Intuit Inc (INTU) — Q4 2021 Earnings Call Transcript

Thanks, Latif. Good afternoon and welcome to Intuit's Fourth Quarter Fiscal 2020 conference call. I'm 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 several 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've 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.

Thanks, Kim, and thanks to all of you for joining us today. We had a very strong fourth quarter capping off an outstanding year. Full-year revenue grew 25%, including the addition of Credit Karma. Total revenue growth was fueled by 16% growth for the small business in the Self-Employed Group and 14% growth for the Consumer Group. While Credit Karma had a very strong year, delivering another record quarter in Q4. Combined platform revenue, which includes QuickBooks Online, TurboTax Online, and Credit Karma, grew 39% to 6.6 billion in fiscal year 2021. This includes 18 points from the addition of Credit Karma. I'm proud of what the team has accomplished this year and our game plan to win remains durable. Let me now turn over to tax. This year marks our fourth consecutive year of double-digit revenue growth. We've built a durable strategy and we've made outstanding progress this year, with customer growth of 6% and our share of total returns up approximately 1 point. We extended our lead into the Do-It-Yourself category by focusing on underpenetrated segments, including investor customers, where we tripled the growth rate from last year. We continue to transform the $20 billion assisted segment with TurboTax Live, accelerating total customer growth by nearly 100%. We have a highly predictable model and a platform with a significant runway for growth as we accelerate innovation. Recently, we announced plans not to renew our participation in the IRS refile program. We expect no impact on revenue from this decision. I want to make sure that you understand how this decision fits within our overall strategy. Free offerings are a critical part of our strategy to serve and grow with customers over time, offering benefits to power their prosperity. Intuit has delivered nearly 100 million free tax filings over the past eight years. And with nearly 90% of those free tax filings coming outside of the IRS refile program. Looking ahead with no IRS refile program constraints, customers can enjoy all of the innovation we have to offer on our TurboTax, Credit Karma, and Mint platform. Our AI-driven expert platform strategy and five big bets are driving strong momentum and accelerating innovation across the Company. These big bets are focused on the largest problems our customers face and represent durable growth opportunities for Intuit. As a reminder, these big bets are: revolutionize speed to benefit, connect people to experts, unlock smart money decisions, be the center of small business growth, and disrupt the small business mid-market. Today, I'll highlight the notable progress we've made this quarter on three of these big bets and will provide a detailed update on all five big bets at Investor Day next month. 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 virtually with TurboTax Live and QuickBooks Live. With TurboTax Live, we're transforming the $20 billion assisted category by providing 86 million filers who have previously relied on in-person assistance, the opportunity to access tax experts to help them do their taxes or complete their returns digitally. This expertise provides confidence for consumers and creates a halo effect for our entire TurboTax experience. The TurboTax Live funnel was strong this season. Customer awareness grew over 20% and TurboTax Live customers new to Intuit grew more than 100%. Our full-service Do-It-For-Me offering attracted new customers from the assisted segment at a rate nearly 25% higher than our TurboTax Live Do-It-With-Me offering. Our third Big Bet is to unlock smart money decisions with Credit Karma's data platform, and powerful network effects, we're making progress toward our goal of creating a personal financial assistant that helps consumers find the right financial products, put more money in their pockets, and access financial expertise and advice. To deliver on this goal, our strategic focus is to grow the core, including credit cards and personal loans, expand growth verticals, including home loans, auto loans, and insurance, and develop emerging verticals focused on digital money offerings, such as savings and checking accounts. Credit Karma achieved another record high revenue quarter in Q4 with the number of members reaching a new all-time high, fueled partly by the TurboTax integration and monthly active users, and frequency of member visits remained strong. Within the core, credit card and personal revenue achieved another record high on a combined basis, reflecting an increase in transactions per member. The growth verticals also achieved an all-time revenue high, again, this quarter, reflecting strong momentum in auto insurance followed by home loans and auto loans. And we're developing the emerging verticals by focusing on innovation with Credit Karma Money, part of our digital money offering. Just this past month, we announced the integration of QuickBooks Online payroll to deliver a better checking experience for a portion of our Small Business employees that help them manage all aspects of their financials, all in one place. These results are evidence that successful innovation drives Credit Karma members to the platform, creating more opportunities to connect them with products that are right for them, resulting in more monetization opportunities for Intuit. The all-time highs we achieved are driven by focused innovation in both bolstering our proprietary AI-powered Lightbox technology and investing in growth verticals, such as home and auto, as well as pent-up demand from our partners. Lightbox enables Credit Karma to present offers to the members who have a higher likelihood of approval. Partners' usage of Lightbox in Q4 is now at an all-time high with over 50% of credit cards and over 40% of personal loan transactions flowing through, versus less than 40% and 20% a year ago. This is the power of a network effect, solving a two-sided problem. We expect pent-up demand across the core verticals to taper this coming year after a very strong year of investments by our partners, and I'm very pleased with our progress and excited about the upcoming innovations. I'll end my circling back to our first big bet, which is our foundational bet to revolutionize speed to benefit for our customers. Our goal is to put more money in our customers' pockets, eliminate friction, and deliver confidence at every touchpoint by using AI and customer insights. This year, we accelerated our use of AI, increasing the number of models deployed across our platform by nearly 50%, saving our customers millions of hours of work. Our application of AI has dramatically increased the number of experiments we ran by more than 35% this year, made it easier for our TurboTax customers to never enter data, saving them millions of hours of manual entry and monetize our payroll offering, tripling release velocity. We are very pleased with our results and remain confident in our game plans to win, accelerated by digital tailwinds. Across all of our big bets, we're building momentum and accelerating innovation, which we believe positions us well for durable growth in the future. We will continue to invest aggressively, including in key talent to drive even faster innovation going forward. Now, let me hand it over to Michelle.

