Intuit Inc. (INTU) Earnings Call Transcript & Summary

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Hey there. Good afternoon. Thanks, everyone, for joining us for day 1 of the Wells Fargo TMT Summit. I'm Michael Turrin, software analyst here at Wells. We're pleased to bring our next session. I have the privilege of covering Intuit, and we have the privilege of having Greg Johnson join us from Intuit here today as well. I'll start off the conversation. I have a list of questions, but if anyone tuned in does have a question they'd like for me to ask, you can shoot an e-mail over to [email protected]. I'll do my best to add those into the conversation as well. Greg, thank you for joining us here virtually. Appreciate the time.

Maybe just to start off with and help frame the conversation, you can just provide some perspective around what falls under your purview, areas of focus on the consumer side from your end.

Sure. Michael, thanks for having me. So I am the General Manager of the Consumer Group here at Intuit. What that essentially means, think about our Consumer Tax platform of TurboTax as well as ownership of Mint, our Mint offering. I've been with Intuit now -- this is my 10th tax season. So we measure time at Intuit at least you do when you're in the tax business. This is my 10th tax season, 9 years in tax and 4 years as a General Manager. And essentially under my purview, I'm responsible for pretty much all the cross-functional support that goes into making our tax business a reality.

Yes. You've always said that each tax season is a little unique and different, but I bet you didn't expect necessarily the past couple of years to transpire the way that they've had. It's changed deadlines around and some of the seasonality as well. But maybe you could characterize before we get into the upcoming year and the initiatives you focus on just how the 2021 tax season shaped up for Intuit and for your business.

Michael, you know that -- I mean we had our share of curveballs. And I thought I've seen tax reform -- changes or tax reforms. I've seen stimulus payments. I've seen all kinds of stuff over the last few years. But I'd tell you each year is a little bit different. And the things we saw this last year had still to do with what is the behavior -- consumer behavior impact of COVID on the marketplace, what is the impact of changing in terms of the tax filing season and dates on consumer behavior, what is the impact of stimulus payments, higher levels of unemployment on the behavior of customers. Those are all the kind of concerns that went into last year's plan, and we came up the other side feeling pretty good about the results we delivered.

Yes. I want to -- you do a great job generally of providing an overview of some of the areas of focus for the business. And I want to just take some time and step through a couple of those. But when you talk about extending the lead, a lot of the focus has been on the underpenetrated segments of late. We thought we heard some just commentary around the growth in Latino investor and self-employed in particular over the past year. Would you still characterize those as the major areas of focus in terms of the segments that are maybe outside the core? And would you expect those to maybe outpace the overall business similarly, just assuming the world plays out at least in a similar fashion?

Yes, Michael. On those segments you just mentioned, they're fast-growing and underpenetrated, meaning that those segments are growing faster than the rest of the industry. As a matter of fact, last year, those segments combined grew at 13% customer growth. And 13% against the industry, that grew like at 3%. So when we grew at 3% or 4% the last couple of years yet these segments are growing at 13%, it does symbolize the opportunity. Now those segments are growing at 13% for us. That may not be the case across the industry. So we're taking share. We're addressing the penetration gap we have, but it's still significant. We have a long way to go before we get to the penetration levels equal to that of the typical TurboTax customer.

Yes. there's been a lot of focus on TurboTax Live and the expert-enabled platform over the past couple of years. Can you just help characterize the past year from a TurboTax Live specific perspective? Are you seeing maybe a bigger shift from just the fact that everyone's stuck at home and maybe doing a little bit more behind a computer or a mobile device than used to be the case?

Yes. Let me make 2 points here. One is that connects the underpenetrated segments as also with our TurboTax Live strategy. My gosh, am I just kind of dark here? Sorry about that.

That's okay.

The lighting.

You've got the certain time of day coming through.

