Q3 2021 Intuit Inc Earnings Call
Good afternoon, My name is Latif and I will be your conference facilitator.
This time I would like to welcome everyone to Intuit's third quarter fiscal year 'twenty 'twenty 1 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. During this time simply press Star then the number 1 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.
Kids Intuit's, Vice President of Investor Relations Ms Watkins.
Thank you Latif and good afternoon, and welcome to Intuit third quarter fiscal 'twenty 'twenty, 1 conference call I'm here with Intuit CEO lets you sound, 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 a number of factors that could cause intuit's results to differ materially.
Purely 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 2020, and our other SEC filings.
All of those documents are available on the industrial relations page of Intuit's 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.
Unless otherwise noted all growth rates refer to the current period versus the comparable prior year period, and the business metrics and associated growth rates refer to worldwide business metrics, a copy of our prepared remarks and supplemental financial information will be available on our website. After this call ends and with that I'll turn the call over to.
It's on.
Great. Thanks, Kim and thanks to all of you for joining us today.
We had a very strong third quarter.
Mall business and self employed group revenue accelerated to 20% this quarter and credit Karma performed very well with revenue at an all time high for the quarter.
Our tax results through the May 17th IRS tax filing deadline reflect another strong season.
Result, we are raising our revenue operating income and earnings per share guidance for fiscal year 'twenty 'twenty, 1 let me start with tax.
We're proud of how we delivered for our customers and executed our strategy of expanding our lead in the do it yourself category and transforming the assisted category.
Based on our performance through the May 17th IRS tax filing deadline, we expect our consumer group revenue to grow 11% to 12% during fiscal year 'twenty 'twenty 1.
We expect total IRS returns to be up approximately 1% and our share of total returns to expand an estimated 1 point from the tax filing season.
This results in expected total customer growth of 6 per stop and double digit revenue growth for the fourth year in a row.
The average revenue per return increased reflecting a stronger contribution by turbotax live and mix shifts to our premier offering used by investors, we made significant progress we'll see them.
But then the do it yourself category, we continued to double down on Underpenetrated segments, including Latinx self employed and investors we.
We saw a significant acceleration in investor customer growth this season and expected to more than triple over last year.
We expect the base of customers paying us nothing to grow 6% must eat them.
We've been transforming the assisted category, we continued to make progress connecting people to experts with Turbotax live.
We expect customers to grow more than 90% this season compared to 70% growth last year, and turbotax live customers new to intuit to be up more than 100%.
More broadly our AI driven expert platform strategy and 5 big bets are driving strong momentum and accelerating innovation across the company.
These big bets are focused on the largest problems our customers face and represent durable growth opportunities for intuit.
As a reminder, Neil that's our revolutionize speed day benefit.
Connect people to experts unlock smart money decisions.
The center of small business growth and disrupt the small business mid market.
Today I'll highlight the notable progress we've made this quarter on 3 of these big bets and we will provide a detailed update on all 5 big bets at Investor day in the fall.
Our third big bet to unlock smart money decisions with credit Karma data platform and powerful network effects, we're making progress towards our goal of creating a personal financial assistance that helps consumers find the right financial products put more money in their pockets and access financial expertise and advice.
To deliver on the school all strategic focus is to grow the core including credit cards and personal loans ex.
Span globe growth verticals, including home loans auto loans and insurance and develop our emerging verticals focus on digital money offerings, such as savings and checking accounts.
Credit Karma also provides an additional monetization engine, increasing our combined wallet share with both free and paying customers.
<unk> achieved its largest quarterly revenue ever in Q3, while the number of members monthly active users and frequency of member visits reached all time highs.
Within the core credit card and personal loan revenue was at a record high on a combined basis, reflecting an increase in both the number of partners and member engagement.
The growth verticals also achieved all time high revenue, reflecting strong momentum in auto insurance, followed by home loans and auto loans.
And we're developing the emerging verticals by focusing on innovation with credit Karma money part of our digital money offering.
We continue to make great progress combining our capabilities to fuel the success with credit Karma.
Since the acquisition closed turbotax customers and migrating turbo users accounted for 40% of new credit Karma members significantly accelerating new member growth.
We're pleased with the initial performance of credit Karma money, which we integrated into turbotax filing experience offering approximately 36 million turbotax customers the opportunity to deposits up to $88 billion of tax refunds into noach be checking accounts.
Providing this product integration helps members achieve their financial goals drive member engagement and creates a new revenue stream for the company in the future.
The more we successfully innovated for credit Karma members the more times members visit the platform and the more opportunities we have to offer members products that are right for them, resulting in more monetization opportunities for intuit.
Our fourth big bet supposed to become the center of small business growth by helping our customers get customers that paid 5 managed capital pay employees with confidence and go on the omni channel World.
60% of small businesses struggle with cash flow and we're continuing to innovate to create solutions for customers to overcome this challenge.
We are excited about our progress with Quickbooks cash a small business bank account that helps our customers manage their working capital quicker.
Quickbooks cash present, our full financial picture, along with the ability to move money instantly and insurers that their money is working for them, while taking advantage of the built in accounting of Quickbooks.
We achieved the milestone this quarter as quickbooks cash balances surpassed $100 million and we're seeing strong active use among both new and existing customers.
Our fifth like Matt said, the sub small business mid market with Quickbooks online advanced.
The usage of services, such as payments payroll and time tracking with QB L advance customers has more than 30% higher than the next to be Oh offering in our lineup.
We're going to hire a RPC, while overall engagement is up over 10 points and year to date.
We're very pleased with our results and remain confident in our game plan to win accelerated by digital tailwind across all of our big bets, we're building momentum and accelerating innovation, which we believe positions us well for durable growth in the future now let me hand, it over to Michelle.
Thanks Hassan good afternoon, everyone for the third quarter of fiscal 'twenty 'twenty..1 we delivered revenue of $4.2 billion GAAP operating income of $1.9 billion versus $1.4 billion last year non.
Non-GAAP operating income of $2.2 billion versus $1.5 billion last year.
GAAP diluted earnings per share of $5 from 30 cents versus $4.11 a year ago and.
