直覺電腦 (INTU) 2010 Q4 法說會逐字稿

Good afternoon.

My name is Patty, and I will be your conference facilitator.

At this time, I would like to welcome everyone to the Intuit fourth quarter and fiscal year 2010 conference call.

All lines have been placed on mute to prevent any background noise.

After the speakers' remarks, there will be a question-and-answer period.

(Operator Instructions) With that, I'll now turn the call over to Matt Rhodes, Intuit's Director of Investor Relations.

Mr.

Rhodes?

Thanks, Patty.

Good afternoon and welcome to Intuit's fourth quarter and fiscal year 2010 conference call.

I'm here with Brad Smith, our President and CEO, Neil Williams, our CFO, Scott Cook, our Founder, and Jerry Natoli, VP of Finance.

Before we get started, 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 2009, and our 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 this report are presented on a non-GAAP basis.

We've reconciled the comparable GAAP and non-GAAP numbers.

Note also our Real Estate Solutions business which we sold in January 2010 is accounted for as discontinued operations.

The net operating results of this business appear on the discontinued operations line.

These results are excluded from the operational results, operational guidance figures, and non-GAAP EPS for all periods presented.

GAAP EPS includes the gain on the sale of our Real Estate Solutions business.

A copy of our prepared remarks and supplemental financial information will be available on our website after this call ends.

With that, I will turn the call over to Brad Smith.

Thanks, Matt.

Welcome to the speaking team.

I want to thank all of you for joining us this afternoon as well.

We just completed another strong quarter and it capped off a great fiscal year.

Our results continue to demonstrate that our strategy is working and our execution is on track.

In fiscal 2010, we delivered 11% revenue growth and 16% non-GAAP EPS growth, in what remains a challenging macro environment.

We expanded our non-GAAP operating margin by 190 basis points, and for the first time generated more than $1 billion in annual non-GAAP operating income.

We're pleased with our financial performance, and we've built positive momentum as we're heading into fiscal 2011.

Let me begin by sharing my perspective on the fourth quarter and the fiscal year.

Over the past several years, we've been on a journey to become a world class connected services Company.

We've made significant progress in many areas, but there have been some bumps along the way.

Some of our customers were affected by data center outages in the past two months.

These outages are simply not acceptable for a Company of our caliber and our ambitions.

They inconvenienced our customers and frankly, they embarrassed Intuit and my leadership team.

We take this very seriously and we have taken great strides to support our customers, regain their trust, and make them whole for the downtime.

While the financial impact to Intuit is immaterial, the potential impact on customer confidence is not.

We've learned from these outages and the work to restore customer confidence continues.

But I don't want us to lose sight of an important fact.

Intuit has been delivering connected services for many, many years.

And we know what it takes to deliver highly available and robust online solutions.

Our Online Banking business and our tax e-filing capabilities are already highly available, and we're working to get all of our applications up to the standards our customers expect and deserve.

Look, we know what to do.

We know how to do it.

We simply need to get it done.

And we will.

Now let me turn to our financial performance.

As I said earlier, the results we're sharing today demonstrate excellent execution against our three-point strategy which is first, driving growth in our core businesses, second, building adjacent businesses and entering new geographies, and third, accelerating our transition to connected services.

Here are some highlights each of the areas.

First, in driving growth in our core businesses.

We had an excellent year in Consumer Tax.

We continued to grow the software and online category and we improved our share for both TurboTax Desktop and TurboTax Online.

We're winning by delivering superior ease of use at a better value than any other alternative.

Our leadership position in the digital do-it-yourself category is in the sweet spot for future tax preparation growth.

Now with that said, we have plenty of things we can do to take our game to the next level.

We'll provide more insights into what we learned this past tax season and about the specific actions we're putting in place for the upcoming tax year at our Investor Day in September.

So let me say this.

We expect another strong year in fiscal year 2011.

In Small Business, we delivered double-digit revenue growth in the back half of fiscal 2010 and revenue growth of 9% for the full year.

New QuickBooks customers grew double digit year-over-year in fiscal 2010.

And we continue to acquire new customers through the new front doors like online payroll, payments, and websites.

Hey, and we're also growing revenue per customer in QuickBooks.

In our Financial Services business, we grew our user base and we have continued to build momentum.

In the fourth quarter, we completed the conversion of one of the largest financial institutions that we've ever signed and we're pleased with the continued growth of our core business.

The second focused area of our strategy, building adjacent businesses and entering new geographies, is also building up steam.

The Intuit website's customer base grew 80% in the fourth quarter.

We now have over 320,000 paying subscribers.

We're also acquiring new customers at a lower cost than expected.

This reflects improved yield from our marketing efforts.

And we're doing this while producing great results for the small businesses that we're serving, by helping them develop a professional and productive online presence.

The integration of Medfusion, that's the healthcare communications portal we acquired in May, is in full swing, and we're adding new providers at a healthy clip.

The Medfusion leadership team is now responsible for our newly formed Intuit health business which is headquartered in the research triangle in Cary, North Carolina.

This is a great business and it's already been growing fast due to the increasing adoption of electronic health records.

We believe performance will only accelerate as a result of the recently finalized federal guidelines that sought to define the qualifications for meaningful use of electronic health records.

And it actually reinforces the importance of providers offering a patient portal like Medfusion in order to qualify for these stimulus funds.

We're really excited about the potential for this business and the potential it has to not only expand but also the cross-sell opportunities that it will offer going forward.

But we have work to do to make it a reality.

And on our global efforts front, we remain on track and we're seeing good growth in our Canada and UK businesses.

We're also continuing to see positive progress with our products and our tests in the emerging markets.

Finally, the third part of our strategy is accelerating the transition to connected services.

We continue to benefit from the secular market shift towards the adoption of digital services.

Today Intuit is providing connected services to millions of customers.

One million of our small business customers use our recurring revenue products.

More than 13 million TurboTax Online customers and close to 10 million Online Banking customers also use our connected services.

In fiscal year 2010, roughly 60% of our revenue came from connected services, and that revenue grew 18% versus the prior year.

The growth is being driven by outstanding customer acceptance across the board.

Here's a few examples.

QuickBooks Online, where we now have over 200,000 subscribers is up 37% from last year.

TurboTax Online, as you know, the units increased 19% this year and now represent 70% of our total Consumer Tax units.

