Intuit Inc. (INTU) Earnings Call Transcript & Summary

Hello, everyone. I'm Siti Panigrahi, software analyst here at Mizuho. It's my great pleasure to welcome Marianna Tessel. She's Executive Vice President, General Manager of Intuit Global Business Solutions Group. Mainly, it's all QuickBooks, which is like 60% of revenue now.

So Marianna, I would say you've been with Intuit more than 8 years. And your role initially was a CTO, Chief Product Officer, then you've been leading QuickBooks for now a couple of years.

Yes.

So help us understand how technology investment that Intuit did and the platform build-out, how it positions now Intuit to be -- continue to innovate and add more features? How are you positioned there?

Yes. Yes, a little bit kind of -- maybe I can go through the background. I actually started leading engineering inside the what now is known as the Global Business Solutions Group, so leading that, and eventually being a CTO, and now coming back and leading the business for almost a couple of years. But when I was a CTO, I had an opportunity to really think about how we're setting up Intuit for success and for velocity and for developing with innovation with speed. We have actually declared the strategy of being an AI-driven expert platform. And we created a platform, we outlined the different capabilities we need. We moved to the -- I mean things that seem very basic now, moved to the cloud, increased the level of automation, moved to DevOps and just kind of constantly increasing the speed of development, developing capabilities that are really important for us today, like identity, getting data in, and importantly, obviously, AI, both in terms of talent in AI but also developing something we announced a couple of years ago called GenOS. As soon as the innovation started happening with Generative AI, we got very early on this, and we announced something called Generative Operating System, in short, GenOS, which allows our developers to develop and deploy GenAI experiences rapidly and at scale. For example, one of the capabilities that we find super useful today is our developers are using something called GenStudio to develop experiences. And we can connect whatever LLM we want to GenOS and they can benefit from that and use the right LLM for the right task. So they don't have to worry about choosing an LLM. We have our own trained LLM that we can provide developers. And that really is paying dividends now.

Yes. So when we think about Intuit, I remember that transitioning QuickBooks from desktop to cloud back in fiscal 2014, I think, and you can correct me. But that phase, I remember, '14 to '18, it was all about driving subscriber growth. Then I have seen that, after '18, fiscal '18 to until now, it was all about platform expansion, like expanding ARPC. So what's your next phase of growth, how you're thinking, what's going to be the driver going forward? You're innovating a lot, so what's the next phase of growth for QuickBooks?

Yes. By the way, these anchors of driving subscribers and driving ARPC are still like important anchors for us in general. So we want to continue getting new subscribers. And when we think about our market, we think about all kinds of businesses. They can start super small, or what we call solopreneurs, all the way to mid-market. And so we're interested in all of the above, all of these customers. Increasingly, we've actually been going upmarket. And one of our biggest bets is go and disrupt the mid-market. So as we do that, by the way, the number of subscribers is less critical for us as we want to go after bigger users. And then, of course, ARPC, both in terms of how we think what our base software is capable for and how we price that, but also like what we call services and attaching more and more of our services. One way to think about this is, when we look at our vision, is to be an end-to-end platform on which small businesses run and grow their business every single day in which they can grow their revenue, grow their profitability. So when we think about that and we think about small businesses being in business because of passion they have, maybe to sell flower, maybe it's to open a coffee shop, maybe it's even to write software, and what we want to be is that platform that enables this backbone of running your business. So when we think about that, what we have done is we actually look at the different jobs that small businesses will need to do and we map it on what we call a product map, which has list of the different jobs small businesses are doing. Like, for example, get customer, a very important job that customers have. Pay employees, a very important job customers have. Of course, staying compliant and organized with accounting. So we have a pretty good understanding of the different jobs. And what we've been doing is increasing our ARPC by going after these end-to-end jobs.

Definitely. So still you think there's opportunity on the core side, but 2 areas is moving upmarket, mid-market. Definitely we'll want to go deep into that. And the other part, you said AI, that also we'll cover. Let me start with the mid-market opportunity. I mean that is one area you guys have been talking about. Of course, started with QuickBooks Advanced. And last year, you launched Intuit Enterprise Suite. So help us understand, how do you differentiate the -- when you think about the opportunity for Advanced, QB Advanced, versus IES?