Thanks, Sasan. Good afternoon, everyone. For the fourth quarter of fiscal 2021, we delivered revenue of $2.6 billion. GAAP operating income of $402 million versus $483 million last year, non-GAAP operating income of $715 million versus $616 million last year. GAAP diluted earnings per share of $1.37 versus $1.68 a year ago. And non-GAAP diluted earnings per share of $1.97 versus $1.81 last year. Turning to the business segments. In the small business and Self-Employed Group, revenue grew 19% during the quarter and 16% in fiscal 2021. Online Ecosystem revenue grew 30% in the fourth quarter, and 26% for the year. With the aim of being the source of trade for small businesses, our strategic focus within the small business and Self-Employed is three-fold. Grow the core, connect the ecosystem, and expand globally. First, we continue to focus on growing the core. QuickBooks Online accounting revenue grew 28% in fiscal Q4, driven mainly by customer growth, mix shift, and higher effective prices. Second, we continued to focus on connecting the ecosystem. Online services revenue, which includes payments, payroll, time tracking, and capital, grew 35% in fiscal Q4. Within payments, revenue growth reflects ongoing customer growth along with an increase in charge volume per customer. Within payroll, we continued to see revenue tailwinds during the quarter from growth in payroll customers and a mix shift to our full-service offering. During the quarter, we continued migrating customers to our new full-service lineup, which added approximately 5 points to online services growth. We're also seeing the number of employees per customer back to pre-pandemic levels. Third, our progress expanding globally added to the growth of Online Ecosystem revenue during fiscal Q4. Total international online revenue grew 47% on a constant currency basis. We believe the best measure of the health and success of our strategy is Online Ecosystem revenue growth, which we expect to grow better than 30% over time. This is driven by 10% to 20% expected growth in both customers and ARPC. Desktop ecosystem revenue grew 5% in the fourth quarter and 4% for the full year. QuickBooks Desktop Enterprise revenue grew mid-single-digits in fiscal 2021. Consumer Group revenue grew 14% in fiscal 2021, above the high end of our longer-term expectation of 8% to 12%. Fiscal 2021 was the fourth consecutive year of double-digit revenue growth for the Consumer Group. TurboTax units grew 6% this season. There are four primary drivers in our consumer business. Note that these metrics exclude approximately 8 million stimulus filings last season. This data reflects the season through July 31, 2021, versus the prior season through July 31, 2020. The first is the total number of returns filed with the IRS, which we estimate will be up approximately 3% this season, higher than our prior estimate of up approximately 1%. The second is the percentage of those returns filed using Do-It-Yourself software. We estimate the DIY category share of total IRS returns was down slightly this season, versus our prior estimate of approximately flat. The third driver is our share. Our share of total tax returns expanded approximately 1 point to 31% this season, and our share of the DIY category grew approximately 1 point. Our total share excluding free fall customers this season was approximately 29%. The fourth is average revenue per return, which increased again this season. This growth reflects a stronger contribution by TurboTax Live and mix shifts to our premier offering, which is used by investors. We estimate our retention rate rose slightly year-over-year, excluding filers seeking stimulus payments last season that didn't return again this season, and we're pleased with these results. Including these filers, we estimate total retention was down approximately 2 points. Turning to the ProConnect Group, we reported $517 million of revenue in fiscal 2021, up 5%. Moving onto Credit Karma, revenue was $405 million in Q4, another all-time high reflecting record highs for both the core and growth verticals. Sequential growth predominantly reflects strength in credit cards and personal loans as transactions per member increased. As Sasan shared earlier, we expect pent-up demand across the core verticals to taper sometime in Fiscal 2022, after a strong year of investment by our partners. We remain excited about the opportunities ahead for this platform. Turning to our financial principles, we remain committed to growing organic revenue double digits and growing operating income dollars faster than revenue. As I've shared before, as we lean into our platform strategy, we see the opportunity for margin expansion over time. 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 reallocate resources to top priorities with an emphasis on becoming an AI-driven expert platform. These principles remain our long-term commitment. 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 returned 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 $3.9 billion in cash investments from our balance sheet. We repurchased $467 million of stock during the fourth quarter and a billion dollars during fiscal 2021. The Board approved a new $2 billion repurchase authorization, giving us a total authorization of approximately $3.3 billion to repurchase shares. Depending on market conditions and other factors, our aim is to be in the market each quarter. The Board approved a quarterly dividend of $0.68 per share payable on October 18th, 2021. This represents a 15% increase versus last year. Moving on to guidance, our full-year fiscal 2022 guidance includes revenue of $11.05 billion to $11.2 billion, growth of 15% to 16%, including a full year of Credit Karma. GAAP earnings per share of $7.46 to $7.66 and non-GAAP earnings per share of $11.05 to $11.25. We expect the GAAP tax rate of 20% in fiscal 2022. Note that our revenue guidance for Credit Karma of $1.345 billion to $1.38 billion translates into 18% to 21% growth if we had a full year of Credit Karma revenue during fiscal 2021. I'd like to provide some additional context around our operating margin expectations. As I've shared before, we continue to see opportunities to leverage the platform and drive margin expansion over time. However, our guidance implies GAAP operating margin declined just over 2 points in fiscal 2022 versus fiscal 2021. This reflects the impact of the Credit Karma acquisition along with investments we're making in stock compensation to attract and retain talent. We are confident these are the right decisions to drive long-term growth. On a non-GAAP basis, our guidance implies operating margin in fiscal 2022 expands approximately 60 basis points. As I shared last quarter, fiscal 2021 was a very unique year, as we took a conservative approach to investments during the first half of the year when we were deep in the pandemic, and then the business started to bounce back more quickly than we anticipated in the second half. Our fiscal 2022 non-GAAP operating margin implies on average, a point of expansion each year since fiscal 2019. Even though our initial guidance after closing the Credit Karma acquisition included a negative 2-point non-GAAP operating margin impact. We continue to see margin expansion opportunities ahead. Our Q1 fiscal 2022 guidance includes revenue growth of 36% to 38%, GAAP earnings per share of $0.14 to $0.19, and non-GAAP earnings per share of $0.94 to $0.99. You can find our full Q1 and fiscal 2020 guidance details in our press release and on our fact sheet. And with that, I'll turn it back over to Sasan.

