Good afternoon. My name is Regina, and I will be your conference operator today. I would like to welcome everyone to Intuit's First Quarter Fiscal Year 2023 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 session. I will now turn the call over to Kim Watkins, Intuit's Vice President of Investor Relations. Ms. Watkins?

Thanks, Regina. Good afternoon and welcome to Intuit's first quarter fiscal 2023 conference call. I'm here with Intuit's CEO, Sasan Goodarzi; and Michelle Clatterbuck, our CFO. Before we start, I'd like to remind everyone that our remarks will include forward-looking statements. There are a number of factors that could cause Intuit's results to differ materially from our expectations. You can learn more about these risks in the press release we issued earlier this afternoon, our Form 10-K for fiscal 2022 and our other SEC filings. All of those documents are available on the Investor Relations page of Intuit's website at intuit.com. We assume no obligation to update any forward-looking statement. Some of the numbers in these remarks are presented on a non-GAAP basis. We've reconciled the comparable GAAP and non-GAAP numbers in today's press release. Unless otherwise noted, all growth rates refer to the current period versus the comparable prior year period, and the business metrics and associated growth rates refer to worldwide business metrics. A copy of our prepared remarks and supplemental financial information will be available on our website after this call ends. With that, I'll turn the call over to Sasan.

Great. Thank you, Kim, and thanks to all of you for joining us today. We had a strong first quarter as we executed on our strategy to be the global AI-driven expert platform powering prosperity for consumers and small businesses. We continue to feel bullish about our momentum and execution across small business and tax. We're innovating at a high velocity using the power of our platform and modern technology capabilities to deliver new offerings at scale focusing on breakthrough adoption. We continue to be focused on putting more money in our customers' pockets, saving them time and ensuring complete confidence in every financial decision they make. This is more important than ever in the current uncertain economic environment and helps us penetrate our large total addressable market of over $300 billion. Now let's turn to our first quarter results. Revenue grew 29%, including 13 points from the addition of Mailchimp. Total revenue growth was fueled by the Small Business & Self-Employed Group revenue growth of 38% or 19% excluding Mailchimp and 25% revenue growth in the Consumer Group driven by a strong October peak with new customers and extension filers. The scale of our platform, along with our rich data, gives us the unique ability to see charge volume growth, the number of employees paid, the hours worked per small business and cash reserves. These measures remain strong for those on our platform and inform our perspective on the health of small businesses. TurboTax had a robust finish to the tax season with a record number of innovations launched and tested in the October peak. I'm excited about this upcoming season, particularly our strategy to transform the assisted category, including the launch of Business Tax and TurboTax and Credit Karma platform integrations. Now turning to Credit Karma. At Investor Day and on our fourth quarter call earnings call, we shared that all Credit Karma verticals had been negatively impacted by the macro uncertainty. In the last few weeks of the quarter and into November, we saw further deterioration in all verticals. Consumer default rates remain relatively low by historical standards, reflecting strong consumer cash balances coming out of the pandemic. However, we continue to see partners pull back from extending credit, reflecting the uncertainty in the economic environment and the risk of deterioration in credit performance. Given this context, Credit Karma revenue came in lower than expected for the quarter. We are lowering our fiscal year 2023 revenue guidance for Credit Karma to a decline of 15% to 10% versus our previous guidance of 10% to 15% growth. At the same time, we are reiterating our fiscal year 2023 revenue guidance for all other segments and reiterating our fiscal 2023 GAAP and non-GAAP operating income and earnings per share guidance. Our ability to maintain earnings power despite the lower Credit Karma revenue guidance shows the power of our diversified platform and our ability to balance platform and product investments for the future while delivering on our commitments. Regardless of the near-term macro volatility, we remain confident in our long-term revenue growth expectations of 20% to 25% for Credit Karma driven by our vision and innovation to become the self-driving financial platform fueling prosperity for all consumers. At Investor Day, we shared how our AI-driven expert platform strategy is accelerating our innovation and how our 5 Big Bets are solving the largest problems our customers face. We continue to deliver strong proof points that demonstrate our success and are well positioned for durable growth in the future. As a reminder, our 5 Big Bets are: revolutionize speed to benefit, connect