Intuit Q4 2022 Earnings Call Transcript

Quartr
Provided by Quartr
August 23, 2022

There are 11 speakers on the call.

Operator

Afternoon. My name is Chelsea and I will be your conference operator today. At this time, I would like to welcome everyone to Intuit's 4th Quarter and Full Fiscal Year 2022 Conference Call. All lines have been placed on mute to prevent any background noise. Call.

Operator

After the speakers' remarks, there will be a question and answer period. Star then the number 1 on your telephone keypad. Call. With that, I will now turn the call over to Kim Watkins, Intuit's Vice President of Investor Relations. Ms.

Operator

Watkins, please begin.

Speaker 1

Quarter. Thanks, Chelsea. Good afternoon, and welcome to Intuit's 4th quarter fiscal 2022 conference call. I'm here with Intuit's CEO, Sasan Ghadarzi and Michelle Clatterbuck, our CFO. Before we start, I'd like to remind everyone that our remarks will include forward looking statements.

Speaker 1

There are a number of factors that could cause Intuit's results call 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 ks for fiscal 2021 call and our other SEC filings. All of those documents are available on the Investor Relations page of Intuit's website at intuit.com. Call. We assume no obligation to update any forward looking statements.

Speaker 1

Some of the numbers in these remarks are presented on a non GAAP basis. Call. We've reconciled the comparable GAAP and non GAAP numbers in today's press release. Unless otherwise noted, all growth rates refer to current period versus the comparable prior year period and the business metrics and associated growth rates refer to worldwide business metrics. Call.

Speaker 1

A copy of our prepared remarks and supplemental financial information will be available on our website after this call ends. With that, I'll turn the call over to Sasan.

Speaker 2

Quarter. Great. Thank you, Kim, and thanks to all of you for joining us today. We had a very strong 4th quarter, ending the year with momentum call. As we executed on our strategy to be the global AI driven expert platform, powering prosperity for consumers and small businesses, call.

Speaker 2

We continue to be focused on solving our customers' biggest problems by putting more money in their pockets, eliminating work and saving people full time and ensuring that they have complete confidence in every financial decision they make. Full year revenue reached $12,700,000,000 up 32%, including the addition of Mailchimp and a full year of Credit Karma. Excluding Mailchimp, revenue grew 24%. Call. Total revenue growth was fueled by 38% growth for the Small Business and Self Employed Group, which includes 16 points from Mailchimp.

Speaker 2

Quarter. Consumer Group revenue grew 10% and Credit Karma had an outstanding year with revenue of $1,800,000,000 up 58% on a pro form quarter basis year over year. I'm very proud of the team's performance delivering strong growth and strong margins, which quarter. Very few companies at our scale are able to achieve. I'm optimistic about our strategy and opportunities for growth, especially considering an uncertain global macroeconomic economic environment.

Speaker 2

The Intuit platform remains mission critical for powering our customers' prosperity. I'm pleased we are guiding to another year of strong revenue growth and strong margins in fiscal year 2023. Our global AI driven expert platform strategy is accelerating innovation call and our 5 big bets are solving the largest problems our customers face. We continue to deliver strong proof points that demonstrate the success call and are well positioned for durable growth in the future. As a reminder, our 5 big bets are revolutionize speed to benefit, call.

Speaker 2

Connect people to experts, unlock smart money decisions, be the center of small business growth and disrupt the small business bid market. Call. We will share more on our vision and the outcomes we're driving across each of these big bets next month at our Investor Day. Call. Now let me turn to a topic that I know is top of mind for many of you, the resiliency of our business in a slowing macroeconomic environment.

Speaker 2

Call. Our company is in a significantly different position than it was during the last recession more than a decade ago. Our platform and cloud based offering to significantly expand us to become the platform of choice for consumers and small businesses. Therefore, Intuit is even more mission critical for our customers we serve. We have highly predictable reoccurring revenue and much of our business is subscription based.

Speaker 2

Call. Additionally, the scale of our platform, along with our rich data, gives us the unique ability to see leading indicators such as growth in charge volume, call. Number of hours employees are working and number of workers paid, bank account balances of our small business quarter. This allows us to be forward looking and adjust quickly. Call.

Speaker 2

Let me share how we think about our business in context of a mild recession. To start, in fiscal year 2022, call. 51% of our revenue came from the small businesses self employed group, 35% from our consumer and pro tax businesses and 14% from Credit Karma. First on tax, our tax businesses are very resilient and we do not expect a mild recession to have call. Next, with Small Business and Self Employed Group, QuickBooks and Mailchimp are mission critical for our customers call, whose livelihood depends on our platform.

Speaker 2

In fiscal year 2022, approximately 80% of the small business and self employed group revenue call. As a reminder, Mailchimp is also primarily subscription based, which adds to the scale of our subscription volume. Call. Approximately 20% is transactional based and includes revenue from QuickBooks payments, capital and per employee pricing for time tracking and payroll. Call.

Speaker 2

In a mild recessionary environment, we may see an impact on these transactional businesses. In Q4, call. We did not see any impact. This demonstrates how mission critical our platform is, especially in this environment. Finally, quarter.

Speaker 2

Turning to Credit Karma. This is the business that could be most impacted by weakening economic environment. As a reminder, quarter. This business represents 14% of Intuit's revenue in fiscal year 2022. While we expect member engagement to be strong in any economic environment, call.

Speaker 2

Our financial institution partners could tighten access to credit. In Q4, we experienced increased volatility in personal loans. Call. Many partners that securitized loans are facing a more challenging funding environment as interest rates rise. Call.

Speaker 2

For context, personal loans represent just over a third of Credit Karma's revenue in fiscal year 2022. Although several personal loan partners tightened underwriting during the quarter, we were able to offset some of this with volume from other partners. Call. This demonstrates the power of the platform. In credit cards, we've not seen any significant impact.

