Q3 2020 Earnings Call
Good afternoon. My name is let's see and I'll be your conference facilitator.
At this time I would like to welcome everyone to into its third quarter fiscal year.
Thousand 20 conference call.
All lines have been placed on mute to prevent me background noise.
After the speaker's remarks, there will be a question and answer period.
If you like to ask a question. During this time separate press Star then the number one on your telephone keypad.
If you like to withdraw your question press the pound cake.
That.
I'll now turn the call over to kill Watkins into its vice President of Investor Relations Ms. Watkins.
Thanks, let to.
Good afternoon, and welcome to into its third quarter fiscal 2020 conference call.
Your with Intuit T O sits on good RC and Michelle Clutterbuck our CFO.
Before we start I'd like to remind everyone that our remarks will include forward looking statements.
There are number of doctors that could cause into its 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 2018, and our other as you see filings.
All of those documents are available on the Investor Relations page into its website at Intuit dotcom.
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.
But otherwise noted all growth rates referred to the current period versus a comparable prior year period, and the business metrics and associated gross 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 lens and without altering the call over just the song.
Thanks, Ken and thanks, all of you for joining us today.
Went to cover four topics on today's call to help you understand outperformance in the quarter.
Our outlook longer term in context of the global cope with my team pandemic.
I'll start by sharing how we responded to the pendennis with our employees customers show results for the quarter and highlight recent trends in our business.
Then I'll put these results in context of our long term strategy and finished by talking about our playbook for leading in a downturn to accelerate our performance.
Let's start with our response to the pandemic unprecedented uncertainty along with widespread shelter in place initiatives have changed our daily lives.
At the onset of the pandemic, we created an enterprise crisis team to drive for work strength.
First keeping our employees safe and healthy its has been and what continues to be our number one priority.
Second ensuring that we won the business effectively and continues to deliver for customers.
Third keeping our workforce engaged and productive.
And for supporting our customers our partners and the communities, where we live and operate.
I'm proud of how our employees adapted to the sudden change now seamlessly we transitioned our 10000 person workforce around the world So work from home environment.
I'm, even more proud of how in the face of uncertainty our employees commitments to customers has grown even stronger.
The challenges facing consumers and small businesses. During this difficult time ive inspiring our teams to innovate with speed and apply platform capabilities to help solve several problems caused by this 10 done that.
As a result, let me share three examples of how we're helping consumers and small businesses get access to aid annually.
First in less than a week following the IRS announcement, we introduced three three stimulus registration tools in partnership with the Iraq.
These offerings helped more than 10 million Americans not required to file a tax return to easily register with the Iraq, They get their stimulus money.
We're proud to have going into our time and expertise to help the Iraqi quickly dispersed billions of dollars and stimulus payments Americans.
Second we launched into an eight cents to simplify the process quickly connecting small businesses that are right relief funding programs based on eligibility.
Intuit eight assist uses artificial intelligence to distill the complexity of hundreds of pages of the care that.
Converted into an easy to understand user experience delivering a personalized an actionable recommendation.
This new tool is based on the same knowledge engineering, which is used by turbotax simplified the taxable.
Oh.
May twentyth.
To help make available over $875 million other food small business loans to customers from the Paycheck protection program for P. P P to cookbooks capital.
The team rapidly developing solutions to simplify and automate the P.P.P. loan application process to help them very small business age access this program.
We've held approximately 25000 small businesses access loan.
With an average loan of approximately $35000 cheating up to approximately 150000 employees on the payroll.
These offerings are a testament to our unique platform and technology capabilities, and we will continue to find new innovative ways to help our customers. During this time of needs.
Now turning to the fiscal third quarter results.
Through the first part of the third quarter, we saw a continuation of great momentum we built during the first half the year when revenue grew 14%.
At the same time the impact of the pandemic on tax payers and small businesses is real.
The extension of the Irish tax filing deadline and local shelter in place directed negatively impacted performance beginning in mid March.
As a result, our total revenue declined 8% in the quarter.
Let me go into more detail without a quarter played out starting with our consumer group.
You extension of the IRS tax filing deadline from April 15th to July 15th has shifted the timing of millions of tax filings. So later in the season.
Resulting is 15% decline in consumer group revenue during the fiscal third quarter.
Based on the latest I left data total returns are down 9.4%, reflecting the later July 15th tax filing deadline.
The do it yourself software categories, performing notably better been assisted under the category leader, we're driving category awareness and growth.
So we are encouraged by this result.
Through May eight Iressa data shows total you filed returns are down 9.6%.
Self prepared evolved.
2.2%.
And assisted the fall down 18.8%.
Because this data includes stimulus filings for individuals not usually required to file tax returns he does not comparable to prior year data.
As it may eight our data also indicates a majority of expected April higher valued customers with the most complex returns and those would balance do have yet to file.
Therefore, we're proud of our progress so far and feel good about where we stand with a turbotax online chair and they RPC keeping us on track entering the last two month of the season.
Our strategy is working work celebrating our innovation and are well positioned for the remainder of the season.
We're making progress on serving fast growing underpenetrated underpenetrated segments, including Latina.
Self employed and customers with investments.
We are focused on increasing customer confidence to access the experts with turbotax lot.
And we're seeing a positive impact on both conversion and retention when these customers interact with an excellent.
The extension of the season has also giving us the opportunity to run additional experiments to improve the experience.
Bottom line up and pricing for the future.
Let me turn to small business.
We get asked me began to see an impact from cobot 19 on our business in mid March as many small businesses began closing are significantly scaling back their operation leading to a loss of income and rising unemployment.
Despite these headwinds small business in self employed group revenue grew 11% and online ecosystem revenue grew 28%.
Let me share it with some of the recent trends in our business.
During the second half of the quarter Quickbooks online new customer acquisition decelerated, approximately 15 point versus the first half.
And retention within the existing customer base decreased by two points versus a year ago.
We continue to expect the small business customer base and a RPC to grow in fiscal year 2020.
The services offerings within Quickbooks online have experienced an even greater impact.
For example, after growing approximately 30% year over year through mid March payment charge volume was flat year over year during the second half of the quarter.
In our online payroll offering after an increase of 20% year over year in workers paid through mid March workers paid decreased 10% year over year during the second half of the quarter.
Similarly.
