Intuit's CEO Hosts Annual Investor Day Conference (Transcript)

| About: Intuit Inc. (INTU)

Intuit Inc. (NASDAQ:INTU)

Annual Investor Day Conference

September 24, 2013 11:30 am ET


Matt Rhodes

Brad D. Smith - Chief Executive Officer, President, Director and Member of Executive Committee

Dan Wernikoff

Jill A. Ward - Senior Vice President and General Manager of Accounting Professionals Division & Intuit Health Group

Daniel A. Wernikoff - Senior Vice President and General Manager of Small Business Financial Solutions

Daniel R. Maurer - Senior Vice President and General Manager of Small Business Management Solutions

Cecelia Morken - Senior Vice President and General Manager of Intuit Financial Services

Sasan K. Goodarzi - Senior Vice President and General Manager of Consumer Tax Division

Tayloe Stansbury - Chief Technology Officer and Senior Vice President

R. Neil Williams - Chief Financial Officer and Senior Vice President


Kash G. Rangan - BofA Merrill Lynch, Research Division

Sterling P. Auty - JP Morgan Chase & Co, Research Division

Peter L. Goldmacher - Cowen and Company, LLC, Research Division

Wayne Johnson - Raymond James & Associates, Inc., Research Division

Scott A. Schneeberger - Oppenheimer & Co. Inc., Research Division

Brent Thill - UBS Investment Bank, Research Division

Ross MacMillan - Jefferies LLC, Research Division

Raimo Lenschow - Barclays Capital, Research Division

Gil B. Luria - Wedbush Securities Inc., Research Division

Colin Wong

Walter H. Pritchard - Citigroup Inc, Research Division

Howard Roy Gleicher - Aristotle Capital Management, LLC

James R. MacDonald - First Analysis Securities Corporation, Research Division


Ladies and gentlemen, please welcome Matt Rhodes, Director of Investor Relations and Corporate Finance.

Matt Rhodes

Good morning, everyone. Thank you for joining us this morning here in the room, and the folks joining via webcast. It's great to have you for our Annual Investor Day here at Intuit.

First things first, just want to go through a few logistics here. For those in the room, these are new digs, as you can tell. We have restrooms around the corner. If you go out my door, this door -- I don't know that door. On my right, this door, around to your left, around the coffee bar, on the left will be the restrooms out in the hallway. We've got signs out there.

I know everybody likes new stuff at investor days. So we've got some cool, new stuff this year. We got the new QuickBooks that's just rolled out. That's going to be a focal point for today. We've got some other things we'll talk about. I also managed, with the partnership with my buddies in accounting to get some new language on these forward-looking statements. So I'm going to read those real fast here.

These presentation materials include forward-looking statements. There are a number of factors that could cause our results to differ materially from our expectations. Please see the section entitled Cautions About Forward-looking Statements and the enclosed appendix for information regarding forward-looking statements and related risks and uncertainties. You can also learn more about these risks in our Form 10-K for fiscal 2013 and other SEC filings, which are available at the Investor Relations page of Intuit's website at We assume no obligation to update any forward-looking statement. The information in this presentation is intended to outline our general product direction, but represents no obligation and should not be relied on in making a purchasing decision.

These presentations include certain non-GAAP financial measures. Please see the section entitled About Non-GAAP Financial Measures in the enclosed appendix for an explanation of the management's use of these measures and the reconciliation to the most directly comparable GAAP financial measures. Thanks for listening to that.

Something a little new this year around the demonstrations as well. Out in the lobby, during the break, we are going to have plenty of time. We're going to have a few minutes. We'll have 45 minutes. You get a few minutes upfront to take a break, make a call, send some emails, whatever you need to do. And we're actually going to have 10 instances of the same demonstration. It's going to be all about the new QuickBooks. You're going to be able to interact with product managers and marketing folks, who will show you how these products integrate.

The goal is to have you in very small groups so you can really interact with the products, touch and feel the product and understand how the new QuickBooks benefits the small business. So we hope you enjoy that.

There's also going to be a demonstration of how the accounting will work with new QuickBooks Online and how easy it is to press a button and export all of that data into a tax return for the accountant to prepare for the small business.

We are also going to have lunch here that will be around 12:15.

The other interesting thing that we have this year -- hopefully, you'll find it interesting is in your book, on the pocket, we have WiFi directions there. You probably figured that out already.

Beyond that, we also have a list of Intuit products. There's links to demos, so you can check the products out. And where possible, you can actually use the products as well. We have logins provided. So we'd love to get your feedback on that form itself, how we can make it better. It's going to live on in the Investor Relations site, just like all 160 of the slides that you have in front of you for this Investor Day. And we'd love to make it really easy for you to use our products, give us feedback on our products.

Okay. I think we're getting ready to go here. So let me walk through what the agenda is going to look like. Brad Smith, our CEO, is going to give you an overview of the company, our strategy and what we're going to be looking at moving forward, as far as growth opportunities.

For Small Business and Tax, we're doing something little different this year. We're doing multiple presenters. You can see multiple GMs there next to one presentation. Everyone is going to be up here visually and intellectually, demonstrating what it's like to have an ecosystem of solutions that work together for the benefit of our customers. After that, we'll have the break I talked about. We will give you chance to interact very closely, upclose and intimate with the new QuickBooks. We hope you enjoy that. After the break, Tayloe is going to talk tech. Neil's going to talk money. And then Brad's going to come back up for 45 minutes to do Q&A.

So we'll end about 12:15, is the goal. We'll have lunch from 12:15 to 1, and you can interact with the Investor Relations team and management for that time during lunch, before you head out. So we hope you enjoy the day. Thanks again for joining us. And without further delay, I'll bring up Brad Smith, our CEO.

Brad D. Smith

Thank you, Matt. You get the good job, man. I'll tell you, those forward-looking statements, you can have been a Masterpiece Theatre. You just got such eloquence, such inflection, no monotone, it's just beautiful.

Hey, good morning, everybody. Welcome to our 2013 Annual Investor Day. As Matt said, I hope you enjoy our new digs. This is our Cook Campus Center, named after Scott Cook, our founder. The original kitchen table, where he watched his wife, Signe, struggle to balance the family checkbook, which gave birth to Quick, and is sitting right on the other side of this hall, and our engineers come and sit there. So this is a wonderful testament of who we are and also, where we're going.

So with that being said, we've got a full agenda for you. So I want to kick it off this morning. I hope you're going to find what we have to share both informative and inspiring. And I'll start by talking about fiscal year '13 because that is a pivotal year in Intuit's history. It was a year where we drove a lot of proactive change, change that positions the company for an even stronger future. And what we want to do today is put that change into context and demonstrate to you how we're now positioned as an ecosystem of assets that builds competitive advantage and also increased revenue and cross-sell opportunities by working together, but it also sets up significant upside potential if we execute up to our capabilities. So before I actually get into the change, what I want to do first is take a brief look back at our performance in fiscal year '13, and I'll start with our financial results. And I realize at this point this is old news, but in the year where we had a challenging year in Consumer Tax, one of our largest business units, intuit still continued to deliver double-digit revenue growth, and we grew our earnings per share 11% year-over-year. But when you take that performance and you stack it up against the financial principles that we use to run the company, we would tell you in all candor, fiscal year '13 was a mixed year. 10% revenue growth did not reflect our internal aspirations, nor do we believe that reflected the total potential of our collective assets. And while our teams did a really nice job of managing expenses and offsetting that internal shortfall to revenue, we still came in, in the lower end of our guidance range of 50 to 100 basis points of margin expansion.

Now with that said, I would tell you fiscal year '13 had its share of meaningful wins, and we also exited the year with a laser focus on the areas of opportunity that we needed to double down on to take our game and our performance to the next level. So as we do each year, I want to share my reflections on both sides of this ledger. And I'll start first with areas where we continue to make progress forward in fiscal year '13.

The first is the company for the 12th year in a row was ranked as one of the top 100 Best Places to Work. And we also had employee attrition that was 300 basis points lower than our peers here in the Valley.

Now one of the reasons why the company continues to attract and retain top talent is we work really hard to take a 30-year-old company with 8,000 employees and break them down into smaller entrepreneurial teams, who use the Lean Startup methodology from Eric Ries, and that allows the best ideas to bubble to the top and get funded and then move out to market. So teams know that ideas with merit will actually get the management attention and will get them in front of customers. And that is enabling us, by the way, to produce some of the most elegant and delightfully designed products that I can tell you I've seen in over half a dozen years in this company. These are the products you're going to get a chance to see this morning in demonstration and be able to interact with during the break. Nowhere is this more evident than in the Small Business ecosystem.

In fiscal year '13, the Small Business teams grew our customer basis, expanded into new geographies and grew revenue 16% in a year where the economic environment is in no way, shape or form favoring small businesses. It is a very exciting year for Small Business. And I will also tell you that in this backdrop, we also took the time to step back and objectively assess our external opportunities and internally how we were organized and we made big decisions, in some cases, divesting businesses to get our company focused on the next chapter. So those are some positive things we're riding into fiscal year '14 with. But as I mentioned, we also had some opportunities that we needed to double down on.

In the headline, as I said, 10% revenue growth, we do not believe reflects the total potential. And our commitment is to continue to accelerate our ability to grow our top line. There are lots of ways to do that, but the one area we're laser-focused on is bringing new customers into the franchise and delighting them so they continue to buy additional services and tell their friends. That is a single focus you're going to hear come from all the presentations this morning, and it's also big opportunity for us over the next 3 to 5 years.

Now one of the big things in Small Business to accelerate new user growth is to increase the penetration and adoption of our Small Business ecosystem outside the U.S. And quite frankly, we have to accelerate our global penetration. That's an area that I'm constructively dissatisfied, and our team has a good game plan to do that. You're going to hear about that more in a minute.

And last but not least, you can't come out of fiscal year '13 without talking about the Consumer Tax trajectory. We do not believe this is a 4% revenue grower over the long term. So we're seizing this opportunity to step back, to rethink the entire do-it-yourself tax prep category and to think about our collective tax assets, both in Pro Tax and Consumer, to look for different ways to serve the market, and you're going to hear about some of that this morning as well. So that's fiscal year '13 in the headline. It had some hits, it had some misses, but the one thing we didn't miss was the opportunity to step back and say, "What can we do differently and better to take our game to the next level?" And that's what I want and I'll explain a little bit about, the big changes you heard coming down in the second half of the year.

Now for those of you who have been tracking us and following us and investing in us for some time, you know that back in 2008, we made the declaration to move from a shrink-wrapped desktop software company to a company that was going to embrace the cloud and capitalize on this platform shift to tablets and phones. We called that our Connected Services strategy. For 5 years that strategy has powered us through an economic downturn, it has doubled the number of end-users we now serve over a 5-year period, we have 2/3 of our customers already in the cloud and 64% of our revenue comes from subscription services and recurring revenue business models. But about 15 months ago, we saw a pattern. The pattern was some of our businesses was starting to experience a slowdown in momentum. And our teams inside were happy to work a lot harder to get the exact same result they had gotten the year before. So if you plotted our performance 15 months ago, which we did in a leadership conference internally, on a growth curve or an S curve, we said, "We were just about here." We were not out of gas, but we certainly were happy to paddle pretty hard to make it up to the next level of growth. And so we stepped back and we said, "What's going on here?" There has to be something going on in the marketplace that we've missed. And we engaged with the institute for the future and we looked at the external trends that are happening in technology, the demographics, sociology, all the things that could impact our customers. But we also did something else. We learned from the best rule makers. We selected 15 companies that we admire, 15 best-in-class product companies that are innovating and growing. And I, Scott Cook and each of our Senior Vice Presidents shadowed each of those leaders for an entire day. We watched how they made decisions, we watched how they build products, we watched the kind of environment they created and we came back and we shared those learnings. And that led to an updated version of Connected Services, our strategy, which we shared with you last year. So that was sort of Chapter 1 of changed management. But after Investor Day, we didn't stop. We began to look inside, and we said, "Okay, now, are we organize in a way that capitalizes on these lessons we learned from these other companies, and are we really lined up against this new strategy?" and the answer was, we were not. We discovered we had areas that we weren't investing enough in, like global, the importance of accountants, the fact that some of our business units were set up in a way that it took 3 or 4 decision-makers to get in the room to agree to prioritize something. And we also found a couple of businesses that didn't fit strategically anymore: our banking business and our healthcare business. So in the spring, we executed project bode. Bode is the biggest change management effort that we've undertaken in my 11 years in the company. The goal was to narrowly focused the company on 2 big strategic outcomes, to be the operating system behind Small Business' success and to do the nation's taxes. Perhaps, what's more powerful about Bode is it's moved us from individual silo-ed business units and closed garden products to an open platform and now an ecosystem that works better together, and the whole is greater than some of its parts. And the intent of Bode, and we fundamentally believe with a high degree of confidence, it will help us jump the S-curve and reaccelerate our growth as we look ahead.

Now that's the setup on the change. What I want to do now is share with you how it all comes together and preview what you're going to hear from the presentations following me this morning. Fair enough?

All right. So every strategy begins with a mission. While we exist, and our mission started 30 years ago when Scott Cook sat at that very kitchen table I mentioned a few minutes ago, watched his wife Signe, struggle to balance the checkbook, and he had an idea. There has to be a better way to improve people's financial lives and do it in such a way they can't imagine going back. And Scott had 49th mover advantage. 48 other software packages were out there before him. But within a period of weeks, by simply taking a picture of a check and putting it on a DOS screen, every man and every woman said "I can type faster than I can write" and quickly moved to #1. And we've held that position in personal finance since. A couple of years later, we discovered there's another big important problem for consumers. They were struggling with taxes. We found a company called Chipsoft, who had done exactly the same thing, taking an actual form out of the Post Office, put it on the DOS screen, then people could type faster, and they were #1. So we moved in the Consumer Tax space. And then a few years later, we discovered something very interesting. Almost half of the customers using Quicken were small businesses. They felt the small business products were too complicated, and that led to our third big growth driver, which is QuickBooks. And so for 3 decades, we've been very clear. The customers we serve are small businesses and consumers. And we learned, over 3 decades, that they're most important partner is their accountant. Their accountant helps them do their taxes in many cases, their accountant help them with their payroll decisions in their accounting. But I will also tell you, we tried a lot of stuff over 30 years. We moved up into the mid-market space and bought some software verticals, and we weren't very good at that. We moved into the digital banking space with digital insight and then healthcare. And what happened there is, in both instances, the decisions began to be made further and further up the food chain and turned into enterprise sales, and we're a consumers and small business company. So in the spring, with project Bode, we divested those businesses and realigned the company with these core customer groups. It was intended to get us laser-focused on our customers. And we're very clear what kinds of products we build. Our products, at the end of the day, help people do stuff they don't want to do. They don't want to pay bills, they don't want to have to think about taxes, they didn't start a business excited about payroll. Our job is to make those mundane, complex tasks strut and simple so they can get on to the things that give them passion. So that's our mission. Very clear.

We also have a set of values. Every company has a set of values. We talk about ours a lot, but it's really important today, and I'll tell you why. Because we have a lot of data in the cloud now and consumers and small businesses are spooked about all the articles they're reading about privacy and security. They need to know they're dealing with a company who believes it is not our data, it's their data, and we will only use the data with their permission to do things that benefit them. So that's where we talk about our your values.

Now the third part of our strategy is every company tries to choose something that they're going to be known for, that makes them different and unique and makes their products better. We choose 2 things. This is where spend our time every day. This is where Scott Cook, our founder, invest 100% of his time. We work on 2 things: customer driven innovation that defines where were going to focus our resources and our team and Design for Delight. That tells us how we're going to build our products. Now you've heard these before, customer-driven innovation is our approach to looking for big, important problems with not a crowded marketplace, not everybody and their brothers are trying to solve it. We look at places that aren't being solved well. We look for a way to solve that problem either through our own products or through our partner, and we try to build something the creates a nice competitive advantage and grows the business. And then Design for Delight is how we keep this 8,000-person company moving like a start-up because many of our competitors are coming out of dorm rooms and garages. So we break the company down into small teams, they use Lean Startup principles, they run the scientific experiment and they validate which ones we should invest in and they shut down which ones we shouldn't. This is what's been neat. We've had 1800 experiments over the last 18 months that are live in the company. We didn't fund all 1800. These are small little rough prototypes. But the teams actually helped us narrow down to the right ones by applying what we call succession metrics. Succession metrics have enabled us to get $100 million in revenue from products that were not in the market 36 months ago. Our innovation pipeline has never been stronger, and you're going to see some of those results today with the demonstrations that come out. The succession metrics are very simple. Before you tell me it's going to be $100-million business, show me that one customer loves it. And then once you do one customer, show us that cohorts of customers are increasingly getting better results or getting better funnel metrics and you have some sort of a business model that we're going to get paid at some point down the road. And then you go into market metrics, and it's all about customers. How many customers are adopting, are you displacing the alternatives and then ultimately, that leads to financials. And by being very disciplined, we're starting to get an increasing batting average in terms of innovations that are hitting the market and winning. So that's our approach to core capabilities.