Speaker 2

Call. We continue to monitor delinquency rates, which we view as a leading indicator for future credit card origination trends. While delinquency rates have increased slightly, call. They remain near historical lows. We expect credit cards to be less negatively impacted by a mild recession than personal loans.

Speaker 2

Quarter. In the mild recession of 'one, 'twenty two, credit card originations declined only a few points. And for context, credit cards represent nearly half of credit card revenue in fiscal year 2022. We do expect Lightbox to continue to be a differentiator for Credit Karma call. As this technology allows lenders to deploy their targeting models in an encrypted environment and leverage thousands of anonymized financial attributes related to Credit Karma members and TurboTax customers.

Speaker 2

This provides more certainty to members and partners on the platform as recommendations are personalized. Call. Currently, no one else can replicate this. Partner's usage of Lightbox at the end of fiscal year 2022 was at an all time high, call representing nearly 70% of credit card and personal loan transactions on a combined basis. This was up nearly 15 points from the prior year.

Speaker 2

Call. We expect Lightbox to help make Credit Karma's business more resilient in a recessionary environment. Now with that as context, call. The guidance we are providing today assumes current demand trends continue. Wrapping up, we feel more confident than ever call.

Speaker 2

In an uncertain macro environment, the benefits of our platform are more important and mission critical than ever. Quarter. As part of our 3 1 year plans that the Board just approved, we are investing heavily in innovation within each of our big bets to deliver benefits for our customers, quarter, while delivering top line growth and margin expansion given the strength of our operational playbook. Combined with our strong business fundamentals, quarter. Including our balance sheet, Intuit remains in a position of strength.

Speaker 2

We're proud to be the platform of choice for over 100,000,000 customers around the world who rely on Intuit call to prosper. Now let me hand it over to Michelle.

Speaker 3

Thanks, Sasan. For the Q4 of fiscal 2022, call. We delivered revenue of $2,400,000,000 down 6%, reflecting the earlier IRS tax filing deadline this year, call, partially offset by the addition of Mailchimp. GAAP operating loss of $75,000,000 versus operating income of $402,000,000 last year. Non GAAP operating income of $433,000,000 quarter versus $715,000,000 last year.

Speaker 3

GAAP loss per share of $0.20 versus diluted earnings per share quarter of $1.37 a year ago and non GAAP diluted earnings per share of $1.10 versus $1.97 last year. Quarter. You can find our full fiscal 2022 results in our press release and on our fact sheet. Turning to the business segment. Call.

Speaker 3

In the Small Business and Self Employed Group, revenue grew 41% during the quarter and 20% on an organic basis, quarter, excluding $265,000,000 in Mailchimp revenue. In fiscal 2022, revenue grew 38% 20 2% on an organic basis. Online ecosystem revenue grew 66% in Q4 or 32% excluding Mailchimp call and 61% for the full year or 34% excluding Mailchimp. With the goal of being the source of truth for small businesses, our strategic focus within the small business and self employed group is 3 fold, grow the core, connect the ecosystem and expand globally. Quarter.

Speaker 3

First, we continue to focus on growing the core. QuickBooks Online Accounting revenue grew 34% in fiscal Q4, quarter, driven mainly by higher effective prices, customer growth and mix shift. In fiscal 2022, QuickBooks online accounting revenue grew 33%. Call. 2nd, we continue to focus on connecting the ecosystem.

Speaker 3

Online services revenue, which includes Mailchimp, payroll, payments, quarter. Capital and time tracking grew 116% in fiscal Q4. Excluding Mailchimp, online services revenue grew 29%. Call. In fiscal 2022, QuickBooks Online Services revenue grew 107%.

Speaker 3

Excluding Mailchimp, online services revenue grew 34%. Call. Mailchimp revenue included in online services was $265,000,000 Although we're making progress with this business quarter. As we accelerated our year over year revenue growth several points in fiscal Q4 versus when we closed the acquisition in fiscal Q2, quarter. Revenue was slightly below our expectations.

Speaker 3

During the quarter, we focused on product innovation to improve conversion ahead of peak season, which starts in September, call and therefore pulled back on marketing investments. I'm confident that these are the right steps to position us well as we head into Mailchimp's peak season. Call. We expect to ramp up marketing in September after these enhancements are complete. We continue to have confidence in our game plan and acceleration priorities for Mailchimp.

Speaker 3

Call. Within payroll, revenue growth in the quarter reflects an increase in payroll customers and a mix shift to higher end offering. Call. Within Payments, revenue growth reflects an increase in charge volume per customer and ongoing customer growth. Quarter.

Speaker 3

3rd, we continue to make progress expanding globally. On a constant currency basis, total international online ecosystem revenue grew 193% in quarter Q4 and 23% on an organic basis excluding Mailchimp. Desktop ecosystem revenue grew 1% in the 4th quarter and 4% for the full year. QuickBooks Desktop Enterprise revenue grew low double digits in fiscal 2022 driven by price increases and customer growth. Nearly all of our desktop accounting revenue is now subscription based, call, similar to our online accounting offerings.

Speaker 3

Moving on to Credit Karma, revenue grew 17% to $475,000,000 in Q4, quarter, another record revenue quarter, driven primarily by growth in average revenue per monthly active user. Quarter. Full year revenue was $1,800,000,000 We've had 2 exceptional years for this business growing 37% in fiscal 2021 58% in fiscal 2022 on a pro form a basis, well above our longer term expectations of 20% to 25%. Call. On a product basis, revenue growth was driven primarily by credit cards and personal loans.

Speaker 3

This was partially offset quarter. As Sasan shared earlier, we're seeing increased volatility in personal loans. Call. We continue developing the emerging verticals by focusing on innovation with Credit Karma Money, which we believe is key to growing the frequency of visits over time. Call.

