Good afternoon. My name is Saeed, and I will be your conference facilitator. At this time, I would like to welcome everyone to Intuit's first quarter fiscal 2015 conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer period. If you'd like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you'd like to withdraw your question, press the pound key. With that, I will now turn the call over to Matt Rhodes, Intuit's Vice President of Investor Relations. Mr. Rhodes, you may begin.
Thank you, sir. Good afternoon, everyone, and welcome to Intuit's first quarter fiscal 2015 conference call. I'm here with Brad Smith, our President and CEO, and Neil 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-K 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. 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 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. A copy of our prepared remarks and supplemental financial information will be available on our website after this call ends. With that, I'll turn the call over to Brad Smith.
All right. Thanks, Matt. Thanks to all of you for joining us. We're out of the gate strong in fiscal 2015. We grew revenue 8% in the first quarter and exceeded our QuickBooks Online subscriber and our company financial targets. It's a great start, but it's still early in the year, and there's a lot of game left to be played. Let me provide a brief overview of what's driving these results, beginning with our small business performance. We're continuing to accelerate growth in our online ecosystem. QuickBooks Online is generating new customer acquisition, with over 75% of QuickBooks Online customers being new to the Intuit franchise. We're also actively marketing QuickBooks Online to desktop customers who are cloud-ready. The QuickBooks Online ecosystem is building momentum. We grew total QuickBooks Online subscribers by 43% in the first quarter, up from 40% growth in the previous quarter.
We closed Q1 with 739,000 paying subscribers worldwide. Outside the U.S., QuickBooks Online subscribers were up more than 170% to 103,000, further accelerating from last quarter. The improvements we're seeing in the leading indicators are quite promising, with new user attach rates of 12% for payments and 31% for payroll, up from 6% and 20% respectively a year ago. We remain squarely focused on driving customer growth and increasing market penetration. QuickBooks Online has a very low penetration when you reflect our total addressable market of more than 160 million small businesses globally. Although we're still early in terms of taking QuickBooks Online global, we're excited about the huge market opportunity. Adding just one additional point of penetration would more than double our QuickBooks Online subscriber base.
The capstone to the quarter for our small business team was our first of its kind QuickBooks Connect event that was held in October. We hosted more than 3,500 attendees, including accounting professionals, small business owners, entrepreneurs, and developers. The attendees found inspiration from the main stage while learning practical advice on how to start and grow their businesses from renowned experts in breakout sessions. At the event, we introduced more than 100 product enhancements and featured a lineup of dynamic speakers that wowed the audience. I'm glad some of you on the call were able to attend, and I encourage everyone to consider checking out QuickBooks Connect next fall. With that context around our small business performance, let me now shift to tax. Fiscal 2015 is the second year of a multi-year journey to achieve our product vision of taxes are done.
We're excited about the progress we're making in preparation for the upcoming tax season, but there's still much to do over the next several years. We'll continue our focus on improving conversion with a more simple and responsive experience that leverages data to get customers through their tax return with ease and confidence. We'll also focus on delivering a unified help and answer experience, driving TurboTax customers to clear explanations on everything tax-related, including the Affordable Care Act. We're looking forward to getting our new lineup of solutions out to market in the next few weeks. In the professional tax business, we're seeing strong new customer growth early in the season, our shift to the cloud continues to pick up steam. We intend to build on our leadership position and capitalize on this once-in-a-generation shift to the cloud for accountants.
In a nutshell, we're off to a great start in fiscal 2015. I'm energized by our results as we continue to accelerate customer growth in our online ecosystems. These results reinforce our confidence in the near and the long-term financial outlooks that we have provided. On that note, I'll turn it over to Neil to walk you through the financial details.
Thanks, Brad. Let's start with overall company results.
For the first quarter of fiscal 2015, we reported revenue of $672 million, up 8%, non-GAAP operating loss of $36 million, GAAP operating loss of $114 million, non-GAAP loss per share of $0.10, and a GAAP loss per share of $0.29. As Brad just said, we're off to a strong start, a little ahead of our expectations for the first quarter. Turning to the business segments, total Small Business Group revenue grew 5% for the first quarter. Small Business Online Ecosystem revenue grew 30%, and customer acquisition in our online ecosystem continues to drive growth. QuickBooks Online subscribers grew 43%, accelerating from the previous quarter. Total Online Payments customers grew 3%. Online Payments charge volume grew 22%, driven by strong growth in payments customers connected to QuickBooks Online. Online Payroll customers grew 24%, and Full-Service Payroll customers nearly doubled.
