直覺電腦 (INTU) 2021 Q3 法說會逐字稿

Good afternoon. My name is Latif, and I will be your conference facilitator. At this time, I would like to welcome everyone to Intuit's Third Quarter Fiscal Year 2021 Conference Call. (Operator Instructions) With that, I'll now turn the call over to Kim Watkins, Intuit's Vice President of Investor Relations. Ms. Watkins?

Thank you, Latif. Good afternoon, and welcome to Intuit's Third Quarter Fiscal 2021 Conference Call. I'm here with Intuit's CEO, Sasan Goodarzi; and Michelle Clatterbuck, our CFO.

Before we start, I'd like to remind everyone that our remarks will include forward-looking statements. There are a number of factors that could cause Intuit's results to differ materially from our expectations. You can learn more about these risks in the press release we issued earlier this afternoon, our Form 10-K for fiscal 2020 and our other SEC filings. All of those documents are available on the Investor Relations page of Intuit's website at intuit.com. We assume no obligation to update any forward-looking statements.

Some of the numbers in these remarks are presented on a non-GAAP basis. We've reconciled the comparable GAAP and non-GAAP numbers in today's press release. Unless otherwise noted, all growth rates refer to the current period versus the comparable prior year period and the business metrics and associated growth rates refer to worldwide business metrics. A copy of our prepared remarks and supplemental financial information will be available on our website after this call ends.

And with that, I'll turn the call over to Sasan.

Great. Thanks, Kim, and thanks to all of you for joining us today.

We had a very strong third quarter. Small Business and Self-Employed Group revenue accelerated to 20% this quarter, and Credit Karma performed very well with revenue at an all-time high for the quarter. Our tax results through the May 17 IRS tax filing deadline reflect another strong season. As a result, we are raising our revenue, operating income and earnings per share guidance for fiscal year 2021.

Let me start with tax. We're proud of how we delivered for our customers and executed our strategy of expanding our lead in the do-it-yourself category and transforming the assisted category. Based on our performance through the May 17 IRS tax filing deadline, we expect our consumer group revenue to grow 11% to 12% during fiscal year 2021. We expect total IRS returns to be up approximately 1%, and our share of total returns expand an estimated 1 point for the tax filing season. This results in expected total customer growth of 6% and double-digit revenue growth for the fourth year in a row.

The average revenue per return increased, reflecting a stronger contribution by TurboTax Live and mix shift to our premier offering used by investors. We made significant progress this season.

Within the do-it-yourself category, we continue to double down on underpenetrated segments, including Latinx, Self-Employed and Investors. We saw a significant acceleration in Investor customer growth this season and expected to more than triple over last year. We expect the base of customers paying us nothing to grow 6% this season.

Within transforming the assisted category, we continue to make progress connecting people to experts with TurboTax Live. We expect customers to grow more than 90% this season compared to 70% growth last year and TurboTax Live customers new to Intuit to be up more than 100%.

More broadly, our AI-driven expert platform strategy and 5 Big Bets are driving strong momentum and accelerating innovation across the company. These Big Bets are focused on the largest problems our customers face and represent durable growth opportunities for Intuit. As a reminder, these 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 mid-market. Today, I'll highlight the notable progress we've made this quarter on 3 of these Big Bets. And we'll provide a detailed update on all 5 Big Bets at Investor Day in the fall.

Our third Big Bet is to unlock SMART Money decisions. With Credit Karma's data platform and powerful network effects, we're making progress towards our goal of creating a personal financial assistant that helps consumers find the right financial products, put more money in their pockets and access financial expertise and advice. To deliver on this goal, our strategic focus is to grow the core, including credit cards and personal loans, expand growth verticals, including home loans, auto loans and insurance, and develop emerging verticals focused on digital money offerings, such as savings and checking accounts.

Credit Karma also provides an additional monetization engine, increasing our combined wallet share with both free and paying customers. Credit Karma achieved its largest quarterly revenue ever in Q3, while the number of members, monthly active users and frequency of member visits reached all-time highs. Within the core, Credit Karma personal revenue was at a record high on a combined basis, reflecting an increase in both the number of partners and member engagement. The growth verticals also achieved all-time high revenue, reflecting strong momentum in auto insurance followed by home loans and auto loans. And we're developing the emerging verticals by focusing on innovation with Credit Karma Money, part of our digital money offering.

We continue to make great progress combining our capabilities to fuel the success of Credit Karma. Since the acquisition closed, TurboTax customers and migrating Turbo users accounted for 40% of new Credit Karma members, significantly accelerating new member growth. We're pleased with the initial performance of Credit Karma Money, which we integrated into TurboTax filing experience, offering approximately 36 million TurboTax customers the opportunity deposit up to $88 billion of tax refunds into note fee checking accounts.

Providing this product integration helps members achieve their financial goals, drives member engagement and creates a new revenue stream for the company in the future. The more we successfully innovate for Credit Karma members, the more times members visit the platform and the more opportunities we have to offer members products that are right for them, resulting in more monetization opportunities for Intuit.

Our fourth Big Bet is to become the center of small business growth by helping our customers get customers that paid fast, manage capital, pay employees with confidence and grow in our omnichannel world. 60% of small businesses struggle with cash flow, and we're continuing to innovate to create solutions for customers to overcome this challenge.

We are excited about our progress with QuickBooks Cash, a small business bank account that helps our customers manage working capital. QuickBooks Cash presents a full financial picture along with the ability to move money instantly and ensures that their money is working for them while taking advantage of the built-in accounting of QuickBooks. We achieved a milestone this quarter as QuickBooks Cash balances surpassed $100 million, and we're seeing strong active use among both new and existing customers.

