直覺電腦 (INTU) 2006 Q1 法說會逐字稿

Welcome to your Intuit first quarter FY '06 earnings conference call.

At this time all participants are in a listen-only mode.

Later we will conduct a question and answer session and instructions will follow at that time.

If anyone should require assistance, you may press star then zero and an operator will assist you.

And as a reminder, this conference call is being recorded.

Now I'd like to turn the conference over to your moderator.

Hi.

Sorry for the late start.

We had a bunch of people in the queue and we wanted to give them an opportunity to dial in before starting.

Good afternoon and welcome to the Intuit first quarter 2006 conference call.

I'm Bob Lawson.

I'm here with Steve Bennett, Intuit's President and CEO;

Kiran Patel, our CFO; and Brad Henske, General Manager of Consumer Tax.

Before we get started, I would 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 2005, and our SEC filings.

All of those documents are available on the Investor Relations page on Intuit's Web site at Intuit.com.

We assume no obligation to update any forward-looking statement.

Some of the numbers in this presentation will be presented on a nonGAAP basis.

The most directly comparable GAAP financial measures and the reconciliation of the nonGAAP financial measures to GAAP are provided in today's press release.

After this call concludes, a copy of our prepared remarks will be available on our Website.

With that I will turn the call over to Steve Bennett, Intuit's President and CEO.

Thanks, Bob, and thanks, everyone, for joining us today.

We have some exciting news to talk about and I'm glad you're with us.

As you've just read in our press release, Intuit just delivered a terrific quarter, with revenue up 20% year-over-year, driven by great performance in our QuickBooks business.

NonGAAP diluted EPS was a loss of $0.26 per share and as you know, Intuit typically reports a seasonal loss in our first quarter when revenue from the tax businesses is low and expenses are relatively fixed across our quarters.

I'm pleased with our position as we enter our two busiest quarters.

We are seeing positive early results and like the QuickBooks growth trajectory.

And despite a new competitor, the early QuickBooks retail share results are encouraging.

QuickBooks share of retail units fiscal year-to-date through September was up two points year-over-year to 88%, according to NPD Group retail software reports.

We are also feeling good about the upcoming tax season.

Although we plan to hold an investor briefing on consumer tax later this month, one of the new services published an article about our plans before it was supposed to and as a result we've cancelled the briefing in New York City and we will have Brad Henske cover some highlights of the season later on this call.

First, Kiran will walk us through the quarter.

As you know, Kiran joined us as CFO in September and we are delighted to have him on board.

Kiran?

Thanks, Steve.

Let me start with a summary of the first quarter's results.

Revenue of $304 million was up 20% year over year.

NonGAAP loss of $0.26 per share was $0.01 greater than last year's first quarter loss of $0.25 per share.

On a GAAP basis, we had a loss of $0.26 per share, $0.02 greater than last year.

The first quarter 2006 loss includes approximately $0.07 per share from the expenses associated with employee stock options and $0.02 per share from the lower share count versus first quarter of 2005.

This is the first time Intuit's GAAP results have included options expense.

Turning to the business segment results, QuickBooks had an outstanding quarter with revenue of $178 million, up 22% over first quarter of last year.

As you recall, our QuickBooks growth strategy has two key elements: First, we attract new users to the QuickBooks franchise, and second, we sell customers upgrades and add-on solutions, such as payroll and payment services.

We achieved great QuickBooks unit growth this quarter with total units up 35% year-over-year, driven by a 23% increase in core QuickBooks Basic, Pro, and Premiere units.

We also had very strong growth in our new QuickBooks offerings: QuickBooks Enterprise edition units were up 82%;

QuickBooks online edition had a 116% increase in subscribers;

QuickBooks Simple Start has also had excellent growth.

We've sold more than 114,000 units since we launched the product in late first quarter of 2005.

We also had strong year-over-year growth in QuickBooks add-on solutions.

Revenue from our Payments business was up 55% year-over-year, driven by a 22% increase in the customer base and a 44% increase in transaction volumes.

