LEGALZOOM.COM (LZ) Q2 FY26 earnings call: guidance and Q&A

Why are higher-value initiatives taking longer to benefit the top line, and are there higher churn or tougher go-to-market motions for these products?

Management is encouraged by the higher-value human-in-the-loop offerings, which are growing significantly faster than the rest of the business (approaching 20% growth and 40% of total revenue). They are just starting to re-evaluate packaging and promotion, but see good strength and stable retention.

“we're actually pretty encouraged with the higher value products and you know if you look at our human in the loop offerings generally both service and expertise those are growing at orders of magnitude faster than the rest of the business so we're actually seeing real strength there”

asked by Ella Smith · answered by Unknown Speaker

What can LegalZoom still do to drive improvement in business formation traffic from AI majors, given their early partnerships?

Three key areas: visibility and brand recognition leveraging their authority advantage; generative engine optimization (GEO) and AI engine optimization (AEO) for favorable surfacing; and paid opportunities as they emerge, particularly with ChatGPT. AI traffic grew 250% Q-o-Q and is now 3% of LLC formations traffic, showing potential to offset Google's structural shift.

“The first from our standpoint is just visibility and brand recognition. We know we have the authority advantage and are driving positive results there. The second is with respect to going in through GEO and AEO, where we're having significant strength, and then paid opportunities as those start to emerge, particularly right now with Chachi.”

asked by Ella Smith · answered by Unknown Speaker

Did the Google traffic shift accelerate during Q2, was there a specific point it became noticeable, and could it get worse?

The shift was a structural change, with Google calling it the biggest change to their search box. The impact was seen in the back half of Q2 and has been consistent since. Management believes they understand it and have fully accounted for it in their guidance, assuming consistency through year-end without further degradation or recovery.

“But what happened most recently was a structural shift. And Google alone literally called it the biggest change to their search box since they introduced the search box. So this was a material change and a step down. We believe we understand it. We believe we've fully taken into account that change into our guidance.”

asked by John Byen · answered by Unknown Speaker

Can you discuss the timeline of the 13% workforce reduction and if it was broad-based or impacted specific departments more?

The workforce reduction was effective today (call date) and was a company-wide reorganization, looking cross-functionally at reimagining workstreams and speeding up decision-making. It impacted various functions across the organization.

“Yes, so the workforce reduction was effective today. and that was the announcement. We included specifics on the size of impact, both in year and annualized. It was a company-wide report. reorganization we really looked cross-functionally at everywhere in terms of how we can reimagine work streams and speed up decision making and improve execution.”

asked by John Byen · answered by Noel Watson

Can you provide quantitative stats on Google's impact on traffic, like a percentage of business formations, to understand potential future impacts?

Google has historically been a primary channel. The Q3 guidance for transaction revenue decline (high single to low double-digit) reflects the impact on new acquisition. Management notes the rollout was primarily in the US first, now internationally, and they believe they have a good handle on it.

“If you think about the guidance that we provided, that's really important. really a reflection of the impact that we're seeing from a new acquisition standpoint. We guide it to high single digit to low double digit decline in transaction revenue in the back half of the year. So I think you can size it off of that characterization.”

asked by Matthew Condon · answered by Noel Watson

How is LegalZoom evaluating CAM and overall marketing spend for the back half of the year, given the Google search fluidity?

The company is making investments in CAM for channel diversification, with brand spend being slower-returning and partner channels needing optimization. Overall CAM is expected to step up a couple of points year-over-year. Strategically, they are shifting spend away from Google where possible.

“We expect overall CAM on the full year to step up a couple points relative to the prior year. And strategically, as we think about spend on the whole, I mean, we first are performance-oriented, but we are looking clearly at opportunities to be shifting spend away from Google wherever possible.”

asked by Pat McEvoy · answered by Noel Watson

What are the conversion and acquisition cost differences between AI overviews/AI mode and traditional search? What is SMB adoption of AI tools on the platform, and what are the opportunities/risks?

Paid AI is small, largely from ChatGPT, with similar conversion metrics but higher intent customers. This higher intent is good for human-in-the-loop upsell. SMB AI tool adoption is early but encouraging, with tests showing customers are looking for these products and prefer to go through LegalZoom for onboarding, potentially making LegalZoom a small business operating system.

“Paid main AI is still quite small and really coming largely from ChatGPT and to a lesser extent Google with some of their native AI search. It's largely similar in terms of conversion and other... metrics and dynamics, but we find that we've got higher intent customers generally.”

asked by Kishan Patel · answered by Unknown Speaker