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Angela
Conference Operator
Good afternoon. My name is Angela and I will be your conference operator. At this time, I would like to welcome everyone to Intuit's second quarter fiscal year 2024 conference call. All lines have been placed on mute to prevent any background noise. After the 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 now turn the call over to Kim Watkins, Intuit's Vice President of Investor Relations. Ms. Watkins?
Kim Watkins
Vice President of Investor Relations
Thanks, Angela. Good afternoon and welcome to Intuit's second quarter fiscal 2024 conference call. I'm here with Intuit's CEO, Sasson Ghadarzi, and our CFO, Sandeep Arjula. 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.
Sasan Ghadarzi
CEO
Thanks, Kim, and thanks to all of you for joining us today. We had another strong quarter and have great momentum innovating on our platform. We're executing on our strategy to be the global AI-driven expert platform powering prosperity for consumers and small businesses. Second quarter revenue grew by 11%, and we're on track to achieve our fiscal year 2024 full-year guidance of 11% to 12% revenue growth while expanding operating margins. Let's start with tax. We're confident in our innovation and game plan to win and are reiterating our full fiscal year guidance of 7% to 8% revenue growth for the consumer group. Tax preparation represents a $35 billion TAM. This includes $31 billion within the assisted consumer and business tax categories, which we have barely started to penetrate. We're well positioned to disrupt the assisted category by leveraging data, AI, and our virtual expert platform to revolutionize how taxes get done for consumers and small businesses. By leveraging the power of our platform and ecosystem, we're also extending TurboTax to our Credit Karma members and QuickBooks Online small business customers by enabling them to complete their taxes and access expertise directly within these products. Let me share more about the areas of focus this season. First, we can serve consumers however they want to file, virtually or in person, while providing confidence their taxes are being done accurately and they are getting their maximum refund. More than 80% of US filers live within a 10-mile radius of a TurboTax expert. These experts use Intuit's virtual expert platform that's powered by data and AI to deliver best-in-class service. While it's early in the season, TurboTax Live's full service is resonating with customers. We're seeing strong growth, and the offering has a product recommendation score of 88 season to date, one of the highest at Intuit. Second, small businesses can file their taxes with TurboTax, and if a small business is a QuickBooks online customer, they can file their taxes with an expert. With these offerings, they can maximize their refund and get advice from experts when they need it. Our campaigns and easy-to-use experience are driving strong early interest. Business tax returns have a much higher average revenue per return because they are more complex, and we expect them to contribute to average revenue per return expansion over time. Third, we're more deeply integrating Credit Karma and TurboTax, making it even more seamless for Credit Karma members to file with TurboTax directly in the Credit Karma app with exclusive offers for members, whether they want to file themselves or with an expert. We're also unlocking the benefits of the Credit Karma platform for tax filers to make smart money decisions. This includes earlier access to their refund or, for those that qualify, access to an interest-free refund advance loan in as little as 30 seconds after IRS acceptance when depositing their refund into a Credit Karma money account. This is designed to lead to higher engagement and monetization in Credit Karma over time. Fourth, Intuit Assist, our gen AI powered financial assistant is live in TurboTax this season. With Intuit Assist, we are creating a future of done for you where the hard work is done automagically on behalf of our customers with a gateway to human expertise, fueling their financial success. For example, Customers are using Intuit Assist to better understand their refund. In early results, Intuit Assist's helpfulness rating is one and a half times greater than our legacy explanations, indicating Intuit Assist is helping deliver confidence to TurboTax customers. Our focus this tax season further showcases how our big bets have accelerated innovation and growth for the future. We're leveraging the power of data and AI with Intuit Assist to revolutionize speed to benefit for customers, disrupting the assisted consumer and business tax categories by connecting people with experts virtually, and bringing the TurboTax and Credit Karma experience together to unlock smart money decisions. We're off to a great start in tax. Let me now highlight progress across two of our big bets. As a reminder, our five big bets are revolutionize speed to benefit, connect people to experts, unlock smart money decisions, be the center of small business growth, and disrupt the small business mid-market. Our first big bet is to revolutionize speed to benefit. Our platform enables us to innovate for our customers with speed and at scale, which is foundational to all of our big bets. Five years ago, we declared our strategy to be an AI-driven expert platform with data and AI fueling innovation across the platform. At the core of our platform is powerful, relevant 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, which fuels what's possible with AI. And with our GenAI operating system, GenOS, we empower Intuit technologists to create breakthrough GenAI experiences across our 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. As I mentioned earlier, with Intuit Assist, we're creating a future of done-for-you where the hard work is done automagically on behalf of our customers with a gateway to human expertise fueling their success. Intuit Assist is critical to delivering unparalleled benefits for our customers over the next decade and is in the hands of select customers now. We believe intuitive this will lead to higher frequency of engagement and monetization across the platform, driving customer growth, accelerated adoption of services, and live offerings. I'm really excited about the rapid pace at which we're innovating, testing, learning, and adapting to deliver our core benefits of more money, no work, and complete confidence for customers. Let me share a few updates. First, TurboTax. As I shared earlier, Intuit Assist is live in the product this season and is delivering increased confidence to our customers. Second, MailChimp. To help small businesses grow revenue and save them time, we're providing AI-powered automations and content generation using Intuit Assist. Third, QuickBooks. Intuit Assist is in beta and is designed to help small businesses optimize cash flow and make confident decisions to grow their business. New customers who were previously running their business manually will be able to get started quickly by sharing their email, website, and bank account information. Their unstructured data will be translated into benefits for them, such as generating customized pay-enabled invoices that save time and enable customers to get paid faster, experiencing the benefits of switching to a digital platform. And for existing customers, we will translate their data and analyze their money-in and money-out transactions into insights and recommendations. Intuit Assist will do the work for our