Good day and thank you for standing by. Welcome to the LegalZoom’s First Quarter 2022 Earnings Conference Call. At this time, all participants are in listen-only mode. After the presentation, there will be a question and answer session. Please be advised today's conference may be recorded. I would now like to hand the conference over to your host today, Danny Vivier, Head of Investor Relations.

Thank you, operator. Hello and welcome to LegalZoom’s first quarter 2022 earnings conference call. Joining me today is Dan Wernikoff, our Chief Executive Officer, and Noel Watson, our Chief Financial Officer. As a reminder, we will be making forward-looking statements on this call. These forward-looking statements can be identified by the use of words such as believe, expect, plan, anticipate, will, intend, and similar expressions and are not and should not be relied upon as a guarantee of future performance or results. Results could differ from those contemplated by our forward-looking statements. We caution you to review the Risk Factors section of our reports and filings with the Securities and Exchange Commission for a discussion of factors that could cause our results to differ materially. The forward-looking statements we make on this call are based on information available to us as of today’s date and we disclaim any obligation to update any forward-looking statements, except as required by law. In addition, we will also discuss certain non-GAAP financial measures. Our CEO and CFO use these measures to make decisions regarding our business and we believe these measures provide helpful information to investors. Reconciliations of all non-GAAP measures to the most directly comparable GAAP measures are set forth in the Investor Relations section of our website at investors.legalzoom.com. The non-GAAP financial measures are not intended to be considered in isolation or as a substitute for results prepared in accordance with GAAP. Now, I will turn the call over to Dan.

