Intuit Inc (INTU) — Q1 2022 Earnings Call Transcript

Thanks, Latif. Good afternoon and welcome to Intuit's First Quarter Fiscal 2022 Conference Call. I'm here with Intuit CEO Sasan Goodarzi and Michelle Clatterbuck, our CFO. Before we start, I would 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 2021, and our other SEC filings. All of those 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 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. With that, I will turn the call over to Sasan.

Great. Thanks, Kim. And thanks to all of you for joining us today. We're off to a strong start in fiscal year 2022 with continued momentum across the Company, given our strategy of becoming a global AI-driven expert platform, powering the prosperity of consumers and small businesses. We have nearly a $300 billion addressable market driven by digital tailwinds that include a shift to virtual solutions, acceleration to online and omnichannel capabilities, and digital money offerings. First quarter revenue grew 52%, including 32 points from the addition of Credit Karma. Total revenue growth was fueled by small business and self-employed group revenue growth of 22%, and Credit Karma revenue of $418 million, another record quarter. Consumer Group and ProConnect Group revenue was in line with our expectations in a seasonally small quarter. As a result, both our strong start to the year and the close of the Mailchimp transaction, we are raising our revenue and non-GAAP operating income and earnings-per-share guidance for fiscal year 2022. Michelle will cover this in detail later. Our AI-driven expert platform strategy is accelerating innovation and our 5 Big Bets for solving the largest problems our customers face. We continue to deliver strong proof points that demonstrate our success and are well-positioned for durable growth in the future. As a reminder, these Big Bets are to 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'd like to highlight examples of our recent progress across 3 of these Big Bets. Our third Big Bet is to unlock smart money decisions. I am extremely proud of the momentum we are seeing with Credit Karma. Credit Karma is a data platform with powerful network effects, solving a two-sided problem. We are focused on 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 experts and insights. Credit Karma achieved record high revenue again in Q1, and we continue to deliver innovation across all verticals fueled by our proprietary Lightbox platform, enabling personalized experiences for our members and creating a network effect. Within the core, partner usage of Lightbox reached all-time highs across both credit cards and personal loans. Lightbox more than doubled the average approval rate for members who apply for credit cards on Credit Karma versus outside of Credit Karma. Within the growth verticals, we're solving a larger set of financial challenges for consumers. Karma Drive is giving U.S. members the opportunity to see if they can save money on auto insurance with usage-based pricing. We're actively exploring expansion opportunities with Lightbox in other verticals, including auto loans, building off of the success we've seen in credit cards and personal loans. Within the emerging verticals, we remain focused on innovation with Credit Karma money. We integrated Credit Karma money into TurboTax last season, experimented with how we could best meet our customers' needs, and announced an integration with QuickBooks Online Payroll. Given our learnings, we are excited about launching our improved experiences in the upcoming tax season. We believe Credit Karma Money is the key to driving growth in frequency of visits over time, one of the many key drivers of average revenue per monthly active user. Zooming out, we continue to grow members and are focused on building trust by delivering personalized financial products right for members, helping members save money, pay down debt, and get faster access to their money while providing insight and advice. Over time, we're creating a virtual cycle, which we expect to increase the frequency of engagement, transaction, and monetization across our ecosystem. Our fourth Big Bet is to become the center of small business growth by helping our customers get customers, get paid fast, manage capital, pay employees with confidence, and grow in an omnichannel world. 60% of small businesses struggle with cash flow, and we are continuing to innovate to create solutions for customers to overcome this challenge. In fiscal year 2021, total payments volume on our platform grew 40% year-over-year to over $90 billion. Online payment volume grew more than 60% driven by an increase in customers using our payments offering. As we continue to innovate for our customers and payments, those using QuickBooks cash have nearly 3 times higher engagement compared to customers who've just used QuickBooks Online. To accelerate engagement and usage of our platform, we recently introduced Get Paid Upfront, a game-changing innovation that will help qualified customers get paid soon after their invoice is set. Our fifth Big Bet is to disrupt the small business mid-market with QuickBooks Online Advance. We're seeing strong traction with QBO Advance, with customers growing to 118,000 in fiscal year 2021, up 57% year-over-year. As we continue to move up-market and serve these customers' most critical needs, we're seeing a services ecosystem ARPC that is 4x higher than the ARPC for QBO customers. We're pleased with our results and remain confident in our game plans to win. 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. This will be further fueled by Mailchimp. I'm delighted that we closed Mailchimp. They closed the acquisition earlier this month, which seeks to significantly accelerate 2 of our Big Bets: to be the center of small business growth and to disrupt the small business mid-market. Getting and engaging customers remains a significant pain point for small and mid-market businesses. We are well on our way to becoming the source of truth for our customers to help them grow and run their business. We have 3 acceleration priorities with Mailchimp. First priority is to deliver on our vision of an end-to-end customer growth platform to help customers get their business online, market their business, manage their customers' relationships, get paid, access capital, pay employees, manage cash flow, and be compliant with virtual experts at their fingertips, all in one place. Second, disrupting the mid-market by developing a full marketing automation, CRM, and e-commerce suite for mid-market customers at an attractive price point, enabling mid-market customers to use the power of the platform to grow their business. And third, accelerating global growth with a holistic go-to-market approach. With Mailchimp now part of the Intuit family, we are uniquely positioned to enable small and mid-market businesses to combine their customer data from Mailchimp and purchase data from QuickBooks to deliver actionable insights they need to grow and run their businesses with confidence. This is where the real magic happens. Our combined platform technology enables us to move with speed, and we've already seen strong interest from our customers. The teams are hard at work, and we are excited about the opportunity ahead. Foundational to our Company's success is building a high-performance culture. I want to take a moment to acknowledge our progress with our diversity, equity, and inclusion efforts. Last year, we declared our focus on increasing the percentages of women in technology roles and underrepresented minorities across our business. We achieved 30% and 13% respectively, and we are inspired to accelerate our plans and push even harder as much work remains to be done. Additionally, we've made meaningful progress supporting our communities. First, we recently announced the Intuit Climate Action Marketplace, which will help 1 million U.S. small businesses find sustainable solutions to reduce carbon emissions. This is part of our decade-long climate positive goal to go beyond net carbon neutral and reduce global carbon emissions by 2 million metric tons by 2030, or 50 times greater than our 2018 operational footprint. We also recently announced a 23-year partnership with the Los Angeles Clippers that includes economic benefits for the local community with Intuit Dome, the team's future home. And finally, we launched Intuit Ventures to invest in the startup community and accelerate FinTech innovation for consumers and small businesses. All the work we do starts with our mission of powering prosperity around the world. And I'm proud of the momentum across the Company and delivering on that mission for our customers and communities. Now let me hand it over to Michelle.

