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 end to its second quarter fiscal year 2022 results 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.

Thanks, Lateef. Good afternoon. Welcome to Intuit's second quarter fiscal 2022 conference call. I'm here with Intuit's CEO, Sasan Ghadarzi, and Michelle Kladderbuck, our CFO. Unfortunately, Michelle has lost her voice, so I will be reading her prepared remarks today. Sasan and I will take your questions during Q&A. 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 2021, 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 statements. Some of the numbers in these prepared remarks are presented on a non-GAAP basis. We've 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 the call over to Sasan.

Thank you, Kim, and thanks to all of you for joining us today. Second quarter results reflect continued strong momentum across the company as we execute on our strategy to be a global AI-driven expert platform, powering the prosperity of consumers and small businesses. We have a nearly $300 billion addressable market driven by Tailwind that include a shift to virtual solutions, an acceleration to online and omni-channel capabilities, and digital money offerings. This, combined with the team's excellence in execution, is contributing to the strength of our performance. Second quarter revenue of $2.7 billion was driven by strong results from our small business and self-employed group, Credit Karma, and reflects an earlier start to the tax season compared to last year in the consumer group. Since tax season is now underway, let me start there. we are confident in our strategy of extending our lead in the do-it-yourself category and transforming the assisted segment. Based on our analysis, we are on track to gain share overall again this season. This and other early indicators gives us reason to be excited about our innovation and go-to-market decisions. Our focus this season is threefold. First, we continue to aggressively transform the assisted category by reshaping, how 88 million filers get their maximum refund with confidence virtually. This opens up the $20 billion assisted tax prep category for Intuit. Second, we're serving the underpenetrated segments of Latinx, self-employed, and investor segments, which are growing faster than the overall tax filing. And third, we're serving millions of members on the Credit Karma platform with personalized experiences. Our team has developed a strong game plan to win this season, and we are on track to achieve our full year consumer group guidance of 10% to 11% revenue growth. Our AI-driven expert platform strategy is accelerating innovation, and our five 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 revolutionized speed to benefit, connect people to experts, unlock smart money decisions, be the center of small business growth, and disrupt the small business bid market. Today, I'd like to highlight examples of our recent progress across three of these big bets. Our second big bet is to connect people to experts. We're solving one of the largest problems our customers face, lack of confidence, by connecting people to experts virtually with TurboTax slides and QuickBooks slides. With TurboTax Live, we're transforming the $20 billion assisted category by providing the 88 million filers who have previously relied on an in-person assistant the opportunity to access expert help or have an expert file their taxes for them. We have improved the experience for customers by applying artificial intelligence to match them with an expert who's right for their specific situation and to deliver insights to experts so they can provide excellent service. These capabilities are also now available in the Credit Karma app for members that used an assisted method to file their taxes last year. We are off to a strong start in our busy season with QuickBooks Live. We're now giving customers earlier visibility into how their business is performing, getting their books cleaned up faster, and connecting them with an expert easier. We've seen some of our strongest weeks of new customer acquisition in January, and retention rates in our target customer segment increased several points versus a year ago. We believe QuickBooks Live will enable us to reach small and mid-market businesses that have not used financial management software, and we are eager to continue accelerating our momentum for this offering. Our third big bet is to unlock smart money decisions. Credit Karma is a data platform with 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, puts more money in their pockets, and connects them to insights and advice. In Credit Karma, we are innovating across all verticals. Our proprietary lightbox technology allows us to better personalize and connect members to the products that are right for them, providing more certainty. Credit Karma's data platform and engagement model creates powerful network effects. We continue to see strength in credit cards and personal loans. Lightbox approximately doubles the average approval rate for 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 are solving a larger set of financial challenges for consumers in the auto and home verticals. and an auto insurance would continue to strengthen the Karma Drive program. We launched new features and experiences this tax season designed to help the majority of Credit Karma members file easily with TurboTax and gain deeper insights into their finances. We're also offering tax filers early access to their refunds through direct deposit and refund advance programs. First, Credit Karma launched a capability for members who previously filed with TurboTax to provide them with insights about their finances and taxes. Second, most Credit Karma members are able to file with TurboTax within the Credit Karma app and are eligible for special offers. And third, tax filers who choose to deposit their refund into a Credit Karma money account will receive their refund up to five days early with direct deposits. or get a portion of their refund in as little as one hour after their return is accepted through the TurboTax Refund Advance Program. These TurboTax customers drive Credit Karma member growth and get access to personalized products across the platform, which accelerates engagement over time. Big picture, we continue to grow members by delivering personalized financial products, helping members save money, pay down debt, and get faster access to their money while providing insights and advice. Over time, we are creating a virtuous cycle, which we expect to increase the frequency of engagement, transactions, and monetization across our ecosystem. 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. Sixty percent of small businesses struggle with cash flow, and we continue to innovate to help customers overcome this challenge. In payments, we continue to improve discoverability, increase usage of features like instant deposit, and roll out new innovations like get paid up front to help qualified customers get paid soon after the invoice is set. All of this innovation is driving strength in our charge volume. And in payroll, we continue to focus on making it easier for small businesses to pay their employees and provide them with expanded benefits. Nearly 40% of Americans say that they would struggle to pay an unexpected $400 emergency expense. We recently announced QuickBooks Early Pay, which will allow eligible employees pay through QuickBooks online payroll to access money between paydays. 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 three acceleration priorities with Mailchimp. First is to deliver 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. Since the acquisition closed in November, we've been moving with speed to deliver for our customers. We're aggressively building a seamless integration between QuickBooks and Mailchimp to create a growth platform, investing in marketing and introducing the Intuit Leadership Playbook and operating system to execute at scale. Together, we are uniquely positioned to enable small and mid-market businesses to combine their customer data from Mailchimp and purchase data from QuickBooks to deliver actionable insights they need to grow and run their businesses with confidence. And this is where the real magic happens. Now shifting to the long-term, we're also looking far ahead to anticipate our customers' future needs through our six-year planning process, a part of Intuit's operating system which we use to run the company. In December, our top leaders studied our customer problems and industry trends, the progress we've made since declaring our big bets three years ago, and where we can have the largest impact in the future. This led to refreshing our five big bets to accelerate innovation, powering the prosperity of those that we serve. While our strategy remains durable and the essence of our big bets are the same, we have expanded the customer problems we want to solve and our vision for each big bet. For instance, as part of first big bet, revolutionize speed to benefit, we are accelerating investments in decentralized technology such as blockchain and cryptocurrency, enabling us to help customers put more money in their pockets faster. As part of our second big bet, connecting people to experts, We're reframing how we think about virtual experiences by exploring metaverse technologies and expanding the segments we serve beyond tax and accounting to play a more meaningful role in our customers' lives. We'll unpack this evolution in more detail at our investor day in the fall. We remain focused on our role as a strong corporate citizen and the impact we are making on the communities where we live and work to further our mission. Intuit was recently recognized by Just Capital on its Just 100 Top Performing Companies list for 2022 for our progress on DEI, along with our focus on climate change, worker wellness, job creation, and customer privacy. Wrapping up, our strong business fundamentals, including our balance sheet, our speed of innovation, and demand for our platform, continue to put Intuit in a position of strength. Despite macro conditions such as rising inflation, supply chain issues, the great reshuffling, and geopolitical conflicts, our platform continues to thrive as digitization is more important now than ever, supporting our customers' needs to put more money in their pockets and helping them run and grow their businesses. 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 turn it over to Kim.

