Good afternoon. My name is Latif, and I will be your conference facilitator. At this time, I would like to welcome everyone to Intuit's 4th Quarter and Full Year Fiscal 2015 Conference Call. All lines have been placed on mute to prevent any background noise. After the With that, I'll now turn the call over to Matt Rhodes, Intuit's Vice President of Investor Relations.
Mr. Rhodes?
Thank you very much. Good afternoon, everyone, and welcome to Intuit's Q4 fiscal 2015 conference call. I'm here with Brad Smith, our President and CEO and Neal Williams, our CFO. 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 2014 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've reconciled the comparable GAAP and non GAAP numbers in today's press release.
Unless otherwise noted, all growth rates refer to the current period versus the comparable prior year period and the business metrics and associated growth rates refer to worldwide business metrics. Also, all reported results in fiscal 2016 guidance exclude Demandforce, Quickbase and Quicken, which have been declared held for sale and reclassified to discontinued operations. A copy of our prepared remarks and supplemental financial information will be available on our site after this call ends. 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. We have positive results to discuss for the fiscal year that we just finished. We also want to share some strategic decisions that position us for accelerated performance longer term.
So with that, let's get started and I'll begin with our results. We closed out our fiscal year 2015 on a strong note with excellent momentum in each of our businesses. For the full fiscal year, total revenue and earnings per share both came in above the high end of our guidance range before reclassifying our planned divestitures. QuickBooks Online reached nearly 1,100,000 paid subscribers through the end of the quarter, also ahead of our guidance for the fiscal year, which we increased mid year. Looking beyond the current period results, we're playing from a position of strength.
We're fully committed to winning in the cloud and we're focusing our attention and investments on assets that accelerate our ability to deliver our 2 strategic goals. First, to be the operating system behind small business success and second, to do the nation's taxes. With this focus, we have decided to divest Demand Force, Quickbase and Quicken. Let me provide some context about why made these decisions. Demandforce and Quickbase are great businesses, but they don't support the QuickBooks Online ecosystem and both serve customers that are upmarket from our core small business customers.
For Demandforce, we're seeking a buyer who will invest in this industry marketing solution with a growing and talented sales force. Divesting Quickbase has a similar effect, freeing both Intuit and Quickbase to focus on better serving the needs of our respective, but distinct customers. As you can imagine Quicken holds a special place in the hearts for all of us at Intuit. It was our first innovation and the cornerstone of the company that we've built over the past 32 years. Quicken is a strong healthy business and remains America's 1 personal finance software.
As you know Quicken is a desktop centric business and it doesn't strengthen the small business or tax ecosystems. Our strategy is focused on building ecosystems and platforms in the cloud. We value our loyal customers and we're seeking a buyer who will provide the product support and the service they deserve. These decisions impact our longer term financial trajectory, which Neil will provide more detail on in a moment. But first, let me click down and share my reflections on the company's performance, starting with our small business group.
QuickBooks Online continues to build momentum. We grew total QuickBooks Online subscribers by 57% in the 4th quarter, up from 55% in the previous quarter. This represents the 9th consecutive quarter of accelerating paid subscriber growth. We added 100 and 10,000 QuickBooks Online subscribers in the quarter and we now have 1,075,000 paid subs worldwide. Roughly 25,000 of our QuickBooks Online subscribers are using QuickBooks Self Employed, which is up from 15,000 last quarter.
And outside the United States, QuickBooks Online grew over 135% to 198,000 paying subscribers. Shifting to our Consumer Tax business, the team delivered an exceptional year. As the category champion, we helped drive digital category growth of about 5% compared with the assisted tax prep method being roughly flat. Within the software category, we estimate that TurboTax Online gained about a point and a half of share, translating into 4 points of share gains over the past 2 seasons. In the U.
S, TurboTax Online units grew 11% and total TurboTax units grew 7% excluding the Free File Alliance. Hitting the total key, consumer tax revenue grew 8% for the fiscal year. It's a little too early in the game for me to talk about our tax strategy for next season. But as we've demonstrated for 2 consecutive years, will continue to focus on driving customer growth and share. Security will also remain a critical priority for us.
We're working closely with the IRS, state government and the tax prep industry to create a new set of common security standards and data protocols to accelerate the fight against tax fraud. We'll continue to invest in this area to lead the charge towards greater security for all taxpayers. In addition, the proposed information sharing and analysis center is particularly to enable information sharing among federal and state governments and the industry. This will significantly strengthen our efforts to collectively find solutions and to fight fraud. When you sum it all up at the company level, customer growth active use is improving and global adoption is hitting its stride.
We are creating a clear value proposition for our small business and our tax customers and we continue to innovate and take share in our large addressable markets. We're investing in the areas with the biggest long term payoff, setting Intuit up for strong customer and revenue growth for years to come. With that overview, let me turn it over to Neel, who will walk
you through the financial details. Thanks, Brad. As Matt mentioned upfront, the results I'll discuss exclude the assets held for sale that are classified as discontinued operations. We've included a supplemental page on the fact sheet that shows fiscal 2015 and historical results, including the assets held for sale. For fiscal 2015, we delivered revenue of $4,200,000,000 non GAAP operating income of 1,100,000,000 dollars GAAP operating income of $738,000,000 non GAAP earnings per share of $2.59 GAAP earnings per share of 1 point $2.8 For the Q4 of fiscal 2015, we delivered revenue of 6.90 $6,000,000 a non GAAP operating loss of $16,000,000 GAAP operating loss of $130,000,000 non GAAP loss per share of $0.05 and GAAP diluted earnings per share of $0.05 These results factor in our decision from last year to deliver ongoing services and releases for certain desktop offerings to encourage migration to online solutions.
