LEGALZOOM.COM, INC. (LZ)

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q, as well as Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operation” and Part II, Item 8, “Financial Statements and Supplementary Data” included in our 2025 Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on February 23, 2026 and our other filings with the SEC. The following discussion contains forward-looking statements based upon current plans, expectations and beliefs and that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth in the "Risk Factors" section of this Quarterly Report on Form 10-Q. See “Forward-Looking Statements” preceding Part I of this Quarterly Report on Form 10-Q.

Overview

LegalZoom is a leading online platform for legal services, transforming how individuals and small businesses navigate the legal system. By combining intuitive technology with access to experienced attorneys—whether through our vast independent attorney network or our own law firm—we offer the tools and guidance people need to confidently manage everything from business formation and compliance to intellectual property protection and ongoing business management and legal support. Our ongoing business management services include virtual mail, legal forms, bookkeeping and estate planning services, among others. We operate across all 50 states and in over 3,000 counties in the U.S. With over two decades of experience and millions of customers served, LegalZoom helps individuals and small businesses navigate legal needs with confidence.

Recent Developments

•In August 2026, we committed to a restructuring plan that will reduce the size of our workforce by approximately 13%. This restructuring plan was made as part of our ongoing organizational evolution towards becoming a more agile, AI-native company with a simpler operating structure. We expect to incur approximately $6.0 million in restructuring charges and related costs, which consist primarily of severance and termination benefits offered to the impacted employees. We expect substantially all of these charges to be cash expenditures and we expect to incur substantially all of these charges in the third quarter of 2026.

Key Factors Affecting Our Performance

We believe that our future performance will depend on many factors, including the following:

•Our share of small and medium-sized businesses (SMBs). Business formations act as an entrance point for many customers to the LegalZoom ecosystem, where they then often purchase a mix of transaction and subscription offerings alongside and after the initial formation transaction. However, changes that Google is making, including changes in search algorithms and the prioritization of AI-generated summaries within the search experience, as well as the ways in which Google chooses to enforce its policy regarding the advertisement of federal filings, are reshaping how potential customers find and engage with LegalZoom. We have seen these changes result in a reduction in organic traffic and a higher emphasis on paid search, and we expect these customer acquisition dynamics to continue to evolve. In response, we are continuing to optimize our go-to-market and customer acquisition strategy, including by diversifying our marketing investments across media channels and increasing our level of brand marketing, which may result in an increase in our marketing costs. We are also expanding beyond traditional search through strategic partnerships and collaborations, including with AI platforms and other emerging channels. Over time, we expect partnership-driven and AI-platform channels to represent a greater share of customer acquisition, and we are investing accordingly. As a result, our operating results depend on the continuation of new business formations in the U.S. and even more so, on our ability to attract new and existing businesses to our platform via various acquisition channels.

•Ability to enhance customer lifetime value. Our future performance depends on our ability to integrate new products and services into our LegalZoom ecosystem and to increase recurring revenue through subscription offerings. We are continuing to optimize our subscription business, including by testing various commercialization and pricing strategies for our offerings and introducing new, higher value, full-service do-it-for-me (“DIFM”) subscription offerings, including our business manager (formerly concierge) suite of offerings. As a result, we have experienced and we expect to continue to experience increased volatility across our key business metrics.

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•Ability to integrate augmented legal expertise. We believe that the future of legal and small business services involves a combination of scaling AI while strategically integrating our human-in-the-loop offerings to provide the judgment and trust that customers need. These offerings have two layers: experts (which includes our business managers and our independent network of attorneys) and service (which includes our virtual mail and registered agent providers). The extent to which we are able to combine AI with our human expertise in order to increase the consumption of our higher-value offerings will impact our future results of operations.

Key Business Metrics

In addition to the measures presented in our unaudited condensed consolidated financial statements, we regularly monitor the financial and operating metrics below to evaluate the growth of our business, measure the effectiveness of our marketing efforts, identify trends, formulate financial forecasts and make strategic decisions. Except with respect to annual small business retention rate, Formation Nation, Inc. (“Formation Nation”) has been included in the key business metrics below starting on February 10, 2025, the date we acquired Formation Nation.

