Cuộc họp công bố kết quả kinh doanh Q3/2026 của LegalZoom (LZ): Tăng trưởng thuê bao, hạ dự báo EBITDA

LegalZoom (NASDAQ: LZ) báo cáo doanh thu quý 3 năm 2026 đạt 195 triệu USD, tăng 3% so với cùng kỳ năm ngoái, nhờ tăng trưởng mảng thuê bao bù đắp cho doanh thu giao dịch suy yếu. EBITDA điều chỉnh tăng 8% lên 50 triệu USD, nhưng ban lãnh đạo đã hạ triển vọng lợi nhuận cả năm để tài trợ cho việc đa dạng hóa kênh thu hút khách hàng và các dịch vụ có giá trị cao hơn.

Điểm tin chính

• Doanh thu quý 3 tăng 3% so với cùng kỳ năm ngoái lên 195 triệu USD. Doanh thu mảng thuê bao tăng 11% lên 140 triệu USD, trong khi doanh thu giao dịch giảm 14% xuống 55 triệu USD.
• EBITDA điều chỉnh tăng 8% lên 50 triệu USD. Biên EBITDA điều chỉnh đạt 26%, tăng khoảng 130 điểm cơ bản.
• Các dịch vụ thuê bao kết hợp hỗ trợ từ con người chiếm 49% tổng doanh thu và tăng khoảng 17% so với cùng kỳ năm ngoái. Số lượng thuê bao Business Manager tăng khoảng 25% so với quý trước.
• LegalZoom đã xử lý khoảng 110.000 hồ sơ thành lập doanh nghiệp, giảm 13%, do hoạt động tìm kiếm truyền thống tiếp tục chịu áp lực. Giá trị đơn hàng trung bình của mảng giao dịch giảm 12% xuống còn 222 USD.
• Ban lãnh đạo duy trì mức trung vị 800 triệu USD trong triển vọng doanh thu cả năm, nhưng hạ dự báo EBITDA điều chỉnh xuống còn 180 triệu - 185 triệu USD, chủ yếu phản ánh các khoản đầu tư vào kênh thu hút khách hàng và hiệu quả kinh tế thu hút khách hàng suy giảm.
• Công ty kết thúc quý 3 với 182 triệu USD tiền mặt, không có nợ và dòng tiền tự do lũy kế từ đầu năm đạt 109 triệu USD.

Dữ liệu tài chính quan trọng

Kết quả kinh doanh và hoạt động

Các dịch vụ kết hợp hỗ trợ từ con người tiếp tục là trọng tâm tăng trưởng chính của LegalZoom. Các gói dịch vụ này kết hợp những sản phẩm tuân thủ quy định như Registered Agent và Virtual Mail với khả năng tiếp cận các quản lý doanh nghiệp, luật sư và những chuyên gia khác. Ban lãnh đạo cho biết mô hình này nhằm xây dựng mối quan hệ lâu dài với khách hàng thay vì tối đa hóa doanh thu từ một giao dịch thành lập doanh nghiệp đơn lẻ.

Công ty đã bắt đầu thử nghiệm các gói dịch vụ thành lập doanh nghiệp dựa trên mức độ hỗ trợ mà khách hàng mong muốn. Tính đến cuối tháng 10, tỷ lệ khách hàng chọn gói cao cấp nhất đã tăng hơn 50%. LegalZoom đang mở rộng năng lực bán hàng và dịch vụ để hỗ trợ triển khai rộng rãi hơn.

Số lượng thuê bao Business Manager tăng khoảng 25% so với quý 2. LegalZoom cũng đang tùy chỉnh dịch vụ cho các ngành nghề bao gồm bất động sản, nơi có gần 269.000 doanh nghiệp đang hoạt động được thành lập qua nền tảng. Ban lãnh đạo đã xác định tuân thủ định kỳ, bảo vệ tài sản, thâu tóm và mở rộng danh mục đầu tư là những cơ hội dịch vụ phù hợp cho nhóm khách hàng này.

