Good day, and thank you for standing by. Welcome to LegalZoom's Q1 2023 earnings conference call. At this time, all participants are in a listen only mode. After the speaker's presentation, there'll be a question-and-answer session. To ask a question during the session, you'll need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To remove yourself from the queue, please press star one one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Sarah Bland, Securities Counsel. Please go ahead. Thank you, operator. Hello, and welcome to LegalZoom's 1st quarter 2023 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. Such forward-looking statements are based on management's assumptions and expectations and information available to us as of today's date. These forward-looking statements are also subject to risks and uncertainties that could cause actual results to differ materially from such statements. These risks and uncertainties are referred to in the press release we issued today and in the Risk Factors section of our most recent annual report on Form 10-K filed with the Securities and Exchange Commission. Except as required by law, we do not plan to publicly update or revise any forward-looking statements, whether as a result of any new information, future results, or otherwise. In addition, we will also discuss certain non-GAAP financial measures. Our CEO and CFO use these measures in making 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. I'll turn the call over to Dan. Thanks, Sarah. Good afternoon, everyone. I'm excited to share our strong performance as we kick off 2023. I'll start with a brief overview of Q1 results. Revenue came in at $166 million, up 7% year-over-year. Transaction revenue was down 5%, while subscription revenue was up 15%. LegalZoom business formations grew 32% year-over-year to 170,000 units. U.S. Census formations were up 4% to 1.5 million for the quarter. The resulting share gain was 27%, which is the largest gain we've seen since we began tracking it. Adjusted EBITDA was $22 million for the quarter, or a 13% margin. These results reflect the bulk of traffic going to a Freemium lineup test over the full quarter, and then more specifically, all traffic being directed to the winning lineup at the beginning of March. We tested this lineup for some time and there were no surprises in the results once deployed. In March, we were able to better understand the implications of free messaging on traffic, and it exceeded our expectations. Coupled with a stronger than anticipated formations macro, we saw strength across the board. This is a significant business model shift and inflection point, providing a step function improvement towards realizing our strategy. Our first strategic pillar is to scale the core formations business, and in this quarter, we saw record formations growth while improving service levels and reducing cost of revenue per unit on the formations business. Our second strategic pillar is to create an ecosystem of subscription services. With this new lineup, we will further leverage the ecosystem by shifting the purchase mix more aggressively towards recurring revenue. Our third strategic pillar is to integrate experts. This new lineup includes a premium SKU that bundles a subscription with access to our network of independent attorneys. The freemium lineup is an accelerant to all of our strategic pillars. To be clear, it's still early innings, and while we're very happy with the initial launch, there are many opportunities to improve our performance across all investment areas. We're excited to build on this new foundation and we have a backlog of improvements that we've already begun to test. Stepping back, our focus is to remove any barrier that stands in the way of someone wanting to launch a business. With this new lineup, we've materially reduced the price of forming a business, which is especially important in today's economic environment. In fact, the formation lineup pricing we have today is lower than it was at our founding in 2001. This focus on making our formations products more accessible while expanding the type of services we offer beyond just legal and compliance has led us to revisit our mission. Our heritage as a legal disruptor is something we remain both proud of and dedicated to, but we continue to identify additional ways to remove barriers that block entrepreneurs when they form a business. As an early and often the first advisor to small businesses, our customers are looking for us to do much more. Democratizing law is one of many opportunities we have to make expertise more accessible and affordable. As such, 20 years into this journey, we're updating our mission from democratize law to unleash entrepreneurship. We've already made progress against this new broader mission, and we're excited to share additional product updates in support of it by the end of the year. With this new mission, our top priority is helping small businesses get off the ground. We mentioned last quarter that small businesses are resilient, determined, and there are secular tailwinds that point to a strong long-term macro. Many factors such as work from home, the emergence of gig economy platforms, lower capital requirements, and increasingly sophisticated digital enablement tools make starting a small business easier and lower risk than it's ever been before. Just as we feel good about the long-term prospects of the macro, we also anticipate growth opportunities as we begin to leverage generative AI. The most exciting opportunity we see is eliminating of inefficiencies in the contract drafting and review process. This was a key thesis of the Revv acquisition and the forms reinvestment we announced at the end of last year. Where we see less opportunity and therefore we consider the product highly