巴克莱-美股软件行业-夏季巴士之旅的收获

EquityResearch

14June2022

U.S.Software

SummerBusTourTakeaways

CORE

U.S.Software

POSITIVE

U.S.Software

RaimoLenschow,CFA

+12125262712

raimo.lenschow@

BCI,US

FrankSurace

+1212526-5143

frank.surace@

BCI,US

VinodSrinivasaraghavan,CFA

+12125268682

vinod.srinivasaraghavan@BCI,US

SheldonMcMeans

+12125261544

sheldon.mcmeans@BCI,US

JeremyHorowitz

+12125260416

jeremy.horowitz@

BCI,US

Thevendorsacknowledgedmacrouncertainties,butremained

optimisticaboutprospects.Partoftheconfidencewaslikelythe

missioncriticalareastheseplayersareaddressing(ESTC,DT

withsecurity/observability),butalsothattheysimplyhavenot

seenthatmuchofaheadwindyet,assoftwareisalate-cycle

sector.

WeappreciateyourconsiderationintheInstitutionalInvestorAll-America&All-CanadaResearch

Survey2022.Viewouranalysts.VoteforBarclays.

HighlightedConversations:

•ESTC(OW/POS,PT$80):WecameawaybullishafterElasticreiterateditslong-termtargets,includingCloudcomprisingatleast50%oftotalrevenueby4QFY24,totalrevenueof$2bnbyFY25,andseveralbasispointsofoperatingmarginexpansionafterFY23.Strongcustomeradoptionbackstheoutlook.CloudNRR>140%andrevenuegrowthremainsover70%andtractionfortheobservability(>40%acv)andsecurity(25%acv)usecasesremainsstrongandshouldremainso,evenduringchoppymacrotimes.

•INTU(OW/POS,PT$480):Ourconversationprovidedbothincrementalconfidenceontheresiliencyofthebusinessandthemomentumbrewinginkeybusinessareas.Thelackofanegativeeconomicimpactseenonthebusinesswasreiterated.SmallBusinessandCreditKarmawerecitedtohaveimprovedresiliencyfromthefinancialcrisisandthepandemic,respectively,duetoahighersubscriptionmixanddiversifiedrevenue.Lookingforward,commentaryaroundQBOAdvanced(customers+57%y/ylastyear),TurboTaxLive($1bnrunrategrowingcustomers+20%y/y),andCreditKarmaMoney(3xtheamountofusersdepositingtaxreturnsthisyear)pointedtotheplethoraofgrowthleversthebusinesshas.

•PATH(OW/POS,PT$25):UiPathcontinuestoseelargedealsmaturethroughthepipelineandwefeltbetteronPATH’scompetitivepositioningfollowingcommentarythatlargeentrantsinthespace,likeMicrosoft,areplayingmoreinthepersonalproductivitysideoftheenterpriseautomationusecases,andthatwinratesremainhealthy.Thenewhigh-profileexecutivehiresofRobEnslin(Co-CEO)andChrisWeber(ChiefBusinessOfficer)seemtobemakinganimmediateimpact,helpingdriveglobalizationinthedigitalsalesorgandwillhelpelevatethesalesconversationtotheC-level.

BarclaysCapitalInc.and/oroneofitsaffiliatesdoesandseekstodobusinesswithcompanies

coveredinitsresearchreports.Asaresult,investorsshouldbeawarethatthefirmmayhavea

conflictofinterestthatcouldaffecttheobjectivityofthisreport.Investorsshouldconsiderthis

reportasonlyasinglefactorinmakingtheirinvestmentdecision.

Pleaseseeanalystcertificationsandimportantdisclosuresbeginningonpage29.

Completed:14-Jun-22,01:08GMTReleased:14-Jun-22,04:10GMTRestricted-External

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Dynatrace(OW/POS,PT$45)

WehostedKevinBurns(CFO)forourdiscussion.

