Intuit Inc. (INTU) Earnings Call Transcript & Summary

All right, everyone, right on with it. We are super thrilled to have the CEO of Intuit, Sasan Goodarzi. Sasan, welcome to the 49th Annual NASDAQ Conference. Really good to have you.

Thank you for having me in the beautiful place of London.

Awesome. I'm Sanjit Singh. I'm the U.S.-based infrastructure software analyst on the Morgan Stanley Software Research team. We're going to go through a number of topics today with Intuit. There's a lot of great things that are happening with the business. 2023 isn't over yet, Sasan. So I figured, let's not pretend that we're not going to talk about AI. So let's hit that topic first.

And kicking off the Analyst Day earlier this summer, one of the themes of that Analyst Day was embedding generative AI across the portfolio. What have been sort of the early proof points? And what are the kind of use cases that you're most excited about that's going to say -- that's giving you those early signals that this is going to play out well for Intuit?

Well, maybe if I could start with some context. As you know, we serve consumers in small businesses. And our focus is really about powering their prosperity through financial management. So that's the context. And 5 years ago, what we fundamentally declared was that we have a $300 billion TAM. Our penetration is very low. It's 5%. And we needed to -- and we declared that we needed to create a future of done for you with a gateway to human expertise. What that simply means is that if you're a small business, we wanted to create a platform where we can help you grow your business, run your business, manage your cash flow and be compliant, but do it in context of we do it for you. You're always in control, but we do it with you and for you, and you always have a gateway to human expertise. In order to pull that off, what we declared 5 years ago was that data and AI was going to be fundamental to pulling that off. And everything starts with data. In order to create a future of done for you, you have to have data. And so we have invested heavily in the last probably decade. But in the last 5 years, we really accelerated our investments in data and AI. And specifically, what that means is for a small business, I'll just stick with that as an example. We have 500,000 data points per small business. We see all the money coming in, all of the money going out, all the transactions. And so that's important context to your question around generative AI. We're not new to this game of AI, and particularly, it was machine learning and knowledge engineering. And about 2.5 years ago, we started accelerating our investments in generative AI. For us, it's just -- it's a different -- it's an additional form of AI, but it's all AI. And really, it has accelerated our ability to be able to create this future of done for you because of all the investments we've made in data, all the investments that we've made in AI. And some use cases are the following, and I'll use just 2 and I can go as deep as you would like. For a small business, 50% of them go out of business after 5 years. And one of their biggest challenges is how do I grow customers, keep customers and how do I manage my cash flow. By the way, if you're on the Intuit platform, the success rate of small businesses on our platform are 20 points higher than industry average, which is significant. And an example of what we've launched with generative AI, but again, it's AI and data, is that you can right now automatically put together a campaign with our help. What that means is we help you with which customers that you want to target to build a campaign, to go after those customers, the type of products, the images, the text. And we do all that with you and for you and give you options. It's almost like you're sitting across the table from a marketing agency. And remember, small businesses that have 10 employees, 50 employees, 100 employees, they don't have the wherewithal like an Intuit has. And so this generative AI platform helps us put together campaigns for them. We do that through Mailchimp. But part of the integration with Mailchimp and QuickBooks also then helps us manage your cash flow, right? It's about putting together a campaign. It's letting you know how it's doing. It's proposing other services that you can sell. It's helping you understand how many customers you got, what your cash flow is. And all of that, we are doing free sort of automatically by the integration of QuickBooks and Mailchimp. But that is an example of how we're leveraging data and AI and now Generative AI to really create a platform where we do the work with you and for you. You're always in control. And then last thing I would put a fine point on is human expertise is critical in what we do, right, because we deal with people's money, whether it's a consumer or a small business. And so we have also created on our platform, a virtual expert platform where there's always a gateway to human expertise, but that human is also AI driven. There we use all of our AI capabilities, and so it's technology-led, not human led. And so it's digital, which is data AI plus human expertise that really is leveraging all the capabilities that I just mentioned. So that's probably a long answer to your question, but that's the -- an example of how we're helping customers with AI.

