Intuit Inc.
Q2 2022 Earnings Call Transcript

Published: 24 Feb 2022

[Operator:]

Good afternoon. My name is Latif, and I will be your conference facilitator. At this time, I would like to welcome everyone to Intuit's Second Quarter Fiscal Year 2022 Results 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. . With that, I'll now turn the call over to Kim Watkins, Intuit's Vice President of Investor Relations.

[Kim Watkins:]

Thanks, Latif. Good afternoon, and welcome to Intuit's Second Quarter Fiscal 2022 Conference Call. I'm here with Intuit's CEO, Sasan Goodarzi; and Michelle Clatterbuck, our CFO. Unfortunately, Michelle has lost her voice, so I will be reading her prepared remarks today. Sasan and I will take your questions during Q&A. 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 2021 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 prepared 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.

[Sasan Goodarzi:]

Thank you, Kim, and thanks to all of you for joining us today. Second quarter results reflect continued strong momentum across the company as we execute on our strategy to be a global AI-driven expert platform, powering the prosperity of consumers and small businesses. We have a nearly $300 billion addressable market, driven by tailwinds that include a shift to virtual solutions and acceleration to online and omnichannel capabilities and digital money offerings. This, combined with the team's excellence in execution, is contributing to the strength of our performance. Second quarter revenue of $2.7 billion was driven by strong results from our Small Business and Self-Employed Group, Credit Karma and reflects an earlier start to the tax season compared to last year in the Consumer Group. Since tax season is now underway, let me start there. We are confident in our strategy of extending our lead in the do-it-yourself category and transforming the assisted segment. Based on our analysis, we are on track to gain share overall again this season. This, and other early indicators, gives us reason to be excited about our innovation and go-to-market decisions. Our focus this season is threefold. First, we continue to aggressively transform the assisted category by reshaping how 88 million filers get their maximum refund with confidence virtually. This opens up the $20 billion assisted tax prep category for Intuit. Second, we're serving the underpenetrated segments of LatinX, Self-Employed and investor segments, which are growing faster than the overall tax filing. And third, we're serving millions of members on the Credit Karma platform with personalized experiences. Our team has developed a strong game plan to win this season, and we are on track to achieve our full year Consumer Group guidance of 10% to 11% revenue growth. Our AI-driven expert platform strategy is accelerating innovation and our 5 Big Bets are solving the largest problems our customers face. We continue to deliver strong proof points that demonstrate the success and are well positioned for durable growth in the future. As a reminder, these Big Bets are

[Kim Watkins:]

Thanks, Sasan. For the second quarter of fiscal 2022, we delivered revenue of $2.7 billion, up 70%, including 31 points from the addition of Mailchimp and Credit Karma, GAAP operating income of $56 million versus an operating loss of $25 million last year, non-GAAP operating income of $612 million versus $235 million last year, GAAP diluted earnings per share of $0.35 versus $0.07 a year ago and non-GAAP diluted earnings per share of $1.55 versus $0.68 last year. After the quarter ended, we entered into an agreement that will resolve the majority of pending arbitration claims related to the Free File litigation without admitting any wrongdoing. This resulted in an immaterial charge reflected in our fiscal Q2 GAAP and non-GAAP results. Turning to the business segments. In the Small Business and Self-Employed Group, revenue grew 47% during the quarter or 27% on an organic basis, excluding $240 million in revenue from Mailchimp. Online Ecosystem revenue grew 74% or 37% excluding Mailchimp. With the aim of being the source of truth for small businesses, our strategic focus within the Small Business and Self-Employed Group is threefold

[Sasan Goodarzi:]

Great. Thank you, Kim. During our busiest season of the year, we are seeing continued momentum across the company given our strategy of being an AI-driven expert platform that is powering the prosperities for consumers and small businesses. I'm proud of what the team has accomplished this quarter, and I'm excited about the opportunities ahead to find new innovative ways to serve our more than 100 million customers. Now let's open it up to your questions.

[Operator:]

. Our first question comes from the line of Scott Schneeberger of Oppenheimer.

[Scott Schneeberger:]

I guess I'd like to start with -- Sasan, what do you view -- I know we don't have a lot of color from the IRS, but could you go in a little bit to -- we started the tax season earlier, but it's a little uncommon because it seems to be starting slow. Could you speak a little bit to what's behind that? And then a follow-up to something else on that topic.

