直覺電腦 (INTU) 2005 Q2 法說會逐字稿

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

At this time I would like to welcome everyone to the Intuit second quarter fiscal 2005 conference call.

All lines have been placed on mute to prevent any background noise.

After the speaker's remarks there will be a question-and-answer period. (OPERATOR INSTRUCTIONS).

The 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 these statements are described in the following documents that are available on the Investor Relations page of Intuit's website at www.intuit.com.

The earnings Press Release issued earlier this afternoon, and Intuit's most recent Form 10-Q and Form 10-K, and other 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 www.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 www.intuit.com.

Thank you.

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

Thank you.

And good afternoon, everybody.

Welcome to Intuit's second quarter 2005 conference call.

With me today are Brad Henske, Intuit's CFO, and Scott Cook.

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

After, that Brad will cover our financial results, and I'll come back with an update on our growth initiatives and will conclude with Q&A.

Starting with our results.

Fiscal quarter No. 2 was an excellent quarter for Intuit and better than we expected.

Revenue of 663 million was up 5 percent year-over-year and above the top-end of our target range of 625 to 645 million.

This is strong growth given that our tax revenue is increasingly shifting to our third quarter.

Creating tough comparisons against the year-ago period.

Pro forma EPS of $0.82 was also above the top-end of our guidance range and above the First Call consensus estimate of $0.76.

Looking forward, we are reaffirming revenue guidance for Q3 and Q4, and for the total fiscal year we're raising revenue growth guidance from the previous level of 6 to 9 percent to approximately 8 to 9 percent growth.

Because we're making additional investments to propel future revenue growth, we're leaving total-year pro forma EPS guidance unchanged at $1.93 to $2.01 up 15 to 20 percent.

As we have discussed before, we plan to drive revenue and earnings growth by strengthening our small business, tax, and accountant franchises in 2 key ways.

First, we want to increase the number of buyers in each franchise by expanding the addressable market or capturing more share.

Second, we want to better monetize our substantial customer-base over their lifetime by offering a broader array of superior products and services that meet additional customer needs.

Halfway through fiscal 2005 we've made solid progress on both runs.

I'll talk more about our growth initiatives later.

But first, I will pass the call over to Brad who will provide more color on the business and the quarter.

Thanks.

As Steve mentioned, we executed well against our plan.

The second quarter revenue of 5 percent over Q2 '04, driven by solid growth and our QuickBooks-Related and consumer tax segments.

Intuit's pro forma operating income of 232 million was up about 17 million better than the high-end of our guidance and our bottom-line results were solid with pro forma diluted EPS of $0.82.

Above the high-end of our guidance range of 72 to $0.77.

And on a GAAP basis, EPS was $0.77.

Now, let's take a closer look at the results of our 5 business segments, starting with our 2 tax businesses, which entered their busy season in Q2.

Consumer tax is off to a solid start for the year.

Revenue of $141 million was up 9 percent over the year-ago period, underscoring or executing well against our strategy.

On the unit front, TurboTax had a strong finish to the quarter and momentum is continuing, thus, far in the season.

Through February 5th, total federal units, including the Free File Alliance grew 9 percent over the same-period last year.

Excluding Free File, federal units were up 3 percent over the same-period.

While the IRS has yet to make its data public, industry reports we've seen so far indicates, as expected, the tax season is starting later this year.

In addition, reports suggest we successfully gained market share across-the-board in both desktop and web.

We'll have more details to share next quarter when the season comes to a close.

Looking at our core TurboTax business, our efforts to re-engineer TurboTax to make it simpler and easier are paying off.

We received terrific product reviews this year, including the Editors' Choice Awards from both PC Magazine and CNET.

As you recall, our long-term strategy is to improve retention rates and word-of-mouth referrals by improving the overall TurboTax experience.

As we discussed on our Investor Day Conference last October, we're also working at expanding our addressable tax market with 2 initiatives this year.

The first is a new online offering called SnapTax.

This product targets 1040A and 1040EZ filers that typically use paper and pencil historically, not software to do their taxes.

We're very pleased with the early results of SnapTax, and given that it is in first release and is in limited distribution, we do not expect it to impact consumer tax revenue this season.

Notwithstanding, we are learning a lot about this customer set that should help us in the future.