Thanks, Danny, and good afternoon, everyone. It's been a quick turnaround since our last earnings call, so I'll keep my comments brief today. Q1 was a strong start to the year for LegalZoom continuing the momentum we experienced in 2021. In the first quarter of 2022, we generated $154 million of revenue, ahead of the top end of our guidance range and up 15% year-over-year, despite a challenging prior year comparison. Subscription growth continued to outperform in the period with revenues coming in at $84 million, up 29% year-over-year. The subscription strength driven in part by LegalZoom tax revenue continues to dislocate our performance from the broader market for new business formations with consensus EIN non-seasonal applications down 8% year-over-year in the period. The census decline in the first quarter was within our expectations. We outperformed the macro in Q1 with LegalZoom business formations down just 2% versus the prior year. We reported adjusted EBITDA of $1.3 million in the first quarter ahead of our guidance of breakeven. As a reminder, there's a seasonal component to the recognition of our transaction revenue that weighs on margins in the first quarter of the year. Noel will further unpack our guidance later in the call. But we continue to feel confident in our ability to deliver our adjusted EBITDA target for the full year of 2022. Given the current state of affairs with geopolitical concerns, inflation, and other macroeconomic factors causing significant uncertainty, it's important to consider the advantages our cost structure has in responding to external factors beyond our control. First, we've reduced margins in the near term to accelerate revenue growth over the long term. We are investing across all areas of the business, but most significantly within sales and marketing, which grew from 27% of revenue in 2019 to 45% of revenue in 2021. Excluding sales and marketing, we actually saw operating leverage over that two-year period with non-sales and marketing expenses declining from 50% of revenue in 2019 to 47% in 2021. I make this comment because it points to the insurance flexibility in our operating model. Less than a third of our operating spend is fixed. The vast majority is variable and can be adjusted dynamically based on market conditions. We are an asset-light business with capital expenditures running at just 2% of revenue in 2021. And despite the ramp in CAM spend, we continue to generate positive cash flow and have just under $250 million of cash and no debt on the balance sheet. We feel we are in a very strong financial position to weather a potential economic contraction while still maintaining a healthy level of investment to drive durable long term top line growth. I'll now transition to an update on LegalZoom tax where we successfully navigated our first peak tax season. We saw a notable step up in the number of LLC formations attaching a tax subscription in the first quarter of 2022. With taxes top of mind, it's not surprising customers were more open to the cross-sell. However, we were surprised to see a portion of these new customers had already completed their 2021 returns and were instead looking for a tax planning and bookkeeping solution for the 2022 tax year. This learning reinforces the power of our platform. Entrepreneurs are starting new businesses all year round. And since we're often the very first third-party entrepreneurs visit when starting their business, we have the unique opportunity to grow awareness and drive product adoption off-cycle, a significant advantage to our competition, which primarily relies on new customer acquisition during peak tax season. We're also seeing a significant opportunity to improve utilization of our tax platform. To date, our efforts have focused on cross-selling tax at the time of business formation. However, many of these new businesses are pre-revenue and are therefore less likely to require tax filing services. These insights reinforce the importance of engaging our existing base of 1.4 million active legal subscriptions, many of whom are generating income and scaling operations. We've seen the power of our channel to acquire new customers and grow awareness. Our focus now is providing these customers with the right service level at the right time in their journey, which is often months after they've formed. And finally, though it's a bit too early to interpret retention data, we continue to see that customers who engaged with our tax platform and experts are really pleased with the service. In our Q4 earnings call in March, I introduced our plans to conduct a series of lineup tests within our core formation experience throughout 2022. We spent the better part of two years driving efficiencies in our fulfillment processes, improving our attorney platform and expanding our subscription ecosystem to make this testing possible. Our thesis here is that by expanding our formations line up both up and down market, we widen the aperture of customer segments we serve, unlocking new opportunities to grow share and expand customer lifetime value. I'm pleased to report that the first segmented lineup test was launched in late April to a subset of LLC traffic in a few smaller states. The initial test includes a mix of do-it-yourself and attorney-assisted formation experiences, with prices ranging from free standalone LLC registration to $1,149 for customers seeking a high-touch experience with an attorney. At the high end, customers will have on-demand access to our independent attorney network for the first three months post-formation, as well as an attorney-assisted trademark filing with an attorney staffed in our ABS law firm. Services include everything from reviewing a lease, contract, or new employee agreement, up to applying for a trademark registration. It’s a one-of-a-kind solution that emulates the experience of working with a traditional law firm but at a fraction of the price. I'm proud of our team for standing up this new experience in short order. We've taken an agile approach to these tests with the priority being to learn, quickly iterate, and expand. We're carefully monitoring user behavior in combination with business metrics, such as conversion rates, average order value, and subscription attach rates. I'd also like to talk about our progress on the partner front. Just a couple of weeks ago, you likely saw the announcement of a new multiyear partnership with Wix. When integrated, entrepreneurs will soon be able to have a unified experience to legally form their business in the U.S. and build their online presence together in one place. This partnership is truly bilateral. Whether you start with LegalZoom and add a website or start by building a website and then decide to formalize your business or protect your IP, we work side-by-side to provide an integrated experience. The relationship is also built on a recurring revenue model, where both parties share the economics through the life of the customer. The Wix announcement adds yet another major brand to our growing ecosystem of best-in-class SMB enablement solutions. Other partners include Intuit, Amazon, Square, and Toast. The success we've seen in attracting best-in-class SMB partners enhances our strategic moat. Few online providers come close to rivaling the scale of our third-party ecosystem. And with each successive new partner, we expand our competitive advantage by forging new relationships that offer integrations with more business applications and exposure to more potential customers. We anticipate an initial launch of the integrated experience in the second half of this year, but do not expect material revenue from the partnership in 2022. It will take time to commercialize these partnerships to their full potential, but my conviction in the long-term opportunity could not be stronger. In closing, I'm very encouraged by our results in the first quarter and the energy I've seen across our teams to start the year. Despite a dynamic and at times challenging economic backdrop, I remain optimistic about the future of small businesses, our industry, and LegalZoom's position within it. We have a clear vision and plan and continue to execute against it. A solid first quarter positions us well for a strong 2022, and the foundation is continuing to be laid to enable us to continue penetrating the $50 billion legal service industry in the years to come.

