Intuit Inc (INTU) — Q1 2021 Earnings Call Transcript

Thanks, Latif. Good afternoon. And welcome to Intuit’s first quarter fiscal 2021 conference call. I am here with Intuit’s CEO, Sasan Goodarzi; and Michelle Clatterbuck, our CFO. Before we start, I’d like to remind everyone that our remarks will include forward-looking statements. There are a number of factors that could cause Intuit’s results to differ materially from our expectations. You can learn more about these risks in the press release we issued earlier this afternoon, our Form 10-K for fiscal 2020, and our other SEC filings. All of these documents are available on the Investor Relations page of Intuit’s website at intuit.com. We assume no obligation to update any forward-looking statements. Some of the numbers in these remarks are presented on a non-GAAP basis. We have reconciled the comparable GAAP and non-GAAP numbers in today’s press release. Unless otherwise noted, all growth rates refer to the current period versus the comparable prior year period, and the business metrics and associated growth rates refer to worldwide business metrics. A copy of our prepared remarks and supplemental financial information will be available on our website after this call ends. And with that, I’ll turn the call over to Sasan.

Great. Thanks, Kim. And thanks to all of you for joining us today. I hope you are all doing well. We had a very strong start to fiscal year 2021. First quarter revenue grew 14%. Total revenue growth was driven by 13% growth in the Small Business and Self-Employed Group, while Consumer Group and ProConnect Group revenue was in line with our expectations in a seasonally small quarter. This is a great start to the year in a challenging environment, which reinforces the resiliency of our platform. We’re growing more confident in how our business is performing in the current environment, although macro uncertainty remains. We continue to see recovering trends across our platform with many QuickBooks indicators back to pre-pandemic levels. Therefore, I’m happy to announce that we will provide guidance for fiscal year 2021, which Michelle will cover in more detail later. At our September Investor Day, we shared the acceleration of innovation, driven by our AI-driven expert platform strategy and our 5 Big Bets, highlighting our growth potential. During the Platform Immersion Experience, we demonstrated progress against each Big Bet. What I’d like to do is highlight a few of the innovations and cover Big Bet number one last as it accelerates innovation across our platform and it’s foundational to the other bets. Our second Big Bet is to connect people to experts. We’re solving one of the largest problems our customers face, lack of confidence, by connecting people to experts with TurboTax Live and QuickBooks Live. We grew the number of TurboTax Live customers on our platform by nearly 70% last season while increasing our expert product recommendation scores by four points. The team is hard at work as we prepare for the season ahead. We’re also proud of the progress we’ve made with QuickBooks Live, which is built on the same expert platform. We already have more than 600 experts serving customers today, with some of these experts serving both TurboTax and small business customers. Our third Big Bet is to unlock smart money decisions. We expect our pending acquisition of Credit Karma to be more important than ever as we work to help consumers save money, get out of debt, and have faster access to money. We expect to complete the acquisition before the end of this calendar year. Our fourth Big Bet is to become the center of small business growth by helping our customers get paid fast, manage capital, pay employees with confidence, and grow in an omnichannel world. Sixty percent of small businesses struggle with cash flow. QuickBooks Cash helps small businesses manage working capital by providing visibility into their financial picture while providing them with the ability to move money instantly and ensure their money is working for them, all while leveraging the built-in accounting of QuickBooks. We launched QuickBooks Commerce in September to better serve the one million product-based businesses on our platform by providing inventory and order management tools they need to grow their businesses in an omnichannel world. We’ve also identified 6.4 million product-based businesses in the U.S., UK, Canada, and Australia that could benefit from this solution. And we’ll innovate with high velocity to take advantage of this market opportunity. It’s still early with both QuickBooks Cash and Commerce, but we’re encouraged by what we’re seeing. Our fifth Big Bet is to disrupt small business mid-market with QuickBooks Online Advanced and the features that we’re introducing to individually tailor the offering to the needs of small businesses with 10 to 100 employees at a disruptive price point. We doubled our QuickBooks Online Advanced customers to 75,000 in fiscal year 2020, and we’re continuing to build on this momentum. We continue to pursue our premium app strategy and introduced integrations with Salesforce and HubSpot. We now have two of the largest CRM solutions available for our customers. And finally, our first Big Bet, revolutionize speed to benefit, enables us to put more money in our customers’ pockets, to eliminate friction, and deliver confidence in every touchpoint by using AI and customer insights. Last year, we increased our use of AI and increased the number of models deployed across our platform by over 50%, tripled the speed of delivery on our modern development platform, and increased mobile application deployments by 60%. We’re building on this momentum this year as we innovate rapidly to solve our customers’ biggest problems. Across all of our Big Bets, we’re building momentum and accelerating innovation, which we believe positions us well for durable growth into the future. We also believe the current environment continues to act as an accelerant to these bets. Most everyone is looking for virtual solutions. Small businesses are accelerating their shift to online and omnichannel commerce. And both consumers and small businesses are looking for ways to put more money in their pockets. So, to wrap up, I’m excited about the opportunity we have ahead of us. And now, let me turn it over to Michelle.