And then finally, you want to know how we measure success in the company? This is how the Board measures my performance, this is how I measure each of the leaders and the employees in the company. We're all responsible for having great employees, who have high engagement scores that would recommend our company to a family member, and they don't leave. We strive for single-digit attrition, and we have it. We look to grow our customer bases. Our products have to have a 10-point advantage in Net Promoter over the best competitive alternative. And you know, in financials, our goal is to grow double digits organically, to expand our margins 50 to 100 basis points and to invest our cash in anything that will produce a 15% rate of return. So those are the fundamental things that we've had. Pretty consistent. I know I talked about these in the past. My mother told me that repetition doesn't ring the prayer. So I'm just reminding us again, these are those things that continue to be a part of who we are. But as I shared 15 months ago, we came to a realization: they were necessary, but they weren't sufficient. So we e back and we said, "Something has to be different." And when we work with the Institute for the Future we saw 4 big shifts. Shift #1 is social. Now researchers don't call it social. They call it participation-driven innovation because they get paid by the word. But what it basically is, is we don't want to be customers anymore, we want to be participants. We're going to tell you what music we've put on our MP3 player, what apps we put on our tablets and phones. And companies that are winning today just don't have awesome products, they have products and platforms. Those platforms enable you and me to configure the product to make it just for me and enable third-party developers to do stuff for us while we sleep so we can focus. That's a big theme #1. Big theme #2 is the world's borders are gone. The cloud has no borders. Companies can now solve important problems across lots of geographies much more efficiently than we could in desktop. But it's a two-way street. Now global competitors can enter our markets as well. The third big shift is mobile. We've talked about the computer moving from the desktop to the palm of our hand, well, hell, now it's moving to our eyewear and glasses and into our wristwatches. We have to reimagine our products not built 30 years ago, but 30 days ago, and how will customers want to interact with the kinds of things we do with all these new mobile devices available. So we've talk about the mobile-first, mobile-only mindset. And the last is, of course, the big buzzword, data. Data that helps consumers count calories, measure how many miles they've walked. You can put a little device in an audio jack and turn a phone into a cash register. This is the era of data for everybody, and these were the 4 big things.

And last year, we shared with you a refreshed Connected Services strategy. This strategy not only capitalized on those things, but it took the lessons from these 15 companies that we followed and we learned and we benchmarked from and said, "This is the way we're going to chart the course for the next 5 years." The first is our products have to be awesome, but they have to be awesome in a world that is mobile-first and mobile-only. They have to be reimagined for tablets and phones. You've heard the old cliché, you cannot put an elephant on a diet and hope to get a mouse. You have to reimagine your product as if that was the metaphor it was designed for. The second thing we said is we can't just have great products. Now our products have to be open platforms, platforms that enable end-users to make it right for them, third-party developers to easily write to, and yes, even competitive products to interface with so we reduce the friction in our customers' office. And finally, we have an opportunity to capitalize on the data, data that will enable us, with the customer's permission, to make our products effortless, where they don't have to key anything in and get insights around things that will help them improve their lives. So that's our strategy, same strategy we talked about last year. But in the spring, with Project BOLD, the reorganization, we focused the strategy on 2 big outcomes: first, be the operating system behind the Small Business' success; second, to do the nation's taxes. And as I said earlier, the magic here is it took this very proud, entrepreneurial, small team portfolio of businesses and said, "We're now one Intuit." and how do you we erase the organizational seams that show up in our customer experience and basically harmonize it so that our products start to flow more fluidly between and amongst our customers.

So what you're going to see this morning, first presenters -- Dan Wernikoff leads financial solutions. Dan Maurer leads management solutions, and Jill Ward leads that green box in the bottom left, the Account Advisory Group. Together, they're going to show you how this works. They're going to talk to you about the first core strategy, to be the operating system behind Small Business' success. They're going to paint the picture for the total addressable market. And I'll tell you in a headline, tens of millions of people in U.S. that aren't using our products, 600 million around the globe, $2 trillion dollars flowing through QuickBooks, we're getting less than 1% on our payments today. Tons of upside. But we cannot approach it the way we have been. What is that, you say? GM #1 sells a customer, then GM #2 knocks on that door and tries to get them to make a second decision to buy and attach product, and then GM #3 calls and tries to get another decision. Individual decisions aren't the way we're going after it. We're going after it in a harmonized operating system.

What you'll hear them talk about is the definition of what we mean by operating system. We know when you use that term, lots of different companies and things come to mind that will describe what it means. But in a headline, it's a seamless experience across products and customer groups. It is now an open platform with one single cloud, and it creates interoperability between our products and third party and in some cases, even competitor products.

We're excited about it, but what's most important is we've been testing this for over a year, and we stood in front of you and talked about our aspiration to grow customers. Our results suggest that we can accelerate our Small Business customer base.

Last year, we told you we had several million customers that we felt we could grow over the next 3 years. We've now set a goal that we think we can double our Small Business customer base by 2018 to 5 million customers.

Now we've laid out the assumptions here for you, but you're going to hear the team talk about it later. We have proof that leads us to believe there's an exciting opportunity here.

The second thing that came out of BOLD was the focus on taxes. And you're going to hear Sasan Goodarzi, who leads Consumer Tax, the upper box on the right, and CeCe Morken, who was our General Manager at Digital Insight. She now leads the Accountant Tax or the Pro Tax business in the bottom right. And they're coming together to do the nation's taxes. Now you may notice, a little subtle hint here, the apostrophes after the S. That's not my southern grammar run afoul. There are actually 2 companies today, Canada and the U.S., we're focused on, where we have Pro Tax and a Consumer Tax franchise. But we also realized we're going to run more experiments. We may go to other markets down the road, but at least today, we're in 2 countries.

Now they're going to talk to you about the total addressable market. In Canada and the U.S., there are 171 million people filing taxes with their governments. For all of you who have been following the tax category, you know, there's 2 ways people typically do their taxes. They either do it themselves with software or paper and pencil, or they have someone do it for them, either through a CPA, a chartered accountant, or a tax store.

Over The last 5 years in both countries, if fact holds true, manuals are going away and software is growing, CPA is growing and tax stores are not. And the #1 market leader in both Canada and the U.S. and the 2 growth categories, CPA and software, is Intuit. We have a 33% share in the Pro Tax category. The next closest competitor has a 17%. And we have a 62% share in software. The next closest competitor has an 18%. But just like we learned in Small Business, we can't do it the way we've been doing it. We have to step back and reimagine how we have an ecosystem of assets and we have to rethink how taxes get done. So they're going to talk to you about a tax ecosystem.

Now I'll give you a little sneak preview. I'm also going to let you know, we're not going to share everything about TurboTax today. We're going to share more about Pro Tax, and Sasan is going to talk to you about his focus areas in TurboTax, but there's still too many weeks left before we get to peak season, but we have some very exciting work going on in the Consumer Tax space.

Let me paint a little bit of a teaser. Chapter 1 was when Chipsoft, TurboTax went bottom, took a picture of a form and put it on a DOS screen. Chapter 2 is when Intuit transformed that into an interview of questions and answers and your taxes were done, which has allowed us to grow the 62 share. Our next chapter is to leverage our single cloud and make taxes effortless. And we have an exciting set of things coming out even in this tax season that is going to take a big step forward on this multi-year journey. Now the same thing's happening on Pro Tax. We are facing a once in a generation platform shift in the accountant community. Consumers started on the journey in 2005. Small businesses are really in the thick of it now, and accountants are jumping onto the cloud. We have a 3 year head start on our Pro Tax competitors with a cloud-based version of our tax product, and we are ready to have a land grab. But what's neat about it is accountants don't only do Consumer Tax. They also do Small Business tax, and you're going to see the demonstration during the break, where by using QuickBooks online, and the accountant has a version of that called the QuickBooks Online for accountants, that data that happens throughout the year, they simply press a button in tax season, it goes into our cloud-based Pro Tax product, and does the taxes for the Small Business. Taxes are done. Now I don't know how many of you are CPAs or have family members or friends who are CPAs. January 1 through April 15 is not the happy time in a CPA firm. If you can eliminate tax drudgery, tax prep drudgery, you have really done something here that can transform the industry. We believe in this. We're excited about it. We've got the data and the proof points and the products. And just like the Small Business team, they signed up for a goal of adding 20 million filers over the next 5 years. What's the method behind this? It's 51% of all the tax returns in Canada and the U.S. That's our goal.

Now that's project bold. That's moving the company from individual siloed products into an ecosystem, but none of that would have been able to happen if we had not begun the journey 5 years ago to go from a desktop software company to a cloud-based company. Empowering all of this now is a single Intuit analytic cloud, a cloud with more data and more opportunity to solve important problems than anyone in the market has on small businesses and consumers for the kinds of stuff we track. Our Chief Technology Officer, Tayloe Stansbury, is going to come up and demonstrate for you how this very simple and colorful durable technology strategy here has helped our company go from desktop to the cloud over the last 5 years. You may remember, we had an embarrassing outage in 2007 on April 14. Since that time, we have been consolidating our data centers. We've been be re-architecting our products. We've been strengthening our cloud. All of our products now are pretty much disaster recovery protected on the active, active or active, passive continuum. They've also been using the cloud and our technology teams to reduce the friction between our products. You used to have to do a 5-page application to sign up for payments in QuickBooks. Now you literally flow the data in, and payments is already enabled, and they've been driving our mobile journey too. This is something that a lot of people just don't think about when you think about accounting and tax, but we've increased our mobile customers 5x. Every 10 million customers are using mobile devices. It's a huge opportunity for us. And so you're going to hear about this, but what you're going to hear Tayloe drill down on is our focus area right now is our developer platform and our data platform.

How do we make our products easier for own internal engineers to write faster and innovate faster but also allow third parties to interact with? And he's going to show you a couple of demonstrations of products that are literally in market that we think could help transform the company. Then I'm going to wrap up with my friends in marketing, because I will tell you, too many years, we've all gone to our family reunions and barbecues, and said, "We work at Intuit." And they say, "Who's that?" Oh, we make Quicken and QuickBooks and Mint. "Oh, I love you guys. I know who you are." Well, this independent streak we've always had at these teams that basically operate in the silos showed up in our go-to-market model. And quite frankly, it became an Achilles heel when you move into app stores. These are all the apps that we've had for individual products. Unless you worked at Intuit, other than the ones in the bottom, you wouldn't be able to tell us whether that was an Intuit product. So last year, we began to test some things, and what we discovered is by simply putting the name Intuit in front of Mint, it increased the trust in Mint 46%. We also discovered about running ads in TurboTax in tax season by putting Intuit at the end in the beauty shot. It had a halo effect for the other products. So we've made the decision, and every product coming out this year is moving from a house of brands to a branded house. This helps with search engine optimization, search engine marketing. It helps with find-ability in the App Store, and it helps when we advertise the Small Business big game, the Super Bowl ad, that will have an effect on TurboTax and vice versa, and we're very excited that the whole ecosystem is now operating as one.

So I'm going to wrap up so we can get to the good stuff. There's a lot of change. One thing hadn't changed: the mission that we started with 30 years ago and the fact that our products are designed to make these complicated things that no one wants to think about very simple. But I'll tell you what has changed: we have the next chapter of our Connected Services strategy to find and the entire company mobilized against it. We reorganized last year to focus on 2 big goals. We've got our incentive structure lined up against customer growth. So our teams are going after customer growth, and we're now operating as an ecosystem that makes each other stronger, which makes it harder for competitors to move into the space. I'm excited about the next chapter, and I'm excited for you to get the chance to see it, to hear it and ask questions of our leaders. And so with that, I'm going to introduce the first speaker this morning, Dan Wernikoff, Dan Maurer and Jill Ward to talk about our goal to be the operating system behind Small Business success. Thanks. Team? This is a garage door opener. The place is the clicker.

Dan Wernikoff

Excellent. Thanks you, Brad.

Brad D. Smith

All right. You go it.

Dan Wernikoff

[indiscernible] All right, where are you guys putting these? Want me to throw them down on the end maybe? I spoke too long. That's great. All right, I'm Dan Wernikoff, Dan Maurer, Jill Ward, and we're going to go through the Small Business section of the presentations today. And we're going to start where Brad just left off, which is our strategic goal to be the operating system behind Small Business success. So there's a little lingo in there, a little jargon. So we're going to try and make this clear about what we mean when we say in operating system. And for those of you in the technology space, an operating system is really just software that manages computer hardware resources. And it also allows for a common interface so other applications can play nicely together, and create a seamless experience for customers, and that's really what we're trying to do here, but rather than think about computer resources, think about the small businesses resources, and the small businesses' 2 most important resources are time and money. So we're really here to help them manage their time and money more efficiently, and we're here to create a great experience across all of the solutions that they use. So there's 3 dimensions to this. The first is this idea of simplifying the business of life. When you visit a customer, you realize just how many applications they use. They may be using 3 or 4 of our own applications, but they're also using other business applications to run their company. So how can we make it easy to make those things work together? The second thing you see is that they're now working across multiple platforms. And when you think of an operating system, we like to think of this as more of a Chrome Android or iOS-type operating system, where you can start to see it converge across multiple platforms. So you're familiar with the product the moment that you pick up a new device. It's also important that it not only works on all devices, but it works anywhere where you are. And in this case, we start to think more about being a global company, how do we take our product and make sure that it's globalized so it can be accessed by anybody in any geography.

And then the third piece is how we use data. So as we see more and more customers using more and more of our solutions, how can we create a great experience based off of what we know about our customers and not just individual customers, but our whole base. And what you see up here is an image of a rainbow, and I'm going to go through what that actually is in about 5 minutes, and that's going to show you the new first user experience of QuickBooks Online, which is all about leveraging all of the insights that we have about our small businesses. So those 3 things, if we do them well, the Small Business doesn't really have to work -- worry about time or technology. They can just focus on what they do, which is be a successful small business.

Now we serve a really diverse ecosystem. We call ourselves a Small Business Group, but the reality is small businesses touch everybody. And so you can see there's their employees, and there's their advisers and accountants and there's Other Businesses that they trade with and there's their customers. And this is where, historically, we would've broken out into 3 or 4 different presentations about how we solve each of those different groups' problems. But today, we're going to talk more about the relationships, which are pervasive across these groups. You can start to think of them all transacting every day all day long. And so what are those relationships and what opportunities they open up? Well, an obvious thing is money moves back and forth between all of these people. An adviser is someone that you pay. An employee is someone that you pay. A customer is someone you pay, and people are paying small businesses all day long. So we have this money that moves back and forth. When we talk about the commerce network, when we talk about payments in general, we think about how can we leverage the transaction that's flowing through QuickBooks. There's also marketplace opportunities. So in every one of these different segments, you have a Small Business that's looking for an adviser or an accountant. You have an accountant that's looking to grow their firm. Or if you think about Demandforce, the acquisition that we had, all small businesses need customers, and all customers need service providers, and so we're really sitting in a middle of a lot of these network effect-type platforms.

Now we also think of this as a big opportunity that we haven't necessarily tapped historically. So if you were here 5 years ago, you would have heard us talk about retail market share of our desktop product and how high it was. And that was one of the things that we felt like didn't give us as much room to grow. Now we think of it very differently. In fact, if you look at the U.S. Small Business graph, you're talking about 29 million small businesses, of which we have 4 or 5 million QuickBooks customers. So lots of opportunity just in the U.S. And one of the things that we realized is that not all of them really need QuickBooks. So a good chunk of them are self-employed. We call them solopreneurs. And for them, they don't spend a ton of time on finances, but they have other problems like project management, expense management, tax compliance, and so that's a big area of potential growth for us. And we'll start to see us attacking that in a different way going forward than just trying to sell them QuickBooks.

The other piece is there's 600 million small businesses worldwide, and the vast majority of them actually looked like the self-employed simple business. But there's also about 50 million small businesses worldwide that actually look like U.S. QuickBooks customers. And so this is a big untapped opportunity. Well, we've just entered the space over the last year, but we see a big opportunity for growth.

And the last piece is if you think about commerce that happens within the QuickBooks space, about $2 trillion dollars of commerce happens within QuickBooks, and yet, despite the fact that we've had one of our most successful businesses payments and it's up around $25 billion dollars of charge volume, that's about 1% penetration into that commerce. And so we think of these as all big opportunities, and that's where we set our goal. So how do we double our customer base, get to 10 million active users per year, and how do we penetrate our services with 10 point attached increases every year. And so both of those roughly, to give you a sense of what that would look like from a shareholder perspective, is each of those is easily over $1 billion dollars of revenue opportunity, and so redefining our space a little bit.

So one of the things -- we're not the only ones that see our space as an attractive space, and we've been aware of when there's a platform shift both in mobile and online, you're going to see new competitors. But this is something that we've thought about for quite some time. And if you think about some of the investments we've been making over multiple years at this point that are now coming online, we feel pretty confident in our position. So Brad talked about some of the global competition. Well, that's something we identified a while ago, and we've actually globalized our platform and build global first on all of our solutions at this point because it's opening up our market. And one of the interesting things has been to see just how strong the QuickBooks brand is in markets that we haven't played historically. And so this investment has been really important, and you'll hear us talk more about how we're approaching Global.

The second piece is apps that grow up. So we've made a significant mobile investment. All of our QuickBooks products are on every popular mobile platform at this point when we talk about Android, iOS, phone and tablet, and so this has been a big area of investment that's allowing us to solve different problems for small businesses that we've historically solved with in the back office. The third piece is ecosystem, and I won't go deep on this. Hopefully, you'll see it when we start talking about the interrelation of our solutions, and how much we focus energy on harmonizing the experience across our applications. And then the last piece is platform where we've spent a significant amount of resources to enable our platform to become open so that third-party applications, along with our own solutions, can work together seamlessly. And today, we'll talk a little bit more about that as well.

So all of that's incredibly important because we've seen a big shift in our base, and I've shared this chart last year, and I'm happy to say that the forecast has completely played forward. We now have over 1 million connected QuickBooks customers, meaning, that their company file is in the cloud, and that's present 2 ways. One is a QuickBooks SL customer that connects their company files so they can get access to either a mobile solution or a web solution that works with QuickBooks, and the second one being QuickBooks Online growth itself. There's about an even split, in fact, in the 2 segments, but we see faster growth in the base of QuickBooks Online going forward, and it's changing the dynamic of our base. So when we talk about the old base, we talk about things like 5 million small businesses, a big accountant group, a big number of payroll customers, all these different things that were in a way just show the size of our ecosystem. Now when we think forward, it's what we do with the data associated with those customers. And you think about 1 billion invoices sent, 1.5 billion bills paid, lots of vendors, lot of customers. What you're seeing here is a Small Business commerce graph, and so what we do that's different to leverage these new capabilities that exist within our base, and we're solving problems differently.