We're also more aggressively targeting customers coming in through the Free File Alliance.

As many of you are aware, the average Free File customer has been younger with simpler tax requirements.

A large percentage of these filers have not used software to prepare their taxes historically and are largely incremental to our existing franchise.

Because we have relaxed the qualification requirements this year, we have accelerated the number of new TurboTax customers.

This has been quite good for us.

You see, the common misperception is that Free File is completely free.

In fact, it's not.

Federal 1040 and E-filing are free, but we charge for state returns and other add-on services.

In fact, we have significantly increased our revenue for FFA customer as the number of paid-state units has increased significantly year-over-year.

We've also seen less cannibalization than we expected, thus, far in the season.

Free File units are up 124 percent through February 5th, with the large majority being new to TurboTax.

It's important to note that our Free File offering doesn't have the capability to import previous years' tax data if the data comes from last year's paid offering.

This feature saves hours of time for the average tax payer and is considered a big advantage for our paid TurboTax offerings.

We like the balance of new customers coming in and are pleased so far with our FFA strategies playing out.

Overall TurboTax is doing well.

And we believe there is an opportunity to capture even more value on some of our offerings.

Accordingly, we plan to selectively raise prices in TurboTax within the next week, including state-attach pricing for Free File customers.

And we continue to be comfortable with our 5 to 10 percent revenue growth target for this segment.

In our other tax business, professional tax, it is in-line with expectations with second quarter revenue of $151 million, down 4 percent from the year-ago period.

As is the case in consumer tax, we believe that more of our ProTax revenue is shifting to our third fiscal quarter.

This reflects the continuing trend towards paper return and later revenue recognition relating some of our new ProTax express offerings, which has done very well so far in its first year.

And we continue to believe that we're on track to meet new revenue growth of 0 to 5 percent for this fiscal year.

Now, let's turn to our small business segments, both of which performed very well in the quarter.

The QuickBooks-Related segment had a very strong quarter across-the-board, with revenue up 10 percent year-over-year to 222 million.

We're succeeding with our strategy to bring new customers into QuickBooks' franchise with softer units sold up 19 percent, not including incremental units sold under our subscription model.

Including new subscription sales, QuickBooks units grew 38 percent year-over-year.

Early date also suggests that our new "Simple Start" product is expanding the QuickBooks franchise.

About 80 to 85 percent of Simple Start customers were previously using manual methods or personal financial software from either Intuit or one of our competitors.

So we're clearly expanding our addressable market with this new "Right For Me" offering.

Our higher-priced QuickBooks offerings also sold very well with premier units, which include industry-specific flavors up 24 percent over Q2, 2004, including subscriptions.

QuickBooks Enterprise Solutions, targeting customers that have up to 200 employees had 100 percent unit growth in the second quarter, and QuickBooks Point of Sale performed well, too, with units up more than 100 percent over the year-ago period.

Overall, our high-end products continue to gain momentum and we believe we have plenty of additional growth opportunity in the low, middle, and high-ends of the spectrum.

We continue to work enhancing these relatively new products and improve our marketing to increase awareness and drive additional growth.

A final note on QuickBooks sales.

Retail sales continue to be strong, largely resulting from a broad initiative to improve our overall merchandising efforts.

However, unit growth through our direct channel in Q2 was truly exceptional, up 61 percent year-over-year.

This was largely due to very effective marketing programs and the success of our higher-end offerings, which are primarily sold through our direct channel.

Our strong growth and direct sales is not captured in the weekly NPD reports, which as you know, provide a narrow and incomplete look at our total sales.

Our ability to monetize the QuickBooks phase continues to improve.

Revenue from our Do-It-Yourself Payroll offerings was up 16 percent year-over-year.

Growth was driven by price increases, improved mix, and customer growth.

As you are aware, we broadened this product family in the last few months with subscription offerings ranging from $199 for Standard Payroll, which is our traditional DIY tax table offering; to a $499 version of Enhanced Payroll Plus, which includes state forms and an automatic upgrade to the latest version of QuickBooks Premier.

It's worth noting that revenue from QuickBooks units sold as part of an Enhanced Payroll Plus bundle and Simple Start Service Plans are typically amortized evenly over approximately 1 year, contributing to our deferred revenue balance being up 26 percent over the year-ago period from 200 million to 253 million.