Thanks, Sasan. For the second quarter of fiscal 2022, we delivered revenue of $2.7 billion, up 70%, including 31 points from the addition of Mailchimp and Credit Karma. Gap operating income of $56 million versus an operating loss of $25 million last year. Non-gap operating income of $612 million versus $235 million last year. GAAP diluted earnings per share of $0.35 versus $0.07 a year ago, and non-GAAP diluted earnings per share of $1.55 versus $0.68 last year. After the quarter ended, we entered into an agreement that will resolve the majority of pending arbitration claims related to the free file litigation without admitting any wrongdoing. This resulted in an immaterial charge reflected in our fiscal Q2 GAAP and non-GAAP results. Turning to the business segments. In the small business and self-employed group, revenue grew 47% during the quarter or 27% on an organic basis, excluding $240 million in revenue from Mailchimp. Online ecosystem revenue grew 74% or 37% excluding Mailchimp. With the aim of being the source of truth for small businesses, our strategic focus within the small business and self-employed group is threefold. grow the core, connect the ecosystem, and expand globally. First, we continue to focus on growing the core. QuickBooks online accounting revenue grew 35% in fiscal Q2, driven mainly by higher effective prices, customer growth, and mix shift. Second, we continue to focus on connecting the ecosystem. Online services revenue, which includes MailChimp, payroll, payments, capital, and time tracking, grew 139% in fiscal Q2. excluding MailChimp online services revenue grew 39%. MailChimp revenue recorded in online services was $240 million in the quarter. This was in line with our expectations. Within payroll, we continued to see revenue tailwinds during the quarter from growth in payroll customers and a mixed shift to our full-service offering. Within payments, revenue growth reflects an increase in charge volume per customer and ongoing customer growth. Third, we continue to make progress expanding globally. Total international online ecosystem revenue grew 226% in fiscal Q2 on a constant currency basis and 33% on an organic basis, excluding MailChimp. We believe the best measure of the health and success of our strategy is online ecosystem revenue growth, which we expect to grow better than 30% organically over time. This is driven by 10% to 20% expected growth in both customers and ARPCs. Desktop ecosystem revenue grew 6% in the second quarter. QuickBooks desktop enterprise revenue grew low double digits, driven by strong customer growth and price increases. As a reminder, this fall we transitioned to a subscription model for this year's desktop offering, which we expect to be a headwind to revenue growth in the second half of the year. Longer term, we expect the desktop business to decline. Consumer group revenue of $411 million grew 180% in Q2, reflecting the earlier IRS opening this year. We are seeing a slower-forming tax season, taking into consideration both the earlier IRS open date this year and the latest IRS data. While still early in the season, our analysis shows we are in track to gain share overall, excluding users with a TurboTax free file offering in prior year periods. We remain confident in our plans and guidance of 10 to 11% revenue growth for fiscal 2022. We continue to focus on our strategy to extend our lead in DIY and transform the assisted segment with TurboTax Live. As a reminder, there are four key drivers of our consumer tax business. The first is the total number of returns filed with the IRS. The second is the percentage of those returns filed using do-it-yourself software. The third is our share, and the fourth is average revenue per return. Turning to the ProConnect group, revenue grew 14% in Q2, also reflecting the earlier IRS opening this year. Moving on to Credit Karma, revenue was $444 million in Q2, another record revenue quarter, driven by high levels of monthly active users and revenue per monthly active user. Within the core, we saw another record quarter driven by the combined strength in personal loans and credit cards. The growth verticals reflected momentum year over year in auto loans and home loans. And we are developing the emerging vertical by focusing on innovation with Credit Karma money, which we believe is key to growing the frequency of visits over time. We remain excited about the opportunities ahead. Turning to our financial principles, we remain committed to growing organic revenue double digits, and growing operating income dollars faster than revenue. As we shared before, as we lean into our platform strategy, we see the opportunity for margin expansion over time. We take a disciplined approach to capital management, investing the cash we generate in opportunities that yield an expected return on investment greater than 15%. We continue to reallocate resources to top priorities with an emphasis on being an AI-driven expert platform. These principles guide our decisions and remain our long-term commitment. Our first priority for the cash we generate is investment in the business to drive customer and revenue growth. We consider acquisitions to accelerate our growth and fill out our product roadmap. We return excess cash that we can't invest profitably in the business to shareholders via both shareware purchases and dividends. We finished the quarter with approximately $1.4 billion in cash and investments on our balance sheet. We repurchased $519 million of stock during the second quarter. Depending on market conditions and other factors, our aim is to be in the market each quarter. The board approved a quarterly dividend of 68 cents per share, payable on April 18, 2022. This represents a 15% increase versus last year. Now turning to guidance. we are reaffirming our fiscal 2022 guidance, including 26% to 28% revenue growth, or 18% to 20% growth, excluding MailChimp. Our guidance for the third quarter of fiscal 2022 includes revenue growth of 32% to 33%, gap earnings per share of $6.18 to $6.24, and non-gap earnings per share of $7.51 to $7.57. You can find our full Q3 and fiscal 2022 guidance details in our press release and on our fact sheet. As you are aware, we completed the acquisition of Mailchimp, the largest transaction in Intuit's history during the second quarter. We are working to finalize the purchase price accounting process, which could result in a one-time impact to our second quarter gap-only results and full-year fiscal 2022 gap-only guidance we issued today. This process will not result in a change to the total consideration of the transaction. We expect to complete this process before we file our 10-Q. And with that, I'll turn it back over to Sasan.