After the total number of companies running payroll grew 15% year over year through mid March the number of company is running payroll was approximately flat during the second half of the corner.
These trends could result in higher attrition and the lower revenue in the future.
Despite limited visibility near term, we are more inspired than ever to achieve our 2025 prosperity reputation and growth goals.
Reminder, our prosperity gold I could double household savings rate and improve the success rate of small businesses by 10 point better than benchmark for anyone on our platform.
We will do so by becoming an AI driven expert platform and doubling down on our five big bets.
I mean look into the future we have resource our big bets for acceleration.
Let me share our progress on each of these bats.
Big that number one is foundational to accelerate innovation across our platform.
I'll come back to this one in a minute since it supports the other for big bets.
Big that number two is all about connecting people to experts.
One of the largest problems our customers face is lack of confidence to do their own taxes and to manage their business.
We're connecting customers to experts on our platform to solve this problem with turbotax lives and cookbooks lives.
Telling us to reach more customers deepen engagement and grow a RPC.
Within Turbotax lives. This season, we've improved access to an expert to real time chat and a floating life help button.
Tribute into improving customer conversion and retention.
On the expert side of the platform, we're using AI, Tim could be experienced by automating repetitive tasks and presenting experts with a contextual customer information based on the location of the customer within the product experience.
As a result, we've seen added session handle time declined nearly 20% the season, while at the same time, providing a better experience for our customers.
This season, we burned the highest customer satisfaction scores for turbotax lied. However.
Of course looks like we're seeing promising early results with the rapid shift to virtual solutions, we're seeing better than expected customer acquisition and we continue to experiment across the line up for example, we further refined to set up offering we introduced in January we're seeing an encouraging number of customers.
Use the fed up offerings upgrades, a monthly subscription, making us optimistic that it's a great weight enemies customers to the benefits of cookbooks lives.
Our third big baskets unlock smart money decisions for customers by connecting them the financial tools and partners that helped put more money in their pocket.
And its third season, we're on track to nearly double active use for terrible.
This suggests customers are finding value from our recently introduced innovations like mobile refund tracking and weekly credit card credit score updates.
And in this challenging environment, our pending acquisition of credit Karma is more important than ever as we help consumers make better financial decisions.
Our fourth big buttons to become the center of small business flow by helping our customers sell in an omni channel world.
Hey, fast managed capital and pay employees with copper.
We recently launched Cashflow pottery Quickbooks online.
Managing cash flows the biggest problem our customers phase one that is only magnified during this difficult period.
Cash flow planner in AI powered interactive tool that looks at small business and financial history to predict future money in and money out again.
Enabling a small business customer forecast its cash need more accurately.
Within payments were offering our payments cost much free access to instant deposit.
Put more money in their hand, even faster.
This free offer became available the volume of payments received installment rebar customers has more than doubled.
This offering is in its early days.
Within payroll, we're enabling our small business customers to hold onto their money longer by using our money movement capabilities to buy employees next day.
Result, we've reduced the time between running payroll and paying employees by one third driving product recommendations for 10%.
Our this big bet is to disrupt the midmarket with Quickbooks online at best.
Our online offerings designed to address the need to small business customers with 10 to 100 employees.
We develop this offering to help us increased retention of larger customers and attract new midmarket customers, who are over served by higher price competitive offerings.
We introduced several new features to help our customers individually tailored to product to their needs, including building your own dashboard and additional custom fields for expense transactions.
We continue to work closely with partners to develop integrations that save our customers time and improve their experience.
Now more than ever in cloud offering is needed by mid market customers at a disruptive price.
Now, let me wrap up our big bets by circling back to that number one which is our foundational bat revolutionized speed the benefit for our customers.
Our goal is to deliver benefits to our customers instantly and to make the interactions with our offerings frictionless like celebrating the application or they are.
Earlier I shared several examples of how we're using AI to provide customers access to help through into an eight assist and PPP funds to cookbooks capital.
Or how our customers are accessing funds with instant deposit managing cash flow with cash flow partner.
Well, how we're improving the experience experts with <unk>.
We are uniquely positioned to use a <unk> unlock the power of data in service to our customers.
The velocity and impact of our innovation.
Now, let me share or thoughts on the bigger picture and the current environment.
We expect this environment to act as an accelerant to the best we've declared.
First we expect to see an accelerating shift to a virtual world.
It aligns with our big back to connect people to experts using technology to improve confident.
Second the need for small begins to increase our online presence and Congress will become more essential.
This aligns with our big back to be the center of small business growth by providing tools and visibility for customers to better manage their cash flow.
Finally, as we've seen in previous times of hardship, we expect for consumers to put a high premium on offerings that can improve their financial health, which aligns with our that will help consumers unlocked smart money decisions.
This includes helping our customers with saving more money and getting out of that and becoming a trusted financial assistance in their pocket when our pending acquisition of credit Karma.
Our strategy big bets position us better than ever before.
We have a proven playbook that focuses our investments on accelerate innovation and what matters most.
In that context, we have a line the company 10, best and what's most important for future growth, while delivering against our financial principles.
We intend to play offense during this downturn by investing in the largest opportunities for the future our big bets.
When we do our job well, we believe we will come out of this downturn stronger than ever before.
To wrap up I'm incredibly proud of our accomplishments this quarter.
We remain focused on what matters most to our customers and those things that we can control during this time of uncertainty.
Now, let me hand, it over the Michelle.
Thanks, Allison good afternoon, everyone I'll start by adding my thoughts on the playbook, we're using to run the business. During these challenging economic times and then provide an overview of our financial results this quarter.
As the sign shared we've been through tough economic times before and have developed a playbook of principles for operating in a downturn.
These principles are designed to accelerate our execution in the future and how those are customers and into it emerged from a downturn in a stronger position then when it began.
One of those principles is focusing on controlling what we can including discretionary spending to deliver bottomline results.
Roughly three quarters of interest expense base is variable overtime.
We're scrutinizing all expenses and carefully managing what we can control in this environment, such as travel marketing spend and hiring decisions.
Let me now turn to our results.
It's on mentioned, we saw a continuation of the strong momentum we built through the second quarter. During the first half of the third quarter, followed by a slowdown in our business beginning in mid March.
For the third quarter fiscal 2020, we delivered revenue of $3 billion down 8% year over year.