Speaker 3

We remain excited about the opportunities ahead. Consumer Group revenue was $3,900,000,000 in fiscal 2022, up 10%. Quarter. I'm proud of our execution this season as we grew share in average revenue per return. Turning to the ProConnect group.

Speaker 3

We reported $546,000,000 in revenue for fiscal 2022, up 6%. Call. Our financial principles guide our decisions, remain our long term commitment and are unchanged. Quarter. We finished the quarter with approximately $3,300,000,000 in cash and investments and $6,900,000,000 in debt on our balance sheet.

Speaker 3

Quarter. We repurchased $508,000,000 of stock during the Q4 and $1,900,000,000 during fiscal 2022. Quarter. The Board approved a new $2,000,000,000 repurchase authorization giving the company a total authorization of $3,500,000,000 to repurchase shares. Quarter.

Speaker 3

Depending on market conditions and other factors, our aim is to be in the market each quarter. The Board approved a quarterly dividend of $0.78 quarter, payable October 18, 2022. This represents a 15% increase versus last year. Call. We have an operating system we use to run the company and this includes a proven playbook for operating in both good and difficult economic times.

Speaker 3

Call. As a nearly 40 year old company, we've been through many economic cycles. Our first priority is to do the right thing for quarter, giving them access to the tools and offerings they need most. We manage for the short and long term call and control discretionary spend to deliver strong results, while investing in what is most important for future growth. Call.

Speaker 3

The economic environment was a consideration as we look ahead. We've identified several levers we can pull to deliver against our financial principles in a variety of scenarios based on where we see opportunities across our platform. Many of these can be told in real time should the need arise call in areas like marketing spend, travel, hiring and others as we progress through the year in order to maintain earnings power quarter, while positioning the company for a stronger future. We have a strong balance sheet that enables us to play offense in any macro environment. Quarter.

Speaker 3

These principles are intended to accelerate our innovation in the future and our goal remains for Intuit to emerge from any downturn in a position of strength. Call. Moving on to guidance. Our fiscal 2023 guidance includes revenue of $14,500,000,000 to $14,700,000,000 growth of 14% to 15%. Our guidance includes revenue growth of 19% to 20% for Small Business and Self Employed, call, 9% to 10% for the consumer segment and 10% to 15% for Credit Karma.

Speaker 3

As a reminder, Credit Karma grew 58% quarter on a pro form a basis year over year in fiscal 2022, well ahead of our long term expectation of 20% to 25%. Quarter. Our overall guidance assumes recent demand trends continue. Our guidance also includes GAAP earnings per share of $6.92 call to $7.22 non GAAP earnings per share of $13.59 to $13.89 quarter. We expect a GAAP tax rate of 25% in fiscal 2023.

Speaker 3

Our fiscal 2023 guidance includes quarter. Stock based compensation of $1,800,000,000 an increase of 39% over fiscal 2022. Call. Approximately 25% of this total is equity granted as part of the Credit Karma and Mailchimp transactions, and quarter. Approximately 75% of this total is related to our broad based equity program designed to attract, retain and incentivize employees.

Speaker 3

Quarter. Looking ahead, we expect stock based compensation as a percentage of revenue to flatten over the next few years. Quarter. Our guidance for the Q1 of fiscal 2023 includes revenue growth of 23% to 25%, quarter GAAP loss per share of $0.43 to $0.37 and non GAAP earnings per share of $1.14 to $1.20 call. You can find our full Q1 fiscal 2023 guidance details in our press release and on our fact sheet.

Speaker 3

Going forward, we're bringing Mint and Credit Karma together under a unified personal finance strategy. Starting in fiscal Q1, we will be reporting Mint as part of the Credit Karma segment. Quarter. This is reflected in the guidance I shared today, but is not material to the growth rate. I also want to share important change regarding our long term expectations for small business and self employed group revenue growth going forward.

Speaker 3

Call. In the past, we shared with you our aspiration to achieve online ecosystem revenue growth of better than 30% organically over time. Call. We first provided this expectation in fiscal 2017 when our online ecosystem revenue was $850,000,000 call. It comprised less than a third of our small business ecosystem, and we were early in our journey building our online presence.

Speaker 3

Call. Today, the online ecosystem is over 5 times larger at $4,400,000,000 and it comprised more than 2 thirds of total small business revenue in fiscal 2022. This, along with the fact that the majority of the business is now subscription based call. Given the shift to subscription in desktop, we believe the right measure moving forward is to look at the performance of our overall business call rather than just the online ecosystem. We now expect total small business and self employed long term revenue growth call of 15% to 20%, up from 10% to 15% previously.

Speaker 3

While the online ecosystem will continue to be our growth catalyst. We will no longer provide specific online ecosystem goals. With that, I'll turn it back over to Stephane.

Speaker 2

Call. Great, Michelle. Thank you. As you have not heard from Michelle and I, we are seeing continued momentum across the company given our strategy call. With our accelerated organic innovation and the addition of Credit Karma and Mailchimp, call.

Speaker 2

We are the leading global financial technology platform that powers prosperity for people and communities. We have a large TAM, secular shifts quarter. Working in our favor and a highly predictable set of revenue streams. Our innovation is unlocking new quarter. Intuit remains a best place to work call around the world and I'm proud of the team and what we've accomplished this year.

Speaker 2

Now let me turn it over to you for any questions that you may have.

Speaker 3

Call. Kelsey, I think we're ready to take questions.

Operator

Thank you. Our first question will come from Keith Weiss with Morgan Stanley.

Speaker 4

Thanks, Melinda. Thank you guys for taking the question quarter. And a very nice quarter. Michelle, I think this is more of a question for you. Call.