I was at the Amazon Reinvent conference last week, which Intuit was highlighted at one of the keynotes, and I encourage everyone to look at that keynote and just -- it gives you an insight of how Intuit is operationalizing data and AI to create some of these use cases. Really, really fascinating. One of the key debates this year when it comes to AI is around monetization and pricing. Do we infuse these capabilities for platform capabilities and sort of imply that with your answer to the first question or creating specific gen AI SKUs? How does the -- how do you and how does the team think about how to monetize?

Yes, I love that question. I always like to reframe it around -- let me talk about how we're driving growth with it because pricing is one element of it. So there are really -- for us, starting with our TAM is $300 billion plus, mostly nonconsumption. Nonconsumption means they're using Google sheets, Word documents, shoeboxes with receipts of business and manage their life, even the larger, by the way, mid-market customers believe it or not. And so therefore, in that context, our penetration is 5%, meaning when we get a customer, we're not switching them from another platform. They're using manual methods. So that's the sort of the starting point that I think is important. In that context -- your question, sorry, was about the...

The balance between...

Yes, that's right. Sorry about -- I mentioned growth, and your question was around pricing. So the reason I started with that context is there are 3 big levers that we have. One is new customer growth because our goal is to make it so simple and so easy that you're willing to switch from your manual method to be able to run your business. And I'll just stick with the small business as an example. The second is breakthrough adoption. So if you think about the capabilities that we provide for small businesses, like growing your business with Mailchimp, like managing your money with payments, managing your workforce with payroll. Now with Intuit Assist, which is what we're calling the assistant in your pocket, in essence, at the moment of truth, we're engaging small businesses. And so we're letting them know, hey, it looks like by 30 days from now, you're going to run out of cash. You have 3 options. We can help you follow through with these 10 overdue invoices. You can click here, and we'll give you access to capital. By the way, you can get a loan based on these 10 outstanding invoices. These are real examples, but these things drive benefit for the customer and use of our services. So penetration of services is a huge opportunity for us. And then the third element is what I mentioned earlier, which is it's a connection to live expertise. So this is a great opportunity where we can share with the customer, hey, we can connect you to a human expert to be able to get advice on whether or not you should hire more employees, whether or not you should buy more inventory. That's a monetizeable event for us because it's a higher paid SKU. And last but not least, we're also testing with offerings and SKUs that are just about what AI, particularly gen AI can offer, which is we'll do it for you and with you. So those are the several levers. So it's not just -- we're not going to be able to just drive growth and monetize based on whether or not we have a SKU, that's gen AI. It's new customer growth, penetration of services and very specifically new SKUs that will be priced for value. So those are the different levers that we have for growth.

Yes, makes perfect sense. Let's talk a little bit about the specific business unit, starting with Consumer Tax. Q1 was an astounding quarter for Consumer Tax. I think you guys saw a lot of benefit capturing some of those late extension filings. I guess my broader question, Sasan, is that how has the behavior of the tax filer changed post pandemic? It seems like the seasonality looks very, very different than what it used to be pre-pandemic. And how do we think about that behavior? What is that behavior? And what is implied for the tax business going forward?

Sure. I'll start very quickly with just the structure of the market, and I'll just focus in U.S. because our focus is U.S. and Canada, but let me just focus on U.S. for a moment. There's about 160 million folks that file their taxes, and the majority are those that go get assistance. So they walk into a mom-and-pop shop, a local pro, an accountant, and they do their taxes for them. That's like -- it's about 88 million people that have somebody else do their taxes for them out of the 160 million. That's the biggest, by the way, growth opportunity for us because, ultimately, we're the share leader, the market share leader in do-it-yourself. Our biggest opportunity is to disrupt how assisted taxes get done using technology, all digital with an expert by your side. In that context, in terms of behaviors that changed, first of all, 2 things happen with COVID. One is there was a number of people that came into the category that actually normally don't have to file their taxes, but they came into the category to get the government stimulus dollars and the tax credits. That sort of changed the dynamics, but those folks have all left the category because they don't have to file taxes. They're below a certain income level, et cetera. But the main behavior change is, if I look at the last 10 years from the time I was in TurboTax and ran the business to now, there's just a procrastination to get your taxes done later. But in the U.S., other than with COVID, you've got to get your taxes done by April 15. And so really, the big shift has been more and more people are waiting towards the end of -- or towards the deadline because they see they can use a digital platform like ours, where we'll do your taxes now for you completely digitally, we'll take your documents digitally and do your taxes for you. And one of our big innovations this year is we can do your taxes for you within an hour, which is unheard of because of all the technology that we use. So it's procrastination. But at the end of the day, people are still going to get their taxes done by the due date.