You can also see that this is good from a shareholder perspective because the lifetime value of an online customer is higher. And this is despite the fact that we haven't yet demonstrated the same level of attach with these customers. If you think about, historically, on the desktop product, the payroll attach and payments attach has been pretty high, and that's come from tuning that ecosystem over the past 10 years. We're just starting to make progress on increases in attach rates and penetration on payroll and payments, and eventually with Demandforce, the new acquisition that we just did as well. And so there's a big opportunity, but I think the biggest opportunity is really about the customer, and what can you do that's just going to delight and amaze them in the product itself. And so to give you an illustration, one of the things that we used to have to do, because we just didn't have access to aggregated data in our base, is ask customers lots of questions when they get started in the product, and so here's an example of getting started in Online Banking. You can see there's about 6 or 7 screens of interview-style questions to help us understand who you are, and then configure Online Banking. The same can be said about your chart of accounts, help us help you set up your chart of accounts or customizing a form. You can imagine a form is very different based on whether you're a product-based business or a service-based business, you're an attorney or you're a contractor. And so as you kind of walk through our product, we have to ask you lots and lots of questions. And I'll give you a quick example. We know through our analytics that if you are in your first use and you're clicking through and you get to the chart of accounts that you're probably going to drop off because you're overwhelmed by the accounting term. So we're approaching this completely different in the new release of QuickBooks Online, and I just want to show a quick snippet of the first user experience so we roll the video.

So what you're looking at here is it's the very first time you've come into QuickBooks Online. We ask you a couple of questions about your industry, and it's a very simple way to search for industry. You can see it's pulling up anything tied to management or selecting here product and services, the company type, and then we start to build out a bit of a sense of how QuickBooks can be customized, and we call this the business rainbow. What it's doing is it's scanning all of the QuickBooks Online customers, and it's looking through businesses that are like you. So it's looking at, in this case, businesses and management consulting, and then it's looking at things that are near you from a geographic perspective. And what it's doing is looking at all of those customers and making decisions about configuring the accounting software for you so you just don't even have to worry about it. So there's a combination of social proof here, where you're actually saying, there's about 500,000 businesses just like you using QuickBooks Online, and by the way, there's a bunch that are even very specifically like you with management consulting, and here's how they set up their books. So just don't even worry about it. We've got you covered. You can always adjust it later. You can always tweak it. But this eliminates about 50 steps in the setup process. So it used to take 1 hour, 1.5 hours, down to just what you saw.

But that's just the first use experience, and now we'll talk a little bit about the overall experience, and I want to just to show a quick video. But the key here is thinking about there's these 3 jobs: managing your finances, managing a Small Business, and managing your practice and how the 3 things have to work seamlessly together. So if we can just roll the video.


I love that video because the video was produced a couple of months ago. You can see it's at 440,000. The video I just showed you, at the beginning, you'll notice, it said there's 500,000 QuickBooks Online customers. So we're seeing some good growth, and actually, the -- we did just pass 500,000 paying subscribers of QuickBooks Online. The other thing just to -- I mean, I'm sure for those of you are looking at this, you're saying that looks somewhat familiar. We call that minty design, where you're trying to make it extremely simple and accessible for the smallest of small businesses, so they're not overwhelmed by the idea of a bunch of accounting terms, but in servicing a lot of data virtualization and getting to pie quickly, which is the idea of getting to an insight really quickly through charts and graphs. Now we measure everything, and we measure it often. And in this case, we've actually benchmarked this beta against what we consider the 3 best products from a competitive standpoint that are in market. And there's 3 dimensions that we look at that are a strong predictor of the Net Promoter Score. One is does it do the thing I needed to do. The second is it easy to get started, and the third is does it quickly delight me. And across all 3 dimensions, this beat all of the competition, and so we're feeling really confident. We've also gotten some early feedback. And our focus early on in the launch has been more in the accountant side and making sure that we get their feedback because change sometimes is not something that accountants are looking for. And in this case, the feedback has been very strong. These are "About slick and speedy, almost artistic in appearance. It's Apple-like." And these are things that we really haven't heard from our stakeholders historically with new product releases. And if you look at the old QuickBooks Online, and you look at this version, I think you'd understand why. But the most important piece is actually looking at product usage. So we split test everything into market, and in this case, we're looking at early indications of active use. We haven't gone all the way through to bill throughs, where you'd actually see someone lay down their credit card, but it's a really strong predictor that if you see them completing invoices, receiving payments, that payments application is actually a real number of 35% up on applications on QuickBooks Online, relative to the classic version, the older version of QuickBooks Online, and we're seeing the same behavior globally. So this just isn't a U.S. phenomenon. So we're feeling really good about the launch of this product. It's been a year in the making from a UI perspective, but it's been multiple years in the making from all the infrastructure investments that we've made, and the globalization investment we've made and the mobile investment that we've made.

All right. So now we're going to go down a little bit deeper into each of those individual parts and talk about what is the Small Business operating system. And the way that we've separated it out is just 3 areas. The first is what we call the kernel, and that's managing your finances. The second piece is managing your business. It's not all finances. A lot of people need to manage growth in their firm. They need to manage their employees. They may need vertical solutions. They need all different types of things that can help them run their business. And then the third piece is managing your practice because we have a really important partner in the equation here, which is the accounts and the bookkeeper, and they have to collaborate directly with small businesses to make sure that they're running their business efficiently. So these 3 things combined are what we're going to go a little bit deeper on.

So first, I'm going to talk about the kernel. And we've talked historically about this. If you think about what the biggest problem that we solved is, for small businesses, it's they spend a ton of time managing their finances. And it's not exactly what they wanted to do when they started their business. So -- and we estimate it's about 7 billion hours annually. It's about 3 million person hours are spent managing their finances. And so that's really why we come to work is how can we help them save time.

We also know that what accounting really is, is a record of transactions. And that means that when money moves in and out, it creates a trail of accounting. And that's why payments is just so important to be core in the ecosystem. If you actually can transact for a customer, all of that data automatically is going to come right back into QuickBooks versus have to be manually entered after the fact. And so we really see the payment space as a dynamic space and one that we play a very unique position in.

We also see the accountants, which have traditionally been slower to adopt to a new technology curve, all of a sudden are accelerating fast. And so this says that half of accountants are projected to be adopting SaaS in the next 5 years. I think based off the Small Business behavior, we're pretty certain that it's probably in the next couple of years, not 5 years.

But I want to start first by just talking about the smallest of the small businesses. So when you think about new business starts and the demographics underneath, most of new business formations are these self-employed solopreneurs. And as Brad mentioned earlier, this is one of those areas where we've -- the whole QuickBooks business was born out of small businesses who were using a consumer application called Quicken because it was just good enough. And all of a sudden, we realized we can actually do better for these customers, and we've moved into QuickBooks. And QuickBooks has become, itself, a really robust product.

But one of the lessons that we've learned is there are people who don't need QuickBooks. And for them, they're still using lots of disparate solutions to manage their business, and we call it the data island problem. And this is our most speculative area right now. When we think of -- on the Small Business Group, we have a goal of getting 3 million active, what we call, pre-accounting customers. We set up a business unit that's specifically focusing on them. You can imagine that they're going to be a very mobile-centric, these customers.

And we're also taking a page out of what Brad talks about as 2 pizza teams. We're turning white space that happens at Intuit into formalized projects. So engineers that have passion projects are actually coming and pitching those ideas to this business unit, and then we'll fund -- we'll backfill them in their current group, and we'll fund them within this group and have small entrepreneurial teams that are focusing on these new problems, really innovative approach. We have some things going in market already like Weave, which is task management or think about project management. Mint, my business, is expense management, up for launch. And our mobile application for QuickBooks is really a CRM solution. So you can imagine we're going down further and further in the market.

But a lot of people already have a need for a financial management, and they're looking for QuickBooks. And the chart here on the left is showing the QuickBooks subscriber growth, and it's been pretty strong, up from 133,000 a couple of years ago up to now 500,000 worldwide users of QuickBooks. And you're looking at it and you can see visually that the tranche where we expect to get growth to accelerate this trajectory is going to be on the global side.

And one of the interesting things to think about is there is not really a demand issue here. We get 1.5 million trials just of QuickBooks Online on an annual basis, and so people are showing an interest in this product but it hasn't been terribly accessible to those customers. And that's why getting it easier and easier as a first use is really a core focus for us. And you'll get to play with the QuickBooks Online products so you can see that for yourself.

Payments, incredibly strategic for us, as I mentioned, because it's part of building your accounting record. You can see that we've had some strong growth in charge volume over the last couple of years. This is an area that we think of probably different than the rest of the payments players. In a lot of ways, people are focused on this retail-to-consumer interaction. But just based off the fact that we're in the flow of invoicing, we're really focused on service-based companies. And we think about invoices and we think about things like being out in the field and having customer information, which is a little bit different than all the competition that we have.

And so we're focusing on this back-office area. We have initiatives like our commerce network, which is -- think of it as PayPal for business-to-business transactions. It's sort of the way to think about it. And if -- and GoPayment, which is much more now focused on QuickBooks integration in the mobile device, so things like estimate, invoice and pay altogether, so a big area of focus.

Accountants, incredibly critical. And the good news here is that this is probably the fastest launch that we've ever had with QuickBooks Online for accountant in the first year, getting 75,000 users. And the thing to note here is if accountants like a product, they will get their customers on that product as well. And we already see that for each accountant, there's a couple clients that are attached to it. But this just shows that we're at the beginning of this opportunity. And I don't know if you want to add anything or you're going to hit it on your section.

Jill A. Ward

I would just reinforce that accountants recommend or resell what they know, what they use and what they love. So we knew we had to get them on and using and loving QuickBooks Online. So we built a set of tools on QuickBooks -- within QuickBooks Online that lets the accountant do what they need to do and collaborate with that small business customer.

The first year is kind of a wow.

Daniel A. Wernikoff


Jill A. Ward

It was 2x the plan we had for getting accountants into QBOA, which is what we call QuickBooks Books Online for Accountants, very successful. So we're -- the 2 of us are continuing to build out that joint small business accountant experience.

Daniel A. Wernikoff

Yes. And the other thing I'd mention is all of these tops off with a compliance of end called filing your taxes. And the consumer space there's still a lot of DIYers. But when you talk about the small business space, there's actually much more of a partnership with accountants. And Jill and team have done a great job of being out in front of this with Intuit Tax Online, which is really the only SaaS, pure SaaS online filing solution. And we've connected that with QuickBooks Online. So it's a single button to click and transfer your data over to that application, which takes the drudgery out of it for the accountants. So this one's in market. The feedback has been outstanding so far. And I don't know if there's anything else you'd add to that.

Jill A. Ward

The only point I would add is we know that if we can save them time in that overall process of doing accounting and tax for the small business and we do that with what we call one application. When they pushed that button in QuickBooks Online for Accountants and it pre-fills the tax return, if that's a great experience for them, they're going to recommend QuickBooks Online even more. So that's the foundational idea. Smooth, easy, fast workflow all the way through tax, they recommend QBO.

Daniel A. Wernikoff

Great. So that's the kernel. What I'm going to do now is hand it over to Dan, and he's going walk through what's the Small Business business management side.

Daniel R. Maurer

Right. Thanks, Dan. Yes, and this is the way that we're talking about our business internally. So you're seeing an insider view of how we think about how we manage our business. The core is the kernel. We then talk about, which is really the finances, payments. The outer boundary that you're looking at now is management solutions, where we know small businesses invest a lot of money and have a lot of needs. And then Jill is going to talk about the accountant group, which is the other outside of the circle. Thinking about it that way forces a lot of interaction, forces a lot of cooperation, forces us to think about customer back instead of business out. And we think that's going to speed our progress.

So let's talk about managed solutions, management solutions. Grow my business is the biggest one. When you look at how a small business spends money, 40% of what they spend is on growing their business. It's an area where we want to participate in a much bigger way. Managing my people, we've been participating in for quite some time. There's over 23 billion on employee management needs spend. We've historically thought of that as a Payroll business, but we really think of it more and more as an Employee Management Solutions business, which can include things like 1099s, benefits and other things like that. And then manage my business is a catchall, because we know that small businesses that use QuickBooks typically use multiple other solutions. And if we're really going to be in operating system, we have to embrace that in a much bigger way.

Let's take just a couple of minutes on each of these. This is going to grow my customers portion. And if you think about that, Demandforce has been just an excellent acquisition. What you see in this graph is the growth in the number of customers that Demandforce has had over the last few years. And you can see, it's up from 4,000 to over 25,000. We love that. It also is a great example of how you use data, because how Demandforce works is it plugs into the management system and then generates revenue for that small business by having people show up for their appointments and schedule appointments automatically in the background, advises them of promotions, either systemically or on a one-off basis, so that they can grow their business that way, and also builds their reputation online. So that's Demandforce as a stand-alone.

When we look at the QuickBooks data and said, "How many customers do we have that are like the 25,000 that Demandforce already has?" That number's 400,000. And what we started to do to take advantage of that and try to build that business is we've started to call them. We've started to think about how do we contact those customers to let them know that we've got Demandforce. What you're going to see this year, that Dan has already set up in the demonstration, is us to experiment at inside QuickBooks, how do they discover those capabilities is just part of how they operate their business. And we'll learn how to do that inside the QuickBooks experience in a more seamless way as we progress through the year.

That doesn't count at all what Demandforce is doing from a consumer standpoint. Because every time you build your reputation online, that small businesses got a reputation that's being built but there's so many small businesses that are building their reputations online. They've got something that's called Intuit Local, which now has over 40 million customers, consumers that are somehow engaged in the Demandforce business already. And we think that is going to present some ecosystem opportunities for us as we move forward as well.

All right. Growing customers, let's talk about managing people. Again, we've got good growth in our Employee Management Solutions business, primarily driven by Payroll. That business is in the $600 million range now. There's no reason that can't be $1 billion business. Management team there is thinking more and more about how do we get that so seamlessly integrated as part of Harmony, that it's not a separate decision. I hope you get a chance to look at the demonstrations out on the hallway today. I think you'll see how this becomes not a sale but becomes just part of an experience that you turn on as you need it. We think that can add growth.

The team there is also more and more focused on how do we do things in mobile. So you see Snap Payroll. Well, that experiment has already yielded over 10,000 customers and is growing quickly. Full Service Payroll is another opportunity that we see that has real traction. And then 1099s, we've got 80,000 customers. But we think the future is going to be more about 1099s, and we're all over that opportunity as well.

The last one I talked about is that other category. There's 10 to 15 other solutions that a small business uses. How do we think about that? Dan talked about it's got to be an open ecosystem, and we've got to make sure that other people can play in this operating system if we want it to be as powerful as it can be. The graph on the left says how we've been doing so far. And what you can see in the blue bars is our own Payroll and Payments business. And you'd say, "Gosh! You guys are doing quite well." We look at that little yellow bit and say we're not doing that great. We really are not getting the third-party players that we want to have in the operating system for the benefit of small business.

So we're going to take action. The first thing we're going to do is set up a small group inside to say we've got to get after this in a better way. We think one of the other issues we've got though, frankly, is we don't have any PR-worthy participants. And we think if we could crack that, it will allow others to see what a great opportunity this is, which would accelerate our growth. And so in the spirit of that, Dan, do you have anything to announce?

Daniel A. Wernikoff

Yes. So we do have one partnership that's a big partnership. What a coincidence! Yes, we do have one partnership to announce today, which I think is a big one and demonstrates right off the bat the commitment that we have to being an open ecosystem, where we feel like if anybody is working with QuickBooks, that's going to be a win for the overall ecosystem of QuickBooks. And so without further ado, it's Square.

And so a lot of people may be surprised by that, on the surface. But when we look at what we do extremely well in the payment space, it's very complementary to what Square does well in the payment space. And for us, it's a win because we can focus where we need to focus on service-based companies, invoice-paced payments, back office. And Square can focus on point of sale, retail-centric, restaurant-centric. The biggest win is for customers because what we see is them always trying to move data back and forth between multiple solutions, and here's an example of pulling it altogether into a single operating system.

Daniel R. Maurer

Great example. Jill?

Jill A. Ward

Yikes. With that, thank you.

Daniel R. Maurer


Jill A. Ward

And I know Dan and Brad will take questions on that partnership thought a little bit later as well. I'm sure you may have some.

Come back with me, if you will, to the pinwheel that we showed you before. I do want to talk about the green part, which is the accountant and the accountant's practice. The accountants are small businesses too, for the most part, the accountants that work with us, but they're very special small businesses in that they're so influenced and impact the rest of our small businesses and impact what offerings they buy from us.

Now if we can help them with the work they do in what Dan described as the kernel, that blue bubble in the middle, accounting and tax, and then also help them as that work rolls through the firm in that outside green ring, if we can help them with both and help them save time, they will recommend our Small Business offerings even more. And so that's what we're trying to do here. Imagine an accountant trying to get work done for every single client they have, imagine the firm doing work for a customer all kinds of work and 5 people, 10 people, 20 people in the firm have to touch it. So we want to help the accountant do his or her own work and then help the work travel through the firm. They have to do the work, track the work, report on the work, build the work.

So what we're creating to assist the accountant in doing this is something we call Virtual Office. And Virtual Office will allow an accountant to sign into one place and see all of the work they need to do for their clients and then also see all of the applications that they used to do that work. All of those applications will work well together and share data, so the accountant doesn't have to type in a bunch of extraneous data. The applications already know what to do.

Now we talked a little bit about a couple of applications already that are in market. Much of Virtual Office is already there. So you can see here we talked about QuickBooks Online for Accountants in market there. We talked about Intuit Tax Online. It's got a roaring business tax engine underneath it. It could do any business tax return. And we've already tied those 2 together, so the accountant presses the button in QBOA and, boom, the client information and the right tax information drops into the tax software and part way completes the return, the accountant finishes up from there. So Virtual Office allows all that to occur in the cloud. Payroll's already there. We've recently launched Practice Management capability, tracking tasks and work within the firm. That's small and new. Third-party applications that Dan's already talked about, and we've got Payroll, Intuit Online Payroll for Accountants as well. So most of the elements of Virtual Office already there, and that helps in that green arc I showed you of manage my tasks and manage my firm.

