Operator:

Good afternoon. My name is David and I'll be your conference operator. At this time, I would like to welcome everyone to Intuit's Third Quarter Fiscal Year 2024 Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer period. [Operator Instructions] With that, I'll now turn the call over to Kim Watkins, Intuit’s Vice President of Investor Relations.

Sasan Goodarzi:

Thanks, Kim, and thanks to all of you for joining us today. We had a strong quarter with solid momentum across the company as we executed our strategy to be the global AI-driven expert platform powering prosperity for consumers and small businesses. Third quarter revenue grew 12%. Small Business and Self-Employed Group revenue grew 18% despite an uncertain macro environment, demonstrating the importance of our platform in fueling success for small businesses and our momentum serving the mid-market. Consumer Group revenue grew 9%, and Credit Karma revenue grew 8%, driven by the impact of innovation for members and the benefits of TurboTax and Credit Karma product integration. I’m proud of our performance, and the momentum we are seeing across the company. Turning to tax. We continue to revolutionize how taxes get done for consumers and small businesses. Tax preparation represents a $35 billion TAM in the US. This includes $31 billion within the assisted consumer and business tax categories. We are well positioned to penetrate the assisted TAM by leveraging data, AI, and our Virtual Expert Platform. Let me share several proof points. This season we made good progress against our multi-year strategy to transform the assisted experience for customers. TurboTax Live, our assisted offering, including our do-it-with-me and full service tax offerings for both consumers and businesses is our largest durable growth opportunity. We expect TurboTax Live customers to grow 12% and revenue to grow 17% in fiscal 2024. TurboTax Live revenue is expected to be $1.4 billion, representing approximately 30% of total Consumer Group revenue growing at a significant scale. This gives us confidence that we can digitize a very manual, disaggregated, and high priced assisted category. Now let me spend a few minutes going deeper in several areas. First, TurboTax Live full service is resonating with consumers as we continue to innovate, making it simpler for customers to get their taxes done virtually. We expect TurboTax Live full service customers to double this fiscal year, with those new to TurboTax to triple. Our full service offering has a product recommendation score of 85, one of the highest at Intuit. Our learnings and insights from this season bolster our confidence in the continued opportunity we have to disrupt the assisted tax category. Second, we expect TurboTax to gain share with higher ARPR filers, as we strategically prioritized focusing on the assisted tax segment and higher value customers over the pay-nothing and lower ARPR segment. Third, Intuit Assist, our GenAI powered financial assistant, played a big role in our TurboTax experience this year. With Intuit Assist, we are creating a future of done for you, where the hard work is done automagically on behalf of our customers with a gateway to human expertise, fueling their financial success. More than 24 million customers used Intuit Assist to explain their refund, answer questions, and help deliver confidence that their return was completed accurately this year. This is data and GenAI working at scale, for both our customers and our AI powered experts helping customers virtually. I’m excited about what we are working on for next season to accelerate innovation and deliver even more customer benefits. And fourth, we delivered solid results with the product integration across Credit Karma and TurboTax. We grew the number of customers that filed with TurboTax from the embedded Credit Karma experience by 76%, and tax refunds deposited in a Credit Karma Money account by 28%. We also delivered strong growth in Credit Karma Money revenue this quarter. This product integration also drove new members to Credit Karma, consistent with our goal of driving higher engagement and monetization for Credit Karma over time. Given these results, we see big opportunities ahead to deliver on our vision to help consumers make ends meet, maximize their tax refund, save more, pay off debt, and take steps to improve their financial health. To significantly accelerate creating seamless, end-to-end consumer experiences that customers benefit from year-round, we are more closely aligning TurboTax and Credit Karma under Mark Notarainni, General Manager of the Consumer Group, who will oversee both segments. I’m excited to share that Joe Kauffman, currently President of Credit Karma and part of the leadership team for the last nine years, will be leading Credit Karma as of August 1, reporting to Mark. Additionally, Ken Lin will retire from Intuit around the end of this calendar year. I can’t thank Ken enough for his friendship, leadership, and impact across Intuit. In summary, we made strong progress this tax season that sets us up for continued success in the future. Now, let’s take a look ahead. The era of AI is one of the most significant technology shifts of our lifetime. It is reinventing customer experiences, creating new monetization possibilities, and structurally changing how we work within Intuit to deliver for customers. We are very well positioned to take advantage of this era with our AI-driven expert platform strategy and five Big Bets that pursue the largest customer problems and growth drivers for Intuit. As part of our financial planning process, we have identified key areas within our Big Bets where we plan to accelerate investments to deliver greater impact. These include

Sasan Goodarzi:

Great. Thank you, Sandeep. Let me close with three points. First, we're very well positioned to take advantage of the largest technological shifts of our era given Intuit strategy and five Big Bets with AI at the center as all we do. Second, given the green shoots we're observing, we are doubling down in key areas of our bets to accelerate growth. Third, we continue to recruit great technical and leadership talent across the company to accelerate our progress. In that context, I'd like to share that Greg Johnson recently returned as Executive Vice President, Intuit, Chief Commercial Officer and Global Small Business & Self-Employed Group Chief Revenue Officer. Greg is a world-class leader with nearly 10 years of experience at Intuit, leading TurboTax as the Head of Marketing and then as General Manager. I'm thrilled to have Greg back in Intuit. Now let's open it up to your questions.

Keith Weiss:

Excellent. Thank you guys for taking the question. And a really nice quarter in that, you guys really flexed the ability to use the portfolio to outperform on the top line and outperform on the bottom line. And in what has been a pretty difficult earnings season actually taking earnings up we hear your full year EPS is coming off. So that's all great to see. I wanted to ask about the tax business overall. The shift towards kind of the high end, the higher ARPC customers seems more pronounced this year probably than what I was expecting, and I think most people were expecting. I think the underlying question most investors have is like, why can’t we do both right? Why can’t we price for the low end and get those customers on board as well as attracting those higher ARPC customers? Is that available to you? Or do you need to be shifting more upmarket?

Keith Weiss:

Got it. Makes sense. Thanks so much guys.

Operator:

We will take our next question from Daniel Jester with BMO Capital Markets. Please go ahead. Your line is open.

Sasan Goodarzi:

Yeah, absolutely. This year, particularly, we're very excited about what we saw and actually what didn't work. And let me, if I could, hit on both. First and foremost, Credit Karma has over 40 million monthly active users and a larger chunk of those 40 million plus active users are actually doing their taxes using the assisted method. And so that's an enormous opportunity for us. This year, we embedded the TurboTax experience within Credit Karma, and we're very aggressive pursuing those customers. And in fact, we drove traffic north of $10 million within Credit Karma, those that were interested in doing their taxes with TurboTax. That's why it resulted in a 76% growth of the number of TurboTax customers that use the embedded experience within Credit Karma. At the same time, what we are constructively dissatisfied are two very basic things that did not work well this year. One with seamless log in, the second was performance of the app. And what I mean by seamless log in is, out of those 10 million-plus customers that were in the bucket of traffic, about 25% of them when they click to start doing their taxes with us or have us do it for them, they didn't have any instruction. They could just get started right away, where 75% of them could not. There was a lot of friction. And that was just an element of time. We were not able to get to all the work that was required to get everyone to experience, in essence, no log in. And that's a big deal, and we're all over it already. The second is performance of the app. We worked very hard to embed the TurboTax experience within Credit Karma, but the performance of the app was not where it needs to be. When I say performance of the app, some of the time that it took was like eight to seven seconds just for the app to be able to load. That's unacceptable, and we saw a lot of drop off. Both of those are in our control. Both of those, we are already working on. But I share that as an example of -- we saw a huge green shoot with our focus this year on every Credit Karma member becoming a TurboTax customer. And there's two very basic things that we're constructively dissatisfied with that gives us actually a lot of confidence as we look into the future. So hopefully, that answers your question.

Sasan Goodarzi:

Very welcome.

Siti Panigrahi:

Thank you. Thanks for taking my question. And Sasan, I want to ask about your vision and strategy for the Money platform. I have a multipart question there. We have seen you expanded invoice to bill pay. Would love to get your progress so far, any feedback there in the last couple of quarters. But also, we saw that you recently acquired Proper Finance and also made some hiring -- senior executive hiring in the money platform side. So I'd love to hear your strategy in which direction it's going in a money platform.

Sandeep Aujla:

And Siti on the acquisition, you mentioned, as we've shared with you in the past, we are continually looking at by the partner, and that was a small technology tuck-in that we did to build some of the core money movement and risk management capabilities within our small business group.

Sasan Goodarzi:

Very welcome.

Alex Markgraff:

Great. Thank you for taking my questions, Sasan. Just one for you on TurboTax. Just looking at recent Investor Day slides and sort of the long-term growth framework for the business. When we look at this total TurboTax share of IRS returns, I think implies sort of a positive share gain over the long term. And I'm just curious, I understand the focus in the assisted category. Should we be thinking about that input differently as it relates to total IRS returns going forward, just given what we're seeing at the lower end of the spectrum?

Alex Markgraff:

Okay. Thank you.

Alex Markgraff:

Understood. Thank you.

Operator:

We'll take our next question from Kirk Materne with Evercore ISI. Please go ahead. Your line is open.

Sasan Goodarzi:

Yeah. Great question. First of all, I'll reiterate what you heard from us earlier. The fact that the revenue decelerated was primarily because we're lapping a big price increase and some lineup changes from last year. The fundamental health of the business is consistent with what it was last quarter. So that's number one. Number two, our durable focus remains the same, which is -- we are integrating Mailchimp and QuickBooks. I'd be happy to talk about that more, if there are questions about it, two, mid-market, third, international. And we're being really very aggressive in international. In fact, I was just most recently in London, spent time with our new leader in Mailchimp that leads EMEA, that came from another company where he has built a really a large international business, and two, visited a number of customers and partners, and we're being very aggressive with our approach in what we've done with the platform, what we're doing with our pricing and then the marketing investments that we are making as we look ahead. And in fact, as I mentioned earlier, there are five areas where we are accelerating our investment. This is one of them. And so we're quite excited about the possibilities given the green shoots that we're seeing.

Sasan Goodarzi:

Yeah. Very welcome.

Kash Rangan:

Thank you very much. Sasan, you still remain the best predictor of small business. You've got the best read. And I'm curious what -- you said green shoots, I speak by that observation. And in a macro environment, which gets tougher, you guys have shown the ability to execute really well. So what are the other things in your toolkit that you have been able to unpack that if the macro environment continues to stay where it is? One of the things that could help them to continue to outperform these expectations for the small business segment. Thank you so much and congrats.

Kash Rangan:

Fantastic. Thanks. Glad to hear that.

Operator:

We'll take our next question from Brad Reback with Stifel. Please go ahead. Your line is open.

Sasan Goodarzi:

Sure. Well, let me start actually with the -- what we're seeing on our platform with respect to the health of small businesses, if I could just do that for a moment. One of the things that we are seeing, if we look back from today versus the last three to four months, we're actually seeing some improvement in profitability of small businesses on our platform. And that's a good sign compared to the last couple of years. Now within that, the -- depending on the sector that you're in, your performance is driven by the environment. And so for instance, manufacturing -- areas like manufacturing, professional services, auto repair, their profits are actually up nearly 20%, where real estate lending, their profits are actually down 15%. So the net of it is overall, we've seen improvement, depending on the sector you're in, your performance varies. But the net of all of that is that cash reserves are down 8% compared to this time last year, but up over 16% compared to pre-COVID. So what you should take away is small businesses are healthier but their cash reserves have been impacted. And for those that are on our platform, by the way, over four years, their cash reserves are over 60% higher than those that have only been with us for a year. Last thing I would just say is hours worked is actually up compared to the last quarter. Specific to your payroll question, let me ask Sandeep to answer specifically what you asked about payroll.

Brad Reback:

Perfect. Thank you very much.

Operator:

We'll take our next question from Brad Zelnick with Deutsche Bank. Please go ahead. Your line is open.

Sasan Goodarzi:

Yeah, Brad, great question. I was actually in San Diego all day yesterday with the TurboTax team doing deep dives on all of these durable priorities. One of them was full service. First of all, I would tell you that across all of the states, across different income levels, across all complexities, very consistent. And I would say that if you heard -- not if you heard, if you reflect back on what I said in the remarks, that our new customers in full service tripled, an outsized element of that was those that are sort of younger, the millennials, and they are actually embracing full service as a cohort more than others, not by an incredible amount, but it stands out for us. So I think what we learned -- and that's a big deal by the way. What we learned is, we were successful just in one area. But I'll tell you the biggest area we are constructively dissatisfied when you look at our overall assisted performance. We were very aggressive with our go-to-market and not just spend but the beginnings of being able to recommend an expert, the beginnings of when you search for a local expert us showing up. There's a lot of infrastructure that we built. We drive a lot of traffic to our front doors. Where we are constructively dissatisfied is, we have to work on our shopping experience. When you walk into somebody's firm, a store or somebody's home to have them do your taxes for you, you're not presented with a set of SKUs. You just go in there and you exchange documents and they do their taxes for you. Our shopping experience has to be improved. That's where we saw the biggest drop off. So what we have a lot of confidence in is the demand that we created. And by the way, the performance. But the demand that we created was exceptional. We need to get better at the shopping experience. It's one of the areas where -- by the way we saw this during the season, and there's a lot of work that's being done to actually leverage AI to personalize the experiences so that when we get a customer that comes in, that comes from an assisted method, they're actually greeted by an expert versus greeted with which SKU do you want to pick.

Sasan Goodarzi:

Yeah. Very welcome.

Steve Enders:

Okay, great. Thanks for taking the questions here. I guess maybe I just want to start on -- or want to ask about the AI and the assistant or the AI Intuit Assist solution that's now out of market. I guess -- what are kind of the proof points that you've seen? Or how is it kind of manifesting in kind of improving experience or driving monetizable outcomes for Intuit so far?

Steve Enders:

Great to hear. Thanks for the context there.

Operator:

We'll take our next question from Brad Sills with Bank of America. Please go ahead. Your line is open.

Sasan Goodarzi:

Brad, thank you for your question. First of all, I would say, this actually was the first real season with full service. Last year, it was still -- although we rolled that out, it was still at the experiment level. With that said, to answer your question, a couple of things. One, because we were quite aggressive with our go-to-market, we learned that we can create a lot of demand. And we created a lot of demand not only by talking about the fact that we can do your taxes in less than a day, we can help extend your money and give you early access or immediate access to your money. But there is a lack of price transparency in the entire assisted segment, where you don't really know what you're going to pay until you walk into somebody's store or a firm. And we did a lot of testing to understand how important price is. We learned that it matters a lot. And so we created a lot of demand. That's number one. Number two, when you search locally for an expert or -- and/or if we showed you in when you engage with full services, there's an expert near you, the conversion rates were significantly higher than when we didn't so up in search. And that, by the way, is just an element of time. We'll be able to get all of what we were doing this year rolled out across all of our customers. But that's an enormous learning that local matters. People want to be able to search for pro-near-me, folks want to know that their expert is nearby, and we saw a significant expert or conversion lift. Last thing that we saw as a great proof point is, I think this was more towards the middle, towards the end of season, you could recommend your expert. That had a big conversion one. But we were not able to scale that for the entire season or to all of our customers, which we plan to do next year. So those are the big insights and the big learnings. And last, I'll just end with the following, which is what I mentioned a moment ago, we have a lot of work to do on our shopping experience. And to simply put it, when you walk into somebody's firm or a store, you're not presented with a SKU in a lineup. You just walk in and get -- have them get your taxes done. And that's what we are working on, which is, in essence, when you pick full service, you're greeted by the expert versus a pricing lineup to make a choice. And that with an enormous learning this year, all of which we're currently working on for next year that give us a lot of confidence.

Sasan Goodarzi:

Yeah. You’re very welcome.

Scott Schneeberger:

Thanks very much. Good afternoon. Sasan, this is primarily on TurboTax and on do-it-yourself in TurboTax. I think, I heard Sandeep say that overall consumer retention or TurboTax retention was 3 points yet there was some share loss, obviously, on the low end and seemingly in do-it-yourself. The full service metrics and overall TurboTax Live sound great. So I think you have good retention there, good new customer acquisition. But in the do-it-yourself in the paid customer, are you doing okay in share there? And what are you doing in that category specifically paid, do-it-yourself to build-share going forward. Because when you answered Alex's question earlier about growing share, it sounds like all like in the assisted category, and that's great. It's a great opportunity. Just curious, in the paid categories, what your opportunities are going forward? Thanks.

Sandeep Aujla:

Scott, I would also add that you should have not take away that we are yielding any ground on the paying of DIY customers. Our marketing investments, we are focused on attracting both customers to our platform. Our experiences are helping those customers better understand their returns and gain better confidence leading to better conversion. And we remain relentlessly focused on improving our product experience for those customers. So in addition to the assisted category, which we are excited to disrupt the $31 billion market across consumer and small business, we also are focused on taking share. It was a paying DIY customer.

Sasan Goodarzi:

You’re very welcome, Scott.

Raimo Lenschow:

Thank you. Sasan, you talked earlier in the prepared remarks about desktop and the changes here in the coming year. Can you kind of link that up maybe a little bit is what we've seen in QuickBooks Advanced? And how -- if there's kind of more opportunity to bring desktop guys over and what you're seeing here on board?

Sandeep Aujla:

No, I was just going to add, the question was also about just the progress we are feeling about Advanced. What I would say across the mid-market and as I alluded in my prepared remarks, we continue to feel good about the progress we're making with the mid-market, including with QuickBooks Online Advanced and with the desktop enterprise product, which grew in the in the high teens. So that's an area we continue to feel good about, the add I would have.

Sasan Goodarzi:

Welcome.

Unidentified Analyst:

Hi, this is Daniela on for Taylor. Thanks for taking my question. So it looks like the Small Business & Self-Employed growth in the quarter was run by stable to our accounting growth and an acceleration in that stock. So as we look into 4Q, how much of the implied 17% for Small Business & Self-Employed growth is being driven by desktop versus stability in the online segment? And given that so many SMB software companies saw incremental pressure in 1Q, can you just comment on what you're seeing in terms of SMP Health and how that is influencing your guide? Thanks.

Sandeep Aujla:

And what I would add, in addition to Sasan's comments about the health of the SMB market is a reminder that 80% of our small business group's revenue is subscription-based. And when you look at those businesses, the part of that is not related to subscription, largely on our services side. Couple of factors just to underline, we saw our payments charge volume increased 22% in Q3, which was faster than what we saw in Q2. And we continue to see good adoption of our payroll offerings by customers as well as a mix shift towards the high end of payroll offerings. So heading into Q4, we feel good about our online ecosystem growth, which remains our growth catalyst going into the future.

Sasan Goodarzi:

You’re very welcome.

Michael Turrin:

Hey, great. Thanks. Appreciate you fitting me on. The small business segment growth is holding in strong if we look at the international online ecosystem revenue growth, trailing at 12% in constant currency. Sasan, are there plays you see to potentially jump-start overseas growth? Is there anything you're experimenting with around Mailchimp that could help with tip of the spear there into broader international reach? Or what else do you see that yield potentially better growth down the line? Thanks.

Michael Turrin:

Thank you.

Operator:

I'll now turn the program back to our speakers for any closing remarks. I do apologize. We will actually take our next question. I apologize again. We were going to take our question from Alex Zukin, but they have removed themselves from the queue. I will return the call to our speakers for any closing remarks.

Operator:

This does conclude today's progress. Thank you for your participation. This concludes today's call.

Operator:

Good afternoon, my name is Angela, and I will be your conference operator. At this time I would like to welcome everyone to Intuit’s Second Quarter Fiscal Year 2024 Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer period. [Operator Instructions] With that, I’ll now turn the call over to Kim Watkins, Intuit’s Vice President of Investor Relations. Ms. Watkins?

