Intuit Inc. (INTU) Q4 2011 Earnings Report, Transcript and Summary

Good afternoon. My name is Sayeed, and I will be your conference facilitator. At this time, I would like to welcome everyone to the Intuit Fourth Quarter and Fiscal 2011 Conference Call. [Operator Instructions] With that, I will now turn the conference over to Matt Rhodes, Intuit's Director of Investor Relations. Mr. Rhodes, you may begin.

Thanks, Sayeed. Good afternoon, everyone, and welcome to Intuit's fourth quarter 2011 conference Call. I'm here with Brad Smith, our President and CEO.; Neil Williams, our CFO; and Scott Cook, our founder. Before we start, I'd like to remind everyone that our remarks will include forward-looking statements. There are a number of factors that could cause Intuit's results to differ materially from our expectations. You can learn more about these risks in the press release we issued earlier this afternoon, our Form 10-K for fiscal 2010 and our other SEC filings. All of those documents are available on the Investor Relations page of Intuit's website at intuit.com. We assume no obligation to update any forward-looking statements. Some of the numbers in this report are presented on a non-GAAP basis. We've reconciled the comparable GAAP and non-GAAP numbers in today's press release. Unless otherwise noted, all growth rates refer to the current period versus the comparable prior year period. A copy of our prepared remarks and supplemental financial information will be available on our website after this call ends. And with that, I'll turn the call over to Brad Smith.

All right. Thanks, Matt, and thanks, all of you for joining us. We just completed another strong quarter, which capped off a really strong fiscal year. Our results continue to demonstrate that our strategy is working and our execution is on track. In fiscal year 2011, we delivered 11% revenue growth and 19% non-GAAP EPS growth. We continued to expand operating margins while investing for the long-term growth of our company. And in the fourth quarter, we turned a profit in non-GAAP earnings per share for the first time in recent history. We're proud of our ability to deliver our best results when year-over-year comparisons, external market conditions and the competition are the toughest. Quite simply, it motivates us. And looking forward to fiscal 2012, we feel confident about our game plan to deliver strong performance once again. Now I will tell you that this confidence comes with a complete acknowledgment that the economic environment remains a challenge and our competitors continue to sharpen their strategies as well. But that's nothing new to us. These conditions simply put a premium on execution. If history or the past several years of this economic slowdown have proven anything, it's that our portfolio of offerings, combined with our focus on execution, have enabled us to remain resilient in the most challenging environment. And through it all, we continue to benefit from the secular shift of customers moving to connected services, which provides a tailwind at our backs as we look ahead. That's why we remain laser-focused on continuing to execute against our 3-point strategy of growing our core businesses, expanding into adjacent businesses and new geographies, and accelerating our transition to connected services. Reflecting on our core businesses, the 2 that typically come to mind are our Small Business Group and our Consumer…

Thank you, Brad. We'll start with total company performance for fiscal 2011. Our financial results included revenue of $3.85 billion, up 11%; non-GAAP operating income of $1.25 billion, up 14%; GAAP operating income of $1 billion, up 17%; non-GAAP diluted earnings per share of $2.51, up 19%; and GAAP diluted EPS of $2, up 13%. As Brad mentioned, our GAAP EPS includes an after-tax, noncash goodwill and intangible asset impairment charge of $0.09 per share. Fourth quarter results included revenue of $593 million, up 10%; non-GAAP operating income of $25 million; GAAP operating loss of $61 million; non-GAAP diluted EPS of $0.02; and GAAP loss per share of $0.19, which again includes the after-tax, noncash goodwill and intangible asset impairment charge of $0.09 per share. Turning to business segment highlights, total Small Business Group revenue grew 10% for the quarter and 12% for the year, with all 3 divisions growing revenue double digits for fiscal 2011. We improved our operating margin in Small Business by nearly 200 basis points in fiscal 2011, demonstrating the leverage in our model as we acquire more customers via our connected services businesses and existing customers choose additional services. Looking ahead, the focus in fiscal 2012 is on customer growth. Adding new customers to our franchise and increasing offerings and revenue per customer over time is our best path to financial success in Small Business. For fiscal 2012, we expect total Small Business Group revenue growth of 10% to 12%. Within Small Business, Financial Management Solutions revenue grew 12% for the quarter and 15% for the year. QuickBooks Online and Enterprise Solutions contributed to an improved mix, driving revenue growth. We also grew revenue in QuickBooks Desktop. This came despite a decline in units as we've offered fewer discounts and raised the price of the…