Thanks, Sasan. Good afternoon, everyone. And I'd also like to welcome the Mailchimp team to Intuit. Now, let me turn to the results. For the first quarter of Fiscal 2022, we delivered revenue of $2 billion, GAAP operating income of $195 million versus $209 million last year, non-GAAP operating income of $555 million versus $334 million last year, GAAP diluted earnings per share of $0.82 versus $0.75 a year ago and non-GAAP diluted earnings per share of $1.53 versus $0.94 last year. Note that our GAAP results include a $39 million net gain on other long-term investments. Turning to the business segments; in the small business and self-employed group, revenue grew 22% during the quarter, with online ecosystem revenue up 36%. With the aim of being the source of truth for small businesses, our strategic focus within 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 32% in fiscal Q1, driven mainly by customer growth, higher effective prices, and mix shift. Second, we continue to focus on connecting the ecosystem. Online services revenue, which includes payroll, payments, capital, and time-tracking, grew 42% in fiscal Q1. Within Payroll, we continue to see revenue tailwinds during the quarter from growth in Payroll customers and the mix shift to our full-service offerings. Within Payments, revenue growth reflects ongoing customer growth, along with an increase in charge volume per customer. Third, our progress expanding globally added to the growth of online ecosystem revenue during fiscal Q1. Total international online revenue grew 39% 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% organically over time. This is driven by 10% to 20% expected growth in both customers and ARPC. Desktop Ecosystem revenue grew 7% in the first quarter. QuickBooks Desktop Enterprise revenue grew high-single digits, driven by strong customer growth and price increases we put in place late last year. As a reminder, this fall we transitioned to a subscription model for this year's Desktop offering, which we expect to be a headwind to revenue growth in the second half of the year. We expect the Desktop business to decline longer-term. Moving onto Credit Karma, revenue was $480 million in Q1, another record revenue quarter, driven by high levels of monthly active users and revenue per monthly active user. Within the core, we saw another record quarter, driven by the combined strength in personal loans and credit cards. The growth verticals also achieved another strong quarter, reflecting momentum in home loans and auto loans. And we're developing the emerging vertical by focusing on innovation with Credit Karma Money, part of our digital money offering, so this is not a large revenue driver today. We continue to expect pent-up demand across the core verticals to taper sometime in the second half of fiscal 2022 after a strong year of investment by our partners. We remain excited about the opportunities ahead. Consumer Group revenue of $120 million in Q1 was in line with our expectations. Looking ahead to the upcoming tax season, we continue to focus on our strategy to expand our lead in DIY and transform the assisted segment with TurboTax Live. As to the ProConnect Group, revenue of $26 million in the quarter was also in line with our expectations. 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 guide our decisions and 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 $3.3 billion in cash and investments on our balance sheet. On November 1st, we entered into a $4.7 billion term loan under our new credit arrangement at credit agreement to partially fund the Mailchimp acquisition. We repurchased $339 million during the first quarter. 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 January 18th, 2022. This represents a 15% increase versus last year. Moving on to guidance, we are raising our full-year fiscal 2022 revenue and non-GAAP operating income and earnings per share guidance to reflect both the acquisition of Mailchimp and the stronger than expected start to the year in the small business and self-employed group and Credit Karma. Our updated fiscal 2022 guidance includes revenue up $12.165 billion to $12.3 billion, growth of 26% to 28%, including Mailchimp as of November 1st and a full year of Credit Karma. Excluding Mailchimp, revenue grows of 18% to 20%, up from our prior guidance of 15% to 16%, GAAP earnings per share of $7 to $7.16, and non-GAAP earnings per share of $11.48 to $11.64. This updated fiscal 2022 guidance includes organic growth for the small business and self-employed segment of 16% to 17%, up from 12% to 14%, expected Mailchimp revenue of $760 million to $770 million, and Credit Karma revenue of $1.54 billion to $1.565 billion, up from $1.345 billion to $1.38 billion. As I shared before, we continue to see opportunities to leverage the platform and drive margin expansion over time. Excluding Mailchimp, our non-GAAP operating income guidance continues to imply approximately 60 basis points of margin expansion in fiscal 2022. Our guidance assumes the Mailchimp transaction is accretive to Intuit's non-GAAP earnings per share in full-year fiscal 2022. However, we expect an approximate 80 basis points one-time step-down in non-GAAP operating margin reflecting the impact of Mailchimp as we plan to invest aggressively in the business. We expect non-GAAP operating margin expansion to continue from this new level over time in line with our financial principles. Our fiscal 2020 GAAP operating income guidance includes approximately $165 million for stock-based compensation associated with the acquisition of Mailchimp. In addition, our GAAP operating income guidance includes the impact of the Credit Karma acquisition along with investments we are making in stock compensation to attract and retain talent. We're confident these are the right decisions to drive long-term growth. And we expect a GAAP tax rate of 18% in fiscal 2022. Our guidance for the second quarter of fiscal 2022 includes revenue growth of 73% to 74%. GAAP earnings per share of $0.55 to $0.59 and non-GAAP earnings per share of $1.84 to $1.88. You can find our full Q2 and updated fiscal 2022 guidance details in our press release and on our fact sheet. And with that, I'll turn it back to you, Sasan.