Great. Thank you, Kim. During our busiest season of the year, we are seeing continued momentum across the company given our strategy of being an AI-driven expert platform that is powering the prosperity for consumers and small businesses. I'm proud of what the team has accomplished this quarter, and I'm excited about the opportunities ahead to find new, innovative ways to serve our more than 100 million customers. Now let's open it up to your questions.

Thank you. Ladies and gentlemen, if you would like to ask a question, please press star, then the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. Our first question comes from the line of Scott Schneeberger of Oppenheimer. Your line is open.

Thanks very much. Good afternoon. I guess I'd like to start with, Shashan, what do you view? I know we don't have a lot of color from the IRS, but could you go in a little bit to we started the tax season earlier, but it's a little uncommon because it seems to be starting slow. Could you speak a little bit to what's behind that? And I'll follow up with something else on that topic. Thanks.

Yeah, sure, Scott. You know, I would tell you it's nothing unusual. You know, every year I've been with the company 17 years and, you know, ran the TurboTax business for three years. And every year there seems to be a shift of consumer behavior shifting later and later in the year, in the tax year. And primarily it's because they know that they can. And especially now I would say with the fact that you can get access to an expert through our services and uh, versus relying on an in-person assistance and, or you can do it yourself. It's just consumer behavior shifting. I wouldn't read anything into it. It's not unusual. It's the trend that's been happening for, uh, for years and it's continued this year.

Great. Thanks. And obviously that's what's behind, uh, the, the, the reinstatement of the, of the guidance and the comfort and the full season, I guess, uh, just a double follow-up on this topic. Um, I heard in, in, in Kim's remarks, um, Free Fire Alliance, it sounds like people who utilize TurboTax through Free Fire Alliance in the past may have stuck with you this year. If you could elaborate on that a little bit, and then also if you could touch upon last year you saw a boon of premier customers from investment. Could you just speak to how that is trending this year? Thank you.

Yeah, yeah, for sure. Well, first of all, let me start with what Kim stated. The point Kim was trying to make was twofold. One, the fact that it is early in the season, but we are really happy with the fact that we are, in fact, taking share, and that share that we are taking, we're just being explicit, excludes those that filed in the free file program. We'll see throughout season if some of those folks come back to us, which would be great, but that was really her comment. What you should take away is, The way we keep score, which is our total share increasing as a total part of IRS returns, we are increasing share and we're happy with our progress. Two, in terms of your question around investors, I would just say that, you know, as we've talked about often, there are really, you know, if I were to simplify it, two big strategic focus areas for us. One is really to fundamentally make it easier for those that need assistance to get their taxes done through TurboTax Live, and then two is we are focused on three under-penetrated segments, investors, Latinx, and those that are self-employed. And we feel good about the way the season has started, the way it's trending, and given that there simply is more people that have personally done stock trades, whether it's a stock or it's cryptocurrencies, we feel we're very well positioned with not only the experience that we have improved and how easy we make it, you to bring in your trade but also the fact that we have an expert that are experts in this specific area around trading and cryptocurrency and and we've also upped our game in terms of how we are raising market awareness we're being very clear uh that for those that have done trades whether it's with cryptocurrencies or otherwise we've got our experts that know and understand your situation and uh we're delivering great experiences for them for those that are coming in. So we, we are, um, we're very excited about our progress and we're excited about the rest of the season as it relates to all three of those segments and particularly the investor segment that you asked about.

