Intuit Inc. (NASDAQ:INTU) BofA Securities 2024 Global Technology Conference June 4, 2024 5:00 PM ET
Company Participants
Mark Notarainni - Head of the Consumer Group
Conference Call Participants
Brad Sills - Bank of America
Welcoming Intuit to the conference. We are very fortunate to have the Head of the Consumer Group here, Mark Notarainni. Mark, thank you for joining us.
Mark Notarainni
Of course, thanks, Brad.
Brad Sills
Looking forward to the discussion, great to have you here. I think this is like, as far as I can remember, about the 10th consecutive year of Intuit's participation. So thank you for joining the conference again.
Mark Notarainni
That's great. My first time.
Brad Sills
Yes. Looking forward to the discussion, so thanks so much.
Mark Notarainni
Awesome.
Question-and-Answer Session
Q - Brad Sills
I'm Brad Sills. I cover large-cap software. And why don't we just get started, Mark, with just a little background on yourself. You've been with Intuit for quite some time. The company is known for developing talent organically and always a deep bench of executives. So I'd love to get a little bit about your background and your role now with Intuit.
Mark Notarainni
Great. Yes, I survived my first tax season as a General Manager. But I've been with Intuit for 16 years, actually coming up on 16 years. I started in TurboTax with my first job and have had progressive roles across the company, many years within TurboTax growing, launching TurboTax Live there; and from that launch, then moved in to a role in small business group, leading our customer success team there; and then ultimately, leading customer success for all of Intuit as a platform and an ecosystem leader.
And then last year, right around this time, actually, I was given the amazing opportunity to lead the TurboTax and Consumer Group. And so I have been in this job now for roughly a year, and so 16 years within the franchise.
Brad Sills
Wonderful. Well, you, I'm sure, have a great perspective on just the culture of Intuit. We often hear about how that's the strength of the company, the platform that has been built across consumer and small business. So maybe just if you want to elaborate a little bit on what it is that makes the culture so special at Intuit.
Mark Notarainni
Yes, it's a great question. I really love and have loved the company. Prior to Intuit, I had tenure across a lot of other technology companies and probably would stay about two to four years, depending on what that was.
But when I landed up at Intuit, there are a couple of things that really was amazing. It's obviously the people, the values that we operate under, and you actually see those values come to life literally in interactions that we have as a team, which is really, really special.
But even more than that, it's what we do for consumers and small businesses. And our mission, right, of powering prosperity, it's a really worthy cause. When you think about it on the consumer side, consumers are struggling to make ends meet. Taxes create a lot of fear, uncertainty and doubt as they go into that process but is their largest paycheck for many Americans in particular. And so what we do and the mission that we have is actually palpable within the organization.
We're obsessed with helping our consumers and our small businesses, powering prosperity, however they define prosperity. And really that obsession around that mission is, like I said, palpable and incredibly exciting to be a part of.
Brad Sills
Wonderful. And you've been in the organization for quite some time. You've seen a lot of the evolution of the tax platform. I think you were on the team that was responsible for launching TurboTax Live, now TurboTax Full Service. So maybe if you want to just provide a little bit of perspective on that effort. What was the kind of rationale? When did the company decide that Live was the next step for the TurboTax franchise and Full Service? And what was involved in pulling that platform together?
Mark Notarainni
Yes. I'll date myself now. When I first started at Intuit and I was in TurboTax, we still had roughly 40% of our business in desktop software. It's not the case anymore. But in that transition, as customers were adopting, at that point, the web to do their taxes and then ultimately, mobile as well.
We started to see a transition in how our customers interacted with us, right? So from a desktop software world, there was a lot of technical support, a lot of setup type of engagements that we had with customers that as they migrated onto TurboTax Online, those interactions became much more about where do I put this, what should I do with field X.
And also, our business model changed quite a bit, right? So for desktop software, right, we'd sell in retail. Revenue would be recognized, right, and then we'd serve our customers. And TurboTax Online, our customers get started for free. And so all of those interactions weren't actually an opportunity for us to drive conversion and help customers get through.
So then we started to think about confidence and we started to think about ease and we started to think about speed. And initially, when we started off that transition, it was really all around like how do I use the product, and that's when the do-it-yourself category was still our primary category.
And then we thought the biggest part of this industry is actually in what is called assisted, in the assisted category. It's about a $31 billion TAM there. And we actually don't participate in that or we didn't when we started to think about Live.
And what we thought was we've got this amazing platform in TurboTax. There's an amazing network, potential network opportunity out there with CPAs, enrolled agents, tax preparers, what if we were to merge them together. And that's really what started to unlock a whole new market for us, that assisted market that I referenced earlier.
