Q2 2024 LegalZoom.com Inc Earnings Call
2024 earnings call all lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question.
<unk> Press Star one again.
Speaker Change: I would now like to turn the call over to metal and Crane Investor Relations. Please go ahead.
Speaker Change: Thank you operator, welcome to <unk> second quarter 2024 earnings Conference call. Joining me today is Jeff <unk>, our chairman and Chief Executive Officer, and Noel Watson, our Chief Financial Officer.
Jeffrey Stibel: This means further refining our customer and take questionnaire to better understand our customer needs. We will begin targeting vertically by type of business. Again, a pizza shop owner versus a wedding photographer and horizontally by light cycle of business. New reform, for example, versus businesses in later years of their lives. At Formation, we will emphasize our core legal and compliance offerings where we have earned the right to win through our decades of experience, and we will stay connected to our customers to cross-sell and answer areas at the right time. We will also be reallocating our customer acquisition marketing.
As a reminder, we will be making forward looking statements on this call.
Speaker Change: These forward looking statements can be identified by the use of words, such as believe expect plan anticipate will okay, and similar expressions and are not and should not be relied upon you can't guarantee of future performance or results.
Good afternoon, ladies and gentlemen, and welcome to LiveRamp's Fiscal 2025 First Quarter Earnings Call.
Operator: 5 First Quarter Earnings Calls After this speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press the star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. As a reminder, this conference call is being recorded. I would now like to turn the call over to your host, Drew Borst, Vice President of Investment.
Speaker Change: After this speaker's remarks, there will be a question and answer session.
Such forward looking statements are based on management's assumptions and expectations and information available to us as of today's date.
Speaker Change: If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you.
Speaker Change: These forward looking statements are also subject to risks and uncertainties that could cause actual results to differ materially from such statements.
These risks and uncertainties are two in the press release, we issued today and in the risk factors section of our most recent report on Form 10-Q filed with the Securities and Exchange Commission.
Speaker Change: As a reminder, this conference call is being recorded. I would now like to turn the call over to your host, Drew Borst, Vice President of Investor Relations.
Jeffrey Stibel: Recently, we have focused our marketing efforts almost exclusively on driving formations through performance marketing. That dependence on a single channel to market to a single audience prevents us from better efficiency and scale. Our one brand partnership with the NBA was also largely geared towards business formations. Looking ahead, we will be testing into a broader mix of digital and offline channels, partnerships, spokespeople, and influencers, all to balance our investments more efficiently across product categories. We are aggressively focused on spend efficiency and brand health. We have confidence in this approach. In part, these are ability to leverage our rich customer data alongside almost 25 years of historical marketing knowledge.
drew Borst: Thank you, Operator. Good afternoon, everyone, and thank you for joining our fiscal 2025 first quarter earnings call. With me today are Scott Howe, our CEO, and Lauren Dillard, our CFO. Today's press release and this call may contain forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially. For a detailed description of these risks, please read the risk factors section of our public filings and the press release.
Speaker Change: Except as required by law, we do not plan to publicly update or revise any forward looking statement, whether as a result of any new information future events or otherwise.
drew Borst: Thank you, Operator. Good afternoon, everyone, and thank you for joining our Fiscal 2025 First Quarter Earnings Call. With me today are Scott Howe, our CEO , and Lauren Dillard, our CFO .
Speaker Change: In addition, we will also discuss certain non-GAAP financial measure.
Speaker Change: These non-GAAP measures and making decisions regarding our business and we believe these measures provide helpful information to investors.
Speaker Change: Today's press release and this call may contain forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially.
Speaker Change: These non-GAAP financial measures are not intended to be considered in isolation or as a substitute for results prepared in accordance with GAAP.
Speaker Change: For a detailed description of these risks, please read the risk factors section of our public filings and the press release.
drew Borst: A copy of our press release and financial schedules, including any reconciliations to non-GAAP financial measures, is available at investors.liveramp.com. Also, during the call today, we'll be referring to the slide deck that is also available on our Investor Relations website. With that, I'll turn the call over to Scott.
Speaker Change: Reconciliations of all non-GAAP measures to the most directly comparable GAAP measures are set forth in the Investor Relations section of our website at investors thought rebuilding dot com.
Speaker Change: A copy of our press release and financial schedules, including any reconciliations to non-GAAP financial measures, is available at investors.liveramp.com.
Speaker Change: I will now turn the call over to John.
Speaker Change: Also, during the call today, we'll be referring to the slide deck that is also available on our investor relations website. With that, I'll turn the call over to Scott.
John: Good afternoon, everyone and thank you for joining our call.
Scott Howe: Thank you, Drew, and everyone for joining our call. My comments today will cover three topics. First, I'll talk briefly about the quarter. Second, I'll address Google's recently announced new approach to third-party cookies and what it means for LiveRamp. And finally, I'll give an update on our efforts to capture the significant opportunity in data collaboration. Let's start with the recent quarter. We delivered strong financial results in Q1, reinforcing our conviction in the strength of our business and the large market opportunity we are pursuing.
John: I want to start by saying I'm honored to be serving alongside our talented leadership team.
Jeffrey Stibel: We will also look to drive share gains by better leveraging our partnership channels and sales and service teams. Our new outsource sales team is fully ramped, and we look forward to optimizing the experience over time. We believe these efforts will also support market share expansion.
Scott: Thank you, Drew, and everyone for joining our call. My comments today will cover three topics.
John: And I want to thank our former CEO, Dan Warner cough.
John: Under Dan's leadership, we can zoom has built a deep bench of talent improved its technology infrastructure and created key assets that we believe are positioned to empower legal zoom for long term success.
Scott: First, I'll talk briefly about the quarter. Second, I'll address Google's recently announced new approach to third-party cookies and what it means for LiveRamp. And finally, I'll give an update on our efforts to capture the significant opportunity in data collaboration.
Speaker Change: Let me briefly discuss my history with Legalzoom, our leadership transition and why I am excited to take on this role before diving into what you can expect from us over the coming months and quarters.
Jeffrey Stibel: However, as I noted earlier, our priority will be driving long-term customer value in the form of subscription. We are focused on delivering exceptional value with superior products, which we are confident is a winning combination.
Scott: Let's start with the recent quarter. We delivered strong financial results in Q1, reinforcing our conviction in the strength of our business and the large market opportunity we are pursuing.
Scott Howe: We made nice progress integrating HABU and executed soundly on the priorities we discussed on our last call. We improved our customer experience and retention, enhanced our platform, and expanded our ecosystem, all with an eye toward simplification, both for customers and partners, as well as for LiveRampers. Let me quickly touch on what I see as the three key highlights from the quarter. First, Q1 exceeded our expectations on both the top and bottom lines.
Speaker Change: I've been deeply connected with the needs of the small business community since the founding of my first business simply got Com early in my career, where I learned firsthand the complexities of business formation and ongoing compliance requirements.
Scott: We made nice progress integrating HABU and executed soundly on the priorities we discussed on our last call.
Jeffrey Stibel: Post-formation, our MyLZ customer platform is a huge, untapped opportunity. We invested heavily in this platform, and it has paid dividends in usability and engagement. We do not effectively leverage this channel as a go-to-market opportunity. Yet, we will also do a better job cross-selling, upselling, bundling, and packaging to our businesses during their life cycle. As customers graduate from being a new business to an emerging one, their wallet size increases alongside their needs. We have earned the right to offer and include more products to our customers over time. Yet we have not taken advantage of that. We have strong traction in many areas of our ancillary ecosystem, including virtual mail and our partnership offerings, like business banking, insurance, and web services.
Scott: We improved our customer experience and retention, enhanced our platform, and expanded our ecosystem, all with an eye toward simplification, both for customers and partners, as well as for live Rampers.
Speaker Change: In 2006 as yield web Dot Com I was introduced to wiggle some large strategic partner.
Scott Howe: Additionally, marketplace revenue grew 28%, reflecting strong demand across digital advertising tactics, including CTV. We have long discussed our ambition to be a Rule of Forty company with sustainable 10-15% revenue growth, so I'm pleased that we continue to make progress in an uncertain macro environment. Finally, two of our key performance indicators were notably strong. First, annual recurring revenue grew by $11 million quarter-on-quarter, marking the third consecutive quarter of double-digit million net new ARR.
Speaker Change: Quickly understood the power of unique opportunity legal zoom with capitalizing on establishing relationships with small business owners at the earliest pivotal moment and an entrepreneur's journey business inception.
Scott: Let me quickly touch on what I see as the three key highlights from the quarter.
Scott Howe: Second, subscription net retention, which measures our performance with our existing customers, increased by two points quarter-on-quarter to 105%. While there was a lot to like about the quarter, know that there are also areas in which we seek to improve our performance. Our Q1 deal cycles remained elongated versus historical norms, like in Q4, and customers remain cautious given the macro uncertainty. We're responding by highlighting the ROI our customers can achieve, removing any obstacles to faster adoption, and making it even easier to work with LiveRAM. We will also continue to focus on our own efficiency.
Scott: First, Q1 exceeded our expectations on both the top and bottom line.
John: Watching the Companys success unfold.
Speaker Change: We have seen a small business itself emerging to the powerhouse of the industry.
Scott: Second.
Scott: This was the second consecutive quarter of double-digit growth in both total revenue and subscription revenue. Additionally, marketplace revenue grew 28%, reflecting strong demand across digital advertising tactics, including CTV.
Speaker Change: Almost 25 years since our founding in category creation. Our brand has five times the awareness of any competitor, we've incorporated $4 4 million businesses.
John: Over $4 2 million consumers with the state planning and have over one 6 million active legal and compliance subscriptions outstanding yet legal zoom only accounts for just over 1% of our massive addressable market of over $50 billion.
Scott: We have long discussed our ambition to be a Rule of Forty company with sustainable 10-15% revenue growth, so I'm pleased that we continue to make progress in an uncertain macro environment.
Jeffrey Stibel: We also know that taxes and bookkeeping are an important part of a post-formation life cycle. But we need to be offering the right products to the right customers at the right time. By way of concrete example, we were previously selling our tax services within the formation flow. Yet, a robust tax solution is not needed on day one. The result was high-attach, but also cannibalization of other subscription products in the order flow, and ultimately, very high-charge. We were reviewing opportunities to offer a simple, cost-effective solution early in the life cycle. And, we will cross-sell our more robust tax offering through MILD and our sales teams during more appropriate stages of business's life cycle.
Scott: Finally, two of our key performance indicators were notably strong. First, annual recurring revenue grew by $11 million quarter-on-quarter, marking the third consecutive quarter of double-digit millions net new ARR.
John: Our strong conviction and the opportunity that lies ahead.
Speaker Change: I am excited to be taking an active and direct role in executing the strategy of the business operating on a day to day level and driving accountability throughout the organization starting with myself.
Scott: Second, subscription net retention, which measures our performance with our existing customers, increased by two points quarter-on-quarter to 105 percent.
Speaker Change: The board felt my history of experience may be uniquely qualified to partner with our team to drive change at web Dot Com I helped to establish the companys strong market share position at.
Scott: While there was a lot to like about the quarter, know that there are also areas in which we seek to improve our performance.
Speaker Change: At a predecessor company acquired by Dun <unk> Bradstreet, I hope to grow our free and paid subscriber count by over 500% and Brian stable, we hope numerous companies accelerate growth and enhanced profitability having.
Scott: Our Q1 deal cycles remained elongated versus historical norms, like in Q4, and customers remain cautious given the macro uncertainty.
Jeffrey Stibel: We expect to benefit from introducing the right products to the right customers at the right time, with a goal of increasing the lifetime value of our subscribers.
Speaker Change: Having served as a board member since 2014, a large investor since 2017, and our chairman since 2018, I possess strong knowledge of our product offerings technology infrastructure and attorney network as well as a deep understanding of the competitive landscape and our customer segments.
Scott: We're responding by highlighting the ROI our customers can achieve, removing any obstacles to password adoption, and making it even easier to work with LiveRamp.
Jeffrey Stibel: Lastly, we believe we can continue to build our ecosystem via our partnership network and support of our customers. Our expanded partnership directive will focus on adding vertical-specific partners, as prioritized by our segmentation analyses. For example, providing point-of-sale solutions tailored for brick-and-mortar retailers or fleet management software for trucking companies. Most of I a number of partnerships across even five percent of our base each, and you can quickly see the compounding benefits to our customers and our company.
Scott: We also continue to focus on our own efficiencies.
Scott Howe: I'll touch on some of these efforts in a moment. My second topic is Google's recently announced change to its Chrome cookie plan. A lot has been written about the announcement in recent weeks, and I think the discussion has often missed the mark.
Scott: I'll touch on some of these efforts in a moment.
Speaker Change: As the largest individual investor and legal zoom I'm fully aligned with our shareholders, we see tremendous value potential in the business and want that value to be realized in the market.
Scott: My second topic is Google's recently announced change to its Chrome cookie plans. A lot has been written about the announcement in recent weeks, and I think the discussion has often missed the mark.
Speaker Change: Forming a business as of Friday.
Scott Howe: The headlines, typically some version of Google abandoning cookie deprecation, don't do justice to the announcement and miss the meta point. Sure, Chrome is abandoning its original plan of deprecating third-party cookies in early 2025. But in lieu of that, Google announced a new plan with two specific initiatives. First, Chrome intends to make it easier for consumers to opt out of third-party tracking. And second, Chrome will introduce IP protection, which prevents covert tracking by websites, starting with Chrome incognito mode.
Speaker Change: But it's also overwhelming and incredibly complex for our customers forming alone on our secretary of state website is confusing and asking an offline attorney for help is expensive and often out of reach we've earned organic traffic through our brand name recognition, our reputation and our free proprietary educational.
Speaker Change: The headline is typically some version of Google abandons cookie deprecation.
Speaker Change: Don't do justice to the announcement and miss the meta point.
Jeffrey Stibel: Finally, our third execution change will be driving further integration of artificial intelligence. LegalZoom is first and foremost a technology company. We've worked hard to integrate technology into everything we do to give our customers and partners the best, most efficient products and services. What we have not yet capitalized on is effectively leveraging artificial intelligence into our solutions. We are now actively testing AI features within our subscription offerings to drive consumption, engagement, and ultimately retention and greater lifetime value. For example, we launched an AI-assisted NAICS code navigator just last week, which allows our customers to describe their business activity in plain English and lets our AI map that to the appropriate government code for the purposes of licenses and permits.
Speaker Change: Sure, Chrome is abandoning its original plan of deprecating third-party cookies in early 2025. But in lieu of that, Google announced a new plan with two specific initiatives.
Speaker Change: Content, so a small business owners try to navigate a formation on their own we often find themselves at legal soon.
Speaker Change: For our customers, forming with legal zoom means they've found a trusted partner and for the over 60% of customers, who are first time business owners and sole operators, we may be the only partner.
Speaker Change: First, Chrome intends to make it easier for consumers to opt out of third-party tracking.
Speaker Change: And second, Chrome will introduce IP protection, which prevents covert tracking by websites starting with Chrome incognito mode.
Scott Howe: We, and the industry, will await more details from Chrome about how and when these changes will be rolled out. But ultimately, if Apple's App Transparency Tracking is any indication, we expect Chrome's changes will have the same or similar effect as deprecating third-party cookies.
Speaker Change: We support these customers through the six separate government agency requirements needed to form a business, including the secretary of state the IRS and the financial crimes enforcement network for Finfet.
Speaker Change: We and the industry will await more details from Chrome about how and when these changes will be rolled out. But ultimately, if Apple's app transparency tracking is any indication, we expect Chrome's changes will have the same or similar effect as deprecating third-party cookies.
Speaker Change: We educate and guide these business owners on the requirements and provide solutions to keep them safe from noncompliance and heft defiance.
Scott Howe: With Apple's ATT, the data shows that U.S. consumers opt-in for tracking at an average rate of only 24%. In addition, as marketers have increasingly realized in recent years, the total impact of Safari, Edge, Firefox, and other browsers that have already turned off cookies means that half of the Internet has already moved away from browser tracking technology. And, of course, cookies are irrelevant for CTV and mobile in-app advertising. Here, we see four key takeaways.
Speaker Change: This includes providing a registered agent.
Speaker Change: With Apple's ATT, the data shows that U.S. consumers opt-in for tracking at an average rate of only 24%.
Speaker Change: Annual report filings and determining the right business licenses to operate.
Jeffrey Stibel: More will come in this regard. Our largest opportunity when it comes to AI, however, is our expert offerings. Integrating expertise is perhaps the singular area that sets LegalZoom apart amongst all of our potential competitors. On the one hand, we own a lot of them. We can offer legal services directly through an alternate business structure. We can also offer other advice and services through our rich network of attorneys, but combining these services with the power of AI presents a game-changing opportunity. Generative AI alone cannot replace attorney advice. There are no inaccuracy hurdles, and more importantly, low established regulations around the unauthorized practice of law.
Speaker Change: And we are the only online formations company with both an owned law firm and an independent 50 state Attorney network at our customers disposal.
Speaker Change: In addition, as marketers have increasingly realized over recent years, the total impact of Safari, Edge, Firefox, and other browsers that have already turned off cookies means that half of the Internet has already moved away from browser tracking technology.
Speaker Change: Legal zoom provides our customers with protection and peace of mind.
Speaker Change: This is the core of what we do.
Speaker Change: And, of course, cookies are irrelevant for CTV and mobile in-app advertising.
Speaker Change: But our execution has fallen short.
Speaker Change: We haven't effectively educated our customers on a long term SMB journey and the value of our subscription products, which has limited our ability to fully monetize our customer relationships.
Scott Howe: One, it is still the case that third-party cookies will diminish in their importance to the ecosystem over time. Two, we're rapidly moving toward a more consumer-friendly world, one in which consumers have visibility and control over how their information is used. In such a world, consumer consent is paramount, and consumers are providing this authentication directly to their trusted brands and content destinations.
Speaker Change: We see four key takeaways. One, it is still the case that third-party cookies will diminish in their importance to the ecosystem over time.
Speaker Change: This has led to an overdependence on transactional revenue tied directly to macroeconomic activity for small business formations as evidenced in our latest guidance.
Speaker Change: Two, we're rapidly moving toward a more consumer-friendly world, one in which consumers have visibility and control over how their information is used.
