Good afternoon. My name is Saiid, and I will be your conference facilitator. At this time, I would like to welcome everyone into its 4th Quarter Full Year Fiscal 2014 Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer period.
With that, I will now turn the call over to Matt Rhodes, Intuit's Director of Investor Relations. Mr. Rhoads, you may begin.
Thank you, sir. Good afternoon, everyone, and welcome to Intuit's Q4 fiscal 2014 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 ks for fiscal 2013 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 statement. Some of the numbers in this report are presented on a non GAAP basis. We reconcile 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. 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. Our fact sheet and press include new disclosures and other material to help you understand and model the financial impact of the strategic decisions that we'll discuss today. And with that, I'll turn the call over to Brad Smith.
All right. Thank you, Matt, and thanks to all of you for joining us. I've been looking forward to today's earnings call for two reasons. 1st, because we have some positive results to discuss and second, because we want to share some exciting strategic decisions that position us for accelerated performance as we look ahead. Let me begin with a positive result.
We closed out our fiscal year 2014 on a strong note with excellent momentum in each of our businesses. For the full fiscal year, total revenue grew 8% and earnings per share increased 9%. These strong results were in the context of an acceleration to cloud based subscriptions that shifted revenue into future reporting periods. The results also reflect a significant restructuring effort that we executed in our fiscal Q4 to reallocate resources to our online services and to drive a separate improvement in our products and customer growth. Adjusting for the impact of the related restructuring charges, our revenue, our operating income and our earnings per share would have been at the high end of our guidance ranges.
Stepping beyond the current period results, I'm even more excited about the choices that we're making for the future. To sum it up, we are fully committed to winning in the cloud. Over 3 decades, we've navigated several platform shifts from DOS to Windows to the web and in every instance, we see the opportunity to reimagine our offerings and extend our market leadership position And we're doing it again. We've been delivering cloud based services for over a decade with more than 30,000,000 Intuit customers using offerings across a variety of desk desktop and mobile devices. The benefits are clear.
Online experiences are simply better for customers. They expand our total addressable market and they generate more predictable, recurring revenue streams. Today, we'll discuss several decisions to further accelerate our shift to cloud based services, which will include changes that we're making to our desktop products that will lead us to recognize desktop revenue over time. The combination of these choices will create a transition year for our fiscal 2015 financial reporting. As we will explain, this is a short term impact and we fully expect our fiscal 2016 results to return to double digit top and bottom line growth in alignment with our financial principles.
Our outlook for fiscal 2017 is a company approaching $6,000,000,000 in predictable recurring revenue and generating roughly $5 in non GAAP earnings per share. Now with that context, let me click down and share my reflections on the company's current period performance as well as the strategic choices that we're making, starting with our small business group. I'm quite encouraged by the increasing momentum in our QuickBooks Online Ecosystem. This past quarter, we reached a strategic inflection point with more new to the franchise customers choosing QuickBooks Online over QuickBooks Desktop for the first time ever. The achievement of this milestone was driven by 2 factors.
1st, the secular shift to the cloud is now in full swing for small businesses, just as it was several years ago for our consumer businesses. This tailwind is in the early stages of development and it will continue for many years. And second, we've been accelerating this small business adoption of cloud services. Our catalyst is Our catalyst is the success of our QuickBooks Online offering as an open platform. This enables Intuit and 3rd party products to work together seamlessly in the cloud.
The new QuickBooks Online is one of the biggest breakthrough products that we have launched and it is living up to its billing. QuickBooks Online subscribers grew 40%, up from 36% in the previous quarter. We added approximately 60,000 net customers in a seasonally slower quarter. We closed fiscal 2014 with nearly 700,000 QuickBooks Online customers and more than 1,000,000 total QuickBooks subscribers. The new online experience enables the seamless purchase of additional services, as evidenced by our payroll attach rates improving to 19% in the 4th quarter, up from 16% a year ago.
The attach rate for active payments customers is currently 5%, also up from 3% in the prior year. These improved attach rates are contributing to an increase in the annualized recurring revenue per subscriber. And finally, the new QuickBooks Online is a global platform, which has significantly increased our total addressable market. Outside the U. S, QuickBooks Online subscribers were up more than 150% in the 4th quarter, further accelerating from the 130% growth last quarter.
Now shifting to our Consumer Tax business, the team delivered an exceptional year. As the category champion, we helped drive digital category growth compared with assisted tax prep methods such as tax stores declining 1%. The secular shift to do it yourself software is the continuation of a decade long transition to digital solutions and our efforts simply added fuel to the trend. Within the software category, TurboTax gained over 2 points of share, growing TurboTax Online units 14% and total TurboTax units 10%. Our investment in product improvements paid off with website traffic, conversion, retention and overall Net Promoter Scores improved in every single dimension.
Hitting the total key consumer tax revenue grew 7% for the fiscal year better than our original guidance of 4% to 5%. But as we shared, this was just the 1st year of a multi year journey towards our ultimate product vision. And the team has some exciting things in the pipeline as we look forward to the next tax season. We also had strong results in our Pro Tax and our Consumer Ecosystem businesses. Both businesses exceeded their internal plans, their external guidance.