As a result, revenue for these desktop software licenses is now recognized as services are delivered rather than upfront. Turning to the business segments. Total Small Business Group revenue declined 5% for the quarter and 2% for the year, better results than we expected. QuickBooks total paying customers grew 7% for the year, accelerating from last year. Small Business Online Ecosystem revenue grew approximately 25% for the year, excluding Demandforce and Quickbase and customer acquisition in our online ecosystem continues to drive growth.
QuickBooks Online subscribers grew 57%, accelerating from last quarter. Online active payments customers grew 5% and online payments charge volume grew 19%. Online payroll customers grew 18%. We're very pleased with customer growth and revenue per customer for QuickBooks Online subscribers in fiscal 2015. We're expanding the market, which is great news for the long term health of the business.
We're bringing in newer to the world small businesses with QuickBooks Self Employed and we like QuickBooks Online subscriber growth outside the U. S. More than 40% of our QuickBooks Online subscribers have been with us for less than a year. Many of these customers are on introductory promotional pricing, so we expect our revenue per customer to increase over time. Additionally, we have opportunities to grow revenue per customer by improving retention and attach longer term.
We'll provide more detail on average revenue per customer at our Investor Day on September 17. We are focused opportunities to improve conversion and retention around the globe, which are our 2 biggest levers for driving monetization. As we continue to focus on driving customer growth and expanding our total addressable market, we expect customer growth will continue to exceed revenue growth. Switching to desktop. Total desktop ecosystem revenue declined 10% for the year as expected.
QuickBooks desktop units declined 14% for the quarter 22% for the year as we continue to emphasize QuickBooks Online. The strong acquisition of new customers in QuickBooks Online has more than offset the decline in desktop units. Moving over to tax. Consumer tax revenue grew 8% for the year. We will continue to invest in the product experience and to prioritize growth in customers over margin Pro tax revenue declined 33% for the year due to changes in our offerings that resulted in ratable revenue recognition.
These changes shifted roughly $150,000,000 in revenue to fiscal 2016. Our Pro Tax business also had a great season, with customer growth coming in higher than expected, new offerings beginning to have an impact and revenue exceeding the high end of our guidance range. We continue to take a disciplined approach to capital management, investing in cash we generate in opportunities that yield a return on investment greater than 15%. With approximately $1,700,000,000 in cash and investments on our balance sheet, Our first priority is investing for customer growth. In fiscal 2015, we completed 6 acquisitions totaling approximately $120,000,000 These acquisitions brought talent and technology to help us achieve our strategic goals.
When it's the best use of cash, we'll return cash to shareholders via share repurchases. In fiscal 2015, we repurchased $1,250,000,000 of shares. We have $2,600,000,000 remaining on our authorization and we also reduced our share count 2% net in fiscal 2015. We expect to be in the market each quarter in fiscal 2016. Our capital plans include a cash dividend of up to $1.20 per share for fiscal 2016 with the Q1 dividend of $0.30 per share payable on October 19.
This represents a 20% 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. You can find our guidance details in our press release and on our fact sheet. One thing to note is that Mint, Mint Bills and OFX were part of the consumer ecosystem group, but are not included in the assets held for sale. They will be reported as part of the small business segment going forward given the importance of those assets and the QuickBooks ecosystem. Selling the non strategic assets we discussed pulls around $250,000,000 in revenue and $0.10 in non GAAP earnings per share out of fiscal 20 16.
We will be reporting these assets these held for sale assets as discontinued operations and our P and L has been recast on this basis for all periods presented. We guided fiscal 2016 QuickBooks Online subscribers of 1,450,000 to 1,500,000, growth of 40% at the high end of the range. Last year at this time, we talked about our long term outlook to help you bridge the transition in our business model. Let me take a minute to share how I'm thinking about our progress versus the outlook we discussed last year. QuickBooks Online customer acquisition remains strong and we're feeling confident in our subscriber target for fiscal 2017.
This is a franchise with a bright future. We told you we'd end fiscal 2017 at 2,000,000 subscribers, and we are confident in the long term monetization potential of these customers and our expanding addressable market. Given the planned divestitures and the projected mix of small business customers, I don't expect us to book revenue of $5,800,000,000 in fiscal 2017. This will likely take another year or so. The 3rd component of our long term outlook was an earnings per share target of approximately $5 per share.
We still see a path to achieve this, but our first priority is investing in the long term value of this franchise, as you'd expect. We're selling some things that don't fit strategically, and we'll continue to prioritize customer growth over margin expansion near term. The excellent growth we've seen in 2015 leads us to be more focused than ever on our businesses with the most traction best growth opportunities. And with that, I'll turn it back to Brad to close.
All right. Thank you, Neil. So let me spend a moment on the fiscal 20 17 outlook that Neil just summarized. As a management team, we take our commitment seriously and at the same time, we remain committed to making necessary decisions to position this company for an even stronger future. Our transformation from a North American desktop software company to a global cloud driven company is tracking ahead of our expectations, as illustrated by the QuickBooks Online paid subscriber growth that Neil just covered.
With that said, as we expand our categories and enter new markets, the customers we're bringing in are earlier in their life cycle and when combined with our decision to divest assets that no longer strategically fit, the result is a conscious decision to push out our fiscal 2017 revenue target just a bit. I've never had greater confidence in our strategy, in our execution or in our trajectory as we build this company for the long term. We've just closed out another great year. Our small business momentum continues to build and our QuickBooks Online ecosystem growth is accelerating, driving value for customers and for Intuit. Our tax business had another season winning year, delivering great products to our customers as well as outstanding financial results.
We've made tough decisions to sell non strategic assets and we've prioritized our investments on those initiatives that will further accelerate our online ecosystem globally, while ensuring the best product experience for customers who wish to remain on desktop. If history shows us anything, it's that we have a proven formula. When we innovate and delight customers with the best solutions in the market, we expand our categories, we grow our share and we increase lifetime value over time. Our cloud based solutions are doing just that and they will accelerate our company's overall performance as a result. We'll talk more about these things and our strategy to execute against them at our Investor Day, which going to hold on our Mountain View campus on September 17.
