Good afternoon, my name is Angela, and I will be your conference operator. At this time I would like to welcome everyone to Intuit’s Second Quarter Fiscal Year 2024 Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer period. [Operator Instructions] With that, I’ll now turn the call over to Kim Watkins, Intuit’s Vice President of Investor Relations. Ms. Watkins?

Thanks, Angela. Good afternoon and welcome to Intuit’s second quarter fiscal 2024 conference call. I’m here with Intuit’s CEO, Sasan Goodarzi; and our CFO, Sandeep Aujla. 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 2023 and our other SEC filings. All of those documents are available on the Investor Relations page of Intuit’s website at intuit.com. We assume no obligation to update any forward-looking statements. Some of the numbers in these remarks are presented on a non-GAAP basis. We’ve reconciled the comparable GAAP and non-GAAP numbers in today’s press release. Unless otherwise noted, all growth rates refer to the current period versus the comparable prior-year period, and the business metrics and associated growth rates refer to worldwide business metrics. A copy of our prepared remarks and supplemental financial information will be available on our website after this call ends. And with that, I’ll turn the call over to Sasan.

Thanks Kim, and thanks to all of you for joining us today. We had another strong quarter and have great momentum innovating on our platform. We’re executing on our strategy to be the global AI-driven expert platform powering prosperity for consumers and small businesses. Second quarter revenue grew by 11%, and we are on track to achieve our fiscal year 2024 full year guidance of 11% to 12% revenue growth while expanding operating margins. Let’s start with tax. We are confident in our innovation and game plan to win, and are reiterating our full fiscal year guidance of 7% to 8% revenue growth for the Consumer Group. Tax preparation represents a $35 billion TAM. This includes $31 billion within the assisted consumer and business tax categories, which we have barely started to penetrate. We are well-positioned to disrupt the assisted category by leveraging data, AI, and our Virtual Expert Platform, to revolutionize how taxes get done for consumers and small businesses. By leveraging the power of our platform and ecosystem, we’re also extending TurboTax to our Credit Karma members and QuickBooks Online small business customers by enabling them to complete their taxes and access expertise directly within these products. Let me share more about our – the areas of focus this season. First, we can serve consumers however they want to file, virtually or in-person, while providing confidence their taxes are being done accurately and they are getting their maximum refund. More than 80% of U.S. filers live within a 10 mile radius of a TurboTax expert. These experts use Intuit’s Virtual Expert Platform that’s powered by data and AI, to deliver best-in-class service. While it’s early in the season, TurboTax Live Full Service is resonating with customers. We’re seeing strong growth and the offering has a Product Recommendation Score…

Thanks, Sasan. For the second quarter of fiscal 2024 we delivered another strong quarter, despite the IRS opening approximately one week later this year. We achieved healthy operating margins and are on track to achieve our full year guidance as we continue to deliver operating leverage across the business. Our Q2 results include revenue of $3.4 billion, up 11%, GAAP operating income of $369 million versus $270 million last year, up 37%. Non-GAAP operating income of $1 billion versus $856 million last year, up 17%. GAAP diluted earnings per share of $1.25 versus $0.60 a year ago and non-GAAP diluted earnings per share of $2.63 versus $2.20 last year, up 20%. Turning to our business segments. Small Business and Self-Employed Group revenue grew 18% during the quarter, driven by online ecosystem revenue, which grew 21%. Our results continue to demonstrate the power of our small business platform and the mission-critical nature of our offerings, which resonates with customers as they look to grow their business and improve cash flow in any economic environment. With the goal of being the source of truth for small businesses, our strategic focus within the small business and self-employed group is threefold: grow the core, connect the ecosystem and expand globally. First, we continue to focus on growing the core. QuickBooks Online Accounting revenue grew 19% in Q2, driven mainly by customer growth, higher effective prices and mix shift. We continue to prioritize disrupting the small business mid-market through continued focus on both go-to-market and product innovations. While mid-market customers are a smaller subset of the total small business TAM, they drive a higher ARPC over time given their more complex needs and higher usage of services across our platform. This coupled with our strategy to sell more of our ecosystem services to existing customers,…

Great. Thank you, Sandeep. And just to quickly wrap up, we’re very confident in our AI-driven expert platform strategy, our progress with our five big bets, and creating a future of done for you with a gateway to human expertise. We believe that this will change our relationship with our customers, becoming their trusted advisors, leading to higher engagement and monetization. The combination of our assets and our strategy creates a growth flywheel for Intuit to accelerate penetrating our $300 billion in TAM. With that, let’s open it up to your questions.