Virtual Mail tiếp tục ghi nhận sự tăng trưởng mạnh mẽ về số lượng thuê bao. Khách hàng có thể quản lý thư vật lý thông qua các tích hợp với Claude và ChatGPT. Tỷ lệ áp dụng các tích hợp AI này ở các tài khoản cấp cao hơn cao gấp khoảng 10 lần so với các tài khoản khởi đầu.

LegalZoom đang đa dạng hóa việc thu hút khách hàng ngoài kênh tìm kiếm truyền thống. Doanh số từ chương trình Chase Offers đã tăng gấp đôi so với quý trước trong quý 3. Công ty cũng đã ký kết thỏa thuận hợp tác với Amex Ads, LivePlan và TurboTenant.

Lưu lượng truy cập giới thiệu từ các nền tảng AI đã tăng gần 50% so với quý trước, mặc dù ban lãnh đạo cho biết khối lượng vẫn còn nhỏ. Công ty đang tham gia vào các sáng kiến khám phá cùng Google, OpenAI và các đối tác AI khác, đồng thời đã bắt đầu thử nghiệm các vị trí quảng cáo trả phí trong AI Mode của Google.

AI cũng hỗ trợ nâng cao hiệu quả hoạt động. Trợ lý AI của LegalZoom đã giải quyết hoàn toàn gần một nửa số cuộc trò chuyện qua chat và gần một phần tư số cuộc gọi chăm sóc khách hàng. Tiếp nhận hồ sơ nhãn hiệu bằng công nghệ AI đã giảm thời gian từ lúc mua đến lúc nộp đơn khoảng 20% trong quý 3 so với quý 1.

Dự báo của ban lãnh đạo

LegalZoom đã thu hẹp triển vọng doanh thu năm tài chính 2026 xuống còn 797 triệu - 803 triệu USD trong khi giữ nguyên mức trung vị 800 triệu USD, tương ứng với mức tăng trưởng khoảng 6% so với cùng kỳ năm ngoái.

Trong quý 4, ban lãnh đạo dự kiến doanh thu đạt 190 triệu - 196 triệu USD, với mức tăng trưởng khoảng 1% ở mức trung vị. Doanh thu mảng giao dịch dự kiến sẽ giảm ở mức mid-teens (khoảng 15%) so với cùng kỳ năm ngoái do áp lực tìm kiếm tiếp diễn.

EBITDA điều chỉnh cả năm hiện dự kiến đạt 180 triệu - 185 triệu USD, tương ứng với biên lợi nhuận khoảng 23% ở mức trung vị. EBITDA điều chỉnh quý 4 dự kiến đạt 48 triệu - 53 triệu USD, với biên lợi nhuận khoảng 26% ở mức trung vị.

Ban lãnh đạo giải thích hơn một nửa khoản giảm 10 triệu USD trong mức trung vị EBITDA điều chỉnh là do đầu tư vào các đối tác, mạng lưới liên kết và vị trí quảng cáo AI trả phí. Khoảng một phần tư phản ánh hiệu quả kinh tế thu hút khách hàng suy giảm, trong khi phần còn lại hỗ trợ Business Manager và danh mục dịch vụ thành lập doanh nghiệp mới.

Triển vọng này giả định môi trường tìm kiếm hiện tại sẽ tiếp diễn cho đến cuối năm và không tính đến sự phục hồi của lưu lượng truy cập từ Google.

Rủi ro và các điểm cần theo dõi

• Áp lực từ tìm kiếm truyền thống đang làm tăng chi phí thu hút khách hàng và làm giảm số lượng thành lập doanh nghiệp.
• Các kênh thu hút khách hàng mới ban đầu có thể tạo ra lợi nhuận thấp hơn trong khi LegalZoom thử nghiệm và tối ưu hóa chúng.
• Doanh thu mảng thuê bao có thể chịu tác động trễ từ khối lượng giao dịch suy yếu do mảng thuê bao thường có độ trễ so với hoạt động thành lập doanh nghiệp.
• Cơ cấu giao dịch đã dịch chuyển sang các dịch vụ nộp báo cáo hàng năm có giá trị thấp hơn, góp phần làm giảm giá trị đơn hàng trung bình.
• Việc đầu tư vào năng lực bán hàng và dịch vụ sẽ làm tăng chi phí trong ngắn hạn, trong khi các lợi ích kỳ vọng về mức độ tương tác và giữ chân khách hàng sẽ cần thời gian để phát huy hiệu quả.