Sasan Goodarzi:

Thanks Kim, and thanks to all of you for joining us today. We had another strong quarter and have great momentum innovating on our platform. We’re executing on our strategy to be the global AI-driven expert platform powering prosperity for consumers and small businesses. Second quarter revenue grew by 11%, and we are on track to achieve our fiscal year 2024 full year guidance of 11% to 12% revenue growth while expanding operating margins. Let’s start with tax. We are confident in our innovation and game plan to win, and are reiterating our full fiscal year guidance of 7% to 8% revenue growth for the Consumer Group. Tax preparation represents a $35 billion TAM. This includes $31 billion within the assisted consumer and business tax categories, which we have barely started to penetrate. We are well-positioned to disrupt the assisted category by leveraging data, AI, and our Virtual Expert Platform, to revolutionize how taxes get done for consumers and small businesses. By leveraging the power of our platform and ecosystem, we’re also extending TurboTax to our Credit Karma members and QuickBooks Online small business customers by enabling them to complete their taxes and access expertise directly within these products. Let me share more about our – the areas of focus this season. First, we can serve consumers however they want to file, virtually or in-person, while providing confidence their taxes are being done accurately and they are getting their maximum refund. More than 80% of U.S. filers live within a 10 mile radius of a TurboTax expert. These experts use Intuit’s Virtual Expert Platform that’s powered by data and AI, to deliver best-in-class service. While it’s early in the season, TurboTax Live Full Service is resonating with customers. We’re seeing strong growth and the offering has a Product Recommendation Score of 88 season-to-date, one of the highest at Intuit. Second, small businesses can file their taxes with TurboTax and, if a small business is a QuickBooks Online customer, they can file their taxes with an expert. With these offerings, they can maximize their refund, and get advice from experts when they need it. Our campaigns and easy to use experience are driving strong early interest. Business tax returns have a much higher average revenue per return because they are more complex and we expect them to contribute to average revenue per return expansion over time. Third, we’re more deeply integrating Credit Karma and TurboTax, making it even more seamless for Credit Karma members to file with TurboTax directly in the Credit Karma app, with exclusive offers for members, whether they want to file themselves or with an expert. We’re also unlocking the benefits of the Credit Karma platform for tax filers to make smart money decisions. This includes earlier access to their refund or, for those that qualify, access to an interest-free Refund Advance loan in as little as 30 seconds after IRS acceptance, when depositing their refund into a Credit Karma Money account. This is designed to lead to higher engagement and monetization in Credit Karma over time. Fourth, Intuit Assist, our GenAI powered financial assistant, is live in TurboTax this season. With Intuit Assist, we are creating a future of "done for you," where the hard work is done "automagically" on behalf of our customers with a gateway to human expertise, fueling their financial success. For example, customers are using Intuit Assist to better understand their refund. In early results, Intuit Assist’s helpfulness rating is 1.5x greater than our legacy explanations, indicating Intuit Assist is helping deliver confidence to TurboTax customers. Our focus this tax season further showcases how our Big Bets have accelerated innovation and growth for the future. We’re leveraging the power of data and AI with Intuit Assist to revolutionize the speed to benefit for customers, disrupting the assisted consumer and business tax categories by connecting people with experts virtually, and bringing the TurboTax and Credit Karma experience together to unlock smart money decisions. We are off to a great start in tax. Let me now highlight progress across two of our Big Bets. As a reminder, our five Big Bets are

Sasan Goodarzi:

Great. Thank you, Sandeep. And just to quickly wrap up, we’re very confident in our AI-driven expert platform strategy, our progress with our five big bets, and creating a future of done for you with a gateway to human expertise. We believe that this will change our relationship with our customers, becoming their trusted advisors, leading to higher engagement and monetization. The combination of our assets and our strategy creates a growth flywheel for Intuit to accelerate penetrating our $300 billion in TAM. With that, let’s open it up to your questions.

Siti Panigrahi:

Thank you. Thanks for taking my question. Sasan and Sandeep, I want to dig into the health of the small business. Just two part question, on the online accounting system, revenue seems to be in line, our expectation site to decel. Is there any one-time factor that influenced and how should you think about second half, given that’s an easy comp? And other part is on the services, while we’re pleasantly surprised, it’s accelerated. And you talked about some of this payroll payments and Mailchimp. Is there anything like you are doing differently, specifically drilling into the Mailchimp, how is that part of the business doing?

Sandeep Aujla:

Yes. Sasan, good coverage [ph]. Siti, what I would also remind you of is, as we’ve shared in the past, there are three imperatives that you focus on as a management team, new customer acquisition, driving adoption of our platform and being better together across our platform. And with that in new customer acquisition, our team continues to focus on mid-market customers. As you call those mid-market customers, they’re a larger, richer revenue pool. They have higher customer acquisition costs, but they also take a little longer to ramp up because most of the size of the price in those mid-market customers on services revenue, which ramps up as opposed to accounting, which you start booking as soon as they become a customer, so just a dynamic to keep in mind. That’s why in my prepared remarks, I called out that our growth formula will continue to start leaning more towards ARPC going forward. And the second component of the services is basically us executing on our focus of driving adoption of our platform.

Sasan Goodarzi:

Thank you.

Kash Rangan:

Hi, congratulations to Sasan and Sandeep. Really good call here. I’m wondering if you can give us an update on what’s happening in the SMB market. Looks like enterprise spending seems to be stabilizing. I know that you’re not really enterprise except for QuickBooks Advanced, but how did you characterize the outlook for small businesses given that the economy is on stable footing and we don’t have the worries that we had going into calendar 2022? Thank you so much once again.

Kash Rangan:

Thank you so much.

Operator:

The next question comes from Brad Zelnick with Deutsche Bank.

Sasan Goodarzi:

Yes. Sure, Brad. First of all, I’ll amplify what you started out with. Having been in the tax business and ran it more than ten years ago and watching our trends in the last ten years. Every season there’s a push to a later start, and it’s just a consumer behavior, and we’re seeing that this year, so that’s not anything unique. There’s two things that I would call out that are strategic to us, that are worth calling out, because we see green shoots in both with the early part of season. One is full service. Just as a refresher, there’s nearly 100 million consumers and small businesses that spend about $30 billion to have somebody else do their taxes for them. And we really leaned into our overall full service experience, we really leaned into our campaigns, both on air, digital. Very basic things, by the way, that we didn’t used to have the capabilities of that we’re now building, which is if you use an expert and you love that expert, that you can recommend that expert to a friend, that, that’s basics. But the infrastructure that we’re building to really disrupt the full service space is a necessity. And we feel very good about the green shoots that we’re seeing, both on the consumer front and on the business tax front. And I’ll remind you that this is our first year leaning all the way into business tax. So it’s beyond early, but everything that we’ve seen just indicates that this is enormous opportunity for us. So that’s on the full service front. The second I would mention is Credit Karma. This is really an area where we have nearly 45 million monthly active users. They engage more than five times a month, and the majority of those monthly active users actually use a different method and not TurboTax. And so we’ve really heavily invested in the experience, whether you want to do it yourself in the app or you want us to do it for you, which is full service and compelling offerings that we’ve been testing and scaling. And we also like the green shoots there. So those are the two things that I would call out, and it really positions us for share of spend. I’ll end with the following, which is we’ve set the goal line in taxes, our share of total IRS returns, and really what matters is the share of spend that we’re getting. And full service is essential for that, both this year and in the future.

Sasan Goodarzi:

Thank you, Brad.

Michael Turrin:

Hey, great. Good afternoon. Appreciate you taking the question. I was hoping we could go back to the mix of online services, and maybe you could just help us compare and contrast in more detail what you’re seeing from a growth perspective across the payroll payments and Mailchimp business? And is there a float aspect at all to the payroll portion of the business that might be helping reinforce some of the margin strength you’re seeing? Given headwinds from the slower start to tax? I think a lot of focus on just the EPS strength in the quarter. Thank you.

Michael Turrin:

Yes. Just wondering if there’s at all on the payroll side a flow component that might be also just softly helping margin outside of the consumer headwinds you’re seeing.

Sandeep Aujla:

Sure. So thanks, Sasan. Michael, the float component is a very small part of our payroll business, as one thing that we really aim to do for our small businesses is to hold their cash as little as possible. So float is not a big component for us. And I think the overarching theme of your question was the ability for Intuit to preserve the earnings power of the company despite the one week delay in the IRS opening. I think Sasan touched on that. And it’s also some of the great work that the team has been doing around acquiring larger customers around the lineup, work we did to make the higher end SKUs in payroll more attractive to those customers. The work the team is doing around mid market account management and Mailchimp. So it’s a plethora of activities that continues to give us confidence across portfolio of assets that we have here at Intuit.

Sasan Goodarzi:

Thank you, Michael.

Taylor McGinnis:

Yes, hi. Thanks so much for taking my question. Maybe another one on online services. So if I heard you correctly earlier, it sounds like you guys are expecting a more stable macro environment as we move throughout the year. So can you just talk about what that means for the durability of the acceleration in online services that we just saw to 24% year-over-year? Could you actually see online services hang in here at these levels? Was there anything one-time in nature? And just curious, as the macro remains more challenging, how the pricing lever could be used there to help you guys during this time? Thanks so much.

Sandeep Aujla:

Taylor, the one thing I would add, and just to build on Sasan’s point, you asked a question around pricing, pricing power. Our tenant around pricing is around the power of our offerings and the innovation we’re building into the offerings. And the perceived actual value that we’re delivering to our customers is not related to the macro environment. So that’s another point I just wanted to emphasize in terms of how we think about our pricing.

Sasan Goodarzi:

You’re very welcome.

Alex Zukin:

Hey guys, thanks for taking the question and congrats on the quarter. Sasan, maybe a GenAI question for you. Clearly it’s something that continues to really evolve and become a core part and parcel of the company, both on the SMB side and the consumer side. I wanted to ask, if you look at the coming tax season on the consumer side, how do you expect to see the benefit of some of the assist functionality? Is it more converting kind of free to pay? Is it pay to pay more? And then similarly on both Credit Karma and on the SMB side, if you think about the progression of the year, kind of where are you seeing the biggest opportunities as you start to see the interactions build on the platform?

Alex Zukin:

Super insightful. Thank you, guys.

Operator:

The next question comes from Kirk Materne with Evercore ISI.

Sasan Goodarzi:

Yes, great question, Kirk. Let me start with the Intuit Assist question first. And I’ll share with you how we’re sequencing it. Right now our entire focus and remember, everything that we are doing here is based on data and AI. A lot of our investments are what you don’t see, which is ensuring that the data is usable, that it’s clean, that it’s structured the right way, and that our machine learning, knowledge engineering and GenAI capabilities can digest all of the data. Inclusive of data by the way, that’s contributed by the customer, like access to their Gmail account, access to their Excel spreadsheet, because a lot of customers data are in those two places, or they’re in shoeboxes and being able to take pictures. And for us to be able to digest that data and actually deliver insights. So our first priority of order is to ensure that if you’re using our small business platform and if you are looking to put together marketing campaigns, that Intuit Assist is doing that for you. The second element of what we are focused on is then being able to transfer and use Intuitive Assist across QuickBooks and Mailchimp, because all the data points are connected. That is absolutely where we are headed and it’s sequenced in second place compared to what I just articulated, because we have to nail via the basics. But that’s actually where the power of our platform will show up for our customers, where whether you’re in Credit Karma or TurboTax, you can ask whatever question you want that is relevant in your life and we can answer it because all of our data points are connected and our AI capabilities are, in essence, working across the product. So that is sequence, but we’re working on that as we speak. The second is cross-sell. First of all, I’ll start with we’re not thinking about it in terms of cross-sell. We’re thinking about it in terms of product integration. So what we are really focused on, and this is, by the way, this applies to TurboTax and Credit Karma. This applies to Mailchimp and QuickBooks. What we’re really focused on is integrating the product at moments of truth that matters most based on how the customer does the work. Like, for instance, if you are in QuickBooks on your left lap [ph]. This is just an illustrative example because we’re actually testing a lot of this, is that you can actually see how you can manage your customers and put together marketing campaigns. And when you engage and click on that, you have the Mailchimp engine that is working behind the scenes. And after maybe a couple of free trials, then we share with you how much it is to pay for these capabilities. So that’s what I mean by product integration. We want to nail the benefits at the moment of truth that matters versus just try to sell you Mailchimp within the platform. We’ve found over time that that’s not as effective. What’s most effective is the product integration. So that’s the approach that we’re taking across all of our platforms.

Sasan Goodarzi:

Thank you. You’re very welcome.

Brent Thill:

Just on for [ph] Credit Karma to get back to growth, what are the key ingredients that you need to see for that to get back to growth versus the declines we’ve seen the last year?

Brent Thill:

Yes, it was great. Thank you.

Operator:

The next question comes from James Friedman with Susquehanna.

Sasan Goodarzi:

Yes, thank you for the question. First of all, the key to success for us, given where we are on the rollout is one network connections. And as you heard in our remarks, albeit very early, the number of business network connections has doubled since August. And that’s important because it helps, it’s a huge step forward to then digitize how we in essence help customers get paid and pay bills. The second is just executing on our roadmap. The big thing that we’re starting to roll out that we talked about earlier is just faster payments and that’s through both paid ACH next day that we’re rolling out and also batch payments. And so we’re going to continue to look at what’s most important for our customers and that’s what’s informing our roadmap. But we have to do it in conjunction with continuing to increase network connections. And we’re really excited about in the long term what’s possible, digitizing all of B2B, because it’s very – it’s incredibly beneficial to our customers because they get paid faster, and two, it’s really a sticky product.

Sasan Goodarzi:

You’re very welcome.

Raimo Lenschow:

Thank you. Congrats for me as well. Question for Sandeep. As we think about this year, you kind of said you didn’t expect a lot of kind of recovery to help. It’s just like how you manage the business. But if you think about cost, so far you’ve been doing really well on margins. But there’s also obviously an element of getting ready for things are getting better. How do you see the progression of investments this year? Thank you.

Raimo Lenschow:

Perfect. Thank you.

Mark Murphy:

Thank you very much. So, Sasan, within the QuickBooks business you have this growth vector in the up market [ph], and I’m curious if you’re able to comment on the growth and traction that you’re seeing in that 10 to 100 employee segment versus the one to nine or zero to nine employee segment. For instance is one of those growing mid-20s and the other is high teens just interested in how much of a spread you see there and maybe where you see it trending this year?

Sandeep Aujla:

And to covered the topic, the only thing I would add is that the unit economics on the upmarket is also something that we find quite attractive. These customers, they tend to scale to much higher ARPC especially as we get them to adopt our platform. They by definition have more employees. They by definition of processing more payments, so that’s also something that we find attractive and is very much an area that we are having our go-to-market teams and our product teams deliberately lean in this year.

Sandeep Aujla:

Very welcome.

Steve Enders:

Okay. Great. Thanks for taking the questions here. I guess maybe just on the SMB side again; I think you made a comment in the prepared remarks about shifting towards ARPC over time as a growth lever. I guess one want to clarify that comment and then secondarily, does that change how you think about the levers of growth moving forward for the SMB segment, more towards ARPC, away from the customer side?

Steve Enders:

Okay. Perfect. Thanks.

Scott Schneeberger:

Thanks very much. Good afternoon. Sasan, a couple of task questions. One, we’re three weeks in. We’re pretty well through the early season. You had anticipated earlier, before the tax season that we would see a probably flattish year for the industry. And that felt kind of conservative. Now that we’re in a bit and we’ve also seen a return to DIY category shift, I’m curious if you have any update on what you’re seeing for the industry overall thus far. And then the second part is on full service. You sound very happy with it, the 88 number recommendation score. Could you speak to some of the growing pain points you had last year and the fixes you’re seeing this year as you’re working your way through the early season? Thanks.

Scott Schneeberger:

Great. Thanks.

Operator:

The next question comes from Keith Weiss with Morgan Stanley.

Sasan Goodarzi:

Keith. So let me start by just reminding us all that the GenAI cost for the current fiscal year have been incorporated into our guidance. So that’s first and foremost. But now let me address the themes of your question as I think about the cost structure, and I’ll focus on the cost structure, since that’s where your question was. We actually feel that we are quite advantageous versus the market in the sense that the data that we have, that we have touched on, that’s residing behind our firewalls, that we are training our large language models on, that are delivering more contextually relevant answers at a faster speed versus other generally available large language models, and that they are doing that at a fraction of the cost. So just from a unit economics point of view, for the GenAI, it’s actually advantageous the way we are running it. Two, we don’t have our own data center, and we rely on AWS and other third party data centers to run our model. So that, again, is a cost advantage because we don’t have that build out cost as some others might have. Furthermore, as I look across our business, I do see opportunities for us to, over time, improve our economics using GenAI and AI. Now, we’ve already given examples on things such as in customer success, where agents no longer have to take notes or spend minutes summarizing the call that they just had. AI does that, and that’s just one small example. But expect that to continue to lead to more efficiencies in a customer success calls lead to more better unit economics in a full service than live offerings, as you kind of carry that forward. Also, how we are staffing up builders in terms of project managers to designers to engineers ratios. So I see many opportunities for us to continue to benefit from GenAI, and I feel good about the early start that we have leaning into some of those capabilities.

Sasan Goodarzi:

That would be the right takeaway, I guess.

Operator:

Ladies and gentlemen, this does conclude today’s question-and-answer period. I will now turn the program back over to our presenters for any additional or closing remarks.

Operator:

Ladies and gentlemen, thank you for participating. This concludes today’s conference call.

Operator:

Good afternoon, my name is Chelsea, and I will be your conference operator. At this time I would like to welcome everyone to Intuit's First Quarter Fiscal Year 2024 Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. [Operator Instructions]. With that, I'll turn the call over to Kim Watkins, Intuit's Vice President of Investor Relations. Ms. Watkins?

Sasan Goodarzi:

