Hi, everyone. I'm Joe Gallo. I'm delighted to have Sandeep Aujla, CFO at Intuit. He's been at Intuit for almost a decade now. Really appreciate you joining us here today.
Thank you for having me, Joe.
I think most people probably know what you guys do, but since it is a room of generalists, maybe just give a very brief description of the business that you've built.
Sure. We're in the business of delivering confidence to consumers and small businesses. We serve 100 million customers, 90 million consumers, 10 million small businesses. And on the small business side, our brand, QuickBooks, is a trademark that we go with. And it's a set of offerings that help small business, small and mid-sized businesses run their business, everything from managing their books to paying their employees, getting paid themselves, getting access to capital loans, and getting advice. So it's, in essence, covering the set of needs that a small business has to run their business. On the consumer side, our largest consumer business is TurboTax, which helps folks in the U.S. and Canada get their tax filings done. And on Credit Karma, we're helping people make smart money decisions and get access to financial products that are the right set for them.
Overall, the business is a little north of $16 billion in revenue. Over half of that is small business. Credit Karma is about 15%, and about 35% being the TurboTax business.
Awesome. Thank you. That's a helpful overview. We were talking about it in the session before you, but it's certainly been a volatile earnings season, right, where most people are hoping to survive, not thrive. There's definitely confusion around the earnings print. So maybe just talk through the top two or three things that investors should be focused on, or you think people are missing.
Yeah. The top two, three things I would take away from the earnings call, first and foremost, is we raised guidance. You mentioned the uncertain economic environment that we are all managing the companies through. In such an environment, we increase our revenue growth guidance. We increase our margin guidance. That's the first and foremost you should take away. Second, over half the business, as I shared earlier, is the small business group. That business has printed 18% growth over the last couple of quarters. The online ecosystem, which is the growth, where the growth catalyst of our business is growing at a 19% base. Our customers are continuing to adopt our offerings. We shared at the last earnings call that our payment volumes were up 22% last quarter.
That's the second thing you should take away, is the strength and the resilience of our portfolio. The third thing on the consumer side is we are making strides penetrating the $20 billion assisted tax addressable market. That part of our business grew 17%. It's now $1.4 billion and represents about 30% of the consumer group's revenue. All three of those are things that bolster our confidence in our ability to continue to grow this business at a healthy clip in the years ahead. That should be the key takeaway from the Q3 earnings.
You've taken a lot of share in assisted tax. TurboTax Live units were up 12%. I think full-service customers doubled year-over-year. I think you've noted less than optimal conversions on inbound traffic. How confident are you that you can kind of rejuvenate that or improve that going into next tax season?
You know, where confidence comes from as a management team is, what are the things that you control? And what are the things that are outside of your control? So let me share what are in our control and what's giving me confidence. Our Credit Karma business has over 40 million monthly active users. Most of them get their taxes done through the assisted tax methodology. That, in essence, is the analogy I would use as us fishing in a barrel, so to speak. And we need to drive a smooth, seamless, better-together experience. This past tax season, we had north of 10 million customers from Credit Karma come to our TurboTax properties. And only a quarter of them could get a seamless experience. And even on the quarter that got seamless experience, the app performance wasn't up to par. Those are both things that are addressable by us.
Our engineering team is all over it. Our expectations can be automated better in the year ahead. That's one. Two is, again, related to the assisted category, is a shopping experience. We are evolving from being a software-based digital shopping experience to a service-based experience. That's in our control as well. How do we evolve that shopping experience to where when you come to our properties, you're not just given a set of choices around which SKU to pick, because that's not how people make their decisions when they're picking a service. You come, you engage with the service provider, and then you get told a price. That's in our control.
Thirdly, what we learned this past year is when we showed up locally, when folks went to Google or their search engine of choice and they typed in, "Help me find a tax preparer near me." When we showed up in those searches, the conversion was automatically 2x higher. The team is making progress. We weren't all the way green in terms of where we needed to be in showing up local. That's an area over the next coming months I expected us to have much more coverage. Those three factors are what continues to bolster the confidence about growth in tax going forward.