GAAP operating income of $1.4 billion, a 21% decrease.
Non-GAAP operating income of $1.5 billion, an 18% decrease.
GAAP diluted earnings per share a $4, an 11 cents a 21% decrease.
Non-GAAP diluted earnings per share of $4.49, a 19% decrease.
Turning to the business segments consumer group revenue was $1.8 billion down 15% in the third quarter.
This decline reflects the delay of the IRS tax filing deadline to July 15th which is shifting revenue out of the third quarter and into the fourth quarter.
We're pleased with what we've seen season to date do it yourself category continues to grow faster than assisted and we feel good about where we stand with turbotax online share.
With two months still to go in the season, it's difficult to know what these trends will continue or whether more consumers will choose to file an extension either way we expected the iwai category to gain share again this season as it has for more than a decade.
And in the strategic partner group professional tax revenue declined 18% in the third quarter, reflecting the impact of the delayed tax filing deadline on the timing of consumer tax filings completed by account.
We grew small business and self employed group revenue, 11% during the third quarter driven by online ecosystem revenue growth of 28%.
Our strategic focus within small business and self employed is to grow the core connect the ecosystem and expand globally.
Starting with grow the core Quickbooks online accounting revenue grew 36% in fiscal Q3, driven mainly by customer growth higher effective prices and to a lesser extent mix shift.
During the second half of the quarter, we saw the pace of new customer acquisition and retention both decline, especially among lower a RPC customers.
Keep in mind that there is a lagging impact to quickbooks online accounting revenue, although we do expect her subscriber base and air PC to grow during fiscal year 2020.
Second we continue to focus on connecting the ecosystem.
Mine services revenue, which includes payroll payments time tracking in capital grew 16% in fiscal Q3.
Within pay wall, we continue to see revenue tailwind during the quarter from a mix shift to our full service offerings.
Roughly two thirds of online payroll revenue is generated from monthly subscription fees.
And one third is generated from per employee monthly fees.
Within payments revenue growth reflects continued customer growth along with an increase in charge volume per customer.
During the second half of the corridor charge volume decelerated fewer workers were paid and fewer companies Rand payroll.
He is leading indicators could result in higher attrition and lower revenue for these offerings in the future.
Third our progress expanding globally added to the growth of online ecosystem Romney during fiscal Q3.
Total international online revenue again grew over 50%, reflecting subscriber and a RPC growth earlier in the fiscal year.
However, this momentum has slowed and could result in decelerating revenue growth in the future.
Desktop ecosystem revenue declined to 6% in the third quarter.
Type units declined sharply, reflecting lower sales through the retail indirect channels beginning in mid March.
This was offset by mid single digit Quickbooks desktop enterprise revenue growth.
Within our desktop payroll offering nearly 10% fewer workers were paid during the second half of the quarter versus a year ago.
This compares to growth in the mid single digits during the first half of the quarter through mid March.
[noise] desktop payments charge volume growth decline just over 20% in the second half of the corridor.
As we shared intuit is helping small businesses obtain loans from the paycheck protection program through cookbooks capital.
We're working in partnership with an F.B. I approve bank and we're also directly funding a portion of these loans, we don't expect to hold these loans on our balance sheet and revenue from these loans was immaterial during the quarter.
Let me turn into our pending acquisition of credit Karma.
We expect the acquisition to be accretive over time, but given the current environment, we don't have visibility into whether it will be neutral to accretive in the first full fiscal year after closing.
We continue to expect the transaction to close during the second half of calendar year 2020.
And we're excited about the unprecedented benefits, we can deliver together for customers.
Turning to our financial principles, we remain committed to growing organic revenue double digits and growing operating income dollars faster than revenue.
We take a disciplined approach to capital management investing the cash we generate and opportunities that yield an expected return on investment greater than 15%.
We continue to focus on reallocating resources to top priority at the company with an emphasis on becoming an anchor of an expert platform.
These couldn't principles remain our long term commitment, although we recognize that we may not be able to achieve them in the current environment.
Our first priority for the cost me generate is investing in the business to drive customer and revenue growth.
We consider acquisitions to accelerate our growth and fill out our product roadmap.
We returned excess cash that we can invest profitably in the business to shareholders via share repurchases and dividends.
We finished the quarter with approximately $4 billion in cash and investments on our balance sheet.
On may 7th we drew down the full them out of our 1 billion dollar revolving credit facility to maintain financial flexibility.
We repurchased $40 million a stock in the third quarter, but have temporarily suspended share purchases in conjunction with the credit Karma acquisition as is typical during a stock transaction.
We have approximately $2.4 billion remaining on our authorization and we expect to be in the market in the future.
The board approved a quarterly dividend of 53 cents per share Campbell July Twentyth 2020.
This represents a 13% increase versus last year.
We will not be providing guidance today.
A reminder, we withdrew our fiscal 2020 guidance earlier, this month, reflecting uncertainty and curtain current small business trends.
With that I'll turn it back over to focus on.
Great. Thanks, Michelle.
We are uniquely position some at the positive them back on the world. During this time I'm proud of the actions that we've taken as a company to support our customers when they need us most.
Dr would speed enabler and I'm pleased to be safe unproductive working from home continuing to innovate for our customers.
We're using our capabilities to rapidly deploy solutions to help consumers and small businesses access the products and released the binney during this difficult time.
I'm confident we'll emerge and even stronger company.
So with that let me turn it over.
So you're lucky.
[laughter].
Thank you, ladies and gentlemen, if you would like to ask your question. Please press Star then the number one on your telephone keypad.
I would like to withdraw your question press the pound cake.
[laughter].
Our first question comes from a line of Kirk return of Evercore ISI. Your line is open.
Yes. Thanks, Thanks, very much and thanks for taking the question and hope everyone's doing well.
So maybe just to start with you what do you think about sort of this environment and you know what you all have to do this sort of help your client base out there was there anything you've done differently I guess in terms of either invoicing duration or obviously discounting I guess, just how do you think about sort of.
And balance right really the short term versus the long term, you're obviously you mentioned that the shift towards Virgils, clearly going to happen faster and I'm thinking about would argue with you about that but could you just talked about sort of how you're talking or thinking about you know I guess pricing when it gets down to it and invoicing with your clients in this yeah very sick.
Got a environment for a lot of them.