Thanks, Kim, and thanks to all of you for joining us today. We had a very strong first quarter and have great momentum innovating on our platform across the company. Total revenue grew 15%, driven by Small Business and Self-Employed Group revenue growth of 18% and Consumer Group revenue growth of 25%. This was partially offset by Credit Karma revenue decline of 5%, in line with our expectations for Q1 given the macroeconomic environment. With the strong start to the year, we are reiterating our full year guidance for fiscal year 2024. Consumer Group revenue growth reflects a strong finish to the tax extension season. We remain focused on transforming the assisted consumer and business tax categories with TurboTax Live. Our innovation in tax has accelerated in several areas. First, the Credit Karma platform is leveraging data and AI to deliver personalized experiences and compelling tax offers. Second, is the innovation with TurboTax Live to deliver speed and confidence to prior year assisted customers, particularly with full service, where we can get taxes done in as little as an hour using data, AI and our expert platform at scale. And third, Intuit Assist, our GenAI-powered financial assistance, helping customers in key areas where confidence matters most. For example, understanding their refund or getting answers to their questions as if they're talking to an expert. We ran many experiments during the extension season, and the learnings give us confidence in our game plan to win this tax season. We believe this is Intuit's most exciting era yet. Five years ago, we declared our strategy to be an AI-driven expert platform with data and AI core to fueling innovation across our platform. We're delivering experiences where the hard work is done for you with a gateway to human expertise, powering our customers' prosperity and accelerating penetration of our $300 billion in TAM. The launch of Intuit Assist is the result of years of investment in data and AI. At the core of our platform is powerful, relevant data. Intuit has incredibly rich longitudinal, transactional and behavioral data for our 100 million customers. We have 500,000 customer and financial attributes per small business and 60,000 financial and tax attributes per consumer on our platform. And with our GenAI operating system, GenOS, we empower Intuit technologists to create breakthrough AI experiences across the platform. This includes utilizing our own powerful financial LLM as well as those from other leaders in GenAI which together unlock new opportunities to serve our customers with accuracy and speed in a cost-efficient way. We are creating a future of done for you, a future where the hard work is done automatically on behalf of our customers with a gateway to human expertise, fueling their financial success. Intuit Assist powered by GenAI is critical to delivering unparalleled benefits for our customers over the next decade. Let me share a few updates on Intuit Assist across our offerings. First, Mailchimp. We're rolling out two new GenAI experiences, designed to help our customers grow their revenue and save time. These include AI-driven audience segmentation and marketing automation. I'll share more on those in just a moment. Second, TurboTax. As I shared earlier during the extension season we tested new GenAI experiences to deliver higher confidence for our DIY customers. This includes in-topic accuracy checks and personalized explanations throughout the filing process that help explain a customer's tax outcome. We're excited about rolling out these experiences this season. Third, QuickBooks. We are testing GenAI to help customers save time and run their business with complete confidence, including a digital expert that can surface business insights and allow customers to dig deeper or connect them to a human expert. For example, we're serving our proactive business insights to customers with an actionable business summary. These customers are using the business summary as a launching point to learn, create reports directly using Intuit Assist and take actions to drive their business success. These experiences will be rolled out in the coming months and in the future, we plan to automate these actions and do the work for our customers. Fourth, Credit Karma. We're testing GenAI to help our customers find the products that are right for them in a highly personalized way. For example, based on our research, prime members spend an average of five hours online comparing credit card benefits. With our members' credit data and spending history from accounts they choose to link to Credit Karma, we can use GenAI to help members select the right credit card for them optimized based on their personal spending history. This is designed to increase engagement with our members and help them improve their financial health and drive financial success. These experiences will be rolled out in the coming months. We are excited by Intuit Assist's early progress. It will change our relationship with customers as we move from a transactional workflow platform to a trusted assistant that our customers rely on daily to power their prosperity. We believe Intuit Assist will lead to higher frequency of engagement and monetization across the platform. Let me now highlight progress across two of our five big bets. As a reminder, our five big bets are revolutionize speed to benefit, connect people to experts, unlock smart money decisions, be the center of small business growth and disrupt the small business mid-market. Our fourth big bet is to become the center of small business growth by helping our customers get new customers, get paid fast, manage capital and pay employees with confidence in an omnichannel world. In payments, our innovation continues to drive digitization from creating an estimate to invoicing a customer to getting paid to paying a supplier. Today, easier discovery, auto-enable payments, instant deposit and get paid upfront are all helping drive adoption of our payments offering. Total online payment volume growth was strong in the quarter at 21%. We're also making good progress digitizing B2B payments to accelerate and automate transactions between small businesses and ultimately improving their cash flow. We made our bill pay offering widely available to customers during the quarter. While it's early, we are seeing mid-market customers choosing the paid subscription offering at approximately 2x the rate of non mid-market customers, indicating this paid offering is resonating with larger customers. Turning to Mailchimp. We are well on our way to becoming the source of truth for our customers to help them grow and run their business. As I shared earlier, we're rolling out several features powered by Intuit Assist in time for peak holiday season for many of our customers. Let me highlight two of these impactful benefits designed to help our customers grow their revenue while saving time. First, AI-driven audience segmentation, which allows small businesses to target specific audiences. Many customers don't use audience segmentation today despite the fact that it can drive up to 60% lift in average order revenue or average order value over 12 months. With Intuit Assist, a customer can use conversational language to more quickly build segments and use them as a part of a marketing campaign. Second, AI-powered marketing automation, which are automated workflows that help small businesses reach their customers in uniquely tailored way. Today, many of our customers don't use marketing automation because they are time consuming the setup even though they can help them drive higher revenue. With Intuit Assist, Mailchimp creates marketing automation, which can easily be turned on and e-mail content can be generated and edited. Our fifth big bet is to disrupt the small business mid-market representing a TAM of 1.7 million customers, 800,000 of which are already in our franchise, but using a core QBO or desktop product. Online mid-market customer and revenue growth remained strong and we are driving increased adoption of QuickBooks Advanced, payments and payroll, resulting in ARPC expansion as we serve these mid-market customers with a full ecosystem of services. We are proud of our innovation and the impact that we're making on our customers' lives. We also continue to make an impact on the communities that we serve. This quarter, we launched Intuit for education, a new financial literacy program to provide Gen Z and Gen Alpha students access to Intuit products and teach some personal and small business finance skills. We also announced the first set of winners of our Coalfield Solar Fund, providing grants in [Seven-Eye] (ph) solar energy projects in coal mining communities to help build a sustainable future. Wrapping up, with our durable AI-driven expert platform strategy and focus on innovating with GenAI across our platform, we are more excited than ever about the opportunity in front of us and our ability to power prosperity for our customers. We are also delighted to be one of the only eight Fortune 500 companies named to Fortune's inaugural top 50 AI Innovators list. With that, let me now hand it over to Sandeep.

Sasan Goodarzi:

All right. Well, thank you, Sandeep. And to wrap it up, we are confident in our AI-driven expert platform strategy and progress across our five big bets and creating a future of done for you with a gateway to human expertise. We believe this will change our relationship with customers, becoming their trusted adviser, leading to higher engagement and monetization. The combination of our assets and our strategy creates a growth flywheel for Intuit to accelerate at penetrating our $300 billion in TAM. With all of that said, let's now open it up to your questions.

Raimo Lenschow:

Perfect. Thank you. Sasan, on the AI strategy, like obviously, you have like one -- it seems like one big platform that is driving it. Like can you -- what's the kind of opportunity to kind of learn from one segment and use it in the other segment? And as part of that also, like are you impacted by the chip shortage? Will that kind of impact the rollout for you? Thank you.

Raimo Lenschow:

Okay. Perfect. Congrats. Thank you.

Operator:

Our next question will come from Keith Weiss with Morgan Stanley.

Sasan Goodarzi:

Thanks for the question, Keith. I'll take your first one. What you're seeing from us in Mailchimp is entirely execution. We're not getting tailwinds from the macro environment. And as I mentioned, when we closed the acquisition a while back, that our biggest opportunity was to be clear about our product improvements, our lineup and to be able to create one growth platform, develop strength internationally and go to mid-market. And by the way, we've made a lot of progress in all of those areas. We still have a lot of work ahead of us, to be clear. But everything that you're seeing is based on our execution and no macro tailwinds.

Keith Weiss:

Excellent. Really nice job guys. Thank you.

Operator:

Our next question comes from Siti Panigrahi with Mizuho.

Sasan Goodarzi:

Thanks for the question, Siti. As you know, we've been in this macro environment for some time now. And the small businesses that we serve are resilient for a couple of reasons. One, they're on our platform. And by digitizing what they do, which is how they grow customers and managing their cash flow, they are far more resilient and as we've shared before, anybody that's on our platform is nearly 20 points higher in their success rate than those that are not on our platform. So we are part of sort of the health that we're experiencing on our platform. With that as context, I would just share a couple of data points. One, the number of companies and the number of employees that our small businesses are hiring still remains strong. Two, our total online payments volume grew 21%, which means that our small businesses are continuing to be competitive. and -- and serving their consumers. I also remind us, by the way, I think, a year ago or more, that growth was in the 30% plus. And so we have seen an impact, but just our overall platform is very resilient. And then the last thing I would say is that the cash reserves of our small businesses is 90% of where it was this time last year. However, it's 128% of where it was pre-pandemic. So their cash flow is stronger than several years ago, but 10% down from last year. And then very specifically, as you know, we serve service-based businesses, which is about 70% of the market. We're not concentrated in any one particular area. But you'll see place things like auto repairs and -- that are doing well, professional services that are doing well. But just like pure construction, those that do lending not doing well. So there's sort of ups and downs across the small businesses that we see. But in aggregate, the health comes from the numbers that I shared with you.

Sasan Goodarzi:

Yeah. Very welcome.

Allan Verkhovski:

Hi, this is Allan Verkhovski on behalf of Alex Zukin. Thank you for taking the question. QuickBooks Online accounting growth decelerated another 3 percentage points this quarter. With respect to your growth drivers, is there anything that got meaningfully worse in the quarter? Or something that is worth emphasizing to investors? And that will be helpful for thinking about what growth could look like for the rest of the year.

Allan Verkhovski:

Okay. And as just a quick follow-up, would you be able to step through the monthly linearity that you saw in Credit Karma through the quarter and in November? Thanks.

Allan Verkhovski:

Just on the Credit Karma, thinking about the linearity of the business through the quarter and November, I was wondering if you could just kind of talk through on a monthly basis what you saw in the underlying trends for Credit Karma?

Allan Verkhovski:

Thank you.

Operator:

Our next question will come from Alex Markgraff with KeyBanc Capital Markets.

Sasan Goodarzi:

Yeah, sure. Let me answer your question in two ways because I think they're -- it's a great question, and it's connected. First of all, the biggest insight and learning that we have had is, it's really important to have embedded benefits where the customer is doing the work versus sort of something on the side where the assistant is there to help the customer. So what I mean by that is while a customer is looking to build a marketing campaign right within the flow, we, in essence, help them with the audience they should segment, the audience they should target and then we will build their marketing campaign for them, but with them in complete control. So that's a really -- it may sound really obvious, but it's a really important learning, which, by the way, translates to also what we learned in tax, which is within the flow of helping a customer understand their money outcome, helping them understand and doing accuracy checks for them. And if they miss something, calling it out so they can address it right then and there. Those are examples that, by the way, is consistent across all of our platform workflows where embedded matters a lot. The second is depth, depending on the customer and what they're trying to do, there's a level of depth that they want to go to. So an example is within QuickBooks, one of the things that we've been testing and it's been testing really well is a business summary. And the business summary, in essence, provides what we believe are the most important things that, that customer should know and the customer that engages with those business insights and ultimately, will create reports or ask more questions. What we've learned is we're not building propensity models in terms of the timing of when to connect them to an expert. That's a monetizable event for us because if not, you can go on and on having a Q&A and ultimately not get to the benefit as quickly as possible. So those are major insights and learnings and those insights and learnings have led to how we're thinking about monetization. In the case of Mailchimp, having GenAI SKUs based on the things that we can do for customers automatically on their behalf. In the case of QuickBooks and by the way, TurboTax it's a monetizable event because it's a gateway to human expertise and expert help. And then we will be testing GenAI specific SKUs also in QuickBooks. So those are illustrative examples of based on the benefits that we're learning about what's important to customers, that then informs how we think about price testing. And so far, we're pleased with what we're learning and how fast we're pivoting as a company.

Sasan Goodarzi:

Yeah. Very welcome.

Steve Enders:

Okay, great. Thanks for taking the question here. I guess I'm going to ask on the tax business, what you saw with some of those newer product initiatives and maybe what kind of drove the strength there year-over-year and the share gains with some of those newer initiatives?

Steve Enders:

Great. Perfect. Thanks for taking the question.

Operator:

Our next question will come from Brent Thill with Jefferies.

Sasan Goodarzi:

What was your last question, bill pay?

Sasan Goodarzi:

Yeah. Got it. Thanks for the question. So I'll start with Mailchimp. As we talked about, one of our top priorities includes international. We've spent quite a bit of time and investment in translating to local languages, building out a team that can focus on EMEA and third, making sure that we've got the right pricing lineup and go-to-market plan. And we're executing against that. We like what we see. And it's contributing to the numbers that we reported. And I would say, for us, it's the balance of focus between US and international. We see an enormous opportunity in US and in international. So we have the right balance focus as we think about the geographies. The second, in terms of cross-sell as we shared at Investor Day, we are a big part of the thesis behind the acquisition was to create one growth platform. And what we shared at Investor Day was that we are building an AI native CRM within the QuickBooks platform. We're continuing to make progress in testing and learning and pivoting to get the product market fit. When we get the product market fit. That's really where the cross-sell takes place. We've not assumed or anticipated any contribution from that in our guidance this year. But it's a very important long-term strategic priority. It's the reason why we acquired the platform is to ultimately have one growth platform where you can grow your customers and manage our cash flow all in one place. So that's on the Mailchimp front. On Bill Pay, we're pleased with the fact that we're GA and we -- and as I think noted earlier, what we're seeing with our mid-market customers is -- mid-market versus non-mid market customers, there's a 2x increase in those that are taking the subscription, the paid subscription. So that just means that we're adding value. We also have work ahead of us in Bill pay, things around batch payments, faster funding, all the things that we know we have to have. It's on our roadmap, and it will be launched in the future. So along with the fact that we're GA, we're clear on what the gaps are and what -- and it's on our roadmap, we're working feverishly to really be able to digitize B2B for our customers because we believe it's a big opportunity for our customers to improve their cash flow and a big growth opportunity for us in the long term. So that's the progress on both fronts.

Sasan Goodarzi:

Yeah. You're very welcome.

Brad Reback:

Great. Thanks very much. Sasan, as you think about the mid-market opportunity for the QuickBooks and the online ecosystem, given the value prop, is it easier to take share during difficult economic times because of that value prop? Or are customers just hesitant to move and wait for the economy to get better before they'll make a back-office switch? Thanks.

Sandeep Aujla:

And Brad, what I'll add is beyond just the QuickBooks side, we also are seeing strong progress on the Mailchimp side in terms of mid-market where historically before we acquired the company was not a focus and now with some of the stuff was Sasan mentioned, including account management, better onboarding, we're seeing better customer acquisition on the mid-market as well as better retention year-over-year in the mid-market, so that opportunity extends beyond just the QuickBooks for us across the entire platform, including Mailchimp.

Sasan Goodarzi:

You're very welcome.

Kirk Materne:

Yeah. Thanks very much and congrats on the quarter. Sasan, I was wondering if you could just talk about the -- I realize you have a vast and sort of wide open TAM in your markets on the small business side. But I was kind of curious if you're seeing any evidence that small businesses are looking to consolidate multiple technologies onto one platform. You all obviously offer a lot both on the front office and as well in the back office. Are you starting to see any of that sort of activity happening now that you're sort of integrating Mailchimp with QuickBooks? I realize it's early days, and you need that to happen to be successful. But I was just wondering if you're seeing any evidence of that yet? Thanks.

Kirk Materne:

Thank you so much.

Operator:

Our next question will come from Mark Murphy with JPMorgan.

Sasan Goodarzi:

Yeah, sure. Thank you for your question. First of all, just to play back what I shared at the Investor Day, I said if I had to pick one that was the most important lever going forward, it's go-to-market. We are continuing feverishly to build out the product capabilities that we need on the platform because we don't plan to stop at 100 employees. Our plan is to serve mid-market customers over time that are far larger than 100. However, in the near term, sort of near and midterm, the biggest needle mover is go-to-market. And I would tell you that it continues to be bringing on the right skill sets of talent in sales and marketing. And so even in the last, I think, couple of quarters, it's been -- we've hired a very strong marketing leader. We're -- we've hired a very strong sales leader. We're hiring a couple of more sales leaders. We're bringing on account managers that have a lot of skill in selling and nurturing customers. Because when we think about mid-market, it's really about a lot of the examples I was using earlier, which is really helping customers understand they can run their business in one place on one platform and the benefits of doing so and what it will mean to their cash flow and particularly helping them understand our roadmap as a company and what we are doing with Intuit Assist, which is really creating a feature of done for you with always having a gateway to human expertise. And that's enticing for mid-market customers. So net-net, that's the way I would describe our focus area. But we want you to walk away to be we're continuing to invest in the product and in the platform because that's a big opportunity in the long term as well. In terms of health, I think it really -- it comes down to the sector, if you just use US as an example, comes down to the state, the sector that you're in. Generally speaking, based on our history looking backwards, larger, more tenured customers can withstand more of economic turmoil versus someone that literally just started out their business and they only have $100,000 in their savings and if that $100,000 is spent, then they're done, right, they go bankrupt. So it really depends on the size of the business, how long that they've been in business and then the segment that their business is in, all those variables play in. I wouldn't say younger ones are more or less healthy and the older ones are healthier. I would just say it depends on the components that I just described a moment ago.

Sasan Goodarzi:

Yeah, very welcome.

Kartik Mehta:

Good afternoon. Sasan, maybe we've talked a lot about the Full Service business. And as you look at that business and all the learnings you've talked about, how will you define success for that business at the end of the tax season? Is it the number of returns of process? Is it -- I guess, what are the metrics that you will use to figure if you had success or not?

Kartik Mehta:

Perfect. And Sandeep just one quick question. You talked about not wanting to focus on one quarter for margins. But I'm wondering, as you look at the year, any differentiation or movement in marketing especially as the tax season unfolds?

Kartik Mehta:

Thank you. Yes. That was the question I was asking. I just did a poor job of it. So thank you.

Operator:

Our next question will come from Brad Sills with Bank of America.

Sasan Goodarzi:

Yeah, Brad, thank you for your question. And it's actually spot on the way you asked it, and that is we view our opportunity as nearly 100 million customers that are either consumers, which is about 88 million of the 100 million and the rest are our business customers, small businesses. We view our opportunity going after them, which is a combination of small pros, mom-and-pop shops, stores is actually a smaller part of the whole pie. And in the last, I would say, 18 months, we've experimented a lot with how do we go after these customers, how do we raise awareness, how do we get them to consider and ultimately, how do we ensure that when they come to our front door, front door is a service front or not a software front door because of the behaviors that they have. And a lot of those both go-to-market and platform insights and learnings is what has informed a number of things that I touched on earlier that we experimented with and ran test in the tax extension season and what we feel good about going into this coming season. So it was a long answer to your question, but yeah, a lot of those insights have informed our game plan because we're not just the software platform, we're a software and service platform, given who we're focused on serving. And by the way, while I have the floor, the same thing applies to small businesses as we think about what we're doing to embed QuickBooks Live in our offering.

Sasan Goodarzi:

Yeah. Very welcome.

Scott Schneeberger:

Thanks very much. I have a follow-up for Sandeep and then one for you, Sasan. Sandeep, on the margins in the quarter, you cited marketing, which I assume was predominantly that. Was there anything else in the quarter that was beneficial? Or was that the lion's share? And then you mentioned spread over the balance of the year and in Kartik’s answer, I felt you kind of were speaking to TurboTax but it looks like you're expecting a bit of a down quarter on margin in the second quarter. So we'll -- and it seemed like it was mostly in small business, the real benefit in the first quarter. So will that end as of second quarter? Is that truly something that is going to tail off in the second half as well? And then I'll come back to the follow-up. Thanks.

Scott Schneeberger:

Thanks. Appreciate that. And Sasan, we're pretty well along now into Karma Guarantee. Would love just to get an update on that and Credit Karma was a bit stronger than we had anticipated in the quarter. Is it something that could potentially inflect a positive year-over-year growth in the fiscal first half? Or is that something that you'd expect more in the back half? Thanks.

Scott Schneeberger:

Excellent. Thanks for all that.

Operator:

All right. Thank you. Ladies and gentlemen, there are no -- go ahead, sir.

Operator:

There no further questions, so you may proceed with any additional or closing remarks.

Operator:

Ladies and gentlemen, thank you for participating. This does conclude today's conference call, and you may disconnect at this time.

Operator:

Good afternoon, my name is Raiza, and I'll be your conference operator. At this time, I would like to welcome everyone to Intuit's Fourth Quarter Fiscal Year 2023 Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. [Operator Instructions] With that, I'll now turn the call over to Kim Watkins, Intuit's Vice President of Investor Relations. Ms. Watkins?