Revenue from QuickBooks Standard and Enhanced Payroll increased 28%.

Although QuickBooks was the principal driver of first quarter growth, two other segments contributed to first quarter results.

Intuit branded Small Business had revenue of $58 million, up 9% year-over-year.

The Other business segment had revenue of $51 million, up 24%.

Moving to the balance sheet, Intuit had $697 million in cash and short-term investments at the end of the first quarter.

As is typical in the first quarter, we spent more cash than we generated, with a negative operating cash flow of $84 million.

We used $195 million to repurchase 4.3 million shares.

Today we are announcing another $500 million stock repurchase program.

With the balance remaining in the current program, we have nearly $600 million authorized for share repurchases.

With the strong first quarter QuickBooks results, we are raising our earnings guidance for the fiscal 2006.

We now expect revenue of 2.20 to $2.26 billion, which is an annual growth of 8 to 11%.

Our previous guidance was annual growth of 7 to 10%.

With this higher revenue outlook, we are raising our nonGAAP diluted EPS guidance to a range of $2.23 to $2.31.

This is a year-over-year growth of 12 to 16%.

Our previous guidance was a range of $2.19 to $2.29.

We expect GAAP diluted EPS to be in a range of $1.99 to $2.07.

At the segment level we are raising QuickBooks revenue guidance to 7 to 12% annual growth, up from 5 to 10%.

We are reaffirming the revenue growth guidance for the other four segments.

You will find that information in the fact sheet that accompanies today's press release.

Another important guidance note: Later in the call Brad will talk about some product and pricing changes we are making in TurboTax.

One of the outcomes of these changes is a change in the seasonal pattern of TurboTax revenues this year; a move up of approximately $40 million in revenue and $0.13 in EPS from the third quarter to the second quarter.

We have updated our guidance accordingly.

Consequently, our guidance for the second quarter, which ends January 31, 2006, is revenue of 710 million to $750 million, or year-over-year growth of 10 to 16%; nonGAAP operating income of $250 million to $265 million, or a year-over-year growth of 11 to 18%;

GAAP operating income of $226 million to $241 million; nonGAAP diluted EPS of $0.88 to $0.98 or year-over-year growth of 11 to 24%, and GAAP diluted EPS of $0.80 to $0.90.

You can find the guidance for our third and fourth quarters on our fact sheet.

With that I will turn the call over to Brad Henske.

Thanks, Kiran.

I'm quite excited to talk today about some of the new things we are doing to make this upcoming tax season our best ever.

Let me start, however, with why we believe TurboTax will be a double-digit growth business this year and into the future.

First, the self prep software category continues to grow and take share from substitute tax prep methods, like pencil and paper and tax franchises, as more and more taxpayers learn that there's an easier and better way to do their taxes.

Second, the recent four-year extension of the prefile program reduces uncertainty about the IRS rules, and that's a positive for our long-term growth opportunities.

Tax preparation is a great market for Intuit.

It's large, under-penetrated, and its customers are well-served by the simplicity and ease of use that Intuit brings to all of our offerings.

Last season, about 132 million consumer tax returns were filed.

Software was used to prepare 32 million, or only about 24% of those returns.

Another 19 million taxpayers were nonconsumers, doing their taxes with paper and pencil forms or using Telefile.

And 81 million taxpayers used the higher-cost alternatives, such as a storefront franchise or a professional.

That's a look at returns.

When you look at the market from a dollar perspective, you see an even bigger opportunity.

Because consumer tax software is relatively inexpensive, it represents only about 3% of the 20 billion spent on taxes each year.

And Intuit is in a great position to capture a greater share of that 20 billion.

Last year, TurboTax, with 21 million returns prepared, completed more tax returns than all of the H & R Block stores.

We have a very strong brand that's recognized by 82% of the population, one of the most recognized brands in the U.S.

These market fundamentals, combined with our continuous focus on delivering better customer experiences to create positive word of mouth are driving category growth.

Last year the Software category grew 13% while the number of paper and pencil and professionally prepared returns actually shrunk.

TurboTax drove 93% of the category growth.