Yes. The underpenetrated segments are not just the DIY opportunity. They're also an opportunity to transform assisted because that's where many of them are. And so what I would say on the TurboTax Live side, TurboTax Live, we grew the platform almost 100% in terms of users. We were able to grow our new users to Intuit through TurboTax Live by 100%. We introduced full service, and we found that our full-service offering was better at attracting, accelerating growth of new users even faster than our core TurboTax Live offering. So TurboTax Live is a platform that allows us to move from a SKU-oriented tax offering to actually a tax platform that allows our customers to choose their adventure. On a given year, they can file by themselves. They can get access to experts at -- one-click access, on-demand. Or they could just hand it off. And what we find is consumers typically year-to-year traverse that platform based upon what's going on in their lives. So that TurboTax Live platform has really transitioned the way we thought about our tax business to one that is positioned to address the needs of any tax filer versus just those that have the wherewithal to do it themselves.

Yes. You hit on the full-service offering, but I wanted to just spend a little bit more time on that and what that enables for filers that wasn't the case just with TurboTax Live. So maybe you can walk through the full service vision. And is that something that you saw filers asking for? Or is this the natural evolution? Maybe how just the full "do it for me" solution fits into this extended offering.

Yes. The full-service offering, it's -- the story, there's 2 things. We know that of the 88 million filers that are out there using assisted, meaning using the tax pro or going to a tax store, many of those millions of those customers will never do the taxes themselves. They just want to drop it off. Some want to get access to their money as fast as possible. They walk in with the W-2 and try to walk out with money. And some of those just are too nervous and lack the confidence. And so as a result, we knew that without our full-service experience, we are leaving a lot of opportunity on the table. We think by adding full service, we've seen 2 things happen. Number one, we've seen more new customers join our franchise, and these customers are customers that would never do it themselves but were attracted to the value proposition. The second thing we've done is we've seen it provide a halo across our business. The presence of full service even speaks to the expertise that exists with TurboTax, and that has created more interest and more trial among more customers. The way we got to full service is that as we interact with our customers and find out those that consider us and those that won't consider us, what's missing. And typically, what's missing is things like -- the #1 need is, "I want live expert help and this is -- I want someone to do it for me." The second gap was access to their money faster. And as you know, on our platform, we offer refund advances. We have opportunities to continue to improve the faster access to money. Those are the need gaps that informed kind of our strategy last year and that will really accelerate our strategies for years to come.

In terms of tax, I mean you do a great job of always laying out the growth drivers. There are a couple that are kind of outside of what you control or at least one with just overall filer growth, but the things you can't control are share and price. And so when you come into a tax season or are planning for multiple years ahead, can you just talk about what goes into the decision between optimizing on price and aiming to maybe gain more share even if that's on the free side in any given year?

Yes. There's not a formulaic approach. I mean we have principles. The principles we would have is when it comes to pricing, we price based on value and -- meaning that the pricing strategy does kind of correlate to our R&D investments and the innovation that we bring into our market. And so that's part of the calculus that goes into how we think about pricing. The other thing I would say is that our pricing strategy -- and we think about drivers of growth of our business. The best way to grow our revenue is to win with these segments that are higher, higher valued. And this is where you see our underpenetrated segments come in, our prior year assisted segments come in. Those are the segments that actually go into our higher-value products and that drive the momentum underneath our mix, and that's what's driven the average revenue per return growth that we've experienced for years.

Can you talk about the difference between the free and -- or the -- you give the combined average revenue, and then you've since broken out the difference or what free is impacting there. So can you help characterize for investors that aren't familiar of the difference between those 2? And what you're aiming to communicate by providing not just the combined but also the impacts of free in that conversation?

Yes. What we're trying to share and be transparent around is that we have customers in our business that pay us absolutely nothing. In other words, we get $0 revenue from those customers. And that was 17 million customers this past year with 6% greater than it was the year prior. Then we have customers that are paying customers. That's the bigger portion now of our offering. But those customers, we wanted to share the health as measured by our ability to continue to drive greater average revenue per return with customers that pay us something. And in this case, what we shared was that our average revenue per paying customer was up 8% just so you have visibility to that because we're also still focused on winning with free customers and those customers who pay us nothing.

