Intuit Inc.

At this time, I would like to welcome everyone to Intuit's second quarter fiscal year 2020 conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer period. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. With that, I'll now turn the call over to Kim Watkins, Intuit's Vice President of Investor Relations. Ms. Watkin. Ms.

Thanks, Lateef. Good afternoon and welcome to Intuit's second quarter fiscal 2020 conference call. I'm here with Intuit's CEO, Sasan Ghadarzi, and Michelle Clatterbuck, our CFO. We are also joined by Ken Lin, founder and CEO of Credit Karma. Before we start, I'd like to remind everyone that our remarks will include forward-looking statements. There are a number of factors that could cause Intuit's results to differ materially from our expectations. You can learn more about these risks in the press release we issued earlier this afternoon, our Form 10-K for fiscal 2019, and our other SEC filings. All of these documents are available on the investor relations page of Intuit's website at Intuit.com. We assume no obligation to update any forward-looking statement. Some of the numbers in these remarks are presented on a non-GAAP basis. We reconciled the comparable GAAP and non-GAAP numbers in today's press release. Unless otherwise noted, all growth rates refer to the current period versus the comparable prior year period, and the business metrics and associated growth rates refer to worldwide business metrics. A copy of our prepared remarks and supplemental financial information will be available on our website after this call ends. And with that, I'll turn it over to Sasan.

