Macquarie Securities - Analyst
* Gil Luria
Wedbush Securities - Analyst
* Sterling Auty
JPMorgan Chase & Co. - Analyst
* Scott Schneeberger
Oppenheimer & Co. - Analyst
* Ross MacMillan
Jefferies & Company - Analyst
* Kartik Mehta
Northcoast Research - Analyst
* Jim MacDonald
First Analysis Securities - Analyst
* Yun Kim
Janney Capital Markets - Analyst
* Jennifer Lowe
Morgan Stanley - Analyst
* James Ellman
Ascend Capital - Analyst
* Kash Rangan
BofA Merrill Lynch - Analyst
Presentation
OPERATOR: Good afternoon. My name is Sayid and I will be your Conference Facilitator. At this time, I
would like to welcome, everyone, to Intuit's third-quarter fiscal 2013 conference call. All lines have been
placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-andanswer period.
(Operator Instructions)
With that, I will now turn the call over to Matt Rhodes, Intuit's Director of Investor Relations. Mr. Rhodes, you
may begin.
MATT RHODES, DIRECTOR - IR, INTUIT INC.: Thank you, sir. Good afternoon and welcome to Intuit's thirdquarter 2013 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
2012 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 to 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. And the business metrics and associated growth
rates refer to worldwide business metrics. 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.

 BRAD SMITH, PRESIDENT AND CEO, INTUIT INC.: All right, thank you, Matt. I want to thank all of you for
joining us as well. Today, we reported third-quarter revenue of $2.2 billion, up 13% from last year. Yesterday,
we also announced a series of organizational changes to better focus our efforts, develop our leadership
bench and accelerate our progress. Now, we anticipate the combination of these two announcements has
generated many questions in your mind, so we're going to keep our prepared remarks brief and leave the
majority of our time for your questions.
But let me begin by proactively addressing one of the questions that I suspect is on everyone's mind, what
happened this tax season? As we announced last month, TurboTax paid units increased 4%. And we now
anticipate TurboTax revenue will also grow about 4% for the fiscal year. Needless to say, it was a challenging
tax season on almost every dimension and things played out differently than we had expected.
There are four key drivers that form the foundation of our tax planning and our results each year. The first is
the number of overall tax returns filed with the IRS. IRS returns were down nearly 1% this year through May
3 versus our expectation of 1% to 2% growth. This was a meaningful difference, as each point of total return
growth equals about $15 million in TurboTax revenue. So this delta in returns filed accounted for about 2
points of TurboTax growth that did not materialize.
The second driver is the number of tax filers choosing to use a digital solution. This season, we expected the
software category to gain 2 points of share from manual and assisted, but we estimate the software category
gained about 1 point. Every point of category share at our current market penetration equates to nearly 3
points of TurboTax growth. So this shortfall cost us about 3 points.
The third driver is our share of the digital category. While we grew share in retail and the emerging mobile
category, we did not grow our online share as expected. Maintaining a roughly 60% share in a highly competitive season is a positive outcome, but it is not what we set out to achieve. Each point of software share
equals about 1.5 points of TurboTax growth.
The final driver is revenue per customer, which results from favorable mix and improved free-to-pay conversion. We typically get 2 points to 3 points of upside in revenue per customer each year, but this year we did
not anticipate improvement because of our decision to outsource our debit card offering. So in summary, total
IRS returns being down cost us about 2 points. Slower category growth cost us about 3 points. And not gaining share cost us roughly another 1 point. In our view, the majority of the shortfall is an execution opportunity
that we're already addressing.
While we're not satisfied with this season's overall outcome, we did make progress in several key areas,
growing new customers that were first time filers and former tax store customers, as well as significantly increasing mobile adoption. We've already shifted our focus to making the adjustments for next year based
upon what we know about the market and what we learned this season. The central pillar of our go-forward
tax strategy is to deliver an awesome product experience. This is the key to driving awareness and improving
conversion. The TurboTax experience has to be drop dead simple and more personalized if we're going to
win share in the digital category and earn the business of the 40 million assisted tax filers who are willing to
try software.
Our experiments this season tell us that personalization works. Our military and mobile offerings delivered a
more personalized experienced for these specific customers this year to easily file their returns. As a result,
we saw double-digit growth this season from the military and digital native customer segments. Given our
scale and our data capabilities, we plan to extend this advantage to even more taxpayers next season.
We also need to deliver a great end-to-end customer experience. We've set a high bar for ourselves to deliver a product so personalized, simple and accurate that customers don't have any questions. But if they do,
we need to have the right resources and business model in place to answer them effectively and efficiently.
As I shared, activity is already well under way for next year with an intense focus on an improved product
and an improved customer experience.
Now with that overview on Tax, let me shift to Small Business, which posted revenue growth of 17% this
quarter. The team continued to do an amazing job, growing customers in what remains a weak environment
for small businesses overall. Each of our Small Business groups grew double digits this quarter and continued to innovate to set the stage for the next phase of growth. For example, we completely re-imagined
QuickBooks online for the iPad, which is more like CRM with the accounting just happening in the background. It is designed for small businesses who are mobile enough by nature and about half of the customers who downloaded and launched the app are new to the QuickBooks franchise.

 We also launched Intuit Pay in the United Kingdom, making Intuit the first to market in the region, with the
mobile payment solution designed for small businesses. QuickBooks online has doubled to 27,000 paying
customers in more than 100 countries outside the United States. So across our Small Business landscape,
we're building momentum and I am encouraged by our results.
With that, I'm going to hand it over to Neil to walk you through the financial details.
NEIL WILLIAMS, CFO, INTUIT INC.: Thanks, Brad. Let's start with overall Company results. For the third
quarter of fiscal 2013, we delivered revenue of $2.2 billion, up 13%, non-GAAP operating income of $1.4 billion, up 17%, GAAP operating income of $1.2 billion, up 12%, non-GAAP earnings per share of $2.97, up
18%, and GAAP earnings per share of $2.71, up 12%.
