Q1 2024 LegalZoom.com Inc Earnings Call
Operator: Good day, and thank you for standing by, and welcome to LegalZoom's first quarter 2024 earnings 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, you'll need to press star 11 on your telephone. You will then hear an automated message device, and your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Madeleine Crane, Head of Investor Relations. Please go ahead.
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Good day, and thank you for standing by and welcome to <unk> first quarter 'twenty 'twenty four earnings call. At this time, all participants are in a listen only mode.
Madeleine Crane: After the Speakers' presentation, there'll be a question and answer session.
Operator: To ask a question during the session you will need to press star one on your telephone.
Madeleine Crane: The automated message of buys in your hand is raised.
Operator: Your question. Please press Star one again, please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today, Matt.
Madeleine Crane: Crane head of Investor Relations. Please go ahead.
Madeleine Crane: Thank you, Operator. Welcome to LegalZoom's first quarter 2024 Earnings Conference Call. Joining me today is Dan Wernikoff, 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 should not be relied upon as a guarantee of future performance or results.
Madeleine Crane: Thank you operator, welcome to legal team's first quarter 2024 earnings conference call.
Madeleine Crane: Joining me today is Dan <unk>, our Chief Executive Officer, and Noel Watson, our Chief Financial Officer.
Madeleine Crane: As a reminder, we will be making forward looking statements on this call.
Madeleine Crane: These forward looking statements can be identified by the use of words, such as believe expect plan anticipate will intend and similar expressions.
Madeleine Crane: We're not and should not be relied upon as a guarantee of future performance Oracle.
Madeleine Crane: Such forward-looking statements are based on management's assumptions and expectations and information available to us as of today's date. However, these forward-looking statements are also subject to risks and uncertainties that could cause actual results to differ materially from those expressed. These risks and uncertainties are referred to in the press release we issued today and in the risk factor section of our most recent annual report on Form 10-K filed with the Securities and Exchange Commission.
Madeleine Crane: Such forward looking statements are based on management's assumptions expectations and information available to us as of today's date.
Madeleine Crane: These forward looking statements are also subject to risks and uncertainties that could cause actual results to differ materially from such statements.
Madeleine Crane: These risks and uncertainties referred to in the press release, we issued today.
Madeleine Crane: And in the risk factors section of our most recent annual report on Form 10-K filed with the Securities and Exchange Commission.
Madeleine Crane: 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 events, or otherwise. In addition, we will also discuss certain non-GAAP financial measures. We use non-GAAP measures in making decisions regarding our business, and we believe these measures provide helpful information to investors. However, these non-GAAP financial measures are not intended to be considered in isolation or as a substitute for results prepared in accordance with GAAP. 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.legalzoom.com. I will now turn the call over to Dan.
Madeleine Crane: 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 events or otherwise.
Dan: In addition, we will also discuss certain non-GAAP financial measures.
Dan: We use non-GAAP measures and making decisions regarding our business and we believe these measures provide helpful information to investors.
Dan: These non-GAAP financial measures are not intended to be considered in isolation or as a substitute for results prepared in accordance with GAAP.
Dan: Reconciliations of all non-GAAP measures to the most directly comparable GAAP measures are set forth in the <unk>.
Dan: Mr Relations section of our website at investors thought that goes into dotcom.
Madeleine Crane: I will now turn the call over to Dan.
Daniel A. Wernikoff: Good afternoon, everyone, and thanks for joining our call. I'll start with a quick recap of our year-over-year financial performance in Q1. Revenue came in at $174 million, up 5%. Subscription revenue grew 10%, and transaction revenue declined 3%. Adjusted EBITDA was $28 million, up 28% year-over-year, or a 16% margin. LegalZoom formations were down 18% year-over-year, with formations as measured by Census EIN data down 2% year-over-year. As a result, our share for the quarter relative to census EIN data fell 17%.
Dan: Good afternoon, everyone and thanks for joining our call I will start with a quick recap of our year over year financial performance in Q1.
Daniel A. Wernikoff: Revenue came in at $174 million up 5%.
Daniel A. Wernikoff: Subscription revenue grew 10% in transaction revenue declined 3%.
Daniel A. Wernikoff: Adjusted EBITDA was $28 million up.
Daniel A. Wernikoff: Up 28% year over year, or a 16% margin.
Daniel A. Wernikoff: But you also informations were down 18% year over year with formations as measured by census data down 2% year over year.
Daniel A. Wernikoff: As a result, our share for the quarter relative to the census data fell 17%.
Daniel A. Wernikoff: As mentioned on our last call, a share decline was expected and reflects the partnership exit, continued commercialization testing, and the rebuild of our sales organization. However, Secretary of State formations data pointed to a softer formations macro in Q1 than census EIN data. As a result, we believe our Q1 results overstate the market share loss.
Daniel A. Wernikoff: As mentioned on our last call a share decline was expected and reflects the partnership Baghdad continued commercialization testing and the rebuild of our sales organization.
Daniel A. Wernikoff: However, secretary of state formation data pointed to a softer formations macro in Q1 than census data.
Daniel A. Wernikoff: As a result, we believe our Q1 results overstates the market share loss.
Daniel A. Wernikoff: Despite the near-term trend, we continue to believe in the long-term health of the macro, which remains well above pre-pandemic levels. We're also confident in our ability to reaccelerate our share growth throughout the year. We expect to exit the year with at least 10% growth in our market share relative to the first quarter. As we've now fully lapped our premium rollout, we're focusing our efforts on other parts of our lineup that haven't yet been optimized. One of the biggest levers to drive conversion is reducing the number of purchase decisions in the formation flow. We are simplifying the experience by focusing primarily on formations and compliance needs.
Daniel A. Wernikoff: Despite the near term trend, we continue to believe in the long term health of the macro which remains well above pre pandemic levels.
Daniel A. Wernikoff: We're also confident in our ability to reaccelerate our share growth throughout the year.
Daniel A. Wernikoff: We expect to exit the year with at least 10% growth in our market share relative to the first quarter.
Daniel A. Wernikoff: As we've now fully lapped our premium rollout, we're focusing our efforts on other parts of our lineup that haven't yet been optimized.
Daniel A. Wernikoff: One of the biggest levers to drive conversion is reducing the number of purchase decisions in the formation flow. We are simplifying the experience by focusing primarily on formations and compliance needs.
Daniel A. Wernikoff: I'm encouraged by tests we ran at the end of the quarter geared towards better lineup optimization that will favor formation conversion improvement. Share growth should further be supported by our sales and marketing strategy. By early Q3, we expect to be back to our prior sales capability with a more efficient organization. We're also reintroducing increased levels of brand spend, which should drive higher awareness and traffic, while working in concert with our performance marketing to drive better conversion. While the macro has softened, compliance requirements have increased in complexity with the Corporate Transparency Act.
Daniel A. Wernikoff: Im encouraged by tests, we ran at the end of the quarter geared towards better lineup optimization that will favor formation conversion improvements.
Daniel A. Wernikoff: Share growth should further be supported by our sales and marketing strategy by early Q3, we expect to be back to a prior sales capability with a more efficient organization.
Daniel A. Wernikoff: We're also reintroducing increased levels of brand spend which should drive higher awareness and traffic while working in concert with our performance marketing to drive better conversion.
Daniel A. Wernikoff: While the macro it's often compliance requirements of increasing complexity with the corporate transparency Act. We took advantage of this opportunity by launching a new product to assist with the filing mandates required box inside the.
Daniel A. Wernikoff: We took advantage of this opportunity by launching a new product to assist with the filing mandates required by the. The timing of this new requirement and our focus on monetizing customers post-formation came together in Q1. And over the course of the quarter, we saw accelerated performance. We've had a well-orchestrated strategy across all our channels to ensure our customers understand this new requirement. We continue to evolve the offering with a focus on leveraging the data we have today in our business profile so that our customers can comply with minimal effort. Overall, it was a strong quarter, with us meeting and beating guidance on revenue and adjusted EBITDA, respectively, even with a weaker macro than anticipated.
Daniel A. Wernikoff: The timing of this new requirements and our focus on monetizing customers post formation came together in Q1 and over the course of the quarter, we saw accelerated performance.
Daniel A. Wernikoff: A well orchestrated strategy across all our channels to ensure our customers understand this new requirement.
Daniel A. Wernikoff: We continue to evolve the offering with a focus on leveraging the data we have today in our business profile, so that our customers can comply with minimal effort.
Daniel A. Wernikoff: Overall, it was a strong quarter with us meeting and beating guidance on revenue and adjusted EBITDA, respectively, even with the weaker macro than anticipated.
Daniel A. Wernikoff: We're also maintaining our full-year guidance despite adjusting our expectations down for the macro, as we've been able to offset its impact with better performance than expected in compliance and DOIR. Now, I'll detail our performance across our strategic pillars in more detail. Beginning with our first strategic pillar, scale to business, we continue to focus on the opportunity to improve the LLC experience. The majority of our product sessions are mobile, and they convert at less than a third of the rate of desktop sessions.
Daniel A. Wernikoff: We're also maintaining our full year guidance, despite adjusting our expectations down for the macro as we've been able to offset its impact with better performance than expected in compliance and <unk>.
Daniel A. Wernikoff: Now I'll detail our performance across our strategic pillars in more detail.
Daniel A. Wernikoff: Beginning with our first strategic pillar scale the business.
Daniel A. Wernikoff: We continue to focus on the opportunity to improve LLC experience.
Daniel A. Wernikoff: The majority of our product sessions are mobile and they convert at less than a third of the rate of desktop sessions.