Speaker 4

For the FY 'twenty three guide, you're looking for operating margins continue to move higher or just to move higher from where they were in FY 'twenty two. Call. Part of that is just kind of anniversarying the legal settlement on those part of FY 'twenty two. Can you talk to us about sort of the Organic, if you will, or sort of like the fundamental margin improvement that you're expecting in the business in FY 'twenty three. How big is that and how quarter.

Speaker 4

Durable on a go forward basis. If we think about the model like beyond FY 'twenty three, is this a progression that we could see call. Being more durable in terms of driving operating efficiencies, number 1. And number 2, in your remarks quarter. Finding levers in the business, the one that really stuck out to me is saying, you said there's levers to maintain that there's levers you could pull to maintain margins and maintain profitability even in a weaker macro environment, if you will?

Speaker 4

Thank you.

Speaker 3

Call. Thank you. Thanks for your questions. Appreciate it. Yes, we are very happy to see our operating margin guidance for this coming year that implies margin expansion of 100 basis points versus FY 'twenty 2.

Speaker 3

Call. And as you know, that aligns to our financial principles to be able to grow revenue double digits and operating income dollars quarter and revenue. So we feel really good about that. As we look at where that's really coming from, as we've been continuing to grow more and more as a platform, form. Over time, that really does enable us to look across the business and be able to drive efficiencies and effectiveness while driving quarter, which is resulting in our ability to expand margins while being able to continue to invest to really drive the accelerated revenue growth.

Speaker 3

As for how we think about that, I don't really see anything that really structurally that impacts that over time. Quarter. We haven't given any longer term expectations or long term guidance on what margins might look like in the longer term, call. But I don't necessarily see anything really structurally that prevents us as we continue to grow with the platform that conference call from continuing that growth. So the second part of your question is as for the levers that we would call.

Speaker 3

Yes, I mean, there are a number of things that we would pull, which could be OpEx. As I mentioned, there's marketing spend or travel, cab hiring, other things like that that we can pull pretty much in, a lot of those in real time to be able to impact quarter, our operating expenses and be able to maintain the margins that we have committed to. So call. We want to be ready. It's really kind of what we do on a day to day basis.

Speaker 3

We're always looking for opportunities to drive different efficiencies across business.

Speaker 4

Awesome. Thank you very much.

Operator

Thank you. Call. Our next question will come from Brad Zelnick with Deutsche Bank.

Speaker 5

Great. Thank you so much and congrats on quarter. A strong finish to the year and a strong guide for next year. Maybe for my first question, with Mailchimp a bit disappointing, call. Can you double click on the actions you're taking and what it is that gives you the confidence it's product and not the environment?

Speaker 2

Call. Yes, Brad. How are you? I will take that question. 1st and foremost, I would share with you that we are the ones that pulled back call.

Speaker 2

That resulted in the performance that we just shared. So the great news is it's in our control. Call. The second point I would make is the biggest thing that's been reaffirmed as we've been become one family with Mailchimp is call. 2 of the biggest problems that matters most to our customers, and especially by the way in tougher times is being able to grow their customer base call and being able to manage their cash flow.

Speaker 2

And the biggest insight that we learned as we started accelerating our marketing spend, which call. We had shared with all of you that we would do is that there are conversion gaps in the product that we felt like were critical to address quarter and not just spend the marketing dollars without the benefit of improved conversion. And specifically, those were things like call. Coming to the website and the number of people that we saw falling off versus what we would expect based on our experience with quarter. Across the QuickBooks platform, across the Credit Karma platform, the TurboTax platform, what we believe are some best in class engagements and conversion.

Speaker 2

Call. Then when you get into the product, we measure active use and making sure that you're getting into the features that you really wanted to get into and hence why you signed up core Mailchimp and even our checkout process. So those are just three illustrative examples of what I would say just quarter. Basic blocking and tackling product conversion that we really wanted to double down on to make sure that we are ready for busy season. Call.

Speaker 2

That did not take away from the priorities that we have shared about Mailchimp, which is 1, call. To create one growth platform with QuickBooks, which we are on track to do. 2, it's a double down on international. In fact, it is now part of our fresh international strategy to double down on helping customers grow customers with Mailchimp. And then the third is to actually go into mid market.

Speaker 2

So call. What we just announced in terms of our results actually has nothing to do with the environment. It has everything to do with what's in our control and decisions that we made very explicitly quarter. We are ready for busy season and these are playbooks that we know how to execute when it comes to product conversion. Quarter.

Speaker 2

Thank you. It makes

Speaker 6

a lot of sense, Hassane. And maybe if

Speaker 5

I can follow-up with a quick one for Michelle. Michelle, just on the long term guidance and how we're Thinking about small business going forward and you talked about a range of 15% to 20% growth versus up from 10% to quarter.

Speaker 2

But thinking more holistically,

Speaker 5

just as I think about some of the pricing actions more recently in desktop, for example, can you just remind us, as you think about call. That long term view, how should we think about pricing as a lever and pricing for value going forward? Thank you. Call.

Speaker 3

Hi, Brad. Thank you for the question. We're really excited about being able to raise the long term expectations core small business from 10% to 15% to 15% to 20%. I just think it goes to show, as Sasan talked quarter. Earlier, really the mission critical nature of the products and the offerings that we have in small business.

Speaker 3

Quarter. As we have increased the growth expectations, the growth algorithm overall is really still focused call on the same things. It's about driving customers and it's about driving ARPC. Yes, pricing may be part of ARPC, call. But really, it is about focusing on driving value and how do we continue to provide offerings for customers that may have hire ARPC, whether it's QBO, Advance, QuickBooks Live, those kinds of products.

