直覺電腦 (INTU) 2012 Q1 法說會逐字稿

Good afternoon.

My name is Sayeed and I will be your conference facilitator.

At this time, I would like to welcome everyone to Intuit's first-quarter fiscal 2012 conference call.

(Operator Instructions).

With that, I would like to turn the call over to Mr.

Matt Rhodes, Intuit's Director of Investor Relations.

Sir, you may begin.

Thank you very much.

Good afternoon and welcome to Intuit's first-quarter 2012 conference call.

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

Before we start, I'd like to remind everyone that our remarks will include forward-looking statements.

There are a number of factors that could cause Intuit's results to differ materially from our expectations.

You can learn more about these risks in the press release we issued earlier this afternoon, our Form 10-K for fiscal 2011, and our other SEC filings.

All of those documents are available on the investor relations page of Intuit's website at Intuit.com.

We assume no obligation to update any forward-looking statements.

Some of the numbers in 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.

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

I am pleased to share that we are off to another strong start in fiscal 2012.

First-quarter revenue was $594 million, representing an increase of 12% versus last year.

Our small business group led the way in the first quarter, growing revenue 13%, making it the seventh consecutive quarter of double-digit revenue growth in small business.

Across the board, our results are in line with our expectations and give us confidence to reiterate our guidance for fiscal 2012.

As you know, we typically report a loss in the first quarter of each fiscal year.

The good news is our operating loss this quarter narrowed significantly compared to the first quarter last year, reinforcing the strengthening benefit of our ongoing shift to more recurring, reliable connected-services revenue.

We are often asked how we continue to produce the kind of growth we have been delivering despite a volatile macroeconomic environment.

The answer is simple -- secular tailwinds.

They're overpowering any cyclical uncertainty.

We are well positioned and capitalizing on the long-term structural shift to connected services.

We're seeing the impact of this structural shift in each of our businesses.

For example, in consumer tax.

The software category has grown 6% on average over the past five years, far outpacing any other tax-prep method.

Professional tax preparers grew a modest 1%, and tax stores and manuals declined during the same time period.

In small business, our online and mobile solutions are our fastest-growing services.

We now have 300,000 QuickBooks online customers, 300,000 website customers, 200,000 online payroll customers, and over 100,000 customers using our newer mobile solutions.

And in financial services, our mobile banking customer base has tripled over the last 12 months, now totaling 1.2 million end users.

Intuit has another strategic advantage, 50 million installed customers.

As the old adage goes, it's easiest to sell to the customer that you already have, and we're doing just that.

We're enriching the mix as our customers rapidly adopt connected services.

This generates the recurring revenue streams that I mentioned earlier, as well as favorable lifetime value economics for Intuit.

In addition, we are also benefiting as customers attach additional services and adopt more full-featured offerings that carry a higher average selling price.

Let me share a couple of examples to illustrate the power of this favorable mix shift.

QuickBooks Online comes with a recurring revenue stream and a lifetime value that is 20% higher than that of a QuickBooks Pro desktop customer.

Posting 40% year-over-year subscriber growth in the first quarter, QuickBooks Online is one of our fastest-growing connected services.

In Payroll, the rapid growth in our Online Payroll solution, the increased success in attaching direct deposit, and a favorable mix shift toward higher-end products are all driving higher revenue per customer.

Combine these trends with customer retention rates in the mid-80s, and we have a large and growing Payroll customer base in which we can sell new solutions.

While enriching our mix and maximizing our upsell and our cross-sell opportunities are excellent leverage for growth, we're also staying laser-focused on growing our category by converting to non-consumption.

Our teams are innovating in key areas and are striving to simplify our first-use experience for users, making it easier for new customers to get up and running on our products and services.

This will continue to expand our categories and, over time, will convert millions of consumers and small businesses that do not currently take advantage of digital solutions.

Some examples include GoPayment, which, as you may recall, enables small businesses to accept payments anywhere on mobile devices.

Over 70% of standalone GoPayment customers are new to our small business franchise, and GoPayment is also attracting customers who sign up for a broader set of payment services.

Another great example is our recently-released Mint for the iPad, which makes it easier for consumers to interact with their personal finances on the go.

Early feedback has been very positive on this application, earning 4.5 out of five stars in the Apple App store.

