Intuit Inc. (INTU) Earnings Call Transcript & Summary

Thank you so much, everybody, for your patience as we get this Intuit session going. A real delight to welcome back home. Sandeep Aujla, a former Goldman alum, I take it.

Yes. Thanks for having me back. It's nice to see you back from a different side of the stage at this time.

Exactly. So maybe you could just -- congratulations on becoming the CFO of Intuit. Maybe you could just give us a brief introduction, what you did at Intuit before the CFO job and also what you did during your Goldman days, if it's not so embarrassing?

Yes. No, they're not embarrassing at all because we just stick to the daytime hours. Now I started my career in investment banking doing largely tech M&A, had a mix of Goldman and Morgan Stanley and really joined Intuit in 2015. So I've been there about 8 years. During my tenure at Intuit, I spent the majority of my time with the small business group, which most of you know as the QuickBooks franchise. And really, the mandate for what I was brought in was leaning into my nontraditional background to help accelerate that business transformation from being a source of truth for your books, largely an accounting software business, being a source of truth for your business to being a platform that has payment, payroll, Mailchimp, time tracking as part of its core offering. So in essence, that platform journey that we've been on. And as of August 1, this year, became the -- I had a good fortune being the CFO of the company. So it's been a fun ride over the last 8 years.

That's great. That's great. What is the mandate for Sandeep as CFO of Intuit? What does the Board want you to do? What does the CEO want you to do?

Absolutely. I've -- again, I've been at the company 8 years, over the last 5 years been amongst the top 20, 24 people at the company responsible for finance for the largest part of the company over 50% of the Intuit's revenue as well as working with our CTO over the last several years as we have leaned into being an AI-driven expert platform. As we know we declared our focus on being an AI-driven expert platform 5 years ago, long before it became fashionable to talk about AI. And what that meant is over the last several years, I've had my fingerprints and I've had my influence on how the company has managed its investment, how the company has leaned into growing as a platform business, how the company has leaned into scaling our profitability by being efficient in how we manage the business and finding operating leverage across the investments that we made. So looking forward, is continuing to build on that great platform on preserving the value that's there but also to help put tangible growth points on the board. As I look ahead, it's an opportunity to continue to lean into executing across our 5 Big Bets, is lean into penetrating a TAM. We have over $300 billion TAM that we are currently 5% penetrated. And as we lean into executing our Big Bets, as we lean into incorporating GenAI, we see massive opportunity to continue to further penetrate that TAM. So that's what I'm looking forward to delivering on over the coming years.

Yes. And we'll definitely get talking a little bit about AI Assist that you guys announced -- Intuit AI Assist that you guys announced today. But even before we get there, I'm really curious to get your thoughts on the state of the SMB environment and confidence of consumers today, just given -- having the SMB platform, the QuickBooks platform, Credit Karma and all the other touch points that Intuit has.

Yes. Great question. And across our platform, we serve 800 million customers, both mix of consumers and SMBs. So the perspective that we get on the economy is based on both what we see in our own platform that people use to manage their financial lives, to manage their businesses as well as externally. So let me start with the SMB side. I personally continue to be amazed at the resilience of the small business owners and their entrepreneurship. What we are seeing is that they continue to have strong reserves. Their cash reserves are higher than their prepandemic level, albeit it's down about 10% from where it was last year at this time. They're having a much better time of attracting and retaining talent than what the environment was 15 months ago. And they are facing less pressure from the supply chain as well as inflation on their cost structure. So those are all the positive the glass-half-full aspect. On the other side, we are seeing access to capital becoming constrained. The cost of that capital has continued to go up and the pricing power also of the SMBs continue to get impacted. So net-net, it's a -- it remains a pretty mixed picture for the small businesses out there, and we think the environment remains uncertain and that's some of the factors that we incorporated when we talked about our guidance a couple of weeks ago. So that's on the SMB side. On the consumer side, what we are seeing is that FICO scores are down about 12 points since March last year. We've seen consumer balances on their debt is up around 30%, particularly for those in the 600 to 660 FICO. You layer in the fact that they're carrying higher balances and the cost of those -- that debt has gone up order of magnitude just given the rate environment that we are living in. So the consumer is feeling that pressure from the higher debt payments, and that's all before we even get into the student debt repayment starting, which I think happens later this month. So the consumer picture also remains a bit uncertain, but they still have good cash reserves, and it's a matter of how those cash reserves are preserved or not over the coming months.