We do look forward to seeing everybody there. But with that, Latif, let me open it back up to you to hear what's on everyone's mind. Thank
Our first question comes from Brad Zelnick of Jefferies. Your line is open.
Thank you very much and thanks for taking my question. A lot of interesting news today. Brad, it's good to see you maintain your $5 EPS target for 2017 and the increased capital returns post the planned divestitures. Can you just help us resolve your comments about or Neil's comments if it is about prioritizing growth while still being able to deliver $5 in EPS in 2017? And specifically, where does the margin come from in order to hit that goal assuming that the combined businesses that you're divesting are profitable?
Can you give
us some insight there? Thanks.
Yes. I'll tell you what Brad. First of all, Neil and I will team on this. Let me start by just clarifying one thing. We see a path to achieving a $5 EPS goal in 20 17, but our first commitment is continuing to invest in growth.
So as you think about the 3 pieces of outlook we provided last year, which were really to help you bridge the accounting change to ratable revenue, they weren't really a multiyear forecast or more of look here are key milestones. We feel very good about our QBO subscriber target. We've consciously made a decision to push out that revenue a year or so. And we still see a path to achieve a $5 EPS target, but we're going to trade that off against whether or not we have better alternatives, whether there's investments to accelerate our markets or increase our customer growth. So we'll provide more guidance on fiscal year 2017 when we actually get to the end of next year.
With that said, let me talk to you about how do you get that kind of leverage. Well, first of all, the number one lever we have is accelerating top line growth. We are increasing our total addressable of the markets. We'll talk more about this at Investor Day. We're accelerating our customer growth and we see real plans, clear plans for monetizing these customers and I'll give you an example.
Neil mentioned that 40% of the QuickBooks Online base are in the 1st year with the product. We know that as you enter year 2 year 3 that average revenue per user increases over 50%. So just as they mature and move into year 2 year 3, we have real leverage to produce more revenue per customer. At the same time, the thing that's exciting us is over 80% of these QuickBooks Online customers are new to the franchise. So we're actually expanding the category and accelerating top line opportunity.
The other thing I'll tell you is, Neil and the team and all the management team remain very disciplined behind our financial principles. We invest in things that we can see a 15% rate of return and whether those are internal investments to expand R and D or new markets or their stock repurchases or acquisitions, we're going to continue to use our capital judiciously so we get the best return on that capital. So it's basically accelerating our top line growth, remaining rigorous about our capital allocation and that gives us the path to $5 We'll talk about whether or not that becomes our target in fiscal year 2017 when we actually set expectations at the end of next year. The only thing you'd add to that or?
No, I think that's fair. I think that covers it unless Brad has another question. Okay.
Yes. I just had one quick other one and I might have missed this. But did you comment to new QBO attach rates for payment and payroll in the U. S? Can you give us an update on those numbers?
We didn't Brad, but I can. New QBO right now for payroll is running at 23% attach rate, which is consistent with last quarter and where we thought it would be. Payments once again took a step forward. We're now looking at an 11% attach rate on new QBO, which is up from 9% the last time we provided the numbers. So the attach rates continue to look healthy on both of those attached services.
That's great. I don't mean to be a hog while we're on that topic just one more. If you look at payroll, Brad I think, where there may not be an opportunity to attach. What do the attach rates look like then when comparing QBD to QBO on an apples to apples basis?
Go ahead, Matt. It's Matt here, Brad.
So the attach rates would
be lower. The 23% that Brad talked about is just for QuickBooks Online in the U. S. To the extent that self employed starts to grow meaningfully that could dilute it a little bit. But we do think there's opportunities longer term to add payments or other services including TurboTax to
those self employed customers. Yes.
12 months, many of them were to accelerate our global expansion. 2 of them were to 12 months, many of them were to accelerate our global expansion. 2 of them were payroll specific. So we bought a product company called Paysuite in the U. K, which allows payroll attached to QBO and we also bought a company called Accreed, which is a global payroll platform.
So as Matt said, while the numbers I gave you are U. S. Specific, we see real opportunities to start to increase attach outside the U. S. As well.
Well, thanks again for taking my question.
All right. Thank you, Brad.
Thank you. Our next question comes from Walter Pritchard of Citi. Your line is open.
Hi, thanks. I guess, Brad, on your end, one of the things you have out there is an annual QuickBooks launch in the fall. And I think you've talked about in the past that this you're sort of diverting a lot of development resources away from the desktop product. And I'm wondering how we should look at
the launch in the fall? I mean is this
going to be a full fledged launch with lots of new features on the desktop product that keeps people buying that desktop product? Or is there some catalyst you think in the fall that drives people to realize that hey, maybe there's nothing new here and it's time to move over to online? And I'd love to hear you incorporate in that. It looks like your desktop units actually declined less this quarter than we've seen for the 1st 3 quarters of the year. So maybe that's leveling off.
Yes. Thanks, Walter. Let me start first with we're committed to keeping our desktop customers excited and satisfied with the product. Although you're correct, we have leaned much of our R and D energy into QBO and building out the cloud ecosystem. So the desktop product will be full fledged launch.
There won't be lots of new features. There will be important features and most importantly customer experience improvements that will help the customers continue to get the maximum quality out of a desktop product. What you're also going to see though is a little more of an elegant combining of QuickBooks Desktop QuickBooks Online. So when you go into the desktop product, you'll have an opportunity to say, look, do you want to use the desktop or the cloud version and you'll hear more about that when we get closer to launch. So it will give them more of a choice.
