Q1 2023 LegalZoom.com Inc Earnings Call
Good day and thank you for standing by welcome to the legal things first quarter 'twenty 'twenty earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question. During the session you will need to press star one on your telephone you will then.
Here, an automated message advising you Hannah Kim.
You remove yourself from the queue. Please press star one again, please be advised that today's conference is being recorded.
I'd now like to hand, the conference over to your speaker today.
Land Securities Counsel. Please go ahead.
Okay.
Thank you operator, Hello, and welcome to legal team's first quarter 2023 earnings Conference call. Joining me today is Dan Werner Cobb, Our Chief Executive Officer, and Noel Watson, our Chief Financial Officer.
As a reminder, we will be making forward looking statements on 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 and are not and should not be relied upon as a guarantee of future performance or results such forward looking statements are based on.
Management's assumptions expectations and information available to us as of today's date. These forward looking statements are also subject to risks and uncertainties that could cause actual results to differ materially from such statements.
These risks and uncertainties are referred to in the press release, we issued today and in the risk factors section of our most recent annual report on Form 10-K filed with the Securities and Exchange Commission.
Except as required by law, we do not plan to publicly update or revise any forward looking statements whether as a result of any new information future results or otherwise.
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.
Reconciliations of all non-GAAP measures to the most directly comparable GAAP measures are set forth in the Investor Relations section of our website at investors thought legal zoom dot com. The non-GAAP financial measures are not intended to be considered in isolation or as a substitute for results prepared in accordance with GAAP now I will turn the call over to Dan.
Thanks, Sarah and good afternoon, everyone.
We're excited to share our strong performance as we kick off 2023.
I'll start with a brief overview of Q1 results.
Revenue came in at $166 million.
Up 7% year over year.
Transaction revenue was down 5%, while subscription revenue was up 15%.
Nielsen business formations grew 32% year over year to 170000 units.
Census formation were up 4% to $1 5 million for the quarter.
The resulting share gain was 27% which is the largest gain we've seen since we began tracking here.
Adjusted EBITDA was $22 million for the quarter were 13% margin.
These results reflect the bulk of traffic going to a premium line of test over the full quarter and then more specifically all traffic being directed to the winning lineup at the beginning of March.
Tested this lineup for some time and there were no surprises in the results once deployed.
In March we were able to better understand the implications of free messaging on traffic and it exceeded our expectations.
Coupled with our stronger than anticipated formations macro we saw strength across the board.
This is a significant business model shift in inflection point, providing a step function improvement towards realizing our strategy.
Our first strategic pillar is to scale the core formations business and in this quarter, we saw record formations growth, while improving service levels and reducing cost of revenue per unit on the formations business.
Our second strategic pillar is to create an ecosystem of subscription services with this new lineup, we will further leverage the ecosystem by shifting the purchase mix more aggressively towards recurring revenue.
And our third strategic pillar is to integrate experts. This new lineup includes a premium SKU that bundles, a subscription with access to our network of independent attorneys.
The freemium lineup as an accelerant to all of our strategic pillars to be clear. It is still early earnings and while we're very happy with the initial launch there are many opportunities to improve our performance across all investment areas.
We're excited to build on this new foundation, and we have a backlog of improvements that we've already begun to test.
Stepping back our focus is to remove any barrier that stands in the way of someone wanting to launch a business with this new lineup, we've materially reduced the price of forming a business, which is especially important in today's economic environment.
In fact, the formation lineup pricing we have today is lower than it was at our founding in 2001.
This focus on making our formations products more accessible while expanding the type of services. We offer beyond just legal and compliance has led us to revisit our mission.
Our heritage as a legal disruptor is something we remain both proud of and dedicated too, but we continue to identify additional ways to remove barriers to block entrepreneurs when they form a business.
As an early and often the first adviser to small businesses our customers are looking for us to be much more.
Democratizing law is one of many opportunities we have to make expertise more accessible and affordable.
Such 20 years into this journey, we are updating our mission from Democratize law.
Unleash entrepreneurship.
We've already made progress against this new broader mission and we're excited to share additional product updates in support of it by the end of the year.
With this new mission, our top priority is helping small businesses get off the ground. We mentioned last quarter that small businesses are resilient determined and there are secular tailwind to point to a strong long term macro <unk>.
Many factors such as work from home the emergence of gig economy platforms, lower capital requirements and increasingly sophisticated digital enablement tools make starting a small business easier and lower risk than it's ever been before.