Makes sense. Just going back one more time to just one of the things that you also frame out well is just the market opportunity. Now Intuit has had dominant share in the do-it-yourself category of the market. There's a bigger assisted population that you continue to build on-ramps towards. How encouraged are you by what you've seen from TurboTax Live and creating an on-ramp from that bigger potential population and just do it for me, make even more on-ramps to just make that end of the market even more accessible in your view?

Sure. So if you think about the consumer tax market, there are 2 segments that we talk about that are most significant. One is your do-it-yourself software, of which we have very strong share as it comes to customer share as well as even more when it comes to revenue share. The other part of the -- in this market is the assisted market. And this is where people are going to -- for live assistance are going to tax stores. That represents about a $20 billion TAM, and that's about 88 million customers that want to use some kind of in-person assistance in order to file their taxes. The TurboTax Live as a platform is designed to go after and transform that assisted market by making those experts accessible at their computer, the convenience of their home and on demand. And our experts are CPAs, EAs. They're real experts that are trained, that are very dedicated to serving customers and then have the benefit of augmented intelligence or AI that really helps them be more productive. That's what our 3 years of growth on TurboTax Live was focused on. We introduced full service, a totally different experience. With full service, you essentially just hand off all of your data to an expert. That expert interacts with you asynchronously and then synchronously on a call or a video and does your taxes for you, reviews your return and signs them for you. We believe that the combination of the as-you-go demand expert -- access to experts as well as the full-service access give us the ability to offer any kind of solution around taxes that consumers desire and do it in a way that's superior to their current experience. And by doing that, that's how we want to transform the market. And we've just gotten started. We've really just gotten started. Our total share was up 1 point this past year, but we still have significant share gains in the future. So I think we had 31 points of share, total share this year. That just shows you our opportunity to continue to expand our market share.

Yes. That's great. You hit on -- you mentioned at the outset -- I mean you didn't mention Credit Karma, but I'm sure you have some perspective there, too. TurboTax is amazing. It's the de facto tax product. But I think there's always been a hole just in terms of frequency of touch points with end consumers, right, where I log into TurboTax at the beginning of tax season, I complete my tax forms and then I go away. And then I come back the next year, but you might not have the full picture of the in-between. Is that part of what Mint was aiming to do? And is that part of what Credit Karma could help with as well as just create more frequent touch points with consumers that can just help you build better profiles and better touch points along the way as this all comes together over time?

Yes. I mean -- exactly. I think that's one of the major objectives with our Credit Karma acquisition. Number one is that we already know that they have a massive base. So that gives us scale. They understand their customers very deeply. So that gives us essentially data. And then as a consequence, with TurboTax, we have very complementary data that comes from a tax return that we're able to share with Credit Karma with consent that actually not only augments but enriches their data set. And that allows them to build richer experiences for their customers, experiences that allow them to things like drive preapproval, like get twice rate of preapproval when they have tax data embedded, offer more benefits to their customers like refinancing a mortgage, where now they have the data set to do that. The other thing that happens with this relationship is we see benefits in tax. We see tax customers and tens of millions of customers -- of members of Credit Karma that file in assisted. They overpay in assisted. So now we have the opportunity to embed our products and our services in the Credit Karma, remove the friction and on-ramp them into TurboTax as a tax filing alternative, same thing with TurboTax Live. We also have $105 billion of refunds that go through TurboTax each year. Those customer refunds can't go to the Credit Karma Money account. And with that Credit Karma Money account, that drives a lot of engagement, frequent touch points, and that allows Credit Karma to solve more benefits. And those benefits result in a beyond user-paid revenue stream from financial institutions. And so it does turn into what amounts to as a network effect platform that gets built between the 2 businesses.