So if they went to a retail store and they picked up a box out of habit, they still have an opportunity to potentially choose to go to the cloud or to desktop. So that will be one of the things you'll hear a little bit more about. In terms of the desktop units declining, as we got into the 4th quarter, we continue to run tests on how deep of a promotion we could run, what the promotional floor should be. And we think we started to find a sweet spot. We're able to continue to get customers who want to stay on desktop to upgrade without actually discounting so much that people avoid the opportunity to go to the cloud.
And that's why you saw a little less of a decline in the Q4 on units down about 14% versus the full year of 22%. And that really informs our go forward plan as we look at fiscal year 2016.
And then, Neil, maybe on your end, we calculate the ARPU on QuickBooks Online to be down about 14% year over year. I heard in the prepared remarks you talk about how you feel about 2nd year ARPU for example and I think we understand that. But there does seem to be quite a bit of focus in the market in the financial markets around that ARPU metric. Do you foresee this sort of 14% decline that we saw this quarter to be the bottom in that metric? Or do you think that actually could get worse as you continue to see accelerated volumes, especially in some of those lower end products with new customer adds in fiscal 2016?
Yes. Walter, you have to look at the cohort and you have to look at people coming in. As Brad mentioned, we have some tailwinds with customers who've been with us longer than a year coming off of introductory promotional pricing that helps us. But our goal is to continue to grow the product category aggressively. Some of that will be outside the U.
S. Where the software monetization will be a little less in the 1st year. So we're going to talk more at Investor Day and show you some breakdowns between U. S. And global average revenue per user and talk about some of the effects of the cohorts.
But long story short, there's some advantages from those customers who've been with us for longer than a year and who attach more services. But that's one of the reasons why I stated I expect the total number of customers to continue to grow faster than the revenue because our hope is we'll continue to add at a very accelerated pace outside the U. S. And in categories like self employed. So we'll talk more about that on 17th and we'll see how it plays out.
But I'd be willing to take certainly some dilution in the revenue per user to get a lot more customers and to grow the category.
Great. Thank you.
Thank you. Our next question comes from Prentio of UBS. Your question please.
Thanks. Neil, on the fiscal guide, many investors are asking if you take out the partially due to a faster transition to the subscription model that is leaving you potentially with a little more conservative nature on the top line, but perhaps you're seeing something in terms of the backlog building on the subscription side that would lower your view for the year?
Yes. Brent, I think there are two factors there. The first one you called out with the divestitures, we certainly had aggressive hopes for those businesses when we put our plans together a couple of years ago. So that is the single biggest factor in the guidance that we talked about for 2016. The other thing we're looking at though is the mix of customers in small business.
I referred to this briefly in the script. But the thing that's been interesting is that we were able to exceed our QBO goals with our desktop migrators being less than we had expected, less than we had built into the plan. So the goodness is, these are more new to the franchise customers and we still have those desktop customers that are still there to migrate whenever they're ready and come forward. But it definitely has an impact on our revenue outlook from what we put together and shared a year 18 months ago.
Okay. So bulk of it
divestiture and some of it's from the mix?
Yes. Yes.
Okay. And Brad, over the last decade, we've watched you do a lot of acquisitions. And I think everyone gives you a lot of credit for effectively moving on and not trying to make do with some of the assets that may not fit in perfectly that maybe you originally thought were fitting in. And so I think it brings up a big question from the capital that you're putting into as you mentioned these half a dozen acquisitions. Has this changed your view on acquisitions in Intuit?
Many of the larger ones have not gone well and you've effectively vested those acquisitions. If you could maybe speak to how you believe you can fix that and what the strategy and how the strategy has changed going forward?
Yes, Brent, I can. First of all, we've learned a lot of lessons and I've learned a lot lessons from our M and A track record, both during my time here as well as those that were done before us. And we do a rigorous study of those we sit down with the Board once a year and we do a 10 year look back. We compare those to the business cases we put together for the Board as well as what we share with The Street. And the pattern recognition is increasingly clear.
We are pretty good, if not very good at talent and technology tuck ins and things that actually accelerate our time to market in our product lineup or they plug right into the ecosystem. We have a mixed record in terms of bolt on businesses, new businesses that may not plug in directly with QuickBooks or the tax businesses. And those are the things that we've now got a new set of patterns that we've defined as principles. And we're saying if we're going to look in the spaces going forward, these are criteria that these acquisitions have to meet. So I would tell you we're much more informed group.
Of these 6 that we did last year, they totaled 120 $1,000,000 The simple math is the rough average is about $20,000,000 a piece. So we're not big game hunters, because we learned from these acquisitions. But if something came along that met the criteria that's informed from some of this pattern recognition I mentioned, we wouldn't be shy about leaning into it. We're just much smarter now about the things that we know we're pretty good at and the things we have work to do.
Great. Thank you.
Yes. Go ahead, Neal. I would just add
on to that though too that some of these businesses we're selling are great businesses and are doing well. But they're not as tightly linked to the strategy as we would like. And as we've considered ways to really accelerate doing the nation's taxes and being the operating system for small business success, some things that are doing well and would do well on their own just weren't as accretive as part of this portfolio. So assets like Quickbase and Quicken to be specific were not acquisitions per se or not recent acquisitions and things that are still performing well.
Well said.
Hey, Latif. Yes, sir.
No, go ahead.
Our next question comes from the line of Ross MacMillan of RBC. Your question, please.
Thanks for taking my question. Just a clarification Neil just so I'm clear on this. So when we think about disposal impact of $250,000,000 on sales and $0.10 on non GAAP EPS, Are really those the only changes fiscal 2016 versus fiscal 2015? There's no other incremental rev rec changes or anything else that could be going on here. Just wanted to make sure I'm clear on that.
No, Ross, you're correct.
Great.