And Mint.com more than doubled its user base in fiscal year 2010 to over three million users.

And they recently introduced a new exciting feature that will help users achieve their personal savings goals.

As you can tell, I'm pretty encouraged by how well we're executing our connected services strategy, but I'm also proud of the way our leaders and our teams have come together to ensure that we're delivering great solutions and value to our customers.

Now let me turn it over to Neil to walk you through our business results and the fiscal 2011 guidance in more detail.

Thanks, Brad.

Let's start with total Company performance for fiscal year 2010.

Our financial results were revenue of $3.5 billion, up 11% on a year-over-year basis.

On an organic basis, our revenue growth was 10%.

Non-GAAP operating income of $1.1 billion, up 18% and non-GAAP diluted EPS of $2.11, up 16%.

GAAP operating income of $863 million, 26% above last year, and GAAP diluted earnings per share of $1.77, up 31%.

Growth in our GAAP earnings is higher than non-GAAP because amortization of acquired intangible assets and non-cash stock compensation, which are classified as GAAP only, are growing slower than revenue.

GAAP net income and EPS also benefited from the $35 million gain on the sale of our Real Estate Solutions business in January of 2010.

Fourth quarter results were revenue of $537 million, up 18% year-over-year.

Our non-GAAP operating expenses grew only 7% so we generated significant operating leverage in the quarter, which led to a non-GAAP operating loss of $9 million, versus a loss of $53 million in the prior year.

Non-GAAP loss of $0.05 per share versus a loss of $0.10 per share in the same quarter last year.

Turning to the business segments, total Small Business group revenue grew 9% for the year and 16% for the quarter.

Within Small Business, Financial Management Solutions revenue grew 6% for the year and 18% for the quarter, finishing strong on solid growth and QuickBooks and websites.

We continue to see strong demand for QuickBooks Online, and we grew QuickBooks Desktop revenue despite units being down slightly.

Employee Management Solutions revenue grew 15% for the year and 25% for the quarter.

Without pay cycle, the Employee Management revenue would have grown 6% for the year and 15% for the quarter.

Our customer base grew 1% for the year to more than 1.1 million customers.

We're pleased with the continued strong performance of this business, particularly the online portion.

We're implementing initiatives to grow the total customer base faster in fiscal 2011, and we'll talk more about these plans at Investor Day in September.

Payment Solutions revenue grew 8% for the year and 5% for the quarter.

Charge volume per merchant was down 3% this quarter and down four points sequentially which explains why growth slowed a bit in the third quarter.

We find that charge volume per merchant is highly correlated with GDP growth which has slowed recently, as you know.

We continue to add merchants at a double-digit rate and grew merchant account customers by 17% in fiscal 2010.

We'll be well positioned when charge volume picks up.

Our Consumer Tax business had an excellent year.

We executed well and took share online and from tax stores in a season where filers were down for the second consecutive year.

I would like to point out a change we made that affects our reported results beginning this quarter.

In the first three quarters of fiscal 2010, we reported the revenue for TurboTax for Online Banking and our Financial Services segment.

We've decided it's clearer to include that revenue with the rest of Consumer Tax even though it's enabled by the financial services channel.

The fact sheet we published today reflects this change.

It shows that we've reclassified approximately $2 million of revenue from Financial Services to Consumer Tax in the second quarter of fiscal 2010 and $9 million of revenue in the third quarter.

As a result, the second and third quarters of FY 2010 are different than we originally reported, including this reclassification, Consumer Tax revenue grew 15% for the year.

Unit growth is not affected by this change and was 11%.

Accounting Professional segment grew 6% for the year.

The tax season was in line with our expectations and we're focused on improving our accountants' productivity and growth with our tax and accounting flagship products and our new SaaS-based offerings.

Prior to the reclassification mentioned above, Financial Services revenue grew 10% for the year.

With the reclassification of TurboTax for Online Banking, Financial Services grew 7% for the year and 4% for the quarter.

The core financial services business is healthy.

We grew Internet banking users 9% for the year and bill pay users grew 18%, partially offsetting some of the pricing pressure we've seen.

We continue to deliver for our financial services customers and are focused on helping those who use our solutions improve their profit per customer.

We're seeing good adoption of FinanceWorks with more than 550 institutions offering our personal and small business financial management offerings.

One final note on this segment.

We sold our consumer lending business this quarter, which will take approximately two points of growth out of Financial Services revenue growth in fiscal 2011.

Other businesses revenue grew 22% for the year and 46% for the quarter.

Quicken had an excellent year with double-digit revenue growth.

Mint also continued to grow its customers base rapidly and added innovative new features.

We had a good year in Canada and the UK and our other businesses revenue growth benefited from favorable currency impacts of nearly seven points of growth for the year and approximately four points for the fourth quarter.

Turning to our balance sheet, sound financial principles support our strategies and objectives enabling disciplined and thoughtful investment for growth.

Over the long term we expect double-digit organic revenue growth and revenue growth that exceeds expense growth at the total Company level.

We generated free cash flow of $868 million in fiscal 2010, up 38% year-over-year.

We expect to carry about $500 million of cash on our balance sheet net of total debt.

This cash balance could vary up or down during the year depending on seasonality and expected cash flow needs.

We always seek to deploy the cash we generate to the highest yield opportunities, and we target risk suggested returns of 15% to 20%.

We evaluate the investment opportunities within our capital allocation framework.

We first look internally for growth investments, which may include R&D, marketing, and infrastructure.

We then consider strategic acquisitions and partnerships and beyond that, we'll return cash to shareholders, typically in the form of a share repurchase.

We repurchased $150 million in shares in the fourth quarter bringing total repurchases to $900 million for fiscal 2010.

Our Board approved a new $2 billion stock repurchase program that's valid for three years.

As you can see from the share count guidance on the fact sheet, we're planning to use about half of that authorization in fiscal 2011.

Now, moving on to our guidance.

Our projections reflect confidence in our current business trajectory but our ranges acknowledge the ongoing uncertainty in the economy.

Our businesses are resilient and finished a mixed economic year on a very high note.

But we, like many other companies in the current environment, aren't seeing all indicators flashing green just yet.

Our fiscal 2011 guidance is -- revenue of $3.74 billion to $3.84 billion which is annual growth of 8% to 11%, GAAP operating income of $980 million to $1.015 billion, which is annual growth of 14% to 18%.