•Feelslikeaneternitysinceyoureportedhealthynumbersafewweeksago–whatwasthemainmessagethen?Overthepastfewquartersyoutalkedaboutyourambitiontoaccelerategrowthfurther–whatisdrivingthatdesire–afterallyouarewayaheadoftheRuleof40already?

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4Qwasstrong-highlights$995mnARR,adj.ARRgrowth35%-consistentw/priorFYaswell

P&Lfitability(oncashflowandopincomebasis)-operatingonRuleof60

Added20%newlogosy/y

NRRabove120%

Longrunwayinobservabilityandsecurity

•Macroisobviouslyoneveryone’smind–whatareyouseeingoutthere?Hasanythingchangedsinceyoulastreported?YouhavemorerevenueexposureinEuropethanothers–areyouseeinganenddemanddifferencebetweenEuropeandtherestoftheworld?

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MoreexposureinEurope,littleover50%ofbusinessinnon-USDandabigchunkinEuro,poundandalittleinAUD

Naturallyhedgedgenerally-largeR&DinfrastructureinEurope,actslikeanaturalhedge

Guidanceforyear-adj.ARRgrowthof29-30%

▪Thisisaprudentoutlook-lookedatcadenceofaddingreps,etc.

▪Didn’tseeanyleadingindicatorspointingtoaslowdown

▪Ontheflipside-lotsoftalkoninflation,etc.

▪Highendofguide-30%adj.ARRgrowth

▪Businessremainshealthy-movedtoaweeklyforecastingprocessfrommonthlyduringCOVID,wantedtobemoreinstrumentedinapproach

▪Solidlinearityandpipelineconversion,noslowdownindicators

▪Iftheysawit-theywouldexpectittomaterializeinnewlogosfirstandtheysawthisduringCOVIDassomepeopledidn’twanttoestablishnewrelationships;thishappenedforabout2months

Nogeographicdifferences,investingaroundthegrowthfromasalesstandpoint

•YoukeepdeliveringhealthyunderlyingARRgrowth,Ithinklastquarteritwas35%,canyouremindusofthecomponentsthatgetyouthisgrowth?

°Feelcomfortablewithgrowthframework-ARRisaleadingindicator

▪NewlogosandNRRbothcontribute

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•15-20%growthlandingat$120kARRandNRRatover120%getsyouto30%+growth

•Asbusinessgetslargerinscale,numberswillgettougher-theywillinvestmoreinpartners

°50%ofbusinessisoriginatedfrompartners-moreleadsrightnow

°Overtime70%ofnewbusinesscanbefrompartners-morepartner

generation

°Willgrowsalesorganizationby30%also

•Whatfactorsshouldweconsidertohavefastergrowthinthefuture?

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Marketisverylargeandhyperscalers’runrateis$150bngrowingat40%

IDCsaystherewillbehundredsofmillionsofnewappsandmanymorecloudnativeworkloads

20%ofappsmonitoredrightnow,wayunderpenetrated

GreatmarketplusDTplatformsuitedforenterprisedrivesopportunity

▪Makingtargetedinvestmentstoacceleratetop-linegrowth,announcedon3Qcall

▪Mid-30%adj.ARRgrowthand25%+operatingincomebusiness;theyaretakingmarginsdown200bpsshorttermtoaccelerategrowth4-6quartersout

•Ifyoulookatthetwosegmentyouwanttoinvestin,salescapacityandR&D,peoplewereprobablymoresurprisedontheR&Dfront–whatareyoudoingthere?