Yes. So in general, when we look at mid-market, we are thinking about businesses that have higher revenue. So these businesses will tend to have $2.5 million in annual revenue or more. And then we start to further segment them. Like for example, we start thinking about the mid-market customers that are $2.5 million to $10 million of revenue, we think these are great candidates for our QuickBooks Advanced SKU. And then our goal with these customers is to make sure that we can move them to the QuickBooks Advanced SKU and then we can have them consume services as part of that. And then for our bigger customers, which will be $10 million plus in revenue, our thinking is that IES is going to be a great product for them. And IES is our Intuit Enterprise Suite. We released that just last September, so it hasn't been even a year. It's a new product. It is -- you can think about it as an ERP-ish type of features. It is for more sophisticated customers. Often they will have multi-entity and other more sophisticated features, dimensions, projects that they will need. And we are targeting our $10 million revenue plus customers to go to this SKU across different verticals, and I can elaborate on that. And as they do that, importantly, we call it Intuit Enterprise, hinting kind of the bigger customers, Suite, which is -- means that we actually want to sell them more of a platform as opposed to just FMS. So what you see us do is also thinking about selling to customers more full solution. And IES, we are selling as a suite to our customers.

So what has been learning so far? It's been a year now since you launched, it's almost...

Almost a year, don't shortcut.

Yes.

We have -- there's a lot of learnings. As you can imagine, every new product you bring to market, there's a lot of learning. And we are relatively new, so there's a lot of learning. I would say the few learnings that we have, I will probably bucket them in 2 categories: on the product side and then on the go-to-market. On the product side, we have learned a lot about just features we need to continue to develop. By the way, interestingly, we also learned that quickly we're able to get market with what we had and gain traction with what we have, because we have a robust platform already and it was about enabling features to get traction, and we're able to do that. So that's first thing, like we went to market really rapidly, we're able to get traction. Our customers that are on it are actually quite delighted from what they're seeing, and are asking us for more features. So that's the one learning on the product side. We were able to get to market fast and we have a list of features that we need to continue to develop. Examples would be, when we talk about multi-entity, it needs to traverse around -- traverse through our products more like. Now you want to have payroll multi-entity. Now you want to have money multi-entity. So there's more that we needed to do. Multicurrency is another thing that came up more strongly for these customers. We added project management, very suitable for construction companies, but they ask for more sophistication. So we keep developing the number of features that -- and we keep hearing for more features. Another thing that we learned on the product side is our customers said, "But wait, wait, wait, don't release so frequently to us. We want to move -- we want to know ahead of what you're releasing and we want to move more slowly to a new release." So we are batching releases more into bigger releases, and that we're doing quarterly, roughly quarterly. So that's another thing that we have learned on the product side. On the go-to-market, we had to pretty reinvent some of the go-to-market. It's bigger customers, they want to have more human touch points, they go through a sales process. If we don't do it, some other companies will do that. There is -- we actually created a sales force that is focused on these customers. And we also learned that these customers want to be spoken in their language. If they're construction companies, we ended up creating a vertical-specific collateral. They want to be talked to as construction companies. They want to hear from other companies like them. So we developed testimonials and ROI calculators and all the things you would do to really be able to sell. We're still learning how to sell the platform in this type of scenarios. We're learning how to increase our sales productivity and things like that. So we've been learning quite a bit and we've been improving. I would say every week, there's progress that we're making compared to the previous week in all of the above.

So a quick follow-up to that. If I heard correctly, different vertical industry. Are you trying to go for the product, make it more verticalized kind of solutions? Like construction industry, you said, different industry. Are you thinking that way? Or is it the same platform but more customize that solution so that some of the outbound sales guys can target those customers?