people to experts, unlock smart money decisions, be the center of small business growth and disrupt the small business mid-market. Today, I'd like to highlight examples of our recent progress across three of these Big Bets. Our first Big Bet is to revolutionize speed to benefit. Our platform enables us to innovate for our customers with speed and at scale, which is foundational to all of our Big Bets. Our evolution from a siloed technology stack to a platform leveraging shared capabilities is well underway. Our development environment enables speed and innovation. Engineers now have 6x the velocity of deploying code, resulting in accelerated innovation compared to fiscal year 2020. Our AI and fintech capabilities are well positioned to solve our customers' biggest problems, such as our money innovations across payments and payroll, advancements in TurboTax Live, QuickBooks Live and QuickBooks Advanced, just to name a few. And we're doing that today with over 730 million AI-driven customer interactions per year, 2 million AI models in production, 58 billion machine learning predictions per day, and over $465 billion in money moved during fiscal year 2022. Our second Big Bet is to connect people to experts. We're solving one of the largest problems our customers face, lack of confidence, by connecting people to experts virtually. During the October tax peak, our team launched a record 50 innovations to test and learn. Our learnings can help us transform our go-to-market campaign for the assisted segment; revamp the end-to-end TurboTax Live platform experiences with faster access to money via Credit Karma; and better serve the investor, Latino and self-employed segments. We are looking forward to the upcoming tax season. Our fourth Big Bet is to become the center of small business growth by helping our customers get customers, get paid fast, manage capital, pay employees with confidence and grow in an omnichannel world. With Mailchimp, we're well on our way to becoming the source of truth for our customers to help them grow and run their business. We have three acceleration priorities with Mailchimp: first, delivering our vision of an end-to-end customer growth platform; second, disrupting the mid-market by developing a full marketing automation, CRM and e-commerce suite; and third, accelerating global growth with a holistic go-to-market approach. This quarter, we launched a new brand campaign, refreshed our website and launched an improved first-time use experience for new customers that help them more quickly find and use the features that align with their unique business needs. We also launched a one-hour assisted onboarding process for our high-value Mailchimp customers with the goal of guiding them to more advanced features to increase awareness and usage. This program was launched in a record four weeks by leveraging components of our virtual expert platform, another example of the power of the Intuit platform capabilities. As a result of these enhancements and others, we're seeing a positive impact on customer growth and expansion and a lift in customers converting to pay. Turning to our money portfolio. We've made a tremendous investment over the last few years to expand our suite of money offerings to help small businesses get paid, pay others, access capital and manage their money. We continue to see strength in our charge volume driven by easier discovery, auto-enable payments, instant deposit and getting paid upfront. This quarter, we made it even easier for more customers to access their cash quickly by removing friction and opening the funnel to more customers. We're also rolling out a new invoicing experience with a more streamlined workflow and improved design, which is driving an increase in the percentage of companies that send payment-enabled invoices. Looking ahead, we're tackling another big challenge for our small business customers, B2B payments. More than $2 trillion of invoices were managed in QuickBooks in fiscal year 2022. As we shared at Investor Day, we are launching the QuickBooks Business Network, which connects small business customers to each other, making it easier for them to do business. It's currently in beta testing, and we expect to launch more broadly later this fiscal year. We're also building our own bill pay functionality in QuickBooks and plan to launch this capability in the future. We're excited about our opportunities for growth with Mailchimp and payments becoming the center of small business growth. Wrapping up, we feel confident in our long-term business strategy and the power of our platform. In an uncertain macro environment, the benefits of our global financial technology platform are more important and more mission-critical than ever for our customers. We have a large TAM with low penetration, secular shifts working in our favor, a diversified large-scale platform where we continue to invest heavily in innovation across our 5 Big Bets to deliver benefits for our customers, resulting in top line growth and margin expansion. We're proud to be an employer of choice as well as the financial technology platform of choice for over 100 million customers around the world who rely on Intuit to prosper. Now let me hand it over to Michelle.