And non-GAAP diluted earnings per share of $6 and 7 versus $4.49 last year.
Turning to the business segments consumer group revenue grew 34% in Q3, reflecting a shift in the timing of the IRS tax filing window year over year the.
The revenue we're reporting today for our third quarter ending April 30th.
That said based on our performance through the May 17th tax filing deadline, we are raising our consumer group revenue guidance to 11% to 12% growth for fiscal 'twenty 'twenty, 1 up from 9 to 10 per cent previously.
There are 4 primary drivers in our consumer business note that these levers exclude approximately 8 million stimulus filings last year.
This data reflects our expectations for the season through July 31st 2021 versus the prior season through July 31, 'twenty 'twenty.
The first is the total number of returns filed with the IRS, which we expect to be up approximately 1 per cent by the end of the season.
The second is the percentage of those returns filed using do it yourself software.
We expect the DIY category share of total IRS returns to be approximately flat by the end of the season.
The third driver is our share we expect our share of total tax returns to expand 1 point this season and our share of the DIY category to be up approximately 1 point.
The fourth is average revenue per return, which increased again this season.
This growth reflects a stronger contribution by turbotax live and mix shifts to our premier offering which is used by investors.
Turning to the pro connect group revenue grew 22 per cent in Q3, reflecting a shift in the timing of the IRS tax filing window year over year.
For the full year, we expect pro connect group revenue growth of 2%.
In the small business and self employed group revenue grew 20% during the quarter, including 1 point from approximately $10 million of nonrecurring Paycheck protection program or PPP revenue.
Online ecosystem revenue was up 28%, including 2 points of growth from approximately $7 million of P. P. P revenue.
Our longer term expectation remains 30 per cent or greater online ecosystem revenue growth driven by 'twenty driven by 10 to 20 per cent growth in both customers and ERP see.
We expect to return to 30 per cent online ecosystem revenue growth at some point during fiscal 'twenty 2.
Our strategic focus within small business and self employed is to grow the core connect the ecosystem and expand globally.
First we continue to focus on growth and a core.
Quickbooks online accounting revenue grew 24% in fiscal Q3, driven mainly by customer growth and mix shift.
Second we continue to focus on connecting the ecosystem online services revenue, which includes payments payroll time tracking and capital grew 34% in fiscal Q3 or 31% excluding P. P. P revenue.
Within payments revenue growth reflects continued customer growth along with an increase in charge volume per customer.
Within payroll, we continued to see revenue tailwind during the quarter from a mix shift to our full service offering and growth in payroll customers.
During the quarter, we began migrating customers once again to our new full service lineup. This did not have a significant impact on revenue during the quarter.
Third our progress expanding globally added to the growth of online ecosystem revenue during fiscal Q3.
Total international online revenue grew 38 percentage on a constant currency basis.
Desktop ecosystem revenue grew 9% in the third quarter, including approximately $3 million a P. P. P revenue.
As a reminder, in the third quarter last year, the desktop business declined sharply reflecting the impact of the pandemic.
Quickbooks desktop enterprise revenue grew mid single digits in Q3.
Note that we discontinued the turbotax and Quickbooks self employed bundle. This year, we remain committed to serving the self employed segment.
However, after years of experimentation, we determined that serving self employed customers through separate turbotax and quickbooks offerings is most effective.
There was no material impact to revenue or operating income from this decision.
Moving on to credit Karma revenue with $316 million in Q3 as the business continues to gain momentum, reflecting growing members member engagement and expansion of new and existing partners across vertical.
Revenue reached a record high in the quarter.
We are also seeing engagement reached a new high watermark with both monthly active users and frequency of member visit at all time highs, giving us more opportunities to offer members products that are right for them.
Turning to our financial principles, we remain committed to growing organic revenue double digits and growing operating income dollars faster than revenue.
As I've shared before as we lean into our platform strategy, we see the opportunity from margin expansion over time.
We take a disciplined approach to capital management investing the cash we generate in opportunities that yield an expected return on investment greater than 15%.
We continue to reallocate resources to top priorities with an emphasis on becoming an AI driven expert platform.
These principles remain our long term commitment.
Our first priority for the cash we 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 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 $4.1 billion in cash and investments on our balance sheet.
We repurchased $380 million from stock during the third quarter.
We have approximately $1.8 billion remaining on our authorization and we expect to be in the market each quarter. This year.
The board approved a quarterly dividend of 59 cents per share payable July 19th 2021. This represents an 11% increase versus last year.
Moving onto guidance, our guidance for fourth quarter fiscal 'twenty 'twenty, 1 includes revenue growth of 26% to 28% GAAP.
GAAP earnings per share of 78 to 83 cents and non-GAAP earnings per share of $1.55 to $1.67.
We are also raising our fiscal 'twenty 'twenty 1 guidance following strong performance in the first 3 quarters of the year.
Our new guidance includes revenue growth of 22% up from prior guidance of 15% to 17%.
GAAP earnings per share of $6.96 to.
To $7.01.
And non-GAAP earnings per share of $9.32 to $9.37.
We now expect a GAAP tax rate of 21 per cent in fiscal 'twenty 'twenty 1.
You can find our full Q4 and updated fiscal 'twenty 'twenty, 1 guidance details in our press release and on our fact sheet.
And with that I'll turn it back over to Suzanne.
Great. Thank you Michelle I'm very proud of our team and remain optimistic about the future. We have a large addressable market with the secular tailwind that include a shift to virtual solutions acceleration to online and omni channel capabilities and digital money offerings with our strategy of becoming an AI driven expert platform.
And 5 big bets, we're positioned well for accelerated innovation and growth, let's now open it up to your questions.
Yeah.
Thank you, ladies and gentlemen, if you would like to ask a question. Please press Star then the number 1 on your telephone keypad. If you would like to withdraw your question press the pound key.
Our first question comes from the line of Keith Weiss of Morgan Stanley. Your line is open.
Excellent. Thank you guys for taking the question.