We also have some good news on the role of the IRS and the Free File Alliance.

A few weeks ago a new four-year free file agreement was signed which contains a number of important provisions.

First, it continues to prohibit the IRS from entering the tax preparation business.

Second, it limits the program to taxpayers with less than $50,000 in adjusted gross income.

This is a significant improvement from the free-for-all of the past few years.

And it limits any individual company to offering to target no more than 70% of the eligible group.

We are pleased with the agreement and the return the of the Free File program to its philanthropic roots.

Like we did last year, we expect to win new customers through the Free File channel and we expect to have a meaningful success in upselling last year's Free File customers into fully paid products.

At the same time, we've made additional charges to further differentiate our free offering to limit cannibalization.

Looking ahead to this coming tax season, we see some very specific opportunities as we look to this $20 billion annual market.

First, retention: We improved retention of our customers by five points last year to 74% and expect continued improvements this year based on last year's progress.

Second, we've made several new and innovative changes to the offering that we believe will better monetize our large customer base.

And, third, we see a big opportunity to acquire more higher value customers by converting them from high-cost alternatives like franchise stores.

I will talk about each of those in turn.

Retention continues to be a big area of opportunity, so we've continued to improve the customer experience and remove the reasons why people leave.

We've done things like improving the interview and replacing tax jargon with plain English; making our customer service agents and help more available; reducing update times; and releasing in-season updates to fix issues customers encounter.

It's a lot of little things, but it all adds up to helping us better retain our customers.

Our second opportunity to drive growth is to find new ways to better monetize our customer base.

An important step we are taking this season is to dramatically simplify pricing.

We've learned that customers would much rather buy one bundle than make separate purchase decisions for Federal and State software.

As a result, we are going to sell both Federal and State tax prep in one box at retail this year.

We've also learned that offering a rebated versus net price -- a rebated product versus net price -- has little impact on purchase behavior and revenue.

Last year, TurboTax Deluxe at retail was priced at $40 with a $10 mail-in rebate.

The State product was $30 with a $30 mail-in rebate.

Federal e-file was $15 with a $15 rebate, and State e-filing was $15 with no rebate.

A pretty complex formula to get to $45 for Federal and State tax preparation in e-filing, and a time consuming process for customers to claim three rebates.

In fact, rebates were our number one customer pain point last year.

So for this year, for the first time in history, we've eliminated tax rebates.

This year's retail pricing will be $40 for Federal and State Deluxe software, plus $15 for each e-file.

This will be much simpler for customers and, importantly, will result in about the same revenue per customer for Intuit.

Next, in another effort to deliver more value to TurboTax customers and better monetize our large customer base, we've added a significant new enhancement.

First, in context: last year TurboTax processed approximately $44 billion of consumer tax refunds and there's a magic moment in preparing a tax return when the customer finds out if they're going to get a refund.

The average TurboTax customer receives a $2,400 refund and the truth is they don't start thinking about how they are going to spend it until they know they are getting it.

And we are part of that magic moment.

This year we are launching a new offering: TurboTax Refund Bonus.

It's a program that allows consumers to take a portion of their Federal refund and increase its value by 10% or more with gift cards for many of their favorite every-day moments.

Customers are eager to get extra value from merchants like Lowe's, Gap, Starbucks, Disney, Blockbuster, and Sharper Image.

Refund Bonus is viewed as a nice enhancement to our TurboTax offering and we will charge $29.95 for participation, a relatively small part of the savings customers can achieve by participating.

This is another example of applying Intuit's secret sauce of customer-driven invention to deliver additional value to customers and investors.

Our third big growth lever is to attract new customers by disrupting higher price franchise alternatives.

We've already been doing this, with about 48% of our new fully-paid customers in 2005 coming from higher priced alternatives.

Why did they switch to TurboTax?

They learned through word of mouth that they can do it themselves, often in less time and hassle than going to a store or office.

And in many cases, they found the franchise experience simply wasn't worth the cost.

Small Business Tax is another important market where we can disrupt higher cost alternatives, and we are pursuing this opportunity aggressively.

