Q2 2021 Intuit Inc Earnings Call
Good afternoon, My name is Lucy and I will be your conference facilitator.
At this time I would like to welcome everyone to Intuit second quarter fiscal year, 'twenty and 'twenty One conference call.
All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer period.
If you would like to ask a question and during this time simply press Star then the number one on your telephone keypad. If you would like to withdraw your question press the pound key.
With that I'll now turn the call over to Kim Watkins Intuit's, Vice President of Investor Relations Ms. Watkins.
Thanks, Latif and good afternoon, and welcome to Intuit second quarter fiscal 'twenty and 'twenty, One conference call I'm here with Intuit CEO, she saw and good RSV and Michelle Clutterbuck our CFO.
Before we start I'd like to remind everyone that our remarks will include forward looking statements. There are a number of factors that could cause intuit's results to differ materially from our expectations. You can learn more about these risks and the press release, we issued earlier. This afternoon, our form 10-K for fiscal 'twenty and 'twenty and our other SEC filings all of these docs.
Humans are available on the Investor Relations page of Intuit's website, and Intuit dotcom.
We assume no obligation to update any forward looking statements.
Some of the numbers and these remarks are presented on a non-GAAP basis, we've reconciled the comparable GAAP and non-GAAP numbers and 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 and <unk> and with that I'll turn the call over to Scott.
Thanks, Kim and thanks to all of you for joining us today.
Second quarter results reflect strong momentum across the company small business and self employed group grew double digit.
Credit Karma performed very well and we are very encouraged by early results. This tax season, and we're on track for Intuit to deliver another year of double digit revenue growth.
We are confident our game plan to win is durable accelerated by digital tailwind given the pandemic.
Our platform is well positioned to help customers take advantage of a shift to virtual solutions acceleration to online and omni channel capabilities, and new ways to reduce debt and save money.
Velocity of our innovation is helping our customers at a time when they need us most and positions us to accelerate growth in light of these structural and behavioral changes.
We closed the acquisition of credit Karma and December 3rd and welcomed 1300 credit Karma employees sit Intuit family.
We bring together a large customer base of 110 million credit card members and 67 million intuit customers to help them unlock smart money decisions.
Credit Commerce data platform creates powerful network effects with personalized financial offers benefiting members and partners, while adding a new monetization engines and do it.
We are often running executing on our innovation roadmap, which I will touch on shortly.
Since we're in the middle of tax season, let's start there.
We're very confident and our strategy and momentum extending our lead and the do it yourself category and transforming the assisted segment.
We're making great progress serving fast growing underpenetrated latinx self employed and investor segments.
And this season, we also expanded our free eligibility to better serve customers receiving unemployment benefits.
Continue to aggressively transform the assisted segment by reshaping, how 86 million filers and get their maximum refund with confidence and virtually we.
And we feel great about how the season is progressing.
Let me now shifts to our big bets.
We're seeing strong momentum and accelerating innovation across the business with our AI driven expert platform strategy and five big bets.
And that's our focus on the largest problems our customers face and represent and durable growth opportunities for Intuit and.
I will highlight our progress covering big that number one last as it accelerates innovation across our platform and is foundational to the other bets.
Our second Big bet is to connect people to experts.
We're solving one of the largest problems our customers face lack of confidence by connecting people to experts virtually with turbotax live and Quickbooks live.
With Turbotax live we're transforming that $20 billion assisted category by providing 86 million filers the opportunity aspects tax experts on our platform.
We continued to lead the way and shaping the category, helping customers understand how they get their taxes done and a new way with our marketing campaigns and for a limited time offering re-live expertise to filers with very simple returns and subtract them into the category.
We have significantly improved the turbotax live platform and making it easier for customers to access and experts about the filing experience.
And now with our innovative full service offering our customers can hand off the returns one expert who will prepare and file it for them.
We continue to make progress with Quickbooks live which is built on the same expert platform.
Entering our second pizza season, with Quickbooks live our customer base and doubled from a year ago and retention rates are improving.
Although it's early days for Quickbooks live, we're confident and the long term opportunity to penetrate non consumption.
Our third big bet is to unlock smart money decisions we're.
And we're making progress towards our goal of creating a personal financial assistance.
That helps consumers find the right financial products and some more money and there are pockets and access to financial experts and advice.
Our strategic focus is to grow the core including credit cards and personal loans.
Expand growth verticals, including home loans auto loans, and insurance and developed and emerging verticals and focused on money innovation, including savings and checking accounts as.
As we make personalized financial offers to customers across our platform credit Karma provides an additional monetization and and increasing our combined wallet share with both free and paying customers.
We've made great initial progress combining our capabilities to fuel our success of the credit Karma platform.
First to create a complete financial profile for existing and prospective members with customer consent. We've combined income data from 26 million Turbotax returns with credit Karma.
And the combination of verified income data with credit history will enable credit karma to better personalize offers driving engagement and creating a win win win for our members partners and us overtime.
This enabled us to grow and our core verticals for credit cards, and personal loans and growth vertical for insurance and mortgages.
Second we integrated credit Karma money into turbotax filing and experience, providing approximately 36 million turbotax customers the ability to deposit up to 88 billion of tax refunds and no free checking accounts.
And third we're migrating turbo users to credit Karma.
We're very excited about the journey ahead of us.
Our fourth Big bet is to become the center of small business growth by helping our customers get paid fast manage capital pay employees and confidence and grow in an omni channel world.
60% of small businesses struggled with cash flow and we're innovating with velocity to create solutions for customers to overcome this challenge were.
We're making it even easier for customers and they get paid fast with tools like payment enabled invoices.
My auto, enabling new customers to accept payments immediately increasing our charge volume.
We continue to innovate with Quickbooks cash a small business bank accounts that helps our customers manage working capital by providing visibility into their full financial picture along with the ability to move money instantly and ensure their money is working for them.
