Intuit Inc. (INTU) Earnings Call Transcript & Summary

So this is the day 3 of the Goldman Sachs Communacopia and Technology Conference. It's the fourth year that we have rebranded this conference and reversioned it and consolidated a couple of industry groups, and it's been a tremendous success. We're more than 3,000 registrations. I know that may not sound like a big number, but in our industry, financial services industry, that's actually pretty good. It's one of the -- if not the biggest, probably the biggest conference Goldman hosts every year. So that's in part because of companies like you and speakers like you that were able to create a sense of a great platform that people would love to get value from listening to great conversations like the one we're about to have right now.

You're very kind and I appreciate everything that Goldman does. As you know, I started my career at Goldman in the banking. So, yes. Good memory.

Thank you.

And by the way, congratulations on the next stage, massive impact across your career, and I wish you all the best in the journey ahead.

Thank you so much. Thank you so much.

The past couple of years have been remarkable for Intuit. Big breakthroughs, you had the mid-market assisted tax, AI, et cetera. As you take stock of what the company has been able to accomplish, give us an assessment mark-to-market of how things have come along? And also, more importantly, how do you, as a CFO and a business partner to Sasan, how do you look at the business ahead for the next 4 to 5 years? I'm sure everybody plans -- I mean not all these plans necessarily happen with 100% accuracy, but you got to have a plan. So what is the plan ahead?

No, I love that question, Kash. We're really proud of how the team has executed across the board and the results that we've been delivering. And it really starts with the coverage and the foresight ahead to bet the company on data and AI circa 2018, well before it became really fashionable to talk about AI. And...

Have I told you the story that -- it's a very short one. When Sasan became the CEO, he and I went to see clients. I think we were the first to go marketing with. All we talked about was AI in 2018. In case Sasan, you're listening, you know the trip. It was all about AI, before AI became a thing.

No. And I remember I would get questions like, hey, what is this AI-driven expert platform strategy, right? And that question has kind of [indiscernible] away starting Thanksgiving 2022 for some reason. But that has paid off dividends because we started investing in delivering done-for-you experiences for our customers. And with the 100 million active customers on our platform, as we look ahead the next 5 years is going to be continuing to scale their business, serving a lot more than 100 million globally and continue to double down on delivering done-for-you experiences in using AI and AI empowered human experts. We believe and we will -- and our results are showing that that's a true competitive differentiation, AI and HI, human intelligence working together. So looking ahead on the business platform, I expect that 5 years or less from now, most of the work that small and midsize businesses are doing on the platform will be done by AI or AI-powered human experts. Today, already since introducing agents in July, we're seeing a meaningful amount of customers save 12 hours per month. I mean that's a massive productivity gain, right? They're getting paid 5 days early on -- so I expect that to continue, continue to make progress in mid-market. We've declared a mid-market segment for us as customers with $2.5 million to $100 million in revenue. I would take that as a warm-up exercise. Over the next 5 years, the ambitions are well above the $100 million in terms of the scale of -- size of customer we want to go after. And on the consumer side, we have an amazing business with TurboTax, a phenomenal business with nearly 150 members and over 40 million monthly active users on Credit Karma, is to deliver on our end-to-end vision of having one platform where customers can manage their financial life, everything from building credit to building wealth. We delivered tremendous progress last year and expect that to continue to compound over the next 5 years.

Got it. We will definitely get into the AI thing. But before that, at a high level, what is your pulse on the small business environment? We've heard in the past few weeks, the jobs added. That data didn't look particularly great, and the economists like to think that 80,000 jobs added, it's about stable sign. And a couple of years ago, we're adding a couple of hundred thousand. Now it's like well below the trend line. Does that -- is there a relevance to Intuit? How closely do you watch that? But more importantly, as you take a step back and look at the length of your small business ecosystem, what do you see that's out there? And how would you characterize the strength of the small business ecosystem?

We're in the business of serving consumers and entrepreneurs. As an entrepreneur, we call them small, midsized businesses, but they are impacted by everything they hear in the press. So the sentiment is always evolving. So I always cut through the noise and look at what the data is telling me. And what the data is showing us across the small business environment is revenues are relatively flat, but profitability is up as companies continue to get more efficient. And the 2 leading indicators that I watch most closely is the cash reserves in bank and the hours worked by the employees because that's a key leading indication like how many -- how much you're having employees invest into the business. Both of those are up year-over-year. So I continue to feel good about how the small business is positioned. And it's a delicate time in the macro, given all the noise around tariffs and everything else, but we continue to see resilience on the part of small business, but something we're watching carefully.