Thanks, Sasan. Good afternoon, everyone. For the first quarter of fiscal 2021: we delivered revenue of $1.3 billion; GAAP operating income of $209 million versus $10 million last year; non-GAAP operating income of $334 million versus $129 million last year; GAAP diluted earnings per share of $0.75 versus $0.22 a year ago; and non-GAAP diluted earnings per share of $0.94 versus $0.41 last year. Turning to the business segments. In the Small Business and Self-Employed Group, revenue grew 13% during the quarter. Online Ecosystem revenue was up 24% during the quarter. Growth slowed from Q4, reflecting the lagging impact of lower retention during fiscal 2020 and the lapping of price increases, which began during the middle of Q1 last year. Additionally, Q4 included four points of growth from nonrecurring revenue from the Paycheck Protection Program. Our strategic focus within Small Business and Self-Employed is to grow the core, connect the ecosystem, and expand globally. Our longer-term expectation remains 30% or greater Online Ecosystem revenue growth, driven by 10% to 20% growth in both customers and ARPC. First, we continue to focus on growing the core. QuickBooks online accounting revenue grew 28% in fiscal Q1, driven mainly by customer growth and mix shift. We began lapping a partial quarter of a price increase last year, driving slower year-over-year growth versus last quarter. Second, we continue to focus on connecting the ecosystem. Online Services revenue, which includes payments, payroll, time tracking, and capital, grew 17% in fiscal Q1. Within payments, revenue growth reflects continued customer growth along with an increase in charge volume per customer. Within payroll, we continue to see revenue tailwinds during the quarter from a mix shift to our full-service offering and growth in payroll customers. Third, our progress expanding globally added to the growth of Online Ecosystem revenue during fiscal Q1. Total international online revenue grew 51%. Desktop Ecosystem revenue grew 3% in the first quarter, while QuickBooks Desktop Enterprise revenue grew mid-single digits. Desktop Ecosystem revenue growth also reflects the benefit of additional revenues from license updates and tailwinds from previously announced price increases in various products, not fully reflected in the year-ago quarter. We do not expect these tailwinds to recur in future quarters. Consumer Group revenue grew 19% in Q1. Looking ahead to the upcoming tax season, we continue to focus on our strategy to expand our lead in DIY, transform the assisted segment with TurboTax Live, and disrupt consumer finance. Turning to the ProConnect Group. Revenue grew 21% in Q1, in line with our expectations. Let me turn to our acquisition of Credit Karma. I’m looking forward to welcoming the Credit Karma team to Intuit, and we’re excited about the unprecedented benefits we can deliver for customers. I want to remind you that we continue to expect the acquisition to be accretive over time. However, Credit Karma’s business was negatively impacted over the last seven months as lenders tightened access to credit due to economic uncertainty related to the pandemic. The business continues to recover after reaching a low point in June, with monthly revenue in October close to pre-COVID levels. Therefore, we expect the acquisition to be modestly dilutive to non-GAAP earnings per share in fiscal 2021 and neutral to modestly dilutive to non-GAAP earnings per share in the first full fiscal year after close in fiscal 2022. We’re looking forward to all the innovation that we can deliver together for customers. Turning to our financial principles. We remain committed to growing organic revenue double digits and growing operating income dollars faster than revenue. We take a disciplined approach to capital management, investing the cash we generate in opportunities that yield an expected return on investment greater than 15%. We