Intuit Inc. (INTU) Earnings Call Transcript & Summary

Hey, good morning. Thanks to all of you for joining us at the Intuit session at the Goldman Sachs Technology Conference, Delighted to have on stage Sundeep, CFO, with me. Thank you for taking the time today.

Thank you, Gabriel. Good to be here. You guys do an amazing conference every year and is a delight to be here.

It's very kind of you to join us multiple years in a row. -- let me ask you to take us behind the scenes a little bit at -- into it from the last 3 to 6 months. When we look into the earnings call, there was very much this tone that came through on. We are too good at this to be losing at the entry point on price. And so maybe just walk us through how your strategic thinking has changed in the last 6 months, and then we can get into some of the specific business?

Sure. Absolutely. I think the last 6 months in the thinking is really a reflection of the last 43 years of the company of identifying the trends early, understanding how those strengths will impact our customers how they could -- what's the best customer benefit we could deliver and making sure that we execute on that come out bigger, better, more relevant the life of our customers. So a company about 4 years ago, started focus in the big bets. And 4 years ago, the question was, hey, could Intuit actually go upmarket? Could Intuit really be a meaningful player in the fintech could Intuit really go beyond DIY tax to assisted tax. And we shifted our focus on investments to those areas and they did exceptionally well. And each 1 of those growing north of 30% or big bets, reflecting nearly 30% of company's revenue. But when we looked at the last year, we realized we were the best we could be in growing new to the franchise customers. And as a company that's north of $21 billion in revenue, we need to be exceptional at both -- so that performance in '26, which was quite strong, solidified the foundation but also clarify the agenda for the year ahead, which is continue to scale the big bets. It's a $300 billion opportunity we used it in the early innings. -- but also meaningfully scale the platform, which comes to our scaling new to the franchise customers.

There have been some conversations that we've had in the last year in the software space globally. On the nature of deterministic versus nondeterministic with AI algorithms. And especially now as you're embedding more AI into your own products. I would love to hear your view on -- how do you think about this deterministic, non-deterministic taking the best of AI with the best of workforce?

Yes, AI is an exceptional capability and intelligence in terms of rendering answers in terms of providing intelligence. But what really makes AI powerful is the context around it. For us, we have hundreds of attributes per hundred thousands of attributes per small business 80s per consumer. And that financial context of deep domain expertise, deep industry expertise, know exactly how a nonprofit works how a plumbing company works allows us to really maximize the benefit of AI through Intuit intelligence and do deliver dent-free experiences for our customers that are truly relevant. So as AI prolific continues to grow as AI becomes even cheaper to adopt by leaning on our moat, it's allowing us to even greater serve the customers in a very relevant way.

There is a fair number of moving pieces at Intuit over the next year, which I would imagine made the forecasting process a little more complicated than usual. One of the questions we get from investors is, look, we really want to buy the stock. How do we get comfortable with that estimate for troughing and that numbers have been derisked. How as you answer that question?

First and foremost, I will start with the history. We are always prudent in terms of the numbers we put out there. We want you all to have the utmost confidence in those numbers. And our record has been at the company level to always deliver on our commitments. And -- so that approach, that principle remains consistent. What we are doing in fiscal '27, our agenda, as I shared, is very clear, continues to grow big bets, grow new to the franchise customers. And as we lean into scaling new to the franchise customers, we are giving ourselves the opportunity to make sure that we are building a durable long-term franchisees are going to be customers that are the lifeblood of future revenue. And our focus is to have a company that is durably delivering double-digit top line growth and through our disciplined approach to running the company, delivering EPS in the high teens. That is the business we are building in '27. And our guidance and the 3-year CAGRs we have put out there are a reflection of the commitment towards that.

The 3 CAGRs are important too because they allow us to talk a little bit about this concept, I think you introduced in the last several weeks of a J-curve. What do you mean by a J-curve? What does that mean about not just FY '27, but what the 3-year CAGR looks like?

So let's take a couple of examples to unpack that J curve, and we were very delivered, by the way, about being 3-year CAGR versus just arbitrary long term. But let's go through the J curve. Starting with our tax business. We have a business that is addressing a customer needs to get to filing team, we did 39 million filings last year. But we also realized that in a price-sensitive consumer base, those run AGI adjusted gross income of $50,000 we won the best we could be, and we lost share. So we're being deliberate about being competitive and transparent on pricing at that level because now we have spent the energy over the last few years to build a wholesome consumer ecosystem, where we do not need to lean into just monetizing the tax filing. We could have these customers monetize through early access to money. Through using -- putting the refund into Credit Karma money and using that account year round as their day-to-day banking app to get credit cards, personal and insurance through consumer apps. So that is a very deliberate investment we're making in fiscal '27 to take a hit on ARPC, get these customers in and monetize that through higher lifetime value as we take share of the tax filing. So that means in '27, the revenue takes a hit. But in the longer term, the lifetime values there. Then if we -- similarly on our business side, we are continuing to scale our big bets the breadth of those big bets give us opportunity to have strong revenue growth for years to come, just since fiscal '23, do you put this into context. The Big Bets CAGR is over 2x the overall company's revenue CAGR. So that strong trajectory is going to continue, but we also need to get better at new to the franchise customers. So we are broadening the front doors, getting these customers in through QuickBooks Light, QuickBooks Free. So in early months, they're not as high in revenue, but as we can to lean into a muscle of driving adoption of our platform cross-sell, these customers become very meaningful ARPC contributors over time. So that, in essence, is the J curve, continuing to have access to all the levers across volume, mix and price, but really leaning into the volume and mix to make sure we're setting up the business for durable long-term double-digit growth.