Sasan Goodarzi:

All right. Excellent, Kim, thank you, and thank you, everybody, for joining us today. We had a very strong fourth quarter as we executed on our strategy to be the global AI-driven expert platform, powering prosperity for consumers and small businesses. We grew full year revenue 13%, delivered strong operating margin expansion, and exited the year with momentum. Our overall performance demonstrates the strength of our platform and the diversity of our portfolio, including our ability to maintain earnings power in uncertain times. This past year, we expanded our operating margin again, while investing in the most important areas to drive durable long-term growth. We are guiding to another year of double-digit revenue growth and margin expansion in fiscal year 2024, even with the macroeconomic environment that is uncertain. We are entering Intuit's most exciting area. Five years ago, we declared our strategy to be an AI-driven expert platform with data and AI core fueling innovation across our five Big Bets. We've made strong progress in transforming from a tax and accounting platform where consumers and small businesses have to do the work to achieve the benefit that they are seeking, to a global financial platform, where we do the hard work for them. Now, we are creating a future of, done for you, a future where the hard work is done automatically on behalf of our customers to fuel their financial success. This future is only possible because of our history of significant investments in our platform, talent, data and AI and now our accelerated investments in generative AI. At the core of our platform is powerful, relevant data. Intuit has incredibly rich longitudinal, transactional and behavioral data for 100 million customers. For small businesses, we have a 360-degree view of their business and customers. We have 500,000 customers and financial attributes per small business on our platform and this data gives us insights into behaviors, income streams, expenses, profitability, and cash flows, enabling us to provide personalized experiences and recommendations to help them prosper. Additionally, we have 60,000 financial and tax attributes per consumer on our platform, including income, expenses, credit history, spending history, outstanding loans, cash flow, and tax information, which enables us to become a financial assistant in their pocket. We are using our data to fine-tune our own financial large language models that specialize in solving tax, accounting, cash flow, marketing, and personal finance challenges. The investments that we've made in data and AI over the years allow us to introduce innovations at an accelerated rate. Intuit's rich data platform is a powerful foundation that allows us to create innovative AI-assisted experiences for all of our customers powering their prosperity. In June, we introduced our generative AI operating system called GenOS, to ignite innovation at scale for the benefit of millions of consumers and small businesses. GenOS empowers Intuit technologists to create breakthrough generative AI experiences. We are using a platform approach, giving our teams across Intuit the resources and tools they need to design, build, test and deploy these new experiences with unparalleled speed. This includes our own powerful financial LLMs, as well as those from other leaders in GenAI, which together unlock new opportunities to serve our customers, in a cost-effective way. We are entering Intuit’s most exciting era yet and believe the next several years will be game changing. On September 6th, we’ll be hosting Intuit Innovation Day, a virtual event where we will unveil exciting GenAI innovation across our platform and how it will drive business growth in the years ahead. We look forward to sharing more with you then. Now, let me turn to our Big Bets which are driving growth and benefits for our customers today. I would like to highlight some examples of recent progress in one of our Big Bets. As a reminder, our five Big Bets are, revolutionize speed to benefit, connect people to experts, unlock smart money decisions, be the center of small business growth, and disrupt the small business mid-market. Our fourth Big Bet is to become the center of small business growth, by helping our customers get new customers, get paid fast, manage capital and pay employees with confidence in an omnichannel world. In payments, our innovation continues to drive digitization, from creating an estimate, to invoicing a customer, to getting paid. Today, easier discovery, auto-enabled payments, instant deposit, and getting paid upfront, are all helping drive adoption of our payments offering, leading to 22% total online payment volume growth this quarter. We are making significant progress digitizing B2B payments to accelerate and automate transactions between small businesses, and ultimately improve their cash flow. We see a tremendous opportunity as 80% of businesses still pay other firms via paper checks. We recently expanded the availability of the beta of our native bill pay solution by 10x. Turning to Mailchimp, we are well on our way to becoming the source of truth for our customers to help them grow and run their business. We have three acceleration priorities with Mailchimp. First, delivering on our vision of an end-to-end QuickBooks and Mailchimp customer growth platform. Second, disrupting the mid-market by developing a full marketing automation, CRM and eCommerce suite. And third, accelerating global growth with a holistic go-to-market approach. This last quarter, we implemented our first generative AI capability in Mailchimp, the Email Content Generator, enabling customers to create faster email campaigns based on industry, marketing intent and brand voice. This quarter, we launched the beta of a new product announcement generator, which uses AI to automatically create an email that a small business can send to its customers. We also announced over 150 new and updated features at our recent Mailchimp conference in London, designed to support the needs of advanced marketers, including a calendar view, custom reporting and analytics, more e-commerce advanced segmentation, more real time behavioral data based on e-commerce automations, and SMS marketing. Lineup changes and free trials are driving positive trends in year-over-year paid customer growth, which accelerated this quarter. We continue to make progress in mid-market, our 90-day retention rate this quarter the highest it’s been in two years. We have also translated the product into five different languages. We will share more on the outcomes we’re delivering across our five Big Bets at our Investor Day. Wrapping up, with our durable AI-driven expert platform strategy and focus on innovating with GenAI across our products, we are moving at high velocity. This will help us put more money in our customers’ pockets, save them time, and ensure complete confidence in every financial decision they make. As we lead this next technological shift, we are well positioned to power prosperity for our customers and communities that we serve with a leadership team that is built for the era of AI. Now let me hand it over to Sandeep. It’s great to have you on the call, my friend.

Sasan Goodarzi:

Great. Thank you. And wrapping up, we are confident in our AI-driven expert platform strategy and progress with our five Big Bets, the investments that we are making in GenAI and our leadership team driving our platform innovation. The combination of our assets and our strategy creates a growth flywheel for Intuit to accelerate penetrating our $300 billion in TAM. In today's uncertain macro-environment, the benefits of our global financial technology platform are more important and mission-critical than ever to our customers. I look forward to your attendance at our Intuit Innovation Day on September 6th, and Investor Day on September 28th. With that, let's open it up to your questions.

Keith Weiss:

Excellent. Thank you guys for taking the question, and a really nice quarter, and nice to see a forward EPS guide ahead kind of where consensus was to see those numbers start moving up. My inbox getting filled up with questions about the consumer business and the consumer guide. You've talked about a longer-term 8% to 12% growth there, the four-year CAGR of 10%, but this year you are looking for 7% to 8%, so below that guidance framework. And I think what people are trying to understand is why that is? Last year was a difficult tax season. Did you pull the levers too hard on pricing? Or what was it, do we need to refill the tank in terms of units like? What is it that's going to keep this tax season to be underperforming those longer-term targets? Thank you.

Keith Weiss:

Excellent. That’s it for me. Thank you.

Operator:

And we'll take our next question from Siti Panigrahi with Mizuho. Your line is open.

Sasan Goodarzi:

Yeah, Siti, thank you for your question. Let me take it in two parts. First and foremost, you've heard us in the past year plus talk about digitizing B2B with respect to all of the manual work that gets done today in terms of 80% of the back and forth between small businesses is all sort of paper checks and manual. And our goal has been to digitize all of that. And one last element of what we needed to do was to launch bill pay. I think the headline I would just give is -- the feedback we've been getting has even gone better than what we thought, and we're now at a place where we are 10x-ing our beta, and we hope to have it available to all of our customers soon. So we feel very good about what we are seeing in Bill Pay and how fast we're able to build it based on the platform capabilities that we have and the feedback that we've gotten from customers. I think back to your second question, you're right. And in fact, the vision I would take you back to is that we have set out to be the source of truth for a business and to truly be the center of small business growth. And in order to do that, we have to have capabilities that not only help a small business grow their customers, retain their customers, market to their customers, but to be able to manage their cash flow and be able to manage their employees. We now have all of those capabilities end-to-end. And I think particularly, what's important, that advantages us to deliver for our customers is the data and our AI investments that we've made in the last five-plus years. And I think I would just encourage you to attend -- and if you can attend when it's on real time, watch the replay of our September 6 Intuit Innovation Day. And you will see how with our data, AI and GenAI capabilities we help customers manage their cash flow and really digitize all of money movement in a way that's so intuitive, so easy and delivered at a moment of truth. So we're quite excited about what's possible as we look at this coming year, about the years ahead. And let me, by the way, be very explicit that none of our potential innovation that you're going to experience in September 6 around GenAI is included in our guidance. But we believe it is fundamentally revolutionary as we think about the world we're going to create in the future.

Sasan Goodarzi:

You’re very welcome.

Brent Thill:

Sasan, when you mentioned prudent in the tax guide. I'm curious, are you baking in more wiggle room this year than in past years in the guidance or can you just walk through what you mean by prudent?

Brent Thill:

Thank you, Sasan.

Operator:

Our next question comes from Michael Turrin with Wells Fargo. Your line is open.

Sandeep Aujla:

Thanks for the question, Michael. And let me unpack it a little bit. We go through a [indiscernible] planning process, as I shared in the prepared remarks. And due that process, if you look at one of the biggest needle movers to deliver growth both in the near term and the long term, so durable growth levers for the company. And we make sure those are funded for success, inclusive of Big Bets and investments in GenAI. So the 40 to 60 bps of guidance reflects those investments and, quite frankly, reflects the strength and resilience of our platform. As a reminder, this is an expansion we're delivering on top of the 3.5 points of expansion we delivered over the last three years. As I look ahead, I see plenty of runway for us to continue to operate in accordance with our financial principles to grow expenses slower than revenue, therefore, implying a margin expansion. And really, as I look at it, what gives me confidence is that we are an AI-driven expert platform, and we operate as an ecosystem across technology, across customer success, across marketing. So in addition to giving us a competitive advantage for having faster time to market as a -- from opting as an ecosystem, it also gives us advantage in getting operating leverage as we scale as a business.

Operator:

Our next question comes from Taylor McGinnis with UBS. Your line is open.

Sasan Goodarzi:

Yeah. Thank you for your questions. Let me start us off and Sandeep, please jump in if you want to add anything. First of all, we have a framework at the company level where we want to drive the majority of our growth from volume and mix and the lesser part from price, but we always focus on pricing for value. And so when we look at our growth drivers this year, it is coming from customer growth, and it is coming from mix and to a lesser extent this year compared to last year, by the way, from price. With that as context, I would just remind you that the big picture, when you look at our opportunity this coming year, but even in the next three to five years plus, we now have a platform and a portfolio of services where we have the opportunity to drive further adoption of our services from Mailchimp to payments, to payroll to time tracking and to a lot of our new innovations around Bill Pay and digitizing B2B that I just mentioned. But also, although we are three to four years in, we're just at the beginning of what's possible in the midmarket. Big market is a significant ARPC opportunity because these customers use a lot of the capabilities that I just mentioned, except they pay a lot more. And we're just at the beginning of the flywheel of penetrating mid-market. So when you look at the portfolio of the services that we have, the strength of the experience that we're delivering because of data and AI and because of mid-market, it allows us to drive most of our growth from customer growth and mix. And none of that, by the way, takes into account what's possible as we look into the future with our generative AI experiences that you'll be able to observe on September 6. But those are the main drivers.

Taylor McGinnis:

Great. Thank you.

Kim Watkins:

Raiza, we’re ready for our next question.

Kash Rangan:

Hi. Thank you very much. I hope you can hear me okay. So the recession that everybody's been expecting, it doesn't seem to be quite happening. Sasan, I know you've got a great read on your SMB ecosystem. What are some of the indicators that you're seeing? And if you've already proactively addressed this, my apologies for bringing it up again. But what are some of the forward-looking indicators that you see in the Credit Karma business or the SMB ecosystem that give you renewed confidence that we are going to be okay? Because your fiscal '24 guidance definitely is not reflecting of any caution in the environment, but more like a continuation of what we've seen in the last four quarters. Just some thoughts there would be great. Thank you so much and congrats.

Kash Rangan:

Brilliant. Thank you so much.

Operator:

Our next question comes from Brad Reback with Stifel. Your line is open.

Sasan Goodarzi:

Yeah, Brad, thank you for your question. The short answer is no. We're very bullish on the business. And in fact, a couple of things that I would share with you, which we can talk more about at Investor Day, but just not to leave you hanging, the monetization model in Credit Karma is how many members you have, how frequently they engage. And there's a model for -- every time a customer engages, there is a average revenue per customer that we benefit from. And in fact, this past year, in '23, when our results were down year-over-year, our frequency of engagement is actually higher than the prior two years where we had 37% growth and 58% growth. Now why is that? It's because of all of our innovation. It's because the customer is engaging but in many areas, credit is still tight. So when credit begins to open up, and that's the stability that we're seeing now, we view this business will accelerate back to the 20% to 25% growth rate. Plus I'll remind you that, that plus the integration with TurboTax drives actually more stickiness, more monetization and truly created this one consumer platform, which was our vision from day one when we acquired Credit Karma. And with all of the data and AI capabilities that we have in our accelerated GenAI experiences, as I said earlier, you're going to see on September 6, some of the new innovations that are coming that will make it easier for customers to find what they need, the benefits that they need to engage in the financial products that they want and manage their money. And so all of that leads to our view is completely unchanged relative to the long-term expectations of 20% to 25% growth in Credit Karma.

Brad Reback:

That’s great. Thank you very much.

Operator:

Our next question comes from Kartik Mehta with Northcoast Research. Your line is open.

Sasan Goodarzi:

Yeah. Great question. Let me give you an answer that I think you'll find somewhat helpful and somewhat vague intentionally. We learned a lot this year. We came into the year with a full service offering that has product markets, that as you know, it's all AI-driven. And we can virtually get things done within an hour or same day. We learned a lot around health and scaling and how to have customers find our full-service offering. And a lot of it also has to do with what I mentioned earlier, which is local marketing. If I'm in San Diego, if I'm in Kansas City, even if I see that TurboTax can provide experts, I go to start to see locally if there's somebody there. Well, all of our experts that we have are within 10 miles of many of the households in the United States, but we've never marketed that way. And so that's going to inform our marketing going forward. So there's a lot that we learned in terms of how to evolve our marketing, so it becomes an and, and not an either/or, and we're excited about it.

Sasan Goodarzi:

Yeah. Very welcome.

Kirk Materne:

Yeah. Thanks very much. Sasan, I'd love to hear you just give a little bit more detail on what you're counting on Mailchimp to do this year and maybe not if you don't want to get too much into the quantitative side. Qualitatively, you guys have done a lot of work around the product, the monetizaiton. How important is sort of a continued acceleration of Mailchimp as you look at sort of the small business in aggregate for next year? Thanks.

Kirk Materne:

Great. Thanks, Sasan.

Operator:

Our next question comes from Brad Zelnick with Deutsche Bank. Your line is open.

Sandeep Aujla:

Thanks for the question, Nick. A couple of things on the international growth. On international growth, as I shared earlier, our focus, our refreshed strategy is to lead with both Mailchimp and QuickBooks in the markets where we have product market fit. And in other areas to lead with Mailchimp at the tip of the spear. Our growth decelerated for a couple of reasons, and some of that Sasan shared. As we lead into rightsizing the pricing for Mailchimp in some of these geographies, historically, it was the same price. It was basically the price in the US simply converting into the local currency and applied in that geography. We went in, and we looked at what the price should be based on the competitors in the market, based on the GDP per capital and all these other factors and we rightsized the price. Secondly, as we do in QuickBooks, we introduced free trials or discounts initially when folks join the product is what we have experienced over our years of doing that is people -- more people come into the product and they stick around. That leads to a better 90-day forwarded retention, et cetera. These are all the factors and all the improvements we're making in the Mailchimp product and the lineup, which is leading to what I would describe as a temporary headwind in terms of our international growth.

Sasan Goodarzi:

Very welcome.

Alex Zukin:

Hey, guys. Thanks for taking the question. And congrats on a really nice and prudent guidance methodology for next year. I guess maybe I'll just -- I want both of my questions to really target the SMB growth rate. It seems like the guide there ex Mailchimp is really strong. Sandeep you're now in the CFO seat, maybe just talk about -- you talked about the prudence intact, but the prudence in the SMB guide, what gives you guys the confidence to kind of guide that way? How much of it has to do with some of the payment functionalities that are coming to market, some of the GenAI functionality that's coming to market, what gives you guys that guidance? And then dovetailing into that, new leadership for that group, obviously, as well. Is there talk about the potential for either disruption or how is that accounted for? Or why Mariana was the right fit for that role specifically and kind of where -- what you're going to bring to the table in?

Sandeep Aujla:

Absolutely. And actually, let me touch on one additional point to what Sasan added, it's never about one individual. We are a system, and we have strong leadership teams around our General Manager and CFO staff as well. So getting back to your question on the guidance, Alex. So just for context, the Small Business group grew 24% in fiscal '23, with four of those points coming from the benefit of the timing of the Mailchimp acquisition. So that's about a 20% organic run rate. And as we have shared with you with -- the group in the past is 80% of the revenues in the Small Business group are subscription-based. So that makes -- so the recurring nature of the revenue makes it highly predictable. And we -- this year's strong results in areas where we are focused, such as QuickBooks Advanced customer growth as well as in the mid-market area that Sasan touched on. So that is one component giving us confidence as we guide for next year. The second aspect is it's the importance of our products to SMBs. This is something core to how they run their business, how they pay their employees, how they get paid themselves, how they get access to capital to take on new projects and grow their business. And we have made tremendous improvements in our product in an ecosystem that makes that platform that much more relevant and important to the lives of our customers. So that is what's all baked into the guidance that we provided for the Small Business and Self-Employed Group. You asked a question if we were reliant on GenAI. I want to reiterate and be very clear. GenAI, we believe it will be an accelerator for our business, but that is not baked into the guidance that we shared with you all today.

Sasan Goodarzi:

Thank you, Alex.

Unidentified Analyst:

Hi, this is [indiscernible] on for Mark Murphy. Congrats on the quarter and thanks for taking my question. I just wanted to dig in on Credit Karma, specifically as it relates to the opportunity to begin to pursue prime customers in addition to the subprime and near-prime customers you guys have kind of focused on historically? Thanks.

Unidentified Analyst:

Thanks for the insight. Looking forward to learning more about it.

Operator:

Our next question comes from Brad Sills with Bank of America. Your line is open.

Sasan Goodarzi:

Yes. Thank you for your question. I'll start with taking you back to five years ago when we declared our strategy was to really shift the company from just a tax and accounting platform, which is a very important set of problems to solve for customers to a global financial platform that really played a far more meaningful role in powering the prosperity of consumers and small businesses on a daily basis. When we made that strategic declaration on the five bets that ensued, what we talked about at that time was that data and AI was going to be core to making that shift. And in fact, when we made the acquisition of both Credit Karma and Mailchimp, one huge driver of the acquisition was around the data, because in essence, we will know a lot more about customers, and we could leverage that data for their benefit to fuel their success. So -- and even five years ago declaring this, data and machine learning has been a decade-long focus of Intuit. So when you think about a decade-long investment in data usable data, cleaning the data and making sure that it's structured in a way where it can be used and then our investments in AI, specifically in knowledge engineering, which really takes rules and the relationship between data and turns it in the code is what our advantages in TurboTax, machine learning and natural language processing, those have been -- it's been a decade-long set of investments and the two acquisitions have propelled us forward about 10 years. And then you couple that with what we started several years ago, which is GenAI. And then what we launched in June, which is Generative Operating System, GenOS, which by the way, is not something you can create overnight. This is years of investment. When we couple those kind of investments, data, AI and GenOS, which is really primarily our own Intuit financial large language models that are trained on our customers' proprietary data, it allows us to personalize things, humanize things and do the work for customers in a way that's revolutionary, which ultimately gets to the punch line of we are creating a future that is done for you. Rather than you having to do the work to run your business, rather than you have to do the work to be able to power your prosperity, manage your finances as a consumer, we want to put you in control where it's done for you. You're always in control, you have the taste of whether or not you move forward with a decision. But we want to be able to help you grow your customers and run your business for you and help you manage your cash flow, always put the right choices in front of you. And the same thing goes on the tax side and Credit Karma side. So that's what's so exciting about -- it's a decade-long focus. We really tripled down on it five years ago when we declared our strategy. And we're -- we have now galvanized and energized the entire company that the [future of done for you] (ph) that we declared five years ago is very real, very much here. And we had an enormous opportunity to do amazing things for our customers. And that's what really gets us excited about what's possible. And so I can do another advertisement, join us September 6 for Intuit's Innovation Day, followed by Investor Day, and you'll get a real good feel for the world that we are going to create for the future.

Sasan Goodarzi:

You’re welcome.

Scott Schneeberger:

Thanks very much. Welcome Sandeep. And good afternoon, Sasan. The -- I have a couple on consumer, one very high level and one, just a clarification. So the first is on...

Kim Watkins:

Raiza, can you try to bring him back?

Scott Schneeberger:

Thanks. Sasan, can you hear me?

Scott Schneeberger:

Absolutely. Thanks. So two quick on consumer. First, volume and price mix. Just your consideration of that going into fiscal 2024 and beyond given the trends of the recent years? And then for you or Sandeep, just curious in the extension season in the post-tax season, what did you see? Anything interesting with California? Should we see a shift from fiscal '23 to '24 that's material related to anything extension wise? Thank you.

Sandeep Aujla:

And that’s -- that's basically the answer, Scott. It's not material for our Q1. It's been a unique behavior on the taxpayer. But I'll also remind us that last year, we also saw a great deal of extensions by taxpayers. So that's also something to keep in mind as you look at Q1.

Sasan Goodarzi:

All right, everybody. I think that brings our questions or Q&A to an end. So thank you for your wonderful questions. Thank you for spending the time with us. We look forward to seeing you September 6 and -- at our Investor Day. Take good care. Be safe. Bye, everybody.

Kim Watkins:

Goodbye.

Operator:

Good afternoon. My name is Abby, and I will be your conference facilitator. At this time, I would like to welcome everyone to Intuit Third Quarter Fiscal Year 2023 Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. [Operator Instructions] With that, I'll now turn the call over to Kim Watkins, Intuit's Vice President of Investor Relations. Ms. Watkins?

