Intuit Inc. - Analyst/Investor Day

| About: Intuit Inc. (INTU)

Intuit Inc. (NASDAQ:INTU)

September 21, 2011 4:00 pm ET


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

Tayloe Stansbury - Chief Information Officer

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

Matthew Rhodes -

Kiran M. Patel - Executive Vice President and General Manager of Small Business Group

Eric C. W. Dunn - Senior Vice President of Payments Initiatives

CeCe Morken - Vice President and General Manager of Intuit Financial Services

Jill A. Ward - Former Vice President of Vertical Business Management Solutions

Unknown Executive -

Daniel R. Maurer - Senior Vice President and General Manager of Consumer Tax Group


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

Brent Thill - UBS Investment Bank, Research Division

Adam H. Holt - Morgan Stanley, Research Division

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

Kash G. Rangan - BofA Merrill Lynch, Research Division

Brad A. Zelnick - Macquarie Research

James Macdonald - First Analysis Securities Corporation, Research Division

Unknown Analyst -

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

Ross MacMillan - Jefferies & Company, Inc., Research Division

Unknown Executive

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

Matthew Rhodes

Hello, everyone. Thanks for joining us this afternoon. Everyone in person, we really appreciate you making the trip to Mountain View. I also want to take this opportunity to welcome everyone that's listening via webcast; shareholders and employees alike. We've got a great afternoon planned for you, as well as a good evening. As you know, this evening at about 4:45; the presentations will run until about 4:45, we're going to have an Innovation Gallery Walk over at Building 11. We'll have signs clearly marked; we can all walk over there together, and we're going to have some of our innovators showing you 21 different mobile products. So there's also going to be alcohol, so hopefully all of you will come and check it out for a little while. It's going to be a good little evening for you over there. So without further ado, why don't we just jump right in? One other housekeeping item real quick, you guys have all seen the food; we also have restrooms out to my left and around the corner to the right.

I do have to read this quickly, my apologies, and I will do it quickly. I have it memorized for the record, but I'm going to read it off the screen.

Forward-looking statements. 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 in 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 2011 and our other SEC filings, which are available on the Investor Relations page of Intuit's website at We assume no obligation to update any forward-looking statement.

In non-GAAP financial measures. 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 management’s use of these measures, and a reconciliation to the most directly comparable GAAP financial measures.

So today's agenda. Here's what we're going to present today. We're going to kick it off with our CEO, Brad Smith, who will run through our strategy, take a look back at the past year, as well as our focus for FY '12 and beyond. Kiran's going to talk about all things small business. We have Jill Ward in addition this year from last year, who's going to talk about the Accounting Professionals business after Kiran presents. CeCe Morken, our newish leader of Financial Services will be up here as well. After that we'll take a quick break, and then we'll get back here for Dan Maurer, who's going to talk about tax; Tayloe Stansbury, also an addition this year, is going to talk about our technology, what we're investing in from an R&D and infrastructure standpoint, he's our CTO. And then Neil will wrap it up with the financial perspective, and we'll have time for about 30 minutes of Q&A that Brad will come up and lead at the very end.

So like I said, the presentations we plan to run until about 4:45 or so and then after that, we'll take you over to take a look at some of our exciting new and upcoming products over in Building 11. So thanks again for joining us. Enjoy the day.

Our CEO, Brad Smith.

Brad D. Smith

All right. Thank you, Matt. All right. Hello, everyone. And I want to add my welcome to Intuit's 2011 investor day. As you just saw from the agenda, we've got an action-packed agenda. And I hope you're going to find what we have to share with you useful this afternoon, and going into the evening.

Now to kick off the afternoon, I want to preview the 3 topics that I wanted to share over the next 40 minutes. First, I'd like to reflect back on our performance in fiscal year '11. I'll talk about the areas that we've performed well. I'll also highlight the areas that we're constructively dissatisfied with our execution. We believe we can do better. Then I'll shift our focus to the external market. And in the external market, I'm going to talk about the near-term economic scenario and how that has implications for our business and our opportunities, but I'm also going to talk about the longer-term secular shifts in the market that we believe serve as catalysts for our company's growth rate. And then I'll recap by reviewing our company strategy to win, and talk about the opportunity we see ahead of us over the next several years if we stay focused and we execute well.

So with that, let me start with the year in review. And I'll start with our financial performance, which I realize is old news now. But sometimes when it's good news, you like repeating it. So I am pleased with the performance our team has delivered in the fiscal year '11. Despite the tough macroeconomic environment, we delivered 11% top line revenue growth, we expanded our operating margins 80 basis points and we improved our non-GAAP diluted earnings per share of 19% year-over-year. Now when you stack those results up against the financial principles that we use to run the company, we had a pretty good year. Just to recap those financial principles, our goal is to grow our revenue organically double-digits each and every year, to grow our revenue faster than our expense, which creates good operating leverage and also produces strong cash flow and then we use that cash to make investments in things that we look to produce a 15% return over a 5-year period.

Now our first preference and priority is to invest in the company. In R&D and infrastructure, sales and marketing, we also looked for strategic acquisitions, typically talent and technology tuck-ins and then we also return cash to shareholders. We've historically done this in the form of a stock repurchase. Since 2001, we have returned $7 billion to shareholders through our stock repurchase plan. We've purchased 250 million shares at an average price of $28. Compared to today's price, that's a pretty good return.

This past year in the fourth quarter, we added a dividend as well. It's an and, not an or. And so at the end of the day when you look at our financial performance, we feel pretty good about the year. But when you clip down underneath the covers and you look at the operational drivers that produce these results, we had some hits and we had some misses. I want to spend a few minutes just recapping both. And I'll start first with what feels good.

What really feels good right now is that our strategy is durable, it's the same strategy I shared with you last year, it's the same strategy we talked about 2 years ago. It's also working. It's expanding our customer bases. It's improving the quality of our offerings, which you know we measure with Net Promoter, the willingness to recommend it to a friend or family member and it's increasing our market share. So what's happening is in aggregate, it's transforming our company from a historical shrinkwrap software company to a company that's increasingly a Connected Services provider. In fact, we exited fiscal year '11 in July 31 with 62% of our revenue now coming from Connected Services. That's up from 59% 12 months ago. We now have 35 million customers using our hosted products, our SaaS products, Software-as-a-Service, now represent $1.5 billion in revenue and that revenue's been growing at 37% compounded annually over the last 5 years. So that feels good; a company that's delivering with the next generation of technology to customer who need our products and services.

I also feel good that we've been making the investments to lean into the next chapter, in a 24x7 world and in a mobile-first with the computer and the palms of our customers' hands. This time last year, you may remember we had some pretty concerning outages in some of our data centers. It had impact a couple hundred thousand customers; we were embarrassed. We made it the #1 priority that we would close the gap in the 12 months that ensued from last summer to now, and we have. We shut down 12 inefficient data centers. We've invested in 2 world-class data centers; one in Quincy, Washington, one in Las Vegas. We have refreshed our technology and we are now performing much better, and we're holding ourselves to a higher bar. Over the next couple of years, we're going to continue to invest in this area. And the second area is in mobile. Mobile's been a part of our strategy since 2008. These are now computers in the palms of our hands. Smartphones have 1000x the processing power of what it took to land a man on the moon with the Apollo 11 spacecraft. If you are developing software and services, you need to be designing for a mobile-first world.

I will tell you all of our businesses have mobile offerings. We now have millions of customers, tens of millions of dollars in revenue and our applications and services served on mobile devices are ranked in the top of the App Stores in each of their categories. What's neat is, these mobile devices are enabling us to solve problems in ways we could've never done on a PC. In fact, what I'd like to do is show you a quick video clip of how our products and services are embedded into the daily lives of consumers and small businesses now and they're transforming their lives in very unique ways. So let me roll the video.


It's pretty cool stuff. We're very excited. In fact I hope tonight, you will get the chance to go to the Innovation Gallery Walk, because you'll see over 20 different offerings on mobile devices. They are doing the kind of things that you just saw on that little video there, and they are absolutely the most popular products we have in our portfolio right now. So that's exciting progress.

In a world where these social platforms and mobile App Stores matter, companies have to be able to work with the industry leaders. And I'm very proud to say we're sitting shoulder-to-shoulder at the table with some of the industry's top leaders, looking for ways to put our assets together to serve many, many more customers. I'm proud of the announcements we've made with Google, trying to get websites in the hands of all small businesses or the fact that we've signed a partnership with and we have many more like this.

I'll also tell you that inside the company, we continue to invest in creating a work environment and invest in our talent to keep Intuit fast moving and entrepreneurial. You've heard some of the principles we talk about. We don't want our teams to be any bigger than 2 pizzas can feed. We want to go from an idea to a prototype in market in 6 weeks or less. And we try to celebrate the lessons of failure just as often as we celebrate success, because that's how we get better each and every day. Because we do that, our engagement scores this year for our employees, their willingness to recommend Intuit to a friend or family member went up 3 points. We're now at best-in-class levels, and this is important because the talent market in the Silicon Valley is heating up. Getting the world's best talent and keeping the talent is a top priority for us. And because we have our employees engaged and they're in an innovative environment, staying focused on customers, that's producing the kind of financial results that you saw and hopefully the kinds of returns you would hope to get from a company like Intuit in terms of the share performance.

The last thing I'll say in terms of what feels good is our recognition starting to pick up some momentum in the market. This past year, Intuit moved up 50 spots in Fortune magazine's Top 100 Best Places to Work. We were ranked in Forbes' Top 100 Most Innovative Companies in the World, and Harvard Business Review wrote an article in June talking about our approach to innovation and the fact that it's 8,000 employees job. It's not a team set aside in the lab, it's all 8,000 employees. I was pretty proud coming from a state school; I call this our goodwill hunting moment. So we have some things in fiscal year '11 we feel pretty good about. But this is Intuit, and we realize that we aren't the best that we can be. We had some areas, quite frankly, that we left opportunity on the table. I want to cover 4 with you very quickly.

First, our first-use experiences for many of our products is not as easy as it needs to be. In fact, we did a study across all of our product lines; for every 100 customers we get to come in and try a product the first time, we're converting between 2 and 14 to come back a second time. Now we are the company known for ease-of-use. So this may be better than the alternatives in the market, but it's not good enough. We know we can do better. In fact, you'll see our teams have been hacking away at this throughout the year. We took our merchant approval form process down from 8 screens down to 3. And we feel we're making good progress until we started to watch customers in a mobile world. For every piece of information you ask somebody to key in to a mobile phone, you cut your conversion by 50%. You want a username, 50% dropped out. You want a password, there's another 50%. So we need to clean sheet our thinking here. We focused for 2 days 3 weeks ago with our top 400 leaders. We are most ourselves in the best practices outside and inside, and this is our #1 focus you'll hear about across all the businesses this afternoon. We know we can do better. I'll size how big this is for us towards the end of my discussion in a few minutes.

The second area we have to do more and faster at is social and using data to create customer delight. Let me explain that what we've done in this last year is exciting. You may have seen we were ranked as the second most social company by an outside survey. But what's happening right now is what we do in social marketing. We had 25 billion impressions that we made in the market last year through TV advertising, websites and social. 21 billion of those were through social marketing. Well just think back when the Internet first came out. The first thing that happened when someone ran into a conference room and said, "Hey, the Internet's here. We've got to be on the Internet." And the marketing team raised their hand and said, "I've got it, boss." And they put our brochures online, they put our hours of operation, they put our toll-free numbers and we were on the Internet. And then about 6 months later, someone said, "Well, if you can market on the Internet, you've got to be able to sell your products." So we put shopping carts up there, we accepted credit cards. You could order QuickBooks Desktop or TurboTax desktop, we put it in a package and we FedEx it to you. Now you fast-forward 10 years, the Internet is a business; 3 out of 4 tax returns are filed through TurboTax online now. We have QuickBooks Online going 42%; faster than the other products in the small business suite. The same thing is going to happen with social. We see right now we're taking our content, and we're getting people to tweet about it in Twitter and we're putting it in Facebook, and that's getting 21 billion impressions of social marketing. The next chapter is design social into the product: Like It buttons; Share buttons; like communities where they can answer each other's questions. We will know we're there when it's no longer our content surrounded by people talking about it; it is people creating the content.

Third-party software developers building on open platforms to solve problems we can't get our engineers enough time to focus on ourselves, and customers contributing value as well. And that's the root of all that is data. Data that does the work for the customers; it pre-fills the forms; you don't have to ask for information, and it gives them insights. This is such a big opportunity for us. We have named a leader who was running our payroll business for the last 3 years, Nora Denzel, is now leading social and data for the like inside the company, and we are focused on making progress in the next 12 months.

The third area that we need to step up our game is mergers and acquisitions. As you know, we have a proud history as a company of making acquisitions that are typically smaller talent and technology tuck-ins but quite frankly, we've had some spotty execution. This past year, we had to take an impairment charge on our Medfusion acquisition. Now the reality is this, Medfusion grew 50% in revenue year-over-year; it was the fastest growing business unit in the entire company. But our math and our expectations and what we actually have put together when we justified the acquisition for ourselves was higher than that. We need to do a better job of getting reality around what these acquisitions are going to deliver in the first year, and how we do our integration better. So we're going to go back to the drawing board to make sure we have a better game plan and a blueprint for when we do acquisitions.

And the last area that we need to step up our game is continuing to make the investments in infrastructure and refreshing our technologies. Our agents need to have tools now that can see a 360-view of the customer. And that customer is now in the cloud, and we have to give them the ability to monitor how the product is performing in the cloud. Is there any latency? Is there any downtime? The other thing we're doing is we're refreshing our technology. We're getting the data out of the C drives of those QuickBooks desktop customers up into the cloud, so they can access it through mobile devices and we can take it to new geographies around the globe. We're making these investments. You'll hear Neil talk more about it. It's in our game plan, but it's an opportunity for us to do better.

So to put a bow around fiscal year '11, we had a good year. We didn't have a best-we-can-be year. We know we can do better and we've got our priorities and our focus areas for fiscal year '12. Now what I'd like to do is shift the focus over to the external market. And I've got to start with the near term.

The near term is on all of our minds. I always get asked the question, "What do you think is going to happen with the economy?" And I can assure you not only am I not an economist, but I don't even remember that much about what we studied in economy when I was in business school. And so we don't spend a bunch of time in the company talking about predicting that which we don't know, but what we do spend time talking about is what is the situation our customers find themselves in, and how can we best help them through this period and while doing that, how do we strengthen our market position and make ourselves even more competitive going forward? So what I'd like to do is spend a couple of minutes; I'm going to talk about 4 economic variables that we all read about in the press, we all study in our reports and I want to talk about how those variables impact our business and what we're doing to not only help customers, but strengthen our position in the market. And I'm going to start first with unemployment.

We all know the stats; about 14 million people in the U.S. right now unemployed. If you count the underemployed, 23 to 25 million people. It impacts lots of different parts of the economy. But the one thing that most people think about when they think of our business is it must impact the number of people filling tax returns. If they don't have a job, they probably aren't going to file tax returns. And the IRS typically gets about an increase of 1% to 2% of tax returns every year when the unemployment is down about 4%. So what happens when people get laid off? Well the truth is, the government still wants to get paid. And so even in the depths of the recession, the number of people filing tax returns just went down about 1.5%, so it's a pretty resilient category. But what happens underneath, inside that category is what's helping us. When families find themselves pinching pennies and they still have to pay their taxes, they're looking for the easiest, best solution to get to a refund at the lowest possible price. And if you look at the Net Promoter Scores, the digital tax solutions, they're 10 points higher than tax stores. And the price is 75% cheaper. This is why the digital tax category has continued to accelerate even through this recession, growing faster than tax stores or any other method and we've been able to increase our market share and grow our tax business double-digits, even with unemployment at 9%.

The second economic variable, consumer confidence. Obviously, about 2/3 of our economy here is driven by consumer spending and the question is, "Well, if consumers aren't shopping, what does that do to your business?" Well, one of the areas that we're able to track the impact is small business charge volume coming through our payments business. We call it average volume per merchant, and we track it on a same-store sales basis. And the reality is, it's now up about 4% to 4.5% year-over-year on a same-store sales basis. That's not super robust, but it's not as bad as it was even a year ago in the early part of fiscal year '10. So we are starting to spend more, but we're smarter shoppers now. In fact, the people need to know do I have money in my bank account before I make that purchase? That's where our tools like Mint come into play. It gives you in the palm of your hand, like you saw in that video clip, the ability to know, "Do I have the money in my bank account, given everything else that I'm going to have to be paying to make this decision right now?" And in Mint, we gave you ways to save. We've returned $550 million worth of lower credit card fees or better loans or other ways to save to families over the last several years. So this is an opportunity when customers need us most.

