Q2 2022 Intuit Inc Earnings Call
Good afternoon, my name is Latif.
It's facilitator at this time I would like to welcome everyone to into its second quarter fiscal year 2022 results conference call. All lines have been placed on mute to prevent any background noise at 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 one on your telephone keypad.
I 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.
Thanks Rajiv.
Afternoon, and welcome to Intuit's second quarter fiscal 2022 conference call.
I'm here with Intuit, CEO , <unk>, <unk> and Michelle Clutterbuck our CFO .
Unfortunately, Michel has lost her voice, so I will be reading her prepared remarks today.
And I will take your questions during Q&A.
Before we start I'd like to remind everyone that our remarks will include forward looking statements.
There are a number of factors that could cause intuit's results to differ materially from our expectations.
You can learn more about these risks in the press release, we issued earlier this afternoon, our Form 10-K for fiscal 2021.
And our other SEC filings.
All of those documents are available on the Investor Relations page of Intuit's website at Intuit Dot com.
We assume no obligation to update any forward looking statements.
Some of the numbers in your prepared 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 in and with that I'll turn the call over to Stephane.
Thank you Kim and thanks to all of you for joining us today.
Second quarter results reflect continued strong momentum across the company as we execute on our strategy to be a global AI driven expert platform powering the prosperity of consumers and small businesses.
We have nearly 300 billion addressable market driven by tailwind that include a shift to virtual solutions and acceleration to online and omnichannel capabilities and digital money offering.
This combined with the team's excellence in execution is contributing to the strength of our performance.
Second quarter revenue of $2 7 billion was driven by strong results from our small business and self employed group.
Pharma and reflects an earlier start to the tax season compared to last year in the consumer group.
Since tax season is now underway, let me start there.
We are confident in our strategy of extending our lead in the do it yourself category and transforming the assisted segment.
Based on our analysis, we are on track to gain share overall again this season.
And other early indicators gives us reason to be excited about our innovation and go to market decisions.
Our focus this season is threefold.
First we continue to aggressively transform the assisted category by reshaping how $88 million via those get their maximum refund with confidence virtually.
This opens up the $20 billion assisted tax prep category bring to us.
Second we're starving the underpenetrated segments of Latinx self employed and investor segments, which are growing faster than the overall tax filings.
And third we're serving millions of members on the credit Karma platform, what personalized experiences.
Our team has developed a strong game plan for when the season and we are on track to achieve our full year consumer group guidance of 10%, 11% revenue growth.
Our AI driven expert platform strategy is accelerating innovation in our five big bets are solving the largest problems our customers safe.
We continued to deliver strong proof points that demonstrate the success and are well positioned for durable growth in the future.
As a reminder, these big bets are revolutionize speed to benefit.
Connect people to experts unlock smart money decisions.
Be the center of small business growth and disrupt the small business spend bucket.
Today I'd like to highlight examples of our recent progress across all three of these big 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 the $20 billion assisted category by providing the 88 million filers, who have previously relied on an in person assistant the opportunity to access expert help or have an export file their taxes for them.
Improve the experience for customers by applying artificial intelligence to match them with an expert who is right for their specific situation and to deliver insights experts. So they can provide excellent service.
These capabilities are also now available and the credit Karma App for members that used an assisted method to file their taxes last year.
We are off to a strong start in our busy season with Quickbooks live.
We're now giving customers earlier visibility as to how their business is performing.
Their books clean up faster and connecting them with an expert easier we've.
We've seen some of our strongest weeks of new customer acquisition in January and retention rates in our target customer segment increased several points versus a year ago.
We believe Quickbooks live will enable us to reach small and mid market businesses that have not used financial management software.
And we are eager to continue accelerating our momentum for this offering.
Our third big bet is to unlock smart money decisions.
Credit Karma as a data platform with powerful network effects solving a two sided problem.
Our vision is to unlock smart money decisions by creating an autonomous financial platform that helps consumers find the right financial products puts more money in their pockets and connect them to insights and advice.
And credit Karma, we're innovating across all verticals are proprietary Lightbox technology allows us to better personalize and connect members the products that are right for them providing more certainty.
Credit Karma is data platform and engagement model creates powerful network effects.
We continue to see strengthening credit cards and personal loans.
Box approximately double the average approval rate for members, who apply for credit cards on credit karma versus outside of credit Karma, making it a competitive differentiator for both our members and partners.
We are solving a largest set of financial challenges for consumers in the auto and home verticals and.
And in auto insurance will continue to strengthen the Karma drive program.
We launched new features and experiences this tax season designed to help the majority of credit Karma members filed easily with turbotax and gain deeper insights into their finances.
We're also offering tax filers early access to their refunds through direct deposit and refund advance program.
First credit Karma launched the capability for members, who previously filed with turbotax to provide them with insights about their finances and taxes.
Second most credit Karma members are able to file with turbotax within the credit Karma App and are eligible for special offers and.
And third tax filers, who choose the deposit their refund into a credit Karma money account will receive their refund up to five days early with direct deposit or get a portion of their refund in as little as one hour. After the return has accepted the turbotax refund advance program.
These turbotax customers drive credit Karma member growth and get access to personalized products across the platform, which accelerates engagement over time.
Big picture, we continue to grow our members by delivering personalized financial products, helping members save money pay down debt and get faster access to their money, while providing insights and advice.
Over time, we are creating a virtuous cycle, which we expect to increase the frequency of engagement transactions and monetization across our ecosystem.
Our fourth Big bet is to become the center of small business growth by helping our customers get customers get paid fast manage capital pay employees with confidence and grow in an omnichannel world.