Thanks, Sasan. For the first quarter of fiscal 2023, we delivered revenue of $2.6 billion, GAAP operating income of $76 million versus $195 million last year, non-GAAP operating income of $662 million versus $555 million last year, GAAP diluted earnings per share of $0.14 versus $0.82 a year ago, and non-GAAP diluted earnings per share of $1.66 versus $1.53 last year. Turning to the business segments. In the Small Business & Self-Employed Group, revenue grew 38% during the quarter and 19% on an organic basis, excluding $264 million in Mailchimp revenue. Online Ecosystem revenue grew 60% in Q1 or 28% excluding Mailchimp. With the goal of being the source of truth for small businesses, our strategic focus within the Small Business & 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 29% in Q1 driven mainly by customer growth, higher effective prices and mix shift. Second, we continue to focus on connecting the ecosystem. Online services revenue, which includes Mailchimp, Payroll, Payments, Capital and Time Tracking, grew 109% in Q1. Excluding Mailchimp, online services revenue grew 28%. Mailchimp revenue included in online services was $264 million, up low teens versus a year ago, in line with our expectations. Within Payroll, revenue growth in the quarter reflects an increase in payroll customers and a mix shift to higher-end offerings. Within Payments, revenue growth reflects an increase in charge volume per customer and ongoing customer growth. Third, we continue to make progress expanding globally, and we began to execute our refreshed international strategy, which includes leading with Mailchimp. On a constant currency basis, total international Online Ecosystem revenue grew 172% in Q1 and 19% on an organic basis excluding Mailchimp. Desktop Ecosystem revenue grew 7% in the first quarter. As a reminder, the subscription model for our desktop accounting solution makes this revenue more predictable, and we raised our desktop prices for several products in September to more closely align with QBO pricing. QuickBooks Desktop Enterprise revenue grew mid-single digits during the quarter. We continue to expect the Online Ecosystem to be our growth catalyst going forward. Moving on to Credit Karma. Revenue grew 2% to $425 million in Q1. This was below our expectations of mid-single-digit growth we shared at Investor Day due to further deterioration in all verticals the last few weeks of the quarter. On a product basis, revenue growth was driven primarily by credit cards, offset by headwinds in personal loans, home loans, auto insurance and auto loans. As the macro environment continues to remain uncertain, we're seeing an impact across all verticals. Sasan touched on this briefly earlier, but let me unpack what we're seeing. In credit cards, many financial institution partners have tightened eligibility, particularly in riskier segments. In personal loans, we saw continued pressure with many partners tightening eligibility further while increasing APRs. We continue to expect personal loan revenue to decline this year after very strong growth in fiscal 2022. As a result, we are reducing our fiscal 2023 Credit Karma revenue guidance to a decline of 15% to 10%. This embeds the current trends we're seeing and additional conservatism in the remainder of the year despite the expected continued rollout of several new innovations. Consumer Group revenue was $150 million, reflecting a strong finish to the tax season. We remain focused on transforming the assisted category in the tax prep market as we head into the next tax season. We're focused on making TurboTax a compelling destination for filers who prefer assistance to complete their taxes accurately and quickly. Turning to the ProTax Group. Revenue of $34 million was in line with our expectations. Our financial principles guide our decisions remain our long-term commitment and are unchanged. We finished the quarter with approximately $2.7 billion in cash and investments and $7 billion in debt on our balance sheet. We repurchased $519 million of stock during the first quarter. Depending on market conditions and other factors, our aim is to be in the market each quarter. The Board approved a quarterly dividend of $0.78 per share payable January 18, 2023. This represents a 15% increase versus last year. As I shared last quarter, we have an operating system we use to run the Company, and this includes a proven playbook for operating in both good and difficult economic times. Our first priority is to do the right thing for customers giving them access to the tools and offerings they need most. We manage for the short and long term and control discretionary spend to deliver strong results while investing in what is most important for future growth. The scale of our platform, along with our rich data, gives us the unique ability to see leading indicators that allow us to be forward-looking and adjust quickly. As Sasan shared earlier, we are reiterating our operating income and earnings per share expectations for fiscal year 2023 despite our lower revenue expectations for Credit Karma. We're able to do this by reducing spend in areas where we expect to see lower returns near term. Last quarter, I mentioned we identified several levers we can pull to deliver against our financial principles in a variety of scenarios, and the adjustments we have made are an example. Given the breadth of our offerings and the power of our diversified platform, we have the ability to maintain earnings power despite our expectation for lower Credit Karma revenue. At the same time, we have the ability to make the necessary platform and product investments for the future while delivering on our short- and long-term commitments. We also have a strong balance sheet that enables us to play offense. We will continue to accelerate our innovation, and our goal remains for Intuit to emerge from this period of macro uncertainty in a position of strength. Moving on to guidance. For fiscal 2023, we are lowering our revenue guidance for Credit Karma as trends in all verticals further deteriorated in the last few weeks of the quarter and into November. We now expect revenue to decline 15% to 10% versus our previous guidance range of 10% to 15% revenue growth. We are reiterating our revenue expectations for all other segments and now expect total company revenue growth of 10% to 12% versus the previous range of 14% to 16%. For the Small Business & Self-Employed Group, we continue to expect 19% to 20% revenue growth. And for the Consumer Group, we continue to expect 9% to 10% revenue growth. In both businesses, we expect the majority of our growth this year to come from customer growth and mix. We are reiterating our GAAP and non-GAAP operating income and earnings per share guidance for fiscal 2023. This demonstrates the resiliency of our diversified platform and business model. So to recap, for fiscal year 2023, we expect total company revenue growth of 10% to 12%, GAAP operating income growth of 9% to 13%, non-GAAP operating income growth of 17% to 19%, GAAP diluted earnings per share to decline approximately 5% to 1%, and non-GAAP diluted earnings per share growth of 15% to 17%. Our guidance for the second quarter of fiscal 2023 includes revenue growth of 8% to 9%, GAAP loss per share of $0.29 to $0.23, and non-GAAP earnings per share of $1.41 to $1.45. You can also find our full fiscal 2023 and Q2 guidance details in our press release and on our fact sheet. And with that, I'll turn it back over to Sasan.