Turning to the business segments, total Small Business Group revenue grew 17% in the third quarter, 12%
excluding Demandforce. Within Small Business, Financial Management Solutions revenue grew 24% for the
quarter, 12% excluding Demandforce. Customer acquisition in our Connected Services businesses continues
to drive our growth. QuickBooks online subscribers grew 26%. QuickBooks Enterprise Solutions subscribers
grew 29%. Online payroll subscribers grew 20%. And Demandforce subscribers grew over 65%. In addition,
QuickBooks desktop managed well through the discounting issues we discussed last quarter, growing units
slightly this quarter. Combining our active QuickBooks subscriber base with QuickBooks desktop units sold,
QuickBooks customers have grown about 4% year to date.
Employee Management Solutions revenue grew 11% for the quarter, driven by accelerated new customer
acquisition, increased revenue per customer and improved retention. Total customers grew about 3%. Payment Solutions revenue grew 13% in the third quarter. Merchants grew 12% versus last year. Merchant
growth has slowed slightly, as we tune our underwriting process and payments, particularly in mobile, to balance customer acquisition with acceptable levels of profitability. Card transaction volume grew 7%.
Consumer Tax revenue of $1.2 billion grew 14%. Brad has already covered the details on customers and
revenue, I'd just like to point out that the margins in this business held up extremely well despite single-digit
revenue growth. Accounting professionals revenue of $257 million increased 9%. Our Accountant Tax group
grew customers this season, and total e-file returns grew 6%. We expect revenue growth for the year of 5%
to 6%.
Financial Services revenue of $99 million was up 9% for the quarter. Adjusted for Mint and the sale of our
corporate banking business, Financial Services revenue grew 6%. Other Businesses revenue totaled $116
million, increasing 3%. Other Businesses revenue increased 10% when adjusted for the transfer of Mint to
Financial Services. Revenue for Intuit Health was down 2% and is trending below last year. Based on these
results and other factors, we have recorded an impairment charge for Intuit Health which reduced GAAP
earnings per share by $0.14 in the third quarter.
Turning to the balance sheet, our financial principles and capital allocation strategy have not changed. We
target double-digit organic revenue growth while growing revenue faster than expenses. We also take a disciplined approach to capital management, looking to invest the cash we generate in opportunities that yield
15% plus return on investment. We also returned cash to shareholders via share repurchases and dividends.
We repurchased $92 million of shares in the third quarter, with $1.4 billion remaining on our authorization.
In addition, our board approved a $0.17 dividend for the fiscal fourth quarter, up 13% from last year, payable
on July 18, 2013. We have provided our guidance for the fourth quarter and our updated guidance for fiscal
2013 in our press release. This guidance does not include incremental costs, if any, that may result from the
strategic organizational changes we announced yesterday.
And with that, I'll turn it back over to Brad to close.
BRAD SMITH: All right, thank you, Neil. I hope you all had a chance to review our release from yesterday. It
outlines the changes we've made to better position our organization for global growth opportunities. And I'd
like to close by providing some context around those changes. The changes were driven by our refreshed
Company strategy that we unveiled and shared with you in the fall, and then the clarification of two major
strategic business outcomes this spring, to be the Small Business operating system around the globe and to
do the nation's taxes. It is the next chapter of our Connected Services journey.
And as a reminder, that refresh Connected Services strategy, it's first to deliver awesome product experiences that have been designed for a mobile first, mobile only world and deliver an amazing first user experience that accelerate the user growth. Second, to enable the contributions of others, enlisting our end users

 and third party developers to participate in localizing, configuring, and adding value to our products. And
third, to use customer data to create Delight making our products easier to use while delivering breakthrough
benefits for our end users.
The long-term trends and the market opportunities are as clear as ever. With the strategy and the organizational changes that we've announced, we've proactively focused our talent and resources on the biggest opportunities to ensure that Intuit is set up for the next stage of growth. As always, I want to thank our employees for their hard work and their ongoing focus.
And with that, we'd like to turn it over to you for your questions. Sayid?
Questions and Answers
OPERATOR: Ladies and gentlemen.
(Operator Instructions)
Peter Goldmacher, Cowen.
PETER GOLDMACHER, ANALYST, COWEN AND COMPANY: Brad, I want to talk to you a little bit about
this reorg. It seemed like you were taking a lot of the same players, putting them in slightly different roles so it
looks like you've got some cross training going there. But the one thing I noticed that was really interesting
was Sasan, who was your CIO, is now running Tax. You talk about these changes as an opportunity to take
advantage of your Connected Services strategy and then you talk about using customer data for ease of use
and benefits to end user and then you put your CIO in that Tax business. What are you -- what are the implications for Tax now that Sasan is -- your former CIO, is now running that business?
BRAD SMITH: Yes, thank you, Peter. First and foremost, we have a very strong and deep bench. And as you
know, over the years, we've taken pride in moving our leaders into functional roles and different business
roles to round out their experience and get them ready for bigger opportunities.
And so as we approach this year, Kiran and I have been speaking for the last couple years about his personal true north. And at that point in time, we decided, and Kiran was very interested in talking about what he
wanted to do in the next chapter, and our hope was that that next chapter was to be with Intuit forever and
ever. But at some point he reached the point where he said it's time for me to retire. We celebrated his birthday a week ago and he said now is the time.
And it set up the opportunity for us to make some key organizational changes. In the case of Sasan
Goodarzi, which is where your specific question was, Sasan has actually been the General Manager of many
of our businesses. He led our vertical businesses several years ago in the early 2000s. He was the General
Manager of our accounting professional division, the Pro Tax portion of Tax. He was also the General Manager of our Digital Insight, our Intuit Financial Services business for several years. And we've had Sasan in
the CIO role to help us move the Company from shrink-wrapped software to the Cloud.
What we get in Sasan is a very seasoned Executive who had run multiple portions of the Company's business and he clearly understands the power of a great product, the importance of having a platform that allows data to flow freely for end users and third-party developers to help us make our products better and he
understands how to use data to make things a better outcome for customers. He is the right leader for the
next chapter of TurboTax, as we put our energy into having a more personalized tax experience and building
the next innovative set of products that will change the landscape for tax overall.
The rest of the leaders are also well positioned as they step into their new roles, and it's the next growth opportunity for them. But in terms of Sasan specifically for Tax, his general management experience, his opportunities working in our CIO role moving us to the Cloud and working with data, and now moving him into the
Consumer Tax business, we think positions him and the Company for the next chapter of great.