Speaker 3

And we really are focused quarter. On pricing for value, so not just continually raising price, but once we're delivering those additional features that are providing additional value to the customers and we're bringing more innovation to the table. Then we look at really should we be raising the price. But overall, very excited about the growth we call with our business.

Speaker 5

Excellent. Thank you so much and thanks for taking my questions. So thanks, Hassan.

Speaker 2

Please. Yes, one other thing that's call. Just amplifying what Michelle just shared and that is our reliance on price has not changed, meaning that we have call. An algorithm whereby price is just an element of our overall performance and we're not relying more on price looking ahead than we did looking backwards. Call.

Speaker 2

Just reiterating one point that Michel made just a moment ago.

Speaker 7

Excellent. Thanks again.

Operator

Quarter. Thank you. Our next question will come from Alex Zun with Wolfe Research.

Speaker 8

Call. Hey, guys. Thanks for taking the question. I guess, so one bigger picture kind of question and then just one on tax. Call.

Speaker 8

Yes. As we parse the numbers, I think the surprise factor sitting here is the guidance. And call. It's surprising in that it feels like it's not that conservative, I guess. And Sasan, I want call.

Speaker 8

Press on that a little bit. I think what you're saying is

Speaker 7

that, look, you guys have

Speaker 8

a lot of forward looking indicators into the macro environment, and you're looking at those indicators, quarter. And then I think you mentioned in your script that your guidance does not assume significant quarter. So I guess my first question would be why not and why what gives you the confidence to guide call. With that methodology. And then if you what levels if you did add conservatism into the guidance for next year, where would we find it?

Speaker 8

Call. And just tactically, maybe, what is the assumption for Mailchimp growth given that variability you talked about that was a choice,

Speaker 2

quarter. Sure, Alex. Appreciate the question. I'll say a couple of call. First of all, our approach to how we run the company and our approach to guidance and how we factor things in call.

Speaker 2

Has not at all changed. So just know that our approach is consistent with the way Intuit has always call. We have set expectations and set guidance, which is really to deliver on our commitment. That's the number 1. Number 2, What really informs our perspective as we look ahead is all of the indicators that we see that are call.

Speaker 2

Forward looking, but let me just, if I could, double click in a few of the areas. I'll start with tax to put that out of the way, which is call. No matter the environment, we're not going to expect nor have we seen in our history really any material impact in tax. That's 35% quarter. When you look at the other 51% of the company, which is small business, it's important to note that call.

Speaker 2

We are a very different company today than we were 3 years ago, much less 5 years ago, where small businesses call. Are relying on our platform to run their business. It's actually their likelihood. And 80% of our revenue is subscription. Call.

Speaker 2

And the 20% that is transactional based, we take the current environment and how things could play out into account as we set guidance. And the 3rd, which is Credit Karma quarter. And 14% of the overall company revenue, we have taken the current environment and what we quarter. Assume will take place into account and most of our verticals other than Credit Karma, in fact, have seen an impact and we have call. Included that in our guidance.

Speaker 2

So really that was a long way of saying we are fairly consistent across all of core segment and we feel very good about the indicators that we see, how we view things will play out and how that informed call, our guidance moving forward.

Speaker 8

That's helpful. It sounds like you're reaffirming a notion of diversification quarter and exposures. I guess maybe just a follow-up. On the tax side, on the consumer business, call. When you think about I mean, you mentioned that business is kind of much more resilient irrespective of the macro, everybody's doing quarter.

Speaker 8

Is there any impact we should think about from recent legislation? And just in general, the type of attack quarter. Season that a more volatile macroeconomic recession might or environment might instigate?

Speaker 2

Call. Yes, Alex, I would say nothing more than what we've experienced in the last couple of years. That's really the short answer. When you look at the last 2 to 3 years, environmentally, it has had probably more of an impact in the tax quarter. And as you know, I've been with the company for 17 plus years, ran the tax business for 3 years.

Speaker 2

And what happened when we hit quarter. The implications on consumers, the extended tax season, the child tax credit. There are so many things call that played into the tax season the last several years. And as we look at the year ahead, frankly, we view a much more simplified approach quarter. The tax season, although some of the tax laws will impact what we need to do in the product, that's what we're great at.

Speaker 2

That's what we know how to do well. Call. So we actually see more normalcy as we look ahead than we experienced in the last 2 to 3 years.

Speaker 8

Quarter. Got it. Can't argue with the results, guys. Congratulations.

Speaker 2

Thank you, Ali.

Operator

Quarter. Thank you. Our next question will come from Kash Rangan with Goldman Sachs.

Speaker 7

Hi, congratulations on a super finish fiscal year and also very constructive guidance. Sasan or Michelle, we look at the you're not going to be talking about the small business Online ecosystem revenue split going forward. But it clearly looks like the business is at a point where we have 2 thirds of the business going from online ecosystem Growing roughly 30 plus percent range, right? I think many of us are surprised that the outlook for that business, call. You raised the overall business to 15% to 20%.

Speaker 7

So it looks like online ecosystems actually been pretty decently, right? So call. In the event of a downturn, I know Stefan, this was exactly the question that I've asked you on prior conference calls, but how confident are you that call. Of course, retaining subs is one thing, but then adding net new subscribers in a challenging economy, how confident are you that you can keep that ball call while continuing to have your price increases stick and at the same time managing retention such a way because retention goes down then you have more pressure to add mortgage subs. So how does that mathematical equation play out during a downturn?

Speaker 7

Thank you so much and congrats.

Speaker 2

Call. Yes, sure, Kash. Thank you for the compliment. I actually love the nature of your question. And let me hit on a couple of things.

Speaker 5

This is

Speaker 2

why call. Earlier, one of the things I talked about is we are such a different company when it comes to the small business platform than we were even 3 years ago. And so to your question of call. Why do we have confidence around our guidance? And I know that it doesn't go past us that in this environment, we actually raised quarter.