While taking advantage of the built and accounting of Quickbooks.
We integrated bill pay into the offering this quarter.
We're seeing growing adoption and active user cook with cash, including a meaningful increase and activation rates.
We're making good progress with Quickbooks Commerce launched last September Quickbooks Commerce is designed to better serve the 1 million product based businesses on our platform and.
$6 4 million product based businesses and our core markets.
The offering provides inventory and order management tools and small businesses need to grow their businesses in an omni channel world.
We continue to add new partner integrations, enabling a streamlined experience.
We're further bolstering the offering with the acquisition of one fast and early February 1000, and infrastructure platform that integrates data streams from multiple sources of e-commerce platforms.
This will help our customers see a complete view and quickbooks.
It's too early for both Quickbooks cash and equivalents Congress, but we're encouraged by what we're seeing.
Our fifth Big bet is to disrupt small business mid market with Quickbooks online advanced.
The features we're introducing individually tailored the operating to the needs of small businesses with 10 to 100 employees and a disruptive price point.
We continue to build out the offering and innovate to better serve these mid market small business customers by adding more deeply integrated partners important to both acquisition and retention.
And finally, our first big Matt revolutionize speed to benefit enables us to put more money and our customers' pockets eliminate friction and deliver confidence at every touch point by using AI and customer insights.
And turbotax, we're leveraging advanced models to proactively offer customers the right resources at the right time to keep them engaged and give them confidence to file their taxes.
And then Quickbooks advanced we're using AI to detect anomalies and price and quantity on customer invoices saving our customers time and frustration of having to reset and invoice.
Lie and my brains are benefiting from a common AI platform, that's creating efficiencies and scale driving profitable growth.
Across all of our big bets, we're building momentum and accelerating innovation, which we believe positions us well for durable growth into the future.
I'm excited about the opportunity we have ahead of us and I'm proud of the progress, we're making as a team.
Now, let me hand, it over to Michelle.
Thanks, John Good afternoon, everyone for the second quarter of fiscal 'twenty and 'twenty. One we delivered revenue of $1 $6 billion GAAP operating loss of $25 million versus operating income of $270 million last year.
Non-GAAP operating income of $235 million versus $384 million last year.
GAAP diluted earnings per share of seven cents versus 91 cents a year ago. The GAAP earnings include a $30 million gain from the sale of a note receivable that was previously written off and.
And non-GAAP diluted earnings per share of 68 cents versus a dollar and 16 cents last year.
Turning to the business segments consumer group revenue declined 71% and Q2 driven by the later IRS opening this year.
We continue to focus on our strategy to expand our lead and DIY and transform the assisted segment with Turbotax live.
We remain confident and our plans and guidance of 9% to 10% growth and fiscal 2021.
Turning to the pro connect group revenue declined, 8% and Q2, reflecting a delay and forms availability.
And the small business and self employed group revenue grew 11% during the quarter well online ecosystem revenue was up 22%.
Our strategic focus within small business and self employed is to grow the core connect the ecosystem and expand globally.
Our longer term expectation remains 30% or greater online ecosystem revenue growth driven by 10% to 20% growth and both customers and a RPC.
First we continue to focus on growing the core Quickbooks online accounting revenue grew 22% in fiscal Q2, driven mainly by customer growth and mix shift we.
We lapped a full quarter of a price increase last year driving slower year over year growth versus last quarter.
Second we continue to focus on connecting the ecosystem.
Services revenue, which includes payments payroll time tracking and capital grew 20% and fiscal Q2.
Within payments revenue growth reflects continued customer growth, along with an increase and charge volume per customer.
And then payroll we continue to see revenue tailwind during the quarter from a mix shift to our full service offering and growth and payroll customers.
Third our progress expanding globally and it's the growth of online ecosystem revenue during fiscal Q2.
Total international online revenue grew 44%.
Lower growth from last quarter was driven by lapping price increases a year ago, and the lingering impact from lower retention and customer acquisition at the beginning of the pandemic.
Desktop ecosystem revenue declined 2% and the second quarter in line with our expectations for the business to decline longer term.
Within this quickbooks desktop enterprise revenue grew mid single digits.
Small businesses are resilient and we continue to help them put more money in their pockets when they need it. Most we're pleased to see most quickbooks indicators are back to or better than pre pandemic levels.
This includes growth and customer acquisition and the number of companies running payroll and payments charge volume.
This reinforces the digital tailwind and positioning of our platform and big bet Sissonne touched on earlier.
We closed the acquisition of credit Karma on December 3rd, resulting in revenue of $144 million for the partial quarter.
Our strategic focus with credit Karma is to grow the core of credit cards, and personal loans and expand growth verticals, such as home loans auto loans and insurance and develop the emerging verticals and focused on money innovation, including savings and checking accounts and all.
Share more detail on each of these strategic focus areas.
First our focus is growing the core we're seeing new credit card and personal loan partners Onboarding well overall partner activity continues to recover.
Adoption of the industry first light box continues to grow.
White box enables credit karma to more tightly integrate with its financial partners, which helps match members to the products that are right for them.
And now represents approximately 40% of credit card transactions and approximately 30% of personal loan transactions up substantially year over year.
Second our focus is expanding growth verticals.
Although it's early days, we're seeing strong growth and auto insurance, followed by home loans, and then auto loans.
And anyway revenue and the growth vertical is up over one five times year over year, it's a high watermark.
During the quarter, we introduced Karma drive providing members and easy opportunity to qualify for an auto insurance discount based on actual driving habits.
Third our focus is developing and emerging verticals, particularly money innovation and we're just getting started with credit Karma money.
Turning to our financial principles, we remain committed to growing organic revenue double digits and growing operating income dollars and faster than revenue and.
And I've shared before as we lean into our platform strategy, we're starting to see the opportunity for faster margin expansion over time and I'm proud of the progress the team is making.
