Intuit Inc (INTU) — Q2 2023 Earnings Call Transcript

Thanks, Abby. Good afternoon, and welcome to Intuit's second quarter fiscal 2023 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 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 2022 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 statement. 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.

Great. Thanks, Kim, and thanks to all of you for joining us today. As you read in our press release, we announced that Michelle will step down from the CFO role and plans to retire from Intuit. I'm pleased to share that Sandeep Aujla will assume the role of Chief Financial Officer on August 1, 2023. It is a well-crafted succession plan that I will cover more in a few minutes, but let's first get started with the business. We had another strong quarter as we executed on our strategy to be the global AI-driven expert platform, powering prosperity for consumers and small businesses. Second quarter revenue grew 14%, fueled by Small Business & Self-Employed Group revenue growth of 20% and Consumer revenue growth of 26%. This year, we are celebrating Intuit's 40th anniversary. We're incredibly proud of our history of reimagining the company and reinventing ourselves, which has enabled us to thrive during various technological shifts and economic cycles. Having successfully navigated multiple platform shifts over the years, including our largest transformation to artificial intelligence in the era of digitization, we continue to be confident in our ability to fuel growth, given our large TAM, low penetration, proven strategy and 5 Big Bets. We are proud to be the global financial technology platform that powers prosperity for the people and communities that we serve. I will first start with some thoughts about the tax season and our business in the current macro environment. As you know, the scale of our platform and rich data gives us unique insights into the lives and spending habits of over 100 million customers. Our Small Business performance continues to be very strong, despite uncertainty in the broader macro environment. We continue to see strength in the areas that have the greatest impact, including the growth of our online mid-market customers, contributing to strong subscription revenue and higher Average Revenue Per Customer (ARPC). In Q2, growth in both the number of companies running online payroll and the number of employees paid on our platform remains strong. Total online payments volume grew 25%, moderating some from the first quarter. We are seeing strong growth in the number of payment-enabled invoices sent by our Small Business customers, a good sign that our innovation is continuing to drive digitization. The shift to digitization and the power of our small business platform, including QuickBooks and MailChimp, resonate with customers as they grow their business and improve cash flow. We continue to observe that our AI-driven expert platform is critical to our customers' success. Now turning to tax. We're confident in our strategy to both extend our lead in the do-it-yourself category and transform the assisted category. Following a highly successful extension season last year, we doubled down on our learnings to further accelerate innovation to better serve our customers. First, we're evolving our TurboTax brand to increase awareness that we are the best alternative in the assisted tax segment for consumers and small businesses, a combined $30 billion TAM. Our new campaign, 'Come to TurboTax and Don't Do Your Taxes,' is resonating with our customers and is the key to our strategy as we focus on attracting customers from the assisted segment. Second, we launched a number of high-impact TurboTax Live innovations. As part of our second Big Bet, we are solving one of the largest problems our customers face, lack of confidence, by connecting people to experts virtually. Building on our learnings from last season, we're continuing to use AI to bring in our customers' data and match them to the right experts to help customers get the maximum refund they deserve with confidence. To help customers finish their taxes even more quickly, we've created a new gamified experience focused on efficiency, backed by our lifetime guarantee. We evolved our full-service offering so filers can have their return completed in a single virtual session. We are off to a great start in tax, and we continue to be confident in our game plan to win. Now shifting to our 5 Big Bets, I would like to highlight some examples of recent progress. As a reminder, our 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. Our second Big Bet is to connect people to experts. In addition to what I've shared about TurboTax Live, we've achieved product market fit with QuickBooks Live, which we expect could help us penetrate non-consumption and drive breakthrough adoption. We're evolving our QuickBooks Live into a portfolio of expert services and embedding these services as part of our lineup, similar to TurboTax Live. In the second quarter, we launched a three-expert-guided setup available for all new QBO customers leveraging our virtual expert platform. Early results indicate that customers using this