customers in the background with suggested automated actions that increases customer productivity by saving time and leading to better outcomes, such as getting paid faster and obtaining capital. Furthermore, we intend to provide an option to connect and interact with an expert to help provide insights and make decisions specific to their financial situation and fuel their success at the moments that matter most, such as closing their books. Fourth, Credit Karma. Intuit Assist for Credit Karma is in beta, and we're excited about the rapid innovation and the progress we're making to help connect members to financial products that are right for them, saving them time and money. We're focused on using Gen AI to interact with members to help answer their questions in a highly personalized way when shopping for financial products. Customers can interact, learn more, and ask questions to help make confident decisions. Intuit Assist will engage more members with a wide range of financial needs beyond credit. We recently expanded by 6x the number of topics we can provide help on and now address items like major purchases, home buying, savings, and more. We believe this can drive increased member engagement and conversion and drive higher revenue per monthly active user. We remain excited with our early progress with Intuit Assist across the company. It's changing our relationship with customers as we move from being a transactional workflow platform to a trusted assistant that customers can rely on daily to power their prosperity. 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. We are well on our way to becoming the source of truth for our customers to help them grow and run their business. In MailChimp, we're focused on better serving mid-market customers across different stages of their life cycle to drive higher engagement and retention. After we've successfully onboarded them, we're pairing larger customers with an account manager to help them understand and adopt the breadth of MailChimp's capabilities. We're seeing green shoots from account management, which gives us confidence in the future. Customers who have engaged with an account manager have higher monthly revenue retention. We believe this will also drive higher ARPC over time. Intuit Assist is live in MailChimp's higher-end offerings and has designed to help customers develop personalized marketing campaigns and drive their revenue growth. We're offering customers three AI-powered automations today, including new customer welcome, abandoned shopping cart, and recovering lost customers. Automations are time-consuming to set up, but can drive higher revenue. IntuitAssist personalized automations are 50% more likely to be activated by customers. IntuitAssist is also reducing work by generating new content and editing existing content for marketing campaigns. Recent improvements have driven GenAI text generation adoption rates by more than 70% over the past several months, reducing work for our customers. Getting paid fast remains a big challenge for small businesses. We're uniquely positioned to help customers with our end-to-end money platform and innovations, such as easy discovery, auto-enabled payments, payment-enabled invoices, instant deposits, and get paid up front, which are all helping our customers get paid faster and drive adoption of payments. Total online payment volume growth was 20% in the quarter. We're beginning to roll out a new payment-enabled invoicing experience that will provide more benefits to customers, including more ways to get paid. While early, we're seeing that customers who use the new invoicing experience are engaging more, driving an increase in customer adoption of our payment rails to get their invoices paid. We're also making progress digitizing B2B payments to accelerate and automate transactions between small businesses and ultimately improve their cash flow. The number of connections in our QuickBooks business network has doubled since August, and we're pleased with the initial adoption of our bill pay offering. To better serve small businesses, during the quarter, we began rolling out faster payment timelines for qualified customers that reduced payment time by 40%, including a paid next-day ACH option and batch payments, allowing customers to hold on to their cash longer and save time. Wrapping up with our durable AI-driven expert platform strategy and focus on innovating with Gen AI across our platform, we're more excited than ever about the opportunity in front of us and our ability to power prosperity for our customers. We're honored to be recognized by Bloomberg as one of the top 50 companies to watch in 2024 and to be ranked 22 on this year's Just 100 and the highest-ranked customer or software company on the list. Now let me hand it over to Sandeep.
Sandeep Arjula
CFO
Thanks, Hassan. For the second quarter of fiscal 2024, we delivered another strong quarter despite the IRS opening approximately one week later this year. We achieved healthy operating margins and are on track to achieve our four-year guidance as we continue to deliver operating leverage across the business. Our Q2 results include revenue of $3.4 billion, up 11%, GAAP operating income of $369 million versus $270 million last year, up 37%, Non-GAAP upping income of $1 billion versus $856 million last year, up 17%. GAAP diluted earnings per share of $1.25 versus $0.60 a year ago. And non-GAAP diluted earnings per share of $2.63 versus $2.20 last year, up 20%. Turning to our business segments. Small business and self-employed group revenue grew 18% during the quarter, driven by online ecosystem revenue, which grew 21%. Our results continue to demonstrate the power of our small business platform and the mission-critical nature of our offerings, which resonates with customers as they look to grow their business 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 Q2, driven mainly by customer growth, higher effective prices, and mix shift. We continue to prioritize disrupting the small business mid-market through continued focus on both go-to-market and product innovations. While mid-market customers are a smaller subset of the total small business TAM, they drive a higher ARPC over time given their more complex needs and higher usage of services across our platform. This, coupled with our strategy to sell more of our ecosystem services to existing customers, shifts the emphasis in our growth formula towards ARPC over time. Second, we continue to focus on connecting the ecosystem. Online services revenue grew 24% in Q2, driven by payroll, payments, Mailchimp, capital, and time tracking. Within payroll, revenue growth in the quarter reflects an increase in customers adopting our payroll solutions, higher effective prices, and a mid-shift towards higher-end offerings. Within payments, the revenue growth of the quarter reflects ongoing customer growth as more customers adopt our payment offerings to manage their cash flow, higher effective prices, and an increase in total payment volume per customer. Nurture revenue growth was driven by higher effective prices and paid customer growth. Third, we continue to make progress expanding globally by executing a refreshed international strategy, which includes leading with both QuickBooks Online and MailChimp in our established markets and leading with MailChimp in all other markets as we continue to execute on localized products and lineups. On a constant currency basis, total international online ecosystem revenue grew 16% in Q2. Now moving to our desktop ecosystem. Desktop ecosystem revenue