Intuit Inc. (INTU) Earnings Call Transcript & Summary

Hello, everyone, and thanks so much for attending this event. If you don't know me, my name is Taylor McGinnis, I'm on the software team at UBS. And this session is with Intuit, and we have Mariana, who is the new Head of the Small Business and Self-Employed segment. So Marianna, thank so much for coming.

Thank you for having me. I'm super excited.

Yes. Maybe, Marianna, I think a good place to start since I know you're not new to Intuit, right? You've been at Intuit for a while. You were in the CTO role, but I think you're about 3 months into this new role. So would just love to hear where your key focus areas are, where your priorities are? Should we anticipate any changes under your leadership, and how things could potentially differ?

Fantastic. Maybe I can also take the opportunity to kind of tell a little bit about myself and what I've been doing at Intuit. But I've been at Intuit for over 6 years, and I started actually in this business unit, running engineering for the business unit. And then for the last 5 years, I was the CTO, Chief Technology Officer, of the company, really much involved in our platform strategy, defining it, implementing it, et cetera. As part of being a CTO, I was responsible for technology strategy and execution, our security, our IT [ elephant ], and including our SBSEG or our Small Business and Self-Employed business unit engineering. So like all of it is very familiar to me. Also being part of CEO staff and being part of defining the strategy, so while I'm new to this team, I've been at Intuit for a while, and I'm very familiar with it. In terms of how -- where I focus and how priorities might change, I'm actually going to say that the priorities at a high level, they're not going to change. And if you don't mind, I would like to iterate some of the big ones, but maybe there's like a little bit more color or flavor that I would add with my new hat. So first of all, some years ago, again, as an executive leadership team of the company, as CEO staff, we declared 5 Big Bets or 5 priorities and 4 of them are very relevant to small businesses and this business unit. Let's start from the first one, which is speed to benefit. This is about data and AI, and how do we get customers fast to their benefit. And what we are more recently focused in small business is generative AI and Intuit Assist. And then Big Bet 2 is connecting people to experts, and this is our live services, is another big bet. So I'm going to continue to focus on that. And then Big Bet 4, which is being the center of small business growth, which is part of the reason why we acquired Mailchimp because we were missing that as an ingredient as well as our money services like account receivable, account payable, capital and so on. And last one is to disrupt the mid-market small business, and this is going after like bigger companies. And of course, one of the things I'm excited about is all the connection between all of these. But if I can just put then where you're going to possibly see changes is obviously with, the first one in AI. I'm very familiar with this space, and I plan to push harder on anything that has to do with AI and generative AI. So I'm excited about that. Already started making some talent changes and some other advancement there. With live services, I see an opportunity. While generically, the category remain the same, it's an opportunity to provide expert help across the customer journey and at the right time, like in more places and more expertise. And then in money services, I want us to really have awesome money capabilities because I know that often, it's about speed to money for our customers and going down in the stack and having really great capabilities are really going to help us. And with mid-market, the thing I will add there is actually my background before Intuit has been in enterprise software, VMware, Ariba, I also sit on a Board of a known public company. So I'm very familiar with kind of enterprise. And while we are not an enterprise company, I want to draw the distinction, I would see some opportunity to bring some practices in how we go to market, how we sell, how we think about future development. So those are the areas probably you'll see a more immediate change, and where I'm going to emphasize. And like I said, also in the connection of the ecosystem and all of our services together. That was a long answer.

No. That was a great introduction, and I want to dive into all of those different topics. But maybe before we get there, I think a very topical question amongst the audience here and investors is just SMB health, where this last earnings season, I think you saw mixed results amongst a lot of different SMB-exposed software companies. But last night, looking at your guys' results, I know your commentary sounded more stable, durable. So I'd love to hear what are you guys seeing on the SMB front in terms of demand? Has there been any incremental weakness? And maybe what are some of the tailwinds that might be offsetting that for you guys?

