直覺電腦 (INTU) 2011 Q3 法說會逐字稿

Good afternoon.

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

At this time I would like to welcome everyone to the Intuit third-quarter fiscal 2011 conference call.

(Operator Instructions).

With that, I will now turn the call over to Matt Rhodes, Intuit's Director of Investor Relations.

Mr.

Rhodes?

Thanks.

Good afternoon and welcome to Intuit's third-quarter 2011 conference call.

I'm here with Brad Smith, our President and CEO; Neil Williams, our CFO; and Scott Cook, our Founder.

Before we get started, I would 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 of fiscal 2010, 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 this report are presented on a non-GAAP basis.

We have 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.

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.

Hey.

Thanks, Matt, and thanks to all of you for joining us.

Hey, we are pleased with our financial performance in the third quarter.

Intuit continues to benefit from the ongoing secular shift to digital solutions.

It is driving our customer growth, share gains, and it is generating the financial results that we are sharing with you today.

Revenue grew 15%, and non-GAAP earnings-per-share was up 23%.

We closed out another great tax season, growing total TurboTax units, slightly faster than we did last season, and growing Consumer Tax revenue 13% year-to-date versus fiscal 2010.

We also continued to build momentum in small business, where a balanced attack across Financial Management Solutions, our Employee Management Solutions and Payments drove revenue growth of 13%.

Small Business remains a key driver of overall growth.

In light of our third-quarter performance and our expectations for the fourth quarter, we are raising our revenue and EPS guidance ranges for the full year.

Neil will cover more of that and the details in a few minutes.

Based on these results, we are pleased with the quarter.

We are confident in the year, and we are optimistic about the progress we are seeing across the Company.

We are in the jet stream of a shift to digital services, a trend that is powering growth for both our core and our adjacent businesses.

And to capitalize on this trend, we continue to execute on our three-point growth strategy.

The first, to drive growth in our core businesses; second, to build adjacent businesses and enter new geographies; and third, to accelerate our transition to Connected Services.

The strategy is working.

Let me share a few examples, and I will start with the progress behind driving growth in our core businesses.

Customer acquisition remains the key lever for growing high-margin core businesses.

And in the third quarter, we grew our customer base in Consumer Tax, and in Small Business, we grew Connected Services customers by double digits.

In a particularly competitive tax season, we grew tax units 11% through the season, and that comes on top of a 11% unit growth in fiscal 2010.

So we had strong growth on top of strong growth.

There were no easy comparisons versus prior year.

The IRS delays were a challenge early in the season, but we finished strong, and we expect to come in near the high end of our tax revenue guidance.

For the season, the tax software category, which you know includes both desktop and online software, grew as manual filers continued to shift to digital solutions.

Our data indicates that we took share in desktop at retail, and we gained share online, tapping off our fourth straight year of share gains.

However, we did not take share from tax stores this season as we had planned.

We respect our competitors, but we will not cede anything to them.

We are taking lessons learned, and we are already applying them to the plans for next year.

We see opportunities for better execution, and our goal remains the same -- to continue to effectively compete with tax stores by clearly demonstrating that there is an ease of use and a better value when you use digital do-it-yourself tax preparation.

Long-term we have the demographic and the technological tailwinds at our backs to continue to grow our tax business double-digits.

Now shifting to Small Business, we now serve nearly 5 million unique customers.

In the third quarter, we delivered double-digit revenue growth by growing customers of our Connected Services offerings and by improving revenue mix.

Customer growth was driven by 42% growth in QuickBooks Online subscribers and double-digit growth in Online Payroll subscribers.

Customer growth in Payments also continues to remain robust with merchants growing 12% in the third quarter.

And we finally saw the rebound that we have been anticipating in our Payments revenue growth, which Neil will discuss in a moment.

We are also accelerating the acquisition of new customers using our GoPayment offering, which you may recall is our mobile credit card processing app.

In fact, in April we acquired 8 times as many new customers as we did in December.

So overall our Small Business group is on track for another great year, and we believe that the accelerating adoption of Connected Services by our customers creates a sustainable growth opportunity in this business for years to come.

Now moving to our second strategy, we are pleased with our continued progress in building adjacent businesses and entering new geographies.

As we have said before, many of our adjacencies are in the early stages today, but we really like what we are seeing.

For example, in our global business, in the third quarter, we began to take QuickBooks Online outside the United States with launches in the UK and Singapore.

In addition, we have made great progress at retail with QuickBooks desktop.

We are now the best-selling small business financial software at retail in both the UK and Canada.

We are also seeing strong customer adoption of Mint in Canada as well.

So, over the next few years, we anticipate that our collective adjacencies will contribute a few points of growth.

Finally, our transition to Connected Services is picking up steam.

The shift to Connected Services is truly the growth engine for Intuit.

It enables us to grow and retain customers and maximize revenue per customer over time.

As individuals and small businesses increasingly say no to manual paper-based solutions, they are saying yes to Connected Services, and Intuit benefits from this shift.

We are growing Connected Services customers at a rapid pace.

Because these customers link into our online solutions, over time we are able to more effectively cross-sell relevant products and services and maximize our revenue per customer.

One of our biggest opportunities longer-term in Small Business is increasing the number of offerings per customer.

This is a key lever for revenue growth.

We plan to move from about one and a half offerings per customer today to more than two offerings per customer over the next several years.

And, as we have shared before, we already generate about 60% of our Company's revenue from Connected Services with the goal to increase this to 75% of the year 2015.

Looking ahead to the next chapter of Connected Services, mobile computing is quickly emerging whether it is smartphones or tablets.

We have been actively establishing our leadership position in this next frontier as well.

