do everything themselves. So what we’ve done with these concierge-like products and our do-it-for-me offerings is we started to reorient the conversation around how do we solve the last mile for technology in a cost-effective way.

So whether you’re coming in through traditional means, through search, through our brand advertising, organically, or now through artificial intelligence, as you gain increasing sophistication in terms of what you need done, at the end, you’re going to want some type of expertise. And it’s that combination of human and artificial intelligence that is going to be driving our products forward faster. Artificial intelligence giving us leverage and scale. And human intelligence giving us the difference maker that allows us to satisfy our customers over and over and over again in our recurring revenue model. So where we’re seeing strength, back to the specifics of your question, isn’t just with concierge, but a concierge suite of products.

Finding those areas where things either are too expensive for a small business to use a lawyer or too difficult to do with technology alone. So, you know, we launched our first product which was concierge, revolving around compliance. Compliance concierge, had great success over the last couple of quarters. And have now launched a series of others in that same category. Nonprofit concierge, reinstatement, dissolution, entity conversion, and we’re in the process of doing one with tax in partnership with 1-800 accountant as well, which will launch likely next year. So that we can embed their experts into our product line.

The idea here is to give customers excess value at a reasonable but higher price than our typical ARPU.

Ella Smith: Great. Thank you so much.

Jeffrey Stibel: You bet.

Operator: Thank you. Next question comes from Patrick McIlwee from William Blair. Please go ahead.

Patrick McIlwee: Hi, team. Great results this quarter, and thanks for taking my questions. Jeffrey, I believe your prior connection with OpenAI was deemed a collaboration, but this quarter, you mentioned that you signed an enterprise deal with the company. I know you said more details to come on that, but would you be willing to elaborate at all on how that partnership has developed or any indications of what that deal entails?

Jeffrey Stibel: Sure. And good question, and thank you for the kudos on the quarter. We’re pleased as well. Appreciate it. I’ll break it up into two areas in terms of where we think this can head and why we’re so excited. I will caveat it by saying we signed that this week. So it’s new. And we’re gonna build off of it. And, you know, it is an archetype for how we’re thinking about these partnerships going forward. So the general idea is really twofold. First and foremost, we want artificial intelligence to be ingrained in everything we do with this company. And we are making a statement and mandating that all of our employees are using AI deeply.

But at the same time, we want to be tracking tangible returns and results. So, you know, importantly, some of the things that we plan on doing with OpenAI and with others is doing integrated product launches. And, you know, that was what I was referring to with respect to more to come. You know, we need to deliver results both on cost efficiency internally as we hand over some of that AI throughput to our experts, as well as be able to drive products that actually allow us to expand our go-to-market.

And expand TAM by embedding into some of these engines of growth and, you know, in generalized TAM expanders as more and more small businesses grow more sophisticated about what it means to run and build a business. So it is those two areas that we’re really excited about. Again, we’re in the early innings, but we’re, you know, we’re now partnering with some of the best and brightest, and becoming more integrated. I’ve spent time over at OpenAI. We’ve had people come and sit down and work with us. And we’ve got our teams together more and more closely. And I expect, you know, I expect to see more things to come.

Patrick McIlwee: Okay. Great. That’s very helpful. Thanks, Jeffrey. And while we’re on the topic, just can you share how the early indicators of traffic and or volume coming through those partnerships with Perplexity and GPT have been, and I think for Perplexity, their pro users are actually being offered discounted access to LegalZoom.com, Inc. products. Can you talk a bit more about how exactly that works? What products they have access to discounts for? And know, if you’ve seen any interesting disparity between the two given that I think one’s discounted and the other is not.

Jeffrey Stibel: Sure. And what I’ll do is rather than speaking to any one partnership, I’m gonna speak to the strategy and impetus, and then I’ll provide some, you know, some breadcrumbs in terms of the success that we’re having. Effectively, what we’re doing is we’re, you know, we’re looking at the trends. And seeing a massive shift a, in traffic, and then b, in terms of quality of traffic. Coming from traditional means such as search. To these more generative and agentic technologies. And, you know, what it is doing and this is very much in line with what we are trying to do with our service and sales folks.

