Intuit Inc (INTU) — Q4 2023 Earnings Call Transcript

Thanks, Raiza. Good afternoon and welcome to Intuit’s fourth-quarter fiscal 2023 conference call. I’m here with Intuit's CEO, Sasan Goodarzi, and our new CFO, Sandeep Aujla. Welcome, Sandeep, it's nice to have you on the call. 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 these documents are available on the Investor Relations page of Intuit's website at intuit.com. We assume no obligation to update any forward-looking statements. Some of the numbers in these remarks are presented on a non-GAAP basis. We've reconciled the comparable GAAP and non-GAAP numbers in today's press release. Unless otherwise noted, all growth rates refer to the current period versus the comparable prior year period, and the business metrics and associated growth rates refer to worldwide business metrics. A copy of our prepared remarks and supplemental financial information will be available on our website after this call ends. With that, I'll turn the call over to Sasan.

All right. Excellent, Kim, thank you, and thank you, everybody, for joining us today. We had a very strong fourth quarter as we executed on our strategy to be the global AI-driven expert platform, powering prosperity for consumers and small businesses. We grew full year revenue 13%, delivered strong operating margin expansion, and exited the year with momentum. Our overall performance demonstrates the strength of our platform and the diversity of our portfolio, including our ability to maintain earnings power in uncertain times. This past year, we expanded our operating margin again, while investing in the most important areas to drive durable long-term growth. We are guiding to another year of double-digit revenue growth and margin expansion in fiscal year 2024, even with the macroeconomic environment that is uncertain. We are entering Intuit's most exciting area. Five years ago, we declared our strategy to be an AI-driven expert platform with data and AI core fueling innovation across our five Big Bets. We've made strong progress in transforming from a tax and accounting platform where consumers and small businesses have to do the work to achieve the benefit that they are seeking, to a global financial platform, where we do the hard work for them. Now, we are creating a future of, done for you, a future where the hard work is done automatically on behalf of our customers to fuel their financial success. This future is only possible because of our history of significant investments in our platform, talent, data and AI and now our accelerated investments in generative AI. At the core of our platform is powerful, relevant data. Intuit has incredibly rich longitudinal, transactional and behavioral data for 100 million customers. For small businesses, we have a 360-degree view of their business and customers. We have 500,000 customers and financial attributes per small business on our platform and this data gives us insights into behaviors, income streams, expenses, profitability, and cash flows, enabling us to provide personalized experiences and recommendations to help them prosper. Additionally, we have 60,000 financial and tax attributes per consumer on our platform, including income, expenses, credit history, spending history, outstanding loans, cash flow, and tax information, which enables us to become a financial assistant in their pocket. We are using our data to fine-tune our own financial large language models that specialize in solving tax, accounting, cash flow, marketing, and personal finance challenges. The investments that we've made in data and AI over the years allow us to introduce innovations at an accelerated rate. Intuit's rich data platform is a powerful foundation that allows us to create innovative AI-assisted experiences for all of our customers powering their prosperity. In June, we introduced our generative AI operating system called GenOS, to ignite innovation at scale for the benefit of millions of consumers and small businesses. GenOS empowers Intuit technologists to create breakthrough generative AI experiences. We are using a platform approach, giving our teams across Intuit the resources and tools they need to design, build, test and deploy these new experiences with unparalleled speed. This includes our own powerful financial LLMs, as well as those from other leaders in GenAI, which together unlock new opportunities to serve our customers, in a cost-effective way. We are entering Intuit’s most exciting era yet and believe the next several years will be game changing. On September 6th, we’ll be hosting Intuit Innovation Day, a virtual event where we will unveil exciting GenAI innovation across our platform and how it will drive business growth in the years ahead. We look forward to sharing more with you then. Now, let me turn to our Big Bets which are driving growth and benefits for our customers today. I would like to highlight some examples of recent progress in one of our Big Bets. As a reminder, our five Big Bets are, revolutionize speed to benefit, connect people to experts, unlock smart money decisions, be the center of small business growth, and disrupt the small business mid-market. 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. In payments, our innovation continues to drive digitization, from creating an estimate, to invoicing a customer, to getting paid. Today, easier discovery, auto-enabled payments, instant deposit, and getting paid upfront, are all helping drive adoption of our payments offering, leading to 22% total online payment volume growth this quarter. We are making significant progress digitizing B2B payments to accelerate and automate transactions between small businesses, and ultimately improve their cash flow. We see a tremendous opportunity as 80% of businesses still pay other firms via paper checks. We recently expanded the availability of the beta of our native bill pay solution by 10x. Turning to Mailchimp, 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 three acceleration priorities with Mailchimp. First, delivering on our vision of an end-to-end QuickBooks and Mailchimp customer growth platform. Second, disrupting the mid-market by developing a full marketing automation, CRM and eCommerce suite. And third, accelerating global growth with a holistic go-to-market approach. This last quarter, we implemented our first generative AI capability in Mailchimp, the Email Content Generator, enabling customers to create faster email campaigns based on industry, marketing intent and brand voice. This quarter, we launched the beta of a new product announcement generator, which uses AI to automatically create an email that a small business can send to its customers. We also announced over 150 new and updated features at our recent Mailchimp conference in London, designed to support the needs of advanced marketers, including a calendar view, custom reporting and analytics, more e-commerce advanced segmentation, more real time behavioral data based on e-commerce automations, and SMS marketing. Lineup changes and free trials are driving positive trends in year-over-year paid customer growth, which accelerated this quarter. We continue to make progress in mid-market, our 90-day retention rate this quarter the highest it’s been in two years. We have also translated the product into five different languages. We will share more on the outcomes we’re delivering across our five Big Bets at our Investor Day. Wrapping up, with our durable AI-driven expert platform strategy and focus on innovating with GenAI across our products, we are moving at high velocity. This will help us put more money in our customers’ pockets, save them time, and ensure complete confidence in every financial decision they make. As we lead this next technological shift, we are well-positioned to power prosperity for our customers and communities that we serve with a leadership team that is built for the era of AI. Now let me hand it over to Sandeep. It’s great to have you on the call, my friend.

