Intuit Inc (INTU) — Q3 2024 Earnings Call Transcript

Thanks, David. Good afternoon and welcome to Intuit’s third quarter fiscal 2024 conference call. I’m here with Intuit's CEO, Sasan Goodarzi, and our CFO, Sandeep Aujla. 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 2023 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. With that, I’ll turn the call over to Sasan.

Thanks, Kim, and thanks to all of you for joining us today. We had a strong quarter with solid momentum across the company as we executed our strategy to be the global AI-driven expert platform powering prosperity for consumers and small businesses. Third quarter revenue grew 12%. Small Business and Self-Employed Group revenue grew 18% despite an uncertain macro environment, demonstrating the importance of our platform in fueling success for small businesses and our momentum serving the mid-market. Consumer Group revenue grew 9%, and Credit Karma revenue grew 8%, driven by the impact of innovation for members and the benefits of TurboTax and Credit Karma product integration. I’m proud of our performance, and the momentum we are seeing across the company. Turning to tax, we continue to revolutionize how taxes get done for consumers and small businesses. Tax preparation represents a $35 billion total addressable market in the US. This includes $31 billion within the assisted consumer and business tax categories. We are well positioned to penetrate the assisted total addressable market by leveraging data, AI, and our Virtual Expert Platform. Let me share several proof points. This season we made good progress against our multi-year strategy to transform the assisted experience for customers. TurboTax Live, our assisted offering, including our do-it-with-me and full-service tax offerings for both consumers and businesses is our largest durable growth opportunity. We expect TurboTax Live customers to grow 12% and revenue to grow 17% in fiscal 2024. TurboTax Live revenue is expected to be $1.4 billion, representing approximately 30% of total Consumer Group revenue growing at a significant scale. This gives us confidence that we can digitize a very manual, disaggregated, and high-priced assisted category. Now let me spend a few minutes going deeper in several areas. First, TurboTax Live full service is resonating with consumers as we continue to innovate, making it simpler for customers to get their taxes done virtually. We expect TurboTax Live full service customers to double this fiscal year, with those new to TurboTax to triple. Our full service offering has a product recommendation score of 85, one of the highest at Intuit. Our learnings and insights from this season bolster our confidence in the continued opportunity we have to disrupt the assisted tax category. Second, we expect TurboTax to gain share with higher average revenue per return filers, as we strategically prioritized focusing on the assisted tax segment and higher value customers over lower ARPR segment. Third, Intuit Assist, our GenAI powered financial assistant, played a big role in our TurboTax experience this year. With Intuit Assist, we are creating a future of done-for-you, where the hard work is done automatically on behalf of our customers with a gateway to human expertise, fueling their financial success. More than 24 million customers used Intuit Assist to explain their refund, answer questions, and help deliver confidence that their return was completed accurately this year. This is data and GenAI working at scale, for both our customers and our AI powered experts helping customers virtually. I’m excited about what we are working on for next season to accelerate innovation and deliver even more customer benefits. And fourth, we delivered solid results with the product integration across Credit Karma and TurboTax. We grew the number of customers that filed with TurboTax from the embedded Credit Karma experience by 76%, and tax refunds deposited in a Credit Karma Money account by 28%. We also delivered strong growth in Credit Karma Money revenue this quarter. This product integration also drove new members to Credit Karma, consistent with our goal of driving higher engagement and monetization for Credit Karma over time. Given these results, we see big opportunities ahead to deliver on our vision to help consumers make ends meet, maximize their tax refund, save more, pay off debt, and take steps to improve their financial health. To significantly accelerate creating seamless, end-to-end consumer experiences that customers benefit from year-round, we are more closely aligning TurboTax and Credit Karma under Mark Notarainni, General Manager of the Consumer Group, who will oversee both segments. I’m excited to share that Joe Kauffman, currently President of Credit Karma and part of the leadership team for the last nine years, will be leading Credit Karma as of August 1, reporting to Mark. Additionally, Ken Lin will retire from Intuit around the end of this calendar year. I can’t thank Ken enough for his friendship, leadership, and impact across Intuit. In summary, we made strong progress this tax season that sets us up for continued success in the future. Now, let’s take a look ahead. The era of AI is one of the most significant technology shifts of our lifetime. It is reinventing customer experiences, creating new monetization possibilities, and structurally changing how we work within Intuit to deliver for customers. We are very well positioned to take advantage of this era with our AI-driven expert platform strategy and five Big Bets that pursue the largest customer problems and growth drivers for Intuit. As part of our financial planning process, we have identified key areas within our Big Bets where we plan to accelerate investments to deliver greater impact. These include: Big Bet 1 GenAI to deliver done-for-you experiences with Intuit Assist; Big Bet 2 go-to-market investments for TurboTax Live and QuickBooks Live, embedding AI powered experts across our small business offerings; Big Bet 4, our money solutions, to digitize the experience end-to-end for consumers and small businesses, from estimate to invoicing, to getting paid and paying bills; Big Bet 5, doubling down on mid-market with additional investments in the platform and go-to-market motions; and finally, accelerating international growth with Mailchimp and QuickBooks. To increase our investments in the outlined focus areas given the green shoots we are observing, we are taking a hard look at what work we can stop doing and where we can reallocate investments, to accelerate top-line growth while remaining committed to delivering operating margin expansion in fiscal 2025 and beyond. Wrapping up, we are excited about the opportunity ahead, and our ability to power prosperity for our customers. Now let me hand it over to Sandeep.