Okay, Neil, thanks a lot. Look, we understand that there are questions about the macro environment and whether our outlook has factored this uncertainty into our guidance. The short answer is yes. Our plans have assumed no improvement to the economic conditions in the coming year. Like other companies, we're not immune to the macro conditions, but we have proven to be pretty resilient. That is why we're going to continue to apply the same decision principles that have served us so well as we've navigated this downturn along the way. These include: first, to prioritize top line revenue and customer growth to continue to grow our categories and take share; second, to adjust our spending as necessary to deliver any bottom line commitments; third, to protect and nurture innovation to ensure a strong pipeline for the future; and fourth, to continue to capitalize on a strong and conservative balance sheet and align that with the financial principles that Neil just communicated a few minutes ago. So when you hear us discuss our outlook for fiscal 2012, what should resonate is that our core businesses have momentum and they're healthier than ever, producing double-digit growth in fiscal year 2011 on top of double-digit growth in fiscal 2010, and we expect that trajectory to continue in fiscal 2012. The long-term story is the same. There is a secular shift to digital services, and we have a strategy to continue to grow our categories and our share. We're not getting distracted by quarterly shifts in market dynamics or volatility in the broader economy. We continue to be an innovative growth company, and we're pleased to be issuing a dividend to return additional value to our shareholders. We don't believe that being a growth company issuing a dividend are mutually exclusive concepts. Our financial principles are unchanged and we remain confident in our operating results and our ability to share profits with our shareholders as we grow. So in closing, I want to thank our employees for another strong year. Their ongoing dedication and hard work continues to make Intuit a great place to work. And with that, let's turn it back to you to hear what's on your mind.

[Operator Instructions] First question comes from Kash Rangan from Bank of America Merrill Lynch.

And I won’t ask you much about the economy, Brad, you've already spent a lot of time dissecting. But my question will be on the -- your assumptions that are driving the Consumer Tax growth rate for the next year -- I guess you've talked in the past. If you break that apart between filing growth, category growth, share growth, I'm wondering, what are your assumptions that are built into the Consumer Tax projections? And also for the small and medium business segment growth rate, how should we -- rather, a broader strategic question. It looks like the lifetime value of a subscriber is significantly higher with the shift to online. How -- what's the right way to think about the longer-term operating margin consequence of this shift to your business model? That's it.

Great. Thanks, Kash. Let me start with the assumptions. We'll break this out in further detail at Investor Day on September 21. But in Tax, our assumptions are that there will be modest growth and the number of people filing taxes with the IRS, somewhere in the 0% to 1% range, which is pretty much where it's been through the downturn. We expect to continue to see software category growth in that 6% to 8%. That's a secular shift of people adopting technology as a way to solve this problem. We plan to continue to take share. We'll talk about that a little more on Investor Day. And we also continue to seek to improve our revenue per filing. And we'll talk about what sort of assumptions we have around how much we look to get next year. But ultimately, as you can see in our guidance, at 10% to 13% we're looking forward to another very exciting tax season. If I shift over to Small Business, you're absolutely correct that as this mix shift moves more to connected services, we are getting a benefit in the ability for us to not only solve problems in better ways for customers, so they can actually have automatic backup, anytime/anywhere access. They can use their mobile phone to check on customer information or send an invoice, but it benefits us economically too. There is a better lifetime value. It's easier for customers to discover an additional solution online because it's a blue hyperlink as opposed to a disruptive ad in a desktop product. And it also gives us the ability to continue to work with customers over time to look for additional problems that we can solve. So that plays out very favorably for us. You saw the math a few minutes ago that I just went through. A desktop software customer in QuickBooks gives us $200 every 2 or 3 years. An online customer is about $25 a month. So we do see it to be favorable for us, long term. In terms of the margins, I think you can see the margin expansion in our Small Business space this year, and that's on top of the margin expansion last year. So this is only going to continue to benefit us as we get more reliable revenue stream, as well as the ability for us to expand our operating margins.

Our next question comes from Peter Goldmacher from Cowen.

So, Brad, this is -- I think this completes your third full fiscal year running Intuit, and the business has changed quite a bit. You're moving more towards connected services. We've seen a couple of themes really emerge on the move to connected services, and one is the applicability of your relationships with financial institutions across your lines of business. We've also seen mobile emerge as a more relevant line of business across -- relevant opportunity across every line of business that you guys have. When you think about the strategy going out over the next couple of years, and the move to connected services continues to get adoption, how do you think about, one, as sort of an appropriate timeframe for investors to think about really starting to get traction of cross-selling more products back into your existing customer base for every customer, regardless of product? And also, what are the other emerging themes that you think are relevant for your market segment, which I -- even though it's consumer and small business, I tend to characterize small business behavior more along the line of consumer behavior. So what are the trends you guys are seeing that you think you can continue to work back into the business to drive that incremental product adoption?

