Q2 2025 LegalZoom.com Inc Earnings Call
Good day and thank you for standing by, welcome to to the legal zooms. Second quarter 2025 earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session
To ask a question during the session, you will need to press star 1. 1 on your telephone. You will then hear an automated message. Advising your hand is raised to withdraw your question. Please press star 1 1 again.
Please be advised that today's conference is being recorded, I would now like to hand the conference over to your first Speaker today. Tyler Drew investor relations. Please go ahead
Thank you, operator welcome to Legal Zoom second quarter 2025 earnings conference call.
Joining me today is Jeff styel, our chairman and chief executive officer and Noel Watson. Our chief operating officer and Chief Financial Officer
as a reminder, we will be making 4 looking statements on this call.
These 4 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 and results.
Such 4 looking statements are based on Management's assumptions and expectations and information available to us as of today's date.
These 4 looking statements are also subject to risk 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 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 measures are set forth in the investor relations section of our website and investors. Legalzoom.com
I will now turn the call over to Jeff.
Good afternoon and thank you for joining our second quarter earnings conference call.
We are very pleased with the accelerated progress that was made this quarter and believe it will benefit us going forward.
As I complete my first full year as CEO.
I want to take a brief moment to reflect on the accomplishments we have achieved at legalism.
When I stepped into this role, my objective day, 1 was clear to build a more consistent predictable and profitable business.
1 that could support sustainable long-term growth, resilient to changing economic Cycles.
Our second quarter results, demonstrate the work we have done to achieve these objectives. Notably ahead of plan.
First, we've stabilized the business and reignited, subscription Revenue growth.
Second, we're building a premium brand and new suite of products that cater to the diverse needs of high-quality, small business, owners and individuals.
Third.
We're delivering operating efficiencies and expanding margins.
Strengthening our financial profile.
All of this rolls into our second quarter strong results.
Total revenue, reached 193 million.
Up 9% year-over-year ahead of expectations.
Subscription Revenue, grew 10%.
Marking our second straight quarter of sequential growth and early achievement of our double digit growth Target 2 quarters ahead of schedule.
Our compliance offerings showed encouraging Improvement in first year retention.
Indicating that customers are appreciating the incremental value that we are delivering.
With respect to our new concierge Solutions, we launched and saw strong adoption of products that have shifted up Market by adding additional value leveraging, artificial and human intelligence to allow us to offer the highest service levels to customers.
On profitability similar to q1, we continue to deliver strong margin performance, our adjusted, Evita margin reached 20%, a 400 basis point Improvement, year-over-year reflecting strong operating discipline and strategic efficiency gains.
We also continue to generate healthy free cash flow, reaching 32 million in the quarter further strengthening our balance sheet.
Given our strong performance and momentum.
We are raising our full year Revenue, guidance from 5% growth to 8%.
While maintaining our 23% adjusted. Ebit down, margin Outlook.
We attribute the achievement of these milestones to the work we have done to realign our organization to focus on subscription-based growth and improve operational efficiencies to create a more profitable business model.
As part of this strategic realignment, we executed across the 3 key Focus areas. We outlined. When I first joined as CEO, 1 Optimist, our subscription business 2
Reorient. Our go to market approach, 3, leverage, artificial, and human intelligence to deliver expertise to our customers.
We made Solid progress across these 3 areas over the last year.
In addition, we made a strategic acquisition for nation nation. That was not only a creative.
And enabled us to bring in a world-class team of Sales and Service Experts but also sets us up to further Advance our Market position and realign our premium brand messaging.
Let me now. Walk through updates across our 3 key Focus areas first.
Subscription model optimization.
To put it bluntly. Our subscription strategy is working.
We drove a 22% increase in total subscriptions in Q2.
Powered by enhancements and packaging, pricing, and personalization.
We continue to bundle services that deliver incremental value like forms e signatures and bookkeeping into premium tiers driving stronger, early engagement and longer term cross sell opportunities.