PETER GOLDMACHER: Brad, can I -- I'm sorry, can I -- I have a corollary. Two tax seasons ago, you felt like
you didn't compete well against H&R Block and that showed in the share shifts. This year, Tax overall was
weak, but you competed much better against H&R Block. And now you've got your CIO running Tax. Can you
draw some lines between the tax season a year ago, this tax season and tax season next year and the kinds
of things that you think you can do differently to get that Tax business where you think it can be, which you've
said is an 8% to 10% growth business?

 BRAD SMITH: Yes, Peter, I can. Couple years ago, we started to see the early signs of the manual filers
starting to reach a plateau in the single-digit millions. We also saw a significant opportunity for a group of
people who use an assisted tax experience to say they would be open to software if the product was simple
and easy for them to use, and if they had enough confidence to not be feeling like they were alone if they
had a question. We've been running a lot of experiments. We've been testing a lot of things. We've had tax
advice. We've launched SnapTax on the mobile platform. And we started to see things that are really working
and quite frankly, some things that haven't worked as well as we had hoped.
We think between two years ago, what we learned with the experiences we had, and then this year what we
learned started to work, we have the foundation for what we think will have a much stronger season as we
look ahead next year. If I had to put a bow around what that is, it's what I've talked about in the prepared remarks. It is a product that is so simple, so elegant and so easy to use and feels like it is customized for you,
that you don't have questions and you have no concerns about whether or not you can do your taxes on your
own. That's going to be our emphasis. That's the way our franchise has built itself over the last three
decades and that'll be the energy we put into next year as well.
PETER GOLDMACHER: Thanks, Brad.
OPERATOR: Brent Thill, UBS.
BRENT THILL, ANALYST, UBS: On the Tax business (inaudible) this has been your third year of declining
growth. And if this pace continues, does this put weight on other initiatives that you have to kick start now, if
you assume that next year that Tax business is going to be a mid single-digit grower? Or do you feel that
there is a snapback, if you will, and that does not put weight on the Small Business segment to find new innovations or push international quicker?
Can you walk through how you think about the dynamic? And I know you're not giving guidance for next year,
but I think everyone's trying to understand with a Company that's got a goal of growing 10% a year with
steady operating margins, how do you do that with the Tax business at that rate of growth?
BRAD SMITH: Yes, I can. And what I would say is this is the power of a strong portfolio of businesses. It was
just a few years ago in the depth of the recession, where Small Business was struggling to get to double digits and the Tax business was continuing to plow along at a good strong double-digit rate. And what we've had
in the last year, because last year actually, two years ago rather, H&R -- excuse me, our TurboTax results
grew 11%.
This year is a single-digit grower, but our Small Business group's growing 17%. The Company overall is
healthy and we have the ability to step back and say what can we do to reignite growth in all the businesses
that they hit a period of time where they've actually slowed down a little bit. And that's where we are with
TurboTax.
We continue to see tremendous upside and opportunity in Small Business. We do think global is a tremendous opportunity for us if we can get it right. And quite frankly, as we look ahead to next year at Tax, we look
at it as a multi-year effort. We clearly think we can do better than the 4% we did this year. I'm not here to tell
you that in the next 12 months we see a double-digit growth year, we'll provide guidance in August. But what
we do see is a strong franchise in Tax that when you put that in conjunction with our Pro Tax business, has
the potential to do many more of the nation's tax returns and that's our focus and one of our two core strategic goals.
BRENT THILL: And just a quick follow up, online you didn't get the market share gains you wanted. What in
your view -- why didn't those gains play out? And who did take the share, from your perspective in your early
data?
BRAD SMITH: Yes, we're still sorting through all the data as well. As you know, there's a lot of clouding that's
right now around what's happened in the macro with tax. I think even the IRS is working towards what they
had anticipated the number of returns to be versus where it is. Looks like it's down about 1% versus growing
1% to 2%. When you look at the actual tax category, that's a part of the macro. And then when you get down
into share, it looks like we did very well and retail actually picked up about 200 basis points. And I know we
always talked about online because that is the future, but retail is still 25% of the market in the units to 200
basis points was good results.
And in mobile, quite frankly, it looks like we outsold the second closest competitor eight to one. When we get
into online, it looks like right now from the data we've seen, we use third-party data sources, that we had a

 couple of key competitors, two competitors who may have picked up about a half a point each. And then
everyone else was pretty much neutral. I would say that it's probably those two competitors that picked up a
little bit and then everyone else pretty much had a flat year, and that would put us into the flat category as
well.
BRENT THILL: Thanks, Brad.
OPERATOR: Walter Pritchard, Citigroup.
UNIDENTIFIED PARTICIPANT, ANALYST: (Inaudible) for Walter. Brad, my first question is earlier in the year,
you guys highlighted simplifying the online interface to improve first time experience conversion. Can you talk
about what you guys saw there and did it get the effect that you guys were hoping for?
BRAD SMITH: Yes, I can. We're doing this across the entire Company. We know that if we can get the conversion up 50%, which is moving it from literally 2 or 3 out of 100 customers who start the product, end up
using it for a second time, and you move it up to the neighborhood of 3 or 4, that that is a significant opportunity for the Company across the board. Because most of our products begin with a free trial. You come in,
you start to use the product, and if you like it, then you move on to being a paying customer.
We've seen very strong progress across our Company. And QuickBooks online continues to grow extremely
well, 26% growth. The same thing with online payroll, up 20%. And those are all the results of making our
first time use experience very simple. We've also driven stronger attach for products like payroll and payments inside of QuickBooks by eliminating the redundancy of keying data in and simply making it a feature
that just happens inside of QuickBooks. We're making good progress.
In the case of TurboTax, probably the biggest progress was in our SnapTax offering, where we're able to use
data, use the pictures that we're able to take and narrow down the number of questions and get you up and
running very quickly. This year in SnapTax, we had 2.7 times more people actually file their taxes through a
mobile device, a phone or a tablet. And perhaps a more interesting number is almost 5 million people who
filed the TurboTax this year logged in at some point through either a tablet or phone. We really think mobile is
going to be an important chapter going forward. And this simple first use experience is going to be a key
piece of that.