Speaker Change: I believe our business should be tethered to the recurring services needed by millions of small businesses well beyond the formation and regardless of where we sit in the macroeconomic cycle.
Jeffrey Stibel: Put simply, this means legal advice cannot be given without a license. LegalZoom stands apart from our technology competitors as a platform with an established network of independent attorneys available to leverage the power of AI to unlock this opportunity. We are continuing to see solid traction with our first generative AI product, Docassist. Docassist was designed to empower customers to better understand their legal documents and to promote our attorney network if customers need more help. It allows our customers to upload agreements and other documents and have a proprietary AI engine right down clauses, facts, figures, and ultimately provide questions and answers in simplified language.
Speaker Change: In such a world, consumer consent is paramount, and consumers are providing this authentication directly to their trusted brands and content destinations.
Speaker Change: Importantly, the last two quarters of our performance have shown a deceleration in our subscription revenue growth and more recently, we have seen softer retention rates and our compliance subscriptions, particularly in our premium cohort where.
Scott Howe: All of the work that we've done with our Authenticated Traffic Solution, or ATS, has user authentication at the very center of our design, which solidly positions us for the future. That's particularly true for the fastest-growing advertising channels, which are cookie-like, and 4. Our authenticated technology generates better results than cookies, on which I will elaborate in a moment. Importantly, the Chrome announcement does not meaningfully change pair, or Publisher and Advertiser Identity Reconciliation, is a separate initiative led by Google's DSP, Display & Video 360, and continues to move forward as originally planned. PAIR securely connects first-party data from brands and publishers on Google's Display and Video 360 to deliver addressable advertising to consumers. So again, exact.
Speaker Change: three
Speaker Change: All of the work that we've done with our Authenticated Traffic Solution, or ATS, has user authentication at the very center of our design, which solidly positions us for the future.
Speaker Change: Where we have filled that gap in large part has been through transactional revenues.
Speaker Change: We can do better.
Speaker Change: That's particularly true for the fastest-growing advertising channels, like CTV, that are cookie-less.
Speaker Change: And we know what needs to be done.
Speaker Change: We need to do a better job of educating our customers of the problems, we solve overtime, we need to offer the right products to the right customers at the right time.
Speaker Change: And four, our authenticated technology generates better results than cookies.
Speaker Change: As a result, we will be changing key components of our execution.
Speaker Change: on which I will elaborate in a moment.
Jeffrey Stibel: This product currently sits behind my LZ, and we have scaled to over 500 documents uploaded every day from our customers. We are now testing connecting customers who show intent with an attorney through one of our subscription offerings.
Speaker Change: To be clear we are focused on three priority areas in the near term you should hold us accountable for our success in this regard.
Speaker Change: Importantly, the Chrome announcement does not meaningfully change PAIR. PAIR, or Publisher and Advertiser Identity Reconciliation,
Speaker Change: First optimizing our subscription business.
Speaker Change: is a separate initiative led by Google's DSP, Display & Video 360, and continues to move forward as originally planned.
Speaker Change: Reorienting, our go to market strategy, and third leveraging AI to deliver even greater expertise to our customers.
Jeffrey Stibel: Today, we are developing a robust strategy to further deliver AI expertise to our customers when and where they need it. We will have a cost-rationalized approach to AI investments that will drive us toward an integrated model of expertise, one that leverages human and machine intelligence to drive legal advice efficiently and at an affordable price.
Speaker Change: PAIR securely connects first-party data from brands and publishers on Google's display and Video 360 to deliver addressable advertising to consumers.
Speaker Change: We believe aligning the organization around these priorities, we will increase the predictability of our business.
Scott Howe: What does all this mean for LiveRamp? We think time has only validated our strategy with ATS. Our role has always been to connect our customers' data to whatever channel using whatever identity technology. And we are uniquely positioned to do this in a world where cookies remain in use for a while longer. Today, the vast majority of our brand customers use RampID, which combines the reach of cookies and our ATS. They do this because it generates significantly better advertising performance. One example that I've mentioned before is the case study with Omni Hotels and Resorts that showed a 4X improvement in conversion rate using PAIR and ATS over traditional cookie base. D.R.M.
Speaker Change: Prove operational efficiencies in margins and help us accelerate and sustain growth at scale.
Speaker Change: So again, exactly.
Speaker Change: What does all this mean for LiveRamp?
Speaker Change: We are making changes to how we execute in order to best capitalize on the opportunities ahead.
Speaker Change: We think time has only validated our strategy with ATS.
Jeffrey Stibel: We expect a lot more to come as we continue to leverage our technology to drive machine and human expertise to improve the customer experience and drive lifetime value.
Speaker Change: Our role has always been to connect our customers' data to whatever channel using whatever identity technology. And we are uniquely positioned to do this in a world where cookies remain in use for a while longer.
Speaker Change: This includes the difficult decision to restructure the organization, including our recent reduction in our global workforce of 15%.
Speaker Change: These actions reflect the realignment of our business to.
Jeffrey Stibel: I look forward to providing you more details on our plans and subsequent announcements.
Speaker Change: To drive efficient growth and affirm our commitment to driving operational efficiencies and a strong margin profile will also be highly selective in our future hiring efforts in line with our renewed focus.
Speaker Change: Today the vast majority of our brand customers use RampID, which combines the Reach of Cookies and our ATS. They do this because it generates significantly better advertising performance.
Jeffrey Stibel: To summarize, I feel confident that these changes in our execution will enable us to disconnect from our dependence on small business formations for growth. Accelerate our subscription revenue and drive continued margin expansion over time. This will ultimately translate into sustained value creation.
Speaker Change: We expect these combined actions to drive approximately $25 million of annualized savings.
Speaker Change: One example that I've mentioned before is the case study with Omni Hotels and Resorts that showed 4X improvement in conversion rate using PAIR and ATS over traditional cookie-based CRM first-party audience targeting in display in Video 360.
Speaker Change: This was a difficult but necessary action to better align the business with the execution needs ahead.
Scott Howe: First Party Audience Targeting in display in Video 360. We recently published another case study with Indeed, the leading online job site, with similarly impressive results. We have long viewed the industry's move to authenticated addressability, including Chrome's transition from cookies, as a catalyst for our data collaboration platform that helps brands manage, accumulate, and activate first-party data. A stay on cookie deprecation attenuates the urgency for some companies to aggressively implement new technology. But it does not change the longer-term opportunity.
Jeffrey Stibel: I also want to once again acknowledge that our current revenue growth is unacceptable. As for our mix, we currently generate approximately 40% of our revenues from transactional purchases and roughly 60% from recurring subscriptions. I believe we can do better. As we execute on these initiatives, we will be able to provide you with greater insight regarding how we expect the trajectory of our business to change.
Speaker Change: Let me now turn to our three execution priorities.
Speaker Change: First we are doubling down on subscriptions over transactions and focusing on customer life time value to help drive long term sustainability.
Speaker Change: We recently published another case study with Indeed, the leading online job site, with similarly impressive results.
Speaker Change: While our formation product has traditionally been offered as a transaction we do not believe that running a business is transactional by nature.
Speaker Change: Indeed used GRAMP ID and ATS to generate a 54% improvement in its retargeting audience and 20% improvement in its response rates over cookies.
Speaker Change: For anyone trying to start a business legal zoom needs to be alongside them as a partner not only don't information, but also during the difficult first years and well beyond.
Jeffrey Stibel: Less than 30 days into our work, it's too early for us to make long-term financial commitments. However, our goal is to be transparent and communicate often. We look forward to sharing greater details of our progress and an updated long-term outlook in upcoming announcements.
Speaker Change: We have long viewed the industry's move to authenticated addressability, including Chrome's transition from cookies, as a catalyst for our data collaboration platform that helps brands manage, accumulate, and activate first-party data.
Speaker Change: This is also true in other areas such as the state planning, where we need to be aligned and alongside our customers as their lives evolve.
Speaker Change: This promise to our customers ensures a strong ongoing relationship that lends itself deeply to a subscription offering.
Noel Watson: With that, I will hand the call over to Noel to discuss our second quarter results and outlook in more detail. Noel?
Speaker Change: A stay on cookie deprecation attenuates the urgency for some companies to aggressively implement new technologies.
Speaker Change: Across our business, we will be evaluating ways to better reorient our products towards subscriptions.
Noel Watson: Thanks, Jeff, and good afternoon everyone. Before I begin, I'd also like to express my gratitude to Dan. His leadership left an indelible mark on this organization, and his contributions were vital to what was accomplished during his time here at Legalism.
Scott Howe: After all, authenticated addressability was only one of the megatrends supporting growth and data collaboration. Other drivers include personalized marketing becoming the standard for consumers and marketers alike. A customer journey to purchase that is increasingly complex and fragmented. The shift to cloud computing that creates more data silos amidst a requirement for minimal data movement. Walled Gardens are becoming more data accessible, allowing brands to leverage their first-party data for more granular measurement of advertising effectiveness. And last, but certainly not least, increasing consumer data privacy regulation.
Speaker Change: But it does not change the longer-term opportunity. After all, authenticated addressability was only one of the megatrends supporting growth and data collaboration.
Speaker Change: This includes revisiting our pre formation offering.
Speaker Change: <unk> is uniquely positioned to add significantly more value than any competitor or the government again.
Noel Watson: He has left us well positioned as we move forward into our next chapter. Along those lines, I am very excited to welcome Jeff and look forward to partnering closely with him to drive Legalism to even greater success.
Speaker Change: Other drivers include personalized marketing becoming the standard for consumers and marketers alike.
Speaker Change: That is our promise to our customers yet are free formation lease customers exposed to compliance risk ongoing government requirements and without registered agent services.
Speaker Change: A customer journey to purchase that is increasingly complex and fragmented.
Speaker Change: The shift to cloud computing that creates more data silos amidst a requirement for minimal data movement.
Noel Watson: I'll now turn our focus to our second quarter financial performance. Please note all comparisons will be on a year-over-year basis unless otherwise stated. Total revenue was $177 million for the quarter for about 5%. Our results exceeded the top end of our outlook, primarily due to higher-than-expected fulfillment.
Speaker Change: We will be evaluating new recurring revenue products, such as a free formation offering that may include compliance or other packages that are needed for businesses to ultimately be successful. We believe this new approach can accomplish three things first.
Speaker Change: Walled Gardens becoming more data accessible, allowing brands to leverage their first-party data for more granular measurement of advertising effectiveness.
Speaker Change: Deepen our relationship with our customers during those difficult first years second.
Speaker Change: And last, but certainly not least, increasing consumer data privacy regulations.
Scott Howe: Beyond these megatrends, there are a growing number of use cases for data collaboration beyond advertising. We recently partnered with Forrester to publish a report evaluating how business leaders in varying sectors are using data collaboration to enable a wide range of revenue-driving use cases across their organizations and between ecosystem partners. One of the headline findings is that 93% of respondents, yes, 93% think improved data collaboration is critical to driving improvements in customer loyalty, data quality, regulatory compliance, and more. Now, let me transition to my final topic for today, providing an update on what LiveRamp is doing to seize this data collaboration opportunity. We are approaching this from a few different angles.
Noel Watson: Looking at business formations, we saw a softer macro environment in the corner with Q2 Census EIN applications declining 6% year-over-year, below our expectations and a 4-point deceleration from Q1. We expect the macro will decelerate further as the year progresses and will discuss this in more detail shortly. We completed 134,000 business formations in Q2, down 17%. Looking at Legalism branded LLC formations, which excludes the impact of a partnership exit in the third quarter of 2023, formations were down 12% year-over-year. This is more closely aligned to Secretary of State formation data, which continues to show a steeper year-over-year decline relative to EIN data.
Speaker Change: Second demonstrate the value of our subscription offerings, which will build trust and support retention and third improve the quality of our subscriber base as we focus on growing the lifetime value of our customers.
Speaker Change: Beyond these megatrends, there are a growing number of use cases for data collaboration beyond advertising.
Speaker Change: We recently partnered with Forrester to publish a report evaluating how business leaders from bearing sectors are using data collaboration to enable a wide range of revenue-driving use cases across their organizations and between ecosystem partners.
Speaker Change: We are confident this decision will support a reorientation towards focusing on the lifetime value of our customers.
Speaker Change: A second example is our <unk> report, which satisfies a new federal filing requirement by Finfet. The final requirement impacts roughly 90% of all business entities and is proof of how dynamic the regulatory environment is for small business owners.
Speaker Change: One of the headline findings is that 93% of respondents, yes, 93% think improved data collaboration is critical to driving improvements in customer loyalty, data quality, regulatory compliance, and more.
Speaker Change: <unk> is a high intent purchase but we currently commercialize it as a standalone transaction post formation.
Speaker Change: Let me transition to my final topic for today, providing an update on what LiveRamp is doing to seize the data collaboration opportunity.
Noel Watson: Subsequent to the end of the quarter, we have seen a deceleration in census EIN applications, with the last four weeks of Prince averaging a 12% year-over-year decline. We have updated our map for expectations to reflect this softer environment, and this is a component of our lower revenue box. Our market share of business formations relative to Census EIN data was 10% for the corner.
Speaker Change: While we are pleased with the current attach rate for <unk>, we are not capitalizing on the opportunity to Leverages. This requirement as part of a broader subscription offering at a critical junction during formation nor.
Scott Howe: First, we are making collaboration simple and easy from both a product and go-to-market standpoint. Second, we are building the most scaled and ubiquitous collaboration network. Third, and perhaps most importantly, we're fine-tuning our message to highlight some of the additional use cases I just mentioned and create a heightened sense of financial urgency to get started. Let me fill in some details on each of them. We are making our product easier to use in a number of ways. We have integrated all of our identity activation and cross-screen measurement reporting capabilities into our LiveRamp cleanroom platform, powered by HABU.
Speaker Change: We are approaching this from a few angles. First, we are making collaboration simple and easy from both a product and go-to-market standpoint.
Speaker Change: Nor are we taking advantage of the opportunity to cross sell our broader compliance subscriptions to existing customers through.
Speaker Change: Second, we are building the most scaled and ubiquitous collaboration network. Third, and perhaps most importantly, we're fine-tuning our message to highlight some of the additional use cases I just mentioned and create a heightened sense of financial urgency to get started.
Speaker Change: Sure.
Speaker Change: As such we are currently evaluating ways to better reorient this product towards subscription offerings.
Noel Watson: Now turning to our revenue performance. Transaction revenue was 69 million, up 4%, driven by a 3% increase in transacted units and a slight increase in average order value. We recorded $290 million to 2,000 transaction units in the corner. The 3% increase was primarily due to an increase in non-formation business-related transaction products, such as annual reports, or new BORR offering, and corporate dissolutions. Our average order value was $234 for the corner of slightly year over year. We expect AOV to be relatively flat, sequentially in Q3, but down year over year due to the aforementioned makeshift toward non-formation transactions, which are generally lower priced, and we continue to expect a mid-single-digit decline in AOV for the full year of 2024, compared to the full year of 2023.
Speaker Change: A final example is our consumer business, which has been a headwind to revenue growth over the past few years as we've focused on our SMB business.
Speaker Change: Let me fill in some details on each of these.
Speaker Change: We are making our product easier to use in a number of ways. We have integrated into our LiveRamp clean room platform, powered by HABU, all of our identity, activation, and cross-screen measurement reporting capabilities.
Speaker Change: While we have made some progress recently, we will be reinvesting more deeply in our consumer channel for accelerated growth as it is a market we have the right to own given our strong historical brand recognition and our significant market position.
Scott Howe: We have built query templates for the most common data collaboration use cases, such as advertising measurement and retail media, so it's easier for the supply and demand sides to quickly generate insights and realize value from collaborating their data. On the go-to market, we have refined our packaging and pricing and continue to publish new case studies to educate the market on the benefits of data collaboration. We are leaning into the use cases that are top of mind for customers, such as accessing unique data for audience measurement, customer journey mapping, activation, and, in some cases, to train and validate AI models.
Speaker Change: We have built query templates for the most common data collaboration use cases, such as advertising measurement and retail media. So it's easier for the supply and demand sides to quickly generate insights and realize value from collaborating their data.
Speaker Change: Take a state planning.
Speaker Change: Every business has an owner behind it that needs a state planning products beyond our SMB customers a state planning is a product that we choose across every American over the age of 18.
Speaker Change: On the go-to market, we have refined our packaging and pricing and continue to publish new case studies to educate the market on the benefits of data collaboration.
Speaker Change: Recent studies have shown that while nearly two thirds of Americans say, having a will is important fewer than one third have won.
Speaker Change: We are leaning into the use cases that are top of mind for customers, such as accessing unique data for audience measurement, customer journey mapping, activation, and, in some cases, to train and validate AI models.
Noel Watson: Subscription revenue was $109 million, up 6% due to an increase in both subscription units and output. We remain dedicated to continuing to shift our revenue toward subscription over the long term. We ended the quarter with over 1.6 million subscription units, up 4% due over year, as we saw an increase in form beneath signature subscriptions due to the bundling of these products into certain business-formation offerings and growth in our virtual mail subscriptions. This growth was partially offset by the impact from the extent of legacy partner relationships, which have now largely transitioned from our platform. Our pool came in at $271 for the quarter, up 4%, driven by a mixed shift toward our higher values description offerings.
Speaker Change: And up the minority of the population with the Wil many don't revisit it regularly.
Speaker Change: But the state plans should not be thought of in a vacuum. These are living breathing documents that need to grow and adjust over time as families evolve.
Scott Howe: We are also cultivating deeper relationships with cloud hyperscalers and system integrators. With the clouds, we continue to pursue our embedded identity, activation, and cleanroom capabilities across all the major cloud providers. With the SIs, we are working with a wide range of specialized firms, as well as full-service IT consultants.
Speaker Change: We are also cultivating deeper relationships with cloud hyperscalers and system integrators. With the clouds, we continue to pursue our embedded identity, activation, and cleanroom capabilities across all the major cloud providers.
Speaker Change: To serve our customers, we need to be with them over time.
Speaker Change: Planning is one of a number of our historically transactional products, where we believe we can create another enduring subscription channel that can be used to offset periods of weakness and small business starts.
