Q2 2022 LegalZoom.com Inc Earnings Call
Good day, and thank you for standing by walking through the legal Zoom second quarter 2022 earnings conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question during the session great.
Star one.
Please be advised that today's conference is being recorded I would now like to hand, the conference over to speak today than it is here head of Investor Relations. Please go ahead.
Thank you operator, Hello, Illegals, Inc. Second quarter 2022 earnings conference call joining me.
Our key exact.
Our Chief Financial Officer.
As a reminder.
Thank you operator, Hello illegal in second quarter of 2022 earnings Conference call.
One moment please.
Thank you operator, Hello illegal in second quarter of 2022 earnings Conference call joining me, Dan <unk>, our chief Exec Sir.
Our Chief Financial Officer.
We will be making forward looking statements. This call. These forward looking statements can be identified by the use of words, such as believe expect plan anticipate will intend and similar expressions.
Freshman and are not and should not be relied upon as a guarantee of future performance or results.
Could differ from those contemplated by our forward looking statements.
To review the risk factors section of our reports and filings with the Securities and Exchange Commission for a discussion of factors that could cause our results to differ materially. The forward looking statements. We make on this call are based on the information available to US as of today's date and we disclaim any obligation to update any forward looking statements, except as required by law.
In addition, we will also discuss certain non-GAAP financial measures, our CEO and CFO use these measures and making decisions regarding our business and we believe these measures provide helpful information to investors.
Reconciliations of all non-GAAP measures.
Directly comparable GAAP measures are set forth in the Investor Relations section of our website at investors that legals in Dot com.
The non-GAAP financial measures.
Tittered in isolation or substitute results prepared in accordance with GAAP now I'll turn the call over to Dan.
Thanks, Danny and good afternoon, everyone.
I can't believe we'll do three years ago to lead our product transformation.
During the pandemic that journey took a detour.
We leaned in hard the strong tailwind created by Covid.
Clearly benefited from it.
As we look ahead to a different macro environment. It is a clear reminder, that products when markets and our product is needed more now than ever before.
On today's call I will outline how we are sharpening our focus along with clear actions to adjust to a different environment.
I wanted to be clear in today's earnings call, while the copper days caused by lapping COVID-19 are difficult I don't place blame on the macro for our performance.
Instead, I see our inability to gain material share in a very large untapped market issue and the accountability for that squarely on me.
Today, I'll spend a bit more time talking about how we are adjusting to the current environment in the short term, while also reiterating our opportunity in the long term.
First I will give a brief overview of Q2 results.
Q2 revenue came in at $164 million up 9% year over year.
Transaction revenue was down 9% in the period, while subscription revenue offset this weakness growing 32%.
Our business formations declined 16% in the second quarter, while the U S census formation data was down 12%.
During the quarter, we adjusted our marketing strategy reverting to a more conservative lower funnel focused approach given the external environment.
Intra quarter shift drove inefficiencies in our spend.
Adjusted EBITDA was $18 million in the second quarter similar to reverting to a more conservative marketing approach, we've been taking quick actions to manage expenses.
We've completed a reduction in force and expect to eliminate hiring outside our most critical roles primarily in product and tech in the near term.
We're driving variable efficiencies automating the order process and driving down variable costs, leading to faster order fulfillment.
And post tax season, we brought staffing levels down and going forward, we're adjusting our mix of experts to a more variable cost structure that will align with demand.
We continued to repurchase shares under our current authorization during the quarter.
Given our confidence in the business, we are and intend to remain active in the back half of the year.
During the quarter, we continued to make progress against our three growth vectors scaling the core business building and SMB ecosystem into integrating experts into the core experience.
We know we need to meet customers, where they are especially in this recessionary environment not mean segmenting the lineup and innovating against an EBIT cost sensitive smbs up to those seeking attorneys at an affordable price.
Testing remains on track.
20% of traffic is exposed to the test and we have a pipeline of various lineup tests in development.
Our goal remains a national rollout by the end of this year recognizing testing will be ongoing for some time.
Although optimizing a new lineup will take some time early results are promising showing an increase in conversion rates formation growth and share gains.
The results were strongest in mobile and we'll continue to apply those learnings back into the desktop experience.
We're also seeing a mix shift in favor of subscription revenue aligned with our long term strategy of reducing both the upfront cost to form a business and our dependence on a transactional business model.
In the past our product experience with limit to the formations workflow an artifact of a transactional bogus prior.
Priority to address this as my LP.