Thank you, Sasan. I'm excited to be here and I look forward to meeting many of you in the future. We delivered strong results in fiscal 2023, including total revenue growth of 13%, strong margin expansion, and GAAP and non-GAAP EPS growth of 15% and 22% respectively. For the fourth quarter of fiscal '23, we delivered results that exceeded the high-end of our guidance range across all key metrics, including revenue of $2.7 billion, up 12%. GAAP operating income of $17 million versus a loss of $75 million last year. Non-GAAP operating income of $627 million versus $433 million last year up 45%. GAAP-diluted earnings per share of $0.32 versus a loss of $0.20 a year ago and non-GAAP diluted earnings per share of $1.65 versus $1.10 last year, up 50%. Now turning to the business segments. In the Small Business and Self-Employed Group revenue grew 21% during the quarter and 24% for the full year, which included four points of benefit from a full year of Mailchimp's revenue this year versus three quarters last year. Online ecosystem revenue grew 21% during the quarter and 30% for the full year. With the goal of being the source of truth for small businesses, our strategic focus within the Small Business and Self-Employed Group 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 22% in Q4 and 26% in fiscal '23. Growth for the quarter and fiscal year were driven mainly by customer growth, higher effective prices and mix shifts. Second, we continue to focus on connecting the ecosystem. Online services grew 20% in Q4 driven by payroll, Mailchimp, payments, capital and time tracking. For the full fiscal year, '23 QuickBooks Online Services grew 34% driven by Mailchimp, payroll, payments, capital and time tracking. Within payroll, revenue growth in this quarter reflects an increase in customers' adopting our payroll solutions and a mix shift towards higher-end offerings. Mailchimp revenue grew mid-teens in Q4. Growth was driven by higher effective prices and paying customer growth. Within payments, revenue growth in the quarter reflects ongoing customer growth as more customers adopt our payments offering to manage their cash flow as well as 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 both QuickBooks Online and Mailchimp in our established markets and leading with Mailchimp in all other markets as we continue to execute on localized product and lineup. On a constant currency basis, total international online ecosystem revenue grew 12% in Q4 and 31% in fiscal '23. The power of our small business platform continues to resonate with customers as they look to grow their business and improve cash flow across all types of economic environments. Our platform remains critical to our customers' success and we continue to see them adopt multiple offerings across the platform to manage their business. Desktop Ecosystem revenue grew 19% in the fourth quarter and QuickBooks Desktop Enterprise revenue grew in the low 20s. We are approximately two-thirds of the way through a three-year transition for customers that remained on license-based desktop offering to a recurring subscription model. We also raised our desktop prices across multiple products last September, consistent with our principle to price for value. Looking ahead, we expect continued strong desktop ecosystem revenue growth next year as we complete the remaining part of the three-year transition. Our focus is to continue building out our online ecosystem and to help our desktop customers migrate seamlessly to our online offerings. We continue to expect the online ecosystem to be our growth catalyst longer-term. Looking ahead, we continue to anticipate Small Business and Self-Employed revenue growth of 15% to 20% per year in long term. Now shifting to Credit Karma. Credit Karma delivered revenue of $424 million in Q4, down 11%. On a product basis, the decline in Q4 was driven primarily by macroeconomic headwinds in personal loans, auto insurance, home loans and auto loans, partially offset by growth in credit cards and Credit Karma Money. Full year revenue was $1.6 billion down 9%. Credit Karma represented 11% of Intuit's total revenue in fiscal '23. We have seen continued stability across our core verticals, which led to the improvement in year-over-year performance during Q4 versus Q3. For context, credit cards and