There is a secular change here that I want to spend a couple of minutes on it, which is SEO. What can you share with us on -- for either of those examples that you're giving either on the tax side or the GBS side, how important is SEO to your top of funnel? And are you seeing an evolution -- the concern is that there is an air pocket as we move from SEO to AI engine optimization? Maybe help walk us through how we should think about that?

SEO is not a big contributor to our business. On the QuickBooks side, it's about at 20% and even less so on the tax side. The other thing to keep in mind is we have exceptionally strong brand and brand recognition. And some of the data out there is the top 25 brands attend to show up 10x more in AI search in terms of recommendation. So what we're seeing is that where a CEO is having an impact as people go to AI rendering, that traffic we're capturing through AI, GEO and the good thing is that traffic converts order mandatory higher multiples higher. So net-net, that this shift could actually end up being a benefit to us, just given the underlying core strength of our brands and how they're showing up.

Are you already seeing it as a net neutral or benefit? Or is there a period of time where even though it's less than 20%, where it ends up being a medium-term headwind?

As I've engaged with our go-to-market teams, we are not seeing it as a headwind. In fact, the conversation goes more towards excitement that we are seeing it in GEO and the excitement of how highly that traffic is converting because people are coming in with a lot higher intent of conversion to an AI is sending them versus when SEO was sending them.

Let's talk a little bit more about QuickBooks. Intuit is unique in having the insight that you do into all of your SMB customers. And in the past, you've shared some really interesting comments on the health of the SMB ecosystem bring us up to speed, how would you describe the health of the SMB ecosystem, given all of the AI secular disruption that's happening this year?

The SMB macro, I assume you mean yes. the macro remains quite stable. The 2 metrics that are my favorite to look at are the cash reserves that these customers have and the hours worked -- both the cash reserves and the hours works are up for the small businesses and even more so for the mid-market businesses. So they continue to be stable. We continue to see goodness in terms of revenue growth for sectors such as manufacturing, IT services, and the areas that are a little softer than what they were maybe a year ago or some of the consumer discretionaries, but net-net, I would frame it as a stable macro environment for the SMB segment.

Let's go a little bit deeper into what you alluded to earlier, which is the pricing change on QuickBooks. So the last time we think you had a free edition for QuickBooks with QuickBooks Desktop back in the 2000. Tell us a little bit about the cohort that you think you can reach by offering the free version of QuickBooks?

If you I'm going to steer it a little bit because that -- the desk doubles before my time into it. But let me bring it back to you the iterations we had on the lower end of QuickBooks during my decade at the company. We see the opportunity to get customers earlier on to our platform. For context, QuickBooks is a great platform for you to run your business, but we typically see that businesses have been out there for 2-plus years before they reach a level of complexity where they want to invest to onboard into QuickBooks. And we tried a few years ago to try to get customers through what we call a self-employed -- this self-employed offering was built on a different platform. So meaning if you adopt it self-employed and your business so successful. And we do see that over time, businesses on QuickBooks to be more successful than the macro you had to cancel your subscription, download all your data and be onboard onto QuickBooks Core. So that didn't really quite pan out. What we have built now in QuickBooks Light and QuickBooks Free is a beer bones QuickBooks offering. This is an offering, for example, you could onboard into super easily. We've done massive product innovation to get you onboarded, start sending your first invoices. Before you even hire an employee, you hire a contractor, you could onboard that contractor on our payroll offerings. And over time, as you grow, you very easily get into simple start case on the same platform. And when you're immensely successful on a platform or mid-market business making $50 million, $60 million a year, that same platform extends all they to IES. So that's a net new change. And the other thing that allowed us to lean in heavy here going forward is the capabilities we've built around life cycle marketing. Around 4 years ago, we didn't have the best-in-class life cycle marketing motions. Today, as we look at the progress we've made, getting customers who come on top platform to discover and adopt multiple parts of the platform. To drive deeper consumption of the multiple parts of the platform, the higher ARPC that we get over time. That is giving us the confidence that there is an option to go with the smaller businesses. and earlier entrepreneurs to capture them early and help them grow with us over time.