Daniel A. Wernikoff: The conversion challenge has been one of both design and commercialization within a constrained form factor. At the end of Q1, we deployed a new mobile optimized experience and reduced the number of solutions cross-sold in the formations flow. While this new formation experience is designed for mobile, a simpler experience will benefit our desktop customers as well.
Daniel A. Wernikoff: Our conversion challenge has been one of both design and commercialization within a constrained form factor.
Daniel A. Wernikoff: At the end of Q1, we deployed a new mobile optimized experience and reduce the number of solutions cross sold information flow.
Daniel A. Wernikoff: This new formation experiences designed for mobile a simpler experience will benefit our desktop customers as well.
Daniel A. Wernikoff: We're able to make these changes because of the combination of our new customer data platform, our post-formation experience in MyLZ, and a new sales organization. We're now unlocking a multi-channel, data-driven approach to monetization after formation, and the early results are promising.
Daniel A. Wernikoff: We're able to make these changes because of the combination of our new customer data platform or post formation experienced in my LTE and a new sales organization.
Daniel A. Wernikoff: We're now unlocking a multichannel data driven approach to monetization after formation. The early results are promising.
Daniel A. Wernikoff: We're also making changes in the consumer side of our business. Estate planning is an important front door to our ecosystem, and many of the infrastructure investments we've made around our SMB experience and fulfillment infrastructure have been built in a way that allows us to leverage them across other offerings with relatively minimal investment. The estate planning product has not been refreshed for close to a decade and has created a revenue headwind over the last three years post-pandemic.
Daniel A. Wernikoff: We're also making changes in the consumer side of our business.
Daniel A. Wernikoff: Planning is an important front door to our ecosystem and many of the infrastructure investments we've made around our SMB experience and fulfillment infrastructure have been built in a way that allows us to leverage them across other offerings with relatively minimal investment.
Daniel A. Wernikoff: The estate planning product has not been refreshed for close to a decade and has created a revenue headwind over the last three years post pandemic.
Daniel A. Wernikoff: Despite that, we remain a leader in this space given our strong brand recognition and historical business model. While SMB continues to be our primary focus, estate planning is a highly relevant need for our SMB customers when it comes to tax planning, business partnerships, and ownership succession.
Daniel A. Wernikoff: Despite that we remain a leader in this space given our strong brand recognition and historical business model.
Daniel A. Wernikoff: SMB continues to be our primary focus as Steve planning is a highly relevant need for our SMB customers. When it comes to tax planning business partnerships and ownership succession we've.
Daniel A. Wernikoff: We've taken the first couple steps to update the product, and you should expect to see continual improvements throughout the year. Lastly, to support these product efforts, we're beginning to reinvest in the brand. As we scale our brand spend, we're taking a test and learn approach to find the right channels to reach key segments and increase awareness and product familiarity. In Q2, as part of our NBA partnership, we launched a new integrated campaign with a combination of TV, social, CTV, and online video, leveraging two-time NBA MVP and NBA champion Giannis Antetokounmpo as our spokesperson.
Daniel A. Wernikoff: We've taken the first couple of steps to update the products and.
Daniel A. Wernikoff: You should expect to see continual improvements throughout the year.
Daniel A. Wernikoff: Lastly to support these product efforts, we are beginning to reinvest in the brand as.
Daniel A. Wernikoff: As we scale our brand spend we're taking a testament approach to find the right channels to reach key segments and increase awareness and product familiarity.
Daniel A. Wernikoff: In Q2 as part of our NBA partnership we launched a new integrated campaign with a combination of TV, social CTV and online video leveraging two time, NBA MVP and NBA champion you honest answer to Cooper.
Daniel A. Wernikoff: We expect Q2 to be the first quarter that we meaningfully increase CAM spend year over year since launching the freemium lineup as we align our investment with the NBA playoffs to maximize reach and the relevancy of the campaign. Now, let me turn to our second strategic pillar, building the ecosystem. As we simplify the formation experience by eliminating unnecessary purchase choices, we continue to optimize the experience after the formation is complete. The recent changes to our formation flow may put some pressure on the performance of our subscription add-ons in the near term, but we feel confident the changes we are making will benefit us in the long run. It's still early in the transition, but we're excited by the engagement we're seeing on our platform. We had over 1 million MyLZ logins in March, double the volume we saw in December.
Daniel A. Wernikoff: Spokesperson.
Daniel A. Wernikoff: We expect Q2 to be the first quarter that we meaningfully increase cam spend year over year since launching the premium lineup as we align our investment with the NBA playoffs to maximize reach and the relevancy of the campaign.
Daniel A. Wernikoff: Now, let me turn to our second strategic pillar there'll be ecosystem.
Daniel A. Wernikoff: As we simplify the formation experienced by eliminating unnecessary purchase choices, we continue to optimize the experience after the formation is complete.
Daniel A. Wernikoff: The recent changes to our formation flow may put some pressure on the performance of our subscription add ons in the near term, but we feel confident the changes we are making will benefit us in the long run.
Daniel A. Wernikoff: It's still early in the transition, but we're excited by the engagement, we're seeing on our platform.
Daniel A. Wernikoff: We had over 1 million miles logins during March double the volume we saw in December.
Daniel A. Wernikoff: During the quarter, we rolled out a new first-use experience on the homepage, outlining all the tasks required during formation to ensure liability protection and government compliance. Since the rollout, we've seen promising trends related to the conversion and utilization of our compliance offerings. While off of a relatively small base, post-formation sales more than doubled compared to the fourth quarter of 2023. We've also seen very strong post-formation engagement when it comes to
Daniel A. Wernikoff: During the quarter, we rolled out a new first use experience on the homepage of outlining all of this has required very formation to ensure liability protection and government compliance.
Daniel A. Wernikoff: Since the rollout we've seen promising trends related to the conversion and utilization of our compliance offerings.
Daniel A. Wernikoff: While off of a relatively small base post formation sales more than doubled compared to the fourth quarter of 2023.
Daniel A. Wernikoff: We've also seen very strong post formation engagement when it comes to <unk> to refresh them send mandates that this report is filed within 90 days of forming and for those customers that form prior to 2024. They have until the end of this year to make the initial filing.
Daniel A. Wernikoff: To refresh, FinCEN mandates that this report be filed within 90 days of formation, and for those customers that form prior to 2024, they have until the end of this year to make their initial filing. We have three objectives as it relates to BOIR. One, we want to educate all our customers about this new requirement. Two, we want to make the experience simple, leveraging the business profile data we already have on the customers. And three, we'll use it as an opportunity to introduce customers to our comprehensive compliance subscription. We are now selling DOIR in Mile-Z through email marketing and in our sales and care channels.
Daniel A. Wernikoff: We have three objectives as it relates to <unk> one.
Daniel A. Wernikoff: One we want to educate all our customers about this new requirement.
Daniel A. Wernikoff: Two we want to make the experience simple leveraging the business profile data, we already have on the customers and three we'll use it as an opportunity to introduce customers to our comprehensive compliance subscription.
Daniel A. Wernikoff: We are now selling <unk> in my LP through E mail marketing and in our sales and care channels. The early results have been strong, but we expect further acceleration with additional testing.
Daniel A. Wernikoff: The early results have been strong, but we expect further acceleration with additional testing. As we focus the Formation Fund on conversion, we've shifted both tax and books from being a part of the initial purchase to instead being part of the post-formation marketing motion. For tax, the efficacy of a tax is more seasonalally driven, so we don't expect a significant impact.
Daniel A. Wernikoff: As we focus the formation funnel conversion, we've shifted both tax and books for being a part of the initial purchase to instead being part of the post formation marketing motion for tax the efficacy of attaches more seasonally driven so we don't expect a significant impact for books, we continue to drive up Activations and iterate on the core offering.
Daniel A. Wernikoff: For books, we continue to drive up activations and iterate on the core offering. We have big plans for books later in the year and are in a build mode with existing customers helping to inform the roadmap, which takes us to our third strategic pillar, integrated access. There are two critical advisors that small businesses rely on to be successful, accountants and attorneys, and we're focused on modernizing how solopreneurs can have affordable and easy access to both groups through a modern technology platform with a consistent experience across. Since we just completed the initial filing deadline for tax season 2023, I'll first recap our performance with LZ Tax. We have three clear learnings from this season.
Daniel A. Wernikoff: We have big plans for books later in the year and are in a build mode with existing customers, helping to inform the roadmap.
Daniel A. Wernikoff: Which takes us to our third strategic pillar integrate experts.
Daniel A. Wernikoff: There are two critical advisers that small businesses rely on to be successful accountants and attorneys and we're focused on modernizing how solar frontiers can have affordable and easy access to both groups through a modern technology platform with a consistent experience across.
Daniel A. Wernikoff: Since we just completed the initial filing deadline for tax season, 2023, I'll first recap our performance with LG tax.
Daniel A. Wernikoff: First, we've built the right premium filing experience. Second, there's a clear advantage to offering an integrated books to tax solution. And third, there remains a large portion of our customers who are not yet served when it comes to their early tax, which is still a large and unrealized opportunity. Last year, we made the decision to re-commercialize our tax offerings with the goal of driving higher customer consideration and retention. As we narrowed our audience to focus on the most relevant tax customers, we invested heavily in improving the experience, moving to an integrated filing experience all within our platform.
Daniel A. Wernikoff: We have three clear learnings from the season first we've built the right premium filing experience.
Daniel A. Wernikoff: Second there is a clear advantage offering an integrated books to tax solution.
Daniel A. Wernikoff: Third there remains a large portion of our customers were not yet serving when it comes to their early tax needs, which is still a large and unrealized opportunity.
Daniel A. Wernikoff: Exiting last year, we made the decision to re commercialize our tax offerings with the goal of driving higher customer consideration of retention as we narrowed our audience to focus on the most relevant tax customers, we invested heavily in improving the experience moving to an integrated filing experience all within our platform.