grew 10% in the second quarter, and QuickBooks desktop enterprise revenue grew in the mid-teens. We are more than two years into a three-year transition for customers that remain on a license-based desktop offering to a recurring subscription model. In fiscal 2025, the tailwinds from the three-year transition will be behind us, but we expect our desktop enterprise offering, which accounts for over half of desktop accounting revenue, to grow in the high single digit range. We also will continue to encourage remaining desktop subscription customers who tend to be more complex and higher value to migrate seamlessly to either QuickBooks Online or our desktop enterprise offering when they are ready. Additionally, we see opportunities to continue to price the product for value. The online ecosystem remains our growth catalyst longer term. Shifting to our consumer and pro-tax groups. Our four-year outlook remains unchanged, even though consumer group revenue declined 5% in the quarter, reflecting an approximately one week later IRS opened this year. We are confident in our game plan to win this season and are reiterating our guidance for consumer group of 7% to 8% revenue growth in fiscal 2024. Turning to the pro-tax group, the revenue grew 8% to $274 million in Q2, reflecting the timing of when tax forms were delivered, which is a driver for revenue recognition. Moving to Credit Karma. Credit Karma delivered revenue of $375 million in Q2, flat to a year ago, primarily reflecting growth in Credit Karma money, credit cards, and auto loans, offset by decline in home loans, personal loans, and auto insurance. We saw select partners taking a conservative approach to extending credit in both personal loans and credit cards in Q2, reflecting expected macro trends. And as a reminder, Q2 is typically the seasonally weakest quarter of the year. We expect Q3 to benefit from additional credit card money revenue during tax season. In summary, I am pleased with our continued momentum this fiscal year. Now shifting to our balance sheet and capital allocation. Our financial principles guide our decisions. They remain our long-term commitment and are unchanged. We finished the quarter with $1.5 billion in cash and investments and $6 billion in debt on our balance sheet. We repurchased $536 million of stock during the second quarter, Depending on our market conditions and other factors, our aim is to be in the market each quarter. The board approved a quarterly dividend of $0.90 per share, payable on April 18, 2024. This represents a 15% increase versus last year. Moving on to guidance. We are reaffirming our fiscal 2024 guidance. This includes total company revenue growth of 11% to 12%, gap operating income growth of 15% to 18%, non-gap operating income growth of 12% to 14%, gap earnings per share growth of 11% to 15%, and non-gap earnings per share growth of 12% to 14%. Our guidance for the third quarter of fiscal 2024 includes the revenue growth of 10% to 11%, GAAP earnings per share of $7.77 to $7.84, and non-GAAP earnings per share of $9.31 to $9.38. As a reminder, we are taking a prudent approach with guidance given the continued macroeconomic uncertainty. You can find a full year, fiscal 2024, and Q3 guidance details in a press release and on a fact sheet. With that, I'll turn it back over to Sasan.
Sasan Ghadarzi
CEO
Great. Thank you, Sandeep. And just to quickly wrap up, we're very confident in our AI-driven expert platform strategy. Our progress with our five big bets and creating a future of done-for-you with a gateway to human expertise. We believe that this will change our relationship with our customers, becoming their trusted advisors, leading to higher engagement and monetization. The combination of our assets and our strategy creates a growth flywheel for Intuit to accelerate penetrating our $300 billion in TAM. With that, let's open it up to your questions.
Angela
Conference Operator
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 star 2. Please limit yourself to one question. We'd like to get to as many people as we can. Our first question comes from Siddhi Panagrahi with Azuho. Please go ahead.
Siddhi Panagrahi, Kosh Rangan, Brad Zelnick, Alex Zuckin
Analysts and Investors
Siddhi Panagrahi Thank you. Thanks for taking my question. Sasan and Sandeep, I want to dig into the health of the small business. Just two-part question. On the online accounting system, revenue seems to be in line our expectation site to decel. Is there any one-time factor that influence and how should we think about second half given that's an easy comp? And other part is on the services, while we're pleasantly surprised, it's accelerated. And you talked about some of this payroll payments and MailChimp. Is there anything like you're doing differently, specifically drilling into the MailChimp? How is that part of the business doing?
Sasan Ghadarzi
CEO
Yes, Citi, thank you for your question. Maybe I'll start us off, and, Sandy, please jump in as you wish. I mean, the headline that I would give Citi is that we're really pleased with the momentum that we have, the growth that we've experienced. You know, when you think about it in context of the current macro environment, we're continuing to see, you know, larger, higher-value customers, mid-market customers coming want to shift the digitization, and the more we spend time with them, with our account managers, with our sales folks, with our customer success folks, they tend to have a tendency of wanting to move more of their services to us because, for the most part, we are already the standard of financial management solutions that they use for their financial records. But they see it as an opportunity to get paid faster, manage their workforce, to be able to use our capabilities to be able to market to their customers. And so the net event that I would leave you with is I like our momentum in this macro environment. We expect that to continue for the rest of the year. And there's a lot of puts and takes in our online accounting and online services. And so I wouldn't read anything into it. The most important element to take away is the 21% overall online growth. And our services are strong, and we continue to innovate with our services. And, you know, I expect that we'll continue to lead digitization and transformation for our small businesses. Sandeep, I don't know if you want to add anything, but those would be the headlines from me, Sandeep.
Sandeep Arjula
CFO
So, Sandeep, what I would also remind you of is, as we've shared in the past, there are three imperatives that you focus on as a management team. New customer acquisition, uh driving adoption of our platform and being better together across our platform and with that uh in new customer acquisition our team continues to focus on mid-market customers uh as you apply those mid-market customers they're uh a larger richer revenue pool they have higher customer acquisition costs but they also take a little longer to ramp up because most of the size of the price in those mid-market customers on services revenue which ramps up as opposed to accounting which You know, you start booking as soon as they become a customer. So just a dynamic to keep in mind. That's why in my prepared remarks I called out that our growth formula will continue to start leaning more towards ARPC going forward. And the second component of the services is basically us executing on our focus of driving adoption of our platform.
Siddhi Panagrahi, Kosh Rangan, Brad Zelnick, Alex Zuckin
Analysts and Investors
Thanks. Great execution, guys. Thank you.