There was one other piece of that green arc, which is grow my customers, too, because accountants want to save time in the work they do, so they have time to grow their practice. And I want to go to how we help accountants grow their practices as well. So we do that with partner programs. Now when an accountant joins our partner programs, like the ProAdvisor Program, they do it to learn something or get something that either makes their firm more effective and efficient or actually gets them new clients. So what we provide accountants who join our partner programs are things like free product, training, certification, where we designate them as experts in our products, and we help them see the time savings value for them and their practice of using our offerings. We then, in turn, return to the small businesses, and we market the partners to the small business where we have a direct relationship, which is most of the time. We have a direct relationship, too. The accountants then, in turn, promote our products and services and help attach those to things like QuickBooks. So the flywheel turns. It's great for all parties, particularly for the small business customer who has a great experience. So this model has been incredibly successful for us in North America with partner programs, and we are taking that worldwide to the markets that we're entering as well and learning how to do that in markets that are newer to us.

But here's something we don't need to learn, because we already know it and we've learned it -- well, we learned it again and again everywhere we go, the accountant does have tremendous amazing influence power in every market that we've been in so far and every market that we're entering and growing. So we do know that. And with that in mind, we've actually changed some of our go-to-market strategy in our newer markets as well. So what we've done is we understand in these new markets that the accountant is a very important channel for us, and so we've upweighted our efforts to have accountants join the partner programs and to reach prospects and clients with and through the accountant in addition to direct to small businesses, because the 2 do feed each other, and we have many, many years of experience and history in serving both simultaneously. So that does feed one another, but the accountant as a channel in addition to direct. That's a bit of a change where we're less focused on external third-party partnerships, like telcos and banks, and more on the accountant channel and direct to the small business in all of our markets.

The other thing we're doing in go to market in our newer countries is what I would describe, I guess, as boots on the ground, really local presence to work with accountants and small businesses as we build both. And so we've been doing and will continue to do this, adding talent and resources focused on QBO and the Virtual Office for Accountants in all of our -- in our U.K., Australia, India and Canada markets, so really upweighting the accountant focus there as well. And I'm really excited about it. We continue to build the products for both the small businesses and accountants to work together.

I will leave the green arc, if you will, of the accountant's practice. I want to leave you with a broader thought, which is the priorities that the 3 of us, both Dans and myself have, to make the Small Business operating system a reality. And these are our priorities to win together. And they are, first, awesome product experiences, and you saw a peek with Harmony. Do go and -- out in the hallway and experience Harmony yourselves. I think you'll like that. Secondly, one ecosystem, multiple solutions. Dan talked about being an open platform, both Dans, and having more solutions there, both ours and others, to help the small business run their business. And then thirdly, winning worldwide with accountants. Accountants as a channel, solving for accountants' workflow, so it's fast and efficient and they recommend us even more.

I'm going to turn it back to Dan Maurer. He's going to wrap us up on how we build to outcomes that are greater than the sum of our parts.

Daniel R. Maurer

Thank you, Jill.

Jill A. Ward

You've got your own clicker.

Daniel R. Maurer

I do. So let's wrap it up. So what you've seen is the kernel and the operating system that surround it. That's what we mean when we say operating system. I hope it's more clear than it was at the beginning.

When we put this into place and really leverage the power of it, we think it can do great things. One of the things that we've got to do as owners of this business is then market it well, because we've got great product innovation and we need to make sure that the small businesses are aware of the significant changes that we've made. So it's significant that we're running the Small Business Big Game campaign that ties into driving awareness on this. It also is important that we go out and sell, that we've got the operating system, not in those terms, but that people understand that this isn't just a financial program that we're selling but is the capability to pay employees, grow your customers, manage your finances, make payments. And so that's going to be a big part of our launch.

And to do that, we not only have to do it with the accountant channel that Jill has talked about, but we need to make sure that our whole web experience, from the shopping through the websites all the way through to care, is holistic and is not just product by product but is all about the operating system. And we're going to do that. And to give you just a flavor for the traction that we're getting behind Small Business Big Game, I'd like to show you a small video.


Daniel R. Maurer

It's all pretty cool. It's already out of date, by the way. It said we've generated over 2.6 billion impressions, and it's actually over 3 billion impressions as of this morning. It's just a great way to talk about small businesses and the importance of driving their success.

Okay. A couple more slides on goals and then we're done. Brad talked about the goals in broad terms. I just want to give you some context for the goals. We share the goal of achieving 10 million customers. Now if you look at this graph, you can see that we're not off to such a great start on that. Historically, our desktop decline has been offset by the increase in online. And when we say we need to move our customer growth to 10 million, we recognize we need to change that curve.

A big part of that is going to be accelerating our online growth, accepting that desktop growth will decline. In fact, we want to encourage the right desktop customers to switch to online, and we're going to make that easier for them. But we're also going to accelerate global. Now you're not going to see a lot of that global in FY '14 as we get focused on the key markets and really accelerate their growth, but it just doesn't add up too much in year 1, but you'll see it over time, and we feel really good that we'll start to change the growth curve. This does not add up to 10 million.

The more speculative part of this that Dan talked about is we also need to expect good growth from pre-accounting. And while this is less of a hard number, this is the way that we think that we need to get to the 10 million number in a 5-year period.

We also need to drive attach. We've been doing a good job of that by solving more problems per customer, but we think we can double our growth rate on attach, given the redesign of our online product especially and how it's really part of one experience now. So that's the other big goal that we share. That's it.

I hope that we've been able to demonstrate to you that this is a big opportunity and that we've got lots of momentum. We've got double-digit growth rate already. You know that our guidance is for 10% to 12% growth again this year, so big opportunity but good momentum. Secondly, I hope you better understand what we mean when we say an operating system for small business. And last, I hope you got a flavor for the progress that we're making against achieving these goals. Again, check out the awesome product experience demo that we've got out here, experience it for yourself, and you've got material inside your books to guide you to the experience itself. We've got one operating system but multiple solutions. And last is we really are putting more emphasis on winning worldwide and winning worldwide with accountants.

So thanks, appreciate it. So next, I'm going to introduce Sasan Goodarzi and CeCe Morken, and they're going to talk about doing the nations' taxes.

Cecelia Morken

All right. Good morning. We just finished hearing about part one of the Intuit strategic outcomes, which was the Small Business operating system with small businesses and accountants. Now we're going to talk about part 2, which is do the nations' taxes, which includes consumers and accountants.

Now in the tax business, we have 2 types of customers. We have those consumers who prefer to do it themselves, and they use the TurboTax software. And then we have those who prefer to delegate to accountants, and they use the Pro Tax software. And today, when we talk about do the nations' taxes, we're talking about the combination of both.

Sasan K. Goodarzi

You forgot to click to the next slide.

Cecelia Morken

And you would've seen this.

Sasan K. Goodarzi

All right. So let me get us started, first, with the category. If you look at the U.S. category, there really hasn't been much of a shift between assisted and software. Now if you look at software, we've got multiple sources of growth. One is the new filers that come into the category that we estimate is about 3 million to 5 million filers a year. But the second one that I actually think is very intriguing and exciting is the churn. There's about 8 million folks that switch tax method every year, and I think we have a huge opportunity to drive product innovation.

The second, which you heard Brad talk about, is if you look at where we play, which is U.S. and Canada, there's about 171 million fillers and, in total, we have 37% share. And our closest competitor is in the low teens. And I think what's Brad pointed out, we hold the #1 position in the only 2 growing segments.

Cecelia Morken

And so, if you look at the goal between both the Consumer Tax group and the Pro Tax group over the next 5 years, we want to do 50% of the nation's taxes, and that's Canada and the U.S. today. And that means between Consumer Tax and Pro Tax, we'll go from 64 million returns to date, 84 million returns, again, over 5 years.

Sasan K. Goodarzi

Now Cece and I have been in the business for a few months so we've had an opportunity to really assess the opportunity that we have and our go-forward plan. And we want to do is share a little bit of our reflections, so let me start with the Consumer Tax side. Things that I feel great about. First, it's our talent. I tell you we have firecrackers in the business. We have great designers, great engineers, great project -- product managers and marketeers. I'm very excited about the talent that we have. Secondly, our brand, we're very high awareness and very high Net Promoter. In fact, our Net Promoter is 4 points higher than the closest competitor. And 1 in every 2 Americans actually visit our website. So we've got awesome traffic. And mobile continues to be very explosive. We have 5 million customers that engage us through a mobile device and SnapTax filings grew 3x over last year.

So these are things that I really feel great about. One is the opportunity to improve retention. The second is when you think about the traffic I just talked about, the opportunity to improve conversion and then, last but not least, answers. We had 30 million folks that seek out answers in the last year and 7 million of them were prospects. And in an online world, we have a huge opportunity to ace product innovation around providing answers that customers are looking for.

Cecelia Morken

So I did the same thing and reflected on the Pro Tax business, and I broke this into 2 areas. First, I looked at what is the view of us right now and then I looked at what are the future trends that might affect our future. So if I look at it from where we stand right now, we're in a market leadership position. We have leading share today, we have very high Net Promoter Scores. And for the second consecutive year in a row, we had record new customer acquisition.

Then when I reflected on the future trends, there are future trends that are promising because they play to our strengths. First is this shift between the accountants and their customers online or through SaaS, which we see as fueling the future. This is a very new endeavor, but we started on it about 3 years ago, so we have a first-mover advantage.

The second is some tests that we've run over the last year or so. And the first one was -- you heard about it in the Small Business Group -- but could we take data from across Intuit and utilize that to pre-populate forms for accountants and connect that with our consumers and have a new way of doing taxes. Both of these proved out very well and I'm going to talk a little bit about them later.

And the final one is mobile. Mobile is almost nonexistent in the Pro Tax world. And we see this as a way to help accountants better engage and better serve their customers.

So let me put a little data behind the assertions that I just made. This is looking at the market share that we have today. And so you can see, with the accounting firms, we have about 27% share and it's grown slightly over the past couple of years. Then if you look at the number of returns or the share of returns that we have from those accountants, you can see that that's at 33%. Both of these are market-leading rates, but there's plenty of room to grow.

Then if you take a look at the SaaS market, it's a very different story. This is almost a nascent market today, so very low penetration. In fact, less than 10% of accountants utilize the online version as their primary method of doing tax, and less than 20% use it as a secondary method. We think, over the next 5 years, that's going to grow dramatically, and around 23% to 25% will use it as a primary and almost 50% will use it as a secondary method.

Again, remember that we started on this 3 years ago, so we have a first-mover advantage. And we believe this represents an opportunity to take share in a pretty big way, the land grab that Brad referred to earlier.

So our strategy with the consumer group and the Pro Tax group is really pretty simple, and it starts just with taxes are done. It's that simple. We want to make sure that consumers and accountants do not have the burden of taking care of their taxes so that we can help them to grow more money.

Sasan K. Goodarzi

If I could just build on what you just heard from Cece. If you talk to consumers or accountants, tax prep is a chore. And when you think about the way tax prep methods are done today, whether it's an accountant or a consumer, it really consists of 2 things. One you need the data, you need source documents or, if you're an accountant servicing a small business, you need the account of the small business's books.

And the second is it's interview-based. Whether it's a human asking you questions or whether it's a software asking you questions. And with the cloud and the Internet in leveraging technology, our goal is to get everything downloaded electronically and using technology, statistical and logical logarithms, get to a place where taxes are done. And for the consumer, to focus on the benefit that they care about, which is money, and innovating around putting more money in their pocket. And for the accountant, giving them the ability to actually serve more clients, look at their fee structure-serving clients, look at services outside of tax prep.

So the plan going forward to do the nation's taxes is very simple as Cece said. It's the focus on taxes are done to totally disrupt and transform the industry and focus on the benefit that both accountants and consumers care about the most, which is more money and more clients.

So let me talk a little bit more about the Consumer Tax side, do-it-yourself side and what we're going to be doing.

Now if you look at the funnel, I think this informs our product bets. And it's -- what I'm going to walk you through is the opportunity from the number of customers that come to us all the way to the huge opportunity that we have to reduce attrition.

Now as Brad set it up earlier, what I'm going to do is share with you the opportunity, the focus areas, share little to none around what we're doing, but we'd be happy to share our progress as we head closer to season and throughout the season.

So let's start with one of the first 5 opportunities that I wanted to talk to you about, and that is the fact that we had 85 million people that come to our front door. And out of these 85 million folks, about 65 million of them are prospects. And the way we engage them is through these different landing pages that you see here. And these landing pages primarily talk to our prospects about products. They're not unique, personalized to them and what's on their mind. And what happens is with these 85 million folks that come to our site, only 30% of them ultimately log in. So we have a huge opportunity around product innovation.

Out of the 30% that log in, about 10 million of them actually have to recover their password, and there's a huge opportunity to make that experience very seamless for customers. So we see a massive opportunity to deliver personalized unique experiences.

Now at the highest level, there's 2 big reasons why. One is customers don't have the confidence that they've actually done it right. And the second is around what they care about, the money, the refund. And what we've learned is when somebody's income goes up, they expect the refund to go up. When their income goes down, they expect their refund to go up. But what's underneath that -- I know, believe it or not, it's funny, but it's true -- but what we've learned is they come in with a perceived notion of what their refund should be. So if, ultimately, they get surprised by their refund, even if they file their taxes, they may not return the year after. So these are 2 huge sources of why we lose folks.

Now within the product, we also had a huge opportunity. From the time they log in to the time they get to W-2, we lose a chunk of customers. And from the time they finish their W-2 to filing, we lose another big chunk, with about 4 million customers in total. So we think this is a significant opportunity for us to drive product innovation for our returning customers.

The third one is around new filers. Now let me just share with you how we think about our new filer. These are folks that make less than $100,000 a year, standardized deductions and, by the way, more than half of them don't even have dependents.

And the reason we think this is a huge opportunity is we're the share leader online but, when you look at across methods, we only have 22% share of a simple filer that, frankly, we should be serving extremely well. So we this see this as a huge opportunity.

Now why are we not performing at the level that we think we can? One is really after observing these folks that go to tax stores or go to a pro, they actually don't even know what a W-2 is. Although the form may say W-2, when they actually then go to use a software product, they don't know what to do with that document. And they don't know what the deductions are because they've had somebody do their taxes for them. And secondly, they just assume, when they see the W-2 in their hand and when they look at a software product, that's going to take them hours to do it. So they bound-side and never even built up the courage to do their own taxes. And in these cases, by the way, it takes probably 10 to 15 minutes to do your taxes, but there's huge fear of, "Can I do it?"

Now if they had built up the courage to get into the product, we also have a huge opportunity. You can see here from the time they log in to the W-2, we lose a big chunk. And then from W-2 to filing, we lose another big chunk, 4 million in total. So this is the third big opportunity around new simple filers that we think we can really ace.

The next one is around answers. Again, when people come to us they're not just existing customers. As I said earlier, we have 30 million folks last year that sought answers, 7 million of them were prospects. Folks come to our website and they're just wondering, "Can I, should I do my taxes with you?" And that formulates into questions that they have on their mind.

Now if they happen to be in the product -- this is a screen shot of being in the product when you're in the W-2 section -- and if you ask a question, we share a lot of information with you, sometimes not as precise as we can be.

And you can see at the top, way at the top, there's a thing called Help Center. If we don't do a good enough job answering your question here, you click on Help Center and you go here. And if you ask a question about dependents, we try to share with you everything that you need to know about dependents.

I think the bottom line if you step back from this is this really is a huge opportunity for product innovation. Because being great at delivering answers -- when you're online, people expect to be able to use self-help. And so we see this as an awesome opportunity to ace answers for not only prospects, but also for people that are in-product.

Now let me share with you why this is very important even beyond being in-product. When you think about DOMA, when you think about immigration reform, the first place people look to to get answers is the Internet. They're schooled in this environment to use Google, you buy online, you buy your tickets online, you go to Amazon to make your purchases. People are schooled to go online as the first place to get help.

And when you think about the things that we're facing, the next one that's 5 or 6 days away, with Obamacare, we have to be awesome at acing delivering answers.

And that actually presents the last of the 5 opportunities that we see, which is Affordable Care Act. This is creating a huge compliance opportunity for millions of people across the U.S. where, whether or not they have insurance, they are faced with a choice. What does this mean to me? And so there's 3 areas that we're focused on. One -- and by the way, this is all live and already on our site. The first one is an opportunity to actually get self-help. What does this mean to me? Do I need insurance? What's my subsidy? What's my penalty? Even if I had insurance, are there better choices? See you can quickly, using what's on our -- online on our website, get a feel for what does this mean to me?

Secondly, we're the first to create a social platform, leveraging the greatness and the goodness of TurboTax community to allow people to answer each other's questions, to allow millions and millions of folks to help each other in an area that will drive a lot of complexity, where simplicity will be king.

And then last but not least, if you need insurance, we will connect you either to an exchange or with our partner, eHealth. We partnered with E-health insurance, one of the largest online brokers, that really understands how to deliver an awesome online experience.

So these are the 5 opportunities that we are going after, which really plays into our long-term plan. The essence of our long-term plan starts with talent. We are stretching and growing the talent that we have, the designers, the engineers and the project managers to build great product and we're aggressively adding to that talent pool that we have. And our great talent will build great products that, ultimately, will wow our customers.

And the areas that you see above are the areas that we're focused on. First and foremost, we have 85 million that come to our doorstep, 65 million of them prospects, and that will be a huge area of innovation.

We will drive innovation around the returning user experience because I think we can do better than losing 5 million customers a year.

And then the new simple filer experience. This is one area. If we were only going to be good in one area, this would be one that we should absolutely ace because it only takes about 10, 15 minutes to do these simple filer taxes.

And then mobile. We will have responsive, elegant design on mobile devices. And last but not least, being phenomenal at delivering answers so you can get self-help without the interruption or they need for a human being.

