All right. Good morning, everyone.
Good morning.
Welcome to Intuit's annual shareholder meeting. It's nice to see familiar faces in the audience as always, so welcome back. For those of you I haven't had the pleasure of meeting in person, my name is Brad. I serve as our company's Chairman and Chief Executive Officer. Our agenda this morning is pretty simple. Following the formal portion of our meeting, I'll spend about 20 minutes giving you an update on the state of the company's performance. Then from there, we'll take your questions, anything that's on your mind. I'd like to first begin by making a few brief introductions, and I'll start with members of Intuit's board of directors who are in attendance this morning, and they're seated throughout the room, so I'm just gonna point and ask them to raise their hands so you can see them.
I'll start with our founder in the back, Scott Cook. Thank you, Scott. We have Eve Burton sitting here. We have our Lead Independent Director, Suzanne Nora Johnson. I will tell you, we have one of our directors who is in Davos, Switzerland presenting, so she's not here today, but I'm delighted to have her on our board, and she has served us well for many years. That's Diane Greene. We also have Dennis Powell, Raul Vazquez, and we have Rick Dalzell as well. So it's a pleasure to have our board here. We also have members of our independent outside audit group, and that is Chris and Brian from Ernst & Young back in the back. Gordy Davidson , who has been our longtime outside counsel and business partner. We have Mr. Chris Hummel sitting over here from Broadridge, who'll be serving as our Inspector of Elections.
Now, also throughout the room, in addition to you, we have members of management, and so I won't go through introducing all of them, but they're here to support you and answer any questions you may have. With those introductions, let me begin by bringing Laura Fennell up. She is our Corporate Secretary and General Counsel, and she will be doing the formal portion of our meeting this morning.
Good morning. Would you like coffee? Tea, sorry. Thank you, Brad.
I'm sophisticated.
Okay, I have an affidavit from Broadridge certifying that notice of this stockholder meeting was properly mailed on or about November 23, 2016 to all stockholders of record. Our stockholders have had access to the proxy statement and annual report, as required by SEC rules. I also have a list of registered stockholders entitled to vote at the meeting, and the Inspector of Election has executed his oath, which will be filed with the minutes of the meeting. Broadridge has counted the votes cast on each proposal, and Mr. Hummel has informed me that we have a quorum. The polls are now open, and does anybody need a ballot to vote? All right. At this meeting, stockholders will vote on four proposals described in the proxy statement. Following the vote, Mr.
Hummel will tally ballots and proxies to determine which proposals have been approved, and I'll announce the preliminary results, which he's already given me. Proposal number 1 was the election of nine directors . Proposal number 2 is the ratification of Ernst & Young as Intuit's independent registered public accounting firm for fiscal year 2017. Proposal number 3 is the approval of the amended and restated 2005 equity incentive plan. Proposal 4 is the advisory vote on executive compensation. Management recommends that you vote for all 9 director nominees in proposals 2, 3, and 4. Proposals 2 and 3 must be approved by a majority of the shares voted. All right, the polls now are officially closed. The final vote total to be published on a current report on Form 8-K, which will be filed, we expect, within 4 business days.
Mr. Hummel has informed me of the following preliminary results. First of all, Intuit stockholders have elected all nine nominees named in our proxy statement to the board of directors, ratified the selection of Ernst & Young, approved the amended and restated equity incentive plan, and advised of their approval of our executive compensation. That concludes the formal business today, and the formal portion of this meeting is now adjourned. In just a minute, I'll turn it back over to Brad. Before he speaks, I wanna tell you that his remarks may contain forward-looking statements, and there are a number of risks that may cause actual results to differ materially from our expectations. For more information about these risks, please see the webcast version of this presentation, as well as our SEC filings, which can be found on the investor relations page at intuit.com.
That's it, and I'll turn it back over to Brad.
Thank you, Laura.
Yep.