When you put it all together, these opportunities are a reflection of our enduring strategy to capitalize on the long-term shift to connected services.

Our results in the first quarter reinforce that our strategy is working.

Our three-point growth strategy remains unchanged.

First, to drive growth in our core businesses, which benefit from high share, low penetration, and a superior net promoter score relative to competitive alternatives or other substitute methods.

Second, to build adjacent businesses and enter into new geographies, which we expect to add one to two points of growth over the next several years.

And third, to accelerate our Company's transition to connected services, which now represent 62% of total revenue with over 35 million customers using our hosted offerings.

I am encouraged by our results this quarter, but we realize we have plenty of game left to play this year, so we're staying focused.

With that, I'm going to turn it over to Neil to provide the financial details.

Thank you, Brad.

I will start with total Company performance for the first quarter of fiscal year 2012.

Our financial results were revenue of $594 million, up 12%; a non-GAAP operating loss of $29 million and a GAAP operating loss of $94 million; a non-GAAP net loss of $0.10 per share and a GAAP net loss of $0.21 per share.

As Brad mentioned, this represents significant improvement in our operating results versus the same period last year.

Turning to business-segment highlights, total small business group revenue grew 13% for the quarter.

Within small business, financial management solutions revenue grew 9% for the quarter.

QuickBooks Online and Enterprise Solutions customers grew 40% and 28%, respectively, again contributing to an improved revenue mix.

These new products combined now represent more than 20% of financial management's solutions revenue on an annualized basis.

Website supply, support, and other services represent almost 50% of FMS revenue and are growing in the low teens collectively.

QuickBooks Desktop represents the remaining 30% of FMS revenue.

Employee Management Solutions revenue grew 13% for the quarter, driven by online growth, improved direct deposit attach, and mix.

Online payroll subscribers grew 20%, and we've extended strategic partnerships to expand distribution of our new online Intuit full-service payroll solution.

Payment Solutions revenue grew 19% in the first quarter.

The number of merchants grew by 11% with 1% growth in volume per merchant, which drove most of the increase in revenue.

Adjustments in rates and fees, including those related to the Durbin amendment, benefited payments revenue by a few basis points in the quarter.

I would like to talk for a second about how we measure our performance in small business and some changes we're making to better communicate our performance as we continue to shift to connected services.

Historically, we focused on QuickBooks Desktop unit growth as a proxy for the health of the business.

But now, approximately 70% of small business customers enter the Intuit franchise via connected services, including QuickBooks Online and other services, up from 40% in 2008.

To reflect the shifting nature of our business, we've made the following changes to the fact sheet.

We have provided revenue breakdowns by connected services and product revenue for all reported segments.

We've added a more granular breakdown of the Financial Management Solutions revenue, added the total number of small business customers, added the total number of Online Payroll subscribers, and made some changes to the way we disclose QuickBooks units to align with internal metrics, which tie more closely to revenue.

We hope these changes give you a clear picture of our current performance and future growth potential, and we welcome your feedback.

Now, back to our segment results.

Our consumer tax revenue totaled $41 million in the first quarter, up $12 million from last year.

The increase is due to more people taking advantage of the filing extension and completing their tax returns by the October 17 filing deadline.

TurboTax for 2011 will go on sale at retail stores on November 25 and will be available online on December 1.

The financial services segment grew revenue by 9% in the first quarter.

We're adding financial institutions and end-users in line with our plans, and as Brad mentioned, we've done an excellent job of adding new services, like our mobile offerings.

Revenue in our other businesses segment declined 3% in the first quarter.

The decrease is primarily the result of a tough comparison for Quicken against the same quarter last year.

Shifting to the balance sheet, the sound financial principles that support our strategy and objectives have not changed.

We continue to generate strong cash flows in line with our operating income and maintain a strong balance sheet.

Over the long term, we expect double-digit organic revenue growth and we expect to grow revenue faster than expenses.

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

Beyond internal growth investments and M&A, we consistently return cash to shareholders.

On October 18, we paid our first cash dividend to shareholders, and our Board approved a $0.15 dividend to our -- for our fiscal second quarter to be paid on January 18 to shareholders of record as of the close of business on January 10.

Also in the first quarter, we repurchased over a hundred -- $250 million worth of our shares, leaving $2.4 billion remaining on our authorization.

