Intuit Inc. Fourth-quarter Fiscal 2020 Conference Call Remarks (August 25, 2020)

Summary

Prepared remarks for Intuit Inc.'s fourth-quarter fiscal 2020 conference call, dated August 25, 2020. The remarks open with an introduction naming Sasan Goodarzi as Intuit's CEO and Michelle Clatterbuck as its CFO, followed by forward-looking statement cautions. In the overview, the speaker states that full-year revenue grew 13 percent, that QBO and TTO platform revenue totaled $4.8 billion in fiscal 2020, growing 22 percent year-over-year, and that the company posted 11 percent customer growth in the tax season. The remarks then turn to the Small Business and Self-Employed Group and close with a forward-looking statements notice.

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                                   Intuit Inc.
                           Fourth-quarter Fiscal 2020
                           Conference Call Remarks
                                August 25, 2020


Introduction

Good afternoon and welcome to Intuit’s fourth-quarter fiscal 2020 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 2019

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 statement.


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.




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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.


With that, I’ll turn the call over to Sasan.


Fourth-quarter Fiscal 2020 Overview


Thanks Kim, and thanks to all of you for joining us today. I hope you’re all safe

and well.


We had a very strong fourth quarter capping off a dynamic fiscal 2020. Full-year

revenue grew 13 percent, and operating margin expanded. Total revenue growth

was fueled by 15 percent growth in the Small Business and Self-Employed Group

and 13 percent growth in the Consumer Group. QBO and TTO platform revenue

totaled $4.8 billion in fiscal 2020, growing 22 percent year-over-year. With our AI-

driven expert platform strategy and the focus on our five Big Bets, we are building




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momentum and accelerating innovation in the current environment, which we

believe positions us well for durable growth into the future.


Since we just finished tax season, let’s start there.


This tax season was like no other, and our team delivered a strong season in an

uncertain environment by executing on our strategy of expanding our lead in the

DIY category, transforming the assisted category and disrupting consumer finance.

Based on our estimates excluding stimulus filings of approximately 7 to 8 million,

the DIY category share grew over 2 points this season. We grew our share of total

returns and posted 11 percent customer growth, the strongest in four years, while

growing revenue double-digits for the third year in a row. We grew the base of

customers paying us nothing just over 20 percent, posted double-digit growth of

new customers across underpenetrated segments, including Latinx, self-employed

and customers with investments and grew TurboTax Live customers nearly 70

percent.


Turning to small business…




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Revenue for the Small Business and Self-Employed Group grew 16 percent in the

fourth quarter and 15 percent for the year. Online ecosystem revenue grew 29

percent in the fourth quarter, including 4 points of nonrecurring revenue from the

Paycheck Protection Program, and 31 percent for the year.


We are seeing the resiliency of our platform following a dip in demand earlier this

year when shelter-in-place shut down many small businesses. We are now seeing

recovering trends across our platform including improved retention rates, payments

volume and employees paid with our payroll offerings, as customers continue to

rely on QuickBooks as the source of truth for their business. With that said, there

remains a great deal of uncertainty in the market, particularly for small businesses,

as the pandemic continues to run its course.


Next, I’ll turn to the progress of our AI-driven expert platform strategy and how we

are executing against our five Big Bets. These big bets focus on the largest

problems our customers face, and represent durable growth opportunities for Intuit.

I will cover big bet number one last as it accelerates innovation across our platform

and is foundational to the other bets.



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Big Bet number two is “connect people to experts.” One of the largest problems

our customers face is lack of confidence - to do their own taxes and to manage

their business. We’re connecting customers to experts on our platform to solve this

problem with TurboTax Live and QuickBooks Live, allowing us to reach more

customers, deepen engagement and grow ARPC.


   • Within TurboTax Live, we had a terrific season. The number of TurboTax

      Live customers grew nearly 70 percent. We provided new ways for

      customers to access an expert throughout the filing process, contributing to

      first-year retention and conversion rates increasing several points. And

      almost 70 percent of new TurboTax customers who used our Live offering

      came from an assisted method the prior year, a higher percentage than

      TurboTax Online. For experts on our platform, we saw higher satisfaction

      scores and lower attrition as we focused on improving the expert experience.