defensible, is within our core filing solution. Let me go ahead and expand on both. There are two parts to our core formation process. The first is providing context and confidence around what's required to form. We believe generative AI is a meaningful evolution to current search solutions when providing content and co-context, and we'll work to integrate those capabilities. It's worth noting that much of this content has been widely available for some time through traditional search, and there is a high bar around confidence in the source, as well as regulations that advice be delivered through a credentialed expert. Once a customer has the necessary context, the formation process is a complex workflow. This requires data collection, mapping the dataset to proprietary unstructured forms, and the last mile connection to over 3,000 counties, 50 states, and several federal agencies. These agencies do not have APIs. Instead, our IP here is the combination of a scaled workflow, numerous RPA bots to automate filing and last mile capabilities that sometimes require human intervention. In many ways, we act as an API on top of all government agencies and likely have an opportunity to be a plugin through ChatGPT. We do, however, believe generative AI will revolutionize the legal document space, and therefore is an untapped growth opportunity. You can already see large investments being made in national consulting and legal practices to build internal tools that serve enterprise clients. What isn't addressed by that investment is smaller, independent firms that can't afford to make similar investments. These are the firms that typically serve small businesses. According to the ABA, roughly half of practicing lawyers are in firms of one to 10 attorneys. One of our strategic pillars is to integrate experts. As part of that strategy, we're building an expert platform that enables smaller firms within our ecosystem to compete by driving new business, managing administrative burdens, enabling efficiencies, and leveraging new technologies. We've hinted multiple times that you should expect new product releases in the back half of this year that will provide clarity on our strategy with attorneys. The foundation for this is a new contract and forms platform that will leverage AI. It's worth noting that while technology will continue to make attorneys more efficient, due to regulations related to unauthorized practice of law, attorneys will still play a prominent role in the delivery of legal services. This is yet another area where we differentiate ourselves from most of our online competition with a large network of independent attorneys already operating in our ecosystem and ready to consume these services. Beyond generative AI, there are many growth opportunities across all our strategic pillars. With the new lineup rolled out and parallel progress on tech investments to streamline fulfillment, we continue to improve efficiencies as we scale volume. We're about halfway through our automation investment and have opportunities to drive higher margin for multiple years. These investments will also serve to improve the customer experience by lowering the error rate and increasing our speed to file. In addition to efficiency gains, we're focused on improvements in how we commercialize our service through the formations workflow. Right after we deployed our winning test, we were in market testing ongoing improvements to the new lineup. In the coming months, we have additional tests queued up on our attached products and services. Similar to Virtual Mail, we moved quickly to integrate forms and eSignature through LZ. This is the third ecosystem subscription launched within the last two years. We aim to be the simplest forms and eSignature provider, offering a low-cost service tailored specifically to small businesses' needs. We're currently working to reimagine the entire end-to-end experience, starting with form and contract creation, through to collaboration with an attorney, and culminating with a process to get a digital signature and securely store your documents. In addition to deploying a lineup that included an attorney subscription bundle, we continue to make progress on our third strategic pillar, integrating experts. While tax season is extended this year with grace periods for filing in California, we're far enough along through the year to understand our performance and begin applying the learnings towards next season. For the year, we expect to double the total number of returns filed compared to 2022, benefiting from the product investments we made before the tax season. We're still just a couple years into creating this service and believe there are opportunities to drive stronger growth through a better return experience, which will then translate to better retention rates. In our first tax season, we were largely an offline provider. That changed this year as we built onboarding, intake, document upload, and accountant scheduling into MileZ. In turn, those investments drove significant improvements. With any new product experience, we continue to receive valuable feedback that will be incorporated into post-season releases. Outside of the filing experience, we are still constructively dissatisfied with active usage and retention rates. While we expected lower retention for those seeking pure advisory as their needs may be more episodic, especially right after they form and pre-revenue, we have not seen the level of ongoing active engagement expected for those entitled to a tax return. We have many insights in this area, as was the case last year, we're building and we'll be testing improvements in anticipation of next tax season. On the whole, this was a big quarter at LegalZoom, I wanna thank the LegalZoom employees for all their hard work and