Điểm nổi bật từ phần Q&A với chuyên gia phân tích

Ban lãnh đạo xác định các dịch vụ kết hợp hỗ trợ từ con người là cơ hội tăng trưởng dài hạn bền vững nhất của LegalZoom. Công ty kỳ vọng sự hỗ trợ từ chuyên gia, Business Manager và các gói dịch vụ cao cấp sẽ giúp bù đắp một phần áp lực thu hút khách hàng ban đầu (top-of-funnel) theo thời gian.

Về chi tiêu thu hút khách hàng, ban lãnh đạo cho biết LegalZoom sẽ dành thời gian để các kênh mới trưởng thành nhưng sẽ tiếp tục áp dụng các ngưỡng lợi nhuận và giá trị vòng đời khách hàng. Chi tiêu sẽ dịch chuyển sang các kênh có hiệu quả kinh tế tốt nhất khi dữ liệu hiệu suất được tích lũy.

Ban lãnh đạo cho biết các mối quan hệ hợp tác có thể mở rộng quy mô đáng kể vì khách hàng được giới thiệu có xu hướng phát triển xa hơn trong quá trình kinh doanh, có khả năng mua hàng cao hơn và có thể tạo ra giá trị vòng đời cao hơn. Tăng trưởng trong tương lai sẽ phụ thuộc vào việc bổ sung các đối tác và phát triển các gói dịch vụ khác biệt.

Về quảng cáo AI, LegalZoom đang thử nghiệm các vị trí quảng cáo trong Google AI Mode và quảng cáo dựa trên trò chuyện. Ban lãnh đạo cho biết khoản đầu tư sẽ vẫn phải tuân theo các yêu cầu về khả năng sinh lời và mức sinh lời.

Công ty cũng cho biết việc tái cấu trúc tổ chức phần lớn gắn liền với mức tăng hiệu quả từ tự động hóa AI. Ban lãnh đạo báo cáo không có tình trạng chững lại kéo dài trong phát triển sản phẩm và mô tả quá trình đưa ra quyết định diễn ra nhanh hơn và phân quyền hơn sau chuyển đổi.

Toàn văn biên bản cuộc họp kết quả kinh doanh

Toàn văn cuộc gọi công bố kết quả kinh doanh

Phần trình bày của ban lãnh đạo

Operator

[Operator Instructions]

Please be advised that today's conference is being recorded. I would now like to turn the call over to your first speaker today, Madeleine Crane, Head of Investor Relations. Please go ahead.

Madeleine Crane

Thank you, operator. Welcome to LegalZoom's third quarter 2026 earnings conference call. Joining me today is Jeff Stibel, our Chairman and Chief Executive Officer, and Noel Watson, our Chief Operating Officer and 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 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. We use non-GAAP measures in making decisions regarding our business, and we believe these measures provide helpful information to investors. These non-GAAP financial measures are not intended to be considered in isolation or as a substitute for results prepared in accordance with GAAP. Reconciliations of all non-GAAP measures to the most directly comparable GAAP measures are set forth in our investor presentation and can be found on the Investor Relations section of our website at investors.legalzoom.com.

I will now turn the call over to Jeff.

Jeffrey Stibel

Thank you, Madeleine, and thank you all for joining us. Third quarter revenue was $195 million, up 3% year over year. Adjusted EBITDA was $50 million, representing a 26% margin. For the full year, we are reiterating the $800 million midpoint of our revenue outlook, or 6% year-over-year growth, while narrowing the range to $797 million to $803 million. We are lowering our adjusted EBITDA outlook to $180 million to $185 million, or a margin of approximately 23%, reflecting both a more challenging acquisition environment and targeted investment. Customer acquisition remains under pressure, and we are making strategic investments to protect our position over the long term.

