直覺電腦 (INTU) 2005 Q1 法說會逐字稿

Good afternoon, my name is Patty, and I'll be your conference facilitator today.

At this time I would like to welcome everyone to the Intuit first quarter fiscal 2005 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 would like to ask a question during this time, simply press the number 1 on your telephone keypad.

If you would like to withdraw your question, press the pound key.

This presentation you will hear on this call includes forward-looking statements including statements regarding revenue and earnings guidance, actual results may differ materially.

Risks that could impact those statements are described in the following documents that are available on the investor relations page of Intuit's website at Intuit.com.

The earnings press release, issued earlier this afternoon, and Intuit's most recent forms 10-Q and 10-K and SEC filings.

Most of the numbers in the presentation will be presented on a non-GAAP basis which will be referred to in the call as pro forma, the most directly comparable GAAP financial measures and the reconciliation of the pro forma financial measures to GAAP are provided in the earnings press release which is posted on the investor relations page on Intuit's website at Intuit.com.

After this call concludes, a copy of Mr. Bennett's and Mr. Henske's prepared remarks also will be available on Intuit's investor relations page at Intuit.com.

Thank you.

Now I'll turn the call over to Steve Bennett, Intuit's President and Chief Executive Officer.

Thank you.

Good afternoon, everybody, and welcome to the Intuit first quarter 2005 conference call.

With me today are Brad Henske and Scott Cook.

Let's start by briefly reviewing our performance during the quarter.

After that, Brad will cover our financial results and give guidance for the next three-quarters.

I'll come back with an update on growth initiatives, and we'll conclude with Q&A.

Starting with our results, fiscal quarter 1 was another solid quarter for Intuit.

Revenue of 266 million was up 11% year-over-year, and above the top end of our target range of 251 to 263 million.

The better revenue results paired with lower expenses led to a pro forma earnings loss of 23 cents better than our target range of a loss of 25 to 29 cents.

As all of you know, Intuit typically reports a seasonal loss in the fiscal first quarter when revenue from the tax business is low, but expenses remain relatively constant.

Let me recap a few of the highlights from our recent Investor Day Conference.

As you are aware, our growth efforts are concentrated on two key areas.

First, retaining and selling more to existing customers, and second, accelerating the rate of new users entering our large and successful franchisees.

To this end, we recently released new QuickBooks versions that are easier to use and should significantly improve the overall customer experience.

We also launched a brand new QuickBooks offering for businesses just being formed called Simple Start, which on early results is being well-received in the marketplace.

And we're gearing up for the busy consumer and pro tax season with several new offerings aimed at customer segments we haven't targeted in the past.

Looking ahead we believe we're right on track to deliver FY05 revenue growth in the 6 to 9% range and pro forma EPS growth of 15 to 20%.

With our Right for Me strategies working, and our execution improving across all of our businesses, we believe we're creating the foundation that will improve our growth rate over the long-term.

I'll talk more about our growth strategies later, but first I'll pass the call over to Brad who will provide more color on the business in the quarter.

Thanks.

As Steve mentioned, first quarter revenue was up 11% over Q1 FY04, driven by solid growth in our QuickBooks related and Intuit branded small business segments.

We also had solid results in the bottom line.

The first quarter pro forma operating loss of $70 million was better than our guidance of a loss of 75 to 85 million, benefiting from both higher revenue and a slower ramp in our hiring and marketing expenses.

A pro forma EPS of a loss of 23 cents was 2 cents better than the top end of our guidance.

On a GAAP basis we had a net loss of 24 cents a share, versus a net loss of 27 cents per share in the year-ago quarter.

Let's now take a closer look at the results of our five business segments.

First, the QuickBooks related segment had revenue of $146 million in the first quarter, up 12% over Q1 '04.

Growth was driven by our merchant account services, which we'll call Innovative Merchant Solutions, or IMS for short, and QuickBooks Do It Yourself Payroll.