Very nice quarter, good to see momentum really across all parts of the business heading into Q4.2 questions..1 for Susana on credit Karma, you talked a little bit about starting to see some of those those revenue synergies, but between credit Karma and end in turbotax to dive into that a little bit more in terms of versus.
Your expectations.
Now we'll have those offers been working I mean I saw them when I was doing Matt my taxes in turbotax since all the offers for credit Karma and people have been taking are taking you guys up on that has that been a material contributor as of yet and are there like kind of linkages that we should be thinking about on the on the quickbooks side of the equation of where you are.
Starting to create those those connections as well and then maybe 1 for from Michelle now we're looking for 100 basis points of margin expansion. This year in the revised guidance. That's awesome does this take away from future years or are we getting sort of a pull forward of operating margins or could we see consistency in this operating margin expansion on a go forward basis.
Thank you very much.
Great G. Thank you for your question, Hey, I have 1 clarifying question for you you asked about Quickbooks was the Quickbooks question connected the credit Karma or was that Oh, I'm sorry, yes, that's a great question.
The just to the the question was around credit Karma like the linkages between credit Karma and Turbotax and then if there are any linkages between credit Karma and <unk> and Quickbooks.
Yeah got it very very helpful. So you know that the I think the place I would start with if you go back a.
A year plus from the time, we've been working with credit Karma really their focus even during the pandemic.
What's the deliver benefits for our customers.
From the perspective of how to manage the money credit scores how to get some of the COVID-19 Relief Act helped and 1 of the things that happen based on just the obsessive focus on customers is.
Their engagement increased at a time aware.
You know the pandemic was impacting the supply side of the equation. In addition to that their investment in light box and getting our partners to really understand a light box the value of Lightbox, how it's good for consumers and how it is good for our partners, whether it's financial institutions M and insurance companies is now really paying.
Off because what you're seeing now is because the member engagement was up into the right. Oh, you have more transactions that are happening on lightbox, which really for the consumer it means a much better match and eligibility for the partner I mean, they are able to also make a perfect match all of those things is really what's the result.
And the momentum that we see right now not only in the core which is credit cards and personal loans in the area, where the company has been investing 13 plus years, but also in the last year, plus new areas, which is auto insurance auto loans home loans. So that's the acceleration that we're seeing a lot of.
The synergy opportunity are going to pay off in the future and particularly there are several 1 that we've talked about it.
Ensuring that we with customers' permission move all their data records from Turbotax day credit Karma, so that they can get much more personalized offers that are right for them on the first click the launching of a credit karma both in the in the Turbotax experience, but also launching turbotax as part of the credit Karma platform. This was really all about.
A learning year, we ran 40 plus experiments chief learned a ton made a number of adjustments and I think it positions us for the months and the years ahead. So a lot of the opportunities that we think about our debt our synergies between the 2 companies are coming in the future.
Turbo and that has been and instant sort of our philosophy of credit Karma, but a lot of what I. Just described is yet to come which is what's exciting about the platform.
Specifically to your question around Quickbooks that has been sequenced for sometime down the road at piece, we're very focused on what's most important is the biggest drivers.
Drivers of innovation and benefits for our members and Cook books is gonna be something that we'll think about down the road, but it's been very intentionally sequence. So we don't distract the team.
Got it.
And Keith on your question on margin expansion you know, we do believe that over the long term the platform leverage Israel, enabling us to expand margins you know last year, we had a point of expansion there.
This year before our credit Karma, we had guided 110 basis points of expansion in our updated guide with credit Karma is 90 basis points of expansion and so whether that's you know looking at technology or customer success. Their go to market. There are opportunities for us to continue to leverage the platform. However, I would.
Remind you that this share is just very unique we were deep in the pandemic at the beginning of the here and we were conservative with our spending.
Typically if you look at something like credit Karma and you know it really took a while even though they really started to bounce back much more quickly than we anticipated, but it took us a while it could be able to ramp up the spend them. When we saw that and we do feel like we will continue to invest to drive accelerated growth in.
In there so I would just say this year is a little bit unique here with the pandemic.
Got it thank you so much.
Okay.
Thank you Keith.
Thank you. Our next question comes from Ken Wong of Guggenheim Securities. Your line is open.
Great. Thanks for taking my question.
I wanted to dive into Turbotax live a little bit you highlighted seeing 90% growth a really nice step up from the 70% last year.
How should we think about where these customers came from is it from the assisted category was it from just.
Upselling your existing base and then any color you can provide on this initial year of full service what that adoption rate look like and then from Michelle just also a quick question on on spend it looks like R&D you saw a really big step up this quarter it looks like roughly 30% year over year, how should we think about kind of where those.
These investments are being funneled and is that kind of the right pace of growth at least for the near term future on the on the product side.
Yes.
Greg Ken Let me, let me take the first part of your question and Thank you for the question you know the the thing I would start with is I would want all of you just think about turbotax now as a platform and needed a platform that allows you to do your taxes yourself.
Or are we gave me the opportunity to provide an expert to help you get your taxes done with you and or you can in essence hand everything off.
And we'll do your taxes for you completely and so the the really the momentum of accelerating from 70% growth, 2% to 90% growth is the fact that we are continuing to build momentum you know we're improving the platform.
<unk> are doing a far better job raising awareness more folks are considering getting help in this world in a virtual world and we will do we're delivering a really excellent experiences where our product recommendation scores are continuing to be 1 of the best that we've seen across the company.
Bring that up just to say that what youre just experiencing what we're experiencing is momentum and full service just plays a halo effect a roll that debt free.
The mental problem that we're solving for customers is 1 of confidence and they want to know that if they need help that they can get access to an expert or even midstream if they want to just hand everything off.
Somebody else to do their taxes, they can do it right off the bat and so it provides a halo effect for the entire franchise that I can get my taxes done with turbotax, and whether or not I delegate everything now and next year, perhaps just ask for an expert or even the youre asking that do it myself that all helps the franchise. So that's the role that it's playing which is why were.
Seeing the accelerated growth and you know the we will share some of the specific metrics, perhaps at Investor day, but the majority of these customers are continuing to come off from the assisted category.
And Ken.