Yes, correct, great to hear your voice and I hope you're doing well and thank you for your question well, let me, let me take it ER and maybe two ways one maybe longer term and then the other is the here now.
First of all we have a playbook of four times like this and our playbook is really about focusing on customers focusing on innovation and putting our investment dollars, India or is it not at the most of that as you heard from Michel being very diligent in terms of our expense I'm on below I would that said as we.
We look at the long term, we're actually quite excited about the comp environment not health elements of it but the fact that it will accelerate folks moving to a virtual world.
Folks moving to adding more you know online presence and commerce capabilities, a and then money has always been important but we believe more than ever a waste can save money and get out of that is going to be more important than ever before and are a big bets are squarely focused on the things that matter than most and.
We happened by the way to be going through our wanting to your planning process, which literally what's happening in parallel of one depend doesn't make started and it was at that time, where we actually use the opportunity not only to be clear about a conservative investment on blow out for next fiscal year.
But to really ensure that weekend take the dollars that we have allocated and use them as an accelerant, how far back and we are just finalized our one in three year plan internally.
Have a allocated our dollars to the big bets and the ones that matter most send them back again using it as an opportunity to accelerate so we actually feel good about the things that we can control and the things that we need to do for customers to come out of this even stronger.
With that said and going to the very you know today hearing now elements of your your question a part of our playbook is to ensure that we really bend over backwards and be whats right for customers in this kind of an environment and beyond the innovations that you heard that we kind of turned on a dime.
I could deliver or like instant deposit for free I P. P. P. The free stimulus offerings that we that we have happens I brought to the marketplace.
Our elements of things, we're doing for our customers such as we pause any price increases that we plan. We paused are a full service payroll migration, which has significant benefits for customers and those that migrate to what rave, but we didn't want to have our customers think about payroll migration at the time like this.
As we've communicated in the past a we are in essence launched a new lighten up and cookbooks, one elements of it being quickbooks advance, which allows us to serve midmarket customers that comes with very clear lines of number of users number of invoices that you can pay the number of transactions on.
And now we've actually pause that that's important line, where you have to migrate to quickbooks about all of which had the right time, we will put back in place, but we're being very diligent to do what's right for customers and we're getting a lot of great feedback from customers inclusive of some.
Some of the discounting that we put in place to acquire new customers.
These very uncertain times. So those are just somebody examples of the things that we're doing we have a proven playbook.
And we're really the team as a actually getting quite well against them.
Thanks, Ryan This is I guess, it's a really quick follow up I assume given what's going on has really no impact on you sort of your initial thought process around sort of integration plan for credit Karma is that correct.
It does not where actually more excited about what we can do with credit karma lots accelerate helping customers save money and reduce that so it has not changed our plans.
Super Thanks, very much Uh huh.
Thank you.
Okay.
Thank you aren't next question comes from Keith Weiss of Morgan Stanley. Your question. Please.
Hi, Mark Randy on for Keith Weiss here. Thanks for taking my questions. So I want to dig in a little bit to the turbotax side. So obviously, a big shift and revenues related to the filing extension.
But.
Have you got to seen any change in the mix of free files and any reason for the kind of push your revenues any any color on a pre filing exit beautiful.
Sure Mark Thanks for your your question I'm, you know for first of all just remind us that when you look at the categories that we serve a the out why category is about 3 billion in town hobbyist. If its category is about 20 billion a in and then the consumer finance space, which we're going to be able to accelerate serving with.
Credit Karma is about 57 billion in Tam.
In that context, very specifically you know to your question.
This is actually the part of the season that is our strength really the revenue.
Shifted into the fourth quarter is because of the fact that the IRS deadline shifted and these are actually the more high value customers, a more complex customers and the ones that have balance due and it's actually are our strength. This part of the season as our strength because it's a it's our customers with the highest retention over the years.
And so given where we are a with the category growth and given where the champions the do it yourself category with the category growth and what we see with a share and our P.C.. We feel good about where we are and we feel and we're excited about playing our game in the last two month of the season, which is.
Our our strengths and we really not seen anything outside of what we would expected from it at that they perspective, so really the revenue shift is entirely because of the shift in the deadline.
Excellent are really helpful. If I could sneak in one quick follow up so there was obviously going to be 'em up tick in share gains this season and VI why how do you expect the do you expect it to normalize and for the back half of the season as like shelter in place kind of.
Restrictions come off and use and people can go to attack professional or C. diff or do you see this being relatively durable throughout the rest of the season.
Yeah I'll make two comments you know one is I think this pandemic will drive structural and behavior changes across many industries, you know whether its education, whether how you get mortgage loans to how you manage your business to how you do your taxes and.
The great news as we're positioned well with our digital platform to serve customers with a with assistance to really take advantage of the opportunity and there's just simply a tailwind of more and more folks wanting to be able to do their taxes themselves and if they need help to be able to get that assistance in the comfort you know of their home will have to see how.
This season plays out I don't want to second guess, whether these current trends will continue or not but what I would tell you is that the shift to a virtual world probably accelerated by five years I across many many different industries and I think that will be the same thing that we'll see play out when it comes to doing your taxes and or helping small businesses manage their books, which is where cookbooks.
Slide comes into play.
Great. Thanks, so much.
Thank you.
Thank you. Our next question comes from Brent do of Jefferies. Your line is open.
Oh, Thanks, many companies have been giving us a little bit of color into the current.
<unk>.
And I'm curious if there's any color about what you're seeing [noise].
From the perspective of April turn into many high any any any notable items would would be helpful.
Yeah sure Brian Good to hear your voice and hope you're safe and sound.
So what I would say a you know if I just touch on the first couple of.
Weeks in May we have seen a stabilization to be specific.
We've seen stabilization in charge volume you know the number of payroll companies that are paying their employees a we've seen stabilization of the number of companies that are tracking their time through t. sheets. We've been seeing the same thing with acquisition of new customers and we've seen stabilization on the retention.
From an on on desktop we've seen a little bit all the of an uptick because we deliberately slowed down the communication oh upgrades to our desktop customers because that the timing of doing so it was really right in line with one dependent make hit.
Now that we started that communication, there's been a little bit of an uptick I think what's really important if I put all of this in contact is it's several weeks of trends.
We want to make sure that we don't portray several weeks of trends into a trend, but we have seen the stabilization in the in the first two weeks, but we clearly.