The manager account business benefited from both strong customer growth up 27% over the year-ago quarter and from our acquisition of IMS in October 2003.

The acquisition enabled us to pick up additional processing volume, as well as the ability to recognize all the revenue from the processing business we had previously handled through Wells Fargo.

Prior to the acquisition, we only received a portion of that processing fee.

Revenue from our QuickBooks Do It Yourself Payroll offerings was up 16% year-over-year driven by customer growth and price increases.

In late October, we launched two new products, so we now have a total of three Do It Yourself Payroll offerings.

QuickBooks Standard Payroll, which is the offering we've had for years, effective November 10, we raised the subscription prices of this offering from $169 to $199 per year.

The first new offering is Enhanced Payroll, which provides small business owners with state payroll tax forms, their most requested item, as well as other new features.

Enhanced Payroll is selling for $299 a year.

Our second new offering is QuickBooks Enhanced Payroll Plus, which also adds automatic renewals to QuickBooks software on a subscription basis.

This is selling for 399 to 499 a year, depending on which version of QuickBooks software the customer uses.

We've had good initial results from the two new payroll offerings, and continue to believe these products provide significant opportunity to increase share (indiscernible) and revenue in the QuickBooks franchise.

Next, Intuit branded small business had first quarter revenue of 67 million, up 13% over Q1 of FY04.

Outsourced payroll had better-than-expected results, and was the largest driver of revenue growth in the segment.

Better revenue, coupled with a rationalized cross structure that outsourced payroll to a modest contribution margin this quarter reversing a loss in the year ago quarter.

IT solutions and verticals revenue were in line with expectations.

Earlier this week we announced that we reached a definitive agreement to settle the public sector vertical IPSS to Kintera.

Which we expect the sale to close in the second quarter.

As seasonally expected, consumer tax and our professional tax business had very little revenue in the quarter as both businesses gear up for tax season ahead.

We will be announcing more details about TurboTax products and pricing in the next two months, but, as we indicated in Investor Day, we plan to be more aggressive with our free file lines offering this season.

We have seen a good deal of activity from competitors who've offered free federal returns while charging for other services.

We intend to compete more vigorously in this area, as well as on the web in general, with an aimed at meaningfully improve retention and expands our consumer tax customer base.

We took this into account when we set our guidance for consumer tax revenue in FY05, and continue to expect revenue growth in the 5 to 10% range as we provided in August.

Finally, our other businesses segment had revenue of 41 million, up 8% over Q1 04, with growth from both Quicken and our Canadian businesses.

Quicken 2005 launched in August and includes more than a hundred improvements recommended by Quicken users.

To sum up, our businesses performed well during the quarter, and we're on track as we enter our busy season.

One other note, we successfully completed a significant upgrade to our financial order taking and other systems in Q1, and congratulations to the team inside Intuit that made this appear pretty seamless both within and outside the Company.

Moving to the balance sheet, the Company had approximately 760 million in cash and short-term investments on its books at the end of Q1 05.

As is typical during our first quarter we spent more cash than we generated.

In Q1 05 we used cash as follows; $85 million in operations; $24 million in capital expenditures; and 171 million in our stock repurchase program.

Approximately 31 million in cash was generated during the quarter from the exercise of employees stock options.

Under our stock repurchase program Intuit bought approximately 3.9 million shares in Q1 05 for an average price of 43.21.

We have 329 million remaining in our current $500 million repurchase program.

Looking out to the rest of the year, we're reaffirming the fifth FY05 guidance we provided three months ago.

We expect revenue of 1.97 to 2.02 billion or growth of 6 to 9%.

Pro forma operating income of 535 to 559 million or year-over-year growth of 12 to 17%, which implies that our pro forma operating margin would expand by around 140 to 160 basis points.

And we expect pro forma diluted EPS of $1.93 to $2.01 or year over year growth of 15 to 20%, and we expect GAAP EPS to be in the range of $1.82 to $1.90.