Great. Thank you, Michelle. As you all heard from Michelle and I, we're seeing continued momentum as a result of our strategy of being a global AI-driven expert platform, growing Intuit double digits with margin expansion. With our accelerated organic innovation and the addition of Credit Karma and Mailchimp, we are the leading global financial technology platform that powers prosperity for people and communities. And with that, let me turn it over to your questions.

Our first question will come from the line of Siti Panigrahi with Mizuho. Please go ahead.

Sasan, you've revised your Credit Karma growth forecast from a decline of 10% to 15% down to a decline of 15% to 10%. I would like to understand the assumptions behind this guidance for the remaining quarters of this fiscal year. How conservative is this estimate? Additionally, with the Karma guarantee expected to launch later this year, where might we see potential upside if the macro conditions remain stable?

Thank you for your question, Siti. We have considered the current trends we've observed towards the end of October and into November. Additionally, we have deliberately incorporated a higher level of conservatism due to potential deterioration in key metrics. Although delinquency rates and unemployment are currently at historically low levels, we anticipate a significant decline in these areas. This cautious approach is reflected in our forward guidance. We take great pride in our commitments as a company and aim to be prudent with our assumptions moving forward. I want to emphasize our focus on innovation that we discussed during Investor Day. In addition to the Karma Guarantee, we have launched a Marketplace that enhances personalized experiences for our members in regards to cards and personal loans. With the integration of Mint and Credit Karma, part of our refreshed Big Bet three vision, we expect to introduce new capabilities and innovations for our prime customers, which have not been a primary focus on the Credit Karma platform until now. We are committed to pursuing these innovations and do not expect them to influence the growth rates we discussed for this fiscal year, as we believe this is the appropriate approach.

That's a solid quarter for the small business segment, showing a 19% organic growth. Looking at your predictions for the next three quarters, you only need to achieve a 14% growth to meet your targets. You've already mentioned a price mix shift and have implemented price increases ranging from 10% to 25%. What insights do you have regarding the small business sector and what are your expectations for the remainder of the year?

We have good insight into consumer spending trends, particularly in charge volume. We can track changes in employment numbers, hours worked, and cash reserves. Our metrics cover acquisition, retention, payments, and payroll volume, and we also analyze data from Mailchimp. Overall, we’re witnessing a strong trend towards digitization. With our payment solutions, users receive faster payments, which is crucial in the current environment. Our payroll services help minimize errors and enable same-day fund transfers. Thanks to the innovations we've introduced in Mailchimp, we're seeing an uptick in customer growth. These examples illustrate the ongoing shift to digital solutions, which has been a strong point for us this past quarter. We anticipate this momentum will carry into the rest of the year. We remain confident in our guidance until we observe more quarterly results, but our positive outlook on small businesses remains intact.

Your next question will come from the line of Brad Sills with Bank of America Securities. Please go ahead.

Just a question on the reiterated operating income guide. You lowered top line by, it looks like, about $700 million, yet you're able to sustain your operating income guidance, which is impressive and it speaks to the flexibility in your model. Michelle, you alluded to some adjustments that were made, if you could just provide a little bit of color as to where those adjustments were made in the business?

Yes, Brad...

Sorry, Michelle, go ahead. I was going to ask who the question was for. But Michelle, please go ahead.

No worries. No worries. Thank you, Brad. Yes, it is one of the things that we feel very good about. As I talked about on a previous call, when we were going through our planning for this year, we were really looking at making sure we had identified areas that we could take action on, the levers we could pull if we did see the macro environment get worse. Those things look like marketing expenses, things that we just don't think are going to pay off in the near term; other areas like travel, discretionary spend. But we are protecting R&D and our innovation. And we are continuing to invest. Our investments and our head count continue to go up across the Company. And yes, Credit Karma, we have taken the revenue down with a revenue hit there. But when we look at really being able to manage our expenses, it is looking across the Company holistically and really focusing on the areas where we think we're not going to see as much return in the short term so that we can continue to focus longer term and drive the innovation.