Our next question comes from Sterling Audi of JP Morgan. Your line is open.

Yeah, thanks. Hi guys. Wanted to follow up on the consumer tax side. Um, Based on what you know now, as you look at your targets for the year, has anything changed in terms of your assumptions on how you would achieve them in terms of how much of the growth would come from unit volume versus increased revenue per return?

Yes, Sterling, thank you for your question. The short answer is no. Things are playing out the way we had assumed, which is both a combination of really going after the assisted segment along with the three under-penetrated segments that I just mentioned, and thus far it's playing out as we'd assumed. So no change in our assumptions based on everything that we are seeing with our KPIs.

All right, great. And then one quick follow-up on Credit Karma. I get this a lot from investors. Any sense that you can give investors as to what a rising interest rate environment is might do to the business profile or business trends for credit card money, either positive or negative?

Yeah, we don't really see an impact with rising interest rates, and I'll put it in two dimensions. One is consumers are always looking to access financial products, whether it's credit cards, personal loans, mortgage, auto loans, insurance, et cetera. So the demand continues, whether the interest rates are high or low because they're looking to access financial products. And two, financial institutions continue to invest even in a high interest rate market, especially in our platform, because in essence, their conversion is much higher on our platform because of Lightbox. And that's, by the way, why the demand will continue to be higher on our platform, given that we have the lightbox technology that really delivers a personalized financial product that's right for you at the lowest rate. So that's really one element of it. I think the other element I would just remind us of is we are extremely low-shared. If I just use personal loans and credit cards as an example of what we shared at Investor Day, we have less than 5% share. So the more we continue to make investments a perfect match delivering personalized experiences for consumers, the more they're going to come on our platform, which is what we're seeing, and then the more financial institutions will invest in ensuring that their credit model is on our lightbox because they ultimately increase their conversion and their return on investment. So, again, that was a long answer to your short question. I wanted to unpack it, but we don't see an impact because the demand is going to be there, and right now financial institutions are really continuing to see a better trajectory than they did even a year or two years ago being on our platform.

Understood. Thank you.

You're very welcome.

Thank you. Our next question comes from Cash Rangan of Goldman Sachs. Your line is open.

Mr. Saad, I'm always petrified of paying taxes, so I will avoid taxes. I'll ask you about the QuickBooks Online ecosystem today. I've been watching the company embark on this journey of being able to get better attach rate for its payments and payroll products. It's been a very nice journey that's come along, and the point where you're breaking out online services as a separate business, which is fantastic. Can you talk to us a little bit about what are your aspirations for payment and payroll attached for your small business install base? Where do you see that going, especially with QuickBooks Advanced? Do you see yourself being able to attack a different lens of the market opportunity? Everything gets a little bit more interesting, but I'm just curious to see how much more upside is there in that business because that seems like it's a very small business but could be potentially large given the size and volume of payments that are going through your backbone. Thank you so much.

Yeah, sure, Cash. Great question. First of all, petrified or not, you're going to have to get your taxes done by April 15th. That's a wonderful reason for us being in the tax business. Slow forming or not, taxes will get done by April 18th. With that said, to answer your question, I'll start at the highest level and do maybe a couple of double clicks. One, One of the many reasons why we are so excited about the small business opportunity, it is a very, very large TAM. And our penetration in that total customer TAM is still, you know, well below 10% when you look at the number of customers we have and the addressable market in the countries that we are in. So one, penetration is low, which is a big fuel for our current growth and our continued growth. The second is even within the customers that we have, our penetration of the services that they use, which are primarily manual, is even lower. So if you start at the top with low penetration, both customer TAM and then services TAM, because it's primarily manual, it's not yet digital, it one paints the factual picture of how large the opportunity is. I think then secondly, you asked the question about our aspiration, and I mean this very intentionally. Our aspiration is that we want every customer on our platform to be able to use the services that we have, and we want 100% of the customers to use 100% of the services as long as it is relevant to them, which is why our quest is continue to make it drop-dead easy for customers to use our services. Which I think gets to the third point, and we are such a different company than even a year ago, than two years ago. We truly have a very powerful network and ecosystem of services, from managing your money in and money out and helping you get organized on accounting, to helping you with payments, both receiving and sending payments, to not only payroll, but ultimately benefits that we offer employees. to then lending capabilities, and then ultimately all the capabilities that we now have and are integrating to be able to help you grow your business, to put your business online, market your business, and all the CRM capabilities. So we truly now have a suite of services to fuel the success of small businesses, and the reason we're seeing the services growth is because small businesses are seeing that by being on our platform and digitizing everything, it actually not only helps them grow, it helps them manage their cash and put more money in their pocket, but it helps them understand the profitability of their customers. And then the last thing I would say is actually what you just raised, which is we're very well positioned versus even where we were a couple of years ago in that we are now going up market to serve mid-market with QuickBooks Advanced. With that comes 4X higher ARPC because they use more of the services that we have. And with QuickBooks Live, although very, very early days, because you're in essence engaging with advice and an expert, we are seeing higher engagement in services than if you don't use those services. So when you take all of that into account, I think the headline is, you know, large TAM, low penetration. We've got the services that we need on our platform, and it's really about just delivering for our customers, and we have years of growth ahead of us.

Brilliant. Thank you so much, Hassan.

Thank you, Tash. And do your taxes by April 15th.

No choice.

Thank you. Our next question comes from C.T. Penegrahi of Mizuho. Your line is open.