Daniel A. Wernikoff: As expected, our subscriber count in tax was down year over year, but utilization improved with approximately 20% more filers per active subscription. The combination of simplified customer intake, matching to a dedicated tax expert, and utilization of MyLZ for document sharing and expert collaboration drove a NEP promoter score of 59 for the overall tax filing experience, and a NEP promoter score of 87 for interactions with our experts during the season. While the channel strategy is a headwind to subscription revenue in 2024, we believe the superior experience of this season will drive retention improvements moving forward into next year. This was our first tax season where a customer could utilize the LZ book.
Daniel A. Wernikoff: As expected our subscriber count in tax was down year over year, but utilization improved with approximately 20% more filers proactive subscription the.
Daniel A. Wernikoff: The combination of simple by customer intake matching to a dedicated tax expert and utilization of miles for document sharing and expert collaboration drove a net promoter score of 59 for the overall tax filing experience and a net promoter score of 87 for interactions with our experts during the season.
Daniel A. Wernikoff: The channel strategy is a headwind to subscription revenue in 2024, we believe the superior experience of this season will drive retention improvements moving forward into next year.
Daniel A. Wernikoff: This was our first tax season, where a customer could utilize lz books.
Daniel A. Wernikoff: Despite only having launched books in the formations flow with three months left in fiscal 2023, 17% of our 1040 filers imported data from LZBooks. We also saw clear trends in the data, including strong upgrades from customers with over $10,000 in annual profit. We feel very good about the future upsell opportunities, given that a third of the 1040 filers that imported data chose a bookkeeping solution distributed through LegalZoom, whether LG Books or QuickBooks.
Daniel A. Wernikoff: Despite only having launched books in the formations flow with three months left in fiscal 2023, 17% of our $2 40 filers imported data from LG books. This season.
Daniel A. Wernikoff: Yes.
Daniel A. Wernikoff: We also saw a clear trends in the data, including strong upgrades from customers with over $10000 in annual profit, we feel very good about the future upsell opportunities given that a third of the 240 filers that imported data chose a book solution distributed through legal soon whether <unk> books, or quickbooks and over 50% of all filers using <unk>.
Daniel A. Wernikoff: And over 50% of all filers use manual methods, which demonstrates the distribution opportunity for LZBooks post-filer. Despite having high customer satisfaction when it comes to our current tax offering, there is a large population of customers who are not ready to file so soon after forming. For many, the price is prohibitive as we only offer an assisted filing solution.
Daniel A. Wernikoff: Methods, which demonstrates the distribution opportunity for LG books post filing.
Daniel A. Wernikoff: Despite having high customer satisfaction when it comes to our current tax offering there is a large population of customers who are not ready to file so soon after forming.
Daniel A. Wernikoff: For many the prices prohibitive as we only offer an assisted filing solution approximately 40% have not yet started operations at the time of formation and over 35% generate less than $10000 in their first year of operations. We continue to believe books is the rate gateway to attach services, we're working to.
Daniel A. Wernikoff: Approximately 40% have not yet started operations at the time of formation, and over 35% generate less than $10,000 in their first year in operation. We continue to believe books is the right gateway to tax service. We're working to expand the potential audience of book customers along with addressing the accessibility of our tax office. Moving on to the legal side of expertise. On our last call, I hinted that our newly designed expert platform could support not only tax experts but could also be the foundation for attorney offerings as well.
Daniel A. Wernikoff: Spanned the potential audience of books customers, along with addressing the accessibility of our tax offerings.
Daniel A. Wernikoff: Moving onto the legal side of expertise on our last call I hinted that our newly designed expert platform could support not only tax experts, but could also be the foundation for attorney offerings as well this investment in our platform combined with our Arizona law firm has created a unique opportunity for us to expand beyond providing general legal advice.
Daniel A. Wernikoff: This investment in our platform, combined with our Arizona law firm, has created a unique opportunity for us to expand beyond providing general legal advice. I'm excited to announce that, through our law firm, we will be partnering with our network of attorneys to participate directly in legal matters. The first legal matter we've launched is prenuptial review. This matter was selected intentionally given its quick time to value, low jurisdictional complexity, and forms-based engagement.
Daniel A. Wernikoff: I am excited to announce that through our law firm, we will be partnering with our network of attorneys to participate directly in legal matters.
Daniel A. Wernikoff: The first legal matter, we've launched its prenuptual agreements this matter with selected intentionally given its quick time to value low jurisdictional complexity and forms based engagement.
Daniel A. Wernikoff: We're still very early in our journey, but to be clear, our expectation is that we will begin to launch additional legal matters on this platform within the consumer and SMB space. This will be a platform play in a space that currently has no established players and certainly no one with brand name recognition technology capabilities in the attorney region. In closing, I'd like to thank the entire LegalZoom organization for their hard work during the quarter.
Daniel A. Wernikoff: We're still very early in our journey, but to be clear our expectation is that we begin to launch additional legal matters on this platform within the consumer and SMB space. This will be a platform play in a space that currently has no established players and certainly knowing what the brand name recognition technology capabilities and attorney reach.
Daniel A. Wernikoff: In closing I'd like to thank the entire legal zoom organization for their hard work during the quarter. We remain focused on putting the customer first from formation in compliance to financial and legal needs and our progress this quarter reflects our dedication towards our customer and our overall mission to unleash entrepreneurship with that I will.
Daniel A. Wernikoff: We remain focused on putting the customer first, from formation and compliance to financial and legal needs. And our progress this quarter reflects our dedication to our customers and our overall mission to unleash entrepreneurship. With that, I'll turn it over to Noel to go deeper into the finances. Thanks, Dan, and good afternoon, everyone.
Daniel A. Wernikoff: Turn it over to Noel to go deeper into the financials.
Noel Watson: I'll now discuss our first quarter performance in more detail. Please note that all comparisons will be on a year-over-year basis unless otherwise stated. Total revenue was $174 million for the quarter, or up 5%. We completed 139,000 business formations in Q1, down 18,000. Our market share of business formations was 9.3%, which represented a 17% year over year decline. Let's look at these results in more detail, beginning with business formations. In Q1, business formation growth was impacted by a partnership exit, which occurred in Q3 of 2023. This will continue to remain
Noel: Thanks, Dan and good afternoon, everyone I will now discuss our first quarter performance in more detail.
Noel Watson: Please note all comparisons will be on a year over year basis, unless otherwise stated.
Noel Watson: Total revenue was $174 million for the quarter are up 5%.
Noel Watson: We completed 139000 business formations in Q1 down 18% or.
Noel Watson: Our market share business formations with nine 3%, which represented a 17% year over year decline.
Noel Watson: Looking at these results in more detail.
Noel Watson: Getting with business formation.
Noel Watson: In Q1 business formation growth was impacted by a partnership active which occurred in Q3 of 2023.
Noel Watson: In Q2 of this year, however, we'll be fully live.
Noel Watson: This will continue to remain a headwind in Q2 of this year, however will be fully lapped by the end of Q3.
Noel Watson: by the end of Q3. Looking at our LLC direct channel, our formations were down 12% year over year. We experienced softness due to a combination of testing changes as we work to fully optimize our lineup and a lower contribution from our sales efforts as we work to rebuild our team. Lastly, the macro underperformed our expectations, declining 2% year-over-year in Q1 versus our expectation of low single-digit growth.
Noel Watson: Looking at our LLC direct channel or formations were down 12% year over year.
Noel Watson: We experienced softness due to a combination of testing changes as we work to fully optimize our lineup and a lower contribution from our sales efforts as we work to rebuild our team.
Noel Watson: Lastly, the macro underperformed, our expectations declining 2% year over year in Q1 versus our expectation of low single digit growth.
Noel Watson: Turning to market share performance, the combination of our partnership exits, commercialization testing, and Salesforce transition pressured our market share in the first quarter. However, as Dan noted, we believe Q1 census data understates our formations market share relative to EIN applications during the quarter. We expect to exit the year with at least 10% share growth relative to Q1, as we experiment with some of the factors I just discussed and look to drive higher conversion through the product. Transaction revenue was $66 million, down 3%, driven by a 10% decline in average order value, partially offset by a 9% increase.
Noel Watson: Turning to market share performance.
Noel Watson: The combination of our partnership exits commercialization testing and sales force transition pressured our market share in the first quarter.
Noel Watson: However, as Dan noted, we believe Q1 effective data understates, our formations market share relative to <unk> applications during the quarter.
Noel Watson: We expect to exit the year with at least 10% share growth relative to Q1 as we lap some of the factors I just discussed and look to drive higher conversion through the product.
Noel Watson: Transaction revenue was $66 million down, 3% driven by a 10% decline in average order value, partially offset by a 9% increase in transaction units.
Noel Watson: We recorded 336,000 transaction units during the quarter.
Noel Watson: We recorded 336000 transaction units in the quarter.
Noel Watson: This 9% increase was primarily due to an increase in non-formation business-related transaction products, such as annual reports, as well as the introduction of our VOIR offering. Average order value was $198 for the quarter, down 10% due to the aforementioned mix shift toward non-formation transactions, which are generally lower priced, as well as declining partner revenue. We expect AOV to be relatively flat year-over-year in Q2, and continue to expect a mid
Noel Watson: This 9% increase was primarily due to an increase in non formation business related transaction products, such as annual reports as well as the introduction of our <unk> offering.
Noel Watson: Average order value was $198 for the quarter down 10% due to the aforementioned mix shift toward non formation transactions, which are generally lower price as well as the decline in partner revenue.
Noel Watson: We expect <unk> to be relatively flat year over year in Q2 and continue to expect a mid single digit decline in <unk> for the full year compared to the full year 2023.
