Intuit Inc.

Good afternoon. My name is Lateef, and I will be your conference facilitator. At this time, I would like to welcome everyone to Intuit's third 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. Watkins.

Thanks, Latouf. Good afternoon and welcome to Intuit's third quarter fiscal 2020 conference call. I'm here with Intuit's CEO, Sasson Ghadarzi, and Michelle Clatterbuck, our CFO. 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 those 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've reconciled the comparable gap and non-gap 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 the call over to Sasan.

Thanks, Jen, and thanks to all of you for joining us today. I'm going to cover four topics on today's call to help you understand our performance in the quarter and our outlook longer term in context of the global COVID-19 pandemic. I'll start by sharing how we responded to the pandemic with our employees, customers, share our results for the quarter, and highlight recent trends in our business. Then I'll put these results in context of our long-term strategy and finish by talking about our playbook for leading in a downturn to accelerate our performance. Let's start with our response to the pandemic, where unprecedented uncertainty, along with widespread shelter-in-place initiatives, have changed our daily lives. At the onset of the pandemic, we created an enterprise crisis team to drive four work streams. First, keeping our employees safe and healthy. This has been and will continue to be our number one priority. Second, ensuring that we run the business effectively and continue to deliver for our customers. Third, keeping our workforce engaged and productive. And fourth, supporting our customers, our partners, and the communities where we live and operate. I'm proud of how our employees adapted to this sudden change and how seamlessly we transitioned our 10,000-person workforce around the world to a work-from-home environment. I'm even more proud of how, in the face of uncertainty, our employees' commitment to customers has grown even stronger. The challenges facing consumers and small businesses during this difficult time have inspired our teams to innovate with speed and apply platform capabilities to help solve several problems caused by this pandemic. As a result, let me share three examples of how we're helping consumers and small businesses get access to aid and relief. First, in less than a week following the IRS announcement, we introduced three free stimulus registration tools in partnership with the IRS. These offerings help more than 10 million Americans not required to file a tax return to easily register with the IRS to get their stimulus money. We're proud to have donated our time and expertise to help the IRS quickly disperse billions of dollars in stimulus payments to Americans. Second, we launched Intuit Aid Assist to simplify the process of quickly connecting small businesses to the right release funding programs based on eligibility. Intuit 8 Assist uses artificial intelligence to distill the complexity of hundreds of pages of the CARES Act and convert it into an easy-to-understand user experience, delivering a personalized and actionable recommendation. This new tool is based on the same knowledge engineering which is used by TurboTax to simplify the tax code. Third, as of May 20th, Intuit helped make available over $875 million of approved small business loans to customers from the Paycheck Protection Program, or PPP, through QuickBooks Capital. The team rapidly developed a solution to simplify and automate the PPP loan application process to help the very small businesses access this program. We've helped approximately 25,000 small businesses access loans, with an average loan of approximately $35,000, keeping up to approximately 150,000 employees on the payroll. These offerings are a testament to our unique platform and technology capabilities, and we will continue to find new, innovative ways to help our customers during this time of need. Now, turning to the fiscal third quarter results. Through the first part of the third quarter, we saw a continuation of great momentum we built during the first half of the year when revenue grew 14%. At the same time, the impact of the pandemic on taxpayers and small businesses is real. The extension of the IRS tax filing deadline and local shelter-in-place directives negatively impacted performance beginning in mid-March. As a result, our total revenue declined 8% in the quarter. Let me go into more detail with how the quarter played out, starting with our consumer group. The extension of the IRS tax filing deadline from April 15th to July 15th has shifted the timing of millions of tax filings to later in the season, resulting in 15% decline in consumer group revenue during the fiscal third quarter. Based on the latest IRS data, total returns are down 9.4%, reflecting the later July 15th tax filing deadlines. The do-it-yourself software category is performing notably better than assisted, and as the category leader, we're driving category awareness and growth, so we are encouraged by this result. Through May 8th, IRS data shows total e-file returns are down 9.6%, with self-prepared e-files up 2.2%, and assisted e-files down 18.8%. Because this data includes stimulus filings for individuals not usually required to file a tax return, it is not comparable to prior year data. As of May 8th, our data also indicates a majority of expected April higher value customers with the most complex returns and those with balance due have yes to file. Therefore, we're proud of our progress so far and feel good about where we stand with the TurboTax online share and ARPC. keeping us on track entering the last two months of the season. Our strategy is working. We're accelerating our innovation and are well positioned for the remainder of the season. We're making progress on serving fast-growing, underpenetrated segments, including Latinx, self-employed, and customers with investments. We are focused on increasing customer confidence through access to experts with TurboTax Live. and we're seeing a positive impact on both conversion and retention when these customers interact with an expert. The extension of the season has also given us the opportunity to run additional experiments to improve the experience, product lineup, and pricing for the future. Let me turn to small business. We began to see an impact from COVID-19 on our business in mid-March, as many small businesses began closing or significantly scaling back their operations. leading to a loss of income and rising unemployment. Despite these headwinds, small business and self-employed group revenue grew 11%, and online ecosystem revenue grew 28%. Let me share some of the recent trends in our business. During the second half of the quarter, QuickBooks Online new customer acquisition decelerated approximately 15 points versus the first half, and retention within the existing customer base decreased by two points versus a year ago. We continue to expect the small business customer base and ARPC to grow in fiscal year 2020. The services offerings within QuickBooks Online have experienced an even greater impact. For example, after growing approximately 30% year over year through mid-March, payment charge volume was flat year over year during the second half of the quarter. Within our online payroll