°R&Dasa%ofrevenuewillgofrom14%toabout15%ofrevenue,andthisgetsthem

backtowheretheywereacoupleyearsago

▪Investingin2areas:

•Logmodulethattheywillbringtomarketin3Q,thinkitcanhelpaccelerateARRgrowth

•Securityistheotherarea,seeothermodulescomingoutinsecuritybucket

▪ThirdofR&Ddedicatedtofutureproductinvestments

°R&DsetupforDTandlaborsetup

▪About1,200R&Dpeople;thisisathirdoftheorganization

▪MostofR&DinLintz,Barcelona,andotherareasinEasternEurope

▪Strongabilitytoattractandretaintalent

▪Financiallyitisattractive-ifDT’slaborbasewasinUS(Bayareaevenhigher),R&Dwouldbe30%ofrevenueinsteadof14%

▪GrowingR&Dorganization30%y/yeveninacompetitivelabormarket

°FXimpactfromanoperatingincomestandpoint

▪30-40bpsofFXimpact,butsomebenefitgivenalargepartofworkforceisinEurope

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°Cantheymaintainthisgrowthfigureandprofitabilitytargets?

▪Committedtomaintaining23%operatingmarginthisyearanditdoesn’ttakealottomakeadjustmentstoemployeegrowthrate-couldreducefrom30%toupperormid-20%in60to90sdaysifneeded

•Withthosesalescapacity,partnerandchannelinvestments–howdoyouseeyoursalescapacitycomparedtowhereyouwanttobe?

°3partnercategories

▪Smallerpercentage-masterpartners-operateingeographieswhereDTdoesn’thaveapresence;theyareinvestingandexpandingintonewcountries

▪GSI’sisthebiggerpiece-workwithFortune500clientstypicallytohelpwithcloudmigration,etc.

•TalkingtoDeloitteoverthelastcoupleofyearsand6monthsagodidanevaluationofobservabilityplayersandpickedDTastheirobservabilityGTMpartner

•Investingmoreinpartnersalesorganization-bothbringingaccountstoeachotherforjointGTM

•TrainingDeloitte’ssalesorganizationrightnowtoimproveDTplatformproficiency

•MorevisibilityintoobservabilitytooandcoulddriveotherGSI’stogetonboard

▪Additionalmuscleintothehyperscalers

•DTnativeonGCPandAzure2monthsagoanddevelopingrelationshipswiththeirsalesorganizations

▪Alloftheseinvestments-every$1inS&Mdelivered$1overnext4-6quartersbeforeandnowwillgouptomaybe$1.15perS&Mdollarinvested

°Deloittebenefits-howlongwillittake?

▪Adollarinvestedtodaywillgetareturnin4-6quartersrightnow

▪Thisshouldgoup-externalplanlooksconservative

•ROIfrominvestments

°Willmakeiteasier-canacceleratenewlogogrowthandnetexpansiongrowthin4-6

quarters

•HowmuchoftheseinvestmentsarejustnormalscalingandanextensionofthepreviousapproachvsaslightlydifferenttakefromthenewCEO?Wheredowegofromhere?

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Iftheirthesisiscorrect,operatingmarginwillgobackto25%inFY24

Iftheycando60-70%that’shelpedbypartners,S&Mspendismoreefficientandmarginswillgoabove25%marginrate

MadesomeinvestmentsandRickisheavilyinvolved-wasinDeloittepartnershipandisinvolvedinotherGSIdiscussions

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•ObservationsonRick[McConnell,CEO]?

°Doneagreatjobsofarandgotuptospeedin3-4months

°Bringsadifferentculturetoleadershipposition,moreaccountabilityacrossthe

organization

°Leaninginto2keyareas

▪Partnerprogramsaredoneproperly

▪Hittimelineonproductinnovation

°Rickhasmoreexperienceinscalability,mostofleadersatDThaven’tscaledabove$1-

2bnandhehasexperiencescalingabovethiswhileprofitable

•Thereareafewfast-growingcompetitorsaroundyou,haveyouseenachangeintermsofwhichcompetitorsareshowinguptodeals?EveryonethinksthisisahypercompetitivemarketwithDatadogetcbeingeverywhere–whodoyouseemostindeals?Talkaboutchangingcompetition?