And we take a disciplined approach to capital management investing the cash we generate and opportunities that yield and expected return on investment greater than 15%.
We continue to focus on reallocating resources to top priority with an emphasis and becoming an AI driven expert platform. These principles remain our long term commitment.
Our first priority for the cash we generate is investing and the business to drive customer and revenue growth.
We consider acquisitions to accelerate our growth and fill out our product roadmap.
We return excess cash that we can't invest profitably in the business to shareholders via both share repurchases and dividends.
We finished the quarter with approximately $2 $7 billion and cash and investments on our balance sheet.
We repurchased $175 million and stock during the second quarter.
We have approximately $2 $2 billion remaining on our authorization and we expect to be and the market each quarter. This year.
The board approved a quarterly dividend of 59 cents per share payable April 19th 2021 and this.
And this represents an 11% increase versus last year.
Moving onto guidance well macro uncertainty continues we remain confident and how our business is performing and the current environment.
Our guidance for third quarter fiscal 2021 includes revenue growth of 53% to 55% GAAP earnings per share of $5.85 to $5.95 and non-GAAP earnings per share of $6 and 75 to $6.85.
And you can find our full Q3 and reiterated fiscal 2021 guidance details in our press release and on our fact sheet with that I'll turn it back over to Mr. Sun.
Great. Thanks, Michelle I'm very proud of our team and all we've accomplished together and I'm very optimistic about the future. So with that said, let's now open it up to your questions.
Ladies and gentlemen.
If you would like to ask a question. Please press Star then the number one and your telephone keypad.
If you would like to withdraw your question press the pound key.
Our first question comes from Scott Schneeberger from.
Oppenheimer. Please go ahead.
And thanks very much good afternoon.
And on taxes, we're in that season.
And I'm, just really curious on if.
If you're seeing any activity and.
Pick up strength all of the new new breakthrough change open in 'twenty and 'twenty, if you seed and wanted activity in and your tops business from a corresponding tax reporting for Matt and just as you saw on a few sites and that is that is that going to trigger more volume or do you think it's likely.
Something that would trigger and increase in the revenue per return since from such transactions, Michael might call me and that day and are at a higher tier and the.
Offering thanks.
And thank you for your question Scott you know if I would take you back to what we did Kurt and declared several years ago.
One element was underpenetrated segments.
That's my community was one of course self employed and latinx and the other element of course is about transforming the assisted segment, which also helps us serve that community well, if they need expertise or if they want us to do their taxes for them and and what I would tell you you know we all see the same Scott there's been really a.
Significant increase and retail investors are using all the different tools that are out there and not just in the United States, but particularly in Brazil, India and and the U S and so I feel good that we're very well positioned and all of those segments that I mentioned latinx self employed and from here.
We are actually experiencing the kind of growth that we expected and probably you know a tick up on our premier offering which really serves our.
Investment community. So we we are experiencing and accelerated growth and its really all sort of in context of what we are.
And had declared and we'll have to see how the season plays out and when we tally up our results what it all looks like but we're very very pleased with the fact that we've really positioned ourselves to serve the segment a few years ago and I think we're positioned well for delivering for them. This season, both with life platform and if you want to do it yourself.
James and I appreciate that and then.
And and staying on taxes I'm, just curious kind of a high level question and and and you get this throughout the preseason, but now we're into the tax season.
Type of and <unk>.
And returns do you expect and this year versus last year I saw recently that Texas because of what's going on there and the last couple of weeks has gotten to delay. The June 25th. So we've added new accounts and then just day one tax season last year.
A condensed for most states tax season. This year, what are you expecting just from an industry growth year over year and anything that youre seeing and early season to support that view. Thank you.
Sure you know a couple of things I would say one you know the assumptions that we made coming into this tax season is that IRS returns would be sort of flattish.
And we expect to be able to grow our share of the total number of returns and particularly because of our focus on the underpenetrated segments that I mentioned and transforming the assisted segment with with our our life platforms and it really for US it's about growing our share of the entire category and as you know we have.
Such a massive opportunity with 86 million filers that today go to somebody else to do their taxes and.
And the fact that we have an opportunity to help them get their taxes and some of that.
Expert at their fingertips with anytime that they need and so really all role is about growing the category and are in context of a flattish IRS returns.
All of our guidance just you know we made the assumption that it's April 15th finish and we contemplated that the Texas announcement that was made yesterday and we really just looking at past situations, where there's been you know and disaster, where I R. S has extended the AR and the filing date and the behaviors are very different.
Net net we feel very good about our progress we feel very good about our momentum and really good about you know the potential that we have this season and the context of the guidance that we provided.
Thank you so much and mood.
Thank you Scott.
Thank you. Our next question comes from Ken Wong of Guggenheim Securities. Your question. Please.
Great. Thank you for taking my question.
And so I'm pretty used to sun.
And so on tax.
How do you think about turbotax full service not sure. If you guys are starting to see some good traction there, but would love to get a sense of what kind of customers, you're seeing and utilize that particular product is it guys coming from accountants as it kind of net new filers, who may have the greatest level of uncertainty.
It's across the board and any color you can give would be fantastic.
Sure Ken and good to hear from you.
It's important to just remind ourselves where the assisted segment and the biggest problem that we're solving is confidence these 86 million and fathers need to know that they can ask a question from and expert at anytime that they need to and have the ability to turn it over there we try and if they so choose.
And we are we are getting very good traction with full service, but it really plays I would say a halo effect and what customers want to know is that they can come in and if they choose to ask for help that they can get it and somewhere and the experience that they choose to just say here. Let me give you all of my documents digitally that we can do it for them or even if they choose to make that choice upfront and so forth.
Service beyond the actual number of customers that will end up using our full service really is playing a halo effect, which is what we learned and our test results last year.
