Intuit Inc. - Shareholder/Analyst Call

| About: Intuit Inc. (INTU)

Intuit Inc. (NASDAQ:INTU)

January 19, 2012 11:00 am ET


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

Laura A. Fennell - Senior Vice President, General Counsel and Corporate Secretary

Brad D. Smith

Good morning, everybody. Welcome to Intuit's annual shareholder meeting. For those of you I haven't had the pleasure to meet in person, I'm Brad. And I serve as the company's President and Chief Executive Officer. And following the formal portion of our meeting this morning, that I'll ask Laura Fennell to conduct, I'll share a brief update on our company's performance. And then we'll open it up to you as always for any questions that you may have.

And before we get started, I just wanted to do a couple of introductions if I could. I'd like to introduce Intuit's Board of Directors who are here today in attendance. They add a ton of value to us every day and they are largely responsible for helping us get better and kind of deliver the results that you're going to hear us talk about in a few minutes.

And it starts with our Chairman of the board, who needs no introduction, Bill Campbell. We have Suzanne Nora Johnson, Diane Greene, Dennis Powell, and I'm looking here to see where other members may be at this point. We have some board members we tease, who need GPS systems, so I'm sure they're on their way in. So we will have other members in attendance.

I also want to introduce our members of our outside auditing firm, so we have Sam and Chris here from EMY. And we have Chris Hummel, who's going to be serving as our inspector of elections, from Broadridge this morning.

All right. So I want to welcome you once again. And with that I'd like to introduce Laura, who is our General Counsel and Corporate Secretary, to conduct the formal portion of the meeting.

Laura A. Fennell

Great. Thanks, Brad. So I have an affidavit from Broadridge certifying that notice of the stockholder meeting was properly mailed on or about November 23, 2011, to all stockholders of record. Our stockholders have access to the proxy statement and annual report on our website in accordance with SEC rules.

I also have a list of the registered stockholders entitled to vote at this meeting, and the inspector of election has executed his oath, which will be filed with the minutes of the meeting. Broadridge has counted the votes cast on each proposal, and Mr. Hummel has informed me that we have a quorum.

The polls are now open, so is there anybody that would like to vote here at the meeting? Okay. Can we pass the ballot [indiscernible]? You shouldn't vote again unless you'd like to revoke your previous proxy or change your vote.

Great. So at this meeting the stockholders will vote on 5 proposals that we describe in our proxy statement. Following the vote, Mr. Hummel will tally the ballots and proxies and determine which proposals have been approved. I'll announce the preliminary results.

So proposal #1 is the election of 8 directors. Proposal #2 is the ratification of Ernst & Young as Intuit's independent public accounting firm for fiscal year 2012. Proposal #3 is an amendment to our Employee Stock Purchase plan. Proposal #4 is an advisory vote on our executive compensation program, also known as Say on Pay, and that's described in detail in our proxy statement. Then proposal #5 is also an advisory vote, and that's on the frequency that we will seek stockholder advisory votes on the Executive Compensation Program.

So management recommends that you vote for all directors that are nominated in our proxy statement. And vote for proposals 2, 3 and 4, and then 1 year for proposal #5. So please mark your ballots, and then if someone could collect it?


Great. So the polls are officially closed. The final vote tallies will be published in our current report on Form 8-K, which will be filed approximately 8 days from today. And Mr. Hummel has already informed me of the following preliminary results. Intuit stockholders have elected all 8 of our director nominees named in our proxy statement. They've ratified the appointment of Ernst & Young. They've approved the amendment to our Employee Stock Purchase plan. They've advised of their approval of our Executive Compensation Program, and they've advised of their approval of our proposal to seek that advisory vote on an annual basis.

So that concludes the formal business of the meeting, and the formal portion of this meeting is adjourned.

And at this point, I'm going to introduce Brad, who's going to give us an business update. But at this point I want to make sure we understand that Brad's remarks may contain forward-looking statements, and there are a number of risks that may cause actual results to differ materially from our expectations. For more information about these risks, please see the webcast version of this presentation and our SEC filings. All can be found on the Investor Relations page at

So thanks for your time this morning. I'll introduce Brad.

Brad D. Smith

All right. Thank you, Laura.

Laura A. Fennell


Brad D. Smith

We'll get past Laura's official slides, in case you want to read what she just said. And we'll shift now to the business update. And I want to preview the 3 topics that I hope to cover in the next 30 minutes or so. And I'll try to keep them relatively brief. But some of this material you've seen us present in the past as we talked about our company strategy, but I always think it's important to go back and declare what are the activities and initiatives that are driving the results that we're going to report to you this morning. And then we'll open it up to you for questions.

So I'll spend a few minutes talking about my reflections on our company's performance in fiscal year '11. And just as a reminder, fiscal year '11 ended July 31. So I'll also mention that our momentum to the first quarter this year, which we reported in October, is consistent with the momentum we exited last year. So we're continuing to see positive results through the first quarter. Of course, we're in the midst of the second quarter now.

I'll then shift and talk a little bit about the external market, both the economic environment as well as longer-term shifts in the market that we think have implications for our business. And then I'll just review the company strategy, we call it the Connected Services strategy, and talk about the business opportunity that we see ahead of us, okay?

Let me start with the reflections in fiscal year '11. Once again, our company was able to step up through a team of 8,000 employees and delivered double-digit revenue growth on the top line despite a very tepid economic environment. We expanded operating margins 80 basis points as our businesses continue to get economies of scale and we delivered a 19% year-over-year growth in non-GAAP diluted earnings per share.