Rounding out the Online Ecosystem, Demandforce customers grew 27% for the quarter. Switching to the Desktop side, total Desktop Ecosystem revenue declined 2%, and QuickBooks Desktop units declined 23%. This is in line with our expectations as we continue to emphasize QuickBooks Online. QuickBooks total paying customers grew 22% in the first quarter. As we move through the year, we will continue to experiment with our QuickBooks product lineup and our pricing to maximize long-term customer and revenue growth across small business. Within the Consumer Group, Consumer Tax revenue was up 36% versus the first quarter last year. As you know, our Consumer Tax business is highly seasonal, and our first quarter is a light one. The quarter's also seasonally light for our Pro-Tax Group, with revenue growth of 46%.
We continue to take a disciplined approach to capital management, investing the cash we generate in opportunities that yield a return on investment greater than 15%. With approximately $1.6 billion in cash and investments on our balance sheet, our first priority is investing for customer growth. We also look for inorganic opportunities, and in the first quarter, we made two acquisitions totaling $10 million. When it's the best use of cash, we'll return cash to shareholders via share repurchases. We repurchased $114 million of shares in the first quarter, and we have about $1.8 billion remaining on our authorization. We intend to be in the market consistently during the year. Our board approved a $0.25 dividend per share for our fiscal second quarter, payable on January the 20th.
This represents a 32% increase versus last year, and reflects our large and growing cash position, as well as more recurring and predictable revenue streams. We provided our guidance for the second quarter and reiterated our guidance for full fiscal 2015 in our press release. As a reminder, we will provide tax unit updates in February, concurrent with our second quarter earnings release, and in late April, after the tax season. Back to you, Brad.
All right. Thank you, Neil. It is obviously early in our fiscal year, but we are off to a strong start. QuickBooks Online is accelerating our transition to the cloud, which is driving value for our customers, as well as for Intuit and our shareholders. As I mentioned, I am really pleased with the strong turnout at our inaugural QuickBooks Connect event last month, which helped build awareness of our growing online ecosystem. We now have 425 third-party applications on our partner platform, which is up over 4X from where it was last year. 375 accountants became QuickBooks Online certified at the event itself. Collectively, the conference attendees touched more than 1 million small businesses. We are planning to build on the power of these connections throughout the year.
We are also gearing up for tax season, and we are looking forward to getting our new offerings in the market in the coming weeks. We are heading into our busiest time of the year, and we are excited about the momentum that we are continuing to build. As always, I want to thank our employees for their hard work and their ongoing focus. With that, Saeed, let us open it up to hear what is on everyone's mind.
Thank you. Ladies and gentlemen, if you would like to ask a question, please press star, then the number one on your telephone keypad. If you would like to withdraw your question, please press the pound key. Our first question comes from Walter Pritchard from Citi. Your line is open. Please go ahead.
Hi. Thanks. Just one question on small business and one question on tax. Could you help us understand on the tax side, we've had a variety of sort of seasonal anomalies over the last several years in terms of more of a front-end loaded or back-end loaded tax season. Could you help us understand kind of how you're thinking about the shape of the tax season as it compares to some of the prior years we've seen here?
Okay, Walter. Right off the bat, one of the things that's happened the last several years has been a delayed tax season because Congress has acted late to pass certain laws, and the IRS hasn't been able to open up season on time. While that still remains a potential reality, and there have been letters written by the IRS commissioner to Congress, we're still banking on the fact that the season's going to open up around January 20th. Of course, we have contingencies in place in the event it does get pushed out for any reason. Beyond that, I think the natural seasonality is what it has been, and that's an increasing procrastination with more people waiting till later in the season to file.
We've tried to reflect that in our forecast, but ultimately, we'll have to wait and see how the customer behaves in terms of their tax filing behavior.
Then, I guess, Neil, for you on small business expenses, we just back into that based on your operating income in small business, and it looked like you grew your expenses in small business about 8% year-over-year, which is actually less than you grew it in the second half of last year. It felt like at the analyst meeting, you were talking about accelerating some of your investments in small business, and you noted you had Connect during the quarter. It seems like you're spending less than we expected in that area. Could you give us some color on that? Do you expect that spending ramps as we move through the year?