Excellent. Sasan, I have a question for you. Last year, we noticed a slight decrease in TurboTax ASP growth. You mentioned this during the Analyst Day. It was 4% on paid ARPU compared to 8% in previous years. Could you provide more details on what happened there? Should we expect to see some acceleration moving forward? Now that you're gaining more experience with TT Live and full service, is it possible that we might actually see an increase in TurboTax ARPU?

Sure. Absolutely. I think the way to think about it is in the long term and from a trajectory perspective, we should see ARPU go up. And now every year, strategically, we make decisions in terms of where we may expand our free offering or where we may increase price based on the leverage that we see in the marketplace, which is primarily in our assisted offerings. And those were some of the adjustments that we made last year. And as we look into this year, we actually feel very good about our do-it-yourself platform lineup. And really, our biggest leverage is going to come from accelerating what we're seeing across the TurboTax Live platform, which is really where the growth is coming from. It's really where the ARPU comes from, and it's where our biggest opportunity is with a $20 billion TAM in front of us. And of course, overtime, opening up an additional $10 billion TAM with business taxes. So that was really the intent and the logic behind why ARPU was probably a little bit slower growth last year versus prior years. And I think the way to think about it is we're going to continue to see ARPU growth into the future, and a lot of it will come from the assisted segment. And that's really part of our plan that we're executing against this coming year.

Can you guys hear me?

Yes. Perfect.

Great. Sasan, you guys are always very transparent, great disclosure. And my question is maybe a little bit bigger picture. Can you talk about the opportunity to open up and externalize Intuit's platform services to third parties for developing their own apps with live expert functionality, rich data services, money movement perhaps, and the things that are making you so successful?

Yes. Absolutely. Great question. This was actually at Investor Day one of our, what we call Horizon 3 ideas that we have invested in, which is around externalizing services. So first and foremost, we do see a big problem space out there where developers and partners and firms look to access and have a need for things like around our virtual expert platform services to connect people to experts or how to use for our identity services and have a use for our fraud and risk capabilities. So there's a lot of services that we have across our platform that you heard Mariana talk about of which there is a need for those services externally. Now we want to be very choiceful and intentional what we choose to externalize and what we choose not to externalize and what problems we choose to solve and which ones we intentionally choose not to solve. But we do believe it as an opportunity, it's actually something that we funded about a little bit over 15 months ago, and we have a mission-based team that is working on it. And when we have more to share in terms of launches and anything that we think over time will be material for all of you to be aware, we'll be the first to share with you. But we do see it as an exciting Horizon 3 idea that's been funded and are excited about the prospects of it.

I wanted to ask about Mailchimp. Last quarter, you mentioned that you were working on adjusting your go-to-market strategy. This quarter, you seem more optimistic, and it appears that you're leveraging Mailchimp to target international markets more effectively. Can you share more about your efforts in this area, the progress you’ve made, and your current status in that journey?

I'm really excited about Rania joining our team and the leadership she is building. This leadership is driving accelerated innovation, and in the last three to four months, we have seen significant advancements in Mailchimp. We've launched a new brand campaign that clearly communicates how we can help SMBs grow their businesses, both on air and through digital assets. We also redesigned our website to clarify the benefits we offer and the options available, emphasizing how we can support business success. Additionally, we've revamped the first-time user experience and introduced a one-hour assisted onboarding process for larger and new Mailchimp customers to help them understand the platform's benefits. Regarding our international strategy, we are focusing on localizing language, which has already shown over 13 points of conversion improvement where localization has been implemented. This localized approach, along with our go-to-market playbook to raise awareness, is showing positive results in terms of customer growth and expansion revenue. Overall, we are optimistic about the momentum our leadership team is creating.

Congratulations on a great quarter. Sasan, your company is in a unique position as you can observe demand on both the front-office side and the back-office side of Mailchimp and QuickBooks. I'm curious if you could share any insights regarding the demand indicators from both perspectives. Are they showing similarities, or are there differences? Have you noticed anything new since you've gained insight into that other segment of your customers' operating ecosystem? There's a lot of discussion currently in the market regarding front-office and back-office demand, so I would appreciate any thoughts you could share on this topic.