<unk> the newly created experience that will become the hub of SMB compliance driving engagement and therefore retention, while also creating a channel to introduce new services when smbs need them after an outside of the formation channel.
In the second quarter, 98% of new formations customers created a myalgia.
From 28% a year ago.
Time on site is increasing as well.
The integration with <unk> is a great example of the opportunity with my LT Legalzoom customers can now create a custom website by linking directly to works from their miles vehicles.
Soon our customers will see a personalized site directly from their my LT account without any effort leveraging the data they provided a formation.
And finally, a quick update on LTE tax.
We exited the second quarter with over 22000 paying subscribers generating over $35 million of annualized recurring revenue.
Having fully launched 12 months ago through our LLP base, there is a clear synergy between our core legal services attacks.
This service is very early in its life and there is significant room to improve.
<unk> outperformed during peak season with attach rates now stabilized with a pre tax season levels.
Given what we've learned we have opportunities to make the service more accessible and relevant to smbs that are pre revenue through pricing and packaging changes.
And beyond pricing, we also had operational challenges in our first year that made engaging with accountants and completing a return to owners to.
To be clear.
Net promoter score when engaging with our experts was the highest of any experience, we deliver but the process outside of that interaction was too complex.
As a result, we are seeing higher attrition than forecasted we.
We can do better and are turning our attention to the next evolution of this service. The need is there the channel is incredibly powerful and it's ours to win.
Stepping back and taking a longer view from the end of 2019. When I started we are a vastly different company and business over 75% of our employee base and our entire leadership team is new since I arrived we've gone performing under 300000 smbs to being on pace to do greater than 450000 this year.
We had just over 900000 subscribers, we now have close to $1 $4 million with subscription revenue, 80% higher than it was in Q2 2019.
That is due to the launch of LP tax and the acquisition of request mail further building out our ecosystem of services and incrementally reducing our dependence on the formation macro.
Business formations are still healthy.
Stabilized up more than 50% above pre COVID-19 levels.
Remote work is enabling side hustles, and new SMB tools and platforms are lowering the barrier to creative business.
We're confident in the health of business formations and we'll also continue to expand our services beyond the formation stage.
Since we went public about a year ago conditions have changed.
As the macro move from a tailwind to a headwind we have to acknowledge that we still have a largely transactional business model.
While we continue to drive improvements in mix roughly 60% of our total revenue is still a result of transaction volume and the new subscriptions attached to a formation.
While we've made progress to attaching our performance for the macro.
Haven't made enough in our back half 'twenty two guidance will illustrate that.
During the IPO, we talked about expanding our brand position and scaling our marketing efforts.
That's going to change as we begin leveraging the brand lead we have and doubling down on the product.
Leaders consolidate in down markets and the key measurement for us will be demonstrating material share gains reducing brand spending commitments will also allow us to be more nimble.
The reduction in media spend will impact our transaction and first year subscription revenues. Additionally, as the economy contracts, we anticipate smbs will spend less and scrutinize existing spend more which affects our attach and renewal opportunities, particularly for our registered agent and compliance products.
Given these adjustments we are reducing full year revenue guidance by seven points from a midpoint of $655 million or.
A 14% year over year growth to a midpoint of $614 million or 7% growth.
With this top line reduction we are managing expenses closely.
As I mentioned, we are reducing Tam limiting hiring to only the most critical roles primarily in products, eliminating discretionary spend and accelerating our platform investments to drive durable efficiencies.
Despite our top line revision, we are increasing our full year, adjusted EBITDA guidance to $55 million or 9% of revenue for.
For the rest of the year, our focus will be on product driven share gains more efficient growth with production and expenses and lowering here primarily in brand spend allowing us to err on the side of being nimble and responsive to this environment.
Given these changes in 2023, we expect to grow share by 15% as a result of the new lineup. While also delivering an adjusted EBITDA margin of 15% as we begin to rely more on a product led strategy to drive growth.
The last two and a half years have been a dynamic period for small businesses. We've seen the fear of the unknown due to COVID-19 unlock into strong formations growth small business innovation in the industry and sector rotation that continue to evolve with our understanding up in policies related to COVID-19.
We've seen S&P's transform their businesses filling in critical gaps in the economy, all while changing how they work it's been an unprecedented time.
Inspired by the ingenuity of the entrepreneurs that continue to build.
We try to run legal zoom with the same mentality, we're evolving our business model innovating in new adjacent spaces and doing it with a team that is adjusting how we work to evolve with the environment, we're operating with them.
We're focused on what we can control and seek to mitigate the risks we can.