Angela
Conference Operator
The next question comes from Kosh Rangan with Goldman Sachs.
Siddhi Panagrahi, Kosh Rangan, Brad Zelnick, Alex Zuckin
Analysts and Investors
Hi, congratulations to the founders and the very good call here.
Brad Zelnick
I'm wondering if you can give us an update on what's happening in the SMB market. Looks like enterprise spending seems to be stabilizing. I know that you're not really enterprise equipment events, but how do you characterize the outlook for small businesses, given that the economy is on stable footing and we don't have the worries that we had going into calendar 22? Thank you so much once again.
Sasan Ghadarzi
CEO
Gosh, great to hear from you. Great question. Let me categorize the answer in two buckets. First of all, facts are friendly, and let me start with some facts. What we see across our base is that cash reserves are down 11% year over year. That's really what small businesses care about. But it's actually up 115% over pre-pandemic levels. And so the takeaway you should have in that is, Small businesses are being challenged in this macro environment. Consumers are spending less dollars, but they're actually healthier at the aggregate level than they were several years ago. In fact, what I would call out is the number of hours worked is higher this year, several points compared to last year. So just the strength of the work that they're doing, being able to have access to talent is in a better position for small businesses compared to last year. And that, by the way, as you can imagine, differs by country and by sector. Sectors like real estate, IT spending is struggling if the sector a small business is in, but things like professional services, auto repairs is actually quite healthy. Last thing I would end with is the higher-value customers, more the mid-market customers, are healthier than those that are small and just starting out, which, by the way, we've seen this in our industry. 20 plus years, right? We've seen this as a normal trend whereby the larger businesses have a lot more levers to be able to pull and they're generally healthier. Lastly, our view, and we're not economists, but we see a lot of data. Our view is that 2024 is going to be a lot of the same for small businesses. We don't believe that there's going to be any kind of an economic tailwind as we think about the next, the rest of the calendar year.
Brad Zelnick
Thank you so much. You're very welcome.
Angela
Conference Operator
The next question comes from Brad Zelnick with Deutsche Bank.
Brad Zelnick
Great. Thank you so much. And nice job in Q2. Maybe a tax question. Just with the slower start to the season, Sasan, and we appreciate every season is more and more back-end loaded, but can you talk about what it is that you're seeing in the funnel and anything else that supports your confidence in the full-year consumer guide? Thanks.
Sasan Ghadarzi
CEO
Yeah, sure, Brad. First of all, I'll amplify what you started out with. Having been in the tax business and ran it more than 10 years ago and watching our trends in the last 10 years, every season there's a push to a later start, and it's just a consumer behavior, and we're seeing that this year. So that's not anything unique. There's two things that I would call out that are strategic to us that are are worth calling out because we see green shoots in both with the early part of season. One is full service. Just as a refresher, there's nearly 100 million consumers and small businesses that spend about $30 billion to have somebody else do their taxes for them. And we really leaned into our overall full-service experience. We really leaned into our campaigns, both on air, digital, very basic things, by the way, that we didn't used to have the capabilities of that we're now building, which is if you use an expert and you love that expert, then you can recommend that expert to a friend. That's basics, but the infrastructure that we're building to really disrupt the full-service space is a necessity. And we feel very good about the green shoots that we're seeing, both on the consumer front and on the business tax front. And I'll remind you that this is our first year leaning all the way into business tax, so it's beyond early. But everything that we've seen just indicates that this is an enormous opportunity for us. So that's on the full service front. The second I would mention is Credit Karma. This is really an area where we have nearly 45 million monthly active users. They engage more than five times a month. And the majority of those monthly active users actually use a different method and not TurboTax. And so we've really heavily invested in the experience, whether you want to do it yourself in the app or you want us to do it for you, which is full service. and compelling offerings that we've been testing and scaling. And we also like the green shoots there. So those are the two things that I would call out. And it really positions us for share of spend. I'll end with the following, which is we set the goal line in taxes our share of total IRS returns, and really what matters is the share of spend that we're getting, and full service is essential for that, both this year and in the future.
Brad Zelnick
Thanks, Hassan. Great, great, great color, and keep up the good work. Thank you. Thank you, Brad.
Angela
Conference Operator
The next question comes from Michael Turin with Wells Fargo.
Brad Zelnick
Hey, great. Good afternoon. I appreciate you taking the question. I was hoping we could go back to the mix of online services. And maybe you could just help us compare and contrast in more detail what you're seeing from a growth perspective across the payroll payments and MailChimp business. And is there a float aspect at all to the payroll portion of the business that might be helping reinforce some of the margin strength you're seeing given headwinds from the floor start to tax? I think a lot of focus on just the EPS strength in the quarter. Thank you.
Sasan Ghadarzi
CEO
Do you mind repeating the last part of your question?
Brad Zelnick
Yeah, just wondering if there's at all on the payroll side a flow component that might be also just softly helping margin outside of the consumer add-ons you're seeing.
Sasan Ghadarzi
CEO
Yeah. Let me start with the overall services question that you asked and send people way in here with some of the facts that you asked around flow. I think the thing that I would just say around services goes back to my earlier comment, which is we're just spending... a lot more time with higher value customers really helping them understand what we can do to digitize their businesses and by the way continuing to improve our offerings and so you know as we talked about earlier our total online payments uh growth of this quarter was 20 in a fairly you know tough macro environment that's because we continue to invest in making the experience easier providing multiple methods to get paid, instant deposit, getting paid up front. So those really help with, in essence, payments adoption. Our payroll adoption has been strong, particularly larger customers and with full service. And we're continuing to really invest in some of the most important foundational elements with MailChimp that higher-value customers are adopting, and particularly some of the things that I called out with Intuit Assist. So it's really – it's not one thing. It's a combination of all of our services and the focus on higher-value customers that is really, you know, helping us with some of the services adoption. Maybe, Sandeep, alternatively, you're on the – Float, and then anything else you want to add?