Yes, Kirk. Let me provide a detailed response. Our customers, which consist of small businesses with up to 100 employees, typically do not differentiate much between back office and front office. They primarily seek a platform that helps them grow their business and manage their cash flow. Starting with our QuickBooks platform, it effectively manages all aspects of cash flow, including incoming and outgoing funds. The significance of digitization for our customers cannot be overstated, which is reflected in the growth we've recently reported. QuickBooks helps customers stay organized, expedites payment processing through our payment features, provides access to capital, and allows for instant money transfer via payroll services. For those working in the field, we offer time-tracking capabilities that automate processes. All these elements of digitization contribute positively to cash flow management, as QuickBooks also provides projections for cash flow. When we consider Mailchimp, it's crucial to remember that our focus is on smaller businesses rather than enterprise customers. These small businesses rely on effective customer outreach and management to grow their client base. The uptick in our performance is attributed to our innovation and effective execution, and I believe there's even greater potential ahead for Mailchimp. This service allows users to manage customer outreach and marketing efficiently, independent of the amount spent on advertising. While spending on advertising may face some decline, this does not affect Mailchimp, as it provides a platform to manage customer relationships regardless of advertising expenditures. Thus, we are witnessing strong demand for both Mailchimp and QuickBooks across our offerings.

Your next question will come from the line of Keith Weiss with Morgan Stanley. Please go ahead.

Next quarter in Q1, a key question from investors is about the outlook for risk assessment. I wanted to understand your thought process regarding Credit Karma. You mentioned that you observed trends at the end of the last quarter and expect them to decline slightly going forward to provide a cautious estimate for Credit Karma. Could you clarify why you didn’t adjust any of the other figures? Are all other business segments remaining consistent with your previous expectations? Is there any similar risk adjustment for QBO or Mailchimp, or are these businesses being assessed differently from Credit Karma?

Yes, thank you for your question, Keith. I want to acknowledge that you and others brought up our Credit Karma strategy at Investor Day. To start, I'll share what we've learned and how we've adjusted our approach, then I'll address your question. In examining our tax segment, which constitutes 35% of the company, alongside small business, which represents over 50%, we account for about 86% of the company’s operations. This includes Mailchimp, and we have reliable key performance indicators that help us forecast effectively. This allows us to ensure we are investing in the right areas and to guide with intent, as we take guidance very seriously. From our experience with Credit Karma, we identified two important factors that we hadn't fully considered: unemployment rates and delinquency rates. Although these rates are currently at historical lows, our learning has led us to adjust our KPIs by not only assessing current conditions but also projecting potential changes over the next year and how those could impact our partners. This adjustment is crucial, especially regarding our Credit Karma guidance, which we now believe is adequately derisked. As addressed by Michelle and myself, we have incorporated a degree of conservatism into our predictions for the latter half of the year, factoring in potential increases in both unemployment and delinquency rates, leading us to provide guidance that we consider to be low risk. Focusing on the small business sector, which represents 35% of the company and is economically resilient, we feel confident that our guidance remains low risk. Equipped with strong KPIs and rich data, we made certain assumptions about how things may develop for the remainder of the year when we set our initial guidance, and we remain optimistic about it. The results from Q1 validate our forecasts, allowing us to assess what it means for the rest of the year. We are confident in our guidance for these two businesses and believe it is well-founded. I hope my explanation regarding Credit Karma was clear.

Got it. Yes, that's very helpful. I have one clarification question. Regarding Mailchimp, it seems like the revenue was essentially flat, possibly down slightly sequentially. I'm assuming there was a currency impact. Is there a constant currency figure we could look at similar to the sequential numbers?

Yes, it is in constant currency. Michele, feel free to add your thoughts. I believe that when we examine our innovation, customer growth, and the expanding revenue we are experiencing, it aligns closely with our expectations. Much of our current innovation is accelerating our business growth. Previously, this business focused on cash flow and profitability, but now we are prioritizing growth. We are quite pleased with the positive effects we are starting to witness and anticipate that this acceleration will continue in the upcoming quarters. Michele, would you like to provide insights on the currency aspect?

Yes. The only thing I would clarify is that Mailchimp actually sold at U.S. dollars, and so there isn't a currency impact there for the international, even though 50% of their sales are outside the U.S.

Your next question will come from the line of Kash Rangan with Goldman Sachs. Please go ahead.

Congrats on the results. Sasan and Michelle, curious to get your perspective, we don't like recessions, but this is a recession, maybe it's a recession that we've all been anticipating. It's most widely anticipated one. So what are the assumptions that you have incorporated in your soon you're forecasting for the foreseeable future? I mean, is it an uptick in attrition or maybe the expansion rates come down a little bit? I'm just curious to get your thoughts on what you've dialed in with your current go around of trajectories. And also, Sasan, if you could talk about payments. You clearly demoed at the analyst event, very, very impressive. Clearly, it's got a lot of potential. What should we be expecting? What are you expecting in your payments business in the medium term to long term? What are your goals? Congrats.

