Legalzoom.com, Inc. · NASDAQ:LZ
Legalzoom.com — Q4 2023 Earnings Presentation
42 slides from Legalzoom.com's earnings presentation, Feb 22, 2024
Slide 1: Investor Presentation February 2024
Investor Presentation February 2024
Slide 2: Forward-looking statements disclaimer
Forward-looking statements disclaimer This presentation contains forward-looking statements. We intend such forward-looking statements to be covered by the safe harbor provisions for forward- looking statements contained in Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Slide 3: About non-GAAP financial measures
About non-GAAP financial measures This presentation includes certain non-GAAP financial measures including Adjusted EBITDA, Adjusted EBITDA margin, non-GAAP net income (loss), non-GAAP net income (loss) margin, adjusted gross profit, adjusted gross profit margin, certain non-GAAP expenses (including
Slide 4: Our Mission: Unleash entrepreneurship
Our Mission: Unleash entrepreneurship
Slide 5: Focused on Stockholder Value
Focused on Stockholder Value Driving growth Expanding margins Increasing FCF $661M 18% $93M total revenue Adj. EBITDA margin free cash flow +7% yoy +74% yoy +79% yoy Represents the year ended December 31, 2023. 5
Slide 6: SMB legal, compliance, and financial is a big opportunity
SMB legal, compliance, and financial is a big opportunity And we are well-positioned to realize it Little product Low tech Online innovation adoption lead gen Our $51B 25 ~4% 65% Market SAM(1) Offline Attorney legal services of lawyers cite as NPS(2) delivered largest marketing online in the US(3) e
Slide 7: Large SAM, significant opportunity, early innings
Large SAM, significant opportunity, early innings Progress made scaling formations; build out of ecosystem opens new SAM; early in our journey of expert services, which is the largest opportunity(1) The Opportunity… Scale the Business Business Ecosystem Expert Integration $13B $15B $23B The largest
Slide 8: Our management team
Our management team Experienced in small business and consumer innovation at scale Dan Wernikoff Noel Watson Rich Preece Shrisha Radhakrishna Chief Executive Officer Chief Financial Officer Chief Operations Officer Chief Technology & Product Officer Nicole Miller Sheily Chhabria Panchal Kathy Tsitov
Slide 9: Our customer, product and growth strategy
Our customer, product and growth strategy 9
Slide 10: We solve three important problems for new businesses
We solve three important problems for new businesses With a focus on solopreneurs, an often-overlooked segment of customers Entity creation and compliance is Immediately after launching, an SMBs have a fear of navigating complex, complicated, time-consuming and SMB needs to find the oft-changing reg
Slide 11: LegalZoom makes starting a business simple
LegalZoom makes starting a business simple Eliminating the friction of countless gov’t agencies and disparate service providers A Typical SMB use case* LegalZoom makes it easy, at scale ? Forming w/ Secretary of State(1) ? Bookkeeping / Accounting(2) • A single interface to 3,000 counties, 50 states
Slide 12: Three key strategic pillars
Three key strategic pillars With clear priorities designed to drive long-term growth Scale the Business Build the Ecosystem Integrate Experts • Capture share by reducing • Build core offerings to help • Provide first-level insights by transactional pricing to form a keep business compliant, leveragi
Slide 13: Scale the Business: Stable macro, strong relative performance
Scale the Business: Stable macro, strong relative performance And there are tailwinds to drive further acceleration 4% 18-year small business 78% years with positive U.S. small business > 5M business formed Tailwinds formation CAGR(1) annually(2) formations growth(1) Work From Home U.S. Business For
Slide 14: Scale the Business: Freemium
Scale the Business: Freemium Driving share of formations through the conversion of non-consumption 23% YoY increase in business formations in 2023 (1) YoY Growth % Freemium Freemium Testing Rollout 170K 161K 137K 129K 117K 115K 113K 113K 42% 32% 17% 12% 3% (2%) (2%) (16%) (1) For the year ended Dece
Slide 15: Build the Ecosystem: A powerful channel
Build the Ecosystem: A powerful channel With a new opportunity, post-formation In the future Attached with formation Attached within 30 days of formation Attached post-formation Formations LLC Incorporations DBA Registered Agent Bookkeeping Websites Legal Advice Trademark Non-Profits Entity Complian
