Intuit Inc. ($INTU)

Thank you, everybody, for joining us. I'm Samad Samana. I cover software at Jefferies. My colleague, Brent Thill, cannot make it in person. So I'm here substituting. Hopefully, I do a good job. From Intuit, we have Sandeep Aujla with us. Thank you so much for joining us today. How are you?

Good, Samad. Good to meet you, and thank you for having me. And thank you all for being here.

So I appreciate it. I figured we'd dive right in. There's a lot going on in the world of software and at Intuit specifically. Let's kick off with the business that I think most people are very, very familiar with, which is TurboTax. You recently gave some guidance around that. What maybe drove that lower fiscal '26 guidance of 7% versus 8% previously? And was it purely DIY low-end filers? Were there other factors? Help us unpack and think about that.

Yes, and I'm happy to address that. I think it's helpful to just set the context at the overall company level. At the overall company level, we took guidance up for fiscal '26 from previous 12% to 13% revenue growth to 13% to 14%. We took the guidance up on operating margin. We took the guidance up on operating income. We took the guidance up on EPS, non-GAAP. And on GAAP, it was impacted by the restructuring charge we took. Otherwise, ex restructuring, we took the guidance up there as well. So overall, at the company level, strong performance. Now I get to your question on tax. Tax was really a story of 2 cities. We did really well in the assisted tax category, customers growing 38%. Revenue is growing 36%. It is one of our big bets. It's 88% of the opportunity in TurboTax, and we executed quite well. Area where we were not the best we could be is DIY tax to your point. And there were 2 components there. One is that we were expecting it to be a normal tax filing year, about a 1% increase in filers. Filers this year is going to be flat to down maybe about 30 bps. That's about 2 million filers in the macro. And as the largest market provider, the largest share in the DIY, that has an outsized impact on us. That's one. And secondly, it is with the customers who make less than $50,000 in annual gross income. We do well, and we serve many millions of these customers really well. They keep coming back year after year, picking the same SKU. Millions of them also use our assisted category, but there's a subset of those that are price sensitive. They're looking for more of a value-based pricing than our traditional complexity-based pricing. So you'll see us going forward continue to execute well on the assisted side, but also play offense in our core and have a value-based lineup. And we are able to do that because we have a Credit Karma asset that we can look at this holistic as a broader consumer offering. So it's no longer about just tax or Credit Karma, but holistically, how are we driving the lifetime value of these consumers across the broader platform.

Got it. I -- for one, I'm a long-time TurboTax user, great experience. Now the question that comes up, let's rip the Band-Aid off on it, which is around AI and taxes, right? There's a lot of debate there. Do you expect AI can ever prepare tax returns of average to higher complexity given the need for 100% accuracy? Or is there any swim lane in which it will be impossible for AI and/or where is it possible?

Look, I think when it comes to taxes, the name of the game is confidence. And confidence comes through a mix of having a trusted brand, having an experience that is trusted and having a brand that will stand behind you. I think AI will be an augmenter in taxes. AI will help -- and we are using AI to help people find new deductions for people to get their tax basis right on their trades for us to serve our customers more cost effectively, improving our unit economics. But it is hard to simplify it into saying that AI will be able to do taxes end-to-end because not about just using the tax code and filing other tax forms, that's the easiest part. But the whole engine of tax preparation has to do with getting all these data in, in a seamless way accurately. It has to do with understanding how taxes work and having done hundreds of millions of tax returns and knowing exactly based on the person's demographics or the ZIP code, what questions to ask to make sure they're getting access to every refund they're entitled to. And on the back end, being able to file those taxes with the IRS, being able to have access to when they are getting their refund and giving the customer the refund multiple days earlier. That matters because for many people in North America, it's the biggest check they get all year. So net-net, I think AI will be an augmenter and not a replacement to the traditional tax filing experience.

Very helpful. And maybe let's transition to TurboTax Live. It's now more than 50% of total TurboTax revenue. You're expecting kind of 15% to 20% annual growth there. Does this improve the prospect of faster combined growth for assisted and DIY tax? How should we think about the impact of TurboTax Live?

We feel really good about the progress we're making in the assisted tax category. The growth you shared about 36% revenue growth in TurboTax Live, a testament to that progress. But we also, as I shared in the answer earlier, want to make sure that we are playing offense in our core, the DIY tax. So that's an area where as we play offense and as we think about how do we monetize the customer and drive a greater lifetime value of the customer by maybe giving them a value-based pricing on the tax filing, but delivering them other offerings that they see tremendous value and are willing to pay for, such as faster access to refund, access to financial products on Credit Karma. Those are all the things that we are continuing to invest in. But as I look across those 2, there will be some near-term trade-offs when it comes to revenue in the DIY. So that's something I want to be very mindful of that as we continue to feel good about the TurboTax Live that we are also making sure we're setting up the overall tax business for a very successful performance in the years ahead.