Yes. It's been -- you could characterize that the macro has been the #1 thing in the last -- since 2021 unwound, and we had this wave of optimism that resulted in big growth rates and extended tech buying cycles. 2022, 2023, 2024, 2025, we're still asking macro question, right? I hope 1 day, we'll be asking no macro question, just talking micro, like 2021 was. And 2020 in some sense, right, after we had the vaccine, it was just back to the fundamentals. But the one thing that I have always admired about Intuit, this goes back to the days of not only Sasan as CEO, but his predecessor Brad Smith, is that we don't control what we don't control, we control what we control. Chart out your destiny. And one of the things that haven't covered Intuit as a company and admiring it from the outside for the better part of 15, 16 years, I think I first met Brad, in 2008, just at the bottom of the world like financial crisis, there's always been resiliency, right? And that's manifest in -- when you look at the mid-market opportunity, right, the one that you're about to have, that's been characterized as a $89 billion, $90 billion give or take mid-market opportunity. We've seen great statistics from QBO Advanced IES, which was launched last year. That's doing quite well. As you continue to scale up market, remind us again in the interest of messaging, what is the white space that is opening up for Intuit? And I have a follow-up question about ARPU, ARPC, et cetera?

Yes. Absolutely. For us, double down...

Because I hear from clients, they don't believe it. But what is mid-market -- and it's a formula that is in their view, broken because there was a formula of adding subs at a certain ARPU. And now you're going upmarket and are ARPC is going up and unit growth has slowed down, something is wrong.

Yes. I understand the -- their perspective, let me unpack in what's giving us the confidence. So in terms of mid-market, as you said, $89 billion market opportunity, and we are defining that mid-market as customers with $2 million to $100 million, as I stated earlier, there's about 1.7 million of businesses like that in the wild and about 800,000 of those are using QuickBooks right now. So the initial game is to be first to market with an ERP-like solution that resonates with these customers. IES is basically resonated with people who have multiple entities because QuickBooks, if you have 3 locations, you got to run 3 different Quickbooks. IES gives the end-to-end holistic perspective to how your business is doing. It's also an area in the mid-market we are targeting that there isn't that much alternatives. And when we talk to these customers, a couple of things pop up. One, that they are stitching together about dozen different apps to run their business. So just think about the level of burden on this business owner to try to figure out how the business is doing by going to a different workforce app, different payments app, different inventory tracking, et cetera, et cetera. We can bring it all together, give them one dashboard to run their business. The second is they are spending billions of dollars -- customers on the platform are spending billions of dollars with others for capabilities that we have. So they can actually save money by bringing on to our platform and we end up gaining as well because right now, the spend is happening with someone else. So in businesses, a few times, we got such rich win-win opportunity. So our thing is the unique value proposition of better insights, lower cost of ownership and just -- the total cost of ownership also being low on mid-market, and that's what's resonating. And as you said, IES has been in the market for about a year, but tremendous success, 40% revenue growth last year, 23% customer growth, and those are strong metrics, and we're just getting started on this journey.

Yes. I think -- and I've described to investors is a few concentric circles. So you got a very -- outermost circle would be the circle of small businesses and then QBO Advanced, the next concentric circle inside, and then IES. The value is higher and higher as you go closer to the center?

It is. And I think the QBO resonates with everyone from someone just starting a business, a solopreneur to someone who has multiple employees. We have companies who with hundreds of millions of dollars still using QBO. Advanced resonates largely with those with $2.5 million to $10 million of revenue, a more complex business, we need better insights, better reporting, et cetera. IES, $10 million plus. To your point, we just keep honing in on these products to the customer segment that resonates and that's the game. And when I say, to your first question, it was 5 years plus, I expect to be much higher than $100 million type customers.

By the way, Intuit has their financial Analyst Day, I think in a couple of weeks?

Next Thursday.

Next Thursday. It's one of my favorite analyst days because you have packed information, insights, the slides are just a work of art. And the coolest thing is that during the break, there will be snacks and such served by your staff, but made by your customers. All sourced from your customers. It's such so cool that small businesses, what they contribute and how you showcase what is it that they do actually.

Earlier, you talked about companies are a manifestation of the culture and the people. Sasan, Brad and what's kept me around at the company for 10 years is that it's truly everything we do is rooted in addressing the needs of our customers. You mentioned how we do our Investor Day and now the role our customers play in making the things that we serve, et cetera. But even when we think about new products, new innovation, even with AI agents, productivity of our customers, everything in the company, our leadership conference we had 2 weeks ago, everything about how is done-for-you experiences as an era of AI changing customer expectations, how do we stay ahead of that? So it's very much a core to what the company is, and that's what's showing up in the results.