I am more confident than ever in the growth opportunity in front of us and feel of the changes we are making that will make us even stronger in the future.
And with that I'll hand, the call over to Noel.
Thanks, Dan and good afternoon, everyone.
I'll start today with a review of our performance in the second quarter and end with our outlook for the remainder of the year.
Total GAAP revenue in the period came in at $164 million up 9% year over year and tap into our guidance range.
As expected transaction revenue was down 9% year over year and $67 million.
The lab challenging comparisons from the prior year surge business formation.
We completed 113000 business formations in Q2.
16% compared to the same period last year.
Average order value came in at $296 in the second quarter up sequentially from the first quarter and in line with typical seasonal patterns in the business year.
Year over year, <unk> was up 5% due to an acceleration of fulfillment and discontinuation of our lower priced DIY trademark products.
Going forward, we expect <unk> to decline year over year, and second half primarily driven by the phased rollout of our premium offerings.
As we've discussed we expect the introduction of <unk> to drive significant volume and share growth without a cost one time transaction revenue.
Subscription revenue continued to perform nicely in the second quarter coming in at 91 million up 32% year over year.
That said, we are expecting subscription growth to slow materially beginning in the third quarter and into next year.
The primary driver of the impact of the slowing macro environment on our formation volumes, which in turn reduces the number of gross additions, particularly within our registered agent and compliance related subscription offerings.
We are also beginning to see pressure on our retention rates for these core products, which we believe is a result of increasing spend sensitivity among our SMB customers.
Arthur was $252 in the second quarter up 10% year over year.
We expect similar growth in the back half of the year, Thanks to higher RP services like LG tax in a class now, becoming a greater share of our subscription business.
Partnership revenue was down 21% year over year in the second quarter to $6 million as we lap legacy partnerships no longer aligned with our strategic direction. We expect partner revenue remained steady on an absolute dollar basis for the remainder of the year.
Now turning to expenses and margins, where all of the following metrics on a non-GAAP basis.
Gross margin came in at approximately 67% of revenue in the second quarter down from 68% in Q2 of last year.
Slight year over year decline was largely driven by prior investments we've made to our in house Tpa supporting LTE tax.
Sales and marketing costs were $68 million in the second quarter, a 41% of revenue up from 39% in Q2 of last year.
Customer acquisition spend came in at $45 million up 2% year over year.
We incurred approximately $6 million of creative production costs in the period and we do not expect to incur in the second half of the year.
As Dan mentioned efficiencies were below expectation Laurie.
As we do to intra quarter shifts in our spend allocation.
And to reduce our media spend in the back half of the year given the lower funnel direct response channels, which we believe provides the greatest flexibility to help us navigate an uncertain operating environment.
Technology and development spend $11 million in general administrative spend of $13 million, both tick down in the second quarter on an absolute dollar basis, we are rigorously managing our fixed cost structure and reducing nonessential discretionary spend.
Also limiting new hire activity to only the most critical world, which we expect will largely follow the tech and data.
Adjusted EBITDA was ahead of the top end of our guidance range of $17 million for the quarter compared to $22 million in the second quarter of 2021.
Deferred revenue declined $1 million in the period.
In the second quarter, we continued to execute on our $150 million share repurchase authorization.
We repurchased a total of $2 96 million shares of common stock at an average per share price of $12 95.
Total repurchase of $38 million.
We have continued to repurchase shares in the third quarter.
As of June 32022, we had cash and cash equivalents of $260 million and no debt outstanding.
And standard on the key drivers of our revised guidance earlier in the call I'll focus my comments now on the specifics of our guidance for the third quarter and full year 2022.
For the third quarter of 2022, we expect total revenue of $149 million to $151 million or 1% year over year at the midpoint.
We expect subscription revenue growth to decelerate in Q3, driven by multiple quarters of declining formations volume pressure in our core retention rate and a slight impact from LG tax seasonality.
Tax revenues skewed towards the first half of the year and tax type needs are greatest.
We expect adjusted EBITDA of $16 million to $18 million or 11% of revenue at the midpoint.
As Dan mentioned, we are calling non committed brand spend in the third quarter to allow for greater flexibility.
We expect customer acquisition spend to decline year over year in the third quarter, but will continue to respond dynamically based on market conditions.
For the full year of 2022, we expect total revenue of $612 million to $660 million of 7% growth at the midpoint.
We expect adjusted EBITDA of $55 million.
9% of revenue at the midpoint.