Right. I think I've used Intuit for my tax filing every single year of my career. And the last 3 years, I filed an extension and filed in October -- and filed the return in October. So mark me down as one of the...

Procrastinators?

Procrastinators, yes, actually. So going back to the Analyst Day, we talked about a long-term range of 8% to 12% Consumer Tax growth. And there's some underlying assumptions there. Average revenue per turn would contribute about 6 points of that growth. You guys updated your framework on how to think about market share and how to calculate market share as a percentage of total IRS returns. I think if we step back, how does the competitive landscape shift as you move more towards higher-value returns?

Yes. I love the question. First of all, again, as a quick reminder, the assisted segment is really what we're going after. We still want to be great at do-it-yourself. We have a great platform for that, but we can be disruptive in the assisted segment. And this is the 88 million folks that are consumers. And then there's an additional about 11 million folks, which are businesses. So it's a $30 billion TAM where, in essence, our share of that TAM rounds to 0. And we have now the platform and the capabilities to be disruptive. The great thing with this addressable market is there's no big competitors, it's local mom-and-pop shops. So we're competing with really a very disaggregated market where you have local pros. There's like 400,000 or 500,000 of them in the U.S. that these customers go to, to get their taxes done. And now really our differentiation is it's our data layer, it's our AI layer. We have the largest expert network now in the world. And it's the ecosystem of apps that we have. And so now a customer that used to walk somewhere to hand everything over to someone and then take months to get their taxes done, they can now digitally be able to give us all their documents, and most of their documents we can get, by the way, because we have access. That's our data layer. We have access to W-2s, 1099s. You can take pictures of stuff with your phone, upload everything automatically and then the expert will connect with you. An expert, by the way, that knows your situation, not a generic expert. We hire and train the best experts in the world. And if you've traded Bitcoin or if you've traded stocks or if you're a plumber that needs to engage with someone that actually understands plumbers, we have an expert network of experts that we will match using our data -- our AI capabilities with the consumer small business. And so really, we're competing with really a lot of mom-and-pop shops, and we've got really distribution power, scale power. And then we're disruptive on price. We've committed that we will be lower in price than these mom-and-pop shops where they could be charging $800, $1,000 to get your taxes done, and we can do it for you for $200, $300. And at scale, that means a lot. And for us, it's an ARPC game, disrupting the assisted market. It's not so much about -- the volume matters, but it's an ARPC play.

When you talk about having a broad and diverse expert network, the plumber example that you've cited, is that around the theme this year, like going local? Can you explain what going local means as we go into this tax season? I also know that you guys just launched your pricing recently for this tax season. Talk to me a little bit about what going local as a strategy means going into this tax season.

Yes. So first of all, I'll start with what I shared a moment ago, which is for the assisted segment, the thing that matters the most is confidence. Do I have confidence in the person that's going to do my taxes? Am I going to get the maximum refund? And/or if I owe money, legally pay the least, right? That's what they care about most. And so we have invested heavily in making sure that we have the largest network of experts that, by the way, sit on our digital platform. So they're leveraging all of our data and AI capabilities because they're part of Intuit, which makes them sort of tech lead. The -- in that context, we have the largest virtual network and then we've also gone local. What that means is if you are in California and you want to know that there's someone near you in San Diego, let's say, we have also created a platform. It's the same platform where we allow pros to use our platform for free, and we get a revenue share from it. And if you choose to then go to a local pro in San Diego, you can also do that. What we've also learned is the majority of folks want to know that there is a local pro, but they don't actually ever want to go visit them. They want to do it all virtual. So that's what -- so now we have a virtual expert network, and we have local if you choose to want to go see someone near you in San Diego, in Idaho, wherever you are in the U.S. So in essence, we're now within 10 miles of every household in the U.S., which is huge for us in terms of our positioning to deliver for customers.