Yes. I mean it all sounds great. I think one of the things that I've tried to articulate to investors over time is just one of the underappreciated elements of Intuit is just the data sets that you have, the sophistication that you've built around data. Having said at the beginning that this is your 10th tax season, I'm sure you have an appreciation for this. But for someone who might be newer or doesn't have the perspective, can you just talk -- walk through the journey of how much more sophisticated Intuit has gotten with data and what that enables for you from a product perspective?

Yes. And I'll answer that at the Intuit level because that's probably more important than just in tax, so to speak.

Sure.

We have 54 million W-2s that get imported, over 40 million 1099s that are imported. We have relationships with thousands of banks, FIs where we're able to import data. We have -- we serve payroll customers. These are customers that employers issue their payroll through in our small business size that results in data. We have over $280 billion of revenue going through our rails by virtue of that payroll relationship. You add on top of that Credit Karma, in Credit Karma with 121 million unique members, 41 million monthly active users, visibility over $7 trillion of transactions on their platform. You throw on top of Mint, Mint's data, and the fact that Mint also has over 190 million transactions that we're able to see each year. It's pretty phenomenal. All that data, when we have consent and that consent is given for us to deliver benefits to customers, can inform everything from how to personalize the experience, how to serve the opportunities that make the most sense for you, how to make sure you get preapproved before you apply because one of the worst experiences is you apply for something, you get rejected, it hurts your credit, and it turns into a downward spiral. But now that we have that data, we can make sure you're preapproved, give you confidence and really build your credit history. We save -- by surfacing opportunities because we understand your financial picture for you to make -- save money on your insurance because we have the data that we derive experiences. Our experts, we talked about them earlier. Our experts, not only are they trained but they also have the benefit of the wisdom that's gained through our network where we can find customers like you. And our experts now know that, "Hey, this is an anomaly," based upon an anomaly detection algorithm that allows them to say, "Hey, I should look at this more deeply or second guess this answer." And that allows them to drive even more accuracy. Data drives the way we match customers. So I can go on and on. The sophistication of being -- having the data and using it to drive our experiences, using it to deliver benefit, expose offers and remove friction is just scratching the surface of how data is enabling our AI-driven platform.

Clearly something you spend a lot of time thinking about. I mean, yes, there's a lot of power in a lot of the things that you laid out there. Intuit has this very amazing -- I don't know if it's an opportunity or how I'd characterize it. But you have a portfolio of household names now, right? TurboTax is synonymous with tax, and Credit Karma is synonymous with consumer finance. We all know MailChimp. We all know QuickBooks. But not everyone knows that that's all Intuit. And so I don't -- do you view that as an opportunity? Do you ever sit down with the marketing team? And is there a thought around the value of the power of each stand-alone family and its name versus helping reinforce that that's all one amazing company that's enabling all these products?

Yes, that -- we do spend a lot of time not just thinking but testing, experimenting and learning about that. One thing we're blessed with is we have a portfolio of cornerstone brands, the ones that you mentioned. All in their own right are leaders in their space. They have trusted relationships, and there's opportunities to continue to strengthen them. We know when those brands are connected to Intuit, once that association is made in that affiliation, consideration for each of our cornerstone brands goes up by virtue of being connected to Intuit and, therefore, connected to other brands. We also know that there's still opportunity for us to drive more awareness of that relationship. That's why you see us make investments like the Intuit Dome. That's why you see us in ads like the Super Bowl, the sponsorships in the NFL. All those things are trying to find high-reach opportunities to not only tell our cornerstone brand stories but drive the association, the affiliation of Intuit as well. And to be honest with you, we have a long way to go still to get the credit for Intuit, its contribution and the affiliation with the cornerstone brand. So that's something we continue to discuss and work on.