Now with that said, there are times where you need human beings, and this is where the assisted category, how we are partnering together, comes into play. So with that, Cece?

Cecelia Morken

Great. Thank you. So 46% of the nation's taxes actually come through accountants or pros. And so these are -- remember, these are consumers who choose to delegate their tax prep to an accountant.

And so I'm going to talk about the strategy where taxes are done with pros so that we can help them grow their practice, which is about helping them to attract more customers, increase the revenue per customer and expand the number of services that they offer.

When we think about the strategy for the Pro Tax group, we always start with the customer and what's on their minds. So we know what pros care about, and they care about saving time and they care about growing their practice.

Now we also know the things that eat up most of a pro's time and that's data entry and unnecessary tax prep steps. And so the faster we can enable a pro to say that their customers, your taxes are done, then the faster they can focus on growing their business, growing customers and expanding the services that they have to offer. And 75% of all pros want to grow their business.

Now we have a new behavior emerging with pros and their customers, and this is this whole move to the cloud or online services. These people want to better collaborate with their customers and they want to do it in real time. They believe in a virtual office, they have unrestricted boundaries on where do they work. They don't want to be chained to a desktop, they don't want to be chained to an office and they're highly mobile.

Now this won't be a shift that's a revolution. It will be an evolution. And so they will start to augment their desktop tax offerings with online tax offerings as an on-ramp to the online freeway.

So if you then look at, well, what's our strategy to address this, our strategy which is to help with taxes are done and to help them get more money, it's enabled by Connected Services. And this is Connected Services both within Intuit and with third parties. And I'll give you a couple of examples.

The first one we've talked about several times today, but this is leveraging data from QuickBooks to pre-populate tax forms for accountants with the press of a button, and you saw that in the Small Business section.

The second one is how we design our products. So we use a term called Right For My Practice, and that's the work flows that we design and we'll continue to expand this. And what this means is each accountant has a certain type of behavior that they display, and our products are designed right for that type of accountants, and we're extending that.

And the final one is we're leveraging open APIs, or open standards, to help accountants connect to third parties. This might show up in the form of data. So it could be financial institution data that we automatically pull in to pre-populate tax forms, saving them time, or could be a third-party service that enables them to extend the services they bring to market like document storage or e-signatures. And it also is going to enable us to help them connect to mobile and better serve their customers.

So I'm going to take a few minutes to go a little bit deeper in a couple of areas. And because we started our conversation and we've talked a lot about the cloud, I'm going to start there. The cloud offerings are important for accountants for a couple of reasons. One is it does allow them to better serve their customers; second, as we talked about it, enables less data entry because it's connected so it saves them time; third, the workflow within Intuit Tax Online is very simple. It's input return, check return, file returns so it's less steps for the accountant. And finally, it's already mobile-enabled.

Now we started this, as we've said back in 2010, so we have a jump-start on the market. And we started with a very simple offering, targeting primarily the Simple pro. Last year, we had a 20-point improvement in Net Promoter Scores and a reported 30% savings or time savings from our customers. This year, we'll be launching a lot more features, a lot more Right For My Practice offerings as we go up market as part of our strategy to capture share in this land grab.

And I'd like to show you a little bit more about Intuit Tax Online with a specific focus on look at the simplicity of the workflow and mobile. So if you could run the video.


So when an accountant comes to Intuit Tax Online and when they log in, they're presented with a list of their clients tax returns. Then they can select the tax return for the client that they're working with.

And if you look at your right hand side, it's a very clean display and it's organized by the way they do their work. So it starts with input return, check return and file return, very simple.

Now let's switch to mobile. Jimmy has called his accountant and he wants a copy of his tax return for his loan. The accountant, on their mobile device, can pull up Jimmie, can pull up his tax return, can see his contact information and can actually pull his 1040.

Then he could download the 1040 PDF and then he can put in a secure email back to Jimmy with a code for Jimmy to use so that Jimmy can access this all virtually, and Jimmy can even access it on his mobile device.

So that's what we mean by helping accountants better connect with their customers through a mobile device. Now this, coupled with what we're doing with one app, with QuickBooks, where the data automatically comes in plus the extended third-party data integration, whether it's a K-1 form, a W-2 form or even an Excel spreadsheet all of these is effort to ensure taxes are done for our accountants.

Now as important or as excited as we are about the online version, we're #1 in desktop, and we intend to stay #1 in desktop. So we'll continue to enhance our desktop offerings. And I'll highlight just a couple of things that we're doing there. We'll continue to add more Right For My Practice offerings as the demographics of accountants change, such as retirees, who don't actually retire, they continue to do tax prep, but they do it for friends and family, so they didn't need a different type of offering.

In addition, we'll look for ways to improve workflow and a couple of examples here would be content that we provide as well as increasing the number of e-fileable forms.

So this year, we will increase the number of e-fileable forms another 15%. This is important for accountants because the average accountant uses something like 5,000 forms within the tax season. So the more we can electronify that process, the more we save them time.

And finally, in FY '14, Pro Tax will begin to look at global opportunities beyond the U.S. and Canada.

And then finally, I wanted to highlight a test that we had done last year because it's the combination of the Consumer Group and the Pro Tax group working together.

So we had a thought or hypothesis that maybe we could connect consumers who want to delegate and find an accountant and our great network of pro-accountants that we have within our products today, and that maybe if we leverage the TurboTax brand and advertising, we might have a new way to do taxes. So we tested that and we had great results.

In fact, our Net Promoter Score with the consumer was a 77.

So this year, we're going to take that a little bit further, still in the testing mode, but we're going to go to our broader array of customers to test this out, but very promising way for the 2 of us to connect.

So if I sum up the Pro Tax strategy, which is all around taxes are done, more money enabled by Connected Services, our goal over the next 5 years is to improve our Net Promoter Score, increase our share within the pro account market and then to increase our share of the taxes that the pros generate.

And then if we hit total for everything that the Pro Tax group and the Consumer Group are going to do together, this is how we're going to get to 50% of the nation's taxes within 5 years going from 64 million today to 84 million in 5 years, which is partially the natural growth that occurs in taxes in the U.S. and Canada, leveraging the continued shift to software, both the Consumer Group and the Pro Tax group capturing more share, and that's how we do the nation's taxes.

And with that, I'm going to turn it back to Matt who's going to give us instructions on a break. Thank you.

Matt Rhodes

All right. Hello, again, everyone. That's the morning, the presentations, I thought, went well. We did a couple of new partnerships, Square and E-health, that we just announced. I don't have to use the code names anymore, which is great, because they just confuse me.

We also talked about the new QuickBooks. That's what we're going to use out in the lobby here, and I'll give you some more details there.

i did also want to point out that we will have on the website the slides available sometime very soon as well as additional supplemental information whenever we go through change like we talked about, organizational change that changes the way we report financials to use, so we have some bridges on the new website.

The new website, it's been completely redesigned. We would love to have your feedback on that. When we say feedback, it's a gift at Intuit and we mean it. Please let us know if there's easier navigational stuff we can do, but it's more integrated with social. You can look at all 160 slides we're going to present here today in line with slide share integration on that site and hope it makes it easy for you to find information.

All right, now the important stuff. The restrooms are out here at my right, your left, around the side. You can actually also get there from the demonstration. The demonstrations are going to be out here to my left, your right, when you go out this door, they are all the same. So please try to break into small groups around the demo stations. We're just going to walk you through.


Unknown Attendee

Ladies and gentlemen, please welcome Tayloe Stansbury, Chief Technology Officer.

Tayloe Stansbury

So welcome back, everyone. I hope you all got a chance to play with the new QuickBooks. What did you think? Good?

So earlier we talked about being the operating system for Small Business and doing the nation's plural taxes. And of course, as you can imagine, to do these, we need to have an ecosystem of applications serving each area in the Small Business space, QuickBooks, Payroll, payments, Demandforce, and of course, third-party store Intuit partner platform like Square, like Salesforce and in the tax space, then as an ecosystem of applications like Intuit Tax Online, TurboTax, Quicken, Mint, ViewMyPaycheck, all working together to achieve the goal of doing the nation's taxes.

And of course, for -- to support these ecosystems of applications, underneath, we have to have a set of technologies. And here's our technology strategy that we've been operating against for the last 2 or 3 years, the key elements of this are hygiene, access, and foundation. And in hygiene, we focus on things like making all of our applications global ready. So in the case of QuickBooks, that involved not only translating the language and the user experience into many languages, but also the currency to support multiple currency to port VAT and other taxes so that we could actually operate the product in some 70 countries as we do today. And we applied the various imaginative approaches to getting that done, including crowd sourcing to achieve the goal.

We also focus on things like efficiency. Over the last couple of years, we've driven down substantially our cost of hosting our applications, in part by standardizing consolidating data centers, making our processes cleaner, while actually adding disaster recovery capability for nearly all of our customers and applications. And also on things like technology refresh, where we spend about 20% of our R&D budget every year going back into existing applications and cleaning up technology, fixing bugs, adopting new technology standards as they emerge, and making things architecturally cleaner and faster so that when we want to innovate, we're building on top of a solid foundation that we can build on very, very quickly.

In access, our primary focus is on mobile. And I hope you got a chance to play with the mobile iPad version of QuickBooks, and you can see the kinds of things that we're producing there that are gorgeous and that are delightful to use. So we've increased our app store ratings in the last couple of years and we've been focusing very heavily on mobile. We've increased a number of mobile apps that we have in market by threefold, our number of customers by fourfold, and our revenue by fivefold.

And in the foundation space, I want to focus particularly on 2 areas: The developer platform and also on data today. So what is our developer platform? It's a set of common services that are used to construct apps across all of our different devices from mobile to online to desktop. It speeds up innovation by making it really easy for developers to grab technology and data from across our product ecosystem. In fact, it's one-click easy with our new services fabric for a developer to adopt an existing service, which then cuts down the amount of meetings and time it takes to get new offerings out to market. And of course, this solves the problem of duplicative development, so we're not developing the same basic technology more than once.

Now within that, I want to give -- highlight one example that we're working on and that is how we get data from third parties. So a part of this that you're probably at least indirectly familiar with this how we get the transaction data into Mint and Quicken and QuickBooks. We do that by connecting 2 banks, some 18,000 financial institutions across the U.S. and the globe, either through screen scraping or direct connection, and then we cleanse that data and categorize it automatically and then feed that up to those 3 applications.

Now going forward, what we want to do is dramatically increase the amount of third-party data that we're acquiring to feed all of our applications and the amount of work that we're doing to actually cleanse and enhance that data for -- again, for all of our applications. And within this, a couple of areas we think are going to be particularly fruitful is receipts, which you'll see coming out soon and also tax data, again, which you'll see coming out soon.

Let me give an example of this, particularly around receipts. So today, let's say, you go to Staples, and you buy a bunch of stuff for your Small Business. Your receipt is actually going to come by email. Today, about 1/3 of receipts come by email and that's increasing every year. What do people do? They go home, the print their receipt, they stick it in a shoebox, they shove the shoebox at their accountant at the end of the year. Here, she has got to go and enter all that data, try to figure out what's tax relevant and what's not, reconcile it with QuickBooks and then eventually you're done.

So what we've done is taken an electronic document and made it into a circuitous paper process, and what we'd like to do going forward is make this auto magic, where we can collect the data electronically, categorize it electronically and reconcile that with QuickBooks and ultimately with tax.

So let me show a demo. Now in this video, you're looking at QuickBooks and in there, you can see you have some transactions from Amazon and from Staples, but you have no idea what you actually bought, what were the categories of the things you bought inside of those transactions. So what we would like to do is connect up your email, where you're getting most of your receipts and associate your email account with QuickBooks, so that we can pull those receipts automatically, so that we can go into those receipts, parse them, pull out each line item, categorize separately each line item, figure out which ones of those are tax-deductible and automatically enter that into QuickBooks and ultimately, into tax. So that's something that we're working on now. And then of course, for your records you can print it if in case you get audited.

So how cool is that taking a circuitous paper process and turning it into something that is auto magic for our customers? So that gives a little bit of an idea of what we're doing around one element of our development platform, which is actually quite rich and covers a number of different areas. And now what I'd like to do is spend a couple of minutes talking about what we're doing with data.

So time was when we had all of our applications data, which is quite rich, right? It involves the financial lives of millions and millions of people locked up inside of each of those applications. And what we've been doing of late is getting all of that data put into an Intuit analytics cloud that feeds in product data, business data and of course, third-party data, as I discussed earlier, both so that the data can be consumed and used by applications and also, so that it can be used through tools by people who are trying to invent new features for applications based on insights from data. And also, how it is that we can market our offerings to our customers.

Now of course, this forms a virtuous cycle. The more data we get in -- and again, this is rich and very interesting data, then the better insights that we can offer, the better products that we can offer for our customers. Now as Brad said earlier, we consider ourselves to be stewards of our customer's data. We have principles that we have adopted and we've talked with various government agencies about in order to influence the direction that they take about how we handle our customer's data, in a way that we think is good for them and not selfish.

So with that in mind, what we're trying to do with this data is create both better products, improve our products' existing products, and also break through benefits where we try to come up with new products based on the insights that come from this data and I'll give a few examples of each.

For better products, one example is the conversion funnel analyzer. And that's fancy language for we're looking at every step of the way as a customer goes through the decision to purchase our product and figuring out where and why they drop off. Now applied to TurboTax last year, this netted about $34 million in incremental revenue by tuning all the places where we found that customers are dropping out of the experience.

Business lookup. So when you're signing up for QuickBooks at the very beginning, one of the things that we've now done is gotten business data from DMV and other sources so that whenever you type in your business name, all that data immediately pre-populates when you're not even finished typing in your name. And this has actually reduced the amount of sign-up time for that section by more than 70%, which is awesome.

And then finally, used to be as a Small Business, if you needed a loan, which is common, you would have to go fill in a loan application. And now, using the data directly from QuickBooks, we can pre-populate that information, figure out when in fact you may need a loan, offer that to you and that's improved conversion of QuickBooks financing by some 12x. So those are a few examples of making our existing products better.

And as far as new offerings, you saw this morning the QuickBooks' new interface. So instead of actually trying to go and fill in pages and pages of options, if we know what kind of business you have, and we can analyze our data looking at what other businesses shows in terms of whether invoices are turned on and inventories turned on and all the other options that you have in QuickBooks and just made you align with all of those choices, we can get you through that part of the sign up much, much more quickly and get people into using the product for benefit.

And then finally, you also saw this morning the idea of sharing the data between QuickBooks and taxes so that we can get to a taxes-are-done-experience by pushing a button inside of QuickBooks and pushing the data to our professional tax offering.

So that gives you little bit of flavor of what we're doing with data and our offerings, as part of our overall technology strategy and service to our corporate strategy. And with that, let me hand over the stage to Neil Williams, CFO.

R. Neil Williams

Thanks, Tayloe, and thanks to all of you who are participating with us today online and here in Mountain View. What I'd like to do in the next few minutes this just give you a kind of a summarization of all the things you've heard about this morning that we see is really being the drivers for our growth in customers and revenue going forward over the next few years, FY '14 and for the next several beyond that. Also, share some comments with you about margins and margin expansion, what you can expect there and finish up talking about our capital allocation program.

So, I always have to start up with our financial principles. These are 4 very simple rules that undermine all of our -- and provide foundation for all of our financial planning and our long-term goals here at Intuit. We are committed and really believe that we can grow our top line, our revenue organically, 10% or better each year, supplemented by acquisitions. We are committed to keeping our revenue growing faster than our expenses and providing margin expansion and operating leverage each year. We have rigorous principles around how we allocate capital. We use an internal rate of return hurdle of 15% over a 5-year time horizon and we apply those internally and externally to invest on ideas, investments and infrastructure and things like that. And then finally, we're committed to a strong balance sheet, which to us means, we keep a reasonable amount of cash on hand and we do everything necessary to preserve our investment grade rating in case we need to borrow.

So I hope you come away from today with a clear picture of 3 revenue growth drivers. First and foremost is our ability to grow customers in areas where penetration or adoption of financial software is very, very low, and our competition is very fragmented. Secondly, we want to talk about and hope you have the appreciation for the huge component of our revenue that's already driven by SaaS and Connected Services. It's about 2/3 of our revenue now and we're projecting it will be about 3/4 by FY '16. This is sticky predictable revenue that's growing in a double digit area. We'll talk more about that. And the third component we should really been mindful of is the huge opportunity for Small Business to be an ever-increasing part of the mix of the portfolio here at Intuit. It'll be over 50% of our revenue in FY '14 and will continue to grow very, very fast. So those are the 3 elements we'll talk about in terms of revenue growth drivers.

You just have to realize that we have hundreds of millions of addressable market customers. People who aren't using any form of financial management software today and whose options, whose alternatives, are really pretty limited in terms of other competitors in the marketplace. As I mentioned, our SaaS revenue is growing 15% a year or better. Our Connected Services revenue is also growing double digits. We'll talk more about that in a second and give you some detail for it. Just as a one proof point in FY '13 last year, our SaaS revenue and Small Business grew 61%. Over half of that, over 30%, on a pure organic basis. So a lot of altitude and a lot of tailwinds in terms of these growth factors.

Really quickly, you heard Dan Wernikoff, Dan Maurer and Jill talk about our strategy to be the operating system behind small business success. Again hundreds of millions of customers who need solutions like ours and products that we intend to deliver, not only with the new relaunch of QuickBooks that you saw, today but also new pre-accounting offerings that are very much in the hopper things that we're working on to provide solutions there.

You heard Sasan and CeCe talk about our opportunity to substantially grow our tax customers in Canada and the U.S. the fact that were already the market share leader in the only 2 categories that are growing in terms of tax-preparation over the last couple of years. And some exciting things there already products and market around Pro Tax online and around SnapTax and more products to come out over the next few years, as we work to change the filing habits of millions of consumers.