Yes, that's super interesting. I definitely want to talk about the small business part of the business. But one last question on Consumer Tax. TurboTax Live just wrapped up its third full year in sort of existence. What has been adoptions versus expectations? What is TurboTax Live really great at? And what could it be better?

Well, first of all, it's well over $1 billion business growing nearly 20%. And we don't even think we've scratched the surface because if you think about the nearly 100 million folks, both consumers and small businesses that use the assisted segment, which is a $30 billion TAM, we have $1 billion of that $30 billion TAM. So we haven't even scratched the surface. Our biggest advantage is the combination of we have all the data that you need to do your taxes, it's our data layer. It's -- we've built a technology platform, which leverages AI, machine learning, knowledge engineering and now generative AI that does every -- all the interaction for you automatically, gets the data, puts it in the software automatically, which makes our experts productive. And we have the largest network of experts. And then we have the applications to help you, whether it's a consumer tax or business tax. So that's really our biggest advantage. The biggest challenge in breaking into this $30 billion market is behavior. We are, in essence, creating a category. If you think about the categories Airbnb created, the categories of Uber and Lyft created, right, who would have ever thought people would have, in essence, had you -- let you rent your house and that you would rent somebody's house for vacation. We're creating an entirely new category. People do their taxes with someone, but now you can do it digitally from anywhere you are in the world. From the comfort of your home, comfort of your office, you can engage with an expert and get your taxes on all automatically, all virtual without -- and get your fastest refund within an hour. So we're creating a category. And so it's raising awareness. It's helping people understand how they can get their taxes done virtually. That's the biggest opportunity and challenge that we have ahead of us.

Awesome. Let's talk small business. At the Analyst Day, I think you guys framed out a long-term 15% to 20% growth profile for small business. About 10 and 20 points comes out from average revenue per customer. The rest comes from customer growth. When you look at average revenue per return and sort of targeting that double-digit growth, what are the sort of the vectors there to achieve that?

So out of our $300 billion in TAM, about $200 billion is small business in the countries that we've chosen to be in. So for us, this is real addressable market opportunity. It's really several fold. One is we now have the largest breadth of services to help you grow your business and run your business as a small business. And we've integrated it all together, so it's one platform. So those services are -- you can grow your business with Mailchimp. We have payments capabilities, payroll capabilities, time tracking and, of course, to be able to help you stay compliant with all of our workforce solutions. So services is a massive growth opportunity for us, which drives ARPC. And just to make it real, we have $2 trillion of invoices that are managed on our platform. We have nearly $1 trillion of bills that are created on our platform, and the majority of them are manual. And so just digitizing all of that with all of our payments capability, our B2B capability, our bill pay that we just launched is a massive growth opportunity just within payment. So that's just an illustrative example. So one big opportunity is just wallet share of our existing customers and helping them digitize. That's a big, big ARPC play. In fact, Mailchimp's average revenue per customer is twice QuickBooks. So that's one. The other is going to mid-market. We've defined mid-market as 10 to 100 employees. We will not stop at 100 employees. We will go far larger. We don't want to serve enterprises, but we have a platform that's easy to use and we can be very disruptive on price. Our next sort of 2 competitors are probably 10x the price that we have. So we have a big opportunity to be disruptive, and we have pricing power in the mid-market. So that's a huge -- and by the way, it's the same services, same capabilities, just building them at scale. So that's a huge ARPC play. And then the third is QuickBooks Live, which is connecting people to experts. It's having -- there's an enormous bookkeeper accountant market where people go to bookkeepers, they go to accountants to help them run their business. We've now digitized all that. So that's a huge monetizeable event for us because now they don't have to go anywhere. Through your screen, an accountant can engage with you to get your taxes done, to help you manage your businesses. So those are the big levers that our ARPC plays for us to be able to penetrate that $200 billion in TAM.

