Sign in

You're signed outSign in or to get full access.

LI

LEGALZOOM.COM, INC. (LZ)·Q3 2025 Earnings Summary

Executive Summary

  • Record Q3 revenue of $190.2M, up 13% YoY, exceeded the high end of Q3 outlook; FY revenue guidance raised to $748–$752M (~10% YoY growth at midpoint), while FY adjusted EBITDA guidance maintained at $168–$170M (~23% margin) .
  • Revenue beat consensus, but EPS missed: Q3 revenue $190.2M vs $183.3M consensus (beat); Primary EPS $0.17 vs $0.187 consensus (miss). Q1 and Q2 both beat on revenue and slightly beat on EPS* .
  • Subscription revenue grew 13% YoY to $125.4M (compliance-led), transaction revenue rose 12% YoY to $64.8M; adjusted EBITDA was $46.3M (24% margin), free cash flow $47.0M .
  • Management highlighted strategic shift beyond formation into higher-value DIFM concierge offerings and deeper AI integration (OpenAI enterprise deal, autofile compliance, AI tools), and cited partner channel growth (~25% YoY) as a demand catalyst .
  • Liquidity strengthened: cash and equivalents $237.2M; repurchased 1.8M shares for $17.6M; $112M buyback authorization remaining and revolver undrawn .

What Went Well and What Went Wrong

What Went Well

  • Record Q3 revenue, subscription growth acceleration, and raised FY revenue guidance to ~10% YoY; adjusted EBITDA margin held at 24% despite increased investment in product and AI .
  • Compliance concierge momentum with improving first-year retention; adoption across new concierge offerings (nonprofit, reinstatement, dissolution, entity conversion) and bundling tests that target ~36M existing SMBs .
  • Strategic AI advances: signed OpenAI enterprise deal; rolled out AI-driven tools (autofile annual reports toward ~80% coverage by year-end, AI voice training simulator, Salesforce Wizard, trademark classifier) to augment experts and improve efficiency .

What Went Wrong

  • GAAP profitability compressed: net income fell to $4.5M (2% margin) vs $11.1M (7%) a year ago; non-GAAP EPS of $0.17 missed consensus, driven by higher sales/marketing and brand spend .
  • ARPU down 3% YoY to $256, reflecting mix shift to lower-priced bundled subscription offerings (forms/e-signature, bookkeeping, legal advisory) even as compliance ARPU improves .
  • Management cautioned Q4 unit growth moderation due to lower renewal rates for initial bundled cohorts; deferred revenue decreased $0.1M sequentially reflecting typical seasonality .

Financial Results

MetricQ3 2024Q1 2025Q2 2025Q3 2025
Revenue ($USD Thousands)$168,599 $183,110 $192,509 $190,158
Gross Margin (%)68% 64% 65% 67%
Net Income ($USD Thousands)$11,051 $5,127 $(266) $4,509
Net Income Margin (%)7% 3% — (less than 1%) 2%
Non-GAAP EPS (Diluted, $USD)$0.17 $0.13 $0.15 $0.17
Adjusted EBITDA ($USD Thousands)$47,096 $37,012 $38,965 $46,323
Adjusted EBITDA Margin (%)28% 20% 20% 24%
Free Cash Flow ($USD Thousands)$21,975 $41,325 $31,609 $46,990
Cash & Equivalents ($USD Thousands, Period End)—$209,973 $217,035 $237,154

Segment breakdown

Segment RevenueQ3 2024Q1 2025Q2 2025Q3 2025
Transaction Revenue ($USD Thousands)$57,879 $66,853 $72,611 $64,799
Subscription Revenue ($USD Thousands)$110,720 $116,257 $119,898 $125,359

KPIs

KPIQ3 2024Q1 2025Q2 2025Q3 2025
Transaction Units (000s)255 341 278 259
Business Formations (000s)113 131 131 126
Average Order Value (AOV, $USD)$227 $196 $262 $251
Subscription Units (000s, Period End)1,717 1,924 1,955 1,959
ARPU (Period End, $USD)$264 $252 $256 $256

Estimate comparisons (Wall Street consensus vs actual)

Revenue vs consensus

PeriodRevenue Consensus Mean ($USD)Actual Revenue ($USD)Beat/Miss
Q1 2025176,816,280*183,110,000*Beat*
Q2 2025182,492,130*192,509,000*Beat*
Q3 2025183,268,100*190,158,000*Beat*

EPS vs consensus (Primary EPS)

PeriodPrimary EPS Consensus Mean ($USD)Actual Primary EPS ($USD)Beat/Miss
Q1 20250.12890*0.13*Beat*
Q2 20250.14869*0.15*Beat*
Q3 20250.18668*0.17*Miss*

Note: Values retrieved from S&P Global.*

EBITDA context (SPGI consensus vs management metric)

  • Q3 2025 EBITDA consensus: ~$45.29M*, SPGI “actual” EBITDA: ~$17.95M*; management reported Adjusted EBITDA: $46.3M (24% margin), reflecting different definitions (Adjusted excludes SBC, restructuring, etc.) .
  • FY 2025 EBITDA consensus: ~$169.6M*, FY 2024 actual (SPGI basis): ~$49.0M* vs company adjusted EBITDA historically higher due to adjustments .
    Note: Values retrieved from S&P Global.*