Speaker Change: With the SIs, we are working with a wide range of specialized firms as well as full-service IT consultants.
Scott Howe: The key challenge our customers face when embracing new technology is limited bandwidth with their existing teams, and leveraging system integrators, or SIs, reduces the time to value for our customers. We're seeing good traction so far, with Q1 bookings influenced by SIs increasing by nearly 300%, albeit off a low base, with a similar outlook in the quarters ahead. The feedback from customers has been positive, and our sales pipeline for clean rooms and collaboration is significant. Converting this pipeline into bookings takes time as we work through a sales cycle that is slightly elongated amidst a tighter software spending environment. But, we are making progress even with uncertain macro conditions.
Speaker Change: Let me now turn to our second key area of execution.
Speaker Change: The key challenge our customers face when embracing new technology is limited bandwidth with their existing teams. And leveraging system integrators, or SIs, reduces the time to value for our customers.
Speaker Change: Orienting our go to market strategy.
Speaker Change: One of the most interesting things about a small business.
Speaker Change: Is that there is no such thing as a typical small business.
Noel Watson: Our pool was also impacted by the ideas of certain external partner relationships, and the introduction of our forms in these signature subscription offerings, both of which carry lower price points.
Speaker Change: Needs of a wedding photographer and a pizza shop owner are incredibly different going deeper the needs of a first time pizza shop owner and a pizza shop owner opening her third location are distinct.
Speaker Change: We're seeing good traction so far, with Q1 bookings influenced by SIs increasing by nearly 300 percent.
Noel Watson: Now, turning to expenses in margins where all of the following metrics are on a non-GAAP basis. Second quarter, rose margin was 68%, compared to 65% in Q2-23. The year-over-year improvement was driven by lower filing fees of the percentage of revenue, and improvements in our service delivery operations due to automation and process improvements. As a reminder, we generally experience lower rose margins in the first half of the year due to the seasonality associated with tax season and business formations, and therefore expect margins to improve in the second half. Sales and marketing costs were $57 million, or 32% of revenue, and an increase of 13% from last year.
Speaker Change: albeit off a low base, with a similar outlook in the quarters ahead.
Speaker Change: Importantly for our customers their businesses are not just small businesses. They are their way of making their dreams a reality.
Speaker Change: The feedback from customers has been positive.
Speaker Change: Our sales pipeline for clean rooms and collaboration is significant. Converting this pipeline into bookings takes time as we work through a sales cycle that is slightly elongated amidst a tighter software spending environment.
Speaker Change: We have a deep understanding of the businesses, who form with us and we will start to better leverage our robust data in that regard.
Speaker Change: We know for example that approximately 20% of our businesses are in the professional services sector. Another 15% are in trade and retail.
Speaker Change: Still, we are making progress even with uncertain macro conditions.
Scott Howe: The second area of focus is building the most scaled and ubiquitous collaboration network. Data collaboration is a classic network business, and we're moving quickly to add the most critical nodes to our collaboration network. These nodes are large social, CTV, and media properties, as well as large retail media networks. They're data-rich companies that want to engage in data collaboration with brand suppliers and advertisers. Our platform already has the requisite cloud interoperability that allows for seamless data collaboration between companies storing data in different clouds, and that is essential.
Speaker Change: The second area of focus is building the most scaled and ubiquitous collaboration network.
Speaker Change: But we haven't historically use that information.
Speaker Change: Data collaboration is a classic network business, and we're moving quickly to add the most critical nodes to our collaboration network. These nodes are large social, CTV, and media properties, as well as large retail media networks.
Speaker Change: Yet it can enable us to grow alongside these businesses as they become more distinct through success in their verticals.
Noel Watson: Customer acquisition and marketing costs were 31% year-over-year, and increased by $7 million sequentially, primarily due to an increase in brand marketing spend, which was time to maximize the benefit of our NBA sponsorship. In Q2-3, we expect canned expenses to revert to levels more consistent with the prior year of corner. As a reminder, our investments in CAM in 2024 are offset by savings we are experiencing from our salesman organization in subsequent revolutions. Non-TM sale of the marketing expense with down $4 million or 31%, primarily due to the impact from the sales reorganization. Technology and development costs were $17 million, about $3 million, or 23%.
Speaker Change: We're really understanding that business has become more inelastic over time is instrumental to how we will go to market.
Speaker Change: They are data-rich companies that want to engage in data collaboration with brand suppliers and advertisers.
Speaker Change: New businesses are far more fragile than established ones and we see that cycle unfold across our customer base.
Speaker Change: Our platform already has the requisite cloud interoperability that allows for seamless data collaboration between companies storing data in different clouds.
Speaker Change: To improve subscription conversion.
Speaker Change: We will better leverage data to shift our go to market for Smbs from a one size fits all approach to micro segmentation.
Scott Howe: But we're finding that many data owners struggle with how to efficiently scale their data collaboration given a lack of standardization for the terms of service, data queries, and use cases. For example, the world's largest retailers have many hundreds, possibly thousands of CPG suppliers with whom they want to engage in data collaboration. Today, even the largest retail media networks are only using data collaboration with the largest 50 or 100 CPG suppliers, in part because the lack of standardization makes it too time-consuming and costly to scale data collaboration.
Speaker Change: And that is essential.
Speaker Change: This means further refining our customer intake questionnaire to better understand our customer needs will.
Speaker Change: But we're finding that many data owners struggle with how to efficiently scale their data collaboration given a lack of standardization for the terms of service, data queries, and use cases.
Speaker Change: We will begin targeting vertically by type of business again, a pizza shop owner versus a wedding photographer and horizontally by lifecycle of business New Reformed for example versus businesses in later years of their lives.
Noel Watson: After several years of significant investment, we believe we now have a fully built about technology team that is sufficiently resource to deliver against our product roadmap. G&A expenses were $16 million, an increase of $2 million or 12%, largely driven by one-time legal expenses.
Speaker Change: The world's largest retailers have many hundreds, possibly thousands, of CPG suppliers with whom they want to engage in data collaboration.
Speaker Change: At formation, we will emphasize our core legal and compliance offerings, where we have earned the right to win through our decades of experience.
Speaker Change: Today, even the largest retail media networks are only using data collaboration with the largest 50 or 100 CPG suppliers.
Noel Watson: Our performance for a adjusted EBITDA of $29 million or a 16% margin; this represents a 2% annual EBITDA declining compared to a adjusted EBITDA of $30 million for the same period last year. Deferred revenue increased by $2 million in the quarter. Pre-cash flow of $17 million compared to $37 million for the same period in 2023. This reflects a $13 million year increase in cash tax payments due to the fully utilization of certain tax credits and interest expense carryovers in the prior year, as well as the time and the working capital changes. We ended the quarter with cash and cash equivalent of $190 million.
Speaker Change: in part because the lack of standardization makes it too time-consuming and costly to scale data collaboration.
Speaker Change: And we will stay connected to our customers to cross sell and ancillary areas at the right time.
Scott Howe: As the category creator and leader, we are working to eliminate this friction so that greater and more immediate value can be realized by all. For example, we are now working with 30 of the largest digital publishers and retail media networks to establish standardized terms of service and query templates. In most cases, these 30 large data owners are already LiveRamp customers or partners, which gives us a running start.
Speaker Change: We will also be reallocated, our customer acquisition marketing.
Speaker Change: As the category creator and leader, we are working to eliminate this friction so that greater and more immediate value can be realized by all.
Speaker Change: Recently.
Speaker Change: We have focused our marketing efforts almost exclusively on driving formations through performance marketing.
Speaker Change: That dependence on a single channel to market to a single audience prevents us from better efficiency and scale.
Speaker Change: For example, we are now working with 30 of the largest digital publishers and retail media networks to establish standardized terms of service and query templates.
Speaker Change: Our one brand partnership with the NBA was also largely geared towards business formations.
Speaker Change: In most cases, these 30 large data owners are already LiveRamp customers or partners, which gives us a running start.
Scott Howe: Finally, as I mentioned, we're fine-tuning our story, placing less emphasis on near-term cookie deprecation and more emphasis on the many other drivers of data collaboration. This involves developing different messages by key industry vertical, but also, importantly, walking through the economic return of technology adoption with clients. We've developed value calculators for our sales reps to make this easy.
Speaker Change: Looking ahead we.
Speaker Change: We will be testing into a broader mix of digital and offline channels partnerships spokespeople and influencers all to balance our investments more efficiently across product categories.
Speaker Change: Our customers are helping us improve our product so that we can all succeed together even faster.
Noel Watson: We remained debt-free with no outstanding margins under our $150 million revolving credit facility. During the second quarter, we announced an increase in our share repurchased authorization from $100 million to $175 million and repurchased $13.9 million shares of our comments back for a total of $125 million. This was a record level of share repurchases from Eagle Zoom and represents a 7% reduction in our share account. Since our first share repurchase program beginning in the first quarter of 2022, we have returned close to $300 million to shareholders in the form of share repurchases, reducing our share account prior to the program by approximately 15%.
Speaker Change: finally as i mentioned we're fine tuning our story placing the less emphasis on near-term cookie deplication and more emphasis on the many other drivers of data collaboration
Speaker Change: We are aggressively focused on spend efficiency and brand health.
Speaker Change: We have confidence in this approach in part because of our ability to leverage our rich customer data.
Speaker Change: Alongside almost 25 years of historical marketing knowledge.
Speaker Change: This involves developing different messages by key industry vertical, but also, importantly, walking through the economic return of technology adoption with clients.
Speaker Change: We will also look to drive share gains by better leveraging our partnership channels and sales and service teams.
Speaker Change: We've developed value calculators for our sales reps to make this easy.
Scott Howe: The data collaboration category is large and has a sticky network effect, but we're still in the early, early stages of market development. Ease of use, greater standardization, scalability, and economic modeling will promote more ubiquitous one-to-many data collaboration and get our network flywheel spinning ever faster. In closing, let me reiterate what I believe to be the key themes from the quarter. First, Q1 was a strong start to FY25, with revenue and operating income exceeding our expectations.
Speaker Change: Our new outsource sales team is fully ramped and we look forward to optimizing the experience over time.
Speaker Change: The data collaboration category is large and has a sticky network effect but we're still in the early early stages of market development.
Speaker Change: We believe these efforts will also support market share expansion. However, as I noted earlier, our priority will be driving long term customer value in the form of subscriptions.
Noel Watson: As at the end of the second quarter, we had approximately $37 million remaining under our share repurchase authorization.
Speaker Change: Ease of use, greater standardization, scalability, and economic modeling will promote more ubiquitous one-to-many data collaboration and get our network flywheel spinning ever faster.
Noel Watson: Following our record repurchased activity in Q2, we will continue to evaluate our share repurchase program alongside maintaining a flexible cash position to support our capital allocation priorities.
Speaker Change: We are focused on delivering exceptional value with superior products, which we're confident is a winning combination.
Noel Watson: Turning to our outlook for the second half of this year, I'll start with the financial impact of our recent headphone actions, which include both the restructuring, as well as the reduced hiring plan in the back half of this year. We estimate the combination of our headphone reduction and reduced hiring plan will realize approximately $5 million and $7 million savings in Q3 and Q4, respectively. We estimate these actions will generally deproximately $25 million in annualized savings. This reduction in operating expenses of reflection of a repurchasing of resources to fuel growth more efficiently while maintaining a strong margin profile.
Speaker Change: Post formation are my LLC customer platform is a huge untapped opportunity.
Speaker Change: In closing, let me reiterate what I believe to be the key themes from the quarter.
Speaker Change: First, Q1 was a strong start to FY25, with revenue and operating income exceeding our expectations, double-digit growth in revenue and ARR, and record Q1 operating margin.
Speaker Change: We invested heavily in this platform and it has paid dividends and usability engagement we.
Scott Howe: Double-Digit Growth in Revenue and ARR and Record Q1 Operating Marks. We continue to make steady progress on our ambition of being a Rule of 40 company, but we're certainly not satisfied. Second, while Chrome's path to authenticated addressability has clearly changed, the end state of cookies being less effective is likely to be the same.
Speaker Change: We do not effectively Leverages this channel as a go to market opportunity yet.
Speaker Change: We continue to make steady progress on our ambition of being a rule-of-40 company, but we're certainly not satisfied.
Speaker Change: We will also do a better job cross selling up selling bundling and packaging to our businesses during their life cycle.
Speaker Change: Customers graduate from being a new business to an emerging one their wallet size increases alongside their needs.
Speaker Change: Second, while Chrome's path to authenticated addressability has clearly changed, the end state with cookies being less effective is likely to be the same.
Scott Howe: We have and will continue to support cookies as long as customers want to use them, and our case studies demonstrate that using RampID and ATS alongside cookies delivers materially better advertising performance for brands. Finally, we are as bullish as ever about the data collaboration opportunity, and there are multiple megatrends underpinning the opportunity in this increasingly strategic market. To capitalize on the market potential, we are focused on making our product intuitive and easy to use from a product and go-to-market standpoint and also scaling the network nodes to allow all participants to realize even greater value.
Speaker Change: We have earned the right to offer and include more products to our customers over time.
Speaker Change: We have and will continue to support cookies as long as customers want to use them. And our case studies demonstrate that using RampID and ATS alongside cookies delivers materially better advertising performance for brands.
Noel Watson: With that in mind, let me turn to our financial outlook in more detail. For the full year, we are reiterating our guidance originally announced on July 9, 2024. We currently expect revenue to be in the range of $675 to $685 million, for a 3% year-over-year growth at the minute. Our revenue outlook primarily reflects the impact from a mid-to-high single-digit decline in the Census EIN formations macro for the full year 2024 versus our previous expectation of a mid-single-digit decline. In the future, we believe our three execution priorities will reduce our sensitivity to macroeconomic trends. Our full-year revenue outlook also reflects softer attention rates in our core compliance restrictions, which we attribute to a challenging macroeconomic environment for small business owners, and a five-point headline to our subscription revenue growth from our LD tax offering versus our previous four-point expectation, given our decision to keep the product down to our formation flows.
Speaker Change: Yet we have not taken advantage of that.
Speaker Change: We have strong traction in many areas of our ancillary ecosystem.
Speaker Change: Including virtual male and a partnership offerings like business banking insurance and web services. We also know that taxes and bookkeeping and are important part of a post formation lifecycle, but.
Speaker Change: Finally, we are as bullish as ever about the data collaboration opportunity, and there are multiple megatrends underpinning the opportunity in this increasingly strategic market.
Speaker Change: We need to be offering the right products to the right customers at the right time.
Speaker Change: To capitalize on the market potential, we are focused on making our product intuitive and easy to use from a product and go-to-market standpoint, and also scaling the network nodes to allow all participants to realize even greater value.
Speaker Change: By way of concrete example, we were previously selling our tax services within the formation flow.
Speaker Change: Yet.
Speaker Change: Our robust tax solution is not needed on day one.
Scott Howe: Thank you again for joining us today. And a special thanks to our exceptional customers, partners, and all Live Rampage employees for their ongoing hard work and support. We look forward to updating you on our progress in the coming quarters. I will now turn the call over to Lauren.
Speaker Change: The result was high attach but also cannibalization of other subscription products and the order flow and ultimately very high churn.
Speaker Change: Thank you again for joining us today. And a special thanks to our exceptional customers, partners, and to all Live Rampers.
Speaker Change: We are reviewing opportunities to offer a simple cost effective solution early in the lifecycle.
Speaker Change: for their ongoing hard work and support.
Speaker Change: We look forward to updating you on our progress in the coming quarters. I will now turn the call over to Lauren.
Speaker Change: And we will cross sell are more robust tax offering through my LC and our sales teams during more appropriate stages of businesses lifecycle.
Lauren Dillard: Thanks, Scott, and thank you all for joining us. Today I will cover two topics. First, a review of our Q1 financial results, and second, our outlook for FY25 and Q2. Unless otherwise indicated, my remarks pertain to non-GAAP results and growth as relative to the year-ago period. I will be referring to the earnings slide deck that is available on our IR website. Starting with Q1.
Noel Watson: This decision will also be a headline to subscription revenue in 2025. We have reiterated our adjusted EBITDA range of 135 to 145 million, which reflects a 21% margin at the midpoint. Once again, the reiteration of our adjusted EBITDA will reflect the impact of our restructuring efforts and our steadfast margin commitment. We expect free cash flow to be in the range of 75 to 85 million. Our free cash flow outlook reflects the estimated impact of approximately $5 million in expected severance costs, lower net interest income, and reduced expectations for deferred revenue in the back half of the year.
Lauren: Thanks, Scott, and thank you all for joining us. Today, I will cover two topics, first, a review of our Q1 financial results, and second, Provider Outlook for FY25 and Q2.
Speaker Change: We expect to benefit from introducing the right products to the right customers at the right time.
Speaker Change: The goal of increasing the lifetime value of our subscribers.
Speaker Change: Lastly, we believe we can continue to build our ecosystem via via our partnership network in support of our customers.
Lauren: Unless otherwise indicated, my remarks pertain to non-GAP results and growth as relative to the year-ago period.
Lauren: I will be referring to the earnings slide deck that is available on our IR website.
Speaker Change: Our expanded partnership directive will focus on adding vertical specific partners as prioritized by our segmentation analysis for.
Lauren Dillard: In summary, we delivered strong results above our expectations, highlighting another quarter of solid execution. Revenue came in at $176 million, $4 million above our guide, and operating income was $27 million, $2 million above our guide. Operating margin expanded by 2 points to 15 percent. Subscription net retention improved by 2 points sequentially to 105 percent. And ARR grew 12 percent, the second consecutive quarter of double-digit growth. Let me now provide some additional details. Please turn to slide 5.
Lauren: Starting with Q1, in summary, we delivered strong results above our expectations, highlighting another quarter of solid execution.
Speaker Change: For example, providing point of sale solutions tailored for brick and mortar retailers for fleet management software for trucking companies multi by a number of partnerships across even 5% of our base each and you can quickly see the compounding benefits to our customers and our company.
Speaker Change: Revenue came in at $176 million, $4 million above our guide, and operating income was $27 million, $2 million above our guide.
Noel Watson: Moving to our revenue and adjusted EBITDA expectations for the third quarter of 2024. We expect total revenue of 165 to 169 million. And we expect third quarter of adjusted EBITDA with 39 to 41 million for 24% margin at the midpoint.
