LegalZoom.com, Inc. Common Stock 2026 Q2 Earnings Call

Please go ahead. Thank you, operator.

Welcome to LegalZoom's second quarter 2026 earnings conference call. Joining me today is Jeff Stibel, our Chairman and Chief Executive Officer, and Noel Watson, our Chief Operating Officer and Chief Financial Officer. As a reminder, we will be making forward-looking statements on this call. These forward-looking statements can be identified by the use of words such as believe, expect, plan, anticipate, will, intend, and similar expressions, and are not and should not be relied upon as a guarantee of future performance or results. Such forward-looking statements are based on management's assumptions and expectations and information available to us as of today's date. These forward-looking statements are also subject to risks and uncertainties that could cause actual results to differ materially from such statements.

These risks and uncertainties are referred to in the press release we issued today and in the Risk Factors section of our most recent quarterly report on Form 10-Q filed with the Securities and Exchange Commission. Except as required by law, we do not plan to publicly update or revise any forward-looking statements, whether as a result of any new information, future events, or otherwise. In addition, we will also discuss certain non-GAAP financial measures. We use non-GAAP measures in making decisions regarding our business, and we believe these measures provide helpful information to investors. These non-GAAP financial measures are not intended to be considered in isolation or as a substitute for results prepared in accordance with GAAP.

Reconciliations of all non-GAAP measures to the most directly comparable GAAP measure are set forth in our investor presentation, which can be found on the investor relations section of our website at investors.legalzoom.com. I will now turn the call over to Jeff.

Thank you, Madeline, and thank you all for joining our call. LegalZoom continues to execute against our strategy of building the leading services and expertise platform for small businesses, combining AI with trusted human expertise. We delivered second quarter revenue of $205 million, up 7% year-over-year, and in line with our guidance. Adjusted EBITDA of $46 million, increased 18% year-over-year, well ahead of the high end of our guidance. Q2 also marked our fifth consecutive quarter of double-digit subscription growth. Since late 2024, we've steadily increased the mix of recurring subscription revenue in our business by acquiring customers who find ongoing value in our platform.

These results reflect the momentum of the growth levers we've been building for the last year, expanding our portfolio of expert and service offerings, accelerating the use of AI across the business, and intentionally diversifying how we acquire customers, making our go-to-market model more resilient and less dependent on any single channel. Those investments in diversification were built for exactly this moment. During the quarter, Google accelerated their shift to AI-powered search, with AI-generated answers increasingly replacing traditional clicks. This is affecting top-of-funnel traffic across our industry. I want to be specific about what it means for us, because there are two very different currents underneath it. The first is the pressure in our updated outlook, and it is concentrated in one place. The majority of our traditional search traffic, both organic and paid, has historically run through Google.

As AI-generated answers replace clicks on informational queries, fewer of those visits reach us, and paid inventory has become more expensive. That pressure is real, and we are feeling it now. To be clear, this is the repricing of a single legacy channel. It is significant but bounded. The second current runs the other way. Across the AI platforms where discovery is moving, we start from essentially zero, so every visit is incremental. That traffic grew more than 250% quarter-over-quarter. Today, we have the highest brand references across AI platforms of any competitor. Our exposure to the old channels is being repriced. Our position in the new channels represents upside. Our outlook reflects the full weight of the first and very little of the second. This is a change in how customers find us, not in what they need from us.

We've responded by doubling down on channel diversification, expanding partnerships, strengthening our brand, and increasing our presence across AI-driven channels. I'll discuss those efforts in more detail shortly. Across each of our key growth levers, one principle remains constant. AI has made answers abundant, but it hasn't made them accountable. When entrepreneurs move from asking questions to completing important legal, compliance, and business tasks, human expertise, accountability, and trusted execution still matter. We've seen this directly in our engagement data. That is where LegalZoom has differentiated itself for more than 25 years. Our first growth lever is expanding our portfolio of human-in-the-loop offerings. We've discussed these offerings for several quarters, but we now have real scale and real growth to show for it. We want to give more color on both. This lever is working, increasingly displacing our older, lower-value products.