We're seeing progress. It's happening across all the product lines. It's a game of inches. It's a game of using
data to get a lot of the work done for customers. And we think it's one of the absolute biggest levers in the
Company if we stay focused on it and continue to make the improvements we know we can.
UNIDENTIFIED PARTICIPANT: Got it. And, Neil, I think the last year and this year, you guys talked about
spending more aggressively early in the season with the marketing. Can you talk about whether or not you
guys saw the positive results from that? And then two, going forward, is that the new buy-in in terms of this
particular market, or is that something you guys can dial back if needed?
NEIL WILLIAMS: I think as we look at three levers to grow the Tax business, we look at what we spend building a product, what we spend marketing the product and what we spend in care. And I would tell you that
overall, we're very comfortable we got the right level of spend. But we're looking really, really hard at how we
want to reallocate that going forward. And I think you can tell from the results that our conclusion would be
that we didn't get the ROI that we would have desired or expected in the adjustments we made last season,
and so we're looking at how we spend that money differently going into next year, specifically around how we
build a product, as Brad mentioned. I don't consider anything that we spent last season necessarily locked in
or our commitment going into next year.
UNIDENTIFIED PARTICIPANT: Great. Thanks, guys.
OPERATOR: Greg Dunham, Goldman Sachs.
GREG DUNHAM, ANALYST, GOLDMAN SACHS: I actually want to switch gears a little bit. I know the focus
has been Tax, but the SMB business has been a standout performer here with the growth in the quarter. But
the guidance looks to be a little bit -- I guess how should we think about guidance in that business for Q4?
You did a strong number this quarter, but when I look at the guidance, there is a slowdown at 9.5% growth
versus the double-digit growth that you've been growing. And specifically, the Payments business slowed a
little bit this quarter, can you talk about what caused that? Thank you.
NEIL WILLIAMS: Yes, Greg, this is Neil. If you look back at the fourth quarter of last year, our Payments
growth was north of 30%, and we talked about a one-time revenue item that flowed through Q4 of last year

 that's obviously not going to recur this year. Other than that, all of our business segments we think are, in the
Small Business category, are very consistent with the trends you've seen this year. That one revenue item is
the only exception that we called out last year in the fourth quarter, and we knew it was going to be a -- give
us a tough [grover] for Q4 this year. That's the only oddball item.
GREG DUNHAM: Okay. And I guess one follow up, you're talking about international and it sounds like that
is going to be an increase in focus on the SMB side. How big can that category get for you over the next
several years? How big of a focus is international? Thanks.
BRAD SMITH: Yes, you're welcome, this is Brad. Greg, it's a big focus for us. We're still early days, but we've
now moved to the third chapter of our global journey. Chapter one five years ago, was we formed a separate
team to be a scouting party, to go out into the different markets and find which countries and which customer
problems we thought we could solve.
Chapter two was those teams then began to come back and work with the US counterparts to globalize our
products and we've rewritten our products to basically be global ready so they can be localized for different
countries. We're now in chapter three, and chapter three is it's primarily a Small Business focus. We now
have QuickBooks online re-architected and it's now in 100 countries since July. And we now have 27,000
customers that are paying for that product and we like the growth trajectory.
In terms of opportunity, for every small business we see in the United States, we see 20 outside the United
States that could be potential customers who look just like the ones we have here. There's a lot of upside
opportunity. We're early days. We've got a lot to learn, but we like the trajectory right now. And if we stay focused on it, we want to see this Company be much more of a global Company over the next three to five
years.
GREG DUNHAM: Thank you.
OPERATOR: Brad Zelnick, Macquarie.
BRAD ZELNICK, ANALYST, MACQUARIE SECURITIES: You talked about the second driver of Tax results
as the number of filers that choose digital and you had baked in 2 points of share gains from manual and
assisted categories. Can you give us a feel for how much of the disappointment was in converting manual
versus assisted filers and maybe what Intuit could have done better to drive the overall category?
BRAD SMITH: Yes, I can. We saw a good conversion from the assisted filers this year. At the same time,
manual continues to be a decline, so it's a little bit of addition by subtraction. You have fewer people filing
manually and you've got people in the stores that you want to convert to come into the program. I think our
total assisted was up about 17% and some of the converting from assisted into the category. But I don't remember the manual numbers, what the decline was. Do you remember, Matt, by any chance?
MATT RHODES: No, it's pretty flat, down a little bit year over year for new customers.
BRAD SMITH: Yes. I would say it's -- more of it is the drag of manual. And to be honest with you, we're going
to have to accelerate getting people out of the tax stores, but we did get an increase year over year.
BRAD ZELNICK: Thanks, Brad. If I could add a quick follow up, you didn't mention the April 14 outage. Do
you feel that had any impact whatsoever on this tax season, and maybe you can comment a little bit about
that?
BRAD SMITH: Yes, it was a disappointment for us. There's no question about it. We're better than that. We
hold ourselves to higher standard. With that being said, I want to put it into context. There was a 60-minute
window on April 14 where our teams were continuing to make configuration changes to the product to handle
what is quite frankly unprecedented volume. As you know, we had a delay to the tax season. And we had the
continuing procrastination towards April 14 and 15.
On those last two days, the volumes were up 81% over prior year and our teams were making changes on
the fly to make sure we could continue to scale and we had a human error. We made a configuration change
that was wrong, and for 60 minutes, there was intermittent performance for some customers. It was not a
material number of customers. It had no impact on our financials from what we can see. But from a reputation and our own standards, we were very disappointed in ourselves. But quite frankly, at the end of the day,
it didn't have a big impact financially.
BRAD ZELNICK: Thank you.

 OPERATOR: Gil Luria, Wedbush Securities.
GIL LURIA, ANALYST, WEDBUSH SECURITIES: There's a laundry list of possible reasons for why overall
tax filings were down this year, and I understand the post mortem is not done yet, but if you had to name the
one or two reasons that are at least your leading hypothesis of why tax filings, overall tax filings were down
this year, what would you put your finger on?