Speaker Change: Operating margin expanded by 2 points to 15%.
Speaker Change: Subscription net retention improved by two points sequentially to 105% and ARR grew 12%, the second consecutive quarter of double-digit growth.
Speaker Change: Finally, our third execution change, we'll be driving further integration of artificial intelligence.
Noel Watson: In closing, we'd like to thank the entire legal team for their ongoing dedication to our business. We are confident in our next chapter to look forward to updating you on our progress in the coming quarters.
Speaker Change: Legals in this first and foremost a technology company.
Speaker Change: We've worked hard to integrate technology into everything we do to give our customers and partners the best most efficient products and services.
Speaker Change: Let me now provide some additional details. Please turn to slide 5.
Lauren Dillard: Total revenue was $176 million, up 14%, with subscription revenue in line with our expectation and Marketplace & Other ahead, thanks to a stronger than expected digital advertising market. This was the first full quarter with HABU, and it contributed roughly $3 million in revenue. Subscription revenue was $135 million, up 11%. Fixed Subscription revenue was 12%, a 3-point acceleration from last quarter, while subscription usage revenue was up 1%, broadly in line with our flat expectation. Usage is a percentage of total subscription revenue, with 12% in line with the 10 to 15% historic range.
Speaker Change: Total revenue is $176 million, up 14% with subscription revenue in line.
Operator: And with that, let's please open the call up for questions. Thank you. We will now begin the question and answer session. If you have dialed in, be a dial in and would like to ask a question. Please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one again.
Speaker Change: What we have not yet capitalized on is effectively leveraging artificial intelligence into our solutions.
Speaker Change: With our expectation and Marketplace Another ahead, thanks to a stronger than expected digital advertising market. This was the first full quarter with HABU and it contributed roughly $3 million in revenue.
Speaker Change: We are now actively testing AI features within our subscription offerings to drive consumption engagement, and ultimately retention and greater lifetime value.
Speaker Change: Subscription revenue was $135 million, up 11%.
Speaker Change: For example, we launched an AI assisted NII CFS Coke navigator just last week.
Speaker Change: Fixed subscription revenue was 12%, a three-point acceleration from last quarter, while subscription usage revenue was up 1%, broadly in line with our flat expectation.
Operator: If you are called upon to ask your question and are listening via loudspeaker and your device, please speak up your handset and ensure that your phone is not on mute when asking your question. Again, press star one to join the queue.
Speaker Change: Which allows our customers to describe their business activity in plain English and lets our AI map that to the appropriate government code for the purposes of licenses and permits.
Speaker Change: Usage is the percentage of total subscription revenue with 12% in line with the 10 to 15 percent historic range.
Andrew Boone: And your first question comes from the line of Andrew Boone with JMP Security. Please go ahead. Thanks so much for taking my question.
Speaker Change: More will come in this regard.
Lauren Dillard: ARR was $478 million, up 12% year-on-year, and quarter-on-quarter grew by $11 million, driven by use case expansion and an improvement in customer churn and downsell. Subscription net retention was 105%, two points better sequentially, and at the high end of our 100 to 105% expectation range. The improvement was mostly driven by lower customer churn and downsell. Total RPO, or contracted backlog, was up 8% to $536 million.
Speaker Change: Our largest opportunity when it comes to AI. However is our expert offerings integrating.
Speaker Change: ARR was $478 million, up 12% year-on-year, and quarter-on-quarter grew by $11 million, driven by use case expansion and an improvement in customer churn and down sell.
Speaker Change: Integrating expertise is perhaps the singular area.
Jeffrey Stibel: Jeff, I just have one big picture question. As you look across the business formation, the S&B services segment, how will we want to define this? What do you think becomes the defensible strategy that you guys are going to focus on? How do you guys create something that is more immune to competition and allows you to build a long-term sustainable business? Thank you.
Speaker Change: It's legal zoom apart amongst all of our potential competitors on the one hand, we own a law firm, we could offer legal services directly through an alternative business structure we.
Speaker Change: Subscription net retention was 105%, two points better sequentially and at the high end of our 100 to 105% expectation range. The improvement was mostly driven by lower customer churn and down sell.
Speaker Change: We can also offer other advice and services through a rich network of attorneys.
Speaker Change: Combining these services with the power of AI presents a game changing opportunity.
Jeffrey Stibel: And great question. The bottom line is we enlarge part created this category. And we've, in some respects, allowed it to be commoditized. The fact of the matter is we have the strongest brand around.
Speaker Change: Total RPO or contracted backlog was up 8% to $536 million.
Speaker Change: Generative AI alone cannot replace attorney advice.
Lauren Dillard: Current RPO was up 13% to $398 million. Last quarter we mentioned the selling environment was, and that was the case again in Q1. Our sales pipeline remains robust, and our renewal rate was the highest Q1 on record. On the other hand, as Scott mentioned, our average sales cycle, like in Q4, remained slightly elongated relative to the recent trend.
Speaker Change: There are known accuracy hurdles and more importantly will establish regulations around the unauthorized practice of law put simply this means legal advice cannot be given without a license.
Speaker Change: Current RPO was up 13% to $398 million.
Speaker Change: Last quarter, we mentioned the selling environment was mixed.
Jeffrey Stibel: This does not need to be a race to the bottom. So what we need to do and continue to do is build the best products and make sure that we're fitting the right products to the right customers at the right time. This is about orienting back to customer needs and making sure that we're aligned with the customer on their journey. They want to use legalism. They have wanted that for a long time. And we need to empower them to make sure that we're giving them the right products and services that these customers need in their businesses and their lives unfold and grow.
Speaker Change: And that was the case again in Q1.
Speaker Change: Our sales pipeline remains robust and our renewal rate was the highest Q1 on record.
Speaker Change: Legalzoom stands apart from our technology competitors as a platform with an established network of independent attorneys available to leverage the power of AI to unlock this opportunity.
Speaker Change: On the other hand, as Scott mentioned, our average sales cycle, like in Q4, remained slightly elongated relative to the recent trend.
Lauren Dillard: Overall software budgets appear to be under greater scrutiny, and customers are being more cautious. These divergent trends were apparent in our stable customer counts, with an improvement in customer churns being equally offset by lower growth ads. Marketplace and other revenue increased 28% to $41 million. Data Marketplace, which accounted for 78% of Marketplace and other revenue, grew by 23%, reflecting continued strength in digital advertising, and in particular, CTV, which roughly doubled, in the corner.
Speaker Change: We are continuing to see solid traction with our first generative AI product dock assist.
Scott: Overall software budgets appear to be under greater scrutiny and customers are being more cautious.
Speaker Change: <unk> was designed to empower our customers to better understand their legal documents and to promote our attorney network if customers need more help it allows our customers to upload agreements and other documents and have our proprietary AI engine breakdown clauses facts figures and ultimately provide.
Scott: These divergent trends were apparent in our stable customer counts, with an improvement in customer churns equally offset by lower growth ads.
Jeffrey Stibel: I have every confidence that this is a highly, highly defensible business. And it's going to allow us to own this market again. And by saying, I don't see a lot of aggressive competition.
Speaker Change: Marketplace and other revenue increased 28% to $41 million.
Speaker Change: Data Marketplace, which accounted for 78% of Marketplace and other revenue, grew by 23%, reflecting continued strength in digital advertising, and in particular, CTV, which roughly doubled in the quarter.
Speaker Change: Questions and answers and simplified language.
Speaker Change: This product currently sits behind my LT and we've scaled to over 500 documents uploaded every day from our customers.
Jeffrey Stibel: I see our inability to take ownership of what we can do for our customers. And then I'm watching a lot of others copy us. So we will continue to take the lead and build that defensible position.
Lauren Dillard: Moving Beyond Revenue, Gross margin was 74%, up one point year-on-year. Operating expenses were $103 million, up 12%, driven primarily by investments in product and sales headcount to support revenue growth. HABU accounted for roughly three points of the... Operating income was $27 million, up from $21 million a year ago, and our operating margin was 15%, up two points. Gap's operating loss was $5 million due to stock-based compensation and purchased intangible asset amortization.
Speaker Change: Moving Beyond Revenue
Speaker Change: We are now testing connecting customers, who show intent within turning to one of our subscription offerings.
Speaker Change: Gross margin was 74% up one point year-on-year.
Speaker Change: Operating expenses were $103 million, up 12%, driven primarily by investments in product and sales headcount to support revenue growth.
Speaker Change: Today, we are developing a robust strategy to further deliver AI expertise to our customers when and where they need.
Andrew Boone: And then Jeff, can I ask you a clarifying question? It sounded like you're revisiting some of the affiliate products in terms of maybe turning them more into subscription products or gating them differently. Can you just clarify anything there about, as you guys think about what may be now moving to more of a payback, versus what's available for free?
Speaker Change: HABU accounted for roughly three points of the increase.
Speaker Change: We will have cost rationalized approach to AI investments that will drive us towards an integrated model of expertise one.
Speaker Change: Operating income was $27 million, up from $21 million a year ago, and our operating margin was 15%, up two points.
Speaker Change: One that leverages human and machine intelligence to provide legal advice efficiently and at an affordable price.
Jeffrey Stibel: How do you think about that, Sean? Thanks so much. Sure, and again, another good question.
Speaker Change: GAAP operating loss was $5 million due to stock-based compensation and purchased intangible asset amortization.
Jeffrey Stibel: This one, I'm going to, I'm going to own the fact that I've only been in the seat for a few short weeks. So the right answer is we're going to test, we're going to listen, and we're going to learn. But more specifically, to give a concrete example, we need to make sure that we're bringing the right customers into our ecosystem. And sometimes you effectively get what you pay for with free. We need to make sure that we don't have a lot of effort towards fully free solutions, because they've got a business to run and build.
Speaker Change: We expect a lot more to come as we continue to leverage our technology.
Lauren Dillard: Dot-comp was $28 million, up from $13 million a year ago. As a reminder, the prior year benefited from accelerated vesting for tax planning purposes, and the current year includes the impact of the HABO acquisition. Operating cash flow was negative $9 million, down from positive $26 million a year ago, which included a non-recurring $28 million tax refund.
Speaker Change: Machine and human expertise to improve the customer experience and drive lifetime value I look forward to providing you more details on our plans and subsequent announcements.
Speaker Change: Dot-comp was $28 million, up from $13 million a year ago.
Speaker Change: As a reminder, the prior year benefitted from accelerated vesting for tax planning purposes, and the current year includes the impact of the HABO acquisition.
Speaker Change: To summarize.
Speaker Change: Confident that these changes in our execution will enable us to disconnect from our dependence on small business formations for growth accelerate.
Speaker Change: Operating cash flow was negative $9 million, down from positive $26 million a year ago, which included a non-recurring $28 million tax refund.
Lauren Dillard: Cash flow was negative in the quarter due to seasonal working capital movements that we expect will normalize over the course of the year. We repurchased $16 million of stock in Q1 and have approximately $142 million remaining under the current authorization that expires at the end of this calendar year. In summary, Q1 represented a solid start to fiscal 2025. We beat on both the top and bottom lines and flowed the beat through to our updated guidance. Subscription revenue in ARR grew by double digits year-on-year for a second consecutive quarter, and description at retention improved two points sequentially.
Speaker Change: To accelerate our subscription revenue and drive continued margin expansion over time.
Speaker Change: Cash flow is negative in the quarter due to seasonal working capital movements that we expect will normalize over the course of the year.
Speaker Change: This will ultimately translate into sustained value creation.
Speaker Change: I also want to once again acknowledge that our current revenue growth is unacceptable.
Jeffrey Stibel: And in the early first year, it is incredibly precarious. We don't want them focused on the things that we do better than they do. And we don't want them wasting money on going to law firms or local lawyers. So we want to help them incorporate quickly and efficiently. Then we want to get them a registered agent. We want to get them to be fully compliant initially and over time. And then eventually we want to help them build web services, marketing services, tax, bookkeeping, all of the things that we've been talking about historically, but we need to make sure that we reorient back to the life cycle of the customer.
Speaker Change: We repurchased $16 million of stock in Q1 and of approximately $142 million remaining under the current authorization that expires at the end of this calendar year.
Speaker Change: As for our mix, we currently generate approximately 40% of our revenues from transactional purchases and roughly 60% from recurring subscriptions.
Speaker Change: In summary, Q1 represented a solid start to fiscal 2025. We beat on both the top and bottom lines and flowed the beat through to our updated guidance.
Speaker Change: I believe we can do better.
Speaker Change: As we execute on these initiatives, we will be able to provide you with greater insight regarding how we expect the trajectory of our business to change.
Speaker Change: Subscription revenue in ARR grew by double digits year-on-year for a second consecutive quarter.
Speaker Change: Less than 30 days into our work it's too early for us to make long term financial commitments. However, our goal is to be transparent and communicate often so we look forward to sharing greater details of our progress and an updated long term outlook and upcoming announcements with that I will hand the call.
Lauren Dillard: Operating margin expanded by two points and was the highest Q1 margin on record. Finally, let me now turn to our financial outlook for FY25 and Q2. Please turn to slide 12.
Speaker Change: Subscription at retention improved two points sequentially. Operating margin expanded by two points and was the highest Q1 margin on record.
Jeffrey Stibel: And you know, and that is a longer journey. The first, the first years are incredibly difficult. About half of all businesses don't make it through that first year. We want to focus on helping them make it through that year. Once they're through that year, then they have sufficient revenues. Then they're going to start thinking about marketing and expanding. And that's where we will have owned the right to offer more value-added services.
Speaker Change: Finally, let me now turn to our financial outlook for FY25 and Q2. Please turn to slide 12.
Lauren Dillard: Please keep in mind our non-GAAP guidance excludes intangible amortization, stock-based compensation, and restructuring and related charges, starting with the full year. We are flowing through the Q1 beat and now expect revenue to be between $715 and $735 million, up 10% at the midpoint. As we said last quarter, our prior guidance assumed Chrome would deprecate cookies in our fiscal Q4. And there were both near-term positives and negatives.
Speaker Change: Over to Noel to discuss our second quarter results and outlook in more detail.
Speaker Change: Please keep in mind, our non-GAAP guidance excludes intangible amortization, stock-based compensation, and restructuring and related charges.
Speaker Change: Well.
Noel Watson: Thanks, Jeff and good afternoon, everyone.
Noel Watson: Before I begin I'd also like to express my gratitude to Dan.
Speaker Change: Starting with the full year.
Speaker Change: We are flowing through the Q1 beat and now expect revenue to be between $715 and $735 million, up 10% at the midpoint.
Noel Watson: Leadership left an indelible mark on this organization and his contributions were vital to what was accomplished during his time here at <unk>.
Andrew Boone: Thank you.
Jake: Your next question comes from the line of Ron Chozy with City. Please go ahead. Hey guys, this is Jake on for Ron. Jeff really appreciates you giving more details on the three priorities. Really wanted to double-click on the first priority focusing on subscriptions. We talked about segmenting your customer base. Could you double-click on that and maybe give us one or two examples of key segments that you think have been maybe where there's an opportunity to market better and target those specific segments.
Noel Watson: He has left us well positioned as we move forward into our next chapter.
Speaker Change: As we said last quarter, our prior guidance assumed Chrome would deprecate cookies in our fiscal Q4.
Jeff: Along those lines I am very excited to welcome Jeff and look forward to partnering closely with him to drive legal zoom to even greater success.
Lauren Dillard: As such, Chrome's announcement of a new approach to cookies is roughly neutral to our FY25 Revenue Guide. Our view on subscription revenue is unchanged. We continue to expect fixed subscription revenue to grow high single-to-low double digits, while usage revenue is expected to be flat year on year.
Speaker Change: And there were both near-term positives and negatives.
Speaker Change: I'll now turn our focus to our second quarter financial performance.
Speaker Change: As such, Chrome's announcement of a new approach to cookies is roughly neutral to our FY25 Revenue Guide.
Speaker Change: Please note all comparisons will be on a year over year basis, unless otherwise stated.
Speaker Change: Our view on subscription revenue is unchanged. We continue to expect fixed subscription revenue to grow high single to low double digits. Usage revenue is expected to be flat year-on-year.
Noel Watson: Total revenue was $177 million for the quarter were up 5%.
Noel Watson: Our results exceeded the top end of our outlook, primarily due to higher than expected fulfillment.
Lauren Dillard: This outlook assumes the selling environment remains tight over the balance of the fiscal year and reflects some conservatism with respect to usage. Our Outlook for Subscription Revenue Assumes Net Retention Remains Within a Range of 100-105% With Marketplace and Udder, we now expect growth in the mid-teens, up from our prior expectation of low double digits in the mid-teens. Underpinning this estimate is an expectation that data marketplace growth will be in line with or above the growth in the overall U.S. digital advertising market.
Speaker Change: This outlook assumes the selling environment remains tight over the balance of the fiscal year and reflects some conservatism with respect to usage.
Speaker Change: Looking at business formations, we saw a softer macro environment in the quarter with Q2, <unk> applications declining 6% year over year below our expectations and a four point deceleration from Q1.
Jeffrey Stibel: And then know well, we just wanted to also double click on the headcount reductions. Any more details you could give on where, where those headcount reductions were focused or any products that you would expect to be the emphasize. Thanks so much. Sure.
Speaker Change: Our Outlook for Subscription Revenue assumes net retention remains within a range of 100 to 105 percent.
Noel Watson: We expect the macro decelerate further as the year progresses, and we will discuss this in more detail shortly.
Speaker Change: With Marketplace and Udder, we now expect growth in the mid-teens, up from our prior expectation of low double digits to mid-teens.
Noel Watson: We completed 134000 business formations in Q2 down 17%.
Noel Watson: Looking at legal zoom branded LLC formations, which excludes the impact of our partnership exiting the third quarter of 2023 formations were down 12% year over year.
Speaker Change: Underpinning this estimate is an expectation that data marketplace growth will be in line to above the growth in the overall U.S. digital advertising market.
Jeffrey Stibel: Thank you, Jake. I'll take that first piece on customer's documentation. I'm going to answer it first in a slightly different way, which is what we have historically been focusing on because I think that will show you the clear opportunity that we have almost entirely. We have been focused on formation, which means a brand new business or prosumer. So someone who was coming in for the first time typically wants an LLC, and we are offering them a formation product, most typically an LLC. So our go to market and our segmentation has been one and the same.