dedication. We made considerable progress against our new mission of unleashing entrepreneurship. As a result, we're raising both top and bottom line guidance for the year, which Noel will detail in a few moments. I'm very encouraged by the progress we've seen in market, demonstrating significant share gains while accelerating our shift to recurring subscription revenue. What gets me even more excited, though, is what I see in our product pipeline and the advances we continue to make in building out a new and novel SMB ecosystem. With that, I'll turn it over to Noel. Thanks, Dan, and good afternoon, everyone. I'll begin by echoing Dan's excitement with regards to our start to the year. The combination of our new lineup alongside refreshed marketing messaging drove impressive market share growth in business formations, a key focus of ours as we look to drive more customers into our subscription ecosystem. Importantly, this combination has also led to improved traffic trends and marketing efficiencies as we've been able to significantly reduce our marketing spend year-over-year while driving the higher volumes. We continue to see increasing benefits from automation within our operations, where improving productivity levels allow us to fulfill orders faster than anticipated in the quarter. We also saw reductions in the number of customer care contacts per order and in the related cost per contact. We believe there is still a significant opportunity to improve the efficiency and effectiveness of our operations and are maintaining the investments needed to realize these gains. Cost discipline remains in focus as we look to balance our goals of re-accelerating revenue growth and improving margins. We remain confident in our ability to drive significant margin improvement year-over-year and see our Q1 result as an important indication of our progress. One of the key factors in our performance this quarter was the macro, where its performance exceeded our forecast and was the Q1 of formation growth reported by the Census in over a year. As a result, we're increasing our formations macro expectation for the Q2. Despite this strength and aligned with our focus on controlling expenses, at this time, we are not adjusting our macro assumptions for the back half of the year. We will continue to manage to the expectation of a recession, with the one exception being the continued acceleration of our investment in product and technology. I'll now provide you a review of our performance in the Q1 and end with our outlook for Q2 and the full year of 2023. Total GAAP revenue in the period came in at $166 million, up 7% year-over-year and above the top end of our guidance range. Transaction revenue was down 5% year-over-year at $62 million. Average Order Value declined 18% year-over-year, while total transaction units were up 15% year-over-year. The reduction in Average Order Value was driven by the full rollout of our new lineup. We completed 170,000 business formations in Q1, up 32% compared to the same period last year. Our formations growth well outperformed the market, which was up 4% during the period as measured by US Census data, enabling us to grow our market share by 27% versus the same period last year. The successful share gain can largely be attributed to our new lineup. We therefore expect year-over-year growth in share gains to moderate in the H2 of this year as we start to lap the initial testing and expanding rollout of our free product. Transaction units were 308,000 in Q1, up 15% year-over-year as the increase in business formation transactions was offset by a decline in intellectual property and consumer transactions. Average order value came in at $202 in the Q1, down sequentially from the Q4 and down 18% year-over-year, again, driven by the rollout of our new lower price lineup. As mentioned earlier, we did see increasing benefits from automation within our fulfillment operations, and improving productivity levels allowed us to fulfill orders faster and recognize more revenue than anticipated in the quarter. Subscription revenue was $97 million in the quarter, up 15% year-over-year due to a 10% increase in the number of subscriptions and continued improvement in ARPU. We saw revenue growth in the quarter across our core compliance, LZ Tax, and virtual mail subscription products. A reminder that Q1 is a stronger quarter for revenue recognition in LZ Tax, given the higher tax preparation volumes and unutilized tax preparation entitlements. ARPU came in at $259, up 6% year-over-year and flat sequentially from the Q4. The increase was primarily due to the increased mix of higher price LZ Tax subscriptions within our total subscription base. We expect year-over-year ARPU growth to moderate through the remainder of the year. Partnership revenue was up 11% year-over-year in the Q1 at $6 million. Turning to expenses and margins, where all of the following metrics are on a non-GAAP basis. Gross margin came in at approximately 66% of revenue in the Q1, up from 65% in Q1 of last year. The improvement was driven by efficiency gains from cost reduction initiatives implemented in the H2 of last year. We expect gross margins to slightly decline in 2023 as a result of higher filing fees as a percentage of revenue due to higher business formation volumes. Sales and marketing costs were $57 million in the quarter, with 35% of revenue down 11 points from Q1 of last year. Customer acquisition marketing came in at $41 million, down 24% year-over-year. In Q2, we continue to expect a significant year-over-year decline in customer acquisition marketing, although to a lesser extent than our Q1 result. Technology and development expenses were $14 million in Q1, up $1 million year-over-year as our primary hiring focus remains in product and engineering. General and administrative