I do wanna make one other introduction, Mr. Jeff Weiner, who's also one of our independent directors. Thank you, Jeff. Good to see you this morning. Fiscal year 2016 was an exciting year at Intuit. It was a year where we demonstrated real momentum in our company's transformation to a global cloud-driven product and platform company. What I wanna do this morning is spend about 20 minutes putting our results and our momentum into context for you, and also share with you our game plan to continue to accelerate our performance as we look ahead. To do that, I wanna begin by looking back, and since many of you are familiar faces, you'll recognize a couple of these slides. You may remember in 2012 that I shared with you this sigmoid curve, this growth curve.
It's something that business schools use and business consultants use to illustrate where are you on the growth trajectory as a company. We had exited the recession with faster momentum than most. You know our products well. Our products are designed to help people manage their finances, to help small businesses manage their cash flow, so our products are needed most when times are tough. As we exited the recession, we had real momentum, but in 2012, we began to notice something. Our momentum started to slow. Now we weren't out of gas, but if you plotted our growth on this S-curve, we were about here. We were having to work really hard to get to that next result. We stepped back, and we assessed everything. We looked externally.
What we saw were four fundamental shifts that we've talked to you about before that we're beginning to shape the behaviors of our customers and require us to think differently about how we built our products and services. The first was the era of social media. Now, whether or not you're on Facebook or LinkedIn or Twitter, the facts are that social media has begun to shape how we operate and think differently as human beings. We no longer wanna be customers, we now expect to be participants. We have ringtones that are unique to our phones. We choose what news we wanna follow, what friends we want to invite, and that requires companies to not only build products now, the products need to be platforms.
Platforms that enable you to personalize that product experience to be just unique to you, but also allow others, like developers, to build apps that will work with your product. The second major shift was the shift to the cloud. With the cloud, the borders came down. The borders between geographies disappeared, and the expectations that your app would work across your PC, your phone, your tablet, became the expectation. We knew we needed to embrace becoming a cloud-driven global services company. The third was the experience around mobile. In 2007, we had seen the computer move from the desktop to the palm of our hand in the form of a smartphone. By 2012, it had already started to become wristwatches, eyeglasses, even in Tesla automobiles.
We knew we were gonna have to begin to think about mobile first in everything we started to design, without forgetting our desktop customers. Last but not least, was the importance of data. With data comes magical things. Data gives you the ability to reduce friction and ask fewer questions. It also gives you the ability to give you insights you could have never known. It also invites bad elements, like cybercriminals. We knew we needed to step up our game to continue to protect and secure that data in the cloud by using data to make our products more magical for you. Now, these were four fundamental shifts that could be catalysts for growth or sources of potential disruption if we failed to execute.
We looked at ourselves and said, "We've gotta change." We began a four-year journey to transform from a North American desktop software company to a global cloud-driven product and platform company. 2012, we refreshed our strategy to focus on awesome product experiences that were increasingly mobile. We opened up our products into platforms that would enable third parties and developers to build on it, and we began to use data to create magical experiences. We also, in the fall of 2013, narrowed the company's focus. We said there are two goals we wanna set out to deliver. We wanna be that operating system behind small business success, and we also wanna do the nation's taxes in the U.S. and Canada. To do that, we moved over to the spring of 2014, and we began to rewrite our technology.
We are a proud 34-year-old company, a company that was born in the era of DOS. We have to continuously refresh our technology and make sure that it's contemporary and agile for the next generation. We've been tearing down our monolithic code bases and rewriting them as services with something called application programming interfaces. Basically, connections that allow other people to write to our code so that together, we can deliver and solve more important problems. Last but not least is we looked at our portfolio of products. We had really good businesses that did not fit as we looked ahead, and we found them better homes. Most recently, Quicken, QuickBase, and Demandforce, we divested and found new owners, and they're all thriving in their next chapter. This was a lot of change over 4 years.
It was difficult, but it was proactive change executed from a position of strength. I'm proud to tell you that the company you support was able to execute through this change while continuing to deliver results. During this period of time, we accelerated the number of customers coming onto the cloud-based products while also continuing to serve our desktop customers well. We now get almost three-fourths of our revenue in the bottom middle here from monthly subscriptions and predictable recurring revenue streams. Last but not least, we've begun to expand our footprint outside the U.S. What's most exciting is it has opened up the potential we see ahead of us and doubled what we call as our total addressable market. We now have 2x the opportunity that we had 4 years ago. How is that?