And you all got -- you all know that we have a tremendous ecosystem of assets on the consumer side and on the Small Business side. And we have some really good teams, very much at work to define ways that we can build a network effect that can grow in a viral way to solve problems for both of these customers small businesses need customers. Consumers need to find small businesses that they can do business within need to have reputation, they need to have recommendations, they need to ease the interaction between contacting payments and things like that. Nothing in the guidance on this yet, but there's some really good experiments underway, and it's up to us to prove that we can really capitalize on the network effect environments within these ecosystems.

What all these add up to is tens of millions of new customers over the next 5 years, as we become double our base in Small Business, as we add 20 million customers in the tax base and -- in Canada and the U.S. and as we find ways to capitalize our network effects and using data to drive our ecosystem even harder.

Here's some numbers around that. If you just look at our revenue growth drivers. 57% of the revenue growth that we have in the plan for FY '14 will come from customer acquisition, from customer growth. 57% compares to 44% last year, 39% the year before that. So really a hard lean into growing our revenue base by growing our customers and growing new customers to the franchise. Price will be less a lever for us going forward, and mix will remain about 20% of total revenue growth coming from mix and things like that.

If you look at our SaaS revenue, it's $1.5 billion in 2013. As you can see here, it's growing at mid-teens, 15% to 17% over the next few years. Our software advantage services, the blue bars on top, and you heard Dan Wernikoff refer to that earlier. These are services that make a desktop offering look and feel, in some way, like an online service. So think about Payroll as part of QuickBooks desktop. You can think about efile as part of our desktop tax offering. If you combine those 2 services together, SaaS and softer advantage services, that's where you get the 64% of our revenue that's already coming from those 2 categories trending up to almost 3/4 of our total revenue by 2016, both of these categories growing double digits and above.

Here you see that our revenue mix for this year, over 50% -- about 52% of our total revenue will come from the Small Business sector, and we've given guidance as growing 10% to 12% for FY '14. We think it's going to continue to grow very strong and to be an increasing -- increasingly more important portion of our revenue growth and revenue stream going forward. The yellow bar here that shows up as consumer includes Consumer Tax and our Personal Financial Management categories.

So you can see that customer acquisition is the main thing we're focused on and really long term, that's the best way to drive bigger margins and margin expansion. But we also think there's some big opportunities to improve our profitability in our existing business segments right where we are today.

Here's some examples of that. You heard us talk about partnership platform. You heard us announce a partnership today. And clearly, these are opportunities not only to leverage development from other people, but it's also ways to drive incremental revenue for our franchise without the requisite necessarily development cost that would go along with it. So that's very exciting. Big plans on the go-to-market side and to expand outside the U.S. that drives more customers and more customer acquisition in and all these -- the last customer that comes is the most profitable one, and some continued rigor on our own internal resource allocation.

A couple of examples here. We don't take anything for granted, things like marketing, customer support, infrastructure, all are subjected to the same ROI rigor that we talk about. We're always looking for ways to improve our efficiency and our effectiveness with dollars that we spend internally.

One final example here, a substantial portion of our compensation, is variable compensation, and the correlation range is steep. To give an example, last year in 2013, we missed our internal revenue plan by a couple of points, but our variable compensation was paid out at 20% less than the targeted level. So this is a clearly -- a big lever that gives us some resiliency, if revenue falls below what our expectations are, to continue to provide the margins that we've expected in the margin expansion.

One example of resource allocation from last year, just by way of example, we allocated about 8% of our total spend, reallocated about 8% of our total spend in FY '14, away from a couple of businesses that we divested, away from marketing and away from customer support and a couple of business segments, so that we can invest much more in product development and build out some of the things that you've already seen here this morning and some things that you've seen in the pipeline to come. Also, to fund a much more aggressive go-to-market strategy in the U.S. and around the world is almost a little over $0.25 billion from FY '13 to '14 that was reallocated through this planning process.

Many of you like to see this financial model. It's one that we use quite extensively internally, to think about how should the margin perform over time. We continue to see our gross margin increasing, as we get more and more of our revenue coming in from SaaS and Connected Services. So we see that continuing to move up. Over time sales and marketing, G&A, should grow not as fast as revenue. So we should see some margin expansion opportunities there. We peg our R&D spend between 15% to 17% of revenue, when you include stock-based compensation as part of that base and we like to keep it at that level because that makes -- that proves and lets us know that we're continuing to invest in new products and new ideas coming forward, whenever we want to drive margin expansion by deferring or by eliminating some of our R&D investment.

So that's how we -- that's how the math works, to get us down to a margin expansion goal of 50 to 100 basis points every year. We think that's good margin expansion, while continuing to invest in the business, and continuing to build our pipeline for the future of new investment ideas. Now, you always have to think about this on an organic basis. If we have an opportunity to invest in a fast-growing asset like Demandforce, it may cause some type of a pause or some type of a deferral and the margin expansion we might see in a given year. Other times, you might see us be at the top of the range. So that's kind of how we see that work. And if you have questions, I'll be happy to answer those later. But that's kind of how we put the margin expansion process together.

A couple of words about our capital allocation plan, and this is another area where we really dig deep into our financial principles. Our first priority is always to invest internally to grow the business. So we're looking for things we can invest, products and tools we can build out internally to help the business to grow and expand. We look at acquisitions and we very much think that there are opportunities on the acquisition side to accelerate our growth, talk about that more in a second. And any money that's not invested in the business, either in one of those 2 ways, we return to shareholders typically through share repurchases and for the last couple of years, through dividends.

Over the last 6 years, we've generated about $5 billion of free cash flow, and 98% of that has been paid out to shareholders, either in the form of share repurchases or cash dividends, about 98% of the $5 billion that's come in the last 6 years. We started out this year with $1.7 billion in cash, then we add to that the $1 billion we received on the sale of Digital Insight in August of this year. As you know, virtually all this cash is onshore, and so we apply our capital allocation rigor to this our internal investments to acquisitions that we think may accelerate our growth and to our share repurchase. And as you can tell, from the guidance we have given, around our share count and around our EPS, we have a very aggressive plan for FY '14 around share repurchase, and we've talked about our dividend for 2014. All these things feed in to a return on invested capital that we expect to see in the high 20s for the next 3 years and trending up toward 30%.

This is the guidance we gave back in August for revenue operating income and EPS. And as we've talked about before, this is a blend of guidance in terms of Small Business at 10% to 12%, 3% to 5% in Consumer Tax. I should just tell you that, that guidance was really affected by 2 things. First of all, a more modest assumption around tax filer growth for FY '14, actually when we saw an actual decline in FY '13, so we've been a little more modest in our expectations around filer growth for next year. And secondly, a recognition that some of the tools and some of the product enhancements that Sasan reviewed with you earlier, that Tayloe talked about, are going to be multiyear investments. We think there's some real opportunities here to get after the 5 opportunities that Sasan identified. But in all reality, it's going to be a multiyear journey. And so, we think that this is going to take some time to change the filing habits of millions of customers. So that's really what drove that. You can see here, we're continuing to commit to operating leverage, and the 10% to 13% guidance for EPS reflects a share buyback program that I just talked about a minute ago.

Here's our guidance by segment. You probably already seen this. The only comment I would make here is that our Pro Tax segment shows the effects of about 2 to 3 points of growth that's deferred to a year beyond FY '14. And this is a function of some of the revenue they're shifting through our SaaS model, as Pro Tax online becomes more prominent, and we expect that to be a bigger part of our business in FY '14. And it also reflect some changes we made to the desktop offering, to enable us to offer support and assistance with conversion files and things like that throughout the tax season. So it moves beyond just our second quarter. And there's some retiming of revenue in the Pro Tax category as well.

This is the worksheet that many of you like to see on how we come up with our Consumer Tax guidance, of the categories on the left are the 4 main levers we always talk about that determine how well we do in Consumer Tax. The sections in the middle give you some sensitivity around how a change in external environments impacts our TurboTax growth. And in the columns at the far right show you what we think the relevant range is for each one of these levers over the next few years. And so this kind of supports what we came up with the Consumer Tax guidance for FY '14 and beyond.

So in summary, we're very excited about customer acquisition in FY '14 and the growth that's coming in there. That's everything that we're focused on. We think there's some great opportunities to leverage the franchise, bring in data and use the development efforts of others and use some of these partnership, relationships we talked about sooner, a minute ago, to help drive revenue growth there and we talked about our Small Business and Consumer Tax guidance already and kind of how we came up with that.

We gave guidance in our earnings call back in August beyond FY '14, and we really did that for 3 reasons. This is unusual for us and it's not very specifical but we want to do it to be sure that we reaffirmed our belief that double-digit revenue growth is very realistic for this company for the portfolio of assets we have beyond FY '14; secondly, to reaffirm our commitment to operating leverage and to generating some level of margin expansion each year as we go forward; and third, we like share repurchase, so we intend to be in the market every year, every quarter, if we possibly can, generating EPS growth in the mid-teens range, a little faster than our operating income growth.

Now this is kind of a summary slide. You've seen a lot of detail on the items here listed on the left. These are all around how we become the operating system behind Small Business growth and how we become much more relevant to millions more Consumer Tax customers in the U.S. and Canada. You've seen some examples of those. On the right-hand side are some experience we're testing and you've seen some of those too. We've talked about CPA Select. You've seen some of those. Tayloe has shown you some examples of how we're using data to drive a much better customer experience. And also, in QuickBooks Online, the new version there. So, some really good opportunities there.

The areas at the bottom show areas where were focused on M&A going forward. These are areas that have been identified in our strategic roadmap for each business segment in areas where if their asset's available to us, we think we can celebrate our growth and I'm really looking forward to reviewing our performance with you each quarter as we move forward and FY '14.

So a couple of pages here in your book that will facilitate that review. You see here the segments we'll be reporting on in FY '14. These are the same ones we talked about in August and we've recast our fact sheets so you have all the historical data. I'll recast in these operating segments and reporting segments.

You noticed at the bottom, that this year we'll be providing our Consumer Tax unit data, in February, when we give our second quarter earnings material. And then in late April, after the season is over, we'll kind of give you a recap on how the season played out. And in the final page here, is just a breakdown of our guidance for revenue and EPS by quarter. We did this for a couple of reasons. First of all, there was a lot of noise last year between Q2 and Q3 and the tax business as to where our revenue was going to fall. And also, we do have some movement going on in our Pro Tax segment that I just mentioned earlier, moving mainly from Q2 to Q3.

So this is meant to provide a little more transparency on how we see the quarters playing out, in terms of revenue and EPS. And hopefully, that'll help you. So at that point, thank you, and I'm going to invite Brad to come back up to facilitate the Q&A.

Brad D. Smith

All set. All right. I know it's been a lot of information, a lot of material. Two quick thoughts to close and then we'll open it up to you.

One thing about the company that I've enjoyed over 11 years and now about to head into my 7th year in this role, is that we're a company that's very intellectually honest. We talk about ourselves inside the way we talk to you about ourselves outside. Things we like, things we aren't doing very well, things we've screwed up. We like that humility and hunger because it keeps us on edge and it keeps us wanting to strive to be better. And to be frank with you, there's an unintended consequence. Maybe our competitors mistake kindness for weakness and they view it as vulnerability. And we love it when someone underestimates what we're going to be trying to do. So that's sort of bucket one.

Bucket two is, we share a lot of material and a lot of information. We want to be extremely transparent. We know the job you're asked to do and we know the things that are important to you and the things that are important to others you talked to. So today, hopefully you got a taste for the kind of information were trying to provide to give you the reasons why we believe, whether it's experiments coming out of harmony, or some of the early attach rates, or it's breaking down our quarterly guidance, because we know this is a crazy year. We're re-lapping a crazy year last year and we've got some revenue deferred and we're trying to be as explicit as you can.

Unfortunately, that can leave you with, what was the major take away? And so what I want to sum up with is this, this company is extremely strong, even with a difficult year in TurboTax last year, we grew double digits and grow EPS 11%. We just went through a significant and very thoughtful 15-month journey to reset the company on 2 very clear goals and to move this company from being portfolios of individual businesses and products that don't interoperate very well, to a system that actually makes each asset stronger and quite frankly, makes it difficult for a competitor to pick one of our products off and come after us.

And we can already feel the momentum. We can see the momentum. I'm in the middle of a state of the company toward visiting every side around the globe, I'm halfway through. Our employees are extremely energized and our early results are very promising.

So I am encouraged by fiscal year '14 and the outlook beyond and that's why we wanted to share with you our multiyear journey.

So that's it, in a headline. And now, with that, we'll open it up to you, because I'm sure there's a lot of questions on your mind. And we have microphones in the room. So if someone with a microphone can grab the first one, I'll take whoever has the microphone.

Question-and-Answer Session

Kash G. Rangan - BofA Merrill Lynch, Research Division

That happens to be me. Kash Rangan, at Merrill Lynch. One question that I had was, we talked a lot about Pro Tax and Consumer Tax and the option at least to grow those businesses. But when I look at your targets, intermediate-term targets, it feels like we're setting a low bar for these 2 businesses and putting the owner's of the performance in the Small Business. Just wondering what your thoughts are on why you're being conservative, despite the measures that you've identified to regrow these 2 businesses.

Brad D. Smith

You're welcome, Kash. And I think Neil just summed it up really well. We view our transformation in tax to be a multiyear journey. We do have some exciting things that will be coming out this tax season in TurboTax. And as you can see, Pro Tax is already set up for a very good year, but the accountant switching behavior doesn't happen in one fell swoop. They're a more conservative group in terms of switching from adoption. So we think it's going to be a multiyear journey. We also think it's prudent because we don't really have a clear understanding of what's going to happen to taxes this year. The IRS number of tax returns that were filed surprised everybody in the industry this year by going backwards. There's this disbelief that with Affordable Care Act, maybe this year, it will pick up a little bit. But even our competitors and us are all saying we don't expect a big tailwind in this coming fiscal year. It will probably be in the out years. So we think right now for us to reearn our credibility and what we talked to you about the tax, it's better to let our results speak for themselves and we've been very pragmatic in what we think the guidance will be this year. That is not reflective of what we think the category is capable of over multiple years, which is why Neil included that last slide that showed what we think the tax category can grow. But the answer to your question is, we view it as a multiyear effort and we're patient. And the good news of being a company that has both Small Business and tax assets is we don't need all of them to be hitting in all cylinders at the same time to deliver the kinds of results that we can deliver. Okay. Let's do one over here.

Sterling P. Auty - JP Morgan Chase & Co, Research Division

Sterling Auty, from JPMorgan. Just following on the Consumer Tax. The cynic in me says, last year, you give us some detail around specific strategies within the product. This year, you're saying, "Well, hold on, just wait, until we get a little bit closer. We've got some of these big ideas." The cynic in me is wondering, how much of that is -- you're still trying to figure out some of the strategies and how to iron them out, versus other things that might be going online. We're not getting more detail today.

Brad D. Smith

Yes. First of all, I appreciate the cynic in you and the skepticism and I think we've earned our way there over the last 2 years. And that's why I answered the question I did with Kash. We're going to let our results speak for themselves. I can tell you this, the story that didn't come out is when Sasan went done to take over TurboTax, Dan Maurer had left an extremely strong and well conditioned team, as he moved up to take over the Small Business piece. But what Sasan wanted to do, is he wanted to use the chance to get everybody to reset. He shut TurboTax down for a day. He got every employee on a bus. They all went out and they experienced customers in all segments of society, using TurboTax, not using TurboTax. And then they came back and then they showed videos of competitive alternatives and statements being made by the government and what's happened in other countries to literally light a fire and then we've been on a weekly rhythm. Every week, there have been product reviews focused against those 5 areas. I fly down on a regular basis, Scott goes down every other week and the team continues to iterate. And I will tell you, there are very, very tangible results coming out. The reason why we have to be very cautious right now, as I would tell you, that I think the last few years, if we talked about stuff too early, it wasn't differentiated enough that it couldn't be copied by someone else. Our goal right now is to take a big leap forward for this tax season. And as it gets closer to tax season, you'll start to see some of this stuff exposed. And next year, we hope that we're in a position where we can talk even more about it and it doesn't matter how hard someone works, they can't copy it. That's our goal. Our goal is to set a whole new standard in tax breath. But until we get there, I would be cynical, I would be skeptical. And quite frankly, we have to earn it. Is that fair? Okay.

Peter L. Goldmacher - Cowen and Company, LLC, Research Division

Brad, Peter Goldmacher at Cowen. The last couple of analyst days, you've talked a lot about innovation, you talked about your 2 pizza groups and we've heard of this for a couple of years. When -- help us understand some of the barriers to see some of these great ideas turn into material products, and when you guys do your budget and your planning, how do you think about getting some of these great ideas to actually materially contribute and move away from the project phase?

Brad D. Smith

Yes, thank you, Peter. What I'm really proud of is it's not easy to take an organization that has a history of success in their products and get them to, again, to reimagine and rethink what's possible. So as you know, a couple of years ago, we began with quarterly reviews that said take us through a competitor that we haven't heard off and tell us what you admire about that competitor, because the first thing you want to say is they only have 200 customers, let's not worry about them. Well, the truth is, they could, maybe, be coming up with a disruptive alternative. And that began to change our mindset. We gave our employees 10% unstructured time, but unlike some of the others who do this, it's not to create anything, it's against the kind of strategies that we talked about, come and demonstrate to us and show us those succession metrics and we have a VC fund, called a CEO fund, and we fund it every time we get through a milestone. And they shut things down on their own. So it gives you a lot of engagement. Here is our lesson learned though. We've got a lot of things out of that unstructured time. SnapTax, GoPayment, some neat things like Weave, some of these pre-accounting solutions. But the thing we realize is, we weren't applying enough energy on innovation to our existing core products, to reimagine them. And they started to look old and stogie. So Dan Wernikoff led a major rethink of QuickBooks Online, codename Harmony, and literally rebuilt it from the ground up. And we're getting the kinds of reviews you saw earlier. Sasan is doing the same thing in TurboTax. If you want to see a needle-over, apply innovation to your existing product and reimagine how it's going to come out with a completely different look and we think that's going to be the needle-mover. So I would say, our lesson learned is, don't just apply innovation to new things, teach your team how to innovate on existing things and literally change the trajectory of the core businesses. And that's what we're doing this year. The second thing I would tell you, is we made a big mistake. The reason why I took the time to show you success in metrics, Neil said we missed plan by a couple of points. While TurboTax was clearly our biggest delta, all of our teams were off plan by about 1 point or 1.5 points. And the common pattern was all of us had given revenue of targets to a product that was still just an idea. And we said it at the worst way to actually run a business. And so now what we've done is we said, "You've got to show us customer growth, before you can show as revenue growth." And we've got ourselves back on a, I think, a pretty good trajectory. So long answer to the question, but it's basically applying innovation now to existing products we think is going to be the big needle-changer, while we do the other stuff.