[Sasan Goodarzi:]

Yes. Sure, Scott. I would tell you, it's nothing unusual. Every year, I've been with the company 17 years and ran the TurboTax business for 3 years and every day -- every year, there seems to be a shift of consumer behavior shifting later and later in the year -- in the tax year. And primarily, it's because they know that they can. And especially now, I would say, with the fact that you can get access to an expert through our services versus relying on an in-person assistance and/or you can do it yourself, it's just consumer behavior shifting. I wouldn't read anything into it. It's not unusual. It is a trend that's been happening for years and it's continued this year.

[Scott Schneeberger:]

Great. And obviously, that's what's behind the reinstatement of the guidance and the comfort in the full season. I guess just a double follow-up on this topic. I heard in Kim's remarks, Free File Alliance, it sounds like people who utilized TurboTax through Free File Alliance in the past may have stuck with you this year. If you could elaborate on that a little bit? And then also if you could touch upon last year, you saw a boon of premier customers from investments. Could you just speak to how that is trending this year?

[Sasan Goodarzi:]

Yes, yes. For sure. Well, first of all, let me start with what Kim stated, the point Kim was trying to make was twofold. One, the fact that it is early in the season, but we are really happy with the fact that we are, in fact, taking share and that share that we are taking, we're just being explicit excludes those that filed in the Free File program. We'll see throughout season if some of those folks come back to us, which would be great. But that was really her comment. What you should take away is the way we keep score, which is our total share increasing as a total part of IRS returns, we are increasing share, and we're happy with our progress. Two, in terms of your question around investors, I would just say that as we've talked about often, there are really -- if I were to simplify 2 big strategic focus areas for us. One is really to fundamentally, make it easier for those that need assistance to get their taxes done through TurboTax Live. And then two, we are focused on 3 underpenetrated segments, investors, LatinX and those that are self-employed. And we feel good about the way the season has started, the way it's trending and given that there are simply is more people that have personally done stock trades, whether it's a stock or it's cryptocurrencies, we feel we're very well positioned with not only the experience that we have improved and how easy we make it for you to bring in your trade, but also the fact that we have an expert that -- are experts in this specific area around trading in cryptocurrency. And we've also upped our game in terms of how we are raising market awareness. We're being very clear that for those that have done trades, whether it's with cryptocurrencies or otherwise, we've got our experts that know and understand your situation, and we're delivering great experiences for them for those that are coming in. So we're very excited about our progress, and we're excited about the rest of the season as it relates to all 3 of those segments and particularly the investor segment that you asked about.

[Operator:]

Our next question comes from Sterling Auty of JPMorgan.

[Sterling Auty:]

I wanted to follow up on the Consumer Tax side. Based on what you know now, as you look at your targets for the year, has anything changed in terms of your assumptions on how you would achieve them in terms of how much of the growth would come from unit volume versus increased revenue per return?

[Sasan Goodarzi:]

Yes, Sterling, thank you for your question. The short answer is no. We -- things are playing out the way we had assumed, which is both a combination of really going after the assisted segment, along with the 3 underpenetrated segments that I just mentioned and thus far, it's playing out as we'd assumed. So no change in our assumptions based on everything that we are seeing with our KPIs.

[Sterling Auty:]

All right. Great. And then one quick follow-up on Credit Karma. I get this a lot from investors. Any sense that you can give investors as to what a rising interest rate environment might do to the business profile or business trends for Credit Karma, either positive or negative?

[Sasan Goodarzi:]

Yes. We don't really see an impact with rising interest rates, and I'll put it in 2 dimensions. One is consumers are always looking to access financial products, whether it's credit cards, personal loans, mortgage, auto loans, insurance, et cetera. So the demand continues, whether the interest rates are high or low because they're looking to access financial products. And two, financial institutions continue to invest even in a high interest rate market, especially in our platform because, in essence, their conversion is much higher on our platform because of Lightbox. And that's, by the way, why the demand will continue to be higher on our platform given that we have the Lightbox technology that really delivers a personalized financial product that's right for you at the lowest rate. So that's really one element. And I think the other element I would just remind us of is we are extremely low shared when you -- if I just use personal loans and credit cards as an example, what we shared at Investor Day, we have less than 5% share. So the more we continue to make a perfect match delivering personalized experiences for consumers, the more they're going to come on our platform, which is what we're seeing. And then the more financial institutions will invest in ensuring that their credit models on our Lightbox because they ultimately increase their conversion and their return on investment. So again, that was a long answer to your short question, I wanted to unpack it, but we don't see an impact of the demand is going to be there. And right now, financial institutions are really continuing to see a better trajectory than they did even a year or 2 years ago being on our platform.