In addition, we are's reaffirming the fiscal 2005 revenue growth guidance for each of our business segments, you'll find that information in our fact sheet.

As many of you are aware, we've had some questions about the quarterization of our revenues this year and put out a press release on October 7 to provide more clarity.

Giving the timing of our marketing programs and new product launches, coupled with the ongoing shift to online tax and e-file services, we recognize that it's hard for investors to get our seasonality right without specific guidance from us.

One final thought on quarterization, I also want to provide you with more clarity into our expenses.

Intuit's expense patterns do not mirror our revenue patterns.

Our quarterly revenue patterns may vary from one year to another.

However, the quarterization of our expenses and expense growth rates are pretty constant year-over-year because most of our cost are fixed like head counts.

Our available costs are mostly associated with product manufacturing, distribution and marketing, thus our expenses are highest in our second quarter when we launch most of our products.

The key take away is that when revenues shifts from one quarter to another there's only a minor shift in expenses.

Consequently, seasonal increases or decreases in revenue effectively drop to the bottom line.

Turning to the second quarter, we're reaffirming the revenue guidance that we provided on October 7th, which is for revenue of 625 to 645 million.

In addition in Q2, we expect pro forma operating income of 200 to 215 million, and pro forma diluted EPS of 72 to 77 cents.

We expect GAAP diluted EPS of 69 to 74 cents.

As we indicated in October 7th as well, we expect our Q3 revenue to be strong, and we are reaffirming Q3 guidance of revenue of 780 to 810 million, a growth of 10 to 14% over Q3 2004.

In addition in Q3, we expect pro forma diluted EPS of $1.46 to $1.51, or year-over-year growth of 22 to 26%, and we expect GAAP diluted EPS of $1.43 to $1.48.

Finally, given that we're not changing our fiscal 2005 guidance, that would imply the Q4 revenue to be in the range of 285 to 305 million, and pro forma EPS loss in the range of 4 to 8 cents.

The GAAP EPS loss is expected to be in the range of 7 to 11 cents.

With that, I'll turn the call back to Steve for some more comments on our business.

Thanks, Brad.

As we discussed last quarter, and at Investor Day in September, we're proud of the growth Intuit has delivered over the past five years and believe we have the business assets, strategies and people to get back to double digit revenue growth in the future.

One of the primary reasons we're confident is that all of our businesses are focused on driving growth through two important efforts: first, we're using a methodology called Net Promoter to make the total customer experiences even better for our existing products and services.

Second, we're using Customer Driven Invention, or CDI, to uncover new and additional unmet customer needs that we can solve well.

Let's spend a few minutes on both.

Net Promoter gives us insight into how to improve the total customer experience with our existing products and services.

The better the experience, the more customers will buy from us and recommend us to others.

Why is this so important?

Well, word of mouth has always been Intuit's largest source of new customers.

And we think responding aggressively to counter -- to customer pain points has and will continue to yield substantial benefits.

Let me give you a great example.

Every year TurboTax is the clear winner with people who use software to do their taxes.

More than 10 million people used the products last year.

We love this success but we know we can do even better.

Between the desktop and web products, last year we added about 3 million new TurboTax customers but lost too many.

Based on watching customers complete their taxes last year, we now understand why and are making dramatic changes in this year's release of Turbo Tax.

We changed installation process so it runs in the background so customers can start their returns immediately.

The language has been simplified, thanks to the team of writers we hired from People Magazine, who completely with re-wrote the highest volume screens in the interview process.

On the navigation front, we've streamlined the interview process and made it much more intuitive and interactive.

Our goal is to make every taxpayer who uses Turbo Tax confident in their ability to do their taxes, and confident their taxes are done right.

So they'll come back next year and tell their friends.

We currently have this kind of Net Promoter improvement effort going on in every business in the Company.

Now let's talk about Customer-driven Invention, or CDI, the second key way for driving growth at Intuit.