continue to focus on reallocating resources to top priorities with an emphasis on becoming an AI-driven expert platform. These principles remain our long-term commitment, though we recognize that we may not be able to achieve them in the current environment or directly following the close of the Credit Karma transaction. Our first priority for the cash we generate is investing in the business to drive customer and revenue growth. We consider acquisitions to accelerate our growth and fill out our product roadmap. We return excess cash that we can’t invest profitably in the business to shareholders via both share repurchases and dividends. We finished the quarter with approximately $5.8 billion in cash and investments on our balance sheet. We expect to use approximately $3.6 billion of cash to fund part of the consideration for the Credit Karma acquisition. We did not repurchase any stock during the first quarter as we temporarily suspended share purchases in conjunction with the Credit Karma acquisition. Approximately $2.4 billion remaining on our authorization, and we expect to be in the market in the future. The Board approved a quarterly dividend of $0.59 per share payable January 19, 2021. This represents an 11% increase versus last year. As you may have seen, we reached an agreement to settle the class action litigation regarding the IRS Free File program. We have agreed to pay $40 million to put this matter behind us. By entering into this settlement, which is subject to court approval, we’re not admitting any wrongdoing. Also, as I shared at Investor Day, Intuit is the target of a law firm whose standard approach seems to involve making a demand that companies pay a settlement amount to the law firm instead of paying fees associated with arbitration. An increasing number of companies are facing similar attacks by the same law firm. We recorded approximately $10 million in arbitration fees for Q1 of fiscal 2021 and $14 million in fiscal 2020. We’ll be disclosing in our 10-Q that Intuit could incur arbitration fees of approximately $400 million related to those claims in future periods. We’re in the process of disputing these fees, and we believe this is an abuse of the arbitration system. If the court approves the settlement that I mentioned earlier, we believe it may significantly reduce exposure to mass arbitration claims being brought against us. Moving on to guidance. While macro uncertainty remains, we’re growing more confident in how our business is performing in the current environment. Our guidance for fiscal 2021 includes revenue growth of 8% to 10%, GAAP earnings per share of $7 to $7.15, and non-GAAP earnings per share of $8.40 to $8.55. Our fiscal 2021 guidance includes 110 basis points of operating margin expansion, as we’re starting to see the leverage of our platform, which I shared at Investor Day. We expect a GAAP tax rate of 23% and a non-GAAP tax rate of 24% for fiscal 2021. This compares to a GAAP tax rate of 17% and a non-GAAP tax rate of 23% for fiscal 2020. These increases are driven primarily by state and IRS changes to the R&D tax credit and expected decrease to our excess tax benefits for share-based compensation. This equates to an impact of $0.53 to our GAAP earnings per share and $0.11 to our non-GAAP earnings per share guidance for the higher tax rate. Our Q2 fiscal 2021 guidance includes revenue growth of 8% to 9%, GAAP earnings per share of $0.89 to $0.92, and non-GAAP earnings per share of $1.31 to $1.34. You can find our full Q2 and fiscal 2021 guidance details in our press release and on our fact sheet. One final note on Q2. We’re lapping a full quarter of a price increase in Q2, which we expect to negatively impact Small Business and Self-Employed revenue growth by a couple of points. Also, shortly after we close the Credit Karma acquisition, we will hold a call to discuss our revised guidance. And with that, I’ll turn it back over to Sasan.