[Operator:]

Our next question comes from Kash Rangan of Goldman Sachs.

[Kash Rangan:]

Sasan, I am always petrified of paying taxes. So I will avoid taxes. I'll ask you about the QuickBooks Online Ecosystem. I've been watching the company embark on this journey of being able to get better attach rate for its payments and payroll products. It's been a very nice journey that's come along. And you -- at the point where you're breaking out online services as a separate business, which is fantastic. Can you talk to us a little bit about what are your aspirations for payment and payroll attached for your Small Business installed base? Where do you see that going? Especially with QuickBooks Advanced, do you see yourself being able to attack a different lens of the market opportunity, throwing Mailchimp, everything gets a little bit more interesting. But just curious to see how much more upside is there in that business? Because that seems like it's a very small business, but it could be potentially large given the size and volume of payments that are going through your backbone.

[Sasan Goodarzi:]

Yes. Sure, Kash. Great question. First of all, petrified or not, you're going to have to get your taxes done by April 15. That's a wonderful...

[Kash Rangan:]

No question.

[Sasan Goodarzi:]

Wonderful reason for us being in the tax business, slow-forming or not, taxes will get done by April 18. With that said, to answer your question, I'll start at the highest level and do maybe a couple of double clicks. One, one of the many reasons why we are so excited about the Small Business opportunities, it is a very, very large TAM. And our penetration in that total customer TAM is still well below 10% when you look at the number of customers we have and the addressable market in the countries that we are in. So one, penetration is low, which is a big fuel for current growth and our continued growth. The second is even within the customers that we have, our penetration of the services that they use, which are primarily manual, is even lower. So if you start at the top with low penetration, both customer TAM and then services TAM because it's primarily manual, it's not yet digital, if one paints the factual picture of how large the opportunity is. I think then secondly, you asked the question about our aspiration, and I mean this very intentionally. Our aspiration is that we want every customer on our platform to be able to use the services that we have, and we want 100% of the customers to use 100% of the services as long as it is relevant to them, which is why our quest has continued to make it drop-dead easy for customers to use our services. Which I think gets to the third point, and we are such a different company than even a year ago than 2 years ago, we truly have a very powerful network and ecosystem of services from managing your money in and money out, and helping you get organized on accounting to helping you with payments, both receiving and sending payments to not only payrolls but ultimately benefits that we offer employees to then lending capabilities. And then ultimately, all the capabilities that we are -- we now have and are integrating to be able to help you grow your business to put your business online, market your business and all the CRM capabilities. So we truly now have a suite of services to fuel the success of small businesses. And the reason we're seeing the services growth is because small businesses are seeing that by being on our platform and digitizing everything, it actually not only helps them grow, that helps them manage their cash and put more money in their pocket, but it helps them understand the profitability of their customers. And then the last thing I would say is actually what you just raised, which is very well positioned versus even where we were a couple of years ago in that we are not going upmarket to serve mid-market with QuickBooks Advanced. With that comes a 4x higher ARPC because they use more of the services that we have. And with QuickBooks Live, although very, very early days, because you're in essence engaging with advice and an expert, we are seeing hiring engagement in services than if you don't use those services. So when you take all of that into account, I think the headline is large TAM, low penetration. We've got the services that we need on our platform, and it's really about just delivering for our customers, and we have years of growth ahead of us. Thanks, Kash. And do your taxes by April 15.

[Kash Rangan:]

No choice.

[Operator:]

Our next question comes from Siti Panigrahi of Mizuho.

[Sitikantha Panigrahi:]

Just wanted to ask about your comment about new customer acquisition trend. You talked about earlier the lagging effect from new business creation. So as you looked at new business creation trend, how should we think about new customer acquisition as a growth driver for a QuickBooks? And also, as you're seeing the new cohort coming in, what kind of mix safety you're seeing for the higher ASP, like QuickBooks Advanced or other higher ASP products?