In 2023, we are committed to managing expenses, realizing efficiencies from our infrastructure investments and our focus on driving leverage in our margins.
Dan mentioned, we expect to grow share by 15%, while also delivering an adjusted EBITDA margin of 15%.
And with that let's open the call for questions.
As a reminder to ask a question. Please press star one one on your telephone once again Thats Star one one please standby we compile the Q&A roster.
Our first question will come from the line of Ron Josey from Citi. Your line is open.
Great. Thanks for taking the question Noel Dan I wanted to follow up maybe on the last comment on just growing share in 2023 and <unk>.
Can you just talk about the drivers and what might lead to that continued share gain.
Sub growth.
Expected to decline materially in the back half of this year with formation slowing down so I guess, a two part question Daniel L. One is what gives you confidence of share gains in 'twenty three.
Is it the new.
The new products that are being launched and the national rollout and then just bigger picture, maybe more on macro and business formation overall, what do you think needs to happen to maybe turn these results around overall to achieve those share gains going forward. Thank you.
Thanks for the question Ron Yes.
The first point, yes, there is two big goals, we put out for 'twenty three one is to demonstrate margin of 15% which is just.
The thing, we can control, which is cost and ensuring that we're driving efficiencies as we scale. This business and the other is a 15% share gain.
Share gain is an early reflection of what we see when we innovate on our lineup and we talked about this in the past.
Had a lineup that is premium priced DIY solution and we know that we're a premium brand and many customers are willing to pay that premium on top of what they would be able to do with the secretary of state, but we also know that there are other types of customers out there. So there is people who are.
Seeking expertise legal expertise from an attorney.
They can't afford it and so we have a premium component to the lineup and then separately. There are people who are cost sensitive, but really want some extra guidance.
So we're going after that group as well with a freemium component to our lineup. So early indication and again, we've been testing this in sequencing different variants in different states.
And the reason, we're getting is very positive.
We see customer growth relative to the control, which is our existing lineup.
See share gains, we see a mix shift going more aggressively towards a subscription model versus today's transactional model.
And all of that's making us confidence so.
When you start to look at it in some components of the task like mobile for instance, we see even a higher acceleration, which is giving us some indication of what we have to do to to even see higher conversion rates than what we're seeing today. So yes.
Yes. It is a reflection of what we expect to see from.
<unk> rebuilt lineup and.
Set of new offerings that are going to be in market next year.
On the macro.
That's a question that I think is multi layered.
We've done as we go into this.
As we have really been thoughtful about.
What we think is going to be happening in the back half and there is different sets of data that we have then maybe some of our peer group as well and I'll just walk through a couple of things So first off.
Just the macro itself relative to our expectations has been a little softer than we thought it would be.
But one of the things that we haven't talked as much about is we also have visibility into dissolution.
So we can see how businesses are not only forming but we can also see failure rates. We've talked about this in prior calls that our 13 month retention rate has been has been going down while some of our older cohorts have been going up in overall churn has remained relatively stable.
I really think about the root cause of that its dissolution dissolution for for our from our data peaked at the end of last year, but you still have to work through that because we have an annual subscription renewal process and so we're seeing some of that impact or some of that headwind still play out. The good news is that <unk>.
<unk> rates are getting lower.
And then they had been all throughout 2021, and so we want to see that resolve itself as well before we start to get bullish on the macro and then I'd say the last piece as you think about how we're how we're considering our guidance. We are anticipating if we arent already and one that will be in a recession.
And that that would impact some of the attach metrics that we have in some of the retention metrics that we have as well and so that's just us being maybe a little bit conservative.
But we want to see that completely stabilized before we.
Turning the corner and have a little bit more of a bullish point of view about the macro.
And Ryan just I just wanted to build on Dan's earlier comment around share gains just to also know and we've talked about being willing to trade off and the transaction revenue for the benefit of subscription and this is an example, where.
Incremental customer growth formation is growth there is a trade off with <unk>.
Average order value because we are offering a free SKU.
So it's really leveraging the benefit of the ecosystem that we've been building out on the subscription side to help drive long term customer value, but at the trade off of the upfront transactional revenue.
Great. Thank you Dan and thank you Manuel.
Thanks, Rob.
On long for next question.
Our next question comes from the line of Andrew Boone from JMP Securities. Your line is open.
Good afternoon, guys and thanks for taking my questions.
I wanted to understand more of the macro it sounds like you guys are seeing a deterioration in terms of business formation in terms of the data at <unk>.
Look at this morning Census Bureau reported July with count, 4%. So are you seeing something different than what's publicly available via the census Bureau.