Lauren Dillard: We continue to expect growth margin to be approximately 75%, give or take a point. We expect non-GAAP operating income of between $127 and $131 million. At the midpoint, this represents 23% growth and a margin of 18%, up approximately 2%. We expect stock-based compensation to be $113 million, down from $116 million previously.
Noel Watson: This is more closely aligned to the secretary of state permission data, which continues to show a steeper year over year decline relative to EIA data.
Speaker Change: We continue to expect gross margin to be approximately 75%, give or take a point.
Speaker Change: we expect non-gaap operating income of between one hundred and twenty seven and one hundred and thirty one million
Noel Watson: Subsequent to the end of the quarter, we have seen a deceleration in festus EAN applications with the last four weeks of Prince averaging a 12% year over year decline.
Speaker Change: At the midpoint, this represents 23% growth and a margin of 18%, up approximately 2 percentage points.
Noel Watson: We have updated our macro expectations to reflect the softer environment and this is a component of our lower revenue outlook.
Speaker Change: We expect stock-based compensation to be $113 million, down from $116 million previously.
Lauren Dillard: We expect GAAP operating income to be between negative 2 million and positive 2 million. And lastly, on share repurchases, we continue to expect to spend between $60 and $70 million this fiscal year, depending on market conditions. Now moving on to Q2. We expect total revenue of approximately $176 million, non-GAAP operating income of $31 million, and an operating margin of 18%. A few other call-outs for Q2. We expect subscription revenue to be up high single digits, with fixed subscriptions up low double digits. We expect usage to be slightly down year on year due to a difficult comp.
Noel Watson: Our market share business formations relative to <unk> data was 10% for the quarter.
Jeffrey Stibel: Try to drive people into that formation funnel. And from there, we drop off pretty rapidly. So to give you some key segment examples, we know that from day zero to month 12 is a certain type of business. And they are very price sensitive. They are at risk of failure, and they are still trying to figure out what their business ultimately is. From then, you've got years one through three where they're starting to emerge and build and gain stability and sustainability in their business. And after that, you've got from year three on where they are an established business and they are looking to go from their core competency to broadening out, whatever that means in their category.
Speaker Change: We expect GAAP operating income to be between negative $2 million and positive $2 million.
Noel Watson: Now turning to our revenue performance.
Speaker Change: And lastly, on share repurchases, we continue to expect to spend between $60 and $70 million this fiscal year, depending on market conditions.
Noel Watson: Transaction revenue was $69 million up 4% driven by a 3% increase in transaction units and a slight increase in average order value.
Noel Watson: We recorded a 292000 transaction units in the quarter.
Speaker Change: Now, moving on to Q2.
Speaker Change: We expect total revenue of approximately $176 million, non-GAAP operating income of $31 million, and an operating margin of 18%.
Noel Watson: The 3% increase was primarily due to an increase in non information business related transaction products, such as annual reports on <unk> operating and corporate solutions.
Noel Watson: Average order value was $234 for the quarter up slightly year over year.
Speaker Change: A few other call-outs for Q2.
Speaker Change: We expect subscription revenue to be up high single digits with fixed subscription up low double digits. We expect usage to be slightly down year-on-year due to a difficult comp.
Noel Watson: We expect <unk> to be relatively flat sequentially in Q3, but down year over year due to the aforementioned mix shift towards non formation transactions, which are generally lower price and we continue to expect a mid single digit decline in <unk> for the full year of 2024 compared to the full year 2023.
Lauren Dillard: Marketplace and other revenue is expected to be high. We expect Q2 gross margin to be 75%, and we expect stock-based comps to be approximately 29 million. Before opening the call to questions, I'll conclude with a few final thoughts. We had a strong Q1, ahead of our expectations on both the top and bottom lines, reflecting strength with existing customers and healthy digital ad markets. Q1 revenue and ARR both grew double digits for a second consecutive quarter.
Jeffrey Stibel: Those are three distinct segments that we sell in the exact same way right now at the exact same time at formation and we rarely go back to them. So that is one example of how we can spread out our go to market and then leverage our prowess in product and in value added services over time when those customers need it. Other areas are just looking at different categories of business and what a florist might want versus a pizza shop owner because those needs are different. And we are going to look over time to figure out what the right solution is, rather than come up with a one size fits all solution.
Speaker Change: Marketplace and other revenue is expected to be up high teens.
Speaker Change: We expect Q2 gross margin to be 75%.
Speaker Change: and we expect stock-based comp to be approximately $29 million.
Noel Watson: Subscription revenue was $109 million.
Noel Watson: Up 6% due to an increase in both subscription unit in our group.
Speaker Change: Before opening the call to questions, I'll conclude with a few final thoughts.
Noel Watson: We remain dedicated to continuing to shift our revenue towards subscription over the long term.
Speaker Change: We had a strong Q1, ahead of our expectations on both the top and bottom lines, reflecting strengths with existing customers and healthy digital ad markets.
Noel Watson: We ended the quarter with over $1 6 million subscription units up 4% year over year as we saw an increase in forms an esignature subscriptions due to the bundling of these products into certain business formation offerings and growth in our virtual male subscriptions.
Speaker Change: Q1 revenue and ARR both grew double digits for a second consecutive quarter. Net retention improved by two points and our operating margin expanded by two points.
Lauren Dillard: Net retention improved by 2 points, and our operating margin expanded by 2 points. As we look ahead, we like our strategic position, and our conviction about the long term has never been greater. But we also recognize that in the short term, the path is not always linear, and we are sailing in choppy economic waters.
Noel Watson: This growth was partially offset by the impact from the exit of a legacy partner relationships, which have now largely transitioned from our platform.
Jeffrey Stibel: And I would say historically, we have tended to try to find that these broad base. This is the biggest opportunity where a product can serve our entire customer base. And we lost sight of the fact that we aren't serving small businesses, because there's no such thing as a small business. Every business is unique and distinct and either category and or time segmented. So such that it affords us much bigger opportunity to in the beginning own the market by establishing trust and relationship with these businesses. And then, over time, leveraging our data, figure out what the right product services and solutions are that they need, and then either through our own organic products, through acquisition, or through partnership, offer those products to the customers as and when they need it.
Speaker Change: As we look ahead, we like our strategic position, and our conviction about the long term has never been greater.
Noel Watson: Park located at $271 for the quarter up 4% driven by a mix shift toward our higher value subscription offerings.
Speaker Change: But we also recognize that in the short term, the path is not always linear and we are sailing in choppy economic waters.
Lauren Dillard: As such, we are flowing through the Q1 Revenue and Operating Income Beat for FY25 guidance and leaving the rest of the year largely unchanged. And finally, we remain committed to our long-term financial North Star of being a Rural 40 company. We believe the secular trends Scott highlighted today represent a long runway for growth, and we will remain disciplined with respect to investment, delivering continued efficiency and profitability while smartly investing for the future. On behalf of all Live Rampers, thanks again for joining us today, and thank you to our amazing customers. Operator, we will now open the call to questions.
Noel Watson: <unk> was also impacted by the exit of certain channel partner relationships and the introduction of our forms an esignature subscription offerings, both of which carry lower price points.
Speaker Change: As such, we are flowing through the Q1 Revenue and Operating Income Beat for the FY25 Guidance and leaving the rest of the year largely unchanged.
Noel Watson: Now turning to expenses and margins, where all of the following metrics are on a non-GAAP basis.
Speaker Change: And finally, we remain committed to our long-term financial North Star of being a Rule of 40 company.
Noel Watson: Second quarter gross margin was 68% compared to 65% in Q2 'twenty three.
Speaker Change: We believe the secular trends that got highlighted today represent a long runway for growth, and we will remain disciplined with respect to investment, delivering continued efficiency and profitability while smartly investing for the future.
Noel Watson: The year over year improvement was driven by lower filing fees as a percentage of revenue and improvements in our service delivery operations due to automation and process improvements.
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 formations and therefore expect margins to improve in the second half.
Speaker Change: On behalf of all Light Rampers, thanks again for joining us today, and thank you to our amazing customers.
Noel Watson: And Jake, this is Noel with regards to your question on the headcount reduction. The reduction was dispersed pretty broadly across the company. I would say it was somewhat heavier on the cost of sales side, in particular given the lower volume expectations and with a concentration as it relates to LZ tax. The rest was pretty well split across marketing, GNA, and technology and development. And so I'm sure there'll be areas of narrow focus as we continue to evaluate testing and sort of our new execution priorities. But, as we mentioned in our remarks, we feel confident that we have the right level of resource to sufficiently deliver on our existing initiatives.
Speaker Change: Operator, we will now open the call to questions.
Operator: Thank you. The floor is now open for questions. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again. If you are called upon to ask your question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Your first question comes from the line of Shyam Patel with Susquehanna. Please go ahead.
Noel Watson: Sales and marketing costs were <unk> $57 million.
Operator: Thank you. The floor is now open for questions.
Noel Watson: Or 32% of revenue an increase of 13% from last year.
Speaker Change: If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again.
Noel Watson: Customer acquisition marketing costs were up 31% year over year and increased by $7 million sequentially, primarily due to an increase in brand marketing spend which was time to maximize the benefit of our NBA sponsorship.
Speaker Change: If you are called upon to ask your question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question.
Noel Watson: In Q3, we expect <unk> expenses to revert to levels more consistent with the prior year quarter.
Noel Watson: As a reminder, our investments in <unk> in 2024 are offset by savings we are experiencing from our sales reorganization and subsequent rebuild.
Speaker Change: Your first question comes from the line of Shyam Patil with Susquehanna. Please go ahead.
Shyam Patel: Hey guys, good afternoon. Congratulations on your results.
Noel Watson: Non GM sales and marketing expense was down $4 million with 31% primarily due to the impact from the sales reorganization.
Shyam Patil: Hey guys, good afternoon. Congratulations on the results. I had a couple of questions.
Jake: Okay, thanks a lot. Thank you.
Shyam Patel: I had a couple of questions. The first one was, you guys gave us some really positive feedback, stats, and case studies on performance uplift from using the RAMP ID and ATS, you know, versus cookies. I'm just curious, what do you think needs to happen from here for advertisers to kind of better understand this and to, you know, maybe act quicker or drive broader adoption? And then, second question: data marketplace growth was very strong again. It's up, I think, about 22%. Any call-outs or additional color about that segment? kind of how we should think about it going forward. Thank you.
Operator: Thanks, Rick.
Noel Watson: Technology and development costs were $17 million up $3 million for 23%.
Trevor Young: Your next question comes from the line of Trevor Young with Barclays. Please go ahead. Great, thanks.
Noel Watson: After several years of significant investment we believe we now have a fully built out technology team that is sufficiently resource to deliver against our product roadmap.
Speaker Change: stats and case studies on
Shyam Patil: performance uplift from using the RAMP ID and ATS versus cookies.
Jeffrey Stibel: First one that just looks like the long term guide slide was removed this quarter. That fair to assume that as part of the management transition and the shift in strategy here, we might get some sort of updated framework at some point. Perhaps, maybe, as we look towards 25 expectations in a few quarters. And then bigger picture, you know, as we progress through this shift in strategy, it seems like you're looking to move quickly, and that's really great, Jeff; very encouraging to hear. At the same time, macro might begin in a little bit worse; these sorts of transitions do take some time, and some legacy headwinds do persist.
Noel Watson: G&A expenses were $16 million in.
Speaker Change: What do you think needs to happen from here for advertisers to kind of better...
Noel Watson: An increase of $2 million or 12% largely driven by one time legal expenses.
Speaker Change: Maybe understand this and to, you know, maybe act quicker or drive broader adoption. And then, second question, the data marketplace growth was very strong again. It's up, I think, about 23%.
Noel Watson: Our performance drove adjusted EBITDA of $29 million were 16% margin.
Noel Watson: This represents a 2% year over year declining compared to adjusted EBITDA of $30 million for the same period last year.
Speaker Change: Any call-outs or additional color about that segment and how we should think about it going forward? Thank you.
Noel Watson: <unk> revenue increased by $2 million in the quarter.
Speaker Change: Free cash flow of $17 million compared to $37 million for the same period. In 2023. This reflects a $13 million year over year increase in cash tax payments due to the full utilization of certain tax credits and interest expense carryover as in the prior year as well as the timing of working capital changes.
Jeffrey Stibel: So, you know, as such, you know, should we assume 25 starts the recovery? Is it two H 25 or is it more of like a 26 story at this point? Sure, thank you Trevor. I'll take I'll take this at a high level. No, you can give some more details because you've more contacts in terms of what we've said in the past. Your first part of that question, in many ways, has asked and answered. You're exactly right; our expectations are that we're going to move quick. We're going to be testing regularly. We're going to be leaning into sustainable growth through recurring revenue.
Scott Howe: Hey Sean, first off, thank you, and I'll take the first question. You know, we are really pleased with the results that we've seen from Pear, as is Google. And I think the biggest challenge for both of us is just to evangelize this. In some respects, Google's Chrome announcement lessens the urgency some advertisers may have felt to switch. But in other respects...
Speaker Change: Hey Sean, so first off, thank you and I'll take the first question.
Speaker Change: You know, we are really pleased with the results that we've seen from PAIR, as is Google. And I think the biggest challenge for both of us is just to evangelize this.
Noel Watson: We ended the quarter with cash and cash equivalents of $119 million.
Speaker Change: In some respects, Google's Chrome announcement lessens the urgency some advertisers may have felt to switch.
Noel Watson: We remain debt free with no outstanding borrowings under our $150 million revolving credit facility.
Noel Watson: During the second quarter, we announced an increase in our share repurchase authorization from $100 million to $175 million and repurchased $13 9 million shares of our common stock for a total of $125 million.
Scott Howe: The uncertain economic environment makes the results even more noteworthy. And so, in my prepared remarks, you'll recall that I talked about, you know, how we are tightening our data collaboration story. Well, that extends to PAIR and the use of cookie alternatives as well, that in a hard economic environment, the best thing you can do is tell your clients the kind of bottom-line results that they'll see by converting. And that's true of the programmatic space.
Noel Watson: And, you know, in our expectations, that's going to put us in a really good spot over time. That said, we're still too early to speak to long-term guidance. However, we will, you know, as soon as we can start providing interim updates and then long-term updates as we get more visibility into some of these changes. But again, we are moving aggressively because we do see that path forward. Yeah, and on your other question in terms of the softer macro you pointed out, we did see a D-cell in the macro in Q2, and we've included carrying forward that softness relative to our expectation into our four-year guide and now expect mid to high single digit of the clients in the macro for this year.
Speaker Change: But in other respects, the uncertain economic environment makes the results even more noteworthy.
Speaker Change: And so in my prepared remarks, you'll recall that I talked about, you know, how are we tightening our data collaboration story.
Noel Watson: This was a record level of share repurchases for legal zoom and represents a 7% reduction in our share count.
Noel Watson: Since our first share repurchase program at the beginning of the first quarter 2022, we have returned close to $300 million to shareholders in the form of share repurchases, reducing our share count prior to the program by approximately 15%.
Speaker Change: Well, that extends to PEAR and the usage of cookie alternatives as well. That in a hard economic environment, the best thing you can do is tell our clients
Noel Watson: As of the end of the second quarter, we had approximately $37 million remaining under our share repurchase authorization.
Speaker Change: the kind of bottom-line results that they'll see by converting. And that's true of the programmatic space.
Scott Howe: But it's also really true where we saw a lot of nice growth was in CTV because to the extent that uh... uh... authentication is used for CTV, you can do a lot more in terms of targeting or ad suppression than you could using kind of traditional panel data. So, I think it's lining up well for us, but it's certainly causing us to tighten our marketing story and be a little bit more aggressive in terms of the return on ad spend story that we're sharing with the market. And Sean, I'm happy to jump in on Marketplace.
Noel Watson: Growing our records repurchase activity in Q2, we will continue to evaluate our share repurchase program alongside maintaining a flexible cash positions to support our capital allocation priorities.
Speaker Change: But it's also really true and where we saw a lot of nice growth was in CTV.
Speaker Change: Because to the extent that PAIR and authentication is used for CTV, it's not just for CTV.
Noel Watson: So definitely a headwind that impacts us both on the transaction and, even more importantly, on the subscription side that will be a headwind in 2025 as well. And then we mentioned some of the softer retention rates that we were seeing relative to what we had forecasted, and part of that is relative to some initiatives that we had that were targeted improving retention. Some of it is just a softer trending relative to prior performance, which I would also box into just being an overall more challenging economic environment for small businesses. And to the extent that impacts the back half of the year, the subscription side has some carry over, as well as the decision right now or forecast does not have us re-commercializing LD tax and the formation flow.
Noel Watson: Turning to our outlook for the second half of this year.
Speaker Change: I'll start with the financial impact of our recent head count actions, which include both a restructuring as well as a reduced hiring plan in the back half of this year.
Speaker Change: You can do a lot more in terms of targeting or ad suppression.
Speaker Change: than you could using kind of traditional panel data. So I think it's lining up well for us, but it's certainly causing us to tighten our marketing story and be a little bit more aggressive in terms of the...
Noel Watson: Estimate the combination of our head count reductions and reduced hiring liquidity, we will realize approximately $5 million and $7 million of savings in Q3, and Q4, respectively. We estimate these actions will generate approximately $25 million in annualized savings.
Speaker Change: return on ad spend story that we're sharing with the market.
Lauren Dillard: And, Sean, I'm happy to jump in on Marketplace. We were very pleased with our Marketplace performance in the quarter, and as we mentioned in the prepared remarks, data Marketplace growth was again north of 20 percent. A few call-outs.
Noel Watson: This reduction in operating expenses, a reflection of a re prioritization of resources to fuel growth more efficiently, while maintaining a strong margin profile.
Speaker Change: And, Sean, I'm happy to jump in on Marketplace. We were very pleased with our Marketplace performance in the quarter, and as we mentioned in the prepared remarks.