Yes. That's a great question. Actually, this was like in the different meetings we had today was asked multiple times, so I think there's real concern. And I would start from a stat that we are very familiar with, which is actually, it's very hard to be a small business, and we know that 50% of the small businesses actually fail in the first 5 years. So the odds are really stacked against the small businesses. And by the way, that stack doesn't change where it's good times or bad times. It's just hard to be a small business. We also know that for small businesses that are on our platform, their odds actually jump up, and they have -- 70% of those are actually succeeding on this same time frame. So we are very excited about that, and we're focused on that. This is not by coincidence. It's a focus area for us, but it's hard to be a small business. I would also say that since the pandemic, it's been like this kind of like time where different headwinds for a small business, and it's been tough for small business, uncertain times, et cetera. And we take this into account when we make our plans, and we -- when we gave our plans, et cetera, so this is something we keep in mind. Particularly, to your point, we actually just announced our Q1 results this week, and they're really strong. We grew 18% in small business. It's very strong. Our guidance remains the same. In terms of where we do see weakness, I would point to 2 areas. One is when we look at our data and where we see the cash available for small businesses, it is 90% of what it was last year. It is still better than what it was during the pandemic, but we see kind of -- we do see like compared to last year, a slight softening for the small businesses. Another data point is where we're really proud to say that our payment volume grew 21%, which is amazing. But again, if you compare it to last year, where we saw payment volume growth 30-plus percent, again, like maybe you could see that there's some weakness there. But all in all, we see still strength, and it's still better than the pre-pandemic. Where we -- the reason we are still very bullish about what we shared in terms of our expectations, is that there's a few things that are true for our business. One, it's a very resilient business in terms of the need. So we know that small businesses need our software the good times, bad times. It's a very mission-critical software. It's less of like, "Oh, I have that time, I'm going to drop that my financial management and the customers don't do that." And the other thing that I would say that as resiliency is the fact that we're a subscription business. So 80% of our revenue comes from subscription business, which again removes a lot of volatility in our business. So that's why we feel very bullish about what we announced, and we're seeing still strength in the market.

Yes. And maybe just to dive in a little bit deeper to that. So I think if you look at the guide that you guys have set out, it seems that in order to get to the high end of the guide or even like closer to the midpoint, that you almost have to assume that growth stabilizes, right, in the back half or I think even slightly accelerates on the online side. So in terms of like the trends that you guys are seeing and how you think about that guide, maybe you can go into a little bit more in terms of like the expectations that you have for this business. I know you guys have products that are rolling out. Are there any products that could like help some of the momentum in the back half? Maybe you can talk through some of the puts and takes there.

Yes, absolutely. And to your point, our guidance remains 16% to 17% for the year. And that's kind of like where we actually see us grow, and that kind of hasn't changed. And we have -- we expect like a 10% to 20% customer growth, 10% to 20% revenue growth. So this is kind of like our expectation in the long run and that all remain the same. In terms of like where we see the growth, I would say, different, and this kind of goes back a little bit to where I talked about our Big Bets and where we focus. But several areas where we see opportunity for growth. First, you mentioned that we do have a lot of services. So obviously, we're known for accounting, but we are way beyond where we started several years ago being mostly an accounting business. We have a lot of added services from payroll to -- we talked about money services, payments, we just added bill pay most recently. We actually just released QB Money, which is an invoicing front door, hoping to catch customers earlier in their cycle. And when they need just an invoicing solution, we're very excited about that. And of course, we have a Mailchimp, where we are doubling down on that, connecting it to the rest of the ecosystem. And another thing that we're doing is focusing on mid-market where we maybe have less customers, but more bigger customers that actually need that portfolio of services that I mentioned. Another thing that I would say is where we're uniquely positioned in the market is the fact that we have a portfolio of services and the fact that it's fully connected with the data fully flowing and ease of not just kind of buy the services but use them. And that's something that I don't think there's any parallel in the market, and we're going to continue doubling down not just on it as a marketing message, but also in how our products continuously just connect and also how you can discover a product more easily from within. So those are some examples. And of course, there is GenAI and Live and other things we already talked about.

Yes, that was helpful. So I want to talk on GenAI. So I know that was the first one that you mentioned, and you're talking about putting more of an emphasis on there. So given your role as the CTO, I'm sure you have a very interesting view on this. So I'd love to hear about the applicability that you see with generative AI within the Small Business and Self-Employed segment. And I know Intuit Assist is still in beta for parts of that. But just in terms of early feedback that you've heard from customers, I know you have some Mailchimp offerings out there as well, too. So maybe you can also dive into those.