Should we think about that.
And then just going to marketing efficiency on a go forward basis.
Can you guys just talk more about what your plans are in terms of increasing efficiency and just help us understand what changes there. Thanks so much.
Thanks, Andrew.
Yeah on the macro I mean, it may be slightly redundant with what I just answered but.
We definitely saw the macro a little bit lighter than we had expected.
And yes, there was a published today on the census data and it was a 4% decline. We've also noted that there is month to month there are anomalies in our reporting that we see from the census data.
Recall the prior month was much lower.
I think the thing that.
It's probably a little bit more of a unique data point that we see as we see the relationship between formations and Dissolutions.
And as I mentioned.
The solutions are a little bit of a foreshadowing for us around retention and renewal because we have some existing subscriptions that are annual subscribers and they are looking for compliance on their entity. If their businesses fail. Then we have to reflect that it will not be a renewal.
Again, the good news is we're sort of working our way through that we probably have a quarter or two and we're starting to see some of that reversal already happening, but that is a little bit of a unique data point that we have and then separately I think I mentioned it. We are just we are a little bit conservative in how we're thinking about the back half of the year.
Business and consumer sentiment is quite low right now and to <unk> point that he added on some of our add on subscriptions are very high <unk> I mean, when we talk about our accounting subscription as an example, you are talking about $500 subscription and so we do expect that.
To be impacted if there is a recessionary type environment.
On the efficiency gains.
That's something we've been working diligently for a long time before we could even go into the market with the freemium solution. We knew we had to automate everything and our back office and so we've been working on a project, which provide straight through processing, so that orders kind of flow automatically through to the secretary of state and then when they return they can be automatically compiled.
The customers.
That project has gone better than expected and we continue to accelerate not just efficiency, but actually the customer experience because now orders are processed much faster than they used to be and then we've really considered where we need to grow opex in the future and we're focusing very much on product and tech.
<unk> is the place we continue to grow but we also are recognizing that theres areas, where we can invest less.
Ron a little bit leaner that are outside of that.
One additional point there is tax which is we always mentioned in the first season, we were going to solve for the customer experience and not so much for efficiency post tax season, we now have a really good sense of the curve we know what.
We should expect in terms of.
The number of CPA is required to support our small businesses and now we're really executing on that.
And Andrew just to build on the marketing efficiencies question.
We did experience some headwinds in efficiencies this quarter just as we historically, we have been shifting our spend more into our media mix modeling.
In this quarter just given the uncertainty we actually started to shift back into performance channels, which did create some inefficiencies in the quarter.
And the.
The reason, we did that as just given the uncertain environment. We wanted more flexibility to be nimble and have performance based marketing that can react quickly to changes in the macro and until we can respond dynamically and actually.
Thinking about what that means in the back half it means really bringing down more of our brand spend very specifically.
But as we have seen in media mix modeling before actually that was it looked like good returning spend but immediately mixed modeling is sort of looking back in history and if you are heading into a new environment. We just wanted to be cautious in terms of that spend.
Thank you.
One more for next question.
Our next question is from the line of Matthew Pfau from William Blair. Your line is open.
Okay, great. Thanks, guys.
To dig into the retention comment a little bit more. So you mentioned the solutions are one factor that's driving that higher I think in the prepared remarks. There's also cited that LNG tax attrition was higher than expected anything else that you're seeing that's driving the expectation to have churned higher in the back.
Half besides just the sort of general macro concerns that you have.
Yes, I mean, I think there's a couple of things that.
Replay it solutions is really interesting we haven't talked about it before on a call. So it's probably worth unpacking when the macro.
When COVID-19 hit.
Actually sought formations accelerate and disk solutions.
Almost go to zero percent growth, which is really unique they usually moving in parallel as you got to the late stage of stimulus and they were both growing really fast which is a little bit more of a healthy environment, but we also feel like propped up because of the stimulus as we got them to the end of last year.
Growth in formations, that's going down, but but actually the the dissolutions was going up and.
And so that's kind of the worst environment and that's what we're sort of building out of right now.
You can see that impact over a period of four quarters post that dissolution rate.
So that's one thing that's always impacted our 13 months, we've talked about this a 13 month retention rate has been going down and it has been.
Set because of the older cohorts, which are actually showing a better profile in and the reality is as it builds over time note that 13 months becomes a little bit larger LLC.
<unk> taxes different.
I would say two things happened we over performed on the channel.