offering, after an increase of 20% year over year and workers paid through mid-March, workers paid decreased 10% year-over-year during the second half of the quarter. Similarly, after the total number of companies running payroll grew 15% year-over-year through mid-March, the number of companies running payroll was approximately flat during the second half of the quarter. These trends could result in higher attrition and lower revenue in the future. Despite limited visibility near term, we are more inspired than ever to achieve our 2025 prosperity, reputation, and growth goals. As a reminder, our prosperity goals are to double household savings rate and improve the success rate of small businesses by 10 points, better than benchmark, for anyone on our platform. We will do so by becoming an AI-driven expert platform and doubling down on our five big bets. As we look into the future, we have resourced our big bets for acceleration. Let me share our progress on each of these bets. Big bet number one is foundational to accelerate innovation across our platform. I'll come back to this one in a minute since it supports the other four big bets. Big bet number two is all about connecting people to experts. One of the largest problems our customers face is lack of confidence to do their own taxes and to manage their business. We're connecting customers to experts on our platform to solve this problem with TurboTax Live and QuickBooks Live, allowing us to reach more customers, deepen engagement, and grow ARPC. Within TurboTax Live this season, we've improved access to an expert through real-time chat and a floating live help button, contributing to improving customer conversion and retention. On the expert side of the platform, we're using AI to improve the experience by automating repetitive tasks and presenting experts with contextual customer information based on the location of the customer within the product experience. As a result, we've seen average session handle time decline nearly 20% this season, while at the same time providing a better experience for our customers. This season, we've earned the highest customer satisfaction scores for TurboTax Live ever. For QuickBooks Live, we're seeing promising early results. With the rapid shift to virtual solutions, we're seeing better-than-expected customer acquisition, and we continue to experiment across the lineup. For example, we've further refined the setup offering we introduced in January. We're seeing an encouraging number of customers who have used the setup offering to upgrade their monthly subscription making us optimistic that it's a great way to introduce customers to the benefits of QuickBooks Live. Our third big bet is to unlock smart money decisions for customers by connecting them to financial tools and partners that help put more money in their pockets. In its third season, we're on track to nearly double active use for Turbo. This suggests customers are finding value from our recently introduced innovations like mobile refund tracking and weekly credit score updates. And in this challenging environment, our pending acquisition of Credit Karma is more important than ever as we help consumers make better financial decisions. Our fourth big bet was to become the center of small business growth by helping our customers sell in an omnichannel world, get paid fast, manage capital, and pay employees with confidence. We recently launched Cashflow Planner in QuickBooks Online. Managing cashflow is the biggest problem our customers face, one that is only magnified during this difficult period. Cashflow Planner is an AI-powered interactive tool that looks at small businesses' financial history to predict future money-in and money-out events, enabling a small business customer to forecast its cash need more accurately. Within payments, we're offering our payments customers free access to instant deposits to put more money in their hands even faster. Since this free offer became available, the volume of payments received instantly by our customers has more than doubled. This offering is in its early days. Within payroll, we're enabling our small business customers to hold on to their money longer by using our money movement capabilities to pay employees next day. As a result, we've reduced the time between running payroll and paying employees by one-third, driving product recommendation scores up 10%. Our fifth big bet is to disrupt 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. We introduced several new features to help our customers individually tailor the product to their needs, including building your own dashboard and additional custom fields for expense transactions. We continue to work closely with partners to develop integrations that save our customers time and improve their experience. Now more than ever, a cloud offering is needed by mid-market customers at a disruptive price. Now let me wrap up our big bets by circling back to bet number one, which is our foundational bet to revolutionize speed to benefit for our customers. Our goal is to deliver benefits to our customers instantly and to make the interactions without offerings frictionless by accelerating the application of AI. Earlier, I shared several examples of how we're using AI to provide customers access to help through Intuit Aid Assist and PPP funds through Cookbooks Capital. or how our customers are accessing funds with instant deposit, managing cash flow with cash flow planner, or how we're improving the experience for experts with AI. We are uniquely positioned to use AI to unlock the power of data in service to our customers, both the velocity and impact of our innovation. Now let me share our thoughts on the bigger picture in the current environment. We expect this environment to act as an accelerant to the best we've declared. First, we expect to see an accelerating shift to a virtual world. This aligns with our big bet to connect people to experts using technology to improve confidence. Second, the need for small businesses to increase their online presence and commerce will become more essential. This aligns with our big bet to be the center of small business growth by providing tools and visibility for customers to better manage their cash flow. Finally, As we've seen in previous times of hardship, we expect consumers to put a high premium on offerings that can improve their financial health, which aligns with our bet to help consumers unlock smart money decisions. This includes helping our customers with saving more money and getting out of debt and becoming a trusted financial assistant in their pocket with our pending acquisition of Credit Karma. Our strategy in Big Bets positioned us better than ever before. we have a proven playbook that focuses our investments on accelerated innovation and what matters most. In that context, we have aligned the company to invest in what's most important for future growth while delivering against our financial principles. We intend to play offense during this downturn by investing in the largest opportunities for the future, our big bets. When we do our job well, we believe we will come out of this downturn stronger than ever before. To wrap up, I'm incredibly proud of our accomplishments this quarter. We remain focused on what matters most to our customers and those things that we can control during this time of uncertainty. Now let me hand it over to Michelle.