GAAP diluted EPS of $1.88 to $1.95, or growth of 6% to 10%.

Note here that the GAAP EPS growth rates are about seven points higher when the gain from the sale of discontinued operations is excluded from the FY 2010 GAAP results.

Non-GAAP operating income of $1.215 billion to $1.25 billion, which is annual growth of 11% to 14%, non-GAAP diluted EPS of $2.36 to $2.43, which is annual growth of 12% to 15%, and capital expenditures of about $160 million.

Our GAAP tax rate for 2011 is forecasted to be 36% versus 34% in fiscal 2010.

We expect the following revenue growth by segment -- Small Business group, 8% to 12%, Consumer Tax 10% to 13%, Accounting Professionals 4% to 7%, Financial Services 4% to 7%, and Other Businesses, 11% to 16%.

For the first quarter of fiscal 2011 we expect revenue of $515 million to $525 million, or growth of 9% to 11% versus the year-ago quarter.

A non-GAAP operating loss of $50 million to $60 million versus a loss of $40 million in the year-ago quarter.

This translates to a net loss per share of $0.11 to $0.13, versus a loss of $0.10 per share a year ago.

A GAAP operating loss of $100 million to $110 million.

That translates to a net loss per share of $0.23 to $0.25, versus a loss of $0.21 per share in the year-ago quarter.

Note that the increased loss is primarily driven by the inclusion of Medfusion and Mint in the expected Q1 2011 results.

With that I will turn the call back over to Brad.

Thanks, Neil.

That was a lot to cover and you did a nice job.

We're clearly pleased with our financial performance in fiscal year 2010 and we remain very confident in our strategy and the momentum we've built as we head into fiscal year 2011.

As we showed in this past year, we're growing our categories, increasing our share, we're accelerating our customer growth and we're improving our revenue per customer all while delivering good top line and bottom line performance.

We believe we have a clear strategy.

We have strong market positions and the right talent to continue to accelerate these results as we look ahead.

While doing this, we're redoubling our focus on our connected services execution and addressing any process and technology issues with decisive action and support for our customers.

The next phase of growth for Intuit is being driven by this clear market shift to digital, or what we call, connected services.

Intuit is perfectly positioned for this shift, and as you can see, we are making strong progress in building the next phase of this Company's growth on our market leading software as a service offerings.

The outlook we have provided today represents year one of our three-year plan.

While we're not giving specific guidance beyond fiscal 2011 today, I will tell you that our three-year plan calls for steady acceleration of revenue growth and ongoing margin expansion.

And I don't make this statement lightly.

My management team and I believe in our three-year plan.

In fact, our executive compensation is set so a significant portion of our long-term comp is dependent on us achieving our three-year plan.

We believe the goals of Intuit's management and our shareholders have never been better aligned, and we look forward to executing against our plan and continuing to create long-term value.

I'm also looking forward to seeing everyone at our Investor Day on September 22 at our Mountain View headquarters where we'll share more details around our businesses.

But for now, Patty, I'd like to turn it back to you to open it up for questions.

Thank you.

(Operator Instructions) Our first question comes from Heather Bellini of ISI Group.

Hi guys, this is Brian [Baytosh] on for Heather Bellini.

Looking at your fiscal 2011 guidance for the SMB segment, that's come in a little better than one might have expected given the -- I guess, the uncertainties crept back into that general segment of the economy.

Can you talk about where you are seeing improved market conditions there that gives you confidence in that guidance?

Yes, Brian, hi, it's Brad.

I would first say the uncertainty in the market hasn't changed but our ability to execute and the reality that small businesses need the products and services that we provide remains consistent.

So if you saw this year, it was a pretty tough year for small businesses, yet we were able to grow our Small Business franchise, whether it was the QuickBooks, financial management solutions, or Payroll and Payments, at a healthy clip.

So we think we have a good product, and it is going to be even better with this year's release.

We're getting favorable improvement in our ASP and our mix, and we're also being wiser about our resource allocation and you put together, we think we can execute even in a tough environment to deliver the guidance that we have put out there.

Great, thank you.

Thank you.

Our next question comes from Adam Holt of Morgan Stanley.

Great, thank you and congratulations on the quarter and the year-end.

Thanks Adam.

I had two questions about the Financial Management solutions.

As you noted in your comments you had pretty good -- or much better revenue growth in the quarter relative to unit growth.

Could you talk a little bit about what's happening with ASPs and what you think the outlook is there?

And then, secondly, it sounds like you had double-digit new customer growth in QuickBooks.

Do you think that is sustainable into next year?

What -- how should we be think about new customer growth heading into next year?

Thanks, Adam.

Great question.

Two parts here.

I'll start with the [FMS] ASP.

What's driving the average selling price up in QuickBooks, as you know we solve for lifetime value, but we are seeing benefits in two areas.

We've gotten much smarter about our discounting in a slow economy, and we're now using more of a rifle approach than a shotgun approach.

We're able to get the units that we're looking to get but we're also able to build more value into the product and customers are willing to pay for that value.

The other part is we're getting favorable mix.

There are parts of the QuickBooks product line, particularly QuickBooks Online and QuickBooks Enterprise which are growing at very strong double-digit unit growth rate and they carry with them higher ASPs.

And so that's what's driving the overall ASP favorability in QuickBooks and we think that will continue into fiscal year 2011.

In terms of the new user growth, as you know, we typically get about two-thirds of our units from upgraders and one-third from new users.

Our upgraders were pretty much on track as we had planned for this year but we've seen double-digit new user growth and it's primarily for two reasons.

QuickBooks Online is doing an excellent job of getting new customers into the franchise and so that's driving new user growth.

And then the other piece is we're opening new front doors into the franchise through our Intuit website, and so they're actually coming into Intuit's family through the website, then buying other products and services.

So it's a combination of those two things that are growing the new user growth.

If I could just ask a quick follow-up on the FI business, it looked like you had really good sequential improvement in both bill pay and internet banking but revenue was flat sequentially.

I know there was some puts and takes there on maybe a restatement, but I just want to make sure I understand.

That just a lag effect in terms of how that should flow through?

Is there anything else that impacted that sequential revenue in the quarter?

Thank you.

Yes, there are a couple of moving parts there and I'll ask Neil to jump in on this as well.