personal loans represented nearly 50% and nearly 30% of Credit Karma’s revenue in fiscal '23, respectively. Looking ahead, we continue to anticipate Credit Karma annual revenue growth of 20% to 25% per year long term. Now shifting to Consumer and ProTax groups. Consumer Group revenue was $4.1 billion in fiscal '23, up 6%. Each tax season has been unique since the pandemic began four years ago, introducing volatility into Consumer Group results. However, average annual trends over this four-year period are more in line with the long-term trends. Over the past four years, Consumer Group revenue increased by an average of 10% annually, which aligns with our long-term growth expectations of 8% to 12%. While this was a unique tax season, I am proud of the progress the team made by transforming the assisted segment with TurboTax Live, which grew revenues 17% this year, while customers grew 12%. Looking ahead, we are confident in multiple growth drivers. First, we see a large runway ahead of us with TurboTax Live, given our ability to use both GenAI and human experts powered by AI to deliver confidence for our customers. We are investing in scaling our full-service offering, which has a good product market fit based on the highest product recommendation scores of any product at Intuit this year. Second, we are trying to scale our business tax offering, following a successful pilot this year. And third, we see significant opportunities ahead, driving Credit Karma members to TurboTax and giving TurboTax filers faster access to their money with Credit Karma Money. Given the growth opportunities I just shared, we continue to expect annual Consumer Group revenue growth of 8% to 12% per year over the long term. Turning to the ProTax Group, revenue was $561 million in fiscal '23, up 3%. Now let me share more on our financial principles and capital allocation. Our financial principles guide our decisions, remain our long-term commitment and are unchanged. We finished the quarter with approximately $3.7 billion in cash and investments and $6.1 billion in debt on our balance sheet. Approximately $4.2 billion of the debt is maturing over the next 15 months and we are evaluating refinancing opportunities subject to market and other conditions. We repurchased $465 million of stock during the fourth quarter and $2 billion during fiscal '23. Depending on market conditions and other factors, our aim is to be in the market each quarter. The Board approved a quarterly dividend of $0.90 per share payable on October 17, 2023. This represents a 15% increase versus last year. We recently finalized our three and one year strategic plan. I feel confident in the investments we are making to drive durable growth, including executing across our Big Bet and continuing the accelerated pace of innovation, particularly with GenAI. We have a proven playbook for operating in both good and difficult economic times. We manage for the short and the long term and control discretionary spend to deliver strong results while investing in what is most important for future growth. Our goal remains for Intuit to emerge from this period of macroeconomic uncertainty in a position of strength. Moving on to guidance. Our fiscal 2024 guidance includes total company revenue of $15.89 billion to $16.105 billion, a growth of 11% to 12%. Our guidance includes revenue growth of 16% to 17% for the Small Business and Self-Employed Group, 7% to 8% for the Consumer Group, and a decline of 3% to a growth of 3% for Credit Karma. GAAP earnings per share of $9.37 to $9.67, growth of 11% to 15%, and non-GAAP earnings per share of $16.17 to $16.47 growth of 12% to 14%. We expect a GAAP tax rate of approximately 23% in fiscal 2024. Our guidance for the first quarter of fiscal '24 includes revenue growth of 10% to 11%, GAAP earnings per share of $0.15 to $0.21, and non-GAAP earnings per share of $1.94 to $2. We are taking a prudent approach with guidance given the continued macroeconomic uncertainty. As a reminder, in Q1 of fiscal '24, we expect to pay approximately $700 million in cash tax payments related to fiscal '23, which were deferred due to the IRS disaster-area tax relief. You can find a full fiscal 2024 and Q1 guidance details in our press release as well as on our fact sheet. With that, I'll turn it back over to you, Sasan.