[Sasan Goodarzi:]

Yes, Siti, thank you for your question. First of all, I'll start by reminding all of us that the way we want you all to think about the model to make it simplistic is that we expect to grow new customers between 10% to 20%. And we expect to grow our ARPC between 10% to 20%, and that's ultimately how we will achieve -- achieving the online revenue growth, ecosystem revenue growth of 30% plus. So new customer acquisition is important to us, and we have many ways now to do it, both from serving the lower end of the market, which is, in essence, with QuickBooks Checking all the way to the top end of the market with QuickBooks Advanced, which serves the mid-market customers. The -- and as I mentioned just a moment ago, we have a very large TAM with low penetration. The new customer comment that I made was in context of QuickBooks Live. We are now, I think, in our third year in QuickBooks Slide. We've worked really hard to understand our customers' needs and get the product market fit. And just in the month of January, which is where the really, the busy season started, we saw some of our best weeks of customer acquisition. And which means, one, we're proud. Two, we're learning a ton, which positions us not only for the months to come, but for next year. And lastly, regarding new business formation, ultimately, the businesses that start using us are a bit more established. So we don't really rely on these business formations, although it's in the long term good for us because ultimately, all roads lead to QuickBooks platform especially now that we have capabilities to grow your business and run your business. But we don't get impacted significantly one way or the other with near-term new business formations. It's more established businesses.

[Operator:]

Our next question comes from Keith Weiss from Morgan Stanley.

[Keith Weiss:]

Congratulations on a really nice quarter. And maybe expanding a little bit on Siti's question there. Obviously, there's some pretty extraordinary events going on all around us right now, whether it's what's going on in Europe, whether it's the inflation numbers that we've been dealing with or in a Fed rate hiking cycle, which is difficult. It's a very volatile market environment. You guys have a great perspective on overall small business health. Can you give us an update kind of what you're seeing? Is any of this volatility starting to impact small businesses at all? And have you put any of that potential caution, if you will, because of this volatile environment into not raising your guidance because you guys had a really good Q2, particularly on the Small Business and Credit Karma side of the equation, but the full year guide doesn't really move?

[Sasan Goodarzi:]

Yes. Keith, thank you for your question. And let me parse it into 2 pieces. One, I'll just remind us that when you look at the total small business market that we serve, which is up to 100 employees, almost 70% of those businesses are service-based businesses and about 30% are product-based businesses. And frankly, what we've seen, which is why I was intentional about putting this in my opening remarks, with the combination of what happened in COVID where everybody got stuck at home, and what's happening with inflation and supply chain issues, which doesn't really overall impact our service base business as much, it's more of the product-based businesses. There's just a shift to digitization because ultimately, small businesses see that they can be much more effective, much more efficient in running their business on our platform, and in fact, expanding the services that they use to digitize everything. So we are actually seeing that this environment, although none of us want to these supply chain issues, none of us want to see geopolitical issues. It is actually -- from a health standpoint, there's acceleration to I want to use digital platform. So that's, first and foremost, what we're seeing. And just to remember that the majority of our revenue is in the U.S. And although our aspirations are to be much, much more global, and we have 30% of our QuickBooks space outside of the U.S. the macro issues that impact -- that we got impacted with relative to COVID are already baked into what we see internationally. And so the strength of what we're talking about is based on the fact that small businesses again, see this as an opportunity to digitize and we just think it's the beginning of it. It is a secular shift. Let me actually answer your second question around guidance. We -- as I mentioned in my remarks, we are seeing strength in Small Business and in Credit Karma. And we actually are not seeing a tapering that we initially thought we would see in Credit Karma. So there's strength across every segment of the company. And that includes tax. It's just a slower-forming season. And with that said, as you know, we raised our guidance in the first quarter of the year, which is very, very unlike us. And we simply just want to get through tax season, and we'll relook at our guidance next quarter. But we are continuing to see strength in all the segments.

[Keith Weiss:]

Got it. And on the Credit Karma, I did notice the strength in credit card, also the strength in Credit Karma margins. I know Michelle doesn't have a voice right now, but I know you could take it. Anything that we should be thinking about in terms of the second half of the year, why those margins wouldn't be sustainable?

[Sasan Goodarzi:]

Yes. Keith, in general, I would not pay too much attention to the ups or downs in our margins by segment. We truly manage the company margins at the company level -- and we not just -- we don't manage it just for the sake of managing it at the company level. The number of investments that we make across the platform to fuel our innovation forces us to really think holistically to ensure that we don't short-change any segment at the company level. So if it's too high 1 quarter, I wouldn't get too excited. If it's low 1 quarter, I wouldn't wonder why it's low. We managed it at the company level. And as you know, we've been expanding margins and it's built into our guidance. And I feel good about our margin expansion. I just wouldn't pay too much attention to the segment level.