Yes, I got it, Peter. Thanks for the question. Let me start first with when you can start to see more effective cross sell. I think the answer is now. Kiran Patel will talk about this when he goes over the Small Business products in the Investor Day presentation on September 21. But it's just easier for us to look for ways to add additional services to a customer that's online, because you can kind of discover what the problem is they're stuck on, and we can help him with a solution at that moment in need. And that's not as easy to see when they're using a desktop product in a disconnected state. So you see things like our attach of direct deposit going up, and a big reason for that is our online payroll product that we bought a couple of years ago. We also are starting to see more effective cross-sell of things like payments with our website products, so you're going to continue to see that it gets to be more and more of an opportunity for us, and we'll start to talk about a number the products per customer as we continue to make progress. In terms of stayings we really do believe that we have a pretty comprehensive strategy now that's durable, but you're going to start to see some other things emerge that are already captured on that strategy slide, that you're going to hear us talk more about. One is our platforms. Our technology that we use to so serve our customers are increasingly becoming a great place for others to come in and help solve additional problems for our customers. Think about our Intuit Partner Platform, the ability for a third party software developer to be able to have a single sign-on, a common navigation, integrated data with QuickBooks and one common bill. I mean, that's one of the reasons why Salesforce.com and we are excited to have them building on the Intuit Partner Platform to help us solve the important customer problems. You'll hear more about this Platform-as-a-Service concept. Another one is the power of data. Data to create delight. The ability for us to do more work on behalf of the customer so they don't have to key the information in. The ability for us to take some of the customers' data they generated on their own and give them some relevant comparisons about how they're doing versus others. And quite frankly, the opportunity for us to look for new monetization models that trusts and protect the customers' data, but also find a way for us to create value that they're willing to pay for. Think about the Mint ways-to-save engine. So those are going to increasingly become more important parts of our connected services strategy. They're in our slide today, but you're going to see us to have more proof points over the coming years.

And would you expect you'd -- I think you made the point, in the number of your lines of business on this call, that unit growth lags revenue growth. You're able to monetize customers beyond the unit prices growing. Would that be -- in 3 years, what would that ratio look like? Is that even how you guys are thinking about it? Or are you -- do you -- are you thinking about it more in the lines of products per customer? How should we think about it?

Peter, it's interesting. The good news about our business model is that for whatever reason we have difficulty with unit growth, we've been able to show double-digit growth because we can increase lifetime value, like we did right now in Small Business. But our strategy remains the same. Our #1 priority is to get more customers into the franchise, because we've shown we can increase the revenue per customer 5x over a 5-year period. So bar none, the thing we wake up every morning thinking about is grow the category, convert nonconsumption, get people in here and then find a way to increase revenue per customer over time. So I would hope to see units outpace revenue in all the businesses, if there's a way for us to come up with the right solutions to make that happen. But the good news is, if for whatever reason we run into a tough patch in the economy, we've got great business models that'll still deliver a good top line growth until we can find other ways to crack that unit code.

Our next question comes from Adam Holt from Morgan Stanley.

I had a couple of follow-up questions on the SMB side. As you look into the fiscal '12 numbers, you had a tremendous amount of success driving ASPs higher this year. How should we think about the relationship between units and average selling prices as we look into next year in the SMB business, in particular on QuickBooks and QuickBooks Online?

Yes, I would say that first of all, as Neil said in his talking points, our focus in fiscal year '12 is to acquire as many new customers into the franchise as we can. The good news is it no longer just has to ride on the back of QuickBooks. If you look at all the front doors, GoPayment, Online Payroll, websites, and you count the total number of small businesses we're adding to the franchise, QuickBooks units may be soft, but overall, we're holding our own with small businesses in total. And that really remains our focus. In terms of ASPs, for us it's less about price and it's more about more applications per customer or moving them up the product line. It's the lifetime value gain. And so what we have to do is first get them in and get them delighted on one product and then immediately help them know that we can solve other problems. What you should see in fiscal year '12 is not only a heightened focus on customer growth, but in increasing improvements in lifetime value as they move more to the connected services and we get better at helping them buy a second or third product. That's really our game plan as we look to next year.

Terrific. And then if I could just shift down to the financial institutions group. The Bill Pay and the Internet Banking customers were down on a quarter-on-quarter basis, which looks like it may be a little bit of an anomaly. Could you just give us an update on where you are from a backlog perspective there in terms of banks coming online, and what, if any, reason there is for that downtick?

Yes, Adam, it is a little bit of an anomaly. What we had last year in the fourth quarter is we brought in a pretty large bank that gave us a big group of users. And we're lapping that this quarter. At the same time, we had a couple of smaller banks that had let us know last year they were going to be rolling off our platform. So growing over a big new one last year, having a couple come off, gave us a 6% Online Banking increase and about a 13% Bill Pay increase. I would tell you that our pipeline remains very healthy in terms of banks interested in our solutions. Our mobile banking suite that we have through Financial Services is literally on a tear. We have tripled the number of users in the last 12 months. And while right now we're guiding 7% to 10%, we think the business model is durable. We've got some unique things we can offer customers, and we see it being a double-digit grower over the long-term.

Our next question comes from Brent Thill from UBS.

