Intuit Inc. (INTU) Earnings Call Transcript & Summary

Hello, everyone, and welcome to talks at GS. I'm excited to be joined today by Sasan Goodarzi, the CEO of Intuit. Sasan has been at Intuit for 14 years and became the CEO at the start of 2019. Prior to taking over as CEO, he ran each of Intuit's 2 largest businesses, including Small Business and Self-Employed Group as well as the Consumer Tax Group. Under his leadership, Intuit is focused on its mission of propelling prosperity around the world. Sasan, thank you for being here. We really appreciate your taking time for this discussion today.

Well, thank you for having me, David. Great to see you.

Great to see you. And let's start with congratulations. You've accomplished 2 years, including one in a pandemic as the CEO. The company's financial performance has been quite impressive. Talk about how your journey is coming along. What are some of the biggest challenges you faced as you came into the job 2 years ago.

Well, David, as I'm sure it is for you. It's been a ton of fun, but it's been very intense. None of us expected the pandemic, and it didn't come with instructions. And so it's been a very interesting time. I took over an incredible foundation. And the foundation was a great company that primarily focused on serving consumers in small businesses, but solving their tax problem and their accounting problem. So really, what we've been up to the last couple of years is repositioning the company to a platform that can really power prosperity for all customers beyond taxes and accounting. So it's been a fun journey. We've refreshed our values, which is only the third time in its history. We refreshed our strategy to focus on being an AI-driven expert platform. I declared 5 bets for the company that, frankly, has really boded well in this environment because of just the -- some of the shifts that we're seeing to a virtual world to an online world, and money matters more than ever is core to the bets that we've declared. So we feel good about our progress, but it's also at the same time sad to see the hurt and the suffering of consumers and small businesses around the globe. And our -- what gets our heartbeat going faster every day is to find ways to help them more than ever. But it's been a fun couple of years.

No, that's terrific. And you're certainly off to a great start. And as you highlight, though, I mean 2020 brought a whole new set of challenges for companies, and you talked a little bit about how you're responding. What have you learned in responding to all these challenges? And how is it shaping your perspective on business life post the pandemic?

Yes. I would actually start with family. One of the things that this pandemic has taught me, and I know a lot of the customers that I interact with is, it takes you back to the core of the things that matter most, which is just really cherishing every moment that you have with family and not taking it for granted. The time that you have with them. I think I would say the second thing is empathy. It has really taught me empathy is more important than ever before for our own employees that we've had to shift them to work from home, some of the challenges that have come with the pandemic, the mental crisis and impact that's come with the pandemic. And so those are just 2 of the, I would say, the human elements of -- they sound so obvious, but it's just taught me the importance of family and empathy. From a business perspective, I would tell you that it has taught me that it's times like these where you have to double down on a reinvention and really double down on being aggressive. It's easy in an environment like this to sort of put things to the side and say, well, we'll get to that later. That's too big of a transformation of pandemic. And it's taught me and my whole staff that doubling down on the things that we've declared are more important now than ever before, leaning forward on our toes and playing offense is more critical than ever before. And so I would say those are probably the biggest lessons, family, empathy and reinvention in these very interesting times.

Yes. A lot of that resonates with me. And I know as I talked to so many other of our peers, there's -- this whole topic of empathy and how important it is, is certainly something we all take away. Very, very few -- I want to talk about innovation a little bit because you guys, you've always had a great ability to innovate. In fact, I'd say very few software companies have reached the scale you have because of your ability to innovate. And I want you to talk a little bit about, however, with 10,000 employees, how you maintain that culture of innovation and entrepreneurship to keep up rapid growth. You're a $9 billion revenue company, you got 10,000 employees, how do you keep that innovation going?