But there was a huge technology hurdle. There was a pretty significant gap between that online experience on TurboTax Online and then picking up a phone and calling. There was just this digital divide. And so actually, at that point, when we launched TurboTax Live, we really started with something called SmartLook. And what SmartLook was, was a way for us to collaborate with customers via video.
And at the time, it's kind of funny now when you look back given what we've all been through over the years, we were the largest video call center in the world, right, when we launched because we embedded SmartLook into the product.
And what we heard from customers, this gets back to the customer obsession, the feedback we got from customers when we launched this was, "Wow, I feel like I have a pro right at my kitchen table." And that's really where we said we've got something big here because now we bridged the experiences, and we've embedded this amazing collaboration capability right into our product.
Now we can start to bring expertise in and it starts to feel like we're bringing experts to people's kitchen tables to help them get their taxes done. And that's what started TurboTax Live, and we started to bring in certified public accountants and enrolled agents, et cetera, onto the platform and serve our customers and even more advanced ways with our services portfolio.
Brad Sills
Wonderful. Before we get on to the tax quarter that you just reported, while we're on the same topic, you did a great job of outlining the platform and the evolution there and the rationale for launching the offering. How is it different from a go-to-market standpoint? That's in traditional DIY, do-it-yourself category. How is assisted different? How are those filers differently from the traditional DIY?
Mark Notarainni
For many years, we could attract them the same way. Our brand is incredibly powerful. It stands for trust. It stands for confidence. And so when we first launched, we really picked up the benefit of that.
What we learned this year, as we started to build our capabilities is to really accelerate our growth in assisted, is we have to be local and we have to be personal. And personal meaning the capabilities of our experts, right, like whether they know real estate or small business, we had to really build that capability and start to do that matchmaking locally and at a personal like capabilities level.
And that's at a product level, but it's also at a marketing level. Like when a customer searches in San Diego for tax pro, we need to show up with a tax pro in San Diego. And when you do that, it really breaks down the trust barrier because, in many cases, taxes are local, right? I need to know that this person knows San Diego taxes, not sitting in a call center somewhere else that's far removed from my business. And so that's how our marketing has changed.
And then the second piece of that is people do not do taxes year-round, right? They do taxes in January through April, some extend to October, but largely January through April. The assisted market, though, is very different. There's more of a persistent connection and establishing your expertise year round, so that when a customer moves or they change jobs or they buy a home, those events are moments of truth where they're not necessarily doing their taxes but they've just made a decision that's going to affect their taxes, and they're looking for that expertise at that moment. And so that's also shifted to a much more persistent view of our connections with customers versus once a year. It really is an opportunity for us to engage year around and establish expertise.
Brad Sills
Wonderful. While we're on that topic, when you say that one of the advantages is having that local presence, can you give us a sense for how involved the CPA is in the assisted category? The question that I'm getting at is really what do the unit economics look like? And how can that get to what you are seeing in TurboTax Online and traditional software business?
Mark Notarainni
Yes. It's a great question and one of our unique advantages. We're entering this market from a technology-first perspective. And so the fact that, as we launched TurboTax Live, I said this all the time, we're blessed to have an amazing platform called TurboTax Online to attach to because it's amazing. It does a lot of work. It provides a lot of transparency for consumers, and the combination of those two actually allowed us to do assisted services in a much different and more efficient way.
And while we're incredibly excited about the progress that we've made even in this last quarter, the opportunities from a technology perspective are accelerating, right? Generative AI is certainly a game changer for us in how you can help customers get prepared for taxes by getting their documents for them, doing work on those documents as you collect those in the platform and shifting our assisted experiences to be much more about advisory and decision-making and almost eliminating the data entry side of it, which is where the traditional market is. It's heavy, heavy on data entry and less on advisory.
Our business is very different. It's less on data entry and much more on advisory and what we consider really -- and our experts tell us this as well, what they love about working on our platform is it allows them to focus on the things they love, which is engaging with consumers, helping them make good decisions and removing the fear, uncertainty and doubt they may have coming into a tax situation.
Brad Sills
Sure. Understood. Well, why don't we get to the tax quarter that you recorded recently. Do you have any highlights you want to point out here from how the tax season unfolded, where you ended up through this through the tax season. Anything you'd like to highlight on the Q3 tax quarter.
Mark Notarainni
Yes. I think just building on this investment that we made five years ago, really on TurboTax Live and launching that, what's amazing that we saw this year is we continue to see growth, right? We have 12% customer growth, 17% revenue growth. And five years ago, maybe even 4, that was 0. And so seeing the business really start to accelerate, it's 30% of our revenue in the consumer group this year.