Now the third area is financial services health, banks. Our bank is healthy, and this is important to us for 2 reasons. First, because banks are our customers through our financial services business and second, because they're the source of lending for small businesses to get started. And our data suggests that today for every 6 loans that are getting applied for by small business, one are getting approved. So it's still a tough environment out there. Banks have been regulated and legislated, so what do you do when you're a company serving banks and serving small businesses? Well, the first thing we do is we try to deliver better solutions for the banks to help them get back on more confident footing. In fact our next generation of online banking, which includes our new mobile solutions that you saw in that video and you'll see at the Innovation Gallery Walk are increasing the engagement of the bank's customers through their websites by 50%. Our Net Promoter Scores for our banking solutions are 18 points higher than the second highest bank in the nation, and we've now been able to demonstrate to our banks that they use these online banking tools that we have, they increase their profits for their customers by 11%.

Now we hope that gets the banks lending again. But if they don't, we're there for small business. We help them get up and running with little to no money down. You can use the website for 30 days free, then you pay $4.95 a month; you can get our GoPayment, our mobile payment solution, you get the free swiper, no subscription fee, you pay 2.7%. When you get paid, we take 2.7%. So we're trying to help the bank, and we're trying to help the small business at the same time.

The last economic variable is small business confidence. This is my favorite because every year, small businesses start knowing 1 out of 2 will fail at the end of 12 months, and they're always convinced it's going to be the other guy. So a research study asking them what they think the future will look like probably isn't the best predictor of success. So what we do look at is are they making decisions that suggest they are more confident today than they were yesterday. And the #1 decision is, are they hiring employees? And the truth is, using our Small Business Employment Index, we pay 1 out of 12 Americans, so we have a pretty good view into whether they're hiring, is they are hiring again. Now 2.2% on an annualized rate is not robust, but it's better than it was just 4 or 5 quarters ago when they weren't hiring at all. The reality is, those employees are not fully deployed right now; they're actually working fewer hours, which means more of that burden has fallen back on the small business owner and that means time is money for a small business owner. They need to have tools to be more productive. That's where QuickBooks comes in. QuickBooks saves small business owners and their employees' time. 70% of small-business owners said QuickBooks improved their profit by 20% in the last 12 months.

So that's sort of an overview of the economy as we look at it. What we try to do to help customers and quite frankly, that's why we've been able to expand our categories and continue to grow, by being there when customers need our products most. I can't tell you, Neil's not gonna be able to tell you if there's going to be a double-dip recession or not. I know everyone talks about this. What I can tell you is this, we have banks on 0 improvement in our plans for fiscal year '12. And honestly, as we look at over the next several years, we're not banking on upside as well. So we aren't using this as a crutch, we're using it as a catalyst. We're saying 1/2 when we take advantage of this opportunity to help customers, grow our franchise, strengthen our market share and expand our categories. And we've put principles in place in 2008 that we continue to use to make day-to-day decisions at the front lines. These principles help us know where we're going to make trade-offs, and they also protect our investment in innovation which helps us build the foundation for the future. Those principles, by the way, have enabled us to grow year-over-year from a new perspective with operating leverage despite the GDP taking a dip down. This has also enabled us to keep our eye on the horizon.

And at this point, I want to shift away from the short term and talk about the longer-term trends that we see in the marketplace that we believe are catalysts to actually accelerate our performance if we take advantage of them and we execute. So the first of these 4 trends, and this by the way is in partnership with the Institute for the Future. We bring them in to help us facilitate our 10-year and 3-year strategies, and they help us see data that consumers and small businesses are looking at over multiple years and they inform our judgment around what we need to be thinking about as we make decisions. The first is the power of data. There's all kinds of terms out there; big data, all the different things that you're hearing tossed around. We look at data to create delight for customers to move products from a do-it-yourself world to a Do-It-For-Me world. What that means, the days of sitting in front of Quicken keying in information and then having it sync up with your bank account are now being displaced by the years of Mint, where you plug in a username and tell us where you bank and we go get all the information, bring it back for you, create a pie chart, look at your last 6 months of spending and build you a budget going forward and you did nothing. It's the ability to take a SnapTax, TurboTax products on an iPhone, take a picture of a W-2, use optical character recognition to pre-fill the entire form. You answer a couple of questions, and your taxes are done. Data for delight.

The second opportunity is global. The estimate's about $6 billion people in the world; 2 billion today have access to the Internet through PCs, those have historically been our target market. Now 5 billion have phones in the palm of their hands getting smarter every day. And by taking advantage of mobile computing, we can now start to move into other markets faster than we did in the past and those of you who've been tracking us know, 95% of our revenue today comes from the U.S. So every opportunity to go outside is incremental to us, and we are laser-focused on expanding our global footprint.

The third big shift is the experience of products across multiple platforms and devices. We learned this last year. We introduced SnapTax. Many people started their tax return on their phone, but then they wanted to complete it on the web, on the internet, on the PC, or on a tablet. So now we're making sure that our products inter-operate across multiple platforms and devices. That's also, by the way, breathing life back into our core products. Today Mint users, you saw on the video, 50% of them actually engage through the mobile phone and it's increasing their engagement by 3 or 4x. So it actually creates better outcomes for the customer on the web, as well as on the mobile device.

The last area is our business models are shifting, and this is good news. We're moving from licensed software sold every 2 or 3 years as an upgrade to more predictable recurring subscription services. And this is what enabled us to produce a non-GAAP profit in the fourth quarter of fiscal year '11 for the first time in almost 2 decades when we moved into the tax business. So these secular trends are opportunities that we're focused on in our R&D area and in our product management area. And if you put a summary around the external market, I would tell you that it is definitely tough, but we see it as an opportunity to be there to help customers when they need our products most, and we also have remained focused on these longer-term trends to make decisions today that will help us accelerate our performance into the future as well.

So I'm going to move to the third and final part of my conversation today, which sets the context for the rest of the leaders by just recapping our company strategy to compete and win in this market. And the first part begins with a mission. A mission is why do we wake up every single morning and get excited to come to the Intuit campuses around the globe? And it's the same mission that we began with 28 years ago when Scott started the company; to improve customers' financial lives so profoundly they can't imagine going back to the old way. But we're no longer the Quicken company. So we're clear about the customers that we serve, we are a consumer and small business focused company and because managing their financial lives often involves another party, we also work with that other trusted party, typically their accountant, their bank and increasing their health care provider. So this is why we have business units called the Small Business Group and the Consumer Group and the Financial Services Group and the Accounting Group; we organize around the customer. And in terms of how we improve their lives, our business is a better money outcomes business. That's what we focus on; creating better money outcomes for our customers. That's our mission. Our values help create the culture that we've cultivated for 1/4 of a century, it helps guide our decisions every day and it sets the bar for how we want to behave as a company in the communities in which we serve.

We also have focused on 2 core capabilities. These 2 core capabilities are designed to help us differentiate our products in the market. The first is customer-driven innovation. This defines where we're going to focus our resources. We look in the market for big unmet underserved needs, and then we look for a solution that we think can solve that problem well and then we look for a way to create durable advantage. And it's the intersection of those 3 circles that define where we're going to focus. And then the second core competency is how we build our products; we call it Design for Delight. These are teams no bigger than 2 pizzas can feed. They go out, they immerse themselves in the customer environment or they look at the patterns in the data. They come back and they have to brainstorm at least 7 different hypotheses before they're allowed to narrow in on a potential solution. We call it, "go broad to go narrow." And then they iterate with the customers in the kitchen. We try to get the roughest, ugliest, fastest prototype in front of the customer we can, and get them to help us start to move things around to say this is what will make it better. And we know that we've hit gold when we deliver the love metrics. Now these are sort of Intuit terms. Love metrics are first, it does what the products hired the -- or the customer hired the product to do. It delivers the benefit they were looking for. The second is we know it did because they replaced every other substitute method and they use it every day. And finally, they tell their friends and family members that they have to use it as well. That's the Net Promoter Score. That's when we know we're there.

The last foundational element of our strategy is how we measure success. We call this, "true north." It's how my performance is assessed by the board every year. It's how 8,000 employees' performance is assessed inside the company. It is are we delivering the best results we can for our employees, our customers and our shareholders not only deliver short-term, but also to leave the company better than we found it for the long term? When you put our mission, our values, our 2 core capabilities that I talked about and true north together these aren't just PowerPoint slides, they're a formula that has helped us produce a company that we're proud of and we think can be even better if we do our jobs right. A company that's been ranked as one of the top 100 best places to work, which helps us compete for talent. A company that now serves 50 million end users; 18 months ago, it was 40 million, and we do it in pretty profound ways. And a company that has been able to produce results for our shareholders not only in the current period, but if you look over a 5-year period has delivered good results when compared to peer groups in the NASDAQ.

But perhaps what's most exciting is we've got a foundation that can help us grow even faster going forward. And I'm going to spend a couple minutes on this and wrap up. The first thing that this approach has given us are strong franchises with plenty of headroom for growth. I'll walk through these charts and explain what we mean. First of all, every business that we're in is in a high-growth market where we tend to have a #1 market position when you compare us to a look-alike software competitor. Take the first row; Financial Management, that is QuickBooks. There's 29 million small businesses in the U.S. Today, they spend about $1.5 billion a year buying Financial Management software, and they're increasing that about 10% a year. QuickBooks is #1 in the market in terms of number of customers served. But you know we don't look at the market just by other competitors who look like us, we look at all the substitute methods. So while we have a high share, we have a low penetration.

If you follow that same top row, the area shaded in gray are the small businesses still running a business with a checkbook and an ink pen or an Excel spreadsheet. Those in blue are using QuickBooks or one of our other products and those in yellow or gold are using a higher priced alternative that basically over-serves the small business and charges them too much money. So this is why we want to expand our category to get more into our category and then increase our share. And to do that, you have to have a superior value proposition. And that's where we measure Net Promoter.

Our goal is to have at least a 10-point advantage in Net Promoter over the second closest alternative in the market. And we don't just measure software; we compare ourselves to a pen and paper if that's the #1 alternative. You can see most of our products do have a 10-point advantage; there are 2 that do not. We have one product competing with one small niche competitor, an APD, our accounting business, that has a better Net Promoter Score, and I guarantee you Jill Ward's all over this. And at IFS, we've done a good job of delighting the consumer and the small business of the bank, but were also learning how to be a better partner to the bank, and CeCe Morken's all over that as well. So you put it together, we've got really good franchises with plenty of headroom.

We've also identified 3 adjacent opportunities that we think can add 1 to 2 points of growth over the next 3 years. The first I already referenced earlier, we were primarily focused on serving small businesses through hosted products and mobile devices. We have now prioritized some developed economies. Based upon this past 12 months, we were able to go into some markets and take the market leadership position from on incumbent with some of the products that we had here in the U.S. We're also focused on India as our proxy for the emerging markets. We now have 1.5 million registered users using products in India. And we're looking for acquisitions to help us accelerate our progress as well.

The second adjacent opportunity is healthcare. With the acquisition of Medfusion, in 12 months we've added 18,000 more provider practices. We now have 44,000 doctors' offices using our product. We've added 1.5 million patients in the last 12 months; we now have 4 million patients. They did 42 million transactions back and forth between each other, and this business grew over 50% last year. We've got a lot of opportunity here if we stay focused. And the third adjacency is strategic payment. Now you may remember last year I talked about this new product we launched in QuickBooks this past November; it's called the Intuit Payments Network. There's 50 million invoices that get printed out of QuickBooks every month by small business owners. They stick them in an envelope, they lick a stamp, they mail it to their customer. The customer gets that invoice, they rip open the envelope, they write a check, they stick it in a return envelope and they send it back. And we said, "There has got to be a better way." So we now allow small businesses to email the invoice. The customer clicks on the email, they plug in their bank account information and we use our ACA drills to transfer the money form the customer back to the small business. Small businesses getting paid 50% faster and it costs the small business $0.50 a transaction; the cost of an envelope and a stamp.

The transaction volume has exceeded our expectations. The Net Promoter Score, the excitement by the small business, it's higher than we had anticipated and we're now looking for ways to scale this business into other areas as well. So all these businesses, these 3 adjacencies, have the potential to be multi-hundred million businesses, but we're simply looking for 1 to 2 points of growth over the next couple of years.

And the last piece here are the secular trends I've talked about earlier. If I summarize them, we are in a digital jet stream. Customers are moving away from human produced, paper-based, brick-and-mortar-bound services to services they expect to have in the palm of their hand anywhere they are, and the ability to use the product in that moment of need. And that plays to our advantage. So this is why our strategy fits on one slide. You would say, "Well, what was all that other stuff?" That was just a warm-up.

We have a 3-point strategy. The first is to continue to drive growth in our core businesses sharing all the characteristics I've talked about for the last few minutes: high share, low penetrations, superior Net Promoter Scores. The second is to build adjacent businesses and enter new geographies. And I've talked about the 3 adjacencies at the company level, each of the business units have their own. And the third is to continue to transform our company into more of a Connected Services company. Now here's where we're focused as we look at fiscal year '12. One of those areas which has been a part of our strategy for several years is an area that we don't think we're doing well enough in, and that's our first-use experience I've talked out. For every 100 customers coming in, how many are using our product for a second time?

Well the answer, as you saw, was between 2 and 14. Here's how big the opportunity is. If we can increase that by 50%, and you may say, "Brad, that sounds like a big goal, going from 2 to 3", which by the way happens to be where most of our products are. That 14 scale happens to be a standout inside the company. To go from 2 to 3 will add 5 million customers to our franchise, 5 points of growth to the company's overall growth rate and over $1 billion in revenue in the next 36 months. We have doubled down on this. We've got work to do. Scott's spending his time. We have been investing in practices and methodologies, and this is exactly what we're going to stay focused on until we get it right. Now I'm going to share in closing something we've not shared externally, but we've had insights since 2010. It's our vision of what success looks like in this company in 2015. And I'm also going to share the progress we've made in 2 years since we put this out.

First, it's in our true north framework. We want to have engagement scores of our employees at 85% or higher. That puts you in the world-class level. We want to be in the top 25 of the top 100 best places to work and we want to be recognized through Fortune's survey of peers in the market as the Most Admired Software Company. When you get to customers, we want to be #1 in mobile, web and desktop. Not #2, not #3; #1. And we want to have Net Promoter Scores that are at least 10 points higher than the second closest alternative. And when it comes to shareholders, we want to continue to deliver double-digit organic revenue growth. We want to get our margins up into the mid-30s. When we put this together, it was in the high-20s. And we want to outperform on total shareholder return.

Here's where we are today: on employees, engagement is now at 82% on its way to 85%; we are #44 on the top 100 best places to work, trying to get to #25 or higher; and we are the #3 Most Admired Software Company as voted on by others through FORTUNE magazine. We want to be #1. For customers, 80% of our products are currently #1 in mobile, web and desktop. And 90% of our products have a 10-point advantage over the second closest alternative. We want them to be 100%.

And finally for shareholders, we're growing 11% this past year on top of 11% a year ago in the depths of a pretty tough downturn, and we've got our margins now to 32.5%. In terms of total shareholder return, we're in the upper third of our peer group over 3-year period. So we feel like we're making progress, and I'm excited about the opportunities. So just to summarize, we had a good year in fiscal year '11. We did not have best-we-can-be year. We expect more of ourselves and we're going to stay focused until we get these things fixed.

Our value proposition of our products is working. Even in a tough economy, our categories are strong and expanding and we're growing our customer bases. And we also have secular trends that play to our advantage over the long term. And we have a strategy that we feel is right, it's durable and it's working and it's allowing us to improve our position in the market and also deliver the financial results. So all of that context is really to set up the real stars of the afternoon, which are the business leaders and the function leaders.

So with this, I'd like to transition over to our first speaker, Kiran Patel, who's our Executive Vice President and General Manager of, I think, Matt said all things small business. So Kiran, you've got the com, chief. Come on up.

Kiran M. Patel

Thanks, Brad. Good afternoon, everybody. So for the next 25 minutes or so, I'm going to try and bring you up to speed in All Things Small Business of Intuit. I hope to accomplish one thing if I can this afternoon, and that is to show you how well we have performed through a pretty difficult period, and we've done that through a very clear strategy and an incredible execution against that strategy. And the go-forward story is it is a durable strategy, we have nuance changes against that strategy, but it is continuing outstanding execution against the strategy that gives us confidence that we can continue to grow the small business at Intuit at double-digit growth rate of the top line and continuing to expand margins while growing.

So 3 things I'll cover: a quick look back, a little context and a FY' 11 recap, I'll go through that fairly quickly. The opportunity in front of us, much of this is familiar to you and I'll go through that fairly quickly, because I want to spend my time on where the rubber meets the road is how are we going to execute and how are we going to get the growth that we know we -- that is in front of us.