We are spending more into partners and affiliates, which diversify how we acquire customers, and investing in our Business Manager product and service line, which helps to increase the value of each customer we win. We are also encouraged by what Google has most recently done to expand its ads in AI Mode. We've begun spending into those opportunities. Noel will walk through the details. Of note this quarter, we are approaching an important milestone in our transformation toward higher-value recurring customer relationships. Company-wide human-in-the-loop subscription services now represent 49% of our total revenue. Revenue from these services increased approximately 17% year over year.

Our goal is to help owners start, run, and grow their businesses with AI, experts, and partners all working together. Our objective is not to maximize the value of a single formation, but to build a long-term relationship, which is why we are bringing human-in-the-loop services in from the first day. In late Q3, we began testing a new formation lineup organized around how much help an owner wants: getting started on their own, receiving ongoing business support, or working with credentialed experts. The response has been encouraging, with a larger share of customers choosing our top tier, which includes our highest level of expert support. Our goal is to roll this out more broadly, and we are currently adding talent and service capabilities to support this opportunity. It adds to our Q4 costs, but with benefits we expect to build over time that will increase sales, deeper engagement, and stronger retention. Let me discuss what we are seeing in human-in-the-loop in more detail.

As a reminder, the portfolio has two layers: a service layer, products like Registered Agent and Virtual Mail to keep businesses compliant and connected, and an expert layer, attorneys and business managers that help them grow by putting accountable people behind the decisions that matter. This portfolio is built on 25 years of brand trust, a nationwide attorney network, and a compliance infrastructure and customer experience that are increasingly powered by AI. That is what customers value, and it is where we are growing. Business Manager subscriptions grew approximately 25% sequentially in Q3. We believe that growth underscores customers' demand for ongoing support beyond a single transaction, which reinforces our decision to make lasting service and expertise a core part of the customer journey from day one. That is the idea behind the new formation lineup I mentioned earlier, which makes the level of human support the central choice at the first purchase. The tiers of service range from a business advisor who assists with LLC startup and compliance to full-service support from a business manager, attorney, and accountant.

In the initial rollout, the share of customers selecting our top-tier formation offering increased over 50% as of the end of October. We are also tailoring Business Manager to specific industries, starting with almost 269,000 active real estate businesses that formed with LegalZoom. Many real estate investors manage multiple LLCs with recurring filings and compliance requirements across their portfolios. They subscribe to Business Manager today, giving us a specific opportunity to deepen relationships with businesses we already serve. We'll build on our compliance services with support, including asset protection, acquisition, and portfolio expansion. That means a more relevant, valuable offering for customers and a repeatable model we can take into other industries. Virtual Mail is another human-in-the-loop product with strong subscription unit growth.

And AI is changing how our customers use the service. In addition to our app experience, customers can now manage their physical mail through LegalZoom Virtual Mail integrations in Claude and ChatGPT, asking what has arrived, finding tax and financial documents, and identifying deadlines and legal notices. Adoption of our AI integrations among higher-tier Virtual Mail accounts is roughly 10x that among starter accounts. Put AI and expert service together, and we believe the opportunity is significant. Many small business owners have access to AI tools, but aren't sure how to put them to work. We can help. During the quarter, we launched a pilot with Perplexity, in which Business Managers get customers started with AI, and early usage is encouraging. We can bring that help alongside our services and partner services, beginning the moment an owner forms a business with LegalZoom.

AI, expert support, and the services owners need, all in one place. This brings me to the top-of-funnel, where we are broadening the ways customers find us. Over the past year, we've been intentional about making our go-to-market more resilient through partners, brand, and AI channels. These channels will not replace traditional search overnight, but together they're helping to offset its impact. As a result, we will continue to invest foremost in diversification away from search. Partnerships remain the clearest example. A recent partnership with Chase Bank shows how we can access new channels with stronger engagement and higher purchase propensity. Chase serves over 7 million small business customers.

After launching with Chase Offers in March, sales from the program doubled from Q2 to Q3. When forming an LLC, Chase customers have turned to us for Registered Agent service, annual reports, and state compliance filings, the services that keep a business in good standing. That tells us we are reaching owners with real intent, at formation, and as they grow and run their business. In Q3, we signed new partnerships with Amex Ads and LivePlan, extending our reach across trusted brands that serve small businesses. In line with our real estate focus, we also added TurboTenant, a property management software provider. Turning next to AI, where the authority of our brand helps us get discovered. AI referral traffic is still small, but growing. Traffic from AI platforms grew almost 50% quarter over quarter.