Lauren Dillard: First, the digital ad market broadly was very healthy in Q1, which certainly benefits our Marketplace. In addition, and Scott just alluded to this a moment ago, our continued outperformance, we think, reflects our exposure to some of the fastest-growing segments of the market, and in particular, CTV, which, as I mentioned earlier, roughly doubled year-on-year. And finally, last year, we talked about several initiatives to make the buying and selling of data on our Marketplace easier and more seamless, and I think what you're seeing in our growth rates is that those initiatives have really begun to pay off.
Noel Watson: With that in mind, let me turn to our financial outlook in more detail.
Sean: Data marketplace growth was, again, north of 20%. A few call-outs. First, the digital ad market, broadly, was very healthy in Q1, which certainly benefits our marketplace.
Noel Watson: For the full year, we are reiterating our guidance originally announced on July nine 2024.
Jeffrey Stibel: And so that impacts the back half of the year and into 25. So, to your point, there is definitely some headwind heading into 25, but we're squarely focused on driving the subscription side of the business, focused on lifetime value. And we'll be aggressively testing in the back half of this year. And we built in some room in our guide for those activities. And the only thing I'll add, Trevor, before we head over to another question or a few of a second one, is that the macro is a problem to solve for. It is not an excuse.
Noel Watson: We currently expect revenue to be in the range of $675 million to $685 million or 3% year over year growth at the midpoint.
Speaker Change: In addition, and Scott just alluded to this a moment ago, but our continued outperformance, we think, reflects our exposure to some of the fastest-growing segments of the market, and in particular, CTV, which, as I mentioned earlier, roughly doubled year-on-year.
Noel Watson: Our revenue outlook, primarily reflects the impact from a mid to high single digit decline in the census, EIA formations macro for the full year 2024 versus our previous expectation of a mid single digit decline.
Speaker Change: And then finally, last year we talked about several initiatives to make the buying and selling of data on our marketplace easier and more seamless, and I think what you're seeing in our growth rates is those initiatives really begin to pay off.
Noel Watson: In the future, we believe our three execution priorities will reduce our sensitivity to macroeconomic trends.
Noel Watson: Our full year revenue outlook also reflects softer retention rates in our core compliance subscriptions, which we attribute to a challenging macroeconomic environment for small business owners and a five point headwind to our subscription revenue growth from our ALG tax offering versus our previous four point expectation given our decision to shift.
Jeffrey Stibel: And this is a solvable problem. And you see this solved across many other businesses with many other macros and businesses that are affected by our primary macro, which is in small business formations. So, from our standpoint, this is a solvable problem and a scalable growth business irrespective of where the macro is, despite the fact that we have pronounced headwind. The bigger concern that we have and the reason that we're attacking this concern so aggressively is we don't want to see deceleration in our subscription revenue growth. And we've seen that in the prior couple of quarters.
Elizabeth Porter: Your next question comes from the line of Elizabeth Porter with Morgan Stanley. Please go ahead.
Speaker Change: Great, thank you guys.
Speaker Change: Your next question comes from the line of Elizabeth Porter with Morgan Stanley . Please go ahead.
Chris Quintero: Hey, Scott, and Lauren. It's Chris Quintero on for Elizabeth here. I wanted to ask about HABU and if we can get an update on how that integration is going. It seems like you're already kind of making some integrations there, but just curious kind of how that's shaping up versus your expectations so far.
Noel Watson: It's out of our formation flows. This decision will also be a headwind to subscription revenue in 2025.
Chris Quintero: Hey Scott. Hey Lauren. It's Chris Quintero on for Elizabeth here. I wanted to ask about HABU and if we can get an update on on how that integration is going. It seems like you're already kind of making some some integrations there but just curious kind of how that's shaping up versus your expectations so far.
Noel Watson: We have reiterated our adjusted EBITDA range of $135 million to $145 million, which reflects a 21% margin at the midpoint.
Scott Howe: Yeah, Chris. Hey, thank you. You know, with Habu, we're pleased with the integration. I mean, it was pretty smooth.
Noel Watson: Once again, the reiteration of our adjusted EBITDA outlook reflects the impact of our restructuring efforts and our steadfast margin commitment.
Speaker Change: Yeah, Chris, hey, thank you.
Scott: You know, with Habu, we're pleased with the integration. I mean, it was pretty smooth. The technology is fairly lightweight, and we knew exactly what we wanted to do together.
Noel Watson: We expect free cash flow to be in the range of $75 million to $85 million, our free cash flow outlook reflects the estimated impact of approximately $5 million in expected severance costs lowered net interest income and reduced expectations for deferred revenue in the back half of the year.
Jeffrey Stibel: That is the core problem to solve because that creates greater defensibility long term.
Jeffrey Stibel: So that that really is our core focus and why it is, you know, the first of the three things that we're focused on in, you know, in order of priorities from an execution standpoint.
Speaker Change: even before the deal closed. And then probably even more pleased by the interest, the pipeline very quickly grew and has continued to remain robust.
Scott Howe: The technology is fairly lightweight, and we knew exactly what we wanted to do together, even before the deal closed. And then we were probably even more pleased by the interest. The pipeline very quickly grew and has continued to remain robust. In terms of our deal model, I looked at this the other day, we're kind of right where we expected to be coming into two quarters. But I'll tell you, we're playing for something far longer, you know, a much bigger prize.
Noel Watson: Moving to our revenue and adjusted EBITDA expectations for the third quarter of 2024.
Trevor Young: Great. Thanks for all that color. Appreciate it.
Speaker Change: In terms of our deal model, I looked at this the other day. We're kind of right where we expected to be coming into two quarters.
Josh back: Thank you. Your next question comes from the line of Josh Back with Raymond James. Please go ahead. Yeah, thank you for taking the question, and just thanks for the detailed update there.
Noel Watson: We expect total revenue of $165 million to $169 million and we expect third quarter, adjusted EBITDA of $39 million to $41 million or 24% margin at the midpoint.
Speaker Change: But I'll tell you, we're playing for something far longer, you know, a much bigger prize.
Scott Howe: And that speaks to both the financials, where I like our pipeline, but we have work to do in terms of pushing that pipeline from a lot of early stage interest into closed deals. And then second, building out our network density. We know that this is a network business, and scale really matters. So when we sign up any node of the network, we know that they probably carry with them, you know, I talked in the call about 50 to 100 key partners right off the bat. And so once you lock all that in, it's really sticky, there's a nice network effect, and you get that kind of proverbial network flywheel going. It just gets better and better.
Speaker Change: In closing, we'd like to thank the entire legalism team for their ongoing dedication to our business. We are confident in our next chapter and look forward to updating you on our progress in the coming quarters.
Speaker Change: And that speaks to both the financials, where I like our pipeline, but we've got work to do in terms of pushing that pipeline from a lot of early stage interest.
Jeffrey Stibel: I guess kind of high level, you know, are you envisioning that the product footprint doesn't really change maybe as much as. Thank you. The go-to-market and the onboarding. Obviously, that's a very high-level comment, but strategically, is that how you're approaching it?
Speaker Change: And with that let's please open the call up for questions.
Speaker Change: into closed deals. And then second is building out our network density.
Speaker Change: Thank you we will now begin the question and answer session.
Speaker Change: We know that this is a networked business and scale really matters. So, when we sign up any node of the network, we know that they probably carry with them, you know, I talked in the call about 50 to 100 key partners right off the bat.
Speaker Change: And if you have dialed in and would like to ask a question. Please press star one on your telephone keypad to raise your hand and joined the queue. If you would like to withdraw your question simply press Star. One again, if you are called upon to answer your question in a listening by a loudspeaker and goodbye.
Jeffrey Stibel: And then just on the comments around compliance, I think you kind of mentioned the idea of maybe having a free formation that could include compliance or other packages. Is that kind of moving away from the maybe more purely transactional premium model for obviously some transactions that's in place there?
Speaker Change: and so once you lock all that in it's really sticky there's a nice network effect and and you get the kind of proverbial network fly wheel going
Speaker Change: Please pick up your handset and ensure that your phone is not on mute when asking a question.
Speaker Change: Again star one to join the queue and your first question comes from the line of Andrew Boone with JMP Securities. Please go ahead.
Scott Howe: So we have a lot of work to do on that because although we're the market creator, and it's a sizable market, we're also in the early, early stages of all of this work. And so the things that I talked about in my prepared remarks about making the product simple, ensuring that our sales reps show up with their value calculators and can express the return, and then also articulating a deep bench of different case studies and use cases for our clients, that will help a lot.
Speaker Change: just gets better and better. So we have a lot of work to do on that because although we're the market creator and it's a sizable market, we're also in the early, early stages.
Jeffrey Stibel: That's a good point, Josh, and I do agree with the comment. I think our product ecosystem is really strong. You know, one of the things we've done incredibly well: reduced the amount of tech that we've had over, you know, over the years, built a really strong technology stack. Our, you know, our underlying platform, including myLZ, is industry leading, and both the core products and the answering products that we have built are really, really good. So I think that this is more of a go-to-market focus. And, you know, I mean that in two respects. One, in terms of business model, so that, you know, that push towards recurring revenue and following customers' journey over their life cycle.
Andrew Boone: Thanks, so much for taking my question.
Andrew Boone: I just have one big picture question as you look across.
Speaker Change: All of the work here and so the things that I talked about in my prepared remarks about making the product simple, ensuring that our sales reps show up with their value calculators and can
Speaker Change: Business formation, the F&B services segment, However, we wanted to find us.
Speaker Change: What do you think becomes the principal strategy that you guys are going to focus on how do you guys create something that is more immune.
Speaker Change: The competition and allows you to building a long term sustainable business.
Speaker Change: expressed the return and then also articulating a deep bench of different case studies and use cases for our clients that will help a lot i would leave you with the thing i hear so often from our clients
Speaker Change: Thank you and great question.
Scott Howe: I would leave you with something I hear so often from our clients, or prospects, really, is something along the lines of, I know I need this, but I don't really know how to get started. And that feels very similar to what we heard seven, eight years ago in the data onboarding space. I know I need this, but I don't really know what to do. And what we learned is that we have to evangelize to the market and teach them how to use the technology. And that's really our focus for the second half of the year.
Speaker Change: Bottom line is we in large part created this category and in some respects allowed it to be Commoditized.
Speaker Change: really, is something along the lines of, I know I need this.
Speaker Change: The fact of the matter is we have the strongest brand around this does not need to be a race to the bottom. So what we need to do and continue to do is build the best products and make sure that we're hitting the right products to the right customers at the right time. This is about orienting back to customer.
Speaker Change: but I don't really know how to get started. And, you know, that feels very similar to what we heard seven, eight years ago in the data onboarding space.
Jeffrey Stibel: And then second, how we actually go to market to making sure that we're doing it with, you know, with greater breadth. If you think back to, you know, to the last question, so that we're more insulated and protected from small business starts. And then, with regards to your second point on, you know, on the free model, I see nothing wrong with a premium model. But there too, we have to make sure that we're bringing the right customers in for the long term. And, you know, the overall objective is to be bringing more businesses into existence that can be sustainable and sustained long term.
Speaker Change: i know i need this but i don't really know what to do and what we learned is we have to evange lize to the market and teach them how to use the technology and that's really our focus for the back half of the year
Speaker Change: Needs and making sure that we're aligned with the customer on their journey.
Speaker Change: They want to use legal zoom. They have wanted that for a long time and when you do empower them to make sure that we're giving them the right products and services that these customers need in their businesses and their lives unfolding grow.
Lauren Dillard: And, Chris, I might just add a little bit of financial color to that. First, we remain on track for the $18 million of synergized revenue this year that we've discussed on past calls. Q1 bookings were consistent with our expectation, even despite what we feel is a more difficult selling environment. As Scott mentioned, the pipeline for HABU and for our cleanroom products remains very robust, and so now it's really about execution and pipeline conversion. And then, finally, we also remain on track for HABU to be roughly break-even this year, which is also something we discussed when we announced the deal.
Chris Quintero: And, Chris, I might just add a little bit of financial color to that. So, first, we remain on track for the $18 million of synergized revenue this year that we've discussed on past calls. Thank you. Thank you.
Speaker Change: Every confidence that this is a highly highly defensible business and it's going to it's going to allow us to own this market again.
Speaker Change: Q1 bookings were consistent with our expectation, even despite what we feel is a more difficult selling environment.
Jeffrey Stibel: So what we need to do is we need to rethink the types of businesses that are coming into our free channel. And, you know, as we said earlier, the businesses that we are seeing in our basic skew, which is the free skew relative to some of the others, they have higher turn and a worse profile. So we need to re-look at why that is. And our hunch is part of that is because we have a look you lose, because it was free. Part of that is just the way in which we're going to market. By saying something is free, people automatically get defensive about paying for things, even if they need it, just because it costs something relative to free.
Speaker Change: I'll end by saying I don't see a lot of aggressive competition I see our ability to take ownership of.
Speaker Change: As Scott mentioned, pipeline for Habu and for our clean room products.
Speaker Change: remains very robust and so now it's really about execution and pipeline conversion. And then finally we also remain on track for HABU to be roughly break-even this year which is also something we discussed when we announced the deal.
Speaker Change: What we can do for our customers and then I'm watching a lot of others copy us. So we will we will continue to take the lead and build that defensible position.
Chris Quintero: Got it. That's super helpful. And then maybe sticking with you, Lauren, I want to ask about the four-year guidance on revenue. Really great to see that get raised. But I'm curious about the decision to kind of keep that wider range, given the set of, you know, risks and opportunities that are coming out from the cookie deprecation change. Yeah, it's a great question, Chris.
Speaker Change: Yes.
Jeff: And then Jeff plastic clarifying question it sounded like you'll revisit when leases are for new products in terms of maybe returning to more of a subscription products from gating them differently can you just clarify anything more about it as you guys think about what may be now moved into more of a paypal. Thank you versus what's available.
Speaker Change: Got it. That's super helpful.
Speaker Change: And then maybe sticking with you, Lauren, I want to ask about the four-year guidance on revenue. Really great to see that get raised, but I'm curious around the decision of kind of keeping that wider range, given the set of risks and opportunities that are coming out from the cookie deprecation change.
Jeffrey Stibel: And then finally, part of it is because these businesses think that if something is free, that it should, that everything should be free, such that maybe they don't need these other products and services that actually are valuable to them in the medium and long term. So, you know, so that's the reorientation that we're thinking of. It's hard to be more concrete, so I apologize for that.
Speaker Change: How do you think about that thanks, so much.
Speaker Change: Sure and again another good question. This one I'm going to I'm going to own. The fact that I've only been in the seat for a few short weeks. So the right answer is we're going to test, we're going to listen and we're going to learn but more specifically to give a concrete example, we need to make sure.
Lauren Dillard: Yeah, it's a great question, Chris, and just given the challenging selling environment and what we see is kind of an increasingly uncertain macro environment, we felt it was prudent to maintain a wide range, just given where we are in the year. As a reminder, roughly 30% of our total revenue is variable, and the forward visibility here is fairly limited, especially in the out-quarters. This is also the revenue that tends to be most sensitive to macro conditions. So, therefore, with respect to the variable areas of our business, we have built in a wider range of outcomes.
Lauren: Yeah, it's a great question, Chris, and just given the challenging selling environment and what we see is kind of an increasingly uncertain macro environment, we felt it was prudent to maintain a wide range just given
Josh back: So I'm glad you asked the clarifying question, Josh, only because we're in the middle of testing what the right solution is. Okay, that's super helpful.
Speaker Change: Or that we're bringing the right customers into our ecosystem and sometimes you effectively get what you pay for with free we need to make sure that we don't have Looky Loos, we have real customers, who are trying to build businesses and those businesses frankly shouldn't be leaning towards fully free solutions.
Speaker Change: where we are in the year. As a reminder, roughly 30% of our total revenue is variable and the forward visibility here is fairly limited, especially in the out-quarters.
Josh back: And then maybe just to follow up on just kind of what you're observing in the macro thus far. Obviously, it sounds like kind of down six percent for Q2 in terms of formations. And, you know, overall macro deductions, I mean, they're pretty mixed. Obviously, the jobs report disappointed some folks, and you know, you've had GDP be okay. But, you know, this does seem like a market that's maybe slowing down more than I would have expected. So I don't know if it's maybe the effects of a pull forward or maybe how you characterize that.
Speaker Change: This is also the revenue that tends to be most sensitive to macro conditions. So therefore, with respect to the variable areas of our business, we built in a wider range of outcomes.
Speaker Change: Because they've got a business to run and build and in the early first year. It is incredibly precarious, we don't want them focused on the things that we do better than they do and we don't want them wasting money on going to law firms or local lawyers. So we want to help them incorporate quickly and efficiently.
Jason Krayer: Your next question comes from the line of Jason Krayer with Craig Hallam. Please go ahead.
Speaker Change: Excellent. Thank you.
Speaker Change: Your next question comes from the line of Jason Crayer with Craig Hallam. Please go ahead.
Jason Krayer: Great, thank you. I just wanted to follow up on some of the additional use cases that Scott talked about. I'm just curious if you can kind of elaborate on that. And just kind of thinking, you know, for any companies that are potentially kind of on the fence about the urgency following this cookie decision, I mean, can these additional use cases really catalyze bringing that into bookings?
Speaker Change: And then we want to get them a registered agent we want to get them.
Jeffrey Stibel: And I know we obviously don't have, you know, financials going back to a major recession or a financial crisis, but generically, you know, how would you think about, you know, the sensitivity to the macro as we look ahead. You can look at it at a high level. We've been about as good as many others have in predicting the macro, which is pretty poor. So I see our job as building this business around a set of macros, not just small business formations, so that we can insulate ourselves from the risk and uncertainty that we're seeing. The reality is, I don't think that this is a pull forward situation necessarily, so much as a regression to the mean.
Speaker Change: To be fully compliant initially and over time and then eventually we want to help them build web services marketing services tax bookkeeping all of the things that we've been talking about historically, but we need to make sure that we reorient back to the life cycle of the customer and and that is a longer germ.
Scott Howe: Yeah, um... One second, could I actually... I'm just looking for some notes actually on, But what I would tell you is what we've heard, and I really spoke to this in the standardization when I was talking about standardization. This is one where our clients are speaking pretty loudly about how they want to use the technology. And so, as an example, when we sat with some of our big retail and packaged goods clients in Cannes, we heard the same themes over and over from them in terms of what would be the standard queries that they'd want to launch with.
