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spk10: 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 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 star two. With that, I'll turn the call over to Kim Watkins, Intuit's Vice President of Investor Relations. Ms. Watkins.
spk02: Thanks, Chelsea. Good afternoon and welcome to Intuit's first quarter fiscal 2024 conference call. I'm here with Intuit's CEO, Sasan Ghadarzi, and our CFO, Sandeep Ujjala. 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 2023, 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 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.
spk06: 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 a 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 Gen AI 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 LLMs, 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 automagically 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 Gen AI 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 up 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 revolutionized 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-enabled 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 automations, which are automated workflows that help small businesses reach their customers in uniquely tailored ways. Today, many of our customers don't use marketing automations because they're time-consuming to set up, even though they can help them drive higher revenue. With Intuit Assist, MailChimp creates marketing automations which can easily be turned on, and email content can be generated and edited. Our fifth big bet is to disrupt the small business mid-market, representing a town 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 remains 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 them personal and small business finance skills. We also announced the first set of winners of our Coalfield Solar Fund, providing grants to Inseminize 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 Gen AI 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.
spk04: Thank you, Sasan. For the first quarter of fiscal 2024, we delivered very strong results that exceeded the high end of our guidance range across all key metrics, including revenue of $3 billion, up 15%, gap upping income of $307 million versus $76 million last year, non-gap upping income of $960 million versus $662 million last year, up 45%, GAAP diluted earnings per share of $0.85 versus $0.14 a year ago, and non-GAAP diluted earnings per share of $2.47 versus $1.66 last year, up 49%. I am pleased with our early momentum this fiscal year. Turning to the business segment, small business and self-employed group revenue grew 18% during the quarter, driven by online ecosystem, which grew 20%. Our results demonstrate the power of a small business platform and the mission-critical nature of our offerings, which continue to resonate with customers as they look to grow their businesses and improve cash flow in any economic environment. With the goal 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 19% in Q1, driven mainly by customer growth, higher effective prices, and mix shift. Second, we continue to focus on connecting the ecosystem. Online services revenue grew 20% in Q1, driven primarily by payroll, MailChimp, payments, capital, and time tracking. Within payroll, revenue growth in the quarter reflects an increase in customers adopting a payroll solution and a mid-shift towards higher-end offerings. In Mailchimp, revenue growth was driven by higher effective prices and paying customer growth. And within payments, revenue growth in the quarter reflects ongoing customer growth as more customers adopt our payments offerings to manage their cash flow as well as an increase in total payment volume per customer. Third, we continue to make progress expanding globally by executing a refreshed international strategy, which includes leading with both QuickBooks Online and MailChimp in established markets and leading with MailChimp in all other markets as we continue to execute on a localized product and line-up approach. On a constant currency basis, total international online ecosystem revenue grew 16%. Desktop ecosystem revenue grew 14% in the first quarter, and QuickBooks desktop enterprise revenue grew in the high single digits. We are more than two-thirds of the way through a three-year transition for customers that remain on our license-based desktop offering to a recurring subscription model. In conjunction with our business model transition, we also raised prices across multiple desktop products since October, consistent with our principle to price for value. Looking ahead, we expect continued strong desktop ecosystem revenue growth this year as we complete the remaining part of the three-year transition. Our focus is to continue innovating across our online ecosystem and to help our desktop customers migrate seamlessly to our online offerings. We continue to expect the online ecosystem to be a growth catalyst longer term. Moving to Credit Karma. Credit comment delivered revenue of $405 million in Q1, down 5% year-over-year. We saw partners taking a conservative approach to extending credit in both personal loans and credit cards during Q1. This performance was consistent with our expectations and a prudent approach to guidance given the uncertain macroeconomic environment. On a product basis, the decline in Q1 was driven primarily by macroeconomic trends across personal loans, auto insurance, home loans, and auto loans. partially offset by growth in credit cards and credit karma money. Shifting to the consumer and pro-tax groups. Consumer group revenue was $187 million and grew 25% in the quarter, and pro-tax revenue was $42 million and grew 24%. During the quarter, we saw stronger than expected TurboTax return volume from states, both with and without extended tax deadlines, and strong performance and share of total returns during extension season. As Sasan shared earlier, we are excited about innovation across TurboTax. The multiple experiments we ran during the extension season bolster our confidence in our game plan to win this coming tax season. Now let me briefly touch on our financial principles and capital allocation. Our financial principles guide