Yes. It's a very interesting question because we were born in the era of DOS, and we've had to lead through significant platform shifts over time. And first of all, I give a lot of credit to our founder, Scott Cook, and the many that preceded me in terms of the culture that we've created. I would say, as you know, it's not a formula, but it comes down to a couple of things. One is expectation setting. And two, just what we role model in our behaviors every day. One of the things we did when we refreshed our values last year was 2 elements we changed. One was about courage and the other around customer obsession. And so we talk a lot about our values and the expectations that we have of ourselves and every new employee that comes in, we talk about the importance of living our values. The other is our 2 north goals. We have a set of goals across 4 stakeholders: employees, customers, community and shareholders. And we really stay true to a very important customer goal that we have, which is around product recommendation scores and net promoter. And so we measure what do customers say about us. And are our metrics up in to the right or are they decreasing and why? So one is about expectations. Well, I would say, too, David, is just what we try to role model every day. Personally, I'm in our voice of customer, Slack channels. I listen to our customer success calls. I do virtual site visits, and a big part of it is engaging local customers. And I capture my notes, and we talk about it with all the leaders of the company. And what we've tried to do is just really balance where we're constructively dissatisfied. Because, as you know, anytime you think you're doing well, all you got to do is go read all the VOC commentary and customers ground you very quickly on what's important. So we try to expose that as much as possible across the company. And I think it keeps us paranoid, and it keeps us grounded.

Yes. I mean it's a good way to be and super important. Small businesses are getting a lot of attention. And you guys are a company that provides finance, payroll, accounting, payment solutions for a lot of small and medium-sized businesses. Talk about your vision for how your products are going to evolve to meet these customer needs. And from your perspective, working with small businesses, what else should others be doing, the government be doing to help small businesses during this incredibly difficult time that they're facing?

Yes, sure. Let me take the first part of your question. Our history, and when QuickBooks was founded, it was really founded on helping you be organized and make sure you can get your accounting right and make sure your books are right. And that's why we have such a tight relationship with accountants. I think the significant shift we've made over time is we're focused on helping small businesses grow. We're helping -- we're focused on getting the unpaid, giving them access to capital, making sure that they can take care of their employees and ultimately ensure that their books are right. So really, the evolution of our platform, and we're an open platform. We have -- I get asked a lot by investors, "Well, why do you have applications that are your competitors on your platform?" It's because we're an open platform, and I want customers to have access to what they need. And so on the QuickBooks platform, you can use Hubspot to do CRM and get more customers. You can get paid through the payments capabilities that we have or others. You can take care of your employees, you're going to have access to capital. So I think more and more companies need to be in a mindset of how do I have a platform that's agnostic, that helps a small business truly run their business, manage their cash flow, give them access to capital to enable them to do what they do best, which is whatever business that they're in and the passion that they have. So that's really the evolution. That's where we've accelerated a lot of our innovation, is to provide those -- all the capabilities that a small business would need whether it's created by us or one of our partners on the platform. To the second part of your question, David, and I think you've been an incredible advocate for small businesses. I think, first and foremost, just safely but aggressively moving out with the vaccine. Fiscal stimulus, recognizing that by industry, it's different, by state, it's different, but small businesses are struggling. I admire them for their passion to be scrappy. But at the same time, customers are spending less with them. They have less employees. And in some cases, depending on what you do, your doors are closed, if you're a hair salon or a restaurant, depending on the state that you're in. So I think it's fiscal stimulus and moving aggressively to address this health crisis is what's going to help small businesses, especially in an era where they're 50% of our economy, and they're the lifeblood of the economy around the world.

Yes. So to that point, through QuickBooks, you have access to, I think, over 7 million small and medium-sized business customers. Do you have any insight into the pace of recovery for these businesses as you look at that customer base and you interact with that customer base?

We do -- it's different by industry, and it's different by state, and then for that matter, by country. But let me get more specific. I'll use United States as an example. In states like North Carolina, New Jersey, Arizona, Texas, we've actually seen pretty strong recovery. But then in places like New York, where you are in California, where I am, the recovery has been much, much slower. So that's sort of geographic-specific. And then from an industry perspective, fitness, education, restaurants are really struggling for the obvious reasons, right? Most stores are -- when you think about restaurants in most states, it's take-out only. So they're really struggling. And then things like computer, software, bookkeeping are really thriving in this environment. So the net-net of it is things have bounced back. But in general, our biggest indicator is we look at the bank balance of our small businesses, and they're, on average, down 20% to 25%. And depending on the industry, they can be down as much as 75%. So I think the headline uses they're fighting for their life. If things have bounced back, they are getting used to working in this new environment. However, it's important to recognize that we just got to get through this health crisis, create some fiscal stimulus just to keep them afloat until we get out of this crisis.

Yes. Yes, that's interesting. It's an interesting data or insight that you have based on what you see. You recently closed the acquisition of Credit Karma, which is the largest deal ever, I think, for the company. So first, congratulations. That's a big deal, to close a deal like that. Talk about your vision for Intuit and Credit Karma coming together.