Visitors from organic AI traffic continue to arrive with high intent and convert at meaningfully higher rates than traditional organic search traffic. We are currently participating in beta discovery environments with Google, OpenAI, and other AI partners with some success. For example, earlier cohorts from ChatGPT are generating higher lifetime value compared with our traditional paid channels. Volumes are small, but we expect ad opportunities in these AI experiences to grow materially over time, alongside improvements in tooling to support enhanced targeting and campaign optimization.

In closing, one stat is worth repeating. Our human-in-the-loop subscription services now generate 49% of revenue and grew 17% year over year in Q3. Our direction is to help owners start, run, and grow through our platforms, our experts, and our partner services. We're now bringing that model to customers from the very first purchase, expanding the channels that reach them, and using AI to improve service delivery. Discovery remains challenging, but we have concrete results to build on and a clear focus for our investment. I'm confident in the path ahead. I want to thank our team for their tireless work testing, learning, and executing through a demanding period. And with that, I'll turn the call over to Noel to walk through our financial results and outlook. Noel?

Noel Watson

Thank you, Jeff, and good afternoon, everyone. Unless otherwise stated, all comparisons in my remarks today will be on a year-over-year basis. We ended the quarter with a strong balance sheet. We have $182 million in cash, no debt, and strong free cash flow, all of which give us the needed flexibility to help navigate this changing environment. Those advantages shape how we make decisions, and they are the lens I'll use as I walk through our third quarter results and our outlook for the rest of the year. Third quarter revenue was $195 million, representing 3% growth. Subscription revenue increased 11% to $140 million, exceeding our expectations.

Growth came from legal advisory plans, the result of increased adoption through bundling within select formation offerings, price increases in our compliance offering, and continued growth in our Virtual Mail subscription offering. ARPU rose 9%, benefiting primarily from higher pricing in our Registered Agent and compliance subscriptions, as well as an increase in our higher-value service offerings. In the third quarter, total subscription units were approximately 1.9 million, down 5%, driven by a decline in lower-value forms, e-signature, and bookkeeping subscriptions bundled with certain formation packages. Excluding those, our subscription base grew slightly. Our 12-month small business retention rate held steady at 57%, in line with both the prior quarter and the prior year.

While retention has been steady, we are focused on customer experience enhancements that aim to drive engagement and improve retention. For example, we are introducing a redesigned LegalZoom account and mobile app, bringing a business's status, deadlines, and documents into one place with a personalized action plan that flags compliance gaps and an AI assistant built around each customer's business. Early engagement is encouraging. Customers opening or downloading their documents rose 28% versus the prior experience. And mobile app users were nearly twice as active as similar customers who hadn't engaged. Transaction revenue was $55 million, down 14%, below the high-single to low-double-digit decline built into our outlook as formations and related small business transactions fell more than expected with traditional search under pressure. We processed approximately 110,000 business formations during the quarter, a decline of 13%.

Importantly, formations from strategic partnerships continued to partially offset the pressure from search. As a result, transaction units declined 4% to approximately 249,000. Transaction AOV of $222 declined 12%, resulting from a decline in higher-value business formations and an increase in lower-value annual report filings. Finally, deferred revenue declined $1 million sequentially. Turning to profitability, where all metrics are on a non-GAAP basis, gross margin was 73%, up 2 percentage points year over year. In customer care, our AI agent now fully resolves almost half of chat conversations, up from roughly 1/3 earlier this year. Based on this success, we have expanded the surface of AI agent support to voice, with almost 1/4 of customer care calls now fully resolved by AI.

At our LegalZoom law firm, AI-powered trademark intake reduced purchase-to-filing time by approximately 20% in Q3 versus Q1 and contributed to higher product gross margins. These capabilities lower our cost to serve, improve the customer experience, and allow people to focus on more complex customer needs. Sales and marketing expenses increased 15%, driven by a 15% increase in customer acquisition marketing as we expand and invest in channel diversification across partnerships, brand, and AI-driven acquisition. Non-CAM sales and marketing expenses increased 14%, largely from targeted investments in our sales organization.