I have already mentioned the recent acceleration in GoPayment sign-ups where we are aggressively marketing a free credit card reader and a no monthly fee plan, and that is rapidly growing the customer base and the transaction volume.

There is also SnapTax and the TurboTax iPad app, which both generated very positive reviews this season, earning five and four out of five stars respectively in the Apple App Store.

In Financial Services, active mobile banking users have doubled over the past 12 months, now totaling over 700,000 active users and growing fast.

Across the entire Company, we are continuing to innovate in mobile.

You will be seeing interesting new apps from us for consumers and small businesses over the next several quarters.

In fact, last week at Google I/O, we unveiled a concept demo of our GoPayment app that utilizes near field communications, or NFC, to allow small businesses to process credit card payments with just the tap of two smartphones.

So let me put a bow around my perspective.

I'm proud of the quarter that we delivered and the effort and execution of our employees, and I'm confident in our strategy and our opportunities for our long-term growth.

With that, let me turn it over to Neil for the financial highlights and more about the quarter.

Thanks, Brad.

Our financial results for the quarter included revenue of $1.8 billion, up 15%; non-GAAP and GAAP operating income of $1.1 billion both growing at 19%; non-GAAP diluted net income of $2.33 per share, up 23%; and GAAP diluted net income of $2.20 per share, up 24%.

Now this is certainly strong performance at the total Company level.

Now turning to the business segments, our Consumer Tax group generated revenue of $1 billion in the third quarter, up 18%.

For the season, total TurboTax units were up 11% with TurboTax online units up 18%.

As Brad mentioned, we estimate we gained a bit of share this season, and we also grew revenue per customer by improving conversion from pre to paid, improving product mix, and increasing the price of TurboTax Basic.

In Consumer Tax we served more than 23 million customers this season.

The accounting professional segment generated revenue of $225 million, up 10% from last year.

We had a good season in the accounting professionals business with year-to-date revenue up 6%.

In addition to our strong base of Web-enabled desktop products, we expect to grow this business by expanding our professional accounting and tax online offerings, including our online tax and tax import services.

Total Small Business group revenue grew 13% for the quarter with each of the three business segments posting double-digit growth.

In Financial Management Solutions, revenue grew 11%, driven by strong growth in QuickBooks Online and QuickBooks Enterprise revenue.

These offerings continue to grow customers at a fast pace, which benefits our revenue mix.

The fact sheet shows that our overall QuickBooks unit growth has been affected by the decline in QuickBooks desktop units sold.

This reflects in part an evolution in this business from dependence on desktop units to a range of offerings that work together.

Almost 85% of our small business revenue now comes from offerings other than QuickBooks desktop.

As we move to Connected Services and bring more customers into the franchise via new front doors such as Intuit websites and bill payment, the more relevant indicator of the health of our small business franchise is the number of customers who use these Connected Services.

Services like QuickBooks Online, QuickBooks Enterprise and Online Payroll are driving growth in the business, and this is where we are focusing our investment.

Employee Management Solutions revenue grew 12% in the third quarter, led by growth in online and enhanced payroll subscribers and increased customer adoption of payroll direct deposit services.

Total Payroll customers were up 1%.

As a reminder, growth in this segment next quarter faces a tough comparison versus the fourth quarter of fiscal 2010.

At that time, we were still within the first 12 months of the PayCycle acquisition, and we realized some nonrecurring revenue benefits.

Payment Solutions revenue grew 17% or 11% excluding the security and compliance fees we passed through to our customers this quarter.

This revenue was roughly in line with our merchant growth of 12%.

Volume per merchant was flat.

Our Financial Services revenue grew 5% in the third quarter.

Adjusted for the sale of the lending business in the fourth quarter of FY '10 and a nonrecurring revenue item that impacted FY '10, core revenue growth would have been approximately 9%.

We are adding end users at a fast pace with Internet banking users increasing by 9% and bill pay users by 23%.

As Brad mentioned, our innovation in mobile banking is also getting traction.

We are delivering for our bank customers, enabling them to compete effectively for the most profitable customers.

Our Other businesses segment posted 17% revenue growth in the quarter.

Adjusted for the acquisition of Medfusion Medfusion and a favorable currency impact, Other revenue grew 9%.

Small Business in Canada and the UK performed well, and we launched QuickBooks Online in the UK and Singapore in the third quarter with good early results.

Turning to the balance sheet, we continue to generate strong cash flows in line with our operating income and maintained a strong balance sheet.

Our performance to date is consistent with our long-term financial principles of double-digit organic revenue growth with revenue growing faster than expenses.

Our target is to carry $500 million to $1 billion of cash on our balance sheet net of total debt.

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

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

We evaluate investment opportunities within our capital allocation framework.

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

We then consider strategic acquisitions and partnerships.

Beyond that, we will return cash to shareholders, typically in the form of a share repurchase.

We have repurchased $250 million worth of our common stock in the third quarter, bringing repurchases to a total of $1.1 billion fiscal year-to-date.

At the end of the third quarter, we had $890 million remaining on our current share repurchase authorization.

Generally we expect to repurchase shares each quarter in adherence with our capital allocation framework.

Turning to guidance, as you saw in the press release, we are raising our revenue and EPS guidance and narrowing the guidance range for operating income for the full year.

We now expect for fiscal year 2011 revenue of $3.825 billion to $3.845 billion or growth of 11%, non-GAAP operating income growth of 13% to 14%, and non-GAAP diluted EPS of $2.45 to $2.50 for growth of 16% to 18%, GAAP operating income growth of 17% to 18%, GAAP diluted EPS of $2.00 to $2.05 for growth of 13% to 16%.