Last quarter, we launched our most comprehensive subscription Suite of products. Today, the concierge plan
A full service White, Glove Suite of solutions, driven by artificial and human intelligence. Designed for the sophisticated small business owner, that prefers a Hands-On solution,
The first product compliance concierge has been a strong success and includes a do it for me solution to filings, permits, and alerts alongside a dedicated advisor at a price that's still significantly, lower than traditional Legal Services.
We also soft launched 4. Other concierge products that are currently being tested.
Each affords customers, the ability to offload their businesses, legal and compliance work to our team.
Strong initial traction from our, do it for me products including early, adoption and customer response validates demand and reinforces product direction as we scale through expanded offerings and long-term capabilities.
Importantly.
The ifm products, Garner significantly, higher prices, for our poo attract, a higher quality customers and we believe create greater customer stickiness. This is Central to our strategy of delivering intelligent expert-led, proactive legal support at scale, which we believe will support renewal and retention Trends over time.
Second.
Evolving our go to market strategy.
Our go to market strategy is focused on positioning, Legal Zoom, as The Trusted legal brand for small businesses to drive, awareness and consideration.
This spring, we launched a new brand campaign that frames LegalZoom as a legal companion for every step of our customers' journey.
Our message.
Technology, when you want it, human support, when you need it.
Reinforces the principle behind AI-augmented expertise.
Without increasing our overall ad budget, we delivered a multi-channel full-funnel brand media campaign driving, awareness consideration and conversion under a single brand narrative.
Mobile was strong early results that we expect will build steadily over time.
Of particular note.
We saw sequential Improvement in site traffic and engagement Trends in June and July following the launch.
We maintained a healthy return on ad spend or row as despite a longer brand, payback curve and
We maintain marketing discipline with low commitments to Brand spend and return hurdles for performance channels.
We plan to launch additional phases of the campaign of Social, and offline channels to build on that momentum.
In addition.
We will continue to deepen channel tasks and diversification to optimize full-funnel performance.
Given the early success, we may consider incrementally adding to our marketing budget but would do so within the confines of our overall expense schedule and margin profile.
We also expanding visibility through strategic Partnerships and driving new customers through growth in our Channel partner program.
Most notably, we teamed up with two AI pioneers. First, with Perplexity, we launched a tailored legal support program for Perplexity Pro users—an innovative move that places LegalZoom at the intersection of legal expertise and emerging AI search behavior. Recently, we've announced a new relationship with OpenAI.
Open AI is launching. Agentic capabilities inside chat GPT, which they will be rolling out to 30 million users.
Our collaboration enables chat gbt agents to access legal zooms, robust legal, resources, through advanced AI capabilities, to ensure users are given high quality, Legal Information and insight.
The system can intelligently, navigate legal, resources, run analysis and even deliver editable, documents and spreadsheets.
We Believe collaborations such as these will be instrumental in boosting legal zooms brand presence and driving new customer acquisition.
Finally.
AI augmented Innovation and Service delivery.
AI is becoming a fundamental differentiator for us particularly as we build out our difm product Suite that I spoke to earlier.
We see a strategic opportunity to lead by combining proactively legal insights with automated execution leveraging, 20 years of robust data,
our AI tools will enable customers to address their needs faster more efficiently and with greater personalization,
With AI being utilized throughout, many parts of the organization, we have enabled higher, speed satisfaction, and scalability with shorter fulfillment times and improve resolution rates.
With this foundation in place, we're turning our Focus toward customer innovation.
Applying AI to create higher value do-it-for-me offerings that improve compliance and efficiency.
A recent example of that is automatic annual reporting within our compliance office.
With this new launch all compliance customers. As well as concierge customers can have their annual reports filed automatically using intelligent software with little to no need to intervene.
The net result of our push toward deeper engagement. Thus far has been significantly more annual reports filed and more businesses remain in compliance.
Which we believe has contributed to the improved retention. Previously, discussed.