Thanks, Sasan. We delivered a solid third quarter of fiscal 2024 across the company. Our third quarter results include revenue of $6.7 billion, up 12%. GAAP operating income of $3.1 billion, versus $2.8 billion last year, up 12%. Non-GAAP operating income of $3.7 billion, versus $3.4 billion last year, up 11%. GAAP diluted earnings per share of $8.42, versus $7.38 a year ago, up 14%. And non-GAAP diluted earnings per share of $9.88, versus $8.92 last year, up 11%. Now turning to the business segments, Consumer group revenue of $3.7 billion grew 9% in Q3, reflecting the progress we made transforming the assisted experience for consumers and small businesses this season. Our strategy is working. We expect TurboTax Live revenue to grow 17% to $1.4 billion in fiscal 2024, representing approximately 30% of overall Consumer Group revenue, driving total average revenue per return up approximately 10%. I’m pleased with the sustained growth we’re seeing in our TurboTax Live business. Overall retention is expected to be up 3 points year-over-year in fiscal 2024, close to pre-COVID levels, demonstrating the strength of our offerings and highlighting the benefits we are delivering to our customers. As Sasan shared earlier, we expect TurboTax to gain share with higher average revenue per return filers, as we strategically prioritized focusing on the assisted tax and higher ARPR customers over lower ARPR segment. As a result, we expect TurboTax Live customers to grow 12% and total online paying units to grow approximately 2% in fiscal 2024, versus total IRS returns growth of 1%. Due to yielding share with lower average revenue per return customers, we expect our share of total consumer returns to decline approximately 80 basis points this year, and total TurboTax units to decline 1%. We are raising our full year Consumer Group revenue growth guidance to $4.440 billion to $4.455 billion, which is at the top end of our previously provided guidance. I’m proud of the progress we made this season, and the learnings we had reinforce our confidence in the future. We continue to expect Consumer Group revenue growth of 8% to 12% long-term given the size and trajectory of TurboTax Live. Turning to the ProTax Group, revenue grew 3% in the third quarter. For the full year, we now expect ProTax Group revenue growth of 6% to 7%. Turning to the Small Business and Self-Employed Group, revenue grew 18% during the quarter, driven by online ecosystem revenue which grew 19%. Our results continue to demonstrate the power of our small business platform and the mission-critical nature of our offerings, which resonate with customers as they look to grow their business and improve cash flow in any economic environment. 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 19% in Q3, driven by customer growth, higher effective prices, and mix shift. As I shared last quarter, we continue to prioritize disrupting the small business mid-market, through continued focus on both go-to-market motions and product innovations. Mid-market customers drive a higher average revenue per customer over time given their more complex needs and higher usage of services on our platform, although they are a smaller subset of the total customer total addressable market. This, coupled with our strategy to sell more of our ecosystem offerings to existing customers, shifts the emphasis in our growth formula towards average revenue per customer over time. Second, we continue to focus on connecting the ecosystem. Online services revenue grew 20% in Q3, driven by payments, payroll, and Mailchimp. Within payments, revenue growth in the quarter reflects higher effective prices, ongoing customer growth as more customers adopt our payments offerings to manage their cash flow, and an increase in total payment volume per customer. Total online payment volume growth in Q3 was 22%. Within payroll, revenue growth in the quarter reflects an increase in customers adopting our payroll solutions, higher effective prices, and a mix shift towards higher-end offerings. Mailchimp revenue growth was driven by higher effective prices and paid customer growth. Revenue growth in Mailchimp decelerated this quarter, as we were lapping a larger benefit from price and line-up changes that we made last year. 