Great. Thank you, Michelle. Team, I’m very proud of our organization and all that we’ve accomplished together, and I’m very optimistic about the future. So with that, let’s now open it up to your questions.

Great. Thank you for taking my question, and a really solid start to the year, guys. When looking at the guidance, specifically the SMB guidance, one might infer that you guys have removed the W and double W macro scenarios off the table. Is that the right way to think about it, or is it just purely that your business has held up much better, and the realities are we still may run into those. But if we do, it will tilt towards this new 8% to 10% lower end?

Yes, Ken. It's great to hear from you. I would describe our situation as a demonstration of how resilient our platform is and how small businesses are utilizing it during the pandemic. This gives us confidence as we consider how small businesses will navigate the current environment. We are basing our outlook on key leading and lagging indicators, which has given us the confidence to provide our guidance. We will need to monitor the situation with the health crisis and its economic implications, but what we're observing in our business has informed the guidance we shared today.

Got it. And if I could ask one for Michelle. You mentioned that the EBIT guidance indicates a margin expansion of about 100 to 110 basis points. You also mentioned that we should expect to see more leverage going forward. Should we anticipate this level of margin expansion as we look ahead?

Hi, Ken. Thanks. Going to our financial principles, that really is the long-term commitment that we have and that includes growing revenue double digits and growing operating income faster than revenue. And so, yes, we do expect to see 110 basis points of expansion, excluding Credit Karma. As I shared at Investor Day, though, as we continue to evolve to more of an AI-driven expert platform, we do see opportunities for margin expansion across the P&L. And those opportunities can be in the areas of technology, where we’re increasing the velocity of development on our actual technology platform so we can deliver faster and also using products and services across the company. We also see that in customer success, where we’re scaling a common customer success platform that drives efficiency and effectiveness serving across all products. And then, also in go-to-market, we’re able to leverage a common infrastructure so that we can more effectively target customers and manage our sales and marketing processes. So, we do continue to see opportunities for us to expand margin going forward.

Excellent. First question I was hoping to ask, I’m not sure if you guys are going to comment on this, was just a current status update on your expectations on timing for Credit Karma, number one. And number two, whether all the sort of constituent pieces of Credit Karma are expected to come along because there was some speculation in the press that they might be selling off their tax business. Any chance you could comment on either of those?

Yes. Sure, Keith. Good to hear from you. First of all, we do have pretty high confidence that we will close Credit Karma by the end of calendar year. So, that’s the first point. I think the second point is, as you know, we don’t comment on rumors. But, it’s important to reinforce that the whole premise behind the Credit Karma acquisition was what we could do together to create a consumer finance platform, and it wasn’t for the tax business. And so, I think I will just leave it at that. But nevertheless, we’re really excited and can’t wait to close this, so we can start doing amazing things together for consumers.

Got it. If I could maybe sneak one last one since that last one is like half of the answer. In the broader platform within SMB, when you’re going into stuff like cash, when you’re trying to do more of the commerce back-end, how is this changing your competitive environment? Have you seen a significant change in kind of who you’re going up against or sort of how you have to position the solutions for these newer solutions?

Yes. Hey Keith, thanks for calling me out, buddy. In terms of your question, it’s interesting timing. We had QuickBooks Connect yesterday, which is where we have thousands of small businesses and accountants and partners together. And of course, this one was far bigger than it ever has been because it was all virtual. And we rolled out a lot of our innovation. But particularly, to answer your question, we also rolled out QuickBooks Commerce and QuickBooks Cash to our customer base or at least gave visibility and awareness. And the feedback was just through the roof. Because if I start with accountants, accountants were very excited because now they can recommend QuickBooks to product-based businesses, and they love how QuickBooks Commerce works for product-based businesses, and they love the fact that they can, in essence, help a small business run their business through the platform. And two small businesses that were product-based businesses, they love Commerce, and by the way, we got raving reviews on QuickBooks Cash, and it’s just a simple app where you can send and receive money to be able to run your business. And so, I would say from a positioning standpoint, we’re not doing anything differently in terms of going up against others. What we’re really focused on is the customer problem and how we’re raising awareness. And in fact, our team has done some great work in the months and the year ahead, what you’ll see is we’ll be, in essence, going to market with digital assets that help small businesses understand that we can truly be the source of truth for their entire business versus the source of truth for their books and from an accounting lens. And so, it’s more about what we’re doing to raise awareness and shape the market versus doing anything differently, given who we’re going up against because it’s frankly no different than what it’s been in the past.

On guidance and the decision to bring that back, obviously, the bigger focus now is on Small Business. But looking ahead to tax, I mean, you’ve previously mentioned tough comps from the strong top-of-funnel activity you saw last year, still guiding for 9% to 10% growth as a starting point there this year. Can you just help maybe frame out the base case there and maybe your confidence around ability to further monetize that uptick you saw this past year?

Yes. Sure, Michael. Very good to hear from you. First of all, as we talked about last quarter, our biggest uncertainty was around the macro environment and the impact to small businesses and how our platform would perform in times of uncertainty. So, we’ve just learned a ton. One, all the credit to small businesses in terms of just their passion to do whatever it takes to survive; but then two, us better understanding how they use the platform to be able to deliver for customers. And so, given that and given that we started experiencing businesses opening across the Company and our confidence is at an improved level than it was a quarter ago. With that said, to your question around tax, we’re bullish about our strategy, and we’ve continued to be bullish based on the results that we’re seeing. And particularly, it’s driven by two primary areas. One, it’s who we focus on; and then, the second is the how. So, who we focus on is we’ve doubled down several years ago on serving investors, serving self-employed and serving the Latinx market, all of which we are underpenetrated. And then, two, really going after the market, the assisted market, and those that are looking for more confidence with TurboTax Live. And so, although our comps compared to last year are tough comps, we do have confidence in our execution, our trajectory. And that’s really what informed the guidance that we provided.