our decisions that remain our long-term commitment and are unchanged. We finished the quarter with approximately $2.3 billion in cash and investments and $5.9 billion in debt on a balance sheet. In September, we raised $4 billion in secured, sorry, in senior notes to repay the outstanding balance on an unsecured term loan. These notes carry a weighted average coupon of 5.29%, approximately one point lower than the term loan rate at the end of Q4. As a reminder during Q1, we made tax payments of approximately $710 million that were deferred from fiscal 2023 due to the IRS disaster area tax relief. We also repurchased $603 million of stock during the first quarter. Depending on market conditions and other factors, our aim is to be in the market each quarter. And lastly, the Board approved a quarterly dividend of $0.90 per share, payable on January 18, 2024. This represents a 15% increase versus last year. As I stated earlier, I'm pleased with the early momentum we're seeing in fiscal 2024, highlighting the strength of our platform within the uncertain macroeconomic environment that is consistent with our expectations. We have a proven playbook and a track record of managing for the short and the long term, including controlling discretionary spend to deliver strong results while investing in what is most important for future growth. Our goal remains for Intuit to emerge from this period of macroeconomic uncertainty in an even greater position of strength. Moving on to guidance, we are reaffirming our fiscal 2024 guidance. This includes total company revenue growth of 11 to 12%, GAAP operating income growth of 15 to 18%, non-GAAP operating income growth of 12 to 14%, GAAP earnings per share growth of 11 to 15%, and non-GAAP earnings per share growth of 12 to 14%. Our guidance for the second quarter of fiscal 2024 includes revenue growth of 11 to 12%, GAAP earnings per share of $0.62 to $0.68, and non-GAAP earnings per share of $2.25 to $2.31. As a reminder, we are taking a prudent approach with guidance, given the continued macroeconomic uncertainty. You can find our full fiscal 2024 and Q2 guidance details in our press release and on our fact sheet. With that, I'll turn it back over to Sasan.
spk06: 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 the trusted advisor, leading to higher engagement and monetization. The combination of our assets and our strategy creates a growth flywheel for Intuit to accelerate it, penetrating our $300 billion in town. With all of that said, let's now open it up to your questions.
spk10: Thank you. Ladies and gentlemen, if you would like to ask a question, please press star, then the number 1 on your telephone keypad. If you would like to withdraw your question, press star 2. Please limit yourself to one question. We'd like to get to as many people as we can. Our first question will come from Remo Lencho with Barclays. Your line is open.
spk00: Perfect. Thank you. Sasan, on the AI strategy, like, obviously, you know, you have, like, one, you know, it seems like one big platform that is driving it. Like, 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.
spk06: Yeah, thank you for your question. And I actually think it's a really interesting question that you're asking in terms of how are we learning across platforms. The short answer is we capture best practices and share the insights on a daily basis across our teams. And in fact, I'll just use our staff as an example. We get weekly slacks with documents that share the best practices, the progress that has been made, and how that informs the next week across each of the platforms. And we spend 80% of my staff meeting actually doing product reviews of Intuit Assist. A big, large part of it is what the key best practices are, learnings are. And I would tell you that there's a lot of commonality and themes across our learnings across the platform, which actually is simply putting us in a position to accelerate our pivots and our progress and innovation and the timing of going GA across the platform. To your second question, no, we're not impacted by the chip shortage. It does not at all impact our launch plans.
spk04: Perfect. Congrats. Thank you.
spk06: Thank you.
spk10: Our next question will come from Keith Weiss with Morgan Stanley.
spk09: Excellent. Thank you for taking the question, guys. And congratulations on a really solid quarter. Two questions, one for Sasan and one for Sandeep. And really digging into what I think were some of the bigger surprises in the quarter. Sasan, in this environment, I think we're surprised to see strength in a marketing platform like MailChimp, and you called that out as part of the strength in online services. Do you think that's more of an intuit sort of independent factor of repackaging, marketing more aggressively distribution, or is it the market is better than we expect? And then for Sandeep, operating margins were really strong in the quarter. Any one-time items or pull forward expenses or push out of expenses that we should be mindful of in terms of why that type of operating margin and performance isn't going to be reflected in the rest of the year? Thank you.
spk06: 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.
spk04: And on the origin question, Scottie? On the margin question, let me start out by reiterating our commitment to having expenses growth lower than revenue and, in essence, delivering our margin expansion and operating leverage, which is something that we hold dearly. And our guidance of 40 to 60-bit expansion for the year reflects that discipline that we have as a management team. On the margin for the quarter, I would share that I won't get too fixated on the quarterly number. We had some expenses that moved out of the quarter into later parts of the year, including some marketing expenses. And as I shared during the prepared remarks, we are committed to our full-year guidance on our operating income, so that's what I would guide you and the teams towards. Excellent.
spk09: Really nice job, guys. Thank you. Thank you.
spk10: Our next question comes from Siti Panegrahi with Mizuho.
spk01: Thanks for taking my question. So, Sam, I want to ask about the health of small business. Where do you see right now strength and weakness in this environment?