Great. Thank you, Michelle. We are off to a strong start this year with continued momentum across the Company, given our strategy of being an AI-driven expert platform that's powering prosperity for consumers and small businesses. I'm proud of what our employees have accomplished this quarter and I'm excited about the opportunities ahead to find new innovative ways to serve our more than 100 million customers. Now let's open it up to your questions.

Great. Thank you so much. Sasan, the success of Lightbox has been very impressive. Just wondering, is there a way to quantify where we are in terms of adoption of Lightbox within your core credit vertical and what that potential adoption could look like? And then you touched on expanding into other verticals. What verticals do you think are appropriate to integrate into Lightbox?

Yeah, Ken, thanks for the question. In terms of Lightbox, as we talked about at Investor Day, we've actually made significant progress year-over-year in terms of penetration. I think what we talked about at Investor Day is we had 50% and 40% penetration in credit cards and personal loans compared to, I think, 40, 20 a year before. One, we have significant penetration opportunity ahead of us. I think equally as important, if not more, is what financial institutions are seeing, which is really the payoff for their investments. And so, more and more financial institutions are joining the platform and this gives us an opportunity to significantly increase penetration. I think that's the way I would probably give you the punch line. Our penetration in credit cards is, I think, less than 5%, just as an example, and personal loans and other verticals are even lower than that. So, Lightbox, the trust we build with our members, and the trust we are building with our partners gives us an opportunity for significant penetration, and I think our sort of best years are ahead of us when you think about Lightbox and particularly a penetration. In terms of your question around expansion, auto loans are just one example of where we can expand Lightbox and there are other areas that we've not talked about publicly. I won't do it today until we see our further proof points where we can further expand Lightbox. I think this is 13 years of investments that now positions us to really deliver for members, partners, and really create this network effect.

Got it. Fantastic. Appreciate the color. And then, if I could sneak one in for you, Michelle. When I look at that Mailchimp number 760, 770, any way to help us understand what that growth might have looked like on a three-quarter basis versus last year?

Hi, Ken. Yeah. We're really excited about Mailchimp. And we think that we're going to do some great things together. Their revenue and their new paying user growth were negatively impacted during the pandemic. I would let you know that. And they did pull back on some of their marketing spend so they could preserve their profitability, and we did see their churn decline some there too. We're going to be investing aggressively to drive their growth as we go forward. It won't happen overnight, but we're really excited about the opportunities we see to grow as we look forward. We haven't really given any additional details on what their growth was previously.