While Net Promoter helps us drive faster growth in existing businesses, CDI is about creating new products and services for customer needs that are either new or under served by the market.

We're excited about the new CDI offerings we've recently introduced, including QuickBooks Simple Start which was talked about at Investor Day.

This is a new QuickBooks product designed for a large segment of small businesses, about 9 million, generally sole proprietors who have been keeping their books by hand or on an excel spread sheet.

These customers have a set of needs that are very different from more established small businesses using QuickBooks.

For them, Right for Me is an easy way to track cash in and cash out, and a painless way to have all their records at tax time.

As their needs grow, and they need other features such as payroll or inventory management, there's a clear upgrade path to higher end versions of QuickBooks.

We just launched Simple Start at the end of September and we like the initial results.

Sales for the first six weeks are tracking well to our expectations.

Equally important, the majority of the customers are new to the QuickBooks franchise which is early validation of our belief that Simple Start targets a new segment of customers.

A key measure for the success of this product will be the number of new customers added to the QuickBooks franchise.

We'll have a better look at those trends over the next couple quarters as we go through busy season.

Our focus on Customer Driven Invention also led to the introduction of the new Right for Me Do It Yourself Payroll offerings Brad mentioned to meet a broader range of customer needs.

We're off to a strong start with these new offerings.

With a complete line of QuickBooks offerings from Simple Start to Basic and Pro, to different products for specific industries, closer range of payroll offerings, as well as other add on services like Innovative Merchant Solutions, we believe our position would be hard to replicate by any competitor.

As discussed at Investor Day we're also excited about our plans to expand our base in consumer tax through the reinvention of TurboTax and the launch of our new product code named SKI and officially named Snap Tax, an incredibly easy to use product that enables people who file a 1040A, or 1040EZ to complete their returns in about 15 minutes versus hours by hand.

We have also applied CDI methodology to a develop two new Pro Tax offerings that are in the market this year.

ProSeries Basic and ProSeries Express Edition aimed at reaching two new segments for Intuit, both are off to a solid start.

So let's quickly sum up.

We've had a solid first quarter, and we're on track for a good year.

Our Right for Me strategy is working and gaining additional traction throughout the Company.

Our Net Promoter and CDI initiatives are gaining momentum.

So while we expect revenue growth to be in the 6 to 9% range for fiscal year 2005, I believe that with our ever increasing focus on better execution we're on our way back to double-digit growth at some point in the future.

Intuit has a great set of assets.

We've got great franchisees.

We have great insight into what customers need and have developed a loyal customer base by meeting those needs with great solutions.

We have a talented team of employees that have passion and focus on delivering for customers.

And there's a lot more we can do.

Both in terms of improving our existing products and creating new products and services to meet additional needs.

While there will always be challenges this is an exciting time to be at Intuit.

Thanks to all the Intuit employees who delivered a good first quarter, and to our shareholders for your support.

With that, let's go to your questions.

Thank you.

Ladies and gentlemen, if you would like to ask a question, please, press the number 1 on your telephone keypad.

If you would like to withdraw your question, please press the pound key.

Our first question comes from Harry [Renevofon] from Banc of America.

Good afternoon, Steve.

My first question is, could you provide us your perspective on Microsoft's entry into the small businesses accounting market?

Sure, Harry, I think a couple thoughts.

First, it's no surprise to us, we've been expecting and planning for this for about the last 18 months.

Second, we have -- we're very comfortable with our Right for My Business strategy, which we've been executing now going on our fourth year and gaining a lot of traction, it's been well received in the marketplace, and we continue to innovate and invest and do a better job for customers, so we get stronger as they prepare to enter the market.

Now, this will be the fourth entry into the small business accounting space, and if you look at our history against them we've been successful at holding our own, so, I think it'll sharpen us up, it'll make it better, it'll make the market exciting, but we expect to be the leaders in this space over the long-term.

Another quick follow up.