And then, Brad, I know we've talked a lot here about leaning into the transition and in some ways maybe trading off sort of near term revenue for the unit opportunity and the ability to monetize these units over time. I was just curious as you think about the customer lifetime value that you've talked about historically. You'll probably give us more Analyst Day, but is there anything changing in your view on that lifetime value for the QuickBooks online ecosystem? Or is your view that that's remaining pretty consistent with your prior view? And what you're solving for effectively is the potential for higher units over time?
Yes, Ross, you're right. What we'll do is we are going to impact this. We're going to go down a couple of layers deeper in a few weeks here on September 17, because it has a few pieces. What we want to do is do a breakdown on a use case of QuickBooks Online the U. S.
Where you have the full ecosystem available and we can show you what that lifetime value of a customer is. And then we'll share with you also the new QuickBooks Self Employed and what the opportunities are there as well as QuickBooks outside the U. S. And global markets. And when you put all those three pieces together that informs an average lifetime value.
But what you really get to see is a story of a new market, the story of a new segment and a story of a more fully built out ecosystem in the U. S. And it gives you a reason to believe that we have real confidence in the lifetime value game plan we have for Quick Online. And we just want to take the time to unpack that for you and everyone else, so you can see the same thing we do on September 17. So if you'll let us hold it off a couple of weeks, it will be easier to follow when you've got some material to look at while we talk to it.
Understood. And then just one last one for me. On Demandforce, as you reflect on at the time I thought that maybe was an acquisition that made a lot of sense. It was a nice addition to at least a segment of your small business base. That business being disposed is not necessarily in keeping with being different because it's somewhat of a bolt on.
But I'm just curious as you reflect on that what maybe didn't work in the way that you thought it might with that acquisition specifically?
Yes, Ross. For us, the good news is the business has doubled since we bought it. So it's grown. It's done well. It's had a good performance.
Unfortunately, its performance wasn't benefited from being inside of Intuit in terms of customers from QuickBooks or some of the other ecosystem we're trying to build and fuel as one ecosystem. So one of the challenges we had is product market fit. When we bought the business, it was targeted to the higher end of our QuickBooks customer base. It was a $300 a month subscription service. And there was a segment of vertical categories like spas and salons and automotive dealers I mean automotive services, those kinds of appointment based businesses that really fit.
It didn't fit the broad universe of QuickBooks customers, but we thought we could actually build a lighter weight version, bring the price down and be able to market it to our customers where we saw about 400,000 look alike prospects. Unfortunately, that hypothesis did not play out the way we thought. The customers did sign up for the service, but the retention rates were significantly lower than the more at market customers and the product fit was actually better for a more larger business than the ones we were trying to sell to. And so one of the things we faced was that we continue to put money in to that business or we continue to put money into growing QBO globally with payroll and payments and other services. And we didn't want to start a good business.
So we just decided it doesn't strategically fit with the QVO ecosystem. It's not getting real value from QuickBooks or vice versa. And let's put it in the hands of someone who will invest in this best in class product and let it grow and let us stay focused on our customer groups. And that's really what we learned from the Demandforce acquisition.
Thanks Brad. Appreciate the answers.
Okay. Thank you. Thank you. Our next question comes from the line of Raimo Lenschow of Barclays. Your question please.
Thanks for taking my question. It's 2 actually. First of all, I obviously we congratulate you on the progress on the QuickBooks Online subscriber growth and the acceleration there. But can you talk a little bit about the online table subscriber growth there? That has been decelerating now for 5, 6 quarters.
And you talked about a higher touch rate, but how do I marry up these two figures? Can you talk a little bit about the puts and takes there please?
Yes. So I think there's a couple of things, Rainbow, and then I'll see if Neil wants to add anything to it. Our online payroll customer growth was 18% this quarter. The attach rate as you said is holding at 23%. We have a little bit of a grow over challenge.
You may remember this time last year, we went from an opt out an opt in in terms of the attached service. So last year when we rolled it out with QBO, it defaulted to having payroll on. And what we found was after 90 days, we had some retention issues. We had some people who said, I didn't know I signed up for payroll and they opted out. So instead, what we did is we went to an opt in service where you have ability to choose payroll and we have a 23% attach rate, which is very healthy, but we also have a much more improved retention rate after the 30, 60 90 day mark.
So you got a little bit of an apples and oranges there and that does impact a little bit of the year over year compare in terms of the growth. Beyond that, I'm not sure what else would you have. And one thing I
have to mention here, this is Matt. When you look at the online customers on our fact sheet, the majority of them actually are not connected to QuickBooks Online. Those that are attached to QuickBooks Online are growing really nicely faster than what you see on the fact sheet. And through some of our other channels through accountants and other third parties, there's online payroll solutions where you don't need to be attached to QuickBooks online. So that's part of the mix issue you're seeing there as well.
Perfect. And then the second question I had was on the international businesses. Can you talk a little bit about regional performances there? Obviously, there's lots of stuff going on in the world. I know you're not in China, but just kind of tell us a little bit more about what you see outside of the U.
S?
Yeah, Raimo, this is Brad. Happy to do that. So our Canada business is on fire. It's doing incredibly well, continues to accelerate in results, good healthy ecosystem. Australia is also performing well, although off of a small base.
As you know, we entered that market about a year and a half ago and we're the payroll acquisition, it's on a good run. India is a less mature product offering for us. We're still building out what we call the last mile of compliance. And so it's performing okay, but it's not performing at the same levels of Canada, the U. K.
Or Australia for us. And then when you go beyond those, our newer markets and the hopper is Brazil. We did an acquisition of a company called 0 Paper and that is actually off to a pretty good start early days and we're getting it ported over to the QBO platform. And then we'll be opening up France. We're in beta right now.