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 line-up. On a constant currency basis, total international online ecosystem revenue grew 12% in Q3. Shifting to the Desktop Ecosystem, Desktop Ecosystem revenue grew 14% in the third quarter, and QuickBooks Desktop Enterprise revenue grew in the high teens. At the end of this fiscal year, we will complete the three-year transition for customers that remain on our license-based desktop offering to a recurring subscription model. As I shared last quarter, starting next fiscal year, we expect our Desktop Enterprise offering, which accounts for over half of desktop accounting revenue, to grow in the high-single digit range. We also will continue to encourage remaining Desktop Plus subscription customers, who tend to be more complex and higher value, to migrate seamlessly to either QBO or our Desktop Enterprise offering when they are ready. Additionally, we see opportunities to continue to price the product for value. The online ecosystem remains our growth catalyst longer-term. As a result of the strong growth we are seeing in the Small Business and Self-Employed Group, we are raising our full-year segment revenue growth guidance to 18%, up from the prior guidance of 16% to 17%. We continue to expect Small Business and Self-Employed Group revenue growth of 15% to 20% long-term. Moving to Credit Karma, Credit Karma delivered revenue of $443 million in Q3, up 8%. On a product basis, Credit Karma Money accounted for 3 points of growth, credit cards and auto insurance each accounted for 2 points, and personal loans accounted for 1 point. We saw strength in Credit Karma Money from TurboTax customers choosing to deposit their refund in a Credit Karma Money account, and we are seeing a return to growth in the insurance segment. However, the overall picture remains mixed, reflecting uncertain macro trends as we continued to see select partners taking a conservative approach to extending credit in both personal loans and credit cards in Q3. We are updating our full-year Credit Karma revenue growth guidance to a growth of 2%, versus our prior guidance range of plus or minus 3% growth. In summary, I’m pleased with our continued momentum this fiscal year and our opportunities ahead. Shifting to our balance sheet and capital allocation. Our financial principles guide our decisions, they remain our long-term commitment, and are unchanged. We finished the quarter with approximately $4.7 billion in cash and investments and $6 billion in debt on our balance sheet. We repurchased $584 million of stock during the third 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 $0.90 per share, payable on July 18, 2024. This represents a 15% increase versus last year. Moving on to guidance, we are increasing our fiscal 2024 guidance. This includes total company revenue growth of 13%, up from prior guidance of 11% to 12% growth; GAAP operating income growth of 21% to 22%, up from prior guidance of 15% to 18% growth; non-GAAP operating income growth of 16%, up from prior guidance of 12% to 16% growth; GAAP diluted earnings per share growth of 28% to 29%, up from prior guidance of 11% to 15% growth; and non-GAAP diluted earnings per share growth of 17%, up from prior guidance of 12% to 14% growth. Our guidance for the fourth quarter of fiscal 2024 includes revenue growth of 13% to 14%, GAAP earnings per share of $0.25 to $0.30, and non-GAAP earnings per share of $1.80 to $1.85. You can find our full fiscal 2024 and Q4 guidance details in our press release and on our fact sheet. Finally, as Sasan shared earlier, we have made strong progress on our five Big Bets and see opportunities to invest further in select focus areas to accelerate our pace of progress and deliver greater impact. Therefore, as part of our annual financial planning process, we are taking a hard look at reallocating investments. We remain committed to our financial principles, growing revenue double digits and growing operating income dollars slower than revenue, leading to expanding operating margin in fiscal 2025 and beyond. With that, I’ll turn it back over to Sasan.