And really build confidence for filers that come in from the assisted category that I can't get my questions are answered and there's always going to be an expert at my side and as a reminder, last year, we experienced 70% plus growth in and Turbotax live and the majority of those customers actually pay them.
And from the assisted category. So it's playing the role exactly as we had assumed that it would and so far so good the season in terms of the traction that we're getting.
Great Great debt, that's Super helpful. And then a quick one for you Michelle you touched on on White box and see and I think.
40% of transaction and 30% of personal loans, just wondering kind of where do you think those numbers could trend up to and then as far as monetization and any any color on kind of how monetization has improved from our customers that are utilizing lightbox.
Hey, Ken Thanks for the question here you know light boxes is a great technology now it really is enables us to have a winning experience for both the customer and for our partners our financial institution partners as well as us.
And there's nothing more frustrating than for a customer to come in and and not be able to get access to a financial product that they thought they would and so it enables the financial institutions to be able to better target the products that they have and then customers are much more likely to actually be up.
So with.
With the metrics that we have right now and you know we'll have to see how those trend over time and we're very excited about it we want to continue to have more and more transactions go through lightbox because as we said, it's a better experience from the customer and it also is a better experience for our partners.
Great. Thanks, Michelle.
Thank you. Our next question comes from Brad Zelnick of Credit Suisse. Please go ahead.
Great. Thank you so much for taking my questions.
And so Sean we heard from Michel's comments that many of the small business indicators, such as customer acquisition number of companies running payroll.
Payments charge volume and things like that are all trending positively can you maybe expand a little bit more on the indicators that you're looking at in terms of small business health and from your perspective kind of where we are in terms of small business recovery.
Yeah sure you know, let me start Brad with the actual recovery, depending on the geography, United States versus U K or different states within the U S average geographies performing differently and just to use. An example, we got places like Florida, Texas, Arizona, Georgia, and I've actually recovered quite nicely.
And then you have places like Michigan, and Washington, and California, and New York that are lagging and then within that and you have industries that have come back all the way and industries that habit.
And the natural ones that you would assume its fitness restaurants travel I bring that up and context of yet another data point, which is when we look across the data points that we see about a 25% of our customers their net dollars and their bank account is down and nearly 50%.
So I give you those data points just to say that small businesses are still working hard to come back to where they were and they're not all the way back and that's really important and context relative to how our trends are doing and what you heard from Michelle which is you know we watch acquisition, we watch retention of course, we watch our.
Our payments charge volume the number of companies running payroll the number of employees per company using payroll time tracking et cetera, and all of those indicators are at or above pre COVID-19 levels, except the number of employees at small businesses and that really tells you.
A lot about just the innovation that's happening on our platform the power of our platform and the fact that and times, where small businesses are actually doing worse than they were.
Prior to Covid are actually platform metrics are at or better than pre COVID-19, and so that actually really bodes well for us to not only deliver for our customers, but the growth rates that we would expect as we look ahead, so good momentum and actually bullish about where and where we are and the opportunities for the future.
Thanks for so and that's very helpful and maybe just a follow on from Michelle.
Credit Karma is off to a really strong start and.
And you're now just migrating turbo users over and you've got so many growth opportunities ahead that you've talked about in your remarks can you just remind us perhaps of the seasonality of this business because if we just start annualizing the last two months.
I think we'd all be getting a little bit ahead of ourselves what should we keep in mind relative to what we've seen out of the gate versus what youre guiding for the full year.
Yeah. Thank you Brad Good question and you know we are.
And are off to a strong start with credit Karma and feel really good about the progress that they're making we're seeing the business bounce back and you know more quickly from the pandemic and we had expected you know not all the way back to pre COVID-19 levels, and but definitely making progress there when you think about the seasonality and the business.
They do see a little bit stronger in the January February time period, but there isn't huge seasonality and the business, but I would say in January and February is a little bit more of an uptick and U S.
People are coming into the new year, and some of those and you resolutions and so forth, but and.
That's what I would say and you guys should expect.
Excellent. Thank you so much.
Thank you. Our next question comes from Keith Weiss of Morgan Stanley. Please go ahead.
Excellent. Thank you guys for taking the question and very nice quarter.
I wanted to extend a little bit and bread Zyla next question.
Can you help us understand now that the indicators are at or above kind of like the pre crisis levels. How should we think about the mechanism of.
How those indicators.
Indicators and the timeframe for when those indicators and real translate into kind of the revenue growth rates that you guys have got it to longer term and debt that we were expecting so like how should we moderate our expectations on too.
How quickly do indicators become sort of the actuality interest and what we see on the income statement.
Yeah. Thanks for your question, Keith and you know and context of being a subscription business a lot of.
The growth rate and your we're experiencing now is the things that were happening almost a year ago at this time.
And and in context of slower acquisition and retention.
Dropping a couple of points and starting in March of last year and also you know there are a number of things that have huge benefit for customers that we paused things like.
Payroll service migration, we have a line for where you have to upgrade to Quickbooks advanced.
Sort of dropped that line for a while so it was the combination of acquisition or retention along with very intentional decisions, we made around pricing and and migration that has had an impact on the growth rates that we're.
And we're seeing now and and and in addition to all of that we're lapping price increases that we had done at the same time last year. So the long answer to your short question is you know what we are starting to see now we should expect the growth rates to be impacted and the year ahead, because a lot of the metrics and the trends that we're at.
Is there anything now we'll we'll see the follow on benefits in the quarters ahead, but I would say almost think about a year Alex ourselves. The way is the best way to think about it.
Got it got it and and if I could ask a follow up to Michelle on the margin side of the equation.
Really appreciate the continued kind of balance between good growth and faster margin expansion over time and great to see that it is part of the corporate philosophy. This quarter in particular, and we saw the SMB contribution margin up nicely on a year on year basis, but I know a lot of companies are talking to us about.
Kind of.