Just as we feel good about the long term prospects of the macro we also anticipate growth opportunities as we begin to leverage generative AI the.
The most exciting opportunity we see is eliminating the inefficiencies in the contract drafting and review process.
This was a key pieces of the <unk> acquisition and the forms reinvestment, we announced at the end of last year.
Where we see lots of opportunity and therefore, we consider the product highly defensible is within our core filing solution. Let me go ahead and expand on both.
Our two parts to our core formation process. The first is providing context, some confidence around what's required to form <unk>.
We believe generative AI as a meaningful evolution current search solutions, when providing content and context, and we will work to integrate those capabilities.
Although it's worth noting that much of this content has been widely available for some time through traditional search and there is a high bar around confidence in the source as well as regulations that advice be delivered through a credentialed expert.
But once a customer has the necessary context. The formation process is a complex workflow. This requires data collection and mapping the dataset to proprietary unstructured forms and the last mile connections over 3000 counties 50 states and several federal agencies.
These agencies do not have Apis instead RP IP here is the combination of a scaled workflow numerous RP abbotts sodomy filing and last mile capabilities that sometimes require human intervention.
In many ways, We act as an API on top of all government agencies and likely have an opportunity to be a plug in through chat CPG.
We do however believe generative AI will revolutionize the legal documents space and therefore is an untapped growth opportunity.
Can already see large investments being made in national consulting and legal practices to build internal tools that serve enterprise clients what isn't addressed by that investment is smaller independent firms that can't afford to make similar investments. These other firms that typically serve small businesses. According to the AA roughly half of practicing lawyers.
Our and firms are 1% to senator he's one.
One of our strategic pillars is to integrate experts as part of that strategy. We are building an expert platform that enables smaller firms within our ecosystem to compete by driving new business, managing administrative burdens, enabling efficiencies and leveraging new technologies. We've hinted multiple times that you should expect new product releases in the back half of this year.
They will provide clarity on our strategy with attorneys and the foundation for this is a new contract in force platform that will leverage AI.
It's worth noting that while technology will continue to make attorneys more efficient due to regulations related to unauthorized practice of law attorneys will still play a prominent role in the delivery of legal services and this is yet another area, where we differentiate ourselves from most of our online competition with a large network of independent attorneys.
<unk> already operating in our ecosystem and ready to consume these services.
Beyond generative AI there are many growth opportunities across all of our strategic pillars with the new lineup rolled out in parallel progress on tech investments to streamline fulfillment, we continue to improve efficiencies as we scale volume.
We're about halfway through our automation investment and have opportunities to drive higher margin for multiple years. These investments will also serve to improve the customer experience by lowering the error rate and increasing our speed to file. In addition to efficiency gains we're focused on improvements in how we commercialize our service through the formation of <unk>.
Hello.
Right. After we deployed our winning test we were in market testing ongoing improvements to the new lineup and in the coming months, we have additional tests queued up on our attach products and services.
Similar to virtual mail, we moved quickly to integrate forms an esignature through miles.
This is the third ecosystem subscription launched within the last two years.
We aim to be the simplest forms an esignature provider offering a low cost service tailored specifically to small businesses needs.
We're currently working to re imagine the entire end to end experience, starting with warm and contract creation through the collaboration with an attorney and culminating with the process to get a digital signature and securely store your documents.
In addition to deploying a lineup that included an attorney subscription bundle, we continue to make progress on our third strategic pillar integrating experts.
While tax season has extended this year with grace periods for filing in California, we're far enough along through the year to understand our performance and begin applying learnings towards next season.
For the year, we expect to double the total number of returns filed compared to 2022 benefiting from the product investments we made before the tax season.
We're still just a couple of years into creating the service and believe there are opportunities to drive stronger growth through a better return experience, which will then translate to better retention rates in.
And our first tax season, we were largely an offline provider that changed this year as we built onboarding intake document upload an accountant scheduling into miles.
In turn those investments drove significant improvements.
But with any new product experience, we continue to receive valuable feedback that will be incorporated into postseason releases.
Outside of the filing experience, we're still constructively dissatisfied with active usage and retention rates.
While we expected lower retention for those seeking pure advisory as their needs may be more episodic, especially right. After they form and pre revenue we have not seen the level of ongoing active engagement expected for those entitled to a tax return.