Walter, I guess I would say two things about that. First and foremost, our small business team has gone through an extensive resource reallocation during the summer. Some of our plans around recommitting to the online products, around our Bold initiative, really drove a more extensive resource reallocation. Secondly, I would caution you that the first quarter is just the first one out of the gate, and some of the expenses may show up later in the year, particularly as we roll out additional product offerings and have marketing and things around those events. I wouldn't read too much in the first quarter run rate or necessarily assume that's indicative of the full year.
Just last one for you, Neil. I calculate your billings were up high teens, and I'm wondering, I know most of your business is billed on a monthly basis, and I'm wondering if we should be looking at sort of revs plus change in deferred as any sort of metric for your business. What are your thoughts there?
It's a good question, Walter, if you look at the first quarter, you don't see a huge buildup right there because our desktop product really didn't go on sale till the first part of October. What you see in the first two months of our first quarter is really the desktop sales still under the upfront revenue recognition before they switch to ratable. It's probably worth maybe a point or two, maybe in the first quarter, would probably be in the total company, probably be in the low teens, without the effects of ratable. It'll be much more prominent in second and third quarter.
One other thing I'd point out quickly, Walter, this is Matt. The desktop payroll business generates some deferred revenue as well, and we saw some pretty good growth there this quarter, that's showing up in the deferred balance overall for the company too.
Great. Thank you.
Thank you. Our next question comes from Brent Thill from UBS. Your line's open. Please go ahead.
Thanks. Good afternoon. Brad, you mentioned outside the U.S., you saw accelerating momentum. I know it's early days, but maybe if you could just walk through what you're seeing there and help us understand the prioritization of what is a pretty big opportunity for you when you look outside the U.S.
Yeah, Brent, happy to do that. As we discussed, we have four priority markets outside the U.S. Those are Canada and the U.K., Australia, and India. We have now put a tiger team on the ground in France, and we're in the early days of discovering there and getting the product more localized and making sure the compliance fits the local market needs. In terms of prioritization, we're treating each country as a market of one. We don't have one prioritized over the other because we're testing different concepts. Right now, we're seeing acceleration in all four of those markets. We're seeing increasing gross new subs on a weekly basis. We're learning and getting more accountants aware of the product and signed up for our ProAdvisor program. We're becoming much more effective at direct selling through the websites.
We're also getting very good reviews from the customers and the accountants on how the product stacks up versus competition. We had mentioned in the last call, we had done a study, an independent study in Australia, where we actually outperformed the leading online competitor there 2 to 1 in terms of ease of use. We just replicated that study in the U.K. and got the same results. Across the board, we're continuing to see strong performance in these countries, and now we're in the process of looking at that fifth country being France. Beyond that, I would just say that the teams continue to learn every week. They're running rapid experiments, and things are looking good.
Okay. Neil, I realize you still have a long way to go on the authorization on the buyback. At the beginning of the year, you took an accelerated approach to this. Is this something we should continue to factor in the model, just steady ongoing adoption of that buyback, or just would love to get your thoughts on that. Thank you.
We had a little over half a billion dollars in buybacks embedded in the guidance we gave you on the share count back in August, we'll see how that plays out. We executed in Q1 against that plan, we'll see how it plays out. It depends on what other uses we have for our cash and what other opportunities we have in the marketplace. I feel comfortable with the reduction in share count we've guided for 2015. We'll see if there are opportunities to go beyond that.
Great. Thanks.
Thanks, Brent.
Thank you. Our next question comes from Sterling Autry from JP Morgan. Your line's open. Please go ahead.
Yeah, thanks. Hi, guys. Two questions here on QuickBooks Online. You mentioned in the prepared remarks that you're already marketing the solution to the desktop users that are ready. Can you just talk us through a little bit more color how you're reaching out and marketing to them? Remind us, I think you talked about 70% of them are probably able to make the switch. How should we think about you increasing that marketing as you can reach out to when 100% are ready to make the switch?
Hey, Sterling, it's Brad. First of all, we're continuing to reach out to our desktop customers through both their accountant, who is the most trusted advisor, because we find that one out of two decisions are actually directed by the accountant. We've been working with them with the new QuickBooks Online for accountants. We have a very compelling ProAdvisor program that gives them incentives to help them get their clients over to the cloud. Of course, the other thing we've been doing is we've been directly marketing to our own customer base, and we do that through both direct response as well as in the product. We're getting really good receptivity. In terms of the actual number of customers who can migrate now, our goal is to have as many as 70% by the end of this fiscal year.