I'm sorry, your question on a R. M D and first of all I would not focus too much on what you see just quarter to quarter changes.
It it can really get a little confusing when you do that I'd look more at the year to date spend.
As for where we're investing our RMB find them. When you look at the increases year over year, it's really around how do we continue to make investments in our platform and that will help us drive the big bat. So we can accelerate growth across the company and so that's real.
We're we're tending to do more of the increases in our investments in R&D.
Great. Thanks, Thanks for the clarity there Michelle.
Thank you Jim.
Thank you. Our next question comes from Kurt Mckern of Evercore. Please go ahead.
Yeah, Thanks, very much and congrats on the course Hassan I was wondering if you could just talk a little bit more about the <unk> business this quarter.
Just in terms of what Youre seeing maybe geographically in terms of the reopening how that's impacting not only new business formation, but the willingness for people to take on some of your a horrible quarter services, whether it's payroll.
That's even commerce arose that ones early on but just maybe some more color on that front would be great and then maybe just a quick comment on the desktop side, it's actually a really strong quarter for desktops.
Curious if there was anything sort of seasonal about that that we should be keeping in mind.
Yeah sure. Thanks for the question Greg.
All of the things I would say 1 biggest thing that we've learned in the last year is just how resilient the platform is and how much customers needed in very tough times and so.
We are seeing usage of our services across the board up into the right and better than pre pandemic levels.
Up into the right pretty much across all industries and we are pleased with not only the existing core platform, but some of the new innovations that we have inclusive of things.
Things like Quickbooks live and Quickbooks advanced which go after a certain segment of customers, but also have a higher <unk>. What I would say is outside of the U S and Canada recovery has been slower so from a geographic perspective, the strength is really U S and Canada and then particularly answer your question on desktop thing isn't.
Michelle said, it's less about seasonality, but more from the perspective of desktop also saw Barry.
You know deep decline at this time last year and what we're seeing is just a rebound compared to a weak quarter, but overall, we're very pleased with the small business trajectory and where we're headed but all the innovation.
Super Thank you.
Thank you.
Yeah.
Thank you. Our next question comes from Kash Rangan of.
Goldman Sachs. Your line is open.
Hi, Thank you very much and let me Echo my congratulations to Michelle and the team here 2 questions..1 as you March up the food chain. If you will on the tubular advanced.
Wondering if you have a perspective on how does it from digital transformation.
Off the back office.
Is it percolating into your end of the the Quickbooks ecosystem and also secondly, as a company what are the things that you've learned during the pandemic that has caused you to accelerate your own visitor transformation internal to intuit and any lessons.
Lessons that we could take from your experiences as you digitally transform yourself. Thank you so much.
Yeah. Thank you for the question our cash you know a couple of things I would say 1 we are pleased with what we're seeing with our not only with our move upmarket, but some of the higher ARPA to offerings you know as I mentioned earlier, our Quickbooks advanced there is you know not only doing the team doing a great job with penetration.
But also our services are around the usage of our services is up 30 per cent compared to any other Q B O M. In the lineup and what that is an indication of this is just the size of the businesses that we are serving but also in some ways. The digital transformation for the mid market is the same if not a little bit behind that the.
All of our businesses, which is why we're so excited about the possibilities.
With our Quickbooks advanced the truly give them a customer as a platform that becomes a source of truth.
For you know for their entire business specifically.
Specifically to your question around internal I would say that.
That you know from some of the decisions that we made years ago with a lot of the tools that we use internally 1 or ship the day AWS the collaboration tools that we use internally.
These are decisions and choices that we made 3 to 4 years ago and we're fortunate that we're now using a lot of these digital tools internally along with of course, our shift to AWS. So I would say that although the usage went up in the pandemic. It didn't inform a different set of decisions because I I think as a team. These decisions were made proactively afford.
5 years ago.
Wonderful thank you very much.
Very welcome.
Thank you. Our next question comes from Alex Zukin with Wolfe Research. Your line is open.
Hey, guys. Thanks for taking my question I got 2 quick ones, maybe for Sean first from a big picture perspective, if you zoom out and put this tax season.
As a context for us comparing it to last year and then even.
And then pre pandemic as.
As well as how to think about it for the for the next few years around both unit versus our crew growth clearly this year ARPA growth was the big driver was live and assistant, but just stepping back kind of put it into context for us what do we learn and how should we think about that algorithm going forward.
Yeah. Thank you for your question, Alex You know Big picture, we're very pleased with what we experienced this season and it's consistent with what we declared several years ago. You know our biggest opportunity for continued growth is to be able to transform the assisted category. You know, there's 86 million folks that in essence.
Assistance to get their taxes done its more than 20 billion in size and beyond that there's not an $8 billion business tax segment and the second is underpenetrated segments, which is investors self employed on Phoenix and when you look at our results. This year are coming in sort of out of the pandemic our turbo.
Tax line, our platform accelerated to 90 per cent and.
And we saw our Investor segment actually grow Triple what it did last year and you know we always want to continue to grow units, which will then result in ARPA I think given that our biggest opportunity is not only underpenetrated segments.
And transforming assisted we may just see more art than units. It's more a result of our strategy and where we are focused on where the biggest opportunity is so if I put this season in <unk>.
Context of our strategy I would say it is absolutely in line with our strategy.
And it's for US it's more about just continuing to accelerate in the areas that we declared several years ago.
Perfect and then on Karma, clearly I think I guess.
To Keith's point are you seeing the synergies come sooner than you thought from from the rest of the business isn't more around improvements in the macro economy loosening lending standards.
What is causing credit karma to be so strong so soon and in your mind the biggest driver for that both for Q4 and beyond from here help us model. It because the seasonality can be you know clearly this year is a little bit unique with without Smith.
Yeah Yeah.
If you just step back what really drives credit karma that growth as you know the number of members are the number of transactions per member and then the revenue.
Per transaction, so that's sort of big picture our metrics. The second is do you.
Think about credit Karma is Scott you know well over 110 million customers and its a data platform that creates a powerful network effect and really it's technology driven via Lightbox and really our opportunity is to continue to not only grow the products that we have today, which is credit cards and personal loans, but.