Sandeep Arjula
CFO
Sure. Thanks, Hassan. Michael, the float component is a very small part of our payroll business. As one thing said, we really aim to do for our small businesses is to hold their cash as little as possible. So float is not a big component for us. And I think, you know, The overarching theme of your question was the ability for Intuit to preserve the earnings power of the company despite the one-week delay in the IRS opening. And I think Sasan touched on that. And it's also some of the great work that the team has been doing around acquiring larger customers around the lineup work we did to make the higher-end SKUs and payroll more attractive to those customers, the work the team is doing around mid-market account management and mailchimp. So it's a plethora of activities that continues to give us confidence in our portfolio of assets that we have.
Brad Zelnick
I appreciate the details there. Thank you. Thank you, Michael.
Angela
Conference Operator
The next question comes from Taylor McGinnis with UBS.
Taylor McGinnis
Analyst at UBS
Yeah, hi. Thanks so much for taking my question. Maybe another one on online services. So if I heard you correctly earlier, it sounds like you guys are expecting a more stable macro environment as we move throughout the year. So can you talk about what that means for the durability? of the acceleration in online services that we just saw, to 24% year-over-year. Could you actually see, you know, online services hang in here at these levels? Is there anything, you know, one time in nature? And just curious, you know, as the macro reigns more challenging, you know, how the pricing lever could be used there to help you guys during this time. Thanks so much.
Sasan Ghadarzi
CEO
Yeah, so, Taylor, let me add a few things, if I could. First of all, I'll start with... We don't view the macro environment as entirely remaining stable. We think it's going to continue to be uncertain. So we're not sort of banking on any of our growth coming from any type of a tailwind from the macro environment. We think 24... will be somewhat choppy, like 23 was from a macro environment perspective. And we see it in the consumer credit scores of consumers. As you know, we see over 100 million members across Credit Karma, and their credit scores in the last couple of years are down almost 20 points. Gen Z credit card balances are up over 60%. And those are just a couple of illustrative examples that consumers are strained. So, The first Uber point would be that we think the environment is stable to uncertain, and we're not trying to outguess the economy, but really focus on our customers and our innovation, which gets to the second point, and that is we have confidence in the guidance that we provided of the 16% to 17% for the year. even in context of the macro environment, just because we continue to really emphasize and focus with our high-value mid-market customers digitization. And that's really what's leading to our overall 21% online growth that we talked about. And that's what gives us confidence in our guidance. And really, as we look into the future, Our entire focus is really all about our innovation and our go-to-market to win despite the tough economic environment.
Sandeep Arjula
CFO
And Taylor, the one thing I would add, and just to build on Sasan's point, you asked a question around pricing, pricing power. Our tenet around pricing is around the offerings, the power of our offerings and the innovation we're building into the offerings. And the perceived and actual value that we're delivering to our customers is not related to the macro environment. So that's another point I just wanted to emphasize in terms of how we think about our pricing.
Taylor McGinnis
Analyst at UBS
Thanks. Really appreciate the thoughts.
Sandeep Arjula
CFO
You're very welcome.
Angela
Conference Operator
The next question comes from Alex Zuckin with Wolf Research.
Brad Zelnick
Hey, guys. Thanks for taking the question, and congrats on the quarter. Sasan, maybe a Gen AI question for you. You know, clearly it's something that continues to really evolve and grow. you know, become a core part and parcel of the company, both on the SMB side and the consumer side. I wanted to ask, if you look at the coming tax season on the consumer side, how do you expect to see the benefit of some of the assist functionality? Is it more, you know, converting kind of free to pay? Is it pay to pay more? And then similarly on both Credit Karma and on the SMB side, if you think about the progression of the year, kind of where are you seeing the biggest opportunities as you start to see the interactions build on the platform?
Sasan Ghadarzi
CEO
Yeah, Alex, thank you. Great question. Let me start with one headline, particularly as we've been in beta or with certain capabilities, you know, at scale and GA. I'll start with a headline, which is we believe that over time – and I want to emphasize the over time piece – that this is going to create an entirely new category of experiences and growth that is not even possible today because of truly creating a set of experiences where the work is done for customers and there's always a gateway It's a human expert that's all AI powered. And the more we're in market, the more we're learning, adjusting, adapting, the more we are convinced that we're going to be able to create a new category of services and what's possible to penetrate our $300 billion in TAM. Now, with that said, let me get real specific and sort of real tactical. The second headline news that I would give is None of the work that we're doing with Intuit Assist, which is really about what we're doing across the platform, it's not a feature, none of it is in our results today, and we're not counting on it to be in our results in the near future. But with that said, to answer your question in tact to start with, There's a couple of areas where it will have profound impact. One is full service. And the profound impact, by the way, is from the investments that we've made in the last five years. I mean, to do what we're doing in full service at scale and think about it, it's really based on data. AI, ecosystem of apps, because now we can do your taxes through Credit Karma, through the QuickBooks platform, and one of the largest networks of experts that we have. And all of that sits on machine learning, knowledge engineering, and now Gen AI capability. So the biggest, in our view, based on what we're seeing in market, the biggest opportunity is about the ease and the speed of getting people's taxes done. So imagine a world where you're a full-service customer that we can get your taxes done in less than an hour, maximum refund and extend your dollars because of what we can do with you on the Credit Karma platform, an excellent service, the best service you can imagine in the world, which, by the way, is supported by our product recommendation score of 88. So really, it's full service that will have the biggest impact. Now, the whole underlying platform is what full service uses. And so the other is over time, yes, it will help with conversion. And really, it's about confidence. And we're seeing that right now where Intuit Assist, when it's engaged to understand my tax outcome and refund outcome, the helpful rating is one and a half times better than we've ever seen. And by the way, we are very early. We haven't perfected it by any means. So that's on the tax front. Just very quickly, let me touch on Credit Karma. As you know, one of the powers of Credit Karma on behalf of our customers is we know everything about the customer. We have all the data that and leverage AI to deliver personalized credit cards that are right for them or personal loans, whatever it may be. One thing that's profound with Gen AI that we're learning and seeing in market today is now customers can interact with Credit Karma, whereas before they couldn't. The from is I would show you the three credit cards that are right for you based on everything that I know about you, but now you can interact with Credit Karma on apps Hey, I'm looking for travel rewards. Which of these three credit cards are the best for me? And then we interact with you and help you understand which one is the best for you based on an additional set of questions that you've asked where we now know more about you. That's profound because that will, over time, drive higher engagement, monetization, et cetera. And on the small business front, our entire focus is revenue and profitability increase. Everything that we are testing in market, learning in market, is so that we can help you with campaigns that increases your revenue or manage your cash flow that better helps you with profitability. And one of the things we're testing with is to have experts that actually provide insights to you. And those insights could be, hey, it's time to take out capital because your sales are strong. Or, hey, I just finished doing your books for you. Would you like to have a conversation so you can understand your – cash flow and how your books close for the month. And that's a monetizable event for us. So probably a longer answer that you were looking for, but those are the things that are in market where we're learning and adjusting. And we think over time, we haven't perfected any of this yet because it's actually hard, but we believe it'll create an entirely new category of services and growth.