This is in keeping with our focus on quality, sharing the best customers and providing the best subscription offerings available.
AI to be clear is not optional at Legal Zoom and we're just scratching the surface here and I'm personally excited about the AI product roadmap.
Lastly, I'd like to touch on our recent, acquisition of formation Nation.
This strategic acquisition brings complimentary Brands and core capabilities that align seamlessly with legal zooms vision.
We are extremely pleased with the transaction for several key reasons. First integration efforts have been Swift and successful.
% of the sales team, and who are now focused on selling Legal. Zoom products, enhancing our ability to deliver higher touch, formation and compliance Services. An important part of our strategy to attract and retain higher, LTV customers, and sell more difm products.
Second.
Our strategic marketing Investments are already yielding results, driving increased traffic and engagement to the formation Nation platform while reaffirming legal zooms brand EOS.
Finally, we acquired an amazing team.
The leadership is Bar, None in sales and service and the broader team continues to teach us best practices.
In short, this acquisition is already delivering meaningful value. And we are comfortable stating that we are now 1 team with a singular Mission and focus.
In summary.
We are ahead of schedule on our strategy.
And the business is on a stronger Foundation than it was a year ago.
Looking ahead. We remain confident in our growth trajectory
I would like to take a moment here to thank our tremendous team, to whom I personally owe a large debt of gratitude.
This has been a difficult year with a lot of transition and change.
It has also been a hugely successful.
And I'm proud of that.
the speed at which we've executed is a
Strength of the team here at Legal, Zoom.
And this team I firmly believe is still being underutilized. They are that good.
I deeply believe.
In all of this and that with this team, I'm convinced we can do even more together with that. I'll now turn the call over to Noel
Who will take you through the Q2, financials and updated guidance in more details? Noel.
Thanks, Jeff and good afternoon, everyone.
We are very pleased with our second quarter results which reflected continued progress in our key Focus areas.
As Jeff mentioned, our business has stabilized.
We're seeing solid growth in our core and we've reached key financial targets ahead of schedule.
I'll now turn to a review of our second quarter financial performance.
Unless otherwise stated all comparisons will be on the year-over-year basis.
Total revenue was 193 million for the quarter up 9% and ahead of our expectations.
Looking at our Revenue performance in more detail. We generated 10% subscription Revenue growth, which resulted in roughly 120 million from subscription Revenue in the quarter.
Achieving double digit growth in subscription Revenue. 2 quarters ahead of schedule is a strong indicator that our strategic shift is gaining traction and delivering results.
subscription Revenue benefited from higher compliance related subscriptions as well as the formation Nation acquisition and our 1 800 account in Partnership
We will maintain our focus on our core strengths and legal and compliance Services while. Also leveraging Partnerships with top, tier providers to address the additional needs of our customers.
We ended the quarter with approximately 2 million subscription units. A 22% increase. In addition to the inclusion of formation Nation, the strong unit growth was driven primarily by higher forms e signature and bookkeeping subscriptions. As we bundle these products into certain business formation packages.
we continue to expect this growth to moderate, as we have seen lower, renewal rates with these initial cohorts
RPU was $256 for the quarter, down 6% year-over-year and up 2% from the first quarter.
Year-over-year decrease was primarily the result of the aforementioned mix shift of lower price subscription offerings related to the bundling of forms in E signature in bookkeeping subscriptions into our higher-end. Formation skus.
We expect to maintain similar ARPU dollar levels in the second half of the year.
Turning to transaction Revenue.
We saw an increase of 6% to 73 million.
The increase was due to an 8 million Improvement in transaction revenue from our acquisition of formation Nation. Largely offset by a decline in BO Revenue.
We also saw a decrease in business formations in line with our shift in focus toward higher-quality customers.
We expect similar transaction Revenue growth rates in the back half of this year.
we recorded a 5% decrease in transaction units, to 278,000 primarily due to a decrease in boar filings, partially offset by formation Nation transactions,
We processed 131,000 business formations in the second quarter.