One, as you know, we did reclass some of the revenue so you've got that Turbo Tax Online Banking from Q3 to Q4 that gives you the optic of a slow down.

The second thing you have is we have sold our lending business, and that equates to a couple points of growth.

The other thing is last year in Q4 we had some one-time good [guides] in the form of termination fees or some minimum guarantees we have as partners that we had to grow over so the year-over-year compare looks like it's a little weaker than the actual core business is.

We continue to see strong Online Banking adoption, up 9%, and the -- or the bill pay user growth up 18%.

So overall, we think the business is healthy.

You just have some optics playing in that compare.

Great, thank you.

Our next question comes from Brent Thill of UBS.

Thanks.

Nice job.

Brad, just in terms of your guidance for fiscal 2011, you obviously have given -- pretty respectable growth rates, versus what last year you came into the year a little more cautious.

Can you just give us a sense -- I know you mentioned ASPs in the mix but is there anything else that's giving you the confidence to start out the year at this rate?

Yes, Brent, I appreciate the question, and I'll tell what you we are confident in.

We're confident in three things.

One is, there truly is a structural shift in the market.

We're seeing customers move away from paper-based and bricks and mortar services into digital services and that plays very nicely to all of our businesses, and it's fueling growth in all of our categories.

The second is our products are pretty resilient, even at a tough time.

Customers need the products that we offer.

It helps them save and make money.

So even if the economy continues to be shaky we think we can execute well.

Third, we're getting smarter.

We haven't gotten everything right in this downturn but the more time goes by, the better we get at discounting and how to have a promotion and how to get a customer into the franchise.

So that's why I would put around our guidance in terms of why we're confident, it's not that we see an economic forecast that's going to get better any time soon.

We still have the same view that many have.

It's going to be a slow, sluggish recovery, but we think we can execute and deliver the guidance we've put out there.

Just a quick follow-up from your initial comment on the consolidation of your DCs.

How long do you expect that is going to take, and is there any risk as you consolidate these data centers?

What is your goal for data centers, and how should we think about that transition?

So we came into this past fiscal year with roughly 28, 29 data centers, and the reason why I say rough is if any time we buy a company like Medfusion, we typically get another data center.

We've managed to shut down a dozen of those this past 12 months.

We're own a path over the next three years to get that down into a handful, and these handful of data centers, one, of course, we have in Quincy, Washington is one we've owned.

We've also co-located with other world-class companies.

An example is a new site we just moved into in Vegas.

And so think of it as a 36-month transition, but we'll continue to do that in a thoughtful way and we'll move into fewer data centers over that three-year period.

Great, thank you.

Thank you.

Our next question comes from Sara Friar of Goldman Sachs.

Perfect.

Thanks so much for taking my questions.

Just on the payroll side, can you give us any update as to what percentage of your QuickBooks customer base is now using some of your payments and payroll solutions?

And then competitively, are you starting to see some displacements away from folks like a Paychex or even an ADP or is this still more of a green field market for you guys?

Hi, Sara.

The number in terms of QuickBooks is still roughly 1.1 million out of the 2.5 million who have payroll are using our service, so about 40%.

We still see that as a tremendous opportunity to continue to grow in the QuickBooks space but we love the introduction of our online payroll product when we bought PayCycle.

Because it opens us up to another 7.5 million small businesses who have payroll but don't use QuickBooks.

But right now inside of QuickBooks, it's about 40% penetration.

In terms of where we are getting growth it's a combination of people who are new to payroll for the first time.

That's about 50%, if you would.

And the other 50%, are actually coming from other alternative solutions, like ADP and Paychex.

And the truth is when you've got an offer like ours that's out there for about one-third the price of what you pay one of these outsourced services, many small businesses, especially when times are tough, think it's better to just go ahead and take a little bit of the burden on and get an accurate payroll done at one-third of the price.

So we are seeing some disruption from those players.

Right, I would think with the SaaS-based offering, that's a real differentiator.

And then just on the backdrop, I think you've been asked a little bit in the very beginning on your first question, but we always look to Intuit as a great view on what's going on for small businesses.

Do you think your performance is more competitive displacement, the fact that you've got new things in SaaS, for example, coming, or does it feel like the environment is getting a little bit better, at least for SMBs right now?

Yes, I think it's more of the execution and better products and us getting a little wiser in terms of how we go to market.

I'll give you a couple of indicators as to why I can't point to any real stability in the economic environment.

You saw our charge volume per merchant down 3% in the fourth quarter.

That's a 4 point decline sequentially from Q3.

As you know, we also publish our own Small Business Employment Index using the data we have with small businesses to see if they're hiring.

In the month of July, the employment went up about 0.2%.

That annualizes out to about 2.4% for the year so there's not a lot of robust hiring going on in the small business sector.

But with all that being said, they still have to find a way to save and make money and so the products and services we have, we have plenty of opportunity to continue to penetrate and grow the business.

Unfortunately we're not getting a lot of help from the economy right now.

Yes, I think that's fair, thanks very much for the color.

I appreciate it.

Thank you.

Our next question comes from Scott Schneeberger of Oppenheimer.

Thanks and nice work, guys.

Brad, I'd like to start out - I'm most curious about this three-year plan.

Sounds quite ambitious, accelerating growth year-over-year double digits.

Is that all organic?

Is that going to include acquisitions?

And perhaps some international?

Could you just enlighten us a little more, and are we going to hear more at Investor Day?

Thanks.

Yes, Scott, I'd be happy to and we're certainly going to go deeper at Investor Day.

I would back up and say we've been pretty consistent for the last several years that we have a goal of growing our revenue organically double digits year-over-year.

And then to grow our revenue faster than extent so we've got good operating leverage, and I think what you see in our three-year plan or what you hear us talking about today is consistent with those principles.

We won't be giving three-year guidance at Investor Day but what you will hear us talking about is how many points of growth we think we can get over the next three years out of our core businesses, how many points we expect out of these new adjacent businesses like healthcare and global.

And what we think connected services overall is doing to drive some juice into all of the above.

But net-net, it's consistent with our financial principles, and I think this year he we're able to demonstrate that it's doable, even in a tough environment.

Great, thanks.

Two more if I could on separate topics.

I'll ask them both upfront though.

One, the debt indicator being removed for the professional tax preparers, I'm just curious how you think this may be an opportunity for you, and if could you give any deeper color on your refund transfer business?