offering have more confidence in and awareness of our full ecosystem of services, which translates into better retention and higher adoption of our service offerings. With our third Big Bet, our vision for Credit Karma is to become the comprehensive self-driving financial platform that propels our members forward, wherever they are on their financial journey. We are innovating across all verticals and continue to have confidence in our long-term growth expectations of 20% to 25% despite near-term headwinds. I'll share a few examples. We're innovating to help members get faster access to cash and make financial progress, including improving their credit score with the help of Credit Karma Money. For example, with the integration of TurboTax and Credit Karma, approved members can get money in their hands in as little as one minute after the IRS accepts their return. As this is the largest paycheck of the year for many, this enables them to take care of immediate expenses, pay down debt or build savings. Members also receive recommendations for how to achieve their financial goals, such as creating an emergency savings fund with our high-yield savings account or building credit with credit builder. Members who activate credit builders see an average score increase of 21 points in as little as 30 to 45 days. Members who use Credit Karma Money show higher engagement on the platform. We are driving more confidence for members with Karma Guarantee. As a reminder, Karma Guarantee indicates that members will either be approved or they'll receive $50. At the end of the quarter, 59% of members were eligible for at least one Karma Guarantee offer. With Mint now part of the Credit Karma platform, we're beginning to build a new experience for members with prime credit scores, which we currently underpenetrate. Leveraging Mint, we see the opportunity to develop personalized product recommendations based on net worth, transaction and spending data to highlight the product benefits that matter most to these members. Our fourth Big Bet is to become the center of small business growth by helping our customers get new customers, get paid fast, manage capital and pay employees with confidence in an omnichannel world. We continue to innovate to digitize money movement from creating an estimate, to invoicing a customer, to getting paid. Currently, easier discovery, auto-enabled payments, instant deposits and upfront payments are all helping drive adoption of our payments offerings. We are making meaningful progress digitizing B2B payments to accelerate and automate transactions between small businesses and ultimately improve their cash flow. We see a tremendous opportunity as 70% of B2B transactions are still completed with checks. This quarter, we launched a QuickBooks business network to millions of QuickBooks customers to further digitize B2B payments in the U.S. We're also building our Bill Pay functionality in QuickBooks and plan to launch this capability in the future. Now turning to Mailchimp. We're well on our way to becoming the source of truth for our customers to help them grow and run their businesses. We have three acceleration priorities with Mailchimp. First, delivering on our vision of an end-to-end customer growth platform; second, disrupting the mid-market by developing a full marketing automation, CRM and e-commerce suite; and third, accelerating global growth with a holistic go-to-market approach. This quarter, we made some great progress against these priorities. To help our small business customers run and grow their business in one place, we launched a real-time data sync that brings QBO data such as invoices, sales receipts, items, customers and addresses into one channel. This puts customer and purchase data together all in one place to power our customers' success. To help our customers plan, execute and track their marketing campaigns across multiple channels in one place, we launched a new capability called Campaign Manager. This reduces the number of tools needed to manage marketing and assess performance across channels. To drive accelerated global growth and execute our refreshed international strategy, we're translating the product into multiple languages, including Spanish and Portuguese. Beyond the progress we've made on these priorities, the product lineup innovation, assisted onboarding and improved first-time use we shared last quarter are driving green shoots in paid conversion, which was up 2 points year-over-year in the second quarter. Our fifth Big Bet is to disrupt the small business mid-market, representing a TAM of 1.7 million customers, of which 700,000 are already in our franchise today. As I mentioned earlier, online mid-market customer growth remained strong, and we are seeing increased adoption of QBO Advanced, payments, and payroll, driving ARPC expansion as we serve these customers across our full ecosystem of services. Wrapping up, we feel confident in our AI-driven expert platform strategy and 5 Big Bets. In an uncertain macro environment, the benefits of our global financial technology platform are more important and more mission-critical than ever to our customers. Now, let me hand it over to Michelle.