   • For QuickBooks Live, we are proud of the progress we’ve made this year,

      building on the virtual expert platform we created for TurboTax Live. With

      the rapid adoption of virtual solutions, we continue to see encouraging early

      signs for QuickBooks Live as we further develop the offering, with a higher

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      percentage than expected of customers upgrading to a monthly subscription

      from our set-up offering we introduced in January.


Our third big bet is to “unlock smart money decisions” by connecting customers

with financial offerings that help put more money in their pockets.


   • In its third season, we more than doubled monthly active use for Turbo, and

      increased customer retention rates as we grew registered users by 8 million,

      to 22 million. This suggests customers are finding value from our recently

      introduced innovations, such as refund tracking and goal setting.


   • We expect our pending acquisition of Credit Karma to be more important

      than ever in this challenging environment as we work to help consumers

      save money, get out of debt and have faster access to money. We continue to

      expect the transaction to close during the second half of calendar year 2020.


Our fourth big bet is to “become the center of small business growth” by helping

our customers get paid fast, manage capital, pay employees with confidence and

grow in an omnichannel world.




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• We recently launched QuickBooks Cash, a small business bank account that

   provides full visibility into a small businesses' current and future financial

   picture with the ability to move money instantly and to ensure their money is

   working for them, while leveraging the built-in accounting of QuickBooks.

   The cash account earns an attractive interest rate, enables small businesses to

   set aside funds for upcoming expenses in envelopes and comes with a debit

   card. It is fully integrated with QuickBooks Payments and Payroll, enabling

   a small business to pay a worker or vendor the same day they receive funds

   from a customer. It also includes an integrated Cash Flow Planner to predict

   future cash needs. We are excited to learn fast and scale this new innovation.


• We continue to support our small business customers by helping them access

   the Paycheck Protection Program, or PPP, through QuickBooks Capital. As

   of July 31, Intuit helped make available just over $1.2 billion of approved

   small business loans to customers. We’ve helped approximately 37,000

   small businesses access these loans, with an average loan of nearly $38,000,

   keeping over 220,000 employees on payrolls.




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   • Finally, following the announced acquisition of TradeGecko’s robust

      inventory and order management system, we look forward to sharing more

      with you at Investor Day about how we will integrate these capabilities into

      QuickBooks to help small businesses manage and grow in an omnichannel

      environment.


Our fifth big bet is to “disrupt the small business mid-market” with QuickBooks

Online Advanced, designed to address the needs of small businesses with 10 to 100

employees. Throughout the last year we introduced features to help customers

individually tailor the offering to their needs, including workflow automation,

“build your own dashboard,” custom fields for expense transactions and batch

invoicing and payments. We also continue to work closely with partners to

establish deeper integrations with premium apps, with the goal to save our

customers time by personalizing the offering and improving their experience. Now

more than ever, a simple and flexible cloud offering is needed by mid-market

customers at a disruptive price.


Let me wrap up our Big Bets by circling back to bet number one, which is our

foundational bet to “revolutionize speed to benefit” for our customers. Our goal is

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to put more money in our customers’ pockets, eliminate friction, and deliver

confidence at every touch point by using AI and customer insights. Here are a

couple examples of the progress we’re making:


   • First, we accelerated use of AI and increased the number of models deployed

      across our platform by over 50 percent this year. This increased use of AI

      drove a variety of customer benefits, including saving customers twenty-five

      thousand hours with self-help and cutting expert review time in half,

      improving customer confidence.


   • Second, we completed the migration of our data centers to the cloud, while

      expanding our core technology capabilities. This enabled us to decrease

      downtime by 30 percent, triple the speed of delivery on our modern

      development platform and increase mobile application deployments by 60

      percent. We can now launch new features in a fraction of the time it once

      took us and deliver customer benefit with even greater speed.


As I shared earlier, we believe the current environment is acting as an accelerant to

these bets. Most everyone is looking for virtual solutions, small businesses are



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accelerating their shift to online and omnichannel commerce, and both consumers

and small businesses are looking for ways to put more money in their pockets.