Yes. I'd tell you, we couldn't be more excited about Credit Karma, just from a cultural perspective and what they bring. David, our vision is we used to just be able to do your taxes. And our vision now is that in one place, we want to help you make engine. We want to help you reduce debt. We want to help you save money. And so Credit Karma is really a data platform, and it really creates a network effect. The more consumers that use it, the more others want to participate, whether it's financial institutions, insurance companies. And our ultimate vision is that in one place, you can get access because of your personalized data that we have, with your permission, we can give you access to credit cards that are right for you where you're preapproved. We can give you access to loans where you're preapproved and the right for you, help you save money on your car insurance and home insurance. So just give you access to financial products because we put the power of the data in your hand. And because of the data platform, we can make a perfect match where you're preapproved. The second is around money. We partner with financial institutions to give free access to checking and savings accounts, debit cards. We're going to be rolling out early access to your wages. So we want to make sure that you have the ability to make more money or to better deal with the money that you have. And then third is just advice. Those that look for financial advice for us to make expertise available to you. So really, ultimately, I know this is an overused word, but it's a super app. It's 110 million members. It's a big data platform, and it's to use the power of the consumer's data to help them access ways to reduce debt and save money. And taxes then becomes one element of what we can do on the platform, not the only thing that we can do.

Yes. No, that's great. And there's obviously a lot that can be done that can simplify people's financial lives and give them better, more frictionless access to all sorts of financial services. And so it sounds like a good point.

Yes. We're excited about it.

Yes. That's terrific. You touched on tax and you've got Turbo -- you've launched TurboTax Live to help customers work on their taxes by getting live video help from a professional accountant with actually out having to go to a bricks-and-mortar location. How disruptive do you think that kind of a service will be to industry share dynamics around tax preparation?

Our view is it will be very, very disruptive. The biggest customer problem that we face that's unsaid is confidence. Whether you want to do your taxes or if you're a small business and you're trying to run your small business, folks lack confidence. It's their money, and they want to make sure that, one, they get their maximum refund in the case of taxes. But then two, that they don't make a mistake or the IRS will come after them, to help them solve the mistake. And so confidence is the biggest issue. I mean there's 86 million folks that do taxes with somebody else. And based on the work that we've done, literally more than 70 million would love to use a digital platform as long as, on a click, they can get access to an expert. So we've been working on this for 8-plus years. We're actually now in our -- the beginning of our fourth year of the launch of TurboTax Live. And we think it's game-changing. It's the fastest product growth that we have ever had. And 70% of the customers come from an assistive tax method, and they're able to get expertise and help anytime they need it throughout the experience. And we just launched this year full service where you can just digitally exchange documents, and we'll do everything for you. So we think it's a disruptor and it's priced lower than alternatives. And we can't wait to see the benefits that it delivers for customers.

That's exciting. That's exciting. Shifting gears, I want to go back, you made a comment about a big push in investment in AI. Can you share a bit more about the specifics and how you hope to realize value as a company from AI?

Yes. We have defined AI in 3 components. It's machine learning, knowledge, engineering and natural language processing. From a machine learning perspective, it's leveraging all the data on the platform to really build decision engines and algorithms that automates the work and find ways to put more money in our customers' pockets, and I'll come back to that in a moment. Knowledge engineering is turning, in essence, rules and the relationship between data into code. So again, we can sort of automate everything. And then natural language processing is the way you and I are interacting, how do we automate how humans interact with the product. So we have very specific areas that we're investing in, which is the 3 areas that I mentioned. So to give you examples of the benefits. One, TurboTax Live, since you were just asking me about it. We use a lot of machine learning and knowledge engineering to automate the whole experience for the experts that are delivering the service for consumers. And so we ultimately use all the tax data that the consumer has to help the expert understand what deductions are the best for them. There may be an expert in New York that's serving a consumer in California, we help them understand all the differences in the rules and where the customer can get their maximum deductions. That's all through machine learning and knowledge engineering. And we're leveraging a lot of the same technology to do things like instant deposits, same-day payroll, to be able to provide loans to small businesses where no other financial institution may be able to provide the long because they don't have all the 360 data. But we use the data and crunch all of the data with our machine learning capabilities to be able to provide loans at times that are very tough for customers. So those are examples of where we're putting a lot of our investments just to automate workflows and find ways to put more money in the pocket of our customers.