Again, it was zero not too long ago, and so opening up that new market, bringing amazing services to those customers. And in our full-service part, right, which is really the most service-centric part of our portfolio in assisted, we improved our product recommendation score from an 84 to an 85. I know it sounds small, but when you have that kind of growth, and you're able to at least retain, but not just retain, grow, our product recommendation score gives us a ton of confidence that we've got a product that is very different than the rest of the market and gives us confidence heading into the years to come.
Brad Sills
Wonderful. I wonder if we could unpack the kind of core growth drivers in the business for consumer tax. IRS, returns growth, your share of that revenue per return. Those are the three primary growth drivers of the business. Can you just maybe comment on how each of those unfolded through this tax season?
Mark Notarainni
Yes. And maybe I'll start with just the overall tax category itself. It's a $35 billion market when you look at taxes across the United States, and that's between consumers and small businesses. $31 billion is in assisted and $4 billion is in DIY. And so our focus is really on generating revenue share, right, in that assisted category, which we achieved. We also want to protect and grow our core business, which is DIY.
And when you look at that, our opportunities with Credit Karma, which is part of our consumer ecosystem is enormous. Credit Karma has 40 million monthly active users. Many of those active users are not TurboTax customers, and they all have to do taxes. And so the integration and the experience, as we think about the consumer ecosystem, not just Credit Karma, the TurboTax, but also there is a very big moment of truth in TurboTax when that customer gets that refund.
And what you do with that refund is something that Credit Karma excels at, right, how to manage your money, what are the best money decisions for you to make. And so the path back into Credit Karma and really looking at that as an ecosystem is an area where we see our growth, especially in the DIY area going forward.
Brad Sills
Wonderful. You talked about some share losses at the low end as you're addressing the assisted category. Could you elaborate on that? Is this kind of just a consequence of the fact that you're taking the franchise into this new category and it may be a little less focused on the down market business? Or is there some competitive dynamic that we should be thinking about? I would just love to get your perspective on that.
Mark Notarainni
Yes. And so we have, we had about 10 million customers that filed for completely $0 in our portfolio. And all those customers are important to us. But what we're really focused on going forward is not just going into the category, that $31 billion category in assisted, it's also how do we do more for consumers other than taxes. Because what we know is that, for a large base of customers, doing taxes for free is super important.
But those customers also have to manage their money. They have to make money decisions as well. And so we made really good progress this year in our consumer ecosystem, but we have opportunities to make that a much more seamless experience and be able to share data across the platform that will unlock more customer value. And that's what you'll see us doing more and more in that DIY category.
Brad Sills
Wonderful. Why don't we shift to AI and Intuit Assist. Could you give us an understanding of kind of the underpinnings of that offering? LLMs supporting it, the data set supporting that, and where is the opportunity for AI in the Consumer Tax business?
Mark Notarainni
Yes. And specifically for consumer tax, I'll address that. At Intuit, we launched Intuit Assist, right? And the platform behind that is GenOS. And Alex, and Marianna before Alex, our CTOs, really made a critical decision where we want to be a platform for generative AI, meaning let's not go vertical, let's actually create a capability where we can use multiple LLMs to solve discrete opportunities, right?
Some LLMs are good at data acquisitions, some are good at translation. And so that decision enabled us to work across multiple LLMs, including our own. We have our own proprietary LLM called [Film], and so that's how we approach the underlying capabilities there.
For TurboTax, what we decided to do is we decided to deploy generative AI in three different areas. One is we wanted to embed it in our core experience. And that showed up with things like points of need in a customer or explainability of a refund, like why something happened in their return, we used it there, as an example. We also used it proactively, right? So as we're working with the customer through their tax experience, they may have an accuracy situation.
We would pop that up and help customers in that moment, and that was all generative AI-based. And then the third was reactive. We rebranded our help system. We infused it with Intuit Assist, and that allowed us to answer way more questions in our portfolio through a much more conversational experience and actually allowed customers to navigate and ask multiple questions to get to their answers.
We actually deployed that across our entire portfolio. We had 24 million-plus customers actually interact with the generative AI experience in one way, shape or form throughout any one of those three different areas. And so the way that we measure that is engagement. We looked at helpful rates, right, and progression rates. Once they consume the generative AI piece of content, did they continue on in the product, and then we looked at conversion. We saw really great outcomes across all three of those dimensions.
And now we're looking at generative AI as not being something that you embed or you react to, but actually a core part of our product and our entire experience, all the way up to shopping. And so we're very bullish on generative AI and what it can do within our category. We also have run several experiments within Credit Karma where we're offering more and more advice through our LLMs and we're connecting those together.