To wrap up, I’m incredibly proud of our accomplishments this year. We remain

focused on what matters most to our customers and what we can control during

this time of uncertainty.


Now let me hand it over to Michelle.


Financial Results and Segment Details


Thanks, Sasan. Good afternoon everyone.


We are successfully executing on the principles we laid out last quarter for

operating in a downturn. These principles are designed to accelerate our execution,

and help both our customers and Intuit emerge from a downturn stronger than ever.


Let me now turn to our results. As a reminder, fourth quarter results reflect a shift

of a significant portion of tax filings out of the third quarter and into the fourth

quarter.


For the fourth quarter of fiscal 2020, we delivered:



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   • Revenue of $1.8 billion.

   • GAAP operating income of $483 million, versus a loss of $153 million last

      year.

   • Non-GAAP operating income of $616 million, versus a loss of $47 million

      last year.

   • GAAP diluted earnings per share of $1.68, versus a loss per share of $0.17 a

      year ago.

   • And non-GAAP diluted earnings per share of $1.81, versus a loss per share

      of $0.09 last year.


Business Segment Results


Turning to the business segments:


Consumer and Strategic Partner Groups


Consumer Group revenue grew 13 percent in fiscal 2020. TurboTax units grew 11

percent, and our retention rate increased again this year for our online tax

customers.


There are four primary drivers in our Consumer business.

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   • The first is the total number of returns filed with the IRS. Based on the latest

      IRS data through July 24, we estimate total returns including paper filings

      grew 3 to 4 percent. This excludes approximately 7 to 8 million stimulus-

      only filings.


   • The second is the percentage of those returns filed using do-it-yourself

      software. Excluding stimulus-only filings, we estimate category share grew

      over 2 points this season, the fastest pace in 15 years. As a reminder, DIY

      category growth is our largest revenue growth lever.


   • The third driver is our share within DIY. Excluding stimulus-only filings, we

      estimate our share of total tax returns grew over 1.5 points and our share of

      the category was flat.


   • The fourth is average revenue per return, which increased again this season.

      The growth reflects a stronger contribution by TurboTax Live and minor

      price increases in the Premier product and state attach.


Turning to the Strategic Partner Group, we reported $493 million of professional

tax revenue in fiscal 2020, up 4 percent.


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Small Business and Self-Employed Group


In the Small Business and Self-Employed Group, revenue grew 16 percent during

the quarter and 15 percent in fiscal 2020, including nonrecurring PPP revenue.

Excluding PPP, Small Business and Self-Employed Group revenue grew 13

percent during the quarter and 14 percent in fiscal 2020, reflecting the impact of

the pandemic on small businesses. Online Ecosystem revenue remained resilient,

with growth of 29 percent during the quarter and 31 percent during the year,

including non-recurring PPP revenue. Excluding PPP, Online Ecosystem revenue

grew 25 percent in fiscal Q4 and 30 percent in fiscal 2020. Our strategic focus

within Small Business and Self-Employed is to grow the core, connect the

ecosystem and expand globally. Last quarter I shared recent business trends, and

I'd like to update you on those same trends compared to pre-COVID levels in the

first half of the third quarter.


   • First, we continue to focus on growing the core. QuickBooks online

       accounting revenue grew 34 percent in fiscal Q4, driven mainly by customer

       growth, higher effective prices and to a lesser extent mix-shift. During the

       fourth quarter, QBO new customer acquisition accelerated by approximately

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   10 points versus the second half of the third quarter, but is still down 5

   points from pre-COVID levels. Retention within the existing customer base

   improved during Q4, but full year QBO retention is down two points to 77

   percent.


• Second, we continue to focus on connecting the ecosystem. Online Services

   revenue grew 21 percent in fiscal Q4, driven by payments, PPP loans,

   payroll, and time tracking. Excluding nonrecurring PPP revenue, online

   services revenue grew 12 percent.


      ◦ Within payroll, we continue to see revenue tailwinds during the

         quarter from a mix-shift to our full service offering. The number of

         workers paid was roughly flat year-over-year in the fourth quarter,

         improving from a 10 percent year-over-year decrease during the

         second half of the third quarter but still 20 points below pre-COVID

         levels. Similarly, the number of companies running payroll grew

         approximately 10 percent year-over-year in the fourth quarter,

         improving from flat year-over-year in the second half of the third

         quarter. This is still 5 points below pre-COVID levels.