expenses were $15 million in Q1, up $1 million year-over-year. Adjusted EBITDA was above our guidance range at $22 million for the quarter compared to $2 million in the Q1 of 2022, and our base of deferred revenue increased $17 million in the period. In the Q1, we continued to execute on our $150 million share repurchase authorization. We repurchased a total of 771,000 shares of our common stock at an an average price of $8.78 per share for a total repurchase of $7 million. Since inception, we have completed $102 million in buyback with a total of 10 million shares repurchased. As of March 31st, 2023, we had cash and cash equivalents of $204 million and no debt outstanding. I'll now provide guidance for the Q2 and full year 2023. For the Q2 of 2023, we expect total revenue of $166 million-$168 million, a 3% year-over-year growth at the midpoint. We expect adjusted EBITDA of $27 million-$29 million or 17% of revenue at the midpoint. For the full year of 2023, we are raising our total revenue to $630 million-$650 million, or 3% year-over-year growth at the midpoint. As a result, we now expect adjusted EBITDA to increase to $105 million or 16% of revenue. With that, let's please open the call for questions. Thank you. As a reminder, to ask a question, you'll need to press star one one on your telephone. To withdraw your question, please press star one one again. Please wait for your name to be announced. Please stand by while we compile the Q&A roster. One moment for our first question. Our first question comes from the line of Andrew Boone with JMP Securities. Your line is now open. Hi, guys. Thanks so much for taking my questions and congrats on a strong set of share gains. Can you talk a little bit about how LLMs may change the competitive dynamic for business formation? What are the risks you see out there as people are more utilizing more generative AI models? What do you see there? Then can you talk a little bit about the cadence of the quarter? Understood FreeReally went live in March. Can you give us some more recent update in terms of what you guys saw on Attach as well as maybe how March compared to January and February? Thanks so much. Thanks for the question, Andrew. Let me start off on the question with generative AI. I mean, maybe I'll just start by saying, you know, this isn't all that new news for us. I mean, if you go back and, you know, think through the pandemic when GPT-3 was released, we saw a pretty significant demonstration of some of the incredible capabilities that you get from LLM and from generative AI. You know, if you think about some of them, it's legal text to plain English, summary briefs, just all the distilling capabilities that it has, even, you know, more complex drafting. You know, when ChatGPT came out, that was just a little bit more about fine-tuning on a model of conversational UI. Those capabilities have been in place for a little time now. If you step back, the generative piece of this is it's gonna change how people write. You know, it's almost like photos changed art, and, you know, bad writers will be somewhat overnight, you know, pretty good writers. We all know attorneys are amazing writers that effectively get paid by the word, which is, you know, proxy of time. There's gonna be an impact on the industry. What I don't think everybody fully appreciates is that, you know, our whole purpose for the first 20 years of our existence has been to leverage tech to make legal services accessible. You know, the issue isn't, in my mind, disruption of the online players. This is all about getting to the problem of non-consumption through broader digital reach. Just about every estimate we see by every expert says that, you know, the majority of the U.S. population leaves their legal needs unmet, and anything that can stimulate that demand is a good thing in my mind. What do I mean by that? On our business, less than 5% of our revenue comes from forms and contracts, including, you know, our estate planning business as well. We announced our acquisition of Revv in Q4 last year, pre the ChatGPT release. Our intent there was twofold. We've talked about e-signatures, and actually we've deployed that already. Part of this was to reimagine our forms and our contract offerings, because we hadn't invested them in that business in 10 years. You know, despite the fact that that's where we got started, we really haven't had a significant investment there for some time. In diligence, when we were out looking at potential acquisitions, you know, Revv, one of the things that attracted to us to them, was the fact that they had some pretty novel features leveraging machine learning. You know, I've been through these shifts a couple times before. What I'd say typically the pattern is, you know, the most disruptive technologies start horizontally, and then they get tuned vertically. We're in a really unique position to not only leverage ChatGPT, but to also couple it with our attorney network to bridge its shortfalls. There's a couple of those, such as, you know, technical issues like hallucinations, but also regulatory issues like unauthorized practice of law. you know, I view ChatGPT as expanding our addressability. Of course, that means we have to be innovative in this space, but we, you know, we are the market leader, so you should expect that. You know, I certainly do. We're excited about where we are and, you know, we have a couple of things that we'll be talking about as we get towards the end of the year, and we're in a pretty good spot for that. On the cadence in the quarter, you know, I would say we didn't see any surprises in the launch, and part of that is a reflection of just how much we tested before we released the winning lineup. You know, if anything, we saw the predictable conversion improvements, we saw the