And then secondly, and separately, if could you just speak about the Quicken double-digit growth?

Thank you.

I'd be happy to, Scott.

Let me start the debt indicator in the tax business.

There's a reality above and beyond what's happening with refund anticipation loans.

If you go back and look at the IRS data, or the data we've shared for the last half-dozen years, the software and online category has been growing 6% to 8%.

Tax stores have been flat, and the CPA prepared has been in that 1% to 2% range.

Consumers want to do things digitally, and that is driving the growth that we're able to see is in TurboTax and our online services.

We've had alternative products offered by competitors.

Again, we got out of the (inaudible) business ourselves a half a dozen years ago.

We're not in that business.

So this decision that's been made now certainly puts a little more headwind out there for some of these tax stores and people who offer these services but that's just one piece of the equation that I think gives us a competitive advantage.

The fact is that consumers want to file their taxes digitally.

The second is refund transfer for us is a great alternative to a [RAL] and the customers like it.

It's a great way for them to make their software purchase and then pay for that purchase out of their refund.

Thirdly, as long as we continue to build a better product and execute well I think you are going to continue to see us grow.

So I do think that it's a piece of the pie but it's certainly not the biggest opportunity.

I think the big category shift is what's really driving a lot of the opportunity.

On Quicken, two things going on there.

One is, the Mint and Quicken team have done a wonderful job of integrating those two businesses.

We're making our Quicken products better and simpler learning from them, but the second is we did get a tailwind from Microsoft Money making the decision to exit the market.

And we worked collaboratively with them to actually help migrate their customers to Quicken, and that gave us a little tailwind in our Quicken business this year.

So that's really what's driving the performance in Quicken overall.

A better product with good focus and the tailwind of the Money customers moving over.

Great, thanks.

Our next question comes from Gil Luria of Wedbush.

Thank you for taking my question.

First, a follow-up on that.

You just discussed why a lot of the secular growth is coming from you taking away customers from the paid preparer segment.

And then again it's well documented that those guys are having issues.

I think the IRS today came and went out with an announcement saying they're going to require everybody to register, which what I would assume would take some bad players out of there, reduce the supply, increase the cost, and maybe -- so the question is, do you think those things will accelerate that shift from paid preparer to do-it-yourself software?

Are you incorporating the fact that those things are happening to that [core] category to your 10%, 13% guidance?

Gil, it's going to be hard to tell whether it will accelerate or just continue to drive the momentum more to the online tax services.

I would say that, yes, we have reflected all the above in our guidance for the year.

We've been aware of the legislation.

We've been a part of the conversation and we've anticipated this outcome.

And because we weren't into the [RAL] business, we didn't have a downside effect.

We only saw the potential goodness.

And so I do think it will factor into the year.

But you know really well, this is a competitive environment.

We've got competitors out there including some of our own services that are free so we don't take anything for granted.

We're going to have to keep our eye on the ball and execute well but I do think this is going to be an opportunity for us to continue to take share particularly from the tax stores.

Then secondly on payroll, the employee management, it looks like the revenue went up a lot without being a lot of business formation, without you getting a lot of new customers.

Is there a particular places where you were -- particular products where you were successful raising prices?

Is this more selling of some of the new offerings in this segment?

Which one of those was more helpful in getting that incremental increase?

Yes, Gil, I'm glad you asked the question, because there is a story behind the story in our fourth quarter payroll performance.

We mentioned in the talking points upfront of the 25% growth about 10 points of that was inorganic.

That came from PayCycle, so you're down to about 15%.

We also had some goodness coming from the fact that when we made the acquisition of PayCycle, we had some revenue that flows in that basically gives us another 5 points of compare favorability.

So really the core growth in our payroll business was in the high single digits, which still compares very good compared to some of the other payroll providers in the market.

But it wasn't a 25% growth in the quarter.

Where we see opportunity is we look to next year, is continuing to penetrate the existing QuickBooks space, also continuing to leverage the asset of PayCycle, to go after those non-QuickBooks customers and the fact that we have a (inaudible) alternative compared to ADP and Paychex.

We think this continues to give us an opportunity to grow regardless of the economy.

Got it, great.

Thank you.

Our next question comes from Laura Lederman of William Blair.

Hi guys, this is Jeff Houston for Laura Lederman.

First question, I want to talk a little bit about Mint.

It's clearly has experienced a lot of user adoption, I think the base is now about three million.

Could you talk a little bit about how you are planning to monetize that and what profitability level it could reach over longer term?

Yes, Jeff.

We aren't breaking Mint out specifically.

It's a part of our personal financial management group which, of course, is a part of Consumer and includes TurboTax.

But I will give you a couple things that we would love to share with you today.

First and foremost is this offering really resonates with a whole new generation of personal financial management customers and so the fact we could double the customer base in 12 months and get the three million users and continue to see that grow is a great opportunity for us.

Not only in the US, but potentially outside the US globally.

So you're going hear us talk more about on Investor Day.

But we think Mint has legs beyond the United States.

The second thing it has is the opportunity to work more effectively with some of our own products in the US.

We have a lite integration this past year with TurboTax.

We're also working with our financial services group to try to bring some of this goodness to our banking customers, and we're taking those algorithms, those 'ways to save' recommendations from inside of Mint and we're starting to apply that to other businesses inside of our Intuit franchise as well.

So if I had to put a bow around it, think about continued growth of the Mint business, the fact that we can take that also outside the US, we can apply that to other channels like our banking channel, and we'll start to take those 'ways to save' recommendations and apply that data engine to other products as well.

Overall, the revenue of profitability drivers that we see in the business case net going forward.

Jeff, this is Scott.

Let me just pick up on one aspect of your question and add to Brad's answer.

The Mint business, while it's free to the consumer, is monetized.

Its monetization system is what you heard Brad mention, these 'ways to save' recommendations that Mint users get from Mint are lead gen for people who are supplying superior financial opportunities, and when the Mint customers then buy those superior financial opportunities recommended by Mint, that's lead gen revenue to the Company, so it is revenue generating business and revenue per customer in a fashion which is quite nice for us.

Okay, that's helpful, thank you.

Our next question comes from Bryan Keane of Credit Suisse.

Good afternoon.

Just following up on the payroll question, you lost me a little bit there.

Payroll clients look like it fell about 12,000 sequentially.