I'm targeting quality, share, partially offset by the addition of formation Nation.
Average order value was 262 for the quarter up 12% versus the same period last year.
Finally, deferred revenue increase by 2.8 million from q1 reflective of the typical seasonality in our business and the success of our subscription initiatives.
Turning to expenses and margins where all of the following metrics are in a non-gaap basis.
Second quarter gross margin with 69% up from 68% in Prior year.
Sales and marketing costs were 63 million or 33% of Revenue, and increase of 9% from prior year.
Customer acquisition marketing costs, decreased, 0.4 million or 1%.
Non-camp sales and marketing expenses increased by $5.7 million, or 56%, which is primarily a result of the addition of the Formation Nation sales team.
Technology and development costs were 15 million down 3 million or 15%.
General and administrative expenses. Were 15 million a decrease of 1 million or 6%.
Both technology development and GNA costs were primarily driven by efficiencies built into the business that started in the third quarter of last year.
Our execution, drove adjusted ibida of 39 million.
This represents a 35% year-over-year increase as compared to adjusted ibida of 29 million for the same period last year.
Adjusted ibido margin of 20% increased 400 basis points year-over-year.
As a reminder, our adjusted ebit. Margins are generally lower in the first half of the year due to higher cam spend levels that align with our businesses seasonality.
Free cash flow is 32 million in the quarter up 82% compared to 17 million for the same period in 2024.
Our free cash flow Improvement was primarily due to the increase in adjusted ibida and increased subscriptions as well as lower cash taxes.
While we were in the process of fully evaluating the implications to our business from the recently passed 1 big beautiful. Bill act, our initial expectation is that we will see a positive impact on our cash flow for the year.
This is primarily a result of the provision enabling accelerated tax deductions for research and development expenditures.
We ended the quarter with cash and cash equivalents of 217 million.
Our cash position increased by 7 million versus q1, 2025 benefiting from strong free, cash flow generation, partially offset by share repurchases.
Subsequent to quarter end, we renewed and amended our credit agreement, which among other things extends, the maturity date to July 2030 and lowers this revolving credit facility to a hundred million dollars.
A facility remains undone.
As a reminder last quarter, our board of directors approved, a hundred million dollar increase to our existing share repurchase program.
During Q2, we were purchased approximately 2.2 million shares at an average price of $9.33 per share for a total of 20.4 million.
We now have approximately 130 million dollars remaining under our existing authorization.
As we look ahead, we continue to believe our strong cash position and healthy, free cash flow generation will enable us to continue to invest in our business as well as evaluate strategic m&a opportunities.
Before turning to our Outlook, I want to take a moment to discuss how we think about the macro environment.
Over the past year, we've made a deliberate effort to decouple our business performance, from the unpredictability of the broader industry trends.
While business formation Trends, continue to be volatile and difficult to forecast. We've taken proactive steps to build greater resilience into our models.
Our strategy centers on doubling down on our core, strengths legal, and compliance subscription Services tailored to high-quality customers with long-term value potential.
Through this Focus, we aim to reduce our exposure to short-term macro fluctuations and instead build a more stable recurring Revenue base.
We believe that the companies executing well against this strategy and it can be seen in our stable results during an otherwise volatile macroeconomic period, looking ahead, as we shift away from 1-off free formation, transactions toward durable, premium solution-based subscription Services. We also anticipate the stabilization in market share trends
Ultimately our goal is to deliver durable, results through the strength of our offerings, the Loyalty of our customers and the operational flexibility. We built into the business, regardless of macro trends,
Now, turning to our Outlook.
With a clear progress, we are making our key Focus areas.
As such, we are raising our full year Revenue, guidance, for the full year 2025. We now expect Revenue to grow by approximately 8%
We continue to expect an adjusted. Eva margin of 23%.