[Keith Weiss:]

Sasan, that's remarkable. It's exactly the same answer Michelle would have given.

[Sasan Goodarzi:]

Well, that's why we're partners in crime.

[Keith Weiss:]

Exactly. Excellent. Congratulations...

[Sasan Goodarzi:]

And she's smiling, you can't see it.

[Operator:]

Our next question comes from Brad Zelnick of Deutsche Bank.

[Brad Zelnick:]

Excellent. And I'll echo the congrats on a great quarter. Sasan, I listened carefully to your response to the first question to say that perhaps TurboTax Live was one factor that helped to get filers more comfortable, that they can be more relaxed and maybe file a little bit later. Is there anything that you see specifically in terms of live adoption that gives you optimism for what it can be as a percentage of the mix for the full season?

[Sasan Goodarzi:]

Yes, Brad, thank you for your question. I'll tell you, I'm starting to lose count, but I think this is our fourth year with TurboTax Live and as you know, this year, we are -- TurboTax is truly a platform. You can bounce back and forth between the platform from doing it yourself to getting access to an expert to help you in any which way you want to ultimately doing your taxes for you. And really where we've upped our game this year, which is a true differentiator to get folks to switch is the expertise of the experts. Because ultimately, what customers care about is if I'm a plumber or if I'm an investor or if I'm self-employed, if I worked in 2, 3 states, I want to know that you understand my situation, which is why we've invested so much time not only in improving that matching by applying AI, but also making sure that the collaboration experience is seamless because a lot of this advice can also be done through AI. That was a long way to answer your question. We are bullish about TurboTax Live. We are bullish about the 10 million customers that have churned within the assisted category. What we talked about at Investor Day last year, which is 17 million people that started TurboTax but never finished. And we like what we see, and we'll report out on where it all ended in our earnings in May. But it's playing a big role in what we would expect, both going after assisted, but also going after the underpenetrated segments, which actually look to assistance more than otherwise.

[Brad Zelnick:]

That's very helpful, Sasan. And maybe just a follow-up, either for you or for Kim. I think in your prepared remarks, and I think it was a Small Business comment, you talked about retention in target customers increasing several points. I just want to make sure I have that right. And if you can clarify it and unpack that first, that would be great.

[Sasan Goodarzi:]

Yes, yes, for sure, Brad. Let me parse it into 2 parts. One, what we talked about relative to last year was that our overall retention rates in Small Business were actually up full stop. What I -- the comment that I made in our opening remarks was that we're seeing a lot of goodness in QuickBooks Live, both in the start of the season, both in terms of new customer acquisitions where we've had record weeks and for the cohort of customers that we are focused on in certain segments, our retention is up in QuickBooks Live. And both of those are really, really important because we want to not only acquire the customers, but deliver the service that they need so they stay with us and come back, and that was -- that was the point I alluded to in the remarks.

[Operator:]

Our next question comes from Kirk Materne of Evercore ISI.

[Kirk Materne:]

I'll echo the congrats on a nice quarter. Sasan, can you just talk about some of the early learnings maybe from Mailchimp just in terms of go-to-market, what you've learned about sort of the cross-pollination of your clients? And also, how far out are we in terms of having a bit more harmonized back end between Mailchimp and QuickBooks. And what should we expect on that from a sort of technical integration perspective?

[Sasan Goodarzi:]

Yes, yes. Sure, Kirk. So let me just quickly touch on these 3 priorities that we have that we're maniacally focused on. One is to create this growth platform where really the magic is what we do behind the scenes with the data. It's combining the customer data, along with the purchase data to really help them understand where to target, where they can grow wallet share what the profitability of their customers are, et cetera. And that's extremely powerful for our customers, not only to grow the services within our overall platform, but also to acquire new customers because the reality is we will be the only platform that has this capability in one place. The second is to position ourselves together to pursue mid-market because this is even a bigger need as you could imagine, in mid-market. And then third, half of their business is outside of the U.S. And frankly, other than having a wonderful drop-dead easy platform you haven't spent a lot of efforts internationally, and we are doubling down international. To answer your question on several months in, we're more excited about the capabilities of what is possible than we were even before and are even more intentional about the work that we need to do to bring these 3 priorities to life. If I were to paint a sort of general picture, I would say we'll probably be in a place in about a year where we're really seeing the impact of the momentum of these priorities as it relates to our outcomes and our results because we've inserted in Mailchimp some of our best product people that really understand QuickBooks, really understand this space that are building out the platform with, of course, the Mailchimp engineers, which are all part of Intuit. And we think getting this right and we know how to get it right, we think about a year or so, we'll start seeing the impact of the priorities that we are focused on. The good news is we know how to do it, and there's no surprises there.