I know we've largely focused on the consumer or individuals. And I think that's -- when I think about TurboTax, that's generally what I think about as a user but business tax is an opportunity as well. How did business tax do this tax season? And how long do you think before that can become a material revenue driver for the business?

Yes. Business tax was a tailwind to the overall growth rate for the TurboTax Live business. And we see a continuous opportunity for us to scale that for the years ahead as we continue to bring together the opportunities from our consumer side, but also the know-how we have on QuickBooks. So it's -- we're still in the early innings on Business Tax Live, and I think it's going to be a nice tailwind for the overall live tax business for the years ahead.

So out of curiosity, what are they -- what are the businesses that are not using TurboTax today, which -- what are they typically using? And what's the -- is the acquisition model there largely focusing on existing QuickBooks customers? Or is it a broader opportunity set to bring new businesses to QuickBooks potentially?

So one, keep in mind that business tax, we always had a TurboTax product that businesses could use. But it's really a new to the franchise opportunity for us. Many of them are using assisted tax filers. So think of this as your small tax preparation shops or your other assisted offerings that people use. So that's why we're excited about business tax because it gets us into that $10 billion opportunity. That is largely an assisted tax opportunity right now and also synergistical with the QuickBooks business.

Great. So let's switch gears and unpack a different part of the business. Let's look at GBS. That's an area where you raised guidance to 16% from 14% to 15%. On the other side of that, there's maybe a little bit of a timing element where growth decelerated to 15% from 18% implies a little bit of a slowdown in F 4Q as well. Can you maybe discuss how each of the businesses within GBS are trending, excluding Mailchimp, just so we get a sense of what's going on inside of that business?

Yes. GBS continues to perform well. The areas that truly excite us around GBS. And personally, the area that I'm the most excited about across all of Intuit Inc. is mid-market, the 38% growth this past quarter, and we are still in the early innings there. IES is scaling nicely, and I think it's going to be a meaningful tailwind to mid-market growth in the quarters and years ahead as well as the services. Services growth continues to do well. Our payments volumes were up 18%. We continue to innovate on those offerings. And as we execute well on the mid-market side, that's going to, of course, have a -- serve as a tailwind to services revenue growth as well since half of the -- over half of the opportunity in the $90 billion mid-market addressable market is in services. So these are tailwinds to the GBS business that I feel good about. Overall, in the business, the accounting side, online accounting continues to do well. The Q4 decel that folks have called out has to do with the fact that we don't have pricing this Q4. And so we are lapping over the pricing from last year Q4. So that was the trend there. And on services, there were some onetime factors from a year ago. But if you look at the Q3 run rate in services growth is a healthy 22% ex Mailchimp. So that's a healthy growth rate going forward that we feel good about.

So I want to pull on the mid-market string a little bit more. I think, again, you guys are very strong in some key categories. What's the primary competitive advantage that you have inside of this -- with your mid-market solutions? And do we think that this will be a material tailwind for growth for some amount of time?

Yes. So if you think about the mid-market customers, so these are customers making $2.5 million plus. Between $2.5 million to $10 million, our QuickBooks Advanced offering really resonates with them, $10 million plus, IES becomes more of the product that they choose. And what they are looking for is, hey, I'm using 10 to 15 apps to run my business. Give me one holistic platform that can run end-to-end, everything from the ledger to paying my employees to getting paid to getting access to capital. That's what we bring. So we win on price, we win on experience and the total cost of ownership. That's a key differentiator. The other moat we have in this area, the other opportunity we have is the strong relationship with accountants. We have 1 million accountants on our platform. And we are increasingly focused on deepening our relationship with the accountants to have them be a net promoter because there is such a key proponent that are driving the end customers the decision on which platform to adopt to increasingly recommend our mid-market offerings. So those are the differentiators that we have going in, and those are the differentiators that are helping us win and continue to build the momentum in mid-market.

So I want to switch gears a little bit, maybe a little bit more challenged segment or piece of the business, which is Mailchimp. Revs were down slightly year-over-year for the last few quarters. When do you expect that business to stabilize if you do? And let's contextualize that with the recent RIF that was announced as well and how that maybe impacts Mailchimp's trajectory?