Then maybe just taking those three factors, which all make a ton of sense, how does that materialize into TurboTax growth, revenue growth, especially given the TAM, I think it's $21 billion, is massive? So how should we think about the financial impacts of that?
Sure. The overall TAM of the TurboTax business is about $35 billion, the $21 billion being on the assisted category, which we're just starting to penetrate. We have about $1.4 billion right now in that market. And the way you should think about it is that $1.4 billion that represents 30% of the TurboTax revenue, that continues to grow at a very attractive rate in the years ahead. And the areas that give me confidence that it continues to grow at a very attractive rate are the three areas I touched on earlier. The better together with Credit Karma, are rethinking our shopping experience and doing better on showing up more locally. So that's how I would think about it.
I think this was the first year you had small business tax. Any learnings? What's been the biggest feedback so far? And then when can that be a material contributor to your business?
Joe, the last part of the questions is still nascent offering for us. I would still consider that kind of in beta, so to speak. It's not a material contributor to us. But let me share the learnings. The learnings were quite significant. On the new customer acquisition through TurboTax, that was actually surprising how many new customers we got through on that way. And on the QuickBooks side, it reaffirmed our thesis that we are helping customers get all the way to having a very clean set of business books. And it's just a click away to getting them to get their tax filings done. And that value proposition really resonated. So we got good uplift there as well. But I would underscore this is still an early part of our business.
It'll probably be a few years before it's contributing at a level that's material, given the size of the company we have.
Makes sense. Maybe just staying on the small business segments, we talked about macro in the session before. SMB remains really weak. I mean, how would you describe the relative health of your small and mid-sized business customers? And then is there any difference in the U.S. versus the rest of the world that you're seeing as well?
So a couple of things to keep in mind. Let me start with the business, and then I'll get to the macro aspect of it. The one thing that's important to keep in mind about our business is 80% of it is subscription-based. So our financial management software, that's completely a subscription-based offering. Our payroll offering, majority of the revenue there is subscription-based. And then there's a per-employee fee. And then the areas that are not subscription-based are payments. But we have a lot of untapped opportunity to continue to penetrate that. That's why even in a somewhat slowing or a challenging macro environment, our payments volume grew 22% last quarter. So that's an important aspect to keep in mind when you look at our business and our ability to manage that and for the business to stay resilient regardless of the economic environment.
Now, let me touch on the economic environment, which I would say the small businesses are doing better than they were doing in the pre-COVID era, both in the U.S. and the U.K., which is great because for both of these countries, small businesses are about half of the GDP. They employ about half of the workforce. So it's good to see them going well. But there's a mix in there, which is some areas such as auto mechanics are doing better. I think the Wall Street Journal had an article recently that people buying fewer new cars, guess who's the beneficiary? The auto mechanics. Service-based businesses are doing better. And what's not doing as well is folks in the real estate market, as an example, just given where the rate environment is. But the small businesses are doing well. Their profitability is up over the last six months.
What is giving us pause is that their cash reserves are down than where they were about a year ago. So that's something that we are watching carefully as we help them navigate. The last aspect I would say is for a company like us, when you are supporting 10 million small businesses, you have a lot of inherent diversification built into your business, both in terms of the size of the business you are supporting, everywhere from those who are self-employed or solopreneurs, meaning no employees, all the way to those who have hundreds of employees. You have diversification across the geographies that you cover. You have diversification across the industries that you cover. So that's another inherent aspect of our company that's important to keep in mind as you look at our ability to navigate through any economic environment.
So you think you've obviously shown tremendous execution. I mean, your 18% growth in that small, mid-sized business outperforms all of my coverage. So how do you think about the visibility and the resilience going forward? Are all the factors that you talked to still applicable as we move into next year and beyond?