Also, can you help us understand the key factors behind the strong results in outsource payroll this quarter?

Better customer acquisition and better customer retention.

We continue to execute better, and I think a lot of hard work that's been going on in that business over the last, over the last period of time is starting to pay off.

Okay.

Thank you.

Our next question comes from Craig Peckham of Jeffries.

Hi, thanks.

And, I just wanted to piggy back on to the prior question as it pertains to the outsource payroll product.

Steve, does the strength you've seen this past quarter imbold(ph) you at all to maybe step up the marketing campaign as we move into calendar 05, which is typically the big selling season for outsource payroll?

Craig, I think we already have, and that's why we want to really continue our great execution going through the busy season, which we're entering, as you mentioned, right now.

So we expect to have a good outsource payroll year, in addition to a good year with our standard enhanced payroll, so I think our payroll game is starting to come together, and we're improving our execution, so I think you'll see us be a little bit more aggressive, and just for everybody, we will -- we're going to be aggressive through the season.

We have a new payroll strategy internally, and we'll share that with you after we get through busy season.

We'll figure out the right timing as we go forward.

If I may follow up.

You touched a bit on some of the new product initiatives in the pro tax area.

Any early visibility or sense for what the competitive landscape may look like this year compared to last year?

I remember last year some changes in the competitive dynamic impacted that with the ProSeries results?

I think what had happened last year is, we were getting nibbled at at the bottom end, and then we were losing some customers because our one size fits all-pro tax offering -- ProSeries offering didn't meet the needs of those customers.

What we found is that these new products have been very, very well received, both at the low end with ProSeries Basic and at the high end with ProSeries Express Addition, and we would expect to gain some share versus drake(ph) in the ProSeries Express Edition segment of the market, which is the market we really had not played in much in the past.

So every year it's a very competitive market, but I think on a relative basis we've dramatically improved our offering and relative competitive position for this year's tax season.

Okay.

Thanks, Steve.

Our next question comes from Adam Holt of J.P. Morgan.

Good afternoon, thank you.

The first question is, on Do It Yourself Payroll, you had another, obviously, very good quarter in terms of customer acquisition and Do It Yourself Payroll.

Could you talk a little bit about where you think you are in terms of penetration relative to the readily addressable market for Do It Yourself Payroll?

Adam, by our best calculation, we think of our QuickBooks base we have in the neighborhood of a million 8 QuickBooks customers that do payroll.

And, so, at 800,000, roughly, Do It Yourself Payroll users and another 60 or 70,000 for our outsource assisted and complete, we're less than halfway penetrated into our existing customer base.

Now, we have about 300,000 of those customers that outsourcing today to paychecks for ADP, so, we still think we have a lot of room for penetration, and that's one of the reasons why we continue to leverage CDI to build these new products.

We're very pleased with the initial results from Enhanced Payroll and Enhanced Payroll Plus, but we just announced them, and what we're seeing, again, is customers are willing to pay us, and sign up for new offerings and payroll when we add more value to the product, like putting state forms, adding that on.

It was the number one most requested customer thing they were looking for, and they responded well to the fact that we responded to them.

And, this is Scott, let me add one point that our growing strength in payroll gives us the opportunity to add growth from outside the QuickBooks space as well.

So, as you think about, you know, those comments, offset to some extent by the law of large numbers, would you expect unit growth to be roughly similar to what it was in fiscal '04 as we look into the remainder of fiscal '05?

You know, Adam, I'd rather not speculate on that in terms of individual numbers.

I'll tell you that we continue to get better.

We have penetration opportunities, and so, I think we have opportunities to acquire new users as we get better on the execution, and also continue to upsell, we continue to retain a large percentage of these customers.

So, I guess, if I had to give you a range, I'd be comfortable with new customer acquisition ought to be in roughly the same range as last year.

I think that's probably, I think that's safe to say, and with these new enhanced offerings I'd expect some additional mix opportunities, so, I'd expect revenue growth to grow faster through price mix and units to grow faster than unit growth.