Thank you. [Operator Instructions] Our first question comes from Siti Panigrahi with Mizuho. Please go ahead.

Thank you. Thanks for taking my question. Sasan and Sandeep, I want to dig into the health of the small business. Just two part question, on the online accounting system, revenue seems to be in line, our expectation site to decel. Is there any one-time factor that influenced and how should you think about second half, given that’s an easy comp? And other part is on the services, while we’re pleasantly surprised, it’s accelerated. And you talked about some of this payroll payments and Mailchimp. Is there anything like you are doing differently, specifically drilling into the Mailchimp, how is that part of the business doing?

Yes, Siti, thank you for your question. Maybe I’ll start us off. And Sandeep, please jump in as you wish. I mean as the headline that I would give Siti is that we’re really pleased with the momentum that we have, the growth that we’ve experienced. When you think about it in context of the current macro environment, we’re continuing to see larger, higher value customers, mid market customers want to shift to digitization. And the more we spend time with them, with our account managers, with our sales folks, with our customer success folks, they tend to have a tendency of wanting to move more of their services to us because for the most part, we are already the standard of financial management solutions that they use for their financial records. But they see it as an opportunity to get paid faster, manage their workforce to be able to use our capabilities, to be able to market to their customers. And so the net of it that I would leave you with is I like our momentum in this macro environment. We expect that to continue for the rest of the year. And there’s a lot of puts and takes in our online accounting and online services. And so I wouldn’t read anything into it. The most important element to take away is the 21% overall online growth. And our services are strong and we continue to innovate with our services. And I expect that we’ll continue to lead digitization and transformation for our small businesses. Sandeep, I don’t know if you want to add anything, but those would be the headlines for me, Siti.

Yes. Sasan, good coverage [ph]. Siti, what I would also remind you of is, as we’ve shared in the past, there are three imperatives that you focus on as a management team, new customer acquisition, driving adoption of our platform and being better together across our platform. And with that in new customer acquisition, our team continues to focus on mid-market customers. As you call those mid-market customers, they’re a larger, richer revenue pool. They have higher customer acquisition costs, but they also take a little longer to ramp up because most of the size of the price in those mid-market customers on services revenue, which ramps up as opposed to accounting, which you start booking as soon as they become a customer, so just a dynamic to keep in mind. That’s why in my prepared remarks, I called out that our growth formula will continue to start leaning more towards ARPC going forward. And the second component of the services is basically us executing on our focus of driving adoption of our platform.

Thanks. Great execution, guys.

Thank you.

The next question comes from Kash Rangan with Goldman Sachs.

Hi, congratulations to Sasan and Sandeep. Really good call here. I’m wondering if you can give us an update on what’s happening in the SMB market. Looks like enterprise spending seems to be stabilizing. I know that you’re not really enterprise except for QuickBooks Advanced, but how did you characterize the outlook for small businesses given that the economy is on stable footing and we don’t have the worries that we had going into calendar 2022? Thank you so much once again.

Kash, great to hear from you. Great question. I would – let me categorize the answer in two buckets. First of all, facts are friendly, and let me start with some facts. What we see across our base is that cash reserves are down 11% year-over-year. That’s really what small businesses care about. But it’s actually up 115% over pre-pandemic levels. And so the takeaway you should have in that is small businesses are being challenged in this macro environment. Consumers are spending less dollars, but they’re actually healthier at the aggregate level than they were several years ago. In fact, what I would call out is the number of hours worked is higher this year, several points compared to last year. So that just the strength of the work that they’re doing, being able to have access to talent is in a better position for small businesses compared to last year. And that, by the way, as you can imagine differs by country and by sector, sectors like real estate, IT spending is struggling if the sector small business is in, but things like professional services, auto repairs is actually quite healthy. Last thing I would end with is the higher value customers more the mid-market customers are healthier than those that are small and just starting out, which by the way, we’ve seen this in our 20 plus years, right, we’ve seen this is a normal trend whereby the larger businesses have a lot more levers to be able to pull and they’re generally healthier. Lastly, our view, and we’re not economists, but we see a lot of data. Our view is that 2024 is going to be a lot of the same for small businesses. We don’t believe that there’s going to be any kind of an economic tailwind as we think about the next – the rest of the calendar year.