Thank you for the question, Kash. Regarding your inquiry about assumptions, with respect to Credit Karma, I hope my earlier comments were clear. We are anticipating further challenges and a conservative approach for the remainder of the year. This is in light of expected increases in unemployment and worsening delinquency rates, which will likely lead financial institutions to be cautious with their investment levels, even though we are one of the last platforms they would consider pulling off. Those are the assumptions we've established for the rest of the fiscal year for Credit Karma. As for Small Business, much of the continued strength is due to the shift towards digitization among our existing customers. We have a significant number of customers using our platform, managing around $2 trillion in invoices, and we are processing well over $100 million in payments volume. This presents a substantial opportunity for us to deepen our engagement with our current user base. To address your question, we are not assuming an increase in payment volumes simply because we expect the macro environment to improve in the latter half of the year. We believe that the growth we are observing is primarily driven by the ongoing shift to digitization by our existing users. Our customer acquisition and attrition assumptions are reflective of how we view the future environment. While we don’t observe issues in our Small and Medium Business segment, we are maintaining a level of caution as we consider the rest of the year. Regarding tax, it remains economically resilient, and our assumptions are derived from our penetration in the assisted segment and the total volume of IRS returns. This too is economically resilient, guiding our outlook moving forward. In terms of payments, it's an area we are particularly enthusiastic about. If I had to highlight a few key focus areas, they would be Mailchimp, payments, and our efforts to expand in the QuickBooks Advanced and mid-market sectors. We have dedicated four to five years to enhance our fraud and risk management capabilities and AI technology, leading to rapid innovation within that team. There is enormous potential for digitizing B2B transactions, especially with regard to bill pay, and those opportunities are not yet factored into our future forecasts. We believe we have significant room for growth in this area, and we are confident that our best days are still ahead of us.

Sasan, I'm interested in Credit Karma and credit cards, which I believe account for about half of the revenue. Please correct me if that's changed, possibly increased due to personal loans. How are you viewing the credit card segment? What insights do you have on consumer behavior there? I understand this segment showed strength in the quarter compared to personal loans, home loans, auto loans, and auto insurance. Specifically regarding credit cards, is that segment strengthening, or is it showing a lesser decline? What are your observations from consumers in that area?

Yes, Scott. To begin with, as you mentioned, it's a significant part of the overall Credit Karma platform. I want to provide some context regarding the 129 million customers we serve on Credit Karma. Our primary focus has been on sub-prime and near-prime customers, which reflects in our personalized experiences for those groups. We are also excited about developing capabilities and innovations for prime customers, which was discussed at Investor Day. This shift includes integrating Mint with the Credit Karma platform. It's crucial to keep in mind that most of our business comes from sub-prime and near-prime customers. Looking ahead, we plan to expand our capabilities and innovation for prime customers as well, which puts us in a strong position in the market. As for growth, while we are currently seeing an increase in credit cards, we anticipate a decline for the remainder of the year due to rising unemployment and delinquency rates. We've built some conservatism into our projections moving forward, which will likely lead to a decrease in growth rates. In the first quarter, we achieved a growth rate of 2%, but the challenges in other areas were balanced out by credit cards, and we expect the situation to worsen over time.

Thank you for that. Regarding the tax aspect, the guidance for the second quarter appears to be the least risky, with earnings per share expected to decrease year-over-year, which is an unusual sequential change. It seems that Michelle is making some strategic adjustments, particularly in marketing and advertising, likely focusing on the small business sector. I'm also interested in whether you are approaching the tax situation differently this year, given the return to a more normal tax season, especially concerning the timing of your advertising and overall strategy.

Yes. Sure. I'm actually glad you asked about our second quarter guide of 8% to 9%. First of all, our momentum in Small Business continues into Q2. There are two elements that drive our guide of 8% to 9% revenue growth in second quarter. One is we always make assumptions for tax. As you know, tax is tricky between second quarter and third quarter. And we make assumptions around when the IRS will open, forms availability, and those assumptions drive what we assume will happen in our tax business. And in some cases, we have elements of our tax business that actually we've assumed may decline in the second quarter. So that drives our guidance overall at the Company level for Q2. And then Q2 generally has been seasonally the weakest quarter for Credit Karma because of the month of November, December and January and then just the number of holidays. It's seasonally the weakest quarter. So when you combine our assumptions with tax and you combine our assumptions with Credit Karma, that's where you get Q2 where it is. And hopefully, that answers your question.