60% of small businesses struggled with cash flow and we continue to innovate to help customers overcome this challenge.
In payments, we continue to improve discover ability increased usage of features like instant deposit and rollout new innovations like get paid upfront to help qualified customers get paid soon after the invoices Seth.
All of this innovation is driving strength in our charge volume.
And in payroll, we continue to focus on making it easier for small businesses to pay their employees and provide them with expanded benefits.
Nearly 40% of Americans say that they would struggle to pay an unexpected $400 emergency expense.
Recently announced Quickbooks early pay which will allow eligible employees pay through quickbooks online payroll to access money between pay days.
Getting earnings engaging customers remains a significant pain point for small and mid market customer businesses.
With mail Chimp, we are well on our way to becoming the source of truth for our customers to help them grow and run their business.
We have three acceleration priorities with mail chimp.
First is to deliver on our vision of an end to end customer growth platform.
Disrupting the mid market by developing a full marketing automation CRM and E Commerce suite.
And third accelerating global growth with a holistic go to market approach.
Since the acquisition closed in November we've been moving with speed to deliver for our customers.
Rapidly building, a seamless integration between quickbooks and milk to create a growth platform investing in marketing and introducing the intuit leadership playbook and operating system to execute at scale together.
Together, we are uniquely positioned to enable small and mid market businesses combined their customer data from mail chimp and purchase data from quickbooks to deliver actionable insights they need to grow and run their businesses with confidence.
And this is where the real magic happens.
Now shifting to the long term. We're also looking far ahead to anticipate our customers' future needs through our six year planning process part of Intuit's operating system, which we used to run the company.
In December our top leader studied our customer problems and industry trends.
The progress we've made since declaring our big that's three years ago, and where we can have the largest impact in the future.
This led to refreshing our five big bets to accelerate innovation powering the prosperity of those that we serve.
While our strategy remains durable and the essence of our big bets are the same we have expanded the customer problems, we want to solve and our vision for each big bet.
For instance, as part of the first big back revolutionize speed to benefit we are accelerating investments in decentralized technologies, such as blockchain and crypto currency, enabling us to help customers put more money in their pockets faster.
As part of our second Big bet connecting people to experts, we're reframing, how we think about virtual experiences by exploring <unk> technologies and expanding the segments, we serve beyond tax and accounting to play for me to play a more meaningful role in our customers' lives.
We'll unpack this evolution in more detail at our Investor day in the fall.
We remain focused on our role as a strong corporate citizen and the impact we are making on the communities, where we live and work to further our mission.
Two it was recently recognized by just capital on it's just 100 top performing companies list for 2022 progress on dei along with our focus on climate change worker wellness job creation and customer privacy.
Wrapping up our strong business fundamentals, including our balance sheet, our speed of innovation and demand for our platform.
<unk> to put into it in a position of strength.
Macro conditions, such as rising inflation supply chain issues, the great reshuffling and geopolitical conflicts our platform continues to thrive as digitization is more important now than ever supporting our customers' needs need to put more money in their pockets and helping them run and grow their businesses.
We are proud to be the platform of choice for over 100 million customers around the world, who rely on intuit's Frostwork prosper.
Now, let me over ill turn it over to Kim.
Thanks Hassan for.
For the second quarter of fiscal 2022, we delivered revenue of $2 7 billion.
Up 70%, including 31 points from the addition of Nielsen and credit Karma.
GAAP operating income of $56 million versus an operating loss of $25 million last year.
non-GAAP operating income of $612 million versus $235 million last year.
GAAP diluted earnings per share of 35.
Versus seven a year ago.
And non-GAAP diluted earnings per share of $1 55 versus 68% last year.
After the quarter enter ended we entered into an agreement that will resolve the majority opinion arbitration claim related to the re file litigation without admitting any wrongdoing.
I wanted an immaterial charge reflected in our fiscal Q2, GAAP and non-GAAP results.
Turning to the business segments.
And the small business and self employed group revenue grew 47% during the quarter or 27% on an organic basis, excluding $240 million in revenue from mail chimp.
Online ecosystem revenue grew 74% or 37% excluding mail chimp.
With the aim of being the source of truth for small businesses, our strategic focus within the small business and self employed group is threefold grow the core connect the ecosystem and expand globally.
First we continue to focus on growing the core.
Quickbooks online accounting revenue grew 35% in fiscal Q2, driven mainly by higher effective prices customer growth and mix shift.
Second we continue to focus on connecting ecosystem.
Online services revenue, which includes neilson payroll payments capital and time tracking grew 139% in fiscal Q2.
Good email chat online services revenue grew 39%.
Nielsen revenue recorded in online services with $240 million in the quarter. This was in line with our expectations.
Within payroll, we continue to see revenue tailwind during the quarter from growth in payroll customers and a mix shift to a full service offering.
Within payments revenue growth reflects an increase in charge volume per customer and ongoing customer growth.
Third we continue to make progress expanding globally.
Total international online ecosystem revenue grew 226% in fiscal Q2 on a constant currency basis, and 33% on an organic basis, excluding mail chimp.
We believe the best measure of the health and success of our strategy is online ecosystem revenue growth, which we expect to grow better than 30% organically over time.
It is driven by 10% to 20% expected growth in both customers and RPC.
<unk> ecosystem revenue grew 6% in the second quarter.
Quickbooks desktop enterprise revenue grew low double digits, driven by strong customer growth and price increases.
As a reminder, this fall we transition to a subscription model for this year's desktop offering, which we expect to be a headwind to revenue growth in the second half of the year.