Technology and development expenses declined 27% as a result of our reorganization, while G&A declined 3%, improving overall operating leverage. As a result, adjusted EBITDA of $50 million grew 8%, with adjusted EBITDA margin of 26%, expanding approximately 130 basis points. During the quarter, we generated $34 million of free cash flow, reflecting the continued profitability and cash-generating nature of our business. We remain debt-free with $109 million of free cash flow year to date and our $100 million revolving credit facility undrawn. In Q3, we repurchased approximately $15 million of LegalZoom shares at an average price of $5.90. As of September 30, 2026, we had approximately $66 million remaining under our authorization. Share repurchases have reduced our weighted average diluted share count by approximately 10% versus the third quarter of 2025. We also continue to evaluate M&A opportunities that would add durable growth, differentiated distribution, or meaningful cross-sell potential.

Now turning to our outlook. Our guidance assumes the current search environment remains in place through year-end, and it does not assume a recovery in Google traffic. For the full year, we are reiterating the midpoint of our revenue guidance of $800 million, or approximately 6% growth, and narrowing the range to $797 million to $803 million. For the fourth quarter, this implies revenue of $190 million to $196 million or growth of 1% year over year at the midpoint. Consistent with the third quarter, we expect transaction revenue to decline at a mid-teens rate year-over-year, reflecting continued search headwinds. For adjusted EBITDA, we now expect $180 million to $185 million for the full year, an approximately 23% margin at the midpoint. For the fourth quarter, we expect adjusted EBITDA of $48 million to $53 million, or an approximately 26% margin at the midpoint.

Let me bridge the $10 million reduction to our adjusted EBITDA midpoint. More than half is investment in channels that reduce our reliance on search, including partnerships, affiliates, and paid AI placements. In some cases, we are deliberately accepting lower near-term marketing efficiency as these newer channels typically start at lower returns and improve as we optimize them. We are willing to carry that cost while they scale. We continue to hold every channel to return and lifetime value thresholds with a focus on high-quality customers, and as these channels mature, we will shift spend towards those with the most attractive economics. Approximately 1/4 reflects weaker acquisition economics as we manage through this environment.

With search under pressure, it costs more to win each customer, and we are absorbing that cost to protect our position rather than pulling back. The remainder is deliberate investment in sales and service capacity behind our Business Manager offering and the new formation lineup. The sales portion is temporary, tied to seasonality ahead of peak season. The service capacity is a lasting capability with benefits we expect to build over time through deeper engagement and stronger retention. Our cash generation allows us to fund these priorities while continuing to evaluate spending against customer quality and returns.

In closing, we remain focused on what we can control: growing human-in-the-loop subscriptions, investing into diversified acquisition channels, and using AI to improve operating efficiency. We are confident these are the right priorities for the business at this time and we will report our progress against each. Before we open the call for questions, I want to thank the LegalZoom team for their consistent hard work and commitment to our customers. With that, I'll turn the call back to the operator for questions. Thank you.

Operator

[Operator Instructions]

Your first question comes from the line of Eleanor Smith with JPMorgan.

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Eleanor Smith

Maybe for you first, Jeff. You've introduced quite a few new avenues for growth as CEO, from more partnerships, new premium products, and advertisements with the major LLM partners. What are you most optimistic about contributing to growth? And do you think we would still primarily see this show up as growth on the subscription ARPU side?

Jeffrey Stibel

Sure, thanks, Ella. For me, what I'm most excited about is the success we've had in human-in-the-loop. And when you look at the strength we've seen in the core new offerings such as Business Manager, which had 25% quarter-over-quarter growth, as well as what we're doing with this new service lineup that we've been testing in-quarter and are beginning to accelerate, where we're really leaning in on service offerings and expert offerings, I think that this is the truly defensible position that we can take as more and more of those DIY solutions become adaptable in this new environment. And from my standpoint, that's the real durable growth opportunity we have. And now that that's approaching 50%, you can start to see where that will overcome some of the shortfall that we see on top-of-funnel. Of course, all the other things that we've done with respect to diversification is good and strong, and we need to do more of it, but I think long term, it's that human-in-the-loop offering that's going to define us in the future.