They have a strong pipeline of innovative offerings in the works and they are definitely looking forward to another strong year in fiscal year 2015. When you sum up the results across the company, customer growth and more specifically subscriber growth is accelerating. Active use is improving, attach rates are increasing and global adoption has hit its stride, which takes me to my second reason for looking forward to today's call. The explanation of several strategic choices that we have made that will enable us to further accelerate the growth of our online ecosystem. First, as I mentioned earlier, we restructured our small business organization in the Q4 to increase the focus and investment on the QuickBooks online ecosystem.
The actions that we've taken improve our speed of decision making, they prioritize key functionality and compliance services that are necessary to win in each of the global geographies and they include some soon to be announced initiatives that will make it even more attractive for accountants and their clients to sign up for QuickBooks Online. We've increased our investments in R and D, sales and marketing and infrastructure to capitalize on a huge addressable market with our global ready QuickBooks Online offering. Our demonstrated success in fiscal 2014 convinced us that now is the time to make this investment. 2nd, in support of our goal to win every cloud decision, we're making important product changes to continue to delight our QuickBooks Desktop customers, many of whom will be cloud customers in the future. As you know, roughly 4,000,000 small businesses use QuickBooks Desktop.
Our goal is to attract them with compelling online experiences and incentives to move to the cloud. To that end, we are strengthening our desktop products beginning in 2015 by delivering ongoing experience releases. These will continuously improve the product experience, support operating system updates and provide access to connected services. These actions are designed to ensure that our desktop customers and their accountants remain our most vocal advocates today and become our cloud customers of tomorrow. As a result of these changes to our desktop products, we will begin recognizing desktop revenue over time as opposed to upfront at the time of purchase.
This change will apply to our future QuickBooks, ProTax and Quicken desktop products. This is a strategic decision in favor of the customer that will push about $400,000,000 of revenue from our fiscal 2015 into deferred revenue that will be recognized in future periods. We'll provide all the relevant disclosures for you to see and model the financial impact. For our small business group, the combination of these decisions positions us to more rapidly penetrate an enormous global market with a proven online ecosystem powered by the new QuickBooks Online. And as I said, the time to make these changes is now because the proof points are clear.
More specifically, QuickBooks Online is opening new doors with 75% of the new QuickBooks Online customers being first time customers to the Intuit franchise. The QuickBooks Online platform is increasing our ability to generate higher annualized recurring revenue through selling additional services seamlessly. To put the improved payroll and payments attached results into perspective, the annualized recurring revenue for our small business online ecosystem was up 34% this quarter. Add in the global opportunity and our total addressable market expands from 29,000,000 small businesses in the U. S.
To over 100,000,000 worldwide, if you only focus on the currently prioritized markets of Canada, the UK, Australia and India. The number of our weekly gross new subscribers that we're adding in non U. S. Market is currently averaging 2,000 per week. This is up from 600 per week just 1 year ago.
And finally, for the existing QuickBooks Desktop customers and their accountants, we have the best online solution and we will be introducing new initiatives to further incent them to move to the cloud. As a result, we do anticipate the number of desktop migrators will continue to increase meaningfully in the coming year. On that note, I'm going to turn it over to Neil to walk you through the financial details and our guidance.
Thanks, Brad. Let's start with overall company results. For fiscal 2014, we delivered revenue of $4,500,000,000 up 8 percent non GAAP operating income of $1,600,000,000 up 6 percent GAAP operating income of 1,300,000,000 dollars up 5 percent non GAAP earnings per share of $3.49 up 9 percent and GAAP earnings per share of $3.09 up 9%. For the Q4 of fiscal 2014, we delivered revenue of $714,000,000 up 13 percent non GAAP operating income of $2,000,000 a GAAP operating loss of $73,000,000 non GAAP loss per share of $0.01 and a GAAP loss per share of $0.14 We incurred a charge of approximately $40,000,000 in the 4th quarter, primarily as a result of small business restructuring effort that Brad explained earlier. This impacted our non GAAP and GAAP operating income and earnings per share.
We also sold our 11% stake in Reckon, which generated a gain of $21,000,000 in GAAP results. We've included a bridge in the fact sheet to illustrate this impact. Turning to the business segments. Total small business revenue grew 12% for the quarter and 10% for the year. Customer acquisition in our Connected Services businesses continues to be our primary goal and is driving growth in the QuickBooks Online ecosystem.
QuickBooks Online subscribers grew 40%, accelerating from the 3rd quarter. Small Business Online Ecosystem annualized recurring revenue grew 34%, driven by retention and improved attach rates. Annualized recurring revenue is a new metric that we'll provide on our fact sheet each quarter. We've defined annualized recurring revenue as 4 times the most recent quarterly revenue for our online offerings serving small business customers. This includes QuickBooks Online subscriptions, online payroll, online payments, Demandforce and Quickbase.
Within this context, our online active payments customers grew 4% and online payments charge volume grew 24%, driven by an increase in charge volume per user. Online payroll customers grew 25%. And global adoption of QuickBooks Online continued to accelerate as we finished the year with 84,000 paying QuickBooks Online customers outside the U. S, up from 32,000 a year ago. As the adoption of the cloud becomes more prevalent and we focus our energy and resources in this area, our recurring revenue will increase and QuickBooks desktop units will continue to decline.
In the 4th quarter, desktop units declined 10% and for the full year they declined 10%. The decline in desktop units in fiscal 2014 was more than offset by growth in subscribers as total QuickBooks customer growth accelerated to 6%. We expect total QuickBooks customers to continue to grow next year as we emphasize the QuickBooks online ecosystem even though desktop units and revenue will decline. We've described how the cloud is a better experience for customers. It's also a better business model for our shareholders since the lifetime revenue of QuickBooks Online customers is greater than that of desktop customers and it increases the predictability of revenues.