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
RevenueQ4 2025—$182–$186M; ~14% YoY at midpoint New
Adjusted EBITDAQ4 2025—$46–$48M; ~26% margin at midpoint New
RevenueFY 2025~8% YoY growth (raised on Aug 7) $748–$752M; ~10% YoY at midpoint Raised
Adjusted EBITDA (Dollars)FY 2025~$165M (May 7) $168–$170M Raised
Adjusted EBITDA MarginFY 2025~23% ~23% at midpoint Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q-2 and Q-1)Current Period (Q3 2025)Trend
AI/Technology initiativesQ1: appointed new CTO; commit to leveraging generative AI . Q2: collaborations with OpenAI & Perplexity .Signed OpenAI enterprise deal; launched autofile annual report (~80% coverage targeted), AI voice simulator, Salesforce Wizard, trademark classifier; instituted mandatory AI standards; org realignment to integrate AI with human expertise .Accelerating adoption and deeper integration .
Go-to-market/BrandQ1: reiterated subscription growth initiatives . Q2: launched brand campaign (“Technology when you want it, human support when you need it”), double-digit ROAS improvement .Continuing brand reinvestment; shift away from SEM; brand to target existing SMBs later in year .Strengthening brand-driven funnel quality .
Partner channelQ2: modernization of affiliate platform; embedded flows .~25% YoY growth in partner channel; deeper integrations (e.g., Design.com, Wix) .Broadening partnerships; improving quality of traffic .
DIFM/Concierge productsQ1: higher-value products early rollout . Q2: compliance concierge adoption .Expanded concierge suite (nonprofit, reinstatement, dissolution, entity conversion); bundling DIFM into subscription-only formation bundles .Expanding DIFM portfolio; pricing leadership .
Subscription metricsQ1: subscription revenue +8% YoY . Q2: double-digit subscription growth achieved ahead of plan .Subscription revenue +13% YoY; units +14%; ARPU down 3% YoY (mix) .Growth durable, ARPU mix headwind near term .
Macro/Formation exposureQ1/Q2: formation environment improving but seeking diversification .Continued diversification to insulate from formation cyclicality; focus on existing SMBs .Reduced macro sensitivity over time .
Tax/Regulatory—Lower cash taxes influenced by “One Big Beautiful Bill Act” .Tailwind to FCF .

Management Commentary

  • “Our results further validate the strategic shift...we’re more energized than ever to build on our momentum—expanding our focus beyond business formation to unlock new opportunities with roughly 36 million U.S. existing small businesses, through a differentiated approach that combines AI and technology with human expertise.” — Jeff Stibel, CEO .
  • “We delivered record third quarter revenue...With continued momentum in our subscription business, we are raising our full-year 2025 revenue guidance and now anticipate approximately 10% year-over-year growth at the midpoint.” — Noel Watson, COO & CFO .
  • “We have become the first online legal services provider for SMBs to sign an enterprise deal with OpenAI...we want artificial intelligence to be ingrained in everything we do at this company.” — Jeff Stibel .
  • “Free cash flow was $47 million...improvement due to change in deferred revenue, lower capex, lower severance costs vs Q3’24, and lower cash taxes from the impact of the One Big Beautiful Bill Act.” — Noel Watson .
  • “Traditional lawyers can charge $500 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.” — Jeff Stibel .

Q&A Highlights

  • Pricing and bundling are active levers; competitors following LZ price leadership; concierge suite expands value capture with DIFM offerings .
  • OpenAI enterprise deal aims for integrated product launches and embedded distribution; AI increases funnel quality and conversion; customers arriving better educated via AI channels .
  • Formation Nation contribution: ~$9M transaction and >$5.5M subscription revenue in Q3; sales center integrated into LZ with positive productivity .
  • Deeper integration with 1-800 ACCOUNTANT: minimum economics plus revenue share; expected highly accretive offerings with bundled tax/legal advice .
  • Strategy to decouple from macro formation cycles via brand, partnerships, existing SMB focus, AI and DIFM portfolio diversification .

Estimates Context

  • Q3 revenue beat consensus ($190.2M vs $183.3M), while Primary EPS missed ($0.17 vs $0.1867); Q1 and Q2 beat both metrics*. The miss was primarily driven by elevated sales/marketing spend (brand shift and partner growth) despite strong top-line and adjusted EBITDA .
  • Q3 revenue estimates had 8 contributors; EPS had 10*. Q4 guide implies continued top-line momentum and margin expansion sequentially .
    Note: Values retrieved from S&P Global.*

Key Takeaways for Investors

  • Top-line momentum intact: subscription revenue +13% YoY; Q3 revenue beat and FY revenue guidance raised to $748–$752M; adjusted EBITDA margin preserved at ~23% for FY .
  • EPS miss reflects investment phase: higher brand marketing and partner growth costs; expect near-term ARPU pressure from lower-priced bundles, offset by compliance ARPU gains .
  • Structural shift beyond formation: expanding DIFM concierge, bundling legal and accounting advisory, and focusing on existing SMBs should reduce macro sensitivity and improve LTV .
  • AI as distribution and efficiency engine: OpenAI enterprise deal and internal AI tools likely to improve funnel quality, service velocity, and cost-to-serve over time .
  • Partner channel scaling: ~25% YoY growth; embedded flows and deeper integrations broaden reach and raise conversion quality .
  • Capital allocation remains flexible: $237M cash, strong FCF ($47M Q3), buyback capacity ($112M remaining), and undrawn revolver support strategic investments and M&A .
  • Near-term watch items: Q4 unit growth moderation from bundled cohort renewals; monitor ARPU trajectory and the pace of AI-integrated product launches .

Appendix: Other Relevant Q3 Press Releases

  • LegalZoom announces collaboration with OpenAI’s ChatGPT agents to provide legal guidance access and agentic workflows — foundational to LZ’s AI distribution and product strategy .