BRAD SMITH: Gil, I really wish that I could answer this question. I hesitate to speculate. And as you might
imagine, the IRS is pretty busy these days, so we haven't had the opportunity to sit down and talk to them
about what their hypotheses are. I can tell you what we've started to rule out.
We've looked at as an extension, are there a lot of people filing extensions? It looks like our extensions in
TurboTax are up about 10%, which is what we planned on. In the Pro Tax business, they're up about 20%.
Even if those numbers played out across the industry, the total number of returns would still be down year
over year for the IRS. Beyond that, I really can't tell you what's happened here and we're just going to have
to wait until we have a good conversation as an industry with the IRS to figure out what root cause was.
GIL LURIA: Got it. And as we went through this tax season, you reached out to some of your consumers and
some of your small businesses and started engaging them in the discussion about health insurance and the
implementation of the Affordable Care Act. Is that something you can continue to act on and engage with
consumers and small businesses as you go through this year? Or are you going to wait until next tax season,
and as people come in with these questions, try to answer them then?
BRAD SMITH: Yes, thanks, Gil. It is something we're going to continue to engage with consumers and small
businesses on. There's still a lot of unknowns and a lot of uncertainty here and quite frankly, a lack of confidence around how the whole thing will be administered. That debate continues. But in the meantime, we
have to help people try to understand what their choices are and what decisions they might want to make
and will have implications for their tax situation next year.
Our teams are proactively working this. We've got a small dedicated team and a group of experts that are
helping us design this program. We're already in dialogue with consumers and small businesses and we'll
continue to try to demystify that and make it simple for them so next year they can move forward with their
life and not have to worry about this.
GIL LURIA: Finally, to that point, do you expect a lot of consumers and filers to switch to an assisted mode of
filing next year as opposed to using digital methods?
BRAD SMITH: Gil, that's not our goal. Our job is to make things that appear complicated simple. Right now,
we believe that with the digital solutions we have and the programs we have in place and the natural trends
we see in the market of people wanting to use digital solutions that there's no reason why that needs to be a
foregone conclusion that they go to assisted. We simply need to make sure we're delivering the right answers to questions and giving them a good set of solutions to choose from. And that's going to remain our
focus as we head into next year as well.
GIL LURIA: Excellent, thank you.
OPERATOR: Sterling Auty, JPMorgan.
STERLING AUTY, ANALYST, JPMORGAN CHASE & CO.: I want to better understand, it seems like the biggest delta and the difference in consumer tax growth is the number of filings and the shift in the digital category. Help me better understand why those can be execution issues and why those are not just structural
things that you have to wait to see a turn in.
BRAD SMITH: Yes, thank you, Sterling. I would separate the two, because one is clearly a structural issue,
that's the number of people filing returns with the IRS. The second, you could say is a structural issue, but as
the category champion with the 60% share online and over an 85% share in retail, we view it as our job to
help people understand that software, whether it's online or on a mobile device or in a desktop software
product, is a better solution. We take accountability for growing the category. We work hard to educate consumers that there's a better solution that's one third the price. And so we view that as an execution opportunity for us.
STERLING AUTY: And then on the payroll side, despite the small business index still showing the pessimism, it sounds like the online portion really has picked up. I would imagine that's share shift. Can you talk
about where you're seeing those inbound new companies coming from?

 BRAD SMITH: Yes, we can, Sterling. I tell you I'm very proud of our payroll business and the leadership that
Ginny Lee and the team have driven there. Total customers are up 3%. When you compare that with the
overall competitors in the market, that is faster growth. And then you look at online growing 20%. And one of
the things that we are seeing is a shift in share. And that shift is coming from outsourcers and into the digital
solution.
And one of the interesting products that is driving that shift is our full service payroll product. It literally provides the same value proposition of the outsourcers, but it does it at 25% lower prices. And so we're starting
to see a strong growth there in terms of customers coming into that product and we think that plus online is
driving share shift into our category.
STERLING AUTY: Got it. Thank you.
OPERATOR: Scott Schneeberger, Oppenheimer.
SCOTT SCHNEEBERGER, ANALYST, OPPENHEIMER & CO.: Brad, could you assess your -- the help from
representatives this year? Second year of the model, how that works for you, what you liked, what you didn't
like, what the future plans are there? Thanks.
BRAD SMITH: Yes, Scott, I can. After two years of having tax experts working with us, and we've tried multiple things from free tax advice to having it targeted in certain areas, I would tell you what we've learned is it
worked well for those who have used it, but it has not done the job in terms of helping us accelerate the shift
out of tax stores and into software. Now we have multiple levers that we're looking at as we head into next
year. Great products, making sure we have the right tax advice at the right time, and we're going to readjust
our mix as we head into next year.
But right now, I would tell you it's a mixed bag. For those people who have used it, they like it. But for what
we wanted it to do, which was accelerate the category shift into software, it has not done the job by itself.
And we're going to have to step back and look at other ways to make that happen.
SCOTT SCHNEEBERGER: Thanks. Two more, if I could, jumping around. Neil, could you speak to your level of buybacks and it felt a little lighter than we had anticipated, and the strategy going forward with returning
capital? Thanks.
NEIL WILLIAMS: Sure, Scott. Our plan is to be in the market every quarter. The extent to which we're in the
market is driven by other things we have going on, competing uses we may have for the cash and the capital
and our own expectations. And so we weren't able to be as aggressive this past quarter as we have been
typically, but we've given ourselves a pretty wide band of expectations. Expect us to be in the market each
quarter, but the level of vary based on other things that are under consideration, so we'll have to wait and
see.
SCOTT SCHNEEBERGER: Thanks, and if I could sneak one more in. The write down of the asset value in
Intuit Health, could you speak a little bit to that? I read the footnote in the release, but could you elaborate?
Thanks.
NEIL WILLIAMS: Yes, sure. Our primary customer in Intuit Health is an AHR provider and they made an acquisition in our fiscal third quarter of a competing product, a competing offer. And that caused us to reevaluate our plans going forward and things like that. And we usually take a really conservative approach on these
type things as we evaluate our asset carrying values each quarter and we felt like this adjustment was the
appropriate thing to do.
SCOTT SCHNEEBERGER: Okay. Thanks, guys.
OPERATOR: Ross MacMillan, Jefferies.