We provided details on our fact sheet to help you understand the unit economics of our online and desktop ecosystems as they stand today and we'll talk about the levers for growth as we execute against our top priority expanding the category while growing customers and share globally. Here's one way to compare online and desktop using fiscal 2014 as an example. As you can see on the fact sheet, online ecosystem revenue was $592,000,000 Using ending QuickBooks Online subscribers of 683,000, we generated more than $800 in annual revenue per customer. On the desktop side, dividing $1,600,000,000 in fiscal 2014 revenue by 4,000,000 customers, we generated less than $500 per customer. We've learned in our consumer tax business that we can use price and changes to our product lineup to effectively grow customers.
We've also proven that we can build lifetime value through improved retention and attached services. To drive customer growth in the QuickBooks online ecosystem, we'll continue to experiment with pricing, promotions and bundles that deliver value for more end users. We'll also continue to improve attach and retention to enhance lifetime value. This is our strategy to accelerate growth in customers and revenue over the next few years. Now let's look more closely at the financial impact of the strategic decision to provide ongoing support and services to our desktop customers that Brad described.
This decision will affect future sales of QuickBooks and desktop products where revenue we recognized ratably over approximately 3 years and our professional tax solution where more revenue will be recognized over the entire tax year. For customers, this enables seamless product enhancements as well as better care and online services ensuring that we keep our desktop customers happy and retain them in the Intuit franchise. They are our future online customers. For our employees, the strategic decision means clarity of work priorities, bringing up their time to build better online products. And for shareholders, this means more customers and faster growth longer term.
Desktop revenue will now be recognized over time, similar to how monthly subscription revenue is recognized. Now when we sell a desktop unit, the cash comes in and our deferred revenue balance increases. So you'll be able to easily track our progress on our balance sheet and cash flow statement. We're committed to transparency and clarity around the strategic decision and it will make modeling our business easier over time as the predictability of our revenue increases. We expect these changes to lower fiscal 2015 revenue by approximately $400,000,000 increasing deferred revenue by the same amount.
We've included a bridge in our press release and fact sheet that will help you understand the impact of this change in revenue recognition and accelerated QuickBooks Online growth on our revenue guidance for fiscal 2015. The best way to gauge the success and health of our small business ecosystem going forward will be through subscriber counts and annualized recurring revenue. We'll help you bridge reported results over the next few quarters to our historically reported results. Moving over to tax. Consumer tax revenue grew 22% for the 4th quarter and 7% for the year.
We'll continue to invest in the product experience and to prioritize growth and share and customers above margin expansion. Pro tax revenue grew 16% for the 4th quarter and 4% for the year. Our pro business also had a great season, which much of our customer growth coming in higher value solutions. One thing that has not changed is our disciplined approach to capital management. With approximately $1,900,000,000 in cash in our balance sheet, our first priority is investing for customer growth.
We also look for M and A opportunities. And in fiscal 2014, we made 10 acquisitions totaling approximately $550,000,000 We'll return cash to shareholders via share repurchases and we repurchased $152,000,000 of shares in the 4th quarter, about $1,900,000,000 remains on our current share repurchase authorization. We reduced our share count by 4% net in fiscal 2014 and we expect to be in the market consistently in fiscal 2015. Our capital plans include a cash dividend of up to $1 per share for fiscal 2015 with the Q1 dividend of $0.25 per share payable on October 20. This represents a 32% increase versus last year and reflects our confidence in our business strategy and our large and growing cash position as well as more recurring and predictable revenue streams.
Now let's move on to guidance. Taking into account the impact of the strategic decisions Brad described, our outlook for fiscal 2015 is revenue of $4,275,000,000 to 4,375,000,000 dollars Adjusted for the financial impact of the strategic decisions fiscal 2015 revenue guidance would have been growth of 5% to 8%. GAAP operating income of $800,000,000 to 830,000,000 dollars non GAAP operating income of $1,110,000,000 to $1,140,000,000 GAAP diluted EPS of $1.70 to $1.75 non GAAP diluted EPS of $2.45 to $2.50 Moving to our segment guidance for fiscal 2015. We expect QuickBooks Online subscribers of 925,000 to 950,000 for growth of 35% to 39%. Small Business Group revenue to decline 3% to 6%, but adjusting for the changes we discussed, revenue will grow roughly 10%.
Consumer group revenue growth of 3% to 4% with consumer tax revenue growth of 5% to 7%. And professional tax revenue decline of 34% to 37%. When adjusting for the change in our product, our pro tax revenue will grow approximately 5%. Guidance for our Q1 revenue, operating income, EPS and QuickBooks Online subscribers is available in our press release and on our fact sheet. Looking beyond fiscal 2015, we provided a longer term outlook in our fact sheet and press release.
Beginning in fiscal 2016, we expect to grow revenue double digits as we recognize the revenue we've deferred this year and continue to experience strong growth in our QuickBooks online subscriber base and ecosystem. We expect to grow revenue faster than expenses generating operating leverage. For fiscal 2017, we expect QuickBooks Online subscribers of approximately 2,000,000 an increase from 683,000 today providing compounded annual growth of more than 40%. Into a revenue of roughly $5,800,000,000 or 9% growth on average over the next 3 years and non GAAP earnings per share of approximately $5 reflecting low teens growth on average over the next 3 years. We've shared many new disclosures with you on our fact sheet breaking our small business customer metrics and revenue disclosures clearly into online and desktop ecosystems.