Brad Zelnick
Super insightful. Thank you, guys. Yeah. Thank you, Alex.
Angela
Conference Operator
The next question comes from Kirk Matern with Evercore ISI.
Ramo Lindschow
Analyst at Barclays
Yeah, thanks very much. And congrats on the quarter. This is fine. Can you just remind us where we are in terms of some of the cross sell of QuickBooks into the MailChimp base and vice versa? And when intuitive Cisco's GA for QuickBooks? Will that be the point at which intuitive can add can answer questions across sort of the front office and back office for customers? Can you just talk about that a little bit? Thanks so much.
Sasan Ghadarzi
CEO
Yeah, great question, Kirk. Let me start with the intuitive assist question first. And I'll share with you how we're sequencing it. You know, right now, our entire focus, and remember, everything that we are doing here is based on data and AI. So a lot of our investments are what you don't see, which is ensuring that the data is usable, that it's clean. that is structured the right way and that our machine learning, knowledge engineering, and gen-AI capabilities can digest all of the data. Inclusive of data, by the way, that's contributed by the customer, like access to their Gmail account, access to their Excel spreadsheet, because a lot of customers' data are in those two places or they're in shoeboxes and being able to take pictures and for us to be able to digest that data and actually deliver insights. So our first priority of order is to ensure that if you're using our small business platform and if you are looking to put together marketing campaigns, that IntuitAssist is doing that for you. The second element of what we are focused on is then being able to transfer and use IntuitAssist across QuickBooks and MailChimp because all the data points are connected. That is absolutely where we are headed, and it's sequenced in second place compared to what I just articulated because we have to nail the basics. But that's actually where the power of our platform will show up for our customers, where whether you're in Credit Karma or TurboTax, you can ask whatever question you want that is relevant in your life, and we can answer it because all of our – data points are connected and our AI capabilities are, in essence, working across the product. So that is sequence, but we're working on that as we speak. The second is cross-sell. First of all, I'll start with we're not thinking about it in terms of cross-sell. We're thinking about it in terms of product integration. So what we are really focused on, and this is, by the way, this applies to TurboTax and Credit Karma. This applies to MailChimp and QuickBooks. What we're really focused on is integrating the product at moments of truth that matters most based on how the customer does the work. Like, for instance, if you are in QuickBooks on your left map, this is just an illustrative example because we're actually testing a lot of this. is that you can actually see how you can manage your customers and put together marketing campaigns. And when you engage and click on that, you have the MailChimp engine that is working behind the scenes. And after maybe a couple of free trials, then we share with you how much it is to pay for these capabilities. So that's What I mean by product integration, we want to nail the benefits at the moment of truth that matters versus just try to sell you MailChimp within the platform. We've found over time that that's not as effective. What's most effective is the product integration. So that's the approach that we're taking across all of our platforms.
Ramo Lindschow
Analyst at Barclays
Thanks so much.
Sasan Ghadarzi
CEO
Thank you.
Brad Zelnick
You're very welcome.
Angela
Conference Operator
The next question comes from Brent Phil with Jefferies.
Brad Zelnick
Dasan, for Credit Karma to get back to growth, what are the key ingredients that you need to see for that to get back to growth versus the declines we've seen the last year?
Sasan Ghadarzi
CEO
Yeah, good question. A couple of things. One, which we are starting to see, which is just stability of partners and the environment. For the most part, other than some select partners, we've actually seen stability with our partners. And we've actually seen verticals like insurance come back, which saw a big decline last year. So one is just stability. And then the second is just the areas of innovation that we are focused on. One is we've redesigned the entire app. Now it's rolled out to all members, which is a massive, massive feat. And based on the redesign of the app, There are many ways in which we can engage customers more so than we could before, and that will actually drive monetization. So that's one lever beyond the macro that I mentioned. The second is intuitive this. It's the example I provided earlier where now customers can actually interact with us and ask questions and let us know what's important to them, and we can personalize things in a way that we could never before. And based on very early testing, we see the engagement is higher when customers are interacting with Intuit Assist, which over time will lead to monetization. That's the second area. Third is just the number of initiatives that we have around Prime. As I've mentioned, as we've mentioned before, Prime is actually quite a large part of our monthly active users, but we've never really focused on it. And now that's an area of focus. And then last but not least is TurboTax. And TurboTax, the way we're thinking about it is actually about product integration, because the more we can engage members year-round around if they took out a mortgage or having them take a snapshot of their W-2 and letting them know what their refund could be, the more we can actually penetrate more of the members to use TurboTax as a method to get their access to the refund. All those things, creating one platform is what we believe and are confident, actually, that will get us to accelerated growth, and it's really in that order. So let me pause there. Hopefully that helps, Brad.