We have significantly improved TurboTax For Business this year.

For the first time ever, it will launch with the rest of the products at the end of November.

Our retailers are excited about this new product, as are we.

We are also launching TurboTax Estimated Taxes this fall, an online solution for the 10 million taxpayers who pay estimated taxes each quarter, as well as a version of TurboTax specifically tailored to the needs of small businesses who sell on eBay.

All in, we think there's a tremendous opportunity in Small Business Tax, both in the near- and in the long-term.

To sum up, we are quite excited about the season and our prospects for double-digit growth this year and for the years to come.

Our desktop products went gold last Thursday and the engineers and Beta testers, some of whom have been working on these products for nearly 20 years, told me that this year's products are by far the best ever.

And I will say personally for the first time in my life I am looking forward to tax season.

Thanks, and I will turn the call back over to Steve.

Thanks, Brad.

Before we get to your questions I would like to provide some quick color on why we are confident about our future growth prospects.

As we discussed at our recent Investor Day, Intuit has a proven growth strategy that powers our strong performance.

This strategy starts with being in good businesses and attractive new markets that have large unmet or under-served needs that we can solve well.

We then apply the Intuit secret sauce: customer-driven innovation, or CDI, that solves important customer problems simply.

We applied CDI in two ways: One, we continually improve our existing solutions to delight customers and create positive word of mouth.

And, two, we create brand new offerings that either convert nonconsumers into Intuit customers or disrupt higher priced alternatives.

I am pleased with how well our team is executing our growth strategy.

We are off to a great start with QuickBooks.

We've got our strongest lineup ever with QuickBooks 2006, which hits retail shelves on Monday, our biggest leap forward in the area that matters most to small business owners, simplicity that drives ease of use.

And we are equally excited about the upcoming tax season, with continued improvements in our core offerings and some promising new initiatives, all designed to expand the category and drive new growth for Intuit.

To sum up, we are delighted with the results for our first quarter and like what we see for the year.

We've made real progress, executing Right for Me growth strategies across all of our businesses, and we see a lot of head room for strong growth over the long-term.

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

With that let's go to your questions .

Are you going to moderate, Bob, or do we get John to tell people what to do?

John?

Operator?

Please stand by. [OPERATOR INSTRUCTIONS].

Who's the first question, John?

Let's go.

Our first question comes from Heather Bellini.

Hi, thank you.

I was wondering, Brad, two questions, actually.

One would be for Steve, one would be for you, Brad.

In regards to what type of acceptance you guys are seeing of customers taking advantage of the final, I guess, 100-dollar QuickBooks rebate you are giving away before you do away with Basic, if you could comment on that, and then what type of impact or what are you factoring in for how that influences growth in the January quarter?

And then Brad, I just was just wondering if you could just give me a clarification: so the basic tax pricing is $40 now for Federal and State Basic; is that correct?

Sure, let me take that first.

No, it's going to be $40 for what we call the deluxe product.

Okay.

Sorry about that.

Which is the product in the middle of the line.

Okay.

And that includes Federal and State and then 15 for each free file.

Correct.

Great.

Thank you.

And with respect to the QuickBooks promotion, really, Heather, it's at the end of the season so the volume isn't all that significant, but what we did was to make sure that we were competitively priced as we were moving to QuickBooks 2006, which we think will be the best QuickBooks product we've ever had in the market.

So I think the important thing is not necessarily -- I think it's really the share position at this time, where we had old product in the market, we actually gained share and we are quite pleased with what we believe that means as we move into the regular season here.

The preseason is over and we did very well.

Now we are ready to play the big game, which is quarters 2 and 3, and that's why we are excited that QuickBooks 2006 will be on the field starting next Monday.

Right.

And I guess the question that would be on QuickBooks, though, did you see a lot of preorders for people upgrading, who maybe have bought last year or the year before, where they typically might be upgrades every three or four years but are taking advantage of it this year, so you saw a lot of preorders which you'll get to recognize in the January quarter.

No.

Okay, great.

