Intuit Inc. (INTU) Earnings Call Transcript & Summary

It's actually both. We look -- the comment I was making, so we measure retention in 2 ways. Number one is when you come to file with TurboTax, whether it's online or in TurboTax Live, do you come back year after year? So that retention rate is like our franchise retention. And with the addition of TurboTax Live, that's increased our franchise retention, and we made a number of points of increase this past year. The other way we measure retention is around TurboTax Live, the offering. So if you file with TurboTax Live one year, do you file with TurboTax Live again the next year? We saw significant increases in number of -- percent of customers that came back and filed on TurboTax Live again the following year. So both levels of retention are meaningful, and we've had significant acceleration of retention rates this past season.

Got you. And then on the partner side and the pros that are on the other side of the camera, helping folks file their claim or their return, you did mention, I think, that retention there was up as well year-over-year in terms of pros coming back to the TTL platform?

Yes, yes. And that was last year, and that -- and which gave us tremendous benefit as we went through last season because the pros, a lot of the pros were seasoned. Every year, we bring a lot of new pros on the platform. And we estimate at the end of the year, what's the likelihood of them returning since the next season is not here yet. But all those indicators are incredibly positive, with even greater percentages indicating they'll be back next year. So between our pro PRS being up almost 4 points as well as this positive indication of returning, it just shows our ability to deliver an amazing experience is working. One thing I would just add there is the pro experience. Our strategy is to make them -- help them become more productive and amplify almost their humanity and do that by allowing -- by interacting with customers early in the process, equipping that pro to understand that customers, their life, predict the kind of questions they may have. So when the pro interacts with them, they have the benefit of effectively 50 million other filers kind of being leveraged to make sure that experience is awesome. And every time that they file a return, it actually helps everybody in our network get better. So fundamentally, the pros love serving customers, and they like the added access they have to information that are going to help them deliver an amazing experience.

And how do you manage the relationship with these pros because many of them have their own businesses on the side? And as you bulk up the TurboTax Live offering to offer more types of more forms, more complex returns, you are going to be more in sort of the wheelhouse of the account -- sorry, the tax accountant livelihood. So how do you manage the relationship, making sure that they're comfortable with you in all phases of helping you?

Yes. This is a tremendous value proposition for pros. Most of the pros we know, they love helping customers, and they enjoy preparing returns. And so they view TurboTax Live as just yet another opportunity to do that. Something else that they hate, they hate the idea of having to market and figure out how to manage their business and how to attract customers. So pros on our network typically are really excited about the fact that they can serve customers and not have to burden the responsibility of trying to find customers, which has a lot of pros spend a lot more time trying to find customers and actually helping them. On our platform, this provides that opportunity. And then they keep their jobs. So it's not like all of them are fully 100% dedicated to our platform. Many of them have their day practices, and they use this as a way to supplement. And so the ability to provide that supplemental income is also another attractive, I call it, value proposition of TT Live for pros.

Great. And maybe this is touching a little bit outside. But as QuickBooks Live scales, how do you manage the time and the relationship between all the potential moving pieces where a partner could be helping or engaging the Intuit customer base? How do you manage -- how are you going to manage that relationship going forward as QuickBooks Live starts to scale more rapidly?

Yes. Our vision is -- let me just ladder up for a second. Our vision around what we call our big bet, and this is our ability to connect people to experts. Our vision is decided. We connect people to experts and experts to people, and that travels across not only tax bookkeeping, think about accounting, but beyond that, even to personal finance. We see a big vision for our ability to bring expertise to customers and connect them. So in pursuing that, a couple of things we've learned. Number one, we have customers, pros on our platform, that are CPAs, tax attorneys, EAs, and many of those actually have the ability and the credentials to address the needs beyond just consumer tax. And so we actually have a way of identifying the skills, the credentialing of our workforce and make sure that we fully leverage them to address the needs we have across our platform. So that's one thing to know is that there are some degree of fungibility. The second thing that we do is fundamentally, there's a big collaboration that exists real time, where if you're a pro on our TurboTax platform or QuickBooks Live platform, the portal by which you work, the tools that you use are leveraged off the same -- with the same services. So fundamentally, we're building capabilities on that platform that apply to all these various adjacencies. And that makes -- it allows those professionals to ramp up quicker and to be able to seamlessly move across the platform and serve the needs of other customers. So training development and having that flexibility in our virtual platform are keys to making sure that we continue to grow with our pros as they potentially serve the needs of many more offerings than we offer today.