Brad, just back on the macro, since it's on everyone's mind. You mentioned no real improvement, but you did pretty strong growth for the full fiscal year. So can you just give us a sense -- I think everyone's just -- no one's worried about things improving right now. They're worried about things deteriorating -- how the recent events have played into that.

Yes, we can't, Brent -- I'll start first by saying that Neil mentioned briefly in his talking points that in our guidance, we tried to assume a range of potential macroeconomic outcomes, some things that could break more ugly, not a whole lot that could break better, and we've done our best to reflect that in our guidance. I think what's really most important, and the reason why you hear the confidence in us today, is our products are never need more than when times are tough. We basically help people manage their financial lives and help them save time and be more productive. An interesting stat that just came out of our Small Business Employment Index, and these are in companies with fewer than 20 employees, is while they're actually gradually increasing the number of new employees -- it's about a 3% annualized increase -- the number of hours that each employee is working is up about 9%. So they're having to work harder, and they need things that help them be more productive and save time. So that's really what's helping us continue to persevere through a tough time, is we're there solving problems they need solved when the economy gets ugly. And that's why, at the end of the day, our guidance assumes nothing getting better. Our ranges kind of assume it could get a little worse, but we also are banking on the fact that regardless of what happens, we've got to make sure we're there for customers in helping them navigate through these tough times, and we think that'll help us deliver the outlook we've given you.

And our next question comes from Laura Lederman from William Blair. Laura Lederman - William Blair & Company L.L.C.: Yes, it's Laura Lederman. Can you talk a little bit about, if we go into another full-on recession, which hopefully we won't, would the business units this time perform as it did in the last time? Or which ones would perform better do you think than the last go-round, if we do end up in a recession? Hate to ask our question but it kind of needs to be asked. And separately, if you could talk about Healthcare execution issue.

All right. Happy to do that, Laura. Let me start with the first one. I would say, first of all, every one of our business units and certainly we are smarter than we were running in the downturn hit us the first time. We've learned what discounts worked, what discounts don't work. We've learned how to be there and help customers find our solutions easier. And so, I would tell you that we expect our performance to be even better than when the recession hit us the first time because we're wiser. We have more scars on our back and more lessons learned. And so really to be honest with you, our guidance right now reflects, for each of the business units, what we think is going to happen over the next 12 months. The second piece on Healthcare, it's really pretty simple. Let me first start by saying the Healthcare business is the best performing business in the company right now. When you have growth rate of over 50%, and you've gone in the last year from about 2.5 million patients to now 4 million patients served, that is a rocket ship trajectory. Unfortunately, we had even bigger plans in mind. We had banked on meaningful use, the legislation that came out to drive even more doctors' decisions towards the patient portal that will happen. And we also decided that since it was growing so quickly, we'd better shore up the infrastructure and make sure we have it in 2 data centers, so we don't have any outages that impact the doctor or patient. And so we've put a little more investment in. And so you can really write this one off to just a little bit of our eyes being bigger than our belly when we put a business case together, and we thought it was prudent now to go in and get the thing lined up correctly. And in terms of execution misses, we learned some lessons here, and we'll be smarter next time. That answer your question, Laura?

Our next question comes from Walter Pritchard from Citi.

This is Ken Wong for Walter Pritchard. Just a quick question on Global. I mean, beyond U.K. and Canada, can you guys perhaps give us some progress on some of the other regions you guys are focused on?

Yes, Ken, right now, obviously in the U.K. and Canada, we're very excited. We had convinced ourselves that we were going to focus primarily on India and some of the emerging economies because we weren't sure we could go into an established economy where other competitors were there. And our team has proven us wrong. We've actually been able to take share in retail. We're now the market share leader in QuickBooks in retail in both the UK and Canada, and we're excited to be bringing other solutions like QuickBooks Online into those markets. You heard me mention Singapore. Singapore is a wonderful market for us, because it not only has more of a developed economy feel to it, but it also is a learning bed for us as we move into Asia. And so you hear us talking a bit more about QuickBooks Online and other solutions there as well. Let me tell you about India. We've got several things that continue to perform well in India and are accelerating. One of them is one we've mentioned to you before. It's called Mobile Bazaar or what we refer to as AgriNova. It's basically a mobile solution that allows farmers to find out where they can get the best prices on their produce at one of the farmers' markets, and we're able to demonstrate that 95% of the farmers using the product are actually getting over a 20% price increase for the produce. And it is virally growing. When I say virally, it's like a Mint product. They're telling stories to the other farmers and it's growing. Now we don't yet have the [indiscernible] business model to say, how can we monetize it over time? But we do like the adoption of the customers. And we do like the fact it's helping us learn more in the market. So, so far what I would tell you our global strategy is, we're picking a handful of developed economies to go into with our Small Business offering. We're learning in Singapore, and we're continuing to plow ground and get new lessons in India. And we'll continue to update you on that progress in a little more detail at Investor Day in September.

Got it. Got it. And, Neil, you guys had more pronounced marketing spend last year, ahead of tax season. How should we think about this year without the tax delay and all the issues from last year?