QuickBooks supplies did about as we expected with revenue up 4 percent.

Software support revenue was down as planned reflecting changes we made in our support policies.

Finally, in QuickBooks we had strong performance from Innovative Merchant Solutions, which enables small businesses to take credit cards as a form of payment.

IMS revenue was up 62 percent over the prior-year period due to strong customer growth, increased transaction volume, as well as greater revenue recognized from the processing business previously handled by Wells Fargo and Chase.

This business, along with DIY Payroll, continues to be a strong revenue driver to the entire QuickBooks-Related segment.

Overall, we feel good about the progress we're making in QuickBooks.

As the result of the strength we've seen in the first half of the year, we're raising our annual growth target to the QuickBooks-Related segment from 5 to 10 percent, to 10 to 14 percent.

And we're working on a lot of interesting new ideas to drive growth in the future.

We believe our large and loyal customer-base and our "Right For Me" approach gives us an edge that is not easily replicated.

In our other small business segment, Intuit-Branded Small Businesses had second quarter revenue of $75 million up 10 percent over Q2, 2004.

We continue to expect to meet our revenue growth guidance of 6 to 12 percent in fiscal 2005.

In outsource payroll, our branded customer-base increased 10 percent, which is partially offset by planned attrition in the premier customer-base.

Finally, our other business segment was in-line with expectations with revenue of 74 million, down 4 percent year-over-year.

Our Quicken franchise again performed ahead of planned in the quarter and grew on a year-over-year basis.

Revenue from Canada was down as expected and we continue to expect annual revenue growth from this segment of 0 to 5 percent in fiscal 2005.

To sum up, Intuit had a good 6 months running our second half of the fiscal year from a position of strength.

Moving to the balance sheet, Intuit had about 885 million in cash and short-term investments at the end of the second quarter, up approximately 125 million from the end of Q1.

Due to the seasonality of our business, as you know, the second and third quarters are Intuit's primary cash-generation periods.

In the second quarter, we generated approximately 249 million in cash in short-term investments, including 220 million in operating cash and 29 million proceeds from the exercise of employee stock options.

We also spent cash during the quarter, included 114 million for our stock buyback program and 13 million in capital expenditures.

Under the stock repurchase program, Intuit bought approximately 2.6 million shares in Q2 of '05 for an average price of $43.71.

We have 26 million remaining -- oh sorry -- 216 million remaining in the current $500 million repurchase program.

Looking out to the rest of the year, we're raising our fiscal 2005 revenue guidance.

We expect total revenue to be in the range of 2 billion to 2 billion, 25 million, or growth of approximately 8 to 9 percent.

This is higher than our previous revenue guidance of 1.966 billion to 2.022 billion or 6 to 9 percent growth.

Pro forma operating income should remain the same as our previous guidance of 535 to 559 million or year-over-year growth of 12 to 17 percent.

We are raising expense levels somewhat in the second half to increase investment in our small business and tax growth initiatives.

We expect pro forma diluted EPS of $1.93 to $2.01 or year-over-year growth of 15 to 20 percent.

This is the same as our previously-issued guidance range.

And we continue to expect GAAP EPS to be in the range of $1.82 to $1.90.

Before turning to guidance for Q3 and 4, I want to give a heads up that unlike what we have done in the past, we are going to wait to provide fiscal 2006 guidance until we have completed our annual planning process in Q4.

FY '06 guidance will be provided when we announce our Q4 results in August.

Turning to the third quarter, we're reaffirming our revenue guidance of 780 to 810 million, a growth of 10 to 14 percent over Q3, 2004.

As you recall with our tax businesses continuing to shift later in the season, we expect most of our FY '05 revenue growth to come in the third quarter.

We expect pro forma operating income of 395 to 415 million, a growth of 11 to 16 percent.

And we expect pro forma diluted EPS of $1.42 to $1.47 or year-over-year growth of 18 to 23 percent.

This is versus our previous range of $1.46 to $1.51 relating to the investments I discussed earlier.

And we expect GAAP diluted EPS of $1.39 to $1.44.

In the fourth quarter, we're also reaffirming our revenue guidance of 285 to 305 million or growth of 5 to 12 percent over Q4, 2004.