Our fifth Big Bet is to disrupt small business mid-market with QuickBooks Online Advanced. The usage of services such as payments, payroll and time tracking with QBO Advanced customers is more than 30% higher than the next QBO offering in our lineup, contributing to higher ARPC while overall engagement is up over 10 points year-to-date. We're very pleased with our results and remain confident in our game plan to win, accelerated by digital tailwinds. Across all of our Big Bets, we're building momentum and accelerating innovation, which we believe positions us well for durable growth in the future.

Now let me hand it over to Michelle.

Thanks, Sasan. Good afternoon, everyone.

For the third quarter of fiscal 2021, we delivered revenue of $4.2 billion, GAAP operating income of $1.9 billion versus $1.4 billion last year, non-GAAP operating income of $2.2 billion versus $1.5 billion last year, GAAP diluted earnings per share of $5.30 versus $4.11 a year ago, and non-GAAP diluted earnings per share of $6.07 versus $4.49 last year.

Turning to the business segments. Consumer Group revenue grew 34% in Q3, reflecting a shift in the timing of the IRS tax filing window year-over-year. The revenue we're reporting today is for our third quarter ending April 30. That said, based on our performance through the May 17 tax filing deadline, we are raising our Consumer Group revenue guidance to 11% to 12% growth for fiscal 2021, up from 9% to 10% previously.

There are 4 primary drivers in our consumer business. Note that these levers exclude approximately 8 million stimulus filings last year. This data reflects our expectations for the season through July 31, 2021, versus the prior season through July 31, 2020. The first is the total number of returns filed with the IRS which we expect to be up approximately 1% by the end of the season. The second is the percentage of those returns filed using do-it-yourself software. We expect the DIY category share of total IRS returns to be approximately flat by the end of the season.

The third driver is our share. We expect our share of total tax returns to expand 1 point this season and our share of the DIY category to be up approximately 1 point. The fourth is average revenue per return, which increased again this season. This growth reflects a stronger contribution by TurboTax Live and mix shift to our premier offering, which is used by investors.

Turning to the ProConnect Group. Revenue grew 22% in Q3, reflecting a shift in the timing of the IRS tax filing window year-over-year. For the full year, we expect ProConnect Group revenue growth of 2%. In the Small Business and Self-Employed Group, revenue grew 20% during the quarter, including 1 point from approximately $10 million of nonrecurring Paycheck Protection Program, or PPP revenue.

Online Ecosystem revenue was up 28%, including 2 points of growth from approximately $7 million of PPP revenue. Our longer-term expectation remains 30% or greater Online Ecosystem revenue growth, driven by 10% to 20% growth in both customers and ARPC. We expect to return to 30% Online Ecosystem revenue growth at some point during fiscal '22.

our strategic focus within Small Business and Self-Employed is to grow the core, connect the ecosystem and expand globally. First, we continue to focus on growing the core. QuickBooks Online accounting revenue grew 24% in fiscal Q3, driven mainly by customer growth and mix shift. Second, we continue to focus on connecting the ecosystem. Online Services revenue, which includes payments, payroll, time tracking and capital, grew 34% in fiscal Q3 or 31% excluding PPP revenue.

Within payments, revenue growth reflects continued customer growth, along with an increase in charge volume per customer. Within payroll, we continue to see revenue tailwinds during the quarter from a mix shift to our full-service offering and growth in payroll customers.

During the quarter, we began migrating customers once again to our new Full-Service lineup. This did not have a significant impact on revenue during the quarter. Third, our progress expanding globally added to the growth of Online Ecosystem revenue during fiscal Q3. Total international online revenue grew 38% on a constant currency basis.

Desktop Ecosystem revenue grew 9% in the third quarter, including approximately $3 million of PPP revenue. As a reminder, in the third quarter last year, the Desktop business declined sharply, reflecting the impact of the pandemic. QuickBooks Desktop Enterprise revenue grew mid-single digits in Q3.

Note that we discontinued the TurboTax and QuickBooks Self-Employed bundle this year. We remain committed to serving the Self-Employed segment. However, after years of experimentation, we determined that serving Self-Employed customers through separate TurboTax and QuickBooks offerings is most effective. There was no material impact to revenue or operating income from this decision.

Moving on to Credit Karma. Revenue was $316 million in Q3 as the business continues to gain momentum, reflecting growing members, member engagement and expansion of new and existing partners across verticals. Revenue reached a record high in the quarter. We are also seeing engagement reach a new high-water mark with both monthly active users and frequency of member visits at all-time highs, giving us more opportunities to offer members products that are right for them.

Turning to our financial principles. We remain committed to growing organic revenue double digits and growing operating income dollars faster than revenue. As I 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 becoming an AI-driven expert platform. These principles remain our long-term commitment.

Our first priority for the cash we generate is investing in the business to drive customer and revenue growth. We consider acquisitions to accelerate our growth and fill out our product road map. We return excess cash that we can't invest profitably in the business to shareholders via both share repurchases and dividends.

We finished the quarter with approximately $4.1 billion in cash and investments on our balance sheet. We repurchased $380 million of stock during the third quarter. We have approximately $1.8 billion remaining on our authorization, and we expect to be in the market each quarter this year. The Board approved a quarterly dividend of $0.59 per share, payable July 19, 2021. This represents an 11% increase versus last year.

Moving on to guidance. Our guidance for fourth quarter fiscal 2021 includes revenue growth of 26% to 28%, GAAP earnings per share of $0.78 to $0.83 and non-GAAP earnings per share of $1.55 to $1.60. We are also raising our fiscal 2021 guidance following strong performance in the first 3 quarters of the year. Our new guidance includes revenue growth of 22%, up from prior guidance of 15% to 17%; GAAP earnings per share of $6.96 to $7.01; and non-GAAP earnings per share of $9.32 to $9.37. We now expect a GAAP tax rate of 21% in fiscal 2021. You can find our full Q4 and updated fiscal 2021 guidance details in our press release and on our fact sheet.

And with that, I'll turn it back over to Sasan.

Great. Thank you, Michelle.