Great. Thank you. And wrapping up, we are confident in our AI-driven expert platform strategy and progress with our five Big Bets, the investments that we are making in GenAI and our leadership team driving our platform innovation. The combination of our assets and our strategy creates a growth flywheel for Intuit to accelerate penetrating our $300 billion in TAM. In today's uncertain macro-environment, the benefits of our global financial technology platform are more important and mission-critical than ever to our customers. I look forward to your attendance at our Intuit Innovation Day on September 6th, and Investor Day on September 28th. With that, let's open it up to your questions.

Excellent. Thank you guys for taking the question, and a really nice quarter, and nice to see a forward EPS guide ahead of where consensus was to see those numbers start moving up. My inbox is getting filled up with questions about the consumer business and the consumer guide. You've talked about a longer-term 8% to 12% growth there, the four-year CAGR of 10%, but this year you are looking for 7% to 8%, so below that guidance framework. And I think what people are trying to understand is why that is? Last year was a difficult tax season. Did you pull the levers too hard on pricing? Or what was it, do we need to refill the tank in terms of units? What is it that's going to keep this tax season to be underperforming those longer-term targets? Thank you.

Hey, Keith, thank you for your question. Let me give you the headline, but allow me to unpack it. I think the headline is we are just simply being prudent. Our focus on future growth and our bullishness does not change at all. Let me unpack that. First and foremost, when you look at the assisted segment, there is a $30 billion TAM, and $20 billion of it is consumer-assisted segment, and $10 billion of it is business segment. And the second is the secular shift towards digitization will continue and only accelerate in the years to come. And with that as context, we probably saw some of our biggest green shoots this year, which is why we are probably more bullish about what's possible in this business than we were even three to four years ago, and I would put it in two buckets, Credit Karma and then the assisted segment. In Credit Karma, just as a reminder, our vision from the moment that we bought Credit Karma was to create one consumer platform where a consumer can manage their financial lives, manage their money, and get their taxes done in one place. After several years of just rapid experimentation, we had a massive breakthrough this past year where our customer growth within the Credit Karma platform versus a number of Credit Karma members who became TurboTax customers was up 5x, and we are scaling that both on the product side and on the business model side as that gives us a lot of confidence going into next year and beyond. The second is going to be the assisted segment and that's in three parts. First and foremost, we actually had product-market fit this past year at full service, our biggest focus was how do we scale. We had some breakthroughs in how to scale. In fact, as you heard from Sandeep, we had our best product recommendations score of any product across the company, and we are significantly leaning into that in the coming year. The second is business tax. We launched and learned to get the product market fit in business tax. That is not going to be available, both across our QuickBooks Live platform and directly going to market with TurboTax, and we have hundreds of thousands, if not millions of people, will come to TurboTax looking for business tax. We've never had an offering; we will next year, and we are scaling it. The last thing I would say in the assisted segment is one of the biggest things that we've learned in the last year is local matters. What that means, people will go on Google, and they will search, if I’m in San Diego, is there a pro close to me, while we've never been good being found and local, and in fact, when you look at the experts that we have, we are 10 miles from every home in household in the United States, and so we're going big on local this year. And so when I look at our green shoots in the assisted segment and in Credit Karma, it gives us a lot of confidence as we look at this coming year and the future and I'll end with where I started, was the essence of your question about our guidance, we're simply being prudent given the year that we just had.

Excellent. That’s it for me. Thank you.

Thank you.

Thank you. Great quarter and Sandeep, congratulations on your first earnings call and looking forward to working with you. Sasan, I want to ask about your bill pay, what sort of feedback have you been getting from your beta customer from the QuickBooks native bill pay? And how should we think about the near-term opportunity as you're switching the legacy powered by payment solution with now your native bill pay? And then on the broader vision side on small business, now that you have full end-to-end cash flow management, now you have AR invoice payment and AP bill pay, then you have money bank accounts. So what is your broader vision in terms of monetizing the whole ecosystem?

Thank you for your question. I will address it in two parts. First, over the past year, we have discussed the importance of digitizing B2B processes, especially since 80% of interactions between small businesses still involve paper checks and manual tasks. Our goal has been to transition all of this to digital. An essential step was the launch of our bill pay feature. The feedback we've received has exceeded our expectations, and we are now significantly scaling our beta testing, with plans to make it available to all customers soon. We're pleased with our progress in Bill Pay and the speed at which we are developing it, thanks to our platform capabilities and customer feedback. Regarding your second question, you're correct. Our vision is to be the ultimate source of truth for businesses and the hub for small business growth. To achieve this, we need capabilities that assist small businesses in acquiring and retaining customers, marketing effectively, managing cash flow, and overseeing employees. We now offer comprehensive solutions across all these areas. A key advantage for us is the data and AI investments we've made over the past five years. I encourage you to attend, or view the replay of, our Intuit Innovation Day on September 6. There, you'll see how our data, AI, and GenAI capabilities enable customers to manage cash flow and digitize money movement in a user-friendly and timely manner. We're excited about the potential for the coming year and beyond. Additionally, it's important to note that the innovations we plan to introduce on September 6 related to GenAI are not included in our current guidance, but we believe they will be revolutionary for the future.

Thank you. Thanks, Sasan.

You’re very welcome.

Sasan, when you mentioned prudent in the tax guide. I'm curious, are you baking in more wiggle room this year than in past years in the guidance or can you just walk through what you mean by prudent?

Sure. Great question. Well, first of all, I'll just take you back to what you already know, but I think it's important that we start there. This past year, IRS returns, we continue to estimate we'll be down a couple of points. The do-it-yourself category will be down nearly 1 point. And the driver of that, which we are now certain of, based on all the working analysis that we've done, is we had a number of folks that came in to get their stimulus dollars and tax credits, and so it was pandemic-driven. And so that created just what you heard from Sandeep, a sort of a very unusual tax season. But then when you step back and look at the last four-year trend, it sort of straightened out. And so what we mean by prudent is really a couple of things. One, we're not assuming IRS growth in our numbers this year, and we're not banking on all of the innovation that I just shared paying off this coming year. And that's just part of us being prudent because we want to demonstrate to all of you that this is a business that grows 8% to 12%. By doing so, we must deliver the results. And so it's just being very intentional and very prudent. As we think about, by the way, our guidance holistically, it's not just TurboTax, it's TurboTax, it's Credit Karma, and the way we thought about Small Business. But those are, that's the sort of the definition of what we mean by prudent.