Is it’s moving from a search and answer to an education model. So what we’re doing with these partnerships is we’re trying to get deeper and deeper embedded and build relationships with the variety of groups that we know we can drive real traffic that is qualified, and that can turn into both sales and then ultimately higher quality customers that are staying with us longer. And, you know, what I will say is we have seen a significant shift in terms of our growth of traffic from these AI engines, as well as conversion rate. And the customers that are coming to us are in our parlance, better customers than we see that are coming from traditional sources.

They have a higher propensity to pay. We believe that they have a higher propensity to stay longer. They are better educated so that when they get to us, they need us to complete the last mile. Not the first mile. And we are starting to see customers come who have already formed, who have existing businesses but are looking for us to solve problems. So across the board, in effect, what we do as we sprinkle our opportunities across that broad mandate. We’re able to push to a broad number of sources which allows us to diversify our go-to-market.

Patrick McIlwee: All very interesting. Thanks for the thoughts, Jeffrey.

Jeffrey Stibel: You bet. Thank you.

Operator: Thank you. Our next question comes from Trevor Young. Please go ahead.

Trevor Young: Great. Thanks. First one for Noel. Can you share the Formation Nation contribution to revenues? Both subscription and transaction revenues, respectively?

Noel Watson: Yes. Absolutely. So, Formation Nation first, I should say, you know, we’re really happy with the results that Formation Nation is helping to drive in our overall equation. And we’ve made a lot of effort to integrate them quickly and really think about it as part of the LegalZoom.com, Inc. brand and ecosystem. And we’re sharing knowledge, and we’re making decisions between the two operations that help drive the overall growth. So one of the things we’ve been spending up in marketing there making some operational investments as well. And so during the quarter, they were able to drive approximately $9 million of revenue on the transaction side and a little over $5.5 million on the subscription side.

So nice sequential improvement there. They’re meeting the expectations that we had for them as part of our acquisition thesis. And even exceeding that. So it’s a nice contribution, but it’s certainly driven by the collaboration.

Trevor Young: And the nice thing, just to add one important piece, as we get back to which helps to insulate us from risks, you see that strategy working well, which is, you know, our value-oriented program now. But outside of that, we’re also seeing strong organic growth. So we’re seeing wins come from both channels now.

Trevor Young: Appreciate all that color. And then Jeffrey, one for you. On the deeper integration with 1-800, that partnership and the bundling that you alluded to next year, how do you envision the economics to work there? And how do you think about kind of the shared burden of cost to serve as well as customer acquisition costs, for example?

Jeffrey Stibel: It’s a good question that is more complicated to answer than just give you a direct one because I think it depends on the product offering and the launch and the way that we’re going about it. But the core business, we’ve thought about it as a minimum so that we know that we have a certain threshold of revenues and profitability coming in and then a rev share on top. And then some of these ancillary products we’re looking at on a case-by-case basis. Most of these tend to be highly accretive to the bottom line. So it’s really a function of making sure that we participate in the accelerated growth where we have these deeper integrations.

Not lost on you, I’m sure, this is part and parcel to the knowledge we gained when we launched our own tax products, both the success and the challenges that we had. And I think we’re taking the best of both worlds as we integrate these new products. So I suspect we will see us getting closer and closer to 1-800 and any other part frankly, where we have the kind of success that tells us this is what our customers are looking for.

Trevor Young: Great. Thank you.

Operator: Thank you. Our next question comes from Michael McGovern from Bank of America. Please go ahead.

Michael McGovern: Hi. Thanks, and congrats on the great quarter. There have been some headlines this week even about to the extent that LLMs will provide legal advice or services, based on their current terms of service. Do you have any insight into the future of that and how your products can help balance meeting customers where they’re at versus potentially needing some level of additional certification or credential when customers receive legal advice produced generatively?

Jeffrey Stibel: Thank you for that because it’s probably the most strategic important question for us and one we have thought about deeply. One that has driven some of our organizational changes and one that’s been informed by talking to and working with some of the partners that we have as well as some really bright minds in this space. The short answer is we also believe that will happen. We expect it to happen, and we’re embracing that happening. And it is pit and parcel to our go-to-market and go-forward strategy. The idea here is just like why we thought the beginning we needed to have our salespeople owned and operated and why we need a broader base of experts.