°Norealchangeincompetitivelandscape-generally3competitors

▪DoitYourselfcompetitors-biggestcompetitoronenterpriselevel(notemphasizedonGartnerMQ)andtheyseethisthemostanddon’texpectachangeoverthenextcoupleofyears

▪DDOGisgrowingfasterbutthinktheywillbechallengedgoingintoenterprisespacegivenDT’sfocusonautomationandAI

•Marketisbigandpenetrationislow,and2vendorscandowell,canleadto35-40%growth

▪Otherplayersaretherebutthere’salotofmarketingobscuringwhatsomeofthemcanreallydo

•DTdoesPoCandthentheproductsellsitself

•Takes3-5yearstobuildatrueplatform

•Consumptionpricingvs.subscriptionSaaS-whatisDT’spricingvs.thecompetition?

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Yes,theythinkaboutthis

InCOVID,theysawtravelandhospitalityslowdownandinotherareasinvestmentsdidn’tslow

Pricingmodel-customerssignanannualcommitmentandtheycanmixandmatchproductstheywanttouseandcanmaximizeinvestments

▪Nooverages-0%ofrevenue

▪Iftrendlineisabovewhattheybought,theythrowoutoldcontractandputinabiggercontractinplace

•Talkalittleaboutperpetualrolloffheadwind,whereareweonthejourney?Whendoesitgoaway?

°Whentheysoldperpetuallicenses2-3yearsago,theyamortizeditoverathree-year

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period

°ThisbuiltupasapercentageofARR,andthispartquartersof$995mnARRtheyhad

onlyabout$14mnwasperpetual.Willgoto$7mnbyendofFY23.

°Nextyearwillburndownabout$8mnofARRfromperpetual

▪Abouta70-80bpsheadwindtogrowthandwilldeclineineachquarter(wasabout300bpsoverthelastyear)

▪Perpetualheadwindof300bpsinQ1,200bpsinQ2andthenlessthereafter

°Createdadeferredrevenueheadwindasthisburneddownandthisheadwindoncash

willturnintoatailwindgradually

•Assetpriceshavecomedownquiteabit-doesthischangetheteam’sthinkingaboutM&A?Seeninprivatemarket?

°Yes,they’veseenit

°CoulddomoreM&Ainsecurity-lookingatsmalltechtuck-ins°Privatecompaniesnotthereyet,couldtakeanotherquarterortwo

•AsaThomaBravocompanyyouwerealwayswellrunwithhealthymargin–thinkingaboutthegrowthvsmarginbalance–areyoustillhappywithwhereyouare?AnyideahowThomaBravothinksabouttheirstake?

°Forabout2yearspostIPO,theywouldselldownonaquarterlybasisinanorderly

fashion

▪DTdoesn’thavemuchadvancenotice

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Aboutayearago,theypausedthisdecision

DT’sprofileofgrowthandmarginexpansionisattractive,especiallyintoday’senvironment

•Onerelease-KubernetesObservabilitywasGA-howdowethinkaboutit?

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Re-platformedbusinessgivenworldisgoingtosmallerandmoredynamicappsthat

canscalemuchfasterandDT2.0couldn’thandleit

Next-genplatformisequippedforcontainers,etc.

Salesorganizationgoesaftermostcomplexappatapotentialcustomerandiftheyaresuccessfulthere,therestoftheprocessiseasier

•Kevin’sdecisiontomoveonjustwhengrowthseemstobepickingup?

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Believeinlong-termgrowthofthebusinessandcanseethepathto$2bn

Neveragreattimeforanexecdeparture,hehasbeenworkingfor30yearandatDTfor6yearsandhiskidsare10and12

Onboardthroughendoftheyearandcanstaylongeriftherightcandidateisn’tonboardyet

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Elastic(OW/POS,PT$80)

WehostedJaneshMoorjani(CFO)forourdiscussion.

•YourecentlyreportedhealthyQ4results,togeteveryoneonthesamepage–whatwerethehighlightsforyou?