Yes. And it's just like a warning everything that is kind of related to AI, GenAI or technical, I can go very deep. So feel free to stop me. But really quickly, first of all, we're extremely excited about generative AI. And I believe we're so well positioned with everything we have done, also, while I was in my CTO seat with releasing what we call GenOS or generative AI operating system that allows us to have multiple LLM. We're actually using our best LLM for the needed task, so we have that. We have ability for our developers to rapidly develop GenAI experiences. So we're very excited about our starting point with having data that is well organized, which we know is the precursor for AI, with having knowledge, talent and the capabilities that are related to AI, and then it was how we're approaching GenAI, which is a platform approach that really gives us scale and just robustness in what we can do. So I'll start there with like -- that we're really excited of where we're starting from, and how we're able to bring it to bear in our product. In terms of actual examples, let me give you some QuickBooks examples and then some Mailchimp examples. And I also want to say where are we at, and maybe this is like generically a statement I can make, where we're at with GenAI is that we're already releasing these experiences. But the way we release is like in any software -- SaaS software release, where we start small, we learn, we scale, both in terms of number of customers, because experience is available too as well as how deep we go into the experience and how we learn. So everything that I'm saying, some of it is already released a subset of customers, some of it is in the works and some of it is maybe slightly more like coming, but all of it is real. So the first thing I would say in inside QuickBooks, we're focused on new customers as well as existing customers. For new customers, what we really want to do is really quickly being able to get them to benefit, first of all, onboard quickly and very quickly get them to benefit because we know that customers that get the benefit fast, that they actually experience the goodness of the platform, they're more likely to not only help their business, but also stay good customers for us. So we're focused there. And for existing customers, we're also looking into just generically help them with generative AI, and I'm going to give you an example where we -- a feature we released to a subset of customers called Business Brief, which when they come in into the platform, they're able to generate a business brief that provides them with multiple insights about the platform. And we actually initially released this with like insights. But fairly quickly, we realized we make it super -- we can make it super actionable for our businesses. So for example, they might look at cash flow, and we might say, "Hey, have you thought about taking a loan because you see you're going to run lower cash?" Or, "Have you thought about -- you have the outstanding bills. Have you thought about using our Bill Pay to pay your bills?" Or, "You have invoices that have not yet reached out, do you want us to help you pursue those invoices?" et cetera. So those are examples that we're already releasing to our customers, again, in different phases and where we bring GenAI to customers. And in the Mailchimp, this is where like GenAI is really good with anything that is creative, and it really helps our customers craft. GenAI and Mailchimp helps it craft different marketing messages, use previous campaigns to construct new campaigns with it and then actually also suggest action. Like, for example, we can say, "We see you have abundant carts" or, "We see you have customers that have coming birthdays" and suggest to them where they can be proactive with their customer acquisition. Where we focus with Mailchimp is making sure that we can actually help our customers get revenue. So that's kind of where we're anchoring on these features, and we're actually able to specify to them, "If you do these things, here's the kind of revenue this represents." So that's kind of very, very benefit-oriented for our customers.

Yes, all super interesting. And then when we think about the monetization strategy around this, I think you guys at a high level, have talked about that this could be used to help with the top of funnel. It could be used to -- as a venue, as you mentioned, with Live to go into different products as well. But I guess, how are you thinking about the evolution of that? I think at the Analyst Day, it was talked about maybe Mailchimp could be an area where we see some stand-alone SKU pricing? And two, could this be used potentially as like a pricing lever down the line?

Yes. To your point, we see indirect monetization with increased customers with increased ARPC. And I gave very concrete examples where we can say, "Hey, have you thought about using our Bill Pay? Have you thought about taking capital? Have you thought about hiring an employee? Have you thought about using Payroll?" So like a very clear way for us to increase usage of our products in a very customer-backed way, which is why we're excited about that. So increasing customer base, increasing ARPC to your point. When we're in discussion with the customer, we also want to say, "Hey, have you thought about connecting to an expert at this time?" By the way, one of the biggest problems, big businesses -- small businesses face is confidence. They simply don't have confidence or they're not sure. And sometimes they need that expert touch to give them that assurance or talk to a human. And that's why we're excited about this opportunity of live across the platform and just kind of having that help their confidence because we know that's a major problem for small businesses. So those are all kind of the indirect. On the direct side, we do -- we are going to possibly explore dedicated SKUs to GenAI features. But where we are actually experimenting now is in Mailchimp, we have actually those features that I mentioned, in addition, like all the creative -- in addition also segmentation, being able to segment automatically your audience and send marketing to specific segments, different automation. All of those features we're actually offering in higher SKUs. So this is an opportunity for us to do a little bit of a shift the mix of where the SKUs are, and that's where we see more direct monetization. We're going to experiment, learn and then learn from that to QuickBooks as well as like dedicated SKUs. It's -- we're also going to look at what others are doing, and where there is traction.