Also the new products, which is auto and home insurance and home loans, but also the new areas that we're moving into which is credit karma money that we've talked about with just savings checking and early access to wages and then ultimately you can also get your taxes done on credit Karma and by the way there's no boundary to what our product verticals that we'll launch over.
Time, because we've got a relationship with over 100 million customers, we deliver personalized experiences and they know that we're there for them and we're putting the power of their data in their hands. So I bring that up to say that during the pandemic. We were obsessively focused on benefits even though.
The market was sort of in shambles, but when I say the market because of the health crisis and so what youre seeing now is 1 the benefit of them a lot of the work that we did during the pandemic launching these new verticals delivering benefits to customers that was about how to manage their money and their credit score.
And our really member engagement went up into the right even during the pandemic and so now with coming out of the pandemic and more financial institutions are being in light box.
We see more transactions and Lightbox, which makes a more personalized match for not only the consumer but it benefits significantly the financial institution. So this is not just a macro recovery if it's in an and looking ahead, we believe that the combination of what I just described.
Being able to leverage our distribution of customers combining the data that we have that we can continue to sustain the growth in credit Karma and of course, we'll talk more about that at Investor day.
Perfect. Thank you guys congratulations on a great work.
Thank you Alex.
Thank you. Our next question comes from Brent Thill of Jefferies. Please go ahead.
The Sun on small business online. It was curious if you could just drill into international M. You did see a pretty big deceleration from 51% growth in Q1 to 38 per cent and I'm just curious going back to your I think your earlier comment about the U S showing a good recovery.
He is is there anything going on there that is intuit.
Specific or is this more specific to whats happening in the unevenness of those recovery of those small businesses.
Yeah, It's really Brad the latter part of your comment and we continue to invest in our international in fact, you know very similar to what I've. Just described with you know we were heavily focused on delivering for customers and credit Karma during the pandemic. We're really doing the same thing in international it's really 2 big things 1 the lapping price increases in to their recovery is just.
Simply much lower outside of U S and Canada, and that's not Intuit specific.
Great. Thanks.
Yeah, well very welcome.
Yeah.
Thank you. Our next question comes from Sydney Panic Ravi Mizuho. Please go ahead.
Thanks for taking my question. So on the T V Oh, sorry, 28% growth with non lapping price increases that's impressive just wondering what youre seeing in terms of new customer acquisitions, given that in the U S. We saw new business creation was phenomenal last 2 quarters.
And also it would be interesting to hear your what are you seeing on the retention side. It was really in the small business.
Yes, and thank you for your question you know both from new acquisition and retention is very strong both in U S and Canada, and we're seeing continuing to see an acceleration in both areas and you know the businesses that tend to typically come to quickbooks, they were a little bit more mature so it's not directly tied.
So new business formations. This goes back to what I've been talking about for the last frankly 2 years before the pandemic, which is we're seeing a shift to a virtual solution as shifts to online and omni channel and the shift to digital money offerings and I think what we're just seeing here as the pandemic accelerated that 5 plus years and so both new acquisition.
And retention continues to be strong and based on a lot of our innovation and just the economic recovery, we're seeing that same strength in payroll and payments are in and time tracking.
Which is why as Michelle mentioned earlier, we actually expect sometime in our fiscal year 'twenty 2 to be at or above our <unk> 30 per cent online ecosystem growth.
And then quick follow up on the Turbotax live full service I'm wondering do you have any kind of technology advantage in terms of processing it faster given that like all your competitors asking you know 2 dropped Oh.
Adopted into the Dropbox at anywhere so is there any sort of you know technology advantage you guys have versus your competitors there.
Yeah, you know I think let me just I'll talk about you know us and that is that our biggest advantage is the technology. You know we have been building this platform and these capabilities for 8 plus years and and particularly it's in the area of machine learning and knowledge engineering in natural language.
<unk> Ah processing and everything that we're doing in turbotax live whether it's providing you help with an expert or full service is all technology lab and in our machine learning and knowledge engineering capabilities not only continue to make the platform easier.
For the consumer but also much much easier and insightful for at the expert.
Which means that our experts are far more effective far more efficient and focus on the M. A value that they bring to customers and really a lot of our investments that we make in R&D go into our life platform, which by the way also benefits our Quickbooks live. So it is a we believe we have significant technology.
Advantage and we've been adding over the last several years process engineers that are also helping us improve our processes and that combined with technology is really what's giving us the advantage that we have and the type of growth that we are experiencing because we also we measure not only a recommendation scores by consumers, but also for our.
Experts in all recommendation scores for experts are also up into the right because of the ease of the platform.
Thank you Sir.
Yeah very welcome.
Thank you. Our next question comes from Scott Schneeberger of Oppenheimer. Your line is open.
Thanks, very much and good afternoon.
Congratulations great job across all the segments I'm going to focus on on the tax segment.
First off says on you.
You you all chose to.
Wait until next quarter to depict your your unit volume and your metrics and tax and I assume that's largely because of.
The economic income payments from last year, and making a tricky, but the question embedded here.
What type of activity do you expect to see maybe as a percent of overall from May may 18th to July 31. This year, you know thinking back to past years, how much how much do you know is what I'm asking of the season.
Now that you've seen the end of the tax season, when you extrapolate this guidance to the end of July.
Sure Scott I'll say 2 things 1 we have pretty good visibility to the.
So at the end of the tax season or through the end of our fiscal year July.
The main reason we didn't provide the table as is the tax season has not done a book.
Places like Oklahoma, Louisiana, and Texas, There are deadlines have been extended to June 15th and last year. Those were 10.5 per cent of all of the federal filings. So it was a pretty significant amount of the federal violence and so that was really why we wanted to provide the table. When you know everything that's conclusive would that said.
We feel good about what we see because you know in some ways 90 per cent of the season is behind us at the same time. The season is not done yet and we're continuing to focus on winning every filer that's out there.