reduction in AOV. The one thing that we were able to get a new read on in March was marketing efficiency and just what the impact of free messaging would be. I can say that that exceeded our expectations a bit. You know, we're just getting started there too, so there's a lot of tuning that has to happen on the lineup itself. But the early indication is that, you know, the free messaging is resonating. You can see it in the share performance. I mean, you know, the 27% share gain is, you know, probably the best indication in general. On the attach side, we did not have any surprises there. It played out exactly how we saw it in our tests, where we're seeing slightly lower attach rates, but that's overcome by the fact that you have, you know, much more units. Overall, it's gonna be an acceleration in the subscriptions business, you know, increasing mix, and driving longer, you know, lifetime revenue. All of that is in combination with lower CAM expenses, and better CAM efficiency. It really was pretty clean, exactly what we had expected. Andrew, just one thing to build on the trajectory of the quarter. You know, we did see some strength in March as we fully rolled out. I mean, we were largely rolled out throughout the quarter, so it was a slight improvement. We also saw a stronger macro in March. That's kinda normalized in April. While we've increased our assumptions and forecasts for the macro in Q2, our projections are not as strong as what we actualized in Q1. Then per our commentary, we also noted that in the back half of the year, we continue to take a really conservative approach to the macro. As you think about Q2 from a business formation standpoint, you know, what we saw in Q1 should be a fair expectation for our performance in Q2 from a year-over-year growth standpoint, and still staying conservative on the macro in the back half of the year. Great. Thank you so much. Thank you. One moment for our next question, please. Our next question comes from the line of Matthew Pfau with William Blair. Your line is open. Yeah, great. Thanks for taking my question. Wanted to, you know, ask on LZ Tax. Just to sort of clarify, how did that perform its second year relative to your expectations? You know, when you're thinking about areas of improvement, maybe, you know, what would some of those look like? Where do you think there's additional opportunities with that product? Yeah, thanks for the question, Matt. Yeah, just to refresh, I mean, our tax business is pretty unique because we serve a segment of customers that a lot of people don't yet serve, which is someone who's even pre-formation and pre-operation. If people have questions about what type of entity they should have, and then even if they've created an entity, sometimes it means that they're not yet in operation, and we give them a lot of tax advice. It's a pretty unique business through a unique channel because, again, we have, we can identify them, whereas other people would have to do, you know, performance marketing or brand marketing to acquire these customers. Progress here has been pretty amazing. I mean, one thing I reflect on is, it's a practice that's less than two years old. We just finished our second tax season. The, the scaling that we're doing, plus service improvements is phenomenal. That said, you know, I wouldn't say I'm disappointed, but I'm very dissatisfied in that, you know, we still see retention rates that, you know, we believe we should be doing better. You know, part of that is issues that we've identified ourselves just in the process of filing and some of the capabilities that we'd wanna have on an ongoing basis as a tax service, you know, beyond filing itself. You know, we basically keep learning these things as we get out to market. If you think, you know, what our philosophy is here is we're trying to balance speed of growth and scale, and then also kind of listening to our customers and evolving the service itself. You know, it continues to be a strong performing service, and yet I feel like there's a lot of upside here as we continue to refine the end-to-end experience for our customers. Got it. In terms of, you know, the share gains you're seeing, I mean, my guess would be a lot of that is coming from more of the price-sensitive consumer. What are you doing then to address the large portion of the market that's still, you know, paying a much higher fee to go to a bricks and mortar attorney to do a business formation? Yeah, that's one of the really fun parts of the lineup that we deployed, is it both solves for the price sensitive at the low end with the free offering, but our premium SKU actually comes bundled with access to an attorney. You know, the benefit there is we're introducing a lot of people to the idea of you can get access to an attorney through technology to handle, you know, some of the early questions that you have as you're forming. Then you can decide from there whether or not you're gonna renew the service. That really is an entree into starting to disrupt the higher end of the market. Super early innings here, actually, you know, the volume that we're seeing coming in from this lineup is again, what we're gonna learn from and keep evolving the service. The early read is quite positive, and that was the lineup that won, overall in terms of both, you know, thinking about conversion as well as lifetime value. The other thing I'd add just in the value that we bring is the fact that it's a full suite of solutions and services that we provide either directly or through partners, which is a better customer experience. We're also improving our overall customer experience. We also mentioned this in our remarks around the automation and up-- wins that we've had in terms of the delivery of our services. We've been able to deliver a faster and better