I want to see the economy come back and ultimately see small businesses open up and see if that trend continues.
Great. Thank you.
Sure.
Thank you. Our next question comes from Robert Simmons of RBC Capital markets. Please go ahead.
[noise], Chris with Simmons. Please make sure your line is amusements gonna speaker phone lift your handset.
Yes, sorry about that fixing the question.
So can you talk about how you've adjusted Oh, you know and the timing of your advertising spending and the overall go to market across the different segments given.
You know, it's actually it was more throughout this year and another factor.
Yes sure Robert Thank you for your question, let me make 2.1 when you know this pandemic hit you know beyond the fact that we're right in the middle of our feed one you're planning and it was a great opportunity for us to agreed to a conservative investment on blow up as we look I had to really Uh huh.
Can you to build our muscle in terms of prioritization resource allocation. We also have looked at a that here right now and what I'm changes, we would we would make and we did reduce discretionary funds marries we were very comfortable with of course travel is that given.
But hiring out and marketing across the board.
Specifically in in Turbotax, both customer success and marketing a with sports needed to kind of the we plan, which the team has done we have a playbook around that.
And extended between now and and July 15th and so we've done that I, but I would say overall the company discretionary spend are down because we lowered their for all the right reasons, but particularly any tax we just simply extended.
Through.
At the end of July we expect by the way just so it's not a black box that I will need to spend up to $20 million in both customer success and marketing because of the extension of the tax season to ensure that were there for our customers, but we've also reallocated dollars from other places in the company to make up for it.
That makes sense and you talk to economics TV. He worked for into it seems like what kind of cut of the easy you keep.
Right.
Yeah sure maybe if I could just ask Michel to take that.
Absolutely [noise] <unk>.
We haven't talked specifically about the monetization as this on talked about earlier, we did say that weve provided $875 million of P.P.P. small business loans.
And we're working with an S. BA approved bank to fund. These lines were funding some directly but it's a small amount and we don't expect a whole those we will expect to earn about 3% to 4%, including servicing on the lungs themselves.
Great. Thanks very much.
Thank you.
Thank you. Our next question comes from Brad Zelnick of Credit Suisse.
Your line is open.
Hi, everyone. It's a yellow chew on for Brad Zelnick. Thank you for taking my question and thanks for what you're doing so small businesses out there.
I have a question as it relates to into it capital and potentially credit Karma.
My understanding the business models of these segments relying on the algorithms.
That basically a combination of historical behavior and real time data one of the criticisms of Fintech. Every crisis is just from the next and that somebody's algorithms, maybe building data from the loss I got that may not be so relevant in the current one.
As we look away through this can you share some thoughts and a couple of things firstly, how well these businesses and algorithms are working and just the value proposition remain intact for these data centric plays and where the main gaps or differences and behavior, where you may have needed to intervene.
And I guess based on that do you think managing through this crisis inherently increases the value of these assets into longer term playing through both the downswing at the recovery.
Thank you for the question you all and a good to hear your voice and you know a hope all is well.
Let me make a general comment maybe two general comments and then get more a specific to your or to your question.
I think that are first of all as you know us and credit Karma, our operating as two separate companies, but what I can tell you from the due diligence that we did a we were very impressed with their machine learning capabilities there their ability to do quality checks to watch for bias.
And they're just they're modeled on a daily basis, because you know they are they use 2600, plus data points per customer odd to run their models and so there are always adjusting but let me that's in context of of the due diligence that we did and I would just say the second macro point is.
This is one of the reasons why we believe.
That this environment is actually an accelerant before for us to find ways to help customers put more money in their pocket save money and get out of that because of all the machine learning capabilities that we have both credit Karma has and that we have that in this current environment I'm done the right way actually allows us to adjust our models the better.
So our customers now let me get more specific I think to your question you know around Quickbooks capital you know we have this quickbooks capital and the machine learning capabilities and the platform is something that we've been working on for years, both cleaning up the data. So we can use 26 billion data sources on the three.
60 information that we have from our customers with their permission to be able to use to in essence, no what loans that they can be able to take on what capacity the number of months and how quickly we can adjust our doll and one of the things that the team has done that the.
Wonderful progress is that we do checks out for bias as a in whether in this environment or a in a in a different environment. We're always checking for bias. It. So we can adjust the model and the models built in such a little we can adjusted on a daily basis. So we can learn very very quickly and we what we.
See in this environment a is that there's actually a great opportunity to accelerate our learning. So that we can be much more pinpointed in terms of what we can do for customers and when we can do it for the customer so I'm proud of Barclays capital team and what they've been able to actually accomplish and we're learning and I'd just be more daily and by the way those capabilities is not just for cookbooks capital we use those.
10 capabilities for a instant deposit same day payments, we use those same capabilities for our same day payroll and so these capabilities are truly talk them capabilities that we can use across the company.
Great. Thank you very much let me sneak one more quick one in one of the mean constraints on distributing PPP funds Foster at this point.
I'm sorry could you ask your question one more time.
Yes, I know youve distributed about either a bunch of P.P.P. funds to date or them can you talk to the main constraints on the ability to distribute.
The funds foster.
<unk>.
Yeah, you know first of all I, we truly you know admire what the team and Treasury and that's the a has done to make these loans available and all the checks that they've had to do on privacy and security to be able to distribute these loans. So.
They truly deserve you know and applause for the work that they've they've done a you know to get to your question, we actually have been able to move quite fast and quite rapidly because of.
The fact that we no our customers data, whether its quickbooks payroll customers for quickbooks desktop payroll customers for self employed that I've actually filed their taxes with us and be able to very quickly help them apply for the alone I really the biggest inhibitors. Then all of those that are applying for the alone and having.
The wait in line to be able to get the loans approved by the S.P.A. I and so really that's where the bottleneck isn't by the way. The SP is actually moving quite fast. It's just a number of loans, that's coming out of loan request and how they ask the process said and ensure that they reduce fraud. That's I think probably the most difficult part, but on our and we've been able to move very.
Very rapidly and we don't really have we don't really have too many obstacles in front of us.
Thank you very much.
Thank you.
Thank you. Our next question comes from the line or see pedigree of Mizuho. Your line is open.
Thanks for taking my question system, you talked about one of the bid season like selling in omni channel was.