And we expect a pro forma EPS of a loss of $0.09 to $0.05.

We expect a GAAP loss of $0.11 to $0.07.

With that, I'll turn the call back to Steve.

Thanks, Brad.

Last month was my 5-year anniversary at Intuit.

And as I look back, I'm pleased with our progress on many, but not all fronts.

We have reshaped our portfolio to concentrate on big opportunities in small business, tax, and accountants.

We have moved from a one-size-fits-all mentality to create "Right For Me" growth strategies across all of our businesses.

We have proven our ability to successfully implement those growth strategies in QuickBooks and are getting good early results in our other businesses.

We have strengthen our talent and leadership across-the-board, and we have generally executed well with strong operating results.

Looking to the rest of this fiscal year, we believe we're on track to deliver another strong year with solid top- and bottom-line growth.

But our FY '05 revenue growth is not where I want us to be longer-term.

We're driving hard for double-digit revenue growth in the future.

So while I'm pleased with the earlier results of our many new growth initiatives, we still have a ways to go.

Growth is my No. 1 priority and where I spend the vast majority of my time.

Despite some challenges, I have never felt better about how we're positioned for the long-run in terms of bringing new customers into our franchises and selling them a broader array of solutions to increase their lifetime value.

In consumer tax, the long-term game is having Intuit win across a broader spectrum of the market from people with incredibly simple tax returns; to people who want and need some advice from a tax professional.

We have proven we can do a great job growing the category for our traditional TurboTax users.

We need to build the same track record in the other consumer tax segments.

This is our first year at targeting the entry-level consumer tax segment and so far, we've had a good return on our initial investment.

SnapTax has good early results and we're pleased with the number of new customers we have brought into the franchise through our more aggressive posture in the Free File Alliance.

Our Free File customers are a valuable asset and we're pleased that we're growing this customer base.

And as Brad discussed, we're already monetizing a sizeable part of this base.

And there is even more opportunity over the long-run as those customers need change and they become candidates for other TurboTax offerings.

Our long-term game in QuickBooks is twofold.

We bring more small businesses into the franchise and we work to solve more of their needs and sell them more products and services.

For QuickBooks the questions coming into the year were, first, whether we could significantly acquire new users with the improvements we have made to QuickBooks Basic and Pro, as well as the launch of QuickBooks Simple Start.

The second question was whether we could continue to expand our sales of higher-end software products.

Early data indicates that the answer to both questions is, yes.

At the same time, we continue to have great success at selling our QuickBooks customers additional products and services to meet more of their needs.

QuickBooks Payroll, Point of Sale, and IMS are all growing very quickly in driving faster growth in the segment as a whole.

So let's quickly sum up.

Whether there are always challenges, we like what we are seeing.

We've had a solid first half and are on track for another good year.

Early results from our new QuickBooks and tax offerings are positive.

And we've raised our revenue guidance range for fiscal year 2005.

I believe we're on our way back to double-digit growth in the future.

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

With that let's go to your questions.

Thank you. (OPERATOR INSTRUCTIONS) Our first question comes from Bryan Keane of Prudential.

Hi, good afternoon.

The earnings upside, I guess we saw in the second quarter looks like you're reinvesting that.

I think you said in small business and tax.

Is there any specific things we can point to that those reinvestments are going into in small business and tax?

I think like we've, investments we have made in the past few years, they're all aspects of small business from the launch of some expansions of Simple Start entry levels; to improving Basic and Pro; to POS and Enterprise, as well as to the add-on services.

I think it's investments across-the-board because we see the entire space as a big growth opportunity for us.

And in tax I think it's continuously improving TurboTax and some new things like this year we had SnapTax and we have some other new things that will be coming in the future that we'll talk about at Investor Day.

Okay.

And Brad, I think you commented on maybe raising prices in state.

Is that across-the-board or is that in just one area on the tax side?

I think we believe there is an opportunity for price increases broadly across-the-board.

It's a set of things you will see over the next week or so.

And that will be in just state or it will be in fed as well?

It will be in a broad range of things.

Okay.

And then just the last question I had, the new, I guess on the fax sheet, I'm just not familiar with it, but the QuickBooks software subscription, that's a new line item.

Can you just make sure -- I just want to make sure I understand that.