I'm very proud of our team and remain optimistic about the future. We have a large addressable market with secular tailwinds that include a shift to virtual solutions, acceleration to online and omnichannel capabilities and digital money offerings. With our strategy of becoming an AI-driven expert platform and 5 Big Bets, we're positioned well for accelerated innovation and growth.

Let's now open it up to your questions.

(Operator Instructions) Our first question comes from the line of Keith Weiss of Morgan Stanley.

Excellent. Very nice quarter, good to see momentum really across all parts of the business heading into Q4. 2 questions, one for Sasan on Credit Karma. You talked a little bit about starting to see some of those revenue synergies between Credit Karma and TurboTax. Can you dive into that a little bit more in terms of -- versus your expectations, how well have those offers been working? I mean I saw them while I was doing my taxes in TurboTax and saw the offers for Credit Karma. Have you been taking you guys up on that, has that been a material contributor as of yet? And are there like kind of linkages that we should be thinking about on the QuickBooks side of the equation of where you're starting to create those connections as well?

And then maybe one for Michelle. Now we're looking for 100 basis points of margin expansion this year in the revised guidance, that's awesome. Does this take away from future years? Are we getting sort of a pull-forward of operating margins? Or could we see consistency in this operating margin expansion on a go-forward basis?

Thank you for your question. I have one clarifying question for you. You asked about QuickBooks. Was the QuickBooks question connected to Credit Karma? Or was that just...

I'm sorry, yes.

That's a good question.

The jux of it -- the question is around Credit Karma, like the linkages between Credit Karma and TurboTax. And then if there are any linkages between Credit Karma and QuickBooks.

Yes. Got it. Very, very helpful. So I think the place I would start is, if you go back a year plus from the time we've been working with Credit Karma, really their focus, even during the pandemic, was to deliver benefits for customers from the perspective of how to manage their money, credit scores, how to get some of the COVID-19 Relief Act help. And one of the things that happened based on just the obsessive focus on customers is their engagement increased at a time where the pandemic was impacting the supply side of the equation.

In addition to that, their investment in Lightbox and getting partners to really understand a Lightbox, the value of Lightbox, how it's good for consumers and how it's good for partners, whether it's financial institutions and insurance companies, is now really paying off. Because what you're seeing now is because the member engagement was up and to the right, you have more transactions that are happening on Lightbox, which really for the consumer means a much better match and eligibility for the partner. It means they are able to also make a perfect match. All of those things is really what's resulting in the momentum that we see right now, not only in the core, which is credit cards and personal loans and the areas where the company has been investing in 13-plus years, but also in the last year plus new areas, which is auto insurance, auto loans and home loans.

So that's the acceleration that we're seeing. A lot of the synergy opportunities are going to pay off in the future. And particularly, there are several. One that we've talked about is ensuring that we, with customers' permission, move all their data records from TurboTax to Credit Karma so that they can get much more personalized offers that are right for them on the first click, the launching of Credit Karma, both in the TurboTax experience, but also launching TurboTax as part of the Credit Karma platform. This was really all about a learning year. We ran 40-plus experiments, Keith, learned a ton, made a number of adjustments, and I think it positions us for the months and the years ahead. So a lot of the opportunities that we think about are -- that are synergies between the 2 companies are coming in the future. And that really is what's exciting.

What I would say has been a near-term impact is the fact that 40% of the new Credit Karma members actually came from either TurboTax and/or the fact that we deprecated Turbo, and that has been an instant sort of a thrust for Credit Karma. But a lot of what I just described is yet to come, which is what's exciting about the platform.

Specifically to your question around QuickBooks, that has been sequenced for some time down the road, Keith. We're very focused on what's most important, the biggest drivers of innovation and benefits for members. And QuickBooks is going to be something that we'll think about down the road, but it's been very intentionally sequenced so we don't distract the team.

Got it.

And Keith, your question on margin expansion. We do believe that over the long term, the platform leverage is real, enabling us to expand margins. Last year, we had a point of expansion. This year, before Credit Karma, we had guided 110 basis points of expansion, and now our updated guide with Credit Karma is 90 basis points of expansion. So whether that's looking at technology or customer success or go-to-market, there are opportunities for us to continue to leverage the platform.

However, I would remind you that this year is just very unique. We were deep in the pandemic at the beginning of the year, and we were conservative with our spending. Specifically, if you look at something like Credit Karma, it really took a while even though they really started to bounce back much more quickly than we anticipated. But it took us a while to be able to ramp up the spend when we saw that, and we do feel like we will continue to invest to drive accelerated growth in there. So I would just say this year is a little bit a unique year with the pandemic.

Our next question comes from Ken Wong of Guggenheim Securities.

Sasan, I wanted to dive into TurboTax Live a little bit. You highlighted seeing 90% growth, a really nice step-up from the 70% last year. How should we think about where these customers came from? Is it from the assisted category? Was it from just upselling your existing base? And then any color you can provide on this initial year of full service, what that adoption rate look like?

And then for Michelle, just also a quick question on spend. It looks like R&D saw a really big step-up this quarter. It looked like roughly 30% year-over-year. How should we think about kind of where those investments are being funneled? And is that kind of the right pace of growth, at least for the near-term future on the product side?

Great, Ken, let me take the first part of your question, and thank you for the question. The thing I would start with is I would want all of you to think about TurboTax now as a platform, and it is a platform that allows you to do your taxes yourself or we give you the opportunity to provide an expert to help you get your taxes done with you. And/or you can, in essence, hand everything off to us and we'll do your taxes for you completely. And so the -- really the momentum of accelerating from 70% growth to 90% growth is the fact that we are continuing to build momentum.

We're improving the platform. We are doing a far better job raising awareness. More folks are considering getting help in this world, in a virtual world. And we'll -- we're delivering really excellent experiences where our product recommendation scores are continuing to be one of the best that we've seen across the company.