In fact, we are seeing small businesses, they're trying to have their online presence out of moving to more E. Commerce environment. So could you give us some color like how you treat can help or and how big is an opportunity for incurred but for helping SMB moving to online.
Yeah. Thank you for your question again, great to hear your voice and hope Youre, a safe and sound.
You know when you think about Intuit base, we served primarily service based businesses and at one of the core drivers behind our best number four which is being a the center of small business growth and one element of it being really a.
Ah providing transformative experiences to make it easy for customers to to do commerce across multiple channels is to actually be able to accelerate serving and penetrating our product based businesses, but it's interesting. What this environment is it's causing so now let me get the answer your question in two ways. One is even service based business.
This is a they're actually you know if you remember at Investor Day, we shared last year. The we have 400 million plus a invoices that our customer send out but you know about 12% our payment enabled we're actually seeing more and more service based businesses that are actually looking.
To make all of their payments I payment enables so they can actually get paid online faster.
And be able to get out of the the out the paper a world and so this is having in this is going to overtime I have an impact on service based businesses to get out of doing manual payroll and doing it online because they've seen with the paycheck protection program. If you can't prove a your payroll data you're not really.
Not going to be able to be first in line to get a alone and so it's going to impact or more and more service based businesses going online, which is where our sweet spot is the second element, though is the the question you asked which is omni channel.
Really the core problem that we want to solve based on well over a year or conversations with our customers is.
It's actually quite easy for our customers or to get set up on different channels, whether its Instagram and Facebook at sea Amazon that's not their biggest issue their biggest issue is they lose sight of which customers coming from much channel, which customers profitable are they getting paid on time.
Across the different channels, how that connects to the inventory because clearly you don't want to run out of inventory fulfillment is critical and so the problem that we want to solve is really if I put it in simple terms you know, having an app, where you can actually see all the orders that came in through all the different channels in one place you can ultimately over time see the profitability.
Of your payment that connects to.
The profitability of your customers are you can see how it connects to your inventory that automatically tells you that you're gonna have to fulfill your inventory <unk> work and they're very early stages of solving that problem, but we're very clear out what the problem is and we believe this environment will not only overtime or help us penetrate service based businesses, but it will possess.
No not.
That number for to server product based businesses. So that's the way we see it and that's the way we think about it.
Yeah, that's what that's color and if I could ask one question on tax. This is unusual tax filing your knowledge Fiftyk. Some 15 through July 15 from April 15. So.
What percent of those people have you know usually goes FICA taxes, if you exclude the people those who find for seamless to what person bids have now and not get fired and moved to a you know maybe for this quarter and also what are the fancy you're seeing in thumps up federal tax light adults and so far.
Sure well first of all I'll start by affirming it is very unusual season, because I don't think we've been in a place where tax season has been extended but in many ways. Its affording us new opportunities because our team has built for times like this and things like experiment thing.
In ways that we want otherwise wouldn't be able to so our team is doing a wonderful job.
Leveraging the current opportunity.
If you think about last year. There was 155 million returns filed and and I think there of 110 ish million that I've been filed already on the actual specific numbers are on the IRS a website, but nevertheless that would tell you.
You've got 40 45 million customers, that's still need to file a their taxes between now.
In July 15th so that kind of gives you guys feel for what what's left to come in terms of Turbotax live you know we focus this year on improving first time use we are really focused on I, providing more access the experts because when our customers engage an extra.
For our conversion and retention goes up and we're really focused on improving the extra inside of the platform, meaning that experts with contextually know where the customer is and how to best serve them to help them you know very very quickly.
So far you know turbotax slide.
Is really delivering within the expectations that sad that we have had Ford and you know we've got two months or the most complex filers that are still left to comment. So we're excited to serve as many customers as we can.
Between now and then two turbotax life.
Thank you Susan.
Thank you.
Thank you. Our next question comes from Ken Wong of Guggenheim Securities. Your line is open.
Great. Thanks for taking my question and thanks for all the good color on the first half second half split up maybe are still does question towards the show up so obviously lots of unknowns in kind of going forward, but as we think about your you're kind of ability to guide or I guess lack thereof is this more a matter of kind of magnitude in terms of things could.
Get worse or just.
The issue of duration in terms of not understanding how long this might play out. Thank you.
I can't think sort of call I question.
First of all I would say that as Tom said, you know we are starting to see a few trends in the business that are stabilizing and he and new marine if there was a minute ago, but it just doesn't make sense off of two weeks of data to be able to predict going forward.
So that is really the biggest issue there, but I would say don't confuse the lack of guidance I'm with a lack of confidence in our business and our strategy. So in fact, we've never been more confident in our business our strategy, becoming I do have an expert platform and the five big bet that we've declared.
But competence doesn't mean certainty.
And we're in a very uncertain environment as we've discussed and so that's actually why we're not issuing guidance, it's really around the uncertainty.
Great. Thanks, a lot.
Thanks, Ken.
Thank you. Our next question comes from Daniel Jester of Citi. Please go ahead.
Great. Thanks for taking my question. Another one on Quickbooks capital. If I can you know for the loans that you've made a for PPP. How many of those customers were brand new and never really use the quickbooks capital loan program before maybe you can just kind of just in terms of repeat usage there be interested to see.
If a if you're expanding the ability I'm on the back into that.
To to get people already in your system to to use cookbooks capital and then just you know are there any learnings either from the regulatory or the go to market there that could accelerate quickbooks capital in the back into that.
Thanks.
Yeah sure. Thanks for your your question and Kim a Andorra Michel will keep me honest on this.
Our goal was to serve as many small businesses as as we could and of course, we started with our existing base and I believe that all of the current customers that we served are all on existing quickbooks customers. So.
So well get confirmation if I got that wrong, but it's been primarily all existing customers and I would tell you because the second part of your question. It's incredible the Halo effect that we've gotten a by all the things that I mentioned earlier from a.
Very quickly partnering with the IRS to launch the stimulus offering as.
To what we've done with the TPP program I to what we've done to fund and partner with go find me, a and side, which is a crowdsourcing platform to help small businesses get access to money, which I think it's been almost close to $40 million that small businesses a bottom access to.