Sure, so that's got 2 things in it.

The big number you see this quarter is driven by the new Enhanced Payroll Plus product, which has a -- effectively a subscription to the newest version of QuickBooks embedded in it; the revenue, which is recognized over the period.

The other thing that's in it is QuickBooks Online Edition, which is what provides the history.

That's not a thing we have broken in the past, frankly, because it was quite small, but it's our other QuickBooks subscription product.

I think, let me just add, that the concept here, Bryan, is that a customer that has been a DIY subscription customer has renewed every year.

This year we offered with Enhanced Payroll Plus the opportunity to have a recurring subscription that got the latest version of QuickBooks as part of the Enhanced Payroll Plus.

So you get the DIY update plus the latest copy of QuickBooks, and the fact that we sold 80,000 units in the second quarter says that's a real testament to how popular that offering has been for our customers.

Okay, great.

Thanks for the help.

Our next question comes from Mary Meeker of Morgan Stanley.

How are you doing?

This is Brian Pitz for Mary Meeker.

Two questions just on your consumer tax business.

Can you maybe comment a little bit more on some tax rebates that have been going on, on a lot of the websites.

They appear to be a little bit more aggressive than in previous years.

Maybe you can talk about the impact into next quarter?

And then maybe a little bit more on your Free File Alliance strategy, how that potentially impacts margins next quarter as well?

Thanks.

We're all actually looking at ourselves kind of scratching our heads because we're not -- we don't know what the rebates are that you're referring to.

So I don't -- neither Brad, Scott Cook or I know and so we're -- can you tell us more?

Some of the rebates on Amazon and a host of other sites where you're selling your product, they seem to be a bigger corporate rebate than they have been in the past.

Yes, that is activity by retailers to add on to the rebates we're giving.

Their own special offers to try to induce customers to buy TurboTax at their store or at their website.

This just means we'll sell more TurboTax.

And the retailer will sell more so it's a win/win.

It doesn't necessarily mean that we have raised our spending, however.

Okay.

And with Free File, your question about Free File, we're very pleased with our strategy so far.

We're acquiring a lot more new customers than we expected and we have, of which we're making money on our Free File customers.

And in addition to that, we're seeing much less cannibalization than we expected.

So we're very pleased with our Free File strategy so far this season and hope it plays out this way for the rest of the year.

And how has the uptake been on the state tax product within Free File?

The uptake has been good and as we acquire these new customers up 127 percent, we have a nice attach rate for that and we make money on the state attach.

And as Brad mentioned earlier, we're going to raise the price on the state attach in the next week or so and so we think that will enhance our revenue generation from Free File even more.

Okay.

Great.

Thanks.

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

Good afternoon.

Two questions on the incremental investments in growth.

First, understanding that they're going to be broad-based investments.

Brad, how should we be thinking about allocating them, across different line items?

And secondly, understanding also that you are not going to give formal out-year guidance.

Should we expect these investments this year to drive an acceleration of revenue growth next year?

So, I guess with respect to the first, we're talking about something that is right around 1 percent of our expenses.

So I don't have the granularity to divide that into line items.

I think secondly, we'll talk about next year in Q4.

Okay.

And then I just want to make sure I'm clear on the commentary about the pricing changes on tax.

It sounded at first as if you said you're going to raise attach-pricing for state only within the Free File area, but then it sounded as if we could see a broader pricing change in tax generally.

Could you make sure that I'm clear on where we're going to see price increases in tax?

You will so a broader array of price changes in the next week or so.

Okay.

And just lastly on the QuickBooks upgrade and guidance.

Should we assume that that's primarily on the strength of Do-It-Yourself Payroll or are you looking for a broader acceleration in core QuickBooks?

Thanks.

It's all across-the-board.

Well, we had a 38 percent unit growth in core QuickBooks, so I think it would be a big mistake to suggest that the strength was in outsource payroll, which gained only -- or in DIY Payroll, which grew 16 percent.

We saw 100 percent growth in QuickBooks Enterprise units; more than 100 percent growth in POS units; 34 percent growth in Pro units.

So this was broad-based strength across-the-board in all the QuickBooks software products, plus the add-on services, like the DIY Payroll and our IMS business, which had revenue growth of 62 percent in the quarter.