Super. Thank you, Michelle. I'm proud of the team and all we have accomplished together and I'm optimistic about the future. We have a large, addressable market with digital tailwinds that include a shift to Virtual Solutions, acceleration to online and omnichannel capabilities, and digital money offerings. With our strategy of becoming an AI-driven expert platform and five big bets, we are positioned well for accelerated innovation and growth. Let's now open it up to your questions.

Yes, thanks very much, and congrats on a great fiscal year. Sasan, in the press release, you guys called out sort of online payments and payroll as two really important growth factors for small businesses. I was wondering if you could just unpack this a little bit more. What are you seeing there and how sustainable do you think those trends are around those two parts of the offering? Thanks.

Thank you, Kirk. It’s great to hear from you. I want to take a moment to reflect on what we’ve discussed in the past regarding the significance of having a platform that enables our customers to not only expand their businesses but also manage their finances and ensure compliance. We have been making substantial investments in payments, simplifying the discovery process for our customers, and offering them choices while accelerating our innovations in areas such as instant deposits and upfront payments. Along with our investments in payroll, we've concentrated on enhancing the customer experience, innovating in services like same-day and next-day payroll, and providing full-service support with experts to assist with payroll and taxes. These are just a couple of key examples where our innovations are gaining traction, particularly as we experience digital growth, with customers seeking to transition online and manage more of their operations digitally. This is reflected in our overall services revenue from payroll, payments, and time tracking, all of which are playing a significant role. To answer your question, yes, this trend is sustainable. We are evolving into a platform that customers rely on to manage their businesses. Our innovations are proving effective, and we are continually advancing to meet our customers' needs. Additionally, as we expand into the mid-market and target larger customers, we anticipate seeing positive outcomes from larger transactions and further growth in previously untapped areas of this market.

That's great. Maybe just one follow-up for Michelle on just the Credit Karma guide. I realize you guys called out the fact that there's a bit of pent-up demand in the back half of this year, your fiscal year. How should we think about that in terms of just the cadence of the growth over the course of the year? Obviously, it's a little bit lumpy given we don't have full sort of year-over-year comps yet, but I was just kind of curious how we should maybe think about either first-half year versus second half or any color around that would be helpful. Thanks.

Thanks for your question, Kirk. We're very excited about Credit Karma as we look ahead. Q4 marked their highest revenue ever, and we feel really good about that as we see strength in credit cards, personal loans, and an increase in transactions per member. You're correct that, as Sasan mentioned, we observed some pent-up demand which we expect will decrease in Fiscal 2022 after a strong year of investment from our partners. We anticipate a return to more typical pre-COVID investment levels. Regarding the pacing throughout the year, there's not a significant amount of seasonality with Credit Karma, and although we haven't provided guidance for individual quarters aside from Q1, we're quite optimistic about what we see and believe there are still plenty of opportunities for Credit Karma next year.

Super. Thanks very much.

Thank you.

Great. Thank you for taking my question. And I echo the sentiments on the strong year. First, maybe just touching on the payroll. I think Michelle, you mentioned 5 points of growth contribution on the online services side. Should we think of this as a tough comp or would you say that we're still very early in driving adoption of full-service, and we could potentially see this be additive longer-term?