Yes. No, I think that's a really good color into the landscape that you have -- the purview you have is unparalleled. And I think that you mentioned actually hiring in -- within SMB, and I wanted to double-click on that. I know Kash doesn't love that term, but...

It's personal. That's it. To give you the context, I said that we're going to really try and steer clear of cliche terms such as double click, dig deeper, segue, shift gears.

We'll expand on that.

And we'll make sure we keep our ducks in a row here.

That's another cliche.

That's another Goldman cliche.

Yes. So I mean, when it comes to hiring, how does that impact into its perspective and what Intuit is maybe potentially how it's shifting the user dynamics and your appetite for hiring?

Absolutely. For us, a couple of things I would state is that we have always been prudent in terms of our hiring. We always make sure that we continue to lean into growing our revenues faster than expenses. The part that comes in that we make sure even when the times were great about a couple of years ago when everyone was hiring handover first that we were being prudent in terms of the head count that we hire and we lean into making sure that we are hiring coders, hands on keyboard or that we're rehiring folks that are going to be bringing incremental revenue helping us go into new growth opportunities for the business. So we've always been prudent and that prudence continues in our hiring in this current environment. What we are seeing in this current environment is that employee retention has gone up significantly. So that means that we are having to naturally hire less because we have less vacancies to fill. But in terms of our hiring practices, we've always been prudent. We continue to lean into that prudence and hire folks who are going to help us unlock additional growth opportunities as a business.

Unlocking growth opportunities definitely brings us to AI. I know you guys have announced AI, it's Intuit Assist this morning. And it really touches on all aspects of the Intuit platform. Where do you potentially see more of an outsized impact, whether being QuickBooks or online payments or whether it be in TurboTax or Credit Karma or Mailchimp that you can keep going.

Yes. No, absolutely. I know we had Innovation Day earlier today at 9:30 a.m. Pacific. Many of you were here in the conference. So let me just set a little bit of context and then I'll definitely address the question you have. As a platform, we have multiple advantages that set us up well in the era of GenAI. First and foremost, we declared our strategy to be an AI-driven expert platform 5 years ago. And we have been investing in AI talent over those years. We've been investing in machine learning models over those years. We've been investing in knowledge engineering over those years. So we had a massive head start in this space.

It took 5 years to do this. So because there's a prevailing view that you can use any of these generic LLMs and teach them to how to do taxes.

Exactly, and I will address that as well. I think the prevailing view is sometimes a bit optimistic based on what the reality tends to be on some of these areas. So we've had a head start. On top of that, across those 100 million customers, we have a set of data that is uniquely accessible to us because it's behind our firewall. We have 60,000 attributes per consumer across their financial lives, across their income, across their expenditures, the categories they tend to spend in. We have a 360-degree view of the SMB across your customers and suppliers. And there are 500,000 unique attributes that we have per SMB in terms of their cash flow, in terms of their cost of goods, their cash balances and capital need. And all that data, as I shared is behind our firewall. So it's uniquely accessible to us to train our models on to help deliver differentiated value to our customers to, in essence, make the data from the 100 million customers on the platform available to improve the prosperity of each and every individual participant on that platform. That is a unique competitive differentiation that we have. So based on that, what we announced this morning was Intuit Assist. It is, in essence, a continuation of our platform going from one where small businesses consumers came to do the work, to get the benefit, to now having a lot of the work done for you automatically to where they're getting accelerated time to benefit and continued better insights to make smarter financial decisions as a small business owner or as an individual. That is Intuit Assist. And what excites us for the opportunity ahead is that we think it's going to provide us an opportunity to unlock the TAM. I shared earlier, $300 billion plus TAM that's only 5% penetrated by making it easier for our customers to come and onboard onto our platform to discover various capabilities across our platform and adopt those capabilities to get repeat insights and benefits delivered to them in their pocket so they can make smarter decisions. It just opens up the aperture on how we unlock that TAM. Secondly, we are uniquely positioned as a business to make sure that at Intuit, there are no dead ends with GenAI because we're in the business of providing our customers 100% confidence. Sometimes you get to the 100% confidence, you need to go beyond GenAI. In our experiences when they're dealing with a unique situation when they're filing their taxes or they're dealing with a unique complexity when they're making a business decision with 1 click of a button, they will be linked to an expert who will have contextual awareness of their situation and can provide them that insight to give them that 100% confidence. So that's an upsell opportunity to drive adoption of those agents. And thirdly, there's an opportunity for us to price for this innovation that we're building into those platforms. So both in terms of the innovation we are delivering and the benefits that are delivered to the customers and the business outcomes that will deliver to our company, we are quite excited for...