It is important to note that the GAAP EPS growth rates are 7 points higher when you consider the gain from the sale of discontinued operations in our FY '10 GAAP results.

We are on track to come in near the high end of our previous revenue guidance ranges for Consumer Tax and Small Business segments.

As a result, we have also narrowed our revenue growth guidance to 13% for Consumer Tax and 10% to 12% for Small Business.

Guidance for all other revenue segments remains unchanged.

For the fourth quarter, we expect revenue of $567 million to $587 million, a GAAP operating loss of $48 million to $58 million, GAAP loss per share of $0.12 to $0.16, GAAP operating income(Sic-see press release) of $15 million to $25 million, non-GAAP diluted EPS of roughly breakeven ranging from a loss of $0.02 to income of $0.02.

And with that, I will pass it back to Brad for some final thoughts.

Thank you, Neil.

We understand your focused on a tax season where Intuit and the competition both performed well.

We finished strong, taking share and coming in near the high end of our revenue guidance range.

Long-term story and tax remains the same.

There is a secular shift to Connected Services, and we are helping grow the digital category faster than all other tax prep methods.

In fact, this year category growth accelerated versus last year, which is very good news for us.

We are also writing the same favorable trends in Small Business powered by our market-leading Connected Services which are generating and growing reliable, recurring revenue streams.

As you know, we have more than 1 million Small Customers on monthly subscriptions today, including our leading software-as-a-solution offerings by QuickBooks Online and Intuit websites.

We are also building momentum as we head into the next phase of growth with our mobile products.

Consumers and small businesses are increasingly demanding smart solutions that fit in their pockets or have been optimized for their tablet devices, and Intuit is laser-focused on meeting this demand by delivering industry-leading mobile solutions that serve the needs of our customers.

It was a busy quarter, it was an exciting quarter, and I want to thank our employees for their performance.

The numbers we share today demonstrate that our core businesses are healthy healthier than ever, and I am confident in our outlook for the remainder of the year.

With that, let's open it up to you for your questions.

(Operator Instructions).

Peter Goldmacher, Cowen & Co.

Brad, I wanted to ask you a question.

First, the easy question.

Earlier in the year, you had taken down earnings guidance for the first half of the year because you were accelerating marketing spend.

When you look at your results this quarter, how do you allocate the upside from that marketing spend being productive earlier?

And then the second question I want to ask you is you mentioned two things.

You made two quasi-commitments I have not really heard you make before around geographies and a move to 75% of your revenue from Connected Services.

What is going on in the two areas that you can be specific about that is giving you the confidence to draw a line in the sand today?

So let me start first with the question around bringing down earnings on guidance.

We did not bring down our guidance on earnings.

We have a shift between the second quarter and the third quarter, and we tried to help clarify that for the street.

But we never reduced our outlook for the balance of the year in terms of the earnings projections.

The question that you added onto that particular point was around sales and marketing and the accelerated investments we made in the second quarter, and they played out the way we hoped.

Basically what they did was they drove category growth in tax, they drove customer acquisition and brought new customers into the franchise in tax, and they did the same thing in small business if you look at our Connected Services offerings.

QuickBooks Online was up 42%.

QuickBooks Enterprise was up 26%.

Merchant growth in payments was up 12%.

So the whole guide for us, as you know, if you get customers into the franchise and then grow lifetime value over time, and our accelerated spend up into the first part of the year helped us do that as we played out the rest of the year.

So our guidance did not go down in the second quarter, but our accelerated spend did exactly what we hope to do in sales and marketing.

The second part of your question around geography and Connected Services, at our Investor Day, we tried to articulate that we have some goals around our core businesses.

We also have some goals around what we expect out of our adjacencies of the next several years, and we said that we would like to see a couple of points of growth come out of some of these adjacent opportunities, which include global expansion.

And that is what I was hoping to reiterate today on the call.

And ultimately we are seeing the shift.

You can see it happening in all the businesses.

In TurboTax the majority of tax filings now coming in through the Web.

You can see the same thing happen now in QuickBooks with a shift to online into mobile payments.

And so that is why we feel confident that our mix shift, which today is about 60%, will continue to shift more to Connected Services, and we hope to get it to 75% by the year 2015.

So I hope that answer the questions, Peter.

Walter Pritchard, Citi.

I'm wondering if you could talk a bit about ASPs and tax?

You know, in other years, I think you have gotten to your growth with a little bit more reliance on pricing.

And just help us understand if going forward if we should think of it as you guys getting a little bit more maybe aggressive in trying to drive the number through lower price -- not necessarily a lower price because you did see ASP increases -- but just the shape of the tax year this year and how we are thinking about it going forward?

Yes, I would be happy to, Walter.

In our tax business, there's four key levers.

The first is how many people are going to file tax within the United States, and there is typically about a 1% growth rate in a non-recessionary period.

And it looks like right now according to what the IRS has published that's pretty much the way the season is going to play out.

The second key lever is how fast the digital category grows.

Of those people who file taxes, how many chose desktop and online software?

And that historically has grown about 6% to 8% a year.

This year it looks like it is going to be in the higher end of that range.

We have got good strong category growth as more people move to digital solutions.

The third key lever is what is our share of that digital category.

And for the fourth consecutive year, we took share this year.

And then the fourth lever is revenue per return, and that does not usually come through price.

That comes through more effective free to pay conversion.

It comes through additional services like state products sold to some one who is doing a federal return, and it also comes from favorable mix like people coming in and not starting out with the entry level product but maybe using the premier product.

And we saw that happening this year as well.

So what you saw this year, I think, was a really good balance of the four levers -- tax filings getting to more normalized levels, the digital category accelerating in growth, we continued to take share, and we have got good revenue per return.