Oh, I'm sorry, I wasn't sure if that was for me or you.

I think you or Sasan are more than qualified to answer that question.

I'd be happy to chime in and Michelle, please don't hesitate to jump in as well. First of all, I would just take you back to our longer-term expectations is to deliver 30% online revenue growth. And there's always going to be put and takes relative to payments and payroll and accounting revenue. So please let your, sort of, uber compass be 30% online revenue growth. With that said, as I mentioned earlier, as I was answering Kirk's question, we are seeing the impact of our innovations pay off, and more and more of our customers are migrating to full-service payroll. More of our customers are actually wanting to get started on full-service payroll because of these capabilities that it has. And it comes with expertise to help them solve the very problem that is frankly the biggest problem that is unsaid, and that is about confidence. So, we have a runway ahead of us. Ken when it comes to payroll, and I would just say your compass should be 30% online revenue growth.

Great. Got it. Fantastic. And then just a quick follow-up on the tax side. At a high level, any attempts to possibly share with some of the components of that 10% to 11% consumer growth is going to be coming from next year?

Yes, Ken. And we'll, of course, unpack this at our upcoming Investor Day. I would just tell you that I am delighted with our continued strategic progress and that will really feed into our future growth, which I think is the element of your question. When you think about our performance, I know I'm repeating some of the stats, but I think they're worth repeating. One, we increased our total share of IRS returns by 1 point, the two areas that really matter most that we're focused on underpenetrated segments and transforming the assisted segments. We saw really superb results. Our overall investor volume tripled year-over-year. TurboTax Live awareness increased 20%. Our total customers grew 100%, our new customers to the franchise to TurboTax Live grew over 100%. And with our full-service offering, it actually attracted new customers from the prior year assisted segment at a 25% higher rate than TurboTax Live Do-It-With-Me. And our retention rate stayed flat to a little bit up overall. So, when you look at all the key sort of metrics, knock on wood, it's very, very healthy and we expect that to inform next year's growth. And we do assume, by the way, that IRS returns are going to be about flattish next year. So that's probably one important assumption that's worthwhile sharing. Though this is just a continuation as you've probably heard me say multiple times, we're on a 10-year plus run in these opportunity areas that we're focused on, and next year is just going to be another sort of important pivotal year in our quest to transform assisted and penetrated the underpenetrated segment.

Fantastic work guys.

All right. Thank you, Ken.

Thanks. Thank you, guys, for taking the question and echo the congratulations. Really strong end to what was a pretty remarkable fiscal year for all the team at Intuit. I wanted to dig into the FY 22 guide a little bit, particularly around small businesses. Michelle, you've been talking about sort of a return to 30% plus growth in the Online Ecosystem side of the equation. But if I'm doing my math right, and that's probably a big part of the equation here, if I could actually do the math. If I'm doing my math right, and we're growing online, 30% plus, that would imply with your guide that Desktop is actually now shrinking and down 10% in FY '22 or 10% plus. Is something changing in Desktop or am I just doing my math wrong? Or sort of how should we think about that balance between sort of what had been a very durable sort of revenue stream in Desktop and a ramping online business?

Hey, Keith. Thanks for your question. Well, first of all, I'd say we've been really excited about how Small Business has performed this year. And obviously, you can see with next year with our guide of 12% to 14%, we feel that it will be strong next year also. We feel that you really need to continue to look at Online Ecosystem revenue growth. And we do expect that to be 30% or better over time. We haven't guided to it. We don't do it quarterly, but we do expect it to be there over the long term and being driven by the 10% to 20% gross number of customers on the ARPC. Now when I go to the other side, which you were asking about around Desktop. Desktop, we have over time, the last few years, we've seen some growth in it, and obviously, this past year in 2021, we saw 4% growth. But we do anticipate that that will just continue to decline over time. We've got more and more customers. As they come in, they choose the online versions, and so you've got 8, 9 out of 10 customers that come in and choose QBO. So that's where I would help you with your math on that.

Got it. And just to be clear, is there any kind of structural change in terms of trying to more aggressively shift people from the desktop version to the online version, or is this just sort of normal course business and this is the trend line that you've been seeing over time?

We have decided not to force anyone to transition to online. We believe there is a much better value proposition and an improved experience with our online products, but we want our customers to use whatever option works best for them. However, we have noticed an increasing number of users opting for the Desktop version are selecting the Plus product, which includes a subscription. This trend is part of what we’ve been observing.

Got it. Excellent. Thank you so much, guys.

Thank you, Keith.

Hey, guys, thanks for taking the question. I echo again all the congratulations that are in order. I wanted to start with just digging a little bit on Credit Karma since the growth is so much better than I think we've been modeling, and anybody has really been thinking. I want to maybe unpack both in the quarter and also in the guidance. Are you starting to see synergies that you're realizing, whether it's monetizing the Intuit free user base with Credit Karma or whether it's cross-selling to the Karma base? And then I have a quick follow-up on the margins.