experience to our customers, which makes us a better choice overall. Great. Appreciate you taking my questions. Thank you. Thank you. One moment for our next question, please. Our next question comes from the line of Mario Lu with Barclays. Your line is now open. Hey, this is Jack Butler in for Mario. Thanks for taking my question. My first question was surrounding the partnership side of things. When should we expect to see a meaningful uplift from these new partnerships such as Chase? Is there any timeline you might be able to put behind that? There's two forms of partnerships on our side just to back it up and provide some context. On one hand, we have partners where we're marketing their service through our formation workflow. On the other hand, we have the partnership channel where some of the partners that we have are actually marketing our formation service as well. I think your question was more on the services that we're marketing through our platform. I'd say that that's actually a lot of moving parts. We've talked about we exited another partnership on the uncontested divorce side last quarter, so that's a bit of a headwind. While at the same time, we're really ramping up our partnership with Wix. We added Chase as a banking partner, and I'd say NEXT Insurance is another meaningful partner for us. Those are all growing very healthy, and I'd expect that that starts to, you know, that continues to accelerate. Again, it's just lapping some other things that we're exiting. You know, if you think about it, if you can go back further a couple years, you know, that has been a consistent theme of ours as we're trying to build out an ecosystem that has an integrated experience for customers. At times, that means if something we feel like is directly in the compliance space, you know, we should have more ownership over that experience, and we brought some of those things in-house. If, as you guys remember, tax used to be a partnership, and now it's, you know, core to what we're offering our customers as well. On the partnership channel, it's kind of similar. You know, we have some partners where, you know, we feel like it's a very symbiotic relationship where we're marketing their service and then in turn they're marketing our service. In some cases, we have a legacy of almost acting as a vendor, as a very low-cost vendor to alternative providers. On the, on the case of the bilateral side, we love it. You know, we wanna have partnerships where we feel like it's symbiotic and we're both helping each other. On the vendor side, we feel like that's probably not core to what we wanna be doing longer term, and we think those economics don't fit aligned with what we're trying to do from a lifetime value perspective. There's gonna be places where there's puts and takes where we're exiting, partnerships from a channel perspective. Great. That's helpful. Then in terms of customer acquisition marketing, I know you indicated earlier on the call that you would expect to see a decline in that in Q2 on a year-over-year basis. Is that largely as a result of just shifting towards product and maybe weaning off after, you know, season maybe with heightened marketing on LZ Tax? Or is there some other factor at play that maybe you could call out? Yeah, there's a couple different factors here. I mean, we've really scaled down our brand spend. That's a reflection of thinking relatively to our competition. Our awareness is just extremely high, and we have a strong lead. In this environment, we didn't feel like that's the place to commit and have long-term investments, so we backed off on the brand side a bit. It's also just gotten more efficient when you start to think about the performance side, given the free messaging that we're using, some of the channel shifts that we're doing, you know, within performance marketing. Then even beyond that, you know, sales and marketing, so in thinking about the OpEx side, we adjusted as well. Sales, for instance, has come down as an expense. It's, you know, when you think about the headcount side, you know, that's down 8% for the quarter. You know, PM down 24%, the sales and marketing, you know, headcount expense down 8% with the program dollar in there as well. It's sort of across the board a reduction as we become more and more efficient to align with our new strategy, which is, you know, a lower AOV product. Really helpful. Thanks for taking my question. Thank you. Thank you. One moment for our next question, please. Our next question comes from the line of Ron Josey with Citi. Your line is now open. Great. Thanks for taking the question. Dan, I wanted to follow up on a question or a comment you had earlier. The most disruptive tech, I think you said, gets announced horizontally, then tuned vertically. Talk to us about how that might impact LegalZoom or how you're thinking about LegalZoom from a verticalized LLM support perspective. I know we've talked about Freemium on the call here, and forgive me if this has already been answered or asked, but I know we got insights on the, you know, how the quarter progressed, but talk to us just about lessons learned here in terms of demand and more importantly, really wanna focus on the upsell process and driving awareness of everything else that LegalZoom has to offer. Thanks, guys. Thank you for the question, Ron. LLMs and verticalization, I mean, it's just like it's almost like another form of saying fine-tuning, where if you think about LLMs and you think about ChatGPT, it does a little of everything, and it doesn't do anything perfect. If you think about that, some of it's gonna be related to, you know, the data sources, where, you know, those models might not have access to things that are analogous to the segments of customers that we're serving. I'll give you an example. You may be