We'll be opening up France later in the calendar year or early part of next calendar year and we'll talk about it as well. So across the globe, those are the countries we're focused on right now. We don't have exposure to China or some of the other things that you're hearing about. We're seeing really good green shoots in each of these markets and we still have some upside opportunities in France and Brazil once we get those opened up as well.
Lovely. Thank you.
Thank you. Our next question comes from Scott Schneeberger of Oppenheimer. Your question
Brad, I heard you just a few minutes ago talk about retention, a good retention 30, 60, 90 days, but that was in the attached category. I'm curious as the QuickBooks Online customers, I guess, is in U. S, but you can answer it more broadly. As they reach their free period, their free period sign up and then retention thereafter. I'm just curious if you can provide any metrics or commentary with regard to what you're seeing at that point?
Thanks.
Yes. We've shared that our QBO retention number is in the high 70s. And interestingly enough that's consistent with what we also saw with QuickBooks Desktop. We would also tell you that we see some opportunities to continue to improve retention, because now we have the ability to see the user behavior and have the product. So we think that number can get even stronger as we look ahead.
But we part of the product. So we think that number can get even stronger as we look ahead. But right now, it's in that mid to high 70s in terms of retention rate for QBO.
Okay, great. Thanks on that. I just want to clarify. Looking at next year, it looks like with regard to our model at least a little bit lower share count, obviously a little bit on the revenue line. So there's a difference on the path to the $5 guidance in fiscal 2017 or at least as we're bridging on our way there.
Could you speak a little bit to the margin profile you see? We can obviously see what it is implied for 2016 and as we move on to 2017 Puts and takes there, Neal? And is there are there any cost savings initiatives undergoing that we might need to be aware?
Well, there are several things, Scott, to be aware of. Obviously, we've talked about the divestiture significantly. But this also goes back to an initiative really began during the spring, really looking at all of our discretionary expenses to see to make sure that they're aligned against the things that are most accretive to growth. And so this includes all of the R and D initiatives, marketing initiatives and things like that. It's not necessarily just moving them from one product or from one business unit to the other, but also really measuring the effectiveness.
Someone asked about our LTV to CAC process earlier and I can just tell you that we continue to refine and improve not only looking at the lifetime value of customers, but also segmenting the dollars we spend against those and learning which channels and which approaches are most cost effective and doing that. So there's nothing specific that I would talk about at this point, but you should just know that across the company there's a lot of focus on making sure that all of our investments are focused and concentrated in areas that are really driving customer growth and monetization of the customers we already have.
Great. Thanks. Just to clarify a quick one. On Protax you guys delivered upon what you said you would this year. Relative to my model, it looks a little right into next year.
Is that maybe just my model? And is there something that has changed relative to your expectation in some of the carry through from fiscal 2016 to 2017?
Thanks. Scott, there's nothing that we're that I'm thinking of that's changed. And if you take the revenue push out of 2015 into 2016 that we've been talking about, ought to get you pretty close. No fundamental changes in the business that would throw you off substantially.
Excellent. Thanks for the clarification.
Thank you. Our next question comes from Kash Rangan of Merrill Lynch. Your line is open.
Hi, Kash.
This is Scott on for Kash. I just wanted to ask about if you can provide some detail on the international QBO the percentage of kind of the QBO subscribers from international? And if there's any comment on the attach rates for the payroll and payments, if that difference from the U. S. Versus other regions?
Thanks.
Okay. International for us. We are growing right now. We have 198,000 paid subs. That's up about 135% over this time last year.
It's primarily coming from the 4 markets that I mentioned a couple of minutes ago, Canada, the UK, Australia and India, because we're still very early days in Brazil and France. The attach rates right now, we don't really have a fully built out ecosystem beyond Canada. So Canada has payroll and some payments. The U. K, we just made an acquisition of a payroll company and so we're attaching there.
And then in Australia, it's with a partner that we actually work with. And so we have a mix of the ecosystem being built out in those other countries. So the attach rates we often refer to are U. S. Based.
We don't yet provide attach rates beyond the U. S. Because we're still early days of building out those razor blades to attach to the razors. I don't know if that gave you what you were looking for, but that's sort of an over view of the international markets and how it compares to the U. S.
Okay. Thanks.
All right.
Thank you. Our next question comes from the line of Kartik Mehta of Northcoast Research. Your question please.
Yes. Good afternoon. Neil, I think in the prepared remarks you talked a little bit about margins for the tax business. And I thought you had said you're not anticipating much margin expansion.
I'm not if you said I
don't know if you're expecting any, but is that a reflection of any type of change in competition you're anticipating, change in strategy or new product? Or is that just a reflection of you're trying to get customers and right now that's where you're investing?
Yes, Kartik, it's definitely the latter. And the margins are quite healthy in our consumer tax business and professional tax for that matter. And so we're constantly challenging ourselves to find ways to accelerate the category growth and our share within the category. So just a reminder or just a heads up to everyone that we're always focused on trying to grow customers faster than revenue. And for our businesses with those tight margins, we're always looking to expand the category and we'd be willing to take some be in the low end of the 60s for consumer tax, for example, if we have some great ideas to really expand the category and accelerate our growth
And then Brad, I just wanted
to get your thoughts after the divestiture you announced, where you stand in terms of your Mint product and maybe even the recent acquisition of Chek?
Yes, Kartik, I'm glad you asked. If you look at the fact sheet and you heard Neil alluded this in the opening comments, we're reporting this consumer ecosystem, which is now inclusive of Mint, Mint Build, which is the new brand name for Chek and of course our OFX capabilities, which basically downloads financial information from banks into all of our products including QuickBooks Online. And the reason why we're reporting it in the small business segment is because we believe this business has the potential to create a network effect. In a headline today, small businesses send out over 1,000,000,000 invoices using QuickBooks a year. They get paid typically with a paper check-in an envelope 48 days later.