Noel Watson: expected a mid-signal digit decline in AOV for the full year compared to the full year.
Noel Watson: Subscription revenue was $108 million, up 10% due to increases in both subscription units and our group. We remain dedicated to continuing to shift our revenue towards subscriptions over the long term.
Noel Watson: Subscription revenue was $108 million up 10% due to increases in both subscription unit and our growth.
Noel Watson: We remain dedicated to continuing to shift our revenue towards subscriptions over the long term.
Noel Watson: We ended the quarter with over 1.6 million subscription units, up 7% year-over-year as we experienced strength in forms of these signature subscriptions due to the bundling of these products into certain business formation offerings and growth in virtual mail subscriptions. This growth was partially offset by the impact of the exit of our legacy partner. Our approval came in at $272 for the quarter, up 5% driven by a mixed shift toward our high-value subscription offer.
Noel Watson: We ended the quarter with over $1 6 million subscription units up 7% year over year as we experienced strength in farm and E signature subscriptions due to the bundling of these products into certain business formation offerings and growth in virtual mail subscription.
Noel Watson: This growth was partially offset by the impact from the exit of legacy partner relationships.
Noel Watson: <unk> came in at $272 for the quarter up 5% driven by a mix shift towards our high value subscription offerings.
Noel Watson: Our pool was also impacted by the exit of certain channel partner relationships and the introduction of forms of the signature subscription offerings, which carry a lower price. Turning to expenses and margins, where all of the following metrics are on a non-gap basis, First quarter gross margin was 64% compared to 66% in Q1 2023. The year-over-year decrease was driven by higher filing fees as a percentage of revenue, as California reacted to filing fees in the third quarter of last year, following a 12-month pause.
Noel Watson: ARPA was also impacted by the exit of certain channel partner relationships and the introduction of our farms and E signature subscription offerings, which carry lower price points.
Noel Watson: Turning to expenses and margins, where all of the following metrics are on a non-GAAP basis.
Noel Watson: First quarter gross margin was 64% compared to 66% in Q1 2023, the year over year decrease was driven by higher filing fees as a percentage of revenue as California restated filing fees in the third quarter of last year. Following a 12 month path.
Noel Watson: As a reminder, we generally experience lower gross margins in the first half of the year due to the seasonality associated with tax season and business portability. Sales and marketing costs were $51 million, or 29% of revenue, and decreased 10% from last year. Customer acquisition marketing costs were up sequentially due to seasonality, but remained flat year-over-year. In Q2, we expect CAM expenses to increase approximately $5 million compared to the first quarter of 2024 due to higher brand spend, some of which was deferred from Q1 in order to better time our investments with new changes to our lineup, continued build out of our sales team, and the alignment of our MBA sponsorship with the peak season.
Noel Watson: As a reminder, we generally experienced lower gross margins in the first half of the year due to the seasonality associated with tax season and business formation.
Noel Watson: Sales and marketing costs were $51 million or 29% of revenue and decreased 10% from last year.
Noel Watson: Customer acquisition marketing costs were up sequentially due to seasonality, but remained flat year over year.
Noel Watson: In Q2, we expect Cam expenses to increase approximately $5 million compared to the first quarter of 2024 due to higher brand spend some of which was deferred from Q1 in order to better time, our investments with new changes to our lineup continued buildout of our sales team and the alignment of our NBA sponsorship with the peak season.
Noel Watson: Our investments in CAM in 2024 will largely be offset by the savings we are experiencing from our sales reorganization. Non-KM sales and marketing expense were down $6 million at 35% due to the impact of the sales reorganization.
Noel Watson: Our investments in <unk> in 2024 will largely be offset by the savings we are experiencing from our sales reorganization.
Noel Watson: Non can sales and marketing expense was down $6 million at 35% due to the impact of our sales reorganization as well as ongoing efficiencies in our marketing strategy.
Noel Watson: reorganization, as well as ongoing efficiencies in our marketing strategy.
Noel Watson: Technology and development costs were $17 million, up $2 million, or 16%, as we remain invested in driving product-led growth. General administrative expenses were $16 million, or up 3%.
Noel Watson: Technology and development costs were $17 million up $2 million or 16% as we remain invested in driving product led growth.
Noel Watson: General and administrative expenses were $16 million are up 3%.
Noel Watson: Our performance tool adjusted EBITDA to $28 million, or a 16% margin. Adjusted EBITDA increased 28% year-over-year compared to Adjusted EBITDA of $22 million and a margin of 13% at the same time last year. Deferred revenue increased by $20 million in the quarter. Pre-tax flow was $25 million compared to $22 million for the same period in 2023. Our pre-tax flow in the first quarter reflects cash tax payments of approximately $4 million following the full utilization of our existing tax credit.
Noel Watson: Our performance drove adjusted EBITDA of $28 million or a 16% margin.
Noel Watson: Adjusted EBITDA increased 28% year over year compared to adjusted EBITDA of $22 million and a margin of 13% at the same time last year.
Noel Watson: Deferred revenue increased by $29 in the quarter.
Noel Watson: Free cash flow was $25 million compared to $22 million for the same period in 2023, our free cash flow in the first quarter reflects cash tax payments of approximately $40 million following the full utilization of our existing tax credit.
Noel Watson: We expect Q2 free cash flow to be slightly down sequentially due to higher estimated tax payments and full year free cash flow to be in the range of $85 to $95 million. We ended the quarter with cash and equivalents of $228 million. We remain debt-free with no outstanding borrowings under our $150 million revolving credit.
Noel Watson: We expect Q2 free cash flow to be slightly down sequentially due to higher estimated tax payment in full year free cash flow to be in the range of $85 million to $95 million.
Noel Watson: We ended the quarter with cash and equivalents of $228 million.
Noel Watson: We remain debt free with no outstanding borrowings under our $150 million revolving credit facility.
Noel Watson: During the first quarter, we repurchased 1.2 million shares of our common stock at an average price of $10.91 for a total of $13 million. We plan to continue to opportunistically repurchase shares of our common stock as part of our balanced approach to capital allocation. In terms of capital allocation, we continue to prioritize organic investments in the business, followed by strategic acquisitions, and lastly, stockholder returns via repurchases of our common stock. We maintain the ability to execute against all three priorities simultaneously, given our strong cash.
Noel Watson: During the first quarter, we repurchased one 2 million shares of our common stock at an average price of $10 91 for.
Noel Watson: For a total of $13 million.
Noel Watson: We plan to continue to Opportunistically repurchase shares of our common stock as part of our balanced approach to capital allocation.
Noel Watson: In terms of capital allocation, we continue to prioritize organic investments in the business followed by a strategic acquisition and lastly, stockholder returns via repurchases of our common stock we maintain the ability to execute against all three priorities simultaneously given our strong cash position.
Noel Watson: Turning to our outlook, for the full year, we continue to expect revenue of $700 to $720 million, or 7% year-over-year growth at the mid-term, and adjusted EBIT of $135 to $145 million, or a 20% margin at the mid-year. We are reiterating our full year outlook based on two key factors. Our expectations reflect a higher full-year contribution from BOIR based on our first quarter performance, largely offset by a softer macroeconomic outlook. Based on the trends we are seeing today, we now expect a mid-single-digit decline in the formations macro for the full year 2024 versus our original expectations of flat to low single-digit growth.
Noel Watson: Turning to our outlook for the full year, we continue to expect revenue of $700 million to $720 million or 7% year over year growth at the midpoint and.
Noel Watson: And adjusted EBITDA of $135 million to $145 million or 20% margin at the midpoint.
Noel Watson: We are reiterating our full year outlook based on two key factors our expectations reflect a higher full year contribution from <unk> based on our first quarter performance largely offset by a softer macro expectation.
Noel Watson: Based on the trends we are seeing today, we now expect a mid single digit decline in the coordination background for the full year 2024 versus our original expectations of flat to low single digit growth.
Noel Watson: As a reminder, the macro showed strong acceleration in the back half of 2023, creating a more challenging comparison. Based on this, for the second quarter of 2024, we expect total revenue of $172 to $176 million, or 3% year-over-year growth at the mid-period, and we expect second quarter adjusted EBITDA from 25 to 27 million, or 15% margin at the mid. And with that, let's please open the call for
Noel Watson: As a reminder, the macro showed strong acceleration in the back half of 2023, creating a more challenging comparison.
Noel Watson: Based on this for the second quarter of 2024, we expect total revenue of $172 million to $176 million or 3% year over year growth at the midpoint and we expect second quarter, adjusted EBITDA of $25 million to $27 million or 15% margin at the midpoint.
Noel Watson: And with that let's please open the call for questions.
Operator: Thank you. As a reminder to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again.
Speaker Change: And thank you.
Operator: As a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw your question. Please press star one again.
Operator: Please stand by while we compile the Q&A roster. And one moment for our first question. And our first question comes from Ron Josey from Citi. Your line is now open.
Operator: Please standby, while we compile the Q&A roster.
Ronald Victor Josey: And one moment first question.
Operator: And our first question comes from Ron Josey from Citi. Your line is now open.
Jake: Hey, thanks, guys. This is Jake on for the first question. On the formation share, could you double-click on the assumptions and moving pieces that give you confidence in that 10% share expectation for 24? Maybe specifically on the simplified flow, anything specific you could share about what you're doing there to increase conversion rates? And then Second, just on integrating experts, really great to hear about the Prenup initiative. Anything you could share in terms of one, where you're leveraging existing investments, and then second, any key product investments that still need to be made there to increase your chances of success? Thanks a lot.
Jake: Hey, Thanks, guys. This is Jake on for Rob.
Jake: First question on the formation sure could you can you double click on the assumption and moving pieces that give you confidence in that 10% share.