So I bring that up just to say that what you're just experiencing and what we are experiencing is momentum. And Full Service just plays a halo effect role. The fundamental problem that we are solving for customers is one of confidence. And they want to know that if they need help that they can get access to an expert or even midstream, if they want to just hand everything off to somebody else to do their taxes, they can do it right off the bat. And so it provides a halo effect for the entire franchise that I can get my taxes done with TurboTax.

And whether or not I delegate everything now and next year perhaps just ask for an expert or even the year after that, do it myself, that all helps the franchise. So that's the role that it's playing, which is why we're seeing the accelerated growth. And we'll share some of the specific metrics perhaps at Investor Day, but the majority of these customers are continuing to come from the assisted category.

And then, Ken -- I'm sorry, your question on R&D. First of all, I would not focus too much on what you see just quarter-to-quarter changes. It can really get a little confusing when you do that. I look more at the year-to-date spend. But as for where we're investing our R&D funds, when you look at the increases year-over-year, it's really around how do we continue to make investments in the platform that will help us drive the Big Bets so we can accelerate growth across the company. And so that's really where we're tending to do more of the increases in our investments with R&D.

Our next question comes from Kirk Materne of Evercore.

Sasan, I was wondering if you can just talk a little bit more about the QBO business this quarter, just in terms of what you're seeing maybe geographically in terms of the reopening, how that's impacting not only new business formation, but the willingness for people to take on some of your higher quarter services, whether it's payroll, payments, even commerce, I realize that one's early on. But just maybe some more color on that front would be great.

And then maybe just a quick comment on the desktop side. It's actually a really strong quarter for desktops. So just curious if there was anything sort of seasonal about that, that we should be keeping in mind?

Yes, sure. Thank you for the question, Kirk. A couple of things I would say. One, biggest thing that we've learned in the last year is just how resilient the platform is and how much customers need it in very tough times. And so we are seeing usage of our services across the board, up and to the right and better than pre-pandemic levels. And up and to the right, pretty much across all industries. And we are pleased with not only the existing core platform, but some of the new innovations that we have inclusive of things like QuickBooks Live and QuickBooks Advanced, which go after a certain segment of customers, but also have a higher ARPU.

What I would say is outside of the U.S. and Canada, recovery has been slower. So from a geographic perspective, the strength is really U.S. and Canada. And then particularly, answer your question on desktop. I think, as Michelle said, it's less about seasonality, but more from the perspective of desktop also saw a very deep decline this time last year. And what we're seeing is just a rebound compared to a weak quarter. But overall, we're very pleased with the small business trajectory and where we're headed with all the innovation.

Our next question comes from Kash Rangan of Goldman Sachs.

Let me echo my congratulations to Sasan, Michelle and the team here. 2 questions. One, as you march up the food chain, if you will, on the QBO Advanced, I'm wondering if you have a perspective on how digital transformation of the back office is percolating into your end of the QuickBooks Ecosystem?

And also secondly, as a company, what are the things that you've learned during the pandemic that has caused you to accelerate your own digital transformation into it and any lessons that we could take from your experiences as you basically transform yourself?

Yes. Thank you for the question, Kash. A couple of things I would say. One, we are pleased with what we're seeing with our -- not only with our move-up market, but some of the higher ARPU offerings. As I mentioned earlier, QuickBooks Advanced is not only doing -- the team doing a great job with penetration, but also our services are -- the usage of our services is up 30% compared to any other QBO in the lineup.

And what that is an indication of is just the size of the businesses that we are serving. But also in some ways, the digital transformation for the mid-market is the same, if not a little bit behind the smaller businesses, which is why we're so excited about the possibilities with QuickBooks Advanced to truly give them, a customer as a platform that becomes a source of truth for their entire business.

Specifically, to your question around internal, I would say that from some of the decisions that we made years ago with a lot of the tools that we use internally, one, are shipped today, WS, the collaboration tools that we use internally, these are decisions and choices that we made 3 to 4 years ago, and we're fortunate that we're now using a lot of these digital tools internally, along with, of course, our shift to AWS. So I would say that although the usage went up in the pandemic, it didn't inform a different set of decisions because I think as a team, these decisions were made proactively 4 to 5 years ago.

Our next question comes from Alex Zukin of Wolfe Research.

I got 2 quick ones. Maybe, Sasan, first, from a big picture perspective, if you zoom out and put this tax season into context for us, comparing it to last year and then pre-pandemic as well as how to think about it for the next few years around both unit versus ARPU growth, clearly, this year, ARPU growth was a big driver with live and assisted. But just stepping back, kind of put it into context for us, what do we learn? And what -- how should we think about that algorithm going forward?

Yes. Thank you for your question, Alex. Big picture, we're very pleased with what we experienced this season, and it's consistent with what we declared several years ago. Our biggest opportunity for continued growth is to be able to transform the assisted category. There's 86 million folks that, in essence, get assistance to get their taxes done. It's more than $20 billion in size. And beyond that, there's about an $8 billion business tax segment.

And the second is underpenetrated segments, which is Investors, Self-Employed, Latinx. And when you look at our results this year, coming sort of out of the pandemic, our TurboTax Live platform accelerated to 90%. And we saw our Investors segment actually grow triple what it did last year. And we always want to continue to grow units, which will then result in ARPU.

I think given that our biggest opportunity is not only under-penetrated segments and transforming assisted, we may just see more ARPU than units. It's more a result of our strategy and where we are focused and where the biggest opportunity is. So if I put this season in context of our strategy, I would say it is absolutely in line with our strategy and it's for us, it's more about just continuing to accelerate in the areas that we declared several years ago.

Perfect. And then on Karma, clearly, I think, I guess just to Keith's point, are you seeing the synergies come sooner than you thought from the rest of the business? Is it more around improvements in the macro economy loosening lending standards? I think what is causing Credit Karma to be so strong so soon? And in your mind, the biggest driver for that, both for Q4 and beyond from here, help us model it because the seasonality can be -- clearly, this year is a little bit unique with that aspect.