I want to thank you for taking the question, and it was an impressive quarter overall. There's really nothing to criticize here. I wanted to explore the QuickBooks Online business a bit more. Both the subscriptions and online services showed acceleration this quarter. Can you clarify how much of that is due to the ongoing recovery from the macro impacts of 2020, and how much is simply due to improving attachment rates? I understand you are focusing on higher-level customers with QBO Advanced. Is that starting to enhance your overall attachment rate in that business?

Yeah, Keith, thanks for the question. I would say the majority, if not all, compared to previous quarters, is simply customer growth. Its improved mix based on the traction of QuickBooks Advance, QuickBooks Live to a lesser degree, and things like full-service Payroll, and just all the innovation we've been doing in payments with instant deposit making it easier to use our payments offering, and now our new launch with Get Paid Upfront. So, I would say the majority of what we're starting to experience is the actual innovation on the platform and the portfolio that we have solving a broad range of needs for our customers. I would say bounce back from the pandemic, of course, happened and we started experiencing the pickup, but that was, I would say, 4 to 6 months ago. I think now we're seeing the actual true performance of the platform.

Outstanding. And then maybe a follow-up from Michelle. You called out again the potential impacts on the Desktop business from a shift towards subscription. Any way you can help us quantify what those impacts are going to be?

Hey, Keith. I can tell you that we experienced 7% growth in the Ecosystem during the first quarter, which was primarily driven by two factors. The first factor was an increase in Desktop Enterprise customer growth along with some price hikes. Desktop Enterprise revenue growth was in the high single digits in Q1. The second factor relates to the Desktop subscriber mix. Last year, Desktop subscribers grew by 48%, while outright units dropped by 47%. That significant growth in subscribers last year led to an additional boost in revenue from subscriber growth in Q1, which is what we observed. However, we anticipate facing some challenges to that growth as the year progresses, particularly due to the shift towards subscriber growth rather than outright sales.

Thank you.

Hi, this is Chirag Ved on for Kirk. Thanks for taking the question and congratulations on the great quarter. I know it's still early days, but can you talk a little bit about the plan for the go-to market with Mailchimp? For example, are you planning to approach customers as a one-stop shop vendor, or do you think both will be sold separately given potential different buying centers and companies? Does Mailchimp expedite your plans to potentially expand QuickBooks into more geographies on a quicker timeline? And I guess how do you expect this to evolve over time as we reach steady state? Thanks so much.

Thank you for the question. I want to highlight our three declared priorities that relate directly to your inquiry. First, our top priority is to create a unified growth platform. This involves significant behind-the-scenes efforts to develop data pipelines and connect services, enabling us to harness both Mailchimp and QuickBooks data for our customers, giving them powerful insights. The second priority is targeting the mid-market, where we see significant opportunities. We're already serving this segment with QuickBooks Advance and plan to enhance Mailchimp's capabilities to meet the needs of the mid-market effectively. Lastly, we aim to implement a global playbook and accelerate our go-to-market investments. This will allow customers the flexibility to choose how they want to interact with our services. For instance, if they start with Mailchimp for online business engagement, marketing, and CRM tools, we will ensure seamless payment integration. Over time, they can access features like invoicing, payroll, and compliance within Mailchimp. Conversely, if customers prefer QuickBooks but want to leverage Mailchimp's marketing capabilities, those options will also be available. Essentially, we want to empower customers to make choices, whether we operate separately or together in the market. Our goal is to raise awareness that there is a unified place for customers to manage their businesses, consolidating all their data for their success. That's the strategy we're pursuing.

All right, thank you so much.

You're welcome.

Great, thanks. It's Greg Jackson on for Sterling tonight. Thanks for taking our questions. My first question is about the better-than-expected performance for the remainder of the year from Credit Karma. We’re curious if this improvement is mainly due to a stronger recovery from the impact in 2020 in your traditional verticals, or if it’s more about increased confidence, Michelle? I recall what you mentioned regarding home and auto loans.

Yeah. Thank you for the question. A couple of things I would start with. Last year, when you look at the full year of Credit Karma compared to the prior year, we grew 37%. And our new guidance for Credit Karma going forward is a range of 35% to 37%. And so, I think what you see within that is there has been a macro bounce back. But really a lot of what we're really seeing is the innovation on the platform, the power of Lightbox, the fact that members are getting better matches to things that they are looking for. Financial institutions and insurance companies are seeing the power of the platform. And it's really just creating that network effect. So, I think what we're gaining confidence in is just the innovation, the technology investments in Lightbox, and in context of the macro environment as we look ahead that gives us confidence around the performance of Credit Karma. And again, I would just remind us that this is more of a longer-term comment. Credit Karma is a platform, and we're creating an ecosystem effect here. Credit Karma is part of the TurboTax experience, and we're excited for all of you to see what we're going to be launching in the coming tax season. TurboTax is part of the Credit Karma experience, and Credit Karma is part of the payroll experience. So really think about Intuit as one platform with many platforms that solves different problems, and that's really what fuels our confidence as we look ahead.