The key as we look to the future is we need to make sure we are delivering good value for the price, and our entry level product is free.

But, as we look for opportunities to move up market, there will be other areas where we may be able to take price when we compete against a tax store whose is usually 3 times more expensive.

But we want to make sure we're delivering the value the customer wants at a price they are willing to pay.

So those four levers I talked about are the way we grow the franchise over the long-term.

Adam Holt, Morgan Stanley.

This is actually Jen Swanson dialing in for Adam.

I wanted to drill in a little bit on the comments you made earlier around QuickBooks and the shift in the business there from desktop units towards more of Connected Services and QuickBooks Online.

I had two questions related to that.

One is, how much of that is push versus pull?

So initially your strategy with QuickBooks Online was an entry into the Intuit product set where you would grow from there versus directly competitive with the desktop offering.

I'm wondering if that is shifting a bit as you move up market with the online offering?

And then, two, if you think about the revenue impact, the growth this quarter in financial was a little -- Management Solutions was a little bit slower than it has been in the last few quarters.

Do you think the growth rate in revenue there might be a little bit slower over the next few quarters or even years as you do make that transition into online services?

Let me start with the first one.

What we are finding with QuickBooks Online is the majority of those customers are new to the franchise, and they are new to the accounting software category.

They actually aren't customers from desktop moving over to online.

And, by the way, that is still a favorable trend for us.

If you think about the average QuickBooks desktop customer, that will come in at a price point of around $200, and they upgrade every three years.

So over a five-year period, call it roughly $500 to $600.

Someone who comes in on QuickBooks Online pays an average of $24.95 a month, and over the same five-year period, because they are excited about having online backup in the cloud, anytime anywhere access and the ability to use mobile devices, that same customer is usually worth about $1500.

So that shift for us is not only the way customers prefer to do business now more online, but it also helps us from a lifetime value perspective, and it is easier to sell additional services online through hyperlinks than it is to make a phone call to a desktop customer and interrupt their day.

So we have the ability to sell additional services easier as well.

So net-net the mix for us is not really a transition from desktop over to online; it is new customers coming into the category, and that is favorable for us long-term from an ASP perspective.

The second question in terms of the growth being down slightly with Financial Management Solutions being 11% growth in the third quarter is really the result of a pretty tough compare.

If you look at where we were in Q3 and Q4 of last year, we had some discounts going on in the marketplace, and QuickBooks had strong third and four quarter results.

I'm actually very pleased to see us continuing to grow double digits as we go over those tough compares, and we anticipate this business to continue to grow double digits as we look ahead over the next several years.

So we don't see that deceleration.

We actually see an acceleration as we see our customers continue to adopt our online solutions, and I think we will continue to deliver that for many quarters to come.

Sterling Auty, JPMorgan.

I just wanted to go back to one of the prepared remarks.

I think you mentioned that, as you look to next year, some of the things you're looking to do better is actually on the execution front.

Just looking back on the tax season, what are maybe one or two things that you thought you could have executed better on to show even better results through the tax season?

So let me first put it into perspective.

While we are waiting for the full season to play out and the IRS will publish the results once all the extensions have been filed in the third and fourth quarters of the calendar year, the net-net is season to date it looks like the software category, which is desktop and online, is still going to grow to 2 to 2.5 times faster than tax stores.

And despite the fact that this year was one of the best year's tax stores have had as an industry in probably a half a dozen years, the digital category still outperformed them to 2 to 2.5 times.

So we have got the secular trend at our back.

In terms of execution though, I believe we could have come out of the gates a lot stronger in the early part of the season.

There was absolutely confusion in the market with the IRS in delayed processing, but I don't think we came out of the gates as strong as we could have been.

And so we want to make sure we are playing whistle to whistle.

The second thing is, we saw some really good actions coming from our competitors this year.

I think we had some good actions, but we are going to take some lessons from that, and we will share more of that with you at our Investor Day in the fall.

So I don't want to give up too much of the goods right now because we're just now heading into the locker room, and our competitors are going into the locker room as well.

So we will share more of our playbook in the fall, but suffice it to say, we are coming out hot and heavy as we go into next year.

And just a follow-up to that, I don't think you asked just what is legitimate in terms of where you can take your market share.

When you look at the growth in the tax category, do you think more of the growth is going to come from taking away from stores and onto desktop and online, or is more of the growth going to be just taking share within that category?

Yes, it is going to come from a few different places.

First of all, about 5 million people enter the tax category every year because they come of age.

They get a job, they happen to be millennial to next generation, and they prefer things that happen to work on their mobile phones, their tablets and their computers.

So we have got that benefit.

The second is, if you look at value proposition of tax software, its net promoter score, which is customer satisfaction, is 2 to 3 times higher than a store at about 1/3 the price.

So we also had a superior value proposition.

So ultimately over time we are going to be benefited by both new filers entering the category, and we plan to take share from the tax stores.

And those will be the two major sources of growth.

Ross MacMillan, Jefferies & Company.

Brad, I wondered if you could just make some comments about -- I missed the prepared remarks -- about the backdrop in the [SMB] market.

I think your own data suggests that it is a fairly slow recovery there.

You are obviously executing well.

But how were you thinking about that relative to your expectation?

Is it playing out as you thought it would this year?

And then I have one follow-up.

Sure.

Yes, nothing has really changed in terms of our outlook in the economy for small businesses.

We see a modest, sluggish growth, and basically we look at a couple of factors, which lead us to that conclusion.

One is the number of small businesses that are seeing an increase in total charge volume with customers shopping at their stores, and that is a modest total volume improvement.

In terms of an average volume per merchant, it is basically flat quarter over quarter.