One time items or sort of crisis related expense savings that we saw in the year past that might not sustained the your forward anything we should be aware of in terms of sort of expenses that might come on board that could upset or not upset, but but could temporarily sort of reverse the margin expansion that we've been seeing.
And you know I.
Thanks for the question Keith first of all and you know for us and as we've been thinking about margins and margin expansion really the biggest driver of any of that is becoming more and more of an AI driven expert platform and so you may see some expenses here there and obviously you see margins move around a little bit quarter to quarter.
And but I would I would say really focused on our guidance, which is you know after last year expanding margins a point. This year, we expect margins to expand approximately 110 basis points to me and win share excluding credit Karma and and.
And that is really us continuing to evolve to being more of a platform company and seeing those areas for us to drive margin expansion across the company everything from technology to customer success and go to market and so that is the biggest driver of margin expansion for us.
Across the company.
Thank you so much guys.
Thank you.
Our next question comes from Sterling Auty of Jpmorgan. Your line is open.
Yeah. Thanks, Hi, guys, I think and some of the prepared remarks and press release. There was the talk of the cross sell of Turbotax going to credit Karma, but I'm wondering what the expectations are in terms of the cross sell and marketing that you could do to credit Karma users for turbotax for this tax season.
Yes sure Sterling.
Just if I could.
Take it up one notch and I'll come back specifically and answer. Your question you know there are a number of things.
We have launched we've launched credit Karma money at the end of the Turbotax.
Turbotax experience, we're migrating turbo customers with turbo being deprecated to credit Karma and of course, then you know to your question.
<unk> turbotax as part of the credit Karma platform. So there are a number of big things and that we're doing and all of them Sterling I would think about them as long term opportunities with our focus being testing and experimenting right now to really nail the experience so I wouldn't expect.
Really a big impact from those in the near term, but we do expect these to deliver significant customer benefits and growth in the <unk> and in the future because we're really just testing and experiments and we wouldn't have really nailed the experience before we launch things that scale. So hopefully that answers your question.
It does thank you.
Thank you.
Okay.
Our next question comes from Kash Rangan of Goldman Sachs. Your line is open.
Alright, Thank you very much congratulations on the quarter. So some of the analyst day, you talked about and.
Pretty big and $24 billion U S tax opportunities and.
I'm wondering what have you learned from our lives and what are the things that you need to add to live in terms of capabilities to be able to address this and Ah.
And then and the larger scale most of them the same way and as you look at our tubular advance what are the things that you've learned with that product out at the higher end of that.
And the SMB market that you've traditionally played and and what are the things that you're looking to introduce in the product and make it address the full breadth of the time. Thank you so much.
Sure absolutely here from you let me, let me start with with live and and the 86 million customers that today and you know go to an assisted method based on the research and work that we did several years ago. One of the learnings that we had and over 70 million of these 86 million.
<unk> are actually willing to use a digital platform as long as they can get help and expertise to be able to file their.
Taxes with confidence and in fact, they would like to get help beyond taxes, which is where you know credit Karma comes in and so to your to your question of what what we have learned.
Our beginning our fourth year with the the life platform.
And we're more bullish about the opportunity ahead of us and we were even four years ago, when we launched Turbotax live.
Because in essence, what we've learned and that and that's informing what we're executing this season is one we have 86 million folks that we need to.
Debt to consider the fact that there's a digital platform with an expert at their fingertips and the fact that they can actually hand, everything off digitally for an extra which is where you see what we're doing and our marketing campaigns and you may only see what we're doing off air on TV, but we've got an incredible campaign and educating our customers.
And in multiple different digital channels to help them understand how this works because were really shaping and reshaping the categories. So one is about.
Education.
Which is where a lot of our investment is going the second is one day come in really nailing. The first time use immediately when they come in.
Them understand how to get access to and expert engaging with and expert exchanging a document digitally and seen how easy it is and then.
And with now the launch of a full service if you choose to upgrade the full service or have you come in and choose full service how do we deliver instant benefits you and instant benefit by the way is confidence that theres an expert there now which gets me to the other side of the equation, which I haven't mentioned and that is our expert platform and that's really where we have it.
<unk> a lot of our AI investments are actually improving our expert platform around scheduling document exchange.
Making sure that we connect the right expert to the right customer ensuring that we deliver insights to the expert because of our machine learning capabilities. So that when the expert is talking to the customer it actually they deliver confidence with their know how and their knowledge and then being able to and by the way the culture, we're creating with the <unk>.
Experts that we have on our platform that loved the intuit culture, the income that they make and and love the fact that they get to deliver.
And our customers and the comfort of their home. So those are the areas that we are focused on and frankly every day and season, we learned and we are we have jobs and and we are you know, we love our momentum and our and the opportunities ahead and.
And you know what we'll learn over time as you know, we're launching and turbotax live as part of the credit Karma platform and what's unique and launching that as part of the credit Karma platform will actually be able to deliver a personalized experience because we will know that you were a prior year assisted customer and that again will pay off and the long term, but those are the things that we're testing.
And now in terms of your question around disrupting and mid the mid market with Quickbooks advanced and it was a cup.
Are things that we've learned frankly, we believe that we can even go higher and the market beyond 10 to 100 employees and our focus right. Now is 10 to 100 employees, but as we see the power of our platform and the ability for it to scale we.
We believe that we can actually serve.
Even bigger and mid market customers at a disruptive price and you know to your question the things that we're continuing to add our things around like workflow management and automated invoice approval batch and saying Ah.
Getting very deep integrations.
Critical apps that are these customers need to be able to grow their business and and run their business some of which Michelle actually mentioned in the script around like Doc we sign up spot sales force are just a few example.
And and every day, we're learning what we need to add to the platform, but it's a lot of what we do today just a much much higher.