Thanks, Sasan. For the second quarter of fiscal 2023, we delivered revenue of $3 billion; GAAP operating income of $270 million versus $56 million last year; non-GAAP operating income of $856 million versus $612 million last year; GAAP diluted earnings per share of $0.60 versus $0.35 a year ago; and non-GAAP diluted earnings per share of $2.20 versus $1.55 last year. Turning to the business segments. In the Small Business & Self-Employed Group, revenue grew 20% during the quarter, and online ecosystem revenue grew 24%. With the goal of being the source of truth for small businesses, our strategic focus within the Small Business & Self-Employed group is threefold: grow the core, connect the ecosystem and expand globally. First, we continue to focus on growing the core. QuickBooks Online accounting revenue grew 27% in Q2, 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, Mailchimp, payments, capital and time tracking, grew 21% in Q2. Within payroll, revenue growth in the quarter reflects an increase in payroll customers and a mix shift to higher-end offerings. Mailchimp revenue growth in the quarter was up in the low teens. Growth was driven by higher effective prices, aligning with our pricing for value philosophy and improving conversion. We will continue to provide regular updates on the business so you can track our performance over time, including a deeper dive at Investor Day, similar to what we do for the rest of the business. Within payments, revenue growth reflects ongoing customer growth, as more customers adopt our payments offerings to manage their cash flow and an increase in total payment volume per customer. Third, we continue to make progress expanding globally by executing our refreshed international strategy, which includes leading with Mailchimp. On a constant currency basis, total international online ecosystem revenue grew 17% in Q2. Desktop Ecosystem revenue grew 10% in the second quarter. The subscription model for our desktop accounting solution makes this revenue more predictable. We raised our desktop prices for several products in September to more closely align with pricing for value. We're about halfway through the three-year transition to a subscription model for Desktop. QuickBooks Desktop Enterprise revenue grew in the high teens during the quarter. We expect continued strong Desktop Ecosystem revenue growth as we progress through the back half of the fiscal year. We continue to expect the online ecosystem to be our growth catalyst going forward. We remain confident in our guidance for the total Small Business and Self-Employed group of 19% to 20% revenue growth this year. Consumer Group revenue of $516 million grew 26% in Q2, reflecting a faster forming season this year. We remain confident in our guidance for Consumer Group of 9% to 10% revenue growth for fiscal 2023. Turning to the ProTax Group, revenue grew 7% in Q2, in line with our expectations. Credit Karma delivered revenue of $375 million in Q2, down 16%. This was slightly ahead of our expectations in its seasonally smaller quarter. As a reminder, Credit Karma represented 14% of our total revenue in fiscal 2022. On a product basis, the decline was driven primarily by headwinds in personal loans, home loans, auto insurance and auto loans, partially offset by growth in credit cards and Credit Karma Money. We continue to see an impact across all verticals in this uncertain macro environment. In credit cards, we continue to see partners tighten eligibility in riskier cohorts. In personal loans, we continue to see pressure as partners further tightened eligibility, and we expect personal loan revenue to decline this year after very strong growth in fiscal 2022. We remain confident in our guidance of a decline of 15% to 10% in fiscal 2023. Our financial principles that guide our decisions remain our long-term commitment and are unchanged. We finished the quarter with approximately $2.1 billion in cash and investments and $7.1 billion in debt on our balance sheet. We repurchased $500 million of stock during the second 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 $0.78 per share payable April 18, 2023. This represents a 15% increase versus last year. As I shared consistently in the past several quarters, we have an operating system that we use to run the company, and this includes a proven playbook for operating in both good and difficult economic times. Our first priority is to do the right thing for customers, giving them access to the tools and offerings they need most. We manage for both the short and long term and control discretionary spend to deliver strong results while investing in what is most important for future growth. The scale of our platform, along with our rich data, gives us the unique ability to see leading indicators that allow us to be forward-looking and adjust quickly. We also have a strong balance sheet that enables us to play offsets. We will continue to accelerate our innovation, and our goal remains for Intuit to emerge from this period of macro uncertainty in a position of strength. Moving on to guidance. We are reaffirming our fiscal 2023 guidance. This includes total company revenue growth of 10% to 12%, GAAP operating income growth of 9% to 13%, and non-GAAP operating income growth of 17% to 19%. GAAP diluted earnings per share to decline approximately 5% to 1% and non-GAAP diluted earnings per share growth of 15% to 17%. Our guidance for the third quarter of fiscal 2023 includes revenue growth of 8% to 9%, GAAP earnings per share of $6.82 to $6.89 and non-GAAP earnings per share of $8.42 to $8.49. You can also find our full fiscal 2023 and Q3 guidance details in our press release and on our fact sheet. On a personal note, as we announced today, I will be stepping down as CFO on July 31 and made it a priority over the last several years to focus on our long-term strategy for driving growth, and that includes ensuring I have a high-performing finance team with strong succession plans in place. Sandeep has been an integral part of the finance leadership team for over seven years, and I have no doubt he will be a terrific leader and CFO. He has shown his ability to drive key strategic priorities to create value for our business, time and time again, and I look forward to working with him over the next five months to ensure a smooth transition. With that, I'll turn it back over to Sasan.