Great. Thanks, Kim. And thanks to all of you for joining us. We posted strong results for the first half of fiscal year 2020. I'm also excited to announce that we've reached an agreement to acquire Credit Karma, a pioneer in the financial technology sector, for approximately $7.1 billion. I could not be more enthusiastic about this transformational transaction, and I'm thrilled to welcome the talented Credit Karma team. Ken Lin, the founder and CEO of Credit Karma, is with us today to talk about our shared excitement and commitment to one simple goal, empowering consumers to make smart decisions about their money. We posted a slide deck on our website containing an overview of the agreement, which provides more details. Let me start with a quick recap of the quarter. We're halfway through fiscal year 2020 and continue to see strong momentum across the company as we make progress on our strategy to become an AI-driven expert platform. Second quarter revenue grew 13% overall, fueled by 17% growth in the small business and self-employed group and 8% growth in the consumer group. Revenue for the strategic partner group grew 8%. With this strong performance, we remain on track to deliver our full year of revenue, operating income, and EPS guidance. Let me remind you of the customer problems that we are addressing. All of our customers are consumers and have a common set of needs. They are all trying to make ends meet, maximize their tax refund, save money, and pay off debt. And those who've made the bold decision to become entrepreneurs and go into business for themselves have an additional set of needs. They want to find and keep customers, get paid, access capital to grow, and ensure their books are right. To solve our customers' most pressing problems, we remain focused on becoming an AI-driven expert platform. We're working to achieve this strategy by pursuing five big bets. These include revolutionize speed to benefit so our customers fall in love with the product instantly, connect people to experts to improve confidence, unlock smart money decisions to put more money back in our customers' pockets, become the center of small business growth by fueling our customers' growth, and disrupt the small business mid-market with QuickBooks Online Advance. Throughout the call, I'll update you on where we stand on these bets. With that context, let me start with tax. We are confident in our strategy and are on track to deliver and achieve our full-year guidance. As a reminder, there are four key drivers of our consumer tax business. The first is total number of returns that's filed with the IRS. The second is the percentage of those returns filed using DIY software. The third is our share within the DIY software category. And the fourth is the average revenue per return. Based on the latest IRS data, then the DIY software category is performing better than assisted, and has for more than a decade. As the category leader, we view it as our responsibility to drive category awareness and growth. so we are pleased with this result. Through February 7th, IRS data shows total e-file returns are up 0.6%, with self-prepared e-files up 3.5%, and assisted e-files down 3.7%. Based on what we're seeing, our share within the DIY category is up year over year. We are growing the category and growing our share, which is right where we want to be. Our strategy for the consumer group is to expand our lead in the DIY category, transform the assisted tax preparation category, and disrupt consumer finance. This is all in service of helping our customers make ends meet and get the largest tax refund. Let me share a few examples of how we're delivering for our customers this season. Within the DIY category, which is $3 billion in TAM, we are delivering enhancements to our premier offering to better serve customers with investments. we are driving faster growth in under-penetrated segments, including Latinx and self-employed. We're also expanding free eligibility to include all enlisted active duty military and reservists and providing historical tax return access for all customers. In the assisted category, which is $20 billion in TAM, we continue to make progress with our second bet to connect people to experts with TurboTax Live. we're working to further increase customer confidence on our platform by enhancing first-time use. This season, we improve accessibility by two experts by offering customers the option to connect with an expert when they first sign in to TurboTax Live to address top-of-mind questions. We also introduced real-time chat and a floating Live Help button to make it easier to connect with Live Help at all stages of the return process. We continue to accelerate the application of AI to create tools for experts to automate repetitive tasks, increase efficiency, and drive an even better customer experience. Beyond tax, we continue to make progress disrupting consumer finance, which represents $29 billion in TAM. This aligns with our third big bet to unlock smart money decisions. Through our Turbo offering, we're addressing key customer problems like managing debt, saving money, and improving financial health overall. We are building on last season's success by expanding the financial marketplace. We're now live with prequalification partners offering both credit cards and personal loans to help customers save money and to provide partners with more qualified leads. Nearly 25% of our weekly active users have a set credit score, savings, or debt-related goal in Turbo. and we expect this to drive higher engagement over time. Acquiring Credit Karma expands our TAM from $29 billion to $57 billion, accelerating our time to market, moving beyond tax, while also developing new ways to monetize our offerings. Now turning to small business. We've delivered another strong quarter in our small business and self-employed group with online ecosystem revenue growth of 35%, exceeding our target to grow more than 30%. We continue to solve key customer pain points as we execute on our big bets. We remain encouraged with our early results with Cookbooks Live, part of our second big bet to connect people to experts, opening access to a $10 billion bookkeeping opportunity. Cookbooks Live solves one of the customer's biggest needs, confidence and peace of mind, while helping experts grow their business and find new customers. We're now also offering setup help, providing customers with confidence from the moment they subscribe. We're working to achieve our vision of being the center of small business growth, our fourth big bet, by helping our customers get paid faster, manage capital, and pay employees with confidence. We introduced a new payroll lineup featuring full service across all offerings, as well as a TSheets integration for time tracking that's resulting in customers adopting TSheets had three times the rate they did prior to launching the integrated offering, and a tax-penalty-free guarantee for select offerings. We also introduced a feature that double-checks customers' overtime calculations, reducing the likelihood of fines and penalties. We continue to make progress on our fifth big bet, disrupting the mid-market with QuickBooks Online Advanced, our online offering designed to address the needs of small business customers with 10 to 100 employees. We developed this offering to help us increase retention of larger customers and attract new mid-market customers who are over-served by higher-priced competitive offerings. Approximately 75% of our current QBO Advanced customers have traded up from our existing QBO products, unlocking benefits such as faster invoicing with batch import tools, automation, and more customized fields and user permissions. Now I want to address the very exciting news we announced today to acquire Credit Karma. I have long been an admirer of the company that Ken and his team have built. As we've gotten to know each other, Ken and I realized we both share one simple goal, empowering consumers to make smart decisions about their money. This combination fits directly with Intuit's mission and long-term strategy. Our mission is to power prosperity around the world. And our bold goal for 2025 is to double the household savings rate for customers on our platform. This acquisition is a giant step forward in achieving that goal and significantly accelerates execution of our big bet to unlock smart money decisions. This big bet is aimed at helping consumers address the personal finance problems they face today, helping them reduce debt, maximize savings, and put more money in their pockets. Today, many consumers struggle with not knowing or fully understanding where they stand with their finances, and they struggle to make ends meet. Household debt in the United States hit $14.1 trillion. 23 million consumers relied on at least one payday loan in 2018 to get faster access to cash. If consumers just had the tools to better understand their financial health and opportunities to improve it, they could unlock billions of dollars of potential savings. For example, understanding the difference and availability of lower-cost personal loans versus high-cost credit cards could save consumers $20 to $40 billion. And Credit Karma estimates that 80% of Americans overpay on car loans to the tune of $37 billion, as there's no way to compare offerings. Consumers want to do better, and 60% say they're trying to improve their credit score, but they need help. We aspire to do more, and Credit Karma is the perfect partner to help us do this. Credit Karma shares our goal of making it simple for consumers to make better decisions with their money through a platform that works like a personalized financial assistant, helping consumers find the right financial products, putting more money in their pockets, and providing them with insights and advice. This platform will provide consumers with transparent access to their critical personal information, including their income, spending, and credit history, to help them better understand their complete financial picture and use it to their advantage, such as obtaining better interest rates. The result will be a complete financial profile that puts the power in consumers' hands so they can take the steps necessary to improve their financial health. Let me tell you what this will look like. To find the right financial products, we will match consumers with pre-approved offers on personal loans, home loans, credit cards, and insurance. We will put more money in their pockets by connecting them to higher yield savings accounts and faster access to their hard-earned paychecks. We will also provide insights and connect them to experts to help consumers make better decisions about their money and improve their credit score. All of this will be done by leveraging artificial intelligence and connecting consumers to over 100 financial partners on the platform, solving a two-sided problem. This consumer finance platform offers compelling value for our financial institution partners, as we provide efficient access to a broad set of qualified customers. While consumers strive to be more informed about their finances and want personalized offers from a trusted source, Financial institutions want high-quality leads and face real challenges matching their products to the right customers. We can help them target their offers based on metrics like verified income and credit history, giving them the ability to reach qualified prospects. Ken will get into this shortly, but Credit Karma's history is remarkable. The Credit Karma platform has attracted more than 100 million members with 88% engagement via mobile among active users and over one third of which are active on the platform each month. The platform has a net promoter score of 69. The company recorded revenue of approximately $1 billion in calendar year 2019, growing 20% year over year. Impressively, over 90% of Credit Karma's annual revenue results are from existing members returning to the platform. Together, we can deliver unprecedented benefits to customers, combining the benefits of scale, trust, and data. Let me turn it over to Ken, Credit Commerce founder and CEO, to share his perspective on the transaction.