Right now, it's more in the neighborhood of about a third. A third of the customers could move over. What we're doing to close that gap is basically closing out some feature functionality things that they're used to having in QuickBooks Desktop, like advanced inventory, job costing, sales form customization. The other thing we're doing is we're just making the migration process seamless for them, not only for accounting, but also for payroll and payments. When you put it together, we're working with the accountant to get them comfortable and encourage them to recommend. We're directly marketing to the customer base through direct response and in the product, we're also closing out those remaining feature gaps so that more of those customers can make that move.
The follow-up is, when we look at the subscriber additions throughout the fiscal year, how should we think about the seasonality? Meaning, which of the quarters are naturally going to see probably stronger subscriber growth versus others?
Yeah. What we're seeing still is there's a natural timeframe in the first of the calendar year where many small businesses will consider making a switch, or many accountants figure that's a good time to get their client to start something new. When you start thinking about small businesses overall, a lot of that behavior was shaped from the fact that we were QuickBooks Desktop software, ultimately people would start to make the switch in the new calendar year. There isn't as much seasonality in the cloud as there was in QuickBooks Desktop, but there is still this sort of first-of-the-year phenomenon.
You will see more customers start to consider that switch in that January timeframe, but you're going to start to see a little more evening out over four quarters versus what we used to experience in the QuickBooks Desktop.
Great. Thank you.
You're welcome. Thank you.
Thank you. Our next question comes from Kash Rangan from Merrill Lynch. Your line's open. Please go ahead.
Hi. My goal is to ensure that I'm not asking a Splunk question on the Intuit call.
Hey, Kash, we'll take any question you want to ask.
I'll ask a question on Autodesk on your call. I'm kidding. With respect to QBO, obviously nice start in the quarter. Can you give us a sense, Brad and Neil, of the new QBO subscribers that you brought on board? What attach rate did you experience for payments and payroll, and how do you compare the trend in recent quarters? I'm also curious to get your perspective on, as a result of getting this first quarter out of the way, how much more incrementally confident are you in the 2 million sub goal and the associated attach metrics for payroll and payments? Thank you.
All right, Kash. Happy to do that. This is Brad. First and foremost, we're really excited with the momentum in QuickBooks Online in terms of subscriber growth. We had anticipated the neighborhood of 715,000 for the quarter. As you know, we provided that guidance. We closed the quarter in the neighborhood of 739,000. We're ahead on subscriber growth. Perhaps what's equally, if not more exciting, is the attach rates for new users. In terms of the actual payments attach rate, it was 12% for new users. That's up from 6% a year ago. For payroll attach rate, it's 31% for new users, and that's up from 20% a year ago. Not only are the subscriber base growing faster than we had forecasted, but the attach rates are much healthier than they were 12 months ago.
In terms of confidence, you might imagine that gives us continuing and increasing confidence in the guidance that we've provided both for this year as well as over the next 3 years. We also readily admit we're one quarter into this journey, so there's still a lot of game and a lot of time left on the clock. If we keep this momentum up, we're feeling very good.
Great. If I could, you don't have to answer if there's no answer for this. What are the things that you are watching and we should be watching that will give you confidence to alter your longer-term outlook? I think you have a goalpost of about 2 million QBO subs. What are the things that you're looking for qualitatively, quantitatively, that could help you revisit that number? That's it for me. Thank you.
Kash, this is Neil. Probably the best thing we can do is just continue to post good increases quarter after quarter. We've talked about a guidance of 800,000 subscribers by the end of Q2, which would put us right on track for the guidance we've given for this full year. One of the great things about monitoring this quarter by quarter is we'll be able to see, and you'll be able to see as well, if we're trending to the guidance and to the outlook that we gave for 2015 as well as for 2017. We really can't point to anything beyond that.
Thank you. Our next question comes from Jennifer Lowe from Morgan Stanley. Your line's open. Please go ahead.
Great. Thank you. I wanted to double back a little bit on the comment that around a third of the base is now potentially primed to move over to QuickBooks Online, you'd like to see that go to 70% by the end of this year. As you think of those customers in the desktop base that have the potential to move to QuickBooks Online, what are sort of the things preventing that from happening right now? Is it just the change management around moving to a new solution? Is it price? How do you sort of think about those blockers and what you can do to kind of get people past them?