Great. Thanks, and then really it's a 2 parter from my follow ups, 1 I'd love your view on category shifts. This year, we have seen for years DIY take category shift and it sounds like it's going to be flattish. This year. So just your thoughts on on the year over year comparison and that's it.
It's probably something having to do with that but your thoughts on that this year and then going forward and then the second part of the question is with everything you've said about 90% up in Turbotax live customers and the Premier category Tripling really implies a lot of revenue per return.
Growth I'm guessing, that's being offset by free of which you had a lot. So the second part of the question is your thoughts on free this year and going forward. Thanks to Scott Yeah.
Yeah sure Scott first of all the way we keep score now is the total IRS returns what were really focused on is what is our share of all the returns and so we're actually quite pleased.
Our total share of all of IRS returns was up 1 point and the reason that's the way we keep score now is because of our turbotax live platform. So that's the first thing I think the second thing I would say is.
If you look at last year IRS total returns were up about 3% to 4 per cent and then the do it yourself category actually grew about 2 points and this year was flat and so when we think about the category, we actually look at it over a 2 year period, because it's really not comparing apples to apples. It was a very unusual last year with all of the folks there.
Came in because of the stimulus check so we're actually quite pleased that when you look at this year in context of last year that our share of total IRS went up 1 point the category stayed flat and then our share within the category went up 1 point. So we're very very pleased with the results, but I also wanted to just emphasize how we really keep score I think the SEC.
1 thing I would say is or a free grew 6% this year they pay nothing customers and that compares with 20% growth last year. So we actually feel like free moderated and it's in the it's in the vicinity that we would have.
Predicted an assumed and really our growth came from the areas that are very strategic which is both transforming the assisted category with Turbotax live and then the Underpenetrated segments, which is what we expect for continued growth as we look in the years ahead.
Got it thanks.
Thanks Scott.
Thank you. Our next question comes from Michael turn of Wells Fargo Securities. Your question. Please.
Hey, there. Thanks, good afternoon, and my congrats on executing through it was certainly a unique year here as well online ecosystem showing signs of rebound as we get through the course of the year of 26% ex P. P. P sounds like Theres still confidence in ability to return to that 30 plus percent target level anything else you can.
Just around what provides confidence and reinforcing and getting back to that level, given the increasing scale and maybe how we should think about the mix between services and <unk>.
Yeah sure Michael. Thank you for your question you know what really gives us confidence is the fact that when you look at the total SMB market.
Nearly 70% of that market is service based businesses and about 30% are product based businesses and the majority of all of those customers are what we call non consumption, they're not using a digital platform, they're managing there.
Life and their business units or a shoe box or a Google sheet or an excel spreadsheet and so what gives us confidence is really the innovation and the focus of our innovation in the last several years..1 we are now positioned to continue to deliver for service based businesses with all of our innovation.
We now have Quickbooks commerce that gives us the opportunity to also serve product based businesses.
We're able to disrupt from the from the bottom with Quickbooks cash, which is a business banking accounts and really we're able to go after non consumption with Quickbooks live, which you know really solve the confidence problem and provides access to an expert for our customers whether 1 time on an ongoing basis and we're positioned to go.
Upmarket with Quickbooks advanced and so and within that what I didn't mention is of course, all of our innovation innovation in payments payroll time tracking et cetera. So what really gives us confidence is the fact that we're positioned well to serve the market in a meaningful way we've continued to improve the <unk>.
Spirit of our platform, we have more partners on our platform and we are a true open platform and really we are rethinking our go to market both from a sales and marketing perspective, So it's really our innovation and transformation of sales and marketing that gives us confidence in now that debt economy is starting to come back that is really what.
Sort of as is the ultimate confidence factor as we look at 30% plus online revenue growth.
That's all very helpful. Thank you.
Thank you.
Thank you. Our next question comes from Sterling Auty of J P. Morgan Your line is open.
Greg It's Jackson Ader on for Sterling Tonight, Thanks for taking my question.
Just a quick 1 from us and it's on the the investors so tripling the investor base is.
Certainly policy they've been and just curious.
What's the retention rate looks like for those turbotax investor customers relative to maybe the entire turbotax space.
Yeah sure you know in looking at history, those that have used our premier offering have actually had 1 of the highest retention rates because of just the type of customer and the complexity of the customer and and this tripling. This year was both new customers coming into the franchise and actually exist.
The customer that upgraded the premier because they are in essence took on investments that they may not have done in the past and if I did was we just look at the experience that we delivered for them the product recommendation scores and history, we would feel good about the retention going forward.
Okay, all right great. That's all we had thank you.
Thank you.
Thank you our next question comes from.
Brad Reback of Stifel. Your line is open.
Great. Thanks, very much maybe pushing on the retention see them a little bit.
As you think about the early cohorts of Turbotax live customers have they for the most part remained in the life SKU or is it a fluid situation with some years they take it from your thing.
Move back to Turbotax.
Turbotax.
Yeah, Brad its actually somewhat fluid and we like it. We you know now that we're in our fourth year of Turbotax live are alive.
1 of the things that we love about it is you know customers that come in that we typically would have lost because they wouldn't have access to an expert will upgrade the turbotax live and we've not divulge the percentages, but you know a good percentage will stay in turbotax live the second year. So I'll actually go back to Turbotax and now this year, we saw some that started in line.
The year after went back to Turbotax. This year came back to Turbotax live we've not divulged any of the percentages, but what's great about that is you know Matt back to the Uber point, which is we're solving a major competence problem and what we really care about is that we can solve the customers' problem and the confidence factor and that they stay in the free.
<unk> and going back and forth between do it yourself I need help with an expert or here's all my staff just do it for me is the cycle that we're seeing and we're actually pleased with what we're seeing.
That's great. Thank you very much.
Very welcome.
Thank you. Our next question comes from Daniel Jester of Citi. Please go ahead.
Great. Thanks for taking my question. So maybe you know if I reflect on that 90% growth in live obviously Quickbooks live is also growing.
If you it to your comments that you know the economies reopening the macro economy looks better how are you going to keep your expert partners on the platform in the year ahead I suspect over the last 12 months, it's pretty easy to get folks in the door.