able to go and scrape terms of service from every site that exists on the web, and, you know, immediately be knowledgeable in drafting terms of services and really calling out anomalies in services. Do you have access to small business vendor contracts or, you know, do you have access to, you know, some geographically based terms tied to a lease? You know, that's where volume players will have a little bit of an advantage, and that's when you start to think beyond, you know, API-driven platforms on the LLM side into more open source and, you know, where you have the ability to fine-tune with your own data set. It's such early innings. We get really excited here, though, because, you know, we also have lots of data, and we have a way to accumulate data that other people don't. That's also why, you know, having your own expert platform becomes really important because that is the set that you train the models on. You'll see more and more investment from there over the coming quarters. On the second question, lessons learned on the lineup and how we, you know, drive demand. I mean, I think here we did so much testing going into deployment of the lineup that we really understood all the commercialization challenges. To your point, the thing that we hadn't yet fully understood was what was gonna be impact on the marketing side and how we drive demand. There are some sub-channels. There's new channels that we've identified that we haven't really participated in, I don't wanna get into the details of that, but that's one big learning that I think we pulled out. The other thing here is we're just really getting a sense of how you apply free messaging and where you specifically apply it. You know, in some ways it has the effect of bringing down AOV the more you amplify the free message, which we knew it was going to do. You have to find that right balance of, you know, how do you make sure it's there for the customers who are price sensitive, but at the same time that you're not, you know, over-indexing on all the free messaging as well. I'd say this is a place where, you know, we are just getting started. I think there's a lot of opportunity for improvement as we go throughout the year because, you know, we really didn't have a chance to test it. That's all happening in market right now. Thank you. One moment for our next question. Our next question will come from the line of Brent Thill with Jefferies. Your line is now open. Hi, this is Cha Min for Brent Thill. Thanks for taking the question. Two question. One, on the Freemium, wondering if you could talk about the pace once they kind of come in through that door, you know, how quickly do they end up buying, you know, a, a paid product and typically which products get attached? Second, on your decision to keep your recession or macro outlook the same for H2. Just wondering, you know, what you're seeing. I mean, it looks like last quarter you mentioned January, February pretty good, and obviously Q1 turned out very well, but just wanted to see your thinking behind that thought process or the guidance around the macro assumption. Thank you. Yeah, thanks for the question. On attach rates on this new cohort of customers, you know, it's actually been relatively predictable. Again, through testing, we saw what customers were attaching, and there are a set of standard solutions that we offer. One, you know, one we call a pack of essential docs, which is, you know, things like an operating agreement, EINs, you know, helping them with business licenses. Separately, you know, the compliance subscriptions like registered agent, and we have a compliance subscription that does all your annual filings as well. Those are pretty standard, and they attach very well because when you know, get down to it, they're sort of required still. They're not only kind of value add from a perspective of, you know, thinking through, like, what is relevant as you form, they're actually required. They still attach pretty strong. What I'd say is we haven't really commercialized these products in any way to adjust to the new segments that are coming in. When you think about a very price-sensitive customer, they may not be looking for as much as broad a feature set or as rich a product, and they might be looking for something that's a little bit more simple, which gives us the opportunity to consider commercializing it slightly different to drive those attach rates up. Again, like, the really interesting thing here, and I'm just gonna keep saying it, we were extremely happy with the launch of Freemium. There were zero surprises. What I'd say coming out of it is, you know, we have a somewhat under-optimized lineup now where we haven't tested, a bunch of the add-on subscriptions or add-on products and transactional products. There, there's opportunities that we're gonna start identifying. We have a whole queue of tests that are kinda sitting there waiting to be run that have been sitting behind this Freemium lineup for quite some time. On your question with regards to the macro, you know, we feel like we're being appropriately conservative there. We're obviously still in the midst of an uncertain macro environment, kind of high inflation, increasing interest rate environment. There's a general expectation that the economy will slow. We also, you know, from a historical CAGR standpoint, look at the historical growth rates and macro formations and do some triangulation there on what the new slope could look like over an extended period, given that we think the slope has shifted more favorably, given all the tailwinds, as it relates to forming and getting a business operational. We factor in a lot of different things, but overall believe that it's appropriate to stay conservative as we look out farther and we'll normalize our forecast to whatever