Got it. That’s all clear. Certainly a nice start to the year. Thank you.

All right. Thank you very much.

I wanted to drill down on the international growth because of the 51% was a pretty impressive number. And I think at Analyst Day, you exited fiscal ‘20 with around 14% growth in subs. Obviously, pricing has been a pretty strong lever. So, can you just maybe break down or sort of decompose the components of that 51% growth? How much of that is potentially an improvement in the subscriber count that you’re seeing there versus just continued success on pricing initiatives?

Yes. Hi, Jennifer. Good to hear from you. It’s both. Very consistent with what we shared at Investor Day. We continue to see strength in the UK and Canada. And we’re seeing some of the emerging markets that we’re focused on, like Brazil and France, really start their acceleration even in this current environment. And so, really, it’s a combination of being very focused on who we pursue with what products we pursue and then also really intentional about pricing, and frankly, a lot less discounting, especially in places like Canada and UK, where we created a network effect with small businesses using us, recommending us, with accountants using us and recommending us. And so, we don’t have to discount as much to get our name known. So, it’s very similar to what we talked about, which is it’s a combination of customer growth and ARPC growth. And the ARPC growth is a lot to do with what we’re selling and a lot less discounting.

Great. And maybe just one more for me. So, a little while ago over the summer as the world was changing with COVID-19, you, like many other companies, took some actions to sort of deemphasize some of the less growthy businesses and then plan to bring back the head count over time in some of the growthier parts of the business. I’m just curious where you are in that process at this point. And maybe specific to the margin guidance, what’s the assumption on the pace of getting back into the hiring groove on your business and cost structure?

Yes, sure. Just for a quick context, there are a couple of areas where we felt like we needed to double down in context of the bets that we’ve declared. It’s the type of talent that we’re pursuing, both in creating modern operations and our customer success, but also the type of experts that we want to bring into customer success. And then, in technology, it was more systems engineers, infrastructure engineers, and cloud engineers that have lots of experience in building complex systems in the cloud. And we are aggressively hiring in those areas because they ultimately are very important in serving the bets that I talked about earlier and a lot of our innovation, we’ve been talking about like commerce, cash advance, etc. So, we feel good about our hiring ramp. And I think, I would just really focus on the guidance that Michelle talked about, which includes about 110 basis points of margin expansion. And all of our approach to hiring is all embedded in the guidance that we provided.

Just one question from my side. You talked about the headwind from renewal rates from the previous quarter impacting this quarter’s revenue. Can you just give us an update, what did you see in terms of renewal rates through this quarter in the Small Business franchise?

Yes. The headwinds are in three buckets. One is, overall, as we shared at Investor Day, our retention dropped by a couple of points based on what we saw in the March, April, May timeframe. That, along with lapping a price increase and actually not taking price action deliberately, plus the impact from acquisitions in those same months, is really what impacted our growth rate for the quarter that you see here. And our view is effective the second quarter will be probably the lowest point of the year for the Small Business Group for the same exact reasons that I just mentioned. As you know, we don’t break out quarterly attrition and retention rates. We share once a year at Investor Day. So, those are the main drivers of it.

Sasan, if you could just talk about the shape of the recovery in SMB that you’re seeing and the conviction level you have that that continues. Can you just give us a sense of how you’re seeing that progress? And then, I just had a quick follow-up. You were showing the TurboTax full opportunity set on your website. You removed it. It seems really interesting in terms of the opportunity to outsource everything to you. Can you just walk through your intentions for that solution this year? Thanks.

Yes, Brent. It's great to hear from you. Regarding the recovery, it aligns well with what we presented at Investor Day. Most of our indicators have returned to pre-pandemic levels, but charge volume remains several points lower. The number of companies processing payroll is also several points lower. While we have seen a recovery, the reality is that many areas are still below pre-pandemic levels. However, we are gaining more confidence as our platform proves to be resilient and beneficial for customers during these challenging times, along with the innovations we have implemented. Observing the effectiveness of our platform and the positive impact of our innovations boosts our confidence. In terms of the recovery, not much has changed over the past six weeks compared to what we mentioned at Investor Day. Regarding your second question about transforming the assisted segment to help customers confidently file their taxes, some may prefer to do it themselves but might eventually want expert assistance to review their returns. Others might opt for TurboTax Live as their initial choice for support. There are also individuals who may start the process themselves and later decide to have us handle their taxes, which we have been testing over the past few months. Our plan is to launch a platform with all these features in the upcoming tax season, which is fast approaching.