Speaker 2

Our long term expectation and it's because of just the how mission critical the platform is, but the services that we have. And 2 examples I would share with you is call. When you look at the formula that we've shared, which is we're going to grow customers 10% to 20% and we're going to grow ARPC in the 10% to 20%. The two examples I would give is we have a set call. Of offerings on our platform today that we didn't have before.

Speaker 2

QuickBooks Advanced, which is going after mid market, which has quarter. Much higher ARPC, ForEx the use of sort of services is something that we didn't have 3 to 4 years ago, and we are just early in our penetration quarter to get paid faster, to be able to take care of their employees. And so one is when you look at going up mid market, when you look QuickBooks Live, which is really an opportunity for us to lift heads and go after non consumption. Call. Those are offerings we have that we didn't have before that are actually higher ARPC.

Speaker 2

That's 1. 2, remember 4 to 5 years ago, our payments quarter. This was growing 11% because of where we were on innovation and the platform. Now we're growing north of 30% call. And we have about almost $2,000,000,000,000 of invoices that are managed on our platform.

Speaker 2

We're growing at that rate and our penetration So we have and those are just two illustrative examples, but very real examples of why we're seeing the strength that we're seeing here and now and the strength call. All the indicators that we see in the coming year, and I would just sort of finish with the bang box of 80% of our business is subscription business. So it's highly, highly call. Those are the things that give us confidence as we look ahead.

Speaker 7

Tremendous dissection of what is driving your confidence. Thanks call. We will not let Microsoft tell us anything about SMB. We will listen to you first. Thank you so much.

Speaker 2

We are the ones to look for When we talk about SMB. That's it.

Speaker 9

Thank you.

Operator

Quarter. Thank you. Our next question will come from Daniel Jester with BMO Capital Markets.

Speaker 2

Call. Great. Thanks for taking my question. Maybe just on Credit Karma and now moving Mint into that segment call. On an official basis, maybe we could just spend a minute talking about sort of the opportunities there in a little more detail.

Speaker 2

How much Can Mint drive engagement in addition to credit card money? And just over the long term, how should we be thinking about that combination? Call. Yes. Daniel, thank you for your question.

Speaker 2

We kicked off a strategy project. It's been almost call, probably a year ago, to just understand, how we can accelerate making ends meet and our vision to truly have a consumer financial platform that can be the self driving platform for consumers no matter where they are call in their life, whether they are students or someone that is later in their life, where they have achieved a level of financial freedom and Credit Karma together because in essence, although we have a lot of Prime members as part of the Credit Karma base, Mint actually has a number of feature and functionality that the Prime members need the most. So that's number 1 is bringing some of the features and functionalities together quarter as part of the Credit Karma platform. And over time, that will actually make Credit Karma much more robust call to be able to serve all kinds of members no matter what their sort of credit band is. Number 2 is actually leveraging the scale and the hour of the algorithm, the machine learning capabilities, the decision engines that we have in Credit Karma that ultimately deliver call.

Speaker 2

North of 35,000,000,000 machine learning predictions per day, we can leverage a lot of those capabilities to make Mint a lot better as part of Credit Karma. So call. We do expect that this will be accretive in the long term delivering benefits to members and ultimately call. Truly achieving our vision of unlocking smart, funny decisions for consumers. So that is our approach and thinking and we're very excited about it.

Speaker 2

Call. Great. Thanks. And then just the second one on Mailchimp. I appreciate all the context you provided about the quarter and

Speaker 7

the trajectory of the business. Call.

Speaker 2

I guess, are there any learnings from the Mailchimp acquisition that you'd share that maybe will impact your acquisition philosophy going forward? Call. And just maybe a comment on sort of what the acquisition outlook and playbook is today. Thank you very much. Sure.

Speaker 2

Absolutely. Let me start with the quarter. Single biggest thing that we've learned and we're diagnosing, it wouldn't have changed any of what we've done. We're call. Very, very excited about what we're going to do in executing our vision with Mailchimp and QuickBooks coming together.

Speaker 2

Call. But it's having diagnosed upfront some of the product conversion opportunities that we are going after, I would say that's probably the single biggest thing that we did not diagnose as well as I would like to see us diagnose. I would also say that call. If you're going to misdiagnose something, that's an okay one because it's within your control and you can address it. But I would say that's Something that we've really gone back and we're looking as to how we can put that in our playbook to do a better job diagnosing upfront.

Speaker 2

But in no way, shape or form Change how we feel about the possibilities ahead and it has not impacted our timeline at all. The second thing is our quarter. M and A playbook has not changed. Our Uber goal is time to market. Our principles around call.

Speaker 2

Looking at capabilities that could help us accelerate delivering our vision are unchanged. And so I would just call. I would leave it at that. Nothing new to report. It's unchanged.

Speaker 2

Great. Thank you. You're very welcome.

Operator

Quarter. Thank you. Our next question will come from Siti Pinagray with Mizuho.

Speaker 6

Quarter. Thank you. Thanks for taking my question and great quarter. Just wanted to dig into the payment part of the business. I guess that's one of the underappreciated quarter.

Speaker 6

I would say Intuit has. You talked about total invoices now growing $2,000,000,000,000 versus last year, dollars 1 $500,000,000,000 Could you help us understand how you have been gaining share within the business? And also what are the opportunity you see call. For Intuit Payments to expand beyond QuickBooks like some of the acquired asset, If you could share some of your long term vision on that, that would be great.

Speaker 2

Sure. Absolutely. What's great about your question, quarter. Customers grow their customer base and it's actually about cash flow, managing their cash flow. And that's where the power of Mailchimp and QuickBooks come together.