Jake: Our expectation for 'twenty, four maybe specifically on the wholesale side slow anything.
Jake: I think you could share about what you're doing there to increase conversion rates.
Jake: And then.
Jake: Just on integrating experts really great to hear about that.
Jake: The cleanup.
Jake: Initiatives.
Jake: Anything you could share in terms of one where you can youre leveraging existing investments and then second any key product investments that still need to be made there to increase your chances of success. Thanks a lot.
Daniel A. Wernikoff: All right, thanks for the questions, Jake. Maybe first on confidence in reaccelerating share, it's almost worth just stepping back a bit here and talking about what we're seeing in the market, because we feel pretty confident that we're not losing share necessarily right now, but there's a little bit of a dislocation between the census data that we typically peg against and what we see from the actual Secretary of State data that we also collect.
Speaker Change: Alright, thanks for the questions Jake.
Daniel A. Wernikoff: Maybe first on the confidence in re accelerating share.
Daniel A. Wernikoff: It's almost worth just stepping back a bit here and talking about what we're seeing in the market because.
Daniel A. Wernikoff: We feel pretty confident that we're not losing share necessarily right now, but theres a little bit of a dislocation between the census data that we typically pegged against and what we see.
Daniel A. Wernikoff: The actual secretary of state data that we also collect.
Daniel A. Wernikoff: You know, to remind people, the census data is a bit of a real-time proxy, but in the background, we really look at the Secretary of State data as the main point of reference for how we're performing. When we looked at Q1, and that data is still building out, it appears that the decline in the macro is a little bit steeper than what you see in the census data. And actually, our performance from a share perspective is probably a little bit better than what is printing when you look at it relative to census data.
Daniel A. Wernikoff: To remind people the census data is a bit of a <unk>.
Daniel A. Wernikoff: Real time proxy.
Daniel A. Wernikoff: In the background, we really look at that the secretary of state data is that the main point of reference of how we're performing.
Daniel A. Wernikoff: When we looked at Q1 and that data is still building out.
Daniel A. Wernikoff: Peers that the decline in the macro is a little bit steeper than what you see in the census data and actually our performance from a share perspective, there's probably a little bit.
Daniel A. Wernikoff: Better than what is printing when you look at it relative to census data and this makes sense. If you. If you look at some other data sources.
Daniel A. Wernikoff: And this makes sense if you look at some other data sources. You know, we triangulate for things like, you know, the demand that we see in search. We look at things like dissolution in our base, which is a little bit elevated.
Daniel A. Wernikoff: We triangulate for things like the demand that we see in search.
Daniel A. Wernikoff: We look at things like the solution in our base.
Daniel A. Wernikoff: We look at, you know, consumer and small business debt levels that have a relationship with starts, you know, SMB optimism, which is a little bit low. So all of that points to a slightly weaker macro than what we might be seeing with the census data. That said, we're also still actively testing the market. We had some things that we changed around at the end of the quarter, and we feel pretty confident that they will re-accelerate some of our share through better conversion.
Daniel A. Wernikoff: As a little bit elevated.
Daniel A. Wernikoff: We look at.
Daniel A. Wernikoff: Small business debt levels that has it relationship with starts.
Daniel A. Wernikoff: SMB optimism, which is a little bit low so all of that points to a little bit weaker macro than what we might be seeing with with the census data.
Daniel A. Wernikoff: That said.
Daniel A. Wernikoff: We're also still actively testing in the market, we had some things that we changed around at the end of the quarter, where we feel pretty confident.
Daniel A. Wernikoff: We will reaccelerate some of our share through better conversion.
Daniel A. Wernikoff: We have brand spend that's coming, which we haven't had turned on for a while because we haven't had the product experience well-tuned and the sales channel, you know, back in place. And so now, as we put those parts back together, we're starting to rebuild the top of the funnel as well.
Daniel A. Wernikoff: We have brand spend that's coming which we havent had turned on for a while because we haven't had the.
Daniel A. Wernikoff: Pete.
Daniel A. Wernikoff: Product experience well tuned in the sales channel back in place and so now as we put those parts back together, we're starting to rebuild the top of the funnel as well and those things combined really make us feel good about.
Daniel A. Wernikoff: And those things combined really make us feel good about, you know, the share improving as we go throughout the year after making some of these changes in the lineup that have been going on for multiple quarters at this point. On the question about prenups and kind of where we've invested and where we can leverage our investment, this is one of the exciting pieces of the SMB side is that we're able to take a lot of the investments that we've made in the SMB space and really almost port them over to the consumer space and also port them over to the legal space. So if you think about tax as an example this year, we built out practice management. That's really the interaction model between a small business and its accountant.
Daniel A. Wernikoff: The share improving as we go throughout the year.
Daniel A. Wernikoff: After making some of these changes.
Daniel A. Wernikoff: The lineup.
Daniel A. Wernikoff: <unk> been going on for multiple quarters at this point.
Daniel A. Wernikoff: On the question on cleanups and kind of where we've invested.
Daniel A. Wernikoff: And where can we leverage our investment this is one of the exciting pieces.
Daniel A. Wernikoff: The SMB side is that.
Daniel A. Wernikoff: We're able to take a lot of the investments that we've made in the SMB space and really almost port them over to the consumer space and also.
Daniel A. Wernikoff: Port them over to the experts based on the legal side. So if you think about taxes as an example, this year.
Daniel A. Wernikoff: We had built out practice management, that's really the interaction model between our small business and their accountant.
Daniel A. Wernikoff: We've now leveraged that to use that as our foundation for legal matters where a small business can interact with an attorney. You think about some of the investments that we've made in modernizing all of our experiences from a questionnaire standpoint and all the front-end experiences that our customers have on the small business side. Well, that's actually the exact same capability required to modernize the experiences on the consumer side around estate planning.
Daniel A. Wernikoff: Now leverage that to use that as our foundation for.
Daniel A. Wernikoff: Legal matters, where small businesses can interact with an attorney.
Daniel A. Wernikoff: You think about some of the investments that we've made in modernizing all of our experiences from our questionnaire standpoint, and all of the front end to experiences that our customers have on the small business side, while that's actually the exact same capability required to modernize the experiences on the consumer side around the state planning.
Daniel A. Wernikoff: So we're starting to see really good leverage from a technological standpoint between one product and the next. I'd say on legal matters specifically, that's a really interesting one because not only do we have some of those technology capabilities that we can leverage, but we now have our own law firm in Arizona which has been doing trademarks directly, but we can also co-counsel with our affiliate network, which is one of the biggest networks of attorneys in the industry.
Daniel A. Wernikoff: So we're starting to see really good leverage from a technology standpoint from one product to the next I'd say on legal matters, specifically, that's a really interesting one because not only do we have some of those.
Daniel A. Wernikoff: Technology capabilities that we can leverage, but we now have our own law firm in Arizona, which has been.
Daniel A. Wernikoff: Doing trademarks directly but can also co counsel with our affiliate network, which is one of the biggest networks of attorneys and the industry.
Daniel A. Wernikoff: We can take things like our forms capability and our AI capability in DocAssist, and we can integrate those all into an experience which will create a new way for people to interact with their attorney. So the prenup is an example of that, and it's really just the very first example, but we expect to expand into a lot of matters over the coming quarters. So, a couple of big things in there and, you know, the other, the one thing I don't think I mentioned, but I probably should is, you know, back to the share side, we do have some tests that we know we're winners as we exit the quarter, and that piece specifically is where we start to have more confidence in the conversion rate going up and the share actually building.
Daniel A. Wernikoff: Take things like our forms capability, and our AI capability and Docker assess and we can integrate those all into an experience, which will create a new way for people to interact with their attorney.
Jake: Okay, thanks a lot. I appreciate it.
Jake: And so pre nup is an example of that it's really just the very first example, but we.
Jake: To expand into a lot of matters.
Jake: The coming quarters.
Jake: A couple of big things in there.
Jake: The one thing I don't think Ive mentioned, but I probably should.
Jake: But back to the share side, we do have some tests that we were winners as we exited the quarter and that piece, specifically is where we start to have more confidence in the conversion rate going up and the share actually building.
Speaker Change: Okay. Thanks, a lot I appreciate it.
Speaker Change: And thank you.
Operator: And thank you. And one moment for our next question. And our next question comes from Brent Phil from Jeffreys. Your line is now open.
Jake: And one moment our next question.
Operator: And our next question comes from Brent Thill from Jefferies. Your line is now open.
Brent Phil: Alright. Thank you. This is John again for <unk> I had a question on DIR product.
Brent Phil: Is the nature of that is that mostly mccann recurring or is it one time and what shape does that come.
Brent Phil: And then is there way to think about the margin profile of that offering versus other.
Brent Phil: Portfolio, including maybe the formation thank.
Brent Phil: Yeah, so back up on BOIR, you know, it's a little bit of both. There's a component of the requirement that requires anybody who formed a business before 2024 to actually file their initial filing by the end of this year, and that's sort of a one-time catch-up. We mentioned on the last earnings call that anybody who is a subscriber to our compliance solution is entitled to, and we just basically made them entitled to, that filing, so we don't expect that to be the biggest part of the contribution. The other part, though, is that this is a filing that's required right after formation, so within 90 days of formation. So that component is recurring as much as you have incremental formations every year.
Brent Phil: Thank you.
Brent Phil: Yes, so so backing up on.
Brent Phil: It's a little bit of both there is there is a <unk>.
Brent Phil: Component of their requirement, which is.
Brent Phil: Requires anybody who formed a business before 2024.
Brent Phil: It's actually file their initial filing by the end of this year and Thats sort of a one time catch up we mentioned on the last earnings call.