Great. Thank you, Sandeep. Let me close with three points. First, we're very well positioned to take advantage of the largest technological shifts of our era given Intuit strategy and five Big Bets with AI at the center as all we do. Second, given the green shoots we're observing, we are doubling down in key areas of our bets to accelerate growth. Third, we continue to recruit great technical and leadership talent across the company to accelerate our progress. In that context, I'd like to share that Greg Johnson recently returned as Executive Vice President, Intuit, Chief Commercial Officer and Global Small Business & Self-Employed Group Chief Revenue Officer. Greg is a world-class leader with nearly 10 years of experience at Intuit, leading TurboTax as the Head of Marketing and then as General Manager. I'm thrilled to have Greg back in Intuit. Now let's open it up to your questions.

Excellent. Thank you guys for taking the question. And a really nice quarter in that, you guys really flexed the ability to use the portfolio to outperform on the top line and outperform on the bottom line. And in what has been a pretty difficult earnings season actually taking earnings up we hear your full year EPS is coming off. So that's all great to see. I wanted to ask about the tax business overall. The shift towards kind of the high end, the higher ARPC customers seems more pronounced this year probably than what I was expecting, and I think most people were expecting. I think the underlying question most investors have is like, why can’t we do both right? Why can’t we price for the low end and get those customers on board as well as attracting those higher ARPC customers? Is that available to you? Or do you need to be shifting more upmarket?

Thank you for your compliment and your question. Let me address it in a couple of ways. First, I want to highlight our positive outlook regarding TurboTax Live targeting the assisted segment. This has become a $1.4 billion business growing at 17%. Currently, this represents 30% of the total TurboTax franchise, and as we expand it to 50% or 60%, it will significantly boost the overall growth of TurboTax. This year, we've made notable progress in increasing our share in the assisted segment. While the IRS grew by 1%, that growth primarily occurred in DIY with simple filer customers, and the assisted segment remained flat, which is where we captured market share. This indicates a promising trend that boosts our confidence for the future. Additionally, through our Credit Karma and TurboTax platform, we've noticed customers seeking free tax software who are shifting between platforms, but we're not focused on acquiring these customers due to the high cost involved. Instead, our priority is on attracting quality customers, especially since we've only just begun to tap into the assisted segment. Our main goal now is to enhance our share in that market, which informs our strategy and strengthens our confidence in both our current performance and our future prospects.

Got it. Makes sense. Thanks so much guys.

Thank you.

Great. Thanks for taking my question. I just actually want to expand on the comments you've made on. So on one hand, you talked about focusing more on sort of the higher end of the market, but you're also talking about deepening the integration between Credit Karma and TurboTax in the future. And so can you just maybe expand a little bit more, especially around the Credit Karma and TurboTax integration, what we should be expecting going forward? Thank you.

This year, we're particularly excited about our results, including the lessons learned from what didn't go as planned. First, Credit Karma has over 40 million monthly active users, with a significant portion engaging in tax filing through the assisted method, creating a huge opportunity for us. We integrated the TurboTax experience into Credit Karma and actively targeted those users. As a result, we generated over $10 million in traffic from Credit Karma users interested in doing their taxes with TurboTax, leading to a 76% growth in embedded TurboTax customers within Credit Karma. However, we are constructively dissatisfied with a couple of fundamental issues that affected our performance this year. One issue was with seamless log-in, as approximately 25% of users in the traffic segment were able to start their taxes immediately without any guidance, while 75% faced difficulties and friction. We didn’t manage to complete all the necessary work for a smooth log-in experience, which is something we are addressing. The second issue was the app's performance; we worked hard to integrate TurboTax, but the app's loading times were unacceptable, sometimes taking between seven to eight seconds, leading to a loss of users. Both of these issues are under our control, and we are actively working on improvements. Despite these concerns, the strong growth in TurboTax users through Credit Karma gives us confidence for the future.

That’s great. Thanks for the context.

Very welcome.

Thank you for taking my question, Sasan. I'd like to know about your vision and strategy for the Money platform. I have a few questions. We've seen you expand from invoicing to bill pay, and I would appreciate an update on your progress and any feedback from the last couple of quarters. Additionally, I noticed you've recently acquired Proper Finance and made some senior executive hires in the Money platform area. I would like to hear about your strategic direction for the Money platform.