And I think in the past, you talked about efficiency and the ability of 2 years ago, a pro could serve 10 people on the TTL platform. And this year, maybe they could do 20 because of some behind-the-scenes infrastructure efficiencies that you've made. As you continue to grow this business, how much more work needs to be done on the efficiency side? And maybe some examples of things that you've done to kind of boost how much a pro can help.

So that is a key part of our strategy. And I think we'll be working on the productivity, we call it, of our professionals for years to come. And even though this last year, we made -- we had a 15% decrease in average handle time -- that's the amount of time it takes for a pro to serve a customer -- we will continue to focus on that. Now the way that we do that is on -- the best example is things that are in the experience and then also AI and the role it plays. So just a few examples in the experience. One thing that we're able to do with customers, we ask them the right questions. We're able to identify that customer what their needs are and actually try to create like almost a case file for the pro. So in that very first interaction, they actually know more about the customer already based on what the customers provided us or what we've inferred earlier in the process. So that gives them a jump-start on that conversation. And that's a time when we actually -- you spend a lot of time trying to get to know somebody. That really helps. Another area is document capture, document upload. So what we're doing is we're allowing customers and encouraging customers to submit their documents earlier in the process. So when the pro actually has that first interaction, they already have their tax forms, their W-2. They have the 1099. They have forms that are going to be relevant to how they get served. So that's another area. Another area is like using AI to detect anomalies. If we know that you're this kind of filer, if we look at your return, and we can just see that you're out of bounds relative to other people in your situation, that allows the pro to actually zero in, in that area, investigate a little bit more deeply. That's another area that allow -- that advantages the pro. And then ultimately, many of our pros may be stationed in California as an example, but file a return from somebody in New York. And so how do we accelerate their ability to understand the law of the local state and then actually know what to look for? Well, that's amplified by virtue of the technology that exists in our workforce platform. So all those things are things that we're doing to enable their productivity and essentially improve the relationship and the interaction they have with customers.

Great. So in terms -- one of the other things that I suspect that you'll get questions on is, this year, you've lost 3 months in the planning process for next year, right? Normally, you have the summer, I suspect, to start brainstorming ways to improve and grow, but you've potentially lost some of that time this year. So in this shortened off-season, if you will, are you doing anything differently to -- for next year?

Well, absolutely. I think it's either -- would you rather plan for 3 months more? Or would you rather have 3 months more of experimentation? And so for us, I would say that, you know what, first of all, all kidding aside, it's been hard on our team, the employees, right, that work hard every day to deliver this season and to actually effectively have the equivalent of 2 tax seasons back-to-back. I'm proud of the work that they've done, and they are there to deliver for our customers. The other part of this, to your question, though, is that we've been experimenting. We've made good use of the time. We've been experimenting on ways to get -- to break through in some of those opportunity areas in TurboTax Live, top of funnel, like how do we position the product, our advertising. Number two is like how do we actually introduce the platform and drive not only consideration but actually trial. We've tested some promotions that are -- that look really promising that will allow us to get -- jump-start the season. Those are -- well, there are many more things that we've tested actually during the course of the season that are going to greatly influence our go-to-market strategy and quite honestly, our product road map. So we've made great use of that time. And it's going to actually give us more confidence going into next year because we have more time to experiment.

Okay. So maybe just a couple more questions on next year. I think you mentioned earlier this year that looking -- earlier in the conversation that going back to the financial crisis gives you a sense of when you have a spike in returns, maybe what the next year looks like. Is there anything else that we know today about kind of how the tax season is going to look next year, either in number of filings or anything else that we should be on the lookout for?

No. We're still trying to sort out last season. There's still -- because with stimulus payments and then also manual returns kind of being delayed and not really fully accounted for yet. It does add a degree of uncertainty in terms of exactly what happened this past year. But a couple of things we learned. What we've learned is that in this environment, consumers are gravitating towards a virtual experience. That's a tailwind for our business. Number two, we are able to grow double-digit growth in terms of customers and revenue around our most underpenetrated segments, which are our biggest growth opportunities. The 10x customers help employ customers and investors. And so we just got started. We saw great returns. And so we actually know that innovation in those segments is going to make a huge difference. So we feel great about that. The other thing I would say as we go into next year is that because of the retention that we talked about earlier and the ability to experiment and actually test pricing and other initiatives, we have a great sense of the -- a great sense of -- that our strategy is playing out the way that we had hoped. A year ago, we -- or 2 years ago maybe now, we had indicated 8% to 12% growth was effectively our long-range plan. And I'll tell you, as you look at the environment we're in and the learnings we have, we feel great about that 8% to 12% growth. And we don't see any reason why that we would perform outside of that long-term guidance that we provided or outcomes.