Thank you so much.

Yes. You’re very welcome.

The next question comes from Brad Zelnick with Deutsche Bank.

Great. Thank you so much and nice job in Q2. Maybe a tax question, just with the slower start to the season, Sasan, and we appreciate every season is more and more backend loaded, but can you talk about what it is that you’re seeing in the funnel and anything else that supports your confidence in the full year consumer guide? Thanks.

Yes. Sure, Brad. First of all, I’ll amplify what you started out with. Having been in the tax business and ran it more than ten years ago and watching our trends in the last ten years. Every season there’s a push to a later start, and it’s just a consumer behavior, and we’re seeing that this year, so that’s not anything unique. There’s two things that I would call out that are strategic to us, that are worth calling out, because we see green shoots in both with the early part of season. One is full service. Just as a refresher, there’s nearly 100 million consumers and small businesses that spend about $30 billion to have somebody else do their taxes for them. And we really leaned into our overall full service experience, we really leaned into our campaigns, both on air, digital. Very basic things, by the way, that we didn’t used to have the capabilities of that we’re now building, which is if you use an expert and you love that expert, that you can recommend that expert to a friend, that, that’s basics. But the infrastructure that we’re building to really disrupt the full service space is a necessity. And we feel very good about the green shoots that we’re seeing, both on the consumer front and on the business tax front. And I’ll remind you that this is our first year leaning all the way into business tax. So it’s beyond early, but everything that we’ve seen just indicates that this is enormous opportunity for us. So that’s on the full service front. The second I would mention is Credit Karma. This is really an area where we have nearly 45 million monthly active users. They engage more than five times a month, and the majority of those monthly active users actually use a different method and not TurboTax. And so we’ve really heavily invested in the experience, whether you want to do it yourself in the app or you want us to do it for you, which is full service and compelling offerings that we’ve been testing and scaling. And we also like the green shoots there. So those are the two things that I would call out, and it really positions us for share of spend. I’ll end with the following, which is we’ve set the goal line in taxes, our share of total IRS returns, and really what matters is the share of spend that we’re getting. And full service is essential for that, both this year and in the future.

Thanks, Sasan. Great color, and keep up the good work. Thank you.

Thank you, Brad.

The next question comes from Michael Turrin with Wells Fargo.

Hey, great. Good afternoon. Appreciate you taking the question. I was hoping we could go back to the mix of online services, and maybe you could just help us compare and contrast in more detail what you’re seeing from a growth perspective across the payroll payments and Mailchimp business? And is there a float aspect at all to the payroll portion of the business that might be helping reinforce some of the margin strength you’re seeing? Given headwinds from the slower start to tax? I think a lot of focus on just the EPS strength in the quarter. Thank you.

Sure. Do you mind repeating the last part of your question?

Yes. Just wondering if there’s at all on the payroll side a flow component that might be also just softly helping margin outside of the consumer headwinds you’re seeing.

Yes. Let me start with the overall services question that you asked and Sandeep will weigh in here with some of the facts that you asked around flow. I think the thing that I would just say around services goes back to my earlier comment, which is we’re just spending a lot more time with higher value customers really helping them understand what we can do to digitize their businesses, and by the way, continuing to improve our offerings. And so as we talked about earlier, our total online payments growth this quarter was 20% in a fairly tough macro environment. That’s because we continue to invest in making the experience easier, providing multiple methods to get paid instant deposit, getting paid upfront. So those really help with, in essence, payments adoption. Our payroll adoption has been strong, particularly larger customers and with full service, and we’re continuing to really invest in some of the most important foundational elements with Mailchimp that higher value customers are adopting, and particularly some of the things that I called out with intuitive. So it’s really – it’s not one thing, it’s a combination of all of our services and the focus on higher value customers that is really helping us with some of the services adoption. Maybe. Sandeep, I’ll turn it over to you on the float and anything else you want to add.

Sure. So thanks, Sasan. Michael, the float component is a very small part of our payroll business, as one thing that we really aim to do for our small businesses is to hold their cash as little as possible. So float is not a big component for us. And I think the overarching theme of your question was the ability for Intuit to preserve the earnings power of the company despite the one week delay in the IRS opening. I think Sasan touched on that. And it’s also some of the great work that the team has been doing around acquiring larger customers around the lineup, work we did to make the higher end SKUs in payroll more attractive to those customers. The work the team is doing around mid market account management and Mailchimp. So it’s a plethora of activities that continues to give us confidence across portfolio of assets that we have here at Intuit.