It's important to note that we've reduced our share count by 5%, net of shares issues through our stock-based compensation plans over the last 12 months.

Finally, turning to our guidance.

As Brad mentioned, we are reiterating our fiscal-year 2012 guidance -- revenue of $4.185 billion to $4.285 billion for growth of 9% to 11%; non-GAAP operating income of $1.4 billion to $1.425 billion, growth of 12% to 14%; GAAP operating income of $1.185 billion to $1.210 billion, growth of 18% to 20%; non-GAAP diluted EPS of $2.85 to $2.94 for growth of 14% to 17%; and GAAP diluted EPS of $2.38 to $2.47 for growth of 19% to 24%.

You'll find a summary of our segment guidance for the year on our website.

For the second quarter of fiscal 2012, we expect revenue of $1 billion to $1.02 billion, non-GAAP operating income of $210 million to $230 million, GAAP operating income of $155 million to $175 million, non-GAAP diluted EPS of $0.43 to $0.47, GAAP diluted EPS of $0.30 to $0.34.

Last year, you'll remember that we saw tax revenue, as well as operating profit, push from our second fiscal quarter to the third quarter.

We're expecting to return to a more typical consumer tax revenue split between the second and third quarters this year, and we expect the shift to connected services to continue to improve revenue and profitability in our fiscal fourth quarter.

We're anticipating another competitive tax season and have allocated our resources appropriately.

Given these moving pieces, we want to provide additional transparency into our expected results in the back half of the year, so we're providing EPS guidance ranges for the third and fourth quarters.

For the third quarter of fiscal 2012, we expect non-GAAP diluted earnings per share of $2.45 to $2.50, GAAP diluted EPS of $2.34 to $2.39, and for the fourth quarter of fiscal 2012, we expect non-GAAP diluted EPS of $0.06 to $0.08 and a GAAP loss per share of $0.02 to $0.04.

As we stated in August, our guidance reflects confidence in our ability to grow, but also considers a wide array of macroeconomic variables.

It does not assume improvement in the macroeconomic environment.

And with that, I'll turn the call back over to Brad.

All right.

Thank you, Neil.

As you can see from the results we've discussed today, the long-term story remains the same.

We are benefiting from a secular shift, a shift towards connected services, and we have a durable strategy that is growing our categories and increasing our shares.

We're in a digital jetstream.

Consumers and small businesses are increasingly demanding access to applications anytime, anywhere, and on any device.

That demand will only get stronger with the proliferation of mobile devices.

Our job is to put innovative products in our customers' hands and to make it inconceivable that they could go back to manual or competitive methods to do their work.

We recognize how distracting it can be when the predominant news of the day focuses on the challenges in our global economy, so we feel very good about the resiliency of Intuit's business model and the consistent performance that we've been able to deliver.

I'm proud of our results so far this year and I'd like to thank our employees for their hard work.

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

(Operator Instructions).

Peter Goldmacher, Cowen and Company.

Hi, guys.

I want to ask you two quick questions.

First, Brad, would just love your thoughts on the H&R Block/TaxACT deal getting called off, and what you think that means for you guys.

And a little follow-up, during your analyst day you talked about some of your mobile initiatives, your social initiatives, and you made very clear comments that as they were -- success there worked back into numbers, you thought you'd be able to drive better growth.

Would love some anecdotes or anything you thought happened in the quarter that would add color to what you guys were saying at the analyst day.

Thanks.

Great, Peter.

Thank you.

Let me start with H&R Block and TaxACT.

Clearly, we had been preparing for either scenario and outcome, and we felt we were prepared for whichever way it went.

Obviously, the decision has been made.

We have a lot of respect for both competitors.

We also know both competitors really well.

We believe we have a game plan in place that will allow us to continue to do what we've done since we've competed with both of them for years, and that is to continue to grow the category and continue to take share.

So that's how we feel right now about that decision.

In terms of mobile and social, our teams continue to create innovative new ways to help customers solve problems through mobile devices.

Examples this quarter were the continuing growth of our IFS banking customers on mobile devices.

I mentioned that that customer base has tripled over the last 12 months, 1.2 million users.

We also have Mint for the iPad.

It was an exciting product that was launched to rave reviews, and we're excited to see the early results from that as well.