We have many insights in this area and as was the case last year, we're building and we'll be testing improvements in anticipation of next tax season.
On the whole this was a big quarter at legal zoom and I want to thank the legal zoom employees for all their hard work and dedication we made considerable progress against our new mission of unleashing entrepreneurship and as a result, we're raising both top and bottom line guidance for the year, which Noel will detail in a few moments.
I'm very encouraged by the progress we've seen the market demonstrating significant share gains while accelerating our shift to recurring subscription revenue.
Gives me even more excited though is what I see in our product pipeline and the advances we continue to make in building out a new and novel SMB ecosystem.
With that I'll turn it over to Noel.
Thanks, Pat and good afternoon, everyone I'll.
I'll begin by echoing Dan's excitement with regards to our start to the year.
Combination of our new lineup alongside refreshed marketing messaging drove impressive market share growth in business formation.
Key focus of ours, as we look to drive more customers into our subscription ecosystem.
Importantly, this combination has also led to improved traffic trends and marketing efficiencies as we've been able to significantly reduce our marketing spend year over year, while driving higher volumes.
We continue to see increasing benefits from automation within our operation.
Proving productivity levels allowed us to fulfill orders faster than anticipated in the quarter.
We also saw reductions in the number of customer care contacts per order and in the related cost per contact.
We believe there is still a significant opportunity to improve the efficiency and effectiveness of our operations and are maintaining the investments needed to realize these gains.
Cost discipline remains a focus as we look to balance our growth of re accelerating revenue growth and improving margins.
We remain confident in our ability to drive significant margin improvement year over year and see our Q1 result, as an important indication of our progress.
One of the key factors in our performance this quarter with the macro where its performance exceeded our forecast for the first quarter for leasing growth recorded by the expenses in over a year.
As a result, we're increasing our formations macro expectation for the second quarter.
Spite this strength and aligned with our focus on controlling expenses at this time, we are not adjusting our macro assumptions for the back half of the year.
We'll continue to manage to the expectation of a recession, but the one exception being the continued acceleration of our investment in product and technology.
I will now provide you a review of our performance in the first quarter and end with our outlook for Q2 and the full year 2023.
Total GAAP revenue in the period came in at $166 million up 7% year over year and above the top end of our guidance range.
Transaction revenue was down 5% year over year at $62 million.
Average order value declined 18% year over year, while total transaction units were up 15% year over year.
The reduction in the average order value was driven by the full rollout of our new lineup.
We completed the 170000 business formations in Q1 up 32% compared to the same period last year.
Formations growth well outperformed the market, which was up 4% during the period as measured by U S census data, enabling us to grow our market share by 27% versus the same period last year.
The successful share gain can largely be attributed to our new lineup and we therefore expect the year over year growth and share gains to moderate in the second half of this year as we start to lap the initial testing and expanding the rollout of our three product.
Transaction units were 308000 in Q1 up 15% year over year as the increase in business formation transaction was offset by a decline in intellectual property and consumer transactions.
Average order value came in at $202 in the first quarter down sequentially from the fourth quarter and down 18% year over year again, driven by the rollout of our new lower priced lineup.
As mentioned earlier, we did see increasing benefits from automation within our fulfillment operations and improving productivity levels allowed us to fulfill orders faster and recognize more revenue than anticipated in the quarter.
Subscription revenue was $97 million in the quarter up 15% year over year due to a 10% increase in the number of subscriptions and continued improvement in our group.
<unk> revenue growth in the quarter across our core compliance Lv Tac and virtual amount subscription products.
A reminder, that Q1 was a stronger quarter for revenue recognition and LTE tax given the higher tax preparation viral and unutilized tax preparation entitlements.
<unk> came in at $259 up 6% year over year and flat sequentially from the fourth quarter the.
The increase was primarily due to the increased mix of higher priced Lv tax descriptions within our total subscription base.
We expect year over year ARPA growth to moderate through the remainder of the year.
Partnership revenue was up 11% year over year in the first quarter a $6 million.
Now turning to expenses and margins, where all of the following metrics are on a non-GAAP basis.
Gross margin came in at approximately 66% of revenue in the first quarter up from 65% in Q1 of last year.
<unk> was driven by efficiency gains from cost reduction initiatives implemented in the second half of last year.
We expect gross margin to slightly decline in 2023, as a result of higher filing fees as a percentage of revenue due to higher business formation volumes.