Sure, Alex. It's great to hear from you, and I appreciate your kind words. Regarding Credit Karma, I want to start by highlighting the positive impact of our accelerated innovation. We're effectively utilizing our combined data to create personalized experiences for our customers, using Lightbox as a key tool. This allows us to present relevant offers in the areas where customers need them the most, enabling us to provide multiple offers like credit cards, personal loans, auto insurance, and home loans. More importantly, we can assist customers with their approval potential, making it seamless for them to access these offers. These innovations are proving to be valuable, and it's encouraging to see that our partners are investing significantly in our platform for customer acquisition, demonstrating the network effect, the strength of our data, and the trust our members have in us. This serves as a solid foundation for continued growth, given that our penetration in credit cards is high, whereas there's still considerable opportunity in areas like auto insurance. We have ample room to capture more of the wallet share. We are optimistic about the future synergies, particularly in integrating Credit Karma benefits into the TurboTax experience. This presents a significant opportunity. Additionally, we aim to create a seamless and contextual experience where TurboTax is part of Credit Karma, allowing users to easily handle their taxes. Another key development is including Credit Karma in our payroll system, enabling payroll customers to deposit funds into a free checking and savings account and access their money early if desired. These opportunities are substantial, given the millions of TurboTax and payroll customers, alongside our extensive Credit Karma user base that we plan to introduce TurboTax to. Since we closed Credit Karma in December, we have dedicated the past eight months to purposeful and rapid experimentation, which will shape our initiatives for the coming year. We do not anticipate immediate material revenue growth from these strategies; instead, we expect to see mid-term growth as we refine the experience and enhance the benefits across our ecosystem for all members. This reflects not only what we are implementing with Credit Karma but also the future growth rates we foresee.

That's super clear. I appreciate the detailed response, Sasan. Michelle, I have a question for you. Personally, I've been looking at the potential for margin leverage in the guidance compared to the investments you see as opportunities in the business. I believe you've provided the best incremental operating margin leverage guidance we've seen in the last few years. Can you elaborate on how you plan to deliver both growth and margin leverage at this scale? Please break it down in terms of gross margin versus operational expense savings. I recall there was some concern years ago that certain factors might negatively impact gross margin, yet it has actually improved this year. I would like to better understand the sources of that incremental margin leverage and how durable you believe this opportunity is.

Great question, Alex. Thank you. First of all, thank you for acknowledging the margin delivery we have this year. You mentioned gross margin, and we have continued to say that we expect gross margin to remain fairly flat over time. You're right, we did have a lot of questions as we got into the TurboTax Live businesses as to whether that was going to deteriorate margins. But it has remained flattish over time. I mean, that was the last expectation we gave that I gave last year at Investor Day. And our big focus is obviously on margin, and we see the opportunity there and continue to see opportunities to drive margin leverage really as we become more and more of a platform company. Fiscal year 21 was somewhat exceptional, as the pandemic was in full effect at the beginning, leaving us uncertain about the outcomes, which made us adopt a more conservative approach to investments. However, the business rebounded much faster than we anticipated. Looking back to 2019, we have achieved an average margin expansion. We are optimistic about this, especially with our guidance indicating a 60 basis point increase going forward. The expansion we anticipate is broadly across the business, driven by various factors such as technology optimization, reducing redundant systems, enhancing customer success platforms to better serve all our customers, and leveraging additional technology in our go-to-market strategies. We believe there are continuous opportunities to enhance our leverage.

Perfect. Thank you, guys. Great job.

Thank you, Alex.

Sasan, if you could expand on the Small Business side and what you're seeing on the international approach and the traction beyond the U.S. and how critical that is to this next year for you. And maybe just a quick follow-up for Michelle on QuickBooks Live, if you can give us an update in terms of traction and any trend lines you're seeing there. Thank you.

Great. Brent, just a follow-up question. The last question that you asked about trend lines, were those just general trend lines that we're seeing in small businesses? I want to make sure we captured your question correctly.

More specifically the QuickBooks Online and QuickBooks Live. My apologies, QuickBooks Live.

Got it. Okay. Great. Let me start with your question about international markets. As I mentioned in the previous earnings call, the trend remains the same. One key point is that small businesses around the world are still in recovery. Some have bounced back to pre-COVID levels, while others have accelerated their growth by adapting their business models. However, our data indicates that 20% of small businesses are still facing challenges, which we define as having net deposits down more than 25%. It's crucial to understand that, generally, small businesses are still in recovery mode. Nonetheless, our platform has become increasingly essential. The digital aspect of our platform for running, growing, and managing cash flow in a compliant manner is more significant than ever, which is reflected in our innovations and the acceleration we're witnessing. In terms of geography, the U.S. has shown a strong recovery in platform usage, likely leading the way. Canada is also recovering, but countries like the UK, France, and Australia are lagging significantly, primarily due to the repeated cycles of lockdowns that have affected the sentiment of accountants and small businesses. Despite these challenges, we achieved 47% revenue growth in constant currency last quarter and 43% for the entire year. However, we expect a slower recovery internationally compared to the U.S. as we navigate this health crisis. Once we move past it, we believe small businesses outside the U.S. will recover much more rapidly. International markets remain crucial for our future, and this perspective informs our strategic planning and guidance moving forward. Now, I’ll hand it over to Michele to address your question about QuickBooks Live.