I just finished up a trip around all of our sites, visiting 15 sites in the last 30 days, and had the chance to look at some of the neat things that our engineers are working on in the pipeline.

And I will tell you, I've never seen such momentum behind an initiative as what we're seeing right now behind mobile.

So, lots of good stuff in the pipeline, some good things in the market, some very positive early results, and we'll have to stay tuned to see how much impact they have, but we're pretty encouraged.

Brent Thill, UBS.

Thanks.

Just on the payment business, do you expect the growth rate to change throughout the year?

I know it sounds like -- I don't know how many -- of the number this quarter, how much of that was one time versus recurring.

Yes, hi, Brett.

So our payments business is really building some momentum.

As you heard, our merchants were up 11%.

Total charge volume was up about 3%, and we're seeing really strong growth in our GoPayment application, which continues to accelerate as more customers want to use mobile devices.

We did get a benefit from Durbin that was a couple of -- two to three points.

The rest of it was all organic growth, and based upon what we're seeing in the market and our game plan, we believe we're going to continue to have a strong year in payments throughout the year.

And what you're seeing in these results is not one time; this is actually organic and, we believe, ongoing growth.

Laura Lederman, William Blair.

Yes, thank you for taking my question and thank you for a nice quarter.

Can you talk a little bit about the recent outage?

During analyst day, you talked about some of the measures you're taking to change that.

Can you tell us a little bit about what happened?

And secondarily, can you give us a little more update on GoPayment, the acceptance there, whatever metrics you're willing to share to help us understand the growth in that.

Thank you.

Yes, thank you, Laura.

Let me talk about the outage.

You're right.

Over the last year and a half to two years, we've recognized, since we've become more of a connected-services company, the most important feature a customer wants in any of those products is always on delivery, 24x7 availability.

I'm proud to say as a Company that we have made a lot of progress, but clearly we're not all the way across the finish line, as evidenced by an outage that our banking customers witnessed about a week and a half ago.

We had many of our banking customers that were without online banking capabilities for several hours.

It is deeply disappointing, and I can tell you that it is highly mobilizing for us as a team.

What basically happened was we had a severe hardware failure.

It created an electrical short that took out three independent UPS systems, and it also corrupted power so that our failover capability did not operate the way it should have.

We have gotten those banks back up online.

We've worked directly with each of them to ensure that we've made them whole and we've taken the necessary action in that particular business unit to make sure that we have shored up any deficits that we've discovered.

I will tell you that this is a journey for any company that does business online.

It's one we take very seriously, and obviously from investor day we've prioritized it, and we're going to have to learn quickly from these issues and make sure we're putting belts and suspenders in place that we prevent this from happening as we look ahead.

In terms of GoPayment, several key indicators right now.

The customer growth is up over 800% since the first of the year last year.

We are now processing about $5 billion in transaction volume on an annualized basis through GoPayment, and 70% of the customers coming in are new to Intuit, so they're incremental customers.

So all of those for us are very positive indicators that this is a business model that we like as we look ahead, and it's having a big impact on customers and also on our economics as well.

Walter Pritchard, Citi.

Hey, guys.

This is Ken Wong for Walter Pritchard.

Just two quick questions.

On your breakout that you guys have now, QuickBooks Desktop looks like it's probably growing low single digits.

Should we continue to expect that to be a growth business going forward?

And then, a second on the GoPayment.

That 70% of new incremental users, are you guys starting to see any cross-sell across some of your other products for these GoPayment customers yet?

Yes, thank you, Ken.

So let me start with QuickBooks Desktop.

The good news is we're getting past some growover challenges we had when we offered a free version of Simple Start over a year ago.

We no longer offer that.

So the year-over-year compares are a little challenging.

But as you pointed out, you're seeing some low single-digit growth in the overall QuickBooks units.

I think the reality on desktop is similar to what we've seen in other business units, like TurboTax and some of the other products that are shifted more to online.

Desktop will not be a robust grower going forward as more customers want their data in the cloud and they want to access it through online capabilities and mobile devices.

That's why we're seeing QuickBooks Online growing at 40%.

At the same time, I will tell you that our engineers have worked to get the data out of the C drive and up into the cloud for desktop customers so that they can access their data through mobile devices, so that will continue to make QuickBooks Desktop a relevant product.