Thanks, Dan. And good afternoon, everyone. I'll start today with a review of our performance in the first quarter and end with our outlook for the remainder of the year. Total GAAP revenue came in at $154 million, up 15% year-over-year and above the top end of our guidance range. We continue to lap the challenging comparison on the transaction side of the business with transaction revenue up 4% year-over-year at $64 million. We completed 129,000 business formations in Q1, down 2% compared to the same period last year in line with our expectations. As a reminder, we've made two small adjustments to our definition of a business formation. The first adjustment is the removal of non-U.S. formations, all of which are attributable to our small presence in the UK. The second adjustment is the addition of doing business ads or DBA transactions. These transactions are most often completed by sole proprietors and are becoming a significant feeder into our portfolio of subscription services, particularly as we look to integrate LegalZoom tax into the DBA flow. Excluding these small adjustments, we would have completed 119,000 business formations in the period, also down 2% year-over-year. Transaction units were 267,000 units in the quarter, down 3% year-over-year. Average order value came in at $240 in the first quarter. The sequential decline is typical of seasonal patterns in the business. More importantly, average order value was up 8% year-over-year, driven by ongoing efficiencies in our order fulfillment processes and growth in our attorney-led trademark solution, which carries a significantly higher average order value than the DIY solution. Subscription revenue continued to outperform expectations, coming in at $84 million in the quarter, up 29% year-over-year. 55% of our Q1 revenue was subscription, up 600 basis points from the same period last year. We're very encouraged by the pace of this mix shift, which will drive a more predictable higher margin operating model. Average revenue per user was $244 in the first quarter, up 8% year-over-year. Average revenue per user growth has accelerated every quarter we've reported as a public company. We view this growth as durable and driven in large part by new higher average revenue per user services, like LegalZoom tax and Earth Class Mail. Partnership revenue was approximately $6 million in the first quarter, in line with expectations. We're confident that Q4 of last year was a trough in this part of the business due to the transition of the legacy relationship with misaligned strategic objectives. Now turning to expenses and margins where all of the following metrics are on a non-GAAP basis. Gross margins came in at approximately 65% of revenue, down from 69% in Q1 of last year. We anticipated the year-over-year decline as we invested to scale our in-house CPAs ahead of the spring tax season. We expect gross margin to normalize in the second quarter and be roughly in line with Q2 of last year. Sales and marketing costs were $72 million in the first quarter, or 47% of revenue. Customer acquisition spend came in at $54 million in the period, flat to Q1 of last year. We signaled our intention to hold media spend roughly flat to 2021 levels. Our outlook here remains unchanged, but we continue to monitor our efficiencies and can adjust up or down quickly as circumstances change. Within our non-CAM sales and marketing spend, we do expect a one-time $5 million expense in the second quarter related to the rollout of new creative assets. Technology and development spend of $13 million and G&A spend of $15 million were both up modestly on an absolute dollar basis from Q4 but remained roughly flat as a percentage of revenue. Adjusted EBITDA was $1.3 million in the quarter, ahead of our breakeven guidance, and our base of deferred revenue increased by $17 million in the period, which follows typical seasonal patterns. In the first quarter, we began to execute on our $150 million share repurchase authorization. We repurchased a total of 79,000 shares of our common stock at an average per share price of $14 for a total repurchase amount of $1.1 million including commissions. We've continued to repurchase shares in the second quarter. As of March 31, 2022, we had cash and cash equivalents of $248 million and no debt outstanding. I'll now provide our guidance for the second quarter and full year 2022. For the second quarter of 2022, we expect total revenue of $162 to $164 million, 8% year-over-year growth at the midpoint. Business formations peaked in Q2 of last year, so we are lapping the most challenging quarter for transaction growth. However, we do anticipate total revenue growth to reaccelerate in the back half of 2022. We expect adjusted EBITDA of $10 million to $12 million in the second quarter, or 7% of revenue at the midpoint. We remain optimistic about our ability to deliver strong financial results in 2022, particularly on the heels of a strong first quarter. Given the fluid economic environment and the number of variables outside of our direct control, we remain comfortable with our full year 2022 outlook provided in March. To summarize for the full year 2022, we are expecting revenue of $650 million to $660 million, or 14% growth at the midpoint. And we expect full year adjusted EBITDA of $48 million or 7% of revenue at the midpoint. As Dan mentioned, our largely variable cost structure allows us to quickly flex our EBITDA margins up or down depending on the operating environment. We continue to favor a balanced approach to capital allocation that preserves a healthy level of operating cash flow while still providing room for organic investments to drive durable revenue growth in the out years. And with that, let's open the call for questions.

Our first question comes from Ron Josey with Citi.