Great. Hey, Brent, I would say we're continuing to make some progress with QuickBooks Live. It actually goes back to what I mentioned earlier on, the opportunities for platform leverage because it's actually built on the same platform as TurboTax Live. And that's what enabled us to bring it to market so much more quickly. Right now, we're still focused on achieving product-market fit. Seeing some early signs here is a way to bring in customers who are new to Intuit, to help us with customer acquisition. And we do think that there is a great opportunity for us to use the live product, to help penetrate non-consumption, which as you know, is a huge opportunity. The pandemic over this last year has really been an opportunity as we've seen the acceleration to a virtual world. And so, obviously, customers are much more anxious to or much more open to using these types of experiences. And so, our platform really enables that. It does solve one of the biggest problems we have with Small Business customers, which is confidence. You also see that on the TurboTax side too. Expert interest has continued to remain really strong. And so that has been a good thing for us to see. A few customer pains points we're currently working on are on solving, streamlining, and automating document collection. And then enabling messaging within the offerings so customers can more easily communicate with their bookkeeper. And then the last thing I'd say is last year we launched the setup queue so that we could really help small businesses come in, get set up on QuickBooks, and have that confidence right from the get-go. And we've seen some good success with that.

Thank you.

Thank you, Brad.

Hi, thank you very much. Congratulations on an exciting finish to the fiscal year. Sasan, I wanted to get your thoughts on the Small Business ecosystem as you look ahead a few years. It seems that the Company is experiencing growing success with payroll and payments. I'm curious about the significant potential within small businesses that have historically underspent on IT, especially with the ongoing digital transformation. As you advance into higher segments of the Small Business market and secure larger deals with QuickBooks Advanced, what insights have you gained about that segment? With your diverse assets like AI and Credit Karma, how do you effectively leverage them to capture a substantial portion of the IT spending that could be available as you move upmarket in the small business ecosystem? Thank you so much.

Great question, Kash. And great to hear from you. I'll take you back to the bet that we have declared, which is we truly want to be the center of Small Business growth. And for us, it's really about helping customers grow their business. It's helping our customers manage all of their money flow, and it's also ensuring that they can take good care of their employees and be compliant. And I think particularly, there are two areas to answer your question as we move upmarket, but it's also relevant. One of them is very relevant to just smaller businesses that we're continuing to focus on. And that is one, how do we help you grow your business? That's both relevant to the businesses that we serve today, but also very relevant to the mid-market customers and so to be able to manage your marketing, your sales, your services, is one element. I think the other element, which is particularly important for mid-market customers is just all their GNA. And we believe that the live platform that we've created, the engines that we've created will actually help us go beyond bookkeeping, taxes, and accounting to be able to focus on some of their GNA. So those are the two areas.

Wonderful. Thank you so much. Congrats.

All right. Thank you.

Thanks for taking my question and I will say my congratulations for a great end to this challenging year. Sasan, I want to ask you about a follow-up on your TurboTax, mainly TurboTax Live full-service. This is the first year you guys launched. So, I'm wondering, what have you learned this year? And hopefully, next season, maybe we'll go back to normalcy so what's your expectation back into guidance in terms of adoption of full-service?

Yes. Hi, Siti. And thank you for your kind words. I would just start with really, this has been a very intentional multiyear effort to have one platform across TurboTax, where you can do your taxes yourself. You can get assistance to do your taxes or we'll do your taxes for you. And a platform where you can choose to go back and forth within the year or in a multiyear period, we want to be the platform for your taxes and of course, obviously beyond that, with the capabilities that we have with Credit Karma. The second element, I would say is what we learned this year, going to full launch, is that full-service offering has a halo effect and build confidence for customers, which is why we were able to attract new customers from the prior assisted method at a 25% higher rate into full-service because they know that they can digitally provide us all of their data. And we have excellent experts to be able to take very good care of them. So that's the biggest learning that we had. It was a hypothesis that we have from prior-year experimentation, and we're going to continue to scale that as we look ahead. It's just a very critical part of our platform. And as I've said before, we believe that we're in the very, very early innings of a 10-year plus opportunity here. And we just see full-service playing a very important role as we look ahead. Thank you.

Thanks very much. Congratulations from me too. Two tax questions. The first one, Sasan, if you could, I guess, use this opportunity to describe a little bit more the decision process to exit Free File Alliance, and then I think you and Michelle mentioned, should not have a revenue impact. I'm just curious, any thoughts on margin impact for the go-forward? Thank you.

