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| Statement |
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| While we do rebuild share as we lap our partner exits in the back half of 2024, our plan is to balance share gains with stronger revenue per customer |
| And we've seen strong attach |
| All of these accomplishments put us a strong position as we enter 2024, and I'm excited to share the progress we continue to make against our strategy |
| And we saw the strength across multiple products in the quarter, really, Elizabeth, and Virtual Mail, LZ Tax a bit as well, but primarily in our core compliance subscriptions where we saw really improved retention that exceeded our expectations for the quarter and allowed us to outperform the guide that we had for -- we had set for Q4 |
| So we were really happy with our revenue performance in the quarter, and particularly on the subscription side |
| But we actually got a nice acceleration in growth in that segment |
| We also prefer to have more customers coming into our ecosystem because we feel confident that over time, we're going to get better and better at post formation monetization |
| As a reminder, the macro showed strong acceleration in the back half of 2023, creating a more challenging comparison |
| Our strong cash position enables us flexibility to execute against all three of these priorities simultaneously |
| We expect sequential improvement in subscription unit growth in the back half of the year |
| Full year adjusted EBITDA increased 86% to $119 million, reaching an 18% margin |
| We also saw strength in our Virtual Mail and Forms and e-Signature subscriptions |
| We ended the quarter with over 1.5 million subscription units, up 7% and our continued strength in core compliance, where growth was partially offset by the impact from the exit of legacy partner relationships |
| Subscription revenue was $107 million in the fourth quarter, up 17% due to continued growth in our subscription unit base and ARPU expansion |
| Before I share details on the quarter as well as guidance for Q1 in the full year 2024, I'd like to reflect on the strong execution of our team |
| We had a strong fourth quarter with both revenue and adjusted EBITDA exceeding our expectations |
| The great strides we are taking in our business are powered by the hard work, creativity and innovation throughout our entire organization |
| I'm excited about the progress we continue to make across each of our strategic pillars and the opportunities ahead of us that will drive growth in every area of our business |
| As a result of the shift in continued formation growth, we've been able to grow our subscription revenue by 19% CAGR since 2019 |
| Modernizing our infrastructure has allowed us to drive better order efficiency which, in turn, enabled the launch of our freemium lineup |
| Registered agents and compliance are core needs for our customers when they form, and we continue to experience healthy attach and stable retention rates |
| We're excited about the opportunities for growth in both business formations and estate planning with the combination of these markets representing a refreshed serviceable addressable market of approximately $13 billion |
| You should expect to see the free lineup deviate from our premium SKUs over the next couple of quarters, along with a more significant mobile experience improvement that will benefit all our customers, but disproportionately free traffic is free prospects skew more mobile |
| And the more we have success in the post formation monetization side, the more it just beats that flywheel and allows us to take less upfront pricing from our customers |
| We rolled out a record number of products and services in 2023, providing many new opportunities for commercialization |
| So that's where I think we get really excited |
| Subscription revenue grew to $413 million, which represents growth of 15% for the year |
| Our strong performance in the fourth quarter resulted in $33 million of adjusted EBITDA or 21% margin compared to $27 million of adjusted EBITDA and margin of 18% at the same time last year |
| Subscription revenue grew 17% and accounted for over 2/3 of the quarter's revenue |
| Our CPGs are also very happy with the changes as we now have the complete process from onboarding up to filing on our own platform |
| Statement |
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| Since 2021 and post the COVID spike, our estate planning business has declined approximately 20%, which has been a background headwind to our overall growth |
| This includes the following drivers: a 4-point headwind to subscription revenue growth from the shift in our LZ Tax strategy, which is more pronounced than the first half of the year |
| Transaction revenue was $52 million, down 6%, driven by an 8% decline in average order value, partially offset by a 2% increase in transaction units |
| Our market share of business formations was 9.7%, down sequentially and year-over-year |
| Average order value was $242 for the quarter, down 8% due to our lower price lineup and an increasing mix of our lower price formation and non-formation business transaction products |
| While we continue to see growth in our LLC formation product, headwinds from exiting certain partner channel relationships and the impact from our sales reorganization drove the formation and market share declines |
| Largely as a result of terminating multiple partnerships and our decision to restructure our sales organization at the end of Q3, our total formations declined 2% year-over-year |
| For the full year, we expect this will translate into a low single-digit decline in AOV compared to the full year 2023 |
| We are also projecting a slower macro Census EIN growth relative to the 8% growth we experienced in 2023 |
| And we gave you in the prepared remarks some specifics around it a 4-point headwind on subscription growth alone |
| I think -- on the subscription side, obviously, as we've indicated the last couple of quarters, LZ Tax is going to be a headwind for us in 2024, particularly in the first half of the year |
| So the concern is primarily just on that initial cart purchase |
| So in the near term, as we think about the first half of next year, we expect the overall number to be lower than it was in the prior year |
| And so that is something that actually mutes the opportunity a little bit |
| We completed 113,000 business formations in Q4, down 2% |
| Looking ahead, in Q1 2024, we expect to see a similar year-over-year decline in gross margins due to the aforementioned impact of reinstated California filing fees |
| For the full year, we currently expect flat to low single-digit growth in the formations macro, which translates into some deterioration versus Q1 levels for the remainder of the year |
| As a result, we expect full year market share in 2024 to be slightly lower than full year 2023, with the back half of the year returning to year-over-year growth |
| We expect AOV to decline in the mid-single digits in Q1 2024 with some choppy AOV trends in the following quarters as we lap the impact of partnership exits and BOIR timing where we expect to see higher order volumes in Q1 and even more so in Q4 |
| And then just as a follow-up, I believe initially you expected subscription revenue growth to slow in Q4, but you actually -- due to the change in commercial strategy with LZ Tax |
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