Speaker Change: The FERC. The first years are incredibly difficult about half of all businesses don't make it through that first year.
Speaker Change: We want to focus on helping them make it through that year. Once they are through that year. Then they then they have sufficient revenues then theyre going to start thinking about marketing and expanding and Thats, where we will have earned the right to offer more value added services.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Your next question comes from the line of Ron Josey with Citi. Please go ahead.
Jeffrey Stibel: We very, very high increase in small business starts from COVID to about the mid to end of last year. We have to regress to the mean, and I don't think it is clear yet what that mean is, and whether that regression to the mean will pull us to a number below or at where we roughly are right now. So we've seen recent acceleration.
Speaker Change: Okay.
Speaker Change: Hey, guys. This is Jake on for Ron.
Speaker Change: Jeff really appreciate you, giving more details on those three priorities.
Speaker Change: We really wanted to double click on the first priority focusing on subscriptions.
Scott Howe: Because what they don't want is if they're working with, say, 50 partners, that each time they do a query with one of those 50 partners, it looks different. And so what we heard was feedback around shopping cart analysis, the pipeline journey. There were a couple dozen different things that virtually everyone talked about.
Speaker Change: And you talked about segmenting, our customer base.
Speaker Change: You double click on that and maybe give us one or two examples of.
Jeffrey Stibel: We are acting in a conservative fashion from a modeling standpoint, but from a business standpoint, from an execution standpoint, we're saying, what do we do to be independent or more independent of that macro? And frankly, how can we lean into some of the other macros as they evolved and develop where our business tends to find strength? As an example, we know that small business formation tends to happen towards the middle and recessions. We know that when joblessness increases, you start to see more businesses form. So one of the things that we're looking at more broadly is the macroeconomic environment and where we can play to create that independence, not just to build the business, but to create that independence so that we have an insulated business.
Speaker Change: The key segments that you think have dancing.
Speaker Change: Maybe where there is an opportunity to.
Speaker Change: To market better and target those specific segments and then Noel we just just wanted to also double click on the head count reductions.
Scott Howe: From that, we launched an effort, bringing together a number of those partners to basically try to standardize it. And our thought was that we'd work with those partners and then eventually release those standards to the industry. And so we're gonna do it for the most important use cases first. Now, I think what you're getting at in some respects is how much of our business is kind of retail media networks, and that's what I've been talking about to this point versus how quickly this is transitioning to, say... commerce networks.
Speaker Change: Any more details you could give on where.
Speaker Change: Where those head count reductions are focused or any products that you would expect to be to deemphasize. Thanks. So much.
Noel Watson: Sure. Thank you Jake I'll I'll take that first piece on customer segmentation I'm going to I'm going to answer it first in a slightly different way, which is what have we historically been focusing on these I think that will show you the clear opportunity that we have almost entirely we have been focused.
Speaker Change: On formation, which means a brand new business or prosumer, so someone who is coming in for the first time typically wants an LLC.
Jeffrey Stibel: I'm sure.
Scott Howe: And so, you know, last quarter, for instance, one of the world's largest airlines launched their commerce media network, and we're powering that. And so we're seeing both in travel and financial services a very similar phenomenon take flight to what we've already seen in retail media, where we have such a strong share but want to grow our network density. And so those use cases, the standard queries, those will look a little bit different. Those will take us a quarter or two to develop in concert with the industry partners, but the stats you probably have. You want to talk about the... Oh, sure.
Operator: Thank you. Yeah, thank you.
Speaker Change: And we are offering them a formation and product.
Katie Qzer: Your next question comes from the line of Elizabeth Porter. Bring Morgan Stanley. Please go ahead. Great. Thanks. This is Katie Qzer on for Elizabeth Porter tonight. I wanted to ask one on kind of leaning back into that consumer side of the business, maybe taking it from two sides. Are you able to size that kind of potential revenue opportunity and maybe relative to that with small businesses? And then is the go-to-market strategy pretty transferable there? Or are there any kind of incremental changes that will allow you to win with consumer? Thanks a lot.
Speaker Change: Typically an LLC so our go to market and our segmentation has been one in the same try to drive people into that formation funnel and from there we drop off pretty rapidly. So to give you. Some key segment. Examples we know that from day zero two.
Speaker Change: Two months 12 is a certain type of business and.
Speaker Change: They are very price sensitive.
Speaker Change: Our at risk of failure and they are still trying to figure out what their business. Ultimately is upfront for man you've got years, one through three where they're starting to emerge and build and gain stability and sustainability of their business and after that you've got from.
Jeffrey Stibel: Great, great question. Look, from a sizing standpoint, we don't have specific details, but the consumer market is obviously significantly bigger than the small business market. And when you look at the needs of consumers, what wills and trusts are way up there? I think the stat we use was that two-thirds of people, when surveyed, self-advocate for needing a trust or will, and about one-third actually have them. And on top of that, very few go back and look at those wills over time. I mean, I for one have a will. I don't like looking. And I know as my family evolves, as my life situation changes, I should be going back.
Lauren Dillard: Yeah, the vertical expansion. As Scott alluded, I mean, we still believe we have a lot of opportunity within retail and CPG, but we're continuing to see opportunity build outside of these as well. And so, if we looked at the clean room deals signed in Q1, about two-thirds of those were outside of the retail and CPG space. And there's a fairly similar composition of deals in the pipeline today as well. So, yes, we think the opportunity is large, even outside of kind of the initial retail and CPG use case.
Speaker Change: From year, three on where they are an established business and they are looking to go from their core competency to broadening out whatever that means in their category. Those are three distinct segments that we sell in the exact same way right now at the exact same time at formation and we rarely go back to them. So that is one <unk>.
Speaker Change: Example of how we can spread out our go to market and then let and then leverage our proud risks in product and in value added services over time, when those customers need. It other areas are just looking at different categories of business and.
Speaker Change: What a what a florist might want.
Jason Krayer: Great, thank you. And then, just last one for me, just wanted to follow up on some of the commentary on the sales cycle. I'm just kind of curious what you're hearing around the macro, if there's anything new from kind of some of the commentary you've had earlier and just kind of some of the biggest.
<unk>: <unk>, a pizza shop owner, because those needs are different and we're going to look over time to figure out what the right solution is rather than come up with a one size fits all solution and I would say historically, we have tended to try to find these broad based.
Jeffrey Stibel: So our thinking is we can productize this space to make it easy and convenient to do the right thing for the people you care most about. So, from our standpoint, there is a very big, largely untapped opportunity. In terms of the go-to-market, it is very much in line and incredibly transferable from what we've been doing. In fact, when you ask most people, a portion, a big portion of the unated awareness comes from the consumer side, not from the small business side. So most of us still remember how LegalZoom got its start, which was on the consumer side with wills and trusts.
Scott Howe: Sure, Jason. I would tell you we have a lot of visibility near-term, and I feel really good about, you know, our year. Candidly, we're playing for next year and beyond. And so, that's really about getting stuff through the funnel and spinning up these sticky network flywheels.
Speaker Change: Opportunities, where a product can serve our entire customer base and we lost sight of the fact that we arent serving small businesses because there is no such thing as a small business every business is unique and distinct and either category <unk> time segmented.
Speaker Change: So such that it affords us much bigger opportunity to in the beginning.
Scott Howe: And what we're hearing, you know, kind of anecdotally, but also, I'll give you some real examples here, is that the mood at our clients is really being affected by this macroeconomic uncertainty. Uh, we had three deals slip at the end of last quarter, some of which we've signed already. So, we're talking about this extension; we're not losing business, um, but in each of the three cases, they slipped because at the client, there were layoffs.
Speaker Change: One the market by establishing trust in relationship with these businesses and then over time, leveraging our data figure out what the right products services and solutions are that they need and then either through our own organic products through acquisition or through partnership offer those products to the.
Jeffrey Stibel: So we can go back to leaning in on that. And the beauty there is our marketing conserved double duty because every small business has a small business owner behind them that needs a trust and will. So, as we build our brand in one respect, it adds some strategic advantage in the other. So we see this as very symbiotic. No, that's great. Thank you.
Speaker Change: <unk> adds and when they need it.
Speaker Change: And Jake this is Noel with regards to your question on the head count reduction the reduction was was dispersed pretty broadly across the company I would say it was somewhat heavier on the cost of sales side in particular, given the lower volume expectations and with a concentration.
Scott Howe: We had one client, in addition to those three, where they signed the contract before the end of the quarter, and the person who signed the contract got laid off within the next week. And so we're now working with a different key point of contact than we were before. And we have one of the world's largest packaged goods companies that we have a great relationship with and have been growing business with.
Alice Smith: Thanks. Your next question comes from the line of Alice Smith with JP Morgan. Please go ahead. Good evening, Jeff and Noel. Thank you for taking my question. So maybe first for you, Jeff. So LegalZoom has legal retention rates on the subscription business around 60% or so, whereas there are website builders which serve as somewhat similar customer base with rates in the 80s.
Speaker Change: As it relates to Lv tax.
Speaker Change: The rest was pretty well split across marketing G&A and tech technology and development.
Speaker Change: So I'm sure there'll be areas of narrow focus.
Speaker Change: As we continue to evaluate.
Speaker Change: Testing in sort of our new execution priorities.
Jeffrey Stibel: Do you think that LegalZoom can get there, and in general, what else do you think needs to happen to improve the quality of your subscribers? Good question. And I'm going to unpack it a little bit. And I think this is a good way to think about subscription businesses in general. I know you look at this as well. There's early like turn and late like turn. And in all subscription businesses, everyone defines what early life is differently than others; mostly in the web services space, that's about three months.
Speaker Change: As we mentioned in our remarks, we feel confident that we have the right level of resource to sufficiently deliver on our existing initiatives.
Scott Howe: They told us they put a pause on all new initiatives just to see where the macroeconomic uncertainty would land. So I think what we're hearing is people are a little bit nervous about rate cuts, about the political environment, about the stock market in the past week. And that's causing them to just be a little bit slower on everything they're doing.
Speaker Change: Okay.
Speaker Change: Okay. Thanks, a lot.
Jack: Thank you Jack.
Speaker Change: Your next question comes from the line of Trevor Young with Barclays. Please go ahead.
Trevor Young: Great. Thanks.
Trevor Young: First one just looks like the long term guide slide was removed this quarter is it fair to assume that as part of the management transition and the shift in strategy here, we might get some sort of updated framework at some point, perhaps maybe as we look towards two five expectations in a few quarters and then bigger picture as we progress through this shift in strategy.
Jeffrey Stibel: I think what you've got to do is unpack our business and look at it as a tale of two cities. So our early life is not similar to web services businesses at all because included in our early life are new business formations where we have a much higher failure rate than you would see in a web services business where someone has already been in business likely in, you know, or at least in some cases might already have incorporated or formed an LLC or an S-corp. And in our case, these are, you know, these are prosumers in the best case or people who have an idea; otherwise, who then form and ultimately try to build their business, many of whom fail.
Mark Vigudowitz: Your next question comes from the line of Mark Vigudowitz. With Benchmark, please go ahead.
Speaker Change: It seems like you are looking to move quickly and Thats, a really great Jeff very encouraging to hear at the same time macro might be getting a little bit worse. These sorts of transitions do take some time and some legacy headwinds do persist so as such it should we assume 25 starts the recovery is it to reach 25 or is it more like a 2006 story at this point.
Mark Vigudowitz: Hi Scott Lauren, just a couple of questions on unrelated topics. One, Oracle. Just curious if you could give us perhaps an update on the Marketplace, related pipeline that might be progressing there, and if you can maybe talk about how you think about that revenue opportunity on a net basis. As I know, Oracle is a subscription client of yours as well. And then I have a follow-up.
Trevor Young: Okay.
Trevor Young: Okay.
Speaker Change: Sure. Thank you Trevor I'll take I'll take this at a high level you can give some more details could you give more context in terms of what we've said in the past.
Scott Howe: Yeah, you know, positives and negatives, but all told, we expect this to be a net positive. The subscription revenue is committed, but we think the opportunity for incremental data marketplace gains will dwarf that in the long term. So we feel pretty good about it.
Speaker Change: Your first part of that question in many ways was asked and answered youre exactly right or.
Jeffrey Stibel: So I think the way I would answer that business, and I think this is the right way to think about it, is our late life chart should be similar to other SMB ecosystems. Our early life turn will likely always be higher, as it should. And, you know, that's because part of what we do for these businesses and business owners is we help them get their start despite the fact that we know and they know that many of those businesses won't survive even to the time when they're going to have a website. That's very clear.
Speaker Change: Our expectations are that we're going to move quick we're going to be testing regularly we're going to be leaning into sustainable growth through recurring revenue.
Speaker Change: And our expectation is that's going to that's going to put us in a really good spot over time that said, we're still too early to speak to long term guidance. However, we will as soon as we can start providing interim updates and then and then long term updates as we get more visibility into some.
Lauren Dillard: I would also mention, because I think it's always good to reinforce that, you know, the way Oracle's data business works is pretty different than our own. So we are a marketplace. We're not compiling data per se, building segments that we sell directly, but rather, think about that Oracle demand for their segments as going to other data providers who will use our pipe. I say this because the reasons that Oracle exited the data business don't think are relevant for us. We just see this as a nice opportunity.
Alice Smith: Thank you for that, Jeff.
Speaker Change: These changes, but again, we are we are moving aggressively because we do see that path forward.
Noel Watson: And, well, maybe for you, so this evening, you announced the reduction in the fourth, but made no change to the profitability guide. Can you just remind us why that's the case? Thanks so much.
Speaker Change: Yes, and on your other question in terms of the softer macro you pointed out we did see a T cell and the macro in Q2 and we've included a.
Noel Watson: All right, can I didn't quite get the second half of that. Oh, can you just repeat that? Sorry, gave you some details on the risk, but then you said absolutely. So you announced the guy; excuse me, you announced the risk today, but there was no change to your profitability guide. It was unchanged from last quarter, and I'm just curious, despite the newly announced risk, why are we not seeing an impact to the guide because of that? Yeah, so that was contemplated in the guide that we held. So we had already kind of factored in estimate for that.
Speaker Change: Carrying forward that softness relative to our expectation into our full year guide.
Speaker Change: And now expect mid to high single digit declines in the macro for this year, so definitely a headwind that impacts us both on the transaction and even more importantly on the subscription side that will be a headwind in 2025 as well.
Mark Vigudowitz: And Mark, I've got it, provide a little bit of color with respect to the marketplace pipeline. As Scott mentioned, it's still early, I mean, this is playing out in real time, and so accordingly, we're just treading lightly here. We haven't built much upside into our guidance, so should this materialize faster or in a more meaningful way than we're anticipating, there might be a little bit of upside relative to the midpoint of our guidance.
Speaker Change: And then we mentioned some of the softer retention rates that we're seeing relative to what we had forecasted.
Speaker Change: And part of that is relative to some initiatives that we had that with that.
Noel Watson: All clear, thanks so much.
Speaker Change: That were targeted at improving retention and some of it is just the software trending relative to prior performance, which I would also box into just being in an overall more challenging economic environment for small businesses.
Operator: Thank you.
Operator: That concludes our Q&A session. Ladies and gentlemen, thank you all for joining.
Operator: You may now disconnect.
Speaker Change: And to the extent that impact the back half of the year. The subscription side has some carryover as well as the decision right now our forecast does not have us re commercializing <unk> tax in the formation flow.
Lauren Dillard: Got it. That's helpful, Lauren.
Mark Vigudowitz: And then maybe a broader question, Scott, if you think about clients of yours, and this is, I guess, putting the macro pressures aside, but clients that have been on the fence in your pipeline, just waiting for cookie deprecation to sort of pass, how does this new discussion with consent and the opt-in, opt-out, how is that discussion going with them? Does that change? Any, you know, commitment or conversion potential on any of those that were sort of on the fence? Yeah.
Trevor Young: And so that impacts the back half of the year and into 25%. So to your point there is definitely some headwinds.
Trevor Young: Heading into 'twenty five.
Trevor Young: But we are squarely focused on driving the subscription side of the business focus on lifetime value and will be aggressively testing in the back half of this year and we built in some room in our guide for <unk>.
Trevor Young: Those activities.
Speaker Change: And the only thing I'll add Trevor before we hand over either to another question or a review of the second one is the macro as a problem to solve for it is not an excuse.
Scott Howe: Yeah, it's a great question, and I talked about PAIR and cookie deprecation in my prepared remarks from more of a live RAMP perspective, so let me add kind of that customer view, which is what you're talking about.
Speaker Change: And this is a solvable problem and Youll see this solved across many other businesses with many other macros and businesses.
Scott Howe: All of our existing customers have been using ATS and RAMP ID for some time now, so there's really no impact for them, and I think Google delayed enough that by the time they made the announcement, with our clients, it was a little bit of a yawn. They kind of read beneath the lines, and they said, well, Google's still going to get to the same place, but rather than brute force the industry, they're going to do it through the browser settings, and users are going to have the choice and get to the same place anyway, so not a whole lot of concern expressed by our clients, and I would say for prospective customers who tend to rely more heavily on cookies.
Speaker Change: That are affected by our primary macro which is small business formations.
Speaker Change: So from our standpoint. This is a solvable problem and a scalable growth business irrespective of where the macro is despite the fact that we have pronounced headwind.
Speaker Change: Bigger the bigger concern that we have and the reason that we're attacking this concern. So aggressively is we don't want to see deceleration in our subscription revenue growth and we've seen that in the prior couple of quarters.
Speaker Change: That that is the core problem to solve because that creates greater defense ability long term. So that really is our core focus and why it is the first of the three things that we're focused on in an order of priorities from an execution standpoint.
Speaker Change: Great. Thanks for all that color I appreciate it.
Speaker Change: You bet your next.
Scott Howe: We're hearing the same thing, that they think the puck is still going to be shot to the same place; it just will take a little bit longer. And so, yeah, maybe the urgency has died down a little bit with them because there's not this kind of forcing function. But what's really going to happen here is the forcing function won't be Google's timeline; it will actually be the economy. And so, go back to 50% of display is cookie-less already, and so if you're not using authentication, then you're not reaching Safari, Firefox, and Edge users, who probably have been consuming a lot less targeted messaging, so their response rates are going to be better, and Safari's demographics are better, too; they tend to be more valuable customers.