Yes. The -- if you just step back, what really drives Credit Karma's growth is the number of members, the number of transactions per member and then the revenue per transaction. So that's sort of big picture metrics. The second is, if you think about Credit Karma, it's got well over 110 million customers and it's a data platform that creates a powerful network effect. And really, it's technology-driven via Lightbox.

And really, our opportunity is to continue to not only grow the products that we have today, which is credit cards and personal loans, but also the new products, which is auto and home insurance and home loans, but also the new areas that we're moving into, which is Credit Karma Money that we've talked about, which is savings, checking, early access to wages. And then ultimately, you can also get your taxes done on Credit Karma. And by the way, there's no boundary to what product verticals that we'll launch over time because we've got a relationship with over 100 million customers. We deliver personalized experiences, and they know that we're there for them. We're putting the power of their data in their hands.

So I bring that up to say that during the pandemic, we were obsessively focused on benefits, even though the market was sort of in shambles. When I say the market because of the health crisis. And so what you're seeing now is, one, the benefit of a lot of the work that we did during the pandemic launching these new verticals, delivering benefits to customers that was about how to manage their money and their credit score. And our really member engagement went up into the right even during the pandemic.

And so now with -- coming out of the pandemic and more financial institutions being in Lightbox, we're actually seeing more transactions in Lightbox which makes a more personalized match for not only the consumer, but it benefits significantly the financial institution. So this is not just a macro recovery, it's an end.

And looking ahead, we believe that the combination of what I just described, being able to leverage our distribution of customers, combining the data that we have that we can continue to sustain the growth in Credit Karma. And of course, we'll talk more about that at Investor Day.

Perfect. Congratulations on a great quarter.

Our next question comes from Brent Thill of Jefferies.

Sasan, on Small Business online, I was curious if you could just drill into international. You did see a pretty big deceleration from 51% growth in Q1 to 38%. And I'm just curious, going back to your, I think your earlier comment about the U.S. showing a good recovery. Is there anything going on there that is Intuit-specific? Or is this more specific to what's happening in the unevenness of those recovery of those small businesses?

Yes. It's really, Brent, the latter part of your comment, we continue to invest in international, in fact, very similar to what I just described with we were heavily focused on delivering for customers in Credit Karma during the pandemic. We're really doing the same thing in international. It's really 2 big things: one, lapping price increases; and two, the recovery is just simply much slower outside of U.S. and Canada, and it's not Intuit-specific.

Our next question comes from Siti Panigrahi of Mizuho.

Sasan, on the QBO side, 28% growth with lapping price in bridges, that's impressive. Just wondering what you're seeing in terms of new customer acquisitions given that in the U.S., we saw new business creation was phenomenal last 3 quarters? And also, it would be interesting to hear your -- what you're seeing on the retention side as well in the Small Business.

Yes. Siti, thank you for your question. Both new acquisition and retention is very strong, both in U.S. and Canada. And we're seeing -- continuing to see an acceleration in both areas. And the businesses that tend to typically come to QuickBooks, they're a little bit more mature. So it's not directly tied to new business formations. This goes back to what I've been talking about for the last, frankly, 2 years before the pandemic, which is we're seeing a shift to virtual solutions, a shift to online and omnichannel and a shift to digital money offerings. And I think what we're just seeing here is the pandemic accelerated that 5-plus years. And so both new acquisition and retention continues to be strong.

And based on a lot of our innovation and just the economic recovery, we're seeing that same strength in payroll and payments, in time tracking and which is why, as Michelle mentioned earlier, we actually expect sometime in our fiscal year '22 to be at or above our 30% online ecosystem growth.

Then quick follow-up on the TurboTax Live Full Service. I'm wondering, do you have any kind of technology advantage in terms of processing it faster, given that like all your competitors asking to drop the dot between to the Dropbox or anywhere, so is there any sort of technology advantage you guys have versus your competitors there?

Yes. I think let me just -- I'll talk about us, and that is that our biggest advantage is the technology. We have been building this platform and these capabilities for 8-plus years. And particularly, it's in the area of machine learning, knowledge, engineering and natural language processing. And everything that we are doing in TurboTax Live, whether it's providing you help with an expert or full-service is all technology-led. And our machine learning and knowledge engineering capabilities, not only continue to make the platform easier for the consumer, but also much, much easier and insightful for the expert, which means that our experts are far more effective, far more efficient and focused on the value that they bring to customers.

And really, a lot of our investments that we make in R&D go into our Live platform, which, by the way, also benefits QuickBooks Live. So it is a -- we believe we have a significant technology advantage and we've been adding over the last several years, process engineers that are also helping us improve our processes. And that, combined with technology, is really what's giving us the advantage that we have and the type of growth that we are experiencing because we also -- we measure not only recommendation scores by our consumers, but also for our experts and our recommendation scores for our experts are also up and to the right because of the ease of the platform.

Our next question comes from Scott Schneeberger of Oppenheimer.

Congratulations. Great job across all the segments. I'm going to focus on the tax segment. First off, Sasan, you all chose to wait until next quarter to depict your unit volume and your metrics in tax. And I assume that's largely because of the economic income payments from last year and making it tricky. But the question embedded here is what type of activity do you expect to see maybe as a percent of overall from May 18 to July 31, this year thinking back to past years? How much do you know is what I'm asking of the season now that you've seen the end of the tax season when you extrapolate this guidance to the end of July?

Yes. Sure, Scott. I'll say 2 things. One, we have pretty good visibility to the end of the tax season or through the end of our fiscal year, July. The main reason we didn't provide the table is the tax season is not done, places like Oklahoma, Louisiana and Texas, their deadlines have been extended to June 15. And last year, those were 10.5% of all of the federal filings. So it's a pretty significant amount of the federal filings. And so that was really why we wanted to provide the table when everything is conclusive.