ROSS MACMILLAN, ANALYST, JEFFERIES & COMPANY: Two quick questions on Tax. First of all, I think
you ran some promotions over a certain short time windows this season. I was curious to get a sense for the
rationale behind that and whether those were successful. And then number two, Neil, it looks like you did a
great job in managing to a pretty high operating margin despite obviously the less than expected unit filer -units that you got on the Consumer Tax business. From a high level standpoint, are you -- is it your approach
to try to optimize for margins over growth, or can you maybe help us think about how we should think about
margin structure, because you obviously did a very good job in maintaining the margin structure of the Consumer Tax business this year?

 Thanks.
BRAD SMITH: Yes, I'll start, this is Brad.
We did run some promotions this year as a part of test to try to understand price elasticity and whether or not
given the late filing season if there was a way to incentivize people to get into the tax product and start filing
earlier. They were very targeted promotions. We saw some things that worked and some things didn't. But
we certainly got the learning we want as we look ahead to next tax season, but there wasn't a material difference in terms of the outcome we had this year because there were more targeted promotions for a small
group of customers so we could see what the results would be.
I'm going to let Neil take the operating margin thing, but I wanted to hit the high point here to set it up. Our
Company is focused on growing customers and growing top line and then if we do that with revenue faster
than expense, we get operating leverage. And because our Company is moving to the Cloud, we're getting
natural economies of scale. Even in a year like this in Tax, we got good strong margin performance. This is
not what we were optimizing for, that's a natural outcome of our business case. Neil, is there anything you
want to add to that?
NEIL WILLIAMS: Ross, as a comment I made earlier that we've looked at the business and we feel like
we've got the right investment levels, it's how we allocate it and how we spend it. And as Brad said, our first
and foremost goal is always to grow customers and always to grow the top line. That said, when that doesn't
come through, we've demonstrated that we have things we can do to adjust to at least deliver the margins
that we expect. But first and foremost, we'd much rather invest for growth when we have the opportunity.
ROSS MACMILLAN: And maybe one quick follow on, if I could. I don't think I heard a GoPayment -- I think
you talked about mobile payments growth, did you comment on the growth in either units or subscribers today?
BRAD SMITH: No, we didn't, but I'm happy to share that because we would tell you a couple things. Mobile
payments continues to be a key growth driver for us, units were up about 40% in the quarter. The number of
new users to the franchise, we used to tell you was roughly 70s, now closer to 80. At the same time, as Neil
described, we've been adjusting and fine tuning our underwriting process to make sure we're getting good
top line growth at the profit levels we're looking for. And so that metered a little bit of the growth, but that's
been a choice on our part to make sure that we're getting the right customers into the franchise.
ROSS MACMILLAN: That's very helpful. Thank you.
OPERATOR: Kartik Mehta, Northcoast Research.
KARTIK MEHTA, ANALYST, NORTHCOAST RESEARCH: Brad, you indicated that on the digital side, at
least for going from a market share from assisted to digital that manual had slowed down. I'm wondering, as
you try to accelerate that market share growth from this year, does that require more marketing spend next
year out of TurboTax or does it require a different type of spend?
BRAD SMITH: Yes, Kartik, honestly, we don't think it requires more marketing spend. We felt like we spent at
sufficient level this year. What it does require is us getting back to our roots of understanding that the best
way to change a customer's behavior is deliver a product that is so simple that they tell everyone else they
should use it.
And so, if we talk about readjusting our portfolio allocations, I would think a lot more about how we're going
to invest in taking a separate, change forward in the product. And at the same time, making sure that we remain competitive in the marketing aspects, as well. This is not about spending more in marketing, it's about
making sure that the product is the key driver of marketing and letting our customers talk about our product
and then support that with the right megaphone being our own marketing efforts here.
KARTIK MEHTA: And then Brad you commented a little bit on the pretax advice, maybe it's not lived up to
your expectation or done exactly what you wanted it to do, does that mean that maybe you don't offer that
service any longer, or you have to come up with a different service?
BRAD SMITH: I think, Kartik, what you're going to see is us refining our approach to how that service gets
delivered. What we've discovered is there are certain customer groups at certain points in the filing process
where they tend to have more questions. Our first job is to eliminate those questions completely by making
that section in the product experience simple.

 But then the rest of it's going to be then how can we blend in the right service and support experience so that
the customers find it seamless. I would not say that it's a complete elimination. In its current format, it has not
lived up to our expectations, but we have two years of very good learning here. And as we approach next
year, I think you'll see a different approach to how we go to market.
KARTIK MEHTA: Could it be possibly that you charge customers to utilize this service, or is it that you keep it
free, but maybe provide greater assistance up to the point where somebody needs to talk to a live human
being?
BRAD SMITH: Yes. As you -- forgive me for my evasiveness, Kartik, but I got lots of people here that I'm sure
would love us to answer that question more explicitly and they aren't necessarily the ones on the call, there
could be other people out there. At this point, just say that we know that there's a lot of things we can do differently and we plan to do that as we head into next year.
KARTIK MEHTA: All right, fair. Thank you.
OPERATOR: Jim MacDonald, First Analysis.
JIM MACDONALD, ANALYST, FIRST ANALYSIS SECURITIES: I wanted to ask some tax questions maybe a
different way. Your guidance doesn't seem to assume any spillover growth from late filers. What are the
chances that actually could happen later here in next quarter or two?
BRAD SMITH: Yes, Jim, this goes back to a little earlier we were talking about what we believe we see in
terms of extensions being filed because you need to notify the IRS by April 15 if you plan to file an extension.
And we see that in the Consumer Tax product and TurboTax it's up about 10% year over year, which is pretty
much what we forecasted it would be. And then in the Pro Tax product, Lacerte and ProSeries, it looks like
it's up about 20%.
Again, we've already accounted for that in our guidance both business segments. In the Pro Tax business,
we'll probably see a little bit of revenue shifting into next year. Neil mentioned that we're seeing the guidance
for that business be about 5%, 6% this year and that's because some of it will shift into October. But beyond
that, we don't have anything else that we could share in terms of spillover at this point. It's up 10% in the
TurboTax product, it's up about 20% in ProSeries and Lacerte.