Sasan Goodarzi:

Great. Thank you, Kim, and thanks to all of you for joining us today. Third quarter revenue grew 7%, lower than our expectations, reflecting a unique tax season, while we exceeded operating income and earnings per share guidance. We continue to see strong growth in the Small Business and Self-Employed Group, which grew 21% in the quarter. Our overall performance this year demonstrates the strength of our platform and portfolio, including our ability to maintain earnings power in uncertain times while investing in the most important areas to drive long-term durable growth. We are raising our total company fiscal year 2023 revenue, operating income, earnings per share guidance. I am very proud of our team, as we now expect revenue and operating income to grow double digits, and margins to expand even more than previously guided. Let's turn to tax. While this was a unique tax season, we are making good progress transforming the assisted segment with TurboTax Live. This year, we expect overall IRS returns to decline 2% through July 31, below our original expectations for total returns to grow 1%, which was more in-line with historical trends. We also expect the DIY category share of total IRS returns to decline nearly 0.75 point, also below our expectation. We believe the IRS and DIY category declines are driven by those who filed in order to receive pandemic-era stimulus and tax credits during the past several years but did not file taxes this season. As a reminder, every point of IRS return growth equals about 1 point of TurboTax revenue growth, and every point of DIY category share growth equals about 2.5 points of TurboTax revenue growth. The expected decline in total IRS returns and DIY category share equates to an approximate $200 million of negative impact to revenue for TurboTax, versus our original expectations. We expect our share of total IRS returns to be down approximately 80 basis points this fiscal year, primarily reflecting pandemic-era stimulus filers who did not file taxes this season. Each tax season has been unique since the pandemic began four years ago, although average annual trends over this period are far more in-line with longer-term trends. Over this four-year period, we expect total IRS returns to be up approximately 1%, the DIY category share of total returns to be up 0.75 point, and our share of total returns to be up approximately 20 basis points, and average revenue per return to be up 9 points. These trends exclude users of the TurboTax Free file offering in prior-year periods. Our strategy to transform the assisted category with TurboTax Live is working, given the growth we have experienced in an environment where IRS returns are declining. We expect TurboTax Live customers to grow 13% this year, with TurboTax Live revenue up 19%, and total average revenue per return to grow 12%. While TurboTax Live has driven strong growth over the last six tax seasons, we still have an immense opportunity to penetrate and transform the assisted tax segment at an accelerated rate. This remains our top priority as we prepare for next year. Turning to small business, while we are not immune to the macro environment, our platform is resilient. Total online payment volume growth moderated 5 points from Q2, growing 20%. Despite this, the shift to digitization and the power of our small business platform resonate with customers as they look to grow their business and improve cash flow. We continue to see strength in the areas that have the greatest impact, including growth of our online mid-market customers, contributing to strong subscription revenue and higher ARPC. In Q3, growth in both the number of companies running online payroll and the number of employees paid on our platform remained strong. Our small business platform, including QuickBooks and Mailchimp, remains critical to our customers' success. Let me now step back and talk about our company game plan to win. Four years ago, we declared our strategy to become the global AI-driven expert platform and five big bets as the primary areas of focus to drive durable growth. We invested heavily in our data and AI capabilities to deliver accelerated innovation. Today, we have over 100 million customers on our platform and use 400,000 customer and financial attributes per small business and 55,000 tax and financial attributes per consumer to power 58 billion machine learning predictions per day. The acquisitions of Credit Karma and Mailchimp each contributed a rich and additive data set, which helped to deliver a 360 degree view of our customers. The scale of our data is an important competitive advantage and building block for our existing and future innovation with AI. We are accelerating re-imagining our customer experiences with generative AI capabilities, which we believe will be a driver of our long-term growth. Our platform capabilities are key to continued acceleration across all five of our Big Bets. I would like to highlight some examples of recent progress across these Big Bets. As a reminder, our Big Bets are

Sasan Goodarzi:

Excellent. Thank you, Michelle. I know you'll be with us for another couple of months, but since this is your last earnings call, I want to express my sincere appreciation for all that you have contributed to Intuit over the last 20 years. You have made me, my leadership team, and the entire company better, and I am forever grateful. Wrapping up, we feel confident in our AI-driven expert platform strategy and our five Big Bets, and in an uncertain macro [Technical Difficulty] mission-critical than ever to our customers. Let's now open it up to your questions.

Brad Zelnick:

Great. Thank you so much for taking the question. And Michelle, congrats on a phenomenal run. We will miss you next quarter for sure on the earnings call. I've got one for Sasan and maybe let me sneak one in for Michelle, especially since it is her last call. Sasan, how should we think about your big bet in helping customers overcome their lack of confidence by connecting them to Live experts in a world where generative AI is advancing at breakneck speed? Because I think you spoke about how you're using generative AI to deliver the Live platform. But how is Intuit positioned in a world where LLMs may be able to deliver human-like guidance interaction? And maybe for you, Michelle, your Consumer segment operating margin was consistent with last year despite the pressure on the top-line for all the reasons that you've mentioned. Just curious how much visibility that you might have had into how tax would play out and if you scale back investment at all perhaps even marketing dollars into the end of the season? Thanks so much.

Michelle Clatterbuck:

Yes, that was good. And Brad, first of all, thank you for the kind words. Your question around our ability to maintain earnings power within CG, really it's a focus for us as the whole company and it started last year when we were going through our three- and one-year planning process. We assumed that there would be economic uncertainty this year. And so, as we were going through the process, we made sure that we had funded those things that were most important to delivering for customers and being able to drive our revenue growth. And then, we were made list of the levers that we had that we could pull as we went throughout the year to be able to maintain our earnings power. And those are some of the discretionary things we had, which were whether it's travel or advertising or moderating hiring. And so, our lower tax units also this year did result in lower expenses for that segment, specifically in customer success. But really, it's about us looking at maintaining not CG margins, but really at the company level and it started last year in planning.

Kash Rangan:

Thank you very much. And goodbye to you, Michelle. We'll miss you. Question for Sasan and the team. Sasan, in order to get back to the targets of 8% to 12% longer-term in Consumer, you're going to have to reaccelerate the tax business. So, if we can go back to the basics from the old days, how does it -- do you plan to grow the category? And how do you gain share of that category? That would be great. And also, as it pretends to generative AI, does this open up more opportunities netted against maybe potentially new competitive entrants? Because there is a bare thesis, which I'm sure you will have a different view on that, that it actually makes it easier to file for taxes. Brad was talking about that -- Brad Zelnick, earlier. So, does it expand the opportunity set, at the same time attracting new competition? Or how do we think about how it nets out for you guys? Thank you.

Operator:

The next question comes from the line of Kirk Materne from Evercore ISI. Your line is open.

Sasan Goodarzi:

Yes, sure. Let me, Kirk, frame my answer in two dimensions. One, what we see across all small businesses on our platform and off of our platform. There's a couple of things that we see. One is, there is an impact to small businesses' revenue. They're still growing. It depends on the sector. But in aggregate, what we see is that they are still growing. But they also, depending on the sectors they serve, they have profit pressures. So if they're in real estate or if they're in lending, they certainly have more profit pressure than those that don't serve those sectors. We also see that customers -- we would -- we put them in the bucket of the older, more tenured customers, 70% of those customers actually have more cash reserves than they did pre-pandemic. It's more of the younger newer businesses that have started since the pandemic that generally they have less cash reserves than they [Technical Difficulty] sort of the state of the small businesses. They feel the impact and the pressure of the environment from consumer spending standpoint. But net-net, when you look in aggregate, they are still growing with some of the data points that I mentioned a moment ago. With that said, when we look at our platform, it's why we're just being -- continuing to be intentional about sharing the proof points that we shared today, our platform is not immune, but we are resilient. And so, when you look at some of the data points that we shared, our payments -- our total payments -- online payments volume is 20%, which is actually quite healthy, but it's down 5 points. At the same time, when we look at our overall performance across Mailchimp and QuickBooks, we actually are seeing strength in serving our mid-market customers and continuing to serve our customers that have been on the platform for a long time. The proof points that I shared was our customer growth in mid-market is strong, we're growing payroll -- U.S. payroll double digit, and we're actually seeing a migration to our higher-end payroll offerings. So, net-net, we are not immune, but we are resilient and we feel really good about the sustained growth that we've delivered and the trajectory of the KPIs that we see as we look into next year.

Keith Weiss:

Excellent. Thank you for taking the question, guys. And Michelle, it's been great working for you -- with you over the years. So, congratulations on all the great work that you've done. Sasan, a question for you on just tax and kind of how unfolded throughout the season -- this season. I understand sort of overall filings down because of less people kind of getting the refunds, right? And I understand DIY is probably a bigger component of it. I don't quite understand why TurboTax loses a share in that dynamic. Like, what's the mechanism by which you guys get hit harder than others and therefore kind of lose share? That's question number one. And question number two, there has been some concern about an extended tax season and the ability for approximately 10% of filers to be able to file at a later date that pushes out of your fiscal year. You didn't mention that. Was there any significant impact from that side of the equation that some of this tax strength might just push into next fiscal year?

Operator:

Your next question comes from the line of Siti Panigrahi from Mizuho. Your line is open.

Sasan Goodarzi:

Was the last part of your question how sustained is that going forward?

Sasan Goodarzi:

Okay. So thank you for the question. First of all, very consistent with what I've shared in the last probably 18 months or so, we felt and I felt very strongly that the opportunity that we had with Mailchimp is how we bring it together with QuickBooks to truly create one platform that becomes the source of truth for running your business. And in an environment where now we have access to, with our customers' permission, the data applying AI and generative AI, we can now shift the platform to a place where we can do everything for you and deliver insights to help you manage your cash flow, to help you grow your customers, and that's really the ultimate game changer that we are focused on. With that said, the thing that I've been very consistent with you all is that this is all about execution. So, all of the progress that you're seeing us talk about in Mailchimp is all better execution. It is not any macro tailwinds. This is from the talent that we've put in place at the leadership level and the talent that we have upgraded across Mailchimp to then end-to-end. We've been revamping the website. We have looking at business model innovation and our line-up that we've made improvements. We're improving the product. We're doubling down on mid-market. And not only getting our existing customers to understand what features and functionality that we have to deliver the benefit, which helps us with retention and expansion revenue, but also the new customers that we're getting, assisted onboarding and using a lot of our AI and virtual expert platform capability. So, those were sort of illustrative examples relative to why we're seeing paid conversion increase, paid customers increase or seeing better retention and better revenue per customer, it is all execution. And I expect this to continue to improve our execution, and coupling that with what we're doing across the QuickBooks platform, truly creating one platform that becomes a source of truth for your business. I am excited and bullish about the future possibilities of what we can do for small businesses, particularly with what's possible with data and gen AI.

Scott Schneeberger:

Thanks very much. And Michelle, best wishes for sure. Sasan, I guess this is going to be a double tax question. The IRS is down 1% year-to-date, you're saying down 2% through the end of July. Just curious just what's going to take it down more in your eyes and how that looks in future years as you -- if you continue to think this is more just a pandemic-related [flow year] (ph) and we get back to normalcy? That's part number one. And part number two, historically, when we look at unit growth of TurboTax, which was -- you anticipate to be negative 5% and then revenue per return, which you anticipate to be plus 12%, usually A plus B equals the Consumer segment revenue growth, but you have -- and that would be 7-plus, but you're guiding 5% to 6%. So, is there conservatism in there? Or is there maybe some financial products that you were unable to sell, so you're getting a little less -- maybe it's not qualified as revenue per return but something else or maybe it's something that's not TurboTax related directly in the category? Thanks.

Michelle Clatterbuck:

Sorry. I'm having trouble with the mute button there. No, Sasan, some of it can just be also rounding with units and returns. And so, I wouldn't get overly concerned on that, Scott.

Michelle Clatterbuck:

Yes. You got the 12 points of ARPC. And then as you said Scott, we shared, we expect the units to be down 5%.

Daniel Jester:

Great. Thanks for taking my question. A couple more on tax. I think you mentioned before that overall retention, because of the factors you mentioned on the call already, is going to be down this year. But could you focus in on just Live retention given how important that's going to be for the future of the platform? How did that shake out this year? And if you could share in terms of Live customer growth, are you getting more from takeaways from competitors? Or is these DIY customers trading up to Live? Any color you can provide there would be helpful. Thank you.

Operator:

Your next question comes from the line of Raimo Lenschow from Barclays. Your line is open.

Sasan Goodarzi:

We're actually continuing to see strength based on our innovation in a couple of areas. One is in cards and in some parts driven by our Karma Guarantee, which is really unique to Credit Karma, where the certainty is very high for a member to get approved for what they are looking for because of the data and AI capabilities that we have. The second is Credit Karma Money. And this is where, as I always have shared, we are building a consumer platform to be the destination for consumers with the integrations that we're doing with TurboTax and Credit Karma. And in essence, we saw a 45% increase in the number of TurboTax customers that chose to put their money on a Credit Karma Money account. And not only do we make some revenue on that, but over time, based on the higher frequency of the engagement, we can ultimately monetize even further, which were not in the numbers that I just mentioned. So really, it's across our innovation across cards and Credit Karma Money. That's why we saw the performance that we saw in the quarter. And then with one quarter left in the year, we, of course, have confidence to improve the guidance that we provided to what Michelle shared earlier.

Jackson Ader:

Great. Thanks for taking our questions guys. We saw the press release related to the IRS direct filing program, but I just thought maybe, Sasan, if we could hear what you're thinking are maybe the largest potential threat of that study that came out as part of the Inflation Reduction Act last year?

Operator:

Your next question comes from the line of Brad Sills from Bank of America. Your line is open.

Sasan Goodarzi:

Yes. Sure, Brad. A couple of things. You actually nailed that our ARPU increase on top of ARPU increases in the last several years has come from TurboTax Live. It is a disruptive price offering. At the same time, it's got much higher ARPU and some of the more premium customers that chose -- they're either self-employed or they're investors and, of course, chose our premium SKU, which has a higher ARPU. So those are a couple of big drivers. I would tell you that the thing that I am sort of most excited about where the insights and the learnings that we got this year that really informs what we're going to double down on right now as we prepare for next year. One is full service. Full service is not an offering that is -- has product market fit. It's at scale. It -- we got an 84 Net Promoter Score this year, which is the highest Net Promoter of anything across the company we have ever had. And you've heard me say it before around Credit Karma, well, this is even a higher Net Promoter. And that contributed to a small amount this year because we were really being thoughtful and careful about ensuring we get to -- we have the right product market fit and we can deliver for customers. Well, we surprised ourselves in terms of the product market fit, and we're going to be really intentional about doubling down on that next year. I think I would say the other thing, back to your question around learning, is we really learned where and how experts. And remember, experts is not just human. It's both our AI and generative AI capabilities and/or humans depending on the need of the customer engaging around the money experience, helping customers understand their refund, changes in their refund or their balance due and changes in their balance due. We learned, coupled with our go-to-market strategy, how to really nail that benefit, and that's what drove the growth. But we believe we are capable of so much more growth as we look ahead based on the insights we got towards the end of the season, and that's what we'll be focused on as we head into next year.

Sasan Goodarzi:

Yes. Just to say thank you for all your great questions, and many thanks to our employees and customers for their amazing focus and being part of this storied franchise, and we look forward to seeing all of you at next earnings. Thank you, everybody.

Operator:

Good afternoon. My name is Abby, and I will be your conference facilitator. At this time, I would like to welcome everyone to the Intuit Second Quarter Fiscal Year 2023 Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] With that, I'll now turn the call over to Kim Watkins, Intuit's Vice President of Investor Relations. Ms. Watkins?

Sasan Goodarzi:

Great. Thanks, Kim, and thanks to all of you for joining us today. As you read in our press release, we announced that Michelle will step down from the CFO role and plans to retire from Intuit. I'm pleased to share that Sandeep Aujla will assume the role of Chief Financial Officer on August 1, 2023. It is a well-crafted succession plan that will cover more in a few minutes, but let's first get started with the business. We had another strong quarter, as we executed on our strategy to be the global AI-driven expert platform, powering prosperity for consumers and small businesses. Second quarter revenue grew 14%, fueled by Small Business & Self-Employed Group revenue growth of 20% and Consumer revenue growth of 26%. This year, we are celebrating Intuit's 40th anniversary. We're incredibly proud of our history of reimagining the company and reinventing ourselves, which has enabled us to thrive during various technological shifts and economic cycles. Having successfully navigated multiple platform ships over the years, including our largest transformation to artificial intelligence in the era of digitization, we continue to be confident in our ability to fuel growth, given our large TAM, low penetration, proven strategy and 5 Big Bets. We are proud to be the global financial technology platform that powers prosperity for the people and communities that we serve. I will first start with some thoughts about the tax season and our business in the current macro environment. As you know, the scale of our platform and rich data, gives us unique insights into the lives and spending habits of 100 million-plus customers. Our Small Business performance continues to be very strong, despite uncertainty in the broader macro environment. We continue to see strength in the areas that have the greatest impact, including the growth of our online mid-market customers, contributing to strong subscription revenue and higher ARPC. In Q2, growth in both the number of companies running online payroll and the number of employees paid on our platform remains strong. Total online payments volume grew 25%, moderating some from the first quarter. We are seeing strong growth in the number of payment-enabled invoices set by our Small Business customers, a good sign that our innovation is continuing to drive digitization. The shift to digitization and the power of our small business platform, including QuickBooks and MailChimp, resonate with customers as they grow their business and improve cash flow. We continue to observe that our AI-driven expert platform is critical to our customers' success. Now turning to tax. We're confident in our strategy to both extend our lead in the do-it-yourself category and transform the assisted category. Following a highly successful extension season last year, we doubled down on our learning's to further accelerate innovation to better serve our customers. First, we're evolving our TurboTax brand to increase awareness that we are the best alternative in the assisted tax segment for consumers and small businesses, a combined $30 billion TAM. Our new campaign, Come to TurboTax and Don't do your taxes is resonating with our customers and is the key to our strategy as we focus on attracting customers from the assisted segment. Second, we launched a number of high-impact TurboTax Live innovation. As part of our second Big Bet, we are solving one of the largest problems our customer's face, lack of confidence, by connecting people to experts virtually. Building on our learning's from last season, we're continuing to use AI to bring in our customers' data and match them to the right experts to help customers get the maximum refund they deserve with confidence. To help customers finish their taxes even more quickly. We've created a new gamified experience focused on efficiency, backed by our lifetime guarantee. We evolved our full-service offering, so filers can have their return completed in a single virtual session. We are off to a great start in tax, and we continue to be confident in our game plan to win. Now shifting to our 5 Big Bets, I would like to highlight some examples of recent progress. As a reminder, our Big Bets are revolutionize speed to benefit, connect people to experts, unlock smart money decisions, be the center of small business growth and disrupt the small business mid-market. Our second Big Bet is to connect people to experts. In addition to what I've shared about TurboTax Live, we've achieved product market fit with QuickBooks Live, which we expect could help us penetrate non-consumption and drive breakthrough adoption. We're evolving our QuickBooks Live into a portfolio of expert services and are embedding these services as part of our lineup, similar to TurboTax Live. In the second quarter, we launched a three expert-guided setup available for all new QBO customers leveraging our virtual expert platform. Early results indicate that customers using this offering have more confidence in and awareness of our full ecosystem of services, which translate into better retention and higher adoption of our service offerings. With our third Big Bet, our vision for Credit Karma is to become the comprehensive self-driving financial platform that propels our members forward, wherever they are on their financial journey. We are innovating across all verticals and continue to have confidence in our long-term growth expectations of 20% to 25% despite near-term headwinds. I'll share a few examples. We're innovating to help members get faster access to cash and make financial progress, including improving their credit score with the help of Credit Karma Money. For example, with the integration of TurboTax and Credit Karma, approved members can get money in their hands in as little as one minute after the IRS accepts their return. As this is the largest paycheck of the year for many, this enables them to take care of immediate expenses, pay down debt or build savings. Members also receive recommendations for how to achieve their financial goals, such as creating an emergency savings fund with our high-yield savings account or building credit with credit builder. Members who activate credit builders see an average score increase of 21 points in as little as 30 to 45 days. Members who use Credit Karma Money show higher engagement on the Credit Karma platform. We are driving more confidence for members with Karma Guarantee. As a reminder, Karma Guarantee offers indicate that members will either be approved or they'll receive $50. At the end of the quarter, 59% of members were eligible for at least one Karma Guarantee offer. With Mint now part of the Credit Karma platform, we're beginning to build a new experience for members with prime credit scores, which Credit Karma is underpenetrated in today. Leveraging Mint, we see the opportunity to develop personalized product recommendations, levering gene net worth, transaction and spend data to highlight the product benefits that matter most to these members. Our fourth Big Bets is to become the center of small business growth by helping our customers get new customers, get paid fast, manage capital and pay employees with confidence in an omnichannel world. We continue to innovate to digitize money movement from creating an estimate, to invoicing a customer, to getting paid. Today, easier discovery, auto-enabled payments, instant deposit and getting paid upfront are all helping drive adoption of our payments offering. And we are making meaningful progress digitizing B2B payments to accelerate and automate transactions between small businesses and ultimately improve their cash flow. We see a tremendous opportunity as 70% of B2B transactions are still completed with checks. This quarter, we launched a QuickBooks business network to millions of QuickBooks customers to further digitize B2B payments in the U S. We're also building our Bill Pay functionality in QuickBooks and plan to launch this capability in the future. Now turning to Mailchimp. We're well on our way to becoming the source of truth for our customers to help them grow and run their business. We have three acceleration priorities with Mailchimp. First, delivering on our vision of an end-to-end customer growth platform; second, disrupting the mid-market by developing a full marketing automation, CRM and e-commerce suite; and third, accelerating global growth with a holistic go-to-market approach. This quarter, we made some great progress against these priorities. To help our small businesses customers run and grow their business in one place, we launched a real-time data sync that brings QBO data such as invoices, sales receipts, items, customers and addresses into mail channel. This puts customer and purchase data together all in one place to power our customers' success. To help our customers plan, execute and track their marketing campaigns across multiple channels in one place, we launched a new capability called Campaign Manager. This reduces the number of tools needed to manage marketing and assess performance across channels. And to drive accelerated global growth and execute our refreshed international strategy, we're translating the product into multiple languages, including Spanish and Portuguese. And beyond the progress we've made on these priorities, the product lineup innovation, assisted onboarding and improved first-time use we shared last quarter, is driving green shoots in paid conversion, which was up 2 points year-over-year in the second quarter. Our fifth Big Bet is to disrupt the small business mid-market representing a TAM of 1.7 million customers, of which 700,000 are already in our franchise today. As I mentioned earlier, online mid-market customer growth remained strong, and we are seeing increased adoption of QBO Advanced, payments and payroll, driving ARPC expansion, as we serve these customers across our full ecosystem of services. Wrapping up, we feel confident in our AI-driven expert platform strategy and 5 Big Bets. And in an uncertain macro environment, the benefits of our global financial technology platform are more important and more mission-critical than ever to our customers. Now, let me hand it over to Michelle.