You touched on execution, Joe. That's an area that we push our teams on because really what differentiates an excellent company from a mediocre company is execution. Execution eats strategy every day. That's what we focus on. When we talk about our investor day, about our operating system, when we talk about how Sasan and I engage and the entire leadership team engages across the business, it's a focus on top-tier execution. That is what's showing up in the results that you're talking about. That's execution around retaining our customers, both on the consumer side, where we talked about, retention was up three points. On the small business side, where retention is among the best in the small business landscape, it's about penetrating those customers with new service offerings. It's about going into new spaces such as assisted tax and mid-market. Execution is a differentiator.
That's where my confidence comes for our future growth.
That execution, the mind share dominance is abundantly evident in the United States. How do we think about driving that mind share and just larger share internationally as well?
You know, international is the one area where I'm not happy with our performance, quite frankly. That's an area that we are focused on having a different set of outcomes over the coming years than over the last few years. Let me touch on two areas why. One is Mailchimp. One of the surprises, a pleasant surprise during the Mailchimp due diligence process was that they had half of their revenue internationally purely by happenstance. They had not focused on a localized product or a localized go-to-market motion. Since the acquisition of the Mailchimp business, we have translated the product into five languages. We are building localized go-to-market motions in the U.K., in Australia, and working with marketing agencies in other geographies. So that's one.
And two is that we are making a very deliberate set of decisions around allocating engineering and product resources to building products for the international markets to really nailing the last mile that in a compliant industry could feel like the last five miles. So those are the two areas that I believe will drive a different set of outcomes internationally over the coming years.
That makes sense. Since you brought up Mailchimp, I mean, what have the early results been with cross-selling that with QuickBooks?
Let me step back and share the three-pronged thesis that we had when we did the Mailchimp acquisition. First and foremost was that by combining the power and the data we have in QuickBooks with the data in Mailchimp, we could create an end-to-end loop that no other market participant could replicate because we would not just know how the marketing campaigns perform, but we would actually have insights into the profitability of those campaigns and the profitability of the business as a result of those campaigns. So that's one. Second is that Mailchimp used to have a culture where they would celebrate people graduating. And we said, well, I don't want to celebrate people leaving my business. I want to grow with them. And we felt that we had an opportunity to really scale that business into the mid-market. And third was international.
That's the point I touched on earlier, a discovery that we had during the diligence process. So let me touch on each of those. On the better together with QuickBooks, it's more about a focus on product integration as opposed to cross-sell. It is how do we build CRM, customer relationship management capabilities into QuickBooks that seamlessly link into Mailchimp and help drive discovery and adoption of that offering? And vice versa, how do we make sure that the Mailchimp customers are discovering QuickBooks and able to benefit from the end-to-end data loop? And we'll have announcements in the coming weeks and months around some of the unique things that we could do by taking our data set across those two platforms and delivering experiences that no one else can replicate in the marketplace. So that's one.
Two, on the mid-market, our focus in terms of addressing the mid-market customer, having a custom human-assisted onboarding experience, is yielding a higher percentage of our new customers being mid-market and mid-market customer retention being higher than it's been in the last few years. So that's also bolstering our confidence in the opportunity for Mailchimp going forward. And third, we already touched on the work we're doing internationally in terms of translating the Mailchimp product into five languages, building localized go-to-market motions. So that, I know your question was more around the cross-sell, but it's a multi-pronged approach in terms of how we are scaling our business growth by using the Mailchimp asset.
No, that response is perfect. It leads me right into the mid-market. How do you think about Intuit's ability to serve the mid-market, both from a product feature perspective as well as the go-to-market side?