Number of business formations

We define the number of business formations in a given period as the number of limited liability company (“LLC”), incorporation, not-for-profit and doing business as (“DBA”) orders placed on our platform in such period. We consider the number of business formations to be an important metric considering that it is typically the first product or service small business customers purchase on our platform, creating the foundation for additional products and subsequent subscription revenue as customers adopt additional products and services throughout the lifecycle of their business.

We believe that including customers filing DBAs on our platform provides a more accurate representation of the number of newly formed businesses we serve. These transactions are most often completed by sole proprietors who represent potential future transaction and subscription cross-sell opportunities as their businesses mature.

The below table sets forth the number of business formations for the three and six months ended June 30, 2026 and 2025:

During the three months ended June 30, 2026, we experienced a 5% decrease in business formation transactions compared to the three months ended June 30, 2025 primarily due to the impact of changing customer acquisition dynamics partially offset by an increase in business formations driven by strategic partnerships.

During the six months ended June 30, 2026, we experienced a 2% increase in business formation transactions compared to the six months ended June 30, 2025 primarily due to the inclusion of a full six months of business formations from Formation Nation, which we acquired on February 10, 2025, and an increase in business formations driven by strategic partnerships, partially offset by the impact of changing customer acquisition dynamics.

Number of transactions

We define the number of transactions in a given period as gross transaction order volume, prior to refunds, on our platform during such period. Transactions may include one or more services purchased at the same time. For example, a customer of our business formation services may choose to form an LLC and purchase an operating agreement and business licenses at the same time. This constitutes a single transaction. Refunds, or partial refunds, may be issued under certain circumstances pursuant to the terms of our customer satisfaction guarantee. We consider the number of transactions to be an important metric

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considering that our customers generally begin their LegalZoom journey with a transaction, creating the foundation for generating subsequent subscription revenue.

The below table sets forth the number of transactions for the three and six months ended June 30, 2026 and 2025:

We experienced a 1% increase in the number of transactions during the three months ended June 30, 2026 compared to the three months ended June 30, 2025, primarily due to an increase in Annual Report filings within our compliance offerings as a result of filing automation, partially offset by the decrease in business formations.

We experienced a 6% increase in the number of transactions during the six months ended June 30, 2026 compared to the six months ended June 30, 2025 primarily due to an increase in Annual Report filings within our compliance offerings as a result of filing automation and an increase in business formations, partially offset by a decrease in beneficial ownership information report filings following a Financial Crimes Enforcement Network (“FinCEN”) ruling on March 21, 2025 that eliminated this filing requirement for U.S. companies.

Average order value

We define average order value for a given period as total transaction revenue divided by total number of transactions in such period. We consider average order value to be an important metric given that it indicates how much customers are spending on average on our platform per transaction.

The below table sets forth the average order value for the three and six months ended June 30, 2026 and 2025:

Average order value decreased 2% for the three months ended June 30, 2026 compared to the three months ended June 30, 2025 primarily due to changes in the products comprising our bundled small business offerings, which resulted in an increased allocation of order value shifting to subscription products. This decrease was partially offset by an increase in higher value consumer and IP-related offerings.

Average order value increased 1% for the six months ended June 30, 2026 compared to the six months ended June 30, 2025 primarily driven by an increase in higher value consumer and IP-related offerings. This increase was partially offset by changes in the products comprising our bundled small business offerings, which resulted in an increased allocation of order value shifting to subscription products.

Number of subscription units

We define the number of subscription units

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Overview

LegalZoom is a leading online platform for legal services, transforming how individuals and small businesses navigate the legal system. By combining intuitive technology with access to experienced attorneys—whether through our vast independent attorney network or our own law firm—we offer the tools and guidance people need to confidently manage everything from business formation and compliance to intellectual property protection and ongoing business management and legal support. We operate across all 50 states and in over 3,000 counties in the U.S. With over two decades of experience and millions of customers served, LegalZoom helps individuals and small businesses navigate legal needs with confidence.