With that said, we feel good about what we see because in some ways, 90% of the season is behind us. At the same time, the season is not done yet, and we're continuing to focus on winning every filer that's out there.

Great. And then really, a 2-parter for my follow-up. One, I'd love your view on category shift this year. We have seen for years DIY take category shift, and it sounds like it's going to be flattish this year. So just thoughts on the year-over-year comparison, and it's probably something I'm going to do with that. But your thoughts on that this year and then going forward?

And then the second part of the question is, with everything you've said about 90% up in TurboTax Live, customers and the premier category tripling, really implies a lot of revenue per return growth. I'm guessing that's being offset by free, of which you had a lot. So the second part of the question is, your thoughts on free this year and going forward?

Yes, sure, Scott. First of all, the way we keep score now is the total IRS returns. What we're really focused on is what is our share of all the returns. And so we're actually quite pleased that our total share of all of IRS returns is up 1 point. And the reason that's the way we keep score now is because of our TurboTax Live platform. So that's the first thing.

I think the second thing I would say is if you look at last year, IRS total returns were up about 3% to 4%, and then the do-it-yourself category actually grew about 2 points. And this year was flat. And so when we think about the category, we actually look at it over a 2-year period because it's really not comparing apples-to-apples. It was a very unusual last year with all of the folks that came in because of the stimulus track. So we're actually quite pleased that when you look at this year in context of last year, that our share of total IRS went up 1 point. The category stayed flat, and then our share within the category went up 1 point. So we're very, very pleased with the results, but I also wanted to just emphasize how we really keep score.

I think the second thing I would say is our free grew 6% this year, the pay nothing customers. And that compares to 20% growth last year. So we actually feel like free moderated, and it's in the vicinity that we would have predicted and assumed and really are -- growth came from the areas that are very strategic, which is both transforming the assisted category with TurboTax Live and then the underpenetrated segment, which is what we expect for continued growth as we look in the years ahead.

Our next question comes from Michael Turrin of Wells Fargo Securities.

My congrats on executing through what was certainly a unique year here as well. Online Ecosystem showing signs of rebound as we get through the course of the year, 26% ex PPP, sounds like there's still confidence and ability to return to that 30-plus percent target level. Anything else you can add just around what provides confidence in reinforcing and getting back to that level given increasing scale and maybe how we should think about the mix between services and QBO?

Yes. Sure, Michael. Thank you for your question. What really gives us confidence is the fact that when you look at the total SMB market, nearly 70% of that market is service-based businesses and about 30% are product-based businesses. And the majority of all of those customers are what we call nonconsumption. They're not using a digital platform. They're managing their life and their business through a shoebox or a Google sheet or an Excel spreadsheet.

And so what gives us confidence is really the innovation and the focus of our innovation in the last several years. One, we are now positioned to continue to deliver for service-based businesses with all of our innovation. We now have QuickBooks Commerce that gives us the opportunity to also serve product-based businesses. We're able to disrupt from the bottom with QuickBooks Cash, which is a business banking account. And really, we're able to go after nonconsumption with QuickBooks Live, which really solves the confidence problem and provides access to an expert for our customers, whether a onetime or an ongoing basis, and we're positioned to go upmarket with QuickBooks Advanced.

And so -- and within that, what I didn't mention is, of course, all of our innovation and payments, payroll, time tracking, et cetera. So what really gives us confidence is the fact that we're positioned well to serve the market in a meaningful way. We've continued to improve the experience of our platform. We have more partners on our platform, and we're a true open platform. And really, we are rethinking our go-to-market, both from a sales and marketing perspective. So it's really our innovation and transformation of sales and marketing that gives us confidence. And now that the economy is starting to come back, that is really what sort of is the ultimate confidence factor as we look at 30% plus online revenue growth.

Our next question comes from Sterling Auty of JPMorgan.

Great. It's Jackson Ader on for Sterling tonight. Actually, just a quick one from us, and it's on the investors. So tripling the investor base is certainly positive. And just curious what that retention rate looks like for those TurboTax and investor customers relative to maybe the entire TurboTax base?

Yes, sure. In looking at history, those that have used our premier offering have actually had one of the highest retention rates because of just the type of customer and the complexity of the customer. And this tripling this year was both new customers coming into the franchise and actually existing customers that upgraded to premier because they in essence took on investments that they may not have done in the past. And if I -- if we just look at the experience that we delivered for them, the product recommendation scores and history, we would feel good about the retention going forward.

Our next question comes from Brad Reback of Stifel.

Maybe pushing on the retention theme a little bit. Sasan, as you think about the early cohorts of TurboTax Live customers, have they, for the most part, remained in the live SKU? Or is it a fluid situation with some years they take it, some year, they move back to quick TurboTax?

Yes, Brad, it's actually somewhat fluid, and we like it. We -- now that we're in our fourth year of TurboTax Live, one of the things that we love about it is customers that come in that we typically would have lost because they wouldn't have access to an expert, will upgrade to TurboTax Live. And we've not divulged the percentages, but good percentage will stay in TurboTax Live the second year. So I actually go back to TurboTax. And now this year, we saw some that started in Live, the year after went back to TurboTax and this year came back to TurboTax Live.

We've not divulged any of the percentages, but what's great about that is back to the uber point, which is we are solving a major confidence problem. And what we really care about is that we can solve the customer's problem and the confidence factor and that they stay in the franchise. And going back and forth between do it yourself, I need help with an expert or here's all my stuff just to it for me, is the cycle that we are seeing, and we're actually pleased with what we're seeing.

Our next question comes from Daniel Jester of Citi.

