On February 22, 2024, LegalZoom.com Inc (LZ, Financial), a leading online provider of legal solutions for small businesses and consumers in the United States, released its 8-K filing, detailing its financial results for the fourth quarter and full year ended December 31, 2023. The company reported an 8% year-over-year increase in quarterly revenue, reaching $158.7 million, and a 7% increase for the full year, totaling $660.7 million.
Performance Highlights and Challenges
LegalZoom.com Inc (LZ, Financial) experienced a robust increase in subscription revenue, which climbed by 17% in the fourth quarter, driven by a 7% rise in average revenue per subscription unit and the addition of 104 thousand net new subscription units over the trailing twelve months. However, transaction revenue saw a 6% decline year-over-year, indicating a potential area for improvement.
The company's gross margin for the quarter was 65%, a slight decrease from 68% in the same period in 2022. This margin contraction may pose a challenge as it reflects the cost of revenue outpacing the revenue growth rate. Despite this, net income saw a substantial increase to $7.4 million for the quarter, representing 5% of revenue, compared to a net income of $1.7 million, or 1% of revenue, in the same period in 2022.
Adjusted EBITDA for the quarter was $33.4 million, or 21% of revenue, compared to $26.5 million, or 18% of revenue, for the same period in 2022. This improvement in profitability is crucial for LegalZoom.com Inc (LZ, Financial) as it demonstrates the company's ability to scale its operations efficiently.
Financial Achievements and Importance
The company's financial achievements, particularly in subscription revenue growth and a strong cash position, are significant for LegalZoom.com Inc (LZ, Financial) and the Business Services industry. The increase in subscription revenue underscores the company's success in building a recurring revenue model, which is vital for long-term financial stability and valuation. Additionally, ending the year with a robust cash position and no debt provides the company with financial flexibility to invest in growth initiatives and weather economic uncertainties.
Key Financial Metrics
LegalZoom.com Inc (LZ, Financial)'s key financial metrics for the quarter and full year include a 23% year-over-year increase in business formations and a 12% increase in transaction units. The company also reported a 7% growth in subscription units at the period end and a 7% increase in average revenue per subscription unit (ARPU), which are important indicators of the company's ability to attract and monetize its customer base.
Free cash flow for the quarter was $14.1 million, a decrease from $16.2 million in the same period in 2022. This metric is important as it represents the cash that the company can use for strategic investments, debt reduction, or returning value to shareholders.
Management Commentary
CEO Dan Wernikoff expressed excitement about the progress made in the quarter, highlighting the launch of new services such as the Business License offering and the Beneficial Ownership Information Report. CFO Noel Watson noted the company's revenue and Adjusted EBITDA exceeded guidance, contributing to a solid full-year performance. Both executives emphasized the company's strong foundation for growth in 2024.
"We are entering 2024 with a strong foundation to drive growth. Our investments in technology, a much broader ecosystem of services and an expanding base of more engaged subscribers put us in a strong position as we enter the year," said Dan Wernikoff, CEO.
"For the full year, we experienced a 15% year-over-year growth in subscription revenue and a 74% year-over-year increase in Adjusted EBITDA margin as we continue to drive operational efficiencies in our business," added Noel Watson, CFO.
Outlook for 2024
LegalZoom.com Inc (LZ, Financial) provided guidance for the first quarter ending March 31, 2024, with revenue expected to be in the range of $172 million to $176 million and Adjusted EBITDA expected to be between $25 million and $27 million. For the full year ending December 31, 2024, the company anticipates revenue to be between $700 million and $720 million and Adjusted EBITDA to be in the range of $135 million to $145 million.
LegalZoom.com Inc (LZ, Financial)'s latest earnings report reflects a company that is successfully navigating the challenges of the Business Services industry, leveraging its subscription model to drive consistent revenue growth and maintaining a strong cash position. As the company continues to innovate and expand its service offerings, investors and potential GuruFocus.com members should closely monitor its performance and strategic initiatives.
Explore the complete 8-K earnings release (here) from LegalZoom.com Inc for further details.