Sales and marketing costs were $57 million in the quarter with 35% of revenue down 11 points from Q1 of last year.
Customer acquisition marketing came in at $41 million down 24% year over year.
In Q2, we continue to expect a significant year over year decline in customer acquisition marketing, although to a lesser extent in our Q1 results.
Technology and development expenses were $14 million in Q1 up $1 million year over year as our primary hiring focus remains in product and engineering.
General and administrative expenses were $15 million in Q1 up $1 million year over year.
Adjusted EBITDA was above our guidance range at $22 million for the quarter compared to $2 million in the first quarter of 2022 and.
And our base of deferred revenue increased $17 million in the period.
In the first quarter, we continued to execute on our $150 million share repurchase authorization.
We repurchased a total of 771000 shares of our common stock at an average price of $8 78 per share for a total repurchase of $7 million.
Since inception, we have completed $102 million in buyback with a total of 10 million shares repurchased.
As of March 31, 2023, we had cash and cash equivalents of $204 million and no debt outstanding.
I'll now provide.
<unk> guidance for the second quarter and full year 2023.
For the second quarter of 2023, we expect total revenue of $166 million to $168 million or 3% year over year growth at the midpoint.
We expect adjusted EBITDA of $27 million to $29 million.
Were 17% of revenue at the midpoint.
For the full year of 2023, we are raising our total revenue to $630 million to $650 million or 3% year over year growth at the midpoint.
As a result, we now expect adjusted EBITDA to increase to $105 million or 16% of revenue.
And with that let's please open the call for questions.
Thank you.
As a reminder to ask a question you will need to press star one on your telephone to withdraw your question. Please press star one again, please wait for your name to be announced please standby, while we compile the Q&A roster.
For your first question.
And our first question comes from the line of Andrew Boone with JMP Securities. Your line is now open.
Yes.
Hi, guys. Thanks, so much for taking my questions and congrats on a strong.
<unk> share gains.
Can you talk a little bit about how llm's may change the competitive dynamics for business formation. What are the risks that you see out there as people are more utilizing more.
Generative AI models, what do you what do you see there and then can you talk a little bit about the cadence of the quarter. So understood for you really went live in March.
Can you give us some more recent update in terms of what you guys saw an attach as well as maybe how march compared to January and February . Thanks, So much.
Okay. Thanks for the question Andrew.
Let me start up on the question with generative AI I mean.
Maybe I'll just start by saying this isn't all that new news for US I mean, if you go back in.
Yes, thanks for the pandemic when GPT three was released.
We saw a pretty significant demonstration of some of the incredible capabilities that you get from from Ll Almond from generative AI.
If you think about some of them, it's legal tax to plain English summary, brief just all just filling capabilities that it has.
More complex drafting so.
When Jeff chassis GPT came out that was just a little bit more about fine tuning on a model of conversational UI.
Those capabilities have been in place for a little time now so if you step back degenerative piece of this is it's going to change how people right.
Most like photos changed art and bad writers will be somewhat overnight pretty good writers.
We all know attorneys are amazing writers that effectively get paid by the work, which is a proxy of time so.
Theres going to be an impact on the industry.
What I don't think.
Everybody fully appreciates is that our whole purpose for the first 20 years of our existence has been to leverage tech to make legal services accessible.
The issue.
Isn't in my mind disruption of the online players. This is all about getting to the problem with non consumption through broader digital reach.
And just about every estimate we see by every expert says that the majority of the U S population.
Is there a legal needs unmet and anything that can stimulate that demand is a good thing in my mind. So what do I mean by that so on our business less than 5% of our revenue comes from forms and contracts, including our state planning business as well.
We announced our acquisition of rather than Q4 last year pre the chat GPT release.
Our intent there was twofold.
Talk about E signatures and actually we've deployed that already.
But part of this was to re imagine our forms and our contract offerings.
Because we hadn't invested them.
And that business in 10 years.
The fact that that's where we got started we really haven't had a significant investment there for some time so indulgence when we're out looking at potential acquisitions route one of the things that are attractive to us as to them was the fact that they had some pretty novel features leveraging machine learning.
And I've been through these shifts a couple of times before what I would say typically the pattern is.
Disruptive technology is stark horizontally and then they get tuned vertically.
We're in a really unique position to not only leverage chat GPT, but also coupled with our attorney network to Bridget shortfalls.