Great. Thanks for taking the question. I have two inquiries. First, regarding assist, I appreciate the additional insights on testing assist across various verticals and the integration of services from the new law firm for your clients. Could you outline the roadmap as you're currently in a few states? What is required for expansion? What are the key factors that could affect the testing outreach? What are you looking for before considering a nationwide rollout? My second question pertains to the macro environment. There were a few comments about variability in macro outcomes. Could you share your observations regarding the macro situation? It would be helpful to understand how the quarter evolved and what you're seeing in April. Thank you.

Thanks, Ron. On the first question around what we're doing with the assisted. I mean, it's worth going back and even just thinking about the journey here. We started by providing an assisted solution for trademarks. And the main thrust of that was just knowing that it's a more complex transaction, with some customers not comfortable doing it on their own. We've also gone out and really started a law firm in Arizona, which is under an alternative business structure, allowing us to practice in one geography, so we can start to understand the end-to-end experience of our customers working on our platform. And now, we're really just trying to expand that and think about how we can approach customers who have typically been afraid to do these types of transactions on their own. We're introducing a lineup, and we're only at this point in three small states. A part of the objective here is running water through the pipes and making sure that we're operationally very sound, and we're thinking about the experience and starting to tweak at a lower volume. The way we're measuring results is we're looking at one-year bookings and trying to understand if that's accretive, and also the shift from lower transactional pricing, which is likely, because we're also introducing free along with more subscription bookings, and to understand the balance between the two as we start to offer a more comprehensive lineup to our customers. And as we see results we like, we'll continue to expand it through multiple states. In the background, we have a significant investment in automating the fulfillment of orders. We also have an investment that we've made really around efficiency for our independent network of attorneys. So there's a lot of things going on at once. And actually, I've been pretty pleasantly surprised with the early testing, and operationally it is looking very sound. We're starting to get data in and we'll probably be expanding it in the next quarter, given what we're seeing so far. So things are going pretty well there. On the macro side, this one is pretty clear as well. I mean, we went into the year with a pretty clear understanding that we would see a macro decline year-over-year. In Q1, we saw the census was down 8%. We were down 2% in that period. So we gained a little bit of market share. What I'd say as you look at April, because the census just printed April. That was a little bit on the lower end of what we expected but still within the range that we've used to plan. And we're just going to continue to watch it. It's a very dynamic environment. We do have a pretty flexible cost structure. We think ahead about what's happening from a demand perspective and can adjust our media spend accordingly. We're also really consciously thinking about our marginal return in our CAM spend and taking insights we’ve gotten from media mix modeling and shifting some of our spend around, so that we can seek better marginal returns. But there's nothing that we've seen that we didn't expect so far this year on the macro. But again, we just want to be somewhat cautious knowing that there’s a lot going on in the broader economy.

Yes, Ron, just to build on that real quick. In terms of Dan's comments on the macro, I mean, that really largely describes why we've sort of reiterated and maintained our guidance for the full year for both top and bottom line.

Perfect. Thanks, guys. Thank you, Noel. Thank you, Dan.

Thank you.

Our next question comes from Elizabeth Porter with Morgan Stanley.

Great. Thank you so much, guys. I wanted to just follow-up on the comment for the outperformance information versus the broader macro. I believe last year share gains informations were a little bit lighter than what you were expecting and the guidance for this year was implying a similar rate of gains. So could you just hit on the pace of share gains versus your expectations? And especially in light of the marketing spend changes that you guys are doing? Thank you.

Sure. Thanks for the question, Elizabeth. As I mentioned, the macro is down 8% while we are down 2%, which indicates a share gain of roughly 5%. This seems consistent with our expectations. You should also note that share gains will not be entirely linear from quarter to quarter. We're currently shifting our marketing spend, a process that began at the end of the last quarter. When changing our media mix, the payback durations can vary significantly. We've reduced spending in areas with longer payback times and increased our investment in channels that offer quicker returns, typically within two to six weeks. Therefore, share gains will fluctuate each quarter. Additionally, as we enhance our premium offerings, we anticipate being able to increase our share even further. If we see positive results, we will aim for more market share by targeting price-sensitive customers. However, we'll only proceed if it benefits our one-year bookings, even if it means compromising on average order value to boost subscription bookings.