Brent Phil: Anybody who has a subscriber to our compliance solution.
Brent Phil: <unk> titled We just basically made them entitled to that filing. So we don't expect that to be the biggest part of the contribution.
Brent Phil: The other part though is that this is a.
Brent Phil: Filing.
Brent Phil: <unk> filing that's required.
Brent Phil: After formation so within 90 days of formation. So that component is recurring as much as you have incremental formations. Every year you will have customers that are required to do that filing I would say the one thing thats more strategic though for US is if you back up.
Daniel A. Wernikoff: You'll have customers that are required to do that filing. I'd say the one thing that's more strategic, though, for us, if you back up, one of the reasons we went free on formations was specifically because the biggest adjacency we have is compliance, and those are actually through subscriptions. So these are things that are required at the city, county, state, and federal level, and it's not just about keeping your entity compliant. It's also about licenses and insurance so that you can operate as a business.
Daniel A. Wernikoff: One of the reasons, we went free on formations was specifically because the biggest adjacency. We have is compliance and those are actually through subscriptions.
Daniel A. Wernikoff: So this is things that are required at the city County state and federal level.
Daniel A. Wernikoff: Not just about keeping your entity compliant. It's also about licenses in insurance. So that you can operate as a business. So by the nature of solving multiple of these problems today, we're pretty much advantage when any new compliance requirement tops up.
Daniel A. Wernikoff: So by the nature of solving multiple of these problems today, we're pretty much advantaged when any new compliance requirement pops up, and so what we're trying to do is drive our customers into the subscription itself, which gives them the ability to stay compliant with all of these different requirements, and DOIR is a really big opportunity because it's something that's new. It's confusing to small businesses, and if anything, it just shows the overall value proposition of the full compliance subscription.
Daniel A. Wernikoff: And so what we're trying to do is drive our customers into the subscription itself.
Daniel A. Wernikoff: Which gives them the ability to stay compliant with all of these different requirements and <unk> is a really big opportunity because it's something that's new it's it's.
Daniel A. Wernikoff: Confusing to small businesses and if anything it just shows the overall value proposition of the full compliance subscription. So a lot of the testing that we're doing right now is putting them side by side.
Daniel A. Wernikoff: So a lot of the testing that we're doing right now is putting them side by side and driving customers up into that ongoing recurring service. And on the second one, I wasn't sure I understood the there was an additional question. Yeah, is there a way to think about the... Oh, it's the market profile. Yeah, thank you.
Daniel A. Wernikoff: Driving customers up into that ongoing recurring service.
Daniel A. Wernikoff: And on the second one I wasn't sure I got that if there was an additional question in there.
Daniel A. Wernikoff: Yes.
Daniel A. Wernikoff: We've talked about the margin profile, yes. Thank you.
Daniel A. Wernikoff: Yeah, the margin profile there is relatively high. If you think about it on a transactional basis, as you start to move more into the complete subscription, it's still a much higher margin product than when you think about a formation transaction. But there are costs when you start to bundle it with things like business licenses and, and, and other filings, potentially where, you know, we'll actually see the margin come down slightly.
Daniel A. Wernikoff: Yes.
Daniel A. Wernikoff: <unk> profile there is relatively high.
Daniel A. Wernikoff: Think about it on a transactional basis as you start to move more into the complete subscription it's still a much higher margin product than when you think about our formation transaction.
Daniel A. Wernikoff: There are there are cost when you start to bundle it with things like business licenses and in other filings potentially where we actually at the margin will come down slightly but in all cases, it's higher than the transactional side of the business.
Daniel A. Wernikoff: But in all cases, And obviously, John, the more success we can have in... Transcripts provided by Transcription Outsourcing, LLC. So, we've learned a lot on the BOIR front in the first quarter, but still lots of testing. I'm experiencing that could, recognition between our transactions.
Daniel A. Wernikoff: And obviously John the more success, we can have and then moving shifting some of the volume into our compliance subscription then the recurring nature of that is beneficial for us from an LTV standpoint, So we've learned a lot on the <unk>.
Daniel A. Wernikoff: Our front ended in the first quarter, but still lots of testing happening that could flex that.
Daniel A. Wernikoff: The recognition between our transaction and subscription line.
Speaker Change: That's very helpful. Thank you.
Daniel A. Wernikoff: And.
Speaker Change: And thank you.
Operator: In one moment for our next question, and our next question comes from Trevor Young from Barclays. Your line is now open.
Daniel A. Wernikoff: And one moment our next question.
Trevor Young: Great. Thanks.
Operator: And our next question comes from Trevor Young from Barclays. Your line is now open.
Trevor Young: On the new free cash flow guide, it plies down a little bit year on year at the midpoint, while EBITDA is growing kind of mid-high teens at the midpoint. Can you just talk through some of the puts and takes there on cash flow and, you know, working capital items influencing that? And is some of that delta, some of the incremental tax burden that I think, Noel, talked about? Thanks.
Trevor Young: Great. Thanks on the new free cash flow guide implies down a little bit year on year at the midpoint. Meanwhile, EBITDA growing kind of mid high teens at the midpoint can you just talk through some of the puts and takes there on cash flow and working capital items influencing that and there's some of that delta some of the incremental tax burden.
Speaker Change: Now I'll talk to thanks.
Noel Watson: Yeah, thanks for the question Trevor. You hit the nail on the head.
Noel Watson: Yes. Thanks for the question Trevor you hit the nail on the head.
Trevor Young: The free cash flow conversion from adjusted EBITDA is down year-over-year, and that's primarily due to increased expectation for estimated cash tax payments, and it really stems from having moved through NOLs, interest-expense deductions from previously held debt, and R&D credits, Section 174 impacting our structurally, our cash tax. So that's the biggest driver of the variance year-over-year. Obviously, there's a lot of timing and estimation in there that could influence the ultimate outcome, and we'll refine estimates as we move forward, but we did want to call out the higher tax.
Noel Watson: The free cash flow conversion from adjusted EBITDA is down year over year, and Thats, primarily due to <unk>.
Trevor Young: Our increased expectation for estimated cash tax payments.
Trevor Young: And it's really stems from having moved through.
Trevor Young: Interest expense deductions from previously held that R&D credits.
Trevor Young: <unk>.
Trevor Young: Section 174 impacting our structurally our cash cash tax expectations. So that's the biggest driver of the variance year over year, obviously, there's a lot of timing an estimation in there that could influence the ultimate outcome and we'll refine estimates as we.
Trevor Young: Move forward, but we did want to call out the higher tax obligations.
Noel Watson: Okay, that's helpful. And presumably, over time, we will start to migrate more towards kind of a statutory, you know, corporate rate.
Speaker Change: Okay. That's helpful.
Noel Watson: Presumably over time, we start to migrate more towards kind of a statutory corporate rate.
Trevor Young: Over the long term, that's what we would expect, yes.
Speaker Change: Over the long term, that's what we would expect yes.
Noel Watson: Okay, great. Thank you.
Speaker Change: Okay, great. Thank you.
Operator: And thank you. And one moment for our next question. And our next question comes from Matt Condon from Citizens JMP. Your line is now open.
Speaker Change: And thank you.
Matthew Charles Pfau: And one moment our next question.
Operator: And our next question comes from Matt Condon from citizens JMP. Your line is now open.
Matthew Charles Pfau: Thank you guys for taking my question. My first one is just, can you talk about the progress you're making with MyLZ and just getting buyers back on the platform? And then also, secondly, in the bigger picture, what's the opportunity with your attorney network and extending experts beyond what currently exists on the platform? Thank you.
Matthew Charles Pfau: Thank you guys for taking my question. My first one is just can you talk about the progress you're making with <unk> and just getting buyers back on the platform and then also secondly.
Matthew Charles Pfau: Just big picture, what's the opportunity with your attorney network and extending extra beyond what's currently what currently exists in the platform. Thank you.
Daniel A. Wernikoff: Yeah, thanks for the questions, Matt. Boy, there's been a lot of progress with MyLZ, especially as we look back over the last six months. And let's start with the outcomes that we're driving a lot more of our customers to MyLZ itself to have their account serviced, to ask questions, to fulfill compliance requirements directly through it. So we continue to think of it as a pretty strategic asset and one that still has not been fully realized. We mentioned in the upfront comments that we've doubled the post formation monetization off a relatively small base.
Speaker Change: Yes, thanks for the questions Matt.
Daniel A. Wernikoff: Boy Theres been a lot of progress with with miles, especially as we look back over the last six months and let's start with the outcomes that we're just driving a lot more of our customers two miles itself.
Daniel A. Wernikoff: Half their account service to ask questions.
Daniel A. Wernikoff: Two.
Daniel A. Wernikoff: Fulfill compliance requirements directly through it in fact, Thats, where most of our <unk> leads are coming and actually fulfilling new order. So theyre coming right now after formation.
Daniel A. Wernikoff: All of our tax filing was done through miles.
Daniel A. Wernikoff: Higher season, we leveraged some third parties as well and you can see what that did from a net promoter standpoint. So we continue to think of it is.
Daniel A. Wernikoff: A pretty strategic property and one that still has not been fully realized we mentioned in the upfront comments that we've we've doubled the post formation monetization off a relatively small base, we keep looking at at miles as the main point of contact you have with customers and.
Daniel A. Wernikoff: We keep looking at MyLZ as the main point of contact to have with customers and introduce them to all of those services and do it in a way which is essentially taking the burden off our formation flow for doing attach. So it's very, very strategic. As we think about expanding our attorney network, we actually don't necessarily need to expand our attorney network. This is much more of a different business model so that we can participate in specific legal matters by having a co-counsel model through our own law firm and partnering with the existing network that we have.