When you factor those results up against the financial principles that we communicate externally to our shareholders and internally to our employees, we had a really good year. And our year was punctuated last year by the announcement of the first time implementing a dividend for our shareholders. Many of our long-term shareholders see that we continue to have large and growing businesses that generate large amounts of cash. And while we historically have continued to look for investments that have a high yield, so we look for at least a 15% or greater percent return over a 5-year period, we also have opportunities to deploy that capital in multiple ways. We have more than one tool in the toolbox.

So the first thing we look to do is we look to invest in the company, continue to grow the company through R&D, sales and marketing and infrastructure. We also look for acquisitions. You've seen us make acquisitions of companies like Mint, PayCycle, Medfusion that moved us into healthcare, and we have also returned cash to shareholders since 2001 in the form of a stock repurchase plan. In fact, since 2001, we've returned over $7 billion to shareholders.

We've repurchased 250 million shares at about $28 and change. Today's stock price is at $56, and I saw $56.62, which by the way, is an all-time high for the company. So we have been able to return cash to shareholders. But now we've added in another tool in the toolbox, which is dividend. So we don't see being a growth company and implementing a dividend as being mutually exclusive. We're focused on continuing to grow, but we also have some more tools in the toolbox.

So financially we would say it was a good year. So if I sit in front of you straight-faced and talk about some of the operational drivers that deliver these results, we had some things that we're very proud of and we had some things that quite frankly we're going to have to get better at. So I'm going to share my perspective on both sides of the ledger.

Starting first with this Connected Services strategy, which I will talk a little bit more about in a minute. It's working. Last year in fiscal year '11, we grew our customer bases. We increased market share. We improved the quality of our products and services across most of our products, and we also were able to deliver the financial results that I just talked about. Intuit now has 50 million end users, and 35 million of them are using products that are hosted in the cloud and work on tablets, PCs and smartphones.

We now get 62% of our revenue from these hosted applications and connected services. And that's good news for us because it's more predictable, it's recurring revenue, it's not selling the box and hoping in 3 years we can get you to upgrade. It's the revenue you can count on, on a day in and day out basis. So we have good progress happening as a result of our strategy.

I'm also pleased to tell you that we continue to invest in our culture, that we have an environment where the most talented people want to work. Today we can tell you that we were notified by Fortune Magazine at 5:00 this morning, and I assure you I got up at 5:00. They just came out with the top 100 best places to work with. For the 11th year, Intuit was named on that list. This year we were named number 19. That's up 25 spots from where we were last year.

So very proud of our employees and very proud of our company's performance. With that said, we still have work ahead of us. Starting with the fact that we have to make our products and services easier to use, especially for first-time customers. When you have 50 million customers, you have this tendency to listen to everything your customers will say and add more features. But as you add more to an existing product, it often makes it harder for a new customer to come in and get up and running. And one of the things we needed to step back and look at is if we're going to continue to grow our categories, we have to get more new customers into the franchise and they often come from a shoebox or a spreadsheet. And so anything that looks complicated, they won't come back and try.

Last year, across our company, we tested all of our products. And for every 100 customers that came in and used one of our products for the first time, an average of 2 came back voluntarily to use them a second time. Now I'll give you a little secret. That's best-in-class. The industry has a long way to go, and so does Intuit. And let me tell you how big this leverage is. If we can go from 2 out of 100 to 3 out of 100, that will add 5 million customers to our 50 million installed base. That will add 5 points of revenue to the 11% revenue growth.

We would've grown 16%. It's the single biggest focus area we have across the company right now. Every single team is we're eating our own dog food. We're using the products. We're looking at what gets in our way, and we're actually making those changes are aggressively as we can. So I hope you'll see progress here.

The second area we have an opportunity, we call it the power of many. You hear about social. You hear about the power of using data to help people make smarter decisions. We have 50 million installed users. And we have to move beyond being a company that just facilitates a transaction to a company that facilitates interaction. For example, in our products today, we have something called Live Community where customers answer each other's questions. 40% of our support calls are actually answered by other customers in TurboTax, and they do it at an accuracy rate as high as we can do it. So we have to enable people to help each other while we also help them as well.

The third area, M&A, mergers and acquisitions. This is an area that this company has used for many years to help us grow and accelerate our technology and our talent. The thing that I want to reinforce here is we have an opportunity to continue to do that but do a better job of bringing these small companies in and making them a part of the Intuit culture and getting out of their way, so they can actually continue to grow. So I'm proud of the M&A track record of the past, but we have to continue to focus on the integration process and make it easier for them to come in and contribute to Intuit.

The last point I'll hit here is infrastructure and technology refresh. Many of you have been with us for years. You've used Quicken since the days when Scott Cook and the team introduced it. We are shifting from just a shrink-wrapped software company to a world where people want that product to work across multiple platforms and devices: Mac and Windows, tablets and phones. And we have got to reinvest in our technology, and we have to get into data centers that can be highly reliable so that you don't have outages. And we've been making a massive investment and we've been working hard to improve these areas. And I'm proud to tell you we've shut down 13 inefficient data centers in the last 18 months, and we'll shut down 7 more this year in a process towards getting more highly available.

So when I put a bow around fiscal year '11, we've a lot to feel good about, but we also acknowledge we've got work to do. So a thing I'll tell you about the company is we hate things in the red column. Anytime the employees see that, there's an action plan against it, someone owns it. We start measuring and tracking, and I hope it will move it over to the green column, and next year I'll show you other things in the red column. But that's the way we get better each and every day, okay?