Appreciate the details there. Thank you.

Thank you, Michael.

The next question comes from Taylor McGinnis with UBS.

Yes, hi. Thanks so much for taking my question. Maybe another one on online services. So if I heard you correctly earlier, it sounds like you guys are expecting a more stable macro environment as we move throughout the year. So can you just talk about what that means for the durability of the acceleration in online services that we just saw to 24% year-over-year? Could you actually see online services hang in here at these levels? Was there anything one-time in nature? And just curious, as the macro remains more challenging, how the pricing lever could be used there to help you guys during this time? Thanks so much.

Yes, sure. Taylor, let me add a few things if I could. First of all, I’ll start with we don’t view the macro environment as entirely remaining stable. We think it’s going to continue to be uncertain. So we’re not sort of banking on any of our growth coming from any type of a tailwind from the macro environment. We think 2024 will be somewhat choppy, like 2023 was from a macro environment perspective. And we see it in the consumer – credit scores of consumers. As you know, we see over 100 million members across Credit Karma. And their credit scores in the last couple of years are down almost 20 points. Gen Z credit card balances are up over 60% and those are just a couple of illustrative examples that consumers are strained. So the first uber-point would be that we think the environment is stable to uncertain and we’re not trying to outguess the economy, but really focus on our customers and our innovation, which gets to the second point, and that is we have confidence in the guidance that we provided of the 16% to 17% for the year, even in context of the macro environment, just because we continue to really emphasize and focus with our high value mid-market customers digitization. And that’s really what’s leading to our overall 21% online growth that we talked about. And that’s what gives us confidence in our guidance. And really, as we look into the future, our entire focus is really all about our innovation and our go-to-market to win, despite the tough economic environment.

Taylor, the one thing I would add, and just to build on Sasan’s point, you asked a question around pricing, pricing power. Our tenant around pricing is around the power of our offerings and the innovation we’re building into the offerings. And the perceived actual value that we’re delivering to our customers is not related to the macro environment. So that’s another point I just wanted to emphasize in terms of how we think about our pricing.

Thanks. Really appreciate the thoughts.

You’re very welcome.

The next question comes from Alex Zukin with Wolfe Research.

Hey guys, thanks for taking the question and congrats on the quarter. Sasan, maybe a GenAI question for you. Clearly it’s something that continues to really evolve and become a core part and parcel of the company, both on the SMB side and the consumer side. I wanted to ask, if you look at the coming tax season on the consumer side, how do you expect to see the benefit of some of the assist functionality? Is it more converting kind of free to pay? Is it pay to pay more? And then similarly on both Credit Karma and on the SMB side, if you think about the progression of the year, kind of where are you seeing the biggest opportunities as you start to see the interactions build on the platform?

Yes, Alex, thank you. Great question. Let me start with one headline, particularly as we’ve been in beta or with certain capabilities at scale and GA. I’ll start with a headline which is we believe that over time, and I want to emphasize the overtime piece, that this is going to create an entirely new category of experiences and growth that is not even possible today because of truly creating a set of experiences where the work is done for customers. And there’s always a gateway to human expert that’s all AI powered. And the more we’re in market, the more we’re learning, adjusting, adapting, the more we are convinced that we’re going to be able to create a new category of services and what’s possible to penetrate our $300 billion in TAM. Now with that said, let me get real specific and sort of real tactical. The second headline news that I would give is none of the work that we’re doing with Intuit Assist, which is really about what we’re doing across the platform. It’s not a feature. None of it is in our results today, and we’re not counting on it to be in our results in the near future. But with that said, to answer your question in tax, to start with, there’s a couple of areas where it will have profound impact. One is full service. And the profound impact, by the way, is from the investments that we’ve made in the last five years. I mean, to do what we’re doing in full service at scale and think about it, it’s really based on data, AI, ecosystem of apps, because now we can do your taxes through Credit Karma, through the cookbooks platform and one of the largest networks of experts that we have.…

Super insightful. Thank you, guys.

Yes. Thank you, Alex.