The second is the small businesses have enough confidence to hire employees.

And there is better news there.

It looks like an average annual employment rise of about 3.7%, and so that is good news, and it is also good news that every geographic region in the country is now better than they were last year in terms of hiring employees.

But at that rate, as we shared before, it is going to take us three and a half to four years to get to pre-2007 levels.

So we are seeing an improvement, but it's a slow, sluggish recovery, and the key for us is our products work in any economy.

We are there to help you save time and do more with your money.

And so, as long as we have a value proposition that is working, we can continue to grow as we have despite the sluggish recovery.

And just on the (inaudible) business, I think you guys have talked about that accelerating up to double digits for some time.

It still feels like we are a ways off that.

What is your perspective on that now?

When do you think it is realistic that we could get back to those levels of growth?

Let me break down the Financial Services business into two key statements to answer your question.

The first statement is, if you take out a one-time compare when we are growing over the divestitures of our lending business and we also had a one-time nonrecurring item in the fourth quarter last year, the growth would have been roughly 9%.

So almost close to that double-digit range.

But the second is, if you look at the core business, which is consumer banking and bill pay, that is the future business for us.

That is growing -- the base, the customer base 9% and 23% in the quarter.

But about 25% of that business unit's revenue is what we have considered non-core.

Its assets are not really growing that fast like commercial banking, and we have got a set of plans in place to address that as we head into the next fiscal year.

So our full game plan and our expectations are that this is double-digit growing business.

We just have to continue to execute on the online banking and bill pay side.

We have to continue to innovate with the better ease of use than any other alternatives, and we have got to address these non-core assets, which we are in the process of doing.

Brad Sills, Barclays.

A question on just Employee Management Group and Payroll.

Customer growth overall looks a little bit light, but online growth is strong.

Are you seeing a similar shift there where your installed base is moving from the desktop to online like you are in QuickBooks?

Yes, we are seeing that more customers choose online versus desktop, but it's not a shift between the two.

It is actually new customers coming into the franchise.

And you are absolutely right.

You know it is modest growth to have a plus 1% is not the kind of customer growth we expect.

But if you compare that to others in the industry, it is actually faster than others are growing.

But it is not acceptable for us, and so we are continuing to look for ways to get more subscribers in, and our online solutions seems to be the answer, and that is the one we are leaning into.

Thanks.

And in the other business category, QuickBooks International Canada, UK, you mentioned that being an outperformer.

What do you think was the driver there, and is that sustainable?

Yes, we are seeing that the more we leverage what we have been able to create in the US and not ask Canada and the UK to deal with a version that is two or three years old but actually can get a fresher version from us, the more competitive our products are and the more our customers like them.

So what you're seeing up in Canada and the UK is success of QuickBooks.

You are seeing success of the online version of QuickBooks now moving into those markets, and you are seeing the success of Mint as we took it up into Canada.

And I think the same trends we are seeing here we are seeing over there, and we are excited about the future, and we are going to continue to take some of our existing solutions into those markets.

Jim MacDonald, First Analysis.

I have a question and then a follow-up.

You usually talk about Homestead Web hosting.

Any comments on that business?

Yes, Jim, it continues to do well.

It is bringing new customers into the franchise.

Its customer base continues to grow.

One of the things we were trying to do today is actually highlight some of the fastest-growing businesses in all the segments, but not go through everything.

And they grew quarter over quarter.

They grew over last year as well, and we are also attaching our payments product to those website customers at a healthy clip.

So we are excited about that business.

It is a new front door for our small business franchise, and we simply left it out because we were trying to streamline the script to get to some of the other areas.

Okay.

That is fair.

And back to TurboTax, if your largest customer grew units -- your largest competitor grew units faster than you did, who lost share?

Because it does seem like you grew units faster than the market for digital.

You know, Jim, if you break the digital category into two groups, you have got desktop software, and there really only are two players in that game.

There is us and H&R Block, and that is through retail.

And then if you go to the online, there are dozens of players.

Just go to the IRS.gov and check out the [free file line] site, and you will see a lot of names, many of which you may not even recognize.

And one of the analogies that I have shared with some of the people that I had the chance to talk to is, when two bears get to scrapping in the woods, sometimes the rabbits and squirrels get hurt.

And so ultimately it is not a zero sum game in the online space.

And we were able to grow share, and our major competitor was able to grow share, and some of the others suffered as a result.

Gil Luria, Wedbush Securities.

The fourth quarter for your tax business is not the biggest quarter, but over the last few years, there has been a trend for that quarter to grow very rapidly to become a bigger piece.

It has grown 40% to 60% over the last three years.

Can you talk about what has cause that trend?

Why are there more filings or you're getting more revenue in that fourth-quarter tax?

The only reason I ask is because that is going to be the difference between you growing 13% and 14%, which is a little bit of a difference in terms of creating a trajectory.

Yes, what we are seeing is not only a continued trend towards procrastination, people getting closer to April 14 and 15, for this year April 17 and 18 with the extension.

But we are also seeing more people file extensions and file their taxes later in the year.

So it is too early now for us to know because we had a nice completion to this tax season, but our anticipation is what you saw.

The last few years you have seen more and more of that business move into the fourth quarter, and so right now we tried to reflect what our best forecasts are into our fourth-quarter guidance, and we will let you know if anything changes when we have our next earnings call.

And then the second question is also on tax.

You talked a little bit about the things that helped you increase revenue per filing, free to paid and mobile application, etc.

What were some of the headwinds that you had in terms of revenue per filing that may have offset that?

I will tell you I think the main thing that we faced this season was really the confusion with the IRS around when you can file your return, when your refund will be delivered, and when you can have your return processed.