So a quick look back. Well first of all, a little context. Most of you are familiar with what is the Small Business Group of Intuit, but just in case you're new to us, we have organized the company around 4 major customer problems that we solve. Customers need what we call front office services, how they acquire and grow their business, acquire customers and grow their business. That's where we have our websites business, and additional services we bring to continue to help customers grow their business. You know our QuickBooks business, which is our managing their financing, saving them time. We have a variety of offerings, a variety of offerings in our Payment Services business. And then finally, we help small businesses hire and manage employees.

And over the last 20 or so years, we have built an incredible ecosystem of assets here. Number of customers: 5 million unique small business customers, 4 million of them who use our QuickBooks. And you can see this growth, that more of our customers are coming into our new front doors versus the traditional method which is all through QuickBooks, and I'll talk about that in a little more detail later. 1.2 million payroll customers. Brad said we pay one of every 12 employees in the U.S. through our payroll offerings. Three -- over 300,000 payments customers and 300,000-plus websites customers.

Great institutional capabilities, we think we understand small businesses as well as anybody else. It's years of follow me homes, spending time with customers that gives us great insights what the problems and challenges are for small businesses and with those insights, how do we create the right solutions and services? And increasingly, data is becoming important, and I'll talk about that too.

We know the most important way small businesses find products and service is through word-of-mouth. We've always known that, and we know there are influences who drive this word-of-mouth. 250,000 accountants use and recommend QuickBooks, and my colleague Jill will talk more about the world of accountants. 15,000 financial institutions of -- use our products or recommend our products. 60,000 pro advisors, 90,000 developers, so a very rich ecosystem and all this has built an incredible brand lineup that continues to pay dividends for us.

So it's been a pretty tough economy Brad talked about the last 3 years, and yet we've done well. In fiscal '09, our growth was 4%. In fiscal '10, we grew 9% and in this past 12 months, we grew 12%. And that's in a period where there's been no help from the economy. We've also grown through accelerating our Connected Services strategy. Brad mentioned that. Our Connected Services growth in the small-business space has been 19% this past year, while product sales have grown at 5%. Not only have we grown the top line in a difficult period but through smart resource management, we've expanded margins substantially, from 29% business unit margins 2 years ago to 37% this past year. And I am confident that going forward, we can continue this trajectory of double-digit growth and managing resources, resource growth, at less than the rate of revenue growth so we can continue to expand bottom line margins.

And as again, as Brad has mentioned, we are very clear about what we think went well and where we think we have opportunities to continue to improve. So lots of green check marks on this page but that's not to say there were lots of good things. In each one of these areas, I can tell you the areas we would -- I would say we could have done much better. But nonetheless, we made solid progress in a number of areas. The one key area that we -- I feel we did not do what we should have and feel disappointed in this performance is the growth in paid QuickBooks software units. It declined 3% over the past year, and that's clearly something we have to turn around. And in the next few slides, I'm going to show you the work we're doing going forward to turn that around, because the long-term health of any franchise is getting new customers into the franchise.

So let's look at the opportunity. Again, a lot of stuff you've seen before from us. Big market, 29 million small businesses in the U.S. You see the 3 segments that we've typically described this big market in; the personal businesses, main street and mid-market. Recently we have done some very interesting updates on these segmentations and in a future meeting, I'll be able to share our new insights into these segments that again, give us confidence that we can go after new opportunities. But a very large market and a very dynamic market; lots of decisions get made annually in this market. 2 million new businesses get started, 3 million freelancers get started, 1.2 million payroll decisions get made every year and 2.5 million new websites get built. This is just the U.S. And then when you add in the global opportunity, all the numbers get dramatically bigger. So the opportunity is large and the spend is large here. Over $50 billion is spent in this space and here, you can see the 4 different categories that we focus on: Financial Management, Payroll, Payments and the Front Office or customer acquisition. We have strong positions in a number of these markets, and we have important initiatives with some traction in some of the newer, faster growing areas of these markets. So lots of customers, lots of spend, it's not a market opportunity problem.

In each of these categories, we enjoy either a #1, #2 position and we still have lots of opportunity. We still have an opportunity to continue to disrupt higher priced alternatives, but even bigger opportunity in going after non-consumption, people that are still using spreadsheets, paper and pencil or other means that we think is a significant opportunity for us to get that non-consumption converted into the products and services we offer. So let's talk about how we're going to do that.

A very durable strategy. Three things. Focusing on driving growth in our core businesses. The Small Business Group did about $1.5 billion last year and if we want to grow that 10% to 12%, that's $150 million to $180 million of new revenue every year and that just doesn't come from all the new things we're going to do, it comes from continuing to have innovation and grow in our core business.

But while we're doing that, we want to make sure we're investing in new spaces and I'll talk to you about the things we're doing in building adjacent businesses and entering geographies and also continuing our acceleration into Connected Services. And the thing that I believe has been the secret sauce of the recent upsurge in performance in the Small Business Group is innovation. And that innovation is across all 3 dimensions of our strategy.

Even in some of our most core products, a couple of years ago we would say we think QuickBooks Desktop is a non-growing business. We have proven that wrong. We thought our supplies business, the checks business was a declining business and through innovation, we have turned that around. And so what I feel really good about and why I have confidence in going forward is this innovation engine is back at full speed in the Small Business Group. So for the next few minutes what I'm going to do talk about the details on the right-hand side, the priorities that we will focus on to drive the performance against these strategies. The #1 area is new customer acquisition. Why is that so important? So for every QuickBooks customer on the desktop this is, of course we're now separating desktop versus online, for a QuickBooks Pro customer that comes in the first year, it's a roughly $200 sale of the software product. We get another $140 of attached services in that first year but over a 5-year period, we get $900-plus lifetime value over that 5-year period. And so if you just look at the box software the first year, $200 to the $900, that's about 4.5x of lifetime value of the first initial software sale. And on the QuickBooks Online, the metrics are similar, but better. And this is the lifeblood of that franchise going forward. So we have to continue the focus in getting new users into the franchise.

We've talked for a long time about going after non-consumption. That's -- in all honesty, our track record is pretty mixed on really truly understanding why people don't use our products when we believe it'll help them run their businesses better, save them time and perhaps even save them money. So we've done more work in really understanding our customers' needs. This stack you see is another way and a new way and I'm excited -- and a new insight into taking those 29 million businesses and understanding which products are right for them and which products we need to -- are not right, and what we need to create. So if you look at the bottom of this stack, there's about 8 million people who QuickBooks or Quicken, our classic customers. If you look at just above that, there's about 3 million who we call QuickBooks' prospects. These people have all the characteristics who should be using our products, but they're not. We're focused on improving that first-use experience that Brad talks about. They may have come to the website, they may have looked at it. They tried the first step or 2, we're asking for too much information, we scared them away or they may even sign up for QBO, and dropped out 30 days later.

But the exciting area that we've recently started to focus on is the area called not ready for QuickBooks, about 8 million of the 29 million small businesses. Historically, we took QuickBooks in various versions and tried to convince everybody that it was QuickBooks they needed. QuickBooks Simple Start, QuickBooks Online Simple Start and what we realized is, in that category of roughly 8 million, they could care less about accounting; it's the last thing they're thinking about.

They're using things like their iPhones today to run their businesses. We did Follow Me Home, with a couple of ladies in the bay area who run the business of making and delivering cookies. They run their entire business on an iPhone. They're using all the different apps, email, text messaging, you name it. And they're doing just fine. Their problem is going to be at the end of the year when they need to file their tax returns to understand what they need to do; nothing is organized. But they're doing just fine while running their business. And so we looked at that space and we've started to innovate. And so what different solutions could we bring to these folks who are not interested in an accounting solution? So one of the things we've recently launched is a product called Weave, it's in the App Store. Weave uses the concept of a to-do list. When you observe these 2 women running their business, what they're really doing when they're running the business is through a to-do list. I need to deliver cookies. I need to go purchase sugar. I need to do this; the very concept of a to-do list. What Weave does is improves on the concept of a to-do list by allowing you to attach notes; like I got paid $500. I had $300 worth of expense. In effect, you're now starting to create an income statement. They don't believe -- or we don't think they should understand they're creating an income statement, but you can see this. And at the end of the year, if this works as we envision it to, possibly we can create a full P&L and help them with their tax return. What a very different paradigm here. Not use simple QuickBooks because you need to do accounting, but accounting comes as part of the work you're doing. Just one of the ideas. Don't know if it'll go anywhere or not. Great reviews on the App Store. Lots of downloads. We're learning, iterating.

Another concept is around schedule management. There are lots of service businesses whose inventory is their time. I'm a pool cleaner. I have [indiscernible]. How can we take the concept of a calendar, manage time and attach financial transactions to time management? So we have a lot of energy in the company, lots of 2-pizza teams going after solving these problems in a different way than we have approached them in the past. So hopefully next year at this time, I'll be able to tell you that we have cracked the code on a number of these markets and that we're truly getting to non-consumption.

So QuickBooks is critical; I showed you why. The first sale creates 4x to 5x lifetime value, but we've also been at improved, getting new front doors opened into the franchise. And you can see the change over the last 3 years. QuickBooks, both QBO and desktop, used to be over 2/3 of our acquisitions into the franchise. In the past year, that's now 45%, 46%. The other 54%, we've open up a number of new front doors where customers come into the franchise through other products and services, not QuickBooks. Now what we've got to figure out through these things is what things we can -- services we can attach to these customers. Again, they don't need everything. They may have come in through creating a website. They may not be ready for a QuickBooks solution, but they might be ready for a payment solution. And so we're going to go after not only just the QuickBooks channel to acquire new customers, but through these new front doors. And let me show you a couple of areas both in payroll and payments where we're doing some interesting work.

So in the payroll stack, about 6 million small businesses who have employees that need payroll services, about 2 million of them use QuickBooks. Now we have about 50% of those 2 million. We have about 1 million payroll customers who use QuickBooks, while there's still another million payroll of QuickBooks users who don't use our payroll services. That's a huge opportunity.

One of the product offerings we've come out with recently is as we looked at those million, there's a significant category in there that really don't want to do any of the work. And they outsource to people like ADP at many multiples of the price point. And so we recently created a product called Intuit Full-service Payroll that uses technology rather than human capital to provide a full-service like offering where we do all the heavy work. They want to outsource that at a significantly lower price point than ADP's, but we leverage the technology we have. Early stages, some great traction, great Net Promoter Scores, so we'll see where that's takes us. The 4 million employers who don't use QuickBooks and don't use our payroll services, lots of innovation going on in this space. Many of them don't want to spend the money. I only have one or 2 employees, I don't need a payroll service. We have a cool mobile app for them. On their mobile app, they can create a full payroll service, shoot it off to us and we'll take care of it. So lots of innovation going on in this space.

And looking at the funnel, Brad talked about 2 to 14 people either don't come back the second time. Same thing in each of our funnels. When we look at it, the faster we can get them to the benefit of that first transaction and with the ease with which we can get there, we know they'll stay with us. The sooner we can get them to complete that first payroll cycle and do it with ease and without error, they will come back. Similar story in our payments business. Our penetration of our payments services into the QuickBooks base has doubled from 3% to 6%, but my month in the company is -- but yes, we're leaving 94% on the table. So let's talk about the 94% opportunity and not the fact that we've doubled. There is significant opportunity here for us to continue to penetrate the QuickBooks base with our payments solutions.

Here, there's a huge opportunity in the first year's experience. We looked at our application process and we saw huge drop-offs for the application process. We have some 40 fields to where we ask all this information before we allow you to become our payments customer. And when we re-examined all that, we're now ready to launch a process that is 15 steps, not 40 steps, with a challenge that can we get that below 10.

There are a lot of learning from my colleague in the Tax business. In the Tax business we'd ask for the Social Security first, the number first and get people to drop off. I'm not ready to give you my Social Security number, and they've done a lot of innovation at the Tax business of how to begin to see -- get you to see the benefit before you have to provide all the information. That's what's going on here in the payment space.

And then our Mobile business is really taking off. This is a chart of our charge volume month-over-month of our GoPayments business, and we are approaching $1 billion annual charge volume through the mobile device and lots of innovation going on here.

So beyond just getting new customers, once they come in we can offer them more of our products and services. We're doing well at this. This past year, we increased the average revenue per customer by $25 from $265 to $290. A majority of that was getting them to use additional services and getting them to the right products, and there was some element of price in there. But that $25 is a meaningful change in how we continue to grow our revenue. One point in improvement in the penetration of payroll and payments together is a $30 million annual opportunity for us.

And going from 1.5 of our 4 major offerings that our small business customers use today to 2 is a $500 million opportunity. Another favorite saying of mine across the organization is, "Look, team, if we didn't invent a single new thing and we just got people to use the things they need from us, the things that's going to improve their lives and their businesses get them to go from 1.5 to an average basis to 2, we have significant growth in front of us." So we're all over with this.

But we're building for the long. We continue to focus on the adjacent spaces. Some of these areas we have talked about before. We'll continue to get traction and beyond payroll, workers' comp, 401(k), then do a full-service payroll.

In Financial Management, as we're now beginning to get more data into the cloud, more connected services, we're beginning to now dream about the opportunity to save small businesses money. Our customer benefit has been and continues to be save time. But with the data we're now getting, we've got innovative experiments going on around how we can help save money for our small business customer, and that platform is attracting new players like sales force. And in the acquired customers, we continue to help our customers get better at e-commerce, attract more traffic to their websites. So we'll continue to invest in this. Over the next 3 years, we see an opportunity of $15 million or a couple of 2 to 3 points of growth in this area.

Second area of growth into adjacencies is expanding in our global opportunities. My colleague, Alex, and his team have done tremendous work over the last couple of years that have given us great insights. It's allowed us to now zero in and focus on the strategy, so we can truly go after the opportunity.

Jointly, we have declared that our 5 developed economies we're going to focus on. The learning that Alex and team have brought in is that the needs of small businesses around the world are pretty sane. They're lonely. They're the CEO, CFO, chief bottle washer, take the trash out, do the accounting, they're doing it all. They don't have experts. They don't have support, and our products and services can help them.

Yes, we have to localize them. The language has to change. Some of the tax structures have to change but our successful U.S. products will play well in the global market. And an interesting lure in the QuickBooks brand works around the world. And so we've now taken an approach, and we're going to take QuickBooks online and globalize it. We've launched in Singapore. We've launched in the U.K. We'll be launching soon in Canada. The next area we're focused on is taking payments global. Focusing on taking GoPayments for the U.K. and Canada.

And so we've now learned to get the great insights that Alex and his team have on the marketplace and using the U.S.-based resources, leveraging them so that we can get to market faster and take the U.S. learnings across the globe. And the final area is accelerating our Connected Services. A busy chart here but if you look at the top left, that's not too far past in the distance. That's where we were. We forced our customers to choose a platform. You got to be -- if you pick QuickBooks windows, that's where you were a lot. Or you might be used to the Mac version or you might be QuickBooks Online. And if you decided you wanted to go across platforms, yes we said we could do that, but it was pretty painful. We're clearly in the middle today. We're increasing the datas in the center. And even with desktop customers who wanted to sync their cloud -- their company file to the cloud, we're giving them mobile and web access to improve the way they run their businesses. But where we want to go is the bottom right, and we're not that far away from it, where data truly becomes the center and we build a platform around that where now the users are device independent access to these. People can go from their PC at work to using the Mac at home to using the iPhone while they're out on the road.

So why is all that so important? How is all that going to work? Well let me give you an example of a real customer, and I we'll run a video here. Ralph is a customer of ours. Ralph runs a software business in Boston. He has about 20 employees, and he uses these applications and more. When he gets -- he does lead management through Google Analytics. He manages those customers through He manages the projects for those customers through Basecamp and somehow all of this comes back into QuickBooks, so nothing really works here. It is truly the unconnected services view of the world. So let me run the video and show you why we're so excited about the QuickBooks platform and the way Connected Services is going to change the game. So let's run the video.


So this is a reality. This is not beta work [ph]. It's here today. It's only going to get better from here. So in closing, I said my one goal today was to share with you my confidence in how we're going to continue to grow at double-digit rate. I hope I've done that. We're continuing to get innovation and growth in our core businesses. The adjacent spaces are accelerating, and the Connected Services world is going to change the game for the Small Business group. So thanks for your time. And now let me introduce my colleague, Jill Ward, who's going to talk about accountants.

Jill A. Ward

Thanks. I appreciate it. Hi, everybody. I am thrilled to talk about the accountants with you today. It's been a couple of years since I've been with you, and I do want to share our point of view and the opportunity we have with accountants. They are a passionate and very active customer for us. And they influence so many other customers that we have like Kiran's small business customers. Because of that, they play a very special role in our portfolio and I want to talk a little bit about that with you.