Yes, Ken, I think if you look at the full year, our sales and marketing expense should grow pretty well in line with our top line revenue growth, no acceleration on the full year basis. But I do think you will see continued acceleration and pull-in into the first half of the year. Brad has to saying that we talked about, playing all 4 quarters, and we think it's important to get out and win early in the season. As you know, we have many of our products launch or have their really busy time to the beginning of the calendar year. And so I think you would expect to see some pull-in of those -- some of those marketing costs into Q1 and Q2. Kind of like the same pattern you saw last year, maybe even a little more pronounced.

And our next question comes from Gil Luria from Wedbush.

Seems to me like the last few years, the Intuit story been -- has been more about secular trends, technology execution, not really macro. So let me try a couple of micro questions. What -- you talked about the GoPayments product for payments. How much of your merchant growth is coming from that? What kind of penetration do you have within your merchant base with this product now?

Yes, actually, we're looking at each other, Gil, just to decide what we have and we haven't disclosed at this point. Let me tell you that it is the fastest growing by far. It introduced a whole new group of customers that we weren't going after in our traditional merchant services. As you know, we get a free swipe -- a credit card swiper away. There's no monthly subscription fee. There's a flat fee on transactions, and we're literally getting a smaller, earlier stage customer than what we would've gotten traditionally. But what we're seeing them ramp up very nicely, and they're coming in large volumes. So in terms of what percent of our total merchants we have right now, we haven't broken that out. We'll talk a little bit more in September. But one thing I will say is that it is expanding the category for us and bringing new potential paying customers in.

I think I'll -- let me just add -- This is Scott speaking. Your question might be, what percentage penetration are things like GoPayment and Payments of our QuickBooks space? This is part of what we look at, as Brad talks about getting a customer who has one of our offerings to buy and use a second and a third. And our payments penetration is still quite low. We've got a lot of upside on payments. And GoPayment just adds reasons for our large QuickBooks space to switch to our payment systems and to add our payment systems.

Yes, thank you Scott. It's well said.

And then as a follow-up on that, one of the emerging trends -- a very large emerging trend around payment has to do not just with mobile payment acceptance, but also with mobile payment deployment, the consumer side of this. Is there a way you can leverage the capabilities you have with Mint and the mobile penetration you have within Mint that you just mentioned in order to help facilitate that mobile wallet concept and tie those 2 things together? You have the merchant acceptance side with GoPayments. You have the consumer. You're helping the consumer a lot with Mint. Can that help you become part of that very large emerging opportunity?

Gil, it's a great question. We've been actually running several small experiments inside the company, and we are testing various models with Mint as well as just the mobile wallet in general. We have nothing right now that we're ready to announce. We have shown a few concepts in our Innovation Gallery Walks. But I think your question is absolutely the same sort of strategic question we're asking ourselves right now, as P2P becomes a little more prevalent, or the ability for us leverage a network of a large base of consumers and a large base of small businesses, and see if we can actually enable that transaction. So nothing I can tell you today is definitive, but something that is absolutely on the radar screen, and we're testing to see if there's a way we can build a business model and durable advantage around it.

Gil, this is Scott again. Let me just add, you've asked about the consumer opportunity, to use merchant acceptance to help drive change on the consumer side. There's also a similar opportunity in Small Business. And our strategic payments initiative, which is heavily focused on our Small Business opportunity, it's creating a solution where there has been not one for businesses to pay electronically. And that's one where we're doing the thing that you've described in the Small Business ecosystem. And that's -- this is early days but it's off to a good start.

And our next question comes from Jim Macdonald from First Analysis.

Can we talk a little bit more about the employee services area? You talk about the revenue per customer increasing, but with customers increasing so slowly, it sort of hard for me to think about that. Is there a good way for us think about that opportunity in employee services?

Yes, Jim, there is. I think, first of all on customer count, you are right. When customer growth is around 2%, that's modest by our expectation. It's actually pretty good relative to the other alternatives in the market and their growth rate, if you compare them to a few others right now. But it's a tough time right now, when people are laying off employees and unemployment's at 14%, and -- so people really aren't growing their payroll. But what they are doing is they're looking for other ways to retain their employees, and we have things like 401(k) plans that are very different than other alternatives in the market. We have some solutions right now we're testing with healthcare cards to help small businesses be able to give their employees money towards healthcare without having to get into the benefits business. And we still have a tremendous opportunity to continue to grow our Payroll business by just increasing the penetration within the existing QuickBooks customer base, which is 4 million customers today using QuickBooks. We just have a little over 1.1 million using the Payroll service. So we're not trying to put anything on these 2% growth numbers to suggest that they're the numbers that we expect going forward. I do think that in the current context, they're not anything that we're ashamed of, but we do still continue to see an opportunity to get additional revenues per customer, as well as to continue to grow the penetration into the QuickBooks space.