Yes. Last year, when we had Sasan, you did talk about the leadership offset that you guys had, and you mentioned that Bill was at the leadership conference last year. Did you have any other public software CEO types this time? Any...

We had Eric Schmidt. And we had a couple of the other CEOs.

He talks a big thing about AI. AI is his big super theme, right?

Eric?

Yes.

Oh, yes. I think -- and given Sasan's relationship, Scott Cook, our founder's relationship, and just our own history over the 4 years of driving sales disruption and making sure we come out bigger and stronger through every change, whether it's change in mobile, change to the cloud, now the era of AI, we want to be leading the change. It's always good to engage with these leading-edge thinkers. So I love it when we bring it to -- and expose their thinking to the broader leadership.

He's probably egging you on to go even faster with AI, and you're moving quite fast.

Yes. We definitely don't know how to take our foot off the throttle and I love it that way. That's what we built for.

Great. Let's then talk about the story transition from unit growth to ARPU growth. And that's a completely different world. How should investors think about the trade-off moving away from a unit-driven model, high attrition to more value, more -- better retention, better lifetime value, talk more about that?

Sure. Let me -- if you allow me break down the question to 2 time series, a long term as well as the here now. Over the long term, as I look at a $327 billion market across Intuit and the current 6% penetration, that's going to come through a mix of customer growth as well as unit growth. So the focus of the long term of scaling both customers and monetization hasn't changed. In terms of as you're executing through every chapter, you have to drive focus in terms of this is what you need the leadership team to go execute. The focus right now is to make sure that we are building an all-in-one platform and delivering capabilities for the more complex, higher-value customer. So there's -- in the business platform, last year, we grew customers 5%. But the customers that had multiple offerings on our platform grew 14%. Mid-market customers grew 23%. U.S. QBO grew 8%, and that's what drove the massive increase in ARPC. ARPC grew 14%, 3 point acceleration from the year before. So this is a very deliberate, strategic focus right now. And that's as we scale mid-market as we continue to scale platform adoption. But over the long term, we are also going to be focused on scaling the customer size as well.

I tell clients, small business is a big business for Intuit. And I think I've made the observation last year, and Sasan corrected me and said, your small business is as big as ServiceNow and growing about as fast and he said, growing 2 percentage points faster. So people don't realize that there is a ServiceNow inside of Intuit in terms of revenue size and growth rate and perhaps even an operating margin composition, right? I know you don't disaggregate the businesses...

No, no, definitely. And Bill and the team run a phenomenal company. But yes, in terms of the numbers, the business characteristics, that's definite.

And so when you look at the road ahead, what I wanted to ask is what does the competition look like? I mean, I remember a point in time when I was a junior analyst in the mid- to late '90s, the senior analysts are very busy covering the large cap ERP companies. They said Kash, you're the junior guy. You're going to cover mid-market ERP? And there were like 9 or 10 companies. Marcam, MAPICS, JD Edwards, SSA Technologies, and that's just right off time. There were a dozen more or maybe half a dozen more. They don't exist anymore. So part of me says that's an opportunity. And since the 25 years ago, that space has changed, and there are younger companies here, digital natives and so on and so forth. But those -- the supply of ERP companies has gone, just gone. But are you seeing any competition? And how wide open is this split?

Let me address that question a couple of different ways. What you shared resonates, I mean, I started my career doing tech M&A in 1999, right, and a lot of the companies that were my clients, they no longer exist. That's why it's so critical that we continue as a company to embrace that culture of self-disruption, right? You continue to get ahead of the curve. Like we talked about AI. Sasan was talking about AI circa 2018 before most people weren't thinking about AI as being core to the future. And that's just -- even when we talked to our leadership team a couple of weeks ago, it's like you can't lean on the amazing moat we have across our products and behave like an incumbent. You got to behave like a disruptor. So that's core to the thesis that continues to drive our competitive advantage. In terms of our competition for our products, we -- I think like a disruptor, we want to make sure that we have a healthy degree of paranoia of what could happen. I mean, in the era of AI done-for-you experiences, wipe coding and everything else, you want to make sure that you are driving amazing productivity and refreshed platform experience to your customers. When a customer logs in and the customer thought they were going to log in and be there for 45, 50 minutes to doing their work, they're done in 10, right? That's what's happening with the accounting agent right now, right? Because like, wow, most of my work has already done. I've just got to look at and click I'm done. When a customer is looking for like, "Hey, Kash was the lifeblood of my success", they are seeing that they're getting paid 5 days faster on us and aren't even encouraged to go look elsewhere. So we are our own competition in driving that. But the areas we operate in, we feel really fortunate given all the innovations we brought to be that end-to-end platform where most of the competition are point solutions. But what the customer is looking for is come to one place and have a holistic view of their business and be able to run it. And they are not looking to add more complexity to the already over-digitized life. So that's actually a competitive advantage to us, and we're making sure we're taking...