Longer term, we expect that desktop business to decline.
Consumer group revenue of $411 million grew 180% in Q2, reflecting the earlier IRS opening this year.
We are seeing a slower forming tax season, taking into consideration both the earlier IRS opened late this year and the latest IRS data.
While still early in the season. Our analysis shows we are on track to gain share overall, excluding users of the turbotax freestyle offering and prior year periods.
We remain confident in our plans and guidance of 10% to 11% revenue growth for fiscal 2022.
We continue to focus on our strategy to extend our lead in DIY and transform the assisted segment with Turbotax live.
As a reminder, there are four key drivers of our consumer tax business.
The first is the total number of returns filed with the IRS.
The second is the percentage of those returns filed using do it yourself software.
The third is our share and the fourth is average revenue per return.
Turning to the protein that group revenue grew 14% in Q2.
So reflecting the earlier IRS opening this year.
Moving on to credit Karma revenue was $444 million in Q2, another record revenue quarter, driven by high levels of monthly active users and revenue per monthly active user.
Within the quarter, we saw another record quarter, driven by the combined strength in personal loans and credit cards.
Growth verticals reflected momentum year over year in auto loans and homeland.
And we are developing the emerging vertical by focusing on innovation with credit Karma money, which we believe is key to growing the frequency of visits over time.
We remain excited about the opportunities ahead.
Turning to our financial principles, we remain committed to growing organic revenue double digits and growing operating income dollars faster than revenue.
As we shared before as we lean into our platform strategy, we see the opportunity for 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 being an AI driven expert platform.
These principles to guide our decisions and 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.
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 $1 4 billion in cash and investments on our balance sheet.
We repurchased $519 million of stock during the second quarter, depending on market conditions and other factors. Our aim is to be in the market each quarter.
The board approved a quarterly dividend of <unk> 68 per share payable on April 18th 2022.
This represents a 15% increase versus last year.
Now turning to guidance, we are reaffirming our fiscal 2022 guidance, including 26% to 28% revenue growth or 18% to 20% growth excluding mail chimp.
Our guidance for the third quarter of fiscal 2022 include revenue growth of 32% to 33% GAAP earnings per share of $6 18 to $6.24 and non-GAAP earnings per share of $7 51 to $7 57.
You can find our full Q3 and fiscal 2022 guidance details in our press release and on our fact sheet.
As you are aware, we completed the acquisition of mail chimp, the largest transaction in just history during the second quarter.
We are working to finalize the purchase price accounting process, which could result in a onetime impact to our second quarter GAAP only results.
Full year fiscal 2022, GAAP only guidance we issued today.
Process will not result in a change to the total consideration of the transaction.
Expect to complete this process before we file our 10-Q and with that I'll turn it back over to Stan.
Great. Thank you Cam during our business busiest season of the year. We are seeing continued momentum across the company given our strategy of being an AI driven expert platform that is powering the prosperities to consumers and small businesses.
I am proud of what the team has accomplished this quarter and I am excited about the opportunities ahead to find new innovative ways to serve our more than $100 million customers.
Now, let's open it up to your questions.
Thank you, ladies and gentlemen, if you would like to ask a question. Please press Star then the number one on your telephone keypad. If you would like to withdraw your question press the pound key.
Our first question comes from the line of Scott Schneeberger of Oppenheimer. Your line is open.
Thanks, very much good afternoon.
I guess I'd like to start with.
This is Sean.
What do you view I know, we don't have a lot of color from the IRS, but could you go into a little bit too.
Started the tax season earlier, but it is a little uncommon because it seems to be starting slow could you speak a little bit whats behind that and.
Something else on that topic. Thanks.
Yes, sure Scott I would tell you it's nothing unusual.
Every year I've been with the company 17 years and ran the turbotax business for three years in everyday every year, there seems to be a shift of consumer behavior shifting later and later.
In the year and the tax year, and primarily it's because they know that they can and especially now I would say with the fact that you can get access to an expert through our services.
Versus relying on an in person assistance and or you can do it yourself, it's just consumer behavior shifting I wouldn't read anything into it it's not unusual the trend that's been happening for for years and it has continued this year.
Great. Thanks, and obviously thats whats behind the reinstatement of the of the guidance and the comfort and the full season I guess, just a double follow up on this topic.
I heard in Tim's remarks.
Pre trial alliance it sounds like people, who utilize turbotax through free file lines in the past may have stuck with you. This year. If you could elaborate on that a little bit and then also if you could touch upon last year you saw Boone of.
Of.
In Premier customers from investment could you just speak to how that is trending this year. Thank you.
Yes, yes for sure well first of all let me start with what Kim stated the point Tim was trying to make was twofold. One. The fact that it is early in the season, but we are really happy with the fact that we are in fact, taking share and that share that we're taking we're just being explicit excludes.
Thats filed in the free file program.
We'll see throughout the season, if some of those folks come back to us which would be great. But that was really her comment what you should take away is the way, we keep score which is our total share increasing.
Total part of IRS returns, we are increasing share and we're happy with our progress at.
Two in terms of your question around investors I would just say that.
We've talked about often there are really if I were a simplified two big strategic focus areas for US one is really to fundamentally make it easier for those that need assistance to get their taxes done with.
Turbotax live and then too.
We are focused on three underpenetrated segments investors Latina.
Those that are.
Self employed and.
And we feel good about the way the season has started the way it's trending and given that there are simply more people.