Great. So maybe if I reflect on that 90% growth in Live, obviously, QuickBooks Live is also growing. If you -- to your comments that the economy is reopening, the macro economy looks better, how are you going to keep your expert partners on the platform in the year ahead? I suspect over the last 12 months, it was pretty easy to get folks in the door. But maybe talk about your retention strategy to keep those expert partners on the platform in the year ahead.

Yes. Thank you for your question, Daniel. In fact, I would share with you that the last couple of years, it's not been easy because everybody is -- and I don't mean in our space, but everybody is actually trying to find ways to shift to a virtual world and the pandemic just simply accelerated. So as we look ahead, we're not looking at headwinds because we've actually been dealing with a market that's really going after these type of experts in multiple different industries. There's a couple of things that not only helps us retain our experts but acquire more. And this is, of course, based on verbatims when talking to our experts.

One, it's our culture. It is the way we treat employees, it's the benefits that we deliver. It's the overall employee experience that they have. And they're truly able to work virtually with the setup that they need and to do what they love, which is deliver for customers and not have to market their services. We are unique in that we don't ask our experts to sell. We ask our experts to do one thing, which is deliver an awesome experience for our customers.

And we've had a quite high retention rate. And we have been able to recruit the best of the best. And by the way, we actually have very high standards. We have what we call an A for A process, which is assessing for awesome. They have to pass certain hurdles to be able to join us. We measure the recommendation scores. And so there's a service standard that they have to be able to deliver against.

And now we also provide certifications. And so we help them with education to get certified and to actually be able to grow their careers. And so we really -- we treat our experts like the way we would care for and treat employees. And that is, I would say, the differentiator beyond the course of benefits that we provide.

Our next question comes from Kartik Mehta of Northcoast Research.

Yes. I wanted to go back to your Credit Karma comments and the new customer growth. And I'm wondering if you look at the new customer growth that you've seen in the most recent quarter or maybe the last few months, are you kind of back to the pre-pandemic level? Obviously, not when Credit Karma started, but as the company matured and kind of if you look at 2019 and compare it to where you are today?

Yes, Kartik, good to hear from you. I think without getting into the numbers, which, again, we'll talk about more at Investor Day, the place I would start is Credit Karma significantly during the pandemic, reduced their marketing and really focus on the 100 million customers that they had to really focus on ensuring that they could manage through the pandemic, which is a lot of the reasons why we're seeing the type of bounce that we're seeing now because they truly took good care of their customers during the pandemic.

And really, the big thrust is now we are starting to do marketing with Credit Karma, not only within app, but also outside of the app, and 40% of the customers that came in -- or members that came in were all Intuit customers that chose Credit Karma. So I would say, in some ways, we're probably above pre-pandemic levels, and we're excited about the possibilities as we look ahead.

And then just on the TurboTax Full Service solution, which you're having very good success with, as you look at the type of customers that are drawn to that solution, what's kind of the breakdown or what are greater number of customers? Are they ones that are using more simple services? Or are they -- do they have very complex returns?

It's a variety, Kartik. It comes down to confidence. Those customers that -- let me actually take a step back. Out of the 86 million folks that use an assisted method based on our own research that we did several years ago, 70 million are willing to switch to a digital solution as long as they can have access to an expert. And so really, these are folks that are choosing to use a digital platform as long as they can get expert help and their needs could vary. So it's not just the simple filers. It's really an individual that chooses to use a digital platform with expertise. And so we're getting all kinds of variety of folks that are choosing to come to TurboTax Live and not just TurboTax Full Service.

Our next question comes from Matt Pfau of William Blair.

Just had a question around the free users that you've added over the past 2 years. A big part of the model has been the ability to bring customers in through free and then have them move up to other tiers as they experience certain life events. Are you seeing any difference in the cohorts that you brought in over the past 2 years in terms of that ability to potentially monetize these free users over time? And then are you also able to market Credit Karma to these customers? Or are there some restrictions around that depending upon how they come into the Intuit franchise?

Yes. Sure, Matt. Our strategy is unchanged. We want as many free customers as we can get for exactly the reasons that you mentioned. One, we want to serve those customers. But then, two, over time as their life situation changes, they may have different tax needs. But now with Credit Karma, we have an opportunity to provide other benefits beyond taxes.

So our strategy is unchanged. I would say, if I use this year, particularly as an example, we have end-to-end focus on free and particularly with TurboTax Live basic, where we got quite a bit of folks that came in that were from the assisted category that we love because ultimately, it's about transforming the assisted category. So our strategy is unchanged. And the growth that we saw was really in line with what we would have expected.

There are no restrictions with Credit Karma. As I mentioned earlier, we have one launched Credit Karma as a test as part of the TurboTax filing experience, and we have launched TurboTax as part of the Credit Karma platform. And we ran 40 tests this year just to learn, to understand how we could really nail the experience, and we're going to be able to now, given our learnings, scale to a different level as we look ahead. But there are no restrictions in terms of what we can and can't do. It's really all focused on the customer experience.

Our next question comes from Brad Sills of Bank of America.

Great. And I'll add the congratulations on a real nice quarter. I wanted to ask about QuickBooks Advanced. You've obviously seen some real traction there, and it's an effort to kind of move upmarket. Is there a limit where perhaps you draw the line, north of which it's going to be difficult for QuickBooks to kind of go? Or is this really an opportunity, maybe even to go into the next tier, maybe the lower end of the mid-market at some point as you kind of move up market with QuickBooks Advanced? Obviously, there's that balance between optimizing for the Small Business and then features for larger organizations. So how are you thinking about that balance? And where would that limit potentially be?

Yes. Sure, Brad. Thank you. First of all, our initial limit that we set just for the sake of focus and really nailing the experience has been small businesses that are between 10 to 100 employees. And we are very pleased with our progress. We're continuing to build out the platform to be able to continue to move up market even within that 10- to 100-employee segment.