But maybe talk about your retention strategy to keep those expert partners on the platform and the euro.
Yeah. Thank you for your question Daniel.
Share with you that the last couple of years, it's not been easy because everybody is and I don't mean in our space, but everybody is actually trying to find ways to shift to a virtual world and the pandemic just simply accelerated so as we look ahead, we're not looking at a headwind because we've actually been dealing with a market that's real.
<unk> are going after.
These type of experts in multiple different industries.
There's a couple of things that are not only helps us retain our experts, but acquire more and this is of course, you know based on rebate M and talking to our experts you know 1 it's our culture.
It is the way we treat our employees, it's the benefits that we deliver it's the overall employee experience that they have and they are truly able to work virtually with the setup that they need and to do what they love, which is deliberate per customers I'm not have to market. Their services we are.
Our unique in that we don't ask our experts to sell we felt we asked our extra from the 1 thing which is delivering awesome.
Very important for our customers and we've had quite high retention rates and we have been able to recruit the best of the best in value. What we actually have very high standards and we have a what we call. It a free process, which is assessing off are awesome. They have to pass certain hurdles to be able to join us.
We measure the recommendation scores and so there was a service standards they have to be able to deliver against and now we also provide certifications and so we help them with education to get certified and to actually be able to grow their careers and so we really we treat our experts like the way we would care.
For and treat employees and that is I would say the differentiator beyond of course, the benefits that we provide.
Great. Thanks very much.
Very welcome.
Thank you. Our next question comes from Kartik Mehta of.
Northcoast research your question please.
Okay. So you.
I wanted to go back to your credit Karma comments, and the new customer growth and I'm wondering if you look at the new customer growth that you've seen in the most recent quarter and maybe the last few months are you kind of back to the pre pandemic level, obviously Mt..1 credit Karma started but as the company matured and kind of if you look at 2019.
And compared to where you are today.
Yeah Carter good to hear from you you know I think without getting into the numbers, which again, we'll talk about more at Investor day.
The place I would start is credit karma significantly during the pandemic reduced their marketing and really focus on the 100 million customers that they had.
So really focus on ensuring that they could manage the pandemic, which has a lot of the reasons why we're seeing the type of bounce that we're seeing now because they truly took good care of their customers during the pandemic and really the big thrust is now we are starting to do marketing with credit Karma not only within App, but also outside of the App and 40.
Per cent of the customers that came in or members that came in were all intuit customers that chose credit Karma. So I would say in some ways, we're probably above pre pandemic levels and and we're excited about the possibilities as we look ahead.
And then just on the Turbotax full service business.
Our.
Solution, which you're having very good success with you know as you look at the type of customers that are drawn to that solution.
What's kind of the breakdown or what.
Our greater number of customers are the ones that are using more simple.
Services are they are they do they have very complex returns.
It's a variety of car that you know it comes down to confidence those customers you know that linear when you actually take a step back out of the 86 million.
Folks that use an assisted method based on our own research that we did several years ago 70 million are are willing to switch to a digital solution as long as they can have access to an expert and so really these are folks that are choosing to use the digital platform as long as they can get expert help and their needs.
Good day could vary so it's not just a simple filers at its really an individual that chooses to use the digital platform with expertise and so we're getting all kinds of variety of folks that are choosing to come to turbotax live and not just turbotax full service.
Well, thank you Susana I appreciate it.
You're very welcome.
Thank you. Our next question comes from Matt, though of William Blair. Please go ahead.
Okay. Thanks, just had a question around the free users that you've added over the past 2 years, you know a big part of the model has been the ability to bring customers into free and then have to move up to other tiers as they experience certain life events like are you seeing any difference in the cohorts that you brought in over the past 2 years in terms of that.
<unk> to potentially monetize these free users overtime and then are you also able to market credit Karma to these customers or are there some restrictions around that depending upon how they come in to the Intuit franchise.
Yeah sure Matt you know our strategy is unchanged, we want as many free customers as we can get from exactly the reasons that you mentioned 1 we want to serve those customers. But then 2 over time is a life situation changes they may have different tax needs, but now with credit Karma, we have an opportunity to provide other benefit.
Beyond taxes. So our strategy is unchanged I would say if I use this year, particularly as an example.
We have end to end focus on free and particularly with Turbotax live basic where you know we got a quite a bit of folks that came in.
That were from the assisted category.
We love because ultimately it's about transforming the assisted category. So our strategy is unchanged and the growth that we saw was really in line with what we would've expected. There are no restrictions with credit Karma you know as I mentioned earlier, we have 1 large credit karma as a as a test as part of the turbotax.
<unk> filing experience and we have launch turbotax as part of the credit Karma platform and we ran 40 tests. This year just to learn to understand how we could really nail the experience and we're going to be able to now given our learnings scale to a different level and you know as a.
We look at but there are no. There are no restrictions in terms of what we can and can't do its really all focused on the customer experience.
Great. Thanks.
Very welcome.
Thank you. Your next question comes from Brad Sills with Bank of America. Your line is open.
Great. Thanks, guys and I'll Echo the congratulations on a real nice quarter.
Wanted to ask about Quickbooks advance.
We see some real traction there, it's an effort to kind of move up market.
Is there a limit where.
Or perhaps you know you you draw the line.
North of which it's going to be difficult for quickbooks to kind of go or is this really is an opportunity maybe even to go into the next year, maybe at the lower end of the mid market at some point.
As you kind of move up market with Quickbooks advanced obviously, there's that balance between optimizing for the small business and then features for larger organization. So how are you thinking about that balance and where would that limit potentially be thank you. So much.
Sure Brad. Thank you first of all our initial limit that we set just for the sake of focus and really nailing. The experience has been a small businesses that are between 10 to 100 employees and we.
We are very pleased without progress, we're continuing to build out the platform to be able to continue to move upmarket even within that 10 to 100 employee.
Matt with that said to your question, we don't believe that there's a limit other than what we don't want to do is serve the interests of the world. We don't want to get into a place where we're serving a company the size of Intuit and we don't want to get into a place where we get into professional services and we're having to customize the platform. We want it to be something that we can scale and that is durable so the limit.