The next question comes from Kirk Materne with Evercore ISI.

Yes, thanks very much. And I’ll echo the congrats on the quarter. Yes, Sasan, can you just remind us where we are in terms of some of the cross-sell of QuickBooks into the Mailchimp base and vice versa? And when Intuit Assist goes GA for QuickBooks, will that be the point at which Intuit – can answer questions across sort of the front office and back office for customers? Can you just talk about that a little bit? Thanks so much.

Yes, great question, Kirk. Let me start with the Intuit Assist question first. And I’ll share with you how we’re sequencing it. Right now our entire focus and remember, everything that we are doing here is based on data and AI. A lot of our investments are what you don’t see, which is ensuring that the data is usable, that it’s clean, that it’s structured the right way, and that our machine learning, knowledge engineering and GenAI capabilities can digest all of the data. Inclusive of data by the way, that’s contributed by the customer, like access to their Gmail account, access to their Excel spreadsheet, because a lot of customers data are in those two places, or they’re in shoeboxes and being able to take pictures. And for us to be able to digest that data and actually deliver insights. So our first priority of order is to ensure that if you’re using our small business platform and if you are looking to put together marketing campaigns, that Intuit Assist is doing that for you. The second element of what we are focused on is then being able to transfer and use Intuitive Assist across QuickBooks and Mailchimp, because all the data points are connected. That is absolutely where we are headed and it’s sequenced in second place compared to what I just articulated, because we have to nail via the basics. But that’s actually where the power of our platform will show up for our customers, where whether you’re in Credit Karma or TurboTax, you can ask whatever question you want that is relevant in your life and we can answer it because all of our data points are connected and our AI capabilities are, in essence, working across the product. So that is sequence, but we’re working…

That’s it. Thanks so much.

Thank you. You’re very welcome.

The next question comes from Brent Thill with Jefferies.

Just on for [ph] Credit Karma to get back to growth, what are the key ingredients that you need to see for that to get back to growth versus the declines we’ve seen the last year?

Yes, a good question. A couple of things. One, which we are starting to see, which is just stability of partners and the environment. For the most part, other than some select partners, we’ve actually seen stability with our partners. And we’ve actually seen verticals like insurance come back, which saw a big decline last year. So one is just stability, and then the second is just the areas of innovation that we are focused on. One is we’ve redesigned the entire app. Now it’s rolled out to all members, which is a massive, massive feat. And based on the redesign of the app, there are many ways in which we can engage customers more so than we could before. And that will actually drive monetization. So that’s one lever beyond the macro that I mentioned. The second is Intuit Assist. It’s the example I provided earlier where now customers can actually interact with us and ask questions and let us know what’s important to them and we can personalize things in a way that we could never before. And based on very early testing, we see the engagement is higher when customers are interacting with Intuit Assist, which over time will lead to monetization. That’s the second area. Third is just a number of initiatives that we have around prime. As we’ve mentioned before, prime is actually quite a large part of our monthly active users, but we’ve never really focused on it and now that’s an area of focus. And then last but not least is TurboTax. And TurboTax, the way we’re thinking about it is actually about product integration because the more we can engage members year round around, if they took out a mortgage or having them take a snapshot of their W-2 and letting them know what their refund could be, the more we can actually penetrate more of the members to use TurboTax as a method to get their access to the refund, all those things creating one platform is what we believe and are confident actually that will get us to accelerated growth and it’s really in that order. So let me pause there hopefully, is that helps Brent?

Yes, it was great. Thank you.

You’re very welcome.

The next question comes from James Friedman with Susquehanna.

Hi. Thank you. I was hoping to get your thoughts on the opportunity for additional bill pay options. I believe Sasan, you mentioned in your prepared remarks rolling out same day ACH. But any high level thoughts on other bill pay options, including virtual credit cards? Thank you.

Yes, thank you for the question. First of all, the key to success for us, given where we are on the rollout is one network connections. And as you heard in our remarks, albeit very early, the number of business network connections has doubled since August. And that’s important because it helps, it’s a huge step forward to then digitize how we in essence help customers get paid and pay bills. The second is just executing on our roadmap. The big thing that we’re starting to roll out that we talked about earlier is just faster payments and that’s through both paid ACH next day that we’re rolling out and also batch payments. And so we’re going to continue to look at what’s most important for our customers and that’s what’s informing our roadmap. But we have to do it in conjunction with continuing to increase network connections. And we’re really excited about in the long term what’s possible, digitizing all of B2B, because it’s very – it’s incredibly beneficial to our customers because they get paid faster, and two, it’s really a sticky product.