Both across QuickBooks and TurboTax, right?

QuickBooks, TurboTax, Credit Karma, Mailchimp is across the entire platform.

And how do we monetize this value add?

The monetization strategy is across those 3 prongs, I just touched on. One, unlocking the TAM for us by making the product easier to adopt and get onboard and get benefits from. Two, opening up the funnel to live agents to drive that upsell as customers want to go beyond GenAI to get to the 100% confidence. And thirdly, we've had a long-standing tenant around pricing for value, as we add more capabilities to our product, it just opens up the opportunity for us to price for that value that we're building into the offerings.

We've not had a price increase in about a year or so, right, for QuickBooks?

We actually announced one recently.

Just recently. That includes AI capabilities as well?

That does not. So AI is not included in the guidance that we provided a couple of weeks ago.

So will the AI be -- will you be able to charge more for this capability or only be paid the 3 ways you just talked about?

In the near-term cash, we are really focused on making sure that we're delighting our customers with the AI experiences that we're driving repeat usage of those experiences. And as the 2 of you well know our company, we are always experimenting across our lineup, across our products to see what the pricing that works? Or even if down the line, there could be standalone SKUs or bolt-on SKUs that are AI focused. So these are things that we are going to be experimenting and learning from customer feedback. But in the near term, we are focused on making sure we're delighting our customers and driving repeat usage of Intuit Assist across the platform.

And is it going to be broadly available at some point to everybody or what's the rollout schedule?

Absolutely. So right now, it's in beta. And depending on if you are in the beta, you have access to it. But in the coming months, we will be going to general availability across these offerings.

And so you're comfortable with the ability to scale across 100 million users. I mean that's a pretty massive rollout if you make it available to that large of an audience.

It is, and we are comfortable with that rollout. And quite frankly, it's one where we are -- we feel we're advantaged because one of the things that also behind your question is rolling it out to 100 million customers. If you're doing it, you're relying on third-party solutions it's a harder rollout and it's a significantly expensive rollout. And that's why we have an advantage in the sense that we have our own proprietary data. We are building our own large language models, which are not just contextually more relevant to the financial situation that customers are trying to address, but they're also much more cost efficient to run, thereby aiding their rollout.

That's interesting. Can you tell us a little bit about this? Is that where we should be talking about the GenOS platform and what you've built -- good segue. I should not say segue, right? It's a good lead in to GenOS.

Sure. So GenOS for the audience that context is basically our internal platform that helps technologists -- so engineers across the company leverage our AI capabilities, our large language models to build solutions for all of our products at an accelerated pace. So that accelerated time to development then leads to accelerated time to market, and therefore, the potential uptake and business benefit from the offering. So the GenOS is the internal capability we have that basically helps our developers develop more efficiently and quicker, and it's something that's pretty unique for us across the entire platform.

Got it. So we're going to roll it out and customers will start using the Assist product and they are going to be made aware that this is a free trial period. Upon expiration of which would lead to a subscription, so how they're going to be?

So right now when we go to general OS -- sorry, general availability, the AI offerings will be in the product. So we will not -- we're not intending right now to have messaging around. This is a free trial for a period. It's a capability that's in the product and over time; one, that would unlock the TAM; two, just the way the product is structured, it will unlock the opportunity to connect with a live agent; and three, will continue to lean into testing to either price for it discretely or aren't the right to increase the prices across the SKUs?

Over a period of time?

Over a period of time.