Generally even investors here going up market like, "Oh, margin compression." How are you able to balance the incremental -- the hugely incremental growth opportunity with higher-value customers, but maybe also higher value to acquire those customers. Is that -- how do you look at that equation?

Yes. So your CAC is higher, customer acquisition cost, but your lifetime value is also -- order of magnitude is higher, right? So your unit economics actually play out pretty nicely. You're also building this on the same platform that the rest of QBO runs in. So you got both cost advantage, right, the margin cost is relatively low. As you get these customers on, they're bringing spend that they were doing elsewhere on to you. So these are all areas where the marginal benefit is there. And I think the opportunity as you move upmarket, the bigger dollars to play with on the revenue line, so you could scale your motions to go upmarket. Our advantage is those who are upmarket can come down market because the unit economics are very different, and we know how to make them work. So this is actually why we are so confident in -- and have such conviction in this mid-market being a catalyst for our revenue growth, while we continue to deliver margin expansion over the years to come.

Got it. The retention rate also has to be meaningfully higher, right, mid-market businesses versus small because the attrition -- it's not that they don't want to use a software with it. They're going out of business, that obsolescence risk of a business is much lower in the mid-market, I would assume.

It is. And one of the key goals we have for ourselves is the success of those on our platform should be higher than the small business success outside. And we shared at last Investor Day that customers on our platform tend to have 19 points higher success rate. And we'll update this, of course, next week and trends continue to be very impressive. So you have a higher probably being successful by using our platform and getting the insights for us. And customers leave either because they go out of business, but they rarely leave because another offering is better for them. So we actually have a world-class retention when it comes to the SMB and the mid-market space.

Sandeep, do you end up displacing any known ERP companies? Are you starting to butt into displacement opportunities?

We're -- this is actually the beauty of our business. A lot of the opportunity is still what I would define greenfield. These are customers who are either using things like Google Sheet, which I consider nonconsumption because they excel in Google Sheet or they're working with a bookkeeper. So they're seeking a digital solution or they're using multiple different apps. They could be using Square for payments and some other company for payroll, et cetera. So this is bringing them onto one platform. So it's really a greenfield opportunity right now.

Got it. Then moving on to TurboTax Live. Amazing. I mean what an incredible quarter that was, right? If there was one quarter that made it like a really firm solidification of a trend, it was that...

Mark and the team nailed it.

Yes. Yes. It was incredible. It grew 47%. Obviously, you cannot sustain this kind of growth rate. But I just wanted to dig behind the cover of what drove this performance? And what is it about -- is it just a product market fit, a maturity, trustworthiness? What caused the business to inflect this quarter? Because you've been honored for like years and years and years.

Yes. The results across TurboTax Live, the 47% revenue growth that 24% customer growth are a reflection of the innovation that we've been building in, using AI to help customers discover and guide them to the offering that's right for them, using technology to build a seamless experience across our Credit Karma and TurboTax platform, where the people coming from Credit Karma to TurboTax, 30% more filings. Many of those use the assisted way to do taxes, continue to learn from the marketplace to say how do we expand our brand equity that's amazing on the do-to-yourself tax side to the assisted side and leaning into the marketing there, unlocking the local channels. So these are all areas that we worked on that we have learnings from. And now we are truly disrupting the assisted tax category, and I feel great about the momentum. But this is, to your point, things that we've been working on for multiple years. Sasan actually used the example of bamboos that the roots take years and shoot up the subs and this is how businesses as well. You learn and then you catch it and you just nail the execution of it.

Got it. So let's talk about the AI vision. The forward-looking side of it, where you're on the offense completely understood. I want you to talk about how you're using AI within the product suite in tax to gain more efficiencies, automation, unlock new ways of having customers onboarded to the quicker. On the flip side of the coin, what I do hear from investors is, yes, I mean, TaxGPT, why would not somebody just have GPT absorb the tax code of the United States and why would I not be able to, with PDF documentation and support, throw my stuff into this and have it do my taxes?

Yes. Now let me touch on both sides. The name of the game with AI for us, whether it's helping our customers or using internally, it's massive gains in productivity. Your first part of the question was around how we're using it internally. 80% of our developers -- over 80% of our developers are using AI to code up to 40% faster. That's helping us bring innovation to the marketplace.

80% of your developers are using...