Hey, Sasson. Thanks for taking my question. Just wanted to ask about your comment about new customer acquisition trend. You talked about earlier the lagging effect from new business creation. So as you looked at new business creation trend, how should we think about new customer acquisition as a growth driver for QuickBook? And also, as you're seeing the new cohort coming in, what kind of mix-up you're seeing for the higher ASP, like QuickBook Advance or other higher ASP products?

Yes, Sidney, thank you for your question. You know, first of all, I'll start by reminding all of us that The way we want you all to think about the model to make it simplistic is that we expect to grow new customers between 10% to 20%, and we expect to grow our ARPC between 10% to 20%, and that's ultimately how we will achieve achieving the online revenue growth, ecosystem revenue growth of 30% plus. So new customer acquisition is important to us, and we have many ways now to do it, both from serving the lower end of the market, which is, in essence, with QuickBooks Checking, all the way to the top end of the market with QuickBooks Advance, which serves the mid-market customers. And as I mentioned just a moment ago, we have a very large TAM with low penetration. The new customer comment that I made was in context of QuickBooks Live. We are now, I think, in our third year in QuickBooks Live. We've worked really hard to understand our customers needs and get the product market fit and you know just in the month of January which is where the really the busy season started we saw some of our best weeks of customer acquisition and Which means one we're proud to we're learning a ton which positions us not only for the month to come but but for next year and lastly regarding new business formation I Ultimately, the businesses that start using us are a bit more established, so we don't really rely on new business formations, although it's in the long term good for us because ultimately all roads lead to QuickBooks platform, especially now that we have capabilities to grow your business and run your business. But we don't get impacted significantly one way or the other with near-term new business formations. It's more established businesses.

That's great. Thank you. You're welcome, Siddy.

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

Excellent. Thank you guys for taking the question, and congratulations on a really nice quarter. And maybe expanding a little bit on CT's question there, obviously there's some pretty extraordinary events going on all around us right now, whether it's what's going on in Europe, whether it's the inflation numbers that we've been dealing with or in a Fed rate hiking cycle, which is difficult, a very volatile market environment. You guys have a great perspective on overall small business health. Can you give us an update, kind of what you're seeing? Is any of this volatility starting to impact small businesses at all? And have you put any of that potential caution, if you will, because of this volatile environment, into not raising your guidance? Because you guys had a really good Q2, particularly on the small business and credit carbon side of the equation, but the four-year guide doesn't really move.

Yes, Keith, thank you for your question. And let me parse it into two pieces. You know, one, I'll just remind us that, you know, when you look at the total small business market, you know, that we serve, which is up to 100 employees, Almost 70% of those businesses are service-based businesses and about 30% are product-based businesses. And frankly, what we've seen, which is why I was intentional about putting this in my opening remarks, with the combination of what happened in COVID where everybody got stuck at home and what's happening with inflation and supply chain issues, which doesn't really overall impact our service-based businesses much. It's more the product-based businesses. There's just a shift to digitization because ultimately small businesses see that they can be much more effective, much more efficient in running their business on our platform and, in fact, expanding the services that they use to digitize everything. So we are actually seeing that this environment, although none of us want to see supply chain issues, none of us want to see geopolitical issues, It is actually, you know, from a health standpoint, there's an acceleration to I want to use digital platforms. So that's first and foremost what we're seeing. And just remember that, you know, the majority of our revenue is in the U.S., and although our aspirations are to be much, much more global, and we have, you know, 30% of our QuickBooks space outside of the U.S., the macro issues that we got impacted with relative to COVID are already baked into what we see internationally. And so the strength of what we're talking about is based on the fact that small businesses, again, see this as an opportunity to digitize, and we just think it's the beginning of it. It is a secular shift. Let me actually answer your second question around guidance. You know, we – As I mentioned in my remarks, we are seeing strength in small business and in credit karma. And we actually are not seeing a tapering that we initially thought we would see in credit karma. So there is strength across every segment of the company, and that includes tax. It's just a slower forming season. And with that said, as you know, we raised our guidance the first quarter of the year, which is very, very unlike us. And we simply just want to get through tax season and we'll re-look at our guidance next quarter. But we are continuing to see strength in all the segments.

Got it. And on that credit karma, I did notice the strength in credit karma, also the strength in credit karma margins. I know Michelle doesn't have a voice right now, but maybe you could take it. Anything that we should be thinking about in terms of the second half of the year, why those margins wouldn't be sustainable?

Yeah, Keith, in general, I would not pay too much attention to the ups or downs in our margins by segment. We truly manage the company margins at the company level, and we don't manage it just for the sake of managing it at the company level. The number of investments that we make across the platform to fuel our innovation forces us to really think holistically to ensure that we don't shortchange any segments. at the company level. So if it's too high one quarter, I wouldn't get too excited. If it's low one quarter, I wouldn't wonder why it's low. We manage it at the company level, and as you know, we've been expanding margins, and it's built into our guidance, and I feel good about our margin expansion. I just wouldn't pay too much attention to the segment level.

That's remarkable. That's exactly the same answer Michelle would have given me.

Well, you know, that's why we're partners in crime.

Exactly. Excellent. Congratulations.

She's smiling. You can't see it.

Outstanding. All right. Thank you.

Thank you. Our next question comes from Brad Zelnick of Deutsche Bank. Your line is open.

Excellent. Thanks so much, and I'll echo the congrats on a great quarter. Sasan, I listened carefully to your response to the first question to say that perhaps TurboTax Live was one factor, that help to get filers more comfortable, that they can be more relaxed and maybe file a little bit later. Is there anything that you see specifically in terms of live adoption that gives you optimism for what it can be as a percentage of the mix for the full season?