Sasan Goodarzi:

Great. Thank you, Michelle. Well, while the CFO transition isn't official until August, I wanted to just take this opportunity to express my sincere appreciation for all that Michelle has contributed over the past 20 years at Intuit including the last five years as CFO. She has been an amazing partner and will leave Intuit better than what she founded. And during Michelle's tenure as CFO, Intuit's market cap and revenue more than doubled. Michelle's commitment to developing top and diverse talent has created a deep bench of strong leaders, making firm a very seamless transition. Sandeep will be an exceptional CFO and with his track record of leading outstanding performance across our Small Business and Self-Employed Group and our technology organizations. So with that, let me go ahead and summarize. We are seeing continued momentum as we execute on our strategy of being a global AI-driven expert platform and growing Intuit revenue double-digits with margin expansion. With our accelerated organic innovation, and the additional -- the additions of Credit Karma and Mailchimp, we are the leading global financial technology platform that powers prosperity for people and communities. We're proud that Intuit has been named number five, on Fortune's Most Admired Company in the software category, one of Glassdoor's 2023 Best Places to Work and honored to be including -- included among Just Capital's Just 100 ranking for 2023. With that, let's now open it up to your questions.

Chirag Ved:

This is Chirag Ved, dialing in for Kirk. I really appreciate you taking the question and congratulations on a strong quarter. I wanted to ask about what you're seeing in QuickBooks online growth, both from new customers and from upselling existing customers. Just any commentary you might be able to provide around the dynamics there? Thank you.

Chirag Ved:

All right. Thank you.

Operator:

Your next question comes from the line of Siti Panigrahi from Mizuho. Your line is open.

Sasan Goodarzi:

Yes, for sure, Siti. Thank you so much for your question. And it's actually a really important question in terms of what we've often talked about, which is, it's important that you all look at Intuit as really the authority when it comes to what's happening in the small business space. And the reason is that, our platform is mission-critical for small businesses. Our platform with QuickBooks, Mailchimp and all the services that we have on our platform, is really used by small businesses to be able to grow customers, manage their customers, manage their cash flow, be able to manage their employees end-to-end. And therefore, what that means is, it fuels our success, supported by the stat I shared a moment ago, where small businesses that are on our platform are actually 15-plus points more successful than those that are not on our platform. And so, I set that very important context, and I'll just point to payments total charge volume as an example. When you look at our performance being at 25%, that is, by far, the best in the industry. And that is because, it is all about digitization. And it's not just about payments, but it's about all the services that our small businesses use on our platform. And we expect our small businesses to continue to be successful, even in this macro environment, and we are here to support them. I will just end by saying the following, which I think you were hinting at this in your question. The strength of our businesses, as Michelle and I described a moment ago, and we expect that strength to continue, although, when you look at our guidance, I think the way you should look at our guidance is that it has been de-risked for sure, for the rest of the year.

Sasan Goodarzi:

You are -- we didn't break out the number. But, yes, you're looking at it right, because, in essence, online services, minus, Mailchimp grew faster. So therefore, just by design, it grew much faster than 21%. So you are correct.

Sasan Goodarzi:

You're very welcome.

Michael Turrin:

Hey, great. I appreciate you taking the question. Nice job on the quarter. Maybe one for Michelle while you're still with us, on margin. Last quarter, you took the Credit Karma outlook down but left the EPS guide intact. We've gotten questions from investors around whether that provides maybe less wiggle room on margin, but the first couple of quarters have still shown EPS upside. So can you just walk through the margin levers you're finding? Are there advantages in folding various brands together and just how we should think about the longer-term margin potential there?

Michael Turrin:

It's very helpful. Just one more, if I may. The desktop business came in exceptionally strong. Can you just speak to what you're finding as you move that base for subscription? And then how to think about the revised small business target after we're through the migration journey there and what keeps the 15% growth sustained afterwards. Thank you.

Michael Turrin:

Thanks very much.

Operator:

Your next question comes from the line of Mark Murphy from JPMorgan. Your line is open.

Sasan Goodarzi:

Yes. Thanks for your question, Mark. Let me start with context that we always look at our largest growth across the company, no matter what the business is to come from volume and mix. And those two are driven, of course, by our innovation and/or if we are moving up market, which in many cases across our businesses, we are moving upmarket. In TurboTax, the example is moving into the assisted segment. So price and mix are really the largest drivers. And because of just the vast and accelerated innovation, we also have price as a leverage because we always want to be disruptive from the bottom, and we want to continue to disrupt at the top. And that actually gives us a lot of pricing power because of the value equation and the benefits that we deliver for our customers. And so with that as context, looking ahead, not just the next couple of quarters, but looking in terms of just the long-term durability of Intuit and how we think about things, we believe the majority of our growth will continue to come from volume and mix and price will always be a lever because particularly that we are moving upmarket. And I think it was even more pronounced in small business because of the business model shift in desktop, where we are bringing pricing to parity with online and we just -- we expect that to continue in the next several quarters, but that there's a durability element of this, not just a quarterly element for this.

Sasan Goodarzi:

Yes, Mark, I would say that when you think about the priorities that we talked about in the focus areas, we are starting to see green shoots, and we started seeing green shoots a couple of quarters ago. And sort of the biggest one is conversion in paid. The one -- in addition to the initiatives starting to deliver green shoots that we are the most excited about is the work that we are doing to retain our high-value customers and to really penetrate in mid-market. This is really the same story that we talked about in mid-market with QuickBooks Advance, where our retention was actually not quite that high when it came to our high-value customers in QuickBooks. And we built a platform and really a team to focus on these mid-market customers. And that is really one that I'm very excited about, and I think we'll see the results of that in the next two to three quarters, where we'll start making a bigger impact in not only retaining our high-value customers, but also penetration in mid-market. And that's also in context of all the other things that we've talked about doing, which is campaign redesign, web redesign, first-time use, one-hour assisted onboarding and now what we just shared earlier in the script, which we said it's coming, and that is the Data Sync. The Data Sync is huge, because now it puts the customer data and purchase data all in one place, and it really puts the power of growth in the hands of customers in a way where they can't get that fuel anywhere else. And so, all these things take time, but we are seeing the green shoots. It will translate into faster revenue growth, sort of, in the coming quarters, which is, by the way, not embedded in our guidance, just to be clear, but we're excited about the progress that we're making.

Sasan Goodarzi:

You’re very welcome.

Brad Zelnick:

Excellent. Thank you so much for taking the question. Sasan, I think everyone appreciates what's happening in Credit Karma, and there's only so much that's within your control. And within that context, it's great to hear all the goodness around how Credit Karma Guarantee is doing. But as we think about the other elements of the portfolio, the other products, in an environment that's supply-constrained, can you maybe just talk about the performance and how you're investing against the opportunity in context of what you can control? And how do you even know the progress perhaps that you're making in auto and in home, for example, if the market just isn't there to support it. Thanks.

Brad Zelnick:

Thank you so much for that, Sasan. If I could just ask a quick follow-up, maybe Michelle. Michelle, I appreciate that cash flow is lumpy from quarter-to-quarter. It looks like cash taxes had an impact in the first half of the year on free cash flow growth. But -- just in trying to reconcile your margin upside in the quarter with free cash flow performance, are there any items to call out? Any reasons why for the full year, we shouldn't expect free cash flow growth to be somewhat in line with net income growth? Thanks.

Brad Zelnick:

Excellent. Thank you so much for taking the questions.

Operator:

Your next question comes from the line of Brad Sills from Bank of America Securities. Your line is open.

Sasan Goodarzi:

Yeah. Thanks for the question, Brad. In fact, I'll start with something that we mentioned earlier, but it's really important in the context of your question, and that is our entire campaign strategy and all the investments that we've made in TurboTax Live as a platform has been to bring in prior year assisted customers. And these prior year – and by the way, our campaign, we'll talk about it in more detail right after tax season. But our campaign is certainly raising heads, and we are seeing more prior year-assisted customers come into the franchise because they see it as a great opportunity to digitally get their taxes done from wherever they are and get the expert help that they need. With that said, the way we think about TurboTax Live is it's really one platform. We are -- we don't look at like full service as just an attach. We look at -- there are those that will come in and choose to get help along the way. And there are those that will come in and digitally exchange all of the documents, had appointment, and have a discussion with our – expert that's been matched with them and then have us do their taxes for them. And I think we see the type of strength that we would have expected in this area in the – where we are in the season. With full service, you see more of that strength more towards the latter part of the season. But we're pleased with the halo effect that really it creates because that's what we're really after is to ensure that we communicate and deliver on the promise of, if you want to help with your taxes or you want us to do it for you, we're here for you. And it's the combination of that both campaign strategy and platform delivering on that promise. That is what we look for. With that said, the big change this year is one session virtual engagement where we can get your taxes one and done, and we're seeing success there. And I would also just say we're going to see a lot more sort of in March and April, and that's where this full-service offering will have the largest impact.

Steve Enders:

Okay. Great. Thanks for taking the question. I guess maybe just to follow up on the last TurboTax line questioning. I guess, so far, what have you seen in terms of kind of the broader adoption of some of those more full service offerings or even TurboTax Live in terms of driving the upside in the quarter? And I guess from a referral standpoint between credit card and TurboTax, I guess what kind of engagement have you seen between the two of those that drive that co-branded offering out there?

Steve Enders:

Okay. Great. There's helpful context there. And just a quick one, if I could get it in here on -- and just on the EPS outlook, I guess, how should we think about what's being put more to work on in terms of the marketing, how much more is getting kind of being put to work there versus conservatism, such as inherent in the model at this point because just seeing really good upside in the past couple of quarters and not necessarily seeing a raise on the EPS side. So just would love to kind of get your thoughts on that.

Steve Enders:

Perfect. Appreciate taking the questions.

Operator:

Your next question comes from the line of Kash Rangan from Goldman Sachs. Your line is open.

Sasan Goodarzi:

Yes. Thank you for the question, Kash. And I just have to start by saying, we've got a lot of octane in the tank left across all of our Big Bets. I love all of my five children. But I'll answer your question around payments. I think there are three things. And let me -- 30 seconds of context, and I'll specifically answer your question, because we talked about payments and money movement a lot. One huge element of what happens on our platform is, small businesses come in, they create an estimate, they invoice and then they need to get paid for that invoice once they do the work. And our penetration in that -- we talk often about we have $2 trillion of invoices that are managed on our platform. Our penetration there is still low. And so, it's just important to start there and not move off of that, because that's a huge growth opportunity. It's a huge area of investment. And by the way, why in this macro environment where everybody's payments volumes are not accelerating or they're significantly decelerating, we still have 25% total charge volume growth. So that's number one. There's a lot of octane left there, and we are significantly focused. I think the other one that we've traditionally not focused on at all, is this entire B2B network, which is digitizing business to business between our small businesses. We now have the capabilities. We launched the business network last quarter to millions of our QuickBooks customers. That is a big opportunity, of course, very low -- no penetration, because we didn't have it before, and it's 70% checks. So that's a big one. And then part of that is also just bill pay capabilities, which we've had on our platform through a couple of really strong partners. And now we're building that capability ourselves, because we believe that it can deliver a far seamless experience for our customers. And then, when you take all of that and go to mid-market, it's even a bigger opportunity, which is why we're seeing the strength in our mid-market growth, because of just the size of payments and payroll that takes place. So, hopefully, that answers your question

Sasan Goodarzi:

Yeah. Absolutely. Thank you, Kash.

Scott Schneeberger:

Thanks very much. Congratulations Michelle and Sandeep. Sasan, first question is going to be in tax category. It's kind of a multi-partner. Yeah. This the early season in the industry, the IRS is clearly up year-over-year significantly, and that's probably good for you in multi – for multiple reasons, like you just mentioned, the Credit Karma Money probably helped. But – just love your thoughts on the industry, why you think it's up so much this year versus last year to start and then it's still way behind in -- through mid-February versus pre-pandemic. So just kind of high-level thoughts on the kind of the cadence of this tax season, the start and how that may influence the tax season and your view of it overall? Thanks.

Scott Schneeberger:

Great. Thanks. I appreciate all that color. Next one, a follow-up. Over in Credit Karma Guarantee, you've discussed it a good bid on this call. But when you gave guidance for Credit Karma at the beginning of the year, you were really excited about Guarantee contributing in the back half. I may be a quarter or two early here asking this question. You mentioned the 59% penetration of the base. Just curious, how are you tracking this? Is this ahead of where you expected to be at this point? And could it be, in fact, a driver. You mentioned de-risk guidance for Credit Karma segment. Is this -- how are you progressing on Guarantee? Is this going to be really meaningful through the back half tax?

Scott Schneeberger:

Okay. Great. Thanks very much.

Operator:

Your next question comes from the line of Brent Thill from Jefferies. Your line is open.

Sasan Goodarzi:

Yes, Brent, two over points. The first one is you're always going to see toggling between online accounting growth rate and online services growth rate. What you really should pay attention to is the overall growth rate. With that said, to answer your question, we actually saw strength across the board. Mailchimp, our growth is what brought down the online services growth to 21% because it is growing slower then, of course, it's growing low teens, but it was really driven down by Mailchimp. And Mailchimp is growing low teens, similar to last quarter, but that was really the primary reason a little bit very small amount by payments now growing at 25%, but really, it's Mailchimp.

Sasan Goodarzi:

No. It's really -- we have very clear priorities put great leaders in the business. I was actually just in Atlanta about three weeks ago, spent more than a day with the entire team, and it's just really execution. And I feel very good about the focus areas, the progress on our execution, it is in our control, which is sort of a great place to be in. It's not macro, it's us.

Alex Zukin:

Hey, guys. Thanks for taking the questions and congrats on a great quarter. I guess, maybe just two quick ones. Sasan, first, if I count the amount of times you said derisk on this call with respect to the guidance, I think that's definitely great to hear, but if you think about like the KPIs that you're seeing in real time around the macro and the SMB, like, what would you say -- how would you compare them to the trend line that you saw last quarter and where do you see them kind of going from a macroeconomic perspective and influencing the demand environment?

Alex Zukin:

Yes. That was actually extremely detailed. So I really appreciate that. And then, I guess, I'd be remiss if I didn't ask you a question about generative AI and how we're, if at all, Intuit has plans to monetize or integrate that technology. It does seem like having your own personal financial digital assistant or a live plus functionality would kind of seem logical, but would be really interested to kind of get a sense of how you're all thinking about it.

Alex Zukin:

Awesome. Thank you, guys.

Operator:

Ladies and gentlemen, that concludes our question-and-answer session. Would you like to close with any additional remarks?

Operator:

Ladies and gentlemen, thank you for participating. This concludes today's conference call.

Operator:

Good afternoon. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to Intuit's First Quarter Fiscal Year 2023 Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] With that, I'll turn the call over to Kim Watkins, Intuit's Vice President of Investor Relations. Ms. Watkins?

Sasan Goodarzi:

Great. Thank you, Kim, and thanks to all of you for joining us today. We had a strong first quarter as we executed on our strategy to be the global AI-driven expert platform powering prosperity for consumers and small businesses. We continue to feel bullish about our momentum and execution across small business and tax. We're innovating at a high velocity using the power of our platform and modern technology capabilities to deliver new offerings at scale focusing on breakthrough adoption. We continue to be focused on putting more money in our customers' pockets, saving them time and ensuring complete confidence in every financial decision they make. This is more important than ever in the current uncertain economic environment and helps us penetrate our large total addressable market of over $300 billion. Now let's turn to our first quarter results. Revenue grew 29%, including 13 points from the addition of Mailchimp. Total revenue growth was fueled by the Small Business & Self-Employed Group revenue growth of 38% or 19% excluding Mailchimp and 25% revenue growth in the Consumer Group driven by a strong October peak with new customers and extension filers. The scale of our platform, along with our rich data, gives us the unique ability to see charge volume growth, the number of employees paid, the hours worked per small business and cash reserves. These measures remain strong for those on our platform and inform our perspective on the health of small businesses. TurboTax had a robust finish to the tax season with a record number of innovations launched and tested in the October peak. I'm excited about this upcoming season, particularly our strategy to transform the assisted category, including the launch of Business Tax and TurboTax and Credit Karma platform integrations. Now turning to Credit Karma. At Investor Day and on our fourth quarter call earnings call, we shared that all Credit Karma verticals had been negatively impacted by the macro uncertainty. In the last few weeks of the quarter and into November, we saw further deterioration in all verticals. Consumer default rates remain relatively low by historical standards, reflecting strong consumer cash balances coming out of the pandemic. However, we continue to see partners pull back from extending credit, reflecting the uncertainty in the economic environment and the risk of deterioration in credit performance. Given this context, Credit Karma revenue came in lower than expected for the quarter. We are lowering our fiscal year 2023 revenue guidance for Credit Karma to a decline of 15% to 10% versus our previous guidance of 10% to 15% growth. At the same time, we are reiterating our fiscal year 2023 revenue guidance for all other segments and reiterating our fiscal 2023 GAAP and non-GAAP operating income and earnings per share guidance. Our ability to maintain earnings power despite the lower Credit Karma revenue guidance shows the power of our diversified platform and our ability to balance platform and product investments for the future while delivering on our commitments. Regardless of the near-term macro volatility, we remain confident in our long-term revenue growth expectations of 20% to 25% for Credit Karma driven by our vision and innovation to become the self-driving financial platform fueling prosperity for all consumers. At Investor Day, we shared how our AI-driven expert platform strategy is accelerating our innovation and how our 5 Big Bets are solving the largest problems our customers face. We continue to deliver strong proof points that demonstrate our success and are well positioned for durable growth in the future. As a reminder, our 5 Big Bets are

Sasan Goodarzi:

Great. Thank you, Michelle. As you all heard from Michelle and I, we're seeing continued momentum as a result of our strategy of being a global AI-driven expert platform, growing Intuit double digits with margin expansion. With our accelerated organic innovation and the addition of Credit Karma and Mailchimp, we are the leading global financial technology platform that powers prosperity for people and communities. And with that, let me turn it over to your questions.

Siti Panigrahi:

Sasan, you lowered your Credit Karma growth now from 10% to 15% growth to decline now 15% to 10%. Just want to dig a little bit into your assumption for the remaining quarters in this fiscal year. Where do you see -- how conservative is this guidance? And I know that the Karma guarantee will be rolled out sometime later this year. Where can we see some kind of upside surprise if macro stays at the current level?