Speaker 2

Call. Specifically around the $2,000,000,000,000 of invoices that we're now managing on our platform call. And your question about how do we continue to gain share, I'll start with just sharing how we've accelerated our growth from the 11% call. Several years ago to the 30% that I mentioned a moment ago from a charge volume perspective and it's really just call. Basic innovation.

Speaker 2

It's around discoverability. It's around innovation like instant deposit. It's around innovation like get paid upfront, which call. It really gives you the ability to send an invoice and get paid instantly because of all the data points that we see. And it's just really making the quarter.

Speaker 2

Of where we have innovated to accelerate the growth in payment. And by the way, call. I want to be clear, there is so much more yet to do there because when you look at the last 5 to 6 years, our team has spent probably the first half of those 6 years just building the basic platform capabilities to be able to innovate much faster. We have a lot of those capabilities. Call.

Speaker 2

Now we're able to innovate and deliver faster innovation to our customers. So that's one area where we'll continue to double down to quarter. But we also have a significant opportunity to digitize all of business to business. A big chunk of this $2,000,000,000,000 of invoices that are managed on our platform is actually business to business, where it's a QuickBooks customer that transactions with another QuickBooks customer. And the opportunity that we have is that at the end of the day, you can look up that small business, send them an invoice, that invoice quarter.

Speaker 2

Ends up getting it, showing up in their books and they can pay it instantly right on our rail. So that's an example of the types of things that we are working on call. In addition to what I shared a moment ago, to really accelerate increasing our penetration and share of this $2,000,000,000,000 And I'll just end with call. Going back to a couple of questions that I think were asked around what gives us confidence around our small business guidance. And it's really this quarter.

Speaker 2

One great example of helping customers get paid faster. It's already happening on our rails. We don't need to go acquire the customer. These invoices are being managed on our platform. Now the question is conference as we look ahead.

Speaker 6

That's great color. And just a quick follow-up to one of your comment on Melchimp that you're planning to go to mid market. Can you help us understand where the melt sheet strength right now, maybe in the employee segment and where you're targeting, right, The mid market and is it also something are you trying to expand your features more beyond email marketing when you're trying to go into the mid market?

Speaker 2

Call. Yes, absolutely. I would like and since you and many that are listening have followed us for years, I would like and The Mailchimp journey that we are on very similar to the QuickBooks journey. Specifically, there's a lot of overlap in the type of customers that we serve. Mailchimp call.

Speaker 2

Generally has served the smaller small businesses, less than 10 employees. However, it actually has a lot of the capabilities to be able to serve the mid quarter. And it comes down to adding some features and functionalities, basic things like how you do billing call. To actually ensure that you have the right inside sales force and customer success agents to be able to serve these mid market customers. A lot of what we have built and know how to build quarter in mid market for QuickBooks Advanced.

Speaker 2

We're doing the same thing now with Mailchimp. So call. It has a lot of the feature functionalities, but we're building out additional ones, but we're also building out Inside sales and customer success to be able to then serve those customers. And then you put that together with going to market together with QuickBooks, call. It really sort of brings the power of the benefits that we're able to deliver to customers and makes us far more attractive in the market for those small businesses that we want to serve.

Operator

Call. Thank you. Next, we have Michael Turrin with Wells Fargo Securities.

Speaker 9

Hey there. Thanks and good afternoon. Appreciate you taking the question. The EPS guide for the full year, it's if not the highest among the highest we've ever seen at 16 percent growth as a starting point from Intuit. You've had some questions.

Speaker 9

It's especially notable given the current environment. I think it's clear that quarter. Increasing the target range for small business helps, but is there anything else you'd point to? Are there platform advantages you're finding with some of the newer segments? Or just call.

Speaker 9

Anything else you'd point us towards that's helping unlock the bigger EPS growth algorithm?

Speaker 2

Yes, sure, Michael. I'll just amplify what Kjell shared earlier, we have leverage that is coming from 3 places that we view as durable. One is on the technology side. And we are actually excited about having Mariana walk all of you through our technology stack, our quarter. And how it's fueling innovation and also how it's giving us margin leverage at Investor Day.

Speaker 2

Call. But in that context, that's one significant lever where we are continuing to build services so we call. You can build them once and use them multiple times across the company. And it's actually one of the things that is an accelerant call to fueling innovation and acquisitions like Mailchimp and Credit Karma. The second is the levers we from how we're building out our marketing platform so that our MarTech services can be used across all of the segments across call.

Speaker 2

And 3rd, is the technology that we're building once and applying to all of our customer success operations, which just recall call. It's quite large. We have over 700,000,000 interactions with customers. And we shifted the company years ago from call. Every segment builds out their own operations that we're building at once and the segments leverage the same operations across the company call.

Speaker 2

And then making sure that we ensure that those services and those platforms are used by not only across the company, but our acquisitions like Credit Karma and Mailchimp. So call. The leverage is coming from technology across the company, Martech and customer success operations. And that's what's driving call. What we delivered this past year, the guidance that you heard Michelle talk about and the durability that we believe we have looking ahead.

Speaker 7

Thank you. Just quarter.

Speaker 9

A quick follow on, if I may. Some useful commentary around mix throughout the call. With Credit Karma, you're guiding for 10% to 15 percent growth. It's below the longer term targets we've seen, but clearly there was some outsized growth there over the past year. So call.

Speaker 9

I'm wondering if there's any way you can help disaggregate the tough comps versus some of the macro assumptions to frame that guide in relation to the longer term targets we've seen. Call. Thank you.

Speaker 2

Yes, sure. Sure, Michael. It is in fact both. One is we have a big comp quarter. 2 years of 37% and then last year 58% growth.

Speaker 2

And we have a lot of confidence in our long term Great patience for 20% to 25%, so that is unchanged. So yes, one element is the tough comp. But really, I would say the other element, call. Probably a bigger element is the current trends that we are seeing that we have really incorporated in our guide. When you look at our verticals around call.