Scale and the confidence that's given us and not only being able to go upmarket, but we're actually we have now 70% of the customers that we're getting our upgrader and 30% debt our needs and our franchise and we're actually seeing our needs and our franchise growing even at a faster rate than what we thought and without the the focus yet in place to be able.
And go after new to the franchise. So those are the few elements that I think are worth sharing and cash.
Very insightful. Thank you so much system yep. Thank you.
Our next question comes from Brent Thill of Jefferies. Your line is open.
Good afternoon and back on on small business I, just wanted to drill and there were a handful of investor questions related to your comments around the pipeline yet Q1 to Q2 the growth rate decelerated and small business I think many believe that they would stabilize or build and I just want to make sure were.
Truly understanding this debt.
And the comments that your color that youre seeing and the pipeline and close rates and things behind the scenes are showing a much better growth rate than what that reported numbers, indicating and I. Just I just want to make sure. If there was any anomalies or any any differences that.
We should be aware of Theres a number of questions just disconnect from the comment relative to the reported number.
Yeah sure sure Brad you know one of the things that we've been pretty consistent and communicating is that our growth rates would decline sequentially before they start bouncing and and going back up and that's really what we saw in Q2 is very consistent with what we expected and and that's consistent with what we expected on a couple of <unk>.
Once one because this time last year are starting in March for several months both acquisition.
Load, but also our attrition pop but in addition to that there are things that as I mentioned, a few moments ago that we pause like full service migration.
We paused our quickbooks advanced.
La lineup for.
And for those upgrade or is that and we didn't ask them to move up because we didn't want to have them experience that in and and close the early Covid times and so what what you're what we're experiencing now is just a reflection of some of those key indicators that we experienced earlier in the year and.
We are on top of that lapping a price increase that we did last year that we didn't do this year. So you put all of that together, we're actually quite pleased with the growth rates that we experienced in the quarter, although we expected it to be lower than last quarter and then as we look ahead as I mentioned in the coming quarters and and year ahead.
Had a lot of the indicators that Michelle and I shared we will start turning into revenue growth, but everything as per our expectation I think the only and that's not per our expectation as the business is actually performing better than what we thought and the pandemic.
And that therefore, we're bullish about the future.
Great. Thanks Hassan.
You're very welcome Brian.
Our next question comes from Kurt and return of Evercore ISI. Your question. Please.
Hi, yes, thanks, very much actually Susana and wonder actually and maybe it was from Michelle just to per Brents question did it you get four points of benefit from the PB PPP program last quarter and your 24%. So if we sort of normalize and I guess did you have any this quarter because if you normalize for that you would actually have accelerated.
And I'm doing the math right from 'twenty and 'twenty two this quarter. So I guess, just keep talking about the PPP.
Program help to Cuba ecosystem and all this quarter.
Yeah, I would hate and headline, but I would say Oh Michelle. Please go ahead no that's okay.
I was just going to say I'm sure actually and the PPP revenue that we got and that was actually in Q4, we saw that and so we did have about a four point decline from my memory serves me correctly from 28%.
Online ecosystem revenue growth and Q4, which then dropped to 24 and Q1 and that was that actually had a P. P. P and it but we didn't have the anything material in Q1, Greg.
That's why I, just wanted to double check that and but Tucson, and I guess just sort of on the small business. Another question would be on the international growth clearly the U K was under a pretty severe lockdown for a lot of this quarter did that impact you all at all and international growth was still very strong and the and the mid Forty's, but it's just kind of curious if that was one of the regions that perhaps.
It was still you know maybe taken a little bit longer time to recover thanks.
Yeah, Curt it actually has I mean, I would say if I look at it.
Cross the globe and United States is really not just bounced back nicely, but just the resiliency of our platform. The innovation on the platform is really allowing us to see.
And all the indicators are get back to or better than pre COVID-19 levels. When we look at outside of the United States countries like UK, and Australia, France actually were hit much harder and to your point and Theres still a specifically U K and France, and a locked down so that has an impact.
The growth rate and relative to what we see and are in the United States, but all of that is within the context of the guidance that we provided but it has seen a hit.
Okay. That's helpful. Thank you.
Thank you.
And the next question comes from Michael Turin.
Fargo Securities Your question please.
Hey, there thanks and good afternoon.
Back to credit Karma and it looks like that segment outperformed what we were expecting on the partial quarter looking at what's implied for the rest of the year. It looks like it's still below the $1 billion that businesses out in 2019 can we just go back to what some of the factors are that could drive outperformance from that beyond what's assumed in your current outlook and then on the.
The margin there is the 26% segment margin and they're a good building block for us to be thinking about or is the seasonality Michelle referenced.
And what impacting that number as well.
Yes, sure and good to hear from you Michael.
Just as a quick refresher there are three elements around growth and credit Karma, it's growing the core which is credit cards and personal loans.
It's expanding our growth verticals, which is auto and home loans and insurance and then our emerging verticals, which is really all around and assets, which is money innovation and and none of this growth is really coming from that third bucket and the second point I would make is we sort of have a 70 525 and about 75%.
Of the revenue is.
It's coming from and the credit cards, and personal loans and 25% coming from the.
And the growth verticals, which is auto and home loans and and insurance, which is actually really improved versus about a year ago, where it was 95% credit cards and personal loans.
And just specifically with that context to answer. Your question you know, we're seeing more partners come back on the platform perspective, we're seeing new partners come on and we're starting to see you know higher spend and because of just the innovation with light box and that's better matching we're getting more customers to actually get connected to the financial products that are.
And for them and partners are benefiting from that so the performance we experienced this quarter and its just where were seeing.
Stronger momentum when it comes to credit cards personal loans.
And then the the growth verticals, specifically around auto insurance and <unk>.
And when we look ahead, our overall guidance was just based on the trajectory that we assumed for the year and we'll just have to continue to see how these verticals all play out, but we like the momentum that we see but that could be the reason and the long term for over performance to your question specifically around <unk>.