Jennifer, it's Brad. I mean, first of all, I think the most important thing is we don't need to get that customer base to move over if they're not comfortable. We're getting 75% of our customers new to the franchise. That's really what we're about, is trying to increase the penetration into the total addressable market. The migration of these customers is really based upon their comfort level, their accountant's comfort level, and us having the product ready to the point where they can move over and not lose any important functionality. What's really, today, slowing that migration is the fact that we still have some areas like inventory, job costing, some sales forms customization that some of these customers want to have. We need to make sure we have that built out and in a place where they're going to feel comfortable moving over.
The second thing is just making the migration process seamless. We have a three clicks, three minutes conversion of your data from small business accounting. At the same time, we have to make that just as easy to move your payments and your payroll data. We've been working on that, and it's a combination of the features as well as having that migration process mapped out. For us, the big juice is the accountant. The accountant is increasingly excited about QuickBooks Online for their clients. Now that we rolled out the new version of QuickBooks Online for the accountants, which we unveiled at QuickBooks Connect, we are seeing a much more excited and enthusiastic accountant base wanting to get their clients over to the cloud. It's those things that are going to really help these customers migrate. Keep in mind, though, we're agnostic.
Whether they stay in QuickBooks Desktop or they move to QuickBooks Online, it's all goodness for us. We're ultimately trying to just increase the penetration into the total addressable market.
Just one last one for me. I think, Neil, in your prepared remarks, you mentioned that in fiscal 2015, there would be some experimentation with the QuickBooks lineup and with pricing to try and maximize adoption. Can you just provide a little bit more color there, whether that's relevant to new users, existing users, both? How should we think about what potentially could play out?
Sure, Jennifer. Some of this you've already seen. We raised the price of QuickBooks Desktop when the new release came out this year to sort of rebalance the price-value equation, and as Brad said, make us agnostic as to which product a customer chooses. We introduced QuickBooks Online Self-Employed, which is a simpler, less expensive version, add to the lineup. We're testing the way we present those choices to customers in the lineup, and one of the beautiful things about QuickBooks Online is you can do a lot of A/B testing to determine what resonates with the customers most. I expect we're going to continue to experiment with that, with our promotional strategy, and things like that throughout the year to determine what's the right equilibrium for customers. We certainly don't want the price-value equation to be a barrier for someone to convert to QuickBooks Online.
Those are a couple of things that are out in the market already, and I think we'll continue to experiment with things like that as the year goes on.
Great. Thank you.
Thank you. Our next question comes from Greg Dunham from Goldman Sachs. Your line's open. Please go ahead.
Hi, you have Frank Robinson on for Greg Dunham. The QuickBooks Desktop unit sales declined 23%, much more meaningfully than the 10%-11% from last year and last quarter. What are your thoughts or expectations for that going forward?
Yeah, Frank, it's Brad. First of all, the Desktop decline for the outright sales, the people who purchased it and just have a three-year license, was in the zip code of what we expected. We expected a decline of 20%-25%. What you also have to look at on the fact sheet is the number of people signing up for QuickBooks Desktop subscriptions. When you add in that growth of people who've moved off of an outright sale to subscriptions, then you also add in the Desktop sales, the total base on QuickBooks Desktop is only down about 2%. So net-net, it's where we expected it to be, 20%-25% is sort of what we anticipated on the outright sales. We saw the migration moving to subscriptions and/or to the cloud version of the product.
We're right where we thought we would be in terms of the Desktop performance.
Great. Thanks.
Thank you. Our next question comes from Brad Zelnick from Jefferies. Your line is open. Please go ahead.
Thank you. This is Yoon Kim for Brad. Again, very strong QBO subscriber number, Brad. Another strong quarter of attach rate improvement for new QBO subs, which to me indicates that the quality of new subs was pretty strong. Would we ever see a case or are you willing to accelerate subscriber adds that may be of lower quality and may not result in attach improvement? Along that line, if the attach rate improvement is somewhat driven by QuickBooks Desktop transition, who may have a higher attach rate than the new QBO to the franchise? Thanks.
Okay. I'm sorry, could you just repeat the second part of your question? I missed that.
Yeah, sure. I am assuming that the transition from Desktop to the Online have a higher attach rate than the people who are new to the QBO franchise. Just wondering, how's that improvement? How are you actually addressing that attach rate when people are transitioning from Desktop to Online?