°Beyondthestrongprint,they’dhighlight:

▪Cloudmomentum(NRR>140%,accelerationtomixtocloud,moretractionwithpartners-2xy/yinrevenue)andachievingescapevelocity

▪Strongexecution-cameinaheadofexpectations-didwhattheysaidtheywould

▪OperatingprofitbreakeventhisyearafterFCFbreakevenlastyear,showingprogressonlongtermobjectives

•Thelargestsurpriseformostinvestorswerethenewlongtermtargets–couldyoupleaseremindmeofthemandwhatdroveyourconfidencehere?

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Cloudwillexceed50%ofrevenuein4QFY24-earlierthanpriorexpectations-and$2bnofrevenueinFY25

AcceleratingoperatingmarginsafterFY23

Whynow?

▪Investorswantedaframeworkonlong-termgrowthpotential,andinthepast,theydidn’tdothisb/ctheywereayoungerpubliccompany

▪Ash[Kulkarni]steppedintotheCEOroleinJanuary,andintheinitialcallinFeb,helaidoutbroadopportunisticcolorbutnowthathe’dbeenintheseatfor5months,managementwantedtoprovideamoregranularview

▪NewFY-naturaltimeputouttargetsConfidencedrivers

▪Strengthofsolutionsandreceptionfromcustomers

▪Securityandobservabilitynowtwo-thirdsofthebusiness

▪Largeneedforsolutions-cyberthreats,appsandinfrastructureneedtobeobserved

▪Nosignsofmacroslowdown,andtheseareasareresilienteveninatoughmacro

▪37%ofthebusinessiscloudandisgrowingover70%y/y

•Thebiggestquestionforinvestorsatthemomentisaroundmacro–youhavemoreEuropeexposure–whatareyouseeing?Howdoesproductevolutionplayin?

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EnteredsecuritybusinessoncecustomersstartedtouseElasticsearchasaSIEMbeforetheyactuallyhadaSIEMproduct

NotalotofwastedR&Ddollarsascustomerdemandwasthere

AcquiredEndgameinlate2019

Morerecently,acquiredbuildsecurityandcmd,andlaunchedElasticCloudforSecurity

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basedonthis

Monetizationmodel-resourcebased,allaboutthedatacomingin

Verydiversifiedbusiness,inQ4sawstrengthindealflowinallpartsofEurope,andRussia/Belarus/Ukraineexposureisveryminimal

Fromaglobalperspective,SMBwasastrongersegmentforESTC

▪Indicatorslikefunnelcreation,pipeline,etc.alllookedgood

•Howwouldyouseeyoursolutionintermsofimportanceforclients–maybetherearedifferencesbetweenbackofficeplayerslikeWorkdayandguysthattrytomakesureallthemission-criticalsystemsarerunningcorrectlylikeyours–couldyouspeaktothatplease?

•Youtalkedmoreaboutobservabilityandsecurityintermsoforderentry–couldyouremindusofthenumbershere?

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Initiallytalkedaboutlogging,butnowover2kcustomerusingESTCforAPMinthecloud

Strongindustryrecognition-APMforMQ2022-andESTCinthevisionaryquadrant;thisawarenessdidn’texistbefore

•Especiallysecurityseemsveryhigh–wasthataone-quartereventorareweseeingapermanentbigshifthere?

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AtthetimeoftheIPOin2018,talkedaboutloggingandsearchusecasesbutovertimeobservabilityandsecurityincreased

Observabilitymorethan40%ofbusiness

SecuritywasnascentatIPOtime,acquiredEndgameinlate2019,andnowis25%ofbusiness(ACV)

▪LotsofprogressinSIEMandultimately,searchcanbeusedtoaddressdataproblem

▪ESTCUnifiedAgentGAlastyearmakesiteasyforcustomers

•YoualmostmovedintotheleaderquadrantinthelatestGartnerMQforAPM,couldyouspeaktotheevolutionofyourobservabilityproductinrecentquarters,itseemsnowmorecomprehensive?Whatchanged?