Terrific, and one question on QuickBooks.

As expected, unit growth was roughly flattish with last year, but would you, again, expect pricing to be the majority of the revenue driver there this year?

And what should we expect to see in terms of the mix, do you think, between retail and direct?

Couple thoughts on that.

Number one, I would actually disagree with your comment of pricing being the driver of growth again, because, while ASPs have gone up over the last few years on QuickBooks, almost all of that has been mix as customers buy higher priced products, so, I differentiate mix improvement versus price, and if you looked at growth over the last few years in QuickBooks, much more of it has come from customers buying higher end versions, which I term mix.

I think we're going to see a couple of things happen.

I would expect us to acquire more new users on the strength of the Simple Start launch, and at the same time, I would expect us to get better at executing, because we're pretty proud of the QuickBooks product we just put out, so, I think we continue to see more units this year, and, you know, the Simple Start mix will be an offset to the continued upsell mix and we'll just have to see how that comes out.

But, in the long run, this is going to be a big win for us, because the more customers that we can get into our franchise the more opportunity we have to add -- upgrade them, and add things on to help them solve other business problems.

So, these are long -- these investments are long term strategic investments for us to grow our customer base, and that's why we're being so aggressive, both in Consumer Tax and in QuickBooks in acquiring new users.

Adam, finally, as you've seen historically our mix of business in retail has been right around 50%, and we don't see anything that will dramatically change that this year.

I agree with Brad.

It's kind of leveled from 70 to 60 and now it's more about 50/50.

Okay.

Terrific.

Thank you.

Our next question comes from Jim MacDonald of First Analysis.

Hi, guys.

First, can I ask, maybe can you talk to whether -- what level of payroll sales force you've had increase versus last year?

I'm just looking at Scott and Brad, I'm not sure any of us know.

I think we have fewer feet on the street now than we had last year.

I think we have more people on the phone, and we found that to be a much more cost-effective way, and based on the nice growth that we got in the segment, we think that may be a better model for us going toward.

And then moving on to the revenue shift by quarters, is that mostly in the TurboTax area and, if so, could you talk a little bit to the marketing programs that are causing that shift?

No, actually, Jim, it's scattered pretty broadly across the Company.

QuickBooks is moving back a little bit, in part because of Simple Start and the Enhanced Payroll Plus offerings.

We're seeing Consumer Tax move back a little bit, mostly because of a mix shift to the web, more so than marketing programs this year.

And Pro Tax, more and more in the revenues coming from paper return which tends to be later.

None of which are large individually, but when you add them all up they add to a couple percentage points to the Company which is the shift we've seeing.

Just this one other quick one.

The Snap Tax product will that cause a shift like this?

It is web-based, so, it would fit in Brad's earlier comment, that Web Tax produces revenue in the third quarter rather than the second quarter.

Okay.

Thanks.

Our next question comes from Greg Smith of Merrill Lynch.

Hey, good afternoon.

Are you guys prepared to give us the price on the Snap Tax product yet?

No.

Okay.

Not until it's launched.

Okay.

Got some other questions.

It'll be less than TurboTax.

I'll give you that.

Sure.

Is it still branded Turbo Tax?

Yes, yes.

So, it's just Snap Tax, a version of TurboTax.

The thing on that though, Greg, as I think, you know, is that TurboTax is completely interview based, and while we've been very, very successful on that Snap Tax is form space.

And so it's a whole different customer experience, and that's one of the reasons why it's so much simpler and faster for customers with an easier return.

Yep, okay.

And just in QuickBooks, in the quarter it looked like the ASP was up quite a bit, but yet the percentage at retail was also up.

That just seemed to be a little contradictory.

Is there anything unusual there?

I would just think that retail might imply, you know, not so many of the flavors in enterprise.