Thank you.

This is revenue.

The numbers we gave, revenue was up 22%, not sales.

Thanks a lot.

Thank you, ma'am.

Our next question comes from Bryan Keane.

I just wanted to clarify.

The November 29th tax day is no longer -- I didn't hear you, Steve, what was the reason on that, again?

In simple terms, we had gone out to the press with an embargo on some of the exciting new things that Brad Henske talked about today and there was an error and they released the press statement.

So because of that, it forced our hand and we said we couldn't wait until November 29, we wanted to talk about it today.

And most of that is the keys, the release of pricing, and was there anything else in there that was new?

It's the stuff Brad went through.

It's pricing, it's some of the enhancement we made, it's the improvements, the Business Tax, it's Refund Bonus.

I think the reason we originally thought about having a session in New York is because this is such a significant change, by eliminating rebates, we wanted to make sure that investors had a chance to ask us questions to make sure everybody understood that this is basically revenue neutral for us and a much better customer experience and we view this will be a big positive for the market.

Last year when we announced these pricing changes plus the change in moving revenue from one quarter to another, there was a lot of confusion and we wanted to make sure that we held an event where we had a chance to explain those questions to investors just before the season started.

Okay.

That's helpful.

Brad, the electronic filing, it's $15 each for Federal and State.

What was that last year?

It was $15.95 last year with a rebate against the Federal IE file.

Okay.

And then, the Deluxe and the Premiere versions, I can get State inside that for relatively the same price that I got just Deluxe last year; is that correct?

Yes.

Then I guess you think that the revenue per that sale is going to be the same, it's not going to change?

To me, I would think you would lose some revenue from the State.

Why wouldn't that be?

No, the net of it is, if you go through in aggregate the attach rates for the State product historically and each of the e-files and then turn -- which are not 100% in return, and in turn the redemption rates on the various rebates, we netted on that customer about $55 before the retailer margin.

And with the new pricing we expect to be pretty much right on top of that.

Okay.

All right.

Thanks.

Thank you, sir.

Our next question comes from Tom Berquist from Citigroup.

Thank you.

On the gift card promotion, Brad, if I understood it, your average refund, for those people that get refunds, anyway, is about $2,400.

So you charge $30, essentially, to give them the right to buy a collection of different gift cards at a 10% discount?

Do I have that pretty much right?

You're right, except the discounts vary between 10and 50%.

Ten and 15%?

Ten and 50.

Ten and 50%.

Got it.

Okay.

And -- this is Steve -- and they opt into the program, they can get all $2,400 in gift cards or they can get $500, they can pick their merchant, so it's a complete choice, where they are going to get these 10 to 50% discounts and -- but they choose whether to participate or not and then who to buy and how much to buy.

So it's very customer focused.

And our research on this, this has been very well-received by customers.

Okay.

But they can't spend beyond the level of their refund.

Correct, exactly.

Okay.

Got it.

And then secondly, in terms of the QuickBooks share gains that you talked about, were you looking at that on a dollar basis or on a unit basis or both?

Units.

Units.

Got it.

Okay.

And then on the Microsoft product, I know it's been on the market now for a couple of months and we've seen, obviously, relatively low NPD data so far, what are you hearing when you're talking to your small businesses and some of their audit and tax service partners as they look at the product?

Well, I think what we hear is probably less germane.

I would just refer people -- we think the best third party review is PC Magazine and PC Magazine gave QuickBooks 2006 five stars and Small Business Accountant 3.5.

Got it.

So I think that's pretty consistent with the feedback we hear, that QuickBooks 2006 is the biggest leap forward in simplicity and ease of use and when you combine that with all the momentum we have in the marketplace, we think we have a formidable offering.

And the point I would make, Tom, is also look at the data that we went through, that Kiran went through, Enterprise units, where we have no competition with Micro -- up 82%.

OnLine, up over 100%.

Every part of our QuickBooks franchise, Payments, up 55%.

Every part of our Right for Me ecosystem is performing very, very well, including the place that Microsoft targeted head-on.