Peter L. Goldmacher - Cowen and Company, LLC, Research Division

So in that context, when you talk about, at the last analyst day, you had a demo, where you showed a map of the city of San Francisco, and you showed all the relationships between buyers and sellers and the enormous network that you've built. You talk about $2 trillion coming across QuickBooks networks. So are we -- should we think about these as stickiness to drive the core product, separate SKUs to drive more revenue? How do we -- I mean, these are -- these are clearly enormous opportunities, and you guys are all over them. But what's it going to look like to us?

Brad D. Smith

Well, what we tried to do, Neil showed a slide at the end, and I know we were moving through it at quick pace to get to the Q&A, he showed the stuff that you can count on this year that's in the guidance, and he showed something called early-stage experiments. That included that example of the San Francisco map and the inter-connectivity between small businesses and consumers. It also included the Intuit commerce network. It included Demandforce,, which does 40 million consumer reviews in addition to the 25,000 small businesses. Any one of those, we think, could be a catalyst for growth, not only as a stickiness for the existing product, but we think it will be an accelerator of the company's growth. So right now, we don't have those baked in the guidance, but we stay focused on them. And 10% of our company's resources, my time, every employee's time, 10% of our dollars are actually dedicated to trying to cultivate those things. And if we find 1 make it through the 4 succession metrics, we'll double down on it. So treat those as upside opportunities.

Wayne Johnson - Raymond James & Associates, Inc., Research Division

Wayne Johnson from Raymond James. So 2 quick questions if I could. The first is, when is Demandforce and TurboTax going to be included in the new QuickBooks offering? When is that going to be seamless? That's number one, and then I have a follow-up on Square announcement this morning.

Brad D. Smith

Okay. So Demandforce today is being harmonized. The part of that experience you saw out there, the team already, from the day we acquired them, began to take the design principles and the navigation and work flows and began to build it into a way to be more fluid inside of QuickBooks. So you're going to see that continue to happen. So right now, as a part of Harmony, you'll see subsets of the Demandforce capabilities starting to be embedded inside of QuickBooks Online, just like Payroll and Payments are today. And so that's sort of Demandforce. TurboTax, we currently don't see the biggest opportunity to be connected with the Small Business QuickBooks product. We do think, however, that that pre-accounting group that Dan Wernikoff spoke about, those people that aren't big enough for accounting but they may need things like Met, well, one of the leading products we're rolling out in the next couple of months is Met My Business. And what it does in a headline is that solopreneur typically uses one checking account, their personnel checking account, for business expenses, as well as their personal expenses. And come tax time, they have to separate which ones are going to be tax-deductible and which ones aren't. And we've written algorithms to be able to go in and sort that for them. And you can actually press the button, and we can send it to the accountants, or we can go right into TurboTax. So that's probably where you see more of an integration with TurboTax within that pre-accounting space.

Wayne Johnson - Raymond James & Associates, Inc., Research Division

And that's very helpful. On the Square front, could you help us understand a little bit about where the influence of Square ends and where Intuit begins? Because it seems to me that what Square wants to do more and more is swim upstream into the ECR, electronic cash register, and some of the back office, even though their sales approach is using the front office to get in there. So if you'll just talk a little bit about that partnership and what you expect to get from it.

Brad D. Smith

Yes, I'm on a tag team with Dan Wernikoff here, but I'm going to try to hit the highest order level and then see if he has something to add. There is a strategic rationale that makes sense, and then there is also a "why we're doing it" as a part of our change management journey. The strategic rationale is this. There are a bunch of small businesses that have a fiscal point of presence while they're at an art and craft show on the weekends. They have an interaction that happens over a cash register or some other device, and that's where Square is, that's where PayPal is, that's where Google Wallet is and that's where a whole bunch of others, to have great backing and great assets are. And we have a position there, too, called GoPayment. But then there's another 2/3 of small businesses that operate out of vans and out of cars and out of trucks. They mow lawns. They paint houses. They landscape. And they send invoices, and they get paid 48 days later. And the largest producer of invoices in the world, more than Oracle and SAP, is QuickBooks. And that's where we think we have a durable advantage, where we can actually create a network effect in an interchange. So what we want to be able to do here is enable Square to focus on the retailers and restaurants, which tend to be their primary spot, not our core spot, so we can focus over here on the service-based businesses and then have the ability for the customer not to have to worry about the friction if I use the competitive product and I want it to flow in QuickBooks. So that's why we think it's a nice similarity. I just saw an article -- I haven't spoken to Jack personally about -- if that's his stated mission, but I did see an article over the weekend, and he was talking about small businesses are very much his core sweet spot. He does have Starbucks. He has others. So it'll be up to him to decide. He'll talk about his strategy, but for us, we see it as a very synergistic strategy with who we are and what we're trying to do. Dan, is there anything you would add to that?

Daniel A. Wernikoff

Yes. Probably the only thing I'd add is that if you think about what we're doing, we're integrating our 2 offerings. So whether someone's using our own payment solution, Brad's very right. The bulk of our GoPayment customers are actually service providers. Or if they're using Square's, we think QuickBooks wins and we think the customer wins because they're ultimately staying in our ecosystem. The data is flowing into our ecosystem, and we have the ability to solve more problems for them, whether it's another third party, which we help with the distribution or if it's our own solutions. So it's a little bit of both of those things.

Brad D. Smith

Yes, well said. Yes?

Scott A. Schneeberger - Oppenheimer & Co. Inc., Research Division

Scott Schneeberger, Oppenheimer. I want to switch over to your other partnership announcement of the day, on eHealth. Could you give us a little bit more detail there on what the partnership involves, the revenue or profitability model of it, and then taking it a step higher, how you think ACA will affect your business and strategies you're doing in year 1, year 2, year 3 of it?

Brad D. Smith

Yes. Sure, Scott. Like our other discussion, we aren't at the point where we want to talk about the economics of the deal. I can talk about strategic rationale. People struggling with Affordable Care Act right now have some very basic questions: what is it, does it apply to me, what do I need to do. And then there's a whole different set of outcomes, which is, okay, now I know I need to have insurance coverage if I want to be qualified for a subsidy, or I don't want to have a penalty come to the tax system. And there are going to be 36 states roughly that I believe are working with the federal government to create their own exchanges, and there's another group of states that are building their own. And you got a group of people like eHealth who actually provide those marketplaces, either private-labeled or are out there doing it in the commercial market. We did a very rigorous assessment of all the players. We know the leaders at eHealth. We've worked with them in the past. We're in the health care business, and we think they're a wonderful partner. And what they're going to be able to do is every time someone comes to our answers site, this is on walk-through, and they get answers to questions. If they need to go shop and find out is there an alternative out there in the market, who has the best prices that fits my needs, we'll be doing that with eHealth as our partner. In terms of the economics itself, we aren't at this point talking about any of the revenue share arrangements because we want to focus on the strategic aspect. Affordable Care Act is still unfolding before everyone's eyes. We do know that on October 1, the clock starts ticking. And we do know that it'll have implications for you if you need to have coverage and you haven't signed up for coverage, then there will be a tax penalty. If you actually qualify for coverage and you can get a subsidy, that will come to you through the tax system. And the question is will that bring a bunch of new people under the tax system. We think over the next few years, it could do that. You now see big Fortune 500 companies choosing to pay their retirees through these health exchanges. I think there was an announcement of a major drugstore chain who has decided to actually begin to shift some of their benefits to where people can actually purchase their employee benefits through a health exchange. Some of these people may have been retired and they may not be in the tax system, and all of a sudden, this may bring them back in because they want to qualify for a subsidy. We don't think it's going to happen in the next 12 months, but we do think over the next few years, it could bring people into the tax system who may have either retired or no longer had a reason to file taxes, but to get the subsidy, they'll start filing that return again. And we think that could be a potential catalyst. How big? It's yet to play out. It's new for all of us. Yes?

Brent Thill - UBS Investment Bank, Research Division

It's Brent Thill, UBS. On the Small Business side, you've outlined an ambitious call to double the user base. You haven't really grown that base in the last 5 years. So building an analogy, you look like team U.S.A. getting off against New Zealand. You're going to need a pretty quick acceleration to get back in this. What gives you confidence in that to get there? And Neil, I think, mentioned pricing, not using that as a lever. Can you talk to that as well now you're thinking about moving units with the price lever?

Brad D. Smith

Yes, I can. There's a couple of things going on in Small Business, and many of our peer companies that we're close to and we're admiring are going through a desktop-to-online transition as well. So if you look at the top line metrics, it looks like you're running in place. The truth is you're shifting customers to deferred revenue in the subscription-based businesses, and so the franchise is healthy. We win in that regard, by the way, because the lifetime value of an online customer's significantly higher than the lifetime value of the desktop customer. So one of the things you see is math, where it's addition by subtraction. And we tried to kind of show that. The other thing, as Dan Wernikoff pointed out, we don't have a demand problem. 1.5 million people a year are coming in and trying our product, and the problem is by the time they run into all those screens that we had in the old classic version of QuickBooks Online, we end up with a net number that is down in the tens of thousands. We think with Harmony, the new product that we just released, and the fact that it seamlessly just works with Payments and with Payroll and now with Square and others, that we have already begun to see the early indicators, some of which we showed, these arrows going up, that will help us accelerate our growth. Now for our long-term guidance, we don't have 10 million, 5 million to 10 million built into the numbers. We have what we fundamentally can see through experiments right now built into the numbers. And there is a potential that if we actually achieve what we've held ourselves accountable for, we can actually put an acceleration on some of the things that Neil shared earlier. But that's the reason to believe. And again, this is sort of like the tax question. The question you may ask was if I want to be a cynic or a skeptic, show me, and I think what we have to do is demonstrate to you. And we think we're at the point -- this will be the first year, by the way, that as many new customers who sign up for QuickBooks will choose the online version as they do the desktop version, this year, 2014. That happened in TurboTax into 2005, and I suspect it will happen in accountants in 2024. It's sort of the early adopter, early majority, late majority. So anyway, that's the reason why. We don't have a demand problem. We've had a product conversion problem. We think Harmony does a great job there. We are running through math of desktop going down and the cloud growing faster, and so we happen to outrun that. And it kind of shows up as deferred revenue down the road, but net-net, it's a good thing. And what we said on prices, we want to make sure that we're growing customers that love the product and are willing to recommend it to everyone else and not continue to raise price and create an underbelly for competitors to come underneath. And so just like in tax, we want to make sure we have a good price for the value, and we don't want to lean on price as a way to grow our revenue because that makes us vulnerable to disruption. So that's what Neil's comment was about. Does it help? Okay. And we need to come out to the front row. Okay, thank you.

Ross MacMillan - Jefferies LLC, Research Division

It's Ross MacMillan from Jefferies. So the question is -- I guess 2 questions. One is, is your focus on Pro Tax a deliberate effort to try to basically go faster in that category because it's been harder to shift from assisted to self-prep? And then number two, related to that, can you just remind us of your penetration of accountants in the U.S. as a channel for QuickBooks? Because it sounds like if you get that success with Pro Tax, you lock that channel up even further for the SMB side of the business, and that could be a powerful lever.

Brad D. Smith

Yes, I can. We've always been asked the question about why do you keep the Pro Tax business. It's a mid-single-digit growing business, it's margins in the high 50s, does it fit structurally? What you saw today, accountants are critical to the success of our Small Business franchise. They actually attribute about $1 billion of business unit contribution over a 3-year period to the products they recommend. Small businesses won't make an accounting decision without an accountant recommendation. They typically don't make a payroll decision, which is why our competitors call on all the accounting offices all the time. So they've always had a strategic value, but it's also been a good business. A high 50s, low 60% margin business gives you a lot of things you can invest in. What we're now seeing, though, is we think the opportunity to accelerate growth in that Pro Tax category over time comes from 2 ways. The accountants are now recognizing the Windows desktop error has been a great era, but the ability to take that now and put it onto new platforms and get it up into the cloud is putting 400,000 decisions up in a year. And so we think it's an opportunity for us to capitalize and to accelerate growth. The other is we've tried lots of things in our Consumer Tax business to say, okay, if you're used to having someone do it, what if we have somebody a phone call away and you use our software and you can call one of our people? And quite frankly, those didn't produce the results we wanted. What we have found out, though, is that these accountants want to grow their practice and get clients. We get 85 million. 1 out of 2 Americans come to TurboTax. Not all of them are going to decide to do it on their own. If we can match-make those people to the 1 of 104,000 roughly accounting offices we have, then we have a real opportunity to keep them in the Intuit ecosystem. And you asked how many people today. It's a little over 100,000 people. I think -- is it 104,000 or 107,000, Cece, Jill? What's our -- 109,000. Okay. 109,000 customers use tax. 280,000 roughly use our tax product or 1 of our QuickBooks products, so we have about 0.25 million firms that are recommending our products through the various ways. It's out of about 400,000 firms total. Lots of math there. Did you get it? 109,000, add QuickBooks in, about 280,000 out of 400,000. Okay. It's kind of scary that these numbers are stuck in my head. That's what 11 years will do.

Unknown Analyst

Yes, I want to follow up on Brent's question and your answer on Harmony. Harmony makes perfect sense. It seems like a huge platform, or at least for you guys. The question is, what took so long for you to launch it? And if it is a big shift in terms of how you go to market with QuickBooks, why not be more aggressive in encouraging customers to switch?

Brad D. Smith

Yes. Again, I want to ask Dan if he wants to add to this, but I want to remind you of something that we talked about, and this is not our joke. We give attribution where attribution is deserved. But the old cliché of why did it take 7 days to create heaven and earth, that's because there wasn't legacy technology and an install base of customers to worry about. And we had to re-architect the product. QuickBooks Online was actually developed in 1998, and we've refreshed it over the years, and we've put paint jobs on it. We've added things to it in feature functionality, but it never was really designed for a world that is now multiple devices, multiple platforms. And so we took a step back a couple of years ago, and we basically began to rebuild it from the ground up to be a global-ready platform, to be much more fluid and capable of doing the things we're trying to do. And with Harmony, it was not just a new user interface. It's re-architected the workflows and everything inside the product, so it was not an easy lift, which means it's not easy to replicate. And that's good news. And so we have the only global-ready platform that, today, is in 100 countries. I think we heard 70 earlier. We actually have paying customers in 100 countries. We're choosing to focus on 4. By the way, our competitors are going a country at a time because they have to rewrite or make changes to their product in every country they go in. So that's why it's taken so long. We literally had to re-architect the product. And Dan, do you want to add anything to that?

Daniel A. Wernikoff

Sure, yes. And that point's a big one. The release that we're doing with QuickBooks Online is actually a global release. So on the first day we launch, it's going to all countries. And you have a local experience, so you have a local language, a local tax model. And that is a pretty significant investment. The other thing is when we rewrote QuickBooks Online, it wasn't just UI, although the UI has all new technology. It's HTML 5. It's client-rendering. You can see how quickly it's humming. But there's a whole new services architecture, and that's what's helping us also expose it and open it up to third parties. And so that also has enabled our mobile development at the same time. So you can see there's a lot of investments that have happened over the last couple of years. And as long as it sounds like -- it felt like to you that it took to get the public-facing side of it out there, it felt much longer to me because we were making some of these big, big investments that had to be made. The fun part is now. I mean, we're actually looking at the product. We're getting feedback from accountants that are saying, wow, that's drop-dead simple. We're getting feedback from the press that says, this is beautiful, and it's -- they're saying, this looks like Apple. This looks like a different company. It doesn't look like accounting. And so there was a pretty heavy and deliberate investment, but we feel good about where we are right at this moment. The second part of your question about migrating customers from the desktop, that's actually been an area where we've held off because of the experience online, but now you're going to see us get a little bit more aggressive there. So we have a process to migrate customers. It takes 3 clicks and 3 minutes to actually be in a trial of QuickBooks Online. And there are some differences in the products, so there's feature differences. We're actually telling the customers upfront that this may not be right for you. But what's -- the interesting thing to think about is we can look at our QuickBooks Online customer base, and we can look for the exact same types of customers in the desktop base and specifically target them with promotions to help them move over. And the key thing here is we're not forcing people to ever migrate, but I think we're going to use honey, and we're going to give them deep promotions and help them try the product before they buy it. And this is going to be the era where we really turn that on.

Brad D. Smith

Now's the time. Project Beanstalk. Three clicks, 3 minutes. Yes. Okay, and then we do need to get Gil over here because he's had his hand out, but I think our microphones are afraid of getting close to the stage. So I want to make sure we get him next. Go ahead.

Raimo Lenschow - Barclays Capital, Research Division

Raimo Lenschow from Barclays. Just following on on that, if I look at the product, I mean, Harmony looks so much better than your online, but it's a very different user experience for the classic guys. And just expand a little bit on that migration comment you just did because it almost feels like you create, like, a free customer base with the desktop guys, the classic guys and now the Harmony guys. I can see how new users go to Harmony. How do I make sure that kind of I take the other guys with me?