JIM MACDONALD: And then going back to the market share in the web tax product, any overall ideas why
you might have not done as well as you expected there? And it looks like you're changing your -- you're looking to change your ad agency. Was the ad strategy a part of the share issue?
BRAD SMITH: This year, I think our advertising did the job that we needed it to do. What we have to do is get
back again to the product and making sure the product is very, very simple and inspires confidence and you
don't have any concerns about getting in and doing your taxes on your own.
And so, what we would tell you is we are looking at our agency next year. We do think that there's a different
way to go to market. But the most important emphasis we'll have going into next year is a product that continues to inspire confidence and gets people talking about it. That's where the biggest energy will be as we
head into the next season, Jim.
JIM MACDONALD: Okay. Thanks very much.
OPERATOR: Yun Kim, Janney Capital Markets.
YUN KIM, ANALYST, JANNEY CAPITAL MARKETS: Quick question on the Tax side, Brad, on retrospect.
How effective do you think the live text help was this year in your view? Is there other ways to try to penetrate
that assisted tax market besides providing live help?
BRAD SMITH: Yes, Yun, it was not as successful as we wanted it to be. We were able to get people out of
tax stores at a higher rate than last year but not at the rate that we had anticipated, that's why we're talking
about making some adjustments next year. And we do think there is a way to get people out of tax stores.
We see through some of the experiments we did this year that if you have a product that's extremely compelling and doesn't have an onerous interview process that you can really make some big changes in terms
of customers behaviors. And so as we look ahead to next year, we're going to be looking hard at how we can
take those learnings and build that into our experience that we deliver for customers. We still remain confident there's 40 million people out there that have relatively simple returns that are paying way too much that
we think we can deliver a better solution for them and we're going to do that as we head into next year.

 YUN KIM: Okay, great. And then switching gears to the Small Business group segment, can you give us any
update on the Demandforce and specifically how's the cross-selling efforts are progressing? We saw healthy
improvement in margins for all Small Business groups, especially in the Financial Management segment,
which I believe faced margin headwind because of Demandforce business, but how much of that margin improvement is driven by cross-selling efforts, if any? Thanks.
BRAD SMITH: Yes, let Neil and I tag team on this, if you don't mind. I'll talk a little bit about the health of the
Demandforce business and he can talk about the margin implications. As you saw, the subscriber base grew
for the quarter over 65%. They continue to have a strong tailwind as they penetrate new verticals, and they
continue to have strong retention rates across the current verticals. In terms of cross-sell, there's still relatively early days, but as you know, they have roughly 25,000 Demandforce customers today. And those customers tend to be appointment-based businesses and they have a certain revenue side so that they can pay
the subscription service fees that Demandforce charges.
We've now matched that up against the existing 4 million QuickBooks customers and we have 400,000 existing QuickBooks customers who look exactly the same as the Demandforce customers. We see fertile ground
there and we're in the early days of marketing Demandforce to those customers. We'll stay tuned and see
how much we can drive that growth. But I think the 65% subscriber growth is a pretty good indication that
there's some upside opportunity there. Neil?
NEIL WILLIAMS: And to that point, Yun, this is still a business where we're investing heavily, so the margin
improvement you're seeing in FMS really is more related to working our way through the discounting issue
that we talked about with QuickBooks desktop last quarter and seeing our revenue per customer respond
appropriately as we -- on the QuickBooks side. Still investing in growth for our Demandforce.
YUN KIM: Okay, great. And one last quick question, Brad. With your expectation of having a pretty big presence in international markets within the next two to five years? How aggressively are you planning to invest
in the near term to support that plan? Can we still expect earnings growth to be faster than revenue growth?
BRAD SMITH: We believe both can be true. It's a major focus area for us, that's one of our two core goals is
to make QuickBooks and our related products the small business operating system around the world. Our
Small Business group has an objective that we shared at the Investor Day that we want to make sure we
grow that customer base and a large portion of that will come from outside the US, and that's where we're
making the investment. But we believe we can do that with rigorous capital allocation and that we continue to
grow revenue faster than expenses and continue to get the operating leverage that you have come to expect
from us.
YUN KIM: Great. Thank you so much.
OPERATOR: Jennifer Lowe, Morgan Stanley.
JENNIFER LOWE, ANALYST, MORGAN STANLEY: I wanted to go back to the reorg. And one of the things I
wanted to drill in on is the change in the Small Business segmentation, going from the three sub segments
there that you had previously to the new segments, which combining the Payments business with Financial
Management Solutions and then combine the employee piece with Demandforce. What is the thinking behind that, that change there? And what are some of the synergies that you're hoping to realize by bringing
those businesses into closer alignment?
BRAD SMITH: Yes, thank you, Jen. First of all, what's important is to understand that every organization design, you try to balance the tension between what you don't want to break in terms of an alignment and experience with how do I get intense focus on the one or two biggest opportunities in front of us? And in the Small
Business space, we have a group of very seasoned leaders who are good at working collaboratively, regardless of whether they all work in one business unit or they work in a couple. Just to make sure we keep that
alignment clear, all the Small Business leaders have the same goal and that is to double our small business
active user base over the next several years.
The second thing we're doing is we're making sure that we do not break the customer experience. And so in
the Financial Solutions business, being led by Dan Wernikoff, he's responsible for having a harmonized
product experience across all the Small Business offerings. So they look and feel the same, there's a seamless unlock, it feels like you're a part of the same company. And the other part of the Small Business group
led by Dan Maurer, they're doing the same thing with sales and marketing and customer support. We have a
seamless product, marketing and customer service experience.

 Now why we split them apart is because if we look at going global, the kernel or the core of that ecosystem is
Financial Management. And small businesses define that as money in and money out. We call that QuickBooks and Payments.
And so those two put together become the core of our operating system around the globe. And as you all
know, our Payments penetration into QuickBooks today is about 6% and that's compared to our payroll penetration, which is much higher. And so we think by putting these together, we will not only accelerate Payments penetration into QuickBooks, but will also give us the foundation to go globally much faster.