It's true that enterprise is not retail, but our mix of retail as very nice mix as well so --

The only thing I can think about is some initial results from Snap Tax.

Up actually.

Now, Greg, I think you see a couple things.

One is mix continues to grow in QuickBooks to the Premier and Enterprise versions.

Secondly, you know, you see some volatility on that based on the results of rebate marketing programs in any given quarter.

Okay.

And then just the last question.

You mentioned about starting to garner more revenue on the IMS, the merchants processing side, garnering more revenue that used to go to Wells Fargo.

Was this a step function this quarter?

Is there still more to go?

And, then, what about isn't there an additional opportunities on the Chase side also?

The answer to all those questions is yes.

So, there's still more to go though, it wasn't it wasn't just a step function this quarter?

Well, so, when we moved to the Wells customers to IMS, that changes, that is (indiscernible) a step function on those customers.

The Chase customers are yet to go.

And then we continue to expect to see growth in both those spaces.

Yeah, but the Chase customers, do you have to wait for individual contracts to come up for renewal?

No.

So you can move it all in a block?

I think the answer to that actually is we're in process, I think we're done, and we're just getting ready to start the process of migration on the Chase customers.

Okay.

Great, thanks a lot, you guys.

Our next question comes from Gibboney Huske of Credit Suisse First Boston.

Thanks.

My question is sort of twofold.

You talked about getting more aggressive on free filing as a way of seeding your base.

Can you put that in the perspective of there's a lot of talk of maybe simplifying the tax code and, you know, how you think about it, just more over the long-term of, you know, you've got relatively low penetration of overall tax returns, you know, what sort of strategy that can kind of meaningfully take that into account and particularly if there's tax simplification?

It's an interesting thing about the difference sometimes between the rhetoric and the reality, but what we found is that every previous tax simplification effort has been beneficial to our business.

Do you want to elaborate on that?

I don't know what else I'd say, Scott, what would you --

I think the elaboration would be that the taxable implication is, I think, forever a goal of politicians, it's a great thing to run on, and a concept I think we can all agree on.

The devil is in the details, and to do tax simplification without sabotaging revenue, winds up with tending to add more complexity and more phase outs and phase ins, plus the government tends to add tax simplifications certain social policy agendas, being it helping married couples, being it medical or education savings accounts, which only add yet more opportunities and needs for tax technology solutions.

So, we've, in fact, found every past tax simplification quote-unquote, actually added many good avenues and important ways why people needed to use tax psychology even more, and why a pencil would be then less competitive.

So, we would say the best predictor of future performance by the government is the past decades of performance on this issue.

And, secondly, you experimented with sort of national media advertising around tax season.

What are your thoughts on that this year, did you learn anything relative to what form works best or sort of overall magnitude?

It's a combination of multiple mixes, and it was successful for us last year and so we're doubling down this year, we're going to spend more money this year than last year, because the tests were so positive.

But it's a mix of national, it's a mix of local, it's TV, it's radio and it's a relatively concentrated period, so it's an intense barrage, because it's so concentrated in the short window.

Okay.

Thanks.

Our next question comes from Bryan Keane of Prudential.

Hi, good afternoon.

Most of my questions have been answered.

Just a couple clarifications.

On the outsource payroll piece, that was better than expected, but I guess if I look at the branded outsource units, or amount of customers, it was flat at 51,000.

Does that mean there was more, I guess, cross-selling to the existing clients, does that explain the upside?

I think it says that we replaced premier customers, which have been atriting(ph) with complete customers, is that right Brad or not?

I think you see in part, customers on for a full quarter.

I think we've seen, you know, inside this space given that.

More employees on the payroll.

Right inside this space the customer is not a customer, because we charge both for the months and the number of employees, so, if you will, the size and sort of revenue per customer has also been growing there.

Okay.

And Steve, just you mentioned something about, and I've heard you say this before, publicly, that might a business that you might look at strategic alternatives, maybe, to decide if that really fits in with you guys.