Well, first of all, with the cloud and mobile, we're now growing our categories for the first time in 10 years. No longer does a prospect have to walk into a retail store, stare at a box of software, make a mental commitment that this year I'm really gonna do it, and take that box and then go home and try it. Now they can download an app on a mobile phone. They can log into a website, begin using the product for free, 30, 60, 90 days. If they start getting value, then they start paying for it. This has allowed us to now get eight out of 10 of our new QuickBooks customers into the category for the first time. The do-it-yourself tax category is growing five times faster than tax stores. Our categories are growing.
The second is that courageous decision we made to not only have products, but to open them up as platforms and allow others to begin to build on it, is allowing us to solve additional problems. Not only are we getting a better attach rate to our own products, like payroll and payment, but now it works with PayPal, with Square, with American Express, with Bill.com, and lots of other third parties. Every time a customer attaches a third-party product, the retention of our product goes up. It becomes more sticky. Last but not least, we are starting to get momentum outside the U.S. We exited July 31, that was the end of our fiscal year, with a 45% growth rate globally. We exited the first quarter this fiscal year in October with a 50% growth rate. It's accelerating even as the base gets bigger.
When you put that all together, that change has enabled us to reposition the company on the growth curve. We're now about to catch the next acceleration of growth. If you want proof, those results showed up in the last fiscal year. Lots of numbers on this chart. If I had to summarize them, I would say that last year in fiscal year 2016, we were able to exceed the top line of our guidance on revenue, non-GAAP operating income and EPS, and even our QuickBooks Online subscriber forecast, we exceeded the high end of what we had guided. That momentum continued through October thirty-first of this year, as we once again were above the top end of our guidance range on each of these key indices. I feel really good about the change we've executed and the momentum we've built. You know us well.
We are constructively dissatisfied. We know there are things that we can do better, and we need to do better if we're going to capitalize on the full potential. If you'll give me a couple minutes, I'm gonna walk through these key drivers that produce the results I just talked about, and I'll tell you where I feel like we've made traction and where I know we have to take our game to the next level. First, our culture. Our company was listed for the fifteenth year in a row as one of the top 100 best places to work, one of only two technology companies since this list was produced that has been on the list each and every year. I'm proud of that. At the same time, I will tell you, we're learning how to operate as an ecosystem. TurboTax now needs to work closely with QuickBooks.
That means teams have to get together, they have to argue and debate and make decisions. Our challenge is how to do that as fast as a startup at the scale of a big company. We are working on speed. Speed is what we need. The second thing is customer delight. Our products continue to get better, and our teams are focused on making them easier to use and produce better benefits for our customers. That's showing up in Net Promoter Scores, in star ratings on the app stores, but the one thing that you'll see us focus on the right is everybody has a particular question or a problem they're trying to solve when they choose to purchase our product. That's called your unique customer benefit. We're working hard to personalize, understand what that is, and solve that problem for you better than any other alternative.
I'll talk more about that in a minute. We are starting to become an ecosystem. We now know, for example, 1 out of 2 small businesses fail in the first 5 years. The number one way to increase their odds of success is to connect them with an accountant. Their success goes up 89% if they work with an accountant, and we're starting to do more of that. But on the right-hand side, we have not unlocked something called a network effect. A network effect is simply the more people who participate, it creates more value for everybody else. A simple example is eBay. More sellers who have more stuff to sell attracts more buyers who come in, and the more buyers who come in attract more sellers, and it becomes this virtuous cycle that gets stronger even while we're sleeping.
We have 6 opportunities inside of our ecosystem we think that we can create network effects, and we're working hard to unlock one of those and create that viral growth. Technology, I mentioned. The neat thing about being 34 years old is you get a chance to kind of get back in shape every year and try to make sure you're staying ahead of everybody else. We are doing that. We have to continue our journey on the right-hand side to get our code written into services and to make sure it's hosted in world-class facilities like Amazon Web Services, so that we can have our data uptime and the quality of service at the levels we know our customers expect. I'm gonna talk more about data in a minute. Data is the key to the next chapter.