Key Factors Affecting Our Performance

We believe that our future performance will depend on many factors, including the following:

•Macroeconomic factors. Adverse changes in, or uncertainty with respect to, general macroeconomic, political, regulatory and market conditions can negatively impact consumer spending patterns, the success of existing small businesses and the formation of new small businesses. While we continue to actively monitor the impacts of the evolving macroeconomic environment on all aspects of our business, future negative or decelerating impacts from factors such as inflation, tariffs, higher interest rates, regulatory obstacles or changes in laws and regulations remain uncertain.

•Our share of small and medium-sized businesses (SMBs). In 2025, business formations represented the largest share of our total transaction orders. Business formations act as an entrance point for many customers to the LegalZoom ecosystem, where they then often purchase a mix of transaction and subscription offerings alongside and after the initial formation transaction. In addition, we are expanding our go-to-market strategy to focus on emerging and established business, which we believe will decrease our dependence on business formations over time. As a result, our operating results depend on the continuation of new business formations in the U.S. and even more so, on our ability to increase our share of new business formations and to attract existing businesses to our platform.

•Ability to enhance customer lifetime value. Our future performance depends on our ability to integrate new products and services into our LegalZoom ecosystem and to increase recurring revenue through subscription offerings. As we continue to optimize our subscription business, including by testing various commercialization strategies for our offerings and introducing new, higher value DIFM subscription offerings, we have experienced and we expect to continue to experience increased volatility across our key business metrics.

•Ability to integrate augmented legal expertise. We believe that the future of legal and small business services involves a combination of AI and human expertise. We aim to utilize AI to drive efficiency and scale, while relying on our team of concierge managers and our independent network of attorneys to provide the judgment and trust that customers need. The extent to which we are able to combine AI with our human expertise in order to drive cost efficiencies and increase the consumption of our DIFM offerings will impact our future results of operations.

Key Components of our Results of Operations

Revenue

We generate revenue from the sources identified below.

Transaction revenue—Transaction revenue is primarily generated from our customized legal document services upon fulfillment of these services. Transaction revenue includes filing fees and is net of cancellations, promotional discounts, sales allowances and credit reserves. We also earn fees from third-party providers in connection with lead generation activities, where referred customers purchased services that are transactional in nature.

Subscription revenue—Subscription revenue is generated primarily from subscriptions to our registered agent, compliance packages, attorney advice, legal forms, tax and accounting, virtual mail and eSignature

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services, and software-as-a-service, or SaaS, subscriptions. We generally recognize revenue from our subscriptions ratably over the subscription term. Subscription terms generally range from thirty days to one year. Subscription revenue also includes amounts earned from third-party providers in connection with lead generation activities, where referred customers purchased services that are subscription in nature. Subscription revenue includes the transaction price allocated to bundled free trials for our subscription services and is net of promotional discounts, cancellations, sales allowances and credit reserves and payments to third-party service providers such as legal plan law firms.

For transaction and subscription revenue, we generally collect payments and fees at the time orders are placed and prior to services being rendered. We record amounts collected for services that have not been performed as deferred revenue on our consolidated balance sheet. The transaction price that we record is generally based on the contractual amounts and is reduced for estimated sales allowances for price concessions, charge-backs, sales credits and refunds, which are accounted for as variable consideration when estimating the amount of revenue to recognize.

See the section titled “—Critical Accounting Estimates—Revenue Recognition” below for a description of the accounting policies related to revenue recognition, including arrangements that contain multiple deliverables.

Cost of revenue

Cost of revenue includes all costs of providing and fulfilling our services. Cost of revenue primarily includes government filing fees, costs of fulfillment, customer care, and payroll services, and related benefits, including stock-based compensation, and costs of independent contractors for document preparation, telecommunications and data center costs, amortization of acquired developed technology, depreciation and amortization of network computers, equipment and internal-use software, printing, shipping and handling charges, credit and debit card fees, allocated overhead, legal document kit expenses, and sales and use taxes. We defer direct and incremental costs primarily related to government filing fees incurred prior to the associated service meeting the criteria for revenue recognition. These contract assets are recognized as cost of revenue in the same period the related revenue is recognized.