And with that, I'll turn it back to Brad to close.
All right, Neal. You had to cover a lot
of turf there, buddy. That's right.
So let me try to summarize it. We reached the inflection point and we are seizing the opportunity. Our company is focused on 2 strategic outcomes that we've spoken to you about in the past. Number 1, to be the operating system behind small business success. And number 2, to do the nation's taxes.
Our small business momentum continues to build and our QuickBooks Online ecosystem growth is accelerating, driving value for customers and for Intuit. We reorganized our small business group and prioritize investments that will further accelerate our online ecosystem globally, while ensuring the best product experience for existing desktop customers speeding up their move to the cloud. We have a proven formula into it. If we innovate and delight customers with the absolute best solution in the market, we will expand our categories, we will grow our share and we will increase lifetime value over time. So we're stepping on the gap to drive share gains and longer term growth opportunities in all of our businesses.
We have lots of runway in front of us and we remain deeply committed to accelerating customer and revenue growth. Now we're going to talk more about these themes and our strategy to execute against them at our Investor Day, which will hold on our Mountain View campus on September 30. And we look forward to seeing you there. As always, I want to thank our employees for their hard work and their ongoing focus. And with that, let's open it up to you to hear what's on your mind.
Saiid? Thank
Our first question comes from Brent Thill from UBS. Your line is open. Please go ahead.
Hi, good afternoon, Brad and Neil. Thanks for taking the question. Maybe Brad for you and then one for Neil. When you look at the adjusted revenue guidance of 5% to 8%, it seems like on an apples to apples comparison from past years, that is a little lower than where you've initially guided. It sounds like, if I'm reading this correctly, that the delta in that might be your willingness to be a little more aggressive on price.
I'm just curious if you could address that. And maybe for Neil, certainly we've all seen this with Adobe and Autodesk, the transition. But when you think about the very long term and you think about the operating margin structure, there's a lot of questions. Is this more profitable or less profitable? I'm just curious, I know you're going to give anything past the $5 in earnings, but is from your perspective, has this opened up an opportunity to effectively become a lot more profitable longer term?
Thank you.
All right, Brent. Thank you. This is Brad. I'll take that first one. First of all, as you identified, the guidance next year of 5% to 8% on an adjusted basis does reflect the fact that we've hit this inflection point and we realize the way to grow this company long term is to acquire new customers, the license so that they stay and then earn the opportunity to sell additional services.
We also recognize that in addition to focusing on customer growth, which is the first of that formula that we need to also have a good price value relationship. And we've talked about pulling back a little bit on some of the dependency we've had on price over the years in some of our businesses. And we've been making those decisions along the way, like the simplified payments price that we've talked to you about this year. When you put it all together though, I think it's important to look at the fiscal year 2016 2017 guidance we've provided where we clearly articulated that we can see a return to double digit top line and bottom line growth. So this is a 1 year transition next year and it is a reflection of us being very aggressive about expanding the categories, growing customer growth and then earning the opportunity to sell additional services over time.
And so, Brent, I would just say, as it relates to the margin, the outlook we've talked about for 2016 2017 clearly indicate we get back to where we were last year in terms of margin percentage. But as you know, we've talked about this a lot. We'd rather have operating income growth over margin expansion. If we can see more customer growth and more top line growth, we will invest more. And we're really focused more on the operating income growth in the dollars over the long haul than we are the margin percentages.
And so we'll see how that plays out and we'll see what's available to us and how much growth we can get on the top line that will determine how much we invest and spend. But as you see now we're expecting to get back in the same way a little better than we are today by the out years. Thanks.
Thank you. Our next question comes from Walter Pritchard from Citi. Your line is open. Please go ahead.
Great. Thanks. Just I guess Neil a question for you. You did very clearly outline on the revenue side the $475,000,000 impact. I'm wondering as we think about impact on EPS, should we just think about that $475,000,000 as dropping straight down in the bottom line in terms of headwind EPS in fiscal 2015?
And then I just had one follow-up as it relates to the implication for that.
I mean, the simple answer Walter is yes. I mean, that's the way we think about it. The $475,000,000 drops all the way through. And as you know, this is just a deferral of revenue to prior periods for most of it. So there's really no impact on marketing or product building expense.
So it's all margin compression.
And then it does
look like if I just adjust that out and it's worth about $1.25 in fiscal 2015. If I add that back to your guidance, you're slightly shy of where maybe we would expect you to guide and what the sort of margin progression that you generally had over the years. Is that just incremental spend above and beyond the transition behind trying to push online and other initiatives that you have going through transition?
Yes. I'd say it's 2 things Walter. First of all, it does reflect some additional investment in expansion outside the U. S. And moving more of our engineering resources to online products and services.
It also reflects that we didn't buy as many shares back in 2014 as we would have liked or as we had hoped. We were out of the market for a significant period of time during the tax season. And as you probably noticed late in Q4, our trading volume was unusually low for our shares. And so our original aspirations were probably to get more shares bought in this year than we were able to accomplish and that's the other piece of the EPS cap.
Okay, great. Thank you very much.
Thank you. And our next question comes from Kash Rangan from Bank of America Merrill Lynch. Your line is open. Please go ahead.