Thank you, Sasan.

Yeah. You’re very welcome.

Okay. Great. Thanks so much. You delivered outsized margin expansion this past year. You've mentioned a focus on cost controls, given the tougher environment throughout the year. Realize it's one of the guiding principles, but maybe, Sandeep, if you can just speak to what's allowing you to guide for continued margin expansion as a starting point here? And maybe how we should think about what's allowing for continued margin expansion as you break into the upper 30s there on the operating margin side? Thanks.

Thank you for the question, Michael. Let me explain a bit more. We undergo a planning process, as I mentioned in my prepared remarks. This process highlights some of the key drivers of growth for both the short and long term, which we ensure are well-supported, including our major investments and initiatives in GenAI. The guidance of 40 to 60 basis points demonstrates these investments and, honestly, reflects the robustness of our platform. It's important to note that this is an increase on top of the 3.5 points of expansion we've achieved over the past three years. Moving forward, I see ample opportunity for us to adhere to our financial principles, enabling us to grow expenses at a slower pace than revenue, which suggests margin growth. What gives me confidence is our position as an AI-driven expert platform that functions as an ecosystem across technology, customer success, and marketing. This not only provides us a competitive edge with quicker market access but also allows us to gain operational leverage as we expand our business.

Thank you.

Yeah. Hi, thanks so much for taking my question. Maybe I'll focus on the Small Business and Self-Employed full-year guide, which was really strong. So I know there's a bunch of moving pieces in there between customer ads, mix shift, online services attach and price. But are you able to help us understand how each of those levers are contributing to the guide? And based on what you're seeing in the environment, what's giving you comfort in the durability of those growth drivers?

Yeah. Thank you for your questions. Let me start us off and Sandeep, please jump in if you want to add anything. First of all, we have a framework at the company level where we want to drive the majority of our growth from volume and mix and the lesser part from price, but we always focus on pricing for value. And so when we look at our growth drivers this year, it is coming from customer growth, and it is coming from mix and to a lesser extent this year compared to last year, by the way, from price. With that as context, I would just remind you that the big picture, when you look at our opportunity this coming year, but even in the next three to five years plus, we now have a platform and a portfolio of services where we have the opportunity to drive further adoption of our services from Mailchimp to payments, to payroll to time tracking and to a lot of our new innovations around Bill Pay and digitizing B2B that I just mentioned. But also, although we are three to four years in, we're just at the beginning of what's possible in the mid-market. Big market is a significant ARPC opportunity because these customers use a lot of the capabilities that I just mentioned, except they pay a lot more. And we're just at the beginning of the flywheel of penetrating the mid-market. So when you look at the portfolio of the services that we have, the strength of the experience that we're delivering because of data and AI and because of mid-market, it allows us to drive most of our growth from customer growth and mix. And none of that, by the way, takes into account what's possible as we look into the future with our generative AI experiences that you'll be able to observe on September 6. But those are the main drivers.

And Taylor, I would add, over the long term, we remain committed to our growth algorithm of 10% to 20% ARPC and customer growth. That remains unchanged. Really, as Sasan mentioned, our innovation across our platform opens up the opportunity for us to cross-sell and upsell our customers across more offerings on our platform, allowing us to price for value as we look ahead.

Great. Thank you.

Very welcome.

Raiza, we’re ready for our next question.

Hi. Thank you very much. I hope you can hear me okay. So the recession that everybody's been expecting, it doesn't seem to be quite happening. Sasan, I know you've got a great read on your SMB ecosystem. What are some of the indicators that you're seeing? And if you've already proactively addressed this, my apologies for bringing it up again. But what are some of the forward-looking indicators that you see in the Credit Karma business or the SMB ecosystem that give you renewed confidence that we are going to be okay? Because your fiscal '24 guidance definitely is not reflective of any caution in the environment, but more like a continuation of what we've seen in the last four quarters. Just some thoughts there would be great. Thank you so much and congrats.