Sure, Siti, thank you for the question. Let me actually talk about the focus around money on two dimensions that we're very, very excited about. And as you also heard in our prepared remarks, this is an area where we are accelerating our investments. We are seeing a lot of green shoots with all the work that we've been doing in the last several years, really digitizing the whole process of estimating invoicing to getting paid and having multiple paying options along with the bill pay capabilities that we've built that we are now rolling out to our customers. We're seeing a lot of green shoots in both of those areas. You saw in a pretty tough macro environment, our payments overall total payments volume was up 22%, and that's an area where we're accelerating our investment. That's on the small business side. The thing that we're also excited about is money focused across the TurboTax Credit Karma platform. We saw a lot of green shoots this year with a 20% or 28% increase of the number of customers that put their refund on a Credit Karma Money account. We're excited about it, not because of the 28%. We actually believe that could be far bigger. But because of the areas of friction that we are going to remove and the fact that we have opportunities to give much earlier access to their tax refund and actually monetize it. So those are the two areas across our small business and consumer platform that we are focused on and we're accelerating our investments across both of those platforms in the coming year.

And Siti on the acquisition you mentioned, as we've shared with you in the past, we are continually looking at by the partner, and that was a small technology tuck-in that we did to build some of the core money movement and risk management capabilities within our small business group.

Thank you.

Very welcome.

Great. Thank you for taking my questions, Sasan. Just one for you on TurboTax. Just looking at recent Investor Day slides and sort of the long-term growth framework for the business. When we look at this total TurboTax share of IRS returns, I think implies sort of a positive share gain over the long term. And I'm just curious, I understand the focus in the assisted category. Should we be thinking about that input differently as it relates to total IRS returns going forward, just given what we're seeing at the lower end of the spectrum?

Thank you for the question, Alex. Let me provide a bit of context before I address your query. Our estimates suggest that total IRS returns are expected to grow by about 1%, predominantly in the do-it-yourself segment, while the assisted category remains relatively flat. This supports our notion that we are gaining market share. Despite this, our long-term objective remains to increase our share of total IRS returns, and we aim to achieve this in a responsible manner. I feel satisfied with our current positioning because we concentrated on the assisted segment and high-value filers this year. As TurboTax Live expands from making up 30% of our business to eventually 70%, we anticipate that we'll start to make substantial progress in enhancing our share of total IRS returns. Furthermore, I would compare this to the online desktop trend we've observed in the small business sector over the last five to ten years. We noted that once online services surpassed 50% of the small business market, their growth accelerated. We expect a similar dynamic in TurboTax as TurboTax Live grows, ultimately contributing to an increase in our overall market share of total IRS returns.

One other important point to consider is that even among simple filers, we have a crucial customer segmentation to keep in mind. We continue to focus on simple filers through both TurboTax and Credit Karma. However, we are not concentrating on simple filers who are more likely to switch platforms each year, as we believe that does not provide a good return on our investment and offers no opportunity for growth and revenue. I want to ensure that this aspect of customer segmentation was clear in your understanding.

Understood. Thank you.

You’re welcome.

Yeah, thanks very much. Sasan, can you just touch upon Mailchimp a little bit? I was kind of curious what your thought is for the business into the back half of the year, given the fact that I think some people think on the small business side, cutting back on sort of go-to-market is often a place they might look to trim. Can you just talk about sort of what you're seeing there? And what gives you confidence that perhaps this is an opportunity for you guys to take share in that area? Thanks.

Great question. First, I want to emphasize that the revenue slowdown is mainly due to the significant price increase and some changes in our product lineup from last year. The overall health of the business remains stable compared to last quarter. Secondly, we are still focused on integrating Mailchimp and QuickBooks, and I can provide more details on that if there are questions. We are also being very aggressive in the international market. I recently visited London, where I met with our new Mailchimp leader for the EMEA region, who has experience in building a large international business. I connected with several customers and partners, and we are actively pursuing our strategy regarding the platform, pricing, and marketing investments as we move forward. As I mentioned earlier, we are increasing our investment in five key areas, and this is one of them. We are excited about the potential we're starting to see.

Thanks, Sasan.

Yeah. Very welcome.

Thank you very much. Sasan, you remain the best at predicting small business trends. You have the most accurate insight. I'm curious about what you mean by green shoots. In a challenging macro environment, your team has shown impressive execution. What additional strategies do you have that could help maintain strong performance in the small business segment if the macro conditions remain unchanged? Thank you, and congratulations.