And one of the top three pain points is improving their cash flows. We've talked to you the last couple of years about this concept called an Intuit Commerce Network. Well, we've been running experiments with Chek and Mint where we believe now that we can solve the consumer side so that they can use a mobile phone and easily pay their small business who will send them an electronic invoice in a matter of days. It's a delightful experience for the consumer. It obviously gets the small business paid right now on average in less than 10 days, which is significantly better than the 48 days.
And we started to see enough excitement there that that's why we actually shut down all the other check channels and so let's put all of our energy just into QVO. So we've kept Mint in Chegg because we think it solves an important problem for consumers, but most importantly because it also connects with the rest of the Intuit ecosystem. And we think we have the potential for a 2 sided problem that could be a network effect if it plays out the way we hope it will.
And just last question Brad, you talked about the payroll online business and some of the success you're having there. Are you seeing any change in competition and how they're pricing their product based on some of the success you've had?
You know, it's always a tale of multiple cities here. You've got some of the traditional players that were outsourced players who've added Internet and web based versions of their products out in the market. We haven't seen a lot of change in their competition. We've seen more advertising, which is actually good for the category because the more people who talk about the alternative solutions that use software, the more our business grows. There are new start ups, so you heard some of them, good companies like ZEM payroll, Square recently announced that they were moving into the payroll business.
So everyone's bringing innovation to the table, but there really hasn't been anything that's materially different. It's just everyone continuing to make it easier for small businesses to pay their employees and to be able to get back to doing what they love, which is actually running their business.
Thank you very much. Appreciate it.
Okay. Thank you. Our next question comes from Keith Weiss of Morgan Stanley. Your question please.
Hi. This is Sanjit for Keith. A couple of questions. First on the level of discounting and promotions. I appreciate the guidance of growing customers faster than revenue.
But relative to maybe fiscal year 2014 and this past
fiscal year, are we
looking for similar levels of promotional activity or we're looking to take it to another level in 2016?
So as you might imagine, we run lots of pricing experiments and test sales to figure out where's the best place to promote our price or promote our product and get the most unit lift. And so we run everything from 90 day sort of trial before you buy to 20% to 40% off over the 1st 6 months. And we've gone all the way as far as offering free services for an extended period of time. I think that's informed our go forward plan. We obviously aren't announcing that right now because competition reasons, we don't want to let everybody know what our pricing is.
But I would tell you that we have done a lot of tests and we feel pretty good about not only the desktop learning we got in the Q4, what is the promotion floor, but on the cloud and QBO as well as our other products, what's the right sort of promotional offers to get the maximum customers to come in and actually get those customers convert versus simply kicking the tires. I'd rather not share anything beyond that right now just because we want to wait until we get into fiscal year 2016 and we'll actually have our pricing out on the website once we do that.
Okay. That makes sense. And then looking forward to sort of I think this has been discussed before, but attach rates on payroll and payments. I realize the reset that we had in the beginning of this year. But what type of attach rates can we get in terms of the level of improvement that makes sense?
I think you asked about 27% or 29% last year before the reset. But in terms of the level of improvement, what makes sense as we think through fiscal year 2017 as a 100 basis points a year? Would that be conservative enough? Or and what would the drivers be for that improvement?
Yes. I can start with what the total addressable opportunity is. About half of small businesses accept a credit card today. And so I'd like to say that 50% would be the target that we ought to be challenging ourselves to get to in payments. To be fair, we've gone from 4 to 6 to 9 to 11.
And so it's going to be a while to get there. And I think our general manager would probably look us in the eye and say, wow, 50% that's like 100% of the market. And our answer would be absolutely, because that's the percent of the market. And our answer would be absolutely, because that's the mindset we ought to have. We ought to have the best solution to solve the customer problem better than anyone else.
So we ought to be able to win those customers, especially if they're using QuickBooks. The same thing would go for payroll. And right now, we know about half of the payroll customers today have employees that are W-two employees. So you could say 50% would be a good penetration number for that. I think the payroll general manager would say the same thing to us.
But I think our mindset needs to be, we ought to have the best payroll and payment solution, especially for a QuickBooks customer. And if they're paying employees or accepting credit cards, they should be using our service. So a lot of headroom to go from 23 to 50 in terms of payroll or from 11 to 50 in payments. I'm not sitting here and telling you that we have a game plan to get there in the 3 years, but we have a mindset that says we ought to be trying to win every single customer.
Appreciate the answer, Brad. Thanks. Okay.
Thank you. Our next question comes from Gil Luria of Wedbush Securities. Your line is open.
Hi. This is Aaron on for Gil. When you look at your QBO customers, specifically the ones that are new to the Quick Books platform, how are they performing? Are they performing more or less than you expected? How's the yield on those?
Aaron, I would say that if you look at the software component, it's performing very much in line with what we expected and what we would like to see at this point. The but on that is related to attached services payroll and payments. We've talked about a lot of that already. And but we just don't have those capabilities outside of the U. S.
That we have here. But if you look at the software itself and the effective rates on that, it's very much in line with what we expected.
Great. Thank you.
Thank you. Our next question comes from the line of Jim MacDonald of First Analysis. Your question please. Good afternoon guys. Looking at the QuickBooks Desktop attached for payroll payments for kind of the first time it seems like those are starting to decline.
Can you talk about that? And I know you're pushing QBO, but I would have thought that those customers would either show back up in QBO or maybe the last ones to go away?
Yes, Jim, it's Brad. First of all, those customers are staying with us. That's good news. What we are seeing in the attached services is a combination of 2 things. Historically, we would sell about 600,000 new QuickBooks Desktop customers a year.