we're expecting for the upcoming quarter based on what we're seeing. For now, as you look out extended quarters, we're gonna continue to stay conservative. Yeah, in April, you know, as an example, because as the U.S. Census publishes weekly data, you can see it stayed pretty healthy as well. Yeah, to Noel's point, we really wanna control the things that we can, and we feel like the discipline of assuming a negative macro is healthy to how we manage the headcount. It's healthy to how we think about how we're spending, and we wanna be as conservative as possible in this environment. Thank you. Thank you. One moment for our next question. Our next question comes from the line of Jackson Ader with SVB MoffettNathanson. Your line is now open. Great. Thanks for taking our questions, guys. Actually, just one from our side. Is there like a different contemplation for the lifetime value of a customer, you know, that kinda matches the willingness to accept a lower upfront price? Maybe that might impact either, you know, the long-term model or the long-term margin profile. Thanks. Yeah, I wanna make sure I understand your question. Are you asking whether or not we should expect a different LTV for the customers coming in through this lineup? Yeah, 'cause I'm just thinking, like, you know, if we think back to the IPO a couple of years ago, your long-term model probably just contemplated like a, certainly a different upfront price for most of the transaction units, and then also a different price for the subscription units that would be attached. I'm just wondering, like this new, you know, the new product offering, how that interacts with your long-term margin profile that is, I think, mostly unchanged since you guys came out? Yeah. Well, I mean, it's somewhat unknowable as you start to get to, you know, the out years, what the LTV impact will be of this customer base. I think the way we're looking at this is on a relative basis to what the CAM spend is. You know, when we look at the AOV reduction, for instance, or if we look at the total cart value reduction that is happening due to this new lineup, we actually see the CAM cost per customer going down at a faster rate than the actual cart value. You know, that should lead to a bit of an expansion, but it also just depends a little bit on what we're talking about in year two behavior, year three behavior. Of course, we're shifting more to subscriptions, so it stands to reason that the margin profile improves. It really depends on some retention rates. That data is just unknowable right now. Right. Okay. All right. Thank you. Thank you. One moment for our next question, please. Our next question comes from the line of Elizabeth Porter with Morgan Stanley. Your line is now open. Great. Thank you so much. I wanted to touch on the share gains in business formations, is that 27% is very impressive in Q1. While you expect that to moderate in the year, you know, how should we think about the trend versus your original target to achieve about a 12% improvement, you know, this year? Has that target changed at all just given the strong Q1 performance? Actually, when we talk about it moderating, that's moderation of the growth rate, which is really just starting to lap the testing that would happen in the back half of the year. That's, you know, what we're really trying to drive is increased share throughout the year. I talked about this a little bit earlier. There might be things that we decide that we think are not, it's share that we don't want because it's not the right value associated with that share. There's places where we know today there's incremental investments that we can make that can drive more share. You know, example there is we still only optimize the LLC portion of formations, but that's, you know, three quarters of the formations transactions roughly. There's still a quarter of them that, you know, weren't still traditionally priced. You know, this is, it was a very strong results and we're super happy with it. We feel like it sets us up to now optimize more, and start to build off of it as we go throughout the year. One thing I'll just add there, Elizabeth, we had stated that our goal was to grow market share by 15% this year. You know, we're still highly confident that we are going to drive at least 15% growth. Got it. Thank you. Then, I believe you noted about half the work so far has been done on the automation of filings. So when could we see that other half, you know, completed? Is this a driver that, you know, is more likely to come kind of beyond 2023 or something that's more of a near term dynamic? Thank you. Yeah. The way automation works is, you know, we really prioritize based off of the number of transactions that are occurring. As you can imagine, because we do a lot of different types of transaction types, you get to a place of diminishing return eventually, and it becomes a little bit more of a, like a long tail of smaller improvements. What I would say is we expect some significant improvements by the end of this year that should drive incremental efficiencies. At that point, you know, we start to move to transaction types that have a little less impact thereafter. There are parts of our products, for instance, that, you know, I mentioned before that we really haven't touched in many years. Even like when you think of our consumer business, that still has a lot of manual processes underneath it. Most of what we've talked about on the automation side has really been on the small business side. Still opportunities. A lot of larger improvements should happen over the next six months, then it starts to moderate. Great. Thank you. Thank you. I'm currently showing no further questions at this time. This concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone, have a wonderful day.