Yes. And just to further highlight that last sentiment. So subscriptions has been an ongoing focus for us. And you saw that we had 29% revenue growth in subscriptions for the quarter. So, I think our focus and investment around building out that ecosystem further helps to sort of dislocate us from the macro.

Great. Following up on subscriptions, the number of units added in the quarter seemed lower than the average in 2021. How should we consider the balance between unit volume and average revenue per user for the rest of the year, especially as you target some higher value units and tax?

Yes. I mean, one of the things that is a reality of our business model is there's a coupling between the transactional growth and the subscription units. So, when you think about the start of this year when we’re lapping some of those comps from the prior year, it will impact some of the unit growth. What's also interesting is that as we get to the back half of the year, there is a seasonal component to our business with LegalZoom tax. I would expect that to start to decelerate a little bit. And the opportunity here is that we haven’t marketed LegalZoom tax to the broader base. We now have virtual mail through Earth Class Mail acquisition, and we have the opportunity to market that as well, where it's not penetrated into the base. The piece on premium is incredible, because with a free solution, we have the opportunity to target price-sensitive customers. Just to remind everyone, those customers, as they may form a business for free, will probably be a paid solution as you discuss revenue and compliance. So, we hope that would accelerate our subscription growth in the back half of the year as well. There’s reality in the front half of the year on transaction growth, but we have levers we’re testing to offset that in the back half.

And then just further on what you were alluding to Elizabeth, we do need to look at subscription unit growth and average revenue per user growth in coordination, because we’re more than willing to make a trade-off, if the lifetime value is right for higher average revenue per user subscriptions. And as we mentioned in our prepared remarks, we expect durable average revenue per user gains, kind of consistent with the year-over-year growth that we saw in Q1 moving forward, in part driven by the focus on tax and the integration of Earth Class Mail.

Yes. The 8% average revenue per user growth year-over-year is a reflection of that mix shift. And again, there are fewer units coming from tax than we have from compliance, but at a higher price point.

Great. Thank you so much.

Thank you.

Our next question comes from Andrew Boone with JMP Securities.

Good afternoon and thanks for taking my questions. Dan, as we think about the premium offering as well as a loan offering coming to market. Can you frame just the overall product offering in a more comprehensive way as we start to think about 2023? What does that start to look like? And how do we think about share gains as well as pricing and overall growth as we put those pieces together? And then secondly, now that you're kind of through your first tax season with LegalZoom tax, I'd love to hear how that went and what you need to do to improve on the experience for next year? Thanks so much.

Great. Yes. The premium offering, and this is more early innings. To be honest, because we know how we want to approach a free solution for customers where it's really free filing with the state. But then, lots of add-on services and products. This piece is straightforward. The premium piece is slightly different and will take some experimentation to get right. One of the things we learned last year was that customers wanted assistance when they formed their business right at the moment of formation, meaning like, they wanted to know what entity to select. What we've realized is actually one of the bigger problems is customers don’t know what to do once they’ve formed. They face real challenges when they hire their first employee or have to sign a lease or their first contract. We’ve structured this initially to be more comprehensive and have access on demand to an attorney for three months post-formation. This includes the ability to amend your formation and do other things tied to the entity selection. But it’s much more comprehensive now. There are two skews we’re testing. One is just the formation itself and having access to an attorney. The other one also adds a trademark because we know most of our customers who buy trademarks do it within six months of forming their business. There’s an obvious bundling opportunity. We started with premium price points, and we have a lot of flexibility to try and test and learn what the right price point is. We will have a lot to learn in how we commercialize it and how we talk about it. If you think about it today, we’re not doing anything at the top of the funnel. Most customers who come to LegalZoom are looking for a DIY solution. You almost have to reframe that we have this hybrid assisted solution as well. So there’s some work to do even at the top of the funnel that will start later this year. Anything you’d add, Noel, before I jumped into the tax season?

No.