So this is a broad-based across-the-board positive trend that we're seeing in QuickBooks.

Great.

Thank you.

Our next question comes from Greg Smith of Merrill Lynch.

Hey, good afternoon, guys.

First on consumer tax the split in the desktop version, the split between retail and direct, has it largely lived up to your expectations for this year so far?

Yes.

And retail has been up and direct has been down.

And retail continues to be an important part of our TurboTax desktop distribution strategy and is growing, and I guess, Brad, we give the next update next Thursday for tax season.

So there will be more data to come out for investors next Thursday as we report the results through this coming Saturday.

Okay.

And then can you give us any color on the composition of the professional tax segment, first of all, it look liked units were up nicely, but the revenue was down as expected.

But how successful were you with some of the new products this year so far?

We'll let you -- I think you observed or analyzed the situation right.

And I think as more and more go to paper return, we're seeing revenue move from Q2 to Q3.

But it's too early to make the call on these products, especially when Express Edition is going to get most of its revenue on the back-end.

So we'll give you a summary of that after the end of the third quarter.

Okay.

And then 1 last quick one.

On the IMS business, how much of that growth has been sort of converting existing customers from maybe Chase and Wells Fargo onto the IMS platform versus internal growth from brand new customers?

So, the -- slightly over half of the growth is basic organic growth.

The remainder comes from conversion of the business model.

And where are we in that process?

We're almost done with the conversion --.

Okay.

Great.

Thanks a lot.

We have only -- .

We're done with Wells and have a little bit to go on --.

A little bit more on customers left.

That's right.

Thanks a lot.

I appreciate it.

Our next question comes from Tom Berquist of Intuit [sic].

Thank you.

First on attached business, can you talk at all about what has happened with the competitive landscape because of your decision to go take restrictions off of Free File?

I know that you were one of the first to do it and subsequently, it looks like 7 or 8 players have now also done it.

Are you picking up dramatics and also share from what you can tell from these other players?

One correction, Tom, to what you said; everybody unveiled their Free File offering at the same time and nobody knows what anybody else is offering.

And so when the initial offers for this year were published there were 5 or 6 participants that had the free federal-to-everybody criteria.

We were just 1 of the 5 or 6.

Since then, other people have changed their offering, which you have the right to do in the Free File Alliance twice during the year.

So I think the bottom line for us is we're pleased with our strategy.

It's working very well for us.

And we're glad we're competitive with these other people that had been more aggressive in acquiring new customers then we were in the past.

So we think this is the right thing for Intuit.

It's another lever for us to acquire customers.

And based on 127 percent growth, year-over-year in Free File, we believe we're gaining share both in Free File and in desktop products across-the-board.

Got it.

Now I saw some press recently that the IRS is relooking at the Free File program in light of some of the changes that have occurred with the people who are providing the services.

There has been some speculation, and this has been [churning] on the past as to why the IRS themselves would get into this business.

Do you have any additional knowledge you can share with us on that?

No, I think when they announce some change, we'll -- you'll know at the same time we do.

And in the meantime, we're focused on growing our business and acquiring new customers and we're doing that quote well this season so far.

Got it.

Okay.

Just on the QuickBooks side, there also has been, obviously, some speculation about Microsoft's entering of the market with a product that is joined up to Outlook.

Have you gotten any sense as to how much of a competitive overlap there will be between what they're trying to target or may try to target versus what you're targeting?

I think we have their product data and we've analyzed it, and I think now we're just waiting to see when they bring the product to market, and what the price point is.

So stay tuned and when they have a product in the market, we'll have comments about it.

Okay.

And then finally on the Quicken side, you had alluded at the Analyst Day that there would be some more announcements coming on the Quicken front into '05.

Are we any closer to those announcements?

Well, we have already made some.

We have announced a couple of new products.

But overall, these are new version ones solving new problems.

We have announced Quicken Rental Property Manager.

And we have another one that is close to release;

Quicken Medical Expense Manager.

But the bottom line is these are new V1s or Version I products that we don't think will have a material impact on revenue this year.

I think the important thing is we have a bunch of new things in our pipeline that we think are going to drive longer-term growth and our flywheel on new products in the market is picking up.

We think we're in a good position to do that because of the power of the Quicken brand.

And so launching these new products we think is a great way for us to leverage the strength of that brand in our large install-base.