Great. Thank you, Michelle. While the CFO transition isn't official until August, I wanted to just take this opportunity to express my sincere appreciation for all that Michelle has contributed over the past 20 years at Intuit, including the last five years as CFO. She has been an amazing partner and will leave Intuit better than what she found it. During Michelle's tenure as CFO, Intuit's market cap and revenue more than doubled. Michelle's commitment to developing top and diverse talent has created a deep bench of strong leaders, making for a very seamless transition. Sandeep will be an exceptional CFO with his track record of leading outstanding performance across our Small Business and Self-Employed Group and our technology organizations. So with that, let me go ahead and summarize. We are seeing continued momentum as we execute on our strategy of being a global AI-driven expert platform and growing Intuit revenue double digits with margin expansion. With our accelerated organic innovation, and the additions of Credit Karma and Mailchimp, we are the leading global financial technology platform that powers prosperity for people and communities. We're proud that Intuit has been named number five on Fortune's Most Admired Company in the software category, one of Glassdoor's 2023 Best Places to Work and honored to be included among Just Capital's Just 100 ranking for 2023. With that, let's now open it up to your questions.

This is Chirag Ved, dialing in for Kirk. I really appreciate you taking the question and congratulations on a strong quarter. I wanted to ask about what you're seeing in QuickBooks online growth, both from new customers and from upselling existing customers. Just any commentary you might be able to provide around the dynamics there? Thank you.

Yes, thank you for the question. We are seeing strength in both customer acquisition and retention. Our services are performing well, with a strong number of companies running payroll and a high count of employees getting paid. Our payment growth is at 25%, which is impressive as our customers benefit from digitizing on our platform. In addition, we see growth in the mid-market segment, which has a higher average revenue per customer, and we are eager to pursue non-consumption with QuickBooks Live as part of our overall offering. I also want to highlight one of our goals from four years ago regarding the success rate of small businesses on our platform. We aimed for it to be 10 points better than the industry average, and actually, small businesses on our platform are outperforming competitors by over 15 points. This indicates that by digitizing and leveraging our platform, small businesses are achieving greater success and enhancing their service delivery to customers.

All right. Thank you.

Thank you. And Sasan, it's a great quarter. I think what's impressive is your small business growth in this macro environment, especially when some of your peers are talking about pushing out digital transformations in small businesses and seeing some weakness. I just wanted to ask what you are seeing in terms of the health of the SMB economy right now for the next few quarters, considering you have a much stronger base. So I would love to hear your comments on small business.

Yes, for sure, Siti. Thank you for your question. It's actually a really important query in terms of what we've often talked about: it’s essential to view Intuit as the authority when it comes to developments in the small business space. The reason is that our platform is mission-critical for small businesses. Our platform, including QuickBooks, Mailchimp and all the services that we have, is fundamentally utilized by small businesses to grow their customer base, manage cash flow, and handle employees comprehensively. I want to stress that this fuels our success, supported by the statistic I shared earlier, where small businesses using our platform are performing over 15 points better than those that are not. Small businesses on our platform remain successful, even in this macro environment, and we are here to support them. I’d like to conclude by noting that the strength of our results, as Michelle and I discussed earlier, suggests that we expect that strength to continue going forward, despite the guidance being derisked for the rest of the year.