Okay. Tax season. This was a really interesting tax season. This is the first time I've worked on a tax season specifically for small businesses. I would say we learned quite a bit. We went into the season not trying to optimize operationally, but really focusing on the customer experience. We created a broad offering; they weren’t like segmented offerings, they weren’t really well-targeted. We wanted to learn as much as possible during the season so that we could start to fine-tune the offering for next year. We discovered several interesting things. Firstly, our customers are very simple filers. The majority of them completing 1040 schedules versus the more complex like 1120 corporate filers. Service delivery was much more spread out than we thought. We anticipated as high usage peaks at the end of the filing deadlines, instead we saw many people doing extensions. We also found that our customers were overly waiting on advice because they were so early in their journey as a business. A lot of them weren’t operational yet; they were paying for comprehensive service but wanted access to an accountant. That speaks to the opportunity we have to commercialize that product, so there’s sort of a low-end product and a premium product. Lastly, we learned a lot about how to operationalize this business. We hired into the season to ensure no customer was left behind. Now we have a better understanding of the filing curve and how to efficiently support those customers for next season.

Great. Thank you.

Our next question comes from Matt Pfau with William Blair.

Great, thanks for taking my questions, guys. I wanted to just first hit on retention. If you could give us any updated commentary on what you're seeing with retention within your subscriber base, and then how we should think about that in a recession environment, where we might see an uptick in business failures?

Yes. So, I’ll address recession primarily on the core products, the core compliance products. It’s harder to talk about retention just yet on things like LegalZoom tax or virtual mailings since we haven't really lapped the acquisition of those customers. Not much has changed here. We did see weaknesses in the customers acquired during COVID. Looking back at the data, two things distinguished them: some of those businesses were designed to be transient; they were reactions to COVID, and we saw a higher mix of first-time businesses. This elevated mix went up materially, contributing to a higher level of failure as well, which has already started normalizing. On the other hand, every other cohort, as you get into 25 and 37-month cohorts, we were seeing improvements in retention. As for the recession; I'd say we’re not recession-proof, but as we lived through the Great Recession, we noticed business formation volume decreased roughly 10%. Still, we actually accelerated through that. Regarding business failures, expect a slight uptick, but typically, it’s the newer businesses that are more vulnerable.

Really helpful. And then, wanted to hit on just how you’re thinking about marketing and perhaps CAM spend, maybe this year and into next. You have several new products that you're working on, whether it be the free filing product or the premium one and LegalZoom tax, which hasn't been broadly marketed yet. Is there a possibility that we would see a big uptick as these products start gaining traction, and you want to take them out more broadly, or how should we think about that?

It’s almost the opposite. We want to have a singular message for customers. We have a brand campaign launching this weekend around forming your business. We aim to have the product work as the channel for all services. However, there’s a big opportunity to get the product knowledge that LegalZoom stands for small business formation versus the consumer side. This brand campaign is all about forming your business. We know we aren't sophisticated enough in targeting, to ensure we're marketing to customers with the right solutions. This is a big area of focus for us. For example, if you come to our platform and you're pre-revenue, you really don't need a tax filing solution. Right now, we're marketing it to those customers, some of whom may opt for the tax advice. Look for us to come out with something specific for pre-revenue customers once the tax season concludes.

Really helpful. Appreciate you taking my questions. Thanks.

Thanks, Matt.

Our next question comes from Mario Lu with Barclays.

Great. Thanks for taking the question. The first one on the Wix partnership. You mentioned it's going to roll out sometime in the second half of the year. So just hoping you could help us frame the long term opportunity with regards to this partnership? And I guess how does that compare to the ones you have with Brex or Square?

Yes, great question. Thanks, Mario. So we’re really excited about this one. I think this is a big win for LegalZoom, a big win for Wix, and a massive win for customers. So 80% of customers forming with us today don’t yet have a website, which is incredible, considering 70% intend to get one. What we're trying to do is build a robust integration that isn't just affiliate but instead has a material profit investment from both parties to integrate their experiences into the formation experience. Wix acquires more customers than we do from a small business perspective, and we only have a 10% share. Hence, there’s a significant acquisition opportunity going the other way. The Wix team is fantastic; they think partner-first and have built a compelling platform. We have multiple ideas on integrating products into their solution, not just formations, but also in identity. We will begin testing with a less deep integration, but I can assure you that will happen sooner than the back half of the year. You’ll start to see real learnings about what resonates with customers, with a deeper product investment to happen by the back half of the year. We think it will be material and is the kind of partnership we’ll pursue moving forward, not just this year. You’ll see the impact in customer growth first, then in recurring revenue.