So that's fiscal year '11. I know it's a look in the rearview mirror, but it was a pretty good year and we wanted to take the time to share with you what drove those results.

Now I'll shift to the external market. And I want to talk about the economy first. And I have to say this is now my third week of my fifth year in this job. And I can't count the number of times someone's asked me for my forecast on the economy. Now I came from Marshall University in West Virginia, and I don't remember them teaching me that in school, so I can say I'm the worst person to ask. But I did see this morning the jobless claims came down by 50,000, which is the lowest point since April 2008. And I'm going to talk to you about the fact that we don't spend a lot of time in the company looking at the research studies. Instead, we look at what the customers are doing and how we can help customers through these difficult times, and at the same time grow our franchises. So I'm going to talk about 4 economic variables that you read a lot about. I'll talk about the implications to our customers and what we're doing to turn that into an opportunity for us, okay?

So let's start with unemployment. In a normal environment in the United States, we have gotten accustomed to 4% to 5% unemployment. We know when the recession hit, it shot up to over 9%. Now it's down to about 8.5%. What's happening, though, is unemployment does have an impact on our business. It has a direct correlation to the number of people who file tax returns. If they aren't working, they don't have income, they don't have a job, then they don't feel at times that they have anything to file in terms of the IRS taxes. So what you'll see is even though unemployment doubled in the depth of the recession, the number of people who filed taxes remained pretty flat year in and year out because the government still wants you to file your taxes if you earned any money in a 12-month period.

So taxes are a pretty consistent stable category, but what's happening beneath the surface is where the real magic happens. When people had to file their taxes, but times are tough, they look for the easiest solution, that is the cheapest, to enable them to file their taxes and get a maximum refund. The tax software and web category, we call it the Digital Tax category, not only has a higher Net Promoter Score, which means its customers have recommended to friends and family members over anything else, it has a higher score than tax stores and other methods. It is also 75% cheaper.

So through this recession, guess what's happened. The Digital Tax category has grown 6%, 3x faster than any other method, including going to a tax store. And as a result, TurboTax has gained share and we've actually grown double digit. So from an economic standpoint, even when the unemployment has spiked, which makes it difficult, we've been there with a solution that helps people do what they have to do but to do it easier and cheaper, and we've been able to grow double digit. Makes sense?

The second area is consumer confidence. Consumer confidence, I'll just spend a second on this, is important because they say about 70% of the U.S. economy is driven by consumer shopping, consumer consumption. So if we don't feel good, we're not going to shop. Well, we can't tell you whether or not consumers are feeling better. But what we can tell you is they're shopping with the small business customers that we serve. One of the services we provide is Small Business payments, the ability for a Small Business customer to accept a credit card.

So we can tell you charge volume this year versus last year, and see if our Small Business customers are actually getting more traffic. The good news is this bar on the upper left, you'll see the total charge volume on a same-store sales basis, which means the business was open last year, and it's the same business this year, is up about 3%. It had actually declined in the depths of the recession. So this is good news, which means it's stabilized and it's starting to improve.

Now I will tell you this, we're smarter shoppers now. People just don't go out on shopping sprees. So our tools like Mint and Quicken and our Online Banking products, they help people understand that [ph] they have enough in their bank account. And you can actually look on your phone now to see if you have it before you buy that Starbucks coffee. And we also give you ability to save on certain things because we have special deals that we'll pass through for a particular purchase. So our products are needed when times are tough. Even as we're starting to shop more, we have tools to help you plan and budget better as well.

The third area is Financial Services, our banking industry. Now this is important to us for 2 reasons. Not just because banks are our customers, that we serve for our Digital Insights business, but also because banks are the source of credit for consumers and also for small businesses starting. The bad news is, the number of new businesses starting is at an all-time low. And the reason is because 1 out 6 small businesses who applied for a loan last year got approved. So what do we do in a situation like that when we serve banks and small businesses? Well, first what we've done is for the banks as our customers, we introduced a whole new generation of Online Banking tools. Instead of going from tab to tab when you do your online banking, we introduced something called a single destination page. You can do anything you want to do from one page. And we also made it available on mobile products for our banks that we serve.

What this has done for the banks is the average customer will go to their bank on line 150x a year to pay bills and check balances. They're now going 230x a year. The profit for the banks is up 11% on a per customer basis. I hope this gives them confidence to begin to free up their capital and start to lend. But if they don't, we've got new things for small businesses. When small businesses start, they want to get a website and get found, so they can use our online website products and get up and running for free and get customers, and then they pay less than $10 a month.

And the other thing we do is we have this neat thing called GoPayment. I think I talked about this last year, the ability to take a mobile phone. We give you a device for free that you stick into the ear jack. You can swipe a credit card, send the receipt electronically to the customer and update your QuickBooks back home, all from a cell phone. And so that is also free, no monthly subscription fee. You only pay 2.7% for every transaction. So we have tools to help people, both banks and small businesses, through these tough times.

The last piece, consumer confidence. I often tease about this one because small businesses are my favorite. Every one of the Small Business customers that start know that 1 out of 2 have the potential of going out of business in the first 12 months, and they're always convinced it's going to be the other person. So when you ask them if they think things are going to get better, they tend to be optimists. So what we look for instead is are they making decisions that suggest they're more confident than they were yesterday. And the #1 big decision the small business customer makes is are they hiring employees.

