Legalzoom.com, Inc. · NASDAQ:LZ
Legalzoom.com — Q3 2023 Earnings Presentation
41 slides from Legalzoom.com's earnings presentation, Nov 7, 2023
Slide 1: Investor Presentation November 2023
Investor Presentation November 2023
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: 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 $49B 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 6: Our business has changed since 2020
Our business has changed since 2020 Evolving the focus toward tech-enabled efficiency and product-driven growth Old Old LZ LZ New LZ New LZ Mission Democratize Law Unleash Entrepreneurship People Deep Domain Expertise Scaled Software Development On Prem, Old Stack, Cloud, Modern Stack/Tools, Technol
Slide 7: 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 8: 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) Small Business / Solopreneurs Opportunity … And Families Business Formation Formation Ecosystem Inte
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 Forming and maintaining a business There are many services required to Businesses often navigate choices entity is a confusing process … operate a business once formed … withou
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 state
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 keep business compliant, leveraging
Slide 13: Scale the Business: Formations are resilient
Scale the Business: Formations are resilient And there are tailwinds to drive further acceleration Stable macro, strong relative performance Tailwinds 83% Years with positive US small business formations growth(1) Work From Home More flexibility to form a business while employed – more than half of
Slide 14: Scale the Business: Freemium
Scale the Business: Freemium Driving share of formations through the conversion of non-consumption Business Formations (1) YoY Growth % Freemium Freemium Testing Rollout 170K 161K 137K 129K 117K 115K 113K 103K 42% 32% 17% 12% 12% 3% (2%) 30%+ YoY (16%) growth in LZ LLC(2) (1) We define the number of
Slide 15: Scale the Business: Drive marketing efficiencies
Scale the Business: Drive marketing efficiencies Leveraging freemium messaging to drive efficient CAM spend $M by Spend Category (1) % YoY Growth by Spend Category Customer Acquisition Media “CAM” Other Sales & Marketing $72M 73% $66M $64M $62M $57M 53% 46% $51M $48M $46M 54 44 47 45 41 16% 13% 36 3
Slide 16: Build the Ecosystem: A powerful channel
Build the Ecosystem: A powerful channel With a new opportunity, post-formation In the future Attached w/ formation Attached within 30 days of formation Attached post-formation Formations LLC Incorporations DBA Registered Agent Bookkeeping Websites Legal Advice Trademark Non-Profits Entity Compliance
Slide 17: 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 18: Build the Ecosystem: Bringing it together with My LZ
Build the Ecosystem: Bringing it together with My LZ Focused on creating a unified experience and application A new unified experience and a history of higher subscription Subscription Revenue (% of Total Revenue) $395M $358M 61% $289M 58% $230M $206M 51% 50% 49% Sample text (1) 2019 2020 2021 2022
Slide 19: 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 20: 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 21: 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 22: 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 23: 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 24: 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 25: Financial update
Financial update LEGAL7Z90mM
Slide 26: Quarterly Q3 2023 snapshot
Quarterly Q3 2023 snapshot $167M $112M $34M total revenue adjusted gross profit(1) adjusted ebitda(1) +8% yoy 67% margin(1) 20% margin(1) 137K 237K 1,568K business formations transaction units subscription units +17% yoy +5% yoy +11% yoy (1) This is a non-GAAP financial measure. Refer to the Appendi
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 $167M $34M $166M $163M $30M $26M $21M $22M $155M $155M $19M $22M $16M $147M $18M $9M $17M $6M $142M $7M $2M ($9M