So as we expected, Microsoft's entry has grown the category.

We are very pleased that we've been the biggest beneficiary of that so far.

We will see how it plays out in the quarters two and three, but we like our position going into the regular season here.

Okay.

My last question on the Other business, which was up strongly, is that related to the new extensions to Quicken that you introduced over the last year?

That's primarily Quicken and some strength we had in Canada on some year-over-year comparisons.

Okay.

Is there any experience you had on the real estate property management product or the healthcare claims management product?

Still marginal -- still minimal impact.

Okay.

Thanks.

Not a driver of the 24% growth.

Okay.

Thank you, sir.

Our next question comes from Michael Millman from Soleil Securities.

Thank you.

That's Soleil Securities.

Just, first on QuickBooks and then we'll go to Tax, has there been a lot more promotion by you by Microsoft on the category?

I think there's been a lot more press and PR about it and I guess you'd say there's been more press, I think that's true, I think the answer to that is probably right.

That's one of the reasons why the category has grown at relatively slow time of the year.

So we think that's a positive sign for the category and for us.

Thank you.

On the Tax, maybe can you repeat -- the gift card -- if I was getting a rebate of $2,400, could I ask for $1,000 of that in a Lowe's card that would give me 10% off?

How does that work?

You would allocate, in that example, $900 of your rebate to Lowe's and would get the remaining $1,500 in cash and you would also get $1,000 worth of Lowe's gift cards.

So you basically got an extra $100 of value for $29.95.

And how does this -- Block had something similar to that three or four years ago.

And it was a failure.

How does yours differ from what Block was doing?

Or did?

I can't speak directly to the Block program, but I think the important insight in this is that customers, when they get to the end of a tax experience, are not interested in making a big decision on buy a trip, get a big screen TV, buy a car.

What they are very much interested in is better value on everyday purchases, like Lowe's and the thing we talked about.

And at least -- we will see how it plays out, but the customer feedback so far has been quite positive.

And I think the other thing that's important for all investors to understand, we've been very prudent in our assumptions, in our guidance for Consumer Tax for the uptake rate of this reward bonus.

We did not factor a big uptake rate in this in providing the guidance that we have for 10 to 15% growth this year.

And final question, on the Tax, could you maybe give us a little bit more color on your product to help disrupt the higher price?

Are we talking about a specific product or are we talking about the whole suite of products?

So today we find, as I mentioned, our largest source of new customers across the array of QuickBooks or our TurboTax products, but it's particularly the more expensive versions of it come from higher priced alternatives.

So we are doing that today and we continue to work on new things to even do better at that in the future.

It will be a very specific new offering that will be in the market some time in what, Brad, the January, February time frame?

We will end up doing some trial work this year and a large scale offering next year.

Okay.

So you haven't given us any detail on that yet.

No.

Thank you.

Thank you, sir.

Our next question comes from Adam Holt from JP Morgan.

Good afternoon.

My first question is to clarify the change in the 40 million in TurboTax revenue that's going to move into the second quarter.

Again, is that primarily because of the moving forward of the TurboTax Online business?

Or is there another associated change with the go-to-market strategy?

Maybe you could walk us through the thinking behind that change?

Yes, Adam, this is Kiran.

I will take that.

As Brad described, we made some exciting changes to our TurboTax product offering and pricing strategy, which includes eliminating rebates and the elimination of rebates results in some of the TurboTax revenues moving up from the third quarter into the second quarter.

So it's related to our change in pricing strategy.

It's 100% revenue recognition.

It has nothing to do with the Web or the Desktop.

It's 100% revenue recognition loss, because when we had rebates we couldn't recognize the revenue until the third quarter.

Okay.

And then maybe just then separately, could you talk a little bit about why you are pulling forward the TurboTax Online availability and what you think the potential impact could be there?

I think there is some number of customers who have done this from our Desktop product in prior years that buy the product in late November and December because they want to plan for year-end, and that historically has not been available in the Online product.

So we are providing that largely as a customer convenience this year.

Perhaps we will sell a little bit more at the margin, but this is mostly around serving customers better.