And really important to note that one we manage margins at the company level and so really pay attention to the guidance that we provided the company level to you know we are investing and credit Karma and it is a we see it and the long term is a big growth engine for the company the penetration when you're thinking about the 110 million members that credit Karma has.
And the penetration with all these different financial products that I mentioned is actually still quite low so it's actually quite exciting as we look ahead and the possibilities of increasing penetration and so we are investing.
Dollars are in credit Karma, all within the context of the guidance and margin expansion guidelines that we have provided so I wouldn't get too anchored on the current quarter.
Margin rates it was more because they perform better than what we thought and some of that investments and hiring shifted between quarters I would more focus on company level operating income that we provided and margin rates that we provided.
That's all very helpful. Thank you.
Yeah. Thank you.
Our next question comes from Jennifer Lowe of UBS. Your line is open.
Great. Thank you and maybe just first one quick clarification from me.
Relative to the question that Craig asked earlier, Michelle you clarified that you know Q4 had the P. P P impact and by Q1, and there wasn't one and but given that that program reopened I think earlier this calendar year.
And you just confirm whether it was and impacting Q2.
No junior debt program, the new PPP program has been moving and you may have seen it and the and the process and moving much more slowly than anyone had anticipated and that we don't have anything and not anything and that material and that Q2 results.
Perfect and then just following on some of the questions around the trajectory and small business and there's a couple of different factors and your cost called out there's first the fact that day.
The economic indicators have improved but maybe not everything is back to pre COVID-19 levels and then Theres also sort of this lagging effect from some of the subscription businesses are Smith deposits that you took them as is.
Everyone's heard navigated a very uncertain time, so I just want to clarify if you think about the 30% plus type aspirations for the online and.
Ecosystem component is that something you can get back to in the current environment and it's just a function of working through some of these sort of leftover impacts from the last six to 12 months or do you need to see continued improvement and the broader small business economy as well to get back to pre pandemic levels to support that 30%.
Thanks.
Yeah, John Thanks for your question.
And what I would say is yeah.
Economic indicators are.
Still below pre COVID-19 levels, it's more our own indicators and the performance of our platform.
That has bounced back and in many cases better than the pre COVID-19 levels, which gets I think that the essence of your question and that is our goal and the long term has not changed and are we.
And I believe that we will get this business specifically the online revenue growth above 30%.
And we just need to keep executing our game plan and I would tell you that we don't think it's heavily relied upon how the economy bounces back because if you look at where we are today versus six months ago. A lot of the performance that we are talking about is based on the performance of the platform and our execution and the innovation on our platform.
Now at the end of the day this economy doesn't need.
Fiscal stimulus to get people back into jobs, but that is not the anchor for us to get back to the growth rates that we believe we can get back to you and it'll just take some time.
Great. Thank you.
Thank you.
Next question comes from Kartik Mehta.
Northcoast research your question please.
This is Scott when you look at the Quickbooks business, obviously, you're lapping a price increase but you havent stopped innovation and I'm wondering what metrics you will look at to feel comfortable.
To adjust pricing.
Yeah Kartik. Thank you for your question or.
And our main focus around pricing will be when we believe it's the right time, given how small businesses are performing and given the pandemic. It is actually not related to our innovation, but as you know we now have innovation that allows us to go upmarket with both Quickbooks advanced.
And Quickbooks live which is a much higher <unk> offering.
Have the ability to garner a higher price from customers.
But from a price increase perspective, it's less about the metrics and the indicators that we see with our own platform, but more when we believe it's the right time to raise prices with customers given what they're experiencing and the challenges that they're experiencing for their business. So the two are in many ways.
Unrelated in terms of the way, we think about it.
And then just finally, when you look at the credit Karma customers.
As far as tax customers is the mix of.
The products, they're using different and their core turbotax customers at least what you're seeing early on.
Yeah, what I would what I would share with you that we've learned about the credit Karma base as you know a big a.
A big portion of their customers actually using an assisted method.
And that is actually what is exciting to us now because they have 110 million members.
And you can imagine that a strong cross section of folks and the U S whether latinx self employed.
Those that are retail investors. So that cross section is generally consistent with the customers, we serve and turbotax a day.
What's different is we got a good majority of those customers that and the prior year used and assist the assisted method.
Thank you I appreciate it.
You're very welcome.
Yeah.
And our next question comes from seafood panicked, Brian of Mizuho. Your line is open.
Thanks for taking my question wanted to ask about the feedback you got from that are product based businesses, mainly you know Quickbooks commerce that you launched a few months back.
That seems like that's and that could you share from trade again, mainly has order into inventory I'm wondering like how far are you can expand that offering and.
You know it feels like you can become the back office stock from Ford.
And this kind of businesses, so what sort of opportunity you are seeing and what sort of feedback you've got so far.
Yeah sure. Thank you Sidney.
First of all we're very excited about Quickbooks Commerce and it's also you know very very.
Early innings with Quickbooks Commerce.
And then the acquisition, we just made with one fast actually allows us to bring data into the platform.
From marketplaces from Pos providers from fulfillment and apps and so really actually helps us help a customer and understand how they're doing and their profitability, which is what's most important to the customers. We actually had to restrict from the top of the funnel.
To ensure that we can nail the customer experience and so our focus first wise.
And ensuring that we can serve new customers that don't use our inventory today. Our next focus will be existing <unk> customers that don't use any of our inventory capabilities and then third will be existing GPO customers that actually do use our inventory capabilities and the reason and that's important is and we want to ensure that if a customer already.
And the inventory and we can easily think all their product catalogs and proud of their product numbers and to keep their books clean. So net net we're just getting started and we.
Had to restrict the top of the funnel because of the demand and the excitement that was that was out there because we want to be very intentional in terms of building out the capability very early indicators are positive with the number of customers and we have on our platform, but again think about Quickbooks Congress thinking about quickbooks cash as these are long term plays in terms of when and.