With that said, to your question, we don't believe that there's a limit other than what we don't want to do is serve the Intuits of the world. We don't want to get into a place where we're serving a company the size of Intuit. And we don't want to get into a place where we get in the professional services, and we're having to customize the platform. We want it to be something that we can scale, and that is durable.

So the limit will not stop at 100. We put that limit on ourselves to ensure that we could really nail the experience and be very intentional and focused around our scaling. And at the right time, of course, we'll communicate to you all when we choose to go beyond the 100, but we believe that there's an opportunity beyond the segments that we serve today.

That's great. Sasan, one more similar question on TurboTax. With the progress you're seeing in full service, do you feel you have the talent base within your CPA pool to be able to kind of go into even some of the most sophisticated tax returns as you move up into different tax brackets and complexity for returns?

Yes, sure. We do and we're providing our own training and certification because one of the things that's really exciting and unique about what we're doing is we are going after a confidence problem for both consumers and small businesses. And so as we recruit, we're not only recruiting to ensure that we have the right expertise that can deliver for customers that need to get their taxes done, but also for small businesses that not only need advice, but need to get their quarterly taxes done.

And so in addition to hiring the best of the best and looking at partners that are in the marketplace, we also are building our own capabilities around training and certification. So with both those dimensions, we feel really good about the type of skills that we'll be able to acquire and retain, but also how we can grow those skills.

Our next question comes from Michael Millman of Millman Research.

I guess it's a question of what accelerated means. So can I look at your bottom line and expect accelerated earnings? By that, I mean, 1 year at 15%, next year at 17% and so on? Second question sort of unrelated to that is on the TurboTax Live. How many returns did you actually report as assisted this year? And how does that compare with last year? And where do you think that number is going?

Great. Michael, thank you for your question. A couple of things I would say. One, of course, we've provided guidance for the remainder of the year, and we're very excited and pleased that we're able to raise our guidance. And we'll talk more at our Investor Day around guidance for not only FY '22, but one of the things Michelle and I will do as we did last year is beyond guidance, just talk about our long-term expectations. So I think I would say let's wait till Investor Day to have the conversation beyond the fiscal year that we are in.

In terms of TurboTax Live, we intentionally do not report the actual numbers in TurboTax Live other than just our growth rate. I would just reiterate that it is the fastest, continues to be the fastest-growing platform and product in the company. We're very pleased that it actually accelerated growth from last year on top of a very good year last year. And then majority of these customers are coming to us from the assisted category that are -- and one of the things we're pleased about is we had a growth of 100% of customers that are completely new to Intuit that came to TurboTax Live. So those are some of the stats and numbers that we've chosen to share publicly, and we'll look forward to sharing more at Investor Day.

Can I assume, and roughly it's a wash. That is coming from assisted to you. On one hand, offset as those going into assisted?

No, I wouldn't call it a wash at all. It's actually why we're able to grow our total base of customers year after year. So no, no, it is not a wash. And the metrics that I shared earlier, when you look at the total number of IRS returns, our share of that total actually increased 1 point, which means that our base continues to increase. So no, it is not a wash. It is an increase in share by Intuit.

Our next question comes from Josh Beck of KeyBanc.

I wanted to ask maybe a 2-parter team. One is around Credit Karma Money. Certainly, you had a really good progress that you offered, $36 million direct deposits. I'm just wondering how important is it for you to really translate that into maybe a regular payroll direct deposit as you think about the strategy there.

And a little bit related, just with the amount of momentum and success that you're already seeing with Credit Karma, does it maybe make you revisit the M&A aperture and maybe want to consider more of these larger transformative types of deals?

Yes. Great, Josh. Thank you. First of all, I just want to clarify one thing to make sure it was not misinterpreted. We have the opportunity and made Credit Karma Money available to 36 million TurboTax customers. I don't want you all to interpret that as 36 million customers actually took us up on Credit Karma money. I wish they did, and our goal is they will over time, but I want to just make sure that, that was clear.

To the question that you asked, actually a great question gives me an opportunity to just very quickly paint a picture, and that is the -- I'll go back to what I shared earlier, which is the more we provide services and benefits to Credit Karma members, the more they will come back to the platform through our notifications. And the more they will engage with the services. And the more we have an opportunity to actually present more products to them. And then over time, be able to monetize that to drive our revenue growth.

So the power of Credit Karma Money is if you have a checking account with us or a savings account or you choose to pick us up on direct payroll deposits, so we can give you early access to your paycheck. Not everything is necessarily about monetizing every single benefit. But the more we bring you back, the more that we can offer you, hey, Josh, we have a pre-approved credit card that's right for you. Hey, Josh, it looks like you're paying X for your auto insurance. We have an offer based on your driving habits to pay 20% less.

So it becomes truly the vision that I described earlier, which is a financial assistant in your pocket where we are in your corner, to try to help you reduce your debt and put more money in your pocket. So we're not overly reliant on direct deposits by any means, but it just becomes another benefit and a reason to engage with the platform, which gives us opportunities to offer more products to you and then be able to monetize.

And to your last question about M&A, our principles around M&A are steadfast. We, of course, have just based on some of the acquisitions we've made in the last several years and how well that they've done. We have a lot more confidence in our ability to execute because we truly studied our history in the last 10 years, what went well, what didn't go well, and that's informed, I mean, a lot of our approaches today.

And really, for us, everything is about speed-to-market. And so if there are -- if there's talent we need to acquire, technology we need to acquire or a capability like Credit Karma, those principles were informed decisions. And of course, our confidence has continued to grow, given the execution of the recent acquisitions.

Ladies and gentlemen, I'm not showing any further questions. Would you like to close with any additional remarks?

Yes. I'll be very brief. Thank you for your wonderful questions. And again, I want to thank our Intuit team and all of our partners for everything that they're doing to innovate for our customers, and we look forward to talking to you at our next earnings. Take care, everybody. Bye-bye.

Ladies and gentlemen, thank you for participating. This concludes today's conference call.