Just lastly, if I could, shifting gears to Do-It-Yourself Payroll, as you noted, you saw strength across a number of different QuickBooks line items, but Do-It-Yourself actually kind of reaccelerated on a sequential basis.

I was wondering if there was anything in particular that was behind that move and could you talk a little bit about your current thinking on saturation of that marketplace relative to your installed base?

I think the simple thought is, we launched Enhanced Payroll less than a year ago.

We sold 125,000 units the first year.

It's a continued higher attach and more customers are seeing the value on it, we are just on the normal curve of when we get a great new product in the marketplace and because we continue to market it better, sell it better, it just continued penetration and attach.

We have in the neighborhood of 1.8 to 2 million QuickBooks customers that do some kind of a payroll, so we are about 50% penetrated into the base in the 900,000 to 1 million Do-It-Yourself customers.

So we still think we have plenty of room for improved attach as we go forward, plus capturing more of the value through moving upstream to some of the things like doing Do-It-Yourself Plus, the tax filing aspect that we have in our Assisted product.

So we believe we have a lot of payroll opportunity selling stronger solutions to our QuickBooks base.

Terrific.

Thanks for your help.

Thank you, sir.

Our next question comes from Jim MacDonald from First Analysis.

Good quarter, guys.

Could you tell us about the low-end TurboTax pricing?

You will see it in stores next Friday.

Okay.

Could you give us the -- would this gift card be viewed as a refund anticipation type of a thing?

Because, how is the money going to flow into it?

Because presumably the customer hasn't gotten their rebate yet.

So, we issue gift cards actually after the refund flows back so we are not taking a bunch of credit risk in this.

So that flows directly through to the customer and we get our money, the 29.95 gets paid by the customer to us by whatever method they choose.

It's absolutely not a refund loan or anything to do with a refund loan.

Okay.

It's after the fact?

Yes, after the fact.

And just one other quick one, your employee count seemed to jump pretty dramatically this quarter.

Where are those people being put?

I think the answer is, if you look at our R&D it's up over 20%.

It's continued investments in things that are going to drive growth and allow us to better serve our customers, in building the products and servicing customers, and I think that's reflective of the faster we grow and the bigger we get, the more we have that impact in the first quarter because we sign them up and hire them in the first quarter so they are trained up or on board to deliver value during the season.

So I think it's just a normal part of the plan.

We are on plan in terms of headcount, or, frankly, slightly below, so this is just business as usual for us, investing to drive growth in the Company.

Okay.

Thanks.

Thank you, sir.

Our next question comes from Brian Fitzgerald from Morgan Stanley.

Hi, guys.

Congratulations on the quarter.

A lot of my questions were answered.

A quick one on the estimated taxes.

Of the 20 billion that's spent on preparing taxes, do you know what percentage would be carved out for people who are going to storefronts or going to pros because they have the hassle of having to do estimated taxes?

Very low.

It's pretty low, but I don't think we know for sure exactly what it is.

It's often part of a broader relationship.

That's a good question, Brian.

We should -- that's a good one for us to follow up on.

We think it's a relatively small part of the $20 billion.

But I guess proportionately bigger in terms of tax dollars that flow through that process.

Yes, I think the thing we ought to fine out is a good one for us is, is it part of the 20 or not?

Because I'm not sure it's even part of the $20 billion that we talked about, which is kind of 1040 preparation and filing.

So, that's a good one we should follow up on, Bob.

We will figure out how to get the word out that, get the answer and get the word out.

Fair enough.

Appreciate it.

Our next question comes from Rene Solorzano from Lehman Brothers.

Good afternoon.

This is actually Scott Schneeberger on with Rene.

Congratulations on the quarter.

A question about the gift card.

How do the economics work on that?

I guess what I'm driving at, if you could answer it, is margin as far as with your partners, with the Disneys and the Sharper Images.

How does that all work, as far as the revenue share?

So, our primary economics are around the fee we get paid, the $29.95, and we then we have costs against it to execute the program.

Okay.

Thanks.