Daniel A. Wernikoff: Use them to all of those services and do it in a way, which is essentially taking the burden off our formations flow for doing attach.
Daniel A. Wernikoff: So it's very very strategic.
Daniel A. Wernikoff: As we think about expanding our attorney network, we actually don't need to necessarily expand our attorney network. This is much more of a different business model. So that we can participate in specific legal matters.
Daniel A. Wernikoff: Having a co counsel model through our own law firm and partnering with with the existing network that we have.
Daniel A. Wernikoff: Over time, I anticipate that as we get into much more specialized matters or different matters that go beyond some of the conversations that our customers have around generalized advice today, we can keep adding to it. And that's not really a concern for us because the value proposition for attorneys is extremely high. So today we're really focused on how do we leverage the network that we have? How do we expand and learn as much as we can about matters that are deeply adjacent? And think about things like employment matters, think about immigration, think about things like prenups and divorce. These are all things that happen outside of state planning or formation.
Daniel A. Wernikoff: Over time, I anticipate as we get into much more specialized matters or different matters that go beyond some of the conversations that our customers have around generalized advice today, we can keep adding to it and thats not really a concern for us because of the value proposition for attorneys is extremely high.
Daniel A. Wernikoff: So today, where we're really focused on how do we leverage the network that we have.
Daniel A. Wernikoff: Do we expand and learn as much as we can in the matters that are like deeply adjacent.
Daniel A. Wernikoff: And think about things like employment matters think about immigration and think about things like clean up in divorce. These are all things that happen office state planning or formations. So they are just really strong adjacent matters that the attorneys that we have today already support. So that's one of the most exciting parts by the way of the strategy. I mean this is one of the things.
Daniel A. Wernikoff: So they're just really strong adjacent matters that the attorneys that we have today already support. So that's one of the most exciting parts, by the way. I mean, this is one of the things that gets me very excited. You can look across just about every industry at this point, and there's a tech-enabled service or a tech-enabled expert, other than legal, which is mind-blowing. And if you think about what we bring to the table with the highest brand recognition in the space, an existing attorney network, all the tech capabilities, like this feels really good.
Daniel A. Wernikoff: That gets me very excited you can look across just about every industry at this point and there is there is a tech enabled service or a tech enabled expert other than legal.
Daniel A. Wernikoff: And which is mind blowing and if you think about what we bring to the table with the highest brand recognition in this space and existing attorney network. All the tech capabilities like this feels really good and this is obviously just the first step, but we know what we're doing here and it's just going to be more about how do we expand into different matters and keep refining the opportunity.
Daniel A. Wernikoff: And this is obviously just the first step, but we know what we're doing here. And it's just going to be more about how we expand it to different matters and keep refining the opportunity. And so this is going to be one to watch over the next couple of quarters.
Daniel A. Wernikoff: And so this is going to be one to watch over the next couple of quarters.
Matthew Charles Pfau: Very helpful; thank you.
Speaker Change: Very helpful. Thank you.
Speaker Change: And thank you.
Operator: and thank you. And one moment for our next question. And our next question comes from Josh Beck from Raymond James. Your line is now open. Hi there, this is Kishan Patel.
Speaker Change: And one moment our next question.
Operator: And our next question comes from Josh Beck from Raymond James Your line is now open.
Operator: Hi, there this is kishore Patel on for Josh Beck, Thanks for taking my question.
Josh Beck: How do you think about managing expenses as a function of the macro environment should conditions improve or worsen through the balance of the year and then how should we think about the relative growth rates of transaction versus subscription revenues in 'twenty, four and maybe the years beyond.
Kishan Patel: Hi, this is Noel. Thanks for the question. I'll mention that we reiterated our guidance for the full year for both top and bottom lines. We feel pretty confident in terms of our forecast and the visibility we have into it, related to the bottom line, in particular. And we're gonna watch that very closely and be very prudent around managing expenses to give ourselves the best chance to meet or exceed both our revenue guide as well as our profitability.
Operator: Hi, This is noel thanks for the question.
Kishan Patel: I would say.
Kishan Patel: Tom mentioned that we reiterated our guidance for the full year for both top and bottom line.
Kishan Patel: We feel pretty confident in terms of.
Kishan Patel: Our forecast and the visibility we have intuit related to the bottom line in particular.
Kishan Patel: We're going to we're going to watch that very closely and be very prudent around managing managing expenses.
Kishan Patel: Ourselves the best chance to meet or exceed both our revenue.
Kishan Patel: Guide as well as our profitability, but we feel like we have some levers in the business and if the macro is much softer than we expect or much stronger than we expect moving forward.
Kishan Patel: But we feel like we have some levers in the business, and if the macro is much softer than we expect or much stronger than we expect moving forward, there's a healthy portion of our P&L that, just naturally, our performance marketing is a really big line item and that's ROI-based. And so that'll adjust to the macro itself.
Kishan Patel: There is a healthy portion of our P&L of that just naturally our performance marketing is a really big line item and Thats ROI based and so that will adjust to the macro itself and then we'll obviously watch head count and some of the other more discretionary spend items to make sure we match it to what we're seeing out there.
Noel Watson: And then we'll obviously watch headcount and some of the other more discretionary spend items to make sure we match it to what we're seeing in overall performance. On the relative growth of a transaction per subscription, you know, what I think you'll see here depends a little bit on how well we can commercialize the opportunity on BOIR into subscriptions. And, you know, if we were able to do that, we would continue to expect that subscriptions would be outpacing transactions.
Noel Watson: The overall performance of the business.
Noel Watson: On a relative growth of transaction versus subscription.
Noel Watson: What what I think youll see here depends a little bit on how well we can commercialize the opportunity.
Noel Watson: We are into subscriptions.
Noel Watson: And if we're able to do that we would continue to expect that subscription is would be outpacing.
Noel Watson: There is the potential, and I think, you know, it's more likely that we see transactions with more strength towards the end of this year because a portion won't upgrade into compliance. Of course, we're going to drive as much as we can. But we also expect LLCs to see more strength on a year over year basis when we get to the end of the year.
Noel Watson: Transactions there is the potential and I think it's.
Noel Watson: More likely that we see transactions with more strength towards the end of this year because a portion want to upgrade into compliance of course, we're going to drive as much as we can but we also expect llc's to see more strength on a year over year basis, we get to the end of the year, but as you look longer term the strategy Hasnt changed.
Noel Watson: But if you look longer term, the strategy hasn't changed. We want that mix to be more heavily weighted towards subscribers. And we we'd expect that mix to improve. You know, we've kind of flipped the model from being a 40 to 60 subscription transaction to being the inverse over the past five years. And we want to drive that further as we go forward. One last thing I'd say on the expense side, you know, it's worth mentioning is even though we're reintroducing some brand spend, the overwhelming majority of our marketing spend is really performance-based, and it's, you know, a high, very high variable expense.
Noel Watson: We want that mix to be more heavily towards subscribers.
Noel Watson: We would expect that mix to improve.
Noel Watson: We've kind of flipped the model from being 40 succeed subscription transactions of being the inverse over the past five years and we want to drive that further as we go forward. One last thing I would say also on the on the expense side.
Noel Watson: It's worth mentioning is even though we are.
Noel Watson: Reintroducing some brand spend.
Noel Watson: Overwhelming majority of our marketing spend is really performance based and it's high barrier high variable expense.
Noel Watson: Well, we can move it up and down, but we're ROI driven, and so we can pretty much react to any macro direction that we see. And we've said this before, if the macro gets weaker, we almost become a little bit stronger in the industry because of our balance sheet. And, you know, we could be a little bit more aggressive than a lot of our competition. So that still feels like it's a good opportunity. In either direction, the macro goes.
Noel Watson: Can move it up and down, but we're ROI driven and so we can we can pretty much react to any macro direction that we see and we said this before as the macro gets weaker we almost become a little bit stronger than the industry because of our balance sheet and we could be a little bit more aggressive than a lot of our.
Noel Watson: Sure.
Noel Watson: So that still feels like it's a good opportunity either direction the macro goes.
Speaker Change: Got it thank you very much.
Operator: And thank you. And one moment for our next question. And our next question comes from Elizabeth Porter with MS. Your line is now open.
Speaker Change: And thank you Bob and thank you.
Elizabeth Mary Elliott Porter: And one moment our next question.
Elizabeth Mary Elliott Porter: And our next question comes from Elizabeth <unk> with MS. Your line is now open.
Elizabeth Mary Elliott Porter: Great, thank you very much. This is Elizabeth from Morgan Stanley. I think on the last call, you know, we talked about the consumer and the estate plan coming back into focus. I just wanted to get an update on where you are on kind of refocusing towards this opportunity and how that could help some of the transaction side of the business. And is LTV2CAC similar on this side of the business as it is on the small business side? Thank you.
Elizabeth Mary Elliott Porter: Great. Thank you very much just as Olympus from Morgan Stanley.
Elizabeth Mary Elliott Porter: I think last call, we talked about the consumer in an estate plan coming back and get the focus.
Elizabeth Mary Elliott Porter: Just wanted to get an update of where you are on Def refocusing towards this opportunity and how that could help some of the transaction side of the business.
Elizabeth Mary Elliott Porter: I will give you the cap you similar on this side of the business as it is on the <unk> on the small business side. Thank you.
Daniel A. Wernikoff: Great, thanks for the questions Elizabeth. Maybe it's worth again just reiterating on the consumer side, the first point is that the investment that we're making here is relatively low risk because it's leveraging a lot of the investments that we've made on the small business side. But one of the things that as we step back and think about the broader opportunity, while it's not a massive revenue component of our business today, it is a pretty material transaction in terms of it being a third of the size relative to business formations.
Speaker Change: Great. Thanks for the question so Elizabeth.