Meaning we attached the way more people than we thought and then we were not providing as strong an experience for those customers as we know we can and so the attach rate was down the overall results actually was pretty much what we had expected, but we just got there a little bit differently and the good news there is we understand pretty much exactly.
What we need to do to resolve the retention issue an lz tax.
Got it very helpful and just one follow up in terms of the subscription guide so maybe it'd be helpful. If you could.
Help us understand how.
Seasonality Lz tax cost in the second quarter, because I believe even if we just took assume no sequential subscription growth in the back half of the year, we would be.
<unk> ahead of 20% subscription revenue growth so.
What are the components that are that are for the year. We would be decently ahead of 20% subscription revenue growth. So what are the components that are driving that.
Maybe from a numeric perspective subscription revenue to be sequentially down in the third and fourth quarter relative to the second quarter.
Yes.
Sure I'm going to break that out into the specifics because there's a few drivers obviously, we're still talking relatively small dollars overall.
But LTE tax was a component of the driver is just the fact that there is some revenue recognition timing that's tied to.
The timing of tax prep and so you see it heavier in Q1 and Q2 that is.
An important component of it but it's also a reflection of the slowing in our core business or when you talked to in our prepared remarks is the slowing of business formations growth.
The last couple of quarters and that flows into our kind of gross additions on our subscription side.
On a and theres a bit of a lag in terms of as you start to see that flow through our revenue and so youre seeing some of our core slowdown as a reflection of prior period slowing formations growth.
Got it thanks, guys I appreciate it.
Thank you our next question.
Our next question comes from the line of Elizabeth quarter from Morgan Stanley . Your line is open.
Great. Thank you so much.
Really encouraging to see that focus on controlling costs given the tougher environment.
But I wanted to ask about the just the Nathan theme of the market you guys are in today and kind of the education that's needed.
The risk that lower Cam could impact demand, despite having been new product lineup or Alternatively, you kind of how has the market matured pre installation.
Over the last year.
Thanks for the question Elizabeth.
Just going back to that margin goal.
The vast majority of it is really a combination of reductions through Cogs and thinking about the efficiencies around at all.
Also opex reductions outside attack and.
<unk>.
A portion will also be non media marketing spend.
I think that's an area, where we can control it.
Have some great creative production this year, we probably won't be deploying it in the back half of this year. So it's not like there is a significant amount of Cam reduction required next year.
To actually get to the margin that we expect to get to so I think we still think it's really important but what I would say is probably most importance and we've already demonstrated this through testing.
Having the right offering and if you looked at our funnel and you think about the number of people who start with legal zoom.
Get down to a very small portion of them that complete and the biggest drop off areas that we see that our controllable as when we get to pricing.
So when we when we think about the opportunity to drive more share it's really completing.
The orders that are already going through our funnel by segmenting the offerings. So that it meets them exactly where they are so if you are low cost we want to get you started and into our ecosystem as easily as possible and we'll we'll monetize them over time throughout their lifecycle. If you are looking for an attorney we also want to capture that.
And today, we just don't offer those front and center in our lineup. So I think that's always been our plan is to sort of first couple of years is make sure we sort of develop the market.
At a certain point it was let's make sure we're innovating in the product to really drive that Sheridan.
Great and then this segmented lineup and understanding it's still pretty early but on the free solution any sort of early reads on how the three product might be attaching subscriptions or partner solutions.
It has hit a paid product.
Yes, great question and it's.
We have a lot of different tests going at the same time.
So it's hard to give you a very specific answer what I would say is.
We definitely see lower attach rates, but we obviously see a higher bookings because we're driving significantly more conversion through it when youre talking about subscriptions and thats exactly how we want it to work. We don't think we'll be able to main maintain attach rates to.
These customers, but we want the <unk>.
Are customers to sort of overwhelming overcome it to the point, where it's just good in the aggregate and this is by the way is without customizing any of the subscriptions.
It also reflects the fact that they're coming in as a free customer overtime, you would start to think about how do you segment tier subscriptions.
So you would have a lower end registered agent subscription and you would have a premium registered agent subscription is really targeted at who is coming into the lineup. So there is the interesting thing here is again, we're looking at a lot of early data and we're encouraged and this is data that's really using the ingredients that we have.
And our lineup versus starting to build it out and innovate specifically off those segments.
Got it thank you.
Thank you.
One moment for our next question.
Our next question comes from the line of Mario <unk> from Barclays. Your line is open.
Great. Thanks for taking the question. The first one is more a higher level.
As we enter a tougher macro environment. How would you just would you describe the competitive landscape kind of shifting over the past couple of quarters.