First they're users of our offerings, and today they purchase about $450 million of our offerings, software and services for their own use, offerings designed expressly for them, largely. Most of that revenue books to APD, the Accounting Professionals division, my division, those offerings that are made for accountants. Some of it, though, is -- are things they buy from other Intuit units for their own use, Quicken and other small-business products, about $450 million. That's been the component of that, that is the Accounting Professionals division is about $400 million of it. It's been growing in the past 2 years at a mid-to-upper single digit rate, and it's been highly profitable for us. And I'll get to that a little bit, a little bit later. From a role standpoint with the rest of our customer base in Intuit, let's go to that middle bucket, recommender.

Recommender is small business offerings. So the accountant recommends to their clients our offerings. It might be a very general recommendation. So imagine the accountant saying, "Go to a store or go online and buy QuickBooks." That's a recommendation, or it might be wildly specific, "Small business customer, you will use this version of QuickBooks and by the way, I already bought it for you, and I'm going to resell it to you right now so I know you have it and can get started." It's also -- they're very often important to the decision to buy other Intuit offerings. "Okay, it's time to get Payroll. It's time to get Payments. So they are very active recommender. It lets them know how the business will operate, the small business, and how they're going to work with that small business.

Service provider is the third role that they play, and here's what they're doing there. They're teaching the small business how to use QuickBooks. So they help with that first-use experience and beyond. And they're the first line, first responder of tech support on QuickBooks as well, as a service provider to that small business, so very important. We also know that depending upon the small business's situation, they may have a 20-point higher Net Promoter Score for QuickBooks when the accountant is involved.

So this dynamic of the accountants behaving as a recommender and a service provider, I should probably draw it as some sort of virtual cycle, some self-reinforcing thing. It is an advantage for us that we uniquely have. And life is better for everyone concerned, the small business, the accountant and us. So incredibly important role in our portfolio but from what they do on their own when they're buying tax-preparation largely and accounting products designed for their use to their role as recommenders and service providers. So then the question gets to be, "All right, how do you grow? How does Intuit grow with accountants?" So picture this, you're thinking to yourself, "Well, don't accountants all already have tax prep and accounting software? And don't they already recommend?" and "Geez, how many accountants are rolling into the marketplace every year, anyway?" It may or may not be a profession that people are diving into. So how does Intuit grow with accountants over time? So let's go there.

First of all, we do believe that we can grow. The Accounting Professionals division can grow. We can grow with accountants in both traditional and some newer spaces. The spend of accountants in the United States is a reasonable size of market of $2 billion. It grows relatively slowly. Why? Because the growth in accounting firms at max in the past 3 years is about 1%, 1 point a year. Some folks retiring and going out. Some folks coming in. So the spend, and this is spend x of their operating systems, of course, it's their applications services. The spend is about half tax in accounting, our traditional spaces and half other business service software and services. And you can see them there.

Our share overall of the whole pie for Intuit is roughly 20%. We're #1 on the right. We're not #1 on the left, so higher share on the right. And we do think there is opportunity to take share, continue to take share on the right. And we'll talk about how in a few minutes, as well as build share on the left and potentially expand that part of the pie as well. So our view is there's growth opportunity here, largely taking share gain.

In terms of how we do that, let's go to who we target, which set of accountants. Now accountants actually bucket into a bunch of different segments based on what their practice looks like, where in their lifecycle being the practice they are or a firm there are, the type of clients they have. Our target we're going to focus there today, our primary target is a group of accountants we call CFOs for hire. And the great news about the CFO for hire, they're part of our secret weapon strategically with small business. And they have most of that $2 billion. So you see that they've got most of the $2 billion on the left. Who are they and what do they do? They get most of their most revenue, the accounting firm revenue from small business. 3/4 of their revenue is coming from the small-business clients. What do they do for those small businesses? They do tax prep, accounting and GL and then financial advisory services for those small businesses and they recommend Intuit products to get that done. For the small business, the accountant in any poll you'll ever see anywhere, they are the small business' most trusted adviser of any kind. And so they work with them on an ongoing basis throughout the year. So these are our target accountants. The interesting thing we discover over the past couple of years, and this unlocks our ability to serve and our ability to grow is that, that CFO for Hire group is not all the same; they segment as well.

They segment into 2 big buckets that I will broadly call; one is the emerging CFO, and one is the full CFO. The emerging CFO is a smaller, earlier in its lifecycle practice, madly trying to grow its customer base. Stretched for time, stretched for cash, stretched for employees, running at 100 miles an hour.

The full CFO is a more established business. They've got a broad set of customers. They're trying to provide more additional advisory services to that customer base. They tend to be a little bit bigger than the emerging CFO as well. We think we can grow into slightly different ways with both of these segments, and treating them as they need to be treated is the key to that growth and the key to getting what Brad talked about earlier, which are higher Net Promoter Scores. Let me say this on the net promoter side as well, we have high Net Promoter Scores for our offerings, but not high enough. They're in the 50s. That's actually quite good and handily beats our next-closest set of competitors in share. However, if I see for the accountant, if I see someone in the market, a relevant competitor doing better in net promoter, then we're not doing well enough. And so we're on that. Within the emerging side of the customer, the CFO for hire, they want a couple of things. They want to save time and they want to save money, both. They've got to save both. They are more likely to switch their software provider than their full CFO brethren because they're madly searching for that savings of time and money. And they're beginning to look online more aggressively than the full CFO today as well, although both are looking.

Because of that set of behavior, and they're out there looking and they really need help, we believe we've got what we call a unit share. What we need is customer count, get more of those firms. They're a little bit looser in the saddle. We can serve their needs and go and get them.

The full CFO side, as I said, a little bit different. They're more focused on saving time in the work that they're doing so they can provide different services to their existing book of clients. And that part of the customer base we have incredibly high retention. They're less likely to switch. They're core software provider for tax and accounting. Why? They have more established processes, tools, systems for what they do. However, they spend a lot of money. We get about half of it. If we can save them time, which they madly want, in the work that they do across the board through solutions we build that save them time, they'll buy those. They actively buy add-ons. So we've got an opportunity with them as well, which is spend per firm or a wallet share, share of their spend opportunity for them. So a number of customers' opportunity with the emerging guys and for the full CFOs, a share of wallet or spend per customer opportunity.

What do they mean, and this is important to our strategy with them, what do they mean when they say I want you to save me time, and can we do that better than others can do it? Here's what they mean; they mean in the primary work they do for a small business in the core tax and accounting space, "Save me time in that work that I do for the client so that I can get more clients, create new offerings and services or do financial advisory services for my existing clients, which are higher margin and higher price to that customer, or make more money." So they want to save time in the primary work they do. The stunning part is that they think that today they waste 50% of their time. I don't know about you, but I wouldn't want to waste 50% of my time in the works that I'm doing, especially when I'm stretched for time. So there's some good reasons that they're wasting time or perceive their time to be wasted. They're fixing mistakes that small businesses have made in their accounting, for example, that will be important to accurate tax prep and they've got to fix it. They're chasing clients around for data to get the right data, the right files at the right time. Customers don't always understand what the accountant is looking for.

And then finally, they need to rekey information from one application to another, from accounting to tax, et cetera, to do the work they need to do. We made progress in fiscal '11 on saving time for the accountants using our set of offerings. About 15% of their time we believe that we saved through their feedback to us. Not good enough. It has to be bigger. We want to save 50% of their time as we go forward over the next couple of years. That time savings goal, we also again think we are uniquely positioned to provide as a company. Why? Because we provide the tools both they and their clients use, individually and collectively together to do their work, tools like QuickBooks that they're in all day, both of them.

So that is key and core to our strategy going forward. We're going to focus on the CFOs for hire and appropriately saving them time and money at the right price points. We're going to save them time, help them build their practices by giving them back their time, build from our durable advantages this huge base of small businesses and accountants that we've got. In order to save them time and to grow based on the way we think we can grow, which is double digits over the long haul, 3 big priorities going forward over the next couple of years. You see those at the bottom. The first one is drive that customer count of the emerging CFO, get more of them in the house by saving them time, accelerating that with some of our new online offerings for accountants. The second one is driving wallet share or more spend for customer with the full CFO for hire by solving more of their workflow, creating solutions that solve more of their workflow, integrate that with the core tax and accounting and save them time there.

And then thirdly, build and drive accountant recommendations of Kiran's small-business offerings to the small business. If the accountant thinks it will make them faster and it's easy and good for the small business, done. So how do we do that? I'm going to spend a moment briefly on how in each one of these briefly for you. The first one is that emerging CFO and we want more of them. We want to accelerate our ability to get them and save them time and money at the same time. Coupled with new things happening here, a core offering in tax online, just the way we have a certain ProSeries desktop tax prep, this will be tax online for the accountant. And it's out there already. It's in the market already. It's young, it's early. We're busy building its capabilities to do in a robust way, both individual 1040 tax returns and business tax returns, it already does.

It provides a low cost of entry in ownership for that emerging CFO and does the work they need it to do. We're also coming out this year with QuickBooks Online for the accountant. And in the same way that the QuickBooks Desktop products, the accountant edition and the small-business edition work together, QuickBooks Online for small businesses and QuickBooks Online for accountants will work together and allow the accountant to get inside that small business file and do what they need to do to make sure it's right. So as to the fiscal '12, we'll be building tax online and introducing QuickBooks Online accountants. Let me also say these offerings are young, accountants are cautious, but this will be the wave of the future for a good number of them. So that's that first priority, which is grow by getting more emerging CFOs.

The full CFO, share of wallet, share of spend. The idea here is looking across the broader set of -- you see at the top the accounting and tax workflows. And beyond having just the core accounting GL, the general ledger and tax prep offerings, what more are they doing around those that we can help them with and make their work faster. A great example of tax import that you see there. Here's what tax import does, and it works beautifully with both Lacerte and ProSeries. Tax import allows an accountant to take a paper document like a W-2, scan it and then automatically have the data lift off of the scan and land in the right field inside ProSeries and Lacerte. Or the accountant can go to a financial institution that holds information that they would otherwise have to type in to the tax prep software ProSeries and Lacerte. They go to the financial institution, it automatically downloads. Time savings, time savings, time savings. That's one example of several that are in market now, and more to come and things like Practice Management. Few accountants have a decent practice management solution today, so we're working on that and that may be an opportunity to expand the category as well. So that's that second priority of gain wallet share with the full service CFO accountant.

The last one, that third big yellow priority that you saw was driving accountant to recommend SBG offerings. Every accounting firm in our target space has tons of small-business clients. Sometimes it's 100, sometimes it's a lot more. We want them to recommend the small-business offering. How do you do that? What's the formula? The formula is actually pretty simple. The formula is I, the accountant, know about, use and like that small-business offering. I'm familiar and I've had hands on, I use it. I decided it will be good for the small business running their practice, running their business and it's easy for them.

And thirdly, yes, that's the primary benefit, it's going to save me, the accountant, time to make my work with that small business faster. That's the formula. Every year we think about how do we deliver against that formula better, faster today. And so we've got some priorities going forward there. One of them is timesaving technical support for the accountant wherever they land at Intuit. And they land all over the place. Super user, power user, first responder; they're everywhere. You might run into them in the hall. They're here helping other Intuit teams work on their offerings. In any event, if we make sure that we fast-track them to experts where they -- so they can solve problems with our offerings lickity-split, whether they're inside APD or inside SBG or anywhere else, that saves time, that fixed that formula.

Secondly, helping them participate any way they want to. They way they see their role in payments and payroll makes them a better, comfortable, active channel for payroll and payments and we know that they're recommending that, too.

And then finally, the ProAdvisor program. What that does they join that, we teach them the small-business offerings. We certify them, you are now an advanced person in QuickBooks, and then we market them to small business. They're better, more comfortable, faster. They can teach QuickBooks better, and they grow their business. So in that sense, we fit the formula again in helping the accountants be happy with the small business offerings and recommend them.

If we do those 3 things, those big priorities I mentioned, we will for the Accounting Professionals division grow revenue and grow profit. What you see here is revenue from the accountants purchasing for their own use. When there's a purchase of a small-business product that, due do to their recommendation, that books to Kiran, okay? So this is the Accounting Professionals division revenue, Lacerte, ProSeries, QuickBooks Accountant Edition, et cetera. We expect to have a good year in F '12. As you can see, 5% to 8% on the revenue side, coming from a customer count, mix, spend per customer, price to value; expect to have a good year in F'12. And I'll just highlight that we've been and continue to be a high-margin and expanding margin business for Intuit as well.

I'll close simply with our 3-year -- our view forward, our 3-year outlook and beyond 3 years. First, our strategy is enduring. We know we need to save them time and they tell us over and over again. We're going to do that for them and grow with the various segments we talked about, that emerging CFO and getting more of those guys. Spend per customer on the full CFO and making the accountant happily delivering recommendations for small-business products, because it's faster for them and easy and better for their customer.

If we can do those things well, we believe the double-digit growth is in our future in the coming years for APD. So I'm going to close there on the Accountants business.

Thank you and I'm going to introduce our next division, introduce CeCe Morken, who's been with the Intuit Financial Services division for quite some time, and is now our GM.

CeCe Morken

Thank you, Jill. Good afternoon, everyone. I'm going to start by grounding us in our parent business. Then I'm going to shift gears and I'm going to talk about the market opportunity, what we're doing to capture that opportunity and then I'll close with our commitments for FY '12, and I'm very aware that I am right in front of the break. So I will be as succinct and crisp as I can.

There's about 120 million online banking customers or users and about 30 million mobile banking users in the U.S. We call that combination digital banking and of course, that's the business that we're in. We provide a digital banking platform. We're 100% fast-paced and we're 100% subscription-based business. We make money in 3 ways.

We acquire new financial institutions. They have a set of existing digital banking users. We convert them to our platform. Next we have direct-to-consumer or direct-to-end-user marketing programs that we launch through the financial institution to drive up adoption in active use of the rest of their customer base. And then finally, we attached relevant additional or add-on products to the same platform to complement the services and that increases our revenue per user. We're primarily focused on consumers and small businesses and that makes up about 92% of our revenue.

So let's take a minute to reflect on FY '11. Our revenue growth was at the low end of our guidance, not where we want to be, not what we believe the business is capable of doing. As we progress through the year, however, we actually improved our performance and we exited at an 8% growth rate. We did have double-digit growth in users, but again it's not as strong as what the business is capable of delivering. These top 2 areas are completely in our control. It's based on the decisions we make and the priorities we have in place. We changed those priorities through our decisions later in the year of FY '11, and we saw some positive result and I'll share those with you in just a minute.

We continue to focus on diversifying our revenue to new sources of revenue. And in FY '11, for the first time, we not only stopped the historical decline we've been facing in revenue per user, we actually reversed it and turned it to a positive. And last year, we delivered with proof on our customer benefit and the customer benefit for us is to improve our financial institution's profit per customer. So I'm going to shift now and I'm going to talk about the opportunity in the market, and I'm going to frame it around 2 structural shifts that have an impact on us. The first structural shift I'm going to talk about is expanding the market for us, and that expansion is related to Connected Services. The example that I'll use is mobile banking. So mobile banking has gained great traction in financial services and in financial services, it has caused a step change in engagement. And Brad mentioned this a little bit earlier, but let me highlight what's taking place. When an online banking user adds mobile, it doesn't supplant online banking, it augments it. And we've seen a 50% increase in engagement. What that means is an online banking customer who typically engages through our platform to their financial institution 150x a year is now engaging 230x a year. Well, you know that when engagement goes up, your opportunity to sell more services go up and we've seen a 28% increase in services per user. And of course when services per user goes up, you have an opportunity to monetize and that's improving the revenue per user.

This is one of the aspects that has increased our target market by about $3 billion. So our target market is now in the range of $5 billion going to $8 billion and there's 4 main services that are causing this expansion. Mobile I just highlighted is expected to go to about 80 million users over the next couple of years. The small-business market, which is underserviced in financial services, especially the Micro segment, is the key area of focus for financial services. The third is what I'm calling loyalty rewards, but I'm primarily talking about merchant-funded rewards. Merchant funded rewards is already getting traction in financial services, but it's also viewed as one of the major replacement -- revenue replacements based on the regulatory reforms that have taken place. So replacing the lost fee income from overdraft fees and from interchange. And the last one that I've highlighted is expanded payments, and there's really 3 key types of payments that I'd highlight here: Expedited payments, mobile payments and the third one is escaping me right now. It will hit me, oh, mobile payments, P2P and expedited payments. So it's a growing market. It's underpenetrated by Intuit, so there's lots of headroom.