So just interested in why that was.

And then help me again, brad, I got the 15% but why does it go 15% down to high single digits for organic growth?

Hey, Bryan.

So let me start first with the customer base.

And I'm going to ask Jerry Natoli and Neil to jump in here to help reconcile some of this data between what was PayCycle and some of the other pieces.

So what we've been doing inside of payroll is, in addition to acquiring new customers, we've shut down our prior platform that we had built -- our online payroll platform, and we have been migrating those customers over to PayCycle.

Any time you put customers through a transition you are going to have some attrition.

The good news is it has not been as aggressive [attrition] as we thought.

We actually have retained some of the customers but that's had some impact of the sequential customer base from quarter-to-quarter.

In terms of the reconciliation, I will ask Neil or Jerry to jump in and explain the delta between what was PayCycle and what basically gets us down to the high single digits.

Sure, Bryan.

This is Neil.

And just on the user point, Scott brings up a good point, too, is that we have been consolidating some of the old legacy product lines and converting customers over in small numbers but it might account for some of the movement you see from Q3 to Q4.

Again, the attrition is much less than we had expected or than we had planned.

In terms of reconciling the math as Brad mentioned we start out with 25%, if you take out component related to PayCycle joining, it gets us down to 15%.

We basically had about furnishings look at the trailing run rate for PayCycle, it was about $25 million roughly prior to their joining Intuit and so you take that into consideration and you also consider a few relatively minor to the Company but a few points of growth to the segment.

One-time events we had last year in the quarter gets you down to the high single digits in terms of a run rate that you would you see going into 2011.

Again, the big growth for us has been the online category, and we're working on the desktop category, frankly.

Okay, that helps.

And then just on the QuickBooks division, it's obviously benefiting from the shut-off of Simple Start, and then you're getting a mix shift that's driving a higher ASP.

So I guess for modeling purposes, the 16% and 18% growth rates we've seen in the third and fourth quarter, I assume that continues for the first and second quarters as that mix shift continues, but the third and fourth quarter of next fiscal year I assume we should see a deceleration in those growth rates in QuickBooks.

Is that right?

Bryan, we provide guidance at the segment level for the full year so we've given the FMS guidance of 8% to 12% but I think that it's fair to say you're starting to get some stronger compares in the back half of this year.

And so if you look at how we see Q1 and Q2 coming out, what it will equate for full year and we see it as being between 8% and 12% for the full year.

And this is total for SBG?

That's right.

Is there any way to think about how much mix that just the mix of shutting off Simple Start is driving that accelerated growth rate?

Bryan, this is Jerry.

That's actually less of an impact than the favorable mix from QB Online from enterprise and from the growth you've seen on websites which also shows up on that line.

Okay, just last question for me, it looks like probably Medfusion and Mint is still in for another quarter.

My guess is that's probably 1 point of revenue growth, Neil, for next year, so on an organic basis think about maybe 7% to 10%.

Is that about right?

Yes, that's about right.

Thanks a lot and congratulations.

Thanks, Bryan.

Our next question comes from Phillip Rueppel of Wells Fargo Securities.

Great, thanks.

Just a couple of questions regarding the data center consolidation.

You mentioned in conjunction with some of the outages that you had recently.

Is the driver behind continued consolidation to improve quality, or is it really to improve margin and costs?

And then secondarily, you mentioned that you had closed 12 or so this year.

Was that -- were any of those closures related to the outages that you mentioned?

Yes, thanks, Phillip.

First of all, the answer to your first question is both.

You can imagine when you have a lot of acquisitions, of smaller companies over the years and you've made decisions in local areas, you are going to be in some centers that aren't as robust as we want them to be from a highly scalable online application.

And so it is to improve effectiveness and to take advantage of virtualization of servers as well as having clean energy and all the things that good companies should have in their plans, but it's also efficiency.

It's highly inefficient to run 29 centers, have them not really be at scale and not have the ability to leverage the volumes we have when tax season spikes, but then when it goes down you've got other services you could be leveraging that energy for.

It helps us with efficiency too.

The second part is, no, that was not a part of the power outage challenges we had.

There was nothing around our consolidating of data centers that contributed to that.

Quite frankly, the issue was that while we have our online banking and our tax product highly available, we haven't battle-hardened some of our processes and some of our technologies in other areas.

And it was just pure execution.

Something that we know what we need to do and we need to fix.

Great, that's helpful.

Thanks.

Maybe a more general comment on margins.

Obviously the guidance for fiscal 2011 does show for continued expansion of margin.

Is there any particular areas or businesses where you see that accelerating versus the margin expansion we saw in fiscal 2010, or is it course in speed as we move into next year?

Phillip, this is Neil.

The number one driver of margin expansion is revenue growth.

So when you look at our large businesses that already enjoy nice margins, those also happen to be the ones that are growing the fastest so they drive a lot of expansion.

And you'll also see, if you look at the small business group this past year, they've enjoyed a pretty nice improvement in their margin as Brad described earlier.

So it's mainly our core businesses who are growing who have very aggressive growth plans and who have good execution plans for next year.

So basically as you will see, all the business units are projecting better margins for next year, but the key driver is really revenue growth and top-line growth that enables that.

Great.

Thanks very much.

Our next question comes from Peter Goldmacher of Cowen and Company.

Hey, thanks for letting me in.

I just want to ask you two quick questions.

One, Brad, you mentioned in prepared comments that ASPs had improved, and then an answer to a question you said it was a better pricing mix you figured out discounting.

Can you give us a little more detail around exact what you mean by figuring out discounting?

Then I'd love to hear whether or not your attach rates or ability to sell back into that install base is having any impact on ASPs as well.

And then a second question is, if you could talk a little bit about how you are managing the business for the QuickBooks and the QuickBooks on Demand, how you manage that growth and how you slot different customers into different products?

Yes, would love to Peter.

On the first one, talking about ASP, what we saw the first year, the recession hit so fiscal year 2009 for us, calendar year 2008, is we wanted to continue the model of growing the category, getting customers into the franchise, because we know that we actually increase revenue per customer 3x over a five-year period through upgrades, support plans and additional products and services.

So when the market caught everybody with this steep downturn, we got aggressive and we went out with $49 QuickBooks promotions for $199 product, and we were doing that across the board to try to continue to have customers coming into the franchise.