Okay, great. I have a follow-up regarding the tax business. By the end of the second quarter, we will enter the tax season. This means we are approaching the marketing phase for TurboTax advertising spending. Can you provide any details about the marketing budget plans as we prepare for January?

I'm not going to discuss the marketing budget specifically, but I can tell you that it has remained consistent and reliable over the past few years. We are focused on fundamentally changing how people get help with their taxes. You'll see us actively raising awareness among the 88 million customers who need assistance and showing them a better way to get that help. We're particularly focused on under-penetrated segments, including the Latinx community, the investment sector, and self-employed individuals. You can expect our investments in these areas to continue. We're looking forward to the upcoming season, and our marketing efforts will be concentrated in these segments to enhance awareness.

All right, great. Thank you.

You're very welcome.

Congratulations. Great quarter. Sasan, I want to ask you about the new business, I mean, new customer acquisition trend that you are seeing. I remember you talked about lagging effect to new business creation in the U.S. So, wondering what's the trend you're seeing on the QuickBooks new customer acquisition side, and what promotion or anything you are doing at this point?

Yes. Thank you for your kind comments and the question. I would say that it's very consistent with what we talked to you all about at Investor Day, and that is that we're continuing to see the acquisition trends that we would expect in the U.S. across-the-board, both in the low end of the market but also the trends that we're seeing in the mid-market, so those trends continue. And as we've shared before, we're not overly reliant by any means on new business formations. From just a health perspective, I would say the U.S. is consistent with what we talked about with all of you a few months ago. And I would say outside of the U.S., again, very consistent with what before, the recovery has not been like the U.S. Now, if I were to double-click on that, I would say behind the U.S. has been Canada. And I think we're going to start seeing UK and Australia start to come back. Sorry, UK and France. And then Australia is, I would say behind UK and France. We do believe that in the next year or less, that international will start to slowly bounce back. And the reason for just the slowness in international bouncing back is there's just been so many starts and stops those small businesses that just lost confidence. Do I build up inventory? Do I go hire more employees? Do I increase my own marketing budget? That they've just been slower in bouncing back. But we believe, within the next year or so, we'll see that strength. But the headline news is U.S. continues to be strong and match what we've expected, and international will bounce back within a year.

That's great. In relation to the TurboTax question, this is likely the first year you will engage with Credit Karma members who aren't using TurboTax. What strategy do you have at present to reach such a large member base in Credit Karma?

We are really excited about the possibilities of what we can do for Credit Karma members and TurboTax customers. Last year was a learning year, and we anticipate learning even more this year. Our goal is for every TurboTax customer to benefit from Credit Karma and for every Credit Karma member to utilize TurboTax, whether they choose to do it themselves or need assistance. We believe this year will be better than last year in terms of our experiences and the investments we've made. At Investor Day, we presented our Horizon framework, which categorizes impacts into three phases: Horizon 1 for immediate revenue impacts within the next 18 months, Horizon 2 for 18 to 36 months, and Horizon 3 for beyond 36 months. The integration of Credit Karma with TurboTax is projected to have an impact that is nearly three years out, as we want to ensure the experience is perfect. Nonetheless, we are moving forward and are excited about the upcoming launches in the weeks ahead.

Thank you, Sasan.

You are very welcome.

Hey there. Thank you, and congrats on the amazing results to start off the fiscal year. We've talked about it. I mean, you've gotten a few questions on tax. We see this on the live technology, we see you're now offering expert setup for QuickBooks as well. So, wondering if you can just add any color on how far that expert-led vision extends. Is that something you could take to consumer finance or potentially even something like email marketing with Mailchimp? It seems like a powerful addition to the product portfolio, and clearly a big bet you've been focused on. So, I'd love to hear more. Thank you.

Yeah, Michael. Thank you for your kind words, and great question. When we declared our bet around connecting people to experts and creating our virtual expert platform, we have been investing in this virtual expert platform for more than 5 years. There are so many underlying technologies and services where AI is being used to ensure that the platform matches the right customer to the right experts and to make the platform simple and easy to use for experts. We feel really confident relative to just where we are with the virtual expert platform, and our focus, intentionally, has been really about serving customers when it comes to tax time and helping small businesses with bookkeeping and eventually also with their taxes. But more importantly, just helping them run their business. We have so much opportunity ahead of us just in that space. With that said, we do have a few, what we call small mission-based genes that are exploring other spaces because we can leverage a lot of the capabilities of this virtual expert platform to serve spaces like marketing, potentially spaces like financial services. So, we are doing experiments but very intentionally to ensure that we can learn. I think I will just end with the opportunities of where we can take this virtual expert platform is endless. However, the biggest growth opportunity ahead of us right now is helping customers with taxes and helping small businesses run their business. And then as these other verticals become reality, we'll of course share our plans with all of you. But it is something that will extend over time horizontally and into more verticals.