Gross profit and gross margin

Gross profit, or revenue less cost of revenue, and gross margin, or gross profit as a percentage of revenue, have been and will continue to be affected by various factors, primarily the mix between transaction and subscription revenue. Our long-term gross margin expansion is also expected to be driven by automation improvements and digitization efforts. Further, our acquisitions of other companies have negatively impacted our gross margin in the past, and any such future acquisitions could have a similar effect. Our gross margin could fluctuate from period to period due to fulfillment rates and seasonality.

Operating expenses

Our operating expenses consist primarily of sales and marketing, technology and development, general and administrative expenses, and to a lesser extent, impairments of goodwill, long-lived assets, other assets and gain on sale of assets held for sale.

Sales and marketing

Sales and marketing expenses consist of customer acquisition media costs, compensation and related benefits, including stock-based compensation for marketing and sales personnel, media production, public relations and other promotional activities, general business development activities, an allocation of depreciation and amortization and allocated overhead. Customer acquisition media costs consist primarily of search engine marketing, television and social media costs. Marketing and advertising costs to promote our services are expensed in the period incurred. Media production costs are expensed the first time the advertisement is aired.

Customer acquisition media spend has historically been highest in the first quarter of the year to align with business formation seasonality and we expect this trend to continue to invest in sales and marketing to drive additional revenue, further penetrate our expanding addressable market, and build on our digital brand leadership and awareness. We anticipate that sales and marketing expenses will continue to be our largest operating expense category for the foreseeable future.

Technology and development

Technology and development expenses consist primarily of personnel costs and related benefits, including stock-based compensation for technology and development personnel, expenses for outside consultants, an allocation of depreciation and amortization and allocated overhead. These expenses include costs incurred in the development and implementation of our products, websites, mobile applications, online

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legal platform, research and development and related infrastructure. Technology and development expenses are expensed as incurred, except to the extent that such costs are associated with internal-use software costs that qualify for capitalization.

Excluding stock-based compensation, we expect our technology and development expenses to remain relatively consistent as a percentage of our revenue for the foreseeable future, although our technology and development expenses may fluctuate as a percentage of our revenue from period-to-period due to seasonality and the timing and extent of these expenses.

General and administrative

Our general and administrative expenses relate primarily to compensation and related benefits, including stock-based compensation, for executive and corporate personnel, professional and consulting fees, an allocation of depreciation and amortization, allocated overhead and legal costs.

We expect our general and administrative expenses to decrease as a percentage of our revenue over the longer term. However, our general and administrative expenses may fluctuate as a percentage of our revenue from period-to-period due to seasonality and the timing and extent of these expenses.

Gain on sale of assets held for sale

Gain on sale of assets held for sale relates to the sale of our operational headquarters on March 31, 2025.

Interest expense

Interest expense consists primarily of amortization of debt issuance costs related to our amended and restated credit and guaranty agreement, or, as amended, the Amended Revolving Facility as well as interest incurred on the deferred cash consideration associated with the acquisition of Formation Nation.

We expect interest expense to remain insignificant in the near term as we have no outstanding indebtedness. However, we would incur interest expense in the longer term should we draw down on our Amended Revolving Facility or incur other indebtedness.

Interest income

Interest income consists primarily of interest income generated from our investment in money market funds.

Other income, net

Other income, net consists of realized and unrealized foreign currency gains and losses, change in fair value of other equity security, gain on sale of available-for-sale security as well as the loss on debt extinguishment related to the Amended Revolving Facility.

Income taxes

Our provision for income taxes consists of current and deferred federal, state and foreign income taxes.

We account for income taxes in accordance with Accounting Standard Codification 740, Income Taxes, which requires an estimate of the annual effective tax rate for the full year to be applied to the interim period, taking into account year-to-date amounts and projected results for the full year. Our effective tax rate could fluctuate significantly from quarter to quarter based on recurring and nonrecurring factors including, but not limited to: variations in the estimated and actual level o

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