But I would look at the total QuickBooks unit growth because that's how we manage it, total number of customers and not a particular product SKU.

So that's kind of how we look at QuickBooks Desktop.

In terms of GoPayment, yes, we are starting to see some cross-sell.

In fact, one of the things that we're delighted by is the customers that come in on GoPayment often go ahead and sign up for other payment services.

And so, we're starting to see them expand the relationship with us, and we hope that will become a new front door for Intuit and eventually we can sell additional products and services to them, whether it's websites or it's small business accounting or payroll.

Still early days there, but we are starting to see the first signs of that capability.

Great, great.

Neil, just to follow up, is there going to be a quarterly breakout of the segment revenue or is it just going to be the fiscal year?

No, we will continue to do this each quarter.

As we have in the 10-Q, we will pull it forward in the fact sheet as well.

Adam Holt, Morgan Stanley.

Hi, this is Jen Swanson calling in for Adam Holt.

I wanted to ask about the total small business customers metric, which I think is also new this quarter in the metrics page, and it looks like, overall, the small business customers have been pretty flattish for the last nine quarters, not entirely surprising given all that's been going on, but clearly Intuit has grown pretty strongly over that period.

So can you talk, firstly, about kind of the trends you're seeing there?

Obviously upsell is what is kicking in, but when do you expect to see that number start to grow as well, given all the front-door initiatives that you have going on?

And then, secondly, I know in the past we've talked about QuickBooks online being largely additive to the business model and attracting net new customers to Intuit.

I'm just sort of thinking about that versus flattish customer growth.

How do you reconcile those two items?

Thank you, Jen.

So I'll start first with total small business customers.

I don't need to talk about the macroeconomic conditions, and quite frankly, we see it as an opportunity and not a crutch.

So we're going to put that to the side, and tell you this is why this is one of our single biggest focus areas in small business this year is getting new customers into the franchise.

I will tell you that what we are dealing with right now is a little bit of apples and oranges when you look at what we're counting in our total small business customers and the things that we're trying to do as we look ahead.

So, number one, we've done some things inside of the small business space, like eliminate free Simple Start.

We don't have that going forward, and we brought in hundreds of thousands of customers in that product line, which going forward won't be one of the offerings.

So right off the bat, that's good news from an economic perspective.

We also think we have found other ways to attract this customer, but we do have a little bit of a compare challenge in the moment.

The second is we're making some decisions as we speak to do things like consolidating platforms in Payroll.

We consolidated a couple of online payroll platforms onto the pay [talk oh] platform we bought about two years ago.

And when you do that, and you force the customer migration, you do have some attrition challenges when you're getting customers from one platform to the other.

So net net, I would say that right now the 5 million small business customers you see is, A, indicative of where we are, but not indicative of where we plan to be.

I think we have a good product lineup.

We have a laser focus in the small business groups to accelerate that growth, and I think we have new offerings, especially those that are working on mobile devices, that will help us grow that small business franchise.

I will go back and tell you, though, it was just about 24 months ago that number was a little closer to 4 million, the 4.2 million.

So what you're looking at on this fact sheet definitely shows a relative stall pattern, but I don't think it's going to be indicative of what you'll from us as we look ahead.

Great, thank you.

On QuickBooks Online, the second question you asked, is it additive?

It is additive for us.

We're seeing right now in the neighborhood of somewhere between 60% and 75% of those customers that come in on QuickBooks Online are new to the category and new to Intuit.

So we do see those as incremental customers.

In fact, we're seeing the earlier-stage companies that are looking for the feature functionality that QuickBooks Online offers, and they also tend to look for anytime/anywhere access.

And so, we are seeing those as incremental customers.

As we see more of this mix shift go to online, I think that will be one of the reasons why you can count on us looking to accelerate our total small business space.

Jen, this is Scott Cook.

Your question had multiple parts, and I think one other part that addresses your question is how do we grow and continue to grow when the units that we report there are not growing at the same rate.

And that's due to [enriching] mix.

Because of QuickBooks Online and QuickBooks Enterprise, as customers buy those SKUs, the revenue we get per customer goes up compared to QuickBooks Desktop.

So as the conversion and transitions that you've heard Brad describe occur, our revenue per customer rises, which continues the growth.