Daniel A. Wernikoff: And maybe it's worth again, just reiterating on the consumer side. The first point is that the investments that we're making here is relatively low FERC.
Daniel A. Wernikoff: Because it is leveraging a lot of the investments that we've made on the small business side, but one of the things that as we step back and think about the broader opportunity.
Daniel A. Wernikoff: While it's not a massive revenue component of our business today, it is a pretty material transaction.
Daniel A. Wernikoff: And most consumers that are coming through our ecosystem, or actually, I should say all solopreneurs who come through our ecosystem are consumers. And they should be thinking about their wealth in the context of forming a business.
Daniel A. Wernikoff: Terms of it's a third of the size relative to business formations.
Daniel A. Wernikoff: And most.
Daniel A. Wernikoff: Consumers are.
Daniel A. Wernikoff: Through our ecosystem or actually I should say also the printers, who come through our ecosystem our consumers.
Daniel A. Wernikoff: And they should be thinking about their state in the context of forming a business. So it has high relevancy.
Daniel A. Wernikoff: So it has high relevancy. When we think about the opportunity here, it really reopens some of the brand spend opportunity because it broadens the audience that we can reach. And we also know that a lot of people have, you know, product awareness on the estate planning side with LegalZoom. So it sort of reintroduces that component as well. And then the final piece I'd say that's interesting here is that it's just a great introduction to other legal matters. If you're helping with the estate plan, you're essentially sort of the tip of the spear for all family matters.
Daniel A. Wernikoff: When we think about the opportunity here it really reopens some of the brand spend opportunity because it brought in the audience that we can reach and.
Daniel A. Wernikoff: And we also know that a lot of people have product awareness on the estate planning side with legal zoom.
Daniel A. Wernikoff: So that's sort of reintroduces that component as well and then the final piece I would say that's interesting here is that it's just it's a great intro into other legal matters, if youre, helping with the state plan.
Daniel A. Wernikoff: And so, you know, we want to make sure that we create a really strong experience. So we've rebuilt a lot of the core product experience. We've refreshed some of the fulfillment capabilities, so it's more efficient, and I think you'll continue to see us introduce improvements in that product over the next couple of quarters. On the LTV2CAC side, it's a little bit different than SMB. It has less of a subscription component to it.
Daniel A. Wernikoff: You're essentially sort of the.
Daniel A. Wernikoff: Tip of the spear of all family matters and so we wanted to make sure that we create a really strong experience. So we've rebuilt a lot of the core product experience.
Daniel A. Wernikoff: We've refreshed some of the fulfillment capability, so it's more efficient.
Daniel A. Wernikoff: Youll continue to see us introducing improvements in that product over the next couple of quarters on.
Daniel A. Wernikoff: On the LTV to CAC side, it's a little bit different than SMB. It has less of a subscription component to it so.
Daniel A. Wernikoff: So we don't.
Daniel A. Wernikoff: So we don't spend as much in this category because, you know, we're not trying to get to just a one-year return like we try to do on the small business side, and then we have all the subscriptions thereafter. In this case, we spend, you know, on a component of the first-year revenue. So the LTV2CAC is a little bit different here.
Daniel A. Wernikoff: Spend is high into the category, because we're not trying to get to.
Daniel A. Wernikoff: Just a one year return like we tried to do on the small business side and then we have all the subscriptions thereafter in this case, we spend to a component of the first year revenue.
Daniel A. Wernikoff: So the LTV to CAC is is a little bit difference here.
Elizabeth Mary Elliott Porter: I understand. Thank you very much.
Speaker Change: Understood. Thank you very much.
Operator: and thank you. And one moment for our next question. And our next question comes from Ella Smith with JP Morgan. Your line is now open.
Speaker Change: Thanks Elisa.
Speaker Change: Thank you.
Eleanor Osgoode Smith: And one moment our next question.
Operator: And our next question comes from Ella Smith with Jpmorgan. Your line is now open.
Eleanor Osgoode Smith: Good afternoon. Thank you for taking my question. So first, Dan, I was hoping to ask you about the macro. You mentioned that you have confidence in the business formation macro over the longer term exceeding pre-pandemic growth. How do you think about, can you remind us your thought process around that? And how do you think about the longer term path reaching 30% volume share?
Eleanor Osgoode Smith: Good afternoon. Thank you for taking my question. So first Dan I was hoping to ask on the macro you mentioned that you have confidence in the business information macro longer term exceeding pre pandemic growth.
Eleanor Osgoode Smith: How do you think about.
Eleanor Osgoode Smith: Can you remind us your thought process around that how do you think about the longer term path to reaching 30% volume share.
Daniel A. Wernikoff: Yeah, and the macro, I mean, if you really step back and think about before the pandemic, you know, this year, we're still up roughly 50% to that level in FY19. And I think, you know, all those tailwinds that we always talk about, you don't need a lot of capital to start a business; you have access to enterprise-level capabilities and software without a significant cash outlay. You know, there are different industries like people, you know, doing businesses off social platforms. You have things like NIL; you have gig platforms that exist.
Eleanor Osgoode Smith: Okay.
Dan: Yes, the macro I mean, if you really step far back and you think about before the pandemic.
Daniel A. Wernikoff: This year, we're still up roughly 50%.
Daniel A. Wernikoff: That level in 2019, and I think all of those those tailwind that we always talk about.
Daniel A. Wernikoff: You don't need a lot of capital to start a business.
Daniel A. Wernikoff: Access to enterprise level capabilities in software without <unk>.
Daniel A. Wernikoff: Significant cash outlay.
Daniel A. Wernikoff: There is different industries like people doing business as our social platforms.
Daniel A. Wernikoff: You have things like Nal.
Daniel A. Wernikoff: Gig platforms that exist. So we think all of that's still still there we know that post pandemic. There has been some oscillation you can see like there has been high growth rate one year and then it's sort of.
Daniel A. Wernikoff: So we think all of that's, you know, still there. We know that post-pandemic, there's been some oscillation, you can see, like there was a high growth rate one year, and then it sort of regroups. And you'll see, almost like a decline in the following year; it almost feels like it's just normalizing to what has been a longer-term, four to 5% CAGR in a macro that, you know, we feel like as you even go further out, it's going to be easier for smaller businesses, you know, solopreneurs to form. So overall, we feel good about it. Obviously, there's some wobbliness in the short term, but the long term looks healthy.
Daniel A. Wernikoff: Three groups and you will see.
Daniel A. Wernikoff: Almost like a decline in the following year and it almost feels like it's.
Daniel A. Wernikoff: It's just normalizing to what has been a longer term, 4% to 5% CAGR.
Daniel A. Wernikoff: In a macro that we feel like.
Daniel A. Wernikoff: You can go further out its going to be easier for smaller businesses solar printers to form. So overall, we feel good about it obviously theres some wobbling us in the short term, but but but the long term looks healthy.
Eleanor Osgoode Smith: That's clear. Thank you, Dan. As a follow-up, do you have any comments about business failures so far this year and maybe how that compares to years past?
Speaker Change: That's clear thank you Dan as a follow up given your comments about business failures. So far this year and maybe how that compares to years past.
Daniel A. Wernikoff: The way we measure it might be a little bit different. You typically see people measure it by the bankruptcy rate, and maybe a precursor oftentimes, or something that's a more simple thing is someone just shutting down their business altogether, and that's a dissolution. We offer dissolution services to our customers, and they were extremely elevated in Q1, almost up 40% year over year. But one of the things that we're recognizing is whenever a new compliance requirement is introduced into the industry, and there's a cost associated with it, and in many ways, it's kind of healthy because it shakes out businesses that weren't necessarily in operation, and they realize that, oh, I need to shut this down, or else I could be held criminally liable, or I have other fees that I'm gonna have to
Eleanor Osgoode Smith: Yeah.
Dan: The way, we measure it might be a little bit different and you typically see people measure it by bankruptcy right.
Daniel A. Wernikoff: Maybe a precursor oftentimes or something Thats, a more simple thing as Soma just shutting their business altogether.
Daniel A. Wernikoff: At this solution.
Daniel A. Wernikoff: We offer dissolution.
Daniel A. Wernikoff: Services to our customers and they were extremely elevated in Q1.
Daniel A. Wernikoff: Almost up 40% year over year.
Daniel A. Wernikoff: But one of the things that we're recognizing is whenever a new compliance requirement is introduced into the industry.
Daniel A. Wernikoff: And it's and there's a cost associated with it.
Daniel A. Wernikoff: In many ways, it's kind of healthy because it shakes out businesses that werent necessarily in operations.
Daniel A. Wernikoff: And they realize that all I need to shut this down or else I could be held criminally criminally liable or other fees that I'm going to have to pay and so there is a component of the elevation in to solutions that could be tied to.
Daniel A. Wernikoff: And so there's a component of the elevation and dissolutions that could be tied to DOIR and some of the messaging we're doing to our own base, but I would also say that, generally speaking, dissolution rates have been a little bit higher than they have historically been as well.
Daniel A. Wernikoff: And some of the messaging, we are doing to our own base, but I would also say that generally speaking dissolution rates have been a little bit higher than they have historically been as well.
Eleanor Osgoode Smith: I got it very clear. Thanks so much.
Speaker Change: Got it very clear thanks, so much.
Operator: and Thank you. There are no further questions at this time. This concludes today's conference call. Thank you for participating, and you may now disconnect.
Eleanor Osgoode Smith: Yes.
Speaker Change: Thanks Sheila.
Speaker Change: Thank you.
Operator: And there are no further questions at this time. This concludes today's conference call. Thank you for participating and you may now disconnect.
Operator: Okay.
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Operator: Okay.
Operator: Okay.
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