Got it. Okay. Thank you, Yoon. First of all, the quality of the new subs to QuickBooks Online is a very healthy end, and we're excited about the lifetime value of those customers. We talked about the attach rates earlier for new users. We are opening up the funnel increasingly in two ways. One is as we begin to move globally, we're reaching into countries where we don't yet have payroll and payments. I think what you're going to see is an early stage where we may just have a small business accounting customer, and then we'll work with partners to close the payroll and payments gaps. Over time, we'll round that ecosystem out on our own. In fact, the two acquisitions within the first quarter of this year were both global acquisitions.
One of them was actually a payroll provider in the U.K. That's one of the things you'll see in terms of what you categorize as maybe a lower quality customer for attach. We actually don't view it as a lower quality. We simply view it as an earlier stage customer or an earlier market for us where we're still building out the ecosystem. The other way that you'll see the attach rate potentially getting impacted is as we go after QuickBooks Self-Employed. These are customers who today don't believe they're big enough to need a small business accounting product, but they do need to separate their personal from their business expense, and then come tax time, be able to send that data to TurboTax or to an accountant to be able to file a Schedule C.
They may not have payroll needs because they're a sole proprietor, and they probably do need payments, but they may not have the same lifetime value. Those are the two things that you'll see ultimately impact how big the funnel is and what the attach rates will be over time. Desktop to online, you're absolutely correct. We expect those attach rates from desktop customers moving over. They tend to be more established. Those should be healthier attach rates on things like payroll and payments. We're excited as more customers get comfortable moving to the cloud, that that's only a tailwind for us.
Okay, great. Just the same attach rate kind of question. What was the improvement, if any, for the existing QBO install base?
We track that in terms of total penetration into the base. Payroll is now at about 19% penetration, and it was from a base of 16% penetration a year ago. That's 300 basis points, which is pretty healthy against the total base. Payments is now about 5%, and that's up from about 3% penetration a year ago. Once again, almost double. The total base is benefiting here as well.
Okay, great. Thank you so much.
You're welcome. Thank you.
Thank you. Our next question comes from Jim Macdonald from First Analysis. Your line is open. Please go ahead.
Yeah, good afternoon, guys. You talked about the QuickBooks Desktop price. Any other price built into your assumptions for this year?
Jim, in small business or across the company or?
Well, I know you probably won't talk about tax, but too much, but. Mostly small business.
Well, yeah. Obviously, our pricing strategy is what we call pricing for value. On the lower end of the market, we often start with free, or we introduce new products, things like QuickBooks Self-Employed, which are a little more affordably priced. On the higher end of the market, we'll look for opportunities to take price increase. You've seen us do some of that with QuickBooks Enterprise, including moving to subscription versions of QuickBooks Enterprise. In payroll, we introduced a new pricing philosophy, which basically is a pay by employee, so the number of employees, you actually have a charge for each employee you add. That gives us a little pricing leverage as well. By and large, there hasn't been a fundamental change in our pricing strategy.
It's price for value, stay really competitive on the low end, make sure that we're disruptive, taking value on the high end.
Great. As a follow-up, I think you said in your remarks that your Full Service Payroll doubled or nearly doubled. Maybe you could talk a little more about that.
Yeah, it did. As you know, that is an exciting product for us that we introduced a couple years ago. It's still early days. The subscriber base continues to build up. We're roughly now about 25,000 active customers in Full Service Payroll. We just introduced the ability now to also sell it to QuickBooks Online customers, there's seamless integration between QuickBooks Online, which we think is really going to be an accelerant for this business. It's priced about a third cheaper than the payroll outsourcers, yet provides the same value and benefit in terms of protecting you against any errors. This is an exciting product for us, and we think there's nothing but upside in this Full Service Payroll product.
Great. Thanks a lot.
All right. Thank you.
Thank you. Our next question comes from Scott Schneeberger from Oppenheimer. Your line's open. Please go ahead.
Thanks. Good afternoon. Neil.
Scott, we lost you, buddy.
Sir, if you have your phone on mute, can you mute your phone, please? Our next question comes from Ross MacMillan from RBC Capital Markets.