[Operator:]

Our next question comes from Michael Turrin of Wells Fargo.

[Michael Turrin:]

Nice job to Kim stepping in there. We've seen it and enjoyed the ad campaigns of late. Is there anything you can add around engagements or early returns you're seeing on some of those programs? And maybe Sasan if you could expand on your view around striking the right balance between maintaining the powerful brand of each individual property, I think they're all fairly well known and established as separate entities versus presenting Intuit as a more holistic platform, that would be great.

[Sasan Goodarzi:]

Yes. Great. Thank you for your question, Michael. I'll start with the latter one first. And I think it was really importantly stated it in your question. We have very powerful brands that our customers love and use, Mailchimp, TurboTax, Credit Karma and QuickBooks. And our intent is to really from a brand perspective, convey that they are connected and connected means that you get more benefit as a customer and the power of those benefits in really fueling your success as an individual or as a business. So all that means is the brands are powerful, the brands are not going to go away. It's about how we invest to make the connection in the minds of customers that this is all Intuit and by the way, here's why you should care. The second element around the campaigns, it's -- it's early, but we're actually -- and my comments specifically around TurboTax as I assume that's what you were asking about if it's broader, please come back and ask the other elements of your question. We're really pleased with our campaign so far this year. And our intent going in was to really communicate this year that we have experts that understand your situation. If you look at our campaigns, both on-air and digitally, you'll see things around communicating to those that are self-employed, communicating to those that have moved multiple states, communicating to those that have made investments in helping them understand no matter what your situation is, we have an expert that can help your situation. And we've invested heavily in not only who we bring on board, but also our AI capabilities, not only to make that perfect match but also to deliver insights to those experts to make them much more effective and productive so we can do things at scale. So the consideration, awareness and understanding of what we're trying to communicate, so far has been very well received. And then, of course, we'll know more as we go through season. That's about just our results, but we do a lot of mix -- marketing mix modeling work to understand what was effective, how can we improve our game going forward. And we did this across the company, but we'll better understand the impact with data. So far, the qualitatively and early data has been very positive.

[Michael Turrin:]

We saw the DJ Khaled commercials at the Super Bowl as well. Those were also great.

[Sasan Goodarzi:]

Thank you.

[Operator:]

Our next question comes from Ken Wong of Guggenheim Securities.

[Ken Wong:]

Fantastic. I wanted to just touch on Credit Karma as a channel for TurboTax. Last year, very effective in terms of driving new customer adoption. I kind of saw last year was the trial year and this year is the first real push. Just would love a sense of what you're seeing from a consumer engagement perspective in the first few weeks of tax season.

[Sasan Goodarzi:]

Yes, Ken, great question. Let me just say it's twofold. One, we've gone in really big within TurboTax exposing TurboTax customers to Credit Karma where they can put their refund on a Credit Karma Money account, where they will get 5 days early access and really tax time, it's all about the money. And then these folks become new Credit Karma members and that we can expose them to the Credit Karma platform. We're really pleased with where that's going and the progress that we made. Of course, I won't share any stats with you, but we are -- I'll just leave it as we're very pleased. The second is last year, it almost wasn't even a trial year in Credit Karma. We sort of threw in TurboTax into the Credit Karma app. This year is really the first year where TurboTax, you can actually get your taxes done within the Credit Karma app. And for most cases, you don't actually have to go to TurboTax, which is a far, far better experience. We're getting wonderful learnings and adjusting real-time. We are, for the long term, really bullish about the -- not only all TurboTax customers using Credit Karma, but hopefully getting all Credit Karma members that already don't do their taxes with TurboTax, the BA TurboTax users. So, so far, we love what we're learning, the adjustments that we're making, and we continue to remain very bullish about just the whole prospect of why we're doing the integration between these 2 platforms and the impact that it's having for our members and TurboTax customers.