Yes. Makes perfect sense. Maybe let's shift to another huge opportunity that you guys have, which is in the payment space. So I know Bill Pay is still relatively new. It only went GA in the middle of September. But maybe you can just talk about the traction and the adoption that you're seeing there and what you're anticipating in terms of the trajectory for that business? Like could this start to be a material revenue contributor this year, next year. So one, how do we think about that? And the second part of the question is, I would love to hear where you guys are in terms of building out the product. So if you close some of the feature functionality gaps of competitors, where are you in building out the supplier network? It would be great to get your thoughts there.

Yes. Bill Pay is another area that kind of we got to this year finally because we knew it was a big customer need. And just to kind of give some numbers, I know I mentioned like in a few meetings is when we look at the bills that are recorded in our system today, we actually see close to $1 trillion of bills a year. This is like a massive number and a massive opportunity. Another thing that we know, and this is generic, is that 80% of bills are still paid with check. So there is a huge opportunity of moving to -- more to online ways and more automatic ways as well as we have there a system where we capture these, and we can actually move into action these. So with this in mind, we released the Bill Pay feature and the B2P network, which allows customers to really quickly pay bills and also like submit bills in the network and because we can pre-verify, et cetera, all of it is just not just automated, it's just faster and just like a lot more streamlined experience. So we launched it. We also announced and did a Bill.com migration for our customers with an offering that's a lot more integrated, like native to QuickBooks. And we are seeing traction. We're excited about that. It's early, though, to your point, there's still a lot of innovation. I just reviewed it yesterday where we looked at both the numbers of the funnel, the pipeline and where we see drop-offs, where we see kind of areas where we need to tackle in what's our road map to go after this thing. So it's an area of innovation for us, and it's early, but we obviously see these numbers of a trillion, 80% manual check. So we like -- we just think it's a great opportunity. One bright spot that I could share, and I think it was mentioned in the earnings call, is that we actually see -- for mid-market customers, we actually see twice as much choose the subscription offering that we have for Bill Pay, which is exactly what we want because this is an offering we made from mid-market. As you can imagine, most of the bills are paid for bigger companies. So we're excited about that. We see traction. There is still much we need to do there. And by the way, our approach there is that for this and other things that we're offering, we have a small Tiger team now that can go after this, get feedback really rapidly, address it. And just like innovate really quickly as opposed to kind of think about really long road maps so we can really get -- test and get traction quickly in the market.

Got it. And that last question might tie into my next one. But earlier, you mentioned comfort with some of the long-term targets that you guys have out there. If we look at this last year, and I know that there's macro headwinds at play, but it looked like the QBO subscriber growth, I think, was around 10%. I think the average subscription revenue per customer growth was in the low teens. And I know for both those metrics, your longer-term targets are within the range of 10% to 20%. So with like some of those metrics at like the lower end, maybe you can just talk about some of the drivers that gives you comfort. When you look out -- and you -- when you look out and say, hey, here are like the areas where you could start to see more momentum and why we could continue to stay above those levels.

Yes. To your point, our guidance is -- in general, is like 10% to 20% customer growth, 10% to 20% revenue growth, and this is kind of, obviously, our guidance for this year was 16% to 17%. So these are like all kind of within that. Where -- let me talk about a few places where we emphasize and gives us confidence. One of them is, I talked about the number of services we have and the ability for our customers to really use the services that we have throughout and make it available to them, innovative for each one of them. And so like more of our customers, more of our customers being able to onboard with things like QB Money, visibility of like targeting a customer that may be earlier in the cycle. So onboarding customers in different -- earlier in the cycle and then having customers grow to our full range of services, which we have many. It's part of our strategy. And we didn't talk much about offering services like QB Live or -- we already talked about that, talk much about mid-market, and how we're thinking about that segment of customers that are bigger, more complicated, have more interesting payment volumes, more interesting Bill Pay needs, employee needs. So even more so for that segment of customers, how we go after them, and how we're going to continue, that's another area where we're pursuing both in terms of product innovation as well as in our go-to-market. So those are some of the examples of what gives us confidence in the continuous growth of customers and growth of like ARPC and revenue.

Yes. Let's talk a little bit more about the advanced customer base because I think you guys spoke at your Analyst Day that that's growing very healthy in the mid-30s. And that, I know you've also mentioned, tends to have a higher online services attach. So any high-level color you can provide on what that might look like today when we look 5 years out, how big of a business do you think Advanced could be, and any like visibility you can give us in terms of what an Advanced customer has on the online services attach maybe versus some of your other customers.