Okay. Got it. The reason I'm dwelling on that is there have been 2 responses from companies when we ask them for generative AI products and pricing. Some talk about how they have a separate SKU like Microsoft and ServiceNow has a separate SKU, Pro Plus which is 60% more than the Pro version. And then they're going to stick with that and try to sell that SKU. And there are other companies that say, well, we're not going to have a separate -- we're not going to raise prices for this, but it's going to be part of the product, but it will be in a higher tier. So we hope that people will buy the Enterprise Plus tier which will include the AI stuff for free, effectively. So it sounds like it's a hybrid is somewhere between the 2.

It is a hybrid, and that's really just given the unique aspect of our business. A lot of the companies you mentioned tend to be enterprise-based companies. And what we are saying is: one, it drives product adoption because it just makes the product much more easy to onboard and get benefits from, get insights into your cash flow, get insights into can you take on a new job? And should you get access to QuickBooks capital to buy supplies to effectively execute on that job? Should you refinance your mortgage or your car loan? So those are all things that are going to drive benefit of the platform and adoption of the platform. At the same time, we will experiment to see do we put into certain SKUs and take up the price of those SKUs as what we have been doing over the years, as I know we have pretty good experimentation. And we're not ruling out that over time, we could have a stand-alone SKU as an example. So in Mailchimp, you have a Mailchimp essential SKU, and they could be discrete SKUs to help you run your marketing campaign end to end, and that's a bolt-on offering that you could buy. So these are all things that we want to make sure that we are leaving the optionality open for us to experiment and learn into to see what's the right offering that resonates with that customer.

So one of the motivations is to increase product adoption, what about the customers you have 7.5 million or so QuickBooks customers that have already adopted, right?

Right.

How do you get them to value the AI capabilities and pay for that?

Absolutely. So the customers that have already adopted QuickBooks as they use Intuit Assist -- as they engage with Intuit Assist to get insights into the cash flow. And cash was the biggest variable that's a key determinant of the success of failure of the small business. You will have insights such as -- well, you could improve the cash flow situation as an example, by driving pay-enabled invoices, but that drives cross-sell and upsell of our payments offering, which is separately monetizable. You similarly have insights around when you come to Credit Karma to get insights into your debt situation and there's an opportunity for us to either get better cost of debt by refinancing. So these are all opportunities that we think, drive the cross-sell in addition to driving increased adoption. It's 7.5 million plus customers, but that's a fraction of the TAM that's available to us.

And I wanted to actually ask you a question still on generative AI, but more on the cost side. And when we think about like the models themselves, right, we're talking about it really being embedded into a variety of different components and use cases within Intuit platform. Are you training individual models across those different areas? And how are you managing the cost for something like that?

Absolutely. Just a couple of points there. One is, if you're relying purely an external models to run your GenAI as a company, those are quite expensive. Those models you're paying per character to process for answer and the cost scales up pretty quickly. That's where we are leaning into building our own large language models. So currently, we do use some external models, and we also have an internal large language model that we are using and the teams are working and building more models. So it will be a mix of those. And that's what, quite frankly, gives us a competitive advantage, not just in the experience we're delivering to our customers. As an example, if you were to go to one of these external models and ask for help in doing a journal entry. The model, I think, you're talking about writing a journal like a nighttime diary as opposed to when you come to our large language models because they're trained on financial data and they have the contextual awareness that you're asking a financial question. They will answer the journal entry question around what's the right journal entry to make depending on the expense or situation that you're dealing with. So it's a competitive advantage, that just also happens to come with a cost structure advantage as well.

Yes, that's great. And is that included into your guidance? Because I know you mentioned that the top line contribution is not right now.

Exactly. Sorry, I missed that part of the question. So cost of development and running GenAI models is included in our guidance. We are not including the potential business upside from GenAI in our models -- in our guidance, sorry.

The improvement in retention can be a pretty powerful lever too.

Improvement in retention, conversion rate using QuickBooks as an example, mainly because I spent years in that business, you have many customers that come in by QuickBooks and then they discover a few weeks later that maybe the product is too complex for them and is taking them too long to set up or it's taking too much work to get repeat benefit from it. So they fret. Now with GenAI, we could, in essence, help them seamlessly get onboarded, instantaneously give them the benefit and insights into their cash flow, insights into when it's the right time to maybe add an employee to help uplift their revenue profile as a business. So they are getting instant first benefit and much more seamless and almost no work repeat benefit that just drives better product retention to your point as well as a conversion because now we are having them come in, experience that product and convert from maybe a free trial into a paying user.