Yes, it makes total sense. When looking at QuickBooks Advanced, last year, it grew 35% versus 40% the previous year, pretty resilient growth. I'd even argue in Q1, just QuickBooks overall had a very, very solid quarter. Can you speak to the resiliency in this segment of the business, both QuickBooks Advanced and just overall QuickBooks in a macro environment that's supposed to be really, really challenging for SMBs. And frankly, you're seeing it in the Credit Karma results, what's driving that resilience?

So there are a couple of places I would start. One is we're not a line item on a small businesses expense list. We are the platform that they use to grow their business and run their business. And so they rely on us to be able to grow their company. And that's very important because we are very mission-critical for a small business. The second is it's about digitizing what they do. And so when -- the reason we've been resilient in this environment, although I remind folks, we've been impacted in this environment. But our growth is still very strong because of the ecosystem of services that we have. But when a small business digitizes their money flow, they get paid faster. Cash flow matters. When a small business uses our Mailchimp capabilities, they get more customers and they can retain those customers more effectively. So in this environment, digitization actually matters a lot because it's about cash flow for a small business. They're not doing it because -- to be digitized, they're doing it because it helps their cash flow. So -- and particularly, the mid-market customers. They are looking for ways to actually use our platform to be much more efficient and effective. And in fact, it requires them to have less employees because they don't do as much manual labor because the platform does a lot of it for them. So that's where the resiliency comes from. We're mission critical. We now have a platform that they can leverage end-to-end to grow their business and run their business, and they're seeing the benefits from it. As I mentioned earlier, small businesses that are on our platform are 20 points more successful than those that are not on our platform, and what small businesses care about is success. So that's where the resiliency has come from.

Yes. Makes complete sense. I want to see if anyone had a question, if you just raise your hands. For some, I've got about 2 minutes left. If not, I will continue along with more questions. All right. No questions. Any changes to the competitive landscape when -- in QuickBooks Advanced versus QuickBook proper, particularly as you ultimately expand beyond the 100 user account? And what are the -- what is it -- what does that require the company to do to be an effective competitor outside of -- I think price is going to be a lever that you guys are going to use up pretty effectively?

Yes. Let me answer your question in 2 different ways. I mean, first of all, in terms of what is required for us, the difference between a smaller business that has 10 employees and one that has 100 is they have a lot more customers. So they need to be able to -- because we serve primarily service-based businesses, which is 70% of the market. So they need to be able to send invoices at scale. They need to be able to have roles and permissions to be able to manage their employees because they now have 100 employees. So you and I can't have access to the same thing because you may be the CFO, I'm the Head of Sales. There are certain things you don't want me to see, so roles and permissions matter. Being able to manage large vendor base and digitizing all the payments at a whole different scale. So really, their needs are the same, but the scale in which the platform needs to operate is very different. That's what we've been investing heavily in the last 5 years because we know their needs. It's just being able to do batch invoicing, being able to have roles and permissions, being able to have custom reporting. And now with Intuit Assist, a lot of that can be automated, having automated workflow. So all of those things is what we've been investing in, which is why we've been seeing accelerated progress in mid-market. That's what's required of us. What makes us very excited about this space is there is enormous gap in those that are between sort of 10 employees and 1,000 employees because, in the past, there's been players like us that can serve the low end. There's been big players, right, like the Oracles, the SAP that can serve enterprise. And this group in the middle, which is a massive market, has always had to make a choice. Do I pay a ton of money and use something that I don't really need? Or do I keep screaming at Intuit to hurry up and create a platform that I can use? So our competitor is nonconsumption. It's really a lot of these mid-market customers still use multiple bookkeepers. They have the receipts in shoeboxes. They're using multiple Excel spreadsheets, and it's just a mess. And so we can be very disruptive because we can have a platform, we know what their needs are and we can be at a price that helps them grow their business. So it's -- the biggest competitor for us in small business is nonconsumption. It's making it easier than the alternative of doing it yourself.

Well, Sasan, thank you so much for a really interesting conversation. I really appreciate you joining us.

All right. Thank you for having me.

Thank you.

All right.