And just a follow-up, I mean, is there -- can you talk about the growth in the pay cycle type of service offering versus the other offerings in that space? And maybe also a little more, you mentioned the other add-on offerings in addition to direct deposit. Are any of those doing particularly well?

Yes, they are. In fact starting with the PayCycle offering, which we refer to as our online payroll service, it grew 13%. And that's a healthy customer growth in the context of what I just described a few minutes ago. And by the way, that was in the midst of a transition where we had to move some customers off of an old platform and onto a new platform, and you don't always get 100% of them to make the jump. So that 13% is even got a little bit of a onetime downdraft on it. And the neat thing about having online payroll is it's so much easier to have direct deposit -- it's become the assumed solution -- and to have other services sold. And so we really see that as being the catalyst for our growth as we move forward.

And our next question comes from a Scott Schneeberger from Oppenheimer. Scott Schneeberger - Oppenheimer & Co. Inc.: On Consumer Tax, just curious. You're taking share now with 3 or 4 months past the season. Brad, could you speak little bit to the winners and losers now that you've had a little bit more time to digest?

Yes, Scott, it's still a bit of science and alchemy, but I'll tell you what we've seen, at least from the public things that had been disclosed by competitors and what's been produced by the IRS. It's no one's argument that we picked up 2 more points of share in retail with our desktop product. There's only a couple out there, but we also acknowledge the game going forward is online. Our data suggests we picked up about 1 point of share online. I believe our primary competitor picked up 1 point or 2 online as well. And I think it was the others who suffered the consequences of those 2 gains. So I'd say the smaller players lost share, the 2 more recognized players picked up share online, and of course, we took share in retail as well. Scott Schneeberger - Oppenheimer & Co. Inc.: And just following on that, the first question in this call was about the composition of your Consumer Tax guidance for next year. I'm just curious. What are some of the puts and takes year-over-year? For instance, I figure you may have benefited from no forms this year. Could you kind of give us any color on things that may be different '12 versus '11 as you think about it?

Yes, Scott, I think we'll go a little deeper on Investor Day. But you're right. This year there was a onetime benefit when the IRS tried to take that remaining 11 million people who a year ago were still filing their taxes manually and chose not to send them a paper form to their home, and not to put those out in post offices and kind of left them without an obvious solution. I think that helped, by the way, the tax stores as they struggled and say, "I got to go somewhere." It also helped software. And so at the end of the day, that was a onetime event. If you look at it, the Software category over the last 5 or 6 years has been growing 6% to 8%. There was a little bit of bump this year for tax stores, which by the way is completely countered for the last 5 years, where it's been flat. So I think next year for us, we have less of a question about how we're going to grow, because we're going to continue to grow the way we have been, which is capturing more of the new filers who enter the tax system for the first time, and they're younger and they go online. And by continuing to push back against tax stores and say, "Look, we have a better solution that's 75% cheaper and delivers the same outcome." I think the challenge is probably going to be a little harder for some of those other methods who aren't going to have the benefit of that onetime decision that the IRS had, and we'll have to look and see if that plays out the way we think it's going to.

Our next question comes from Sonia Banerjee from Jefferies. Sonya Banerjee - Jefferies & Company, Inc.: I just have a quick follow-up regarding the Financial Management Solutions business. Can you speak to the success that you've had in terms of product cross sales with QuickBooks Online relative to the desktop piece? Simply because our analysis suggests that an uplift related to adoption QuickBooks Online, relative to the desktop products, is primarily related to ancillary products attach. So just curious simply because, in the past, you've said that it seems like attach to desktop has been higher than online. So at this point, is there any update in terms of just relative success with cross sales with online versus desktop?

Yes, Sonia, first of all, there's a benefit of apples-to-apples, just going financial management to financial management. You go from $200 every 2 or 3 years to $24.95 a month. Right off the bat, you have an uplift if you move from desktop to online. And into your point, you're right. It's easier for us to introduce other solutions that you can cross sell and one of the proof points we've talked about, is it took us about 10 to 11 years on desktop to get a roughly 25% penetration of Payroll. And if you look at where we are with online, we've been able to get there in literally the last few years. We didn't really introduced Payroll into QuickBooks Online until 4 years ago. So we're seeing an accelerated adoption of these other services if you're online, and we think that'll only continue as we look at things like payments and other services as well. Sonya Banerjee - Jefferies & Company, Inc.: That's helpful. But just a quick follow-up to that. So comparing the $200 every 3 years the $25 per month monthly subscription, is that really a one-for-one compare? Simply because the online offering offers additional users and other features that the QuickBooks Desktop product doesn't have.

Yes, it's a fair question. You don't actually get a complete apples-to-apples. You've got more feature functionality in the desktop than you do online. You've got some embedded services online that don't come with desktop, like automatic backup and the ability to customer service through a click. But as close as we can get to an off-line/online comparison that's probably apples-to-apples and the way I'll refer to it. I'll tell you what we are going to do. At Investor Day, we're going to try to show the average lifetime value of a customer and what you can expect of a year 1 versus a year 5, and that'll help answer some of the more detailed questions.