Now we have 1.2 million Payroll customers in the U.S. We pay 1 in 12 Americans, so we can tell if unemployment is going up or down in the small business sector. The good news is, for the 15th month in a row, employment is increasing in small businesses. And this is 60% of the U.S. economy in terms of where people are employed. Now it's up about 3.3%. So this is not a robust return to the employment levels of old, but it's definitely moving in the right direction. And we have products like Payroll and QuickBooks to help you manage those employees more efficiently and effectively. In fact, 70% of our QuickBooks customers tell us that they're 20% more profitable because they use QuickBooks.

So across the board, if I had to summarize it, I would tell you the economy seems like, at least as we look to our customers' data, is it is improving. But it's improving modestly, and I happen to believe a lot of the economists will say here, it's probably going to continue to be a multi-year recovery. We call it the Nike Swoosh, kind of a long, slow, sluggish dig out to the other side, but it is moving in the right direction.

For us, we don't lose sleep because we have products and services that are needed most when times are tough, to help you file your taxes, to help you get more effective with your bank, help you work more efficiently as a small business, and so we have these principles we put in place in 2008. And we said let's not look at the economy as a crutch. Let's look at it as a catalyst. And these are the results that Intuit and its employees have been able to deliver in the blue bars throughout the recession while the economy has dipped, come back and then dipped again.

So the neat thing about the portfolio, if I can leave you with one message on the economy, is it seems to be getting better. We're not economists, but I will tell you this, we have products and services that help people through tough times, and that's enabled us to continue to deliver in the short term.

The other thing it helps us do is keep our eyes focused on the horizon. Just a quick overview here. We see 4 big trends that we think can be tailwinds at our back if we capitalize on them. The first trend is our category is moving from do-it-yourself to do-it-for-me. It's moving from sitting in front of Quicken and keying it in and having it sync up with a bank account to having the ability to log in a user name and where you bank and have products like Mint and soon Quicken go out, find your bank information, pool it together for you in a pie chart, build a budget for you and basically send you alerts on things they think you ought to be thinking about. It starts to do a lot of the work for you. At the center of that is data. A big opportunity for us, if we continue to help people make smarter decisions.

The second area is Global. Global, we can all recognize today, even though the stock market is improving and our economy seems to be getting better, is an overhang of what's going to happen in Europe. We are now a global economy. If one country gets sick and sneezes, everybody else catches a cold. We are also seeing the same thing in our customer bases. 37% of our QuickBooks customers are doing business globally. These are companies with fewer than 20 employees. This is all incremental for us. Less than 5% of Intuit's revenue is outside the U.S. today, but we have the opportunity now with hosted products and mobile devices to go into countries much faster and much more effectively than we could have in the past. And this gives us the opportunity to continue to grow and solve problems around the world.

The third is connected platforms and services. We talked about this last year. Computers are moving off the desktop and into the palm of our hands. Our smartphones are 1,000x more powerful than what landed a man on the moon at the end of the 60s. And our tablets are replacing the PC for a lot of people. So we have to have products and services that work across many devices.

But here's the neat thing. These devices are helping us do things we could have never done just through a personal computer or a laptop. Imagine now the ability for 20 million Americans who have an EZ tax return to take a picture of their W-2 using a smartphone, have that picture pull the data and pre-populate your tax return for you, answer a couple of questions and have your taxes done in 10 minutes. That is called SnapTax. Couldn't have done it on a PC. Could not have done it on a laptop. And that's opening us up to a whole new category of customers.

And the last piece is, it's changing our business model. 28 years old, a very proud company, releasing products every year on the desktop, you can buy them at the retail stores, now shifting to the ability to get it on the desktop or get it hosted through the Internet or on a mobile device. And it's shifting more to subscription services and transaction fees. So the revenue is much more predictable. So these are all positive trends for us.

I'll wrap up with my final quick summary, and it's a recap of our connected services strategy. But so far what we've talked about is we had a pretty good year in fiscal year '11, but we have some work to do. The economy seems like it's getting a little bit better. But the good news is our products are strong because we help customers even when times are tough. And we've got some really good trends looking ahead that we think will give us the ability to grow even faster.

So what's our game plan to capitalize on that? It's our connected services strategy. I'll talk about 4 foundational pieces that have been in place since Scott started the company. I'll talk about the fact that we've got a couple of trends we're going to capitalize on, and then I'll summarize it on one page. And we're done, okay?

So the 4 foundational elements. First, our mission, has not changed since we started the company. Scott started this company with Tom Proulx and had a mission, to improve people's financial life in such a way they could never imagine going back. 28 years later, that's why we get out of bed in the morning. We do it for consumers and small businesses, and we do it for their most trusted advisers, their accountants, their banks and now their doctors.

We also have a set of values that have been consistent. This is what we hold ourselves accountable for. We show up first and foremost and we believe our word is our bond. Integrity without compromise. Then we go to work for customers. We do it through great people. Our people try to improve everything they touch. We hold ourselves accountable for the things we're doing well, and we even talk to you about the things we're not doing well. And we also recognize with the privilege of success comes the ability and the responsibility to give back.

All of our employees get 32 hours a year to donate to a social cause of their choice. Last year, we gave $1 million back to local communities. We donated 35,000 pounds of food to food shelters, and we gave 8,000 pints of blood. So the company is very involved in its communities as well.

The third foundational element that hasn't changed is how we build our products. We are still a company who gets super excited about talking to customers, going into their homes, going into their businesses and having them allow us to watch them for an entire day, watch them scratch their head, jot a note on a Post-it note, watch the puppy run into the room and ran back out and interrupt them and try to come up with problems that we see getting in their way that we can try to solve well. That's called customer-driven innovation.