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Nothingmeaningfullydifferentonengineeringside

WhenAshwasChiefProductOfficer,theycombinedstackandcloudteamintoasingleplatformtheme

▪Had2teamsbeforethat,andthischangehelpedthemputcloudfirst

Coreobservabilityusecases-ofthetop6usecases,in5,ESTCisoneofthetopvendors

•Withyourbroadeningproductportfolio–doyouseeadifferentcompetitivefield–aretheredifferentplayersthatyouarerunninginto?

°Willcontinuetoevolve,andwhattheyseeistheusualobservabilityandsecurityplayers°Deetohistoricalbottom-upmodel,inmanycases,theproductdrivesnewlogoadds

•Whatrolldoesthecloudplayhereintermsofmakingiteasiertodevelopsolutionsand

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gettingtractionwithnewsolutions?

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Cloudplaysasignificantrole,newworkloadsarestartingonthecloud

Existingworkloadsareonpremandsomestaybutsomemovetoo

RevenueinFY22-overhalfoftheincrementalnewdollarscamefromcloudvs.FY21

▪Fullymanagedservice,soit’seasytogetstartedonthecloud

•Whatotherfactorsshouldinvestorsconsiderwhenwearethinkingaboutthegreatershareofcloudinyourmodelintermsofsalesmotion,revenuerecognitionetc?

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AfterAshstarted,theyarefocusingmoreoncloud,andtheyintentionallyleadevenmorewithcloudmore

Inthepast,theydidn’tdifferentiatebetweenself-managedandclouddealsbutnowcompisbiasedtowardsthecloud

Offeredaconsumptionmodelsometimeago,andvastmajorityintermsofmonthlyservicemotionandannualcontracts(burnsdownbasedonusage)

•HowdoyouthinkaboutESTC’sconsumptionmodelvs.SNOW,howstickyisit?°FundamentallytheconsumptionmodelisbetterforcustomerandESTC

°Drawdistinctionbetweentypesofusecases-securityandobservabilityarevery

resilientandcustomersdon’tcutspendinghere(hackersdon’tstopinabadmacroenvironmentandthisisreallyjustincreasing)

▪Easiertoputoffspendingongeneralpurposetoolsusedfornon-missioncriticalusecases

▪Evenwithenterprisesearch,ifESTCpowersmission-criticalwebapps,youdon’tturnitoff

°Didn’tseesignsofaslowdowninQ4astheylaidoutplanforFY23

•WehaveverydetailedcustomermetricsnumbersfromyouandlookingatQ4wecanseetheongoingtrendofveryhealthygrowthatlargerclientsandmoremoderategrowthonthelowend–isthatallpartofthebiggerplan?

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Profitablegrowthlongtermbutasayoungercompany,wouldtryandgetbusinessfromallchannels-notthecaseanymore

Betterqualifyingleadsastheycomeinandtryingtodeterminewhocouldspendmoreovertime

▪Driveshighertotalconsumptionrevenue

Added800to1knetnewcustomers,andinQ4,onlyadded700

▪Thisisintentional,focusingonhighervaluecustomerslongtermCustomersgrowingover>$10kinARRisstrongerthanit’sbeeninsometimeBestmetrictolookatisrevenue

•Ashisnottoolonginhisnewrolebutareyouseeinganychangesalready?Other

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observations?

°GreattohaveAshstepin-hehadbeenChiefProductOfficerforafullyear-lotsof

what’sbeingdoneisacontinuationofpriorstrategyoffocusingonthecloud

°Shay[Banon]isveryinvolvedasCTO,andtalksabouttheroadmaptointernalteams°Focusisondrivingthe3solutions,cloudandreaching$2bninrevenue

•Lookingatthecloud-canyoutalkaboutaclassiccloudtransition-orisitmorefocusedonnewworkloads?