I just want to ask about trends you are seeing in terms of new customer acquisition. Because we saw this recent Q3 data, census data, there’s a record number of small business creation, in Q3, I think, 1.6 million versus an average of 800,000. So, I guess most of these could be potentially QuickBooks customers. So, how should we think about this opportunity and the current trend of this new customer acquisition?

Yes. Siti, good to hear from you, and a really good question. As I mentioned, there are a few of our key metrics that have recovered quite nicely, but they’re still below the pre-COVID levels like charge volume and payroll. Acquisition is one that’s actually rebounded quite nicely, and we’re actually benefiting from some of what you shared, which is more new business formation. So, that’s probably a metric above and beyond all of them that is probably more in the green, and we’re benefiting from some of that recovery.

Hi, everyone. This is Yao on for Brad. Thanks for taking my question. It’s a little bit specific but also philosophical here, and it’s around QuickBooks Commerce and the specific topic of discounting. I understand it’s a new solution, and you want mass market adoption, but when I go to the website, it shows 92% of the monthly list price for the first 12 months of service. I’ve never seen anything like that in software before. I guess, what’s the thought process here, especially as it sounds like you’re being more thoughtful around optimizing for discounts in other areas of your business?

Yes. Sure, Yao, good to hear from you and a very good question. Two things I would say. One is, we are actually very intentionally qualifying customers on top of the funnel to ensure that we only bring in customers that we can deliver against their expectations, given just we literally just launched the platform. Interestingly enough, one thing that we’re seeing is customers want to use it so badly they go back to the top of the funnel and change their answers so they can qualify for it. So, the demand is quite high. I think you may have fallen into one of our test cells. There are a lot of different things that we’re testing, different business models, and different pricing. So, I don’t know exactly what you fell into, but it sounds like you fell into a test cell.

Got it. Regarding the 9% to 10% growth scenario for QuickBooks and Small Business, I'm considering external factors that could influence growth. For instance, how might a hypothetical government stimulus package affect customer churn or new business creation, and how should we incorporate that into our model?

Yes. The stimulus, I believe, won't provide significant support for small businesses and won't determine whether they stay in business or not. Regarding your question about the guidance range, the lower end is primarily influenced by how strict the regulations become at the state and national levels. For instance, while conditions vary by state, many gyms are restricted to outdoor activities, and indoor dining is not allowed. Recently, schools like those in New York have closed again, necessitating remote learning. This situation affects the local economy. Thus, the lower end of our guidance reflects the increasing restrictions and their effects on small businesses, as we are confident in our execution. The upper end of the guidance is based on the positive trends we are currently observing. That's the perspective we have on it.

I noticed a change in focus during your recent Analyst Day on increasing revenue per customer. I'm curious if this is a strategy you're planning to pursue to boost revenue per customer and what your approach will be over the next few years.

Sure. Arvind, good to hear from you. Let me just play back to your question because you were cutting in and out. I want to make sure I’m answering the question that you’re asking. I think your question was, we talked about revenue per customer increasing at Investor Day, and you were just wondering how we plan to achieve that. Did I play that back correctly?

Yes.

Great. I would say a couple of uber messages. The first one is, it’s because of the incredible innovation and the acceleration of the innovation from the team that’s really going after delivering benefits that customers care about most. So, if I decompose that with a couple of examples, what I would share is, QuickBooks Live has the potential to increase revenue per customer. The volume is not, of course, at the same rate, but the revenue per customer is. When you look at QuickBooks Advanced, which comes with it serving much larger customers, that has an opportunity and does move the needle when it comes to revenue per customer. And then, there are the services, the services that go with QuickBooks Live, the services that go with QuickBooks Advanced. And then, within all the services that we provide, payments, payroll, TSheets, and now with the integration of TSheets and Payroll Full Service, these services and the innovation and the impact themselves also deliver more revenue per customer. So, when you put all of those together, those are the biggest drivers of increased revenue per customer, which is just driven by the innovation that the team is delivering for customers.

Great, terrific. And just a quick second question for me. How transformative is your relatively new integrated CRM solution? Should we expect this to be a big revenue growth driver, or is it just another proof point of a differentiated offering?