The products and services that we produce solve problems that people know are required but not desired. What's that mean? Very few people wake up excited to do taxes or to pay a bill or to do the things that we actually help them solve, like accounting. If we can use data, we can automatically make a lot of that stuff go away so you can get back to doing the things you wanna do, which is living your life and working with your customers. We've got to work hard on getting that data and combining it with machine learning. Machine learning is like IBM Watson. How do we do things for you so you can get back to doing the things you wanna do? To do that, of course, we have to protect and secure the data.
I'm very proud to say that this year, the IRS, the states, and the industry worked together and collectively shared our best practices and wisdom and reduced the fraud in the U.S. tax system by almost 50%. We know somewhere, in some geography around the world, there is a cybercriminal who's not sleeping. We have to continue to remain vigilant. Last two points very quickly. While we have expanded our total addressable market, we're now moving into new countries. We're still in the early games of really optimizing our playbook so that we can get the maximum growth out of those opportunities. Financially, while we're producing good results, we've made a commitment to you that we believe we can grow this company double digits on revenue while expanding margins, and we have to keep putting the plans in place to do that.
There's a lot here. If you take anything away from this, I would say there is a strong foundation upon which to build. There is clarity around the areas we know we're not performing at the levels we expect of ourselves, and we have a game plan to capitalize on those so we continue to get stronger every day. The last point I'm gonna make before I get to the game plan is we continue to have our eye on the horizon. It's very easy in management to stare at the dashboard and keep an eye on all those metrics. But if you're not looking out the windshield, you could run right off the cliff. We see five fundamental shifts that are very familiar to you. Social continues to be important.
Machine learning and data, you're gonna hear a lot more about that, everything from driverless cars to your GPS system. The next thing that's happening is ecosystems and platforms become even more important now. People wanna be able to interoperate with other products and with other people. Mobile's gonna be important going forward, but now you got this new concept called voice, Apple Siri, Microsoft Cortana, OK Google, Amazon Alexa, the ability to simply ask a question and to have it give you an answer. Of course, you've got to continue to protect it. We're working on all those things so we can deliver these in our products, deeply personalized services that do the hard stuff, connect you with the products you want our products to work with or with the people, be able to talk to it or type into it and make sure it's secure.
It all shows up in a simple game plan. Now this is the same presentation I shared with you last year and the year before, going back to 2012. Repetition doesn't ruin the prayer. I'm going to quickly do this, though, for those of us who know how you can get through it really quickly, I'm gonna go through it and just hit the high points, and then I'll pull it up, and we'll take your questions. Of course, every company has to have a purpose. Our purpose began at that kitchen table in the hallway when Scott observed his wife struggle to balance the family checkbook. At that moment, a mission for a company called Intuit came to life. For 34 years, employees with Intuit badges have gotten out of bed with this sole purpose in mind.
We have built a company in support of that mission. We like to think we're a 34-year-old startup. We have 8,000 employees we train to be entrepreneurs, and they show up every day and try to be bold, be passionate, and be decisive. They run experiments to learn fast. We try to win together, and we seek to deliver awesome. We have aligned all of that innovation and all of that passion against a common set of success metrics. This is how the board assesses my performance. You can read it in the K and the Q. It's also how every employee's performance in the company is assessed, not only delivering great results for employees, customers, partners, and shareholders this year, but making decisions today that will make the company even better in the future. Now, this chart only shows fiscal year 2017 objectives.
You should know we also have 18 and 19 objectives, and that's what my comp and the senior leadership team's comp is tied to, is delivering all three years, not just this year, but the next three years. Now to do that, you have to have a game plan, and this is the strategy we put in place in 2012. We had two key strategic goals, to be the operating system behind small business success, to do the nation's taxes. We serve three core end users, small business consumers and accountants. We have the same three core strategies to deliver awesome product experiences that are now platforms, and we use data. How we're executing is different. We're now getting really focused on awesome product experiences that deliver the most important benefit that customers tell us they're looking for.