[Operator:]

Our next question comes from Alex Zukin of Wolf Research.

[Alex Zukin:]

Sasan, maybe just one multipart one for me. I'm looking at the SMB online ecosystem number, and it looks like ex Mailchimp, growth there was about 4% sequentially. And I want to understand if you could unpack what's driving that? Because I'm trying to understand was Q1 like unseasonably strong and Q2 is kind of back to normal? Or what's the right way to think about that, unpack maybe the drivers between payroll payments and capital and time tracking? And how do we think about that in the second half of the year growing sequentially because year-over-year, it's accelerating and it's fantastic. But just looking back at history, understanding that a little bit better, I think it would be helpful.

[Sasan Goodarzi:]

Yes. Sure, Alex. Very good question. So first of all, I'll start with the obvious, which is overall, Small Business grew 24%. This is all excluding Mailchimp. And our Online Ecosystem revenue growth grew 37%. And as you know, our goal is to grow over 30%. So we actually had a extremely strong quarters. So I'm not sure what the sequential number is that you were throwing out there, but we had a very, very strong quarter, well above our 30% mark. And it's based on strength in volume and the mix of customers that are coming in and particularly the services that they are using across payments, payroll, time tracking and QuickBooks Capital. And as I mentioned earlier, we expect to continue to see strength in Small Business and Credit Karma in the second half of the year. We don't expect a tapering. And as I mentioned earlier, we just really want to get through tax season and talk about our guidance after the quarter. So I wouldn't read anything into the fact that Small Business is going to taper. I would say, focused on our compass, which is we want to grow north of 30% with our Online Ecosystem revenue and we actually are seeing great strength.

[Alex Zukin:]

And then, Sasan, you mentioned Credit Karma a couple of times. You've gotten asked the question and kind of how you're seeing even more strength than you anticipated to some extent, no tapering, if you will. How is the progression of synergies going with Credit Karma within the Online Ecosystem business specifically? What are you seeing there? What learnings? And if you look at areas where you feel like there's an ability to double down and see even more growth, where would those be?

[Sasan Goodarzi:]

Yes, Alex, the -- strategically, the biggest area that we've been focused on has been really integrating Credit Karma into the TurboTax experience and then vice versa. So what that means is if you're a TurboTax customer at the end, one of the first options that you get is to put your refund on a Credit Karma Money account. And as I mentioned a moment ago, that was a strategic thesis that we had, and it's going really well. And these become new Credit Karma members and then we can expose other benefits on the Credit Karma platform to those customers. The second is building out within the Credit Karma app the TurboTax experience and contextually engaging customers with helping them get their taxes done. And to say we're in the early days is interesting, right, because we're only a year in. We like the progress that we're seeing, and that's the area where we're more than doubling down because we're literally only a year-end, and there's just so much opportunity ahead of us, and we're actually seeing the green shoots. The other, Alex, is integrating Credit Karma as part of the payroll platform. So if you want to ultimately get earlier access to your money, you can put your money on a Credit Karma Money account, that's another area. But the primary focus has been creating this one consumer platform between TurboTax and Credit Karma.

[Operator:]

Our next question comes from Brent Thill of Jefferies.

[Brent Thill:]

Sasan, you've had some pretty healthy price hikes from the full-service solution, anywhere between 25% and 50% from last year's tax season. I'm just curious if you could just give us a sense of how that's resonating and they are fairly healthy in terms of hike. What -- in terms of just the justification of how big that was, can you just walk through what drove that decision on the pricing side?

[Sasan Goodarzi:]

Yes, sure, Brent. As we always do, we have pricing principles, and we run a lot of tests, and there are multiple holistic things that we did in our lineup this year. And let me start with where you didn't ask the question because it's relevant to the overall answer to your question. One, for our free customers, we actually expanded it to include student loans for free and refund transfer for free. That was one very important decision that we made. When we looked at our TurboTax Live platform to continue to really accelerate bringing more customers into the category from prior assisted, we also, for simple filers, announce, you can do it anyway you wish, do it yourself or with a live platform for a certain time period and you pay nothing. And we like the progress and the impact that we're seeing there. The third is we ran a lot of tests for TurboTax Live and particularly full service and what we learned in some ways, unsurprisingly, is price is not a big factor. It's about confidence and access to an expertise. And what we realized is having early season pricing and then later season pricing didn't really have much of an impact. So one, there is no early or late season pricing. It's one flat pricing. And two, we had a lot of room to move up on pricing, and we made a decision based on a lot of testing to move the price up. So those were a few strategic decisions that we've made. And as we back-test our decisions, it's playing out exactly as we thought, which is these are not really that price-sensitive customers, although they love our price versus other alternatives. It's more, can I get access to the expert that I want? And can I get -- confidently have somebody to get my taxes done for me? And that's what we're seeing.