Are you saying now that the business is getting a little bit better and you won't look for strategic alternatives or do you still think that's possibility?

All of our businesses we continue to make better.

For instance, when I first came, I wanted to strategically make QuickenLoans better but we ended up selling the business, so, we've made all the businesses we've owned better, and that just gives us more options strategically for every business that we have.

So, we're going to continue to explore all the options to maximize shareholder value and allocate our resources when we can deliver the biggest bang for the buck, so that's what we've been doing for the last five years, and that's what we'll continue to do.

I'm glad the business is performing better.

But, it's still dilutive to the Intuit portfolio.

Good news is we're on a good trend, so, let's see what happens.

Okay.

And just finally, on the Basic Pro and Simple Start units, I think it was 152,000 were sold, and somebody mentioned that was flat to down slightly, is that a lot of that have to do with the timing and the rollout of the products, so, you know, next quarter that could spike back up just depending on when the release is?

Yeah, I think there's not much action.

You think about the numbers, you talk about 15% roughly of the total year numbers, so I would not take any, the end of the season and the new season starts, I think as we've seen in the past, every season gives a new set of opportunities and challenges, so I would not use the first quarter performance to predict how the balance of the year is going to go.

Okay.

Great.

Thanks.

Our next question comes from Drew Brosseau of SG Cowen.

Thanks.

I'm just wondering, as we start to head into the quarters in which you're going to be dipping down into single digit top line growth, where, if any particular areas, you expect that to occur more in, rather than less?

So, I think, you know, we don't give guidance for the individual businesses.

I think the, if you will, the right way to think about this, is what we expect for these businesses and for the Company as a whole in a year.

Because of the seasonal nature of a lot of the businesses we're in, and because quarter costs don't come in periods that related to that seasonality, it can move from one year to another.

So, for is as example, as we've seen this year, we're going to see a little bit of revenue, proportionally more revenue be in Q3 than Q2, leading to lower growth in Q2, but that's not going to -- it does not raise implications for the performance of the Company as a whole for the year.

Just not looking for anything quarterly specific, but just generally over the next several quarters.

Are you expecting one of the businesses to weaken up more so than others?

No, and as you know, we've given explicit guidance for each of the businesses which is on our fact sheet.

Okay.

Thank you.

Our next question comes from Michael Millman of Solay Securities?

Thank you, I wanted to ask two different questions.

One, is that, at least for the first quarter, which I acknowledge may be well distorted, while we would expect marketing to be strong, that was kind of flattish year-over-year and R&D was up 6%, but the G&A jumped about 18%, and maybe you can discuss what's in there, or what we should expect for the year?

And then secondly, on the tax following some of your comments, do you expect that the new sales tax deductability will be a substantial driver?

Mike, to your first question, the largest driver of G&A expenses in the first quarter was the successful launch out of our systems initiative.

And when you turn a project like that on, the cost that you have capitalized start amortizing, so that's essentially all the driver we had planned for that.

As far as sales tax, that's an opportunity to the extent that there are citizen compliance, and I say historically, citizen compliance with laws on the books regarding payment of sales cost -- sales tax on remote sales, compliance has been low.

I think compliance can only go up.

Can't get any worse than it's been, so, that means it's an opportunity in the future, and I'd be hesitant to want to forecast when that would be an important driver of additional tax business for us.

Okay.

Thank you.

Gentlemen, I'm not showing any further questions.

Would you like to proceed with any further remarks?

I just like to thank everybody for participating.

We're pleased with the first quarter, we're exciting.

We enter the busy season, I think, better prepared than we ever have in my five years as the CEO of this company, and we're investing a lot of things that are going to help us get back to double-digit growth in the long term.

So, thanks for your time, stay tuned.

We're looking forward to sharing the results of the second quarter in February.

Good-bye.

Ladies and gentlemen, thank you for participating in today's conference.

This concludes the call.

You may all disconnect.

Everyone, have a great day.