Yes. Thanks, Michael. Yes. This is something that diverges from what we have done historically. Historically, also, the Consumer Group has been such a large percentage of our business. And now if we're adding other parts of the business that are growing more. We're adding Credit Karma. Overall, the composition of the business is just changing. And also, this is one of the first times we've seen a real pandemic hit like this. And so, the growth after the pandemic has also had some implications for recovery and so forth. So yes, it is a little bit different, composition of the Company is a little different, but we feel really good about what we're seeing, and are very excited about the accelerated growth we're seeing in Credit Karma and in small business, and ready to jump into tax season.

Excellent. Thank you so much for taking the question, and congrats, guys. My question. You had a price increase go into effect during the quarter in small business. Any discernible impact to retention across your various skews, particularly from those who haven't attached payments or payroll?

Thank you, Brad, for your kind words and your question. I want to highlight two points. First, the majority of our growth continues to stem from an increase in customers, and to a lesser extent, price adjustments, so that's something to keep in mind. Second, we haven't noticed anything unusual from the price increase; it's aligned with what we anticipated. In short, it’s within our control limits as we expected based on our prior testing.

Got it. And if I could just follow up with one more, Sasan. There's no doubt a significant opportunity with Credit Karma money, and I believe you called out the opportunity for QuickBooks Payroll customers to deposit up to $232 billion of payroll funds into a CK money account. What traction have you seen on this so far, or what percentage of QuickBooks Payroll payees do you think you can ultimately capture with something like this?

We haven't shared specific details about our traction, but we are generally enthusiastic. As we offer various services to our customers, including early access to wages, we're learning a lot and feeling optimistic about our progress. This varies by customer, particularly based on their financial situations. Those who live paycheck to paycheck tend to prioritize early access much more than those who don't. We're gaining insights into these different customer groups within our payroll segment, identifying where we can gain traction and where it's less necessary. Overall, we are excited about offering early access to wages, both through payroll services and Credit Karma. In the long run, I believe this will become a standard feature that everyone will offer. For us, it's not just about the feature itself, but rather the ecosystem benefits it brings to our customers and members.

Awesome. Thank you, Sasan.

Yeah. Thank you.

Sasan, you were clear when the Mailchimp deal closed that this is not just a mail company, that there was a broader platform play for marketing and selling up a website. I'm just curious along that theme. What you're seeing in terms of the most excitement where you can bring Mailchimp into your clients and ultimately this platform plays for the front office and how that evolves. If you could cover that, that'd be great.

Yes, absolutely, Brent. One of the mechanisms we have as a company is our Big Bet review, where we take our officers through the experiences of each of the Big Bets to discuss what we've learned, where we are, and where we're headed. In our latest Big Bet review, we involved Ben and his team from Mailchimp, and we walked through the experience in detail, examining our current position and future direction. We're feeling increasingly excited after closing the deal because the needs of our customers align with all the areas you mentioned. Every customer is in a different position, but they are mainly looking for ways to engage and acquire new customers, which is vital for their business. Nearly 70% of our customers are seeking avenues to attract new clients. We now possess the capabilities to support this and will integrate them into QuickBooks, as well as connect QuickBooks with Mailchimp. Customers want to manage their existing relationships in an automated and insightful manner, streamlining communications without having to track follow-ups or additional product offerings manually. All of this can be automated through Mailchimp. Many people don’t realize that one of the most significant ways to engage customers—something we see in our TurboTax operations—is through email. With our integrated platforms, we can manage all existing relationships and leverage all email capabilities effectively. More importantly, we can utilize customer data and purchase information to help businesses understand their clientele, recognize who bought what, identify prospects who haven’t purchased, and pursue those leads effectively. This aligns with our prior discussions about the opportunities ahead, and we are actively working on our product to empower our customers with these capabilities. We couldn't be more excited to support our customers in achieving success. So stay tuned.

Hey, good afternoon or good evening, Sasan. I wanted to ask you a little bit about TurboTax Live, maybe what the trends have been in terms of customers that are already TurboTax customers shifting to that product and new customers, and how you anticipate that trend evolving this tax season.