But the third quarter we expect revenue between 182 and 184 million representing growth of approximately 9% at the midpoint of the range with similar growth rates to the second quarter across both subscription and transaction revenues for the same period. We expect to achieve adjusted. EBA in the range of 44 to 46 million, which reflects a 25% margin at the midpoint.
In closing, despite the uncertain economic environment. We're demonstrating clear progress against our key Focus areas, including achieving double digit, subscription Revenue. Growth ahead of expectations with strong execution and a focused strategy. We're well positioned to continue delivering results through the remainder of the Year. Regardless of macro conditions
Long term we remain confident in our ability to to deliver sustainable or profitable growth for several reasons.
We are the market leader in online legal services with unmatched brand recognition. Over 60% of our revenue is subscription-based. Providing a predictability and resilience
We are just beginning to tap the potential of AI and data to deliver smarter more personalized legal Solutions and we have a flexible operating model and a strong balance sheet, giving us the ability to invest while staying nimble.
As always, we'd like to thank the entire Legal Zoom team for their efforts this quarter.
And with that, let's now open up the call for questions.
Thank you. At this time. We will conduct the question and answer session.
As a reminder to ask a question, you'll need to press star 1, 1 on your telephone and wait for your name to be announced. So withdraw, your question please? Press star 1 1 again.
Please stand by while we compile the Q&A roster.
Our first question comes from the line of Brent, Phil of Jeffrey's your line is now open.
Hi, thank you. This is, uh, John Dan from brenfield, um, so a lot of positive comments there. I wanted to see if you could maybe dig in a little bit more on the confidence, in raising the growth.
For the 4 year. You know by 3 tie points obviously the trends are good but I the the medical is still somewhat volatile and so I don't know if you could dig into a little bit in terms of the drivers behind your confidence. Thank you sure. And and thank you for that John. What why don't I start it at the high level and then turn over to Noel to dig in on the details. But we you know we're we're now running a more predictable subscription driven business that isn't fully beholden.
To small business starts and you're seeing that with some of the trends that are developing within the business. And you know, that gave us confidence at the beginning of the year to give us confidence that, you know, the q1 trends would continue. And persist it allows us to, you know, to maintain margins and accelerate growth. I I won't say irrespective of the formation margin uh macro but with a much wider range, uh so that we're not so limited. We we arranged bound now, you know, such that we can operate our business within our control in a way that we couldn't previously.
Yeah. And I would say importantly the increasing guide is driven by performance. That's sort of multifaceted if you look underneath the covers. Um we saw strange as we mentioned in our remarks, we saw strength in our core compliance subscriptions which is uh really important. And that's partly due to uh pricing the value. But also we're starting to see some positive signs on on retention here, as we look at year 1 renewals and that's tied to a lot of the work that the team has been doing uh to improve engagement with our compliance clubs. Uh, we've seen strength in our virtual male offering, uh, specifically with renewals outperforming our expectations. Uh, we continue to be very happy with our 1-800 partnership and that's driving growth. Uh, we have some added benefits for formation nation and and that still continues to represent a near-term opportunity. Um, as we look to shift a largely transactional business, uh, to
Subscription. Um, so the, the importantly it's coming from a bunch of different areas, some, um, to be frank of, the, the raise is built into performance that we've already delivered year to date, um, but we're seeing you know, consistent visible. Um, and predictable uh,
Improvement in the initiatives that, that are underlying, the the guide increase.
You know, financial aspects or benefits that could be driven there, you know, without.
Getting into the details that you can't disclose. Thank you very much. Yeah, yeah, great. Great question, without getting into the details. I mean, what?