Thank you so much.

You’re very welcome.

The next question comes from Raimo Lenschow with Barclays.

Thank you. Congrats for me as well. Question for Sandeep. As we think about this year, you kind of said you didn’t expect a lot of kind of recovery to help. It’s just like how you manage the business. But if you think about cost, so far you’ve been doing really well on margins. But there’s also obviously an element of getting ready for things are getting better. How do you see the progression of investments this year? Thank you.

Hey Raimo. Thanks for that question. Super important one, and let me share some of my thoughts. First and foremost, I’ll start with the fact that we’re deliberately building this business to scale growth while increasing our profitability. In fact, those are principle ones and two of our financial principles that we use to manage this company. So that’s a very deliberate approach that we are taking. And we have a track record of expanding margin over the years while bringing innovation to markets such as Intuit Assist, such as building innovation to address the opportunity we have in the mid-market such as innovation to localize products in Mailchimp for the international market. So we are not leaving growth opportunities on the table with our focus to scale growth and drive innovation. Now, the second component of your question, in terms of the profitability profile so far this year, we look at our margins and aim to deliver our margin commitments for the full year. And I feel quite confident in our path to do so. And the performance we had in the first couple of quarters, in fact, bolster the confidence that I have in our full year guidance.

Perfect. Thank you.

The next question comes from Mark Murphy with JPMorgan.

Thank you very much. So, Sasan, within the QuickBooks business you have this growth vector in the up market [ph], and I’m curious if you’re able to comment on the growth and traction that you’re seeing in that 10 to 100 employee segment versus the one to nine or zero to nine employee segment. For instance is one of those growing mid-20s and the other is high teens just interested in how much of a spread you see there and maybe where you see it trending this year?

Yes. Sure. I’ll add a perspective and would invite Sandeep to chime-in as well. I think the short answer is we are seeing more traction in our higher value customers and our mid-market customers, which I think to your frame is 10, 15 employees and up or more higher revenue customers. We are seeing more traction there, more momentum there. And by the way a big part of it is that’s where we’re really focusing our innovation, our go-to-market. At the same time to be clear we – we always remain paranoid and always believe in the notion of disrupting from the low end, which is by the way why we just launched a Solopreneur offering, which is to be able to serve those small businesses that in essence they’re on their own. Because we believe that it’s helping entrepreneurs when they’re a team of one, because one-day some will become a team of thousands. So we’re not taking our eye off the ball on the low-end at all, but we’re doubling down on our focus on the higher value customers. And yes, we do see more resiliency, more momentum with these larger customers.

And to covered the topic, the only thing I would add is that the unit economics on the upmarket is also something that we find quite attractive. These customers, they tend to scale to much higher ARPC especially as we get them to adopt our platform. They by definition have more employees. They by definition of processing more payments, so that’s also something that we find attractive and is very much an area that we are having our go-to-market teams and our product teams deliberately lean in this year.

Thank you very much.

Very welcome.

The next question comes from Steve Enders with Citi.

Okay. Great. Thanks for taking the questions here. I guess maybe just on the SMB side again; I think you made a comment in the prepared remarks about shifting towards ARPC over time as a growth lever. I guess one want to clarify that comment and then secondarily, does that change how you think about the levers of growth moving forward for the SMB segment, more towards ARPC, away from the customer side?

Thanks for the question, Steve. The way we think about it, and as we were just addressing in the prior question, we see tremendous opportunity in the mid-market for those that we currently define as having ten to 100 employees. And what really excites us about this opportunity is that these customers come with a much higher lifetime value, much higher ARPC, and have better retention. And so that just helps out our economics, but these customers also tend to have higher customer acquisition costs and there are relatively fewer of those than the smaller customers by definition, when you look at the overall addressable market. So as we focus on these larger customers, that means we will get higher ARPC per customer, even though there are fewer of those. So that is where the growth formula, we continue to abide by the growth formula that we have publicly discussed about 10% to 20% customer growth, 10% to 20% ARPC growth. But as we continue to focus on the mid market, you should expect us to lean in more towards the ARPC growth because of this dynamic with the mid-market, and that we think that’s actually a good thing for the business going forward.