The most important thing we can do as a community is to educate these customers. These small and medium-sized businesses need to be educated about their legal needs. So as LLMs make these potential customers more sophisticated, it effectively massively expands the market. Because what ends up happening when you look at the questions that are coming into LLMs is people are coming in thinking that they are a nonlegal question and leaving and going, I have a legal problem. I have a legal matter.

Some of that can be solved through Q&A with technology if people are patient and willing to do it, and know whether they have something that is an aberration or a phantom or whether it is actual real strong advice. But most of it needs some type of validation. And that’s where we come in. So when we talk about solving the last mile problem, what we mean is the connective tissue between the Q&A and the that is needed to solve a legal problem is narrowing. With technology. But that gap will not close.

You will still have some need for service, whether that’s an expert, a paralegal, a lawyer, or some type of integrated LLM product that can be backstopped by those experts so that there is oversight. That’s where we come in. And that’s why most of the AI and LLM community is embracing us. Because whether it’s agentic or generative, there still needs to be some sort of feedback loop that has human intervention. And that’s where LegalZoom.com, Inc. can play and where I think we are to a point where no one can compete with us because we have always been technology native, and technology forward.

And we are sitting on an expert war chest of thousands of partner lawyers and owned and operated law firm experts in our sales and service team. And we are expanding into other categories where the legal to whether it’s accounting or business manager or business expert bridge starts to blur. So that we can provide broad-based advice because half of the time, someone comes in with an accounting question, and it ends up being a legal question and vice versa.

Michael McGovern: Got it. Thank you.

Jeffrey Stibel: Bet. It’s the most exciting opportunity we have.

Operator: Thank you. Our next question comes from Matthew Condon from Citizens. Please go ahead.

Matthew Condon: Thank you so much for taking my questions. My first one, just obviously, over the past several months, the business formation environment in general, has been a very healthy environment. Just Jeffrey, you’ve obviously been driving on subscriptions and trying to decouple from the macro environment. But just can you help us understand how much of the outperformance over the past couple of quarters has been just macro driven versus the things that you guys are doing internally to really drive performance?

Jeffrey Stibel: So on small business starts, you’ve heard this repeatedly from us. We are weaning our way off of that as the dominant form of how we take in, in particular, new businesses. And, you know, this is all focused on our ability to not just grow our business, but to grow in a diversified and insulated way. That doesn’t mean we’re not still highly dependent on small business formations. We will be for, you know, for some time. If not for a very long time. It will be a key component of our strategy. And to the extent that the macro is up, significantly or down significantly, right now, of course, we don’t know.

But, you know, where we have tailwind, we’re gonna use it to our advantage. Where we have headwind, we’re gonna start diversifying. But the key thing here is we’re working on more of the TAM than we ever have before. And this is how we drive into our serviceable market. So when you think about what we’re doing on diversity, we’re now starting to do brand marketing. Not just performance marketing. We’re now leveraging partnerships to drive subscribers. Not just revenues. We’re now leaning in on existing businesses. Not just new businesses. We’re leveraging AI in a way that we weren’t a year ago. Not just search. To deliver new business.

And we’re building out product suites on the DIFM side, not just DIY. So I think that this is really critical to understand. We’re not ignoring the macro. What we’re saying is it will no longer be an excuse for us. We will have enough levers and leverage in the business so that we can manage through macro uncertainty as we’re in right now or negative macro situations whether it’s the small business formations one that plagued us previously or the next one that comes up as we diversify and become more dependent on AI or something else for growth. We’re managing our business as a diversified insulated growth-oriented business now that we have stabilized it.

Matthew Condon: Maybe just double-clicking on one thing you said there, just going to the existing businesses. Just are there anything that you could call out today that you see that are working? And just maybe just talk about the strategy more broadly, and how do you bring those businesses onto LegalZoom.com, Inc. platform?

Jeffrey Stibel: Sure. I actually think using our concierge products, in particular, compliance concierge is probably the perfect case study. We launched this as an MVP. We started going after existing businesses that were in our ecosystem. We started to listen to our service folks, and they told us which products were of need for our customers. We effectively built a broad matrix that we looked at for determining what next products that we would launch. We went from compliance to nonprofit, reinstatement, dissolution, entity conversion. We’re now launching something in tax all because the demand was there. On the high end and for the most part because these were subscription.