And how they will deliver growth, but so far we're bullish about the early indicators.
That's correct. Thank you system alright.
Alright, Thank you Sidney.
Thank you. Our next question comes from Brad Reback of Stifel. Your line is open.
Great. Thanks, very much Michelle as we think about free cash flow generation over time is there any reason that shouldn't closely and are operating income growth.
And I'm, sorry can you repeat that Brian and I.
I didn't hear the last part of it.
Sure. So as we think about free cash flow generation over time is there any reason that shouldn't mirror operating income growth.
No no.
And there shouldn't be any real big reason why you shouldn't see that now.
Okay, that's great and then maybe one quick tactical one son.
Talked about true.
Quickbooks live retention and better does that meaningfully different and quickbooks online and retention right now.
Yeah, you know the the biggest thing well first of all it's very early days. So we look at more cohort of customers versus the aggregate numbers that the biggest reason, we're so focused on retention right now with Quickbooks live is and we're focused on understanding customer needs and really nailing the experience cause little cookbooks lives of our customers that come in.
To get set up with our customers that come in that want us to provide them advice and they just they're looking for bookkeeping advice and that our customers actually want us to do their taxes for them and run their books for them and what we're really being intentionally Matt is understanding what are the need and what are the experience that we need to deliver and what is that.
Look like on the platform, which is why you heard me mentioned retention retention right now.
<unk> is more focused on cohort and it is lower than Q B O only because we're looking at different cohorts of customers and their needs are very different and before we really open up the top of the funnel and we want to make sure that every customer loves the experience that they're getting from us on Quickbooks live and the team is just innovating like crazy to close some of the gaps and to work.
Cited about the possibilities.
Great. Thanks very much.
Thank you.
And the next question comes from urban rent and Army of Piper Sandler Your line is open.
Hum.
And so taking my question I wanted to follow up on a question that was asked earlier around the kind of the increase and brokerage accounts.
And.
And I just wanted to ask about potential there from from crypto users.
This would be the you know the first time.
Just as we need to do.
Some of them and it will be.
First time filers, but many of them and certainly be adding the.
The added product for capital gains or losses.
Are you seeing any kind of a lift from from this segment of users.
Yeah arm and it's not particularly just from the Crypto uses we're just you know there are just millions.
And of millions more of customers that are.
<unk> doing their own trading in the U S and outside of the United States and and you know come tax time, they need to be able to do their taxes and and so we're just seeing avi.
And increase and our premier.
Both it would lie because if you need assistance you can use live and if you want to do it yourself and you just use our of course, our premier do it yourself product. So we're seeing and overall increase based on and increase in retail and best thing I couldn't call out something that's a material and on the crypto side.
Great great.
And.
And when you just think about.
And the kind of the lift in revenues.
I mean, I'm and I'm not looking for specific quantification, but but directionally. You know are you expecting more and more of a lift from increased ARPA or or increased increased users.
Yeah, you know that.
The way, we designed our long term growth rate is on the Underpenetrated segments, which is investments and maybe self employed and latinx and it's turbotax live.
And with Turbotax live just by design and it has a higher <unk> now right now we are so early and.
And the shaping of the category and being able to acquire a customer or is that the best thing for you all to anchor on is what we shared at Investor Day, which is our long term expectations. Just on the tax side is 8% to 12% and probably the largest driver of the higher and is our pool and.
Just know that we're being very intentional about right now raising awareness, both with our campaigns, but the free expertise that we're providing.
For those that have very simple returns just to create awareness and the category, but and the long term its ARPA.
Because of the assisted segment.
Perfect. Thank you.
Very welcome.
Our next question comes from Michael Millman from Millman Research. Your line is open and thank you very much.
Questions.
You mentioned that.
Credit Karma was getting some business from assisted can you talk about.
Uh huh.
And almost switching around between different message or if this is a particularly.
And at Karma type business activity and a second Lee could.
Can you talk about.
And maybe you do this and whether you.
If you use rouse to kind of speed up some of this moving.
And particularly from our assisted.
And I guess.
Well, let's start with those.
Yeah sure Michael Thank you for your your question and the point I made earlier.
And it was twofold one that this is a learning year for us and launching turbotax was part of the credit Karma platform and we're just running a lot of experiments to make sure that we can deliver and fantastic experience before we you know we go big and and the out years, but the second comment that I made is that.
You know a good portion we've not divulge the number of credit Karma members.
And does the assistant assisted segment and its very much you know.
Two when you look at there's 155.
Or 160 million IRS returns and 86 million, our and the assisted segment.
And Ality, it's the same thing within the credit Karma base. So that's the point that I was making earlier to your second question about Rouse really the biggest driver of getting a customer to use the digital platform is actually confidence and not early access to their money. They have to first have confidence that they can get their taxes done right with.
And you, which is where our experts and expertise comes in and that's really where you know a lot of our investments are going and we also provide early access to your refund, but really the big driver is about ensuring that we deliver competence who are experts.
So big opportunity.
And money too.
And I'm moving confidence over to eliminating.
Round kind of money.
Yeah, well away from the first of all we're really focused on getting these customers to come to our platform by ensuring that they know that they can and get access to and export. So confidence is first and foremost and of course there are different methods that we can help.
Help these customers get early access to their refund that's very very consumer friendly. So the answer is yes, but it's secondary.
Two providing expertise to these customers to use the platform.
Greg I appreciate it thank you very much and Michael and stay safe. Thank you. So much. Thank you you do the same and thank you everybody I know, we ran a little bit over and appreciate everyones.
Questions I wish everyone, well stay safe and until next time, we'll talk to you next quarter. Thank you everybody.
Ladies and gentlemen, and thank you for participating this concludes today's conference call.
Okay.
Moving.
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