We're now starting to create, in this platform approach, interoperability not only between our products, but between the people who are doing business with each other. We've opened up our platform to not only use the data in our products, but to work with other sources of data so that the customers automatically get insights and benefits they could not have imagined before. That's our strategy. Of course, we take that strategy and break it down into bite-sized chunks. These are the six priorities we review in all of our staff meetings. At the end of the day, it rolls up to one game plan that every employee in the company has in their cube, in their office, in their workspace. From the mission to our metrics, they know what we're solving for and how we're gonna measure success.
I'll step back and say, I'm proud of the change that we've been able to drive. I'm pleased with our fiscal year 16 results and our momentum into fiscal year 17. I am clear-eyed about the fact we're not nearly as good as we think we're capable of being, and we're gonna have to work to continue to improve the things we know we have to work on. I do believe we have a strong foundation in place. We have a clear strategy, and we have a lot of opportunity ahead of us. Thank you for your continued support, for your patience in sitting through that 20-minute update. With that, I'd like to open it up to you to answer any questions that are on your mind. Yes, sir.
Thanks, Brad. The last few years have been terrible for new small business startups. There's every expectation it'll now explode. Are you positioned to take advantage of that?
Thank you. Thanks for the question. I am hopeful that small business startups are about to explode. 60% of all people in the United States and around the globe are actually employed in companies with fewer than 20 employees. It is the backbone of this economy and the world's economy. Since the recession, it's been very tough. There still have been as many people starting businesses, but there have been an equal or greater number actually going out of business. We've been flat to declining in small businesses, which has shown up in unemployment and lots of other things. I do believe the indices suggest that it is starting to get healthier and stronger. Yes, to answer your question, we believe we are positioned. Why would I say that?
First of all, with cloud-based products that work on mobile devices, we're now able to help solve problems we could not have solved with a desktop. People can come in and begin to use the product and see if it's actually making them more productive, giving them greater visibility into their cash flow, and getting them paid faster. Another thing we've done is we've introduced a version of our product for the gig economy, the self-employed, the people who drive for Uber and Lyft and DoorDash and TaskRabbit. Their ability to basically separate their personal from their business expense, press a button, and automatically be able to get their taxes done, is driving huge benefit for them. We're putting $4,300 back into the pockets of those people that are driving for Uber and Lyft. That's real money.
I feel like we're on the precipice of capitalizing on that opportunity, and I'm hopeful that small business growth will continue to come back and flourish because I think we're in a really good position to help them be successful. Yes.
Matthew with First Shareholder Services . I noticed that the trend now, especially because you mentioned IBM Watson, is data.
Yes.
Of course, you've got middleware that analyzes a lot of the data. The question is, now that you're moving into machine learning, you're now working with companies like IBM-
Mm-hmm.
third-party companies, and you're essentially giving some of your data to another company, to analyze and to improve your own services.
Mm-hmm.
The question is, do you anonymize that data that you receive from us, the customers, completely? The question is, you know, who do you sell that data to? Do you make money from the analytics in your middleware? Another question really is, what I'm really getting at here is now that you're becoming more and more of a services data company, you're going to make as much money as you possibly can from the data, like every other company in Silicon Valley. Are you gonna share that data with other companies like IBM? If so, what agreements do you have in place to protect our privacy?
Great. It's a wonderful question, and that's at the core of everything that we've been talking about, so I'm glad you gave me the chance to clarify a couple points. Let me start with IBM Watson. I use that as an example because there are a lot of commercials we're seeing right now with IBM Watson. We actually aren't giving our data to IBM Watson. We have over 24 machine learning, basically, algorithms ourselves that we've written that use the data that we get, and then we use that to make TurboTax a simpler, faster experience if you're filing your taxes or the ability for a small business to not take 40 minutes to set up QuickBooks but now get it done in 5 minutes. We're using machine learning techniques inside.
I'll go back to the second point, which is the bigger point, which is what do we do with the data. We have been out on the forefront of this, not only in Washington, but in Brussels and the EU, but they set a data stewardship principle that begins with a very simple philosophy. It is not our data, it's the customer's. We will never use that data if it does not directly benefit the customer and without their explicit permission. We will not sell that data. We will not give it to anyone without the customer's permission, and it cannot actually be broken down to the point where it's no longer anonymized, and you can reverse engineer it back to getting to the person's personal identity. We never allow that to happen. The data, quite simply, is we won't sell it.