And do you view your 200 million plus cash on the balance sheet.
It must be an advantage compared to your peers are.
Compared to the strategy in terms of capital allocation. Thank you.
Yes.
I think what's interesting is even starting in 2021 at the beginning of the year.
Given the fact that formations were starting to really take off.
Did see more participation in our category.
Both low end providers.
Providers, but also from Adjacencies and actually Thats made are our marketing spends a little bit tougher right. Because if you think about the E. Commerce players I mean, they were spending into this pretty aggressively and a lot of what they were spending into was actually our keywords.
The market directly to businesses that are just forming.
So I would almost say that thats made a bigger impact from a marketing perspective.
And then from a competitive standpoint, we haven't seen anybody do anything that we would say is terribly innovative but they are competing on price, which is exactly why we're doing the freemium offering.
The $200 million on the balance sheet I think is a competitive advantage I mean, we can be not only a little bit more aggressive and also knowing that we're cash flow positive and playing offense. During a time like this and consolidating and again, that's why we're doing something like premium which may.
It may be a trade off in the short term to really drive lifetime value.
And there are things that we're looking at to sort of think about how do we measure success. One is one year bookings, but ones also lifetime value.
There's things that we might do there, but also there are opportunities to accelerate our road map through talent acquisition.
That I think are real opportunities, where it can both be something that we desire to integrate into our platform, but also just an awesome product team because hiring over the last couple of years has been very difficult specifically in tech. So both both of those are opportunities for us.
We think in this environment.
There's probably going to be heightened activity or opportunities on the M&A side, and so just having a strong balance sheet allows us to be opportunistic.
If that if those opportunities do come our way.
Alright, Thank you Bob.
Thanks, Brian .
Our next question.
Our next question will come from the line of Brent Thill from Jefferies. Your line is open.
Thank you. This is John again for Brent Thill two questions. So on the subscription side actually it's been.
Better than expected for a while now but is there a way to think about.
How do we disaggregate that between how much is from.
The retention or conversion on the base versus kind of push it.
Information additions.
Conditions.
And then second if you could maybe talk a little bit more about the I.
I guess going forward trend on iOS.
And <unk>.
What's going to be the dynamic.
The drivers related to that thank you.
Yes, so on the subs question and disaggregation.
And I think you were pointing to is the difference between.
Retention versus the acquisition piece.
I don't know, if we want to necessarily get into breaking out those different components and they have been.
Mentioned before they have been moving based off both the growth rate informations in the growth rate in dissolution.
The disaggregation, that's maybe a little bit more helpful. As there is our core subscriptions that are tied to.
Entity compliance and Thats, the registered agent and compliance subscription and then there is the newer stuff, which is LG tax and things like request mail.
Those two are untether by the formations growth right now because they are sort of in an early phase of being developed and so what we're seeing is.
Really strong growth in those two.
And then what Youre seeing on the core subscriptions is exactly how we describe it.
We're getting into five quarters now of kind of reduced or flat formations and what that means is we're seeing both.
Dissolution rate impact them, but also just flat acquisition.
The retention rates have remained relatively stable. If you think of the aggregate from a churn perspective, but there is a dynamic underneath that where the 13 month is impacted by this solution and the older cohort cohorts are hardening better than we had expected so.
That's probably how I would answer that and I don't know if you want to hit the <unk>.
On the <unk> side I would say.
As it relates to <unk> and we touched on this in our remarks.
We expect <unk> to be down year over year in the back half and that's in part due to the.
The testing that we're doing on premium.
With our freemium offering and that free SKU, obviously puts downward pressure on <unk> and we would expect that to continue as that expand its rollout and then and then normalizes.
And then on the <unk> side, we continue to see strength in our pool, we expect that to be durable through the end of this year and then to the extent that <unk> tax.
ECM.
Which are higher <unk> offerings.
It continues to become a larger percentage of the mix then that will continue to put.
Provide some upward pressure on our <unk> and it really comes down to focusing on the experience in LNG tax. So we improve retention again, we know what to do there and then in ECM.
We have opportunities to better integrate it so the acquisition side Hasnt yet inflected.
A lot of those changes are being made right now where we will start to see that begin to grow and again both of those will change the mix.
Thank you.
Thank you.
That's all the time, we have for Q&A today.
This concludes today's conference call. Thank you for participating you may now disconnect everyone have a great day.
The conference will begin shortly to raise your hand during Q&A you can dial star one one.
[music].
Okay.