The second thing we do with how we build the product is called Design for Delight. And this is the neat part. This is what Fortune Magazine this morning called out as a unique attribute of our company. We take an 8,000-person company and we break it down into teams no bigger than 2 pizzas can feed, 4-to-6-person teams. Four-to-6 person teams who go from an idea to something in front of a customer in 6 weeks or less. And then we quickly iterate with the customers to see if we can come up with a solution that they like, and those are the ones that we build. The ones they don't like, we just shut down and move on to the next one. So that's how we build our products, and that hasn't changed.

The last thing that hasn't changed is how we measure success. Our board measures my performance this way. And I measure all the employees in the company this way. It's our balanced scorecard. We call it True North. We have to give everything a label or an acronym. We have our own Intuit speak. But it is we want to have a great place for the most talented employees to work. We want to do an unbelievable job in solving important customer problems so that we grow our customer bases. By the way, we expect our products to have a 10 point advantage in net promoter scores over the second closest alternative in the market. Net promoter is word-of-mouth, which you recommend it to someone else.

We measure ours and we measure every competitor's in the market. And we want to be at least 10 points higher. And we think if we do those things, we can deliver strong top line and bottom line growth and drive up the stock price. So that's how we measure our performance.

Now these slides aren't just PowerPoint slides. It's a proven formula. But as I shared, it helps us stay in the top 100 best places to work if we do it right. It's built a large customer base of 50 million customers. And the thing that gets us excited is the impact we're having on customers. If you read some of the yellow text here, through this recession, Quicken and Mint have identified $550 million in savings for families, when they needed it most. In the United States, to the right in QuickBooks, 20% of the U.S. gross domestic product, $2.6 trillion, flows through our Small Business customers. We now pay 1 in 12 Americans. We process 1/3 of the United States tax returns, and we have an opportunity to help accountants save 20% of their time by being more productive in tax season.

Those are big impacts for customers who want to save time and do more with their money. And that helps us produce the kind of financial results I talked to you about. So these foundational elements have been around. We practice them every day. We hold ourselves accountable. And so far, they're helping us move in the right direction.

What it has really done is built a company that is strong with lots of headroom for growth. These are our core businesses. Financial Management, the top row, is QuickBooks. Then you see Payroll and the other businesses with -- down to the left. Our core businesses have 3 characteristics that are shared across everyone of them. The first is they're in large and growing markets where we have a high share relative to someone who builds software and competes with us.

This first row, QuickBooks, $1.5 billion is spent every year buying accounting software. That spending is growing at 10% a year, and QuickBooks is #1 with a 93% share. And you can see across the board that all these products share very similar characteristics. But the neat thing is that high share is relative to someone who builds software. The second characteristic we share is we have low penetration.

Most of our competition is not another software provider. It's actually paper and pencil or a spreadsheet or a shoebox or a Post-it note, which is in gray. Or it's higher-priced enterprise software that someone's trying to sell to a small business. It's overpowered and overpriced. So we have the ability to convert this nonconsumption, get you out of the shoebox or disrupt the higher-priced alternatives, and increase the amount of blue, which would be the Intuit products. So we have lots of headroom to continue to grow. And the way you grow is you have to have those Net Promoter Scores that I talked about.

Here's our products, and this bar represents how many points higher if it's green over the second closest Net Promoter Score in the market. If it's red, that means that we're lower than someone in the market. You know our goal again is to have a 10 point advantage in Net Promoter. And you can see many of our products are already there. We have 2 that are not.

In our ProTax business, which is software we build for accountants, we have a very small competitor that's entered the market, that is teaching us some new tricks. Our team is all over it. We've gone to school on them. And I assure you we've got a game plan to improve our Net Promoter there. And then down in our Banking business, while we have a better banking experience for the customers of the bank, we're trying to become a better partner to banks. And banks have had a lot of tough times over the last few years. So we have to improve how the banks feel about us and not just about how their customers do.

So those are the 2 areas we're working on, okay? So we have strong core businesses, high share, low penetration versus paper and pencil and the others, and we do have some good Net Promoter Scores. So we think we've got a lot of gas left in the tank. We don't have to invent new things if we just get better at the things we have.

But we do have some new ideas. We've got 3 opportunities that we think will add 1 to 2 points of growth to the company. One is that global expansion that I talked to you about a few minutes ago. We're focused on small businesses, 400 million of them around the globe, using hosted products and mobile devices. Here's the reality, 6 billion people in the world, 2 billion have access to a PC, which means they can use our software or go to the Internet. 5.5 billion carry a phone in their hand. And that phone is getting smarter every day. So our ability to build our products that work on smartphones enable us to go to global markets we could not have served before. That's a really exciting opportunity. By the way, we now have 700,000 customers in India using our products.

Do you remember I told you the story about a product we built for farmers? I'll remind you in case you haven't heard. Our engineers in India were doing Follow Me Home and 70% of the Indian economy are farmers. And so they were following home small businesses who happened to be farmers. And they found out that farmers would grow their produce, they would carry it on a cart to a local farmers' market. And a man, a Monday agent [ph], which is a middleman, would negotiate with someone else, put their hand under the towel, tapping fingers to decide how much they would pay the farmer for their prices. And they were paying the farmers an average of 16% below the market. If the farmers didn't like the price, they had to just carry their cart another half a mile down the road in the hot sun with no refrigeration and eventually their produce would wilt.