Got it. Super helpful. Thanks, Dan. And then just one for Noel in terms of gross margin this quarter. It came in a little lower than expected and versus historical data. What were the main drivers here? And how should we think about gross margins for the rest of the year?

Yes, thanks, Mario. As we mentioned in our remarks, this was purely in support of tax season. We anticipated scaling up to ensure we could support our first tax season. We expect gross margin percentage to normalize in Q2, along with slight leverage in the back half of the year.

Got it. Thank you.

Our next question comes from Nat Schindler with Bank of America.

Yes. Hi, guys. Just quickly to pile on this macro stuff. Just wondering, has there been any historical evidence, particularly around business formation, that shows a trend, particularly some have speculated about an early slowdown in front of a recession, and then an early expansion in business formations as you come through a recession. Is that at all an accurate statement? Or have you seen evidence that suggests that?

That's one I'd probably have to go back and study closer. I mean, when you look at census data, you do see there was a 10% reduction, followed by a 5% reduction over the two years of the Great Recession, and then an acceleration coming out. But I'd have to analyze the month-over-month data from back in 2008, 2009 to understand that more clearly.

No problem. Thank you for the compliment.

Yes.

Our next question comes from John Byun with Jefferies.

Hi, this is John Byun for Brent Thill. Thanks for taking the question. I have two inquiries as we approach the midpoint of the quarter. Could you provide more details about the trends you're observing in April and May across the various segments? Additionally, regarding LegalZoom tax, could you share more insight into the types of customers you are attracting? You mentioned that many have already completed their taxes. Are they generally from a DIY background, or have they previously used a CPA or tax store? Also, was there any variation in attracting them in April compared to earlier this year? Thank you.

Thanks for the question, John. Regarding the performance in April and May, we prefer not to comment on future performance since there's still a lot of the quarter remaining. I would like to highlight the census data for April, which indicates a 13% decline in formations. This figure was within our expectations. As for LegalZoom tax, we are noticing that our customer base is increasingly consisting of micro-businesses, side businesses, and personal filers. Many of our users are those who typically utilize personal tax services. In some cases, we found that individuals were not aware that a Schedule C would influence their personal filing. A number of them purchased our service and needed us to amend their personal returns to include their business income. This reflects their early stage in their business journey. However, we also serve corporate clients, including those incorporating and filing for non-profits. We will be showcasing more complex returns. Overall, we anticipate significantly increasing our marketing efforts targeted at various behavioral segments rather than focusing solely on product forms next year.

Great. Thank you.

Thank you.

Our next question comes from Stephen Ju with Credit Suisse.

Okay. Thank you. So hi, guys. As a follow up to one of the earlier questions around the partnerships, can you talk generally about how these will appear on the P&L, I mean, recognizing every one of these deals may be different, but presumably, there will be some sort of exchange in economics. So, will there be some sort of expense recognized or finder's fee or lead gen fee, or maybe a contra revenue item? And as you think about the cost of the customers acquiring through these partnerships, is this more efficient versus your typical direct marketing campaign? Thanks.

Hey, Stephen, this is Noel. Thanks for the question. First, I’ll go back to Dan's comments, indicating that this strategically fits into our sweet spot in terms of the relationship being bilateral and recurring revenue. So part of it will flow through our core streams in terms of formations driven through the relationship with Wix. We'll fulfill them as we normally would, and you’ll see the other part of the stream presenting Wix offerings to our customers. That will flow through our partnerships revenue and have a contra revenue for the revenue share.

Yes. From an economic standpoint on the cost of acquisition, these partnerships are early, and we’re collaborating with partners like Wix, who are bilateral, making expectations clear. We've set the economics roughly similar to what we have in our other channels. What’s interesting here is that we feel this increases our overall reach, as these are existing businesses. These partnerships could be regarded as customer acquisition and brand plays, helping people understand LegalZoom.

Thank you.

Thank you.

I’m showing no further questions in queue at this time. This concludes today’s conference call. Thank you for participating. You may now disconnect.