Yes. Sure. Thank you. Scott, good to hear from you. First of all, just as a reminder, we were one of the founding members of the Free File Alliance program with the IRS and it has been frankly, an incredible partnership with the IRS and the private industry. And when we really founded this program with the IRS, there were really two goals. And I'll simplify it. The two goals were, we wanted at that time, to ensure that electronic filing was used by more than 80% plus of all consumers. And we wanted to make sure that free filing was available to 80% plus of consumers. And when you forward the clock, mission accomplished on both, in fact, we've exceeded both metrics as an industry on both fronts. And Free has now become prevalent across the entire industry. And so, we felt that the time was right now that the mission has been accomplished to really change our approach to how we can deliver benefits for customers. Free will always be an important part of the strategy, but there are constraints when you come in through the Free File Alliance program and those constraints are, for instance, we can't provide you benefits on other platforms, like our free Credit Karma platform. And so, as we look ahead, not only will we be able to provide free tax offerings to our customers, but as they grow and we grow with them, they can benefit from Credit Karma, they can benefit from Mint. If they are a small business, they can benefit from QuickBooks, things that we ultimately couldn't talk to them about if they were part of the Free File Alliance program. So, mission accomplished and that's the reason why we chose to get out. I just want to state again, the partnership with the IRS has absolutely been phenomenal and with private industry to achieve the goals of FFA.

Thanks, do you have any thoughts on the margin on the Gulf?

Sure. I apologize for not addressing that. There is no impact on margins or revenue, and some of the resources that were allocated to FFA are now being redirected to important work in TurboTax. So, there’s no impact.

Understood. And just a real quick follow-up from an earlier question, you mentioned a flattish IRS industry growth anticipated for next year. Is that because we saw what looks like 3% this year in just the top comp or any other factors that go into that entry space? Thanks.

Yeah. Scott, I'll just start with it's an assumption, we make an assumption every year. So, what we think it will be because it's important for our planning. And because there have been two years of pretty strong total return growth, we're just assuming next year is going to be flat. We could be wrong; it could grow, but our assumption going in is it's flat.

Thanks very much. Appreciate it.

Yeah. Absolutely, Scott.

Hey, there. Thanks. Good afternoon. And congrats on the strong results of the year. Going back to Credit Karma, I'm just wondering if there's anything you can add around how much visibility you have there in framing targets for the upcoming year relative to other segments of your business? I think the commentary is clear around the Q4 strength, but just wondering how to pass through the 18% to 21% growth you referenced, which is a solid starting point, and the guidance is modestly down relative to the run rate that segment just delivered. Thank you.

Yes. Sure, Michael, and thank you for it. I know you've been waiting for a while in the queue here. We have very good visibility and I'll just be specific. We have well over 100 million customers. We see the monthly active users, which has grown quite nicely. We actually, based on the data that we have and how we are leveraging that data with our customer's permission as part of Lightbox and the number of partners that come into Lightbox, we actually can see spend behavior. We can see our customer's activity. We can see their financial situations and are continued to be better positioned to be able to offer them products that are right for them. So, when we see our member growth, when we see our member activity, the number of transactions, which is the number of offerings that we now have, the activity of our partners, which we're very engaged with because our partners see this platform as a great growth opportunity for them. And the fact that we continue to be very intentional, that we are an agnostic platform. We have pretty good visibility into the future with Credit Karma, and we feel, of course, good and confident about the guidance that we provided.

That's so helpful. Thanks for your input.

Yeah. Thank you, Michael.

Great. Thanks very much. Sasan, I believe earlier in the call you talked about retention rates in TurboTax being flat year-over-year. What types of things have to happen to see that tick up?

Thank you, Brad. Good to hear from you. First of all, with all of the movement in the last couple of years with the pandemic and the growth that we've experienced, we're actually quite pleased with the retention rates. And I would tell you the biggest lever around retention is what we are doing with TurboTax Live, which is ensuring that our customers know and understand that there is an expert to help them every step of the way. But I think secondly, and we haven't talked much about this and we'll spend a little bit of time on this at Investor Day, is how we are now leveraging data to never lose the customer. And I give a lot of credit to our TurboTax team where we've been working on this for several years. It's not a new body of work, but the shift from just engaging you once a year when it's tax time, to actually understanding and leveraging what we know about you. If something has changed in your life if you bought a house, if you bought a car, if you got married, if you got divorced, if you moved from one state to another. It's actually engaging you year-round relative to giving your confidence that those changes can be addressed by us. So, it's the combination of leveraging data, applying AI for that data with our models to understand who could be at risk, and then engaging those customers proactively. And by the way, depending on their needs, not just with TurboTax, it could also be engaging them with the benefits of Credit Karma. Those are the two big things, data and AI, and the capabilities of TurboTax Live, engaging customers year-round, where we are quite confident over the long term, we can continue to increase our retention rates.

And then just one quick follow-up. High level, any sense of why DIY went backward this year?

Brad, the numbers are so wonky. What happened the last couple of years, I think so many people that don't have to file their taxes came in to do their taxes to get a stimulus check. And so, what really matters are some of the underlying numbers that we provided, and the fact that we gained share overall, IRS returns, and within DIY, even though DIY went down. But it's just a wonkiness of the number of stimulus customers that came in that ultimately didn't have to file their taxes again this year. So, that's the reasoning as we look at all the cohorts.

Great, makes total sense. Thanks very much.

All right, Brad. Thank you.