It was the right thing to do but as we got further into the recession we learned that we could get the same unit lift out of a much lower discount.

So $99 to $149 actually delivered the same lift as a $49 lift.

So now we've gotten much more targeted in terms of how deep we need to go and where we need to go to continue to bring customers in and then sell them additional services.

On attach rates, we're still seeing healthy attach rates across all of our products, and what's really new is it used to be QuickBooks was the lead horse, then we would sell payroll and payments.

With connected services, we have new front doors now.

We can lead with our online payroll product and attach QuickBooks, or we can lead with a website and attach payments.

So that's what's really helping with our attach rates.

So all in all that's what's helping drive ASP.

The second question around how we're managing QuickBooks Desktop and QuickBooks Online, the good news is we don't have to make that decision.

The customer does.

We actually let the customers choose how they feel most comfortable managing their small business accounting.

We have them both marketed equally and many more customers are selecting online services but quite frankly, to keep it in perspective, we'll do about 1.5 million boxes of quick QuickBooks this year and 200,000 online subscribers.

So it's going to be a lot of years before online eclipses desktop, but if that's the choice the customer wants, that's how we let them actually make that decision.

We don't force a migration.

Is there any benefit to you as a Company to have -- is there any benefit or any difference to have a Company on the installed version versus [on-premise] version -- versus the on-demand version?

Well, I think at the more tactical level, yes, because of a couple things.

Customers can get access to new features throughout the year as opposed to waiting once a year for an upgrade.

The second thing is today the price/value of an online customer is actually a higher ASP on a 12-month basis than a desktop customer.

A desktop customer pays about $200 and upgrades once every three years, and an online customer pays roughly $24.95 a month, so there is some certain value to doing that but at the same time we've got a great business in QuickBooks Desktop when they add payroll and payments and other stuff.

So we're not going to make the decision for the customer to move them over but we will certainly benefit as that migration continues and more people choose online.

Okay.

Great, thank you.

Thank you.

Our next question comes from Jim MacDonald of First Analysis Securities.

Thanks, guys.

Could we go back to TurboTax guidance?

As you said, the category for you guys is growing 6% to 8%, and so how are you so comfortable with the 10% to 13% growth and maybe how much of that might be price?

Jim, we'll provide more details around the specific drivers at Investor Day, and we want to be careful not to get ahead of our headlights, because as you know, it's a really competitive space.

But when we talk about it each year we say there's four key levers in the tax business.

The first is how many tax filers are filing with the IRS.

Unfortunately we just experienced a second year where it's been down year-over-year 1% to 2%.

But then beyond that it gets into our control, and that is how quickly can we grow the online category as the category leader?

How can we actually take share from tax stores and online players?

And then how do we actually improve our revenue per customer within our franchise?

And so what you see in our plan is an expectation the category will continue to grow if people decide to move out of tax stores and select digital or connected services.

We still plan to take shares as we did this year both desktop and online.

And we're getting smarter about free to pay conversion as well as we're getting favorable mix.

Until all of those add up to how we have a guidance that we've set for next year of 10% to 13%.

Thanks.

Just one quick follow-up.

You give a GAAP tax rate of 36% for next year.

Could you talk about non-GAAP tax rate and maybe a little bit about why that tax rate is going up?

Yes, Jim, this is Neil.

The non-GAAP rate you should assume is the same as the GAAP rate, 36% for 2011.

In 2010, we had a tax planning opportunity that we took advantage of that generated a significant benefit for us this year.

Obviously, about 2% on the effective tax rate.

But it was a one-time event that doesn't affect our ongoing tax rate.

So we are always looking for opportunities to manage as best we can but for 2011, at this point our guidance would put you at the 36% effective rate.

Thanks very much.

Our next question comes from Michael Millman of Millman Research.

Thank you.

I guess, couple at this point, follow-up types.

On your three-year plan, it sounds like the second year is flat to down in terms of growth rate, which suggests your third year has got to be a monster year.

I was curious what economic scenario you are assuming that, and maybe more importantly, after this three-year plan, where do you see revenue growth?

And then I have a tax-related question.

Okay, Michael.

I'm smiling because I appreciate the follow-up question but I don't want to provide any guidance beyond fiscal year 2011 but I will tackle a couple of the key points that you asked about.

Our three-year plan will talk about our ability to continue to deliver on our long-term principal, the double digit revenue growth and expanding operating margin, then making a good set of investment decisions around the cash that we generate.

So I would not say that it is safe to assume that we are going to have a divot in year two.

I think that what you see this year in our 11% performance is 1 point of that was inorganic in fiscal year 2010, and we had another 0.5% or so that was favorable FX exchange, so call it 9% to 9.5% performance this year.

And as we look ahead, we believe that we're going to continue to accelerate organic revenue performance, we'll make the right inorganic decisions and we'll continue to improve our performance over time.

We assumed no real recovery in the economy.

Our outlook is that it is going to be a (inaudible).

That's going to be a very modest recovery, very sluggish.

I will tell you that we're not double dippers.

But we certainly don't have a crystal ball so we can't sit here and tell you we're right or not but we didn't assume any goodness.

In terms of long term beyond three years, our principles aren't changing.

We expect ourselves to deliver double-digit organic growth, supplemented by acquisitions and continue to get good operating leverage and make a good use of the cash that we create.

I hope that answers your question.

Without a number on that long-term double digit, do you expect it (inaudible) to leave off where the third year of this three-year plan gets you?

Michael, I can't say at this time.

We've got a three-year plan of record and we haven't really gone beyond that at this point.

Okay.

Regarding the taxes, as Scott suggested, on the [RTs], can you tell us what the percentage of [RTs] are for desktop versus online and what the trends have been in that percentage?

Michael, this is Jerry.

We actually don't break out our mix for the various flavors of tax or [RTs], and we're not going to provide that, sorry.

Can you give us the trends?

Nope, sorry.

Although we can say as Brad talked about we had a really nice year in terms of generating revenue per customer from favorable mix that includes improved attach.

Okay, thank you, Jerry.

Thanks, Michael.

Our next question comes from Ross MacMillan of Jefferies & Company.

Thanks a lot and good afternoon.

Most of mine have been answered but maybe just a couple.

You talked about double-digit new customer growth in QuickBooks and you really had a breakout year in terms of QuickBooks Online.

