LegalZoom — Third Quarter 2026 Earnings Summary

Financial Performance:

• Total revenue was $195.1 million, up 3% year-over-year, exceeding the midpoint of the guidance range.
• Subscription revenue was $139.7 million, up 11% year-over-year, marking the sixth consecutive quarter of double-digit growth.
• Transaction revenue was $55.5 million, down 14% year-over-year.
• Net income was $8.1 million (4% margin), compared to $4.5 million (2% margin) in the prior year period.
• Adjusted EBITDA was $50.0 million (26% margin), at the midpoint of guidance, up from $46.3 million (24% margin) in the prior year.
• Non-GAAP net income was $31.4 million, compared to $31.0 million in the prior year.
• Cash and cash equivalents were $181.7 million as of September 30, 2026, down from $203.1 million as of December 31, 2025.
• Cash from operating activities was $39.9 million, down from $54.2 million in the prior year period.
• Free cash flow was $34.1 million, down from $47.0 million in the prior year period.
• Net income per share (basic and diluted) was $0.05, compared to $0.03 and $0.02 respectively in the prior year.
• Non-GAAP net income per share (basic and diluted) was $0.19, compared to $0.17 in the prior year.
• Gross margin was 71%, up from 67% in the prior year.
• Deferred revenue was $219.8 million as of September 30, 2026, up from $203.7 million as of December 31, 2025.
• The company reported no debt outstanding as of September 30, 2026.

Guidance and Future Outlook:

• Reiterated full-year 2026 revenue outlook midpoint of approximately $800.0 million (6% year-over-year growth), narrowing the range to $797.0–$803.0 million.
• Updated full-year 2026 Adjusted EBITDA outlook to a range of $180.0–$185.0 million (approximately 23% margin midpoint), down from a previous range of $190.0–$195.0 million.
• The updated EBITDA outlook reflects a challenging customer acquisition environment, continued investment in channel diversification, higher paid acquisition costs, and investment in higher-value expert services.
• Fourth quarter 2026 revenue guidance is $190.0–$196.0 million (1% year-over-year growth at midpoint).
• Fourth quarter 2026 Adjusted EBITDA guidance is $48.0–$53.0 million (1% year-over-year growth at midpoint, 26% margin).

Business Segments and Product Lines:

• Human-in-the-loop subscription services revenue grew 17% year-over-year and now represents 49% of total revenue.
• Subscription units at period end were 1,854, down 5% from 1,959 in the prior year.
• Average revenue per subscription unit (ARPU) at period end was $280, up 9% from $256 in the prior year.
• Transaction units were 249, down 4% from 259 in the prior year.
• Business formations were 110, down 13% from 126 in the prior year.
• Average order value (AOV) was $222, down 12% from $251 in the prior year.

Market and Competitive Landscape:

• LegalZoom is identified as America's #1 online legal services company.
• The company is investing in channel diversification, including partnerships, affiliates, and AI channels.
• Management noted continued pressure in customer acquisition for the remainder of the year.

Risks and Challenges:

• A challenging customer acquisition environment is impacting growth and margins.
• Higher costs in paid customer acquisition channels are affecting profitability.
• The business faces dependence on business formations and customer retention/renewal rates.
• Macroeconomic challenges and uncertainty may impact the business.
• Risks include the competitive legal solutions market, maintaining brand reputation, and evolving laws and regulations.

Management Commentary and Tone:

• CEO Jeff Stibel expressed confidence in accelerating investment in expert support and pairing AI with accountable expertise.
• CFO Noel Watson noted that subscription growth is offsetting customer acquisition pressure, supporting the unchanged revenue midpoint.
• Management highlighted the financial capacity to fund priorities with $181.7 million in cash and no debt.
• The tone reflects a strategic shift toward higher-value offerings and channel diversification despite near-term margin pressure.

Other Key Points:

• Completed $14.6 million in share repurchases during the quarter.
• Approximately $65.8 million remains under the existing share repurchase authorization as of September 30, 2026.
• Restructuring costs of $5.8 million were incurred in the quarter, related to global headcount reduction.
• Transaction-related expenses of $0.9 million were incurred in the quarter for the evaluation and pursuit of strategic transactions.
• The company is advancing its "human-in-the-loop" approach to combine AI efficiency with professional judgment.