Speaker 2

Credit cards, personal loans, insurance and then home loans just and then there's the money vertical. Call. Almost every vertical has been impacted. And by the way, you can see based on our guide, the resiliency of the platform quarter. Other than, of course, the credit card vertical that really has not seen any significant impacts.

Speaker 2

So that's the second piece that we have grade into our guidance is the, in fact, the macroeconomic environment that we see.

Operator

Thank you. Call. Our next question will come from Brent Thill with Jefferies.

Speaker 2

Thanks. Sasan, a number of CEOs have been calling out the shift to services based economy from a product base. And I believe, correct me if I'm wrong, you have a heavy services base inside the small business. And I'm curious if you think that's helping quarter. Shelter the small business in this environment right now.

Speaker 2

Is that playing into some of the defensive nature of what you're seeing in results in small business quarter. Yes, it's a great question, Brent. And I think the short answer is absolutely. And there are 2 elements. I'll start with just quarter.

Speaker 2

A reminder that when we look at the small business market of sort of 0 to 100 employees, about call. 70% of it is service based businesses and about 30% is product based businesses. And our really strength call. I think the second thing I would just say is we're very, very diversified in the service based businesses that we serve. We're not sort of call.

Speaker 2

Overly anchored in one vertical or another. And that really helps with the diversification of call. Not only our performance looking backwards, but our opportunity as we look ahead. Call. And when you look at Credit Karma and past downturns, can you just give us a compare contrast?

Speaker 2

I know you've compared call. The small business segment to be more SaaS, you've got obviously layered services around. Is there something different that they've done in the business quarter. Assuming things got a little worse, I'm not saying that's what you're saying to the guide, but if that was the case, what gives the defensive nature of that business? Call.

Speaker 2

The single largest, I would say, uniqueness about Credit Karma, aside from you 100,000,000 customers, incredible trust, high net promoter, 14 plus years of behavioral data where call. We know so much about these customers and know what they need, when they need it and how they need it. Putting that to the side as a foundation, which is critically important, it's Lightbox. Call. With Lightbox, it raises certainty of the experiences that and offers call.

Speaker 2

We now have almost 70% of our credit card and personal loan transactions on Lightbox. Quarter. And by the way, growing. That's 15 points higher than it was last year and, of course, almost nonexistent years ago. And I don't even think Lightbox existed quarter.

Speaker 2

In the last recession, that is the single biggest thing of where financial institutions have a lot of certainty when their models are call part of Lightbox so they can identify the kind of customer they want, the kind of offers that they want to provide. And of course, we make the perfect match. So I would say that is the single biggest quarter. And it's just the scale of the platform. We are a large part of the economy providing a match between call.

Speaker 2

What consumers want to the financial products that they have, but I would say Lightbox.

Operator

Thank you. Call. Our next question will come from Kirk Materne with Evercore ISI.

Speaker 10

Thanks very much and I'll echo the congrats. Call. Sasan, you've alluded to this a couple of times, but I was wondering if you could just sort of dive into it in a little bit more detail, just the power of the platform in small business. And as we go into a potentially soft economic backdrop, our customers start call. Talk to you all about trying to consolidate onto your platform in a bigger way.

Speaker 10

Now you obviously have the ability to help them address both the back office and the front quarter. While we're seeing that I think anecdotally in payments and payroll, I was just kind of curious, given that budgets might come under more scrutiny, quarter. Are you benefiting from the idea of consolidating towards one platform versus maybe taking a best of breed approach? Thanks.

Speaker 2

Call. Yes, sure, Kirk. And in fact, this is probably one of the most misunderstood or least understood element call. The benefit that our platform provides. And so I'll just start with stating something that I mentioned a moment ago because it really plays into your question and that is call.

Speaker 2

We're not a line item on the small businesses budget. We are the platform that fuels their success. We are mission critical. Without our platform, a small business quarter. And so it's really important to have that frame of mind as to what's the role that we play in the lives of small businesses.

Speaker 2

Call. The second, to get to your question, is we now have the services that we didn't have 3 years ago, 5 years ago. And in fact, Yes. They are having those conversations with us, less from a, can I save money, but more from a perspective of, I don't want to deal with all of these different applications where things are sort of desperate and discreet, where I can have everything on your platform? If I'm using somebody else's payroll or Somebody else's capital or somebody else's payments.

Speaker 2

Why not just use all the services on your platform? And frankly, this is an area where quarter. Our small business team is actually doubling down on looking forward, which is how do we evolve our go to market to actually have a conversation with our call. About all the services that they don't use, that they should use, where they'll be far more efficient, effective and potentially even save some money call. Because we see all their transactions.

Speaker 2

We can see what they do if they don't do it on our platform because they've connected their bank accounts and so on. So call. We believe this is an opportunity as we look ahead.

Operator

Thank you. Quarter. Ladies and gentlemen, that is all the time we have today for questions. And I would like to turn the call back over to management for any additional or closing remarks. Call.

Speaker 2

Awesome. Well, thank you for the wonderful questions. And we are really looking forward to seeing hopefully all of you at our Investor Day at quarter. September 29, we'll number 1, walk through probably the next level of depth around the experiences that we are delivering and why in this environment they quarter the most to our customers across all of our 5 big bets. And you have a great opportunity to not only ask more questions, but call.

Speaker 2

Connect with my wonderful team that leads a lot of this great work. So look forward to seeing you then. Until then, be good, stay safe, call. And we'll talk to you all soon. Thank you.

Operator

Ladies and gentlemen, thank you for your time today. And this concludes our conference. Call. We appreciate your participation and you may disconnect at any time.

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Earnings Conference Call
Intuit Q4 2022
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