Thank you for your question. Small businesses continue to be in a healthy position, although they face challenges in the current environment. Their cash reserves are at 90% of what they were a year ago, but they remain stronger than they were before the pandemic. Small businesses are still actively seeking employees to support their growth, and in fact, they are finding it easier to hire now compared to when the job market was booming. This success in hiring helps them serve their customers better and drive growth. However, some sectors like transportation, real estate, and advertising are struggling. Overall, while small businesses are facing difficulties, they are still in a better position than pre-pandemic times. On the consumer side, there are a couple of points to highlight. Regarding Credit Karma, we are seeing stability, and our focus on innovation is yielding positive results. We have redesigned the app and are gradually rolling it out to a select group of customers, and so far, we are seeing strong engagement. Additionally, advancements in GenAI and other innovations like Lightbox and Credit Karma Money inspire confidence about our future, although none of these developments are included in our guidance. If we take a closer look at consumer credit, credit scores have dropped by an average of 13 points since March 2022, while credit balances have increased by around 30%. Notably, the largest balances are within the 600 to 660 credit score range, averaging about $10,000. Gen Z consumers have seen the highest increase in balances, climbing by 45% year-over-year. The job market remains strong, and while people still have jobs, consumers are experiencing some financial strain.

Brilliant. Thank you so much.

Very welcome.

Great. Sasan, following up on that Credit Karma commentary. Obviously, the world we live in today is different than when you acquired the business. Do you think the long-term growth rate of Credit Karma is meaningfully different in a world where interest rates are mid-single digits versus zero? Thanks.

Thank you for your question, Brad. The short answer is no, we're very optimistic about the business. There are a couple of points I'd like to share, which we can discuss further at Investor Day. To give you a quick overview, the monetization model in Credit Karma relies on the number of members and their engagement frequency. Each time a customer interacts, we see average revenue per customer benefits. In fact, despite our results being down year-over-year in 2023, our engagement frequency is actually higher than in the previous two years, where we saw 37% and 58% growth. This is due to our innovations and increased customer engagement, even though credit conditions remain tight. We believe that once credit opens up, we will see the business accelerate back to the 20% to 25% growth rate. Additionally, the integration with TurboTax enhances customer loyalty and monetization, aligning with our vision from the start when we acquired Credit Karma. With our advanced data and AI capabilities, you're going to see new innovations on September 6 that will simplify the process for customers to access what they need and manage their finances effectively. Thus, our long-term growth expectations for Credit Karma remain firmly at 20% to 25%.

And Brad, the one thing I would add to this because you asked about a scenario in which interest rates are higher. When interest rates are higher, the consumers have a higher propensity to shop around because even a small improvement in the rates that they're getting has a bigger difference in terms of the interest rate they're paying and a bigger difference to their bottom line. So in fact, the product becomes more important critical to the end user in a higher rate environment.

That’s great. Thank you very much.

Very welcome.

Good evening, Sasan. This year, you're particularly focused on full-service TV advertising and getting the message out. I'm interested to know if your strategy for marketing the full-service product will change, especially given your more cautious approach to revenue growth in the consumer business. Additionally, how did the full-service product perform this quarter and this year compared to your expectations?

Yeah. Great question. Let me give you an answer that I think you'll find somewhat helpful and somewhat vague intentionally. We learned a lot this year. We came into the year with a full-service offering that has product-market fit that, as you know, it's all AI-driven. We can virtually get things done within an hour or the same day. We learned a lot around health and scaling and how to have customers find our full-service offering. A lot of it also has to do with what I mentioned earlier, which is local marketing. If I'm in San Diego, if I'm in Kansas City, even if I see that TurboTax can provide experts, I go to start to see locally if there's somebody there. All of our experts that we have are within 10 miles of many of the households in the United States, but we've never marketed that way. And so that's going to inform our marketing going forward. So there's a lot that we learned in terms of how to evolve our marketing, so it becomes an and, and not an either/or, and we're excited about it.

Thank you.

Yeah. Very welcome.

Yeah. Thanks very much. Sasan, I'd love to hear you just give a little bit more detail on what you're counting on Mailchimp to do this year and maybe not if you don't want to get too much into the quantitative side. Qualitatively, you guys have done a lot of work around the product, the monetization. How important is sort of a continued acceleration of Mailchimp as you look at sort of the small business in aggregate for next year? Thanks.

Thank you for your question, Kirk. To answer it, there are three main points. First, we made the acquisition to create a unified growth platform that enables small businesses to grow their operations, manage cash flow, and oversee their workforce all in one place. The key to achieving this is through data, AI, and our increased investments in GenAI. We aim to make significant progress in this area, which you'll see highlighted on September 6 during our Intuit Innovation Day and at Investor Day. Second, we had the largest release in Mailchimp's history this past June, with 150 new and updated features, including several announcements related to GenAI made just weeks before. Our focus here is on adoption, encouraging our customers to utilize these features, which will not only aid their success but also enhance our monetization efforts, particularly in the mid-market, aligning with our focus on QuickBooks' mid-market. Third, Mailchimp is our leading product internationally. We've worked extensively on localizing it, as mentioned earlier, into five languages, with more to come. We've also conducted numerous price studies and tests, realizing that a single pricing model internationally isn't effective; some countries require higher prices while others need lower. We've gained valuable insights from our testing, which we plan to scale this year. So, to summarize, these are the three major areas we are concentrating on in the upcoming years.

Great. Thanks, Sasan.