Great. Thanks for taking our questions. This is Jackson Ader on for Sterling tonight. The first one is on the Credit Karma side where you're expecting some of the pent-up demand to return to more normal levels. We're just curious whether that is more driven in the core markets or some of the emerging markets?

Yeah. Thank you, Jackson. It's primarily originations in credit cards and personal loans. One data point is public, the other one is in our own data that we see. They're up double-digits strongly compared to pre-COVID levels and we believe those are just going at some point to taper. in the back half of the year, and it's primarily from what we see in credit cards and personal loans. And it's really our innovation on the platform that will continue the guidance growth that we provided of 18% to 21%. But it's really in credit cards and personal loans that we believe originations will go back to pre-COVID levels, which were strong, it's just there was pent-up demand so it grew to double-digits.

Okay. Perfect. And then a follow-up, Michelle, the TurboTax Premier skew, I think is better than maybe you would be expected the entire year. Can you just remind us, what does Premier's retention rate look like relative to maybe the overall TurboTax platform?

Hey, Jackson, thanks for the question. Premier, we've done a good amount of work on Premier last couple of years. It's specifically used by our investors. And so obviously we've continued to see the growth that's one of the underpenetrated segments that we've focused on. We have not provided any detailed information on our retention rates below the higher level for TurboTax, so that's just not an area that we really delved into, just because of the competitive nature.

All right, fair enough. Thank you.

Thank you, Jackson.

Great. Thanks, guys. And I'll echo the congratulations on a real nice finish to the year. One of the things that stands out to me is the outlook for small businesses, very strong relative to kind of how you provide outlook heading into the year historically. So, my question is, is there a price increase in there and just more generally as you think longer term, historically, the Company has raised prices commensurate with more value that's delivered in the product for QuickBooks. How do you feel about your ability to just monetize more of the market with just more value-added features coming over the long-term? What are some of those things that you think might enable you to take price over time? Thank you so much.

Thank you, Brad, for your question and your kind words. Let me make a couple of comments. Our growth is primarily driven by customer acquisition and the mix of our offerings. For example, QuickBooks Advanced targets the mid-market segment. It's not solely about pricing, even though we did implement a price increase this year for the first time in a couple of years. We conduct tests to analyze the price-value relationship and follow clear pricing principles. Through experimentation and data analysis, we decide when to proceed with price increases. I can share that our innovation has significantly increased; last year, it doubled compared to the previous year in terms of code deployment and impact, and it has doubled again this year. This progress is reflected in our use of data and AI across our platform to provide insights to customers, especially in areas like payments, payroll, and time tracking. We've also made strides upmarket with QuickBooks Advanced and introduced QuickBooks commerce for product-based businesses. Additionally, QuickBooks Live targets under-served customers at a higher price point, and our QuickBooks Cash offering allows users to start with a business bank account to manage their operations. The scale of our innovation is impressive as we focus on specific customer segments and their needs, allowing us to address what matters most to them and monetize effectively. We are confident that this capability will serve us well for years to come.

That's great. Thanks so much.

Sure. Thank you, Brad.

Hey, guys, thanks for fitting me in. Just wanted to ask one question on the Small Business segment, and specifically around some of the key metrics there, like gross to customer additions, charge volumes, employees, and under payroll. Have you seen any change in some of those key metrics you track as COVID variants have started to impact various spots of the U.S. Thanks.

Matt, thank you for your question. The short answer is no. We're continuing to see strength by industry, by geography, given some of the tailwinds and our innovation that I spoke about earlier. So, with the Delta variant being the primary driver of the COVID cases and what we're seeing in different states within the U.S. having a different impact, we've really not seen an impact in our results in charge volume, the number of employees, so the strength remains.

Perfect. Thanks, guys.

Thank you.

Thank you. I have a couple of questions. Regarding this year's guidance, is the lowest number reflective of your cautious approach based on last year's guidance? What can we anticipate over a two to three-year period? Additionally, concerning this year's taxes, how much of the assisted benefit was influenced by misunderstandings or concerns about the stimulus, prompting people to seek assistance? Was this a one-time situation, and will we return to lower assistance and a rise in Do-It-Yourself? Thank you.

Thank you, Michael, for your question. I want to address a couple of points. I'll begin with your first question. We're very excited about the innovations happening throughout the Company and the customer segments we are targeting, along with the positive impact we are experiencing. In light of that, we feel very confident about our guidance and long-term expectations. Regarding your second question, at our Investor Day, which takes place every year, we will share our long-term expectations. So, if you could wait a few more weeks, we will provide further details then. As for the third part of your question about tax and any effects from the pandemic, my brief answer would be no. This year, many of our accountants and stores were open. What you're observing is primarily due to the impact of our innovations, which are raising awareness of the live expertise we offer to customers, whether we assist them directly or for them. Therefore, this is not a temporary effect from the pandemic; rather, it stems from our strategy and the outcomes of our execution.

Thank you.

You're very welcome.

Yes. Thank you. Well, thank you very much for the wonderful questions, and I want to just thank our employees, our customers, and our partners for another great quarter and I wish all of you to be safe out there and we'll talk to you next quarter. Thank you.