Thank you, it’s great to hear from you. One of our core philosophies at the company is to maintain strong long-term conviction while engaging in ambitious short-term testing and experimentation, allowing us to be agile, learn, and adapt. The response to your question involves the five areas where we're ramping up our investments. We're observing promising signs from our learnings with Intuit Assist, and we are increasing our investments in GenAI. For the first time, we have raised our share in the assisted segment and are boosting several initiatives with TurboTax Live. Additionally, we are incorporating an expert into QuickBooks Live across our entire small business platform, ensuring that every offering includes this expert, as we believe the positive indicators we’ve observed will enhance conversion rates and improve customer retention. In the mid-market sector, we have been actively developing our platform's capabilities and enhancing customer-facing functions, from leadership to frontline sales, and we are noticing positive trends that support our growth with existing customers while also seeking new ones. In mid-market, success is not only about acquiring customers but also about the accompanying services such as payments and payroll. These are the key positive indicators we are witnessing, and we are currently increasing our investments in these areas this quarter and as we move into next year.

Fantastic. Thanks. Glad to hear that.

Thank you.

Great. Thanks very much. Sasan, as you sort of think about the overall economic environment, you did a great job there with Kash's question. But for the first time, I think, as long as you provided the data, payroll wasn't the number one growth driver on the online ecosystem. So maybe you can dig in there and give us a little sort of color on what's going on within the payroll business and if we should expect growth to continue to moderate there. Thanks.

Certainly. Let me begin by discussing the current state of small businesses on our platform. Over the past three to four months, we have observed a positive trend in the profitability of small businesses, which marks an improvement compared to the previous couple of years. However, performance varies by sector. For example, industries such as manufacturing, professional services, and auto repair have seen profit increases of nearly 20%, while real estate lending has experienced a 15% decline in profits. Overall, while we’ve noticed some improvements, performance varies across sectors. It’s worth noting that cash reserves have decreased by 8% from last year, but they have risen over 16% from pre-COVID levels. This indicates that small businesses are generally healthier, although their cash reserves have been affected. Additionally, businesses on our platform for over four years have cash reserves that are more than 60% higher than those that have only been with us for a year. Lastly, hours worked have increased compared to the last quarter. Now, I’d like to invite Sandeep to address your question specifically regarding payroll.

Brad, as I mentioned in my prepared remarks, we continue to see customers in our payroll business, adopting our solutions. They continue to take our higher-end offerings as well. The reason for the difference you called out is, I'll point to the payments business where the charge volume went to 22% growth in the quarter versus 20% the prior quarter. So that's the key item to call out in that sequencing.

Perfect. Thank you very much.

Very welcome.

Excellent. Thank you so much for taking the question. Sasan, it's great to hear about the strong performance in full service this season. Can you double-click into which assisted filers, you feel you did a good job capturing, which might have been a little bit more resistant than your expectations? And how do you think about driving momentum in full service going forward?

Thank you for the question, Brad. I was in San Diego yesterday with the TurboTax team focusing on our key priorities, one of which is full service. I can tell you that our findings were consistent across all states, income levels, and complexities. Notably, our new customers in full service tripled, particularly among millennials, who are adopting full service more than other groups, even if the difference isn't vast. This is significant for us. However, we are constructively dissatisfied with our overall assisted performance. We were proactive in our marketing approach, focusing not only on spending but also on recommending experts and improving our visibility when customers search for local assistance. While we've built a strong infrastructure and drive significant traffic, we recognize that our shopping experience needs enhancement. In a tax preparation setting, customers typically come in to exchange documents rather than choosing from a list of options. This is an area where we've seen the largest decrease in engagement. We are confident in the exceptional demand we've generated, but we need to improve our shopping experience. We observed challenges during the season, and we are working on leveraging AI to personalize interactions, ensuring that customers who come through the assisted channels are welcomed by an expert rather than presented with a selection of options.

Thank you so much for the color, Sasan.

Yeah. Very welcome.

Thank you for taking the questions. I’d like to start by asking about the AI Intuit Assist solution that has recently been released. What evidence do you have regarding its effectiveness? How is it enhancing customer experience or generating monetizable results for Intuit so far?