I believe this is another significant innovation and advantage for customers using our QuickBooks Advanced platform. When considering these customers, such as those using HubSpot and Salesforce, we notice they typically have between 10 to 100 employees, and often more. They are in need of CRM solutions. We have invested a considerable amount of time to deeply integrate with HubSpot, for instance. I reviewed the demo a few days ago, and the experience for our customers is impressive. This not only strengthens our position but also enables us to serve our current customers with QuickBooks Advanced while attracting new ones.

I was hoping, Sasan or Michelle, if you could elaborate please on the mix shift driving in QuickBooks Online accounting. If you could delve in a little deeper, primary drivers and sustainability you foresee there. Thanks.

Sure, Scott. I’ll take that, and Michelle can add if she wants. It's quite similar to what I mentioned to Arvind. Firstly, I want to emphasize that it's very sustainable. We’re only just beginning. When you examine the mix influenced by our platform with QuickBooks Live and QuickBooks Advanced, it includes services like payments, payroll, and TSheets, along with apps such as HubSpot, which help us to create a shift in the mix. These are just a few examples. QuickBooks Commerce also allows us to cater to product-based businesses that we've worked with on desktop for years, serving millions of these customers. Now, with QuickBooks Commerce, we can support them even better. The last point is in countries like Canada and the UK, where we achieve product market fit, we have the chance to expand our services and set higher prices without needing to discount much because our brand recognition grows, and the positive experience spreads, attracting more customers. These factors contribute to the shift in mix and ARPC, which is very stable.

And then, as a follow-up, I’m just curious, just from viewpoints on Small Business failures. Obviously, you feel confident enough to give guidance and we’ve heard a lot of good things in the discussion of stimulus as well. But just anecdotally, what are some of the things that you’re seeing, and do you feel that the economy is around the corner, to the extent you can speak for that?

Sure. Two things I would say. I think the most important lever for small businesses is we got to lead thoughtfully through this health crisis, because leading thoughtfully through the health crisis will enable the country and the globe to actually bring jobs back and reduce unemployment. Those are the two largest levers that will impact Small Business failures. And as we talked about at Investor Day, our retention dropped a couple of points because of the failures that we experienced. I think those two levers that I mentioned, plus a fiscal stimulus, not just more stimulus money but a fiscal stimulus, along with getting out of this health crisis and ultimately, getting back to lower unemployment is going to really drive the long-term health of small businesses.

Sasan, I was wondering if you could dive a little bit deeper into the sort of announcement today of HubSpot. And maybe just your view on whether or not small businesses are now looking a little bit more for a one-stop shop. I mean, you guys obviously have financials, you added commerce, and this obviously expands you into CRM and marketing with them. So, is the feedback that you’ve been getting that this is, look we want only one vendor to really help us manage our business from customer acquisition through finances, through commerce. I mean, because that’s what it sort of seems like. And do you think the market is moving there in a faster way due to COVID? Thanks.

Yes, thank you. My main focus is on addressing customer challenges. We aim to help our customers grow and support product-based businesses. Traditionally, we haven’t effectively assisted service-based businesses in growing and acquiring more customers. Our integration with HubSpot and Salesforce demonstrates how our platform can enable business growth, facilitate payments, manage payroll, provide access to capital, and assist with time tracking. Additionally, we now offer support for multiple channels to help run product-based businesses efficiently. We prioritize solving customer problems and emphasize to our team at Intuit the importance of not merely creating a one-stop shop, as customers think in terms of finding solutions to their issues. We are increasingly seeing customers utilize our platform to manage their businesses and request integrations with various applications to aid their growth. This approach has been shaped by years of building our platform in the cloud, allowing businesses to operate entirely through our services. We’re also striving to develop a consumer platform where users can handle their taxes, access paychecks early, and connect with suitable financial products, ultimately achieving financial freedom. This aligns with our overall objectives for our customers.

Sasan, you’ve talked about the QuickBooks business and not raising prices, obviously considering the economic environment we’re in. Do you think that same philosophy will apply to the tax business, or is the tax business different? And do you think there are some different leverage points and price would be available for the upcoming season?