[Operator:]

Our next question comes from Raimo Lenschow of Barclays.

[Raimo Lenschow:]

I almost apologize for the question, Sasan, but the Desktop is an area that we understand it's not your focus, et cetera. But like you just keep reporting actually numbers that are better. Can you talk -- better than you talked to. Can you talk a little bit about some of the drivers there in the sustainability?

[Sasan Goodarzi:]

Sure. I think I'll just say 2 things. One, these are resilient customers and they continue to love their Desktop products, and they always surprise us relative to wanting to come back to desktop. And really, that's a simple answer to your question on what we continue to see. I think the second thing that we're very excited about and so I would say our -- the majority of our customers is really moving to a subscription-based approach where they can leverage a lot of the services that we now create in the cloud, and that will drive even a higher subscription element of our business and it will also give our customers the ability to access more features and functionalities and that's something that we started rolling out this year and will be primarily subscription-based as we look into the future.

[Kim Watkins:]

If I could add 2 things to that, Raimo, just to remind you of some things that were mentioned in the script, too. The big growth driver in the quarter was Desktop Enterprise, which grew low double digits in the second quarter, and that's up from high single digits in the first quarter. Similar to what Sasan mentioned, that was -- that specifically for the Desktop Enterprise with customer growth and price increases there. So really something to consider. That's the piece that's growing within that. And then longer term, we're not expecting this business to decline, especially headwinds from the subscription model transition in the second half of this year.

[Operator:]

Our next question comes from Kartik Mehta of Northcoast Research.

[Kartik Mehta:]

Sasan, I wanted to ask you a little bit about Credit Karma. Last year was just an amazing year in terms of the number of credit cards issued, and it seems like credit card issuers really battling for customers. I'm wondering, in your opinion, does that cause any comparison issue for you guys as you look at this year? And do you see that demand waning at all?

[Sasan Goodarzi:]

Yes, Kartik, thanks for your question. If you recall, probably a couple of quarters ago, Michelle and I both talked about the fact that we expect a tapering of originations in the second half of the year, we would expect to continue to see strength because of our execution and because of Lightbox and the fact that we really deliver personalized experiences, which is good for members and good for partners, but we expect a tapering of origination. And we haven't seen the type of tapering that we thought we would see, which is why we continue to see the strength that we're experiencing and what we would expect in the second half of the year.

[Kartik Mehta:]

And then just one on tax, so from a competitive standpoint, have you seen anything that you're surprised by that competitors are doing that -- ones that would say to you, hey, we need to make any changes? Just any changes that you're surprised by from a competitive standpoint?

[Sasan Goodarzi:]

Part of our playbook is, as a company is we do a lot of scenario planning customer back, and it's really primarily focused on making sure we're obsessed with our customers and what other alternatives could be presented to our customers that could be far more compelling. So just as part of our playbook, we do that quite well, and we particularly are probably one of the best at it across the company in tax. So just know that, that is part of our playbook. And I would just tell you that this year, we've probably been the least surprised. And so no, it is not -- there's no surprises that's informing anything differently that we're doing the rest of the season.

[Operator:]

Our next question comes from Brad Reback of Stifel.

[Brad Reback:]

Sasan, obviously, it's a difficult hiring environment out there. Do you guys feel pretty good about where you are for the Live product to meet demand here in the next couple of weeks from a headcount perspective?

[Sasan Goodarzi:]

Yes. Thanks, Brad. The very short answer is absolutely. We actually, believe it or not, feel the best this year than we have in prior years just because we've gotten so good at what we need to do. We're several years into this and because many experts actually want to be on our platform. So we are absolutely fine on hiring.

[Operator:]

At this time, I'd like to turn the call back over for any remarks.

[Sasan Goodarzi:]

All right. Excellent. Well, listen, everyone, thank you so much for all of your wonderful questions. Be safe out there. Take good care of yourselves, and we look forward to talking to you in May. Thank you, everybody.

[Operator:]

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