I'm not thinking of any other systemic issues that really caused us a problem either with unit growth or with monetization this year.

I think the first quarter just had a lot of confusion about when can I get my return filed and when will the IRS process it.

Scott Schneeberger, Oppenheimer.

On tax, Brad, you mentioned obviously yet another good year for digital growth.

But certainly store front grew many times faster than it has in a long, long time.

Could you just address what you think is driving that and how that may affect you going forward?

Is that a sustainable dynamic whatever it is that is driving the tax?

I would be happy to.

I would say first and foremost tax stores this year advertised quite a bit.

They were fighting amongst themselves, and there was a period of time in the early calendar year when you turned on the TV, and there were four or five commercials in a row, and they were all the competitors and tax stores competing with each other.

And so they created some awareness for that category.

The second is they got pretty aggressive.

Many of them offered free easy returns at a bricks and mortar tax store with some pretty heavy human capital as a cost structure.

And I think that drove some traffic into the store, and I think that was an aggressive action on their part to get the franchises growing.

Ultimately, though, as you said, they grew many times faster than they have in the past.

And if you actually measure it on a per return basis, I will have to go back and look at what the public records are.

But it looks like we're talking about some single-digit growth there in terms of tax stores, and it's not growing nearly as fast as digital.

So ultimately I think our long-term game plan is to ride effectively the tailwinds of demographic and technology changes, to continue to leverage the fact that we have a better value proposition that customers prefer over tax stores, and that is measured by net promoter, and the fact that it is 1/3 the price of going to a tax store to get your taxes done.

And so ultimately I think that is what is going to benefit us in the long term, and that is all we need.

Thanks.

And then just asking an earlier question in a different way, one of the areas that you are competing obviously is against the tax stores.

But then there is pencil and paper, and we are familiar there were no forms offered this year.

Could you just address what is left of that market to be grabbed, meaning pure pencil and paper, and how many more years is that a viable target for you?

Yes, it looks like from the IRS data that has been published that that category, which is paper and pencil, went down about 25%, 26% year over year.

That leaves single-digit millions.

I don't know the exact number.

We will have to wait until the end of the calendar year to see what late filings and other things produce.

So ultimately, at the end of the day, there's probably a couple of years left in that, although those are the hardest customers to blowout of their ruts.

So they may hang on a little longer, but that is not really where the game is.

The game is us making sure we have proved we have a better value proposition in tax stores, and the fact that we have CPAs using our ProSeries and Lacerte products, if you want to go to somebody, you should go to a CPA, and we are happy for you to go there as well.

And that is ultimately the opportunity that we see.

And one quickie final.

Were there any technology issues at all this year with regard to TurboTax early-season, late-season or was it clean?

Thanks.

No, there were not.

No technology issues related to our performance this year.

Kartik Mehta, Northcoast Research.

I just wanted to follow up a little bit on the paper and pencil issue you started discussing.

I'm wondering if you could talk about maybe how much benefit you got from the fact that the IRS did not send out forms this year, and as you said, there was such a huge decline in paper and pencil.

I think that we benefited as did the other software players in the market.

The digital category benefited the most.

And I think, at the end of the day, we will have to wait until the Investor Day to break out exactly what our sources of customers were, but there definitely was a tail wind as those forms did not go out, and people looked for an easy solution to file their taxes.

And so they went online and filed it with us.

And then moving on to the merchant business, more than likely the Durbin amendment goes into effect maybe in July this year.

Obviously there is an opportunity for processors to maybe make margin and revenue on this.

And I'm wondering what Intuit's strategy will be up for that business as it relates to the Durbin amendment?

We want to wait and see how the dust settles around the Durbin amendment before we are clear about what is the right thing to do to help customers and also continue to grow our business.

So if you don't mind, we will wait until all that has been worked out, and then we will be more than happy to share with you when we do our next earnings call and go into Investor Day what our game plan is to deal with the consequences.

Bryan Keane, Credit Suisse.

A lot of my questions have been asked and answered.

Just a couple of clarifications.

The self prep market over the last five years has grown about 7%.

Looking at the IRS data, it looks like it's going to grow at about 11% or 12% this year, so a significant acceleration.

Is that all due to the reduction in paper returns?

Anything else driving that number?

So, first of all, the IRS reports you see you will have to adjust that over time because there is people who actually buy software and print it out and mail it in paper wise.

And then others will send it electronically.

So it's not really an apples-to-apples comparison.

You are right.

The digital category has grown about 7%, and the current IRS report suggests in terms of total returns it came in about 11%.

I would go back to the fact that I think it is new filers entering the category who prefer digital solutions.

It is the fact that the manual forms were no longer available, so people actually chose to go online to do that.

And then ultimately our category benefited from both of those and grew.

I think those were probably the two biggest catalysts that drove the digital growth this year.

Okay.

The concern would be if a lot of the growth came from the manual forms not being sent out, then that gave the category a huge boost this year, which will create tough comps for next year.

Yes, we would say to you that we feel pretty good about looking into next year, and when we get to our August earnings call, we will provide our guidance, and we feel like that we are going to see the same thing continue, which is the digital category growing faster than the other alternatives with or without manual filers in the market, and we are going to continue to take share and grow revenue per return.

But I appreciate the question.

Yes, no, just looking at it.

And then just two quick ones.

In your quotes in that press release, you said in a particularly competitive tax season; what exactly did you mean by that?

That we saw aggressive advertising from some of our major competitors as we have been out there in the market doing.

We saw not only us and another competitor going free, but we had our other major competitor get out there and lead with free.

And I think at the end of the day, the good news was it created so much awareness around the digital category that that category grew and that we were able to hold our own and continue to gain share for the fourth year in a row.