Slide 16: Build the Ecosystem: Rapidly launching new offerings
Build the Ecosystem: Rapidly launching new offerings Five new services integrated in three years July 2021 October 2022 April 2023 August 2023 November 2023 Tax prep software with Virtual mailbox solution eSignature services designed Easy-to-use accounting Personalized licenses service to integrated
Slide 17: Build the Ecosystem: Bringing it together with MyLZ
Build the Ecosystem: Bringing it together with MyLZ Focused on creating a unified experience and application Growing our mix of subscription revenue Subscription Revenue (% of Total Revenue) $413M $359M 62% $293M 58% 51% Sample text 2021 2022 2023 14 17
Slide 18: Build the Ecosystem: LZ Books
Build the Ecosystem: LZ Books Our simple accounting solution designed for the solopreneur Capabilities • Automated income and expense categorization • Customized proposals and invoices • Payments • Mileage tracking, receipt capture, bulk expense classification • Seamless integration with LZ Tax Oppo
Slide 19: Build the Ecosystem: Business Licenses
Build the Ecosystem: Business Licenses Rounding out our compliance ecosystem Capabilities • Personalized summary of required licenses, permits and registrations • Direct access to applications • Proprietary nationwide database kept up-to-date down to local level requirements Opportunity • Essential
Slide 20: Integrate Experts: ARPU opportunity
Integrate Experts: ARPU opportunity By evolving into a platform that enables access to experts at an accessible price Attorney Led Business Trademarks Advisory Plan LZ Tax Strong attorney network • 1,000+ attorneys • Coverage in all 50 states Our own law firm • Alternative Business Structure in Ariz
Slide 21: Integrate Experts: Doc Assist
Integrate Experts: Doc Assist Targeting non-consumption with AI-driven lead gen model Capabilities • Free document summarization product • Leverages AI technology and 20+ years experience in legal forms space • Distills clauses and prompts questions tailored by document type • Promotes access to our
Slide 22: Integrate Experts: Legal Forms library
Integrate Experts: Legal Forms library Another gateway to grow our expert offerings Capabilities • Free access to 160+ attorney certified forms • Forms editor provides ability to customize, sign/send for eSignature, track document status and store documents securely for a fee • Promotes access to ou
Slide 23: Investment highlights
Investment highlights The largest digital player in a large and fragmented formations market • Ability to operate at scale in a complex, highly regulated industry with low technology adoption • Leading brand and powerful customer acquisition channel with significant greenfield opportunity Attractive
Slide 24: Financial update
Financial update LEGALZ90m
Slide 25: Strong financial performance
Strong financial performance Driven by strategic pillars and cost discipline Business Formations (1) Revenue by Type (2) Step-up in formation (1) Subscription Revenue growth 581K Transaction Revenue 10% business formations CAGR outpaces $661M 1% macro(4) CAGR over the same period $620M $575M 483K 47
Slide 26: Quarterly Q4 2023 snapshot
Quarterly Q4 2023 snapshot $159M $108M $33M total revenue adjusted gross profit(1) adjusted ebitda(1) +8% yoy 68% margin(1) 21% margin(1) 113K 215K 1,545K business formations transaction units subscription units (2%) yoy +2% yoy +7% yoy (1) This is a non-GAAP financial measure. Refer to the Appendix
Slide 27: Balanced focus on top and bottom-line growth
Balanced focus on top and bottom-line growth Improving profitability; high conversion of Adjusted EBITDA into Free Cash Flow GAAP Revenue Adjusted EBITDA (1) Free Cash Flow (1) $37M $169M $34M $33M $167M $166M $30M $163M $26M $159M $22M $21M $22M $155M $155M $19M $18M $17M $16M $14M $147M $9M $6M $2
Slide 28: Transaction revenue – our top of funnel
Transaction revenue – our top of funnel Focus on subscription growth, trading off transactional AOV/Revenue Business Formations (1) Transaction Units (2) Transaction Revenue (4) AOV(3) 170K Freemium Freemium 161K Rollout Rollout 137K 308K $71M $71M 129K $68M 283K $66M 267K $64M $62M 113K 117K 115K 1
Slide 29: Subscription revenue – mix increasing