Eleanor Smith

Very clear. Thank you. And maybe for Noel, I was hoping to hear more about your philosophy surrounding ramping up or down customer acquisition marketing. What would you need to see in the next few months or quarters to lead you to spend more or less on CAM?

Noel Watson

Yes, thanks for the question, Ella. Certainly, we talked and outlined some of the investments that we're making this quarter. It's in reaction to some of the challenges that we've seen in traditional search with Google with rising costs and pressure on efficiencies. And so from our perspective, it's more important than ever that we diversify from a channel standpoint and reduce our reliance on traditional search. And so we've been leaning into spend around brand, partnerships, affiliates, etc., just to broaden that aperture. These investments for us, they have important strategic benefit because they benefit our brand, they can help with AOV. A lot of times these relationships are bilateral and we can more easily optimize them over time.

So for us, there's a halo effect to this as well. At the same time, we are a return-oriented performance marketing group. And so there are certain return profiles that we will set for these channels. We want to give them time because some of these take time to mature and to optimize, but we'll set the various return hurdles for them and monitor those and make adjustments, as we outlined in our remarks, over time to where we see the most economic benefit.

Eleanor Smith

Very clear. Thanks so much.

Noel Watson

Thank you.

Operator

Your next question comes from the line of John Byun with Jefferies.

Sang-Jin Byun

Great, thank you. This is John Byun on behalf of Brent Thill. I have two questions. One, if you could talk a little bit more about the developments around AI mode and ads there and how you're approaching that and what's interesting in that new avenue. Second, wondering if you can talk about the plans for the upcoming tax season and the partnership that you plan to work with or anything organic. Thank you.

Jeffrey Stibel

Sure, I'll take the first one, John. On AI mode, specifically with respect to Google, which is what I assume you're speaking towards, we talked about the acquisition pressure that we're seeing last quarter. We have been working very hard to do two things. First, diversify away from what Google is trying to do, not necessarily because we're averse to working with Google, but because we knew it was going to take time for them to work through what they needed to do to actually leverage advertising in their partner channel. And the good news is, as I think we've all seen and heard with Google's announcement, they are starting to lean in more on advertising within AI mode. And we are early adopters; we are testing into that. It is one of the reasons why we're increasing our spend into that channel.

That said, we're not going to do it inefficiently. So we will stop it if it is not profitable, but we're in the process of testing into it. We're encouraged, we're excited by the conversations that we're having with Google. But on top of that, we're also diversified.

Noel Watson

Yes, and on the partnership side, as it relates to tax, this is one of the areas where this partnership is maturing. We've made a number of experience changes, both through our sales team and our care team, as well as in our site experience, that's optimized how we bring customers to the opportunity that we provide around bookkeeping and taxes. And so we're scheduling more leads, we're seeing really strong conversion rates, and this is heading into an all-important tax season. So we really feel like this one is teed up and the partnership is strong and the groups are working very closely together to make sure we're ready to go.

Jeffrey Stibel

And the things that you'll see with this new service lineup that we're so excited about, as I brought up with Ella's question, our expert layer will now include accounting advice as well, which is a natural cross-sell and upsell into full accounting.

Sang-Jin Byun

Great, thank you.

Jeffrey Stibel

Thank you.

Operator

Your next question comes from the line of Matt Condon with Citizens JMP.

Matthew Condon

Hey guys, this is Carter Parlette on for Matt Condon. First one here on partnerships. Partnerships have grown pretty substantially to over 10% of the business. How much further do you think that channel can scale, and what are the biggest factors determining growth from here?