Okay.

Great.

And then one thing I wanted to ask you, Brad, when you talk about these investments you're making in the new businesses, is there any way to characterize those investments as either additional infrastructure like data center capacity-type investments versus new software development initiatives?

So it's mostly new product initiatives.

But, frankly, it's across-the-board.

Okay.

It's focused on things that are going to help us drive faster revenue growth.

Okay.

Thank you very much.

Our next question comes from Michael Millman of Soleil Securities.

Thank you.

Could you talk about any additional thinking regarding how you look long-term at the outsource payroll?

You had I think mentioned in the past that you were looking at whether you should be in this business basically.

Yes, I think the good news for us is in the quarter and on a year-to-date basis.

Both of our payroll businesses, the payrolls we sold to QuickBooks customers and the payroll we sell to nonQuickBooks customers have grown nicely.

And profitability has dramatically improved.

So we are in good position every day.

We continue to get better at payroll.

We have had a good season and we're encouraged by the signs of what we're seeing and the progress we're making in the payroll business.

We still think it's a big opportunity.

And we don't feel any big sense of urgency here to change course because we like the traction we're making in both aspects of our business.

So I wouldn't expect any big news on the payroll front as we go forward.

Is the outsource payroll profitable?

Yes.

And is it likely to be profitable for full-year?

Yes.

Okay.

And could you talk just a little bit, and you've talked some about the investments, we should presume since we're well on into the season that all these investments will help the future not the current year?

I think that's a good observation.

Thank you.

Our next question comes from Jim Macdonald of First Analysis.

Hi.

On the QuickBooks unit pricing it was down a little bit.

Is that just the mix of -- low on units or is Simple Start having an impact?

Well, I think it was down just a couple -- it was actually flat to the total for last year.

So to me that said we're selling 38 percent more units.

We're selling a lot more high-end units and we're selling Simple Start units.

But ASPs were flat over the total for last year.

I think that's a tremendous story while we grow units 38 percent and have revenues, ASP be flat is something that I'm thrilled, Jim.

Yes.

Just checking to see if Simple Start is going to move.

Do you expect Simple Start to move the needle on that metric?

I think the answer is we are trying to be as successful as we can be at growing every one of our QuickBooks software programs.

And as you see from this quarterly results, we've had great success.

I think the ASP will fall out of how well we do, but I think the more Enterprise and POS sell -- we sell the more that will pull the ASP up and the more Simple Start we sell.

But in total, I mean I'm pretty happy with 38 percent growth.

And we're not solving for ASP, it kind of comes out of us, selling as many units and inquiring as many customers as we can into our franchise.

Just quickly on payroll.

Is any of the rapid premier going over to the branded or is that separate still?

It's still separate.

And that, the thing is we have talked about.

We continue to look at is to what the right transition is for that side of customers on a way that's both good for them and good for us.

Any conclusions?

Not yet.

Okay.

Thanks.

Our next question comes from Drew Brosseau of SG Cowen.

Hi, thanks.

I have two.

The first is following what looked to be a pretty good quarter, I was just wondering what is behind the reluctance to lift numbers for the back half of the year?

Well, we did raise guidance on revenue, and what we're doing is we're reinvesting the operating profits in things that are going to drive faster revenue growth in the future.

So, I don't think it's reluctance.

I think it's a conscious decision to invest in driving growth.

Yes, I think -- the only thing I would add to that is if you look across our businesses at this point in the year, I think the results we've seen from QuickBooks give us a pretty good indication as to how that is going to play out.

As you saw we raised the numbers.

I think in the tax businesses, at the end of January there is still a long way to go for both of these businesses.

Around relatively fine crenations of guidance.

So I think we like what we're seeing so far, but I think prudence says, we leave it where it is for now.

Just to clarify.

You didn't raise second-half numbers, right?

Or did you?

No.

In aggregate no.

Okay.

And then what is the thinking behind waiting on the '06 guidance relative to past year's?

So I think, particularly as we continue to work to how we drive better growth, we do our planning process here in the sort of June and July time frame; in May, June, and July.

And I think that it serves everybody well for us to be through that process and pretty crisp about what investments we're going to make and what is going to happen, particularly, with a lot of the new things that we have done before we put guidance out.