Yes. We look forward, we hope you get courtside tickets to the Clippers for at least game for all the work you've put in. One of the topics that keeps coming up in these conversations is just the labor market, the tightness of the labor market, the challenges of finding, retaining talent. Intuit has always had great culture. I think we've always observed from the management team your internal promotions. There's just an opportunity to continue to rise through the ranks. How would you characterize what you're seeing in the hiring environment and Intuit's positioning and ability to stay on track in an increasingly difficult market for some in terms of keeping pace?

Yes. That is a very important question. I mean we're blessed with the culture -- a culture that our employees are just connected to, and therefore, our retention rates are better than our industry peers, if you will. We're also blessed with the culture where we have a mission. Many of our employees are very mission-driven. And matter of fact, all our -- I would say all our employees -- one of the #1 reasons why they're at Intuit, why they stay at Intuit is because they believe in our mission to power prosperity around the world. Another part of our culture is our customer obsession. It's not just that we innovate. It's the way that we do it, the way that we use customer-driven innovation and D4D. We call it Design for Delight. It's the way that we design our experiences by deep customer obsession and immersion. And when you do that, you get connected to the customer problems in a way that just gives you significance and a sense of purpose. So all of that goes into creating a culture that people want to be a part of and stay with. Now as it looks -- the market is competitive. And so we continue to always be on, trying to find the right talent, always hiring. We've had to learn how to always hire. When you look at the experts, the tax experts in our business, we are focused on training and developing them so they can essentially grow their careers with us, become credentialed. And as a result, they're actually looking at Intuit as a place to not only just be employed, but actually grow their careers. So the -- how we manage the talent marketplace is very critical. Our retention is a big key to it in maintaining that sense of purpose, and customer obsession is critical as well.

That's great. We have time for maybe one more, and I'll ask just around what's ahead. And it's hard to look too far ahead in tax season just because we've already talked about some of the unique attributes you might run into in any given year. But in terms of what you're focused on for the upcoming tax season and the mile-markers towards success that would delineate a successful outcome for you and for the business, what are you focused on heading into the end of the year and tax season for 2022?

We have communicated our guidance. And the last 4 years, I think we've had double-digit growth and the last 2 years outside the high end of our guidance. And our guidance for this next year, as you know, we communicated as 10% to 11%. And so certainly, I feel like delivering against our guidance is critical for us. That's a mile-marker of success. But probably from a business standpoint, the things I care deeply about, I want to see us make more progress around underpenetrated segments. Yes, we grew them at 13% and 20% revenue last year, but I still see opportunity and there's opportunity for us to move faster, do better. TurboTax Live, we're so early in that journey. Yes, we grew the platform 100% -- we grew almost 100%. We grew the number of new customers to Intuit by 100% but we can still do better. The awareness levels are still relatively low, and we still have to figure out how to communicate the benefits in a way that drives consideration and drive trial. So we see opportunities there. So I would call that very important for us to continue to drive significant growth on that platform. Our independent segments, I mentioned. Those are really important. And full service, driving awareness of our full-service offering is going to open up the door for many people -- millions of people who just don't want to do taxes themselves in any way. They need to be aware we have a full-service offering and that is superior and better than their alternative. And so those are some of the -- I think some of the most salient, the most specific kind of mile-markers that I see. I want us to make progress with how Credit Karma and TurboTax come together and collaborate and build experiences, share data and deliver benefits for customers in very unique ways. And the way that we do that would also be something that I'm looking for this next year. So we're looking for a little bit more of the same acceleration and just be mindful that even this next year will still be early. And I think the next 5 years from any perspective in our company are going to be much more exciting than the previous 5. So we've got a lot to look forward to.

That's a great spot to be in and a great note to close on. Greg, thanks. Best of luck with tax season. We look forward to seeing Intuit all over the NFL championship weekend in a few months, and wish you the best. Thanks again for your time, and thanks, everyone, for joining as well.

All right. Thanks, Michael. Go, Cowboys.