Phillip Rueppel, Wells Fargo.

Great; thanks very much.

Brad, I think you mentioned retention of around 80%.

I wasn't sure if that was QuickBooks Online customers or just Payroll.

But at any rate, as you get more online customers, retention rate is going to be increasingly important.

Are you happy with where it is now?

Have you done any analysis on reasons for nonrenewal?

Could you just share some thoughts around that whole renewal and retention issue?

Sure, Phillip.

So the number that I mentioned was related to Payroll.

About a year and a half ago, we had retention rates in the low 80s.

We've now gotten it up into the mid-80s, and I'm very excited about how our Payroll team has been able to improve retention.

Am I happy with it across the Company?

The answer is no.

I think we have discovered real opportunities to improve the first-use experience on many of our products.

In fact, we find the attrition issue tends to happen in the first 90 days.

A customer comes in, begins to use the product, and if they don't find it easy to use or they can't get to the customer benefit quickly, they will quickly abandon it and go back to their prior method.

And that's why we talked about in investor day one of the biggest opportunities we have is to drastically improve the first-use experience.

Today, for 100 customers that use a product, we average between two or three that will actually come back and use it a second time or to stay with the product.

If we can simply add one more customer to that, to go from two to three, that's 5 million customers for us.

That's five points of growth to the Company.

So a big opportunity.

We're not pleased with where we are across the board.

Some products are doing better than others.

I think our Payroll team is probably ahead of the pack, and they're finding good ways to improve their retention.

Gil Luria, Wedbush Securities.

Thanks for taking my question.

When you talk about the positive mix shift, and Payroll is one of the examples where you talk a lot about the mix shift to online, but you also recently introduced a full-service product, the $99 a month price point.

How has that product been doing early on?

How has the competition reacted to that product?

Thank you, Gil.

We call it the Intuit Full Service Payroll product, and just to get people a quick context as to what it does, it guarantees accuracy on payroll taxes and to tax filings, so it's a 100% guarantee.

We have automated what often other companies have to provide through human capital.

We've written algorithms to prevent payroll mistakes and make it easy for you to get the benefit of a full-service payroll solution at basically the price of a do-it-yourself solution.

And the early results have been very positive.

In fact, we've announced several strategic partnerships with companies like Costco and Bank of America, who have chosen this solution over competitive alternatives in the market.

Clearly early days, but we're optimistic about the early results, and I think this has a chance to help us expand our presence in the payroll business and potentially create a disruption alternative versus some of the other methods that have been out there for years.

Got it.

And then, the second question on your app strategy, you mentioned Mint for iPad and the good reception for that.

But just over the last couple of years, you've added probably a couple of dozen of these mobile apps, and I was wondering whether you were willing to elaborate a little bit on how you expect to monetize.

Some of these are partial functionality, some of these incremental functionality.

How do you expect to monetize these apps?

Because within the iTunes store and the Android store you probably can't charge much for them, how do you end up monetizing them?

Yes, Gil, there's several monetization models we have.

As you mentioned, some of them are extensions of an existing product, like QuickBooks Desktop where you can get your data into the cloud and then access it through mobile devices.

That monetization model, we're now introducing a subscription service for QuickBooks Desktop so you can get the upgrades as a part of subscription and you can also access your data in the cloud and on mobile devices, so it's changing how we charge for QuickBooks Desktop.

We have others that are transaction fees, like GoPayment, where there's no subscription fee but it's 2.7%, a flat transaction fee for any transaction that you do through GoPayment.

We also have others, like Mint, where we have beyond user paid models.

Sort of like lead generation we have on the website, we do the same thing through the mobile device.

I will tell you that we are monetizing these.

We have tens of millions of dollars already on apps that we've got out in the marketplace, and the growth rates are accelerating very quickly, and the more we learn, the quicker we're able to accelerate the progress.

Michael Millman, Research Associates.

I wanted to follow up on an earlier question, and then I have a follow-up besides that.

And that's regarding the conversion rate, possibly, the average 2% to 3% who start who will remain.

Is that true also for TurboTax?

No, it's not.

In fact, when we talked about this, Michael, at investor day, we talked about we had a range, and some of our products are doing much better on that, but when you put them together and you have an average, I would say we're in the low single digits for many of the products.