°Notasubstitutionstory,theyareseeingstrongnetnewworkloads°Customerexpandingspending

°Self-managed-dataprivacy,localization,etc.arereasonstochoosethissolution

•Isthereanupliftifanon-premcustomerswitchestothecloud?

°Yes-cloudNRRishigher

°Monetizemoreinthecloud-theyhavehostingandmanagementcosts-anditisalso

easiertoscale(don’tneedtoprovisionmoreservers,gothroughlongbudgetprocess,etc.)

•Hyperscalers-howistherelationship,especiallywithAWSandhowisitevolving?

°Relationshipshavebeenfantastic

°BettertechnicalintegrationsandGTMmotions-thinkitisawin-winrelationship

°ForESTCandAWS-wantedtoremovenoiseinthemarket-therewasconfusioninthe

marketbefore.YouseethisinthedatabaseworldacrossAWSproducts

°Moreexecutivealignment-CEOofAWStweetedandputonLNKDprofilehowstrong

partnershipwithElasticis

•MDBlaunchedAtlasSearch-isESTCworriedaboutthis?

°No.MDBhadtalkedaboutSearchforoverayear.Fundamentally,everydatabasehas

somesearchcapabilitiesbutotherdatabasesaren’tgreatforspecializedusecaseswheresearchisanessentialelement

•Securityandobservability-howquickarethesesegmentsgrowing?

°Securitygrewfromalmostnothingto25%ofbusiness...soit’sgrowingfasterthan

observability

°LoggingwasaboutathirdofthebusinessatIPOandnowobservabilityisover40%

•Thinkingaboutguidance-movingawayfrombillingsandrevenueisbackwardslooking,whynotdiscloseanARRnumber?

°Mostusefulmetricisthetruerateofgrowthinthebusiness,especiallysince

consumptionmakesupamuchlargerportionofthebusiness

°Revenueeliminatesshortcomingsofbillings(nodurationadjustmentetc.)

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°ForARR-ifthereareoutliersforconsumption-itcouldbemorevolatileandnotreflect

directionofthebusiness

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Intuit(OW/POS,PT$480)

WehostedMichelleClatterbuck(CFO)forourdiscussion.

•Couldyouprovidearecapofyourrecentresults?

°Seeingstronggrowthallaround

▪Smallbusinessgrew~20%ex.Mailchimp

▪CreditKarmawasstrongagain

•IRSreturnsweredownoverall,butthetaxteamexecutedverywell(andexpectARPRtoincreaseagain)

°Notseeinghugeevidenceofamacroslowdown

•Couldyouwalkusthroughhowtothinkaboutthetaxseason?

°TotalIRSreturnsshouldbedown3%versusthelasttwoseasonswhereIRSreturnsgrew

afewptseachyear

▪Thisislikelyduetoone-timefilersseekingstimulusbenefits

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Extensionsareanothersurprise

▪Expectthemtoalmostdoubley/yonTurboTax

Estimatedthat30%ofthefilerslostthisyearwerepaidcustomers

▪Cameinandfiledjustforstimuluspayments(thesewerenotallfreecustomers)EverypointofIRSreturnsgrowthis~1ptofTurboTaxgrowth

DIYisexpectedtobeflatagainstaveragecategorygrowthof1ptayear(stimulusfilers)

•Hastherebeenanychangetothecompetitiveenvironmentintax?

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Itisaverystickybusinessandhavecompetedagainstfreeofferings(likeCreditKarmataxpre-acquisition)foryears

Don’texpecttheoverallenvironmenttochangemuch

Willfocusonleveragingexpertstomaximizerefunds

•HowhasthetrendbeenonTurboTaxlive?

°Verypleasedwithboththescaleandthegrowth

▪Expectittobe$1bnthisyeargrowingcustomersnorthof20%

°Learnedthatcustomerscaremostaboutspeedtooutco