Executive Summary

Q1 2025 exceeded the high end of company outlook: revenue $183.1M (+5% YoY), Adjusted EBITDA $37.0M (+33% YoY, 20% margin), and Non-GAAP diluted EPS $0.13, driven by accelerating subscription growth and cost discipline .
Against S&P Global consensus, LZ delivered a revenue beat (actual $183.1M vs est. $176.8M) and a slight EPS beat (Primary EPS actual $0.13 vs est. $0.13) as defined by S&P’s Primary EPS construct; FY25 outlook was reiterated at ~5% revenue growth and ~23% Adjusted EBITDA margin (≈$165M) . Values retrieved from S&P Global.*
Guidance: Q2 2025 revenue $181–$185M and Adjusted EBITDA $37–$41M (≈21% margin at midpoint); FY25 outlook reiterated despite macro softness and BOIR/tax headwinds; subscription growth expected to reach double digits by Q4 .
Catalysts: accelerating subscription units (+20% YoY), pricing power (registered agent reprice holding attach), $100M increase to repurchase authorization (~$150M remaining), and clear path to margin control given ~70% variable cost structure .

What Went Well and What Went Wrong

What Went Well
- Subscription momentum: subscription revenue +8% YoY to $116.3M; units +20% YoY to ~1.924M; Q1 marked a sequential acceleration in subscription revenue growth; management targets double‑digit subscription growth exiting 2025 .
- Margin and cash generation: Adjusted EBITDA +33% YoY to $37.0M (20% margin); free cash flow $41.3M (+67% YoY); CFO emphasized variable cost structure and flexibility to deliver ~$165M Adjusted EBITDA “irrespective of revenues” .
- Strategic execution: Integration of Formation Nation contributed $8.6M revenue in Q1 with best‑practice marketing and “do‑it‑for‑me” service learnings; pricing changes (e.g., registered agent back to $249) showed inelasticity and stable attach .
- Quote: “We have a resilient, dynamic business that gives us flexibility to execute, manage to the bottom line and drive cash flow generation.” — CEO Jeff Stibel .
What Went Wrong
- Macro and formation headwinds: management now models the formation macro down mid‑ to high‑single digits YoY in 2025 (vs. prior flat), contributing to softer traffic and formation volumes vs typical seasonality .
- Regulatory hit to transactions: BOIR filings drove some upside in Q1, but a March 21 FinCEN ruling eliminated the filing requirement for U.S. companies going forward; CFO estimates BOIR plus tax strategy changes are ~4 points of FY25 revenue growth headwind .
- Mix pressure on ARPU: ARPU fell 7% YoY to $252 given mix shift toward lower‑priced bundled subscriptions (forms/e‑signature, bookkeeping), which management expects to moderate as cohorts mature .

Financial Results

Q1 performance vs prior quarters (GAAP unless noted). Periods shown oldest → newest.

Metric	Q3 2024	Q4 2024	Q1 2025
Revenue ($M)	$168.6	$161.7	$183.1
Gross Margin (%)	67%	67%	64%
Net Income ($M)	$11.1	$12.9	$5.1
Adjusted EBITDA ($M)	$47.1	$44.2	$37.0
Adjusted EBITDA Margin (%)	28%	27%	20%
Cash from Operations ($M)	$31.6 (Q3)	$42.6 (Q4)	$50.7
Free Cash Flow ($M)	$22.0 (Q3)	$35.9 (Q4)	$41.3

Segment revenue (oldest → newest):

Segment Revenue ($M)	Q3 2024	Q4 2024	Q1 2025
Transaction	$58	$53.0	$66.9
Subscription	$111	$108.7	$116.3

KPIs (oldest → newest):

KPI	Q3 2024	Q4 2024	Q1 2025
Transaction Units (000s)	255	241	341
Business Formations (000s)	113	96	131
AOV ($)	227	220	196
Subscription Units (000s)	1,717	1,766	1,924
ARPU ($, LTM)	264	263	252

Q1 vs S&P Global consensus (Primary EPS and revenue):

Metric	Estimate	Actual	Surprise
Revenue ($M)	176.8*	183.1	+6.3 (+3.6%)*
Primary EPS ($)	0.13*	0.13	~In line*

Values retrieved from S&P Global.*

Non‑GAAP adjustments in Q1: add‑backs included $29.8M stock‑based comp, $1.5M transaction‑related expenses (Formation Nation), $0.7M restructuring; offset by a $(14.3)M gain on sale of assets held for sale .

Note: A dedicated 8‑K 2.02 for Q1 2025 was not listed in our document index; the company’s May 7, 2025 earnings press release served as the primary source for reported figures and outlook .

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Revenue	Q2 2025	—	$181–$185M	New
Adjusted EBITDA	Q2 2025	—	$37–$41M (≈21% margin at midpoint)	New
Revenue Growth	FY 2025	~5% YoY	~5% YoY	Maintained
Adjusted EBITDA	FY 2025	~23% margin (≈$165M)	~23% margin (≈$165M)	Maintained

Context: FY25 outlook incorporates mid‑ to high‑single digit decline in formation macro, elimination of BOIR requirement for U.S. companies, and discontinuation of new customer acquisition for LZ’s own tax product, which together represent ~4 points of revenue growth headwind; management still expects double‑digit subscription revenue growth in Q4 .