Hey, guys. Bold transformation. Congratulations on this initiative. Can you talk about the implied acceleration? It looks like fiscal 2015 is going to be a transition year, but as you look into 2016 2017, there is an implied acceleration in your top line.
How comfortable are you with that? And what are your assumptions behind the acceleration? Maybe it's a pickup in customer growth or ARR growth or attach or payroll and payments. If you could just walk through the quantitative considerations. And also, how should we think about your margin profile?
I know that your focus is on growing operating income. But as we look at your $5 non GAAP earnings target in fiscal 2017, what is the embedded operating margin assumption behind that? Thank you very much.
All right, Kash. Let us tag team. This is Brad. Let me start with the first piece, the implied acceleration. So 1st and foremost, you're going to have a benefit from the cash that we'll be collecting for desktop purchases in fiscal year 2015 that will show up as recognized revenue in 2016 2017.
But the bigger driver is customer growth and subscriber growth and it's recurring, it's predictable revenue. And as you can see, we continue to accelerate our subscriber growth in QuickBooks Online and that is the primary driver both in the U. S. And outside the U. S.
And new global markets. The second and third big drivers here is our ability to continue to deliver a more delightful experience. And so our attrition is being reduced and so customers are staying and actively using the product. And last but not least, as evidenced by the payroll and the payments attach rate that I talked about earlier, it's a much easier to sign up for additional services in QuickBooks Online. And so as we continue to drive additional attach services, we're going to be able to drive up the annualized recurring revenue.
So A, there is a bankable set of revenue coming in from the ratable revenue shift in 'sixteen and 'seventeen. B, we see continued acceleration of our subscriber growth, which is job 1. In addition to that, we'll continue to improve retention and then we'll have the ability to sell additional services, which we're already proving we can do in the QuickBooks Online and that drives the acceleration in top line revenue. And I'll shift it over to Neil to talk about the margin aspect.
Yes. I mean cash to get to the $5 a share that we've talked about for 2017 with that revenue level would indicate an operating margin in the mid to high 30s. That's probably one where we feel the most confidence and where we have the most ability to manage. Just going back to the comment I made earlier, I'd be totally fine if we got more revenue $5,000,000,000 $5 a share with a lower margin percentage than the way we're getting there now. But our assumption we have today is that the margin is back in the mid to high 30s by 2017.
That's truly tremendous guys. I don't cover many companies that have $5 in earnings per share coming up pretty soon. So congratulations on that.
Thank you, Kash. Thank you.
Thank you. Our next question comes from Sterling Auty from JPMorgan. Your line is open. Please go ahead.
Yes. Hi, guys. I wanted to start with I think the comment that you made that the transition would be complete after 1 year. A lot of times the subscription transitions take a couple of years to get to a point where you're seeing the normalized growth and normalized revenue contribution. Can you just walk me through how you get from here to completion and in what timeframe?
Yes. Let us tag team on this one again to Sterling. First of all, I think it's important to recognize that we've been on this journey for some time. We have a large number of customers already signed up on connected services and hosted products. Across the company, we serve about 45,000,000 customers and a little over 30,000,000 are already using hosted products and through mobile devices.
And so we've just reached this point in small business. And then as a result, we see it happening in the remaining businesses like ProTac. We said, let's just move this entire model now to a ratable revenue model and let's hit the gas on this cloud based adoption. And so what you see right now is a relatively short transition period for us because we're already so far down the journey and it gives us the ability to bounce back quickly to the double digit top line and bottom line growth that we typically generate. Anything you'd add to that, Neal?
Yes, Brad. Sterling, just a couple of other comments just to remind you of. The QuickBooks Desktop and Quicken would probably be over close to a 3 year life as we mentioned in the script. So those are a little longer. But the thing to remember is that all of our online customers or most of them for the large part pay monthly.
And so a pretty short transition period for those that are converting voluntarily from desktop to online services. As Brad mentioned, probably as much as a third of the impact of the ratable change is in our pro tax solutions. And those products are amortized over the tax year. So it will be a little longer than a fiscal year period for us, but not much longer maybe 15, 16 months. So the QuickBooks Desktop, the traditional QuickBooks Desktop and Quicken customers who might be over a longer period of time are relatively small part of the transition.
So that's why it's a little faster. The recovery is a little sooner than you might see with someone else.
And when you get done, will you have any products where you're recognizing the ratable the revenue ratably, but the use of the software can still be used perpetually? Or will everything be finally on kind of a term use?
Everything we have Sterling will be on a ratable accounting process. We will it is possible to use a desktop product. If you're not using any connected services and if you're not using any of the other products we sell that require connectivity, it's possible we continue to use it longer term. We don't support it after a 3 year period of time and all of your connectivity would be terminated. But you can still use it, you don't use any of that.
All right. Great. Thank you.
Thank you. Our next question comes from Gil Loria from Wedbush Securities. Your line is open. Please go ahead. Good question.
Gil, could you provide a little bit of free cash flow guidance just as a sanity check? It looks like your CapEx is going to be up, but the changes you're going through as you said are you're still going to collect the cash upfront. So does that mean approximately flat free cash flow given the higher CapEx?
We are spending a little more
in CapEx next year, Gil, than we have. The last few years have been unusually low for us at about $150,000,000 $175,000,000 We're constructing a new building in Mountain View beginning in 2015 and have some other costs that are pushing us above that a little above $300,000,000 So free cash flow will be roughly flat. Total cash flow up about 8% versus last year.