Brad Zelnick
Yeah, it was great. Thank you. You're very welcome.
Angela
Conference Operator
The next question comes from James Friedman with Susquehanna. Yeah.
James Friedman
Analyst at Susquehanna
Hi. Thank you. I was hoping to get your thoughts on the opportunity for additional bill pay options. I believe this is how you mentioned in your prepared remarks rolling out same-day ACH. But any high-level thoughts on other bill pay options, including virtual credit cards? Thank you.
Sasan Ghadarzi
CEO
Yeah, thank you for the question. First of all, the key to success for us, given where we are on the rollout, is one, network connections. And as you heard in our remarks, albeit very early, the number of business network connections has doubled since August. And that's important because it's a huge step forward to then digitize how we, in essence, help customers get paid and pay bills. The second is just it's executing on our roadmap. You know, the big thing that we're starting to roll out that we talked about earlier is just faster payments, and that's through both paid ACH next day that we're rolling out and also batch payments. And so we're going to continue to look at what's most important for our customers, and that's what's informing our roadmap. But we have to do it in conjunction with continuing to increase our network connections and we're we're really excited about in the long term what's possible digitizing all of b2b because it's very it's incredibly beneficial to our customers because they get paid faster and to it's uh it's you know it's really a sticky product thank you so much very welcome the next question comes from ramo lindschow with barclays
spk03
Thank you. Congrats from me as well. A question for Sandeep. As we think about this year, you kind of said you didn't expect a lot of kind of recovery to help. It's just like how you manage the business. But if you think about cost, so far you've been doing really well on margins. But there's also obviously an element of getting ready for things are getting better. How do you see the progression of investments this year? Thank you.
Sandeep Arjula
CFO
Thanks for that question. It's a super important one. Let me share some of my thoughts. First and foremost, I'll start with the fact that we're deliberately building this business to scale growth while increasing our profitability. In fact, those are principle ones and two of our financial principles that we use to manage this company. So that's a very deliberate approach that we are taking. And we have a track record of expanding margins over the years while bringing innovation to markets, such as into the SIS, such as building innovation to address the opportunity we have in the mid-market, such as innovation to localize products in for the international market. So we are not leaving growth opportunities on the table with our focus to scale growth and drive innovation. Now, the second component of your question in terms of the profitability profile so far this year, you know, we look at our margins and aim to deliver our margin commitments for the full year, and I feel quite confident in our path to do so. And the performance we had in the first couple of quarters, you know, in fact, bolster the confidence that I have in our full year guidance.
spk03
Perfect. Thank you.
Angela
Conference Operator
The next question comes from Mark Murphy with JP Morgan.
Mark Murphy
Analyst at JP Morgan
Thank you very much. So, Sasan, within the QuickBooks business, you have this growth vector in the market piece, and I'm curious if you're able to comment on the growth and traction that you're seeing in that 10 to 100 employee segment versus the 1 to 9 or 0 to 9 employee segment. For instance, is one of those growing mid-20s and the other is, hi, teams, just interested in how much of a spread you see there and maybe where you see it trending this year.
Sasan Ghadarzi
CEO
Yeah, sure. I'll add a perspective and invite Sandeep to chime in as well. I think the short answer is we are seeing more traction in our higher-value customers and our mid-market customers, which I think to your frame is 10, 15 employees and up or higher. or more higher revenue customers. We are seeing more traction there, more momentum there. And by the way, a big part of it is that's where we're really focusing, our innovation, our go-to-market. At the same time, to be clear, we always remain paranoid and always believe in the notion of disrupting from the low end, which is, by the way, why we Just launched a solopreneur offering, which is to be able to serve those small businesses that, in essence, they're on their own because we believe that it's helping entrepreneurs when they're a team of one because one day some will become a team of thousands. So we're not taking our eye off the ball on the low end at all, but we're doubling down on our focus on the higher value customers. And yes, we do see more resiliency, more momentum with these larger customers.
Sandeep Arjula
CFO
The only thing I would add is that the unit economics on the up market is also something that we find quite attractive. These customers, they tend to scale to much higher ARPC, especially as we get them to adopt our platform. They, by definition, have more employees. They, by definition, are processing more payments. So that's also something that we find attractive and is very much an area that we are having our go-to-market teams and our product teams deliberately lean in this year.
Mark Murphy
Analyst at JP Morgan
Thank you very much.
Sandeep Arjula
CFO
Very welcome.
Angela
Conference Operator
The next question comes from Steve Enders with Citi.
Steve Enders
Analyst at Citi
Okay, great. Thanks for taking the questions here. I guess maybe just on the SMB side again, I think you made a comment in the prepared remarks about shifting towards ARPC over time as As a growth lover, I just, I guess, want to clarify that comment. And then secondarily, does that change how you think about the levers of growth moving forward for the F&B segment from more toward the RPC away from the customer side?
Sandeep Arjula
CFO
Thanks for that question, Steve. The way we think about it, and as we were just addressing in the prior question, we see a tremendous opportunity in the mid-market for those that we currently define as having 10 to 100 employees. And what really excites us about this opportunity is that these customers come with a much higher lifetime value, much higher ARPC, and have better retention. And so that just helps our economics. But these customers also tend to have higher customer acquisition costs. And they are relatively fewer of those than the smaller customers, just by definition when you look at the overall addressable market. So as we focus on these larger customers, that means we will get higher ARPC per customer, even though there are fewer of those. So that is where the growth formula, we continue to abide by the growth formula that we have publicly discussed about 10% to 20% customer growth, 10% to 20% ARPC growth. But as we continue to focus on the mid-market, you should expect growth. us to lean in more towards the ARPC growth because of this dynamic with the mid-market. And we think that's actually a good thing for the business going forward.