We will not give it to anyone without the customer's permission, and our view is it's not our data, it's the customer's data, and the only way it'll be used is to benefit them or to make us smarter in ways that we can better serve them. Those are the data stewardship principles we stood very strong up for in both Brussels as well as in Washington. Yes.
Brad?
Yes.
One of the monetary policies that's been discussed in the new administration is making it more favorable to bring back money that's overseas. Does Intuit have cash stashed outside the country?
About 95% of our revenue and profits are generated in the United States, and 5% is outside the United States. Now we're getting increasingly global, but we're in the early stages of that, so it's not meaningful and material enough yet to make a repatriation effort something that would be a huge benefit. That is not something today that we would necessarily have a huge benefit from. At the same time, though, as we generate cash, we have a clear set of financial principles, and that is we use our cash to invest in anything that produces a 15% rate of return over 5 years.
Whether it's in the U.S. or anywhere else, those are the kinds of investment decisions, but we don't have a lot of cash stashed outside the U.S.
Matthew with First Shareholder again.
Yes.
Last year, you took out a $1.5 billion revolving credit facility. About half a billion dollars of that was ostensibly to pay off some debentures that you owed. You still have about $1 billion left in that credit facility. Can I ask approximately what the interest rate is on that credit line? And also, why would you take out $1 billion given that you are one of the more stable companies in Silicon Valley?
Yeah.
What are you gonna use that billion-dollar line for?
Right, and where's Mr. Williams? There you go. We talked about this yesterday, but I like to share the stage with the man who's really important, Neil Williams, our CFO.
Thank you for the question. We haven't drawn on that line, and so the interest rate on it's 2%. If we do draw, it's about 1.5% over LIBOR. It is provided for contingencies. If we had an opportunity to make an investment or something like that and needed the access to the money, this provide access to that, but we have not drawn on it at this point. We will reduce the debentures in February. The long-term bank notes we've had outstanding for the last 10 years come due in February. We're gonna pay those off. They have an interest rate of 5.75%, so that's the plan.
Thank you, Matthew. Thank you, Neil. As you know, we have a strong balance sheet. You alluded to that. We have an approach that we believe is a good fundamentally sound approach, is we wanna make sure we finish every year in a net cash positive position, and we wanna be able to produce at least $700 million net of debt due in the next two years. We are a very pragmatic approach to managing our cash. We also have dry powder should we ever need it if something pops up, and that's really why we keep that revolving line of credit.
One more.
Yes.
Early in 2016, I got a letter from the Internal Revenue Service asking me if I was the one who had filed a tax return, if I was, to call this number. I was hacked.
Yes.
Somebody got my Social Security number. Fortunately, they weren't able to cash in on it.
Yeah.
I had to file my 2015 return on paper.
I'm sure there are many people in that situation. What can TurboTax do to help people get through that experience?
Yes. I'm really sorry you went through that. I share your pain. I've also been there. This is why 2 years ago, what had happened was many of the identities of individuals in the United States and around the world had their identity stolen through major breaches that didn't happen in the tax system. They happened at major retailers, healthcare providers, even government entities. In fact, it's gone as far as to say that one of the individuals from the government said that every individual in the United States has had their identity breached. That's basically the philosophy at this point. What we've tried to do is prevent what was happening, is people taking those stolen credentials and then using big sources of funds like healthcare, like taxes, and trying to go in and pretend to be you and then try to get your refund.
Two years ago, we saw this happening, and we called on the IRS commissioner and asked him if he would form a summit and bring together all of industry and the states so we collectively could start to work together to put in the safeguards to protect the United States citizens and the taxpayers. We began that two years ago. The commissioner has done an amazing job. The states have all been right at the table, and all of our peers, even though we compete on a daily basis, we have a shared interest, which is to protect you. Over the last couple years, we have put in safeguards, multi-factor authentication. We have ways of recognizing whether it's logged in from a different computer or a phone than the last time you logged in.