And Theres a couple of those such as technical issues like hallucinations, but but also regulatory issues like unauthorized practice of law. So few chat GPT is expanding our addressable <unk>.
Of course that means we have to be innovative in this space, but we are the market leader. So you should expect that.
I certainly do.
So we're excited about where we are in.
Couple of things that we'll be talking about as we get towards the end of the year.
We're in a pretty good spot for that.
On the cadence in the quarter.
I would say we didn't see any surprises in the launch and part of that is a reflection of just how how much we tested.
Before we released the winning the winning lineup and so if anything we saw the predictable conversion improvements we saw the reduction in <unk>.
The one thing that we were able to get a new read on in March was marketing efficiency and just what the impact of free messaging would be.
And I can say that that exceeded our expectations a bit and we're just getting started there too. So theres a lot of tuning that has to happen on the lineup itself.
But the early indication is that the free messaging is resonating and you can see it in the share performance I mean, the two.
97% share gain is probably the best indication in general on the attach side, we did not have any surprises there and it played out exactly how we saw it in our tests, where we're seeing slightly lower attach rates, but thats overcome by the fact that you have.
Much more units and so overall, it's going to be an acceleration of the subscriptions business increasing mix.
Driving longer lifetime revenue and all of that is in combination with lower Cam expenses.
Better camera efficiency. So it really was pretty clean exactly what we had expected.
And Andrew just just one thing to build on the trajectory of the quarter.
We did see some strength in March as we fully rolled out I mean, we were largely rolled out throughout the quarter. So it was a slight improvement. We also saw a stronger macro in March.
That's kind of normalized in April and so while we've increased our assumptions and forecast for the macro in Q2.
Our projections are not as strong as what we actualized in Q1.
And then per hour commentary. We also noted that in the back half of the year. We continue to take a really conservative approach to the macro so as you think about Q2 from a from a business formation standpoint.
What we saw in Q1 should be a fair expectation for our performance in Q2 from a from a year over year growth standpoint.
And.
Still staying conservative on the macro in the back half of the year.
Alright, thank you so much.
Thank you.
One moment for our next question please.
And our next question comes from the line of Matthew Pfau with William Blair. Your line is open.
Okay, great. Thanks for taking my question I wanted to ask on Lv tax. So just wanted to clarify how did that perform in its second year.
<unk> to your expectations and when Youre thinking about areas of improvement maybe what would some of those look like where do you think there's additional opportunities with that product.
Yeah. Thanks for the question Matt.
Just to refresh our tax business is pretty unique because we serve a segment of customers that a lot of people don't yet serve which is someone who is even pre formation.
Free operation. So if people have questions about what type of entity they should have.
And then even as I've created an entity sometimes it means that they are not yet in operation and we give them a lot of tax advice.
So it's a pretty unique business through unique channel because again, we have we can identify them, whereas other people would have to do.
Performance marketing brand marketing to acquire these customers.
The progress here has been pretty amazing I mean, one thing I reflect on us.
Need to refine the end to end experience for our customers.
Got it and and then in terms of you know the share gains you're saying I mean, my guess would be a lot of that is coming from more of the price sensitive consumer what are you doing then to address that the large portion of the market. That's still you know paying that much.
Higher fees to go to a brick and mortar attorney to do a business formation.
Yeah, that's one of the really fun parts of the the lineup that we deployed is it both solves for the price sensitive at the low end with the free offering but our premiums do you actually comes bundled with access to an attorney and so yeah. The the benefit there is we're introducing.
A lot of people to the idea of you can get access to an attorney through technology to handle you know some of the the early questions that you have is your forming and then you can decide from there whether or not you're gonna renew the service and so that really is an entree into starting to disrupt the higher end of the market Super early.
<unk> earnings here and actually you know the volume that we're seeing coming in from this this lineup again, what we're going to learn from and keep evolving the service, but the early read is quite positive and that was the lineup that one overall in terms of both you know thinking about conversion as well as lifetime value.
The other thing I'd add just in the valley that we bring is the fact that it's a full suite of solutions and services that we provide either directly or through partners, which is a better customer experience.
So improving our overall customer experience. We also mentioned this in our remarks around the the automation.
Wins that we've had in terms of the delivery of our services.
So we've been able to deliver a faster and better experience to our our customers, which makes us a better choice overall.
Great I appreciate you taking my questions.
Thank you. Thank you.