Got it. I'm going to ask you my least favorite question. Probably it's the least favorite question or topic for a lot of people here are taxes which we all dread doing. I dread doing taxes but it has to be done.

That's why a lot of people are delaying doing their taxes [indiscernible] doing them.

Lessons learned in the fiscal '23 tax season and lessons applied to fiscal '23. Can you just talk to us a little bit about that?

Yes, absolutely. Let me share some of the learnings from fiscal '23. So one is, I think us and the entire industry, including the internal revenue service we're surprised by just how much of the COVID era filers who filed their taxes just to get the COVID benefits was still in the baseline. So that, in essence, was the key factor that led to our performance in the tax businesses past fiscal year being below what our expectations were for that business. So it's largely a macro impact. The biggest learning there is that consumer behavior is just really hard to predict. And when given a chance you should almost bet on the body of the American populace to procrastinate doing their taxes. So that was a learning. But let me share some of the real positives that came out of this past tax year. So one of the big opportunities for us as a business is the 87 million filers who filed their taxes as an assisted. I mean they work with someone else that signs a tax return on their behalf. And that's a market that's fragmented, highly inefficient that we have an opportunity to disrupt using GenAI capabilities and our live platform. And what we discovered this past year in our full service offering is that the product recommendation score was 84. And most of you who look at product recommendation score, something in the 60s is considered really high end. A lot of our products are in the high 40s. So a score of 84 means we've got a pretty solid product market fit. So we're actually looking forward to leaning into a go-to-market motion to really drive the penetration of assisted category there next year. So that was one excellent learning that came in. The second learning that came in is that across our Credit Karma platform, we have about 45 million monthly active users, about 129 million members, and they all need to get their taxes done. And by improving the integration between Credit Karma and TurboTax, by having customers be able to take their Credit Karma information into TurboTax and get the taxes filed, we saw a 5x increase in the number of customers going from Credit Karma to TurboTax. So we're leaning into making the experience even more seamless next year. And vice versa, we saw a 45% increase in TurboTax customers adopting Credit Karma money to get access to their tax refund within minutes of the IRS adopting it. So those -- while it was a tough tax season, there were many good learnings that came out of it that has only bolstered our confidence in our long-term opportunity with the tax business.

Have you ever thought about having a promo and say, if you are a Credit Karma customer, you want to get your taxes done for free, where generative AI, our product will help you do that. But it's only on 1 day or 2 days, right? And then get people to see how valuable it is. And so -- or you do it one particular season, next season, you go back to normal pricing. You could instantly convert $87 million or whoever -- that intersection of $87 million and you're Credit Karma customer base, not that everybody would be -- that's a different demographic which I completely understand.

Yes. And you -- the 2 of you have known our company for years, you can -- rest assured, we are flooring around disruptive ideas as a business and experimenting with those ideas all the time.

Procure to pay your taxes.

Without giving too much competitive intel, stay tuned for all -- to implement all the learnings from this year into what we bring to market next year.

Thank you so much. So there's -- we're on to something here. I mean I didn't make it up.

Collective thinking around it.

Yes. At least we continue to make taxes as exciting as they could be.

Exactly.

Pulling on that thread, how creative do you think Intuit needs to be to continue to drive the user growth that you guys have been seeing? And I know your long-term goals are still to drive user growth of 10% to 20%. And so -- maybe walk us through that within your SMB segment as well as also the other side of the house, which is more of our ARPC or average revenue per customer.

Sure, absolutely. And your question is mostly focused on the small business.

Switching over a little bit to the...