Great. And in terms of pricing and kind of value capture philosophy, can you just -- I know you can't tell us what you do with your pricing, but what are the puts and takes in terms of lifting or changing a price? Like this year, you lifted price on the premier product. So like what drove that? And as you think about the next season, what are the puts and takes that we should be thinking about that you're thinking about with regards to pricing?

Well, I mean, I'll probably be more backward-looking and forward-looking in response, but let me say this because it's a great question. I think when you -- Premier is an example of our pricing philosophy in action. We take price as we add value. And so one of the things that we try to do is we -- have we innovated a product? And we always test to find out whether or not the innovation is significant enough, meaningful enough and delivers the benefit enough for us to charge more. In Premier, the example that you brought up, we actually had innovations that allowed investors to import more transactions than we ever could before. We enabled cryptocurrency, allowed them to import cryptocurrency transactions. We had data imports through FIs that we were pulling in to the product. We were able to recognize forms that we typically did in the past by virtue of photo capture. All those kind of capabilities created a much better, stickier product. And beyond that, we actually -- simplicity. We actually innovated in terms of what is that experience and how do we move areas of friction in the product. So we turned the price in Premier because of the innovation. And I will tell you, we continuously innovate on all our offerings. And we take price after we do quite a bit of testing, and we feel comfortable that the benefit we're delivering is worthwhile.

Okay. And maybe to touch on some of the other businesses you manage. At the end of my TurboTax online filing, there's -- do you want to join then, do you want to join Turbo? So it feels like that's a pretty easy way to capture new customers for those products. So maybe just any commentary about kind of Mint, Turbo, how the different tax season has impacted or not sort of client additions there?

Yes. Do you mind me helicopter that for one second, just to connect the dots, if you don't mind, Dan. So number one, all of our strategy for our consumer businesses, and Intuit's businesses for that matter, is to focus on our customers' biggest problems. And if you get closer to that customer and you try to figure out how to solve those problems that nobody else is solving, that creates growth opportunities. And when we think about our business, the customers that we manage in tax, we understand them deeply. We have deep relationships, and we understand their financial lives as well. And what we know is their biggest problem, where for years we thought it was maximizing a refund, the biggest problem is how do they make ends meet. And so fundamentally is how do they lead a better financial life and get more money in their pocket. And so fundamentally, that allowed us to think differently about not only the products we serve, but even our business model fundamentally. We used to have people that would file 1 year in free. And then as her life became more complex, they would go up our lineup, and they would trade up to more complex SKUs. And that's how we grew lifetime value. And that's not the way we think about it these days, right? Because following our customers have allowed us to understand that a free customer who stays free, stays simple but has needs beyond tax, which we discovered through Turbo, have needs beyond tax in terms of help them reengineer their financial life, help them refinance their student loan or help them get out of that credit card into another credit card or consolidate their debt. All those transactions are opportunities for them to get more money in their pocket. And so that's how we've taken relationships in TurboTax and now extended them with Turbo and Mint into their financial life. And ultimately, by the way, that's how our business model works now, where we're not just growing free customers through a tax lens. We're actually taking customers and extending our relationships into many more offerings. And that creates new revenue-making opportunities for us as a business.

Great. So we just have another minute or 2 more. So I guess I want to get a couple of quick ones in. It looks like there might be some changes to the Free File Alliance in the upcoming year. How do you perceive those changes? And what impact, if any, will that have on how you view it?

No. We are incredibly committed to free filing. We've given away, if you will, over 70 million free returns, where they paid us absolutely nothing over the last 6 years. This last year, we saw our free filing increase by over 20% to 16 million returns. So we're committed not only to the business model aspects, but to the benefits we deliver and the good we do in the community and the public. So our commitment will continue to be strong when it comes to refiling. The other thing that's important to know as it relates to the FFA is that we're also committed to the voluntary tax compliance. We believe that consumers should have the ability to take account of their personal finances and file their return. And that's important belief of ours that actually explains why the FFA has been an important part of our strategy and our business for the last 20 years.

Great. And then just one last one for me. You have an Analyst Day coming up relatively soon. Any teasers you would like to leave us?

We're excited to demonstrate some of the products and the innovations that we have that will be amazing, and then just to tell you what we see coming ahead. I mean we had a great year, and we were ready to shift without a clutch into the next season, and we'll be glad to share some of the things we have in store.

Great. All right. Well, this is fantastic. I really appreciate your time today. Thank you so much. Look forward to seeing you in a few weeks.

All right, Dan. Thank you. Take care.

Take care.