Thanks a lot. Apologies for my voice. I've got a cold, hopefully you can hear me. I had a question, just, it's going back to attach. I think what you're saying is that your QBO, that cohort of new customers, actually now not only has a higher attach across payroll and payments relative to last year, but I think higher than the aggregate base across the entire QuickBooks install base, including desktop users. I guess, just if that's true, which I think is true, what is your expectation for how that evolves? Do you think that there's going to be a shift back so that the QBO customers in aggregate will have maybe a lower attach than that cohort in the future? Just maybe help me understand how you expect that to evolve. That would be helpful. Thanks.
Yeah, Ross, first of all, your hypothesis is true. Not only are the cohorts attaching at a higher rate than prior QuickBooks Online, they're also attaching at a higher rate than desktop. This has been the thesis we've had all along. It's much easier to sell additional services in the cloud than it is in a desktop product. It's just a seamless part of the experience. It's built into the workflow. We've often said that we felt that we were not anywhere near the total potential of selling additional services to our install base. It was a matter of execution and making it seamless for customers. Just think about payroll today. In the small business base of QuickBooks desktop customers, of the 4 million, roughly 2.5 million of them actually have employees and pay a payroll service.
Today, we only have about 1 million of them as customers. We never reached our full potential in desktop. When it transfers to the cloud, it makes it a lot easier for us to introduce them to additional services. Same thing goes on with payments. One out of two small businesses are accepting credit and debit cards today. We had single-digit penetration. As we move to the cloud, we think it's a real opportunity for us to really increase that penetration. There's upside here. I think you're going to continue to see these numbers outperform the base as well as improve in terms of the cohorts.
That's very helpful. Just a quick follow-up on aggregate QuickBooks customer growth. I know you said 22%, but it's a bit of a funky number because it includes perpetual units in period and subscribers, which is obviously a growing pool of users. My adjustment suggests something around 5% growth if I annualize the perpetual units, and I think that's more in keeping with the 6% you saw last year. I guess my question is, what are your views on total QuickBooks customer growth? Are we likely to see that total pool of customers continue to grow? Do you think it could actually even accelerate from the 6%? Thanks.
Yeah. Ross, I'll tell you, I think, first of all, as you did the math, you're in the zip code of what we're seeing too. When you make all the adjustments, that's pretty much in the zip code of where we are. We do think that we'll continue to grow over time as we introduce QuickBooks Online to a whole new base of customers, and three out of four of them are new to the Intuit franchise. That's going to deepen our penetration into our existing markets. As we introduce QuickBooks Online in new countries, that introduces new opportunities for us to grow the customer base. Right now, in terms of the aggregate number that you talked about, that's the way we're viewing it, and we think there's only upside potential there.
Great. Maybe one very quick, short last one on tax. Just curious, do you have any view as to whether the additional forms surrounding ACA this year could have an influence on the timing of when parts of the filer base might actually file, thinking that it could create even more delays for a portion of the filer base. What are your thoughts around that? Thanks.
Yeah, Ross, I think this is one we're gonna have to wait and see how the consumer behavior plays out. Obviously, we feel very good as we're heading into season with what our team's been able to achieve and what we've tested over the summer. For the majority of our customers, the only thing they'll have to do is check a box to be compliant with ACA. Then for those who actually have the Form 8962, we've turned that into a simple interview-like question, just like we do in TurboTax, and we think we're gonna make that pretty simple as well. Now, whether or not someone sits at home and waits to file because they're trying to process the healthcare implications is something no one knows. We're just gonna have to wait and see. We haven't seen any behavior so far that tells us that that's a guarantee.
Great. Thanks again, and congrats on the numbers.
Great. Thank you.
Thank you. Our next question comes from Scott Schneeberger from Oppenheimer. Your line is open. Please go ahead.
Thanks. Hey, guys. I hope you can hear me this time. I'm going to ask two questions up front just so I don't get them before I get dropped in a bad spot. First one, Neil, I know retention is very important to QuickBooks Online over the long term. If you could just elaborate on that and how things are going near term, just any comments on retention rate. Then the second question is just progress on your Check acquisition from earlier this year. You gave a little color on one of the two acquisitions you made in the quarter. Maybe discuss the other one, please. Thanks.
Okay. Do you wanna talk about QBO retention? I'll take Check.
Yeah. You're right, Scott. Retention is probably one of the biggest levers we have to improve the lifetime value of QuickBooks Online long term, and that's one of the things we're critically focused on. We were really pleased with our retention numbers for Q1, and we're looking hard to see what we can do to increase and improve that as we move throughout the year. There are a number of things from the quality of the release when it goes out to our care experience, to the agents, and we've talked about it back in August, that we've moved a lot of our care resources back onshore. We think that's a critical part to ensuring that customers who are using QBO get the benefits and the experience that they expect when they subscribe, and keeping them in the franchise.