Here is is a signal that AI is incredibly critical to what we're going to be doing going forward. And, you know, if, if you look from, you know, from those companies perspectives, they're they're, they're choosing the market leader, uh, which which is us and, you know, with 20 years plus of data, or a bus history, strong brand and this ability to, you know, to move up Market. It it's it's a natural fit for, you know, for us to start working with the best in, you know, in this field. Um, openai perplexity, that there are others that we're going to try to continue to work with. Um probably more importantly as we look to the Future. It's it's a strategy that lends itself to what we're doing with do it for me difm and you know this concierge model of being able to leverage AI not to replace. But to augment our expertise is something that we believe is
Unique to Legal Zoom and something that only we can deliver. And then the last thing that I will say is that it speaks to a Last Mile problem which most technology has. We Believe AI does as well, which, which is something we've been talking about for a number of quarters, AI has the ability to do a lot of things in our space and in legal Tech generally. But when it comes to that last mile, the, you know, just before a contract is signed, that's when you need to introduce some level of service. And some level of product, that is very tailored to the individual customer. What a uniquely positioned to drive that forward. And some of the pivot that we have made over the last year and most of what we're doing, go forward is designed to actually align with that because we think that as the market evolves, that's where we're going to be able to sit and create real differentiation for legal soon.
You bet. Thank you.
1 moment for our next question.
Our next question comes from the line.
Patrick mcy of William Blair. Your line is now open.
Hi team.
Nice results. This quarter. So my first question I may have missed this, but I didn't catch you. Mention your retention rates this quarter. So first, if you wouldn't mind sharing those, um, that would be great. And then second, can you provide an update on
How have the retention or attrition rates you've seen in some of those initial bundled cohorts progressed? Now, I believe you're kind of laughing at some of the changes you made to those SKUs last year.
Yeah. Hey, Pat, this is Noelle. Um, thanks for the question. So our aggregated, uh, retention rate for the quarter was 59%. Um, that's down from prior quarter of 60%. Um, so we signaled, this, I think on on prior calls, um, and we've mentioned a few times that it, it really relates to the fact that we started bundling, these lower price, uh, lower retention, uh, subscriptions in our Pro and premium skus, um, specifically forms, uh, e signature, uh, and bookkeeping
So we've lapped forms in E signature roll out which is really in the first and second quarter of last year and will be lapping. The bookkeeping rule out which was more kind of end of third early fourth quarter of Prior Year and that will start to see absent further changes in commercialization.
Retention rates, uh, stabilize, uh, thereafter. I will say when you look at it's largely this, you know, the change of retention is largely this mix in product. Uh, and and when you look individually at our respective products, we're actually happy, uh, with the retention rates that we're seeing. And as we mentioned, in our prepared remarks, we're seeing some positive signals, uh, within our core compliance subscriptions, which are the the products that matter most to us. Yeah. And and specific to those compliance products, which are the majority of our revenues and subscription it. We're, you know, we're we're we're seeing positive Trends both in retention and in engagement. So it gives us a proof point on retention. Uh, we, you know, which speaks to what we've done in the past, but that engagement number speaks to our ability to drive, retention higher churn lower, uh, over time in those core products, which are the products that we want some of these bundles to graduate into anyway,
Right. Okay, thank you. Both. And and then my my second question. No. Well, I think you mentioned that formation.
Nation contributed 8 million in Revenue, this quarter, if I caught that correctly but I believe there's a decent amount of seasonality in that business. So I just wanted to ask if you could frame expectations for that in the second half just so we can kind of back into a more organic growth rate.
Yeah, so um formation Nation delivered. Uh 8 million in the transaction Revenue side of the business uh for the quarter. Uh in total, it was a little over 12 million 12 million dollars, uh, that they contributed and you're right because it's more heavily transaction oriented. There's more seasonality in the in, in the business than Legal Zoom. We're not breaking out the guide but you would expect that seasonally. Um, the first half of the year is stronger than the second half of the Year generally, uh, in our category. So we would expect the contribution to be, you know, somewhere similar to to slightly lower than what you saw in in Q2 and and and I'll just caution you on on a couple of things because we've been doing deep Integrations with formation Nation. So, um, number 1, we've been accelerating our marketing efforts towards formation Nation, uh, and, you know, and, and that complicates that decoupling, if if you're trying to do that, number 2, we
Have been rebranding Legal Zoom and then formation Nations lead, uh, brand Inc, Authority, uh, with Legal Zoom, being premium Inc, Authority being discount, and free. Uh, and then number 3, we we've now taken a sales Center uh, and, uh, from formation nation and redeployed them on legal zooms higher-end products. So it is it is not a clean. Uh, you know, look when you know when you're trying to do an apples to apples,
Whom okay understood, thanks, Jeff and and thank you Noel for the thoughts.