One moment for our next question place.
And our next question comes from the line if Marianne Lou with Barclays. Your line is now open.
Hey, This is Jack Butler on for Mario Thanks for taking my question.
My first question was surrounding the the partnership side of things when should we expect to see a meaningful uplift from these partnerships ships such as chase is there any any timeline might be able to put behind that.
So there's two forms of partnerships on our side just to to back it up and provide some context on one hand, we have partners, where we're marketing their service through our formation workflow and then on the other hand, we have the partnership channel where some of the partners.
That we have our action marketing our formation service as well.
I think your question was was more on the services that were marketing through our platform and I'd say that that's actually a <unk> a lot of moving parts, we've talked about we exited.
Another partnership on the uncontested divorce side last quarter. So that's a bit of a headwind while at the same time, we're really ramping up our partnership with Wicks.
<unk> Chase as a banking partner and I'd say next insurance is another meaningful partner for us.
Those are all growing very healthy.
And I would expect that that starts to that continues to accelerate.
But but again, it's just lapping some some other things that were exiting and you know if you think about it. If you can go back further a coupla years that has been a consistent theme of ours is we're trying to build out an ecosystem that hasnt integrated experience for customers at times that means if something we'd feel like is directly into compliance space.
We should we should have more ownership over that experience and we brought some of those things in house because it.
As you guys remember tax used to be a partnership and now it's it's core to what we're offering our customers as well.
On the partnership channel, it's kind of similar we have some partners, where we feel like it's a very symbiotic relationship will work marketing their service and and then in turn their marketing our service and then in some cases, we have a legacy of almost acting as a vendor is a very low cost vendor two alternative providers.
Riders.
So on the on the case of the bilateral side, we love it we want out partnerships, where we feel like it's symbiotic and we're both helping each other on the vendor side, we feel like that's probably not core to what we want to be doing longer term and we think those economics don't fit aligned with what what we're trying to do from a from a lifetime value perspective, So there's gonna be places, where there's puts on <unk>.
We're we're exiting partnerships from a channel perspective.
Great. That's helpful and then in terms of.
Customer acquisition marketing I know you indicated earlier on the call that you would expect to see a decline in that in two Q on a year over year basis is that largely as a result of.
Just shifting towards product and maybe weaning off after C. As in maybe with heightened marketing on Lz tax or is there. Some other factor at play maybe you could call out.
Yeah, there's there's a couple of different factors here I mean, we we we've really steep.
Scaled down our brand spend.
And and that's a reflection of.
Thinking relatively to our competition or awareness is just extremely high and we have a we have a strong lead and in this environment. We didn't feel like that's the place to commit and half longterm investment. So we backed off on the brand side of it but it's also just gotten more efficient when you start to think about their performance I've given.
The the free messaging that we're using.
Some of the channels shifts that we're doing within performance marketing.
Even beyond that sales and marketing so I've been thinking about the Opex side, we adjusted as well and sales for instance has come down as an expense. So it's you know when you think about the the head count side, you know that sound, 8% for the quarter. So calm down 24% sales and marketing you know head count expense down.
Down 8% with with the program dollar in there as well it sort of across the board a reduction as we become more and more efficient to align with our our new strategy, which is you know a lower he'll be product.
Really helpful. Thanks for taking my questions.
Thank you. Thank you.
One moment trying next question please.
Our next question comes from the line to find Jesse with cities to your line is now open.
Great. Thanks for taking the question that I wanted to follow up on a question or comment you had earlier the most disruptive Tech I think you said gets announce horizontally then tune vertically talk to us about how that might impact legal zoom or how you're thinking about legal zoom from a verticalize LLM support perspective, and then I know we've talked about premium on the call here and forgive me. If this has already been answered button at but.
I know, we got inside tell them to you know how the quarter progress, but just.
Just about lessons learned here in terms of demand and more importantly, I'm really want to focus on the upsell process and and driving awareness and everything else that <unk> has to offer thanks gotcha.
Yeah. Thank you for the customer.
Yeah. So L. L M as in Verticalization I mean, it's just like it's almost like another form of Saint Fine tuning, where if you think about Llm's and you think about CECI P. T. It does a little of everything and it doesn't do anything perfect and if you think about that some of it's gonna be related to the data sources.
<unk>.
Where you.