Our engineers got pretty fired up and inspired about that. They built a mobile device using a regular feature phone, not a smartphone, using SMS texting so that the first farmer could tell everybody else who was paying the best prices. We now have over 500,000 farmers getting 20% higher prices for their produce. It is an exciting product that we think can help change the lives of many people in India. So that's what's going on in Global.

Healthcare, another opportunity for us. The reality today is consumers are now responsible for making more of their decisions. Doctors are caught in the middle between the insurance companies and their patients. And today, only 10% of doctors' offices have a website that you can go in and schedule an appointment online. You can actually get your lab results back online or you can pay a bill online. And that category is growing.

We bought the market leader a little over a year ago, and we're basically helping doctors interact with their patients through new devices in addition to a telephone or an in-patient visit. This business grew 50% last year. So lots of opportunity.

And the third area is payment. Very quickly on payment, we've been in the payments business for years. You can do Bill Pay using Quicken. You can do Bill Pay through our Banking business. You can do Direct Deposit through Payroll. We even have that credit card processing for QuickBooks customers.

So when we step back, we've realized that the whole is greater than the sum of its parts. We've got 50 million customers transacting 20% of the U.S. economy between each other. Why don't we create a network that enables us to facilitate those transactions and we can take a simple transaction fee? And so we think there's a big opportunity in payments, and we have a team focused on this. All of these together are future things, but we think they can add 1 to 2 points of growth in the next 2 to 3 years.

And underneath all of that is what I talked about earlier. The winds are shifting to software and services. People are moving away from paper-based, human-produced, brick-and-mortar bound to services you can do on your PC, on your smartphone and on your tablet. So this is our strategy. Same strategy I shared with you last year, same strategy we talked about the year before, and we like it because it's durable and it's working. It's first to continue to drive growth in those core franchises that have high share, low penetration and good Net Promoter Scores. We see 3 adjacent opportunities with Global, Healthcare and Payments that we think could add some growth. And we are retooling the company to move from just shrinkwrapped software to software plus cloud computing and mobile devices.

Now I'm going to wrap it up. In 2010, this is the first time I've ever shared this with you, in 2010 we shared with our employees what we hoped we would look like in 2015. And we used that True North, that balance scorecard I talked about a few minutes ago, as our structure. And this was what we had. We said we will feel good if our employee engagement scores are higher than 85%. If we can get in the top 25 of Fortune's Top 100 and if we could be recognized by a Fortune-admired software company, we'll feel proud.

For customers, if we can be the share leader, not only in desktop software, which is what we've been for years, but also on the web and on the phones and tablets, and if we could have Net Promoter Scores 10 points higher, and for shareholders if we can continue to grow double digits no matter what happens in the economy, if we could get our margins from what used to be the high 20s to the mid 30s, and if we could actually outperform others in total shareholder return, we would be happy.

Here we are in the third week of January. We did that in 2010 with a goal of 2015. I want to show you where we stand as of today. First of all for employees, engagement scores, this year we had 85%, measured by an outside firm called Sirota who does it for 1,500 companies. That put our company in the best-in-class levels, which we were super excited about. When we set this aspiration, we were at 79%. I just told you we got to 19, which just gets me so excited, what a great way to start the morning. And we're currently ranked as #3 by Fortune. So we've still got work to do there.

For customers, 80% of our products are #1, in desktop, web and mobile, and 90% of them have a 10 point advantage. So we still have work to do here. And for shareholders, as you saw, we're growing our revenue double digits. Despite the economy, we now have our margins to 32.5%. We talked about another 50 to 100 basis points of margin expansion this year in our projection, and we happen to be in the top 25% of our peer group right now in total shareholder return.

So we're making progress. We're not all the way there. But to summarize, fiscal year '11 was a good year. But it wasn't a great year. We've got to make our products easier to use for our first-time customers. We do have products that work in any economic environment. But the good news is it looks like it might be getting a little better, and we think we have a strategy that will continue to help us grow not only in the next few years but in the next many years if we stay focused and execute.

There you go. In a nutshell, that is the business update for the morning. And with that, I'd love to open it up to you for any questions you have, anything you'd like to talk about. Yes, sir?

Question-and-Answer Session

Unknown Attendee

Your story about India. A couple of weeks ago, I was at a Stanford lecture on ways that poor people can use cell phones. And there was a story on the South Coast of India, fishermen didn't know where the best prices were going to be. And through very simple methods, they can now sail to the place where they're going to get a good price. And the merchants they sell to know when they're far out to sea to wait for them, so they don't have to bring back fish they can't sell. Google is working on everything for everybody. I worry that they're going to steal our business with some innovation like they stole Android from Apple.

Brad D. Smith

Well, I would say to your first point, these devices are changing the way people live their lives. If you get the chance to go on YouTube, there's a YouTube baby iPad, you'll see 8-month-old, 10-month-old, 1-year-old babies navigating iPads and things in a very intuitive way. So whether it's fishermen, it's farmers or it's babies, these tools are becoming a part of our lives. When it comes to competition, I worry as well about all competitors. I worry about the competitors I can't see coming out of the garage or a dorm room who think about new ways to solve the problems we've been solving a certain way for years. And I worry about really talented companies who may have bigger aspirations, whether it's the one you named or others. I will tell you for that particular company, Google, we have a very close working relationship with them. I understand all that. So the thing we have to do, to be frank with you, is we have to stay on our toes and make sure that what we're developing is better than anything anyone else can copy or mimic. And we have seen, as you know in the past, many really good competitors come in and challenge us. And they have taught us lessons, but we've been able to stand tall. So I would just say that the onus is on us to not only be a good partner when we're partnering, but also to make sure our products are better than anything anyone else can build. But to your paranoia, which is what I would call it, it's Andy Grove's Paranoid Survive, is shared by me and us. Every single day, we wake up making sure that what we do can be better than anything anybody else can do. But it's a fair question and it's a fair caution.

