INTU

Intuit Inc. (INTU)

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Intuit (INTU)

Q4 2011 Earnings Call

August 18, 2011 4:30 pm ET

Executives

Scott Cook - Co-Founder, Director and Chairman of Executive Committee

Matthew Rhodes -

R. Williams - Chief Financial Officer and Senior Vice President

Brad Smith - Chief Executive Officer, President and Director

Analysts

Laura Lederman - William Blair & Company L.L.C.

Adam Holt - Morgan Stanley

Michael Millman - Millman Research Associates

Sonya Banerjee - Jefferies & Company, Inc.

Peter Goldmacher - Cowen and Company, LLC

Brent Thill - UBS Investment Bank

Kartik Mehta - Northcoast Research

Priya Parasuraman - Wells Fargo Securities, LLC

Scott Schneeberger - Oppenheimer & Co. Inc.

Kenneth Wong

Gil Luria - Wedbush Securities Inc.

Bhavin Shah - Macquarie Research

James Macdonald - First Analysis Securities Corporation

Kash Rangan - BofA Merrill Lynch

Presentation

Operator

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.

Matthew Rhodes

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.

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 Tax business. They represent the majority of the company's revenue and operating income, so our ability to continue driving strong growth in these 2 segments is critical.

The good news is we've managed to do just that. Despite the recession, Small Business revenue has grown at a compounded annual growth rate of 9% over the last 5 years, and we're exiting fiscal 2011 growing at 12% year-over-year. In Consumer Tax, we've grown at 13% compounded annually over the same 5-year period.

The success of our Small Business Group comes from a tried and true focus: expanding our categories, converting nonconsumption and increasing the revenue per customer over time. Our teams are innovating in exciting ways to attract new customers and increase the lifetime value. In fiscal 2011, we grew Small Business revenue double-digits and we expect another year of double-digit growth in fiscal 2012.

There is a unifying theme across Small Business that gives us confidence this performance is sustainable without any help from the economy or across-the-board price increases. That theme is a favorable mix despite slower-than-expected customer growth. And why? Because our core customers, especially those that are new to the Intuit franchise, continue to demand and adopt connected services that are more valuable to them while delivering better long-term economics to Intuit.

Let me illustrate a few examples to make this point clear. In Financial Management Solutions or QuickBooks, we're rapidly growing customers and revenue in QuickBooks Online and our QuickBooks Enterprise products. A typical QuickBooks Online customer who only purchases the Financial Management Services pays us $24.95 a month. By comparison, an average QuickBooks Pro desktop customer pays about $200 for the software every 2 to 3 years. So the mix shift to QuickBooks Online, as well as QuickBooks Enterprise, which carries an even higher price point, is quite favorable.

In Employee Management Solutions, or Payroll, the same holds true as our average revenue per customer continues to increase. This is driven by stronger direct deposit attach and the ongoing mix shift to our online payroll services and to more advanced payroll solutions that carry higher lifetime values.

In payments, overall customer growth is being driven by the rapid adoption of our popular mobile solution, GoPayment. Overall merchant growth is now being complemented by improving charge volume for merchant as well. So while the economic environment for small businesses isn't getting better anytime soon, the reality is payment hadn't really gotten better since 2008. We simply found ways to serve our customers and to grow in the challenging environment.

If you look at our other core business, Consumer Tax, we remain focused on the key levers for revenue growth that you know so well: expanding the tax software category, taking share and improving revenue for filing. We had another great tax season, growing units 12% and revenue 13%. This came despite a tough comparison versus fiscal 2010, as well as shifts in our competitors' strategies throughout the tax season.

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