Collectively, that's what reduced that 50% of the fraud that happened last season. We were able to continue to work on that. This year we've added another 30 items. We just did a press conference with the IRS two weeks ago, and I was on that call along with my contemporaries from other parts of the software industry, and we have even more safeguards. What we're trying to do right now is shut down the bad guys, so if they do have your information, they can't do anything with it that would harm you in any way. Now, the other big piece we all have to do is we have to educate ourselves. There are things that we're discovering now that we can start to do differently, like they take things out of our mailbox if it's paper.
They will figure out that you use the same password in six or seven places, from your bank to your Facebook account to see your kids' or your grandkids' pictures. Once they get it from one place, they just start trying everything else to see if that's your password. There's tips and tricks that we're starting to publish to try to teach all of us how we can protect ourselves. Unfortunately, it's a daily battle, and it's the world that we're living in, and we're doing everything we can to make sure that they can't take advantage of you and our products. Yes.
Carl Hoffner, long-term
Hi, Carl.
Shareholder. My question is on TurboTax. I still enjoy the product. The irony is that when you do your taxes, you know, 95% of the problem is gathering all the data.
Yes
which Quicken helps with. Nevertheless, that's the hard part. When I get to the actual filing of the tax, I actually have fun doing it in TurboTax. Now, when I get to the end of it, I am absolutely pleased and when I see the, you know, file online for the federal. When I go to suggested file online with the state, I'm a dinosaur and ornery enough that they're charging me. I've forgotten what it is, but it's $20 or $26 or something. Anyway, I say, "Bull.
Mm.
I can print it for $2. It costs me $1.50 to mail it, and now the state's got to deal with this piece of paper. I'm hopefully helping you to try to get that where that's a free file for the state as well. Where do you stand on working with the state of California to have their product be filed like the federal has been done for years, with a free online transmission, which is sure a lot simpler?
Yes. Well, first of all, I appreciate you sharing that feedback. I would tell you that we try really hard to price for value. What that means is, hopefully you feel like that TurboTax experience in the federal is not only easier, it's fun, like you said, and then ultimately you get a great return, especially if you get a refund. Now, as you might imagine, the federal government isn't the only one passing tax laws. We have 44 states who also have their own laws, and that requires us to have to work with them and also write a different set of code. It's not the same work. It's all new work that we have to do. We want to price for value for that as well.
The challenge we have right now is with every state, they're in different stages of their technology. They're in different stages of where they're passing laws, and they want to make sure that they're getting certain kinds of taxes from the citizens. It takes a lot of work for us collectively to come together and say, "How do we make that easy for you?" I will say this, we do have programs out there, a program you may see on television called Absolute Zero for the simple filers, people who have a 1040EZ and A. Doesn't apply to us, but does apply to many people, where the federal and the state is free. We do have programs like that.
One of the things we're trying to do in state, if I can say on behalf of the company, is when you get done with your federal, we're able to take a lot of that data and kind of show you, okay, here's what's potentially waiting for you on the state side. It's often hundreds, if not thousands, of dollars. Then there is work we had to do. For $20 or $29, we can go get you another $1,000. We're trying to show that there's value out there for the price. The net-net is there is real work happening with all 44. There's not 50 states who have income taxes. We know Florida and some don't, but there are 44 who do.
We have to do work to write a version of the product for them, and then we try to price that at a very fair price, so we at least cover our costs and at the same time make it worthwhile for you. Where are we with California? I don't have a specific update. Dan, do you have anything on California you would share beyond what I just went through? Yeah.
It looked to me like the charge for filing online with the state was to a third party for handling that kind of action, whereas the federal, somehow, the charging to, you know, a credit card or something like that is handled by somebody. At least the federal thing, if you owe taxes, you can supposedly charge it. I haven't been in that situation. I'm looking at. I didn't realize that this was a $29 going to Intuit.
Yeah.
My understanding is it was going to a third party for doing the online thing. I was wondering, what the hell is holding up the state of California from doing whatever the federal government did to enable that transmission?
I see.
That was my question.