The second type of structural shift that I want to highlight plays to our advantage. So first we've got consumers and small businesses, as you know, under heavy, heavy financial pressure, they're concerned about their future. Their confidence is low. They want to save money for the future. And both of them want help and advice to make better money decisions. You couple that with financial services, also under a tremendous amount of financial pressure. They're looking for new sources of revenue, very, very focused on small businesses and they're challenged with how to differentiate in an ever increasing virtual or digital world, which is not their area of expertise.

And then technology. Technology is increasing adoption of virtual or digital means of interaction. Technology is meaning that the differentiator is a customer experience, and technology is shifting power to those who know the consumer and small business and know how to design to delight them. Those play to our advantage. So our strategy and our vision leverages these structural shifts in our advantage. So we're focused on improving the financial lives of small businesses and consumers anywhere, anytime, leveraging the complete assets of Intuit. And when we solve for the saving time and money for small businesses and consumers, that's how we improve the financial institutions profit per customer. What's different here from what you would have seen previously is that we're really highlighting, leveraging all the assets of Intuit and solving first for the small business and consumer, and that's how we benefit the financial institution because that's what the financial institution needs from us.

We have 4 strategic priorities to deliver on this and take advantage of the opportunity. The first is to strengthen our core business. This is about expanding the number of users that we have. The second one is to enable small businesses. This is to solve their most important financial management needs and enable the financial institution to grow profitably. The third one is to expand our mobile offerings. And the fourth one is fundamental to all of the 3 that I just mentioned, which is the acceleration of our tech foundation.

Now I'm going to highlight these in a little bit more detail in just a minute, but I want to highlight a change here. And this is related to the Net Promoter Score that Brad talked about early with financial institutions, which is below our largest competitor. These set of priorities was developed in concert with our customers. So this set of priorities is aligned with our customers. What they told us last year was they felt that we have our agenda in front of theirs, and they worked off track. And so we refocused our priorities to make sure that we were completely aligned. What I want to do now is do a little deeper dive into each of these and in some cases talk about the progress that we've seen as a result.

The first one, strengthening our core and adding new users. This is laid out exactly the way that we make money. Acquiring new financial institutions, driving adoption and cross selling into that base. So our pipeline is up. Our close rate is up and the bookings that we're forecasting for this year is 65% higher. The second piece, which is driving adoption into their base, has 2 components. The first one is improving first use. For us, that means improving first use from registration through to the time that they get their first benefit. The second piece is leveraging these direct-to-consumer, direct marketing programs. We have expanded that into mobile. We're expanding that into small business. We've already seen great progress with mobile from those efforts. And the third, of course, is taking the fact that we have this increased engagement because of digital and expanding the services that we have and the effectiveness of cross selling.

The second, enabling the small business solutions. Small businesses for financial institutions generate 10x the revenue of a consumer. That's why they are so focused on this market. Frankly, this is an area that we have not been as aggressive as we should have been. It's an area that financial institutions are focused on. They look at us and say, "You're Intuit. You know small businesses. We need you to help us solve this problem." That's why we're so focused on it. We're going to start with the micro business, and we're going to start by solving their financial management needs through their financial institution. The second thing that they're very focused on is advice and information, and that's the second component I'm going to focus on.

Third is mobile and expanding our mobile offerings. We already have a very robust set of mobile services. We have SMS, we have web and we have apps on both Android and iOS and we increased our users this past year; we tripled our users. What we're going to expand that to is delivering a mobile-only solution, which means you don't have to register on online banking if you want to use mobile banking. That will enable us to expand our users at a faster rate. We are about to launch our tablet offering and we are going to extend our mobile offerings into payments, and of course, into small businesses. And as I mentioned, we grew 3x. We tripled our users last year. We expect to triple it going into FY '12.

And we're going to run a video.


The fourth strategic priority we have is the acceleration of our tech foundation. And as I mentioned, this is fundamental to everything that we're doing. This is a services-oriented architecture that has reusable componentized services. There are 4 key benefits that we're getting from this platform. The first one is that it enables us to export services, standalone services or point solutions, if you will. This means that we can sell into a broader range of the financial services market, including the large money center banks. The reverse of that is we can import services, whether they're developed by a partner of ours, a customer of ours or our own services. We can have more flexibility in what can come out onto the platform, and we can speed time-to-market with a broader variety. This also gives our customers increased flexibility, which was a request of theirs. The third thing it does, because these are reusable components, it speeds our time-to-market. The tablet that I just mentioned in mobile has taken us 45 days from concept to release. And the final thing that it does for us is that it enables us to improve the customer experience, and we've been able to take the number of clicks on the most common banking jobs, reduce it from 15 down to 3. Let's look at what that's done to our financial institutions.

We've got about 3.5 million users on this platform today, and we saw their Net Promoter Score go up 11 points just from launching this. We'll get the rest of our customer base materially converted to this platform by the end of the year, and the Net Promoter Score that they're experiencing is 2x better than the next closest competitor. So it's been very meaningful for them. And for us, there's been benefits as well. This is where we've seen the improvement in our revenue per user, and the fact that it's -- we've stopped the decline, and we're starting to see it go up. There's 2 main reasons for that. One is you listen to your customers and deliver what you want, you face less pricing pressure. So that's been a good benefit for us. The second one is when we have an open platform with more highly engaged users, the number of services per user goes up. Those 2 components is what's raised our revenue per user.

So then looking into FY '12, what are we looking forward to? We expect to have our growth accelerate beyond what we did in FY '11. We're showing guidance of 7% to 10%. We expect users to increase as a result of this. We expect our revenue from new sources to expand. We expect to see an increase, an improvement in average revenue per user, and of course, all of this is predicated on delivering our customer benefit for small businesses, consumers and by doing that for financial institutions.

So thank you. We're going to take a break now and start back up promptly at 3:15 p.m.


Unknown Executive

Ladies and gentlemen, please welcome back, Matt Rhodes.

Matthew Rhodes

All right. Thanks a lot, everyone. I hope you're re-energized after the break. We're just going to jump right back in, talk about the tax business with Dan Mauer in just a second. A quick housekeeping item. We're still planning to wrap up around 4:45. So after we're done here, we will have physical arrows and human arrows that are going to accompany you over to Building 11 where we have the Innovation Gallery Walk. Again, it's a great opportunity to catch up on our mobile offerings and things that are in the pipeline, over 21 products and the products managers that work on those products will be there for you to mingle with and have some cocktails and have some food. So please join us for that. And also, if you have luggage stored here in this building, you can come back here after the Innovation Gallery Walk at any time and Rietta [ph] will have a cab for you and will have the cab called to this building and be able to get your luggage for you. If you have any questions about logistics, just talk to me or to Lisa Rhodes or to Rietta Carins [ph], and we'll get you all set up.

So without further ado, here's Dan Mauer.

Daniel R. Maurer

Thanks. Hi, everybody. So I had the great privilege of being on the consumer business for the last 6 years. The last 3 years as the General Manager. And what I want to take you through today is just a little bit on TurboTax performance. We're going to talk about TurboTax looking forward and then I do want to spend a couple of minutes at the end on personal finance. Let's start with the results.

Brad said at the beginning that we had a good year. That's the same on tax. We got 13% revenue growth, 12% growth on customers and importantly, our key metrics are up as well. If we look at that in the context of what we said last year, we feel pretty good in most areas that we're making progress against the opportunities that we have in front of us. I would say that in terms of ease and we measure that with our Net Promoter Score, retention which was up a point, our revenue per customer which was up of a few points and probably most importantly is grow share. And the reason I say most importantly on grow share, this was a year that we had to grow share in a much tougher competitive environment and the fact that we were able to do that in a tough competitive environment was really good news. But I think we can be better and I think we've got a lot of opportunity in front of us. The area that I'd really like to focus on in terms of better is conversion. We'll talk about that later. Now this wasn't a negative to the business. We actually improved conversion. We just think that we could do better. If you look at performance, though, I think we also need to take a time frame that allows us to see if the strategies are effective. So what I've done in the next slide is just take a look at our performance over the last 3 years. And what you can see from this slide is we've got good growth over the entire 3-year period so that this is not a one-year event. And the metrics that you see on the bottom of the page show that it's broad-based good news in terms of driving the things that really drive the business. So share, net promoter, retention and acquisition have all been moving in the right direction over the last 5 years. But what we've done in the past doesn't guarantee that we're going to be successful in the future, so let's talk about the future.

Each year we expect the category to grow, the overall number of returns in the market, about 1%. You can see that that's going to be slightly better than what it grew last year and better than a couple of years ago when it actually declined. We like this business. We like where we sit in the business for a couple of reasons. First is, we're only 21% of total tax returns and only 6% of the revenue. We also like where we're positioned in the market, so let me take you through this slide because it's just a little bit complicated. Start on the left-hand side. We've got 5 million people that are coming into the tax market every year. Brad mentioned earlier that this is a shift to digital natives. We like where we sit with TurboTax with regard to what kinds of services these folks are looking for. The second bit is, is we like where we sit relative to competition. We look at price, net promoter and five-year CAGR and this is the same chart that I showed last year. You can see the pros in CPAs on price and tax stores are up on the $200 range. You can see software's in the $44 range if you go down that column. The manual's free, which is a great price. Now on a Net Promoter basis, though take a look on that column again, you'll see that software sits there with the 42 manuals and negative 57 and tax stores are about a 32 and then you look at the five-year CAGR, which is what would you expect to happen in the marketplace where you have that price dynamic and that net promoter dynamic. And you see that software has been growing, manual's been declining and tax stores and pros about flat in total. Now what's interesting about this is manual is shrinking. In fact, manual has now has got about 6 million people in it. And you'd say, well geez, with manual declining like that, does that cause you any concern as you look forward. And we really believe that it does not. And let me take you through why. First, look at how much of our annual customers in terms of the customers that use TurboTax are coming from manual. Just to make sure the pie chart's easy to understand, the largest bit of that is retention. So our retention is strong and those people come back year-on-year and we're growing it slightly. The second largest source is competitive prep methods. The third largest source is manual, but you see it's proportion there and then finally, we've got the new filers that I talked about earlier. So when we look at source of customers, manual still has a good percentage to give, but that hasn't been the key source of our business for some time. Secondly, when we look at non-manual filers and say how should we think about the market in terms of what the potential for TurboTax is, I give you 2 other dimensions to think about. One is how many simple returns are out there that are really quite easy, that they could get a great experience on TurboTax. And there's 10 million to 20 million that are not using software today. The second dimension is on the other side of the screen, which is how many customers are dissatisfied with their current service. And the way we measure this is through our Net Promoter surveys. And you know how Net Promoter works, it's basically do you recommend or do you give such a low score that you're actually a detractor. These are the millions of people that give such a low score that they're detractors. Now the reason these circles are overlapping is there's some double counting in there, but we like the potential when we look at this because we see tens of millions of customers that aren't TurboTax users yet that could be. And just 1 million new customers is a $50 million revenue opportunity for us.

Now to get these opportunities, we are following pretty much the strategies that we followed over the past 3 years that have delivered good results for us, but we've got to continue to improve retention. We've got to continue to improve conversion. I want to talk to that. Deliver ease with mobile and make it easy to get your biggest refund. I have examples on each of these that I want to take you through to help you better understand why I'm excited about our opportunity. Let's talk about improve retention. One example of the things we're doing to improve retention is what we call our ask a tax expert service. This is a service that we've been experimenting with for the last few years. It actually is tax experts on the phone that, for a fee, will answer questions for you. We're starting to get very excited about the potential for software not necessarily being completely standalone, but you having the ability to call if you've got a question. We have an insight that says, some people move away from software because this year something happened to them. We have a belief that says if we could answer that question and give them reassurance that the likelihood of them staying with us is higher. This isn't a major part of our business yet, but it is something that we're experimenting with.

The other thing we talked about is conversion. We've made really good progress on conversion over the years. In fact, we did better last year than we had the year before when I told you that we were flat, but it's still not where it should be. We've really -- we think we've got insight into this opportunity like we've never had before and that's what I've got shown on the next slide. This slide very simply says we've now architected the product so that we know exactly which screen you left on if you didn't finish, by screen. What that allows us to do is have a great insight on where we can get better. Brad talked about earlier that the key areas has got to be in first use. We think, based on the data that we've got, the first use is pretty early in the experience as well. With this insight on how we can improve the product, we believe we have a lot of potential to get at improving conversion at a better rate than we have in the past.

Now when we think about delivering ease with mobile, you've already seen a couple of demos where we have been with mobile. I just want to say a couple of things and then show you a quick video. Number one is, we were surprised at how much interest there was in mobile. We wanted to be first. We wanted to have an offering in the marketplace and we did. We were surprised that 2 million visitors came from mobile and tablet devices. We were also surprised that we have 100,000 people that started a mobile completed return. Now 100,000 is not a big number for TurboTax, but we went back and looked and said when we went online for the first year, how big was that? And this is much bigger than online was the first year we were online. So when we look forward and think about the mobile opportunity, we're pretty excited. Let me just show you a quick video on mobile and how it helps deliver ease with -- easier max refunds on TurboTax.


So we feel good about mobile on TurboTax. I didn't know which was going to get the bigger chuckle; the angry bird thing or the guy that said I didn't even have to shower. And so obviously, it was the angry bird that got that crowd going. But this brings a new dimension we think to ease that I think is going to play out over time. We'll see how that happens. But we're excited enough to put a lot of effort into mobile over the last year and we've got a lot of improvements coming on to mobile apps. If you go over to the Gallery Walk today, you can see a demonstration of the iPad and you can also see a demonstration of SnapTax. We've also got 2 other offerings over there. Where is my tax refund, which is we started offering last year and tax caster, which is a tax estimating mobile app, so to take a look at those if you get a chance.

The fourth area that I wanted to talk about was just the ease to get a refund. A couple of years ago, we talked about experiments we were running with debit card. You can see the growth that we've had in the debit card business over the last year. This is no longer an experiment for us. It's part of a nice growing business for us. We anticipate further growth in the refund card business this year and expect it to continue growing.

So where does that leave us? I give a lot of perspective on if we could drive retention and conversion, our business would be great. I told you that I liked where we stood in the tax marketplace. Just 2% additional returns is worth $150 million to us. So we think that we've got lots of opportunity, I hope that you can understand why I am excited about this business as well. Our growth guidance is 10% to 13%. It comes from really doing the 3 things that Brad talked about as being important for Intuit. The first thing we've got to do is drive the software category growth. We feel like we've been doing that over the past few years and we expect to continue. Within that, we've got to drive our share. Again, we've got a good track record there. We expect that to continue. And last is we've got to get our revenue per customer to continue to grow and we've got a track record there that says we have been doing that as well. So that's where we are in the Tax business. I want to say just a few words about Personal Finance as well. If you look at Personal Finance, we really like our position in Personal Finance. From the standpoint that we don't have a very big Personal Finance business, but the space is quite big. And when we talk about how can we get a bigger piece of that, we said we've just got to be a bigger player online. So 2 years ago we said we've got to make a big move into getting into online personal finance and we've made the acquisition of Mint. Now there's some accounting adjustments in these numbers but rough, rough, that's at least not the decline of Personal Finance; it showed growth for the last year. We picked up 2 million active online mobile users. Half of the Mint users are mobile, and we've tripled the number of active users over the last 2 years. So we're very pleased with the acquisition of Mint and what it's meant to Personal Finance. As we look forward with that business, I can give you a few highlights of things anticipate. One is that we're going to have on iPad app very shortly that's going to be native to the iPad that the team is very excited about. They took a build it from scratch attitude towards this. And so they're very excited about introducing this over the next several weeks. The second thing that you're going to see this year is Mint Plus. That's a secret code for premium. That's a secret code for paid. We think that there's room in the market for more functionality than we offer in our free Mint offering. This is in no way intended to discontinue the free offering of Mint. This is to offer additional functionality for those Mint users who want to do more than what the current app does. And Kiran did a great job talking about how on QuickBooks data's moving into the cloud, think of that same story happening on Quicken. So what's going to happen over the next few years is what you're going to see is our historical way of thinking about the business, which was we have a big install base on Quicken, we have a small business from a revenue standpoint online. Over time, that line's going to blur. And the reason it's going to blur is because our initiatives are essentially going to make the Quicken folks much more capable to have their data in their car and have access when they need it. The functionality of Mint is going to increase, and there will a premium SKU out there. So a lot of the functionality that's in Quicken today will be available to Mint users in the future. So as we look out 3 years, we say, "This is going to be less of 2 separate businesses and more of how do you get access to your Personal Finance management the way that you want to," either starting from our online space Mint or starting from our desktop space which has been historically Quicken.

So what did I say? I simply said that we have had strong results, not just for a year but for a few years. We feel pretty good that we've got the right strategies to win. They're pretty simple; ease, winning online and mobile and free, which continues to be a great acquisition vehicle for us. And we've got a lot of potential yet with the new customers, both in terms of lots of simple returns out there with tax stores and lots of dissatisfied customers out there as well. And we think that we've got the right kind of focus on execution to allow us to continue to grow.