Siti Panigrahi:

Great. And then a quick follow-up on the small business side. That's pretty impressive quarter, and it grew 19% organically. And if I look at your guidance for remaining three quarters, you just have to grow 14% to hit your guidance. You already -- like you talked about price mix shift and -- or you already raised pricing 10% to 25%. So what are you seeing in the small business side? And what are your assumptions for the remaining of the year?

Operator:

Your next question will come from the line of Brad Sills with Bank of America Securities. Please go ahead.

Michelle Clatterbuck:

Yes. Brad...

Michelle Clatterbuck:

No worries. No worries. Thank you, Brad. Yes, it is one of the things that we feel very good about. As I talked about on a previous call, when we were going through our planning for this year, we were really looking at making sure we had identified areas that we could take action on, the levers we could pull if we did see the macro environment get worse. Those things look like marketing expenses, things that we just don't think are going to pay off in the near term; other areas like travel, discretionary spend. But we are protecting R&D and our innovation. And we are continuing to invest. Our investments and our head count continue to go up across the Company. And yes, Credit Karma, we have taken the revenue down with a revenue hit there. But when we look at really being able to manage our expenses, it is looking across the Company holistically and really focusing on the areas where we think we're not going to see as much return in the short term so that we can continue to focus longer term and drive the innovation.

Sasan Goodarzi:

Sure. Absolutely. I think the way to think about it is in the long term and from a trajectory perspective, we should see ARPU go up. And now every year, strategically, we make decisions in terms of where we may expand our free offering or where we may increase price based on the leverage that we see in the marketplace, which is primarily in our assisted offerings. And those were some of the adjustments that we made last year. And as we look into this year, we actually feel very good about our do-it-yourself platform lineup. And really, our biggest leverage is going to come from accelerating what we're seeing across the TurboTax Live platform, which is really where the growth is coming from. It's really where the ARPU comes from, and it's where our biggest opportunity is with a $20 billion TAM in front of us. And of course, overtime, opening up an additional $10 billion TAM with business taxes. So that was really the intent and the logic behind why ARPU was probably a little bit slower growth last year versus prior years. And I think the way to think about it is we're going to continue to see ARPU growth into the future, and a lot of it will come from the assisted segment. And that's really part of our plan that we're executing against this coming year.

Brad Zelnick:

Can you guys hear me?

Brad Zelnick:

Great. Sasan, you guys are always very transparent, great disclosure. And my question is maybe a little bit bigger picture. Can you talk about the opportunity to open up and externalize into its platform services to third parties for developing their own apps with live expert functionality, rich data services, money movement perhaps, and the things that are making you so successful?

Operator:

Your next question will come from the line of Raimo Lenschow with Barclays. Please go ahead.

Sasan Goodarzi:

Yes. Absolutely. First of all, I'll just state that I'm really excited about Rania that we just put into the business and the leadership team that she is building in. It is the result of that leadership team where we are seeing accelerated innovation. And as I mentioned a moment ago, there's been a lot of innovation just in the last sort of three to four months in Mailchimp from an entirely new brand campaign where we communicate the benefit to how you can grow your business to SMBs, both on air and on -- through digital assets. We've redesigned our website. So when you come to us, you're very clear about the benefits that we offer, the choices that you have and why it can help fuel the success of your business to then revamping the first-time use experience, along with what we have just implemented for, I would say, higher-value, larger Mailchimp customers and new customers that we want to pursue, which is a one-hour assisted onboarding to help you get on to the platform to help you understand the benefits of the platform. And in context of what we've shared around international and Mailchimp as sort of the lead internationally, we are right now focused on localizing the language. Where we have localized language versus not, we have more than 13 points conversion variants. And so of course, localized language is one of our largest levers internationally along with having a playbook that we're putting in place around go-to-market to raise awareness. So a lot of those things we have already launched that I mentioned and the localizing languages we're working on as we speak. And a lot of what we -- what I just shared, we're starting to see a real impact from customer uptick, expansion revenue. And we're excited about the possibilities and the momentum that the leadership team is building.

Kirk Materne:

Congrats on a good quarter. Sasan, you all are in a somewhat unique position that you get to see demand -- sort of demand on both the front-office side as well as sort of the back-office side of Mailchimp and then QuickBooks. I was wondering if you could give us any when you look at the demand indicators from a front-office perspective or a back-office perspective. Are they similar? Are they different? Is there anything you've noticed now that you got to have some insight into sort of that other part of the -- of essentially the operating ecosystem of your customers? Obviously, there's just a lot of discussion in the market right now between front-office and back-office demand. So I was wondering if you can enlighten us, I guess, with any of your thoughts on that.

Operator:

Your next question will come from the line of Keith Weiss with Morgan Stanley. Please go ahead.

Sasan Goodarzi:

Yes. Keith, thank you for your question. And I just want to acknowledge that you and others were pushing us on our Credit Karma side at Investor Day. And let me just start at the top level to share sort of what we've learned and what we've adjusted, and then I'll answer your question. When we look across tax, which is 35% of the Company; and then when you look at across small business, which is over 50% of the Company, so that's like 86% of the Company, we have sort of -- which includes Mailchimp, we have proven and tried KPIs that allows us to see things well into sort of the future not only to ensure that we're investing in all the right things, but also be able to be very intentional and thoughtful about how we guide because we take our guidance very seriously. One of the things that we learned with Credit Karma is there are two factors that we look at but we did not take into account

Sasan Goodarzi:

Yes. It's actually -- it is in constant currency. I mean maybe, Michele, I'll let you chime in here in a moment. But I think what I would say is we -- when you look at our innovation and when you look at our customer uptick and the expansion revenue that we're starting to see, it's actually very much in line with what we would have expected because a lot of our innovation that is in place is actually now accelerating the growth of the business. Because remember, this business was run for cash flow and profitability, and now we're running it for growth. And we're actually quite pleased with the impact that we're starting to see, and we would expect that to accelerate in the upcoming quarters. But Michelle, do you want to chime in on the currency version?

Operator:

Your next question will come from the line of Kash Rangan with Goldman Sachs. Please go ahead.

Sasan Goodarzi:

Yes. Thanks for the question, Kash. Just in terms of your question around assumptions, I think on Credit Karma, hopefully, what I just shared a moment ago resonated in that. We are assuming sort of further deterioration and conservatism in the back half of the year or the remainder of the year, I should say. Despite a lot of innovation that is still coming to market because we're just -- we're making assumptions around unemployment going up, delinquency rates getting worse, which means that financial institutions, although we're one of the last platforms they pull off of that they will be conservative in terms of their investment levels. So those are the assumptions that we've made for the remainder of the fiscal year for Credit Karma. And for Small Business, a lot of the strength that we're continuing to see is just -- it's a shift to digitization from folks that are already on our platform. So we have a lot of customers that are on our platform. If you remember, we used the figure of -- there's $2 trillion of invoices being managed on our platform, and we have over $100 million that is part of our -- well over $100 million as part of our payments charge volume, which means we have a huge opportunity to penetrate that within our existing base. And I use that just as an illustrative example, Kash. To answer your question, we're not making any assumptions around payments uptick because the macro environment will get better in the second half of the year. We're actually assuming that a lot of the growth that we are seeing is just continuing shift to digitization from those that are on our platform. And so we make customer acquisition assumptions. We make attrition assumptions. We'll look at assumptions around payments and payroll that are really in context of how we feel about the environment going forward. Although we're not seeing it within our SMB segment, we are assuming a level of conservatism as we think about the remainder of the year. And those are the assumptions that we've made for both Small Business and Credit Karma. And tax, again, tax is economically resilient. We pretty much make assumptions based on our penetration in the assisted segment. And that's really -- that and the total number of IRS returns is where our assumptions come from. And again, those are -- that's economically resilient. So that's how we think about the guide going forward as we just reiterated. In terms of payments, listen, payments is one of the areas that we're the most excited about. If I had to pick a couple of areas, it's Mailchimp, it's payments and it's what we're doing to go upmarket and with QuickBooks Advanced and mid-market. And with payments, we spent four or five years building out all of our fraud and risk capabilities, all of our AI capabilities, and we're just innovating very fast with that team. And a lot of the future around what we can do to digitize B2B around what's possible with bill pay, that -- those are yet to come and not even in our forecast going forward because we just believe that there's so much room for penetration attached going forward. So hopefully, our say and payments has been to your liking, but we think our best is yet ahead of us.

Scott Schneeberger:

Sasan, I'm curious, I'm kind of honing in on Credit Karma and credit cards, which I believe is about half of the revenue. And please correct me if that's changed, perhaps gone up, based on what personal loans has done. But just how are you looking at credit cards? What are you seeing with consumers there? I understand it was the strength in that segment of the quarter versus personal loans, home loans, auto loans, auto insurance. What -- specifically in the credit cards, is that strengthening -- or maybe not strengthening, but weakening a lot less? Just honing in on that specific segment, what are you seeing from the consumer?

Scott Schneeberger:

Okay. Appreciate that. And then following on -- it's kind of more on the tax side, but overall, the guidance for the second quarter seems to be the most derisked with EPS down year-over-year. And that's an uncommon sequential change. But it sounds like the levers Michelle is pulling, it sounded like marketing and advertising was one of them. I infer that it's more in the small business side. But just curious on the tax side, are you doing anything differently now that we may have a more normal tax season versus the past few with regard to advertising timing or overall?

Scott Schneeberger:

It does.

Allan Verkhovski:

This is Allan Verkhovski on for Alex Zukin. I think more people are warming up to your ability in hitting your SMB guide for the year despite the challenging macro. But I want to dig further into what you're seeing in the SMB segment today. Can you talk about what you saw around ARPC growth in the quarter, excluding the benefit you observed from the pricing increases that went into effect? It'd be helpful to get how much of a tailwind the pricing increase was in the quarter for QBO accounting and better understand the quarter how your growth levers, such as customer growth, upselling and cross-selling, were impacted from the macro, if at all?

Allan Verkhovski:

Got it. And just as a quick follow-up, if I may. On the Mailchimp front, I want to follow up to Keith's earlier point around Mailchimp revenues being sequentially relatively flat. Could you share maybe something more about maybe conversion rates? Or just a follow-up on the acceleration comment you made through the full year, just anything that could give us more color for how we think about potential revenue growth of Mailchimp for the full year?

Operator:

Your next question will come from the line of Steve Enders with Citi. Please go ahead.

Sasan Goodarzi:

Yes. We have taken -- thank you for the question. We have taken sort of a firewall approach here. One is we're very excited about the innovations that we talked about at Investor Day. And in fact, the only thing that's changed is we've added a few more innovations that we've launched within Credit Karma. The Marketplace that I shared earlier is one of them, where -- and it's almost at full scale where our customers see an additional tablet, a marketplace of all the products that are right for them in one place that brings more visibility and brings to the forefront products that are right for a specific cohort of customers. So in terms of the integration with TurboTax, you're going to see a far more robust experience this year with Credit Karma being integrated into TurboTax and vice versa. Credit Karma Guarantee continues to be on track in terms of a rollout to customer -- to members and financial institutions. All the innovations that we talked about, plus a few more are all on track, and we're equally as excited about the impact that it will have. And very consistent with what we shared at Investor Day, what we talked about then was that these innovations were not reliant on a macro pickup. They're just -- they're going to deliver more benefits, and therefore, more monetization. Back to the word firewall, we're not counting on those innovations in our results when we think about the rest of the year. We're assuming current trends. We're assuming further conservatism for the remainder of the year. We're making assumptions around unemployment going up, delinquency rates going up. And so therefore, that's informed our guide of minus 15% to minus 10%. And that's sort of separate and distinct from the innovation that we continue to be excited and focused on and are on track for the rollout.

Sasan Goodarzi:

Sure. Let me answer your question. I'm not sure what you mean by rightsize where -- is this -- we are very focused on investing in male and accelerating the growth combined with the QuickBooks platform. And I would say a couple of big things that we have put in place and are continuing to implement. One is really strengthening the leadership team at all levels. We're very excited about leaders that we -- had joined the Mailchimp family and with Radia's addition to the Mailchimp team with additional changes that we are making to continue to strengthen the team, very excited about the impact there because that's having a direct impact on innovation, which is the second point I want to make. I really like the velocity, particularly what I've seen in the last 90 days. And I actually hope to see Mailchimp being one of the highest-velocity innovative teams across the Company with the team that we have in place. And I think everything that I mentioned earlier that we have launched is a result of the impact of that team. And lastly, it's about impact. And we're starting to see the key performance indicators that I mentioned earlier uptick in the right direction, which means that almost a year in, it's not been quite a year, but almost a year in, I feel very good about sort of year two because we've put a lot of foundational things in place in year one. We have a lot of work still ahead of us. But a lot of the work is about turning this into a sort of a strong growth business and fueling the success of small businesses, and I feel like we are on that trajectory given what I've seen, particularly in the last 90 to 100 days.

Daniel Jester:

Thanks for squeezing me in. Two quick ones. A lot of talk about the macro with regards to Credit Karma. I'd love to hear about how you're overlaying that macro on QuickBooks Capital and anything you might be doing differently there as the year progresses, given the uncertainty. And then secondarily, Sasan, you talked about some of the economic indicators you track for small business. Are you seeing consistency in the U.S. and international? Or is maybe one geography stronger than the other right now?

Daniel Jester:

Thank you very much.

Sasan Goodarzi:

Goodbye.

Operator:

Good afternoon. My name is Chelsea and I will be your conference operator today. At this time, I would like to welcome everyone to Intuit’s Fourth Quarter and Full Fiscal Year 2022 Conference Call. [Operator Instructions] With that, I will now turn the call over to Kim Watkins, Intuit’s Vice President of Investor Relations. Ms. Watkins, please begin.

Sasan Goodarzi:

Great. Thank you, Kim and thanks to all of you for joining us today. We had a very strong fourth quarter, ending the year with momentum as we executed on our strategy to be the global AI-driven expert platform powering prosperity for consumers and small businesses. We continue to be focused on solving our customers’ biggest problems by putting more money in their pocket, eliminating work and saving people time and ensuring that they have complete confidence in every financial decision they make. Full year revenue reached $12.7 billion, up 32%, including the addition of Mailchimp and a full year of Credit Karma. Excluding MailChimp, revenue grew 24%. Total revenue growth was fueled by 38% growth for the Small Business and Self-Employed Group, which includes 16 points from Mailchimp. Consumer Group revenue grew 10%, and Credit Karma had an outstanding year with revenue of $1.8 billion, up 58% on a pro forma basis year-over-year. I am very proud of the team’s performance, delivering strong growth and strong margins, which very few companies at our scale are able to achieve. I’m optimistic about our strategy and opportunities for growth, especially considering an uncertain global macroeconomic environment. The Intuit platform remains mission-critical for powering our customers’ prosperity. I’m pleased we are guiding to another year of strong revenue growth and strong margins in fiscal year 2023. Our global AI-driven expert platform strategy is accelerating innovation, and our 5 Big Bets are solving the largest problems our customers face. We continue to deliver strong proof points that demonstrate the success and are well positioned for durable growth in the future. As a reminder, our 5 Big Bets are

Sasan Goodarzi:

Great. Michelle, thank you. As you have now heard from Michelle and I we are seeing continued momentum across the company given our strategy of being an AI-driven expert platform. With our accelerated organic innovation and the addition of Credit Karma and Mailchimp, we are the leading global financial technology platform that powers prosperity for people and communities. We have a large TAM, secular shifts working in our favor and a highly predictable set of revenue streams. Our innovation is unlocking new opportunities for our platform and delivering truly game-changing benefits for our customers. Intuit remains a best place to work around the world, and I’m proud of the team and what we’ve accomplished this year. Now let me turn it over to you for any questions that you may have.

Operator:

Thank you. [Operator Instructions] Our first question will come from Keith Weiss with Morgan Stanley.

Michelle Clatterbuck:

Thanks for your questions. Appreciate it. Yes, we are very happy to see our operating margin guidance for this coming year. It implies margin expansion of 100 basis points versus FY ‘22. And as you know, that aligns to our financial principles to be able to grow revenue double digits and operating income dollars faster than revenue. So we feel really good about that. As we look at where that’s really coming from, as we’ve been continuing to grow more and more as a platform over time, that really does enable us to look across the business and be able to drive efficiencies and effectiveness while driving accelerated revenue growth, which is resulting in our ability to expand margins while being able to continue to invest to really drive the accelerated revenue growth. As to how we think about that, I don’t really see anything that really structurally that impacts that over time. We haven’t given any longer-term expectations or long-term guidance on what margins might look like in the longer-term, but I don’t necessarily see anything really structurally that prevents us – as we continue to grow as a platform that prevents us from continuing that growth. To the second part of your question as for the levers that we would pull, yes, I mean, there are a number of things that we would pull, which could be OpEx. As I mentioned, there is marketing spend or travel, hiring, other things like that, that we can pull pretty much in – a lot of those in real time to be able to impact our operating expenses and be able to maintain the margins that we have committed to. So we want to be ready. It’s really kind of what we do on a day-to-day basis. We’re always looking for opportunities to drive different efficiencies across the business.

Operator:

Thank you. Our next question will come from Brad Zelnick with Deutsche Bank.

Sasan Goodarzi:

Yes. Brad, how are you? I’ll take that question. First and foremost, I would share with you that we are the ones that pulled back that resulted in the performance that we just shared. So the great news is it’s in our control. The second point I would make is the biggest thing that’s been reaffirmed as we’ve been – become one family with Mailchimp is two of the biggest problems that matters most to our customers and especially, by the way, in tougher times is being able to grow their customer base and being able to manage their cash flow. And the biggest insight that we learned as we started accelerating our marketing spend, which we had shared with all of you that we would do, is that there are conversion on gaps in the product that we felt like were critical to address and not just spend the marketing dollars without the benefit of improved conversion. And specifically, those were things like coming to the website and the number of people that we saw falling off versus what we would expect based on our experience with across the QuickBooks platform, across the Credit Karma platform, the TurboTax platform, what we believe are some best-in-class engagement and conversion. Then when you get into the product, we measure active use and making sure that you’re getting into the features that you really wanted to get into and hence why you signed up for Mailchimp and even our checkout process. So those are just three illustrative examples of what I would say just basic blocking and tackling product conversion that we really wanted to double down on to make sure that we are ready for busy season. That did not take away from the priorities that we have shared about Mailchimp, which is one is to create one growth platform with QuickBooks, which we are on track to do. Two, it’s a double down on international. In fact, it is now part of our refreshed international strategy to double down on helping customers grow customers with Mailchimp. And then the third is to actually go into mid-market. So what we just announced in terms of our results actually has nothing to do with the environment. It has everything to do with what’s in our control and decisions that we made very explicitly to be ready for busy season. And these are playbooks that we know how to execute when it comes to product conversion.

Michelle Clatterbuck:

Hi, Brad. Thanks for the question. We’re really excited about being able to raise the long-term expectations for small business from 10% to 15% to 15% to 20%. I just think it goes to show, as Sasan talked about earlier, really the mission-critical nature of the products and the offerings that we have in small business. As we have increased the growth expectations, the growth algorithm overall is really still focused on the same things. It’s about driving customers and it’s about driving ARPC. Yes, pricing may be part of ARPC, but really, it is about focusing on driving value and how do we continue to provide offerings for customers that may have a higher ARPC, whether it’s QBO Advanced, QuickBooks Live, those kinds of products. And we really are focused on pricing for value, so not just continually raising price. But once we’re delivering those additional features that are providing additional value to the customers and we’re bringing more innovation to the table, then we look at really should we be raising the price. But overall, very excited about the growth we see with small business.

Sasan Goodarzi:

Yes. One other thing that – just amplifying what Michelle just shared, and that is our reliance on price has not changed, meaning that we have an algorithm whereby price is just an element of our overall performance. And we’re not relying more on price looking ahead than we did looking backwards. So just reiterating one point that Michelle made just a moment ago?

Operator:

Thank you. Our next question will come from Alex Zukin with Wolfe Research.