We'll not stop at 100, and we put that limit on ourselves to ensure that we could really nailed the experience can be a very intentional and focused around our scaling.
And at the right time of course, we'll we'll communicate to you all when we choose to go beyond the 100, but we believe that theres an opportunity beyond the segments that we serve today.
That's great just on 1 more similar question on Turbotax with the progress Youre seeing in full service.
Do you feel you have the talent base within your CPA pool to be able to kind of go into even some of the most sophisticated tax returns.
As you move up into different tax brackets and complexity for returns. Thank you so much.
Yeah sure you know, we do and we're providing our own training and certification because 1 of the things that's really exciting and unique about what we're doing is we are going after a confidence problem for both consumers and small businesses and and so as we recruit where not only recruiting to ensure that we have the right expertise that can deliver.
For customers that need to get their taxes done, but also for small businesses that not only need advice, but need to get their quarterly taxes done and so in addition to hiring the best of the best and looking at partners that are in the marketplace. We also are building our own capabilities around training and certification.
With both of those dimensions, we feel really good about the type of skills that will be able to acquire and retain but also how we can grow those skills.
That's great. Thanks Hassan.
Very welcome.
Thank you. Our next question comes from Michael Millman Millman Research Your line is open.
Thank you.
Oh.
I guess so.
A question of what accelerated means so can.
And I look at your bottom line and expect accelerated earnings by that I mean, 1 new at 15% next year in 17.
So on.
Second question sort of unrelated to that.
On a turbotax live.
How many returns did you actually report has assisted this year and how does that compare with last year and what do you think that number is going.
Great Michael Thank you for your question you know.
A couple of things I would say 1.
Of course, we provided guidance for the remainder of the year and we're very excited and pleased that we're able to raise our guidance.
And we'll talk more at our Investor day around guidance for not only FY 'twenty 2 but you know wondering Michelle and I will do as we did last year is beyond guidance just talk about our long term expectation. So I think I would say, let's let's wait till investor day to have the conversation beyond the fiscal year that we are M in terms of turbos.
Tax our lives are we intentionally do not report are the actual numbers in turbotax live other than just our growth rate I would just reiterate that it is the fastest continues to be the fastest growing.
Platform and product in the company, we're very pleased that it actually accelerated growth from last year on top of a very good year last year.
The majority of these customers are coming to us from the assisted category.
1 of the things we're pleased about is.
We had a growth of 100% of customers that are completely new to intuit that came to turbotax live so.
So those are some of the stats and numbers that we've chosen to share publicly and we'll look forward to share anymore.
At Investor Day.
And I assume in roughly.
Is it a wash so it was coming from assisted.
To you on 1 hand are sick.
Check.
I was calling into assisted.
No I wouldn't no I wouldn't call. It a wash at all it's actually why we are able to grow our total pace our base of customers year. After year. So no no. It is not a it is not a wash and the metrics that I shared earlier when you look at the total number of IRS returns our share of that total actually increased 1.
Point, which means that our base continues to increase I know, there's not a wash it is an increase in share buy into it.
Okay. Thank you I appreciate it thank you Michael.
Thank you.
Thank you. Our next question comes from Josh Beck of Keybank. Your line is open.
Thank you so much for taking the question I wanted to ask maybe a 2 parter team.
1 is around credit Karma money, certainly you had a really good.
Progress that you offered.
36 million direct deposits I'm just wondering.
How important is it for you to really translate that into maybe a regular payroll direct deposit as you think about the strategy there.
A little bit related to just with the amount of momentum and success that you're already seeing with credit Karma.
Does it maybe make you revisit the M&A aperture and maybe want to consider more of these larger transformative types of deals. Thank you so much.
Yeah, Greg Josh Thank you.
First of all I, just want to clarify 1 thing to make sure. It was not misinterpreted we have the opportunity and made credit karma money available to 36 million turbotax customers.
I don't want you all to interpret that as 36 million customers actually took us up on credit Karma money I wish they did and our goal is they they will over time, but I wanted to just make sure that that was clear.
So the question that you asked actually a great question from me an opportunity to just very quickly paint a picture and that is you know the I'll go back to what I shared earlier, which is.
The more we provide them.
Our services and benefits to credit Karma members the more they will come back to the platform through our notifications and then more day will engage with the services and the more we have an opportunity to actually present more products to them and then over time be able to.
Monetize that to drive our revenue growth. So the power of credit Karma money is you know if you have a checking account with us or a savings account or you choose to pick us up on a direct payroll deposits. So we can give you early access to your paycheck not everything is necessarily about monetizing every single benefit but the more we.
You back them more than we can offer you hey, Josh we have a preapproved credit card that's right for you Hey, Josh It looks like you're paying X for your auto insurance, we have an offer based on your driving habits to pay 20% less so it becomes truly are the vision that I described earlier, which is the financial assistant in your pocket, where we are in your corner.
To try to help you reduce your debt and put more money in your pocket. So we're not overly reliant on direct deposits by any means but it just becomes another benefit and a reason to engage with the platform, which gives us opportunities to offer more products to you and then be able to monetize.
And to your last question about M&A are our principles around M&A are steadfast.
I have just based on some of the acquisitions. We've made in the last several years and how well they're done and we have a lot more confidence in our ability to execute because we truly studied our history in the last 10 years, what went well what didn't go well and that's informed I mean, a lot of our approaches are today and really for US everything is in.
Speed to market and so if there are if there is talent, we need to acquire a technology, we need to acquire or capability like credit Karma. Those principles were informed decisions and of course, our confidence has continued to grow given the execution.
The recent acquisitions.
Thanks, so much.
Very welcome.
Okay.
Ladies and gentlemen, I'm not showing any further questions would you like to close with any additional remarks.
Yes, I'll be very brief thank you for your wonderful questions and again I want to thank our intuit team and all of our partners for everything that they're doing to innovate for our customers and we look forward to talking to you at our next earnings take care everybody Bye bye.
Ladies and gentlemen, thank you for participating this concludes today's conference call.
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Yes.
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