Thanks, and next I want to introduce Tayloe Stansbury, our CTO.

Tayloe Stansbury

Thank you. Good afternoon, everyone. So just as said context before we begin, I'd like to talk a little bit about how we manage our research and development budget. One of the things that we want to make that we do is have a pipeline of new ideas that will turn into growth engines for the future. So in the picture, what we want to make sure we have is those acorns, those nascent projects, those innovative ideas that we invest in enough of, some of which will prove themselves out to have customer benefit and a way to monetize so that they can grow into the second horizon, the saplings, which eventually grow into the big oak trees which fuel the revenue and growth for the company at a larger scale.

So with that as context, what I want to talk about is 3 things. First is accelerating our Connected Services. Next, scoring points in mobile, global and data. And finally, building an awesome place for great engineers.

So with large online products like TurboTax and our financial services, then we have some 35 million people who are using our Connected Services, our online services. So it's a pretty good scale. With that kind of scale, then resiliency to failure becomes ever more important. And we've been investing in this quite carefully and with a lot of rigor over the course of the last year plus and our levels looking at what can we do to make our software more resilient to failure, make third-party systems more resilient to failure, how we can be resilient against device level failures and how is that we can be resilient against entire data center level failures that could happen as a result of the same natural disaster. So it should be intuitive, but high availability is actually our most important feature that we offer to our online customers.

So technology refresh. So here's a picture of the Golden Gate Bridge, and what Caltrans does is they start on one side of the bridge and they start painting and by the time they get all the way to the other side of the bridge, it's about time they start again on the first side of the thing all over again to keep that thing refreshed and able to serve all the commuters who go over it. Well our technology is actually not a lot different from that except that when we actually refresh our technology, it becomes more efficient because it's newer and it becomes more easy to extend and add new revenue-generating capability to. So this is an ongoing journey for us, and we're investing at a level of about 20% of our R&D budget in technology refresh.

Next is reducing our hosting costs. At the volume we're running, our hosting costs have become rather substantial, and we're looking at 3 main levers to apply over the next few years to reduce our hosting costs substantially. First is minimizing the number of servers that we buy and although attendant costs that go with that through virtualization and performance tuning of our applications so that we can run more on fewer servers. Second is reducing our costs for data storage through a traditional tiering of data storage and also moving to next-generation big data storage. And finally, we've been on a journey to consolidate our data centers. We right now have about 20, down from about 30 and are aiming for a target of 4; 2 in the U.S. and 2 outside over the next 3 years. And we expect that reducing our cost for hosting will allow some funds to reinvest in further innovation.

So now I'd like to talk for a moment about what we're doing to put points on the board in mobile, in data and in global.

So the design pattern that we're aiming for, for all of our applications is any device anywhere access to the services that we offer. And we want to make it so that the data source of truth lives in the cloud and can be accessed by a variety of different devices, whatever is convenient to you at whatever point of day you need to get access to that with consistency of data and consistency of business logic across all of those devices. And we're actually a good deal of the way down that journey. So just to call out a few examples. Then you heard about GoPayment, which allows you to swipe a credit card on a mobile phone with our secure swiper, which goes on top of the phone and you swipe the card through there, and it's secure and you can receive payments on a mobile phone with GoPayment. This is actually our highest-generating current mobile application. You also saw the SnapTax, which allows you to use the camera on a phone to take a picture of tax documents, the W-2, extract the information from that, answer a couple of more questions, hit send and now you're completely done with the 1040EZ filing. I think even more amazing to that was the TurboTax for the iPad, which is actually full-on TurboTax that runs on an iPad, and that was shipped mid-season and despite being shipped late in the season, it became the #1 app in the App Store for the remainder of the season and then fell from the pedestal right after the season. So I'd like to remind you there are 21 of our mobile apps that are going to be over in the Mobile Gallery walk, the Innovation Gallery Walk after this presentation.

A few words about engineering for global market. All of our new products we are building global-ready to enable their introduction in whatever market seems appropriate. Our flagship offerings, we are going back in globalizing all of those. So for example over the last year or 2, we have actually merged the code base for QuickBooks into a single global code base enabling us for the future to be able to release in global markets simultaneously, and this has enabled us to compete more effectively against our competitor rather than with a lagging international product.

And then finally, we have some offerings that we are building now that you will not see in the United States that we're introducing specifically for global markets. One example of this is an application called Fasal, which aids Indian farmers in finding the best possible market price on their mobile phone for crops that are perishable before they show up in the market and don't get what they think they deserve. They have been getting some 20% better revenues from their crops as a result of this mobile application that we built for them. So with these efforts, we will increase our reach and our market share globally.

And last I'd like to talk about Data for Delight! With some 50 million customers using our products and generating data in these products, you can imagine that we have some extremely useful financial data and that poses a problem of stewardship for us. We need to be good stewards of that data. And being a principles-driven company, we've come up with a set of principles for how to use our customers' data that we think are industry leading and that we've been sharing with the appropriate U.S. and international regulatory bodies. With this data, what we want to get to across all of our products insofar as possible is a "never enter data" experience that really gets at the heart of ease of first-use. We also want to make sure that our user interfaces are tailored by everything that we know about you to present you with the best interface for your particulars. So for example if we know that you have a mortgage, we shouldn't ask you about renter's credit in your tax return. And finally, we want to make sure that all of our applications get or rise to the level of advice, insights about you based on your data, giving you advise and actually acting on your behalf where that's appropriate. So Data for Delight!

Now to build all of this stuff, we have got to have the best engineers. And so we have spent a lot of effort building an awesome place for engineers. A couple of years ago, we did a survey and we talked to some 600 engineers inside and outside the company to find out what would actually make them want to come work for Intuit. And we found out a number of things, not surprisingly, the biggest of which was they want a chance to change the world. That's what engineers really work for. And with some 50 million users that we have high impact in their lives, we afford an opportunity for all our engineers to have a real impact on the world. Second thing, engineers really love tough technical challenges, and we actually have an abundance of tough technical challenges. A couple of obvious ones, building really innovative mobile applications like some of the ones you saw the videos of and we'll see this afternoon later on and doing analytics of very interesting financial data. Another thing engineers really want is to work in an environment that is highly innovative, and we have created a highly innovative environment. Our methodology for customer-driven design of Design for Delight! fueled by a growing body of innovation catalysts was written up recently in the Harvard Business Review as being an exemplar of how to do innovation. We've also mentioned that we want to rope all of our people into the innovative process rather than focusing on a narrow set of serial innovators. And so we have a number of methodologies to get everybody involved including unstructured time for all engineers, co gems, idea gems, and then processes to share those ideas across the engineering community to make sure that the best ideas bubble to the top and turn into product. And over the last 2 or 3 years, the ideas that have been generated from the broad population have resulted in some 200 products or features getting built that came from the broad engineering population. The other thing we do is try to reward those who have been very successful inventors. And so we have a program for that every year and this year, somebody actually did reach the pinnacle of that and at the bottom left, you'll see a picture of him being awarded a very large check for $1 million. And if you think about well, the competition that we have in the Valley for engineering labor is start-up companies, and you want to have the engineers who are working here think that they can get the same kind of upside that they could be getting from a start-up. So we've done that. So innovative practices.

So just to summarize, we talked about how it is that at Intuit we are accelerating our Connected Services, how it is that we are scoring points in the mobile space and global and with data and how it is that we built an awesome place for engineers.

So thanks, and let me introduce Neil Williams, who's our CFO.

R. Neil Williams

Thank you, Tayloe. Nice job. Well good afternoon, everyone. Let me add my thanks for your participation this afternoon. If you came out in the room or if you're listening in on the webcast or things like that, we're glad to have you here. And let me add my encouragement to go through the Gallery Walk across the street, even if it's only for a few minutes. I think you'll be really impressed not only by what you see there, but also by the energy and the enthusiasm of some of the people that Tayloe has talked about and others who actually developed and put some of these products out. We're almost done, we're almost there. Brad will be up in a couple of minutes to field your questions and make a few summary remarks.

But before we do that, just a few comments about FY '11 from my perspective and about our prospects going forward. To be really quick on this, just a couple of slides about our perspective for last year. First of all, you know the numbers and the results. You know that we had great 11% growth in revenue, 14% in operating income, 19% growth in earnings per share, double-digit revenue growth in our 2 biggest businesses, so altogether a good year. What's really impressive to me is that we accomplished these results in an economy that was very soft, very sluggish. We had confusion at the beginning of the tax season about when can I file my return, when will I get my refund and we had a great FY '10 to grow over. So when you put results in that context, I think it's great results.

The Q4 profit and non-GAAP operating income is an important milestone. It's important for our transition in Connected Services. It indicates that our revenue and our seasonality is moderating a bit in our business units and most importantly, it was driven by customer growth in many of our key business units. So it gives us great momentum going to the FY '12.

Speaking of FY '12, my job here is to kind of summarize everything you heard this afternoon. We have a proven strategy that's working to accelerate our growth and to keep our revenue growing at double-digit levels. Our key factor is making our products easy to use, addressing non-consumption and the reasons that customers might choose not to adopt software. You heard great examples of how we're doing that this afternoon, to invest in devices and access that gives people much more reason and additional reasons to buy additional services and reasons to increase the revenue they pay us per customer. Also, we've talked about new opportunities and adjacencies and things like that. All the business units did a great job of sizing the opportunities within those areas and giving you just a glimpse of how a relatively small amount of leverage can have great results in terms of our incremental revenue and our revenue growth.

The plans you heard today are predicated on things we can do, initiatives and work that we're going to do, not on external factors like the economy overall. The slide just dramatizes the impact and importance of Connected Services to our overall revenue growth. Looking back 5 years, our SaaS Connected Services revenue has grown 37%. Admittedly that started out from a very small base, but I think it reflects the opportunity that customers have to select more premium services and offerings when they have the ability to try and use products before they actually buy. And I think that some of the impact we're seeing there clearly, in terms of desktop, software and one-off type services and growth over the last few years has been only 2%, relatively flat in those areas. So this has been a key propellant for us in keeping our revenue growth at a high level. You heard Brad say earlier that our goal is to have about 75% of our revenue from Connected Services in the next few years. We're well on track for that and we're at about 2/3 today. So we're well down the path to take advantage of this trend.

So how are we spending the money we earn? A key thing for us is to grow customers and to grow revenue long term. So it's always important that we find the right balance of investing and putting money into new initiatives that are going to continue to grow and expand our customer base and our franchise. And as you heard Tayloe say and as you've heard us talk before about our horizon planning methodology, horizon planning helps us determine which initiatives have the most potential for growth and it also helps us govern the amount and the pace at which we invest in these initiatives and in these business units. So it's a critical way of how we allocate our resources internally. We're continuing to invest in internal infrastructure that enables us to provide the reliability and the high-availability that our customer expects from a SaaS-related service and to drive our hosting cost down over a multi-year period. Finally, we made some changes in FY '12 that affect the total compensation make-up period into it. We've rebalanced between stock-based compensation, which is coming down over the next couple of years with some increases in other employee benefits. This brings our compensation and our compensation structure more in line the true-north outcomes that we're solving for our employees, customers and shareholders and the long term impact of our overall cost is a favorable trend for shareholders. It brings our costs down over the period. And an important point to note, all of our business units are showing improved operating leverage in FY '12.

Many of you have seen this model before, and I know you have questions about our margin and margin expansion exactly where it's going to come from. The idea here is not to give you a detailed roadmap for FY '12. It shows you how we performed over the last 3 years and tells you what expectations we have over the long term going forward. A key change you might notice here if you read closely from the last time we looked at this slide, we expected our gross margin to compress slightly with the shift to Connected Services. If you go back to prior years, that's what we said here with the gross margin. It's actually expanded over the last couple of years. It goes back to customers trying and using and self-selecting a more premium product, adopting and attaching more services and perceiving more value from these Connected Services. So we benefited at the gross margin level. Sales and marketing we think is about right where it is and should grow roughly in line with our revenue over the longer period of time. You heard Tayloe talk about how we allocate our R&D expenses. Internally, we think about this at a 15% to 17% range in terms of percent of revenue is a good range for us to operate in, in terms of R&D. This is an area where we're aggressively looking for ideas, initiatives that have a good pay-off, a good cost benefit analysis to invest in, we're aggressively looking for those. And again, to fuel the idea of long-term growth and to expand the franchise long-term, progressively looking for ideas here and our G&A clearly is an area where we expect to drive down over time. All this leads to a margin in the mid-30s that Brad talked about. We're well on our way there. You can see here just 3 years ago we were in the high 20s. And of course as we continue our share repurchase program, earnings per share ought to grow faster than operating come.

You've seen our guidance for FY '12, and so just a brief comment here. Our capital expenditures number is in the same neighborhood as we reported for FY '11. It's a little higher than we have historically, and it reflects some of the investments that you've heard us talk about all-day long in terms of new data centers, high availability, reliability and having a better hosting platform that'll drive our cost down over the longer term. Here is the guidance by segment. Again, very strong revenue growth guided in our 2 largest businesses.

As we've talked about our EPS guidance is, right now, it's 14% to 17% for next year. The simple point behind this chart is just to show you that about 3/4 of that improvement is coming from improvement in operating income per share and about 1/4 from the share repurchases we've made, particularly in FY '11 and leading into FY '12.

Now I want to be pause here for a second and just talk about our guidance range. And as you may ask well, what causes you to be at the top or the bottom. And so I want to camp on this slide for just a couple of minutes. Our tax results have to be at the top of the list. And as you've heard Dan and Jill talk about today, this is almost 50% of our revenue and it comes in, in roughly 100-day period of time. So it's critical to us, and so we think we've got a great plan, we're very confident and optimistic about it. You've heard the comments from both Dan and Jill of our Tax business, but it's so large and it's so concentrated that it has to be one of the key levers, one of the key drivers about where we'll fall in the tax range. Simply said, for us to have a great year and to be at the top of the tax range, we need to have a good tax season and all energies focused on that.

When we talk about legislation changes, we usually think about the tax area and clearly, that's a big one. Tax legislation changes influences not only the amount of revenue we earn, but also the quarter in which we earn it through our revenue recognition rules and techniques. So last year was kind of a funky year, a lot of growth in the third quarter because of the delayed filing. We expect a more smoothing process for FY '12, but we'll wait to see what legislation comes out. The other areas that are also affected are areas like payments, areas like our employee management solutions and also have impact from different legislation changes. So that something we're watching carefully and we'll see how the year progresses.

We talked about availability and privacy. Clearly, this is what the customer is paying for, it's important that we deliver that. Economic headwinds and health of small businesses are important to us long term. We clearly are concerned about that, and we watch it. But it's where it's on the chart for a reason. And that is to indicate to you that it's not likely that changes in these indicators in FY '12 will have a big difference, make a big impact on the financial results we've guided for FY '12. Okay?

Now talk about capital allocation. You know that's an important area for us. These are the financial principles that Brad went over earlier. These are more than words on a page, they really are the way we operate the company. And with the initiation of the cash dividend for FY '12, we've had a little tweak, obviously, in our capital allocation principles. So I'd like to talk there for couple of minutes.

As you know, we generate a lot of cash and the highest and best use for that cash is always investing internally in internal product development, new initiatives and making the products and services we have better. We always look rigorously, step 1, for opportunities there. All of the investment opportunities in this category have to be 15% or better in terms of internal rate of return. We measure that in market very rigorously. But internal development always moves to the top of the list. Inorganic opportunities, strategic acquisitions are second on the list. That priority is not going to change. Nothing has changed about the way we think about the way we think about these or the way we look at them. But when we generate more cash than we need to run the business and more than we need or more than we can invest profitably, internally through internal product development or in partnerships and acquisitions, we typically purchase shares in the marketplace. That's still an important part of our strategy. But the cash dividend, it gives us a little more, one more tool to use, if you will, to allocate capital. I'll talk about a little bit more why that's important.

We've talked about dividends in the past often with many of you in the room, and we've always said the question is not if, it's when. And you may ask well, why now? Over the last 2 years, as we have performed quite well during a number of economic environments, we've gotten a lot of confidence in our cash flow, a lot of resiliency in the cash generation aspects of the business. And that's given us confidence in a certain level of performance and a certain level of cash generation each year, and a dividend is an important way to demonstrate that confidence and to establish some parameters for the investment community for outside looking in who don't have the same ability to stress test and risk test our expectations and forecast as we do. So that's an important reason. As you can see over the last 5 years, our cash flow per share has grown much faster than revenue, roughly in line with our operating income and has given us a lot of confidence about the resiliency of our cash flow. But cash share repurchases are still important too and are still a very important part of the mix. As Brad said earlier, since we initiated the program in 2001, we have spent about $7 billion repurchasing 250 million shares. This chart shows over the last 5 years and the point here is that we've returned almost 90% of our operating cash flow to shareholders through the form of a share repurchase program. So that's important to us, we're going to keep doing it, we're going to keep driving the share count down. The share count was down almost 2% in FY '11 alone. So that's another important aspect of our capital allocation strategy.