Yeah, it's a great question. It's one thing that's just really excites us about the Live platform. There's 88 million folks that use an assisted method today. Within the assisted method, you have 10 million folks every year where there's churn; they go jump from one assisted method to another. So, from one accountant to another or from one store to an accountant. And then within the TurboTax base, there are 4 million people that leave, and they ultimately go to an assisted method. I think that the answer to your question is it's all the above. We've seen conversion improvements, retention improvements. We've seen TurboTax customers that did it themselves a year before where they had a life change, or they just weren't sure if they did their home deductions the right way or if they had a kid and the kid went to college, how that ultimately accounts for those deductions where they are now using the live platform and vice versa. You may use the life platform and have enough confidence with the year after, you do it yourself and then you may then after that bounce back. We're seeing 3, 4 years of trends. Really, it's all of the above with the largest, I would say, driver being folks that use a different assisted method coming onto a platform and, of course, those that have life changes within TurboTax, growing with TurboTax, and using the live platform. And we just see that continuing as we view this opportunity with a 10-year lens.

And just a question on Credit Karma. Sasan, you've talked about Credit Karma Money and that sounds like a very interesting opportunity. I'm wondering, is there any concern that your customers say, hey, you're competing with me now for deposits and that causes issues?

One of the essential strategic principles that we have within Credit Karma is that it is an agnostic platform. Our financial institutions and all our partners see the power of that, how diligent and intentional we are about not creating our own products, but ensuring that we match members with a product that's right for them. And a lot of the capabilities that we have within Credit Karma ultimately had an institution that's participating in it. So that is not a concern that we have. Our trust is very, very high with financial institutions and we just believe that that's the beginning of it, especially with the attraction of Lightbox which actually delivers more success for members and more success for financial institutions. So, it is not a concern of ours.

Perfect. Thank you so much. I appreciate it.

You're welcome.

Thank you very much. Great quarter, Sasan and Michael. Sasan, I would like to hear your thoughts on the challenges currently faced by the U.S. economy. There is an unprecedented labor shortage, supply chain issues, and inflation concerns. Many of these challenges impact the small business sector. Considering Intuit's significant transformation and your commitment to AI, how can Intuit address these issues for its small business customers in light of the current obstacles? Thank you.

Kash, I appreciate your thoughtful comment and your insightful question about the various challenges facing small businesses, including the labor shortage, supply chain issues, and inflation. I believe we are witnessing a significant transformation. Since the pandemic began in March 2020, it has prompted a global reinvention, particularly for small businesses, accelerating the transition to virtual solutions and online operations for invoicing, payments, payroll, and time tracking. This movement shows no signs of reversing; the pandemic has fast-tracked the adoption of digital financial solutions. Additionally, the current labor shortage, along with personnel shifts and supply chain difficulties, which I expect will start to improve in the latter half of 2022 and into 2023, is compelling small businesses to utilize more platforms. If we focus on our platform, it offers features that allow users to get paid upfront, receive instant deposits, manage same-day payroll, and access expert guidance for optimal deductions, ensuring efficient business operations. With our platform, businesses can achieve more with fewer employees, as opposed to relying on multiple disjointed tools that make it hard to track customer profitability and optimize follow-up actions. Everything encourages the use of our platform, which is designed to help businesses grow while minimizing labor dependency and adapting to inflationary pressures. Ultimately, we need to tackle overtime, as well as supply chain and inflation issues, but our platform positions us well to support small businesses, and it's crucial we continue to educate them on this.

Excellent. Thank you so much. Quick one for Michelle. How do you assess the long-term margin drivers, and generally, discrete things that margin growth is somewhat linear, but generally these things tend to go up in an S-curve, so we often underestimate the true profitability of companies in the long term? In your case, what are the things that we should be looking for that could drive increased operating leverage in the future? Thank you so much and congrats.

Thank you, Kash. Appreciate that. Well, in the current year, as I spoke about earlier, we will see a margin adjustment with the acquisition of Mailchimp and so we do though believe that over time, we will continue to expand our margins as we've talked about from this new step-down level going forward. But as we become more and more of a platform, we see opportunities for us just across the Company, whether it is in technology and being able to increase the velocity of development on our platform and driving more services, using things like money movement across the Company, and our fraud and risk capabilities not having to duplicate those across the Company. Or in customer success is another great example, where we're scaling a common customer success platform so that we can more efficiently and effectively serve customers. And then also in the go-to-market area, really leveraging a common infrastructure to be able to more effectively target customers, manage our sales and marketing processes also. So, we do see a number of opportunities all across the P&L that as we look forward, there will be opportunities for us to leverage this.

Great. Thanks, guys. I'll likely to congratulations on a real nice quarter. I wanted to ask a question about TurboTax if I might, please. With this being the second year of your targeting the full-service opportunity, what were the learnings from the last year, your first year with this offering? Historically, you've seen this 1% to 2% share gain within Do-It-Yourself. Do-It-Yourself has gained 2 to 4 points as a category. Could this potentially accelerate those trends as you gain more intelligence to become more successful with this effort? And just generally, what are your expectations for this year with that offering?