Absolutely. So in our small business segment, our growth algorithm is 10% to 20% customer growth, 10% to 20% ARPC growth. And we continue to see meaningful runway ahead in terms of that -- of the customer growth. We have significant opportunity in the mid-market as well as the core SMB. We describe our core SMB as those with 0 to 10 employees and mid-market as those from 11 to 100 employees. And over time, we expect to scale that up. But there remains opportunity for us to continue to lean into driving that product adoption, both in the U.S. as well as international geographies that we are a part of. And our -- the acquisition of Mailchimp has only opened up the aperture there. Mailchimp is really going to be the tip of the spear in helping us drive international adoption. One of the delighters that we had when we were going through the diligence process on Mailchimp is almost through happenstance, purely through a passive approach, the company had half its revenue internationally. So what we have done is we have taken a deliberate stance in how we lean into international growth, including translating the product into 5 languages that have the largest addressable market out there, as an example, Spanish, Portuguese. And what we're seeing is better product adoption and an uplift in the funnel conversion metrics by just doing good language translation. And now we are leaning into -- now we're leaning into the localized go-to-market motion and the localized lineup across that. So we expect that to drive international growth. And on top of that, the mid-market runway on Mailchimp and our core QB offering just remains strong. All the improvements we've made, we are seeing Mailchimp mid-market retention be the highest than it has been in the last 2 years. So all those factors give me confidence in our 10% to 20% customer growth algorithm for the small business segment.

Sasan, in case you're listening, Sandeep is doing a great job. He does listen, right, I mean sometimes.

I'm sure he does.

He was here last year on the same stage. Okay yes, yes. [indiscernible] anybody with questions for Sandeep, if you have a question. I see 1 raised hand. Can we get the microphone, please all the way back?

I guess, when you think about GenAI, to what extent can you use that maybe as a tool to be very disruptive at the kind of the core DIY part of the market, right, where you have this like a large group of free users, and also the long tail of competitors where it feels like you guys could probably gain another leg of share just either by being very disruptive to your product or just through pricing. It would be great to get your thoughts on that.

Got it. I missed the first part of the question. Your question is basically are opportunities Intuit to be disruptive in DIY category using GenAI?

Yes, precisely. Yes. Yes.

Absolutely. I think GenAI allows us to be disruptive across all bands on the tax category, assisted as well as DIY. A couple of things on the DIY opportunity that we have is everyone dreads doing the taxes. It might come as a surprise to some, but folks don't like to do their taxes. And with GenAI some of the things that we experimented even this year with TurboTax Express, we were able to get people through the tax experiences, some people through the tax experience, I should say, in 5 to 10 minutes. So GenAI just order of magnitude improves the ability for us to make that tax fun experience, particularly for the simple filers, that tend to be largely DIY, just that much more seamless, which I agree is a disruptive opportunity and you layer on to that, the unique competitive differentiation we have in terms of the 60, 000 attributes we have on the consumer, the large data set and our own large language model. I think we do have a massive advantage vis-a-vis other offerings in the marketplace to be disruptive, not just in the DIY category, but also in the assisted category.

Any other question. We had a question on the guidance for SMB 16% to 17%, that's a little lower than where you've been operating or maybe the small business online ecosystem has been running significantly faster. So if we don't have a recession, it looks like [ Jan Hatzis], our Chief Economist has been right all along in calling for a soft landing. We call it software landing. It's patented by Goldman. Hopefully, it will be. So if we have a soft landing, what are the upside factors that could cause that projection to be conservative?

What I would say about our small business is that the context is this last year, the business grew 24% or points of that growth came from the acquisition, the timing of the acquisition of Mailchimp. So the organic growth rate is 20% on that business. We've shared previously that 80% of the business is subscription-based. So it's a recurring revenue, making it quite predictable. And we saw a really good trends in the areas we're focused on, such as mid-market and the live platform as well as our opportunities in the fintech area such as our money offerings. So that is all the areas that we have confidence that goes into our guidance of 16% to 17% growth. Now at the other hand, we are seeing a pretty uncertain environment out there. With all due respect to [ Jan's ] and his perspective, we take perspectives from external folks such as but also combine that with what we are seeing in our platform. So that's part of the prudence we are taking in our guidance just because we do expect the next 12 months to be uncertain, and we don't want to be banking on an expansionary environment, hence, the guidance that you saw from us coming out.

Got it. On that note, you perfectly ended on time. It was perfect. It was a great landing. That was a good landing.

But the 2 of you managing it, are you surprised?

Thank you so much, Sandeep.

Thanks for having me.

Thank you Sandeep.

Welcome back home, and thank you so much. So let's join for cocktails at 5:00. Thank you.