LegalZoom.com (NASDAQ:LZ) reported second-quarter revenue of $205 million, up 7% from a year earlier and in line with its guidance, while adjusted EBITDA increased 18% to $46 million and exceeded the high end of its outlook.
Chairman and CEO Jeff Stibel said the company’s results reflected continued growth in subscription services, investments in artificial intelligence and efforts to diversify customer acquisition beyond traditional search. However, management also said recent changes to Google’s search experience created pressure on traffic, customer acquisition and business formation volume, prompting LegalZoom to reduce its full-year revenue outlook.
Subscription mix increases as higher-value services expand
Stibel said human-in-the-loop subscription services, which combine technology with professional support, grew about 20% year over year and accounted for 65% of subscription revenue. Those offerings represented more than 40% of total company revenue.
The company’s service offerings include Registered Agent and Virtual Mail subscriptions, while its expert-led offerings include legal plans, intellectual-property-related services and Business Manager, formerly called Do It For Me Concierge. LegalZoom said it saw increased use of legal plans as it bundled legal subscriptions with certain formation packages. Customer utilization of legal plans rose more than 35% year over year during the quarter, according to Stibel.
Chief Operating Officer and Chief Financial Officer Noel Watson said average revenue per user increased 5%, primarily due to pricing in human-in-the-loop offerings. Subscription units, however, declined 3% to about 1.9 million as the company shifted away from lower-value subscriptions bundled with formation packages.
Transaction revenue declined 1% to $72 million. LegalZoom processed approximately 125,000 business formations, down 5% from a year earlier, while transaction units increased 1% to roughly 281,000, supported by annual report filing volumes from compliance customers.
Google search changes pressure customer acquisition
Management said Google’s expanded use of AI-generated answers has reduced clicks from informational search queries and increased competition for paid search inventory. Stibel characterized the development as a “structural shift” in Google search that was particularly noticeable in the back half of the second quarter.
Watson said performance following the initial decline had remained relatively consistent through the current quarter. LegalZoom’s outlook assumes the current search environment continues through the end of 2026, without assuming either a recovery or further deterioration.
Stibel said the impact is concentrated in traditional Google search, a historically significant acquisition channel, rather than reflecting a change in customer demand for legal, compliance and business-formation services. The company said paid search has become less efficient as cost per click has risen.
LegalZoom has been expanding alternative acquisition channels, including partnerships, brand marketing and AI-driven referrals. Partnership order volume increased to 11% of total orders during the second quarter, compared with 4% a year earlier. The company cited recently added partners including USAA, AAA, PayPal and Adobe.
Traffic from AI platforms grew more than 250% quarter over quarter and represented about 3% of LegalZoom’s LLC formation traffic in June, Stibel said. He added that AI-platform visitors have shown higher intent and higher conversion rates than visitors from traditional organic search.
The company has announced integrations with ChatGPT, Claude, Microsoft Copilot and Perplexity. LegalZoom recently introduced an agent integration within Microsoft 365 Copilot that enables users to assess formation options, manage compliance needs and connect with attorneys within Microsoft’s workflow.
Margins improve as company restructures operations
LegalZoom reported non-GAAP gross profit of $146 million, with gross margin expanding about 250 basis points to 71%. Watson attributed the improvement to a more favorable subscription mix and automation-driven efficiencies in customer care and service fulfillment.
Adjusted EBITDA margin increased about 220 basis points to 22%, and free cash flow rose 7% to $34 million. The company ended the quarter with $167 million in cash and cash equivalents, no debt and a fully undrawn $100 million revolving credit facility.
During the quarter, LegalZoom repurchased approximately 7.3 million shares for about $46 million. As of June 30, the company had about $80 million remaining under its repurchase authorization.
LegalZoom also announced a workforce reduction of approximately 13%, effective immediately. Watson said the company-wide reorganization affects all functions and is intended to simplify workflows, accelerate decisions and align resources with priority growth initiatives. The action is expected to generate approximately $7 million in net savings during 2026 and about $14 million in annualized savings. The company expects roughly $6 million in restructuring-related charges, primarily in the third quarter.
Outlook reflects slower transaction growth
For the full year, LegalZoom now expects revenue of $795 million to $805 million, representing approximately 6% growth at the midpoint. The company expects third-quarter revenue of $192 million to $196 million, or approximately 2% growth at the midpoint.
The outlook assumes high-single-digit to low-double-digit transaction revenue declines in the second half as the company navigates the effects of the new search environment. Management said its investments in partnerships, brand marketing and AI distribution will take time to offset the near-term pressure on traditional search acquisition.
LegalZoom raised its full-year adjusted EBITDA outlook to $190 million to $195 million, implying a margin of approximately 24% at the midpoint. Third-quarter adjusted EBITDA is expected to be $49 million to $51 million, including the impact of the workforce actions.
About LegalZoom.com (NASDAQ:LZ)
LegalZoom.com, Inc (NASDAQ: LZ) operates as a leading online legal technology company that provides a broad range of legal and business services to individuals, families and small businesses. Through its digital platform, the company offers customized legal documents and filing services, including business formation (LLCs, corporations and nonprofits), estate planning (wills and trusts), intellectual property protection (trademarks and copyrights), and ongoing compliance support. LegalZoom also connects customers with independent attorneys for consultations on matters such as family law, immigration and real estate.
Founded in 2001 by entrepreneurs Brian Lee, Brian P.