Got it. And then in terms of this international success of QuickBooks Online, is there one of those particular countries that's doing particularly well? And can you give us a sense ahead of Analyst Day, what are some of your early takeaways about what's driven that success?
Yes, Gil, it's Brad. Actually, each of the 4 countries are outperforming the expectations we had set for ourselves and we've raised those expectations twice in the year. What it really has come down to is we're treating each market individually in terms of making sure that we understand the local compliance needs. We are winning the hearts and minds of the accountants, which are the secret sauce to every country that we're serving. We have great country leadership in each of the 4 prioritized countries that I mentioned earlier.
And we are seeing the ability for us to get the same sort of adoption and then the word-of-mouth through high net promoter scores that we've seen in the U. S. So we now have a formula. Our team refers to it as a country in a box, which allows us to move from country to country, but that doesn't oversee the fact or doesn't overlook the fact that we have to make sure that we have the best product that is more local than the local competition. And then from there, we have to win the hearts and minds of the accountants and the customers who use the products that they will recommend it to everyone else.
And that really has been the formula. And we'll dive a little bit deeper and show you some things at Investor Day, but you're not going to hear a lot different at Investor Day than that. That is the secret sauce.
Got it. Thank you very much.
All right, buddy. Thank you.
Our next question comes from Raimo Lenschow from Barclays. Your line is open. Please go ahead.
Thanks for taking my questions. Two questions from me. First, to stay on cash flow, if I think about the 2017, Neil, how should I have a better cash flow than net income at that point of time? And is there any idea for you kind of to kind of maybe start guiding on cash flow because given the more subscription focus of the business that will be a bigger focus? And then just a quick one for Brad on the desktop side and the new program that you're rolling out there.
So how do I have to think about that? Is that kind of basically just trying to get them closer to online so that I convert them over time? Or are you expecting them to be still desktop customers?
And do
you just want to protect them from kind of going to someone else? Thank you.
Hey, Raimo. This is Neil. I'll start off with your first question. I do think we can provide more clarity around cash flow. We'll do that at Investor Day as far as where we are today and what our expectations are.
I wouldn't necessarily expect cash flow to outpace revenue by the time you get out to 2017 and beyond. As I mentioned earlier, our model is for most customers to pay us monthly. That indicates they've got high engagement with the product and it's a way that really encourages and accelerates customer growth. I'll think about that more between now and then. But my first reaction is, I wouldn't expect cash flow to be significantly faster growth than customers or revenue by
the time we get fully implemented into ratable. Raimo, it's Matt. Cash flow growth should be steadier because we're still getting cash when those customers buy the products from us on the desktop side. And you're going to see revenue growth and earnings growth pick up as we recognize the revenue in later years for folks to buy it now, but the cash will keep coming in. So the growth is going to be a little steadier there.
You'll see more acceleration on revenue growth and op income and EPS growth.
Okay. And Raimo, I'll take the second question. And I'm really glad that you asked it because it gives me a chance to explain it for everybody on the call. So you asked about the desktop, announcement that we made today and why we're going to provide ongoing releases and what does that mean in terms of the outcome for customers. Well, let me start by saying what it does not mean is adding new features to QuickBooks Desktop.
We describe these as experience releases, because we have the opportunity to build more self help, eliminate some of those niggling things that we know have been getting in the way of desktop users today and also connect some important services like e invoicing or what we've talked to you in the past is Intuit Commerce Network, the ability to send an electronic invoice and they get paid back electronically and move money in a frictionless way. Those kinds of services we know were delighters and they're really important to keep those customers happy and in the Intuit franchise. So that's what we wanted to do. Why we're doing that is because not only are small businesses getting increasingly comfortable with the cloud, but as you know, the accountants relationship is critical. And we have accountants out there today who have some of their customers in the cloud with QuickBooks Online and some of their customers in the desktop.
And what we want to be able to do is make sure we support both of those customers and keep them as Intuit advocates. And then as they get increasingly more comfortable, their accountant along with our own incentives and our opportunity to earn their trust, we will move them to the cloud. Ultimately, our goal is to get them very comfortable with the cloud and help them move to the future, because we absolutely know that is a better experience for them. It's a better experience for their accountants and it's a win overall. So what we're doing now is we're not leaving any of our QuickBooks Desktop customers behind, but we are putting all of our new energy, all of our new features and all of our opportunities into the cloud and we're going to help those customers make it to the cloud on their timeframe, not ours.
Perfect. Thank you. That was very clear. Thank you.
All right, buddy. Thank you. Thank you. Our next question comes from Jennifer Lowe from Morgan Stanley. Your line is open.
Please go ahead.
My first question maybe just to follow-up on that thought there Brad. You've talked in the past about the ability to charge a premium for QuickBooks Online because it's in a premium experience. To the extent that you are rolling in some of these new experience
features for the desktop product, does that
give you more flexibility on for the desktop product, does that give you more flexibility on desktop pricing?
Well, Jim, one of the things I'd like to not do today is talk a lot about pricing, because we haven't announced anything and we'll do that a little closer to when we release products and we meet you at Investor Day. What I would say though is that we're clearly looking for the opportunity to incentivize customers to move to the cloud. And as you mentioned, today we or Neil described, we get about $800 in annualized recurring revenue with QuickBooks Online today, and it's a little less than $500 on the desktop. We have opportunities in both areas to look at different pricing strategies and different bundling strategies to help customers move to the cloud. And we'll talk more about that as we go down the road.