Slide 28: Transactions – shift to Freemium
Transactions – shift to Freemium Focus on share and subscription growth, trading off transactional AOV/Revenue Business Formations (1) Transaction Units (2) Transaction Revenue AOV(3) 170K $65M $65M $62M 161K 308K $60M $58M $57M $57M 283K 137K 267K $51M 129K 237K 113K 117K 115K 225K 226K 211K 211K 1
Slide 29: Subscription mix increasing
Subscription mix increasing Unit growth accelerates post-freemium launch Subscription Revenue Subscription Units (1) ARPU(2) 1,568K $104M 1,553K $102M $97M $91M $91M $91M 1,501K $84M $81M 1,441K 1,415K 1,394K 1,362K 1,329K $252 $259 $258 $259 $259 $265 $236 $244 Year-over-year Growth % Year-over-yea
Slide 30: Q4 and FY23 guidance commentary
Q4 and FY23 guidance commentary Q4 2023 Raising & Narrowing Full Year Guidance Total Revenue $155M - $157M • Revenue growth of 6% year-over-year at the midpoint Adjusted EBITDA(1) $28M - $30M • Previous revenue guide(2) of $642M - $652M or 4% year-over-year growth at the midpoint • Adjusted EBTIDA m
Slide 31: GAAP and non-GAAP long-term financial targets
GAAP and non-GAAP long-term financial targets Long-Term GAAP and Non-GAAP Measures ’20A ’21A ’22A Targets (2) Revenue Growth 15% 22% 8% 24% + Gross Margin (GAAP) 67% 67% 66% 71-73% Customer Acquisition Marketing 25% 34% 28% 18-22% “CAM” OpEx (exc. CAM)(1) 25% 26% 29% 21-23% Adjusted EBITDA Margin(1)
Slide 32: Appendix
Appendix LEGAL7Z90mM
Slide 33: 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 95% 9% 89% 89% $145M $144M 10% 87% 15 $138M $139M $135M 13 $134M 8% 8% 10% 82% 82% 15 8% 9% 80% 13 15 15 14 11 $120M 15 7% 11% 9% 15
Slide 34: Reconciliation of GAAP expenses to non-GAAP expenses
Reconciliation of GAAP expenses to non-GAAP expenses FYE Dec 31, $K 2020 2021 2022 Q4’21 Q1’22 Q2’22 Q3’22 Q4’22 Q1’23 Q2’23 Q3’23 Cost of revenue $154,563 $189,364 $211,095 $48,278 $56,182 $57,151 $50,314 $47,448 $60,395 $63,749 $59,123 Stock-based compensation(1) 108 1,662 2,931 148 277 1,331 597
Slide 35: 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 2020 2021 2022 Q4’21 Q1’22 Q2’22 Q3’22 Q4’22 Q1’23 Q2’23 Q3’23 Cost of revenue 33% 33% 34% 34% 36% 35% 32% 32% 36% 38% 35% Stock-based compensation(1) 0% 0% 0% 0% 0% 1% 0% 0% 1% 1% 1% Depreciation and amortiz
Slide 36: 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 2020 2021 2022 Q4’21 Q1’22 Q2’22 Q3’22 Q4’22 Q1’23 Q2’23 Q3’23 Cost of revenue 13% 23% 11% 21% 28% 15% 6% (2%) 7% 12% 18% Stock-based compensation(1) (7%) 1,439% 76% 429% 889% 88% (23%) 391% 216% (17%) 87
Slide 37: Reconciliation of GAAP gross profit to non-GAAP gross profit
Reconciliation of GAAP gross profit to non-GAAP gross profit FYE Dec 31, $K 2020 2021 2022 Q4’21 Q1’22 Q2’22 Q3’22 Q4’22 Q1’23 Q2’23 Q3’23 Gross profit $316,073 $385,716 $408,884 $93,859 $99,245 $105,498 $104,963 $ 99,178 $105,541 $105,106 $108,061 Cost of revenue stock-based compensation(1) 108 1,6
Slide 38: Reconciliation of GAAP net income (loss) to adjusted EBITDA
Reconciliation of GAAP net income (loss) to adjusted EBITDA FYE Dec 31, $K 2020 2021 2022 Q4’21 Q1’22 Q2’22 Q3’22 Q4’22 Q1’23 Q2’23 Q3’23 Net income (loss) $9,896 ($108,664) ($48,733) ($20,771) ($25,753) ($12,743) ($11,981) $1,744 ($2,358) $1,395 $7,534 Interest expense (income), net 35,504 27,984 (
Slide 39: Reconciliation of GAAP net income (loss) to non-GAAP net income (loss)
Reconciliation of GAAP net income (loss) to non-GAAP net income (loss) FYE Dec 31, $K 2020 2021 2022 Q4’21 Q1’22 Q2’22 Q3’22 Q4’22 Q1’23 Q2’23 Q3’23 Net income (loss) $9,896 ($108,664) ($48,733) ($20,771) ($25,753) ($12,743) ($11,981) $1,744 ($2,358) $1,395 $7,534 Amortization of acquired intangible
Slide 40: Reconciliation of net cash from operating activities to free cash flow
Reconciliation of net cash provided by (used in) operating activities to free cash flow FYE Dec 31, $K 2020 2021 2022 Q4’21 Q1’22 Q2’22 Q3’22 Q4’22 Q1’23 Q2’23 Q3’23 Net cash provided by (used in) $93,049 $54,152 $73,837 ($6,004) $13,737 $11,020 $27,258 $21,822 $29,208 $45,165 $27,441 operating acti
Slide 41: LegalZoom
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