Earnings Call Themes & Trends

Topic	Previous Mentions (Q3’24, Q4’24)	Current Period (Q1’25)	Trend
Subscription acceleration	Reorienting to subscriptions; pricing/value messaging; Q4 subscription +2% YoY	Subscription +8% YoY; units +20%; sequential acceleration; target double‑digit growth by Q4	Improving
Pricing & RA inelasticity	Returned RA to $249 in Sept; stable attach; testing portfolio pricing	Testing RA pricing for renewals; “highly accretive” given inelasticity; pricing as a lever with added value	Positive leverage
Macro & tariffs	Q3 macro soft; EINs −9% YoY; Q4 guide assumed flat macro	Modeling formation macro down mid‑ to high‑single digits; uncertainty incl. tariffs/policy changes	Deteriorated vs prior plan
BOIR/regulatory	Reoriented BOIR toward subscriptions; FY25 assumed no federal requirement	FinCEN ruling eliminated federal BOIR for U.S. companies; BOIR + tax = ~4pt headwind	Headwind crystallized
Formation Nation integration	Announced; expected accretive to Adj. EBITDA and Non‑GAAP EPS	$8.6M Q1 revenue; reallocating marketing; “do‑it‑for‑me” learnings; caution on seasonality	On track
AI & tech	AI foundation; estate plan AI assistant tests	CTO hire; AI‑enhanced compliance/biz license alerts; Perplexity partnership announced later (Jun)	Building
Partner ecosystem	1‑800Accountant partnership launched (Dec)	Performing “better than expected”; focus on partners driving customers to LZ	Strengthening
Consumer initiatives	Estate plan campaigns; consumer reinvestment	Virtual Mail expanded to consumers (Apr 15) ; consumer channel complements subscription mix	Expanding

Management Commentary

“We are reiterating our 2025 outlook... including our expectation for double‑digit subscription revenue growth by the fourth quarter.” — CEO .
“We have significant expense leverage and flexibility… We have a strong cash position, 0 debt and healthy free cash flow.” — CEO .
“Our full year revenue outlook includes a revised formation macro estimate of mid‑ to high single‑digit decline… [and] the elimination of BOIR… We estimate [tax and BOIR] represent approximately 4 points of headwind to our revenue growth in 2025.” — CFO .
“Registered agent pricing changes and value increases… results have been highly accretive given the inelasticity of this product.” — CEO .

Q&A Highlights

Subscription units: Growth driven by bundling lower‑priced subs (forms/e‑signature, bookkeeping) to onboard and later upsell; acknowledged lower ARPU/renewals for these cohorts but strategic to expand funnel .
Formation Nation integration: Tight integration vs segment‑report mindset; marketing spend shifted >30% to support Inc Authority; seasonal caution—Q1 is a high period, don’t extrapolate mid‑quarter contribution .
Marketing spend: Mix shift vs increase—maintain CAM roughly flat YoY; brand investment without upfront commitments; flexibility to adjust with demand .
Macro: Softer traffic/formation volumes vs seasonal norms; planning to formation macro down mid‑ to high‑single digits .
Partner strategy: 1‑800Accountant outperforming expectations; pivot partners to drive customers to LZ, not just monetize LZ customers .

Estimates Context

Q1 2025 revenue beat: $183.1M vs $176.8M consensus; Primary EPS in‑line to slight beat at $0.13. Management’s reiterated FY25 outlook suggests limited need for estimate cuts despite macro/BOIR/tax headwinds, with mix shifting to subscriptions and pricing supporting margin delivery . Values retrieved from S&P Global.*

Key Takeaways for Investors

Subscription flywheel is working: sequential acceleration, unit growth +20% YoY, and pricing traction (RA) underpin the path to double‑digit subscription growth by Q4 — a key multiple driver .
Margin resilience: Variable cost structure (~70% of costs across COGS+marketing) and disciplined CAM enable delivery of ~~23% FY25 Adjusted EBITDA margin (~~$165M) even if revenue underperforms .
Macro and regulatory headwinds are real but quantified: management embedded formation softness and BOIR/tax headwinds (~4 pts to FY25 revenue growth) into guidance while maintaining FY targets .
Formation Nation boosts strategic segmentation: Inc Authority captures value/free segments while LegalZoom brand moves upmarket with higher‑value subscriptions and do‑it‑for‑me offerings; early $8.6M Q1 contribution .
Cash and capital returns: Q1 FCF of $41M and buyback authorization increased by $100M (≈$150M remaining) provide downside support and capital allocation flexibility .
Watch items: Q2 execution vs guide ($181–$185M revenue; $37–$41M Adj. EBITDA), subscription ARPU trajectory as cohorts mature, BOIR replacement activity in compliance, and partner‑sourced demand ramp (e.g., 1‑800Accountant, Perplexity) .

Additional Context: Q1 Press Releases Relevant to the Quarter

Compliance portfolio enhancements: attorney‑tracked monitoring, state status integration, and AI‑powered license change detection broaden value for compliance subs amid BOIR/state changes .
Consumer Virtual Mail expansion: launching trusted digital mail for individuals/families, extending a bright spot in subscription growth to consumer channel .
Divorce.com partnership: expands legal solutions for uncontested/lightly contested divorce across U.S./Canada .

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Sources: Q1 2025 press release and financials ; Q1 2025 earnings call transcript ; Q4 2024 press release and call for prior‑quarter comps and prior guidance ; Q3 2024 call and slides for historical trends .
Estimates: Values retrieved from S&P Global.*

LEGALZOOM.COM, INC. (LZ)·Q1 2025 Earnings Summary