We believe this remains one of our strongest competitive advantages and one of our most attractive long-term growth opportunities. Our portfolio spans two complementary layers across our subscription and transaction offerings. First, our service layer, including Registered Agent and Virtual Mail subscriptions, which provides the operational infrastructure businesses rely on to stay organized and operate with confidence. Second, our expert layer. This includes legal plans, IP-related services, and our Do It For Me Concierge offerings that have now been rebranded as Business Manager. This layer combines professional guidance with technology to help customers solve more complex business needs. In Q2, revenue from our human-in-the-loop subscription services grew approximately 20% year-over-year and now represents 65% of subscription revenue. On a total company basis, our human-in-the-loop subscriptions are now over 40% of total revenue.

That growth reflects both increased adoption of our higher-value products and our ability to thoughtfully price services like Registered Agent and Business Manager as we continue expanding our service offerings. We also experienced significant growth in our legal plans, where bundling legal subscriptions into formation packages is introducing more customers to ongoing legal guidance and driving higher engagement with attorney consultations. We believe AI is educating customers more, but they are still turning to us for answers. This is evidenced by an over 35% year-over-year increase in customer utilization of our legal plans this past quarter. We are seeing similar demand in our transactional expert services, including attorney-assisted trademark filings and Business Manager reinstatements. Early evidence that customers will pay for expertise at each stage of the business life cycle. Ultimately, our human-in-the-loop portfolio is allowing us to address a greater portion of our addressable market beyond business formations.

By combining technology with trusted human expertise, we believe we're well-positioned to serve both new entrepreneurs and the millions of established small businesses that need ongoing legal and compliance support as their business evolves and grows. Moving to our next growth lever. As a reminder, over the past year, we've been intentionally diversifying our customer acquisition channels by expanding partnerships, strengthening our brand, and investing in AI-driven distribution. The evolving search landscape reinforces the importance of that strategy. To clarify the mechanics behind what I described earlier, in the second quarter, we saw fewer high-intent visits from Google's informational search queries as AI-generated answers reduced click-through to websites, while competition for paid inventory increased, driving higher cost per click and making paid search less efficient. Those dynamics have translated into lower customer acquisition through our traditional search channels and ultimately lower business formation volume.

Importantly, the pressure is most concentrated in informational search traffic and does not reflect a structural change in the underlying opportunity we see across partnerships, brand, and AI-driven channels. We're accelerating execution on each of those fronts. At the same time, our objective is not simply to maximize formation volume. It is to acquire new and existing small businesses who are more likely to build long-term relationships with LegalZoom. One of the clearest examples is our partnerships business. 12 months ago, partnerships represented a relatively small portion of our acquisition strategy. Today, leveraging our category leadership, we've created meaningful momentum as we continue to expand both the breadth of our partner ecosystem and the depth of those relationships. Customers who come through our partners typically arrive with higher intent and stronger engagement, creating better opportunities to introduce our subscription offerings and build deeper customer relationships.

In Q2, total order volumes from partnerships increased to 11% of total orders, up from 4% a year ago. We achieved this through the continued expansion of our partner portfolio, deeper embedded integrations, and investing in our partner go-to-market program. We continue to see a healthy pipeline of opportunities and remain confident this channel will play an increasingly important role in our growth over time. We've recently welcomed new partners, including USAA, AAA, PayPal, and Adobe, further expanding LegalZoom's presence across trusted brands serving small businesses. We're systematically building this new acquisition engine, one focused on repeatability, attractive unit economics, and growing customer lifetime value. Our marketing investments remain focused on improving both awareness and customer quality. In response to the recent traffic changes, we are deepening our investments beyond traditional search into new channels, including strategic partnerships, emerging AI referral channels, and upper funnel media.