Our next question comes from a Michael Millman from Millman Research.

Following up then on Scott's question, is -- are you seeing that the what you call manual method in tax kind of drying up and will no longer be much of a source? Also, could you talk a little bit about online tax prep fee elasticity? And then maybe you can tell us what Block did differently last year that helped them take share.

Yes, all right, Mike, so let me start with manual. If you look at what the IRS publishes, their estimate a year ago was that there were about 11 million people who still file taxes, out of roughly 140 million, on paper. The data right now through what they produced through June suggests it's probably going to be closer to 8 million this year, which means it's down about 25% to 28% year-over-year. So when you look at 147 million people filing taxes, about 8 million on paper, it's definitely a pond that's going to dry up over the next few years. So that's what I meant about the manual opportunity continuing to dry up. In terms of online tax prep fees and the elasticity, it really comes down to the fact that we start with a free offering, and then we add additional value, and we price for that value. And in the marketplace, we've been able to demonstrate that we can get customers in on free and then convert them to a paid product, or we can actually find other solutions for them that they're willing to come in and pay for. So the elasticity really comes down to how much value the customer sees in the product itself. And we've been able to compete very effectively with low-priced competitive alternatives in the online space for over a half dozen years. In terms of Block, I think you know what they've done as well as we do. You do a wonderful job of covering the tax industry, and you know that this year, they got pretty aggressive on both advertising. They also got aggressive with offering a free easy form in their stores, and then they look for ways to up-sell the customer. And I think all of those were good, strategic alternatives that they tested to see if they could drive traffic back into their stores. I think it's an excellent thing for the total tax category, because the more people talking about tax alternatives the better it is, because then we're able to go in and introduce our value prop as well. I assume they're going to be aggressive again this year, and that's pretty much what we plan for.

Michael, this is Scott. I'd add one thing. Brad -- you have 50 questions. Brad did good job addressing elasticity within the line that TurboTax does [ph] and the price range there. You might also be curious about the elasticity between solutions like between the tax stores, which charge, on average, about $200. And offerings like we have that are usually in the $150. Very effective. There's a very large group of people paying $200 a year for potentially the same end result of a tax return, suggests that people are willing to pay for tax solutions and they're willing to pay for the help that comes along with the Pro. So that suggests that there's a lot of willingness to pay in the category. And one of the growth additives to consider is, how can you take -- or introduce them with the do-it-alone solution like we and our software competitors sell, and start finding ways to chip away at the service level and offering of tax stores. So you can find some way to get more customers who are willing to pay those higher amounts of money for higher levels of service. So I think the elasticity here suggests there's quite a reservoir of opportunity for those who could figure out how to effectively compete and pull customers from tax stores to more automated solutions like we make.

Scott, would the demise of RALs change some of the retail prep elasticity?

Well, we kind of thought -- plus we had a little more trouble this past year with RALs going away, but they seem to surmount that rather well. So I'm guessing the demise of RALs will have less of an impact in the industry than we might have guessed. But since were never in the RAL business ourselves, it really won't have much of an impact on us.

Our next question comes from Kartik Mehta from Northcoast Research.

Brad, just a question on the tax side of the business. You obviously have excellent product in TurboTax. You've talked about the next -- Net Promoter Score being high. And I'm wondering, as you look at that and you look at what happened in the most recent season, maybe why you didn't take the market share from tax stores that you thought you would have. And what will change next year to help you take that market share again?

Kartik, I think that if -- first of all, the category itself -- and we did take share. We grew share in desktop. We do -- grew share online. And the software category actually grew faster than tax store as a category. But I don't believe that we felt we did the best we could in helping customers understand exactly what Scott just described: that we have a solution that is about 1/4 of the price of going to a tax store, and with the kind of services we can offer and the kinds of help we can provide you, that you have the same exact outcome if you work with an online do-it-yourself solution as you do through a tax store. And I think you're going to see us just get much clearer and much more focused on how we help people understand that there is a viable alternative in the market than going down the street and having somebody do your tax for you at one of these tax stores. So that's pretty much the challenge ahead of us. If you look at the performance we had for many years, we've been able to get that message across. I think last year, we weren't as crisp and clear clearly as we could have been. Clearly, we had competition out there who were finding their strategies and we've taken lessons from that, and I think we're going to do a better job this year.

Brad, does that mean you need to spend more money on marketing? Or does it just mean you need to spend it differently?

I think it really comes down to the message, not so much the amount. One of the things that I've been asked in between these calls is, "Well, what's going to happen to margins?" And last year, we had a good year in tax, and this year, we had a good year in tax, but this year was a little more competitive, and everybody is following us, and so our competitors really amped up the volume. And yet, look at the margin in the business. The margin in the business remained the same. It's 65%, a very healthy margin for us. And so, I think that what you're going to see is less about, "How much marketing?" and more about, "How effective is that marketing?" and whether you make sure that you make your message points clear.