We have others that are much higher than that.

TurboTax actually happens to be the best in the Company.

I think you had indicated that you had one that was 20%.

Does that mean TurboTax is the 20%?

Well, we haven't broken out each of the product conversion rates for competitive reasons, but I will tell you that TurboTax is definitely doing much better than what I just talked about a few minutes ago.

And maybe somewhat related, could you talk about whether you think the online tax product competes with the retail product?

And maybe you can talk about sort of the basis for what you're going to say and how that differs for existing versus new filers?

Michael, I just want to make sure I understand the question.

When you say the retail product, are you asking about desktop software or are you asking about tax stores doing tax preparation?

Sorry, the latter.

Tax stores.

Okay, so yes, I would say, first and foremost, if you look at the data that's been published by the IRS for the last half-dozen years, the tax software category, which is both desktop and online, has been growing 6% and the tax store category has been flat to declining.

So that in and of itself lets you know that if 3 million to 5 million new filers come in, and 141 million filers make a new decision every year, that it does indeed compete for those decisions, and the online version of tax software is taking share.

Our own data suggests, by the way, that the [assented] tax category, tax stores and others, have actually lost three points of share to the do-it-yourself or the tax software category over the last several years.

So I think, one, what we have seen is, as there is more of a shift to connected services, people want to access tools online.

You have the next generation of tax filers coming in, looking at mobile devices.

There is a natural tailwind toward the shift to digital services, and that's playing out in the tax business as well.

I guess, maybe quickly, do you think that a new or existing filer says every year, let me look at, compare the two, or do they typically have a major preference or major bias going in?

Well, I will tell you that our data suggests that their bias is increasingly looking online.

And I'll just give you an analog, Michael, because I was talking to someone about this yesterday.

Just think about our own behaviors.

How many of us now buy books at a bookstore versus go online and download them?

And how many of us rent a DVD or a video from a video store versus just doing a streaming video on pay-per-view?

And the same thing is happening as you move into taxes.

People are less and less inclined to go into a store, and more inclined to look for those solutions in a digital format.

And I think that's what you're seeing play out as more new tax filers come into the market.

All right, thank you.

Jim MacDonald, First Analysis.

Could you talk about financial institutions accelerating growth, and specifically, what's happening moving into the larger institutions?

And my follow-up is, maybe you can give us an update on how your partnership with Salesforce.com as an app is going?

Sure can, Jim.

So first of all, in the financial services business, we are very pleased to see the continuing progress there.

The online banking customers were up about 4%, bill pay up about 14%.

We've talked about the mobile banking customers tripling over the last 12 months.

Obviously, you see the revenue growth in the quarter.

We see that momentum continuing to get stronger and stronger as the business gets more focused and executes well.

I will tell you something we didn't mention in our earlier talk [tract].

Because of the question you asked, as we're focusing on larger institutions, right now we look at something called contracted end-users, and that is the banks we sell to and how many end-users did they bring with them when we convert them over to us.

Our first quarter and second quarter of this year, what we have in our pipeline, equals the full year last year of contracted end users.

So the types of banks we're bringing in and how many end users they have with them is just continuing to give us more opportunity to increase online banking and bill-pay customers.

So that's what's building the momentum.

We're getting customers in.

They're larger customers with more end users, and then we're able to convert them and get them on to our solutions.

I'll shift to Salesforce.com, and this one's a shorter answer.

We're still very encouraged about the opportunity.

It's very early days for us.

We're just getting the joint product into market, and so we'll have to stay tuned and see how successful this can be.

But I think both organizations remain as enthusiastic as we were, and we're just going to have to see the results, and then we'll talk to you about the results when we have more to share.

Kash Rangan, Merrill Lynch.

(Technical difficulty)

Sonya Banerjee, Jeffries & Company.

Hi, thanks for taking my question.

I really kind of just wanted to ask a bit about QuickBooks.

So in the past, we've heard a little bit about how the online version isn't at functional parity with the desktop products, which is intentional.

But our field work has suggested that desktop customers might be somewhat reluctant, maybe, to try the online product because of that difference.

So, I mean, where are you in terms of just fleshing out functionality of the QuickBooks Online product?

And, I guess, what are you doing to drive conversion of desktop users to the online products?