Yeah. You’re welcome.

Hi, everyone. It’s Nick Giovacchini on for Brad this evening. Congratulations on the strong end to the year, and welcome, Sandeep. I appreciate you taking the question. International growth has decelerated since the beginning of the year. Can you talk us through how you see that growing going forward? Thanks.

Thanks for the question, Nick. Regarding international growth, as I mentioned earlier, our refreshed strategy focuses on leading with both Mailchimp and QuickBooks in markets where we have product-market fit. In other areas, we will prioritize Mailchimp. Our growth has slowed for a few reasons, which Sasan also addressed. We are adjusting the pricing for Mailchimp in certain regions. Previously, we used the same price as in the US, merely converting it to the local currency. We have now reassessed the appropriate pricing based on market competitors, GDP per capita, and other factors to better align it. Additionally, in QuickBooks, we have introduced free trials or discounts for new users, which tends to encourage more sign-ups and fosters better retention over the first 90 days. These adjustments and improvements in the Mailchimp product lineup are contributing to what I would characterize as a temporary slowdown in our international growth.

Great. Thank you very much.

Very welcome.

Thank you for the question and congratulations on the solid guidance for next year. I want to focus on the growth rate for small and medium-sized businesses. The guidance, excluding Mailchimp, appears very strong. Sandeep, now that you are the CFO, could you share your thoughts on the cautious approach to the SMB guidance? What gives you the confidence to set it that way? Is it related to the new payment features and the upcoming GenAI capabilities? Additionally, with the new leadership in that area, is there consideration for potential disruption, and how does Mariana fit into this role and the overall strategy?

Alex, I'd like to address the leadership question more broadly and then let Sandeep answer your specific question about the guidance. Let me take this chance to discuss the leadership changes we've made in the company, including Mariana. One of our greatest strengths is our ability to develop leaders and plan for succession. A key focus of our Intuit operating system is leadership, starting with my team, where we dedicate several days four times a year to concentrate on talent, succession planning, development plans, and intentionally facilitating mobility moves. Our objective is to have strong leadership at multiple levels across the company, which is quite challenging. This is why we consider ourselves a leadership factory. Additionally, we pay close attention to the mobility of senior roles, specifically those of Vice President and above. Typically, within a three to five-year timeframe, there will be significant mobility that isn't always visible, as you mostly see potential changes in my team. We believe that bringing in fresh perspectives is essential in our technology and business areas, and it’s equally important to train leaders for larger roles. For instance, before I became CEO 4.5 years ago, I spent three years in TurboTax and three years running Small Business while also serving as CIO for two years. This reflects our commitment to mobility. Sometimes, this mobility leads to internal promotions, while at other times, we support individuals in pursuing roles outside of the company that may be a better fit for them. With that context, I want to express my confidence in our leaders and touch on three specific individuals. Mariana was hired into Small Business while I was there and served as our Chief Product Development Officer, making her very familiar with the Small Business unit. When I became CEO, I promoted her to the CEO role, and she has excelled in driving innovation across the company. Now she is returning to lead Small Business again, and I am excited about what she will achieve in driving growth. Mark, who has a decade-long history with TurboTax, was promoted to Chief Customer Success Officer after I left TurboTax. He is the key architect behind our live platform and is also returning to run TurboTax, bringing his expertise in the business and our future growth drivers. Lastly, Alex Balazs just transitioned into our CTO role. I also worked with him in TurboTax, and he moved to a broader Chief Architect and data position, supporting Mariana in fostering innovation. We recently appointed him as CTO. I wanted to provide this overview so you could see that succession planning and leadership development are our core competencies. I believe we have the strongest team we've ever assembled to navigate the era of AI, given their diverse backgrounds and experiences. Now, I'll let Sandeep address the other part of your question, Alex.

Absolutely. Let me add one more point to what Sasan mentioned: it’s never just about one individual. We operate as a system, supported by strong leadership teams alongside our General Manager and CFO. Regarding your question on guidance, the Small Business group experienced a 24% growth in fiscal '23, with four percentage points coming from the timing of the Mailchimp acquisition, resulting in about a 20% organic growth rate. As previously noted, 80% of our Small Business group revenues are subscription-based, which contributes to the predictability of our recurring revenue. This year's strong performance is evident in key areas such as QuickBooks Advanced customer growth and the mid-market segment that Sasan highlighted. This gives us confidence as we provide guidance for the next year. Additionally, the significance of our products to small and medium-sized businesses is crucial. These products are essential for managing their operations, payroll, receiving payments, and accessing capital for growth. We have made significant improvements to our product ecosystem, enhancing its relevance and importance to our customers' lives. All of this is taken into account in the guidance we've given for the Small Business and Self-Employed Group. You inquired about our reliance on GenAI. I want to be very clear: while we believe GenAI will accelerate our business, it is not included in the guidance shared today.