Yes, I would say it's lightweight verticalization, is the way to think about this. And one is, like we said in the go-to-market, they want to be spoken to, as a, let's say, a construction company, as a field service company. They want to see a collateral that they're like, "Yes, that's me." That's kind of one. Second, we want to make sure that, as we look at flows, particularly quote to cash, that we actually -- those flows work really well for those verticals and we have some basic things. Like for example, like construction, since we started there, might want to apply to a particular project. So we want to be able, for our solution, to be able to apply something to a particular project, see the cost of a particular project. Some of them use specialized software. And we don't want to necessarily be niche and start specializing for like a relatively small segment of customers. But we do want to integrate with some key third parties. So we've been doing that as well, would be another example of how we're going to go vertical, without going really deep into these verticals.

In the same context, recently, you guys talked about now Ashley Still joining. I heard like she is going to start soon or join. She's going to lead the mid-market, a general manager. So it looks like now bigger emphasis on mid-market. How is the role going to be between you and Ashley? Are you going to still going to focus on product? Or should we think about -- should investors think about this is going to be like 2 different segments for you, mid-market and another one is small business?

Yes. Let me start from the end. GBSG is still going to be reported and thinked through as one segment. However, we actually, if you listen to our last call, we did say that we want to focus on 3 areas, in particular, done-for-you experiences, platform AI; the second one is mid-market; the third one is money. And we wanted to make sure we have enough focus in these priorities, dedicated focus and dedicated investment. Those areas have been growing really rapidly. And we want to make sure we double-down on them and we enable even further growth there. So that's the way to think about it. We are going to report it as one segment. We're not going to break it down.

Yes. So now going back to the core QBO. You have 7 million subscribers globally. And so if we start with the U.S., how penetrated are you domestically right now? And where do you see the opportunity on the core side how much to drive subscriber growth? That's probably the first one. And then the same context, how big is the international opportunity for you on the core, the part that you're going to focus on?

Yes. So we still see an opportunity to grow our subscribers. And like I mentioned, we focus on the pyramid, all the way from solopreneurs to SMBs, to mid-market. And we want to grow across all 3. Again, we are less focused on the number of subscribers as we go towards mid-market and we are concentrating more and more bigger customers, more consumption of services. So it's not just about making sure that we have more subscriber. It is important for us that they land in what we call the right SKU and that they use more services. So that's another area that we're focused on, not just the sheer number of subscribers. So think about it that way. We still see opportunity for growth in number of subscribers. We're still leaning in across solopreneurs, across SMBs, across the mid-market, and again, like expanding services. Internationally, we are -- again, opportunity for growth there. There are 3 countries in which we have, I would say, a fuller QuickBooks implementation, which is U.K., Australia, Canada. In those countries, we are leaning in, making sure that our QuickBooks implementation is more complete. So we can go after -- compete there effectively, go after more share of wallet in these markets. And in other markets, we're leaning on Mailchimp. 50% Mailchimp subscribers are actually outside of the U.S. And we see an opportunity to lean on Mailchimp, and bring some of the other jobs. Remember, we talked about like different jobs that a customer would do, a small business would do. So we want to tie it to other jobs in other markets maybe where QuickBooks accounting, it's less applicable today.

Okay. Now I want to dig deep into the services. One part is payroll. You've done a phenomenal job when you launched a full-service payroll in 2018. I think, if I see, I think you are the second largest payroll vendor after ADP. So now you recently acquired GoCo, which is, again, more HR. How are you planning to integrate that? What is the opportunity? And is that how we should think about your M&A strategy, more tuck-in, find a gap and plug it into the platform?

Yes. So let me just again take back to, like end-to-end, we want to be the end-to-end platform, mapping the different jobs, businesses we do. Then actually mapping those jobs in more detail of what is the tasks. Like, for example, you mentioned payroll. So we call it workforce management, pay employees, human capital management, hiring. Whatever those jobs are, we would map those different jobs. Then we decide which jobs are core for us to play in, which are we want to partner with. And then from there, we go and say, do we want to build it organically or is M&A an opportunity? And in case of GoCo and HCM, human capital management, we observed that customers, this is really accretive for customers, particularly mid-market. We decided to specifically lean in and look for an acquisition in that area. We found GoCo, which we're very excited about. And we are working hard, they're already part of the company, and we're working hard to integrate that and to offer it to our customers. Going back to what you said about M&A, you're right that from like big acquisitions, I would say we have all the ingredients. The last really big acquisition we've done is Mailchimp. And right now, we're more looking at this kind of different jobs and say, "Wait, we're missing here, we're missing there," and we're thinking about this as more of a tuck-in when it comes for other partnership or M&A.