Brad Sills
Wonderful. At the Analyst Day, you alluded to some gen AI-specific SKUs for TurboTax. I wonder if you could elaborate on that. How are you thinking about the value that you're providing here through those SKUs and pricing potential?
Mark Notarainni
Yes. I think for the consumer group, we talked about specific SKUs more for like Mailchimp and QuickBooks specific SKUs. What we believe for the consumer group is that it's an embedded part of our experiences that will help us drive scale and conversion. And that's how we're looking at it from a consumer perspective. We talked about that in the earnings, it was really SKU specific for Mailchimp and QuickBooks.
Brad Sills
Got you. Okay. Wonderful. I think we do have a question here. Could we get a mic over so we can get the question asked. Or if you want to just state your question, shout it out.
Unidentified Analyst
Question is on the conversion for AI, do you expect clients to pay a little more for that added feature?
Brad Sills
Would you mind repeating the question?
Mark Notarainni
Yes. So the question was would we expect customers to pay a little bit more for a generative AI experience that drives conversion. And for us, this is a pure consumer group answer, that's not how we're looking at it. What we're looking at it is enabling us to extend our reach to segments that we don't serve today and drive ease, confidence and then also leverage generative AI to help make better money decisions. And we believe that it will help us with the markets that we want to get into but also drive retention.
Brad Sills
Wonderful. Why don't we shift to business tax. It's a newer opportunity that you're addressing here. So maybe if you want to outline for us what is the opportunity and where is the effort there.
Mark Notarainni
Of course, yes. So business tax, when you look at it in small business, in particular, it's a $10 billion category, which is entirely delivered through the assisted segment, right? That's an area where TurboTax historically has had -- we've had very light presence. We had a desktop product that customers could buy for that. TurboTax Online and TurboTax Live never solved that.
And so this year, based on the test that we ran the year before, we launched at scale for sole proprietorships as well as LLCs. And we introduced both a full-service offering as well as a do-it-with-me offering.
And we saw incredible response. We saw incredible response organically, meaning coming through TurboTax front doors. And then we saw incredible interest from our QuickBooks customers as well, which is another ecosystem opportunity that we have within Intuit because compliance is a big part of a small business. Managing a small business is compliance. And so this year, we launched this across multiple states.
And in those two service experiences, we had great interest, really strong conversion for what we call a Horizon 3 product. That's our first year product. And we're very excited. That's a big part of our aspirations in assisted as we think about new market opportunities for us. So we went from zero to a pretty good number this year.
Brad Sills
Great. A lot of interesting new initiatives here for growth. Full service with assisted, AI, business tax. The company has reiterated their 8% to 12% long-term growth target for TurboTax despite the fact that this year, you're tracking to the low end of that. So with all these new growth initiatives, what are the keys to getting towards the middle or high end of that range?
Mark Notarainni
Yes. I would say the number one priority is for us to focus on execution. And what I mean by that is we have to execute our demand-gen initiatives that we have for assisted that we learned an awful lot, the local, the personalization. We also have to streamline our experiences, leveraging generative AI. We can scale faster, we can serve customers faster.
And then the third is really ensuring that we execute on the promise of the consumer ecosystem between Credit Karma and TurboTax. When you look at 40 million monthly active users and you look at our customer base and the depth and the relationship that we build with TurboTax, on the TurboTax side, the opportunity to do more for consumers is very real and very exciting. But it takes an intense amount of focus and execution, and that's what I would say we need to do.
Brad Sills
Wonderful. And were there any learnings on the go-to-market side this year? I think Sasan alluded to some promotion. You identified some areas that you can improve upon there. So maybe if you want to elaborate on just what you learned this year on the go-to-market and how that could affect the plan going forward.
Mark Notarainni
Yes. For assisted, there are three things that we learned in go-to market. One is the local, the other is the pricing power that we have and then the third is the importance of money in the overall decision-making and how getting access, fast access to money is really the primary job for those customers that are getting refunds. And those are all enveloped in our go-to-market plan for next year.
But on the promotion that Sasan referred to, it was a promotion that we ran specifically for full service. And it was a very interesting promotion, drove a lot of head lifts, but it also proved to us the power that we have with pricing to really drive disruption. And so you'll see that's a big area of focus for us next year, in assisted in particular.
Brad Sills
Wonderful. Well, Mark, thank you so much for being here.
Mark Notarainni
Thanks for having me, Brad.
Brad Sills
We had a great conversation. I appreciate it.
Mark Notarainni
Appreciate it. Thank you all.
Brad Sills
Thank you.