Brad D. Smith

Yes, so there's a combination of things happening. Right now, it's going to be open to new users at the end of October. We've been increasing the traffic going through. I saw this in the release earlier this morning. We're targeting the bigger shift towards existing users starting in the first of the calendar year. We have online tutorials, the ability for you to quickly go in and see, how the product is very simple to get comfortable with. And we're finding right now, with all the tests we ran in alpha and beta, that that transition is not as scary as we would have been afraid of. And so ultimately, we're actually seeing that not be a big problem. Dan, is there anything you'd add to that?

Daniel A. Wernikoff

I'm just gonna add one thing to that. This isn't a schema change. So it's not really a migration for QuickBooks Online classic customers. What they're actually doing, think of it as toggling to a new UI. So it has a different experience, and there are some things around the edges that might be places where there's slight changes to the data model. But we've got our arms around those things, and so it's not going to be as jarring of a change. On the experience side, it is a big change and that we have done rigorous beta testing. So we tested it with new users pretty comprehensively, and that we saw a dramatic jump in the Net Promoter Score. We tested it with accountants, and we saw a dramatic jump in their Net Promoter Score, their willingness to recommend it. We tested it with existing users, and the score actually went up, which is something that we typically don't see in a brand-new UI, on a product where customers have been using it for some time. So we feel pretty comfortable with the migration or what we consider more of an upgrade process than an actual data migration.

Gil B. Luria - Wedbush Securities Inc., Research Division

Gil Luria, Wedbush. I wanted to ask something about QuickBooks pricing, but before that, a quick follow-up on Square. Is the integration with Square going to be at the exclusion of other wallets, PayPal, eBay, Google Wallet? Or are those also going to be encouraged?

Brad D. Smith

Now we're an open platform, and we're looking forward to having partnerships with everyone who small businesses find a way to use to help them be more productive.

Gil B. Luria - Wedbush Securities Inc., Research Division

And then on QuickBooks pricing, you mentioned the fact that the tax industry, consumer tax migrated in the mid-2000s to the cloud. And at that point in time, there were a lot of little upstarts that entered the market with a free offering and started to grow very rapidly. And you cut them off at the knees by going to free yourself. You're in a similar situation now, years later, with QuickBooks. Do you now have an opportunity to cut those guys off at the knees with Simple Start free as well when you start introducing this product on a global basis?

Brad D. Smith

Yes, so I was answering this for someone during the break. Someone had asked, have you [indiscernible]? And the answer is we have. We also have [indiscernible], and Scott's worked with them for years, come and speak to us multiple times in a year. It's part of sort of an arrangement we have with him. And he always reminds us the fact that you need to be cognizant of the low-end disruptions. So most of our product lines start with free. Now what Dan Wernikoff talked to you about is there's a whole underbelly underneath the QuickBooks, where we think we have a real opportunity and where it's probably the best way to make sure no one can come in on the bottom, and that's the pre-accounting category. So whether it's Met My Business, it's Weave or some mobile solutions we have, we think that's going to be the real opportunity to make sure no one comes underneath. The other is QuickBooks Online. Today, the competitor is coming in. We're very cognizant of price value and where they are. And we have free periods where you can come in, a trial period where you can use the product. And then if you don't like it, you don't continue, and if you do, you go ahead and start moving into the credit card charge. So I think we've taken a pretty thoughtful approach and most importantly, lessons from what we learned from TurboTax so that each of our teams think about this phenomenon you're talking about because as soon as the cloud starts taking off, the barriers come down, everyone tends to get excited about the space, and we hear everyone moving into the space, and it's up to us to make sure we don't give an inch. And so the answer is we have been thinking about that. Okay, yes?

Colin Wong

I'm Colin Wong from Mawer Investment. So earlier, you spoke about sending your executives on a job-sharing program to top 15 IT firms, so I'm just trying to understand what are some of the key learning that came out of that.

Brad D. Smith

Yes, so this was something I was also speaking with someone during the break. As a company, we try to remind ourselves that there are going to be people out there that could be smarter than us or are further along in a book than we are or doing things differently. Call it learn from the best Willmakers. So in our own research with customers, we do Follow Me Homes. We don't do market research. We observe them, and we watch what they're doing, and we try to take lessons from that. We do the same thing with industry leaders that are further ahead in things like mobile or cloud and all those elements. And so this past fall, we took a hard look at some of our products, and we said, we're allowing some of our products to basically look a little dated. How are these companies that have been around for a while continuing to reimagine their products? And so I'll give you names of the companies. I followed Marissa over at Yahoo! and the work she's doing with Flickr redesign and others. We went to John Donahoe and the team at eBay. We had the opportunity to learn from Facebook, from Jawbone, from Payoneer. We went to big and small, and each one of us did a full day of Follow Me Home, and we came back and we shared our learnings. What we learned were that they had very strong small product teams who had a really good understanding of their customer and had clear decision-making models and clear design principles of what they were going to deliver. And it wasn't sanctioned from the top at all times. It was very clear that the teams had the context, and they had the relevant sort of understanding of what they need to deliver for their customers. That was sort of big headline #1. Headline #2 were leaders in my job, and then the senior VPs' jobs spend 40% of their time in product reviews and coaching product teams, not in operating reviews looking at PowerPoints and spreadsheets but actually watching the products, developing the products, coaching the teams and removing barriers. And when we looked at our own time, I would say we were half that. And so we stepped back and said, we need to reallocate how we're spending our time. Every operating review now has product reviews built into it. We fly to the sites. We don't have the teams set up a review for us when it's convenient for us. We find out when the teams have a natural learning milestone, and we check in with them, and we try to actually learn how we can help them move barriers. So that was the second big learning. And I think those kinds of learnings were the things that we'd instilled, and we've now brought them back. Sasan, for example, has a couple of days a week, where he does product reviews. It happens to be very similar to what we learned from some of the CEOs. They set aside Tuesday and Wednesday, and they do product reviews. And we're actually getting energy because we love building exciting products, and our teams love it when the leaders actually lean in and get barriers out of the way, so they can move fast. So that's probably the biggest headlines. Yes?

Unknown Analyst

I really appreciate the initiation of a dividend a couple of years ago. You were kind of a pioneer in that. But I was struck that you're only going to grow it in line with earnings when you're starting from 17% of free cash flow, particularly that Intuit's really special in the tech industry and that it's probably the least economically sensitive company in the industry. It has probably more of its cash coming from the U.S., so it's actually usable. And then you've got enormous debt capacity that you could use to preserve strategic flexibility. So I wonder, why not grow the dividend faster or maybe move to a more meaningful payout ratio?

Brad D. Smith

Yes. And Paul, I'll have Neil tag-team with me here because I know he loves this particular question. And I'll tell you, we're very clear about our capital allocation philosophy that Neil walked through. We want to get a 15% rate of return over a 5-year period, and we look to invest inside first in infrastructure, R&D, marketing. We look at acquisitions, and then we're returning cash to shareholders. We're big fans of share repurchase. We've retired over 15% of our shares in the last 5 years. You saw the accelerated share repurchase we announced with the divestiture of IFS. And we also thought that even with that, we have the flexibility to do a dividend. And so we wanted to introduce that as another shareholder-friendly approach to returning cash. At any point in time, though, our commitment continues to be to try to build a franchise that's durable and strong, that can grow double digits and produce good operating leverage over time. And so we try to keep those in balance in a way that is still returning good returns for shareholders while continuing the franchise strong. And that's why we've kind of pegged at where we are. Neil, anything you would add to that?

R. Neil Williams

No. What he said, it's perfect.

Brad D. Smith

All right.

Walter H. Pritchard - Citigroup Inc, Research Division

Brad, Walter Pritchard down here, to your right, in the front. Just on -- I think Neil said in his slides it was -- 50-something percent of the growth will come from customers. I think it was 40-something last year, so really, that's where the bias is. And I'm just wondering, specifically in tax, you're still way below the umbrella that the tax stores have out there and CPAs have out there in terms of price points. And your Net Promoter Scores are very high. How much room do you think there is on just pricing? And I know you're not pulling the lever this year as much or not intending to, but how much room do you think you do have on the price side within the tax franchise?

Brad D. Smith

Yes, I think in tax -- in this case, you're asking specifically about Consumer Tax and how we stack up versus the couple hundred dollars, $188 in the tax store. We also compete in tax with about 3 dozen software players, many of whom start at free. And so if we benchmark ourselves just against the tax store and we move our price up, we've exposed ourselves to the bottom end, where people will come in and disrupt us. So our product line, it tends to have a free offering, where we get a lot of new customers come in. Many of them immediately find out they want to get help, that they want to import data electronically, so they moved to a paid version. So it's a great freemium model. But as we get closer up to -- when we move up the chain, we do see that there's price value opportunities, where we may be able to take price and still be much lower than a tax store. That's the same thing in Payroll, by the way. We have a full-service payroll offering that's about 30% cheaper than ADP and paychecks, but the algorithms do exactly the same thing. We do the calculations. We handle the filings for you. We do everything. But it tends to be at the upper end of our product lineup. So you will see us, if we do take price, it will typically be where we have a price value advantage and we're willing to leverage it, but we don't take it universally across the product line for fear of creating a vulnerability in the low end. So our statement on price, there is -- with 57% coming from customers, we still do get -- we're getting leverage on revenue per return, either by selling more products or maybe taking selective price increases, where we think we do have an opportunity. It's just not a universal price approach. So don't take it as 0 price, take it as less of a blunt lever.

Howard Roy Gleicher - Aristotle Capital Management, LLC

Howard Gleicher from Aristotle Capital. You had mentioned that the net present value of a cloud subscriber is far higher than the net present value of an upgrade subscriber.

Brad D. Smith


Howard Roy Gleicher - Aristotle Capital Management, LLC

Can you go through -- other than the fact that an upgrade subscriber won't upgrade every year, are there other factors that make the cloud subscriber more valuable, and does that propositions also hold in tax, where you kind of have to upgrade every year?

Brad D. Smith

Yes. Two separate questions. You hit on one of the big levers. In a upgrade subscriber, they tend to upgrade every 2.5 to 3 years, and they pay a couple hundred dollars if they get a discount at a retail store. And then you go couple of years, and they pay another couple hundred dollars. The subscription actually comes in, and we're able to basically get a monthly subscription off of them, and so it tends to be a higher revenue per return -- or, I mean, excuse me, higher lifetime value. That's bucket 1. Bucket 2 is we learned the hard way that many of the boxes we sold ended up as shelfware, where people got home and they tried to plug it in, and they found out accounting was scary than they thought, and they never did anything with it. And we still had an assumption at that point that they might be a customer, but we got no payroll and no payments attached to that. In subscription businesses, we can see if you're actively using the product, which is why Dan took the time to show you how many filled out a payments application, how many have sent an invoice because that is a real-life customer. And if we see you start to fall off, we can actually intervene and come in and kind of help you through your problems. So's that's another way. It's just retention. It's basically getting an active customer in and then selling more products to him. The third is even though our trajectory would tell you we haven't done as good a job yet of cross-selling into the online customer, it's actually easier to do in a cloud product than it is at desktop product. We just hadn't been tuning our cloud product yet because we're rerouting it, and we haven't been as long at the attach game with the cloud as we have desktop. For years, we've been selling Payroll and Payments. There's actually a much more elegant way to introduce you to other products. Look at Harmony. Instead of having multiple decisions, you come in and Payroll and Payments are embedded in, just click the button. And so we think that's another way to add it. So you put that all together in the cloud product, it is -- the upgrade cycle every 3 years, hit or miss, is now a subscription. The second is shelfware that really doesn't give you any opportunity. It's now active users we can monitor and engage. And the third is a cross-sell model, so much more seamless in an online world than it is in a desktop world. That's what drives lifetime value. Now your second question was TurboTax. Pro Tax, this coming year, actually is moving more to -- you heard Dan -- excuse me, Neil talk about some of our revenue shifting out because of the way we're bundling. We're going to tax online. We're also testing services that are sort of more membership-oriented, where you don't have to go through the sort of renewal process every year for a Pro Tax customer. So that's starting to shift to more kind of a subscription model. But in the TurboTax reality, we face it right now. As taxes last year, Congress does their work every year, and it gets complicated and different and goofy. And then next year, we have to do new tax again. So it's, unfortunately, a consumable product. But we can tell you, 74%, we have a lot of history that we know we're going to get 3 out of 4 coming back. We're not satisfied with that, but that is a very predictable revenue stream as well. We want to take that number up. So cloud is starting to allow us to do more subscription-like things for Pro Tax, and we'll continue to look for things in Consumer Tax. Does that answer the question?

Howard Roy Gleicher - Aristotle Capital Management, LLC

So you're basically saying it's not as valuable for TurboTax as it is for the other products?

Brad D. Smith

Well, there's different value in TurboTax. So bucket #1 is we have the ability in TurboTax online at any minute of any day to see how many people are in the product versus the same time last year on the same day. So we have realtime metrics. The other is Tayloe, our CTO, walked you through. We have the ability to go in with the conversion analyzer and see where you're dropping off. When it is a instrumental product and online, we can see where the questions are in the wrong place, so let's move them around, and we can increase the conversion funnel. It is a much more optimized and, quite frankly, a more leverageable product, which drives the lifetime value. So we do think it's got benefits, just not in the subscription kind of model. Sorry, I didn't answer the question precisely. Okay, yes?

Unknown Analyst

Hey, Brad, a key message that's coming out of the Analyst Day is improved integration between your existing products. Historically, Intuit has operated as individual businesses with a GM for each group. What are you doing to improve the integration? And then over time, do you think there's a margin improvement opportunity?

Brad D. Smith

Yes. So Harry, one of the things we're doing is, as an organization, we have been re-architecting our technology, and Tayloe talked about more services-oriented components with APIs. And so the ability for you to have application programming interface is you don't have to get in a room and negotiate to get on someone else's priority list. You can pull their code down and build it into your products. So we've been working on that. It's been a multiyear effort. Harmony's showing that with the rewrite. The second thing is we've aligned incentives. So these 3 leaders who presented for Small Business and 2 leaders who presented the tax, they kind of implicitly suggested what explicitly they know, which is they have 1 goal: Go from 5 million to 10 million customers. All 3 are signed up for that goal. Go from 64 million to 84 million tax filers, both tax systems signed up for that goal. And the company is very excited because for years, they've been saying, well, I can help them. If my product worked with their product, we can help them. But now that our technology has been written in such a way that we won't slow everybody down to the slowest horse in the pack, we're now able to do that much more efficiently. In terms of margins, I think what you're going to start to see is it helps us in acquisition costs because inside of Harmony now, instead of 3 discrete marketing efforts, you buy QBO, QuickBooks Online and now Payroll and Payments are embedded in. So it ought to help us be much more efficient. It reduces the duplication of engineering teams writing the same thing twice. As Tayloe said, there are no more clones. Now we have one set of services of APIs. So we do think there's margin leverage there, which is why we can stand up here and say we still believe we can produce margin expansion, even at the size we are growing the revenue because we have a lot of efficiency we're going to gain from doing this. Does that answer? Okay. One more?

James R. MacDonald - First Analysis Securities Corporation, Research Division

It's Jim MacDonald at First Analysis. I know Global is an area you want to grow faster. It's now sort of integrated, so it's harder to see. But can you talk about whether that's going to grow faster? Is it more than just QBO? And if so, what else could be significant?

Brad D. Smith

Yes. Our primary focus for Global right now is the Small Business ecosystem, QuickBooks Harmony and where we have Global-enabled pieces of that ecosystem that will go with it. Like today, we have a Payroll version that's online that works with it in Canada. We're testing it in the U.K., then we'll take these products. Where we don't, we'll announce more deals like we did with Square. So we can still complete that ecosystem through partnerships. We have our tax businesses today we're declaring are just going to be in Canada and the U.S. But we put the apostrophe after the S not because there are 2 countries only but because we may also explore some things in a few other countries. And if we validate it there, we'll go there as well. I want to be explicit about one thing, though. We have QuickBooks Online, the Harmony version, releasing globally in the 100-plus countries today, where we have paying customers. And we have this map that can show us where the downloads and the natural organic demand that's happening, which will help us choose the next countries. But we've narrowed our focus right now on 4 for a reason. Canada, the reason why is because we already have a strong franchise there. It's moving to cloud. We know Canada's a great innovation engine. We can test things there and bring them into the U.S. By the way, it happens to be the front door into our country for a competitor elsewhere, and so we want to make sure we've got a defensible border. The second is the U.K. The U.K. is in a way game for us. We don't have a crowd of 4 million customers cheering our accountants, so we want to be able to go in and say that is a front door to Europe, and we want to demonstrate we can build a good franchise there. The third is Australia. Australia is an open door to Asia. It's also a part of the Commonwealth country. And quite frankly, there isn't competitive alternatives emerging from that part of the world, and we want to be able to go right into the thick of that and see how we stack up. And then the fourth is India, and India is our proxy for the emerging market. We have 600 engineers there in our development center, and we also have experiments running, where QuickBooks Online Harmony is producing some very exciting results in a world that's historically been desktop. So we think we'll get a go-to-market model that we can prove there and go elsewhere. So Global for us is Small Business ecosystem, except for Canada and the U.S. for tax. It will be Harmony plus anything else that's global-ready for the ecosystem. And where it's not, we'll do partners. And while we'll have open demand and let customers download and use the product, we're going to focus in on 4 countries now to prove our go-to-market models.

Matt Rhodes

All right. I'm going to give it right back to Brad to close, but I want to make a couple of quick announcements. First of all, thank you all for taking half a day to spend with us. We hope it was a valuable day, and feel free to follow-up with me, Marge or Mike if you have any questions. Happy to help you parse everything we shared today. Anyone needs transportation, you need a cab, [indiscernible] in the back here can help you out. Lunch is to my left, back through where the product demos were. We'll still have some product folks out there for you to speak with. If you have time, please join us for a bite. Thanks again, and I'll give it back to Brad to close.

Brad D. Smith

I have nothing else to say other than thank you so much for taking the time to come today, sitting through all this information. And any feedback you have for us, we view it as a gift. So I appreciate it very much. Have a great afternoon.

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