All this leads to a return on invested capital that was on in the 21% percent range for FY '11. That's up 600 basis points from FY '10. In all fairness, about 1/2 of that improvement came from the first tranche of our long-term debt that's nearing maturity, so it moved to short-term liabilities. And the other 1/2 came from improvements in our operating income. And we expect another like improvement from operating income in our ROIC in FY '12.

So what did you hear today? I think you heard a very balanced plan for FY '10, a plan that balances best-we-can-be results with a reasonable level of confidence that we can actually deliver, a plan that balances investment for the future with delivering excellent financial returns in the short run and a plan that matches liquidity, flexibility, the ability to take advantage of opportunities that may come along with generating excellent cash flow and excellent returns back to our shareholders. So that's what we're about, that's our true-north outcomes, delivering for all 3 stakeholders.

And with that, I'm going to ask Brad to come back up and make a few final comments and your questions.

Brad D. Smith

All right. Thank you for hanging in there. We tend to be data rich in terms of sharing lots of information and it came at you fast and furious. So before we get to your questions, I just had a couple of summary closing thoughts.

The first is I was having opportunity to speak to several of you during the break and someone said, "It's a little like déjà vu", and I said, "Yes, it is," and that's good. Because the reason why we're here telling you about similar things that we told you last year is that it's working. It is enabling us to not only navigate the short term and expand our categories and grow our customer bases, but it's also enabling us to rev up an innovation pipeline that is positioning us for the future. And I like the years and I like the results in the market and I like the environment it's creating for the company. But what you should also recognize is it's not an easy thing to pull off. Think about great companies that are trying to transition from what they used to be to where they're going. Whether you're talking about software companies trying to move online or you're talking about companies who have DVDs that are now moving to streaming video. Pulling this off in a way that enables you to deliver consistently is not easy for any company, and it's not easy for us. So that's why you hear us talk about these things at the fundamental level.

The second thing I would tell you is the areas of emphasis are slightly different. The strategy is the same, but I hope you heard the importance of things like drastically improving first-use experiences or the power of mobile. Who would have ever imagined that a tax software application would displace Angry Birds? Now that -- it's the nerd in me, but that gets me pretty excited when tax beats Angry Birds. So that's the kind of stuff that is really the magic underneath what you hear as consistency.

And the last point I'll say is what you've heard me say on earnings calls before, it's one of my favorite quotes, strategies alone don't move mountains; bulldozers do, and bulldozers don't drive themselves. It comes down to great people. And what I hope you saw up here today were really talented leaders who care about creating an environment so that our employees don't get dictates from above, that they can run experiments and quickly navigate what's working and what's not so we can create an environment that continues to get better day in and day out.

So I'm excited about the progress that we've made in the last 12 months. We aren't the best we can be. We know there's areas we're going to have to work out to get better, but I have confidence as we look at fiscal year '12 and beyond. And that's because we have a strategy that's working. We've got great people, and we're learning every day and we're trying to improve on the things we know we're not good at.

So with that, I want to open it up to you for whatever questions you may have. Go up here, and then I'll come back there, yes.

Question-and-Answer Session

Unknown Analyst -

You showed so many different new products and services. You're going to show us 20 mobile applications when we go across the street. And I guess it brings one question to mind which is you're doing so many things, how do you have enough wood behind the arrow to make sure one can grow and be nurtured instead of doing too many things and all of them don't get to succeed or even many of them don't get to succeed because there's not enough attention on them. So, sort of a weird question.

Brad D. Smith

No, it's not a weird question. It's actually a very important question, and we spend a lot of time talking about this in the company and we spend a lot of time talking to others in the industry. I think first and foremost, there's 2 big messages here. One is the horizon planning methodology that Tayloe walked through. And we actually allocate time, people and dollars against those horizons. We tend to have about 60% to 70% of our resources decked against our existing business as horizon 1. Then we have another 20% or so decked against the horizon 2, those are the saplings. And we carve out 10% for horizon 3. And the rule of thumb is you can't borrow from one to the other. So you've got to make the tough trade-off to optimize each. Because a lot of what the companies can do is they can borrow all that 10% for the future to come back and fix this and then you have no future. So one was we have that rigorous methodology. The second thing that we try to do is we've eliminated powerpoints, politics and persuasion of how big your business card is to pick what's going to win. Instead, we use a data-driven model that says put things in the market and the ones that customers love are the ones we're doubling down on. And the ones that customers don't we're going to shut them down, which is why we celebrate failure and the lessons of failure as quick as we celebrate success. Because the worst thing that we have experienced and I personally have experienced, the strategy is not just about what you're going to do, but what you're not going to do. But instead of having judgments and politics decide these are the things we're going to double down on, we want to let the market help us dictate. So those are the 2 things that allow us to put more wood behind pure arrows. You see a lot of ideas. Not all those ideas are going to make it, and we're going to shut them down quickly and we're going to capture the learnings and we're going to talk about the lessons we learned so the other teams won't repeat those mistakes, and we're going to make a bunch of new ones. And that's pretty much how we do it.

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

Scott Schneeberger with Oppenheimer. Brad, you'd mentioned or Neil mentioned that the biggest driver with regard to high end or low end of guidance is going to be the tax season. And last year, the ending of tax forms to the manual providers. Just curious, do you go fairly deep on what type of contribution had to you and of all the buckets that comprise the guidance, the 6% to 8% of the pricing, the market share gains, if you could take us a level lower to there and which do you think might be stronger or weaker going into the season?

Brad D. Smith

So I got 2 pieces here. I'll make sure I got the question, Scott. So one is, manual and the second one was which of those drivers are going to be the biggest as we look at the levers we have going into the next tax season?

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


Brad D. Smith

Okay. So let me start with manual first. This is one of those conceptions that were misperceptions that we needed to try to debunk today, and I think what Dan tried to show you is if you look at the sources of customers coming in and how many came from manual, we benefited about as much as tax stores and CPAs and everybody else did. And manual's been going down every time. So everybody, as a result of manual disappearing, is going to have the same sort of a question. What you should see is that is not the biggest source of our customers. It is retaining existing customers. It's the fact that the digital generation, 5 million filers who entered the payroll system for the first time wanted to do everything in the palm of their hand. They don't think about going to a post office or even asking their mom and dad how to do it. They figure it out on an app, and so that actually benefits the pure-play players which we happen to be in that category. So I would tell you from a manual perspective, we are confident that we have not only a secular trend shifting more to digital, but the fact that we are able to take customers with the superior value proposition in that promoter and 75% cheaper from other methods, primarily tax stores, and we think we can continue to do that as we look forward. The second thing is the levers. I would tell you that if we could write the script right now, we would love to grow the category and have units outpace everything else. Because we've been able to demonstrate we grow customers and then we can monetize these customers over time through excellent retention through converting free to paid and by getting them move up the product line. But in any given year, we may end up having even more success with getting revenue per customer and the revenue may be about the same as units, which it's been this past year. But if we could write the script, we would go for category expansion, grow the units faster than we ever expected, get the acceptable level of revenue per customer and we will have a very healthy franchise for many years to come. So that would be the emphasis I would hope to see play out. But the good news is we've got 4 levers that we're able to pull and any of them produced double-digit growth off the half for many years.

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

That's real helpful. If I could sneak one more on tax, just that I think it's an important forum for it. There's been talk of the government looking to internalize the taxation preparation process. And I'm just curious your involvement in discussions with them on that.

Brad D. Smith

Yes. As you might imagine, we're pretty involved as an industry. And this has also been rhetoric and questions and things have been tested over many, many years across many countries. It seems like every 4 years, someone us an idea and the idea is we'll make this tax system simpler. We're all for simplified taxes. The line gets drawn when the idea becomes and we'll send you a bill, you don't have to do your own taxes, you just believe us, so here's what you owe us and send us the money. That's where most citizens say, "Nah, that doesn't sound like a good idea." Because what we know is there's a debt ceiling issue and there is a deficit being run and we know that we have deductions that we have earned that the government does not have visibility into; did you have a baby or not? Did you buy a house? Did you sell stock? And so I think that we are lined up with the government to have a collaborative approach to say how do we help you make this easier for people to fulfill their obligation. Do you want to simplify tax, because that's the business we're in as well. But let's make sure private industry does its part and government does its part and together we can actually achieve the outcomes. So I would tell you it's always out there, sleep with one eye open, probability is I think against it if the people have anything to say. Jim?

James Macdonald - First Analysis Securities Corporation, Research Division

Just a follow-up on TurboTax. Last year, you gained share and maybe you could tell us a little more where you think that came from with your biggest competitor also clearly potentially gaining more share. And then, it looked like from the slides that you're looking at an additional share gain as part of your guidance this year and what gives you confidence that you'll be able to do that?

Brad D. Smith

Yes. I would say first and foremost, one of the things that we saw happen this past year is the number of tax returns being filed with the IRS is going to be up a little over a percent, as Dan said. So that's the first lever. The second is the digital tax category grew faster than all other categories. Tax stores, CPAs and of course manual is declining, so that was a benefit. Then you get down into share. And I shared on a couple of earnings calls a while ago that it's not a zero-sum gain. There is not just us and one other competitor. When you go online, you can go to the government's Free File Alliance site and you're going to see 3-dozen plus custom potential competitors out there, and that's not even all of them. And so as we shared, and I'm sorry to reuse the metaphor again, but sometimes when 2 big bears are kind of wrestling in the woods, rabbits and squirrels get stepped on. And so we absolutely gain share. Another competitor in the market has said they've gained share, and some of the others weren't able to claim that. And so I think the key for us is to continue to stay focused on solving the problem better than any of those other players measured by net promoter, and we're going to be fine because the category is going to continue to grow and we're going to be able to continue to gain share if we stay laser-focused on making it simple. So that's where we got it. It was pretty much the all-other software providers out there in the marketplace. And we'll see if that's the same continuation this year or if we can actually take share from the major player as well. Yes? Just come up a little.

Unknown Executive

I'm sorry.

Brad D. Smith

It's okay.

Ross MacMillan - Jefferies & Company, Inc., Research Division

Ross MacMillan from Jefferies. I wanted to go back to some of the tax point of view you made about the potential changes to the tax code and so forth and the risks. Is there not some other risk that it doesn't get fully internalized but we end up with a simpler code and therefore more tax filers can do it either under a free product or effectively a much lower cost product and that could have implications to your business. I'm just curious to get your thoughts about simplification of the code.

Brad D. Smith

Yes. And actually, I'm glad you brought that up, Ross, because that could be one of the greatest benefits we could have. If the tax code was so simplified that people didn't have any confidence issues with doing it on their own, that will be a groundswell of category growth for digital tax solutions. Because the reality is the alternative is a paper and pencil where you can do it yourself, and when you get into using software yourself, there's all kinds of ways that we can help you do it and find more money for yourself, even if it's simplified and we can save you time in doing it. I mean just imagine what we can do right now with SnapTax. The ability take a picture of a W-2, answer a couple of questions can be done in 10 minutes or less. That's even faster than TurboTax, where you're sitting in and answering the questions and answers. So I think simplified taxes, if we do see that, depending how simple they get, could be a tremendous boom for the digital tax category. I will say this though, we have, as a country, many times over tried to simplify the tax system. And there is an interesting example when it came out with the 1040EZ form, it comes with a 42-page help booklet. So the definition of simple is in the eye of the beholder and I think at the end of the day, we'll just see how simple we can -- the tax system goes. So I don't mean to make light of it. Again I want to let you know, we're at the table, we're trying to be a part of the solution. But I do think there are tremendous advantages to some of those changes happening that would benefit us, and we would have game plans in place to capitalize on if that comes true. We'll go back there, and then we'll come up that. I've got the white eyes, but I can see you.

Kash G. Rangan - BofA Merrill Lynch, Research Division

All right, great. Kash Rangan with Merrill Lynch. Brad, first off, excellent presentations, very detailed exhibits, whatnot. My question is if you look at the next 4 or 5 years, you've got 2 big products, TurboTax and QuickBooks that are as scaled, you're solving a problem for millions and millions of users. And what we saw was a lot of innovative stuff around the edges in mobile, small and banking, et cetera. As you put your thinking hat on, maybe you could talk; there are 2 or 3 things that could turn out to be big broad horizontal markets that have the scale and the margin characteristics. It's hard to pick one, obviously, now because you just don't know what the future is. But if you had to come up with a shortlist, and I think I asked Scott over the break what he thought and I have his answers, he might have shared them, but part of your perspective; he has his own thoughts there, but yes. What could be the third big product that could be horizontally scalable, big margin structure, 2 or 3 alternatives?

Brad D. Smith

Yes, and I'm happy to answer that. I just want to add a little bit of a caveat upfront. So we have small business and we have consumer and consumers, predominantly consumer tax today but in small business, it's not just QuickBooks. If you actually saw the razor and razor blade model, how much of that's coming from product sales versus services. Services in the small business ecosystem are now larger than QuickBooks; payroll, payments, the other stuff. So we have a huge set of horizontal opportunities in small business that are early in the stages and growing very, very fast. So we have a real opportunity there. If I ladder back up, though, I would say that one of the big opportunities that we have is global expansion. I fundamentally believe in the company that with mobile devices and hosted technologies that we are learning quickly and we have the ability over time to get a greater footprint around the globe. The second is using the opportunities we have to create new payments opportunities. So we've talked about the Intuit PaymentNetwork, which is an interesting and exciting way to take $50 million invoices and turn them into electronic invoice and get paid through ACH rails. We have other sorts of payments opportunities that we are looking at that leverage structural advantage inside of our ecosystem, so things that we can offer that no one else can offer to try to create value. Those would be the 2 big opportunities I would point at and by the way, that's very hard because I could tell you, if we get a ride in health care, it is begging for a solution. The health care problem is one that we all share, and so that's big but I would say if I had to narrow it down, I think Global with Small Business and the second opportunity I would say is payments are the 2 biggest opportunities for us. Actually, I think we had Adam. No? Who was next? Annie [ph], you got to keep me honest here.

Unknown Executive


Brad D. Smith

Okay. Then I'll come back to Adam.

Unknown Executive

Adam can have it.

Brad D. Smith

Oh wow, Adam listen to that, you even got a couple ahhhhs.

Adam H. Holt - Morgan Stanley, Research Division

It's got to be the dimples. The detail on your segmentation of the small business market was, I don't think we've seen this before, it's very helpful. And I guess my question is in understanding that Services is now bigger than QuickBooks, you've got 7 million targets in the tweeners and prospect sector. So it doesn't seem like you need new business creation to accelerate for you to reaccelerate unit growth. So how do you drill down and convert that 7 million more effectively? And then I have a follow-up in the Services too.

Brad D. Smith

Yes. Adam, that's a very keen insight, and it's actually one of the reasons why Kiran and we are collectively excited about the opportunity going forward. Non-consumption is something we stood up and talked about for many, many, many years. Steve talked about it, I've talked about it in the time I've been in this job and haven't done as good a job as we could because we were going in with solutions that as you saw in that segmentation weren't what the customer was looking for. We were solving a different problem with QuickBooks. But now having the ability to go in and get really clear on things like to do lists that eventually create an income statement at the end of the year and magically you create accounting, just like Mint is doing right now. We think that's going to give us an opportunity to accelerate. So you're right, we do not need to see new business formation from a QuickBooks franchise perspective come back for us to be able to accelerate the performance there. As a country and economy, we do need to see it because 60% of all the jobs in the U.S. are in companies with less than 25 employees and it's 80% of all new jobs. So we definitely hope that this is just a short period of time in terms of new business formations. But you're right, we have opportunities to just go against the existing customers today and help them solve problems and increase their likelihood of success and grow our franchise.

Adam H. Holt - Morgan Stanley, Research Division

And just a follow-up on the Services. Over the last several years at Analyst Day, you've laid out a number of ancillary cross-sell opportunities ranging from target marketing to benefits to payroll to website hosting. If you were to look at the experiences where you've been the happiest and you've seen the best penetration, what are the common denominators versus maybe something like your target marketing that hasn't been as effective?