Are there any particular events that are likely to happen to the Company strategically between now and then that would be a cause for that?

To be a cause for?

For not talking about guidance yet.

No, just the completion of our internal planning process.

Okay.

Great.

Thank you.

Our next question comes from Craig Peckham of Jefferies & Company.

Good afternoon.

Just a couple of questions.

First, I wanted to clarify the E-file line on the fax sheet.

Does that include E-files that come out of the FFA?

In other words, how much of that is paid?

It should be all -- and yes, it should be all.

I don't know.

The question, I think, Craig, this is Steve.

I think the question is, does it include Pro or is just consumer?

This is just consumer [indiscernible].

Okay.

It's inclusive of the Free File.

Okay.

And I guess back to, or still within consumer tax for a minute, you have made the observation that the tax season seems to be shifting later in the year yet you were kind of surprised it sounds like by, the strong performance here in the early part of the season; mainly, the January quarter.

Is there any reason to second guess, I suppose, the pacing here?

And, I guess, related to that, why do you think there was such a strong finish to the January quarter?

Very simple.

We are doing much, much better in Free File than we expected, and, two, we have had much less cannibalization from free, from paid to free than we expected.

I don't -- if you look at the IRS data that we see that you don't have visibility into yet, the season is later.

And so we have -- that's why we performed better than we expected and those are the 2 primary reasons.

We have also done very, very well at retail with our desktop product.

And would you attribute that to the more aggressive marketing campaign or functionality?

I'm just trying to figure out how you --.

Better product.

We made a lot of product improvements in terms of simplifying the interview, writing it in English versus tax language, and I think our execution has been better in terms of core TurboTax.

And I think both which -- effected both the web and the desktop.

Scott, I don't know if you have any thoughts that you would want to add.

No, those are both correct.

The only thing that I would add to that is the accumulative affect of the advertising.

The advertising starts in the second weekend -- week of January.

It has accumulative affect.

And in our test and control markets we're seeing that affect as being quite positive and that should build as the advertising accumulates during the season.

And we're spending 2 to 3 times in advertising this season from what we did last year.

So that's probably another reason that we're seeing a nice lift.

Okay.

My last question.

Is the Company seeking a replacement for Lorrie Norrington's position?

No.

Thank you.

Our final question comes from Glenn Greene of ThinkEquity Partners.

Thank you.

The first question relates to the strengthen in the higher-end QuickBooks units.

I was wondering if you could just give some color on what changed this year?

Did anything change in your strategy or your marketing plan, or new product features that drove the growth?

This is Scott.

I'd add Glenn, that I think we're really figuring out now how to sell QuickBooks products that have higher price points then we ever offered before.

These products tend to sell from $700 to $3,500.

That's a really a new price tier for us.

And I think we have now figured out how to communicate, sell, and close on those price points and that's producing the across-the-board strength in the higher-end of QuickBooks Enterprise and POS volumes doubling versus a year-ago.

And then related to the Free File Alliance, I suspect that going into the season with your strategy of, offering free for everybody that you clearly did some market research heading into the year and suggesting that there probably wouldn't be that much cannibalization.

And I guess that is what you're seeing.

But I was wondering if you could give us some contacts and so how you were thinking about it heading into the year in terms of the cannibalization you were expecting and what you have actually seen?

I think the answer is we will -- we talked about that.

I think what we would like to do is play the whole season out and -- because I think it will be, it might be misleading to give that information prior to us finishing the season out.

So I think at this point, it's less cannibalization than we thought and let's see how it plays out for the year and we'll talk about that after the end of the third quarter.

And then just finally real quickly, the 20, if you could share the blended ASP for TurboTax?

It appears that the unit growth approximates the revenue growth, suggesting that ASPs were relatively flat for TurboTax all-in.

Is that reasonable?

I think it's probably best for you to do your own analysis on that.

We're not releasing anything separately.

Thanks a lot.

Gentlemen, I'm not showing any further questions.

Would you like to proceed with any further remarks?

I would just like to close by thanking everybody for participating and their support.

And stay tuned for the report at the end of the third quarter.

You will get your next vision -- or version of our performing in consumer tax next Thursday.

And thanks again for participating.

Goodbye.

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

This concludes the call.

You may all disconnect.