Yes. And to your point, actually, last year, we said that our Advanced customer base was 35%. We have over 200,000 customers already, Advanced customers. So we are -- again, we're like very bullish in this space. We believe we're a big disruptor there. And we are like -- we want to -- it's a space we're going after. Just a few stats is first of all, there is 1.7 million customers that we will put in the Advanced category, which we say there are 10 to 100 employees. So there's about 1.7 million businesses that fit into that category. Interestingly, 800,000 of them are already using one of our core services. So they're already somewhere in our ecosystem. So what we -- our strategy is both going after the ones that are in our platform, they might use one service, but they might not use another. And there might also be a customer that not yet uses even the Advanced SKU, right? So they might -- they need to -- we want to move them to something a little bit more suitable to their size as well as make sure we introduce more services for them to use, that they're able to discover them more easily, and they're able to use more of our services. So that's kind of one area. And then, of course, having go-to-market strategies that help us go after non-consumption today, are basically, customers are not using our services or sometimes they're not using any services. And the number of customers that actually couple together spreadsheets and different kind of tools is actually pretty big. So that's another area where we are using more go-to-market strategies to go after them. Even for our existing customers, by the way, we need to have better go-to-market strategies and better way of reaching out to them. We have been -- as a company, we've been waiting for years for customers to call us. Now we're like actually in a business where we call customers proactively or we're allowing them to discover features more proactively. So that is relatively new to us. And that's some of the ways in which we're looking at accomplishing traction. I want to say that it's interesting that another thing where we believe we have enormous strength maybe like a couple of areas, one is our relationship with accountants. And we're going to double down on what we're doing there, and we just had QBC, in fact, I was just in Vegas where we had QuickBooks Connect. We had just so much energy from that community and talking to accountants and how we can help them with their customers, making sure they're familiar with the offerings we have, making sure they're familiar with the suite, making sure we understand -- they understand what we mean by mid-market customers. All of that is area that we can totally do more with and we are. So that's kind of one area. And the second one is where I feel like we have a lot of strength. But again, we need to make sure it's known, is the fact that we have an ecosystem of services. And the fact that everything is connected, that we have Payroll, we have Accounting, we have Payments, we have all Mailchimps, so all of this is something that we just need to emphasize -- we could emphasize a little bit more, and we believe is highly advantageous. Having said all of that, there's other feature function gaps that we need to continue to close, to go after the most sophisticated businesses in the categories we define for us.

Perfect. I'll end on one last question, which is just in terms of price. So price is very topical. It's a very topical one -- part of the conversation amongst investors today. And I think this is the third year that you've raised price on QBO and some of the online services as well as desktop. So can you just talk about how you are thinking about price as a lever going forward? Are there features and functionality that maybe you're not monetizing today that could be an opportunity down the line? And how are you thinking about that as a contributor to average revenue per customer as well?

Yes. So pricing is a lever and it is a very legitimate way of thinking about what we have to offer. And we have actually pretty clear principles about pricing to value. And one of the things we have done, choice for me is to say and deliberately is to say we're going to continue to increase the value of our offerings, and we don't necessarily want to like every little thing to price, but we're going to put it in the base offering or higher SKUs, and we're going to continuously price the value. And that is one of the principles that guide us. They also have very clear playbooks around pricing, which is that we are being very clear when we do a change, why are we increasing, what is the customer getting, what is to expect. So we just got good at explaining this concept of pricing to value and what they're getting and what expectations should be. So we talked, for example, about GenAI and how some of this might appear in higher SKUs. Well, one of the questions we're going to have to ask ourselves, does that mean that we're also going to have to look at adjusting some of the pricing of like those big areas SKUs like as an example, right? So those are the kind of things. There's nothing concrete, but we'll have to ask ourselves. Or the more we add features in these different areas, we're going to have to solve that question. I want to say for desktop, we had slightly different issue there where we had a very low-priced offering that is more than competitive in pricing, and that wasn't healthy, and it was hard to also motivate people to migrate. It was not price to value. It was very low and people were motivated to choose that for like really not a good reason. So we slowly raised the price there to be more consistent with value and that really made it clear that like the way to go, where we have parity is online.

Perfect. Well, Marianna, thank you so much for your time. This was great. And thanks, everyone, in the audience as well for listening in.

Thanks for having me.