Just a number of things that we've done has gotten a really a lot of attention for cookbooks as a brand that can that that can help customers and I think this current environment and what we have to do very specifically around PPV, just really made our machine model machine learning models, a stronger which allows us to make our services stronger which allows us.
Really overtime helps us better serve payments payroll and ultimately cookbooks capital customers.
Great. Thank you and then on turbo admit admit I think you in your prepared remarks talked a bit about engagement I'm. Just wondering if you could provide a little bit more color. There did engagement mean clicks or does it mean actually going through and purchasing a credit card or long true through your partner I'm. Just wondering if you could get some more color there. Thank you very.
Much shorter yet yeah, absolutely. So what we have seen more demand at less supply and so on the demand side I mean that customers are.
Really interested and their credit score they really interested in setting goals for their credit score.
Learning from us how to improve their credit score by essentially making payments on time or checking on the status of their refund.
And of course, more instead, and then getting access to whether its personal loans credit cards those sorts of things what we've seen a an impact on is on the supply side because it missed kind of an environment. Although the digital platform is the highest return for financial institutions, a we've seen some financial institutions pull back temporarily.
Off of the turbo and meant a platform, but it's also the first place qualitatively that they told us they want to come back to their just waiting for the current environment, specifically unemployment to stabilize to them that they can then come back onto the platform so higher demand less supply from a financial institution side, which means less monetization.
Great. Thank you very much.
Thank you.
Thank you. Our next question come from Scott Schneeberger of Oppenheimer. Your line is open.
Thanks, very much a good afternoon sound shell. Thanks, a lot. The my first question is Ah during fiscal Onein Global financial crisis, and small business was was relatively flattish I think the revenue was down only 1% insists on I I'd love to hear your thoughts just high level consent.
Actually about.
Just a compare and contrast about that time versus this time, what we're seeing and what could be good case by case. Thanks.
Sure sure well you know what I would it start with the build on your point you know in Oh, eight or nine you know timeframe. What you in essence, all was or an essence or the the total number of small businesses that went out of business you know it uptick a couple of points the number of busy.
Since that started downtick the couple of points there was a kinda three four point impact on the total number of a small businesses.
And the second thing you know I wouldn't say is things are in somebody's very different than a wait and I know nine on two dimensions. One is oh wait no nine was actually a recession caused by the health of financial institutions. This is a pandemic a that health driven.
In essence small businesses have been completely shut down the economy was actually quite healthy, but now it's not because of the shutdown of of of small businesses, which is also caused a recession. So in some ways there, they're they're very a difference.
But in many ways the impact that we're seeing the same which as customer acquisition as I mentioned earlier.
Slowed down retention has downtick a few points charge volume has downtick from being up 30 to now it's been flat or post mid March Ur cobot impact and so that's the impact of course that where we're seeing now but our business is also very different you know.
We have you know a larger portion of our small business is a subscription based on its in the cloud a whereas back then it was primarily a desktop which she sees a sharper decline, but also a sharper.
Rebound so with all that said those are the two three things that from a from two perspectives are different I would reiterate what I mentioned earlier, we're not trying to second guess the market or.
Or you know, meaning how fast things will rebound or how long this is going to.
This impact will stay in place. So we're very focused on our controllables, which is accelerating our focus on our big that's helping our customers in times like this just to ensure that we are positioned that come out of this much much stronger than when we even went into it.
Thank you appreciate that and as a follow up over on the tax side, just curious what what insight you have from the IRS, a thus far with regard to the stimulus filings and.
I believe in your your April 30 press release, you said you thought that would be for more than 10 million Americans, but not a very clear number do you have an idea what type of impact that number will be on the IRS volume results. This year for tax filings that.
Sure you know, where we of course as I mentioned earlier the numbers the stimulus numbers are actually in the current filings and we believe at some point the IRS Ah well hopefully separate them. So there's visibility for for our investment community what the actual patchy turns our versus stimulants returns.
80% of folks have actually been eligible for a the stimulus money. The the point that we tried to be clear about earlier is that there are 10 million people that don't typically have filed their taxes that are also eligible and so they have to go through the stimulus offering to be able to get access to the.
And we believe at some point by then the tax season, the IRS will in essence flush that out and communicate what the actual tax returns are versus stimulus filings. What you should left wouldn't be left with is it doesn't change the perspective that we shared about the business, but do it yourself category is growing we're seeing a larger and faster shift to the category.
We feel good about where we are relative to our online share and they are P.C. and this is the part of the season, that's our son come we're looking forward the finishing the next couple of months out.
It's actually well.
Thank you Scott.
Thank you. Our next question comes from Brad Reback of Stifel. Your line is open.
Great. Thanks, very much Michel you had mentioned earlier about three quarters the expense base is variable and [noise].
It's taking some actions and then enforced in some actions around travel marketing and hiring can you give us a sense on what.
A mouse you're saving right now with the with those things.
Hi, Brad Thanks for the question, what I would start with it I would say that you know we have principles around leading through a downturn and they have been proven out one of the principal and our playbook as I mentioned is really around controlling what we can.
Discretionary spend so that we can deliver our bottom line results were looking at all of our expenses. Some of those that are easier to control, though are the travel some marketing spend and the hiring decisions.
You know I'm personally along with everyone on this on staff, making sure that where I'm really thinking about.
What we can do in the short term, but we're also taking a look at things that may have a longer term term impact things like our real estate decisions and working from home late [noise].
As it sits on also mentioned a little bit ago, we will have some increases in expenses that's more the tax season, the extended season about $20 million, that's marketing and customer success.
But we have been able to offset some of that with a discretionary spend.
We haven't given a specific number but we feel very good about the actions that we've been taking in order to get our spend in line and set ourselves up for next year.
Great. Thank you very much.
Thank you Brad.
Thank you. Our next question comes from Josh Beck of Keybanc. Please go ahead.
[noise] things for the question and the congrats on all the great work you've done for your customers.
Probably a higher level question for some you talked about this idea of.
Virtual acceleration just given your curve you and that you see.
Businesses and consumers are behavior and I'm just wondering if there's.
Maybe areas, where you know it seems like it could be notably strong on potentially the other side of this pandemic. So any color you can give there would be grid.
Sure sure you know all I'll start with what I think all of you see and then I'll make it specific thoughts, but as I.
I talked a lot of my peers across many different industries, whether its ceos of companies or.