And I guess I have one quick follow-up after that.

Okay, Sonya, thank you for the question.

First and foremost, we're not trying to drive customers in any direction.

We want to make sure that we let the customers choose which product or platform they want to work with.

And you're correct.

We don't plan to have feature parity between the online version of QuickBooks or desktop.

However, what we are doing is we are enabling desktop customers to upload their data into the cloud, and then to be able to access that data through mobile devices and online.

So it gives them some of the benefits of having an online version with all the feature functionality of the desktop product.

But for those who want a pure hosted product, an online version of QuickBooks, then we obviously have that for them as well.

And we're seeing that play out well.

For customers who want the full-feature functionality, they're getting the data into the cloud, and for those that are wanting the anytime/anywhere access, they're signing up for the online version.

And we think having the choice is the best thing for the marketplace.

You said you had a second follow-up question?

Yes, just a quick follow-up.

So just as it relates to cross-sales of additional product to QuickBooks Online, can you speak to any of the initiatives that you have around driving higher attach of ancillary products, you know, for example, payment network or anything like that?

Yes, we can.

We are earlier days there.

We have Payroll that works with QuickBooks Online.

We have payments that work with QuickBooks Online.

You just alluded to something, which is the Intuit Payment Network, which we originally had launched with a desktop version that we now also have working with online.

And we're looking at other services that work with online as well.

That is a very fertile field for us.

And as we grow subscribers at 40% year over year and we add more attach services, that's just going to increase the lifetime value economics.

Scott Schneeberger, Oppenheimer.

Thanks, good afternoon.

Yes, I have three.

I'll ask them upfront, but happy to repeat them, all on the tax base.

Brad, now that we're a couple months past the investor day, what is your expectation for total tax industry growth in 2012?

The second question is I assume you guys are going to, in the tax season, give unit metrics for TurboTax.

Will that be third week of February (technical difficulty) March, April, as it is in the past, and specifically should we be focused -- will the comps be normalized by the time you report them in February or anything to keep in mind?

And then, question number three, is your thoughts, with H&R Block and TaxACT separate, on pricing in the digital space this year.

Thanks for taking all of them upfront.

All right, Scott.

Thank you.

I'm going to tag-team with Neil on this one, so I'm going to take the first and third, and ask Neil to take the second.

So first of all, on the number of tax returns going into the IRS, we believe that the tax returns are probably going to be in the neighborhood of a 1% increase year over year.

That's our best guess-timate right now.

It can be anywhere between 1% to 2%.

It may be a little bit higher, a little bit lower.

Did we share any forecast on that, beyond that?

So in that neighborhood of 1%, maybe 2% at the max, and that's pretty normalized.

If you think about the digital pricing with H&R Block and TaxACT, I think what you are going to see is what you have seen in the past.

It's a competitive playing field online.

The entry-level price point for all competitors starts with free.

Kind of hard to get deeper than free.

And the key comes down to who's the best at executing, has the easiest solution to use, and is able to deliver the maximum refund to a customer.

And that's what we stay laser-focused on.

So I don't think we're going to see any massive change from a competitive dynamic perspective on pricing.

What I do hope to see is a lot of people talking about the digital tax category and advertising it, because that will simply increase awareness of the category and get more people to raise their head and realize they're paying three to five times more going to a tax store than using software, and I hope that ends up being one of the outcomes of a highly competitive tax season.

And Scott, to your point about releasing results through the season, our plan is to continue on the same schedule we had as last year.

We will talk about tax units, and I would expect by the time we give our first release that the delay from last year would be normalized.

It would be caught up in -- so you'd have a comparable comparison point to point.

Thank you.

I'm showing no further questions at this time.

I'd like to hand the conference back over for any closing remarks.

Okay, thanks, Sayeed.

And I want to thank everybody for their questions.

Obviously, we're encouraged by the solid start we had in the first quarter.

I'm really energized by the momentum that we're seeing in small business with seven consecutive quarters of double-digit growth.

But quite frankly, we're seeing strong progress across the Company, so we're looking forward to our peak season in the next two quarters, and with that, we'll look forward to catching up with you sometime soon.

Thanks again, and we'll talk to you in a little while.

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

This concludes our program.

You may all disconnect and have a wonderful day.