Steve Enders
Analyst at Citi
Okay, perfect. Thanks.
Angela
Conference Operator
The next question comes from Scott Schneeberger with Oppenheimer.
Scott Schneeberger
Analyst at Oppenheimer
Thanks very much. Good afternoon. A couple tax questions. One, we're three weeks in. We're pretty well through the early season. You had anticipated earlier, before the tax season, that we would see a probably flattish year for the industry, and that felt kind of conservative. Now that we're in a bit, and we've also seen a return to DIY category shift recently, I'm curious if you have any update on what you're seeing for the industry overall thus far. And then the second part is on full service, you sound very happy with it, the 88 number recommendation score. Could you speak to some of the growing pain points you had last year and the fixes you're seeing this year as you're working your way through the early season? Thanks.
Sasan Ghadarzi
CEO
Yeah, sure. Thank you for the question. Our view, having been through however many tax seasons we've been through as a company, is it's early in the season to estimate how many folks will ultimately file when it's all said and done. With that said, our belief is still the same. You know, it will probably be total of number of filers will probably be flattish, maybe up a little bit. Our perspective, you know, really hasn't changed because our focus is how do we win as many filers, you know, within the category that are going to file. So the first answer is our view, you know, hasn't really changed. The second on full service and some of the growing pains, you know, I would call out a few from last year compared to what we're doing this year. You know, one is we actually made it difficult for customers to get into full service last year. And, by the way, it was more trying to ensure that customers were really, really getting into the right service, but we had – so much friction that we had created up front. And if you think about somebody that just walks into somebody's home or office and sort of hands everything over and says, here, get my taxes done, and then they interact until three, four weeks later until their taxes are done, the notion of engaging and putting a lot of friction up and asking a lot of questions up front is not a behavior they're used to. So that was a big learning and growing pain, a lot of which we have experienced remove all the friction and get a customer to engage an expert, depending on what we know about them, very, very early. So that's one. I think the second one, we learned a lot about what did and did not work in our campaigns last year. And there's a lot we are doing differently to really help customers both on-air and digitally, but also the infrastructure that we are working on, which by the way, is not going to be done this season, right? We're going to be investing in it for several years. We're basing things, which by the way, are very powerful, where if I did your taxes and you love the work that I did for you, and by the way, our product recommendation score of 88 would suggest that Our experts are delivering excellent service. You'd want to recommend me to your friend. Well, last year, you could not do that. And this year, we're building the capabilities so you can actually recommend me to a friend. And that virality is a very big thing, especially when you have an 88 product recommendation score. And then lastly is... 43% of those that use an assisted method that choose to switch to somebody else, 43% will actually go on Google and Google, is there a tax pro near me? And again, that's another example of where we didn't have the infrastructure to show up. And we're building that infrastructure. So I can tell you for a fact, you know, in San Jose, California, right, or in Los Gatos, I should say, if you put in tax pro near me, we will show up top of the list, we being TurboTax. If you do it in Atlanta, which is where I was a few weeks ago, we don't show up. It's because we're working on it. And so that's an example of the things that we learned last year that we're implementing this year, but not just for this tax season, but really to nail it with excellence as we think about the future. Great, thanks. Very well.
Angela
Conference Operator
The next question comes from Keith Weiss with Morgan Stanley.
Brad Zelnick
Thank you guys for taking the question. This one's for Sam Deep as well. Another margin question, but a little bit of a different angle. When it comes to generative AI, we're really been talking a lot about the potential top line impacts. Are there operating margin benefits that you guys can see through just better usage of the Gen-I technology internally, whether it's stuff like Quotasys or whatnot? And then on the flip side of the equation, given that a lot of this system is still ramping up, is there anything we should be looking out for on the gross margin line in terms of just, like, these capabilities being that much more compute-intensive and that much more impactful on COGS versus what you're seeing in consensus estimates today? Thank you.
Sandeep Arjula
CFO
Absolutely, Keith. So let me start by just reminding us all that the Gen AI costs for the current fiscal year have been incorporated into our guidance. So that's first and foremost. But now let me address the themes of your question. You know, as I think about the cost structure and our focus on the cost structure, since that's where your question was, we actually feel that we are quite advantageous versus the market in the sense that The data that we have, that we have touched on, that's residing behind our firewalls, that we are training our large language models on, that are delivering more contextually relevant answers at a faster speed versus other generally available large language models, and that they're doing that at a fraction of the cost. So just from a unit economics point of view for the Gen AI, it's actually advantageous the way we are running it. Two, we don't have our own data center, and we rely on AWS and other third-party data centers to run our model. So that, again, is a cost advantage because we don't have that build-out cost as some others might have. Furthermore, as I look across our business, I do see opportunities for us to, over time, improve our economics using Gen AI and AI. Now, we've already given examples on things such as in customer success where agents no longer have to take notes or spend minutes summarizing the call that they just had. AI does that. And that's just one small example, but I expect that to continue to lead to more efficiencies in a customer success call, lead to better unit economics in a full service and live offerings. And, you know, as you kind of carry that forward also how we are staffing our builders in terms of, you know, project managers to designers to engineers ratios. So I see many opportunities for us to continue to benefit from Gen AI, and I feel good about the early start that we have leaning into some of those capabilities.
Brad Zelnick
Got it. So net-net, it seems like a positive dynamic versus something that could drag on margins overall. That would be the right takeaway, yes. Excellent. Thank you, guys.
Angela
Conference Operator
Ladies and gentlemen, this does conclude today's question and answer period. I will now turn the program back over to our presenters for any additional or closing remarks.
Sasan Ghadarzi
CEO
All right. Awesome, everybody. Thank you for listening in. Thank you for your wonderful questions. Be safe. We'll talk to you next quarter. Thank you, everybody.
Angela
Conference Operator
Ladies and gentlemen, thank you for participating. This concludes today's conference call.
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