You bet, thanks for the comments. Thank you.
1 moment for our next question.
Our next question comes from the line of Elizabeth Porter of Morgan Stanley. Your line is now open
Great. Thank you so much Jeff I wanted to follow up on your comment about moving some of those sales heads over from foreign Nation uh over formation Nation. Um I wanted to touch on just the success. You may be seeing thus far around attaching subscriptions to formation Nations higher value customers. So I know it might be early but what are the signs of success you're seeing so far? And what products do you think may have the highest um attach rates to this type of customer base?
Sure good. Good question something. Something we are deeply focused on, let, let me unpack it a little bit. Um, you know what we what we've done is redeployed a you know, a sales Center uh focused on Legal Zoom, selling model, uh, which is disproportionately more subscription than what formation Nations was uh, historically and even is today, um, that by default by, by pulling those customers through our funnel will immediately move people into a subscription, um, base more more quickly than than, with formation nation. In terms of where we think we can take these formation Nation. Customers over time, I think it is very similar to what we have done historically with Legal Zoom. So, you know, first and foremost, it's our, it's our core product offerings, those compliance offerings, some of which formation Nation had, but didn't lean on because they were more focused on on being cash generative day 1 because
They were run, you know, with with with being cash constrained um number 2, some of the products that they didn't have. So some of the things that we're creating around difm, some of the compliance calendaring, um, some of the automatic filings that were that were doing now and uh and then some of the product lines like, you know, like virtual mail that they weren't able to offer prior. Uh, so I think that there are a lot of areas where we will be
Upselling and cross-selling both the existing base uh and and porting over new customers. But you know, I will. I'll reiterate, we're very, very early in that process. We're we're going after low-hanging fruit right now, um, because it's there, it's available. Um, and, you know, in that integration is already proving very successful, but over time, I think, I think that there's a lot of opportunity and it points to our ability to do that with, you know, with potentially other m&a opportunities. Uh, and within our, you know, our core basis. We grow as well.
Mitigating some of the upside to margins that we have for the full year outlook. Thank you.
Yeah, I think Jeff hit on 1 of the areas that we're, we're pretty excited about, um, which is in the concierge or or do it for me, offering, which is much more of a, a Hands-On White Glove service that we're providing. And this is part of our March towards focusing on higher value subscriptions, toward higher quality customers. Um, we're having really good early success there. Uh, and as you start to scale, new products like that it generally takes a, a larger investment. And so that's the mode that we're in right now and you're seeing that in the results but we we're expecting it to continue to to scale quickly. Um and so we'll invest behind it and as we build the tools and automation to create efficiencies and supporting it, we'll see leverage from a margin standpoint as we move forward. So that's that's a particular area of focus for us, right now, in terms of investment. Yeah. And and I'll I'll give another 1
which, which is
Engagement because we know engagement will reduce churn. And, you know, if you think about what we do on the compliance side, if you have everyone trying to do it yourself, it's it's like hurting a bunch of meowing cats. I mean, it it just doesn't happen. So what we've, what we've done is, we've started to build a bunch of technology-oriented automation, uh, that allows us to do this.