Unknown Shareholder

Karl Hoeppner[ph], a long-term shareholder. One of the things you did not address today which is currently in a lot of your advertising, which scares the hell out of me, is Quicken Loans. And I want to find out what we're doing in loans because I'm a long-term shareholder in E*TRADE from the time it was formed in Menlo Park. And being in the loan business almost killed that company. And as a matter of fact, its survival is still in doubt because of being overexposed in the loan business for subprime mortgages, which they haven't climbed out of yet. Now what are we doing in this loan business? Several companies have broadened into this. And I see us -- and I can see where it's an adjacent kind of thing. But it's to my mind a very dangerous kind of thing that I'm not sure we should be in. Can you address something in that area?

Brad D. Smith

I sure can, Karl. Thank you for the question. Let me start by saying we're not in that business. So we used to own Quicken Loans. And about 8, 9 years ago, we actually spun it off. It's an independently owned and operated company, and we simply license our brand to them. Dan Gilbert and the team run that company. It's a very well-run company. It's actually a very strong performer. But we felt concerned, as you did, that it may not fit our core competency or the kinds of consistency and predictable kinds of businesses that we can create, so we exited that business. So we're not in the Quicken Loans business. But we do work with them because they leverage our brand. So I think your question and your concern are fair. I will tell you, not to make this a commercial on their behalf, they're a well-managed company who performs well, and I'm proud that our brand is associated with them. But it's not a business we thought we needed to be in. Okay. Yes?

Unknown Attendee

I'm really interested in the solutions that help productivity because I think regardless of the economy there's a need for that because it can bring down costs. And so I'm really excited about the push of technology into the medical healthcare field because I think there's a lot of room to improve there. So I was wondering if you can talk a little bit more about that because I remember a few years ago here there was talk about helping to automate medical records, for example. And this -- what you showed us is different here.

Brad D. Smith

It is. Thank you for the question. So healthcare, we've been investigating this space because our formula is find a big important problem that's not being solved well, figure out if we can solve it better than anybody else and can we do it and make money. Healthcare meets #1. It's a big problem that no one necessarily is solving particularly well across the board. We've tried some things that we weren't able to do better than anybody else. In one case a few years ago, we talked about a product called Quicken Health Expense Tracker. The ability to pull the data out of those healthcare plans, turn it into English for you so you understood what it meant, and then help you get your questions answered and pay a bill. That solved the problem well, but no one wanted to buy it. So we couldn't actually build a business. So then we said, "Well, where else is there data that is causing a problem that we might be able to solve?" And what we found out is many patients are confused by their bill, and doctors have 40% of their bills that never get paid because the patient thinks it's not their obligation and the insurance company says it's the patient's obligation. And the doctor is sitting there having done the service and getting nothing. So we put our focus back on where we actually know what to do, which is a small business called a doctor, and a patient who happens to be a consumer, and that's why we're in this business now. There are other things we're looking at like the ability to replace a clipboard when you go into the doctor, with a tablet. And we're able to pull your information already there, so you don't have to go in and for the 50th time write down who you are and give them your insurance card. We have all that electronically, and we're testing those things as well, but it is slightly different. In software terms we talk about you can persevere or pivot. Persevere thinks you just hit a few bumps and you stay on the road, and pivot means you try something, it didn't work but you stay in the space to do something else. We pivoted in healthcare. Does that help?

Unknown Shareholder

I'm Steve Knox [ph], individual investor. And you released a statement yesterday on the legislation on piracy and being enacted in Congress. How does piracy affect our business lines? And also how do you -- you were critical of the legislation. At least that's the way I read it. How does the acts that are before Congress not -- fall short in your mind?

Brad D. Smith

Yes, I'm going to give you an answer here, and then I'm going to ask our General Counsel to stand up, who's much more knowledgeable as well. Let me talk about our philosophy. Our philosophy is the data that we have belongs to our customers. And the customers have the choice of how they want that data used or not used. At the same time, we are absolutely against piracy, people taking something that is not theirs, whether its intellectual property or someone else's data and trying to take it. And so we want to safeguard that information on behalf of our customers. What happens is good- intentioned policymakers at times can potentially push the protection too far. And since today there's a whole generation of people who want to contribute and do things in a social medium that may actually get negatively impacted by some of the things that this policy has in place. And we want to make sure the lines are drawn appropriately and we let the person who actually should be able to make the decision, which is the consumer or the small business, make the decision, not policymakers or companies. So that's sort of our philosophy. Would you add anything to that, Laura? Or correct anything I said?

Laura A. Fennell

No, I think I would just underline what you said, in that the intent of the bill around the piracy is something that we agree with. The problem is the unintended consequence around the user-generated content. And that is, we believe that users ought to be able to put content on websites in a really free way. And what the legislation does is restrict both their ability to do it and the companies -- required companies to go out and audit that content. And I think that there's a lot of unintended consequences around that, that we wouldn't want. And if you think about the content with websites like YouTube or in our case, we've got a website business, et cetera, we should not necessarily be auditing what our customers are doing on their websites and judging whether or not it's right or wrong, other than in particular situations. And so if that aspect of the bill, that has a lot of people up in arms, like Wikipedia, that's probably the best example of user-generated content and the ability to go out there and allow the social content. So that's the problem with it, and it's complicated, so it's hard to understand. But on the piracy part, we are 100% behind the intent of that.