So I think it was just a pretty competitive year, and quite frankly, competition is good.

Because it gets more people aware of the solutions, and the best company is going to win and we want to try to be the best company.

Okay.

And then just the last question for me.

If you look at -- a lot of times everybody will compare the units to revenue, and the delta on Consumer Tax was about 4 to 5 points last year.

This year it looks like it was about 2 points.

Is that difference just in mix, or is it the cross-sell and trying to get people from free to paid?

What is -- what makes that difference this year versus last?

The biggest driver really is people that are choosing the online services that are -- typically have a higher ASP and that also attach more services to it.

So the goal is still long-term to drive customers in and monetize them, focus on lifetime value.

But we are seeing a favorable mix change.

Laura Lederman, William Blair.

It is actually [Justin] in for Laura.

I guess, Brad, you called out some recent successes in the UK, Singapore, and then I think you have been in market in Canada with Mint for a couple of quarters now.

If you look out to the next year and maybe the next few quarters, what are some logical extensions in other geographies that you're looking at?

And then, as you think about your 2015 scenario, how much of your revenue in theory could be from the international mix because obviously it is still a fairly small piece of your overall business?

Yes, so in terms of the geographies, Canada and the UK are two markets we have been in, and we are continuing to expand our product portfolios there.

We are also in Singapore with QuickBooks Online.

As you know, we are in India as the largest emerging economy, and we have got several experiments going on in that market as we speak.

We are also doing some early investigation in Australia and New Zealand.

We work with a licensee in that market for our Small Business suite, and we have been testing whether or not it makes sense to take Mint and some other offerings there.

And if you had to kind of say, well, what is the logic behind that?

If you think about the Commonwealth countries, those who tend to be English-speaking, share similarities on things like how they look at accounting and value-added tax, those are the markets that we think are short-term opportunities for us.

And, of course, we are invested in the long-term in India and some of the larger emerging economies as we run experiments to see if we can find a way to grow in those markets as well.

In terms of our goal between now and 2015, we have not put a number out there other than to say we recognize we need to be a global company and a global economy.

And we are committed to continuing to grow our percent of revenue coming from outside the US over the years to come.

Okay.

And then if you think about your plan in the M&A market, if you think about any potential deals, would it more than likely be another (inaudible) acquisition, so a Medfusion type of scenario?

I'm just curious on what you are seeing in the M&A market in general.

So what we tend to do is look for talent and technology tuck-ins on businesses that will accelerate either our technology platforms with fast offerings like Mint did with Quicken or PayCycle did with our Payroll product or Medfusion did to help us get into the patient provider portal space.

We look for these startups that have really good talent that understands things like mobile development and tablet development, and they tend to be around our core businesses.

They tend to be nice adjacencies.

And so you will us continuing to look in spaces like Small Business in the front office area to help people get customers and retain their customers.

You will also see us looking at attached services for things like Payroll, and we may be looking outside the US as well as a way to accelerate our progress outside on the global front as well.

Okay.

And then last one, you talked a little bit about the market dynamic and sort of just a slow continual improvement.

I mean if you think about just taking the first three quarters of this year in a different market, in a more improving market, what would that -- so you have obviously taken your small business group and your double digits, you are in the 13% range.

In a much better environment, what could that look like?

I can't wait to find out.

Honestly, it is hard to call.

I will have to wait and see as the market starts to recover.

And I don't mean to be flip about it, but we are going to continue to improve our game, and as the economy gets better, I can't wait to test how high is high at the company.

Michael Millman, Millman Research.

Some more on the tax.

I might be looking at some different numbers, but it looks like with e-file that both ERO and Digital grew about the same, 12%.

So I was wondering if you think that is a one time based upon a lot of things that have been said?

Sort of related, it also looks like the amount of returns that were done off digital has seemed to have gotten much closer to the digital sales.

And so the question is, to what extent has some of your growth been related to converting from your all-in desktop to online?

And then H&R Block did very well this year obviously off of a low base.

But could you talk a little bit about what they did differently, and were you think that takes them in the future?

And maybe you can throw in TaxACT on that as well.

Okay, Michael, I will try to take those one at a time.

On the first one, I know we are all looking at a report the IRS puts out.

I think the last one they sent out was through the end of season, maybe early May.

The important thing is to look at the total number of tax returns filed, which the report suggests is about 1.5%.

What you see underneath is a big shift towards electronic filing whether it came in through a tax store, a pro, a CPA or digital.

And remember, this year the IRS really pushed hard to get people to electronically send in their tax returns if you are a tax preparer.

So a lot of that is mix shift where people who went to a tax store or went to a CPA who historically might have mailed it in, the IRS encouraged them strongly to electronically send that in and in many cases required it.

So what you basically see is that 1% growth, it was just greater mix of the number of people who electronically filed.

And so ultimately I think that is why you see the numbers of 12% and 12% between the two groups.

When you look at the last six to seven years, you can see that the digital category in terms of the number of people filing returns has been growing 2 to 3 times faster than those other alternatives.

And that is really what we look at, and once we get the final IRS numbers, we will break that all down for you, and we will share it with you.

But net-net I think that is why you see 12%, and 12% right now is the mandates from the IRS to get tax preparers to send things in electronically.

So you think this is just a one-year phenomenon?

Well, I actually think that you are going to see a continuing shift to digital tax prep.

I think in terms of the number of tax returns that got e-filed to the IRS, I think you're seeing some things happening this year as the IRS encouraged the tax preparers and those people who file taxes for their neighbors to send it in electronically.

So you're seeing that show up in the tax professionals line.

Let me move to the second question, and the second question for you, I believe, was around Block.

I guess there were two questions.