Subscription revenue – mix increasing Growing subscription revenue and ARPU Subscription Revenue(1) Subscription Units (2) Subscription revenue (% of total revenue) ARPU(3) $105M $107M $103M 1,568K $98M 1,553K 1,545K $92M $92M $91M 1,501K $85M 67% 1,441K 1,415K 62% 63% 1,394K $277 61% 1,362K 59% 59%
Slide 30: Driving marketing efficiencies
Driving marketing efficiencies Leveraging freemium messaging to drive efficient CAM spend Sales & Marketing ($M) (1) Customer Acquisition Media “CAM” Other Sales & Marketing % of Revenue $258M $246M $72M $66M $199M $62M 46% $57M 45% 41% $51M 195 40% 40% $48M $46M 175 54 35% $43M 44 30% 45 31% 30% 41
Slide 31: Non-GAAP expenses
Non-GAAP expenses (1) $M by Spend Category % of Revenue by Spend Category Cost of Revenue Technology & Development Sales & Marketing General & Administrative 99% $153M 9% 89% 89% $145M $144M 87% 15 $138M $139M 13 $134M 8% 8% 10% 82% 82% 15 9% 80% 79% 13 15 15 $125M 11 $120M 15 7% 11% 9% 15 8% 9% 9%
Slide 32: Q1 and FY24 guidance commentary
Q1 and FY24 guidance commentary Q1 2024 Full Year Guidance Total Revenue $172M - $176M • 2024 revenue growth of 7% at the midpoint • We expect flat to low-single digit growth in Adjusted EBITDA(1) $25M - $27M the formations macro(2) in 2024 • Continued margin expansion; expect 2024 Adjusted EBITDA m
Slide 33: GAAP and non-GAAP long-term financial targets
GAAP and non-GAAP long-term financial targets Long-Term GAAP and Non-GAAP Measures ’21A ’22A ’23A Targets(2) Revenue Growth 22% 8% 7% 24% + Gross Margin (GAAP) 67% 66% 64% 71-73% Customer Acquisition Marketing 34% 28% 22% 18-22% (CAM) OpEx (exc. CAM)(1) 26% 29% 26% 21-23% Adjusted EBITDA Margin(1) 8
Slide 34: Appendix
Appendix LEGALZ90m
Slide 35: Reconciliation of GAAP expenses to non-GAAP expenses
Reconciliation of GAAP expenses to non-GAAP expenses FYE Dec 31, $K 2021 2022 2023 Q1’22 Q2’22 Q3’22 Q4’22 Q1’23 Q2’23 Q3’23 Q4’23 Cost of revenue $189,364 $211,095 $239,263 $56,182 $57,151 $50,314 $47,448 $60,395 $63,749 $59,123 $55,907 Stock-based compensation(1) 1,662 2,931 4,318 277 1,331 597 72
Slide 36: Reconciliation of GAAP expenses to non-GAAP expenses on a % of revenue basis
Reconciliation of GAAP expenses to non-GAAP expenses on a % of revenue basis FYE Dec 31, $K 2021 2022 2023 Q1’22 Q2’22 Q3’22 Q4’22 Q1’23 Q2’23 Q3’23 Q4’23 Cost of revenue 33% 34% 36% 36% 35% 32% 32% 36% 38% 35% 35% Stock-based compensation(1) 0% 0% 1% 0% 1% 0% 0% 1% 1% 1% 1% Depreciation and amortiz
Slide 37: Reconciliation of GAAP expenses to non-GAAP expenses on a year-over-year % basis
Reconciliation of GAAP expenses to non-GAAP expenses on a year-over-year % basis FYE Dec 31, $K 2021 2022 2023 Q1’22 Q2’22 Q3’22 Q4’22 Q1’23 Q2’23 Q3’23 Q4’23 Cost of revenue 23% 11% 13% 28% 15% 6% (2%) 7% 12% 18% 18% Stock-based compensation(1) 1,439% 76% 47% 889% 88% (23%) 391% 216% (17%) 87% 69%
Slide 38: Reconciliation of GAAP gross profit to non-GAAP gross profit
Reconciliation of GAAP gross profit to non-GAAP gross profit FYE Dec 31, $K 2021 2022 2023 Q1’22 Q2’22 Q3’22 Q4’22 Q1’23 Q2’23 Q3’23 Q4’23 Gross profit $385,716 $408,884 $421,464 $99,245 $105,498 $104,963 $ 99,178 $105,541 $105,106 $108,061 $102,756 Cost of revenue stock-based compensation(1) 1,662
Slide 39: Reconciliation of GAAP net (loss) income to Adjusted EBITDA
Reconciliation of GAAP net (loss) income to Adjusted EBITDA FYE Dec 31, $K 2021 2022 2023 Q1’22 Q2’22 Q3’22 Q4’22 Q1’23 Q2’23 Q3’23 Q4’23 Net (loss) income ($108,664) ($48,733) $13,953 ($25,753) ($12,743) ($11,981) $1,744 ($2,358) $1,395 $7,534 $7,382 Interest expense (income), net 27,984 (1,543) (8
Slide 40: Reconciliation of GAAP net (loss) income to non-GAAP net (loss) income
Reconciliation of GAAP net (loss) income to non-GAAP net (loss) income FYE Dec 31, $K 2021 2022 2023 Q1’22 Q2’22 Q3’22 Q4’22 Q1’23 Q2’23 Q3’23 Q4’23 Net (loss) income ($108,664) ($48,733) $13,953 ($25,753) ($12,743) ($11,981) $1,744 ($2,358) $1,395 $7,534 $7,382 Amortization of acquired intangible a
Slide 41: Reconciliation of net cash provided by operating activities to free cash flow
Reconciliation of net cash provided by operating activities to free cash flow FYE Dec 31, $K 2021 2022 2023 Q1’22 Q2’22 Q3’22 Q4’22 Q1’23 Q2’23 Q3’23 Q4’23 Net cash provided by operating activities $54,152 $73,837 $124,308 $13,737 $11,020 $27,258 $21,822 $29,208 $45,165 $27,441 $22,495 Purchase of p
Slide 42: LegalZoom
LEGALZ900m