Brad D. Smith

Yes. I would say the common denominators around success have been when we've been able to offer a solution at the time the customer recognizes there's a problem at that moment of truth. Historically, we did it in workflows and QuickBooks when you were actually adding a customer, "Hey, do you want to actually accept credit card payments from this customer?" And that's helped us drive revenue that way. Or if you're adding an employee, we're able to say, "Hey, do you want to add this employee to payroll?" We're getting much more sophisticated with the data analytics that you heard us talk about, Data for Delight! And we're starting to discover other moments of truth where we can do a better job of recommending a solution or basically introducing you as a part of the workflow into a new solution that we can monetize over time. One of the areas that's making a lot of progress is in our EMS, our Payroll business. And they do have some really interesting early successes going on in areas like simple 401(k) plans and pay-by-pay workers' comp and a very interesting test going on with a health card, a health benefits card that basically doesn't require small business to have insurance. And so we've got some interesting concepts going on there, and they're getting really good at introducing that solution at the time where the customer recognizes there's a problem. So that's the pattern.

Brent Thill - UBS Investment Bank, Research Division

Brad, it's Brent Thill with UBS. Just drilling into your 2 big opportunities to take it one level deeper. Just when you think of global expansion, how are you ranking 1 and 2 beyond the U.S.? And in payments, Kiran had a slide in there about the penetration and I think in your slide, you mentioned it's your biggest TAM, but you're #8. Yes. How do you shrink your deficit up and move up the leaderboard? What's in your way to get up in that market? And if you could just talk about what you're seeing in the competitive landscape, that will be helpful.

Brad D. Smith

Yes, I'd be happy to. So first on Global. This is an area we've talked about. We have to be patient, but persistent. And so one of the reasons why it's a big opportunity is because we have very little progress to date because we've been at it for a few years. And so if you look at a 28-year old company and how long we've been at Global and the fact that 5% of our revenue is from there, it's nothing but fertile ground if we can do it well. The reason why and what we're prioritizing is small businesses, hosted products is the lead. So you heard QuickBooks Online now in Singapore, Canada, the U.K. We're testing it in India, and we're getting very strong positive results back relative to other alternatives in the market. And so that is a big exciting opportunity for us, but we have to continue to see if we can do that in other countries. So that's one of the opportunities. We selected now, not just India which originally what we said a few years ago is we're going to go after the merging economies because we don't want to go against entrenched competitors. We've now discovered that QuickBooks Online placed pretty good in away games as well, not just on the home field. And so we now have prioritized developed economies we're going after, and you heard some of those listed in Kiran's presentation. So it's really small business, hosted to the lead and the ability for us to now go into those markets and create a business and then from there, create the ecosystem we have in the U.S. So what are the other services that go with QuickBooks like you see here? The second question was around payments. Payments is getting basically reinvented every single day right now. There's all kinds of new ways that customers and even providers are looking at how to deliver payments. You're going to see at the Innovation Gallery Walk, you see our ability right now with GoPayment to have a swiper and use an iPhone. You see people testing NFC, near-field communication, so you can actually tap it either to another phone or to a point-of-sale. You hear P2P payments now, peer-to-peer payments, you've got microloans. There's so many things happening in payments that if we can stay focused on how the customer wants to best solve that payment issue and we can deliver the most innovative solution, then we can move up that chain. But the good news is, right now we've gone from a start-up in payments probably about 10 years ago to #8 in terms of the number of customers that we serve on our payments platform, and we only have, was it 5%, Kiran, penetration into QuickBooks? If we simply continue to drive our penetration in QuickBooks, we can move up to the level we want to be in terms of the number of payments customers that we serve. So we have opportunities to move up from #8 to #1, either through existing penetration or through innovative new solutions, and those are the 2 things that Kiran highlighted in his presentation. Yes?

Unknown Analyst -


Brad D. Smith

Yes. So the question for those who may be dialing in is the differentiation versus Square. Let me start by saying Square is a very innovative company. They're a good competitor. All of our competitors keep us on our toes and many times, they teach us lessons and it allow us to think differently. And Square did that. And so I would say for the first period of time that Square was in the market, we stayed within existing game that was already extremely well, and they opened up our eyes to how to get a larger market in. So we've matched them in terms of a free swiper, we match them on the pricing with the no subscription fee and a 2.7% transaction fee, we have had exponential growth and now beyond the matching game, we're also looking at the how do we advance the game. And we have a set of assets. You saw that disconnected state, Kiran showed an example of how you're using Basecamp and maybe Google for this and you're doing that. Well, when you have world where you can actually have those payments interact with other services that you're using, which is something we're focused on, that creates something very different than what a stand-alone competitor is going to be doing. But I'll tell you, they're an excellent company and we are out there with them day in and out. And I think that good opportunity for the market is we're creating a bigger market than existed even 12 months ago.

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

Gil Luria, Wedbush. I really want to build on that question. Because one of the really interesting things that's happening is mobile within payments. I think you just talked about one aspect of it, merchant acceptance, where you've matched the Square offering. And so the first part of the question is how much of an impact has that had on your ability to add merchants? I think in one of Kiran's slides that says that it helped you add 90,000 merchants, but that doesn't sound right because you only have 322 total. So how many merchants did that help you add? And then the second part of the question is, going forward, will you be able to leverage other aspects of your payment properties, other aspects like Mint to help generate a very effective mobile wallet, which is going to be a very large emerging category?

Brad D. Smith

Yes. So where did Kiran go, by the way? Did I miss -- there, he's right behind there. So Kiran, do you want to answer the first question with how many customers we've been able to add with our GoPayment offering?

Kiran M. Patel

90,000 [indiscernible]

Brad D. Smith

We have a microphone here.

Kiran M. Patel

Yes, 90,000 is the total number of GoPayments customers. They're both independent field-goal payments customers and those who already have a merchant account service who've adopted a GoPayment solution. The pure GoPayments customers are around 50,000.

Brad D. Smith

Okay. And the second part of your question is what other sorts of mobile payments opportunities might be out of there in terms of our ability to bring other assets to bear like Mint. Eric Dunn, if you would raise your hand there, Eric Dunn leads our strategic payments initiatives. He is the one who drives the Intuit PaymentNetwork for us which is the 50 million invoices that are now electronic. He also works across the company with all the business leaders and what our all the different innovative ideas. And Eric, I'll let you speak quickly to that question.

Eric C. W. Dunn

I don't think you're going to see Intuit sort of copying what Google has done with the broad frontal attack on the mobile wallet. But I think the words you got to remember are advantaged and taking advantage -- and leveraging the Intuit ecosystem, we're going to find places where payment-initiating opportunities fit into existing Intuit properties kind of across the ecosystem. And those will be focused plays where we have some distinct advantages, and I think in the next year, you'll see some products from us in that area.

Brad D. Smith

Okay. So we move over here. Okay. Peter?

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

Peter Goldmacher at Cowen. Brad, all you guys gave product presentations and all the questions have been about products, but there are definitely certain systemic themes in everything you're doing, right? You're talking about social, you're talking about mobile and every product is going to be mobile and social, which should be worth 3 or 4 multiple points but -- and lot of the happy customers that think of -- how do you, as a CEO, make sure that when you get a best practice or when you get a learning that you're able to roll that out across, I mean how many different divisions of divisions are there? 15? 20? How do you make sure that if you learn something, and it's the right thing, a, that it is the right thing and that everybody does it? I mean how do you institutionalize the learnings? What's the process?

Brad D. Smith

Yes, it's a great question, Peter, and we've got a couple of things that we use. One is all of our compensation is first aligned against Intuit first and our local area second. So everybody solving for the best idea wins and not whether it was my idea for my business unit. So right off the bat, know that our compensation and incentives are aligned against, "Let's find the best idea, whether it's something we created in the business division and another division is going to adopt it or somebody actually outside has it, and we'll quickly figure out how we learned from that inspiration and we'll adopt it in the company." The second thing is we have this concept called "adopt and go." And "adopt and go" is when we discover a new best practice, it becomes the standard across the company. And we stand on each other's shareholders. And we have these leadership conferences, like I alluded to that we had a couple of weeks ago where we focus on first use, and what we did is we found 4, 5 examples of product teams in the company who had created delightful first-use experiences and they stood up and they shared their journey, they shared their mistakes and they shared what we call "news you can use." And then every leader at the end of that session talked about, "Okay, what am I going to do when I go back with my teams to implement these practices and figure out how we can improve our progress?" So our incentives are aligned. So it prevents a "not invented here mindset." And the second is we have lots of best practices. We actually say the future is here, it's just unevenly distributed. That's the old, somebody -- Gibson, I think William Gibson or somebody's quote, and I apologize if I attributed to the wrong person, but the net-net is those are the 2 big levers that we use, Peter, to get it across.

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

The guy that got the $1 million-dollar check, what does he do?

Brad D. Smith

The gentleman who got the $1 million check has been with the company for about 18 years. He is a serial entrepreneur inside the company. He has created the concept that gave birth to the Payments business we've been talking about, the QuickBooks merchant account services. So that was his concept, which has grown faster than any other business over multiple years and has been more profitable. He also was the one who was a part of the team that created the QuickBooks Premier flavors and the enterprise version of QuickBooks. He's also the one who helped us design horizon planning methodology, so we think about how we allocate short and long. And he is the guy that if you met him in the hallway, you would think that he had -- everybody else in the world did it and he was just simply there to try to support them. He has the values, he has the skills, he has a learning mindset and he has had huge impact in this company, and that was the least that we could do to recognize him and it was highly celebrated inside the company as our inaugural winner, because there's no one we would rather have as our standard to measure up against. And if I get a little excited about it, how I feel about him as a person, come over here.

Brad A. Zelnick - Macquarie Research

Brad, Brad Zelnick from Macquarie. Just to follow up on the legislation issue, and I appreciate that simplification is one concern but just to open it up, can you may be -- I mean listed on Neil's slide as the second driver next to tax results in driving the guidance range in your results. I guess the question I have, can you speak to the different dimensions of what type of legislation risk there is, what you're doing to mitigate that and what do you foresee in terms of the environment, what's changing? Is it better today than it once was? Speak to your lobbying efforts, et cetera.

Brad D. Smith

Yes, thanks, Brad. This is a question our employees ask a lot as well. And you imagine inside a company, you talk about having a public policy team and it gets labeled outside as lobbying and lobbying gets labeled as something that's bad. And I try to spend time saying, "Look, in a government, that's of the people and by the people, not only do we have voice but we need to express our happiness or our concerns with our senators and our congressmen." But we also, as companies, need to be a part of the system as well and we need to be expressing areas that we think we're doing well and areas that we're not, but not just pointing fingers, we need to sit down at the table and be a part of the solution. So that's why we try to partner in the industry with the IRS to say, "If you're trying to get more of your returns digital, how can we help you?" And we build solutions that they've put into their website so that they can achieve the things they need to do to be more efficient, and we can keep private industry doing the things in which it is good at, which is innovation. The areas touch almost everything, data stewardship and privacy. [Indiscernible] be the kinds of regulations that people may want to start to put out there and how do we make sure that, that reflects what customers really care about. In other areas in health care, we're in the healthcare business and so what's happening with health care legislation. Clearly in other areas, financial services, banks. Banks are one of our large customers. They're the source of capital for new business startups. And they're getting legislated and regulated, and so I think the real opportunity for us is to sit at the table, help figure out what the problem is and say, "How can there be a public-private and sometimes a not-for-profit partnership to consult this problem so not everything has to be policy and regulation?" And so that's really why you see it up there. And it happens in modest ways and in big ways. Durbin, that has an impact, or the fact that they make changes very late in the season and the IRS can't accept returns until February 15. That has an impact. So it isn't always full-sweeping stuff, it could be just little tweaks that cause ripples to the organization. And that's why we need to really be a part of sitting at the table and having the conversation.

Unknown Analyst -

Ryan Willencher [ph] from Barclays Capital. And going back to Global, that's an area where you've talked about before where progress maybe wasn't as strong as we might have expected. Can you talk a little bit maybe about some of the reasons, some of the drivers there? I'm just noticing that one of your main international competitors is just struggling to kind of buy big targets because private equities is going to have bidding pretty much more than anyone else on those deals. So that's an issue that you're facing as well. And finally, the change of the strategies [indiscernible] and also driven by the fact that the prices are a bit stupid at this point of time, so that's why you needed to go back to kind of the more organic growth solution.

Brad D. Smith

It's a great question, and I may have misled you when I talked in at the end inorganic is also an opportunity for going global. So our first preference is to develop solutions that we think we have that can solve problems in other countries, and that's one of the things that surprised us. I think I said 3 years ago when I said, "You're most likely not going to see any of our U.S. products in other countries," I was wrong. We've been out there learning that QuickBooks now is #1 in retail in Canada and the U.K. and made that move in 18 months. Because of what? Because we no longer ask Canada to sell a QuickBooks version that's 4 years behind the U.S. We actually created a global code base, and we gave them the same tools that we have here and we've gotten similar outcomes. And so now we've taken QuickBooks online, and we said, "Okay, now that we're getting this as a global code, can we move into other markets?" And we're seeing the same sorts of opportunities. The reason why it's not as fast as other companies, whether it's media or it's search is when you get into the kinds of businesses we're in, you get into workflows, you get into different kinds of accounting. There's a value-added tax versus the kind of tax system we have here. And so there was a lot more localization that's required and there's a smarter way to do it. What we're looking at now is how can we have a global platform with localization happening not only by our own people, potentially by a third party helping us localize it as well. So we're getting smarter. And I think every day that we get smarter, it's going to give us the ability to accelerate. But I don't want to mislead anyone. Global is going to be a long journey for us, and we're going to have to learn lessons along the way and we're going to have some hits and misses. The M&A question you asked. I'll tell you what we don't want to do. We don't want to go out and buy versions of everything we have in the U.S. for all the local countries and to be a holding company with multiple platforms and technology. We've done enough benchmarking and we did that ourselves back in the '90s to learn that that's not going to be the way that we can compete and win. And so if we're looking for acquisitions, it will be because the technology is something that we think will advance our cause on a global basis, not just in the country or we're going to get talents or skills, go-to-market skills that will help us go faster. And so that's really how we're looking at it. In terms of valuations, we're seeing valuations, some people are very realistic dependent upon the space you're in and some people are out of our ballpark and that's why we haven't announced an acquisition for a little while. One more question. Okay, thank you, Lisa. Going once, going twice. Oh, Adam is -- okay, we got one back here. Adam, I'll send it back there since you had one.

Yun S. Kim

Yun Kim from ThinkEquity. Just want to get your sense on the appetite for doing a large acquisition. It's been a long time since you did a major one. Does the 15% percent ROI measurement still apply? Does it have to be accretive or anything? Just want to get more sense on any type of large acquisition criteria.

Brad D. Smith

Yes. So let me first say that we don't rule out a large acquisition but the but is 28-year old company and depending upon how you look at what large is, we've done 3, by my definition of large, in 28 years. Quicken bought ChipSoft, which is TurboTax. We went out and we borrowed money in the late '90s and bought Lacerte, which is our ProTax business, and we made a pretty big acquisition in 2007 when we bought Digital Insight and we put some leverage on the balance sheet to do that. But we've done a lot of acquisitions in 28 years and those were the 3 that are of that size. So we don't say never. But it's not one of those things that you can count on us doing on a regular basis. What you would see us looking for is if it moves us into an adjacent space in a way that would enable us to go much faster, then we would look at an acquisition like that. If it would bring with it a set of talent and technology that we could actually plug into one of our existing businesses and just give us exponential growth in that business, we would do that as well. Our return on -- our IRR right now if we look at 15%, of course if there's higher risk, we have a higher hurdle rate, if there's lower risk, we may look at a lower hurdle rate, but we never let the bar get -- we still want it to be north of a weighted average cost of capital. And so right now where we feel the right number is we start with 15% and then we use judgment after that.

Yun S. Kim

Would you ever do an acquisition where a sizable acquisition that could dilute your margin for a couple of years?

Brad D. Smith

Well, this is one of the challenges you've got when you are in the technology space and especially when you're doing talent and technology tuck-ins. We have that rate of return. We also have some internal principles in when we want to see it be accretive. But keep in mind that sometimes when we're doing technology acquisitions, that technology may produce results down the road. In fact, we went back and looked at TurboTax and how long did it take for TurboTax to actually begin to achieve the business case that we thought it was going to achieve when we bought it. Thank goodness we did that decision. So we do absolutely have internal hurdles and do we want it to be accretive or dilutive? Day one is not realistic for some of the acquisitions that we do, but we have expectations on what we want them to do over time. Neil, would you add anything to that?

R. Neil Williams

I would never say never. That would be [indiscernible]

Brad D. Smith

Yes, never say never. Okay, listen. I really appreciate your attention this afternoon and also appreciate the questions and the give-and-take. I do hope that you have the opportunity to walk over with us to our café and look at the Innovation Gallery Walk. And until that time, I will look forward to seeing you all again soon. Take care.

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