Brad D. Smith

And I will say one thing. Our company believes that the way we have these conversations constructively is that private industry and our policymakers sit together at the table to help come up with a solution where they do what they do best and private industry does what it does best. And we ultimately end up helping the end user. And so we are at the table. Even though we sent a press release out, we are having conversations in realtime. And so we're not wanting to get into the finger-pointing thing. We simply want to go on the record that we believe their intent is right. We think we can help them and others can help them think about how we do it more effectively.

Unknown Shareholder

I'm Donna Bailey [ph], and I am a shareholder, and also have had an Quicken Software consulting business for 25 years now. So I've been with Quicken and Intuit Corporation a long time. I have 2 questions. The first one is do you happen to know right now what percentage of your customers are using, right now, Quicken or QuickBooks on a handheld or a smart device? And secondly, not to ignore it any further, if you could talk to everybody about what's happening with Quicken for Macintosh in terms of the upgrade.

Brad D. Smith

Yes, I can. Thank you very much, and I appreciate it. And you and I were talking earlier, so I'm glad you put that all on the table. So let me start with the handheld devices. We have been amazed by the adoption rate of handheld devices. In fact, I'll tell you last year in December we had 900,000 customers actively using it. We now have 2.1 million customers actively using handheld devices to use our products, and we think we'll finish this year at 6.5 million, 7 million. So that's just on mobile phones and tablets. So that's how quickly it's growing. It has gone from Mint introducing it, which is the Web version of Quicken. As you know, it's another personal finance product. They now have over 50% of their customers who only log in through the mobile device. They don't even go to the website. So for where we've introduced it and made it available, it has become the preferred way of interacting because people are on the go and they don't have to go back to their desktop to do it. Not everybody wants to interact that way, and not everything can be done through a mobile phone. So we build desktop products as well. So it is that sort of adoption rate that we're talking about. QuickBooks has the same thing going on right now as well. In terms of Quicken and Quicken for the Mac, let me start by saying this is an issue that your frustration and our embarrassment and disappointment are shared. We are a company that for years has tried to make the right decisions around how we allocate our engineering time. And in the day, there was a platform that was strong and a platform that wasn't performing as strong, and we tried to keep both sets going, but one got more resources, called Windows, and the other one got less resources, called the Mac. And over the years, there became a discrepancy. It is very clear that the Mac platform, the Apple products and that company has a very strong and phenomenal product that consumers love. We have been trying to close that gap of multiple years. You might imagine, 28 years on one and a handful of years on the other, we're not going to close that gap quickly. I'm pleased to tell you that by working with Apple, we will have compatibility for the Lion operating system in very near term. It's in QA right now, quality assurance. I will also say that our engineers have been building everything for the tablets and phones, but we've got to go back now and look at the core product and getting it to work on the Mac. So we have a team of people on it. We've doubled up the resources. We'll have Lion operating compatibility in a handful of months. And we will continue to try to work better to get these Mac products up to where they need to be. And I apologize on behalf of our company, and quite frankly, me personally, for the fact that we have not lived up to the standard that Intuit has or our Mac customers expect. Thank you. Yes, ma'am?

Unknown Attendee

I'd like you to elaborate a little bit more on the healthcare. What kind of a system does the Kaiser facility use in accessing the patient records? So not ours. I mean, that's not our system that was put in there.

Brad D. Smith

No, it's not.

Unknown Attendee

That and the idea to be able to access a patient's records. I go to 2 doctors, both of which are -- have files that are probably 6 inches thick on their patients. And if you ask a question as to what drug I took 5 years ago, it's a mess for anybody just to go through the file and try to find out and try to read the doctor's writing. Is there a plan in place that Intuit can market for something like this to help them out?

Brad D. Smith

This is a wonderful question. I appreciate you putting it on the table. Healthcare's got a lot of problems that many people are trying to solve. What you're talking about is called a portable health record or an electronic health record, which means anywhere you've gone, throughout your life and whatever doctor, is captured in one universal record. We aren't going after that today. Many companies have been going after that, and they're working on it. And they've had some struggles because sometimes doctors don't contribute the data to the cloud. Sometimes the patient doesn't think about updating their own record until they're sick again or they have to go the doctor and then they forget what they did. That's not one that we focused on right now. But what we have focused on is if there's information that exists on you in a doctor's office and you're looking for the results back, we want to enable you to be able to get that electronically. So we're trying to help the doctor turn that 6-inch file into an electronic record that then could get back to you in terms of the lab results or something, so you can interact with that doctor. We will partner with other companies that are trying to solve that portable health record. But we're not trying to build one ourself today. It's a big multi-year effort. I don't think it's one that won't be solved. I just don't think today it's one that we need to focus on as our top priority because we think there's some other things that we can help solve and let others work on that one. Okay. Thank you.

I believe the Chairman has given me the sign. Everyone has a boss, and I am delighted I have this one and the 8 others who serve with them on the board. I want to thank you very much. I realize this morning I went about 8, 10 minutes over. I get excited when I have a crowd. And I get to talk about the great work of our employees. So I appreciate your patience, and most importantly, I appreciate your support. And I look forward to seeing you again. Thanks a lot.

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