Jeffrey Stibel

So short answer, significantly. I think we've had some great success this year, but not enough and certainly not fast enough, especially as that acquisition channel moves. What we've seen with working with partners, we get customers who are later in their stage, so they're less likely to go out of business, they have a higher propensity to buy, and tend to be better customers of ours. So what do we need to do? We need to establish more partnerships, we need to build richer products, we need to make sure that those products are differentiated in such a way that our service and expert layer, that human-in-the-loop, adds real value to the partner in a less tangible way than just paying a rev share or bounty because we're driving better customer experience. So that's what we're primarily focused on.

Noel Watson

Yes, and one add there is we continue to add new partners and really marquee brand name partners, Chase Bank being one that we just mentioned on this call. And what that means for us is we are the brand within our industry, within our space, that these providers, that leaders in each of their own industries and spaces want to work with. So, again, there's a halo effect in terms of brand equity, but also reinforcing of our positioning in our space.

Matthew Condon

Understood. That's very helpful. Moving to subscription revenue, it continues to grow at a double-digit rate, even as subscription units have declined. Can you help us better understand how that growth is being driven? Is it more on the pricing side, or is it more of consumers shifting towards the higher-value products? Thank you.

Noel Watson

Yes, there's a combination of drivers there. I think most importantly, we're seeing strong performance out of our human-in-the-loop services, particularly Business Manager, where we continue to invest in terms of the size of that team and also the service offerings that we provide. There's also some pricing in there. We've shown that we've had pricing power, and so we've looked at different products and where we can take pricing. And then subscription tends to lag behind transactions, so some of the headwinds we've seen on the transaction side take a little bit longer to show up in subscription. And so we'll see some drag here on the subscription line as we look forward, and you see that implied in our Q4 guidance.

Operator

Thank you. Your last question comes from the line of Pat Walravens with William Blair.

Patrick McIlwee

Hi, Jeff, Noel. First on the transactional side. So despite some pretty healthy macro-level trends in business formations, your formations obviously took a decent step down sequentially, and you're now expecting mid-teens declines for the year. So I just wanted to double-click on that and ask how much of that you feel reflects the challenges around search versus weaker conversion or weaker customer demand at large. And also any color on if trends have stabilized at all through October would be helpful.

Jeffrey Stibel

You bet. I'll take at least the first part of that. This largely is an impact from the change that we've seen with search and Google. And we saw a material shift when that happened. The reality is we've been positioning the company for quality share for quite some time, and I think we've been pretty successful in that respect. What that means is we're looking for higher propensity customers. So if you look at that macro, the EIN macro, it's split between high and low propensity. And on the high propensity side, we feel like we were actually driving good, strong success relative to the macro. We were shedding off some of the low propensity customers that we had in prior years and some of the growth that was coming there that wasn't really driving the core underlying business or yielding long-term good customers for us from an LTV standpoint.

Noel Watson

Yes, and as Jeff mentioned earlier, and we also mentioned in our remarks, a factor in all of this is the transition that's happening between traditional search and AI mode. And we're encouraged by the expansion of ad opportunities that we're seeing in AI mode that have started to take shape, and our expectation is that it's going to further expand and we'll lean into that. We're leaning into chat ads as well and excited about some of the tooling that is to come that will allow us to do better targeting and campaign optimization as those grow as channels for us.

Patrick McIlwee

Okay, great. And if I could sneak one more in. On the RIF, can you just help us distinguish how much of that reduction reflected AI-driven productivity improvements versus recalibration of your cost structure in response to some of the volatility around customer acquisition this year? And with that, just any update on if you've experienced any disruption in the product development function from some of those changes or if you still feel like you're falling behind?

Noel Watson

Full steam ahead there. Yes, I would say it was largely to almost entirely tied to efficiencies that we've gained through AI automation. It's something we've been focused on for a while. You see it in our service line and our gross margins and now through kind of our functional OpEx. As with any significant reorganization like that, there's always a transition period, and I think we've gone through some of that, but really the team has reacted very positively and it feels like we are operating at an increased and faster pace with decisioning more decentralized and people able to move very quickly. So it feels like it's been a really healthy decision for the organization overall.

Patrick McIlwee

Okay. Thank you both for the thoughts.

Noel Watson

Thank you.

Operator

Thank you. I'm showing no further questions at this time. Thank you for participating in today's conference. This concludes the program, and you may now disconnect.

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