Sasan Goodarzi:

Sure, Alex. Appreciate the question. I’ll say a couple of things. First of all, our approach to how we run the company and our approach to guidance and how we factor things in has not at all changed. So just know that our approach is consistent with the way Intuit has always set expectations and set guidance, which is really to deliver on our commitment. That’s the number one. Number two, what really informed our perspective as we look ahead is all of the indicators that we see that are forward-looking. But let me just – if I could double-click in, in a few of the areas. I’ll start with tax to put that out of the way, which is no matter the environment, we’re not going to expect nor have we seen in our history really any material impact in tax. That’s 35% of the company. When you look at the other 51% of the company, which is small business, it’s important to note that we are a very different company today than we were 3 years ago, much less 5 years ago, where small businesses are relying on our platform to run their businesses, actually their livelihood. And 80% of our revenue is subscription. And the 20% of that is transactional-based. We take the current environment and how things could play out into account as we set guidance. And the third, which is Credit Karma and 14% of the overall company revenue, we have taken the current environment and what we assume will take place into account. And most of our verticals other than Credit Karma, in fact, have seen an impact, and we have included that in our guidance. So really, that was a long way of saying we are fairly consistent across all of our segments. And we feel very good about the indicators that we see, how we view things will play out and how that informed our guidance moving forward.

Sasan Goodarzi:

Yes. Alex, I would say nothing more than what we’ve experienced in the last couple of years. That’s really the short answer. When you look at the last 2 to 3 years, environmentally, it has had probably more of an impact in the tax business than we’ve seen in years. And as you know, I’ve been with the company for 17 years plus, ran the tax business for 3 years. And what happened when we hit COVID, the implication on consumers, the extend the tax season, the child tax credit, there are so many things that played into the tax season in the last several years. And as we look at the year ahead, frankly, we view a much more simplified approach to the tax season. Although some of the tax laws will impact what we need to do in the product, that’s what we’re great at. That’s what we know how to do well. So we actually see more normality as we look ahead than we experienced in the last 2 to 3 years.

Sasan Goodarzi:

Thank you, Alex.

Kash Rangan:

Hi, congratulations on a super finish to the fiscal year and also a very constructive guidance. Sasan or Michelle, when you look at the – I know you’re not going to be talking about the Small Business-Online Ecosystem revenue split going forward. but it clearly looks like the business is at a point where you have two-thirds of the business coming from Online Ecosystem that’s growing roughly 30% plus range, right? I think many of us are surprised that the outlook for that business, you raised the overall business at 15% to 20%. So it looks like Online Ecosystem is actually doing pretty decently, right? So in the event of a downturn – I know, Sasan, this was a question that I’ve asked you on prior conference calls. But how confident are you that – of course, retaining subs is one thing, but then adding net new subscribers in a challenging economy, how confident are you that you can keep that ball rolling while continuing to have your price increases stick and, at the same time, managing retention such, because if retention goes down, then you have more pressure to add more news. So how does that mathematical equation play out during a downturn? Thank you so much and congrats.

Kash Rangan:

Tremendous dissection of what is driving your confidence. Thanks so much and we will not let Microsoft tell us anything about SMB. We will listen to you first. Thank you so much.

Operator:

Thank you. Our next question will come from Daniel Jester with BMO Capital Markets.

Sasan Goodarzi:

Yes. Daniel, thank you for your question. We kicked off a strategy project. It’s been almost probably a year ago to just understand how we can accelerate making ends meet and our vision to truly have a consumer financial platform that can be the self-driving platform for consumers no matter where they are in their life, whether they are students or someone that is later in their life where they have achieved a level of financial freedom and have different sets of needs. And given the work that we did around our vision, we decided to bring Mint and Credit Karma together because in essence, although we have a lot of prime members as part of the Credit Karma base, Mint actually has a number of feature and functionality that the prime members need the most. So that’s number one is bringing some of the features and functionalities together as part of the Credit Karma platform. And over time, that will actually make Credit Karma much more robust to be able to serve all kinds of members no matter what their sort of credit band is. Number two is actually leveraging the scale and the power of the algorithm, the machine learning capabilities, the decision engines that we have in Credit Karma that ultimately deliver north of 35 billion machine learning predictions per day. We can leverage a lot of those capabilities to make Mint a lot better as part of Credit Karma. So, we do expect that this will be accretive in the long-term, delivering benefits to members, and ultimately, truly of achieving our mission and our vision of unlocking smart money decisions for consumers. So, that is our approach and thinking, and we are very excited about it.

Sasan Goodarzi:

Sure. Absolutely. Let me start with the single-biggest thing that we have learned, and we are diagnosing it wouldn’t have changed any of what we have done. We are very, very excited about what we are going to do in executing our vision with Mailchimp and QuickBooks coming together. But it’s having diagnosed upfront some of the product conversion opportunities that we are going after. I would say that’s probably the single-biggest thing that we did not diagnose as well as I would like to see us diagnose. I would also say that’s a – if you are going to misdiagnose something, that’s an okay one because it’s within your control and you can address it. But I would say that’s probably the biggest one. It has not at all altered the priorities that I mentioned a moment ago. But it is something that we have really gone back, and we are looking as to how we can put that in our playbook to do a better job diagnosing upfront. But in no way, shape or form does it change how we feel about the possibilities ahead, and it has not impacted our timeline at all. The second thing is our M&A playbook has not changed. Our Uber goal is time to market. Our principles around looking at capabilities that could help us accelerate delivering our vision are unchanged. And so I would just – I would leave it at that. Nothing new to report. It’s unchanged.

Sasan Goodarzi:

Very welcome.

Siti Panigrahi:

Thank you. Thanks for taking my question and great quarter. Just wanted to dig into the payment part of the business, I guess that’s one of the underappreciated asset, I would say, Intuit has. You talked about total invoices now growing $2 trillion versus last year, $1.5 trillion. Could you help us understand how you have been gaining share within that business? And also, what are the opportunity you see for Intuit payments to expand beyond QuickBooks like some of the acquired asset? If you could share some of your long-term vision on that, that would be great.

Siti Panigrahi:

That’s great color. And just a quick follow-up to one of your comments on Mailchimp that you are planning to grow up to meet market. Can you help us understand who are the Mailchimp’s strength right now, maybe in the employee segment and where you are targeting, right, that mid-market? And is it also something – are you trying to expand your features more beyond e-mail marketing when you are trying to go into the mid-market?

Operator:

Thank you. Next, we have Michael Turrin with Wells Fargo Securities.

Sasan Goodarzi:

Yes. Sure, Michael. I will just amplify what Michelle shared earlier. We have leverage that is coming from three places that we view as durable. One is on the technology side. And we are actually excited about having there kind of walk of you through our technology stack, our technology vision and how it’s fueling innovation and also how it’s giving us margin leverage at Investor Day. But in that context, that’s one significant lever where we are continuing to build services so we can build them once and use them multiple times across the company. And it’s actually one of the things that is an accelerant to fueling innovation and acquisitions like Mailchimp and Credit Karma. The second is the leverage we get from how we are building out our marketing platform so that our MarTech services can be used across all of the segments across the company. And third is the technology that we are building once and applying to all of our customer success operations, which just recall, is quite large. We have over 700 million interactions with customers. And we shifted the company years ago from every segment builds out their own operations. So, we are building it once, and the segments leverage the same operations across the company and then making sure that we ensure that those services and those platforms are used by not only across the company but our acquisitions like Credit Karma and Mailchimp. So, the leverage is coming from technology across the company, MarTech and customer success operations. And that’s what’s driving what we delivered this past year, the guidance that you heard Michelle talk about and the durability that we believe we have looking ahead.

Sasan Goodarzi:

Yes. Sure Michael. It is in fact, both. One is we have a big comp 2 years of 37% and then last year, 58% growth. And we have a lot of confidence in our long-term expectations for 20% to 25%. So, that is unchanged. So yes, one element is the tough comp. But really the – I would say the other element, probably a bigger element, is the current trends that we are seeing that we have really incorporated in our guide. When you look at our verticals around credit cards, personal loans, insurance and then home loans, just – and then there is the money vertical, almost every vertical has been impacted. And by the way, you can see based on our guide, the resiliency of the platform, other than, of course, the credit card vertical that really has not seen any significant impact. So, that’s the second piece that we have incorporated into our guidance is the, in fact, the macroeconomic environment that we see.

Brent Thill:

Thanks. Sasan, a number of CEOs have been calling out the shift to services-based economy from a product-based. And I believe, correct me if I am wrong, you have a heavy services base inside the small business. I am curious do you think that’s helping kind of shelter the small business in this environment right now? Is that playing into some of the defensive nature of what you are seeing in the results in small business for your core?

Brent Thill:

And when you look at Credit Karma in past downturns, can you just give us a compare and contrast? I know you have compared the small business segment to be more SaaS. You have got virtually layered services around. Is there something different that they have done in the business to diversify? Assuming things got a little worse and not saying that’s what you are saying to the guide, but if that was the case, what gives the defensive nature of that business?

Operator:

Thank you. Our next question will come from Kirk Materne with Evercore ISI.

Sasan Goodarzi:

Yes. Sure, Kirk. And in fact, this is probably one of the most misunderstood or least understood element of the benefit that our platform provides. And so I will just start with stating something that I mentioned a moment ago because it really plays into your question, and that is we are not a line item on the small businesses budget. We are the platform that fuels their success. We are mission-critical. Without our platform, a small business can’t run their business. And so it’s really important to have that frame of mind as to what’s the role that we play in the lives of small businesses. The second, to go – to get to your question, is we now have the services that we didn’t have 3 years ago, 5 years ago. And in fact, yes, they are having those conversations with us less from a can I save money, but more from a perspective of I don’t want to deal with all of these different applications where things are sort of disparate and discrete where I can have everything on your platform. If I am using somebody else’s payroll or somebody else’s capital or somebody else’s payments, why not just use all the services on your platform. And frankly, this is an area where our small business team is actually doubling down on looking forward, which is how do we evolve our go-to-market to actually have a conversation with our customers about all the services that they don’t use that they should use where there will be far more efficient, effective and potentially even save some money because we see all their transactions. We can see what they do if they don’t do it on our platform because they have connected their bank accounts and so on. So, we believe this is an opportunity as we look ahead.

Sasan Goodarzi:

Awesome. Well, thank you for the wonderful questions. And we are really looking forward to seeing, hopefully, all of you, at our Investor Day at September 29th. We will, number one, walk through probably the next level of depth around the experiences that we are delivering and why in this environment they matter the most to our customers across all of our five Big Bets. And you will have a great opportunity to not only ask more questions, but connect with my wonderful team that leads a lot of this great work. So, look forward to seeing you then. Until then, be good, stay safe, and we will talk to you all soon. Thank you.

Operator:

Good afternoon. My name is Latif and I will be your conference facilitator. At this time, I would like to welcome everyone to Intuit’s Third Quarter Fiscal Year 2022 Conference Call. [Operator Instructions] With that, I will now turn the call over to Kim Watkins, Intuit’s Vice President of Investor Relations. Ms. Watkins?

Sasan Goodarzi:

Thanks, Kim and thanks to all of you for joining us today. I am proud of our continued momentum as we execute on our strategy to be the global AI-driven expert platform powering the prosperity of consumers and small businesses. We have a nearly $300 billion addressable market driven by tailwinds that include shifts to virtual solutions, acceleration to online and omnichannel capabilities and digital money offerings. This, combined with the team’s execution, is contributing to the strength of our performance. Third quarter revenue grew 35%, including 6 points from the addition of Mailchimp. It was another strong quarter for our Small Business and Self-Employed Group with revenue up 42%, 20% organically. Credit Karma posted another quarter with revenue at an all-time high, up 48%. And I am proud of how the team executed in the Consumer Group in another unusual tax season. We are confident in our business trajectory and are raising our total Intuit revenue and non-GAAP earnings per share guidance for fiscal year 2022. We expect to grow total company revenue 31% to 32% as our platform is in demand now more than ever. Let me now turn to tax. Our multiyear strategy is to extend our lead in the do-it-yourself category and transform the assisted category with TurboTax Live. This strategy is working. This fiscal year, we expect our share of total IRS returns to be up approximately 1 point and our share of the do-it-yourself category to increase 2 points. We’re also growing average revenue per return once again. We expect customers in under-penetrated segments, including Latinx, self-employed and investors to grow double-digits in total. Within transforming the assisted category, we continue to make progress connecting people to experts with TurboTax Live. We anticipate achieving a significant milestone with TurboTax Live revenue reaching $1 billion in fiscal year 2022, growing approximately 30% and customers growing 20%. Note that last year, TurboTax Live customer growth significantly benefited from the introduction of the free basic offer. We are proud of the progress against our strategy. However, slower total IRS returns growth is resulting in expected Consumer Group revenue growth of 10% this fiscal year. We now expect overall IRS returns to decline 3% through July 31 compared to IRS returns growth of 3% to 4% the last 2 seasons. This was driven by onetime stimulus filers that did not return this season and overall IRS extensions up significantly year-over-year, with the number of TurboTax customers filing extensions nearly doubling. As a reminder, every point of IRS return growth equals about 1 point of TurboTax revenue growth. We now expect the do-it-yourself category share of total IRS returns to be flat this year below our expectations after growing an average of approximately 1 point per year over the last 2 years. Our hypothesis is that the do-it-yourself category performance was weaker than we expected due to the onetime stimulus filers, approximately 30% of whom were paid customers for us last season. While the last 3 years were anything but normal, over the period, IRS returns grew on average 1 percentage per year and the do-it-yourself category gained an average of just over 0.5 point of share per year consistent with long-term trends. Looking ahead, we expect more normal total IRS returns growth. More broadly, our AI-driven expert platform strategy is accelerating innovation, and our 5 Big Bets are solving the largest problems our customers face. We continue to deliver strong proof points that demonstrate the success and are well positioned for durable growth in the future. As a reminder, these Big Bets are revolutionize speed to benefit, continue – connect people to experts, unlock smart money decisions, be the center of small business growth and disrupt the small business mid-market. Today, I’d like to highlight examples of our recent progress across 3 of these Big Bets. Our third Big Bet is to unlock smart money decisions. We continue to see strong momentum with Credit Karma, a data platform where powerful network effects solving a two-sided problem. Our vision is to unlock smart money decisions by creating an autonomous financial platform that helps consumers find the right financial products, put more money in their pockets and connect them to insights and advice. In Credit Karma, we continue to innovate across all verticals, all proprietary Lightbox technology allows us to better personalize and connect members to the products that are right for them, providing more certainty to members and partners on the platform. We continue to see strength in credit cards and personal loans with combined Lightbox penetration remaining very high. Lightbox approximately doubles the average approval rate of members who apply for credit cards on Credit Karma versus outside of Credit Karma, making it a competitive differentiator for both our members and partners. We continue to make progress combining our capabilities to fuel the success of both TurboTax and Credit Karma. We integrated Credit Karma Money into TurboTax Live experience, more than tripling the number of TurboTax online customers who deposited their refund into their Credit Karma Money account this year. This gave them the ability to receive the refund up to 5 days earlier with direct deposits. These TurboTax customers drive Credit Karma member growth and like other Credit Karma members, get access to personalized products across the platform which accelerates engagement over time. Our fourth big bet is to become the center of small business growth by helping our customers get customers, get paid fast, manage capital, pay employees with confidence and grow in an omnichannel world. 60% of small businesses struggle with cash flow, and we continue to innovate to help customers overcome this challenge. In payments, we offer a single place where small businesses can get paid, pay others, manage money and access capital. We are seeing more customers accessing loans through QuickBooks Capital, with loan volume at record level, more than tripling year-over-year in April. We have increased discoverability and expanded eligibility in the product. This is driven by our rich data and proprietary risk models, which allows us to use our customers’ data on their behalf and with their permission to offer access to loans. In addition to cash flow, getting and engaging customers, remains a significant pain point for small and mid-market businesses. With Mailchimp, we are well on our way to becoming the source of truth for our customers to help them grow and run their business. We have 3 acceleration priorities with Mailchimp. First, delivering on our vision of an end-to-end customer growth platform; second, disrupting the mid-market by developing a full marketing automation, CRM and e-commerce suite; and third, accelerating global growth with a holistic go-to-market approach. We continue moving with speed as we focus on product innovation, marketing and improving conversion. First, we launched a customer’s and lead tab within QuickBooks Online, which allows new and existing customers to send revenue and customer data from QBO to MailChimp in real time, where small businesses can segment customers and automate marketing campaigns based on QuickBooks data. We’re also saving customers time by bringing in their contact list into Mailchimp from other partners and platforms. Second, we continue to invest in marketing. We are seeing early signs that the recent investments in paid media are driving growth in customer sign-ups across large markets like the U.S. We expect this to take time for it to translate into financial results, but we’re excited about the potential. And third, we are focused on opportunities to improve conversion as we look at top of the funnel traffic to how we deliver benefits in the product for our customers. This includes highlighting product benefits as soon as customers enter the product, improving the checkout page experience and streamlining in-product navigation. Our fifth big bet is to disrupt the small business mid-market with QuickBooks Online Advanced. During the quarter, we launched in Canada, the first market outside of the U.S., expanding the geographic reach of this offering. Accelerating innovation and executing our strategy starts with our employees. I’m proud to share that we were Fortune’s 100 Best Companies to Work For list for the 21st year in a row, this year, proudly ranking #11. We remain focused on creating an environment where our employees can bring their whole selves to work and do the best work of their lives, which is reflected in our employee retention rate that is above our peers. Wrapping up, we feel confident in our long-term business strategy. Our strong business fundamentals, including our balance sheet, our speed of innovation and the demand for our platform continues to put Intuit in a position of strength. In the current macro environment, the benefits of our platform are more important than ever. We are proud to be the platform of choice for over 100 million customers around the world who rely on Intuit to prosper. Now, let me hand it over to Michelle.

Sasan Goodarzi:

Great. Thank you, Michelle. And before closing, I wanted to mention the leadership changes in our Consumer Group that we shared in our earnings release today. Effective May 31, Greg Johnson, General Manager of the Consumer Group, will step down as the leader of Intuit’s Consumer business to become CEO of McAfee. Varun Krishna, Senior Vice President and General Manager of TurboTax Growth Products, will succeed Greg as the General Manager of the Consumer Group. Greg has done a tremendous job driving growth for our Consumer business, and I couldn’t be happier for this next chapter for him. Intuit is well known for developing world-class leaders and Greg is no exception. McAfee is lucky to have him. At the same time, I couldn’t be more excited to welcome Varun as the Consumer Group’s next General Manager. With over 7 years of experience leading commercial and product innovation for TurboTax, Varun is perfectly suited for leading Consumer Group’s next phase of growth. We are seeing continued momentum across the entire company given our strategy of being an AI-driven expert platform that is powering prosperity for consumers and small businesses. I’m proud of the team and how we’ve delivered for our customers so far this year. And with that, let’s now – go now to your questions.

Siti Panigrahi:

Thank you. Thanks for taking my question. It’s very impressive to see strong momentum in Credit Karma as well as small business and how you raise the guidance. So Sasan, I’m wondering given this geopolitical uncertainty and even some concern about any macro slowdown, how is Credit Karma positioned in terms of growth and also in your small business segment?

Siti Panigrahi:

Sasan, thanks for covering the tax, but just a quick follow-up on TurboTax Live Full Service. This is the second year. What sort of trend you have seen? Do you see more share gain from the assisted category or your own customer now moving more into full service kind of product?

Siti Panigrahi:

Thank you.

Operator:

Thank you. Our next question comes from Kirk Materne of Evercore ISI. Your line is open.

Michelle Clatterbuck:

Hi, thanks for the question. Yes, as we see the macro environment unfolding, one of the good things that Sasan has shared is we really don’t see a lot of – have not seen a lot of impact to our business. It is one of the things that we are continuing to look for. But given the way our business works, the platform that we have, and really the need that small businesses and consumers have in times like these, even more for our products and our platform, we don’t anticipate seeing an impact. And so we’re always looking and to make sure to see what’s happening, but we haven’t really changed anything with our forecast at this point in time in any – as you can see with our guidance that we’ve given.

Unidentified Analyst:

Got it. Thank you both.

Operator:

Thank you. Our next question comes from Keith Weiss of Morgan Stanley. Your line is open.

Michelle Clatterbuck:

That’s exactly right, Keith. Because of the nature of the charge, the one-time, it’s not an impact to the underlying structural part of our business. We wanted to make sure that you could see really what is the business driving. And so yes, it actually would have been higher. It would have been the $0.37 higher on GAAP and $0.38 higher on non-GAAP for EPS for the full year.

Michelle Clatterbuck:

First of all...

Michelle Clatterbuck:

I’m sorry, I thought it was for me.