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         ◦ Within payments, revenue growth reflects continued customer growth,

             along with an increase in charge volume per customer. Payment

             charge volume grew 15 percent in the fourth quarter, improving from

             flat year-over-year in the second half of the third quarter. This is still

             15 points below pre-COVID levels.


   • Third, our progress expanding globally added to the growth of Online

      Ecosystem revenue during fiscal Q4. Total international online revenue grew

      31 percent, reflecting subscriber and ARPC growth earlier in the fiscal year.


Desktop Ecosystem revenue was up 3 percent in the fourth quarter and roughly flat

for the year. Excluding nonrecurring PPP revenue, desktop ecosystem revenue was

flat in the fourth quarter. The decline in desktop units moderated in the fourth

quarter, and QuickBooks Desktop Enterprise revenue grew mid-single digits.


Intuit helped facilitate more than $1.2 billion in small business loans from the

Paycheck Protection Program through QuickBooks Capital. This resulted in

approximately $30 million in nonrecurring revenue in the fourth quarter.


Financial Principles and Capital Allocation


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Turning to our financial principles. We remain committed to growing organic

revenue double-digits and growing operating income dollars faster than revenue.

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 percent. We continue to focus on reallocating resources to top priorities, with an

emphasis on becoming an AI-driven expert platform. These principles remain our

long-term commitment, though we recognize that we may not be able to achieve

them in the current environment.


During the fourth quarter, we refocused our investments to ensure our capabilities

are aligned against our AI-driven expert platform strategy and Big Bets. This

resulted in the departure of over 700 employees and a one-time charge of $43

million in both GAAP and non-GAAP results. We plan to hire about 700

employees in our most strategic areas including systems, full-stack and data

engineering, data science, customer success and sales.


Turning back to our financial principles, our first priority for the cash we generate

is investing in the business to drive customer and revenue growth. We consider

acquisitions to accelerate our growth and fill out our product roadmap. We return

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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 $7.1 billion in cash and

      investments on our balance sheet. In June, we issued $2 billion in senior

      notes to fund a portion of the Credit Karma acquisition and for other general

      corporate purposes. These notes carry a blended coupon rate of 1.15%.

      Following the end of the quarter, we repaid the $1 billion balance on our

      revolver.


   • We did not repurchase any stock during the fourth quarter, as we have

      temporarily suspended share purchases in conjunction with the Credit Karma

      acquisition. We have approximately $2.4 billion remaining on our

      authorization, and we expect to be in the market in the future.


   • The Board approved a quarterly dividend of $0.59 per share, payable

      October 19, 2020. This represents an 11 percent increase versus last year.


Fiscal 2021 Commentary




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Looking ahead to fiscal 2021, while we are not providing company level guidance

today reflecting uncertainty in small business trends, we believe the current

environment accelerated our Consumer results this season, creating a more

challenging comparison for next year. We see several scenarios for how the

economic recovery may impact our small business performance and that we are

considering as we run the business.


   • The first scenario is that the pace of economic recovery continues at its

      current pace, reaching normalized growth in the spring of 2021. Under this

      scenario we could see Small Business and Self-Employed Group revenue

      grow high single-digits.


   • The second scenario is a more gradual opening of the economy including

      ongoing headwinds from small businesses failures. This “W” shaped

      recovery assumes cases increase during the winter months, coinciding with

      our peak season in the U.S. Under this scenario we could see Small Business

      and Self-Employed Group revenue grow mid single-digits.


   • The third scenario is a choppy recovery and more than one wave of small

      business failures or shut-downs, creating a “double W” shaped recovery.
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      Under this scenario we could see Small Business and Self-Employed Group

      revenue flat to up low single-digits.


In addition:


   • We expect slower Small Business and Self-Employed revenue growth in the

      first half as compared to the second half of fiscal 2021. We supported

      customers during the second half of 2020 by delaying price increases,

      migration to our new payroll offerings and upgrades to QBO Advanced.