So GoCo already integrated with your platform, Payroll?

It's in the process of being integrated. No, it's not integrated, and we have not offered it yet to our customers, but we are integrating it as...

Is that the plan is in fiscal '26?

The plan is doing it in the coming year.

Okay. Okay, that sounds good. Now on the Money Platform, you recently talked about that's one of the growth area. And in fact, again, you have another general manager or somebody like who reports to CEO there. So that's another big opportunity. Help us understand, where do you see the opportunity on the Money Platform side, your Payments and Bill Pay? And also, if you could cover how Bill Pay has been doing? You launched it the last couple of years.

Yes. So our Money offerings grew 40% year-to-date. So it's been a really impressive growth for us. And so that's kind of something we're really leaning in. And in fact, the guy who's leading it now, he's going to be the GM of that. So we're excited about that. He's joined us about a year ago. The several areas where we have growth for Money is, first, Payments. Second, Bill Pay. And the third one is Capital. All of them are growing and all of them are exciting. On Payments, we've been focusing on things like making sure that more of our invoices are payment-enabled. In fact, we have this effort that we say, that we actually have an acronym for, which is "Make all invoices pay-enabled," or MAIP in short, which is the idea is making sure that merchants are easily enabled on payment, making sure that if our customer doesn't want to necessarily pay, let's say, their credit card fee, they can transition it to our customers, or the customer themselves can raise their hand and say, "I want to pay it and I don't mind paying the fee," enabling ACH and things like that. Bill Pay, you asked. We launched it less than 2 years ago. And if you look at it now, it's actually changed quite a bit. It was a new product. We now have a lot more robustness in the product, all the way from making it easy for customers to onboard, to have more like their vendors easily onboarded, pay more easily, pay faster, things like that. Importantly, we're actually focused on the high-volume -- high-value billers, many of them mid-market, and making sure we understand what is the -- what makes the difference there. An example would be batch Bill Pays or things where they have a bigger volume, they want to be able to do it faster, different things they're trying to check. So we've really been listening to our customers that are a little bit more of the high-value billers, and we go after that. And then last, Capital is another area that's -- of growth for us, both in our normal Capital business, but also we introduced recently Line of Credit that's been very good for our customers and they love that rapid access to money. And that's been another growth vector for us.

One more service that I want to cover before we go how we do that done for experience, Mailchimp, which has been under pressure. That is one area, I would say, probably facing some challenges. So how are you trying to address that? What -- how should we think about Mailchimp bouncing back?

Yes, Mailchimp, you're right, we are constructively dissatisfied of where Mailchimp is. It doesn't grow as rapidly as we want. And yes, we did not buy it to be dilutive to our business. So we're kind of -- we're focused on that. One of the things we do with Mailchimp is understanding what is happening there. And just to unpack, as we pushed for more of the -- when we acquired Mailchimp, we really wanted to go after like bigger companies, and we did that. And we increased the number of features in the product. But we also noticed that we have higher churn across smaller companies on our Mailchimp platform. And one of the things we realized is that we overcomplicated the product for the really smaller customers. So we go back to basic. We are simplifying the product for the small businesses as well as making sure it is performant both in terms of performance as well as delivering the value on the bigger mid-market sized businesses. So that's kind of with Mailchimp. We added a lot of new features. And some that we see gaining traction are SMS, customers are really starting to use that, we're adding WhatsApp. We're adding more segmentation and more performance marketing. We actually hired multiple talent that really understand that space, particularly from Meta, people that worked on WhatsApp and other areas. So very excited about some of the things we're doing there. We established a sales team around Mailchimp mid-market. We see the growth in that area, and we will continue doubling down on that as well. So there's multiple areas. Another area where we need to invest in is how it connects to QuickBooks, both on the foundational layer, we moved it to AWS but we still need to work on some of the foundational connections, with SSO, with the data being integrated, with all the way to the bills being integrated, how customers pay the bills. So we have some still work to do there, as well as integrating the features with CRM and other areas that we are working on.