Super clear. Thanks a lot, Sandeep and Sasan. It was a very in-depth explanation. No doubt the talent factory is alive and well.

Hi, this is on for Mark Murphy. Congrats on the quarter and thanks for taking my question. I wanted to ask about Credit Karma, particularly regarding the chance to target prime customers in addition to the subprime and near-prime customers you have historically focused on. Thanks.

Thank you for your question. Yes, targeting prime customers is a major focus for us. To give you some context, about a third of our monthly active users fall into this category, but they are currently the least engaged. Historically, we have concentrated on subprime and near-prime customers. However, we have developed many capabilities in the past and have a strong understanding of prime customers. This is why we combined our Mint and Credit Karma teams and platforms to better address their needs. Over the past year, we have been working to understand their preferences, running various experiments, and we are now in the process of launching several initiatives aimed at prime customers. We are especially excited about the app redesign. There are two significant developments in Credit Karma that go beyond what we've previously shared. First, we are redesigning the entire app to help prime customers find the benefits they need based on our understanding of them. Second, we have a GenAI experience that we will unveil on September 6. The combination of these efforts, along with our focus on prime customers, creates great potential for serving this segment going forward, which we have not yet capitalized on from a monetization standpoint. None of this is reflected in our guidance, but we are very enthusiastic about it.

Thanks for the insight. Looking forward to learning more about it.

Yep. Thank you.

Wonderful. Thanks so much for taking the question. I wanted to ask one on AI here as well. It sounds like some exciting things are coming; looking forward to learning more about that. A lot of possibilities here within Small Business and Consumer. Would just love to get your perspective on kind of where you're coming from? Sasan, you've alluded to the fact that Intuit is well-prepared here because of the platform capabilities here and the underpinnings of that with data. So just curious, any color as to where Intuit is coming from such that you're able to iterate on AI the way that we're looking forward to learning more about.

Thank you for your question. I want to take you back five years when we announced our strategy to transform the company from simply being a tax and accounting platform to a global financial platform. This shift was aimed at playing a more significant role in enhancing the prosperity of consumers and small businesses daily. At that time, we identified data and AI as core components of this change. The acquisitions of Credit Karma and Mailchimp were primarily driven by the data we would gain, allowing us to understand customers better and use that information to support their success. Even five years ago, data and machine learning were already a focus for us. We've invested in making data usable, cleaning it, and structuring it for practical use, alongside our commitment to AI, particularly in knowledge engineering, which translates data relationships into code, enhancing our capabilities in TurboTax, machine learning, and natural language processing. These investments have positioned us profoundly, especially with the additions of GenAI and our Generative Operating System, GenOS, which has not come about overnight but is the result of years of dedication. Together, these investments allow us to personalize and streamline processes for customers, paving the way for a future where much of the work is handled for you. We aim to empower you to manage your business and finances effortlessly, putting you in control of decisions while we help you grow and manage your cash flow. This focus on creating a "done for you" future, which we declared five years ago, is now a tangible reality. We see immense potential to innovate and deliver great value to our customers, which truly excites us about what lies ahead. I invite everyone to join us on September 6 for Intuit's Innovation Day and Investor Day, where you’ll get a clearer vision of the future we are crafting.

Looking forward to it. Thanks, Sasan.

You’re welcome.

Thanks very much. Welcome, Sandeep. And good afternoon, Sasan. I have a couple on consumer, one very high level and one, just a clarification. So the first is on volume and price mix. Just your consideration of that going into fiscal 2024 and beyond given the trends of the recent years? And then for you or Sandeep, just curious in the extension season in the post-tax season, what did you see? Anything interesting with California? Should we see a shift from fiscal '23 to '24 that's material related to anything extension-wise? Thank you.

Sure. To address your question about the volume mix related to TurboTax, I would suggest considering the earlier points I made regarding a focus on full service, business tax, and TurboTax Live, which includes assistance and is driven by data and AI. You'll notice a larger contribution from ARPC rather than volume, which is inherent to the opportunity. There are over 88 million people in the assisted segment with a total spending of $30 billion. Thus, there's both a volume and an ARPC opportunity. Looking ahead to the next decade, this is not just a short-term outlook; both aspects are significant. We anticipate gaining more from ARPC. Regarding the extension season, it's been quite unusual with many states extending deadlines to July and California to October, which has led to confusion among customers about their filing months. Overall, there are more filings to be done, and while it's not material at the company level, many have yet to file.

And that’s basically the answer, Scott. It's not material for our Q1. It's been a unique behavior on the taxpayer. But I'll also remind us that last year, we also saw a great deal of extensions by taxpayers. So that's also something to keep in mind as you look at Q1.

Thank you, both.

All right, everybody. I think that brings our questions or Q&A to an end. So thank you for your wonderful questions. Thank you for spending the time with us. We look forward to seeing you September 6 and at our Investor Day. Take good care. Be safe. Bye, everybody.

Thank you, all.

Goodbye.