That have personally done stock trades, whether its a stock or its crypto currencies, we feel we're very well positioned with not only the experience that we have improved and how easy we make it for you to bring in your trade, but also the fact that we have an expert that are experts in this specific area around trading in crypto currency.
And we've also upped our game in terms of how we are raising market awareness, we're being very clear.
That for those that have done trades, whether its with crypto currencies or otherwise we've got our experts that know and understand your situation and we are delivering great experiences for them for those that are coming in so we are we're very excited about our progress and we're excited about the rest of the season as it relates to all three of those segments and particularly the <unk>.
Mr segment that you asked about.
Our next question comes from Sterling Auty of JP Morgan Your line is open.
Yeah. Thanks, Hi, guys I wanted to follow up on the consumer tax side.
Based on what you know now as you look at your targets for the year.
Anything changed in terms of your assumptions on how you would achieve them in terms of how much of the growth would come from unit volume versus increased revenue per return.
Yes Sterling. Thank you for your question the short answer is no.
Things are playing out the way, we had assumed which is both the combination of.
We're really going after the assisted segment along with the three underpenetrated segments that I, just mentioned and that and thus far it's playing out as we had assumed so no no change in our assumptions based on everything that we are seeing with our kpis.
Alright, Great and then one quick follow up on credit Karma I get this a lot from investors any sense that you can give investors as to what a rising interest rate environment might do to the business profile, our business trends for credit karma, either positive or negative.
Yes, we don't really see an impact with a rising interest rates and I'll put it in two dimensions one is.
Consumers are always looking to access financial products, whether it's credit cards personal loans.
Mortgage auto loans insurance et cetera. So the demand continues whether the interest rates are.
High or low because theyre looking to access financial products.
And to <unk>.
<unk> institutions continue to invest even in a.
Higher interest rate market, especially in our platform.
In essence their conversion is much higher on our platform because of Lightbox and thats by the way why the demand will continue to be higher on our platform given that we have the lightbox technology that really delivers a personalized financial product that's right for you at the lowest rate. So that's really one element that I think the other <unk>.
I would just remind us all of US we are extremely low shared.
If I just use our personal loans and credit cards. As an example, what we shared at Investor day, we have less than 5% share. So the more we continue to make a perfect match delivering personalized experiences for consumers and what they are going to come on our platform, which is what we're seeing and then the more financial institutions will invest in ensuring that their credit models.
Our lightbox.
Because they ultimately increase their conversion and their return on investment so.
Again that was a long answer to your short question I was I wanted to unpack it but we don't see it.
<unk> the demand is going to be there and right now financial institutions are really continuing to see a better trajectory than they did even a year or two years ago being on our platform.
Understood. Thank you.
Very welcome.
Thank you. Our next question comes from Kash Rangan of.
Goldman Sachs. Your line is open.
So sort of always petrified of paying taxes, so I will avoid taxes.
Ask you about the.
About the Quickbooks online ecosystem.
Watching the company.
Embarked on this journey of being able to get better attach rates for the sports payments.
Payroll products, it's been a very nice journey, that's come along to the point, where youre breaking out online services as a separate business, which is fantastic, but can you talk to us a little bit about what are your aspirations for payment and payroll attach for your small business installed base, where do you see that going especially with Quickbooks advanced.
Do you see yourself being able to attack different lengths of the market opportunity.
So everything gets a little more interesting, but just curious to see how much more upside is there in that business because that seems like it's a very small business, but it could be potentially large given the size and volume of payments that are going through your backlog and thank you. So much.
Yes, sure cash great question first of all petrified or not you're going to have to get their taxes done by April 15th the wonderful No question wonderful wonderful reason for us being in the tax business slow forming or not taxes will get done by April 18, with that said to answer your question I'll start at the highest level and do it maybe a couple of Doubleclick.
One.
One of the many reasons why we are so excited about the small business opportunity is.
Very very large Tam.
And our penetration in that total customer Tam.
It's still well below 10% when you look at the number of customers, we have and the addressable market in the countries that we are and so one penetration is low which is a big fuel for our current growth and are continuing to growth. The second is even within the customers that we have.
<unk>.
Our penetration of the services that they that they use which are primarily manual is even lower so if you start at the top with low penetration both customer Tam and then services Tam because it's primarily manual it's not yet digital at one point the factual picture.
Sure of how large the opportunity is I think then secondly, you asked the question about our aspiration and I mean this very intentionally.
Our aspiration is that we want every customer on our platform.
To be able to use the services that we have and we want 100% of the customers. These are 100% of the services as long as it is relevant to them, which is why our quest has continued to make a drop dead easy for customers to use our services.
I didn't get to the third point and we are such a different company than even a year ago. Two years ago, we truly have a very powerful network and ecosystem of services from managing your money in and money out and helping you get organized on accounting to helping you with payments.
Both receiving and sending payments.
So not only payroll, but ultimately benefits that we offer our employees.
So then our lending capabilities and then ultimately all the capabilities that we are we now have and are integrating to be able to help you grow your business that puts your business online market your business and all of that.
<unk> capabilities. So we truly now have a suite of services to fuel the success of small businesses and the reason we're seeing the services growth is because small businesses are seeing that by being on our platform and digitizing everything it's actually not a help not only helps them grow.
That helps them manage their cash and put more money in their pocket, but it helps them understand the profitability of their customers and then the last thing I would say is actually what you just raised which is we're very well positioned versus even where we were a couple of years ago in that we're not going upmarket to serve mid market with quickbooks advanced with that comes.
Correct higher RPC.