Well, I'll tell you what we can do, Carl. We'll talk to you offline and try to better understand, and then we can go do some research. 'Cause that doesn't sound like what we're aware of. We just need to better understand what you're saying, and then we can help you answer that. It's a great question, though. Thanks for bringing it to our attention. We have one more over here.
Just to follow up on that, you know, it seems like you're quite pleased with being able to come up with a deal with the feds on the Free File Alliance for the next several years.
Yeah.
I'm a little bit interested in hearing your take on this in terms of the specifics of that deal, primarily because it makes no sense for the federal government to get into the tax business directly, given the conflict of interest between the IRS attempting to maximize the amount of taxes owed to the government, you know, versus a more independent corporation-
Yeah
That is going to go the other way and attempt to maximize the credits or, you know, something else. I've always been interested in this allegation that the federal government is trying to encroach upon your territory.
Mm-hmm
forcing you to come up with these deals. I'd like to really know more about the specifics of this Free File Alliance that you mention in your 10-K. And just a quick follow-up on the second, you know, on the data question that I had asked before. I wanna confirm that all of your middleware is done in-house. In other words, all the data that you analyze is done through your own algorithm. You're not giving that data to a third party like IBM.
Mm-hmm. Can you confirm that second piece there, Laura?
Yes.
Yes, that's confirmed. When you turn to the General Counsel, you make sure that you're getting the answers straight.
Yeah.
That's right. Let me start with the first piece on the Free File Alliance, but I wanna begin with what Intuit stands for. We have stood for this through multiple administrations over 34 years, and we continue to stand for this each and every day. We are for voluntary compliance, the belief that citizens have the right to determine what they owe the government. They file those taxes, and if the government disagrees, it's up to the government to come back and audit, and then their burden of proof is on them. The second thing is we are for tax simplification. We think the tax code is entirely too difficult. Our job is to make it simple, but we think the government can help us in making it simple as well, and we try very hard to get it simplified.
Last but not least, we're focused on putting as much money back in your pocket or keeping as much money in your pocket as possible. In 1998, going way back before Free File Alliance, Intuit introduced something called the Intuit Financial Freedom Foundation, and that was for people who served in the military, for single mothers, people making a certain income or below. We felt that we should be able to give them our software for free so they can get their taxes done and get the money back that they may have paid the government. In 2002, roughly, the government came in and said, "Hey, we're interested in trying to do a similar thing." Intuit and the rest of the industry formed the Free File Alliance. Why? Because we have a common interest.
People who may be below a certain income, who have served the country, like in the military, who qualify for things like Earned Income Tax Credit, may be struggling paycheck to paycheck, and we wanna make sure we can give them access to the tools to get them the maximum amount of money back in their pocket as possible. We and dozens of others actually voluntarily give our products for free to those people. Now we've been doing it before that, since 1998. The government's part is they set up a portal called irs.gov, and they basically have the place for you to come in and choose any one of these that you want, and there's one rule. None of us, ourselves or our competitors, are ever allowed to cross-market you or try to sell you into something that's paid.
It's a hands-off place, completely free for you to be able to get your taxes done. We think that's the right thing. It aligns with our values of giving back to those who may not have the opportunity yet to be able to get up on their feet, so that when they get strong enough, then maybe down the road they'll remember we were there, and they may want other products and services. It aligns with the government and the rest of industry's desire to help people who need to file taxes but may not have the wherewithal or the money to do it, to be able to do it using the most modern technology. It's really a win-win. It's not suggesting that the government should move into this. We're still for voluntary compliance.
It's a way to say, "Let's get your goals and our goals aligned, and the industry will do this for you." That way, the IRS doesn't feel the need to build their own software. They simply use private industry software to make that happen. Does that help? You're welcome. I know there's a little bit of history in there.
Yeah.
Oh, thank you. Any other questions? Okay, One more. Yes, sir.
Before we started, I asked you, are you still having fun?
Yes.
Clearly, you are still having fun. Thank you very much.
Thank you very much. I appreciate it. Thank you for your support, for coming this morning, and for your wonderful questions. Have a great 2017. We'll see you soon.