Mid-market is an area that we've been working on for a while. It's been a gradual improvement. You know, when I remember when I was in the small business group and we had this discovery that we were one of the key feeders of new customer acquisition to some of our competitors, such as NetSuite and Sage. I can tell you that was more than annoying. We were like, well, why should we be a feeder to them? We already acquired this customer. Why not grow with them? We actually asked the team, go do the work. Why do people leave? How big of a shift is this? What we realized is that there was not a step change in what we had developed to drive some of these improvements. These are things like now these customers have multiple branches. They have multiple entities.
They're doing multi-currency. They're moving more money. So it's a different type of risk management offerings. We started working on building those capabilities on the product side. And I feel pretty good about where the product is. You never get to 100% because your competition keeps moving and you need to keep moving. But the pace of progress that teams are making has been quite pleased. I'm quite pleased with it. And now we're focusing on the go-to-market motion. We are building an account management business development team that is focused on the mid-market. And these are not salespeople with feet on the street, but more of a digital-based sales force. So that's the area that's the next step of really building the go-to-market motion and scaling it. And I think that that's going to really help unlock the go-to-market, the mid-market for us.
You mentioned some of your competitors. You guys have always been disruptive on pricing. But how do we think about your differentiation more broadly versus some of those vendors?
On the mid-market side.
Correct.
Pricing is one. Pricing is just a small component of it. The biggest factor is if you want to leave QuickBooks and go to some of these other offerings, it's a huge step up in terms of the hassle of embedding those offerings. They come with a whole setup and everything else that you have to do. They're much more complex to train your employees on. We already have the customers. They are already used to the product offerings. Really helping them continue to scale with the product just makes it much more sticky. That's the biggest thing, which is the customer's already here. Customer's already deeply familiar with the product. Helping them scale with it is a competitive advantage. The second advantage is that we have a lot of offerings that are already in-house.
So if you go to one of these other financial management software providers, sometimes you have to go outside to go get a third party to go run your payroll, for example, or go do your money movement. We could do that all in-house. And that creates a unique set of synergies in terms of the offerings we can provide when you have your entire book of business with us in terms of we know your money in, money out. We know when you're paying your employees. We know the marketing campaigns you run. And that creates a flywheel of what we can offer you and opens up the aperture of what we can offer you that I think any standalone business is going to be hard-pressed to do. So I would say the competitive advantage, Joe, is around pricing. It's around unlocking the full breadth of the platform.
And third is just the ease of use. QuickBooks is a lot easier to use than some of these other offerings.
That makes sense. I've made it almost 20 minutes without asking about AI. I'm proud of myself. Maybe.
Is that a thing these days?
It's in-house. Maybe. It depends on who you ask. But so you guys are one of the few companies that I think in the near term have a real opportunity to kind of infuse and benefit from AI. But maybe just holistically, how do you think about your AI strategy?
You know, one thing about AI is we declared AI late 2018, early 2019. And I remember when we declared our AI-driven expert platform strategy, the first question I would get from many investors were like, what the heck is that? And now the dialogue has definitely changed since the last two years. But what that means is having declared that strategy five years ago is that we've been investing in AI, in knowledge engineering, in machine learning, in cleaning up a data set well before it became fashionable to focus on AI. So I feel that we are well ahead of the curve there. And really, the competitive advantage in AI comes from data set. We have data on 100 million customers. We have about 500,000 attributes per small business. We have about 80,000 attributes per consumer. And that data is sitting behind our firewalls, right?
So that is the data that we can train our models on to really deliver a set of experiences that is hard for a third party using publicly available data to be able to do. So that's where I feel good about the progress the team has made in building our own large language models. I feel good about the progress the team made in delivering experiences and using AI. We had 24 million customers in TurboTax use AI. And we saw better conversion retention. We are experimenting with AI in Mailchimp and QuickBooks. And those offerings are resonating. And we have early green shoots in what they can do in driving trial to gross new subscriber conversion rates as well as driving retention rates and discovery of our offerings such as payments and payroll.
These are all areas where that early leg up in moving in the space of AI has positioned us quite well in unlocking the opportunities there.