Great. And as a quick follow-up, just for clarification. Your online services growth is at 21%, but if I exclude Mailchimp, it’s around 27% growth. That's quite impressive, especially when compared to Q1's 28%. Just wanted to confirm that I am looking at that right.

You are correct in your understanding, as we didn't provide a specific number, but online services excluding Mailchimp did experience faster growth. As a result, it grew significantly faster than 21%.

Thank you.

Hey, great. I appreciate you taking the question. Nice job on the quarter. Maybe one for Michelle while you're still with us, on margin. Last quarter, you took the Credit Karma outlook down but left the EPS guidance intact. We've gotten questions from investors around whether that provides maybe less wiggle room on margin, but the first couple of quarters have still shown EPS upside. Can you just walk through the margin levers you're finding? Are there advantages in folding various brands together, and how should we think about the longer-term margin potential there?

Yes. Thank you, Michael. I appreciate the question. We felt very strongly about being able to maintain our guidance for operating income and margin, even after we adjusted our revenue outlook last quarter. We were very purposeful about this during our three-year planning process, and we identified a number of levers that we could pull across the expense spectrum, particularly in marketing, travel, and other discretionary expenses, ensuring we can meet our financial commitments. We feel very confident in the guidance we've provided for the rest of the year. This is something we take very seriously and we ensure that we have these levers at our disposal given the macro environment that has unfolded this year.

It's very helpful. Just one more, if I may. The desktop business came in exceptionally strong. Can you just speak to what you're finding as you move that base for subscription? And then how to think about the revised small business target after we're through the migration journey there and what keeps the 15% growth sustained afterward? Thank you.

Sure, Michael. Maybe I will take that. First of all, I'll just start with context. This is a business model shift that we're actually quite excited about. Firstly, we've shifted our customers to subscription, making revenue more predictable. Secondly, we have been methodical about pricing our Desktop products more closely in line with our online products. This is crucial because we're heavily investing to ensure our desktop customers, particularly product-based businesses, have access to capabilities available online. As we transition this business model, we foresee another 1.5 years of sustained strength while also migrating these customers to our online platform, which opens doors to additional services that will enhance the success of our small businesses. Ultimately, the growth of this franchise will stem from online services. With the numerous innovative growth levers we have and our focus on moving up-market, we confidently maintain our expectations of 15% to 20% long-term growth for the small business franchise.

Thanks very much.

Thank you very much. I'll add my congratulations. I was wondering if you can drill down into the favorable trend that you're seeing from higher effective prices. In particular, for QuickBooks Online Accounting, just in terms of the magnitude and the duration of that impact. And I'm curious if that should continue to provide any kind of material uplift for the next several quarters.

Yes. Thanks for your question, Mark. To provide context, we always look at our largest growth across the company, regardless of the business, stemming from volume and mix, driven by our innovation or our upward market movement. This applies across the board, whether it is TurboTax moving into the assisted segment or other services. Price and mix serve as our principal drivers. Given the accelerated innovation we've experienced, we also leverage price effectively since we operate at both ends. This gives us considerable pricing power due to the value we deliver for our customers. Looking ahead, we hold that most of our growth will stem naturally from volume and mix, with price remaining as a lever, especially as we penetrate upward in the market. This dynamic is particularly pronounced in small businesses due to the transition in desktop pricing, which is now closer to online pricing, and we anticipate this trend to continue over the next several quarters, indicating durability rather than being limited to quarterly changes.

Okay. Understood. As a quick follow-up, on the Mailchimp side, are initiatives designed to stimulate higher growth for Mailchimp—which includes the very creative advertising campaigns you’ve launched—starting to bear fruit? Are we seeing improvements in email marketing, campaign volumes, or do customers engage with the right products after the changes made?