We’re now pushing this over to Kathy and our team on the biz dev side to say, go to existing partners and figure out where we can solve and satisfy their needs. Let’s listen. Let’s learn from their customers and start going into those channels. And then Daniel and our marketing team and saying, where can we go to market directly and start marketing to existing businesses? Whether that’s through AI, through some of our brand campaign, which we’re gonna be shifting towards the latter part of this year to speak to existing businesses.

And, ultimately, you can imagine we’re gonna go further and further down that path because these are businesses that are more stable that are more insulated from risks of recession. And ultimately have and are willing to give us a higher share of wallet.

Matthew Condon: Thank you.

Jeffrey Stibel: You bet.

Operator: Thank you. Our next question comes from Ron Josey from Citi. Please go ahead.

Ron Josey: Hi. This is Jake Gosmer. I’m calling in and taking your quarter. So, just created the questions, though. First was really just on the partner channel. The 25% growth seems like a strong acceleration. How much of that was driven by the new embedded flow versus a traditional billing platform? And maybe just spend a moment on that flow. I know I mean, it was pretty recent. Launch. Can you elaborate on what the economic model looks like? Is that kind of part of your strategy to target existing established businesses? Thanks.

Jeffrey Stibel: Sure. Happy to take that Jake. And thanks for the kudos on the quarter. I’m gonna start to sound like a broken record. This strategy is about diversification. Across the board. We wanna make sure that we’re insulated. So first off, that 25% year-over-year growth we put that number out there because we think that is a new baseline and that we can continue to grow it. We’re very pleased about what our partnership team business development team have done to date. But it is underwhelming, in my opinion, compared to what they’re going to deliver in the future. And the reason is because we’re, you know, we are now launching products for partners.

And we’re listening to what their needs are. Embedded is a key need. And, yes, that drove a portion of that growth. Leaning in on our affiliate channels, and treating these partners not just as low-level affiliates, but as true partners and building out solutions for them. Was another key thing. You know, the deeper integration that we’ve done with companies like design.com is another good example of a success point that we will continue to lean in on as well as working with some of our existing longer-term partners. Who, you know, we continue to think highly of. And, you know, they’ve been moving mountains to help us, such as Wix as an example.

And then, of course, what we’ve done in our AI ecosystem. So when you look at this, the percentage increase is coming from a myriad of sources. And, you know, each one of these is working to a varying degree. Not everyone will ultimately be successful. But the idea here is we’re trying to put out multiple singles and doubles and triples. We’re not looking for grand slam home runs. If we get one, we’ll take it. I’m not adverse to getting a little bit lucky, but we will acknowledge when we’re lucky. And get back to work.

Jake Gosmer: Awesome. Yes. Thank you.

Operator: One moment for our next question. Our next question comes from Elizabeth Porter from Morgan Stanley. Please go ahead.

Elizabeth Porter: Hey, guys. This is Lucas Arasola, Morgan Stanley. On for Elizabeth Porter. Thanks for the time. You spoke to the success of the new brand campaign earlier this year, and the double-digit ROAS. What other impacts have you seen so far both in terms of awareness and conversion metrics? And what learnings are you carrying into early next year when new business formation activity typically picks up seasonally?

Jeffrey Stibel: So, really, across the board, we’ve seen success in this brand campaign. So, you know, both aided and unaided awareness and ROAS. I mean, you can run the metrics down from there. Because that means it’s going to be helping with conversion. It’s gonna be helping with traffic. It is gonna help our performance campaigns to perform better. And then ultimately, it helps us garner more partners because it reminds the world that we live in and that we work in, that LegalZoom.com, Inc. is the dominant brand, for new, and this speaks to your next question. Existing and established businesses long term. So first and foremost, it reminds us that we need a diversified approach to marketing.

We were highly dependent on performance and, in particular, Google marketing previously. We have significantly diversified away from performance and away from Google. Into brand, into AI, and into other areas, and that’s paid dividends. Second, in terms of those learnings, we’ve realized that as the brand leader, building out our brand, strengthening that reinforces both our messaging, our b