LegalZoom.com, Inc.

Good day and thank you for standing by. Welcome to the LegalZoom's third quarter 2022 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 1 on your telephone. You will then hear an automated message advising your hand is raised. 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 third quarter 2022 earnings conference call. Joining me today is Dan Wernickoff, our Chief Executive Officer, and Noelle 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 the 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, and are 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 factor section of our most recent quarterly report on Form 10-Q 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 events, 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.legaldoom.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'll turn the call over to Dan.

Thanks, Sarah, and good afternoon, everyone. In Q2, we outlined a path forward that leverages the brand leadership established over the last few years, while better capturing the demand we already have through increased product innovation. As a result, we committed to a 15% EBITDA margin and a 15% share improvement in 2023. I'm happy to say we've made progress against both of these stated goals. But more importantly, some of the larger product and platform investments we've been making over the past few years are beginning to bear fruit. To be clear, it's still very early endings for our product transformation, but the momentum is there and you should continue to see our product output accelerate over time. Before getting into more details on progress against priorities, I'll give a brief overview of our third quarter results. Q3 revenue came in at $154 million, a 4% year over year. Transaction revenue was down 14% in the period while subscription revenue offset this weakness, growing 25%. LegalZoom business formations grew 3% in the third quarter, while U.S. Census formations were down 2%. The share gain in Q3 is both a result of increased testing of our freemium lineup and increased acquisition through channel partnerships. Adjusted EBITDA was $17.5 million in the third quarter. Given the quick expense actions we've taken, we expect to realize improvements in margin for the remainder of the year, To remind you, this is a result of multiple reductions in force over the past six months while restricting hiring primarily to product and technology. Progress automating our core formation and tax fulfillment process, which will continue to drive down variable costs. And in Q3, we began to reduce our brand spending, rotating our focus to higher intents, lower funnel, and earned channels. Moving on to some operational highlights. we continue to focus on progress against our three growth vectors, scaling the core business, building an SMB ecosystem, and integrating experts into our core experience. Those three priorities will translate into us forming more businesses, solving more compliance problems in an integrated way, and providing efficient and affordable access to the two most important advisors a small business needs to succeed, their attorney and their accountant. In Q3 and heading into Q4, we're ramping lineup testing and incorporating different variations of free with the goal of making our product more accessible to cost-sensitive SMBs. We've learned quite a bit and are applying these learnings into new variants, and as a result, we're accelerating the number of tests as we enter Q4. In addition to reaching new businesses through lower-cost entry points, we've also expanded our distribution through partners. We hope to add more partners looking to bundle our Formations product with their own services, which include FinTech, website, and brand identity solutions, among others. It's important to note that as we bring our marketing spend down and begin to focus more on product conversion as a result of premium offerings and distribution through partners, overall traffic to our site will show declines year over year. Despite this reduction, our overall traffic per month remains at roughly 10 times the number of businesses being formed in any given month, as measured by census data. And our product starts, how we measure high intent purchases, are also materially greater than the whole of formations in a given month. To be clear, we've never had a traffic issue. Our biggest opportunities have been evolving from a consumer to an SMB brand, driving high intent traffic to our product pages, and improving conversion rates. The largest of those opportunities is to improve conversion. And finally, as we expand distribution through lower cost offerings, we're accelerating our automation efforts. Our speed to deliver our core formation products continues to improve and our error rates that drive customer calls continue to decline. This is a win-win as speed of delivery is a core driver of Net Promoter Score improvements and automation leads to lower COGS. Moving to our ecosystem investments, we continue to both build and buy into a unique SMB ecosystem designed to get businesses off the ground and keep them operationally compliant. In Q3, we began ramping the integration of Earth Class Mail, soon to be renamed LG Virtual Mail, into our formations flow, and early results look promising. As a reminder, the majority of small businesses are home-based, and virtual mail offered right at the time of declaring your business address is resonating with our customers. In October, we closed on the acquisition of Rev. Rev is an online forms and e-signature service. This acquisition will help us accelerate two critical areas of product investment, updating our forms library while enabling expert collaborations directly on the form itself, and providing the ability to send these forms out for e-signature and have them stored and managed through our document solution. Our research shows 40% of SMBs have paid for an e-signature solution, so there are opportunities to commercialize this product as a standalone, or potentially add it as a bundled capability to drive better retention in existing subscriptions. The acquisition of REV also establishes a talent beachhead in Bangalore, further enabling us to grow our product organization. These capabilities are being integrated into our new application experience called MyLZ, where you will begin to see a cohesive product strategy to integrate our formations capabilities and ecosystem subscriptions into a single experience. Think of it as the place SMBs interact with their experts, find the right business solutions, and the key destination for all their compliance activities. It's also the place where we integrate strategic partnerships, and we are now live with both Wix and Next Insurance through this experience. Finally, we continue to evolve our third priority, integrating experts. Experts remain critical to our strategy. In LDTACS, we are testing a new lineup with a newly launched advisory-only solution for pre-revenue customers. This is similar to our legal advisory subscription. As a result, as we enter tax season this year, we expect to have a product built to support businesses at different sizes and stages, better optimized pricing, and an improved first-use experience with streamlined onboarding of clients and intake during tax season, all of which we also intend to deliver through MyLD. We continue to include attorney bundles in some of our line of testing, but the early read hasn't been strong. So our focus has become much more concentrated on introducing a free or lower cost DIY alternative while sequencing a deeper integration of attorneys after we deploy a new lineup. Overall, it was a very busy quarter with significant progress made against our product roadmap. Stepping back for a second, we began adjusting to a deteriorating macro early in the second quarter of this year. While we have yet to see a significant near-term deterioration in the macro, we remain vigilant in controlling expense actions and view many of the changes as natural in the course of shifting our focus more towards the product experience, which we anticipate will be the driver of future growth. The efforts we've made to reduce costs are funding our efforts to build out our platform and ecosystem. Formations have declined this year, and for calendar year 2023, we expect formations to decline again. It's clearly a tougher environment for all businesses, including small businesses, which is why it's even more important to make our product more accessible with lower lead-in pricing. Our goal is to help more of these businesses now with the expectation that we will be able to monetize in the future. And we can do that while improving our profitability today through the actions we've already taken. Given our low fixed cost structure, strong cash position, and cash generation, and the leverage we expect to get from product improvements, we believe we are in the best position in our competitive set to not only weather the storm, but in the long-term benefit from it. With that, I'll turn it over to Noel to go through the details. Thanks, Dan, and good afternoon, everyone.