Sure.
Yes.
Yes.
Okay.
[music].
Okay.
Okay.
[music].
Yeah.
[music].
Yes.
Sure.
Yes.
Okay.
[music].
Yes.
Okay.
[music].
Okay.
Okay.
Thank you.
Yes.
Okay.
Sure.
Okay.
Yes.
Okay.
So.
Okay.
Okay.
Okay.
Yes.
Sure.
[music].
Yes.
Yes.
Okay.
Thats helpful.
Yes.
Okay.
Yes.
Yes.
Yeah.
Yes.
Okay.
Yes.
[music].
Okay.
[music].
Yes.
[music].
Okay.
[music].
Okay.
Okay.
Okay.
[music].
Okay.
Okay.
Okay.
Okay.
Yes.
Yes.
Yes.
Okay.
[music].
Okay.
Okay.
Okay.
[music] system.
Okay.
Okay.
Yes.
[music].
Okay.
[music].
Okay.
Okay.
Yes.
Yes.
Okay.
[music].
Sure.
Okay.
Okay.
Okay.
Okay.
[music].
Yes.
Yes.
Yes.
Yes.
[music].
Yes.
[music].
Okay.
[music].
Yes.
Great.
Sure.
Sure.
Okay.
Yes.
Yes.
[music].
Okay.
[music].
Okay.
[music].
Got it.
Okay.
Yes.
Okay.
Okay.
Thanks.
[music].
Okay.
Sure.
[music].
Okay.
Thanks.
Okay.
Okay.
Okay.
Sure.
Sure.
[music].
Great.
Okay.
Sure.
Sure.
Yes.
Yes.
Okay.
Sure.
Okay.
Okay.
Okay.
Okay.
[music].
Okay.
Okay.
Yes.
[music].
Okay.
Sure.
Okay.
Yes.
Yes.
Okay.
Yes.
Okay.
[music].
Yes.
Okay.
Thank you.
Yes.
Yes.
Thank you.
Yes.
Okay.
Thanks.
Sure.
Okay.
Yes.
Okay.
Okay.
Okay.
Sure.
Yes.
Thank you.
Okay.
Okay.
Yes.
Thank you.
Yes.
Okay.
Yes.
Okay.
Sure.
Okay.
Yes.
Okay.
Okay.
Okay.
Thanks.
Yes.
Okay.
Okay.
Yes.
Thank you.
Thanks.
[music].
Yes.
Okay.
Okay.
Thank you.
Okay.
Sure.
Okay.
[music].
Sure.
Okay.
Okay.
Yes.
Okay.
Okay.
Okay.
Sure.
Okay.
Thank you.
Yes.
Sure.
Okay.
Yes.
[music].
Sure.
Thank you.
Sure.
Okay.
Okay.
Thanks.
[music].
Yes.
Yes.
Okay.
Okay.
Okay.
Okay.
Thanks.
Okay.
Okay.
Thank you.
Yes.
Okay.
Sure.
Okay.
Okay.
Yes.
Okay.
Okay.
Yes.
Okay.
Okay.
Okay.
Okay.
Yes.
Okay.
Right.
Okay.
Yes.
Okay.
[music].
Yes.
Okay.
Okay.
[music].
Okay.
Yes.
Sure.
Sure.
Okay.
Yes.
Yes.
[music].
Yes.
Okay.
Okay.
Okay.
Okay.
Great.
Okay.
Okay.
Okay.
Okay.
Yes.
Okay.
Sure.
Okay.
Yes.
Okay.
[music].
Okay.
Okay.
[music].
Okay.
Sure.
Okay.
Okay.
Great.
Okay.
Okay.
Yes.
Okay.
Okay.
Thank you.
It is expanding.
Okay.
Thanks.
Great.
[music].
Okay.
Okay.
Okay.
Okay.
Sure.
Yes.
[music].
Yes.
Yes.
Yes.
Yes.
Okay.
[music].
Yes.
Sure.
Okay.
Okay.
[music].
Okay.
Yes.
Yes.
Yes.
Okay.
Thanks.
Okay.
Okay.
Yes.
Sure.
Sure.
Okay.
Okay.
Yes.
Yes.
Okay.
Okay.
Yes.
Yes.
Yes.
[music].
Okay.
Okay.
Yes.
Yes.
Yes.
Sure.
Okay.
Thank you.
Okay.
Sure.
Yes.
Okay.
[music].
Yes.
Okay.
[music].
Yes.
Yes.
Okay.
Okay.
[music].
Okay.