But ultimately, our ultimate goal is to make sure we're delivering a good value for the price so the customer stays with us and does not choose another alternative. And you'll see that show up in some of the decisions that we'll make in the coming months.
Great. And my other question, hopefully a quick one. Everyone's asking about small business, but that's only one of the major franchises you have. As you think about the fiscal 2017 guidance and overlaying that with some of the commentary around last year being kind of a rebuilding year in the tax business and an expectation that the growth there should improve over a multi year horizon. Is there any expectation in that fiscal 2017 guide that there'll be an improvement in the growth rate in tax?
Thank you, Jen. We do have a lot of other good businesses here. And I have to say, our consumer tax team is probably startled that tax hasn't come up yet until this point in the call. So that's very exciting for a lot of reasons. We have provided a multiyear guidance on the tax business of 5% to 10 percent.
Obviously, this year we delivered at 7% and we said that this is the 1st year of a multiyear journey and we're encouraged by some of the things our team is working on for next year. But we aren't at this point prepared to adjust anything. You can assume that as we look at our long term model, that's the guidance that's kind of giving us the confidence that we can put out there in 2017 outlook like we did today and feel pretty confident in it.
Great. Thank you.
Okay. Thank you. Our next question comes from David Togut from Evercore. Your line is open. Please go ahead.
Thank you. Neil, could you comment on what you see as the biggest risk factors in the fiscal 2017 earnings guidance that you've given out today?
Well, Dave, that's a good question. I think the key components, if you think about the online subscriber growth, we've talked about for QuickBooks. It's a big number. It's a aggressive growth rate, but we feel pretty confident about that. We talked about the margin percentage and I mentioned that's one of the areas where I feel like we have the most control.
Clearly, we put this outlook out with concerns and with situations pretty much steady state in the global economy and other external factors. Probably the biggest risk we that I would think of is something external to Intuit that will happen in the markets or would happen to some of our customers or things like that. I think the things are embedded in the guidance we provided for 2015 and our outlook for 2016 and 2017 have taken into account things that are in our control. We feel pretty confident about those.
Just as a quick follow-up on that Neil. In the QuickBooks online subscriber target for 2017, how much of that number is from new subscribers versus transition off of the desktop franchise?
We definitely think the migration is going to continue to accelerate and there's some things we're going to be doing to do that. Probably a 4th roughly of that number would come from our existing base moving over. Brad, is that what you would expect?
Yes, it is. We do believe that that's pretty much the range that we've got in our sub growth right now for 2017. Obviously, we'll view it more successful if we can get more of those customers off the desktop into the cloud, but we're trying to be realistic and pragmatic about what we think those customers will be ready to do in the next couple of years.
Just on that point, Brad, what major functionality is still not in QBO that's in QB Desktop that you need to add to QBO over the next 12 months to 18 months?
Yes, David. Obviously, we have some work still to do in a few key areas, sales form customization, job costing and inventory are the ones we hear the most from our small business customers as well as from the accountants. The good news is those are all on the roadmap. We did the acquisition of a small inventory company called Lettuce a couple of months ago and our teams are diligently working to integrate that more deeply into the customer experience. And so we believe by the end of this fiscal year that we're going to have the majority of the key functionality that we need for the largest portion of our customers up and running in QuickBooks Online.
In each of the different geographies, there's typically a small compliance piece that we have to have done in each of those countries and we believe we'll have that fully in place by the end of this 1st fiscal quarter. So we're well on our way and I don't want that to be the reason that people think that the migration isn't happening quickly because today we actually have enough functionality for 70% of our QuickBooks customers on the desktop to move over. It's simply our opportunity to earn the right to get them to move to the cloud and that's where we're putting our energy.
Thanks. Just a quick final question. Neil, do you have a view on possible fiscal 2016 adjusted EPS? That's the one number that's not quite in the guidance.
David, we're not going to talk about that at this point. We may we'll give you some more direction at Investor Day possibly, but we're not going to pin something down at this point. We want to have as much flexibility to get as many customers as we can over the next couple of years. So we're not going to get more specific than just tell you that we expect double digit revenue growth and margin expansion next year.
Understood. Thanks so much.
All right. Thank you. Thank you. Our next question comes from Scott Schneeberger from Oppenheimer. Your line is open.
Please go ahead.
Thanks. Good afternoon, guys. I have 3 separate thematic questions and I think I was going to ask them in a different order. But I'll just play off that last question. Neil, I think last year you provided share count guidance and I haven't seen it in the releases today, maybe I missed it.
For fiscal 2015 and then ideally if you had a thought on fiscal 2017? And if not just to give us a feel for how aggressive you think you'll be with buybacks after lighter than expected in fiscal 2013 or 2014? Thanks.
Yes. Scott, the floor we usually think about is at least offsetting any dilution from stock based compensation. So we look at the shares we issue every year and that kind of provides a minimum level we'd like to acquire. And beyond that it just goes to what's our availability? What other opportunities we have to invest our cash during the year?
And other things that we may be considering or have in the pipeline. So we don't typically set a maximum level. We've got I mentioned we got almost $2,000,000,000 remaining on our authorization. But we never had trouble getting more authorization if we had the opportunity based on funding and things like that. But you might think of at least enough to keep the share count flat as a minimum level.