Those models might not have access to things that are analogous to the segments of customers that were serving so we'll give you. An example, you may be able to go and scrape in terms of service from every site that exists on the web and you know immediately be knowledgeable in drafting terms of services and and.
Really calling out the anomalies in services.
But <unk>.
Do you have access to small business vendor contracts or do you have access to.
Some some geographically based terms tied to Elise and you know that's where volume players will have a little bit of an advantage and that's when you start to think beyond you know API driven platforms on the LLM side into more open source and you know where you have the ability to fine tune with your own data set so.
It's such early earnings we got really excited to hear though because we also have lots of data and we have a way to accumulate data that other people don't that's also why he.
Having your own expert platform becomes really important because that is the fact that you train.
The models on and and so you'll see more and more investment from there over the over the coming quarters.
A second questions. Your lessons learned on the line up and how we drive them in I mean, I think here, we did so much testing going into deployment of the lineup that we really understood all the commercialization challenges, but to your point the thing that we haven't yet fully.
Understood was what was going to be an impact on the on the marketing side and how we drive demand. There are some some channels. There's new channels that we've identified that we haven't really participated in and I don't Wanna get into the details of that.
But that's one big learning that I think we pulled out the other thing here is we're just really getting a sense of how you apply free messaging and were you specifically apply it.
In some ways. It has the effect of bringing down it will be the more you amplify the free message, which we knew it was going to do so you have to find that right balance of you know how do you make sure. If it's there for the customers who are price sensitive but at the same time that you're not you know over in vaccine on all the free messaging as well and I'd say this.
There's a place where you know we.
We are just getting started I think there's a lot of opportunity for improvement as we go throughout the year, because we really didn't have a chance to test it.
And so that's all happening and market right now.
Thank you.
One moment for our next question.
And Uhm next question will come from the line <unk> with Jeffrey to your line is now open.
Hi, this is that 10 minutes of <unk>.
Thanks for taking a question.
Two question why not on the screen and wondering if you could talk about the pace once they kind of come in through that door.
How quickly do they end up buying a.
Patriotic and typically wait which probably just get attached.
And then second on your decision to keep you in recession on macro outlook.
A second I'm just wondering you.
Why did you see it looks like that's what you mentioned January February pretty good and obviously Q into that very well, but just wanted to see it <unk> thinking behind that thought process guidance, Amanda Jamaica assumption. Thank you.
Yeah. Thanks for the question so on attach rates on this new cohort our customers you know.
It's actually been relatively.
Predictable again through testing, we saw what customers were attaching and there are set a standard.
Solutions that we offer when we when we call. It a pack of essential docs, which is you know things like an operating agreement yeah, I and you know helping out with business licenses and then separately the compliance subscriptions like registered agents and we have a compliant subscription that does all your annual violence as well.
Those are pretty standard and they attached very well because when you get down to it it's sort of required spill and so that not only they're not only kind of value add from a perspective of you know thinking through what is relevant as your form they're actually required so they still attached pretty strong would it be.
<unk> is we haven't really commercialized these products in any way to adjust to the new segments that are coming in so when you think about a very price sensitive customer they may not be looking for as much.
As broad a feature set or as rich a product and they might be looking for something that's a little bit more simple, which gives us the opportunity to consider commercializing it's slightly different to drive is a patch rates up.
But again like the really interesting thing here and I'm, just gonna keep saying it we were extremely happy with the launch of premium.
There were zero surprises and what I'd say coming out of it is you know we have a stomach under optimize lineup now where we haven't tested a bunch of the add ons subscriptions or add on products and <unk>.
Transactional products and so there there's opportunities that we're going to start identifying we have a whole queue of tests that are kind of sitting there waiting to be run that had been sitting behind this this premium lineup for quite some time.
And on your question with regards to the macro you know we feel like we're being appropriately conservative there were obviously still in the midst of an uncertain macro environment kind of high inflation right, increasing interest rate environment and so there's a general expectation that the economy will slow.
We also.
From a historical caters standpoint look at the historical growth rate to macro informations and do some triangulation there and what the new slope could look like over an extended period given that we think the slope has shifted more favorably given all the tailwind.
As it relates to forming and getting a business operational so we factor in a lot of different things, but overall believe that it's appropriate to stay conservative as we look out farther and will start to will normalize are forecast to whatever we're expecting for the upcoming quarter based on what we're seeing but.
For now cause you look out extended quarters, we're gonna we're gonna continue to stay conservative.