Yes. And interesting ways to drive growth for the company. So very, very interesting. Unusual time for valuations, the market broadly, and for software in particular. With that being said, talk a little bit, as you think about your growth strategy going forward, what kind of a role M&A plays in all of that? We've obviously talked about an acquisition here. Where do you see compelling opportunities to really grow your portfolio and augment what you're doing?

David, in context of the customer problems that we've declared and the 5 bets that we've declared for the company, for us, our compass is speed. It's time to market. And so given our road map of what we want to deliver, we assess, can we build it fast enough? Our partnership is important here on the platform. And then -- and if not, then is there an acquisition opportunity? I think, to your point, Credit Karma is a great example of it happened to be a much larger acquisition than we normally do. But we felt that it was a game changer to truly be able to move beyond taxes and to help our customers make end meet and to truly be the center stone of making a difference in our customers' lives when it comes to money. So I think M&A will continue to play a very important role in the last several years. We've made a number of acquisitions. But a number of them have been very small but they've been either acquires or tech tuck-ins that has actually propelled a lot of the innovation that we've talked about in the last 30 minutes. I foresee acquisition playing an important role in just helping us position the company, to be able to help customers grow and to be able to really serve customers in an omnichannel world, which is what this pandemic is really creating. So very important role moving forward.

That's great. There's a question that's come in from somebody in the audience, if you don't mind if I take it. "Some people would say Intuit hasn't been a great acquirer over the years and has missed some key potential acquisitions. Would you push back on this? And how are you thinking on making sure that you improve in this area, if at all?"

Yes, it's actually -- there's 2 sides of an important story. One is when you look at our history in the last 37 years, we took a look back 5 years ago relative to all the acquisitions that we made. And we did a deep dive in terms of which ones worked and why, which ones didn't work and why? And that has been a playbook we've instituted. And I would tell you are, I'm going to knock on wood while I say this. Our track record with acquisitions in the last, I would say, 3 to 4 years has been excellent. We've made a number of acquisitions that TSheets, which is time tracking capability, Applatix, Origami and now Credit Karma. And we've actually exceeded every metric that we'd set in place for the acquisitions. And a lot of it is because we learned from our mistakes. And in fact, the narrative I now communicate based on our history and what we've learned is our track record in the last 4 or 5 years has been fantastic. And we now know what works and what doesn't work, and that informs every choice that we make. And frankly, things that we walked away from that the market is unaware of because we didn't think it would be a good fit based on our past learnings.

Yes. Yes. You've launched a couple of new products for QuickBooks, QuickBooks Cash, QuickBooks Commerce. Can you talk about how these products will drive merchant success and ultimately spend on the platform? Elaborate on that a little bit.

Yes, sure. In addition to the 2 that you mentioned, in the last 18 months, we've also launched QuickBooks Advance, which serves the mid-market and also QuickBooks Live, which allows us to serve the whole market by bringing experts onto our platform. And really, if I step way back and just zoom out, we now have the ability to serve both service-based businesses and product-based businesses. And we have the ability, with QuickBooks Cash, to disrupt from the bottom. QuickBooks Cash is now a sole place where you can ascend and receive all of your money without having to do any accounting. We do the accounting on the background for you. That's first businesses that just start out. And QuickBooks Commerce now positions us with our partners to be able to serve product-based businesses, which is not something that we focused on in the cloud. So I think it gives us the opportunity to expand our TAM. It gives us the opportunity to be able to serve the low end of the market, but also the higher end of the mid-market. And all of it is focused on how do we help customers manage their cash flow, how do we help them get paid as quickly as possible. And based on all the data that we have, how do we provide them access to loans to help them thrive at a time they need. For us, the singular focus is about automation and finding ways to put money in the customers' pockets, and that's really the core of all the innovations that you just brought up and I just touched on.

Yes. No, I -- it's a fascinating story. You've obviously been incredibly busy in your first 2 years, and it sounds like you're making remarkable progress. On behalf of everybody here, I want to thank you for taking some time to be with us, and really appreciate the conversation. Really appreciate your thoughts.

Awesome, David. Thank you. Thank you so much for having me, be safe, be well, and we'll talk to you soon.

You too. You stay safe, be well. I'll talk to you soon. Take care.

Thank you. Bye-bye.

Bye-bye.