Thank you for the question, Steve. I am really pleased with our progress, and I’ll share some highlights. It's important to remember that we are still in the early stages, but a lot has changed in the last three months. Firstly, in TurboTax, we had 24 million customers using Intuit Assist to better understand their refund outcomes and get their questions answered. Intuit Assist also helped our experts work more efficiently and effectively with customers. We wouldn’t have rolled it out to such a large user base if it didn’t boost conversion rates. Secondly, in Credit Karma, we now have over 40 million monthly active users, and we’ve introduced Intuit Assist capabilities to nearly half of them. These capabilities help users make decisions. For those of you on the call who are Credit Karma users with iOS, unless you’re in a holdout group, you’ll see features like Intuit Assist which provide insights, comparisons, and assistance in understanding which card is best for you. Previously, we used your data to create personalized experiences, but now we can engage in conversations that explain why one option is better than another. Additionally, we’re helping users make financial decisions, build credit, save money, and understand which cards to use or limit their utilization on. We wouldn’t have rolled this out to almost 20 million Credit Karma members if it didn’t enhance monetization. On the small business side, we have made Intuit Assist available to nearly 300,000 Mailchimp customers, specifically for personalized marketing campaigns, where we assist in crafting campaigns using images and text. Across the QuickBooks platform, we have capabilities for around 30,000 customers that convert unstructured data into revenue and personalized feeds. For example, we can take data from emails and create invoices that are paid and labeled for faster payment, which is a monetizable event for us. We also provide business feeds that highlight important insights for the day—what you engage with here can also drive monetization. We have made significant progress in the last 90 days and are optimistic about future possibilities. While it is still early days, the advancements made by our team over the past 90 days are remarkable.

Great to hear. Thanks for the context there.

Yeah, very welcome.

Great. Thank you so much. I wanted to ask a question around TurboTax Full Service. I know it's been a couple of seasons now under your belt here. What are some of the areas that you've learned from? What are some of the areas you've outperformed with full service? What are some of the learnings from a couple of tax seasons now under your belt? And what have you identified for the future in order to target that segment more aggressively? Thank you.

Thank you for your question, Brad. This was actually our first real season with full service. Last year was still at the experimental level, even though we began rolling it out. To answer your question, we've learned several things. Firstly, our aggressive go-to-market strategy showed us that we can generate significant demand. We communicated our ability to complete tax returns in under a day and provide early or immediate access to funds, which resonated well with customers. Additionally, we noticed a lack of price transparency in the assisted segment, where customers often don't know the cost until they arrive in-store. Through extensive testing, we found that price is a crucial factor, driving demand significantly. Secondly, we observed that when customers searched for local experts, the conversion rates were much higher if we indicated an expert was nearby. This is a critical insight: local availability really matters to our customers. People prefer to find professionals close to them, leading to improved conversion rates. Another valuable insight we gained was in the latter part of the season when customers had the option to recommend their expert, which also boosted conversion rates. However, we couldn't implement this across the entire season or for all customers, but it's something we plan to scale next year. Lastly, we recognize there's substantial work needed to enhance our shopping experience. Unlike a traditional firm or store where customers walk in and simply have their taxes prepared, we are focused on ensuring that when customers choose full service, they are greeted by an expert instead of being presented with a list of prices. This represents a significant learning opportunity from this year, and we are actively working on these improvements for next year, which gives us a lot of confidence going forward.

Very clear. Thanks, Sasan.

Yeah. You’re very welcome.

Thanks very much. Good afternoon. Sasan, this is primarily on TurboTax and on do-it-yourself in TurboTax. I think, I heard Sandeep say that overall consumer retention or TurboTax retention was 3 points yet there was some share loss, obviously, on the low end and seemingly in do-it-yourself. The full service metrics and overall TurboTax Live sound great. So I think you have good retention there, good new customer acquisition. But in the do-it-yourself in the paid customer, are you doing okay in share there? And what are you doing in that category specifically paid, do-it-yourself to build-share going forward. Because when you answered Alex's question earlier about growing share, it sounds like all like in the assisted category, and that's great. It's a great opportunity. Just curious, in the paid categories, what your opportunities are going forward. Thanks.

Thank you for the question. Sandeep, feel free to add to this. Overall, we are optimistic about our paid share. We have analyzed the data in various ways. As we mentioned, our total IRS grew by 1%, the number of paying customers increased by 2%, and our retention improved by 3 points. We are pleased with our paying share. As we noted earlier, we did lose some share, but that was a deliberate strategy focused on simple filers who are switching between platforms. This is the area where we acknowledged the loss. So, when considering our performance regarding paying share, we are actually feeling positive about it.

Scott, I would also add that you should have not take away that we are yielding any ground on the paying of DIY customers. Our marketing investments, we are focused on attracting both customers to our platform. Our experiences are helping those customers better understand their returns and gain better confidence leading to better conversion. And we remain relentlessly focused on improving our product experience for those customers. So in addition to the assisted category, which we are excited to disrupt the $31 billion market across consumer and small business, we also are focused on taking share. It was a paying DIY customer.