You know, this deep engagement and our compliance products and we're already seeing proof points that that is reducing churn. And you know the example I think that we mentioned in the uh in the prepared remarks was what we're doing for annual reports and we've seen a dramatic uptick in annual reports uh ironically that falls in our compliance line the dollars because there are filing fees associated with with it. Um it sits over on the transaction side but what it what it does is we deliver those transactions in an automated way and they reoccur uh naturally it ends up reducing churn in our you know in our subscription products
Yeah, I think 1 other important piece and that is an invest, sorry. Just that is an investment that that is a lower margin because of the filing fees. Yeah. And 1, ongoing investment that we've been making and we continue to see bare fruit is just around our operations. Um, the tools, the automation, some of it leveraging AI to help our team deliver our services to customers. It's just driven a lot of efficiency um in in how we deliver and improvements in customer experience. And so that is an offset to any investment that we're making, as we're driving more efficiencies there. Yeah. And and and that's also
An important point just to put a pin on this, because we're leveraging the economies of scale. So it we're we're still working on margin Improvement, we're not talking about deterioration here. Uh, which is why we reiterated our, our margin Target.
Great, thank you for the very thorough answer. Thanks, you bet.
1 moment for our next question.
Our next question comes from Michael McGovern of BFA, your line is now open.
Hey guys, thanks for taking my question. Uh, when we think about your AI Partnerships, and, you know, even agents, creating documents for users that aren't necessarily in your ecosystem yet. Can you just discuss what the Playbook looks like for, you know, uh, creating a longer term customer there or monetization of that use case. And then, uh, second question with that last mile delivery, uh, uh, piece from your prior answer, does that lend itself to adding more AI Partners in the future if you're really focused on that last mile,
Yeah. Great. Great question. And I mean, this is a real opportunity to expand our addressable market. I mean, AI can be a very big TAM expander. If you have something differentiated and, you know, in this case, what we see is many people have legal questions and legal problems that they don't know are legal in nature. So, by leveraging these partnerships,
That that's a marginalized part of what we do. It is not core to our business. What is core to our business is solving that last mile problem that we don't think anyone, but Legal Zoom can solve and what that ends up. Meaning is, we we open our aperture, uh, for, you know, from the addressable Market standpoint. Uh, and then we start going after the old line, lawyers and law firm, uh, Market uh, that we weren't addressing prior because we were focused on top of funnel. Formations. So we we think this is a really exciting new opportunity for us. We've even seen this in in some of our marketing efforts today.
Great. Thank you.
You bet.
1 moment for our next question.
Our next question comes from the line of Matt condan of citizens. Your line is now open.
Thank you so much for taking my questions. My first 1 is just on Jeff, you know, you talked about engagement multiple times in this call. Do you guys talk about maybe how the improvements engagement with your products is informing your future product roadmaps, and how you can cross sell into that base of users? And then just a follow-up. Also, on cost cell, can you just talk about how you're optimizing the the purchase flow to to just increase attached rate? And what's what's really? Working there? Thank you.
You bet and and good good Insight here in terms of how our customers more than anyone are driving, our product experience and and where we're headed. I mean the the this concierge Suite of products was an
Out drop of you know, of what we were hearing from customers, and what they needed. What we realized was a
Surprisingly high percentage of small businesses are out of compliance. Uh, and uh, and unfortunately, that includes customers who have our compliance products. And, you know, and the reason is because this isn't easy, this isn't fun, this isn't anyone's expertise as a small business owner, instead, we're giving them the tools to do something that they don't have the time wherewithal or inclination to do. So they just fall out of compliance until fees build up and say now I have to do something. So what, what what we have realized is, if we make it simple and seamless for real functioning businesses to remain compliant, they're willing to pay more for that because they see value in getting back their time. And, you know, as we begin to tease this out, we're going to learn more and more about what it is, that customers need. And, you know, we, we've got a very good model for, you know, for testing very cost-effectively. The next do it for me product.
Uh determine whether it works, then build Automation and AI to make sure that it's streamlined and margin accretive uh and then relaunch it as a fully-fledged product. So I think you will see much more here in that respect. And, you know, in difm will be a larger and larger percentage of total revenues over time.
Thank you so much.
I'm showing no further questions at this time. Thank you for your participation. In today's conference, this concludes the program. You may now disconnect