They use more of the services that we have and with Quickbooks live although very very early days because you are in essence engaging with advice and an expert we are seeing higher engagement in services and if you don't use those services. So when you take all of that into account I think the headline is large tam low penetration we've got.
The services that we need on our platform and it's really about delivering for our customers and and we have years of growth ahead of us.
Brilliant thank you so much.
Thank you Jos and do your taxes by April 15.
No choice.
Yeah.
Thank you. Our next question comes from <unk> <unk> of Mizuho. Your line is open.
Hey, Thanks for taking my question.
Just wanted to ask you about your comment about new customer acquisition trends you talked about earlier, the lagging effect from new business creation. So as you look to new business, Jason trend, how should we think about.
New customer acquisition as a growth driver for a quick book and and also you're seeing the new cohort coming in what kind of mix. If you are seeing for the higher is the like quick God events or other ISP product.
Yes, Andy. Thank you for your question first of all I'll start by reminding all of us that.
The way we want you all to think about the model to make it simplistic is that we expect to grow new customers between 10% to 20% and we expect to grow our RPC between 10% to 20% and Thats ultimately, how we will achieve.
Achieving the online revenue growth ecosystem revenue growth up 30% plus so new customer acquisition is important to us and we have many ways now to do it both from.
Serving the lower end of the market, which is in essence with quickbooks checking all the way to the top end of the market with Quickbooks advanced which serves the mid market customers.
And as I mentioned, just a moment ago, we have very large tam with low penetration the new customer comment that I made was in context of Quickbooks live. We are now I think in our third year in a quickbooks live we've worked really hard to understand our customers' needs and get the product market fit and just in the month of January which is <unk>.
They are really the busy season started.
We saw some of our best week of customer acquisition and.
Which means one we're proud to we're learning a ton which positions us not only for the months to come but for next year and lastly regarding new business formation ultimately the businesses that start using us or a bit more established so we don't really rely on new business formations, although in the long term.
<unk> good for us, but ultimately all roads lead to Quickbooks platform, especially now that we have capabilities to grow your business and run your business.
But we don't get impacted significantly one way or the other with near term.
Near term new business formation, it's more established businesses.
That's great. Thank you.
Youre welcome City.
Thank you. Our next question comes from Keith Weiss of Morgan Stanley . Your line is open.
Excellent. Thank you guys for taking the question and congratulations on really nice quarter.
Maybe expanding a little bit on <unk> question there.
Tom.
Obviously, there's some pretty extraordinary events going on all around US right now whether it's what's going on in Europe , whether it's the inflation numbers that we've been dealing with we're in a.
Fed rate hiking cycle, which is which is typical of a very volatile market environment. You guys have a great perspective on overall small business health can you give us some update kind of what youre seeing is any of this volatility starting to impact small businesses at all and have you put any of that potential caution if you will because of this.
<unk> environment into not raising your guidance because you guys had a really good Q2, particularly on the small business and credit Karma side of the equation for the full year guide it doesn't really move.
Yes. Thank you for your question and let me parse it into into two pieces.
One.
I'll just remind us that when you look at the total small business market that we serve which is up to 100 employees almost 70% of those businesses are service based businesses and about 30% are product based businesses and frankly, what we've seen which is why it was intentional about putting this in my opening remarks with the combination.
What happened in Covid, where everybody got stuck at home.
And what's happening with <unk>.
Inflation and supply chain issues, which doesn't really overall impact our service based business as much as more of the product based businesses.
There is just a shift to digitization, because ultimately small businesses see.
That they can be much more effective much more efficient in running their business on our platform and in fact, expanding the services that they use to digitize everything. So we are actually seeing that this environment, although none of us want to see supply chain issues, none of us want to see geopolitical issues.
It is actually from a health standpoint, there that acceleration to I want to use digital platform. So thats first and foremost what we're seeing and just remember that the majority of our <unk>.
Revenue is in the U S and although our aspirations are to be much much more global than we have.
30% of our Quickbooks space outside of the U S.
The macro issues that impact that we got impacted with relative to COVID-19 already baked into what we see internationally and so the strength of what we're talking about is based on the fact that small businesses.
Again see this as an opportunity to digitize them. We just think it's the beginning of it it is a secular shift.
Let me actually answer your second question around guidance.
As I mentioned in my remarks, we are seeing strength in small business and in credit Karma.
And we actually are not seeing a tapering that we initially thought we would see in credit Karma.
There was strength across every segment of the company and that includes tax just a slower forming season.
And with that said as you know we raised our guidance the first quarter of the year, which is very very unlike us and we simply just want to get through tax season, and we will re look at our guidance on next quarter, but we are continuing to see strength in all of the segments.
Got it and on that credit Karma did notice a shrink and credit Karma also the strength in credit Karma margins.
Michel doesn't have a voice right now, but you could take it any anything that we should be thinking about in terms of the second half of the year why those margins wouldn't be sustainable.
Yes, Keith in general I would not pay too much attention to the ups or downs in our margins by segment, we truly managing the company margins at the company level and we are not just we don't manage it just for the sake of managing at the company level. The number of investments that we make across the platform.
To fuel our innovation.
Forces us to really think holistically to ensure that we don't shortchange any segment at the company level. So if it's too high one quarter I wouldn't get too excited as well one quarter I wouldn't wonder why if law, we manage it at the company level and as you know we've been expanding margin than that and it's built into our guidance and I feel good about our margin.
Expansion I, just wouldn't pay too much attention at the segment level.
Just on industrial market, whether it's exactly the same answer Michelle would have given it.
[laughter] that's.
Why we're partners in crime.
Exactly excellent.