Yeah in April you know as an example, because the census publishes weekly data you can see it it stayed pretty healthy as well, but yeah. It's been a while his point, we really want to control the things that we can and we feel like the discipline of assuming a negative macro is helping to how we manage.
It's a head count is helping to how we think about how we're spending.
And we want to be as conservative as possible in this environment.
Thank you. Thank you. Thank you.
One moment for next question.
And our next question comes from the line of Jackson, Anna with F. C V mafic Nathan in line is now open.
Oh, great. Thanks for taking our questions actually just one from our side.
The is there like a different contemplation.
For the lifetime value of a customer.
Kind of matches the willingness to accept a lower upfront price maybe that might impact either you know the the longterm model or the longterm Martin profile.
<unk>.
Yeah, I want to make sure I understand your question are you are you asking whether or not we should expect a different L. T V for for the customers coming in through this lineup.
Yeah cause I'm just thinking like.
You know if we think back to the idea of a couple of years ago, you're you're longterm model, probably just contemplated like.
Certainly a different upfront price for most of the transaction and then also a different price for the subscription units that would be attached and so I'm just wondering like this new.
The new product offering how that interacts with your longterm margin profile that Oh, I think mostly unchanged since you guys came out.
Yeah, well, it's it's.
Somewhat unknowable as you start to get to you know the the out years, what what the L. T V impact will be of this customer base, but I think what were the way. We're looking at this is on a relative basis to what the camel spend as and when we look at the a O b reduction for.
Instance, where we look at the total cart value production that is happening due to this new lineup, we actually see the cam cost per customer going down at a at a faster rate than the actual car value. So that should lead to a bit of an expansion, but it also.
Just depends a little bit on what we're talking about in your two behavior. Your three behavior of course, we're shifting wardeh subscription. So it stand to reason that the margin profile improves but it really depends on some retention rates in in that data is just unknowable right now.
Right, Okay, alright, thank you.
Thank you one moment for our next question face.
And our next question comes from the line of Elizabeth Porter with Morgan Stanley online just now open.
Great. Thank you so much I wanted to touch on the shared gained in business for Nathan is at 27 per cent is very impressed I think T. One and while you suck up to moderate in the year, how should we think about the trend diversity. Our original target T. At about 12 per cent improvement in his hearing and has that target changed just given the strong.
Q1 performance.
Yeah actually when we when we talk about a moderating it's moderation of the the growth rate, which is really just starting to lap the testing that would happen in the back half of the year. So that that you know what we're really trying to drive is is inquiries share throughout the year and I talked about.
Just a little bit earlier, there might be things that we decide that we think are not it's sure that we don't want because it's not the right value associated with that chair.
There's places where we know today, there's incremental investments that we can make that can drive more sure. So you know example, there is we're still only optimize the LLC portion of formations, but that's you know three quarters of the formation is transactions roughly.
But there are still a quarter of them that you know where it's still traditionally price so.
Yeah. This is.
It was a very strong results and we're we're super happy with it we feel like it it sets us up to know optimize more and start to build off of it as we go throughout the year.
And one thing I'll just add their Elizabeth we had stated that our goal was to grow market share by 15% this year and we're still highly confident.
That we are going to drive at least 15% growth.
Got it. Thank you and then I been leaving and about half the work. So far has been done on the automation of filings.
When can we see that that other half you know complete and is this a driver that yeah. This is more likely to become kind of beyond 2023 or something that's more of that in near term dynamic. Thank you.
Yeah. So the way automation works is we we we really prioritize based off of the number of transactions that are occurring and as you can imagine because we do a lot of different types of transaction types, you get to a place of diminishing return eventually.
And it becomes a little bit more of a like a long tail of of smaller improvements what I would say is we expect some significant improvements by the end of this year that should drive incremental efficiencies and then at that point, we start to move to transaction types that have a little less impact thereafter.
<unk>, but there are parts of our of our products for instance that you know <unk>.
Mentioned before that we really haven't touched it in many years, even like when you think of our consumer business. That's still has a lot of manual processes underneath it and most of what we've talked about on the automation side has really been on the small business side, so still still opportunities a lot of a larger improvements should happen over the next six months.
And then it starts to moderate.
Alright, thank you.
Thank you I'm.
I'm currently showing no further questions at this time. This concludes today's conference call. Thank you for your participation. You may now disconnect everyone have a wonderful day.
Mmm.
[music].