Testers in many many companies across many industries you know whether it's a from how you used to I'm getting a workout Dan and training. If you were you want to trainer and how that is shifting to a virtual world.
Telecom being one example of that where it's accelerating to education were overnight you had to.
Figure out how you discharge inclusion into online two more and more people now shifting to be able to engage with for medical help online so getting your taxes Dom to being able to manage your your business and bookkeeping and so HM We believe that this pandemic will have they stay.
Doctoral and behavioral impact in several areas one is just.
You're going to first thinking about how to potentially engage in a virtual world or not and a physical world I doesn't mean, we won't go back to physical world, but I think this will have a fundamental behavioral impact overtime.
Two is to ensure that you're doing most of your stuff online or whether it's how you do payments, whether it's how you do payroll or whether it's how you conduct commerce, even if your service business I'm moving some of your things I said I'll be able to conduct that online is gonna be important and then more important than ever you know how do you ensure that you can save money.
And reduce that so we believe that structurally in behaviorally.
Those three years are going to accelerate and.
It's anybody's guess by how much but literally if you're thinking about an overnight. These areas have shifted and I. Just think we've progressed five years in this area of moving to a virtual world area of more being online.
And the importance of money and that's one of the things that excites our leadership team in the whole company around what is possible for us to accelerate to ensure that we can deliver for our customers. Given these shifts that we're seeing.
[noise] really interesting thing so for sure appreciate it.
Thank you Josh be safe.
Thank you. Your next question comes from Menthol of William Blair. Your line is open.
Hey, guys. Thanks for fitting me and I just wanted to ask on the Quickbooks business.
If you're seeing any difference in terms of behavior between U.S. customers or international customers and then self employed relative to small businesses.
Yeah. Thanks, Matt.
You know, although our trends were all the small business level, what I would just tell you. A is we've seen you asked me a bit more resilience than countries outside of the U.S. and all those metrics that are that we shared a and then the second thing.
He is on the self employed a side what what's interesting is although the macro numbers that we shared a which is acquisition being down 15 points before NACHER or after a co bid.
With some of the discounting that we're doing we're actually seeing interest probably more than before on the self employed outside that of course in no way covers the impact that we're seeing on on acquisition, but we're actually seeing.
Well what were looking to learn as our these unused self employed business and being born and they're using our self employed app or or what they may be we're doing the analysis right now I'm looking at our our data, but the the bumper sticker is I would say U.S. is more resilient then countries outside the U.S.
And we're seeing interesting acquisition trends on Etsy Ah Ah early days, and we need to analyze if I understand where they're coming from it doesn't change the bigger picture of what we shared which is.
Post mid March we were down 15 point than we've seen that stabilized, but you know essi is a little bit of a green shoots that we're looking to learn more about.
Great. Thanks for taking my questions guys, Yeah. Thank you Matt.
Thank you.
At this time of our final question probably session come from a line of Kash Rangan Bank of America. Your line is open.
Hi, Thank you how are you sit southern Michelle I have a I've a couple of quick question. Thanks for.
The extended time that you've spent all the comps called appreciate it wasn't a cellphone what are the indicators you're looking for.
That.
Small business.
Activity could be starting just not to stabilize but starting to pick up some fundamental brought indicators that since you've been at <unk>. The business such a long time showed that there are some things you're keenly watching for I'm. Just curious what they are but also because I'm sure your thoughts Michel our society or how to think about this years unemployment.
Because it's going away on next year's taxes I'm curious.
What are the things that into it couldn't do because the stories from that you've been getting market share, but some of your but.
This is an exceptionally bad here for unemployment Sadly I'm curious what the isn't it would go to be doing differently or to keep it keep its growth profile as strong as it has been on the consumer talks are going into next year. Thank you so much.
Sure a cash a great to hear your voice and ER hope, you're doing well and a safe and sound I you know let me let me start with your last question. First then you're very right. It is sad to see this kind of an unemployment rate and we are all hopeful that are at some.
Point things will rebound and folks will be able to get back to work I think what I would say is a you know because unemployment rate was actually very low through March.
We'll need thus far file IRS.
When I look at the total number of IRS returns.
The this shouldn't have a dramatic impact for the reasons that I mentioned.
The second is we're very focused on how we help serve.
These customers onto our life platform and we believe that this could really be an impetus to deliver a great experience to.
To deliver higher confidence and good for you to be able to do it from the comfort of your home. So that's the the answer the question around unemployment headline news as folks are going to still have to do their taxes, because unemployment rate was so low for the first several months of the year and you have to.
Do your taxes because of unemployment income the second in terms of indicators that we're looking at I would say there are few.
One is just that the number of workers and employees that are for instance, tracking their time or getting paid checking their time T T sheets or getting.
Paid through payroll or the number of payroll companies that are paying their employees that is.
One very important indicator for us.
The second is just what happens with charge volume.
That is a very important indicator because it's the shows the strength of consumer spending what small businesses and small business a small business spending. So that's the second and third is the rate of acquisition.
On the rate of attrition.
Those are all the trends that we look at and I would just highlight one subset of all of this which is.
How quick looks like performs in this environment, it's less about just looks like but the notion of getting help.
Although very early days with cookbooks live.
And we've been I'm happy with the as we said earlier with the acquisition trends that we've seen because more and more folks are not only looking to do things in a virtual world, but are actually looking in this timeframe to get help to clean up their books to ensure their from client and to become far more effective and efficient and how they run their business.
Because again money matters more than ever before so those are the three four indicators that we are looking at and doubling down on the best that I mentioned earlier, because we believe just there is a huge opportunities to help customers shift online to help customers shift or virtual world and to be able to find ways to put more money in their pocket.
Got it very insightful thoughtful as always thank you so much.
All right. Thank you catch you say.
Thank you and ladies and gentlemen that is all the time, we have for questions. Today would you like to close with any additional remarks.
Yes, I will first of all thank you for everyone on time and for joining today and thoughtful questions I would like to just close by a once again. Thank you our employees for just the incredible work that they've done.
Being by the side of our customers have been on prophetic and compassionate for what they are having to go through and also just the partnerships with our partners I wish all of the on the call well. Please stay healthy take care of yourself and we look forward to talking to you at the next earnings call take care everybody.
Ladies and gentlemen, thank you for participating this concludes todays conference call.
Yeah.
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