Yeah, Brad, thank you for your question. You know, I'll tell you, I'm starting to lose count, but I think this is our fourth year with, you know, TurboTax live and And as you know, this year we are – TurboTax is truly a platform. You can bounce back and forth between the platform from doing it yourself to getting access to an expert to help you in any which way you want to ultimately doing your taxes for you. And really where we've upped our game this year, which is a true differentiator to get folks to switch, is the expertise of the experts. Because ultimately what customers care about is if I'm a plumber or if I'm an investor or – if I'm self-employed, if I worked in two, three states, I want to know that you understand my situation, which is why we've invested so much time not only in improving that matching by applying AI, but also making sure that the collaboration experience is seamless because a lot of this advice can also be done through AI. That was a long way to answer your question. We are bullish about TurboTax Live. We are bullish about 10 million customers that have churned within the assisted category. What we talked about at Investor Day last year, which is 17 million people that started TurboTax but never finished. And we like what we see, and we'll report out on where it all ended in our earnings in May. But it's playing a big role in what we would expect, both going after assisted but also going after the underpenetrated segments, which actually look to assistance more than otherwise.

That's very helpful, Sasan. Thank you. And maybe just a follow-up, either for you or for Kim. I think in your prepared remarks, and I think it was a small business comment, you talked about retention in target customers increasing several points. I just want to make sure I have that right. And if you can clarify and unpack that for us, that would be great.

Yeah, yeah, for sure, Brad. Let me parse it into two parts. One, what we talked about relative to last year, was that our overall retention rates in small business were actually up, full stop. The comment that I made in our opening remarks was that we're seeing a lot of goodness in Cookbooks Live, both in the start of the season, both in terms of new customer acquisitions where we've had record weeks, and for the cohorted customers that we are focused on in certain segments, our retention is up in QuickBooks Live. And both of those are really, really important because we want to not only acquire the customers but deliver the service that they need so they stay with us and come back. And that was the point I alluded to in the remarks.

Excellent. Thanks so much for taking the questions.

Yeah, sure.

Thanks, Brad.

Thank you. Our next question comes from Kurt Matern of Evercore ISI. Please go ahead.

Thanks very much, and I'll echo the congrats on the next quarter. Sasan, can you just talk about some of the early learnings maybe from MailChimp just in terms of go-to-market, what you've learned about sort of the cross-pollination of your clients, and also how far out are we in terms of having a bit more harmonized back-end between MailChimp and QuickBooks, and what should we expect on that from a sort of technical integration perspective? Thanks.

Yeah, yeah, sure, Parker. So let me just quickly touch on there's three priorities that we have that we're maniacally focused on. One is to create this growth platform where, you know, really the magic is what we do behind the scenes with the data. It's combining the customer data along with the purchase data to really help them understand where to target, where they can grow wallet share, what the profitability of their customers are, et cetera. And that's extremely powerful data. uh, for our customers, not only to grow the services within our overall platform, but also to acquire new customers because the reality is we will be the only platform that has this capability in one place. Uh, the second is, uh, to position ourselves, um, together, uh, to pursue mid market because this is even a bigger need as you could imagine in mid market. Uh, and then third, half of their business is outside of the U S and, uh, frankly, other than having a wonderful drop-dead easy platform, they haven't spent a lot of effort internationally, and we are doubling down international. To answer your question, one several months in, we're more excited about the capabilities of what is possible than we were even before and are even more intentional about the work that we need to do to bring these three priorities to life. If I were to paint a sort of general picture, I would say we'll probably be in a place in about a year where we're really seeing the impact of the momentum of these priorities as it relates to our outcomes and our results because we've inserted in Mailchimp some of our best product people. that really understand cookbooks, really understand this space that are building out the platform with, of course, the MailChimp engineers, which are now all part of Intuit. And we think getting this right, and we know how to get it right, we think about a year or so we'll start seeing the impact of the priorities that we are focused on. The good news is we know how to do it, and there's no surprises there. Thanks, Hasan. You're welcome.

Thank you. Our next question comes from Michael Turin of Wells Fargo. Your question, please.

Good afternoon. Nice job to Kim stepping in there. We've seen and enjoyed the ad campaigns of late. Is there anything you can add around engagements or early returns you're seeing on some of those programs and maybe Sasan, if you could expand on your view around striking the right balance between maintaining the powerful brand of each individual property, I think, they're all fairly well known and established as separate entities versus presenting into it as a more holistic platform. That'd be great. Thank you.

Yeah, great. Thank you for your question, Michael. I'll start with the latter one first, and I think you really importantly stated it in your question. We have very powerful brands that our customers love and use in MailChimp, TurboTax, Credit Karma, and QuickBooks and our intent is to really, from a brand perspective, convey that they are connected and connected means that you get more benefits as a customer and the power of those benefits in really feeling your success as an individual or as a business. So all that means is the brands are powerful, the brands are not going to go away. It's about how we invest to make the connection in the minds of customers that this is all into it, and by the way, here's why you should care. The second element around the campaign, it's early, but we're actually, and my comments specifically are around TurboTax, because I assume that's what you were asking about. If it's broader, please come back and ask the other elements of your question. We're really pleased with our campaign so far this year, and our intent going in was to really communicate this year that we have experts that understand your situation. If you look at our campaigns, both on air and digitally, you'll see things around communicating to those that are self-employed, communicating to those that have moved multiple states, communicating to those that have made investments and helping them understand no matter what your situation is, we have an expert that can help your situation. And we've invested heavily in not only who we bring on board, but also our AI capabilities not only to make that perfect match, but also to deliver insights to those experts to make them much more effective and productive so we can do things at scale. So the consideration, awareness, and understanding of what we're trying to communicate so far has been very well received. And then, of course, we'll know more as we go through season. Less about just our results, but we do a lot of mixed marketing, mixed modeling work to understand what was effective, how can we improve our game going forward. And we did this across the company, but we'll better understand the impact with data. So far, qualitatively and early data has been very positive.