The other ecosystem, which includes Demandforce, our payroll services and Quick base, those businesses
will continue to rely on QuickBooks for customers, but they also have their own ecosystem. For example, our
payroll customers today, 1.3 million of them, have 15 million employees that they pay W2s to. Those employees happen to be consumers that could use Mint and TurboTax and lots of other products. And so they
become an ecosystem in and of themselves.
The reason why we split them apart is we wanted to make sure we could get real focus on QuickBooks and
Payments around the globe and that we could also look at the ecosystem product that we'll continue to sell
into QuickBooks, but could also start to build out some of their own attach services. And we think by getting
that focus but keeping them aligned against the common goal, we'll get the best of both worlds.
JENNIFER LOWE: Thank you.
OPERATOR: James Ellman, Ascend.
JAMES ELLMAN, ANALYST, ASCEND CAPITAL: It really has to do with Obama Care ACA and potential immigration reform. There seems to be a disconnect out there on the street between the thought on H&R Block
and Intuit, that for some reason H&R Block will see a great deal of benefit from Obama Care and immigration
reform in terms of new filers and more dollars charged per return, but Intuit will not benefit from those two
pieces of legislation. Why is that and how are you prepared for Obama Care this coming tax season and potentially immigration reform after that?
BRAD SMITH: James, thank you for the question. And I agree that seems to be the sentiment out there and
we fundamentally disagree with it. The sentiment is because there's an implication that things get complicated, people are going to go somewhere to get help. If that were the case, taxes have been complicated for as
many years as we can think about. And if you look at the only category that has grown in the last 10 years,
and even this season digital grew 3% and tax stores were down between 1% and 2% according to the IRS.
Complexity does not lead people to go talk to a human being.
It is the Company's job to make it simple, and that's the job we've been in for 30 years, to make complicated
things simple. We fundamentally don't believe in the premise. I think there's some good stories out there in
the market that some people are buying into and we'll have to prove that we have a different story to tell and
that'll be our message as we go into next year, to make complicated things simple. And we can look at Tax as
a great example, complexity does not always lead to you a human being.
JAMES ELLMAN: And do you believe that the way Obama Care is going to run through the tax code that
your software will be able to handle the preparation for Obama Care for most of the filers who come to TurboTax?
BRAD SMITH: We do, absolutely. It'll be our job to make sure that anything that gets administered through
the tax code can be handled in our software and for us to make it so simple that you don't have any questions or concerns about it.
JAMES ELLMAN: And is there any room for revenue uplift per user because of the extra complexity of having to fill out the Obama Care?
BRAD SMITH: That's something we'll have to figure out as we get closer to understanding how the program
will actually be implemented. Right now, the most important thing we want to do is give 145 million potential
tax filers confidence that they could use software to handle this. And if that leads to either more customers or
greater revenue per customer, we'll work that out over time.
JAMES ELLMAN: Very good. Thanks so much for the time.
OPERATOR: Kash Rangan, Merrill Lynch.

 KASH RANGAN, ANALYST, BOFA MERRILL LYNCH: My apologies if this question has already been answered. Brad, wondered if you could give a quick update as to what are you doing on the retention side, any
steps to improve the retention? And also, if you could comment on the impact of the organizational changes
on the Consumer Tax business? That's it for me, thank you very much.
BRAD SMITH: Yes, on the retention side, Kash, it really comes back to making sure we delivered a great
experience in season and then making it easy for you to know when you come back next year that all the
data and the information that you plugged in this year is waiting for you and that we have smart insights and
recommendations to help you make better decisions as you do your tax return next year. We've done some
really good work this season to make sure that we understand the data and to begin to make smart recommendations for you if you come back and file your returns with TurboTax next year and we think that will lead
to good retention results.
In terms of the org change, we talked a little bit earlier about Sasan Goodarzi moving into Tax. Sasan's been
a seasoned General Manager for us. He's run multiple businesses, from software verticals in the early 2000s
to our Pro Tax business for a couple years to IFS, which is Digital Insight, and most recently as our Chief Information Officer moving us from shrink-wrapped software to the Cloud and working closely with our data
services team to understand how data can make products more compelling. He is absolutely the right guy to
move into Tax and build on the great foundation of his predecessor and take the game to the next level as we
put more energy into our Tax product.
KASH RANGAN: Great. Thank you very much, Brad.
OPERATOR: Thank you. And gentlemen, I'm showing no further questions at this time. Would you like to
close with any additional remarks?
BRAD SMITH: I do Sayid, thank you. And I want to thank everybody for their questions. I know we covered a
lot of ground today, hopefully the message is more clear. Personally, we view this as a very exciting time at
Intuit, as we're taking a bold step into the next chapter. We're making these changes from a position of
strength. We think it's going to further accelerate our progress, and we're really looking forward to sharing
our progress with each of you as we talk again in the coming days and months and looking forward to putting
more points on the board. Thanks for your time, and everyone have a great Memorial Day weekend.
OPERATOR: Ladies and gentlemen, thank you for participating. This concludes today's conference. You may
all disconnect and have a wonderful day.
[Thomson Financial reserves the right to make changes to documents, content, or other information on this
web site without obligation to notify any person of such changes.
In the conference calls upon which Event Transcripts are based, companies may make projections or other
forward-looking statements regarding a variety of items. Such forward-looking statements are based upon
current expectations and involve risks and uncertainties. Actual results may differ materially from those stated in any forward-looking statement based on a number of important factors and risks, which are more
specifically identified in the companies' most recent SEC filings. Although the companies may indicate and
believe that the assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate or incorrect and, therefore, there can be no assurance that the results contemplated in the forward-looking statements will be realized.
THE INFORMATION CONTAINED IN EVENT TRANSCRIPTS IS A TEXTUAL REPRESENTATION OF THE
APPLICABLE COMPANY'S CONFERENCE CALL AND WHILE EFFORTS ARE MADE TO PROVIDE AN
ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES
IN THE REPORTING OF THE SUBSTANCE OF THE CONFERENCE CALLS. IN NO WAY DOES THOMSON FINANCIAL OR THE APPLICABLE COMPANY OR THE APPLICABLE COMPANY ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY EVENT TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S CONFERENCE CALL ITSELF AND THE APPLICABLE COMPANY'S
SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.]
TRANSCRIPT: 052113a5076031.731
LANGUAGE: ENGLISH