spk06: Thanks for the question, Siddhi. 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're far more resilient and 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. You know, 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 serving their consumers. 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 things like auto repairs 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, you know, the health comes from the numbers that I shared with you. Thanks for that, Carlos. Yeah, very welcome.
spk10: Our next question will come from Alex Sukin with Wolf Research.
spk07: Hi, this is Alan Bacowski on for Alex Sukin. Thank you for taking the question. QuickBooks online accounting growth decelerated another three 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 that would be helpful for thinking about what growth could look like for the rest of the year?
spk06: Yeah, that was really driven by a larger price increase last year versus this year. That was really the only driver. We liked what we saw in terms of our acquisitions, our retention. So that's really the variance.
spk07: 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.
spk06: Sorry, can you ask your question again?
spk07: Just on the Credit Karma, thinking about the linearity of the business through the quarter in 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.
spk06: Yeah, well, I'll answer your question in two ways. One, as you heard in our prepared remarks, we saw and we anticipated further tightening by our partners. By the way, it happened exactly the same time last year. And so we expected that as our partners prepare for the end of the fiscal year and next year, there would be some further tightening, and that's really what we saw, and that was included in our expectations and in our guidance as we thought about the year. That's number one. Number two, not everything is linear because it depends on the number of days, like a month like November, you know, based on in the U.S., based on Thanksgiving week, the number of days that people take off, that actually impacts, you know, certain behaviors. And so there's no linearity, but the quarter just in total was in line with what we expected.
spk04: Thank you. Yeah, very welcome.
spk10: Our next question will come from Alex Markgrass with KeyBank Capital Markets.
spk08: Hey, thanks for taking my question. Yeah, maybe just be curious to understand, Sasan, as you've done some of the testing around Intuit Assist across product categories, has there been any sort of price testing involved in that as well? And how well received has that been, if so?
spk06: Yeah, sure. Let me answer your question in two ways because I think 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 process. which, by the way, translates to also what we learned in tax, which is within the flow, helping a customer understand their money outcome, helping them understand and doing accuracy checks for them, and if they've missed something, calling it out so they can address it right then and there. Those are examples that, by the way, are 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, you know, within cookbooks, 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 then engages with those business insights and ultimately will create reports or ask more questions. What we've learned is we're now 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, we 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 Gen AI 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, you know, Gen AI-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.
spk08: That's great. Thank you, Sasan. Yeah, very welcome.
spk10: Our next question will come from Steve Enders with Citi.
spk05: Okay, great. Thanks for getting the question here. I guess I'm going to ask on the tax business, you know, what you saw with some of those newer product initiatives and, you know, maybe what kind of drove the strength there year over year and the share gains with some of those newer initiatives?
spk06: Yeah, sure. Let me answer your question on two dimensions. One, there were the macro elements, which there were just more filers in the extension season than we anticipated. Both, by the way, states that extended and states that did not extend. And these are more complex filers, and it's actually our sweet spot. It's why we were able to take share in this extension season. And so that's one element of what drove our better-than-expected results. The three areas that we're excited about, these have been durable priorities where we did a lot of tests and experiments and got a lot of green shoots and learning that will lead into this coming tax season. It's Credit Karma platform, it's TurboTax Live, and it's Intuit Assist. And I'll briefly touch on each of them. Within the Credit Karma platform, we have more seamlessly built out the tax experience, whether you want to do it yourself or you want somebody to do it for you. And we've developed very compelling SKUs within the Credit Karma platform. which, you know, having the opportunity to serve 42 million monthly active users that engage five times a month with not only a great product but a great set of SKUs, we saw green shoes, and we're excited about that as we look ahead. The second is TurboTax Live. You know, we expanded the scale of our data, AI, and expert network. What that means is – and I'll just point out, you know, in two areas – One is the fact that for many customers that want to hand off all their taxes to us, we can get their taxes done within an hour. And that's a very big deal, to be able to engage an expert, have your data available, and get your taxes done in one setting, and then also being able to serve business tax customers, which we'll be launching at scale. Those were areas of green shoes. And the last is Intuit Assist. Two big areas, one is accuracy check and making sure that in place we help the customer, in essence, correct something that we believe is a mistake. That's a big conversion driver, by the way. And then the second is just explaining explaining their money outcome, which is all done and driven by Intuit Assist, leveraging our knowledge engineering capabilities and our Gen AI capabilities. So those are the three things, along with the macro, where we saw green shoots that give us a lot of confidence as we head into season.
spk05: Okay, perfect. Thanks for taking the question. You're very welcome.
spk10: Our next question will come from Brent Bill with Jefferies.
spk03: Hi, thank you. This is John Gunn for Brent. First question on MailChimp, wondering if you could share some comment on how it's doing in U.S. versus international. And, you know, I don't know if you could talk about also about, you know, cross-selling synergies with the rest of the small business platform. And second, any update on how?
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