We saw the DJ Khaled commercials at the Super Bowl as well. Those were also great. Thanks, Hasan.

Thank you.

Thank you. Our next question comes from Ken Wong of Guggenheim Securities. Your line is open.

Fantastic. I wanted to just touch on Credit Karma as a channel for TurboTax. Last year, very effective in terms of driving new customer adoption. I kind of saw last year as a trial year, and this year as the first real push. Just would love a sense of what you're seeing from a consumer engagement perspective the first few weeks of tax season.

Yeah, Ken, great question. Let me just say it's twofold. One, we've gone in really big within TurboTax, exposing TurboTax customers to Credit Karma where they can put their refund on a Credit Karma money account where they will get five days early access and really tax time. It's all about the money. And then these folks become new Credit Karma members and we can expose them to the Credit Karma platform. We're really pleased with where that's going and the progress that we've made. Of course, I won't share any stats with you, but I'll just leave it as we're very pleased. The second is, last year, it almost wasn't even a trial year in Credit Karma. We sort of threw in TurboTax into the Credit Karma app. This year is really the first year where TurboTax, you can actually get your taxes done within the Credit Karma app. And for most cases, you don't actually have to go to TurboTax, which is a far, far better experience. We're getting wonderful learnings and adjusting real time. We are, for the long term, really bullish about the – not only all TurboTax customers using Credit Karma, but hopefully getting all Credit Karma members that already don't do their taxes with TurboTax to be a TurboTax user. So, so far, you know, we love what we're learning, the adjustments that we're making, and we continue to remain very bullish about just the whole prospect of why we're doing the integration between these two platforms and the impact that it's having for members and TurboTax customers.

Got it. Fantastic, Culler. Thanks a lot, son. You're very welcome.

Thank you. Our next question comes from Alex Zukin of Woof Research. Please go ahead.

Hey, guys. Thanks for taking the question. Sasan, maybe just one multi-part one for me. I'm looking at the SMB online ecosystem number, and it looks like X MailChimp growth there was about 4% sequentially. And I want to understand that. you know, if you could unpack what's driving that. Because I'm trying to understand, was Q1, like, unseasonably strong and Q2 is kind of back to normal? Or what's the right way to think about that? Unpack maybe the drivers between payroll payments and capital and time tracking. And how do we think about that, you know, in the second half of the year, you know, growing sequentially? Because year over year, it's accelerating and it's fantastic. But just looking back at history, understanding that a little bit better, I think would be helpful.

Yeah, sure, Alex. Very good question. So first of all, I'll start with the obvious, which is overall, small business grew 24%. This is all excluding MailChimp. And our online ecosystem revenue growth grew 37%. And as you know, our goal is to grow over 30%. So we actually had an extremely strong quarter. So I'm not sure what the sequential number is that you were throwing out there, but we had a a very, very strong quarter, well above our 30% mark. And it's based on strength and volume in the mix of customers that are coming in, and particularly the services that they are using across payments, payroll, time tracking, and QuickBooks Capital. And as I mentioned earlier, we expect to continue to see strength in small business and Credit Karma the second half of the year. We don't expect a tapering, and as I mentioned earlier, we just really want to get through tax season and talk about our guidance after the quarter. So I wouldn't read anything into the fact that small business is going to taper. I would stay focused on our compass, which is we want to grow north of 30% with our online ecosystem revenue, and we actually are seeing great strength.

And then... Suzanne, you mentioned Credit Karma a couple times. You've gotten asked the question and kind of how you're seeing even more strength than you anticipated to some extent, no tapering, if you will. How is the progression of synergies going with Credit Karma within the online ecosystem business specifically? What are you seeing there? What learnings? And if you look at areas where you feel like there's an ability to double down and see even more growth, where would those be?

Yeah, Alex, strategically, the biggest area that we've been focused on has been really integrating Credit Karma into the TurboTax experience and then vice versa. So what that means is if you're a TurboTax customer, at the end, one of the first options that you get is to put your refund on a Credit Karma money account. And as I mentioned a moment ago, that was a strategic thesis that we had, and it's going really well. and these become new Credit Karma members, and then we can expose other benefits on the Credit Karma platform to those customers. The second is building out within the Credit Karma app the TurboTax experience and contextually engaging customers with helping them get their taxes done. And to say we're in the early days is interesting, right, because we're only a year in. We like the progress that we're seeing, and that's the area where we're more than doubling down because we're literally only a year in, and there's just so much opportunity ahead of us, and we're actually seeing the green shoots. The other, Alex, is integrating Credit Karma as part of the payroll platform. So if you want to ultimately get earlier access to your money, you can put your money on a Credit Karma money account. That's another area. But the primary focus has been creating this one consumer platform between TurboTax and Credit Karma.

Got it. Perfect. Thanks so much. You're welcome.

Thank you. Our next question comes from Brent Thiel of Jefferies. Your line is open.