Thanks. And just a follow on to that. 10 acquisitions this year, dollars 550,000,000 spend if I have those numbers right. As a group, obviously, small in size. Is that the M and A strategy going forward?
Or might we see some large? Thanks.
Yes. Yes, Scott. We have a strategic game plan in each of our businesses. And as you just pointed out, our track record tends to be looking at talent or technology tuck ins that accelerate our time to market to execute those strategies. So if there is an opportunity that comes along that may be larger in size and it made strategic sense, we wouldn't say no, but that's typically not the kind of acquisition we do.
So I think you could continue to anticipate these kinds of acquisitions and they really are adding acceleration to each of the business units.
Okay. Thanks. And swinging over to operational guidance. Brad on for tax for fiscal 2015, I think 5% to 7% is the revenue guidance. Could you give as you have in years past the breakdown individual federal returns, software category share, TurboTax share revenue per return?
Thanks.
Yes. Scott, we're going to dive a little deeper on that at Investor Day. It's still the same four levers and we'll show you what we anticipate in an outlook for fiscal year 2015 at that time. So I'd like to just hold off on that if you don't mind until we get to the end of September here September 30. And that'll be a reason for you to show up and get a chance to see you and talk to you then.
Sounds good. I'll be there. And then last one and it might get the same answer. But with regard to QuickBooks Online, last year at Investor Day, you said, I think it was bridging for 5 year, which would be I guess out to fiscal 2018, dollars 2,000,000,000 incremental QuickBooks U. S, dollars 1,000,000,000 incremental QuickBooks Global.
And now for fiscal 2017, it's a growth of 2 I think it's $1,000,000,000 not
$1,000,000 The
is there any change to that? Or is that consistent? Just might be measuring apples and oranges there, but wanted to get a little clarity.
Yes. No, actually Scott, I'll give you one on this one. I won't make you wait till Investor Day. Thanks. So headline number 1 is your numbers are correct.
We have an aspirational goal of adding 3,000,000 more QuickBooks customers by 2018. We've articulated today that we can see our line of sight to $2,000,000 with a high enough degree of confidence that we're going to actually tell you today for 2017. I would also tell you that we are pretty prudent and sometimes conservative in trying to make sure that we feel we can put something out there that we can achieve. And so just anticipate that our teams have a different goal than what we're talking to you about and our full commitment is to get to that $3,000,000 number by 2018.
Okay. Thanks guys. Good luck.
All right.
Thank you. Our final question for today comes from Jimmy Goll from First Analysis. Your line is open. Please go ahead.
Yes. Good morning guys. Could you give a little more about the organizational changes that go along with your new components of the online and desktop and how that works globally as well?
Yes, Jim, it's Brad. Happy to do that. What we ended up doing in small business is we took what had been standalone business units, small business financial solutions, small business management solutions, which as you know broke down into QuickBooks, payroll payments and then Demandforce and Quickbase. And we said we now need to move to 1 small business ecosystem with the top priority being online global subscriber growth. So we brought all those businesses together.
We reallocated our engineering to focus on the online platforms. And then we basically put our energy in making sure that we got rid of the redundancy where you end up in a Noah's Ark model. Every one of those businesses had one of everything. And when you put them together, we ended up with 3 or 4. And so we had some inefficiencies there and that allowed us to reallocate resources against the things that would help accelerate our global expansion.
So that was really the crux of the org structure is uniting these 4 individual businesses into 1 online ecosystem and putting all the energy and resources into getting to the cloud globally. There was one other aspect of it, Jim, which is customer care. As you move to a new customer care model in a mobile world, customers expect quality to be built in. If you're using a mobile app, they don't expect to have to call someone. And if they do, there's all kinds of new analogs like the Mayday button from Amazon.
So we put more energy into our customer care model for the future. And we made some decisions to move out of pieces of customer care that we don't think are core. And we found good partners who will handle that piece of it for us and that impacted some of our organizational restructure as well. But all that is under the context of more energy and more resources to online and global with mobile devices.
Great. And going back to some of the other questions. As you add these experiential features to the desktop, you mentioned increasing attach on payments, but what are your thoughts on attach broader than that for the desktop people as you kind of ease them to the cloud?
Yes. Jim, you just touched on an important piece. We don't think we're tapped out in terms of attach rates for QuickBooks Desktop. We do think, however, we've allowed things to get in the way of the customers being able to have a more seamless experience. And quite honestly, our engineers have been hamstrung.
They haven't been able to work on those things, because if they did, it would impact we had to account for the revenue. So we've eliminated those barriers. And we're going to have the teams focused on making that a more seamless experience, which allows us to get even improved attach rates in desktop, while we build all the new stuff in QuickBooks Online. So your assumption is correct. We should have the ability to continue to get attach rates in payroll and payments in the desktop, while we put all of our energy into the cloud.
Great. Thanks very much.
Thank you. I'm showing no further questions at this time. Gentlemen, would you like to close with any additional remarks?
Yes, Syed, I would. I just want to thank everybody. We know we hit you with a lot of we think very important and different information today. If I could just summarize it for you, we're coming out of fiscal year 2014 with accelerating momentum. We really like our trajectory and we're making the decisions today to build an even stronger future.
And I'm hoping that we're going to get a chance to see all of you on September 30 in Mountain View for Investor Day, where we'll share even more information and break this down and be able to walk through it and talk to you about any questions you may have. But in the meantime, everybody have a great weekend and we'll speak with you 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.