Yes, Mark. When considering our Mailchimp priorities, we are beginning to see positive signs, some of which began a couple of quarters ago; particularly, we’ve experienced growth in paid conversions. The most exciting aspect of these initiatives is our renewed focus on retaining high-value customers and considerable efforts to penetrate the mid-market. This mirrors what we've achieved with QuickBooks Advance, where our retention rates were initially lower. We've invested time in this segment and are optimistic about the impact of our efforts over the next two to three quarters, especially concerning retention of high-value customers and increased market penetration. These improvements are supported by our ongoing revision of campaigns, website, first-time user experiences, our assisted onboarding process, and the anticipated launch of Data Sync. The Data Sync is a significant breakthrough; it brings customer and purchase data together, empowering our clients in ways they can't access elsewhere. These efforts may take time, but we’re witnessing early positive signs, and they will positively reflect on revenue growth in the coming quarters, though for clarity, these developments were not included in our guidance.

Thank you very much.

Excellent. Thank you so much for taking the question. Sasan, I think everyone appreciates what's happening in Credit Karma, and there's only so much that's within your control. And within that context, it's great to hear the positive developments around how Credit Karma Guarantee is doing. But as we consider the other elements of the portfolio and the other products, in an environment that’s supply-constrained, can you elaborate on the performance and how you're investing against the opportunity in a context of what you can control? Additionally, how do you assess the progress in regards to categories such as auto and home given the current market conditions? Thanks.

Yes, Brad, that's an excellent question. It's vital to focus on delivering results for our members in the short run even as we navigate this challenging macro environment. At Intuit, we define outcomes that we monitor, and we also emphasize inputs such as product quality, go-to-market strategies, and technology investments, along with success measures for each input. A substantial portion of our emphasis is placed on these inputs; controlling these factors is critical to predicting the outcomes we wish to achieve. We are committed to our long-term strategic focus areas as we monitor input metrics and make adjustments in the near term for customers and investors alike. Here are several ongoing efforts which align with our long-term growth vision for Credit Karma: First is the Karma Guarantee. We’re maximizing the use of our data and machine learning capabilities to provide stakeholders with confidence regarding credit card or personal loan eligibility. Currently, 59% of our members are eligible for a Karma Guarantee offer, a pivotal development. Secondly, the integration of Credit Karma Money remains significant, helping members manage their finances—whether it’s through bill payments, immediate access to their returns, or building their credit scores. Thirdly, we acknowledge the potential in penetrating prime customers where we aim to monetize and engage with them. Lastly, we emphasize the synergy with TurboTax, working laboriously to ensure each Credit Karma member utilizes TurboTax and each TurboTax customer directs their refund to a Credit Karma Money account. These priorities drive our efforts across various aspects.

Thank you so much for that, Sasan. If I could just ask a quick follow-up, maybe for Michelle. Michelle, I understand cash flow can vary quarter to quarter; however, I noticed cash taxes impacted free cash flow growth in the first half. In reconciling your margin upside this quarter with free cash flow performance, are there any specific items to mention? Should we view free cash flow growth for the year as somewhat aligned with net income growth?

Thanks for the question, Brad. Generally, we would indeed expect that trend to hold. While the lumpiness we experience annually is standard, specifically influenced by tax timing and related circumstances, I would anticipate that this pattern holds steady through the remainder of the year.

Excellent. Thank you so much for taking the questions.

Great. Thank you. I wanted to ask a question regarding TurboTax Full Service, given that this is the first year you are making a push here with the offering as we enter tax season. I'm curious if you believe this could be the year to convert more existing TurboTax filers to full service or if it may primarily attract net new filers entering the franchise through full service, with a potential shift towards the latter as the brand gains more traction. I just wanted to hear your expectations regarding new versus existing filers upgrading.