Sasan, you've had some pretty healthy price hikes for the full service solution, anywhere between 25% and 50% from last year's tax season. I'm just curious if you could just give us a sense of how that's resonating. They are fairly healthy in terms of the hike. What in terms of just the justification of how big that was, can you just walk through what drove that decision on the pricing side?

Yeah, sure, Brent. You know, as we always do, we have pricing principles and we run a lot of tests and there are multiple holistic things that we did in our lineup this year. And let me start with where you didn't ask the question because it's relevant to the overall answer to your question. You know, one, for our free customers, we actually expanded it to include student loans for free and refund transfer for free. That was one very important decision that we made. When we looked at our TurboTax live platform to continue to really accelerate bringing more customers into the category from prior assisted, we also for simplifiers announced you can do it any way you wish, do it yourself or with a live platform for a certain time period and you pay nothing. And we like the progress and the impact that we're seeing there. The third is we ran a lot of tests for TurboTax Live and particularly full service. And what we learned, in some ways unsurprisingly, is price is not a big factor. It's about confidence and access to an expertise. And what we realized is having early season pricing and then later season pricing didn't really have much of an impact. So one... there is no early or late season pricing. It's one, flat pricing. And two, we had a lot of room to move up on pricing, and we made a decision based on a lot of testing to move the price up. So those were a few strategic decisions that we've made. And as we back test our decisions, it's playing out exactly as we thought, which is these are not really that price-sensitive customers, although they love our price versus other alternatives. It's more can I get access to the expert that I want? And can I get constantly have somebody get my taxes done for me? And that's, that's what we're seeing. Thank you. Yeah, you're very welcome.

Thank you. Our next question comes from Remo Lenshow of Barclays. Please go ahead.

Thank you. Um, I almost apologize for the question, Sasan, but the desktop is an area that, you know, we understand, you know, it's not your focus, et cetera. But, like, you keep reporting actually numbers that are better. Can you talk better than you talk to? Can you talk a little bit about some of the drivers there in the sustainability? Thank you.

Sure. I think I'll just say two things. One, these are resilient customers and they continue to love their desktop product and they always surprise us relative to wanting to come back to desktop. And really that's a simple answer to your question and what we continue to see. I think the second thing that we're very excited about and so I would say the majority of our customers is really moving to a subscription-based approach where they can leverage a lot of the services that we now create in the cloud. And that will drive even a higher subscription element of our business. And it will also give customers the ability to access more features and functionalities. And that's something that we started rolling out this year and will be primarily subscription-based as we look into the future. Perfect. Thank you.

If I could add something. Two things to that, Remo, just to remind you of some things that were mentioned in the script too. The big growth driver in the quarter was desktop enterprise, which grew low double digits in the second quarter. And that's up from high single digits in the first quarter, similar to what Sasan mentioned. You know, that was that specifically for the desktop enterprise with customer growth and price increases there. So, you know, really something to consider. That's the piece that's growing within that. And then longer term, we're not expecting this business to decline, especially headwinds from the subscription model transition in the second half of this year.

Thank you.

Very welcome. Thank you, Kevin.

Thank you. Our next question comes from Kartik Mehta of North Coast Research. Your line is open. Thank you.

Hey, Sasan. I wanted to ask you a little bit about Credit Karma. Last year was just an amazing year in terms of the number of credit cards issued, and it seems like credit card issuers were really battling for customers. I'm wondering, in your opinion, did that cause any comparison issue for you guys as you look at this year, and do you see that demand waning at all?

Yeah, Karthik, thanks for your question. If you recall, probably a couple of quarters ago, Michelle and I both talked about the fact that we expect a tapering of originations in the second half of the year. We would expect to continue to see strength because of our execution and because of Lightbox and the fact that we really deliver personalized experiences, which is good for members and good for partners, but we expect a tapering of originations. And we haven't seen the type of tapering that we thought we would see, which is why we continue to see the strength that we're experiencing and what we would expect in the second half of the year.

And then just one on taxes. From a competitive standpoint, have you seen anything that you're surprised by that competitors are doing that would say to you, hey, we need to make any changes just Any changes that you're surprised by from a competitive standpoint?

You know, part of our playbook as a company is we do a lot of scenario planning, customer back, and it's really primarily focused on making sure we're obsessed with our customers and what other alternatives could be presented to our customers that could be far more compelling so just as part of our playbook we do that quite well and we particularly are probably one of the best at it across the company in tax so just know that that is you know part of our playbook and i would just tell you that this year we've probably been the least surprised uh and so no it is not uh there's no surprises that's informing anything differently that we're doing the rest of the season thank you uh really appreciate it yeah you're very welcome

Thank you. Our next question comes from Brad Reebok of Stiefel. Your line is open. Thanks very much.

Sasan, obviously it's a difficult hiring environment out there. Do you guys feel pretty good about where you are for the live product to meet demand here in the next couple of weeks from a headcount perspective? Thanks.

Yes. Thanks, Brad. The very short answer is absolutely. We actually, believe it or not, feel the best this year than we have in prior years just because we've gotten more so good at what we need to do. We're several years into this, and because many experts actually want to be on our platform, so we are absolutely fine on hiring.

Perfect. Thanks very much.

You're very welcome.

Thank you. At this time, I'd like to turn the call back over for any remarks.

All right. Excellent. Well, listen, everyone, thank you so much for all of your wonderful questions Be safe out there. Take good care of yourselves, and we look forward to talking to you in May. Thank you, everybody.

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