There's no rev share.

That's not the way the program is set up.

Okay.

I understand.

Now, without having the tax day coming up, and it sounds like you're asking us to hold off until some of the other non-deluxe products are released for price points: Do you have any commentary on marketing spend for the upcoming year or what type of -- basically, marketing we'll see in the tax category for the upcoming year?

Sure.

I think you'll continue to see us advertise broadly on television and radio and I think you will see a significantly larger investment in particular in Web marketing.

One of our learnings from last year was that there is meaningfully more opportunity there for us to capture more customers.

So is it safe to say, Brad, net/net higher spending this year for us than last year?

Absolutely.

Which we've proven that we get a pretty nice return on investment of the higher spending limits.

So we saw that last year and so we would expect to see that this year also.

Great.

Thanks.

One more if I may.

I think it was October 20th, the vote in the Senate that, basically saying the IRS shouldn't produce its own tax products.

Now I understand that with the House, that still has to be changed in wording.

Can you give us an idea of your interpretation of how that process is going to work and perhaps some timing around that?

I think we will still see how that comes out of the Conference Committee and discussions between the House and Senate.

I'm not sure it's going make it through.

It might not make it through.

I think the important thing is that we have a four-year free file agreement extension and I think the fact that that passed the Senate by such a positive -- that resolution passed by such a positive measure says that there would be a lot of resistance to the IRS, moving forward.

But no matter how it comes out, we'll see, my guess is it may not make it through Committee but we will see where it goes, longer term.

Great.

Thanks very much.

Thank you, sir.

Our next question comes from Glenn Greene from ThinkEquity.

Thank you.

Just a couple of quick clarifications and follow-ups.

First, what was the number of shares repurchased in the quarter?

I don't know if you gave that.

4.3 million shares.

Okay.

And then, Brad, if I heard you right, is there going to be, for the high-end offering, is there going to be a Beta version this year?

And sort of a more mass -- or a larger offering in the following year?

I just want to get clarification on that.

I'm sort of assuming that you are not really baking much into your outlook for sort of a higher end offering this year.

As we've talked about at Investor Day and in the past, we are cooking a lot of things to go after higher ends customers.

We've baked nothing from new products to do that into this year's forecast and we will likely run at least one and probably more than one relatively substantial sized market tests this year.

Okay.

And on the core QuickBook units: what portion of that was SimpleStart, of the 200 and 3000 units?

I don't think -- Glenn, I don't think we break that out.

It's not in the 23% growth, though, right?

So I think the important thing is that SimpleStart in one year has sold over 114,000 units and in our core QuickBooks Pro, Basic, and Premiere was up 23% year-over-year.

So both of them are doing very, very well.

Okay.

And then just, Steve, it was surprising to me that you raised your full-year outlook.

Previously, in other years you've had a good upside first quarter and you were sort of cautious for the back half of the year, given how much seasonality there is in January and April.

Just want to get a sense for why your confidence is so high.

Is it just a sense of the upside in the quarter or you're seeing better results out of QuickBooks than you thought?

A little bit of color there.

I think it's a good question, Glenn.

This is a deviation from our standard pattern and it's simple at a high level.

All of our upside in the first quarters, my previous six or seven seasons, if we had it had been because we under-ran on our expense line and we didn't think that had any impact on what the revenue would be as we got ready for quarters two and three.

But this year we over-ran nicely on the revenue line.

And I think that's the big difference.

And as we looked at the year and we looked at the first quarter, we felt it was -- we could still be prudent in our guidance but pass through some of the upside because the upside came from revenue as opposed to cost savings.

At a high level that's the logic.

Okay.

Thanks a lot.

Thank you, sir.

Gentlemen, I'm showing no further questions in the queue at this time.

Would you like to proceed with any further remarks?

I would just like to thank everybody for their support and participating.

Hopefully we covered the things in Consumer Tax and as we work hard, give us your feedback on what we can do to answer your questions.

Thanks for your support and we are looking forward to a great season this year.

Good bye.

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

This concludes the call.

You may all disconnect.