Yes. So Mailchimp is a business that we are focused on continuing to help it scale at a good rate. But where we are right now, we think it's best to think about Mailchimp as analogous to how we run our desktop business, which is flattish growth, but high profitability. And we continue to make progress serving the mid-market customer really well in Mailchimp. Our sales force there is having a lot of success getting mid-market customers to adopt and grow on the Mailchimp platform. But the area where we have work to do is on the small businesses, really nailing the first-time use experience and getting them to adopt and more importantly, expand the book of business they have on Mailchimp. But in the near term, I would think about Mailchimp as a business that is stable and high profitability for us, allowing us the opportunity to reinvest the profitability into our growth drivers or return that capital to shareholders through buybacks.

Understood. Maybe on a different product line. You recently launched QuickBooks Workforce after an acquisition of GoCo. How should we think about this product? Is it an expanded payroll solution? And maybe how has the reception since the launch been? And payroll is near and dear to me because I cover that space at Jefferies. So now we're back into my category.

Absolutely. So just setting a little bit of context. Remember, when I talked about earlier the $90 billion opportunity in mid-market, majority of that is in services and payroll is a key component of the services. Every mid-market customer has employees. And traditionally, we didn't have a payroll offering that resonated with them because what we had was small business payroll. But what these customers are looking for is a holistic human capital management solution that allows them to do everything from opening up requisition, managing onboarding, talent management, et cetera, on the platform. And through the acquisition of GoCo as well as the work our teams did organically, we now have that complete offering that we call QuickBooks Workforce. It's only been out there for a few weeks. So it's still early innings, but this is the one that I'm really excited about given the early feedback we're getting from our customers and the early feedback we're getting from our accountants. And the excitement really comes from how it sets us up to continue to drive mid-market revenue growth in the quarters ahead as we continue to scale overall customers, but now have an offering to cross-sell to them that will really meet their needs, which we didn't have previously.

And I know you mentioned that it was prior -- previously more small business payroll. Does this change maybe the ideal customer profile as well to a slightly larger type of customer or more mid-market? Just help us think about how the reception has been through different kind of customer sizes in your installed base.

So what it does is expands the set of customers that it resonates with. Our core payroll still resonates really well with our bread and butter, which are the traditional QuickBooks customers that have anywhere from 1 to 6 employees. But for people in the mid-market space that have 25, 50 employees, that offering didn't resonate. So this now opens up the aperture of who we can serve with our payroll offering. So it's accretive to the overall solution.

Understood. They pay me by the number of AI questions I ask. So back on to that topic. I'm curious, there's -- we talked about the impact of AI potentially on the tax side of the business, but there's a bunch of different AI native, and I'm putting in that in air quotes on purpose because no one's really been able to define what that means to me yet. But if I think about Campfire, Rillet or Digits, are you seeing these AI native players have -- are you seeing them more in the competitive landscape? And how do you think about maybe the competitive differentiation that Intuit has versus some of these start-ups?

Yes. And I agree with you. There's a lot of fashionable terms, AI being one of them. When it comes to these mid-market customers, what they're looking for is an end-to-end platform, connects to the answer I gave earlier, they're using 10 to 15 apps to run their business, and they want to bring all that into one holistic offering. And what lending solution, employee management solution, customer management solution, and that's what's really resonating with these customers. Additionally, a key factor in the mid-market space becomes accountants who are a key influence manage their end customers. So that further strengthens the network effect. We have between 1 million accountants and 10 million businesses on our platform. So for us, the end-to-end platform, the network effect we have. And on top of that, IES also being an AI native offering really does resonate competitively in the marketplace. One other thing since you get paid by AI that I'll add on the AI side, AI is really opening up the aperture on our ability to drive adoption of our platform. It is one of the hardest things about QuickBooks since it's a horizontal thing was just getting onboarded and really nailing the 25% to 50% of QuickBooks features that were relevant to you. What we are able to do with AI capabilities is really have an easy onboarding offering. And once we get to know, which we do pretty early in the onboarding process, what type of business you are, let's say, you're a plumber. And we've served tens of thousands of plumbers on our platform. We know exactly what matters to you, exactly what the KPIs are that matter to you. So using AI, we're able to make QuickBooks feel like it was built for the industry, and that's what the customer feels. And that's a big unlock that we didn't have previously. So in addition to the mid-market, which I previously answered, AI has further tailwinds that I think are underappreciated for the QuickBooks franchise.

No, I think that really resonates. It's almost allowing you to create a more verticalized experience without having to pick and choose each one and AI is unlocking that for you.