The ARPC argument, I think, is a really good one. Let me ask you about the imperfect nature of the data set. What I mean by that is you have these cohorts that have been part of Intuit for many years, but none of them look quite like this new cohort that you're trying to reach, to expand the top of funnel. How do you take that data set on customer journey and to your point on life cycle marketing and now apply it to this new cohort where we can argue there are some parallels, but it is a new cohort.

It is an e cohort, and this is where product innovation comes in. Entrepreneurship is a very lonely scale. These folks don't have investment committees to be run ideas with. These folks don't have teams like I do to bad run ideas with -- and this is where Intuit intelligence, helping them onboard Intuit intelligence and be able to have a conversation, "Hey, I've got these jobs does it make sense for me to hire my first contractor? Should I have this first employee? You start deepening that engagement and we know that matters for entrepreneurs, whether they're in year 2 or month 2, right? So that know-how applies. We also know what are the trigger points at which people want to adopt payments. What are the trigger points in which they want access to capital and how much data we need to be able to underwrite that capital to them. At which point do they start having a need for business card, which is even earlier than access to capital. These are all the capabilities in our portfolio that we've added meaningfully over the last couple of years. that position us. So the learnings, the know-how is applicable to year 2 business and equally to the month 2 business, but it's really the portfolio that we have now that allows us to be able to sell to these businesses earlier.

You alluded earlier to the proprietary data set that you have through the QuickBooks business through GBS broadly. And I think being able to take that proprietary data set and turn it into an agentic functionality is a huge opportunity -- so there are a couple of hurdles along the way, and we can almost describe it as adoption versus monetization. So let's take adoption for us. The example you and I have talked about is the automated reconciliation on the accounting. So when an entrepreneur is trying to reconcile the books at 10:00 p.m., it's magic. It happens. What can you share in terms of how you get over more of the learned behaviors to get entrepreneurs over that hump of actually using some of the AI tools?

The key is that you can't have AI seem like a side gimmick. It has to be core to the fabric of the offerings that you're delivering. These entrepreneurs aren't living in our world, which is they want to geek out on the latest tools, right? They are trying to run a business. They are working 80 plus our days. They're running this business, but they're also raising a family or have lives or out of it. So what we have done is integrated AI into the core offering. For example, you and I talked about some of its down on a Thursday evening, after running a bakery all day and want to do their books. They had already had a habit of knowing it takes me about an hour to get this stuff done. They log in. We say, "Hey, Intuit intelligence has done all this job for you. Is this right? Anything you want to change Well, that's a let me just change these 2 things and save them ours and they stay in the 12 to 14 hours a month. But also beyond that, we understand how a plumber works. We understand how a nonprofit work. So when a nonprofit administered for example, logs and to do their books. We've already said, by the way, we have tracked that this is how these donations were spent and they already linked up to the constraints that the donors had put on there. And we've already generated the letters and the documentation you need to send back to these donors. So that comes from our domain expertise. That comes from having supported millions of customers across multiple industries. And that is what's allowing us to really take the power of AI and put it and amplify it significantly and make a meaningful change in the life of customers. We're not asking them, "Hey, do you want to play along with the side game?" We're just doing it for them and allowing them to stay with the delight when they log into QuickBooks and experience a new product.

How do you track it?

How do we track the usage -- we are, in fact, 1 of the things that -- we talked about our CEO staff earlier this week is we have a pliferation of dashboards. We have so instrumented. We're tracking a few older metrics that really matter how many people are logging in, how frequent they're logging in and most importantly, how many people are allowing our Intuit Intelligence to take action on their behalf because it's not just about giving them advice, but taking action, and that's the key differentiator. And all of those metrics, we are very pleased with the progress the team is making.

So the other half of this question is, how do you monetize this?

There are multiple ways to monetize this. One is by building AI into the core fabric of the offering, we gained pricing power and the recent price change we did, the communication leaned into all the innovation we baked in, most of the innovation was AI-enabled. A lot of the innovation save people hours, which are very tangible benefit that resonated with their mind when they saw the price change, help people get paid multiple days early. So that's one way. Second is we're early in this journey, but what we're seeing is AI is driving better discoverability, better consumption. And also, as we do more actions on behalf of the customer, it opens up the aperture for downstream monetization capabilities, which we are -- given the early innings, we are driving AI adoption and proliferation across our base, we are preserving the optionality for downstream in terms of maritime consumption?

Say more on that. How do you mean?

For example, when people are using AI, they have an ability to discover our payment offerings for setting them more payment-enabled invoices and making -- getting that monetization on payments is what we do today. But downstream, it could be that we could have Agentic offerings, which we just manage their treasury function for them and could monetize that separately. These are things that we are building that we have optionality for downstream, but the right now the focus is to drive adoption, drive repeat usage and have more customers allow us to take action on their behalf, not just us to render a twice to them.