As you well know, it's much easier to drive engagement and to be connected to those customers when they're using it online. We like where retention started out in Q1. We think there's opportunities to improve that, and we certainly wanna keep it high.
Yeah. Scott, it's Brad. I'll take the Check acquisition. I was just in Israel visiting the team last week. Very excited about the opportunities here. We've sequenced and prioritized the work that they're taking on in the first year. Anytime you bring two companies together, there's new ways of working together you wanna work through. Their number 1 priority right now is getting the Check bill pay capability built into Mint, renamed as Mint Bills. They're also working with our Quicken base to do the same thing, and we have a team working in concert with QuickBooks Online to begin to look at ways to facilitate payments between consumers and the small businesses who use QuickBooks Online. Those are their top three priorities in that order. In terms of the teams coming together and how the employees are feeling, they're very excited.
They were energized to be a part of this process, and they see big opportunity ahead of them. We're pretty bullish right now on the Check opportunity.
You mentioned KDK. That was the other acquisition we didn't talk about.
Yeah. Go ahead. You can do it.
Yeah. The other acquisition, Scott, was a company called KDK in India. This is a company that does professional tax software in India. The interesting thing about them to us is they have relationships with over 20,000 accountants in India, which as you know, is a key means for us to get deeper penetration with QuickBooks Online. We're delighted with that. The team that came over from KDK is very engaged, very excited to be part of Intuit. We're really just getting started, but we're delighted with the ability to reach more accountants.
With QBO, therefore small business customers through the accountant relationship.
Great. Thanks very much, guys.
All right.
Thank you. Again, ladies and gentlemen, if you have a question, please press star, then one on your touchtone telephone. Our next question comes from Michael Millman from Millman Research. Your line's open, please go ahead.
Thank you. Maybe following up on your discussion about during the summer, working with some of your tax clients regarding ACA, whether you get or can describe fear or no concern about doing it on the parts of at least those you spoke with. In the last two years, could you tell us the %, or I guess, repeat the % of your new tax users that came from assisted, trying to get some notion of how important that is and whether that could be delayed because of ACA.
Okay, Mike. First of all, in terms of the test over the summer, what we found was a great sense of relief. What is clearly something that sounds complicated on the surface, and many of our competitors are trying to make that more complicated and scary, when they get in and find just how user-friendly the tools are, like the Affordable Care Act calculator, our TurboTax exemption check process, where you can go in for free and see whether or not you qualify for an exemption to the penalty, there's this tremendous sense of relief. Ultimately, as you know, about 100 million people visit TurboTax every year.
We've got a large audience coming in, and I think we're able to break through that fear, uncertainty, and doubt with very simple tools and ways to help people understand this isn't as scary as some people would like you to believe. The second piece of it is. Sorry. You want to go ahead. Well, you were asking about the share we took from Assisted, Michael.
Yeah, go ahead.
This is Matt. When we look at the category overall within software, we took a couple points of share. As you can see, the software category grew about 5% last year, a little better, and Assisted was roughly flat. We think we took share across the board, and we'll continue to. One of the things we want to focus on is driving an experience online for our customers that gives them the confidence to do it themselves at about a quarter of the cost of going to Assisted. That'll continue to be our focus.
Is it fair to say that you don't see those on Assisted staying where they are because of some uncertainty?
No, Michael, we don't believe that's the case. We've shared before that when you look at when Massachusetts introduced a similar concept years ago, there was no behavior change in terms of people wanting to stay entrenched or even switch methods. We continue to see a shift towards do-it-yourself software there, and we believe that's going to continue to be the case here with the federal program of the Affordable Care Act.
Great. Thank you.
Gentlemen, I'm showing no further questions at this time. Would you like to close with any additional remarks?
Yeah, Saeed, I would. I just want to thank everybody for the questions today. We're off to a strong start. We're clearly building momentum. We're looking forward to our peak season, which is coming up in the next couple of months. We want to wish everybody a safe and happy holiday season. Hopefully, we'll get the chance to speak with you soon. With that, we'll sign off. Thanks a lot.
Ladies and gentlemen, thank you for participating in today's conference. This concludes today's conference call. You may disconnect and have a wonderful day.