It is. And I call it thin sliver verticalization. If you look at any vertical offering, there are usually 4 to 5 things that really matter. And we can nail those 4 to 5 things on our core platform. So we continue to have the benefit and the addressable market that comes by being a horizontal player. Then using AI, have enough thin sliver verticalization so the customer feels this product was made exactly for the industry.

Let's transition. You mentioned Credit Karma earlier. I want to maybe briefly touch on that. It's seen a good amount of success despite maybe some macro cross currents and some other peers that are struggling. What do you attribute the success of Credit Karma to? And then I have a couple of follow-ups.

The success of Credit Karma comes down to just a relentless focus on what matters most to the partners as well as the consumers on that platform. It's that focus that is allowing us to continuously increase the share of wallet from our partners, whether it's on credit cards, whether it's on personal loans, whether it's on the insurance side, our partners are seeing better ROI by being on our platform. So they're sending us more of their business. And certainly on the consumer side, we're able to give them an experience that truly is differentiated. To give you an example, on -- let's say you're looking for a credit card. And a lot of the customers are barely prime or about to be prime. And our Lightbox offering before they even fill out an application and it hits their credit file, they can know, hey, you have a really good chance or not a good chance of getting approved here. So they're not spending time filling an application where they have a good shot. Because if they file for a credit card and get dinged, the customer who are just barely prime could get dinged down to subprime that has consequences on the cost of interest and access to other loans. So these are things that are resonating to both sides of the network. And so leaning into the network first, driving the goodness in Credit Karma. Beyond that, one of the things we've done over the last 2 years is really lean into the synergies between Credit Karma and TurboTax by operating as one holistic consumer platform. And that has given us the benefits such as customers who have both TurboTax and Credit Karma, 30% higher ARPC because they're consuming more of our platform. Customers from Credit Karma going into TurboTax, up 54% this past year. So these are the platform synergies, the growth synergies that we are really unlocking by running it as one cohesive business under one leader.

And is that integration largely complete? Or is there more progress that needs to be made there? How satisfied are you with that integration of Credit Karma and TurboTax?

The traditional definition of the word integration is complete, but the experience, it continues to evolve and continues to get better. As an example, this year, if you were a SimpleTax filer, you got into Credit Karma, we're like, your tax file is almost ready. It looks like you have a $2,000 refund and many of them went into TurboTax. Over 80% of the simple filers taxes are already done. That's a net benefit, just highlighting that there's continuously work we're making, but it's not integration work. It's just creating an experience that's unmatched by anyone else in the industry.

Understood. Before we move on to the margins part of the conversation, I did want to end on one last question, which just given the news this week about confidential filings, OpenAI and Anthropic are on everybody's mind as well as this little company called SpaceX. What's the Intuit's relationship with OpenAI and Anthropic? And what do those integrations look like? Are they driving traffic to the platform? How should we think about maybe those 2 specifically in Intuit?

Yes. Our goal is to be where our customers are where the eyeballs are. And with that, we have partnerships with both OpenAI and Anthropic that we feel really good about. With OpenAI, we are the only one who is approved for secure document uploads. On Anthropic, I think we are in the top quartile for all the relevant apps that are in our field. So for both of those partnerships, we feel really good about how they are -- how we are positioned and the opportunities that they provide for us and our customers. But again, it's early innings, but feeling really good about both of them.

Great. So I think Intuit has always been considered best-in-class in terms of margins. I think 41.2% this fiscal year for op margin, up 100 basis points, third year in a row of robust expansion. How should investors think about the op margin improvement pace going forward? And do you look at AI as a headwind or a tailwind to that over, let's call it -- let's define that over a 12-month period and maybe a longer-term period?

Yes. Look, we are a company that has always believed in being disciplined in how you run the company, making sure that expenses are growing slower than revenues. When you look at us on a revenue per employee basis, we are order of magnitude better than our peer set. And that isn't by accident. That's always based on discipline. And that discipline comes from economies of scale. That discipline comes from making sure we're allocating towards our big bets and being conscious about the unit economics across the entire spectrum. And then also more recently from continued AI, but over time, using technology to drive the cost down. So I think whether it's the next 12 months or next several years, I continue to feel good about the opportunity to continue to expand margins for the company.

Understood. The company recently made a very tough decision to do a reduction in force. Could you maybe unpack the rationale for it and which parts of the business were most impacted?