Exactly.
You can't see it.
Okay.
Alright, thank you.
Thank you. Our next question comes from Brad Zelnick of Deutsche Bank. Your line is open.
Excellent. Thanks, so much and I'll echo the congrats on a great quarter.
Sean I listened carefully to your response to the first question to say that perhaps turbotax live was one factor.
That helps to get filers more comfortable that they can be more relaxed and maybe file a little bit later is there anything that you see specifically in terms of line of adoption.
That gives you optimism for what it can be as a percentage of the mix for the full season.
Yes, Brad. Thank you for your question and I'll tell you I'm starting to lose count, but I think this is our fourth year.
With Turbotax live in.
And as you know this year, we are turbotax is truly a platform you can bounce back and forth between the platform from doing it yourself to getting access to an expert to help you in any which way you want.
Two ultimately doing your taxes for you and really where we've upped our game this year, which is a true differentiator to get folks to switch.
Is the expertise of the experts because ultimately what customers care about is.
If I'm, a plumber or if I'm, an investor or a.
If I'm self employed if I worked in two or three states I want to know that you understand my situation, which is why we've invested so much time not only in improving that that matching by applying AI, but also making sure that the collaboration experience is seamless because a lot of.
Advice can also been done through AI that was a long way to answer. Your question. We are bullish about turbotax live we're bullish about 10.
10 million customers that have churn within the assisted category, what we talked about at Investor Day last year, which is 17 million people that started turbotax, but never finished and we like what we see and we'll report out on where it all ended in our earnings in May but it is playing a big role in what we would expect both.
Going after the assistant but also going after the underpenetrated segments, which actually look to assistance more than otherwise.
That's very helpful. Thank you and maybe just a follow up either for you or for Kim I think in your prepared remarks, and I think it was a small business comment you talked about retention.
In target customers, increasing several points I just want to make sure I have that right and if you can clarify and unpack that for us that'd be great.
Yes for sure Brad let me parse it into two parts one.
What we talked about relative to last year.
Was that our overall retention rates and small business were actually up.
Full stop.
The comment that I made in our omni opening remarks was that we're seeing a lot of goodness in Quickbooks live both.
The start of the season, both in terms of new customer acquisitions, where we've had record weeks and for the cohort of customers that we are focused on in certain segments. Our retention is up in Quickbooks live and both of those are really really important because we want to not only acquire the customers, but deliver the service that they need to.
Stay with us and come back and that was that was the point I alluded to in the in the remarks.
Excellent. Thanks, so much for taking the questions yeah sure. Thanks Pat.
Thank you. Our next question comes from Kurt return of Evercore ISI. Please go ahead.
Thanks, very much and I'll echo the congrats on a nice quarter. So can you just talk about some of the early learnings maybe from.
Our mail chimp just in terms of your go to market, what you've learned about sort of the cross pollination of your clients and also how far out are we in terms of having a bit more harmonized backend between male chipping quickbooks and what should we expect on that front from a sort of technical technical integration perspective. Thanks, Yes.
Yes sure.
Let me just quickly touch on those three priorities that we have that we're maniacally focused on one is to create this growth.
Form where really the magic is in what we do behind the scenes with the data it's combining the customers' customer data along with the purchase data to really help them understand where to target where they can grow wallet share what the profitability of their customers are et cetera, that's extremely powerful.
For our customers not only to grow the services within our overall platform, but also too.
<unk> new customers because the reality is we will be the only platform that has this capability in one place.
The second is to position ourselves together to pursue mid market. Because this is even a bigger need as you could imagine in mid market and then third half of their business is outside of the U S and.
Frankly, other than having a wonderful drop dead easy platform. They haven't spent a lot of effort internationally and we are doubling down international to to answer your question.
<unk> several months in.
We're more excited about the capabilities of what is possible then we were even before.
Our even more intentional about the work that we need to do to bring these three priorities to life, if I were to paint a.
<unk> sort of general picture.
I'd say, we'll probably be in a place in about a year, where we're really seeing the impact of the momentum of these priorities as it relates to our outcomes and our results because we.
We've inserted in mail chimp, some of our best product people.
And that really understand quickbooks really understand this space that are building out the platform with of course, the merchant engineers, which are allow all part of Intuit and and we think that getting this right and we know how to get it right. We think about a year or so we will start seeing the impact of the priorities that we are focused on the.
Good news is we know how to do it and there is no surprises there.
Thanks Hassan.
Youre welcome.
Thank you. Our next question comes from Michael <unk> of Wells Fargo. Your question. Please.
Good afternoon, and nice job with Kim stepping in there.
We've seen and enjoyed the AD campaigns of late.
Is there anything you can add around engagements or early returns youre seeing on some of those programs and maybe Stan if you could expand on your view around striking the right balance between maintaining the powerful brand of each individual property I think they are all fairly well known and established as separate entities versus presenting intuit as or more.
Holistic platform that'd be great. Thank you.
Yes, great. Thank you for your question, Michael I'll start with the latter one first and I think it was.
Really importantly stated it in your question we have.
Very powerful brands that our customers love and use in mail chimp Turbotax credit Karma.
And Quickbooks and our intent is to really from a brand perspective convey that they are connected and and connected it means that you get more benefits as a customer and the power of those benefits.
Really feeling your success as an individual or as a business. So all of that means that the brands are powerful the brands are not going to go away. It's about how we invest to make the connection in the minds of customers that this is all into it and by the way Here's why you should you should care.
Second element around the campaign.
It's early but we're actually in my comments, specifically around turbotax, because I assume that's what you're asking about if it's broader please.