   • As a reminder, we began rolling out a QBO price increase in first quarter of

      fiscal 2020, and we’ll start lapping the full impact of that increase in the

      second quarter of fiscal 2021. Keep in mind that there is also a lagging

      impact to QuickBooks online accounting revenue from the slower customer

      acquisition and higher attrition we experienced during third quarter.


To reiterate, our long-term expectations include revenue growth of 8 to 12 percent

for the Consumer Group and 10 to 15 percent for the Small Business and Self-

Employed Group. We continue to expect Online Ecosystem revenue growth of

more than 30 percent longer-term.


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Last, we expect a GAAP and non-GAAP tax rate of 23 percent for fiscal 2021.


With that, I’ll turn it back over to Sasan.


Closing Comments (Sasan)


Thanks, Michelle.


I’m proud of the team and all we accomplished together during fiscal 2020. We’re

uniquely positioned to make a positive impact on the world, as our mission has

never been more meaningful than now, to power prosperity around the world. I

look forward to sharing with you how our strategy of an AI-driven expert platform

and our five Big Bets are accelerating innovation at our virtual Investor Day on

September 23. Let's now open it up to your questions.


Closing Comments After Q&A


Thank you everyone for your time and questions today. I would like to close by

thanking our employees, customers and partners. I look forward to connecting with

you at our Investor Day in September.


Cautions About Forward-looking Statements



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These materials contain forward-looking statements, including forecasts of

expected growth and future financial results of Intuit and its reporting segments;

Intuit’s prospects for the business in fiscal 2021 and beyond; expectations

regarding Intuit’s growth outside the US; expectations regarding timing and growth

of revenue for each of Intuit’s reporting segments and from current or future

products and services; expectations regarding customer growth; expectations

regarding Intuit's corporate tax rate; expectations regarding changes to our

products and their impact on Intuit’s business; expectations regarding the amount

and timing of any future dividends or share repurchases; expectations regarding

availability of our offerings; expectations regarding the impact of our strategic

decisions on Intuit’s business; expectations regarding the timing, completion and

impact of the Credit Karma acquisition; and all of the statements under the heading

“Fiscal 2021 Commentary.”


Because these forward-looking statements involve risks and uncertainties, there are

important factors that could cause our actual results to differ materially from the

expectations expressed in the forward-looking statements. These risks and

uncertainties may be amplified by the COVID-19 pandemic, which has caused


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significant economic instability and uncertainty. These factors include, without

limitation, the following: our ability to compete successfully; our participation in

the Free File Alliance; potential governmental encroachment in our tax businesses;

our ability to adapt to technological change; our ability to predict consumer

behavior; our reliance on third-party intellectual property; our ability to protect our

intellectual property rights; any harm to our reputation; risks associated with

acquisition and divestiture activity; the issuance of equity or incurrence of debt to

fund an acquisition; our cybersecurity incidents (including those affecting the third

parties we rely on); customer concerns about privacy and cybersecurity incidents;

fraudulent activities by third parties using our offerings; our failure to process

transactions effectively; interruption or failure of our information technology; our

ability to maintain critical third-party business relationships; our ability to attract

and retain talent; any deficiency in the quality or accuracy of our products

(including the advice given by experts on our platform); any delays in product

launches; difficulties in processing or filing customer tax submissions; risks

associated with international operations; changes to public policy, laws or

regulations affecting our businesses; litigation in which we are involved; the


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seasonal nature of our tax business; changes in tax rates and tax reform legislation;

global economic changes; exposure to credit risk of the businesses we provide

capital to; amortization of acquired intangible assets and impairment charges; our

ability to repay outstanding debt; our ability to repurchase shares or distribute

dividends; volatility of our stock price; and our ability to successfully market our

offerings. More details about these and other risks that may impact our business are

included in our Form 10-K for fiscal 2019 and in our other SEC filings. You can

locate these reports through our website at http://investors.intuit.com. Forward-

looking statements represent the judgment of the management of Intuit as of the

date of this presentation. We do not undertake any duty to update any forward-

looking statement or other information in this presentation.




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