Yes. The rationale for the changes and these changes are always challenging, and we take them to heart and close consideration. There were 3 objectives. We wanted to make the company flatter. We wanted to make the company more focused. And by doing that, we wanted to make the company faster, move faster. And across those 3 objectives, the areas we made changes, we reduced the layers of management across the board. We looked at areas where now that we are running Credit Karma and TurboTax together as one holistic platform where there were redundant functions to address those. We looked at Mailchimp that was historically staffed for success to staff for the new growth profile, which is kind of a flattish revenue but higher profitability. And then we looked at some functions that we thought we could rightsize to drive more principal-to-principal engagement across the company. So these are all areas that led up to those objectives I talked about, and I think sets up the company well for the years ahead.

And how should we think about what the time line of when we'll see those savings? And how much will be reinvested versus maybe going to the bottom line?

I would say majority of these savings are going to the bottom line. Our focus as a company is continue to invest in the parts of the business that are working exceptionally well, namely our big bets, right? All 3 of them are growing north of 30%, and we continue to see opportunities for them to play an ever greater role and ever greater scale across the company. So that's the key focus for where these savings will go. But we think there's an opportunity for -- whether it's 60% or 80%, we are still fine-tuning those for those to flow to the bottom line. And that's how we're thinking about it at this stage, and that's what gives us the confidence to guide to the mid-teens plus EPS growth in the year ahead.

And I'm curious, a lot of companies have made some tough choices recently, Atlassian, Block to name a couple. And AI was cited internal AI use cases. I'm curious if that influenced Intuit's decision more productivity via AI tools internally? Or did that play a role at all in the decision?

These changes were not AI focused. These were related to the areas that I talked about earlier, connecting to the 3 objectives I talked about, flatter, faster, more focused organization.

Understood. Just kind of tying this together then with the company's commitment to delivering at least mid-teens EPS growth over the coming years. Can you unpack that commitment? And what are some of the key drivers or factors in achieving this?

Yes. As I step back and we think about this era, I think it's going to be transformative, not just for Intuit, but for the industry overall. And as I think about the company, there are so many parts of the area that are working exceptionally well, in particular, our 3 big bets that we declared and as I highlighted a couple of minutes ago, are growing north of 30% and I feel really good about that. But there is part of the area where consistent with our history over the last 43 years of setting up the business for success for the decade ahead, we want to make sure we're playing offense on our core. The DIY tax where we started the conversation, we want to make sure we evolve that from a complexity-based pricing to a value-based pricing. That is going to have some near-term revenue trade-offs. And that is one thing that we wanted to take into mind as we thought about how we indicate the opportunity for the year ahead. In addition to that, we talked about Mailchimp was traditional staff for growth. I think it's going to be flattish. Desktop was this year growing mid-single digit. I think it's going to be low-single-digit decline in the year ahead. So I think as I think about the year ahead, there is a bit of a J curve in terms of the growth rate. But we wanted to also highlight that we will continue to run this company in a very shareholder-friendly way, leaning into strong EPS growth. So I was very deliberate in making that statement about the growth being in the mid-teens or higher on the EPS side. And we will continue to lean into shareholder-friendly way by returning capital to shareholders through strong dividend increases as well as strong buybacks.

Understood. Maybe to wrap things up, there's a lot of change going on both inside of Intuit, the software industry more broadly. As you think about the next 12 months, what are you most focused on as a management team at Intuit?

The things that we are focused on as a management team, first and foremost, are continuing to massively scale our big bets and having them play a bigger and greater impact at the company, continue to scale assisted tax, continue to scale mid-market, continue to drive platform adoption. So those are the areas that we are most focused on. We also are making sure that we're setting up the business well for the decade ahead. And that comes down to playing offense on the core consumer tax DIY business. That also is around opening up the aperture on setting up QuickBooks to go after the solopreneurs that we traditionally haven't focused as much on, particularly in the era of AI, I think you're going to have a lot more entrepreneurs and new business formations. And we want to make sure that we are capturing these entrepreneurs earlier in their journey and helping them grow on our platform as they go from being solopreneurs to hopefully mid-market businesses over the coming years. And we are going to continue to be focused on expense discipline and driving margin expansion and operating this business in a very shareholder-friendly way to have strong capital returns. So both on the setting it up for the growth side as we get through this bit of a J-curve in the near term as well as continue to drive margin expansion. I feel really good about the long-term prospects of how this business grows on margins and the top line.

Great. Well, thank you so much for joining us. We really appreciate it and look forward to -- appreciate learning more about Intuit today and look forward to seeing the progress in the coming months.

Absolutely. Thank you.

Thank you.