Come back and ask the other elements of your question, we're really pleased with our campaign. So far this year and our intense going in was to really communicate this year that we have experts that understand your situation.
Look at our campaigns, both on air and digitally Youll see things around communicating to those that are self employed communicating to those that all have moved multiple states communicating to those that have made investments and helping them understand no matter. What your situation is we have an expert that can help your situation and we've invested heavily in not only who we bring on.
Onboard, but also our AI capabilities not only to make that perfect match, but also to deliver insights to those experts to make them much more effective and productive. So we can do things at scale. So that the consideration awareness and understanding of what we're trying to communicate so far has been very well received.
And then of course, we'll know more as we go through season left to not just our results, but we do a lot of.
Mixed marketing mix modeling work to understand what was effective how can we improve our game going forward and we did this across the company, but we will better understand.
The impact of the data so far the qualitatively and early data has been very positive.
We saw the DJ Khaled commercials at the Super Bowl as well as were also great. Thanks Hassan.
Thank you.
Thank you. Our next question comes from Ken Wong of Guggenheim Securities. Your line is open.
Okay Fantastic I wanted to just touch on credit Karma as a channel for Turbotax last year very effective in terms of driving new customer adoption.
So last year was a trial year and this year is the first real push just would love a sense of what youre seeing from a consumer engagement perspective, the first few weeks of tax season.
Yeah, Ken Great question I'll, Let me just say, it's twofold, one we've gone in really big with.
Within turbotax, exposing turbotax customers with credit Karma, where they can put there.
Refund on a credit Karma money account, where they will get five days early access and really tax time, its all about the money and then these folks.
New credit Karma members and that we can expose them to the credit Karma platform.
We're really pleased with where that's going and the progress that we've made of course I won't share any stats with you, but we are I'll just leave it as we're very pleased.
The second is last year it almost wasn't even a trial year and credit Karma, we sort of through in turbotax into the credit Karma App. This year is really the first year, where turbotax you can actually get your taxes done with.
In the credit Karma App and for most cases, you don't actually have to go to turbotax, which is a far far better experience, we're getting wonderful learnings and adjusting.
Real time, we are for the long term really bullish about that.
Not only all turbotax customers using credit Karma, but hopefully getting all credit Karma members that already don't do their taxes with turbotax.
Turbotax users. So so far we love what we're learning the adjustments that we're making and.
We continue to remain very bullish about just the whole prospects of why we're doing the integration between these two platforms and the impact that it's having four members in turbotax customers.
Got it fantastic color. Thanks, a lot Scott.
Youre very welcome.
Thank you. Our next question comes from Alex Zukin Wolfe Research. Please go ahead.
Hey, guys. Thanks for taking the question for.
So Sean maybe maybe just one multi part one for me.
Looking at the SMB online ecosystem number it looks like ex mail chimp growth there was about 4% sequentially and I want to understand if you could unpack, what's driving that because im trying to understand was Q1 like unseasonably strong in Q2 is kind of back to normal or what's the right.
Way to think about that unpack, maybe the drivers between payroll payments and capital and time tracking and how do we think about that in the second half of the year growing sequentially because year over year, it's accelerating and it's fantastic, but just looking back in history understanding that a little bit better I think it would be helpful.
Yeah sure Alex very good question. So first of all I'll start with the obvious which is overall small business grew 24% and this is all excluding mail chimp.
In our online ecosystem revenue growth grew 37% and as you know our goal is to grow over 30%. So we actually had a extremely strong quarters im not sure. What the sequential number is that you were throwing out there, but we had.
A very very strong quarter, well above our 30% Mark and.
And it's based on strength in volume and the mix of customers that are coming in and particularly the services that are that they are using.
<unk> payments payroll time tracking and <unk> and Quickbooks capital and as I mentioned earlier.
<unk> expects to continue to see strength in small business and credit Karma. The second half of the year, we don't expect a tapering and as I mentioned earlier, we just really want to get through tax season and.
Talk about our guidance after the quarter so.
I wouldn't read anything into the fact that small business is going to taper I would stay focused on our compass, which is we want to grow north of 30% with our online ecosystem revenue and we actually are seeing great strength.
And then just.
Suzanne you mentioned credit Karma, a couple of times, you've gotten asked the question and kind of how youre seeing even more strength than you anticipated to some extent no no tapering. If you will how is the progression of synergies going with credit Karma within the online ecosystem business specifically.
What are you seeing there what learnings and if you look at areas, where you feel like there is an ability to double down and see even more growth where would those be.
Yes, Alex.
Strategically the biggest area that we've been focused on has been really integrating credit karma into turbotax experience and then vice versa. So what that means is if you're a turbotax customer at the end one of the first option that you get is to put your refund on a credit karma money account and as I.
Mentioned, a moment ago that was a strategic.
Thesis that we had and that's going really well and these become new credit Karma members and then we can.
Suppose other benefit on the credit Karma platform to those customers. The second is building out within the credit Karma App, the turbotax experience and actually engaging customers.
With helping them get their get their taxes done and.
To say, we're in the early days of that.
It's interesting right because it's we're only a year and we like the progress that we're seeing and that's the area, where we're more than doubling down because we are literally only a year and then theres just so much opportunity ahead of us and we're actually seeing the green shoots the other Alex is.
<unk> credit Karma as part of the payroll platform. So if you want to ultimately get earlier access to your money you can put your money on a credit Karma money account, that's another area, but the primary focus has been creating this one consumer platform between turbotax and credit Karma.