Neil, in the past, you've always -- you've stated that you'd like to have about $500 million to $1 billion of cash on the balance sheet. Now with the change in your dividend strategy, does the balance sheet strategy changed at all? Or does it still stay the same?

No, it still stays the same, Kartik. I mean, we're still focusing now on $500 million to $750 million on average for the year, net of all debt. And with our cash flow as consistent as it is, and multiple billion dollars a year, we have opportunities and plenty of growth to fund the internal development we need to do, things we want to do to build products and then grow the company long-term, take advantage of other opportunities as they may come along and cover the cash dividend. So I think we've reached a point in our maturity and consistency of our cash flow where we're able to implement this as an additional tool in our capital allocation toolbox.

And then just one last question, Neil. Anything else on your ability to benefit from -- either through a greater market share or through revenue and earnings because of the Durbin amendment, now that we have some clarity, and the way you're able to price your product?

Yes, thanks for asking that, Kartik. We're -- that's clearly an area that's undergoing a lot of change. And candidly, we're anxious to see what additional types of fees will be introduced in the marketplace by some of the card networks, by banks and by some of the processors. I think the jury is still out about exactly how all the economics will change for consumers and small businesses as a result of this amendment. So we're being cautious right now to see how all that plays out. Again, we want to use this as an opportunity to grow customers and bring more people to our payment solution. We still feel like it's got plenty of opportunity to grow. And so we'd be more inclined probably to use this as an opportunity to grow the business, rather than try to expand the margins necessarily just for the pricing. But we'll have to wait and see what other prices and what other costs emerge in the processing scheme and from the banks who issue the cards and from the card networks.

Our next question comes from Phil Rueppel from Wells Fargo.

It's actually Priya Parasuraman for Phil. Quick one and follow-up to the mobile question which was asked earlier. How has it performed relative to your expectations? And also, are you seeing traction across both new and existing customers?

Yes, so Priya, first of all it has actually exceeded our expectations. We've had it out there for a couple of years. We learned some important lessons towards the end of last calendar year, and we've introduced the free card reader and got to a more simplified pricing fee and a much more streamlined application. And it just continues to accelerate, so it's exciting for us, because it's expanding up a whole new category of payment customers that we weren't historically reaching. The other thing that's interesting is this not only a great additional service for an existing QuickBooks customer, someone who can now actually accept mobile payments as well, and as you know, about 60% of small business operate on wheels. They're carpenters, they're landscapers, and they're house painters, and this is just a wonderful way for them to be able to take their payment. But it's also bringing in customers who, at this point, have not adopted a product like QuickBooks. So we are seeing a good 2/3, 1/3, rough, -- if you want to think about it, 2/3 being new and 1/3 being existing -- that are coming in on our GoPayments product, which means it's adding value to existing customers and there's a lot of room for us to get the rest of them to learn about it, and it's bringing a bunch of new people in as well.

And our final question for today comes from Brad Zelnick from Macquarie.

This is Bhavin Shah for Brad. Most of our questions are already answered, but can you just give us an update on products such as Trends? What's the uptake been like? And have you seen an increase in the QuickBooks Online renewal rates because of these type of features?

Yes. Thank you, Bhav. I'd tell you Trends right now is really getting good positive feedback. For those of you who don't know what Trends is, it's the ability for you to understand how key metrics in your business compare to other businesses who look like you. So if you're a 4-person florist in Boston, and you want understand how other 4-employee florists look like in other parts of the country, to see if your accounts receivable, if your profit and loss is in the right ZIP code, it's just a great way for that lonely job of a small business owner to know whether their decisions are keeping pace with others in their category. It is really an example of what I answered earlier, which is the power of data to help people make better decisions and to become much more successful in business. And we do think it's having a positive impact, which is why you're going to continue to hear us focusing on this area to try to help small businesses make other informed decisions. In terms of whether or not we can actually show that it's causal to the fact that we are improving our retention rates and our renewal rates, while those are improving, I can't sit here and point to it and say, "Hey, it's because of Trends." I can tell you we've gotten really good customer feedback, that this is the kind of stuff they're looking for, and we're going to continue to bring them more value like this.

This concludes our question-and-answer session for today. I'd like to hand the conference back over for any closing remarks.

All right. Well, I just want to thank everybody. I know this is definitely one of those crazy times in the market. I hope everybody brought an umbrella, because it's raining out there in terms of just how things look in the economy. But if you want to come out of the rain, just spend a little time with us. We're feeling pretty good right now about the year, and we're looking forward to fiscal year '12. So we'll speak with you again soon.

Ladies and gentlemen, thank you for participating in today's conference. This concludes our program. You may all disconnect and have a wonderful day.