Okay. Now we kind of covered all the services. Let's see how you're thinking about AI, using AI to bring that done for experience for each of the services. So recently, you talked about agents. So are you -- how are you -- first of all, like what's your vision about bringing those agents for all these services? And second part, how are you going to monetize that?

Yes. Well, I think about AI every single day, and we all think about AI, because it is very revolutionary and is revolutionary for our customers. Luckily, some of the investments we made in like making sure we have different services and APIs and making sure we have GenOS really enables us to rapidly develop for our customers. We actually announced May 27 a new release of our product. It has platform -- more of a platform experience, which means customers coming to the product, and you can see it in our blogpost, we have a visual of that. When you come in, you should be able to see more of these jobs. Like for example, you should be able to see Payroll as an option. You should be able to see Mailchimp as an option. So it has more of a platform look. And importantly, it has agents technology that we're introducing. So it is not just AI, but agentic AI. And we are introducing 6 agents in July across the different SKUs and across the different jobs. How we chose these agents, by the way, is we ask our customers, what are the most important areas to automate and what's going to be most accretive? Then we chose these agents. We worked rapidly to implement them. Then we worked rapidly to test them with customers to make sure that they're there, and introduce it across the lineup. Really quickly, an example would be our Hero agent, which is an accounting agent. Starts from a very low SKU of being able to just categorize transactions. Then maybe a higher SKU, anomaly detection and getting insights. All the way to being able to reconcile the books automatically. So those are the -- were kind of span those capabilities across the SKUs. There's other agents, like payroll agents does the payroll, much of the payroll job, running a payroll automatically for you. Payment agents optimize your payment terms, introduces you to the idea that you can pay-enable your invoices, and other agents. We then, like I said, we put those agents across the SKUs. And then we also, in our philosophy of pricing to value, we actually introduced new pricing that we announced to our customers at the end of May across the SKUs based on the value that we are delivering with AI and with this new platform experience. We're very excited about that. I also want to share with you that, even though this is new and we are releasing it in July, it's actually already in the hands of many of our customers, many of these experiences. Because we wanted to be confident what we're releasing, so we did extensive beta, including this being in the hands, many of these experiences of over 200,000 customers that are already playing with this, giving us feedback, we're learning from it, et cetera, which gives us high confidence around the value we're going to deliver.

And in future, you're going to have separate price SKU for agents?

Yes. For AI, we want to make sure we use it to gain more customers, to make sure that there's higher discovery of services and ARPC. To make sure that they can connect to live is another angle of monetization. And yes, we're also thinking about separate monetization for our agents in the future, not the ones that we're releasing, but other agents that we're thinking about or more advanced versions of these current agents.

So that's how you're using AI for your customer, done for experience. Now how is AI is doing the work for you internally? How are you leveraging AI internally to your product development or even go-to-market? How are you doing that?

Yes. We are using AI extensively internally. It's something top of mind for us. This is from -- starting from, probably where it's most advanced, is our development tools. AI is very much part of what our developers are doing. They're utilizing some of the GenAI tools to really speed up development. Then we use it, obviously, in our expert services, in our customer success, in sales. Everywhere, we're using AI. And we're increasing our usage every day. I want to share with you, I use AI daily myself, so, and I encourage all of you to do so. It's actually quite mind-blowing what you can do with it.

No. We heard from Sam Altman today, it's going to revolutionize the whole industry.

Absolutely.

Yes. I mean I want to plug -- add a plug here. We did a deep-dive on your QuickBooks business recently. So anyone interested, you can reach out to me or our Mizuho sales team. With that, thank you so much, Marianna. Appreciate your time today. Thank you again.

Thank you. Thank you so much, everybody. Thank you, Siti.