Yes. Kartik, good to hear from you. I would think about this in a couple of dimensions. Both, the quick books and small businesses, we actually now have offerings that are disruptive, and they disrupt higher-priced alternatives. So, when you look at QuickBooks Live, the price that customers have to pay with QuickBooks Live is actually a lot less than what they pay if they have to go directly and find their own bookkeeper or enrolled agent. And you look at QuickBooks Advanced, we are actually at a disruptive price but yet have a lot of opportunity in terms of what we can do with pricing. Same thing goes for TurboTax Live, where a much lower cost alternative than going to somebody’s home or store to get your taxes done. So, I think the way I would think about it is, there are segments of customers we may intentionally, given the environment, not do price increases, but then there are certain segments of the customers where we will because we’re actually very disruptive and far lower price alternative. So, that’s the way we approach it and think about it internally.

I think you all talked about the Online Ecosystem getting back to 30% growth over time. And I guess, if we look at the ‘21 guidance for the segment as a whole and we assume desktop is flat, I think it wouldn’t buy that QuickBooks Online would be maybe high-teens growth for this coming year. It sounds like the trends are very much getting back on track for QuickBooks Online. So, just curious how we think about the progression back towards 30%-plus growth over time for that segment. Thanks.

Yes. Sure, Chris. First of all, as you heard Michelle mention, we have every intention over time to get back to 30%-plus online revenue growth. And that will happen really by two levers. One is, our continued innovation to deliver value and the portfolio we now have; and two, it’s the recovery of small businesses. Although our platform has demonstrated to be resilient, it’s important to know that we’re not out of this pandemic. And we need to make sure that we get through this health crisis and get unemployment back down and get to a more healthy economy. And I think the combination of our innovation and getting to a better place in terms of the economy will allow us to get back to that 30%. And a lot of that is what informs the guidance that we provided.

Thank you. I have a quick follow-up question about how QuickBooks Advanced is performing compared to your expectations in the current environment. Are you noticing customers delaying some of the larger system upgrades, particularly in the SMB sector? I'm interested in your perspective on the current strength of that business.

Yes, I would say it’s actually doing well. At Investor Day, we mentioned that we now have 75,000 customers, which reflects 100% growth year-over-year. We are seeing existing customers upgrade to QuickBooks Advanced, and we are also attracting new customers who have been using various apps and manual processes. They adopt QuickBooks Advanced and recognize it as a way to enhance their business growth. We are not encountering any hesitations because it is competitively priced compared to other options, and we are witnessing the advantages of a disruptive platform, particularly for small businesses that realize that managing their operations manually isn’t feasible anymore. They understand the need to transition to the cloud, especially in light of the COVID environment, and QuickBooks Advanced acts as a catalyst for that change.

If my calculations are correct, there are approximately 100 million taxpayers who contribute around $250 billion to TurboTax without receiving any return. I'm curious if you are considering any strategies to direct some of this capital into something more productive, possibly through Credit Karma. Does the IRS impose any restrictions on handling this money? Perhaps you could provide some insight on this.

Sure, Michael. Let me take a shot at this to see if this addresses your question. First of all, we do see a very large opportunity. But, the way we look at it is that there are about 86 million people that go to somebody else to have their taxes done. And they spend about $20 billion or more to get those taxes done. We just see a huge opportunity to be able to serve those customers with a digital platform where we can bring the help to their place of home or office at their convenience at a much lower price and provide them the confidence that they need to get the maximum refund. So, we do see the same opportunity that you do. Our figures are a bit different than what you were articulating, but that’s really what we are pursuing with our Live platform.

I was actually kind of thinking of no refund. Don’t pay more than you need to. Invest that money.

I understand your question. Our vision for creating a consumer finance platform is to provide consumers with more choices. We want to enable them to connect with financial products such as loans, insurance, and credit cards that suit their needs. We aim to offer them options regarding their tax refunds, whether they prefer to deposit it in a high-yield savings account or access it early, along with early access to their paychecks. By leveraging their data, with their consent, we can provide valuable insights that they wouldn't typically receive. Additionally, if they need expert assistance, we are ready to offer advice. This is the core of our strategy, which we refer to as unlocking smart money decisions, and that's where Credit Karma plays a crucial role to support this vision. We are truly excited about this direction.

So, you're suggesting that after taxpayers receive a refund, it would be better to use that money more productively instead of allowing it to be lent to the IRS?

Yes. The refund belongs to the consumers; it is their money, and they deserve to receive it. Our mission is to assist consumers in making the most of their refunds.

Yes. I’ll be brief. Thank you everyone for your questions. And I wish everyone that celebrates Thanksgiving a wonderful and safe Thanksgiving. And we’ll speak to you very soon. And enjoy your holidays. Thank you.