This is Allan Verkhovski on for Alex Zukin. I think more people are warming up to your ability in hitting your SMB guide for the year despite the challenging macro. But I want to dig further into what you're seeing in the SMB segment today. Can you talk about what you saw around ARPC growth in the quarter, excluding the benefit you observed from the pricing increases that went into effect? It'd be helpful to get how much of a tailwind the pricing increase was in the quarter for QBO accounting and better understand the quarter how your growth levers, such as customer growth, upselling and cross-selling, were impacted from the macro, if at all?

Yes, definitely. Most of our guidance for the year, as well as what we experienced in Q1, primarily stemmed from customer growth and product mix, which includes offerings like QuickBooks Advanced. Additionally, our online services experienced a 28% growth, showing strong performance in Payroll, Payments, and Time Tracking, not including Mailchimp, which we'll discuss separately. In summary, we are experiencing the balance we aim for, with growth arising from customer expansion and product mix, while pricing plays a smaller yet significant role in both our Q1 performance and our expectations for the rest of the year.

Got it. And just as a quick follow-up, if I may. On the Mailchimp front, I want to follow up to Keith's earlier point around Mailchimp revenues being sequentially relatively flat. Could you share maybe something more about maybe conversion rates? Or just a follow-up on the acceleration comment you made through the full year, just anything that could give us more color for how we think about potential revenue growth of Mailchimp for the full year?

Yes, definitely. If we reflect on when we completed the deal nearly a year ago, we were clear about our enthusiasm for the asset and how, when integrated with QuickBooks, it could serve as a comprehensive growth platform for small businesses. One key aspect we emphasized was our focus on running the business for profitability and cash flow. Even during COVID, when many companies accelerated their front-office operations, Mailchimp maintained its focus on cash flow and profitability. Over the past year, we've worked diligently to implement a strategy to accelerate growth based on our outlined priorities. Transitioning from a focus on profitability to a growth-oriented business usually requires a couple of years, but we are witnessing a shift in trajectory within the first year, and we hold ourselves to high standards regarding the pace of change. Last year, our efforts involved transforming a business focused on profitability and cash flow by revamping the website, creating a new campaign, and improving the product. I should note that this overhaul is not complete; it's just the start. We aim to concentrate on high-value customers and expand into the mid-market while enhancing our international efforts. We've started to see positive signs—although revenue was flat sequentially last quarter, our conversion rate from free to paid customers has increased, and we are experiencing growth in our customer base as well as expansion revenue, indicating that existing customers are upgrading their services. These trends are promising indicators of future growth. Hence, as I mentioned earlier, we expect Mailchimp's growth to accelerate in the upcoming quarters, as we see improvements in key performance indicators related to customer growth and retention. I hope this clarifies your question.

Your final question will come from the line of Daniel Jester with BMO Capital Markets. Please go ahead.

Thanks for squeezing me in. Two quick ones. A lot of talk about the macro with regards to Credit Karma. I'd love to hear about how you're overlaying that macro on QuickBooks Capital and anything you might be doing differently there as the year progresses, given the uncertainty. And then secondarily, Sasan, you talked about some of the economic indicators you track for small business. Are you seeing consistency in the U.S. and international? Or is maybe one geography stronger than the other right now?

Yes, absolutely. Let me address your broader question about QuickBooks Capital. We have developed robust machine learning capabilities that allow us to evaluate customers' capacity on a daily basis. QuickBooks Capital is essential for our customers and while it doesn't significantly drive revenue for the company, it is a crucial part of our overall platform. I believe we have demonstrated our ability to adjust our offerings effectively, especially during the COVID period, by providing capital only to those we are confident can repay it. Generally, the loans we offer range from 30 days to six months, and there is a limit on all these loans. We feel positive about how the macro environment influences our QuickBooks Capital management, which has been validated during COVID. Regarding the second part of your question, I want to highlight that even within the U.S., certain sectors of small businesses have been significantly impacted. Our business is quite diversified across different small businesses. However, sectors such as auto sales, financial services, and real estate have seen revenue declines of 10% to 15%. Despite this, our overall results remain strong due to our diversification—no single sector significantly affects our overall performance. This observation holds true not just globally but also within the U.S., where some sectors are faring better than others. I would say the U.S. market has remained the strongest, followed by Canada, while the hardest hit regions have been the U.K., Australia, and France. We have not factored these conditions into our guidance but remain hopeful that these markets will recover over time, even though we have not yet seen evidence of that recovery. You're very welcome. And I think that was the last question. And so maybe I can bring us to close by saying thank you for all of your wonderful questions. And be safe, and we look forward to seeing all of you for our second quarter earnings results. Until then, be safe. Thank you, everybody. Bye-bye.

Ladies and gentlemen, this concludes today's conference. Thank you all for joining. You may now disconnect.