One -- that was the third question.

I'm sorry.

The second question was that the desktop, if you just look at you and Block, looked like it was more on the order of one return per desktop as opposed to historically double that.

And so a) is that what you're seeing?

And b) does that suggest to what extent historically has your own online been taken from your desktop, and if we are now getting to one in one, what does that suggest?

(multiple speakers)

I see.

So right now we are still seeing an average of about 2.1 returns for every desktop unit we sell, and you know it is one for one as you just as suggested online.

In terms of shifting from TurboTax online or to TurboTax online from desktop, we are seeing very little cannibalization of existing desktop customers.

That is why the base remains relatively stable year over year.

But it is the new customers coming into the franchise who are choosing online, that is causing online to grow 18%.

So we don't see a shift between customers.

We do see new customers choosing online.

And in terms of the returns per unit, it still about two for every desktop unit, and it is one for one online.

Okay.

Well, I might have to get back to you because the numbers would be a problem with those numbers.

And the other question was the Block question.

What did they do differently?

What does that suggest for the future?

I think we clearly have a ton of respect for Block, for TaxACT, for all the competitors.

What we saw this year out of Block was the same thing I think the market saw.

They were out there advertising aggressively.

They advertised both the tax stores and the digital category.

Thank goodness they advertised the digital category because that added their voice to ours, and that helped grow the total category, which is good news for everybody.

In terms of other things they did, they offered the free easy return to get people to come into the stores, and that helps them drive store traffic.

And I think their commitment from the things I read publicly is they are going to find ways to monetize those customers in future years.

We are going to find ways to try to get those customers into the digital category, so we will have to see how that all plays out.

In terms of TaxACT, we have got data that suggests that this was not a great year for them, that that is our internal data.

So we will have to wait and see when they come out and talk about their own results or after the H&R Block and TaxACT thing plays out, what is said about them overall.

But I think net-net Block did well, we did well, and I think some of the others had a little bit of a tougher year.

Yun Kim, Gleacher & Co.

So just comparing the growth dynamics of Payroll and Payment business segments, it looks like you have done a tremendous job of attracting new merchants for the Payment business, but I think you pointed out before on the call the number of Payroll customers have been really flat or 1% growth for you for a while.

What exactly is the difference between the two markets?

Is one completely high-end, the other low-end, or is there a way to be more aggressive on pricing?

Because I do remember a couple of years ago the growth in Payroll was driven by price increase and then just quickly how much of your Payroll business right now is online-driven?

This is Neil.

That is a great question.

And there are two very different customer segments that are driving growth in this case.

In the case of payments, as we talked about on the call, you are seeing GoPayments and you are seeing our website business be a great front door for us but tend to be very small businesses, businesses that are just getting started, just getting formed.

Clearly you don't need a payroll product until you are much further along, and you are actually adding employees.

And so we tend to see an opportunity for our Payroll Solutions much earlier in the life cycle of a small business than we do Payroll.

So it is a little later in an organization's maturity level and formation to come in on the Payroll side.

And, as Brad mentioned earlier, clearly we would like to see customers growing much faster than 1%.

But, at the same time, that compares very favorably to what we are seeing with other competitors in the marketplace.

So given the environment we are in, we think that is pretty respectable, and our retention rate remains very, very high in the Payroll business.

But it is a different customer set and a different lifecycle point when they are open to our services.

What is the attach rate of the payroll product for your QuickBooks Enterprise customers?

Because you're seeing pretty good growth out of that group.

Yes, we really have not talked about the attach rates externally.

Clearly Enterprise customers are more mature and later in their life cycle, so they are a much better prospect for Payroll.

But we have not talked about the attach rates.

Okay.

Great.

And then just shifting gears to Mint.com overall, can you just make comments about how that business is progressing and especially in terms of upgrading with your other products such as TurboTax and whatnot?

Sure.

This is Brad.

I would love to do that.

When we made the acquisition of Mint.com, they had about 1.5 million users.

They are now in the neighborhood of 6 million users in just about 18 months.

So they have really accelerated their growth rate.

If you look at the average revenue per user, which you know the customer does not pay anything for, this is actually a lead generation model where others pay us to be able to provide value to those end-users, we are still holding strong in that $12 to $16 range depending upon seasonality.

We are excited about Mint.

You heard us talk about the fact we have taken it outside the US into Canada.

The early results in Canada are actually outperforming the same amount of time when it was in the US.

So we like those results, and so we are looking at other countries.

We had a good season this year where we had TurboTax customers able to sign up for Mint and vice versa.

So we have got some good synergy there.

And, more importantly, we also have the Mint team teaching the rest of the organization how to introduce a similar monetization model in their products.

We call it the "ways to save" engine.

So net-net the Mint success story continues.

We are excited about that opportunity, and we are going to continue to push it as we move to the future.

Gentlemen, would you like to proceed with any additional remarks?

Yes, I just want to thank everybody.

I know that this season there was a lot of moving parts.

You had a lot of complexity, and the year shifts between quarters, delayed processing.

You got data out there from competitors.

You have got our data.

You have got the IRS.

Everybody is trying to make heads and tails out of it.

Let me just ask you to keep this in perspective.

Our Company this year continued to grow.

We grew our customer basis.

We gained marketshare.

We are able to grow our revenue.

We have adjusted our guidance to the high end of our guidance range, and we are feeling good because we had the secular shifts at our backs.

And so I hope that the story today helped reinforce the message we have been telling you, and we are looking forward to seeing you again when we are out on the road or when we talk to you on the next earnings call.

So thanks a lot for your questions today, and we will speak with you soon.

Ladies and gentlemen, thank you for participating.

This concludes today's conference call.