At least one AI tool. And that's leading...

Which tool are they using, Sandeep?

That is a question that's better for our CTO, but I know there are multiple tools on there. And I just slipping on the name right now, but...

40% improvement in productivity, that's great.

40% improvement in productivity. And through our platform, they have access to multiple tools. So how do we get them to adopt more tools and continue to build on that. So I think we're still in the early innings there. In customer success, we shared that over $90 million of cost savings and driving better containment rate. Having AI address many of the questions...

How are you able to give $90 million in savings...

And we'll update the number next week at the Investor Day, and the number continues to be great. It's like...

From saving not having to add as many head count or...

Because you have AI addressing the calls, your containment rate, you're adding less people, you're training people faster, you're scheduling them better. It's across multiple areas. On our marketing team, using -- 90% of our marketers are using AI to drive better targeting and better outcomes from marketing campaigns. So all of this is paying dividends and I believe -- truly believe we're in the early innings. So this year continuing to manifest for years to come. On the second part of your question, like, well, what can any tool, ChatGPT, you name it, disrupt it. It comes down to trust and confidence. We invested in the experience and no one's going to just take their data through into ChatGPT because you need to know what questions to ask. What -- you couldn't set the tax code. But for example, in California, if you bought electric car, you probably got solar panels involved, asking those kind of questions and people still want to have a conversation with a live human expert, the BBB Act, that does my overtime need -- do I need to pay taxes on those or not. Those are the complexities that an LLM cannot address that you need a fully thought through tax engine, a tax experience to really deliver, and that's a competitive differentiation.

And the way I explain it to my clients is that for $50, $60, $70, whatever the price point is, it's very high reward to risk ratio using TurboTax as opposed to trying to do it on your own with some GPT?

It is. You nailed it. The fear uncertainty of doubt in taxes. I mean it's real. I mean, IRS is one of the most feared organizations out there. You want to make sure you get your taxes right to the last penny.

Yes. Alight. I remember when we hosted Sasan, this was many, many years ago, we got into disrupting the assisted category, and I was ashamed to admit to him and we're on a public webcast. I know this, but he's probably going to be listening to. But I said, well you will not believe how much we have to pay to an outside accountant who uses TurboTax, but -- to do our taxes, and he said, we're going to do it with AI 1 day, and I will quote you a price without even knowing how much you pay for your tax attorney, and you will say yes to that price. I'm not going to say what that price is and he said what the price was, and I said, yes, I would take it. And it looks like that day is not too far off that you can have very complicated tax returns be addressed by TurboTax. That's higher -- way higher ARPC. And you are playing in a -- I'll ask you to answer the TAM question. How big is the TAM for TurboTax?

The TurboTax assisted category is about a $35 billion TAM, and we're just getting started. The ARPC is around $250, $300. I pay in the 5 figures to do my taxes and I actually replicate when my accountant team does on TurboTax, and it works. So the product definitely has the opportunity to continue to scale up.

I guess that's one of my projects in retirement to figure out how to do this with TurboTax.

And in addition to TurboTax, I think also on the agentic experiences on the AI side, that's an -- sorry, on the Global Business Solutions side, and the opportunity we have with business tax. I think that's the key one as well and the exciting momentum we have on global business side. Like if you're good with it, I would also love to touch on that because I know there's been some questions since earnings that you and I have talked about. The Global Business Solutions side, the momentum we had in the online ecosystem continues. I mean we delivered 20% growth last year, 25% growth, excluding Mailchimp. And that SaaS business, the momentum continues in the year ahead. The area on the desktop side, we completed our migration from the license base to the software base. So that's an area where, as we take less pricing post the migration, the desktop growth will decelerate from the 5% last year to low single digits. So one of the areas that you and I have talked about since the earnings, like, hey, you're getting a lot of questions from your clients like, hey, unpack the GBSG side. So why don't you also take the opportunity just to address the exciting momentum on the tax side, but also the phenomenal momentum and the opportunity we have as we talked about mid-market, we talked about all in one platform, we talked about the agentic experience across the GBSG. So for the overall company, I'm feeling really good about -- and optimistic about the opportunity ahead.

Got it. On that note, thank you so much for your perspectives. It's always fun to engage with you on a conversation about Intuit because it's such a cool company. And I wish you much success in the years ahead and on your path to becoming a 2x, 3x of your current size. In fact Sasan told me in 2018 that -- when he'd become CEO, yes, my goal is to -- he mentioned a multiple, and you have overshot that goal. So congrats to him and to you.

Yes. No, we love to deliver on our commitments.

Round of applause for Sandeep.

Thank you, everybody. Thank you.