Yes. Thanks for the question, Brad. To kick things off, I’d like to reiterate something from earlier that is crucial to your query: our campaign strategies and investments within TurboTax Live have been aimed at enticing prior-year assisted customers. Consequently, we've noticed a surge in prior-year assisted customers engaging with TurboTax. Our campaign has been effective in highlighting how we provide an excellent opportunity for customers to take care of their taxes digitally and receive necessary expert help. TurboTax Live operates as a singular platform; we don't view full service as just an add-on. Rather, individuals may choose to seek help at various stages along the process or they could opt to submit their documentation digitally, schedule a meeting with an expert, and have their taxes completed by our team. We expect to observe improvements in this capability particularly in the later stages of the season. Overall, we are pleased with what we've achieved thus far in terms of boosting prior-year engagement through TurboTax Live, and we are optimistic for what lies ahead.

Okay. Great. Thanks for taking the question. I guess maybe just to follow up on the last TurboTax line of inquiry. What have you seen thus far in terms of broader adoption of full-service offerings or TurboTax Live? Has this driven any upside in the quarter? Additionally, what sort of engagement are we seeing between Credit Karma and TurboTax with respect to your co-branded offering?

Yes, Steve. A few points to consider here. First, as I mentioned earlier, tax season so far has unfolded rapidly, allowing us to effectively meet the needs of our customers who want their funds quickly; consequently, we've also noted a strong inclination to direct their refunds to a Credit Karma Money account. Our engagement with TurboTax members is tracked comfortably thanks to substantial investments aimed at removing obstacles, enabling users to select the product that best fits their needs, whether they opt for self-service or full-service. We're experiencing promising interactions this year, particularly with returning users of TurboTax Live. As we continue deeper into the season, we anticipate exciting prospects for attracting new customers largely as a result of our effective campaigns, and we continue iterating our products in real time, rolling out new features on a weekly basis. Given all this, we're thrilled about our future prospects as we forge ahead.

Great. There's helpful context there. And just one quick question I’d like to get in here regarding the EPS outlook: how should we weigh the increase in marketing investment against conservatism inherent in the model at this time? Despite the significant upside we’ve seen in the past few quarters, we have not yet seen an increase in EPS expectations. I’d appreciate your insights in this area.

Absolutely. That's a very good question. The math behind what we've accomplished thus far suggests momentum for the second half. However, many would perceive that a deceleration is in the works. That said, the principles we uphold lead us to maintain guidance during the third quarter, which comprises double the revenue of any other quarter. Thus, we prefer to keep our guidance intact while we approach this critical quarter and reassess afterward. When considering our guidance overall, it's important to regard it as having been mitigated against potential risks.

Thank you very much. Congratulations on a robust quarter. Michelle, we’ll definitely miss your smile and energy. Sandeep, I look forward to working with you. Back to you, Sasan. You’ve digitized taxes, which were traditionally done annually and quite dated, and now you're looking to digitize payments. As you evaluate payments, could you highlight the aspects of the payment ecosystem where Intuit traditionally hasn’t had a foothold? You quantified a figure of $125 billion of transactions occurring through your network, whereas more broadly the figure is about $2 trillion or so. When reviewing your comments on payments, it seems to be a significant prospect. Can you clarify which aspects of the payments ecosystem Intuit hasn’t explored previously, and which ones are advantageous moving forward? You mentioned B2B, accounts payable, and receivable, which would provide clarification around the opportunity payments present. It's a smaller business now, but it certainly appears to have the potential for significant growth. Thank you.

Yes. Thank you for the question, Kash. I just have to start by saying that we've got plenty of energy left across all of our Big Bets. All of them are important to us. To answer your specific inquiry about payments, I'd like to highlight three main aspects. First, let me provide some context: payments and money movement are core to our platform. Small businesses utilize our system to generate estimates, invoice clients, and receive payments for the services rendered. Our current penetration in this realm is limited, especially considering we handle $2 trillion of invoices on our platform; there's a significant growth opportunity just waiting to be tapped. In a macro environment where many payments segments are decelerating, our total charge volume still grew at an impressive 25%. That’s number one. Secondly, the entire domain of B2B payments is one we've traditionally not focused on. This means digitizing transactions between our small business users. Recently, we've launched our business network for millions of QuickBooks customers to further expedite B2B payments in the U.S. Lastly, we're enhancing our bill pay functionalities within QuickBooks, planning to launch this feature soon. When we engage with the mid-market, the potential of payments and payroll is magnified. So there’s ample opportunity in this space.