Got it perfect. Thanks, so much.
Welcome.
Thank you. Our next question comes from Brent Thill of Jefferies. Your line is open.
<unk> had some pretty healthy price hikes for the full service solution anywhere between 25 and 50% from last year's tax season, and I'm. Just curious if you could just give us a sense of how that's resonating and.
They are fairly healthy in terms of height.
So, but just the justification of how big that was can you just walk through what drove that decision on the pricing side.
Yes, sure Brent as we always do we have pricing principles and we run a lot of pass then there are multiple holistic things that we did in our lineup. This year and let me start with where you didn't ask the question because it is relevant to the overall answer to your question one for our free customers, we actually expanded it.
To include.
Student loans for free and refund transfer offer free.
That was one very important decision that we made when we looked at our turbotax live platform to continue to really accelerate bringing more customers into the category from prior assisted.
We also for simple filers announced you can do it any way you wish to do it yourself or with a life platform for a certain time period and you pay nothing and we like the progress and the impact that we're seeing there. The third is we ran a lot of tests for Turbotax live and particularly full service and what we learn.
<unk> in some ways Unsurprisingly is price is not a big factor, it's about confidence and access to an expertise and what we realize is having early season pricing and then later season pricing didn't really have much of an impact. So one there is no early or late season pricing, it's one flat pricing.
Two we had a lot of room to move up on pricing and we made a decision based on a lot of testing.
To move the price up so those were a few strategic decisions that we've made and as we back test our decisions, it's playing out exactly as that.
As we thought which is these are not really.
That price sensitive customers, although they love our price versus other alternatives. It's more can I get access to the expert that I want and can I get constantly ask somebody to get my taxes done.
That's what we're seeing.
Thank you.
Yes, Youre very welcome.
Thank you. Our next question comes from Raimo <unk>.
Barclays. Please go ahead.
Thank you.
I almost apologized for the questions.
Desktop is an area that we have.
Understand.
You focus et cetera, but like you.
You just keep reporting actually numbers that are a better can you talk.
Better than you talk to can you talk a little bit about some of the drivers during this sustainability. Thank you.
Sure I think I'll, just say two things one these are rather resilient customers.
And.
They continue to love their desktop product then they always surprised us relative to wanting to come back to the desktop and really that's a simple answer.
To your question on what we continue to see I think the second thing that we're very excited about and so I would say are the majority of our customers is really moving to a subscription based approach where they can leverage a lot of the services that we now create in the cloud.
And that will drive even higher subscription element of our business and it will also give our customers the ability to access more features and functionalities and thats something that we.
We started rolling out this year and will be primarily subscription based as we look into the future.
Perfect. Thank you.
Two things to that right now just to remind you of some things that were mentioned in the script too.
I think our growth driver in the quarter with desktop enterprise, which grew low double digits in the second quarter and Thats up from high single digits in the first quarter similar to what I mentioned.
That was that specifically for the desktop enterprise with customer growth and price increases.
They're so really something to consider that's the piece that's growing within that and then longer term, we're not expecting this business to decline, especially headwinds from our subscription model transition in the second half of this year.
Thank you.
Very welcome Thank you Tim.
Thank you. Our next question comes from currency.
Northcoast Research your line is open thank you.
Just.
I wanted to ask you a little bit about the credit Karma last year was just an amazing year in terms of the number of credit cards issued and it seems like credit card issuers really battling for customers I'm wondering in your opinion does that cause any.
Parison issue for you guys.
You look at this year.
And do you see that demand waning at all.
Yes, kartik. Thanks for your question.
Recall, probably a couple of quarters ago, Michel and I, both talked about the fact that we expect a tapering of origination in the second half of the year, we would expect to continue to see strength because of our execution and because of light box and the fact that we really deliver personalized experiences which is good for members and goods.
The apartment is but we expect a tapering of origination.
And we haven't seen the type of paper that we thought we would see which is why we continue to see the strength that we're experiencing and in what we would expect in the second half of the year.
And then just one on taxes.
From a competitive standpoint have you seen anything that youre surprised by that competitors are doing.
<unk>.
Doug.
Once to wood.
Say to you here, we need to make any changes just any changes that you're surprised by from a competitive standpoint.
Part of our playbook is as a company is we do a lot of scenario planning customer back.
And it's really primarily focused on making sure we're obsessed with our customers and what other alternatives could be presented to our customers that could be far more compelling. So just as part of our playbook, we do that quite well and with particular with probably one of the best at it across the company in tax. So just know that that is par.
Of our playbook and I would just tell you that this year, we've probably been the least surprising.
No. It does not there is no surprises that's informing anything differently than we're doing the rest of the season.
Thank you really appreciate it.
You're very welcome.
Thank you. Our next question comes from Brad Reback with Stifel. Your line is open.
Thanks very much.
Obviously, it's a difficult hiring environment out there do you guys feel pretty good about where you are fertilized product to meet demand here in the next couple of weeks from a head count perspective. Thanks.
Yes, Thanks, Brad the very short answer is absolutely, we actually believe it or not field. The best this year than we have in prior years, just because we've gotten.
So good at what we need to do we are several years into this and because many experts actually want to be on our platform.
So we are absolutely fine on hiring.
Perfect. Thanks very much.
Very welcome.
Yeah.
Thank you at this time I would like to turn the call back over for any remarks.
All right excellent well listen everyone. Thank you so much for all of your wonderful question.
Safe out there take good care of yourselves and we look forward to talking to you in may Thank you everybody.
Ladies and gentlemen, thank you for participating this concludes today's conference call.
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