Great. Thank you both.

You’re very welcome, Scott.

Thank you. Sasan, you mentioned earlier about the changes in desktop for the upcoming year. Could you connect that to what we've observed in QuickBooks Advanced? Is there more potential for attracting desktop users and what trends are you noticing in that regard?

Thank you for the question. Let me address it, and if my response doesn't fully answer your question, please feel free to ask again. As I mentioned earlier, we are currently transitioning our desktop customers to a subscription model while also enhancing our online platform. Ultimately, we intend for all our desktop customers to move online, and we believe this will happen over time. We've made significant advancements with QuickBooks Advanced and are actively developing new features that we are eager to share during Investor Day, particularly aimed at larger customers. This positions us well for attracting enterprise clients who may want to utilize our online platform. Looking ahead, our desktop enterprise is experiencing high single-digit growth, and we anticipate that most of our customers will eventually migrate to the online platform. The balance of pricing and value is also crucial. Overall, we feel we are well-prepared for the larger customers transitioning to QB Advanced, which gives us confidence as we move forward.

No, I was just going to add, the question was also about just the progress we are feeling about Advanced. What I would say across the mid-market and as I alluded in my prepared remarks, we continue to feel good about the progress we're making with the mid-market, including with QuickBooks Online Advanced and with the desktop enterprise product, which grew in the high teens. So that's an area we continue to feel good about, the add I would have.

Perfect. Thank you.

Welcome.

Hi, this is Daniela on for Taylor. Thanks for taking my question. So it looks like the Small Business & Self-Employed growth in the quarter was run by stable to our accounting growth and an acceleration in that stock. So as we look into 4Q, how much of the implied 17% for Small Business & Self-Employed growth is being driven by desktop versus stability in the online segment? And given that so many SMB software companies saw incremental pressure in 1Q, can you just comment on what you're seeing in terms of SMP Health and how that is influencing your guide? Thanks.

Sure, let me begin. Sandeep, feel free to share your thoughts if you have anything to add. I'm not entirely sure I grasped the essence of your question, so I'll just highlight the key takeaway. The strength of our small business sector is largely due to our online performance, which grew by 18%, while our online segment alone grew by 19% and our services increased by 20%. We are quite optimistic about the future trajectory of the business. Looking ahead, we believe that desktop growth will continue once the business model transition concludes, driven by the fact that half of the desktop market is enterprise, which we expect to grow at high single digits. The main point is that despite a somewhat uncertain macro environment, our online performance for small businesses has remained strong and resilient. We're observing significant engagement and usage from our customers as our services help them manage their cash flow and grow their businesses. We feel well-positioned in this environment.

And what I would add, in addition to Sasan's comments about the health of the SMB market is a reminder that 80% of our small business group's revenue is subscription-based. And when you look at those businesses, the part of that is not related to subscription, largely on our services side. Couple of factors just to underline, we saw our payments charge volume increased 22% in Q3, which was faster than what we saw in Q2. And we continue to see good adoption of our payroll offerings by customers as well as a mix shift towards the high end of payroll offerings. So heading into Q4, we feel good about our online ecosystem growth, which remains our growth catalyst going into the future.

Perfect. Thanks.

You’re very welcome.

Hey, great. Thanks. Appreciate you fitting me on. The small business segment growth is holding in strong if we look at the international online ecosystem revenue growth, trailing at 12% in constant currency. Sasan, are there plays you see to potentially jump-start overseas growth? Is there anything you're experimenting with around Mailchimp that could help with tip of the spear there into broader international reach? Or what else do you see that yield potentially better growth down the line? Thanks.

Yeah. Thank you for your question. First of all, I'll start with the fact that the Mailchimp lapping price increase from last year and some of the lineup changes that we talked about earlier impacts international growth, just since 50% of Mailchimp's revenue is international. So that was a big driver of why 12%. And two, yes, absolutely, given the green shoots that we are seeing with Mailchimp internationally and where we have product market fit with QuickBooks and Mailchimp, one of the five areas that we are accelerating our investments is, in fact, international. So we're excited about what's possible as we look at.

Thank you.

Yeah, very welcome.

Well, listen, everybody, thank you so much for attending. Thank you for your wonderful questions, and we will see you at our next earnings. Be safe. Bye-bye.