That number is now about half of that. And what you find out in terms of attached services is many of those decisions get made in the 1st 90 days whether they're going to sign up for payroll and payments. So one of the things you will see is the attach rate on desktop is getting affected by the fact that not as many new desktop customers are coming in because more choosing the cloud. The second is in the case of payments, we do have some customers that are large customers that have made some payments decisions outside the QuickBooks ecosystem. And so that's a little bit of an effect we're seeing on payments.
But by and large, we see an opportunity to continue to get attached services in desktop and that's one of the opportunities we're pushing ourselves to be better at as we look ahead. But we aren't losing the customers. In fact, one of the things that we had counted on that didn't happen this year is about 80,000 of the desktop customers we thought would migrate to the cloud, 80,000 fewer actually did that. They actually stayed on desktop. We can see them in the franchise.
We see them using our services and our opportunity to continue to market to them to get them to either move to the cloud or to use additional products. So we see it as opportunity that's not yet capitalized on.
And moving over to TurboTax, I know you don't want to talk about the core, but you did mention the fraud issues. Any ideas of what's going to be done next year and how effective it will be in terms of solving this big problem?
Yes, Jim, I can say first of all, I've never seen such coordinated collaboration between the federal government, the state government and the collective industry as a whole. I've been in Washington multiple times. We've all sat at the table, the heads of all the companies and we have a coalition and our coalition is formed against one common enemy, which is the cyber criminals. Our collective goal is to get tax fraud out of the U. S.
Tax system and we've agreed to a set of standards, some data protocols and a frequency of information sharing, so that we can collectively get this U. S. Tax system safe and people hopefully will continue to feel good about their ability to file their taxes. None of us at this point are wanting to share much more detail than that, because we don't want to give any tips to the cyber criminals. So we do know that we have a big step forward, but it's 1 year of a multi year journey, we're going to remain vigilant on this and continue to push on it year after year until we see 0 in the U.
S. Tax system. Great. Thanks. Okay.
Thank you. Our next question comes from the line of Nandan Amladi of Deutsche Your line is open.
Hi, good afternoon. Thanks for taking my question. So to get to the 2,000,000 QBO subs, obviously, there's going to be a mix of people who are new to the franchise and migrating desktop customers. You made a comment earlier about 80% of the new subscribers are new to the franchise. So what mix assumption are you making to get to that 2,000,000 number?
And has that assumption changed as you've seen at least this quarter fewer desktop users migrate?
Yes. I can say that when we originally had anticipated getting to 2,000,000 subs and we provided that as a guide post to help us think about our shift to the cloud. We had more customers that we anticipated migrating from desktop and less customers that were new to the franchise. This year, we had anticipated about 80,000 more desktop customers to migrate and they didn't. But the good news is more new to the franchise came in, which expanded the category and we raised our guidance on subscriber growth and exceeded that revised guidance.
So right now, we can maintain the mix we have, which is more than 80% being new and less than 20% being migrators. And we still feel confident as Neil articulated in his opening comments in that 2,000,000 subscriber target we put out there for fiscal year 2017. So we don't need to change If the mix changes, we only see that as upside.
Right. And the desktop users that are not migrating, do you have a sense of why they're not migrating? Is it feature parity, which I know was an issue about a year ago? Or are there other factors?
It's a combination of three things. One is features about 2 thirds of the customers could migrate today. We still have a product roadmap that will get deeper inventory capability built out in the fall and the early part of the calendar year. We'll have some features like job costing built in and the ability to migrate payroll data. That will appease some of those customers.
There's another group of customers that quite frankly just are locked into inertia. They've used desktop for many, many years. They don't feel the need to move. They like the QuickBooks product. They're satisfied with it.
And as long as they're happy, we're happy. And then the third is the accountants. And the accountants are increasingly adopting QuickBooks Online and using it. And as they get more comfortable, then they will start to recommend it to small businesses. But some of those accountants today are still test driving the cloud and they use desktop products to do tax returns and other things.
And so until they get motivated and excited and we have to have a compelling reason for them to be excited, many of those small business customers won't move until their accountant tells them to. So it's those three pieces. Its features, it's the small business inertia and it's the accountant recommending and suggesting they should move from QuickBooks and we're working all three of those angles.
Thank you. Thank you. Our next question comes from the line of Brad Reback of Stifel. Your line is open.
Great. Thanks very much. Can you address why you didn't buy back any stock in the quarter?
Yes, I'll take that one. Thanks for asking. We were locked out of open market purchases for most of Q4 because we were talking about these asset transactions and thinking about what to do with those. We had a 10b5 in place. We have a 10b5 in place.
And when I put it in place back much earlier in the year, I was a little too conservative with my grid that I put in place, so we were kind of locked out on that end too. We won't make that mistake again and we regret not being in the market much more aggressively in Q4, but we kind of got some mechanical issues that tangled us up.
Great. And just one quick follow-up. Since you didn't write down any of the assets you're selling today, does that imply that you shouldn't take a loss on any of them?
What that implies is that we've applied the accounting treatment at the end of this year.
Developed in a relationship with the people helping us developed in our relationship with the people helping us market the assets. And so, yes, for book purposes, you should assume that.
Great. Thanks very much.
You're welcome.
Thank you. I'm not showing any further questions. Would you like to close with any additional remarks?
Yes, Latif, I would. First of all, I want to thank everybody for your questions today. I know we shared a lot of information. If you take anything away from today's call, I hope we successfully demonstrated 3 things. That we're executing this fiscal year at a and that we have proven reasons and that we have proven reasons to believe that we can effectively deliver in large and growing addressable markets whether they're in the U.
S. Or outside the U. S. Again, we're looking forward to spending a little more time with you and continuing the dialogue and sharing a little more information at our Investor Day on September 17. And until then, we hope everybody has a good remainder of the summer.
Ladies and gentlemen, thank you for participating. This concludes today's