Okay. Perfect. Thanks.

The next question comes from Scott Schneeberger with Oppenheimer.

Thanks very much. Good afternoon. Sasan, a couple of task questions. One, we’re three weeks in. We’re pretty well through the early season. You had anticipated earlier, before the tax season that we would see a probably flattish year for the industry. And that felt kind of conservative. Now that we’re in a bit and we’ve also seen a return to DIY category shift, I’m curious if you have any update on what you’re seeing for the industry overall thus far. And then the second part is on full service. You sound very happy with it, the 88 number recommendation score. Could you speak to some of the growing pain points you had last year and the fixes you’re seeing this year as you’re working your way through the early season? Thanks.

Yes. Sure. Thank you for the question. Our view, having been through however many tax seasons we’ve been through as a company, is it’s early in the season to estimate how many folks will ultimately file when it’s all said and done. With that said, our belief is still the same. It will probably be total of number of filers will probably flattish, maybe up a little bit. Our perspective really hasn’t changed because our focus is how do we win as many filers within the category that are going to file. So the first answer is our view hasn’t really changed. The second, on full service and some of the growing pains, I would call out a few from last year compared to what we’re doing this year. One is, we actually made it difficult for customers to get into full service last year. And by the way, it was more trying to ensure the customers were really, really getting into the right service. But we had so much friction that we had created up front. And if you think about somebody that just walks into somebody’s home or office and sort of hands everything over and says, here, get my taxes done. And then they interact until three or four weeks later until their taxes are done, the notion of engaging and putting a lot of friction up and asking a lot of questions up front is not a behavior they’re used to. So that was a big learning and growing pain, a lot of which we have removed all the friction and engage – get a customer to engage an expert, depending on what we know about them, very, very early. So that’s one. I think the second one, we learned a lot about what did and…

Great. Thanks.

Very welcome.

The next question comes from Keith Weiss with Morgan Stanley.

Excellent. Thank you guys for taking the question. This one’s for Sandeep as well. Another margin question, but a little bit of a different angle. When it comes to generative AI, we’re really been talking a lot about the potential top line impacts. Are there operating margin benefits that you guys can see through? Just better usage of the GenAI technology internally, whether it’s stuff like code assist or whatnot. And then on the flip side of the equation, given that a lot of this stuff is still ramping up. Is there anything we should be looking out for on the gross margin line in terms of just like these capabilities being that much more compute intensive and that much more impactful on COGS versus what you’re seeing in consent assessment today? Thank you.

Keith. So let me start by just reminding us all that the GenAI cost for the current fiscal year have been incorporated into our guidance. So that’s first and foremost. But now let me address the themes of your question as I think about the cost structure, and I’ll focus on the cost structure, since that’s where your question was. We actually feel that we are quite advantageous versus the market in the sense that the data that we have, that we have touched on, that’s residing behind our firewalls, that we are training our large language models on, that are delivering more contextually relevant answers at a faster speed versus other generally available large language models, and that they are doing that at a fraction of the cost. So just from a unit economics point of view, for the GenAI, it’s actually advantageous the way we are running it. Two, we don’t have our own data center, and we rely on AWS and other third party data centers to run our model. So that, again, is a cost advantage because we don’t have that build out cost as some others might have. Furthermore, as I look across our business, I do see opportunities for us to, over time, improve our economics using GenAI and AI. Now, we’ve already given examples on things such as in customer success, where agents no longer have to take notes or spend minutes summarizing the call that they just had. AI does that, and that’s just one small example. But expect that to continue to lead to more efficiencies in a customer success calls lead to more better unit economics in a full service than live offerings, as you kind of carry that forward. Also, how we are staffing up builders in terms of project managers to designers to engineers ratios. So I see many opportunities for us to continue to benefit from GenAI, and I feel good about the early start that we have leaning into some of those capabilities.

Got it. So, Net-net, it seems like a positive dynamic versus something that could drag on margins overall.

That would be the right takeaway, I guess.

Excellent. Thank you, guys.

Ladies and gentlemen, this does conclude today’s question-and-answer period. I will now turn the program back over to our presenters for any additional or closing remarks.

All right, awesome, everybody. Thank you for listening in. Thank you for your wonderful questions. Be safe. We’ll talk to you next quarter. Thank you, everybody.

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