Do you feel confident that you're really driving QuickBooks Online growth by net new customer additions and not cannibalization of the, call it, on-premise base?

Could you just talk to that?

Yes, Ross, we are very comfortable.

As you might suspect, we have an ability to recognize if a customer has actually been using QuickBooks Desktop or not because they register their license with us.

Our QuickBooks Online product is bringing new customers into the franchise.

If they do choose to migrate over from desktop to web, there's a lot of goodness in there for the customer and clearly, this year earlier, the ASPs are more favorable for us.

But net-net, many of the customers coming in through QuickBooks Online, in fact, a large majority are new to the franchise.

That's what's driving the new user growth for the overall QuickBooks segment.

Great.

That's clear.

The -- switching to the financial services or financial institutions business, Neil, I think you mentioned something around -- that the strong growth in online banking customers and bill pay customers offset some pricing pressures in that business.

What pricing pressure are you seeing?

Is it just a function of the health of small regional banks and credit unions, or is there something else competitively impacting pricing?

Ross, I would say we're not seeing anything that is unique to fiscal year 2010.

As you know, in that space, there's a lot of margin compression, and in the bank processing space, pricing has been under pressure for some period of time so we haven't seen an acceleration of that.

But as contracts come up for renewal there's a lot of competition, and price was a key factor to a lot of the banks that we serve.

So it's more impetus for us to focus on features and functionality and helping the financial institutions make more money who use our products, through customer retention and deeper relationships with their customers.

This is Scott.

Let me add, this has been true exactly as Neil described for every year that we've had the business and for the years before we owned it so this has been a long-term trend.

What we're doing to respond and take advantage of that trend is by adding things like FinanceWorks, TurboTax, online banking, things where there isn't that pricing curve.

The new features, new capabilities that add to the total value of both the financial institution and the consumer, and that's a capability we have in our Company because of all the other product lines and services that's not found in our rivals.

They don't have a TurboTax, for example.

So I would anticipate that, that will help soften that price decline curve over time or rebound with additional sources of revenue.

Thank you.

And one last one, just on operating margins.

You've done a really good job of expanding those over the last two years, actually may even be three years, but at least two years.

And obviously, that remains part of this plan.

Do you have any target margin in mind, medium term, long-term that we should be thinking about for the business?

Ross, we don't set specific targets.

We set a couple of years ago we wanted to get in the 30%.

We're there now, so we're now looking for the mid-30%.

But it's just to keep it performing in line with our operating principals to keep revenue faster than expenses.

It's just that fundamental.

We don't have a specific number or a specific place that we think is a plateau or someplace that's as good as we can get.

And clearly just as you're -- it looks like your QuickBooks business will be one of the fastest growth categories again this year, and that does have the higher margins.

So I presume that's a function of what will drive margins but did you think there are other structural drivers?

You've obviously taken advantage of some things in the last couple of years around head count and reallocation of resources.

I was just curious as to what beyond mix we should be thinking about to drive margins?

You hit on the key one, tax being our fastest growing category and also our largest margin so that helps tremendously.

Small business group will be right behind that.

As we've said all along, the best way to grow margins on a sustainable way is to grow the top line, to have great revenue growth and to keep that coming organically.

So that's probably the key focus.

Beyond that, in terms of expense reallocation, it's really more about making sure that the dollars we're spending are really moving the needle in terms of growing the business, either growing the revenue or adding new customers to the franchise.

So it's more about being more precise with our investments, more of a rifle shot approach, and testing, and being willing to try new things and being willing to stop if we're not getting the right outcome.

Obviously, I've mentioned, Simple Start is one example of a product offering that we've tried and started, and then came up with better alternatives.

But that's more of what you would see going forward in terms of reallocation of costs.

Great, thanks a lot and congratulations.

Thanks, Ross.

Our final question comes from Brad Sills of Barclays Capital.

Hey guys.

Thanks for taking my questions.

Just to follow up on small business, obviously you guys are seeing strength in new customers for payments despite charge volumes being weak.

Websites as well.

Can you comment on what you think is the driver there?

Is it just the right offering?

Are you doing the right things with promotion?

Is the macro having any impact on that, giving some price advantage, et cetera?

Yes, it's interesting, Brad, when you think about the first thing a small business needs to figure out when they're getting started, they need to get customers, and they need to get paid.

When you have new front doors into the franchise, like our websites or the ability to accept an electronic payment, those are natural catalysts for new customers to come into our franchise.

So I think what you are seeing now as small businesses, after a long period of unemployment saying, hey, I'm going to start something up here, and I need to get a website so customers can find me, and I need to make sure I can get paid.

I think the economy actually benefits the products and services we have, in that regard, and so that's really what the key driver is.

It's the right value proposition matching the right problem that a small business has, and then getting them into the franchise.

Got it, thanks.

One more if I may.

You are seeing obviously strength in QuickBooks Enterprise.

What do you think is driving the premium mix shift there given obviously the macro, obviously bucking the trend there?

What do you think is driving that?

There's two things.

One is, a lot of why QuickBooks Enterprise growth has come from the past continues, our small business customers who reach a point where they need more functionality, they have longer lists, they have more suppliers, vendors and employees.

And they want to move up to a more full-featured product, and that drives somewhere in the neighborhood of 70% of all the enterprise customers.

It's just QuickBooks moving up the line.

But the other thing that has been happening is about one-third of our users now, we're actually bringing from the mid-market players, the names that you might of as enterprise companies, and they're finding that our product has the functionality they need at a much lower price.

And so we're now disrupting the up-market players, particularly in this tough economy.

It's a great way to get them into our franchise as well.

Great.

Thanks, guys, congratulations.

Thank you.

Patty is that it?

Yes, that's the last question that we were taking for the day.

Okay, I want to thank everybody for dialing in.

I know there were a lot of different calls going on today and a lot of earnings reports coming out so we appreciate you joining us.

I want to wrap up by saying we feel really good with our performance in fiscal year 2010.

We're looking forward to a fiscal year 2011 that we think will be equally exciting.

The reason why we're exciting is our connected strategies is working, we continue to benefit from this ongoing secular shift to more digital services.

Our core business are all healthy, you can see that performance across the board and hopefully, you see in that our guidance for fiscal year 2011.

So I'm looking forward to seeing everybody at Investor Day on September 22.

Take care.

Thank you.

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

This concludes the call.