Speaker Change: Your next question comes from the line of Josh Beck with Raymond James. Please go ahead.
Speaker Change: Yes. Thank you for taking the question and Jeff Thanks for the detailed update there.
Josh Beck: I guess kind of high level.
Speaker Change: Are you.
Jeff: Envisioning that.
Speaker Change: Product.
Speaker Change: Chris.
Speaker Change: Really.
Speaker Change: Change maybe as much as.
Speaker Change: The go to market.
Speaker Change: The Onboarding, obviously, that's a very high level.
Speaker Change: Comment, but strategically is that how you're approaching it and then just on.
Speaker Change: The comments around.
Speaker Change: Compliance I think you've kind of mentioned the idea of <unk>.
Speaker Change: Maybe heavy to free formation that could include compliance or other packaging is that kind of movies.
Scott Howe: So you don't want to miss out on that. Second, most of our major marketers and prospects are doing heavy television, as well. If you're doing heavy television, then you're probably doing streaming, you're doing CTV. I mean, how many of us have even watched the Olympics on network television? Like, literally five minutes before this call, I was watching the men's 400-meter streaming that happened like an hour ago. That's how people are consuming content.
Speaker Change: Moving away from the maybe more purely.
Speaker Change: Transactional freemium model for obviously, some transaction that took place there.
Speaker Change: Yes, it's a good point, Josh and I.
Josh: I do agree with with the comment I think our product ecosystem is really strong one of the things we've done incredibly well.
Speaker Change: Reduce.
Speaker Change: Amount of tech that we've had over over the years built a really strong technology stack.
Speaker Change: Our underlying platform, including <unk> Z is is industry, leading and both the core products and the ancillary products that we have built a really really good. So I think that this is more of a go to market focus.
Scott Howe: And if you want to advertise on that kind of content, then you have to use authentication. And so I think market forces are what's going to drive this over time, but we'll do our part to accelerate that simply by pulling together case studies, holding webinars, and doing evangelization with Google and with others to ensure that people have visibility into the lift that they can realize.
Speaker Change: When we met in two respects one in terms of business model, so that that push towards recurring revenue and following customers' journey over their lifecycle and then second how we actually go to market to making sure that we're doing it with with greater breadth. If you think back to the last question.
Mark Vigudowitz: Makes sense. Thanks, Scott. I appreciate it.
Tim Nolan: Again, if you would like to ask a question, please press star 1 on your telephone keypad. Your next question comes from the line of Tim Nolan from Macquarie. Please go ahead.
Speaker Change: So that we're more insulated and protected from small business starts and then with regards to your second point on.
Speaker Change: On the free model.
Speaker Change: I see nothing wrong with a premium model, but there too we have to make sure that we're bringing the right customers in for the long term and the overall objective is to be bringing more businesses into existence that can be sustainable and sustained long term. So what we need to do is we need to.
Tim Nolan: Hi Scott. Hi Lauren.
Jason Crayer: Hi, Scott Hi, Lauren I'm, hoping I can pull together a few threads on this Google per topic, which some have been weaving in and out of this discussion.
Tim Nolan: I'm hoping I can pull together a few threads on this Google Pair topic, which has been weaving in and out of this discussion. First question is, I'm noticing that there were three partners initially on Google Pair, and that was you, it was Habu, which you acquired, and it was InfoSum, who have now lost their CEO to WPP. I'm wondering if there's any sort of implication from that as to your role within Google Pair.
Speaker Change: First.
Speaker Change: Western is.
Speaker Change: I'm noticing that.
Speaker Change: There were three partners initially on the Google pair that with you it was habu, which you've acquired and it was <unk> who has now lost their CEO two WTP warning.
Speaker Change: Rethink the types of businesses that are coming into our free channel and as we said earlier the businesses that were that we are seeing in our basic SKU, which is the free SKU relative to some of the others.
Speaker Change: Any sort of implications from that as to your role within Google per and then in addition.
Tim Nolan: And then, in addition, you know, given the cookie deprecation cancellation, given a lot of complaints about the privacy sandbox from users of it, I'm not talking about you; I'm talking about other companies and users that have had issues and concerns about it. And also, given the upcoming DOJ lawsuit against DB360, I'm just wondering. Is it possible you could opine on what Google's incentive, perspective, or urgency to make Google Pair work could be?
Speaker Change: They have higher churn and a worst profile. So we need to re look at why that is and our hunch is part of that is because we have looky loos because it was free part of that is just the way in which we're going to market by saying something is free people automatically get defensive about paying for things even if.
Speaker Change: Given the cookie deprecation cancellation, given a lot of complaints about.
Speaker Change: Privacy sandbox from users of it I'm not talking about you I'm talking about other companies and users that have had issues and concerns about it.
Speaker Change: And also given the upcoming Doj lawsuit against <unk> hundred 60, I'm just wondering.
Speaker Change: If they need it just because it costs something relative to freight and then finally part of it is because these.
Speaker Change: Is it possible you could opine on what google's incentive perspective, or urgency to make Google pair work could be.
Speaker Change: These businesses think that if something is free that everything should be free such that maybe they don't need. These other products and service that actually are valuable to them in the medium and long term. So that's that's the reorientation network thinking of it's hard to be more concrete so I.
Speaker Change: Yeah.
Scott Howe: Oh, wow. You know, I hesitate to provide insight on, you know, my guess on another company's motivations. But what I will tell you from a LiveRamp perspective is that it's super valuable to be having conversations with the Google advertising people on a regular basis, comparing notes on case study performance, talking about potential clients that we should visit together, and speaking at one another's events. I would characterize the relationship that we have with Google Ads to be as good as it has been in the last decade. And so, you know, I think that's going to be useful.
Speaker Change: Oh Wow.
Speaker Change: No.
Speaker Change: I hesitate.
Speaker Change: Provide inside my guess on another company's motivations.
Speaker Change: But what I will tell you from a live ramp perspective.
Speaker Change: Super valuable.
Speaker Change: Apologize for that so I'm glad you asked the clarifying question, Josh only because we're in the middle of testing what the right solution is.
Speaker Change: To be having conversations.
Speaker Change: With the Google advertising people on a regular basis.
Speaker Change: Okay.
Josh Beck: Okay. That's super helpful. And then maybe just a follow up.
Speaker Change: Comparing notes on case study performance.
Speaker Change: Talking about potential clients, we should visit together.
Josh Beck: Just kind of what you are observing in the macro thus far obviously it sounds like.
Speaker Change: Speaking at one another's events.
Speaker Change: Kind of down 6% for Q2 in terms of formations and overall macro data points are pretty mix, obviously, the jobs report disappointed some folks in.
Speaker Change: I would characterize the relationship that we have with Google ads.
Speaker Change: To be as good as it's been in the last decade.
Speaker Change: GDP.
Speaker Change: And so I think thats going to be useful and what I would tell you that Google ads.
Speaker Change: But.
Speaker Change: Does seem like.
Scott Howe: And what I would tell you at Google Ads, and not all departments of Google speak to one another; they're all in on a pair. The Chrome decision came from Chrome. There is a strong belief at Google that good performance and good privacy can go hand in hand, and we 100% agree. So I think that's a really nice opportunity for us, and we'll continue to push on that. On the antitrust stuff, I will just tell you, remember that I came to Axiom from Microsoft, you know, a little bit more than a decade ago, and when my company was acquired by Microsoft, they were in kind of the same situation that Google now finds itself in.
Speaker Change: A market, that's maybe slowing down more than I would've expected. So I don't know maybe.
Speaker Change: And not all not all departments of Google speak to one another.
Speaker Change: Effects of a pull forward or maybe how you would characterize.
Speaker Change: We're all in on pair.
Speaker Change: The chrome decision came from chrome.
Speaker Change: I know, we obviously don't have.
Speaker Change: Financials going back to a major.
Speaker Change: There is a strong belief that Google.
Speaker Change: A recession or a financial crisis, but generically.
Speaker Change: Good performance and good privacy can go hand in hand.
Speaker Change: How would you think about.
Speaker Change: The sensitivity to the macro.
Speaker Change: We 100% agree with.
Speaker Change: I think that's a really nice.
Speaker Change: As we look ahead.
Speaker Change: If you look at it at a high level, we've been about as good as many others have in predicting the macro which is which is pretty poor. So I see our job as building this business around a mess around a set of macro is not just the small not just small.
Speaker Change: <unk> for us.
Speaker Change: We will continue to push on that.
Speaker Change: You know.
Speaker Change: On the antitrust stuff I will just tell you remember that I came to axiom from Microsoft.
Speaker Change: A little bit more than a decade ago and when I was when my company was acquired by Microsoft They were in the kind of the same situation that Google now finds itself in a what I would tell you is antitrust remedies take a long time to play out.
Speaker Change: Business formation, so that we can insulate ourselves from the risks and uncertainty that we're seeing the.
Scott Howe: What I would tell you is antitrust remedies take a long time to play out. And so, you know, we're focused on how we do next year, not necessarily what happens with Google five years from now. And I don't think anybody can predict how this is going to play out across what will probably be three to five years.
Speaker Change: <unk> I don't think that this is a pull forward situation necessarily so much as a regression to the mean.
Speaker Change: And so.
Speaker Change: Very very high increase in small business starts from Covid to about the mid to end of last year, we have to regress to the mean and I don't think it is clear yet what that mean is and whether whether that regression to the mean will pull us.
Speaker Change: We're focused in on how do we make next year not what happens necessarily with Google five years from now and I don't think anybody can predict how this is going to play out.
Speaker Change: Ross what will probably be three to five years.
Speaker Change: Two a number below or at where are we roughly are right now so we've seen recent acceleration.
Tim Nolan: Yeah, I appreciate that as well. Thanks for the color. And any comments on InfoSum, if it's also possible to talk about another company out there that relates to you?
Speaker Change: Yeah, I appreciate that as well thanks for the color and any comment on info. Some of it's also possible to talk about another company out there it relates to you.
Speaker Change: We are acting in a conservative fashion from a modeling standpoint, but from a business standpoint from an execution standpoint, we're saying what do we do to be independent or more independent of that macro and frankly, how can we lean into some of the other macros as they evolve and develop where our business.
Scott Howe: Well, I would tell you, we just, you know, they're based in Europe; we don't see them a whole lot competitively, and so, I mean, I can't tell you anything other than that. We just don't see them in the market, and our clients aren't talking about them. Okay, great. Thanks so much for the call, Scott.
Speaker Change: I would tell you we just.
Speaker Change: They're based out of Europe, we don't see them a whole lot.
Speaker Change: Competitively.
Speaker Change: And so.
Speaker Change: But I can't tell you anything other than that we just we don't see them in the market.
Speaker Change: And our clients are talking about them okay.
Tim Nolan: Okay, great. Thanks so much for the call, Scott.
Speaker Change: Tends to find strength.
Speaker Change: Okay, great. Thanks, so much for the color Scott.
Speaker Change: As an example, we know that small business formation tends to happen towards towards the middle end of recessions.
Speaker Change: Yeah.
Lauren Dillard: That concludes our Q&A session. I will now turn the call back over to Lauren Dillard for her closing remarks. Please go ahead. Thanks so much.
Speaker Change: That concludes our Q&A session I will now turn the call back over to Lauren Dillard for closing remarks. Please go ahead.
Speaker Change: No that win win joblessness increases you start to see more businesses form so one of the things that we're looking at more broadly is the macroeconomic environment and where we can play to create that independents not just to build the business but to.
Lauren Dillard: Thanks so much. Let me just conclude with a few final remarks. First, we had a strong Q1, ahead of our expectations on both the top and bottom line, reflecting another quarter of solid execution. Q1 revenue and ARR both grew double digits for a second consecutive quarter. Net retention improved by two points, and our operating margin also expanded by two. As we look ahead, we like our strategic position, and our conviction about the long term has never been greater.
Lauren Dillard: Thanks, So much and let me just conclude with a few final remarks first we had a strong Q1 ahead of our expectations on both the top and bottom line, reflecting another quarter of solid execution.
Speaker Change: Q1 revenue and are are both grew double digits for a second consecutive quarter net retention improved by two points and our operating margin also expanded by two points.
Speaker Change: Create that independence, so that we have in insulated business.
Speaker Change: Okay.
Speaker Change: Understood. Thank you.
Speaker Change: Yes. Thank you.
Speaker Change: As we look ahead, we like our strategic position and our conviction about the long term has never been greater but we also recognize that in the short term, we're operating in an uncertain macro environment.
Speaker Change: Your next question comes from the line of Elizabeth quarter with Morgan Stanley. Please go ahead.
Lauren Dillard: But we also recognize that in the short term, we're operating in an uncertain macro environment. As such, we're flowing through the Q1 revenue and op-inc beat to the FY25 guidance and leaving the rest of the year largely unchanged. And finally, we remain committed to our long-term financial north star of being a Rule 40 company, and we believe the secular trends Scott highlighted today represent a long runway for profitable growth. With that, thank you again for joining us, and we look forward to talking with you in the days and weeks ahead. Ladies and gentlemen, that concludes today's call.
Speaker Change: Great. Thanks. This is Katie keys, there on apparel isn't a quarter Tonight.
Speaker Change: Such we're flowing through the Q1 revenue and Op, Inc. Beat to the FY 'twenty five guidance and leaving the rest of the year largely unchanged and finally, we remain committed to our long term financial North star of being a rule of 40 company and we believe the secular trends Scott highlighted today represent a long runway for profitable.
Speaker Change: I wanted to ask one on kind of leaning back into that consumer side of the business.
Speaker Change: Taking it from two sides.
Speaker Change: Are you able to size that kind of potential revenue opportunity and maybe relative to that with small businesses.
Speaker Change: And then is the go to market strategy pretty transferable, there are there any kind of incremental changes.
Speaker Change: Ralph.
Ralph: Thank you again for joining us and we look forward to chatting in the days and weeks ahead.
Speaker Change: Allow you to win with consumers. Thanks, a lot.
Speaker Change: You bet great. Great question look from from a sizing standpoint, we don't have specific details, but the consumer market is obviously significantly bigger than the small business market.
Ralph: Yeah.
Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining us. You may now disconnect.
Speaker Change: Ladies and gentlemen that concludes today's call. Thank you all for joining you may now disconnect.
Speaker Change: [music].
Speaker Change: And when you look at the needs of consumers.
Speaker Change: Wills and trusts are way up there I think the stat. We used was that two thirds of people when surveyed.
Speaker Change: Itself.
Speaker Change: Self advocate for needing a trust or well and.
Speaker Change: And about one third actually have them.
Speaker Change: And on top of that very few go back and look at those wells overtime, I mean, I for one have a well I don't like looking at it ever it's very morbid, but I know I need one and I know I should be looking and I know as my family evolves as.
Speaker Change: Life situation changes I should be going back. So our thinking is we can product ties this space to make it easy and convenient to do the right thing for the people you care most about so from our standpoint, there is a very big.
Speaker Change: <unk> untapped opportunity in terms of the go to market. It is very much in line and incredibly transferable from what we've been doing in fact, when you asked most people.
Speaker Change: A portion a big portion of the unaided awareness comes from the consumer side not from the small business side. So most of US still remember how legal zoom got its start which was on the consumer side with wells and trust. So we can go back to leaning in on that and.
Speaker Change: The beauty there is our marketing conserve double duty because every small business has a small business owner behind them that needs a trust and will so as we build our brand in one respect it.
Speaker Change: Some strategic advantage in in the other so we see this as very symbiotic.
Speaker Change: That's great. Thank you.
Speaker Change: Okay. Thanks.
Speaker Change: Your next question comes from the line of Alex Smith with JP Morgan. Please go ahead.
Speaker Change: Okay.
Alex Smith: Good evening, Jeff No I will thank you for taking my question. So maybe first for you Jeff for Regal team has legal has retention rates on the prescription business around 60% or so, whereas our website builders, which survey somewhat similar customer base with rates in the eighties do you think the legals and can get there and in general what else do you think.
Speaker Change: And should improve the quality of your subscribers.
Jeff No: Good good question, and and I'm going to unpack it a little bit.
Speaker Change: And I think this is a good way to think about subscription businesses in general I know you look at this.
Speaker Change: As well there.
Speaker Change: There is early life churn in late life churn and an all subscription businesses.
Speaker Change: Everyone defines what early life is differently than others, mostly in the web services space, that's about three months.
Speaker Change: I think what you've got to do is unpack our business and look at it as a tale of two cities. So our early life is not similar to web services businesses at all because included in our early life, our new business formations, where we have a much higher failure rate than you would see in.
Speaker Change: And a web services business, where someone has already been in business likely.
Speaker Change: Or at least in some cases might already have incorporated or formed analysis <unk> Corp.
Speaker Change: Our case. These are these are prosumer <unk>.
Speaker Change: In the best case or people, who have an idea otherwise, who then form and ultimately try to build their business many of whom fail. So I think the way I would answer that business and I think this is the right way to think about it is our late life churn should be similar to other SMB ecosystems.
Speaker Change: Our early life churn will likely always be higher as it should and that's because part of what we do for these businesses and business owners as we help them get their start.
Speaker Change: Despite the fact that we know and they know that many of those businesses won't survive even to the time when theyre going to have a website.
Speaker Change: Okay.
Speaker Change: That's very clear thank you for that Jeff and Noel maybe for you. So this evening you announced the reduction force, but made no change to the profitability guidance can you just remind us why that's the case. Thanks so much.
Speaker Change: Sorry, I didn't quite get the second half of that or can you just repeat that as I gave you. Some details on the risk, but then you said.
Speaker Change: Absolutely. So you announced the Guy excuse me you announced the risk today, but there is no change to your profitability. The idea was unchanged from last quarter and I'm just curious despite the newly announced rich white.
Speaker Change: Are we not seeing an impact to the guidance because of that.
Speaker Change: Yes.
Speaker Change: It was contemplated in the.
Speaker Change: And the guide that we held.
Speaker Change: So we had already kind of factored in an estimate for that.
Speaker Change: Okay. Thanks, so much.
Speaker Change: Thank you.
Speaker Change: That concludes our Q&A session, ladies and gentlemen, thank you all for joining you may now disconnect.