So on that Intuit AI Assist, are there tangible early proof points? I think you mentioned a few, but.
So I mentioned the one around TurboTax. The other one, which is in beta, is right now helping customers onboard into QuickBooks. QuickBooks could be a bit cumbersome to onboard into. But one of the things we are experimenting with is you link your Gmail, you link your website, and you connect your bank account. And we can help you onboard in a seamless manner into QuickBooks. Another example we are experimenting with right now, and I use an example of a caterer. You're out and about running your business. And you're on an email thread with new prospective clients and going back in terms of what catering jobs, et cetera, they need. Typically, these caterers would then come home at the end of a tough day, sit down, and go through those threads and turn those into either estimates or invoices.
Now we give them a unique QuickBooks email address. So they just simply forward the thread onto their unique QuickBooks email address. They go home. And QuickBooks has done the work for them to where they log in. So like, hey, on this thread, I think the customer's looking for an estimate. Generate this estimate. Do you want to do a quick scan? So what would have historically taken maybe 20-25 minutes now takes maybe 2-5 minutes to say like, oh, yep, I see this. This is the right thing. And that drives both retention as well as discovery of new offerings because we say send out this invoice, send out this estimate. And would you like to make it pay-enabled? So that's on the QuickBooks side.
In Mailchimp, we see significant opportunities to helping customers run marketing campaigns that are more effective in driving conversion using AI in terms of the messaging, in terms of segmenting their customer base, in terms of knowing seasonally when to start running campaigns to get ahead of that. And that's going to drive more money in the pocket of our customers. And that we benefit from because that makes the product more sticky. And over time, as we show that the AI-driven marketing campaigns are yielding a higher conversion uplift than the human-generated one, we earn the right to have a separate SKU that we could price higher. So these are some of the top-of-mind examples that I would highlight that is giving us confidence in the opportunities we have with AI to unlock value for our customers and thereby unlock value for our business.
So we've spent most of today talking about execution, resilience, drivers of the business. Maybe flipping to the profitability side. Margins have expanded, I think, 400 basis points from fiscal 2022 to fiscal 2024. How do we think about the cadence of future leverage? And how should we? I think we're comfortable with the growth profile. But how do we think about margins as well?
Finding operating leverage in the business while continuing to scale our revenues is definitely an important part for us as a management team. One of the things that we've talked about for years is our set of financial principles, which is we like to grow our revenue faster than our expenses, thereby leading to margin expansion. I continue to have confidence in our ability to continue to scale that. As I look at what's giving us that operating leverage is our ability to operate technology, customer success, and marketing as one single platform across the company. If you go back five years ago, each one of our business units had their own technology team, had their own customer success team, and the entire end-to-end marketing function. We have now centralized that a lot. We're getting synergies such as AI.
You build it once, and you leverage it across the entire business. Your live offerings, such as TurboTax Live, QuickBooks Live, that's based on the same platform that's run by the same team, built by the same technology team, run by the same customer success team. So that operating leverage that we built into the business should continue to yield improving margins in the years ahead.
Gen AI is probably a net benefit to your margins, you would say? Because sometimes there's a heavy cost as well. I'm just curious.
The way we are advantaged in Gen AI is one is that we use third parties to run our processing, largely Amazon and to some extent Google Cloud. That means that we are not out there bidding for these chips and driving up our cost. Secondly is we have our own large language models. Remember I talked earlier about all the data sitting behind our firewalls? Well, we train our own large language models on that. The advantage of these models is that they're driving better, more relevant answers, less latency, and I don't have a per-click cost to run them. In terms of the cost structure, we are quite advantaged in terms of leveraging Gen AI for our business. I don't see Gen AI being a meaningful headwind in terms of my ability to continue to expand margin for the company.
Great to hear. Sandeep, really appreciate the time today. Thank you. Thank you, John, as well.
Thank you. Thank you. Appreciate it.
Thank you all.