Thank you, Brad. I would say two big things. One is a full service absolutely has a halo impact on confidence for the customer which actually gets me to the second point, and really the approach which is, we're a platform for our customers and so really if you think of customer choice, we want our customers to know that they have the ability to do it themselves. They can access an expert, if they need the expert to answer any questions that they have, and/or they can just have us do their taxes for them and do everything digitally. By the way, midstream if you choose an expert and utilize, you know what? I don't know if I just want to help, I just want to Intuit to do it all for me, we'll do it all for you. So really our approach and now that we've had several years of experimenting and learning with full service is that now we have a true end-to-end platform where we can meet the needs of any customer, and the power has actually grown with customers over time. If they just start out their career or if they're students who they have life changes, we have a platform that will meet all of their needs. So that's really the, I would say the headlines of the answer plays a halo effect, which has informed our platform approach as we look ahead.

Great to hear, Sasan. One more if I may, please, just on Credit Karma. Last year, you saw nice upside and the tax quarters are converting TurboTax filers to Credit Karma. Could you remind us where you are there? With that some low-hanging fruit initially, what drove that success that you saw in that business, and what is your outlook for that this year and going forward? Thank you.

Sure. I would really put last year entirely in the bucket of just learning. And it doesn't mean that's going to change this year. We are a Company that's all about moving fast, experimenting, pivoting, and learning all in context of being stubborn around the vision that we have. Last year was a learning year, although there were some nice member growth impacts to Credit Karma from TurboTax. We're really excited and eager to see how our new innovations and experiences on the platform play out this year and to see what we learn. I'll take you back to the reason at Investor Day we outlined the opportunity of Credit Karma as part of the TurboTax experience, and TurboTax as part of the Credit Karma platform as a Horizon 3, is we're really focused on the customer and member experience and nailing that because we know over time we can monetize. So, we're excited about the year ahead. Look, we have 11 months under our belt, learning and adjusting and preparing for this tax season. And we're excited about these experiences being launched and seeing how they play out in the next couple of months.

Great to hear. Thanks, Sasan.

Thanks very much. Good afternoon. First question. In international, Sasan, 39% growth in small business is impressive. Could you provide a brief summary of what you observed during the quarter? Additionally, you mentioned that Mailchimp will help accelerate global growth. I'm curious about when and how we'll see this impact the category. Thank you.

Yeah. Sure, Scott. Thank you. First up on international, we saw some of the same trend given our, not only our execution but the macro environment as we've seen the last couple of quarters. There are certain countries like Canada that have bounced back a bit more strongly. Then there's places like Australia that really have been very slow to bounce back based on the fact that the economy keeps opening and shutting down. And again, our view is within the next year, international should start to come back from a macro perspective. So, net-net, our trends in our performance, although we're very pleased with that, we believe over time to paint the different picture as the macro environment comes back. In terms of Mailchimp, our focus is the 3 priorities that I mentioned. We want to create an amazing product and platform that brings QuickBooks and Mailchimp together. We want to build the capabilities to go disrupt mid-market. And then, as Michelle mentioned, we're going to be investing heavily in our global go-to-market. I would say I wouldn't overly anticipate a significant change in our trajectory international because of Mailchimp where there's some fundamental things, we want to get right to ensure that we can truly be the platform where you can grow your business and run your business and over time it will certainly have an impact internationally and we're excited about that because it gives us another foot in the door outside of the U.S.

Thank you, and congratulations on the Intuit Dome. I'm curious about the overarching marketing strategy the company has implemented over the last few years. How should we view that on a larger scale? Thank you.

I would say, and I've said this for years, and I think you're used to hear Brad talk about this. I think where the world's biggest hidden secret, and we don't want that secret to hold true anymore. We want to make sure the world knows who Intuit is and what our brands are. We have data that shows that the more customers learn that TurboTax, Credit Karma, Mailchimp now, and QuickBooks when they learn that they're part of the Intuit brand and the platforms are all connected, it actually has a positive impact on our potential for growth. So, the way we think about Intuit Dome, it is not, for us, a naming rights deal. We've had many opportunities where we've actually been pursued to be part of deals like this and we pass them up over the years. We did this because one, it's a very technology forward dome. We're going to be helping the community. And two, we're really going to be able to showcase our brands. It will be yet another way to demonstrate the benefits that we bring to the market as one Intuit platform and the impact that we can have in the lives of consumers and small businesses. That's really how we think about it and why we're excited about it. And by the way, over time, we expected the same return on investment as we do with our marketing investments and that's really what this is. It just goes beyond marketing to impacting the local communities in LA, which we're excited about. Yes. Sure. Thank you. Well, first of all, I really appreciate all the questions. And once again, I want to just thank our employees for their incredible hard work, our customers and our partners for the strong start to the year, and the opportunity we have ahead of us. We're very passionate about fundamentally powering the prosperity of our customers and communities, and we're proud of our accomplishments, and we continue to believe that we are just getting started. Thanks for your questions, Thanks for your time, and we will see you at our next earnings call. Bye, everybody.