That clear understanding is greatly appreciated. Thank you.

Thanks very much. Congratulations Michelle and Sandeep. Sasan, first question is regarding the tax category, and it's a multi-partner inquiry. The early tax season this year is witnessing substantial increases from the IRS. This is likely favorable for you for various reasons, as you alluded in your previous comments, such as updates from Credit Karma Money. I'd love your thoughts on the industry's performance—why it's up substantially as compared to last year—and how you anticipate this performance affecting your overall tax season results?

Yes, Scott. I appreciate the question because it's important for everyone to understand. The IRS reports can be overwhelming to follow, as the season progresses. Before delving into specifics, let me set the stage. Pre-COVID, things were relatively predictable; you often could count on a robust first peak through mid-February, starting around late January, then tapering off to find minimal volume until the typical deadlines of mid-April. Year after year, however, we witnessed an increasing number of individuals preferring the last-minute rush. Two years of pandemic caused disruptions, extending tax seasons and overall changing consumer habits. This season has started robustly, echoing pre-COVID patterns, with more people motivated to file early to access funds sooner. However, we expect that traditional last-minute behaviors will persist, with some taxpayers opting to wait until close to deadlines. This can make it intellectually challenging to compare year-over-year performance since the previous years witnessed significant changes. Analyzing this year, we observe a rapid and active start to the filing period. It's essential to note that while the overall performance is positive, it doesn't match pre-pandemic expectations. Overall, we hope to see more consistent patterns as we progress forward.

Great. Thanks for that perspective. Next, over in Credit Karma Guarantee, you’ve highlighted it in detail on this call. When you provided guidance at the start of the year, you were optimistic about the Guarantee contributing in the latter half. I might be a quarter or two early asking this question, but you noted the 59% penetration levels among your base. How are you tracking this? Is this ahead of your initial expectations? Is it possible that this might be a driving factor in Credit Karma’s performance going forward?

Yes, yes, sure. To begin, let me emphasize that our company's guidance is mitigated and does include expectations for Credit Karma. That's essential to mention. When we revised the guidance to reflect a range of -15% to -10%, that consideration was based on a prudent outlook accounting for anticipated declines in the second half while not projecting too much impact from our innovations. That said, I feel positive about our progress with Karma Guarantee. Presently, 59% of our members qualify for at least one Karma Guarantee offer, which is significant. I believe we are on track with our desired progress on that front, as well as integration with Credit Karma Money and TurboTax. Each of these initiatives represents vital input goals for us which should yield beneficial outcomes. Thank you.

Okay. Great. Thanks very much.

Thanks, Sasan. Online services growth was slower than QuickBooks Online Accounting at 27%. I wanted to clarify: was the weakness primarily in Mailchimp, or did you observe any weaknesses in payments or payroll?

Yes, Brent, two key observations. Firstly, you should reflect on the toggling growth rates between the online accounting sector and online services as a standard; the critical focus should center on overall growth rates. Addressing your question directly, we noted robust performance across the board—Mailchimp's growth did contribute to a minor decrease in online services, attributable to its growth rate in the low teens, but the primary influence was Mailchimp’s performance. The performance of our payments sector remains strong, with a growth rate of 25%. In summary, Mailchimp's growth did have a more significant impact than the payments line.

Thank you for clarifying that.

Yes. Thank you, everyone, for your time and insightful questions today. I want to emphasize our gratitude to Michelle for her two decades of service at Intuit. She will continue to be an essential part of our team until August, and I’m eager to welcome Sandeep as our new CFO then. We look forward to connecting with all of you during our next earnings call. Until then, take care and have a good day. Bye, everyone.