直覺電腦 (INTU) 2008 Q1 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 first quarter 2008 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.

(OPERATOR INSTRUCTIONS)

With that, I will now turn the call over to Bob Lawson, Intuit's Vice President of Investor Relations and Financial Planning and Analysis.

Mr.Lawson?

Thank you.

Good afternoon, and welcome to the Intuit first quarter fiscal 2008 conference call.

I am here with Steve Bennett, Intuit's President and CEO, Kiran Patel, our CFO, and Scott Cook, our Founder.

As you know, in January Brad Smith will become CEO, and Neil Williams will become CFO, they both are also here today.

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 reissued earlier this afternoon, our Form 10-K for fiscal 2007, and our other SEC filings.

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

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

Some of the numbers in this presentation will be presented on a non-GAAP basis, the most directly comparable GAAP financial measures and the reconciliation of the non-GAAP financial measures to GAAP, are provided in today's press release.

After this call concludes a copy of our prepared remarks and supplemental financial information will be available on our Website.

With that, I will turn the call over to Steve Bennett.

Thanks, Bob.

And thanks to everyone for joining us.

As you have read in our press release, Intuit just delivered a very solid Q1, with revenue and non-GAAP earnings per share slightly above the top end of our guidance.

I am pleased with our position as we move into the next two quarters, traditionally our busiest.

We are seeing positive early results in Small Business from QuickBooks 2008, and continued strong growth in Payroll and Payments.

We expect another strong year in Consumer Tax, our great line-up of TurboTax products will be available in retail stores starting November 23rd, and online December 3rd.

Financial Institutions continues to add new Internet banking and online Bill Pay end users at an impressive rate.

I will provide a bit more perspective later in the call.

But first Kiran will take you through the financial details.

Thanks, Steve, let me start with a summary of the first quarter's results.

Revenue of $445 million was up 27% year-over-year, and we had a non-GAAP loss of $0.10 per share.

These results include the impact of the acquisition of Digital Insight in February 2007, and the sale of certain payroll assets to ADP in Q3 '07.

Without those items, revenue growth would have been 12% in the first quarter, and the loss per share would have been $0.08.

Now, let me review the results of our business segments.

Our QuickBooks segment had first quarter revenue of $147 million, up 9% from the year-ago quarter, and on-track with our expectations at this point in the season.

QuickBooks software units for the first quarter were 298,000, up 6% year-over-year.

Note that QuickBooks units are reported on a sell-through.

basis, and revenue includes sale into the retail channel that haven't yet sold through to end customers.

Our Payroll and Payments segment had revenue of $131 million in the first quarter up 5% year-over-year.

Excluding the impact of the sale of the certain assets to ADP, growth would have been 18%.

Growth in the segment was driven by a 22% increase in payments customers, and 3% growth in transactions per payment customer.

Total small business, which combines our QuickBooks and Payroll and Payments segments, showed revenue growth of 7% for the first quarter.

Growth would have been 13% without the sale to ADP.

Consumer Tax revenue for the first quarter was $13.3 million, driven by late filers from tax-year 2006.

This is in-line with our expectations, and up 18% year-over-year.

ProTax revenue was $11 million for the first quarter, up 13% over last year.

In September, we combined our Professional Tax division and Professional Accountant Channel under a single leadership team.

These teams have worked closely together in the past.

Now they will be in an even better position to execute a comprehensive company-wide strategy for accounting professionals.

Financial Institutions revenue was $72 million for the first quarter.

This segment includes the results of Digital Insight, which was acquired in February, and the Financial Institutions business previously reported in our Other business segment.

Internet banking end user acquisition continues to show good momentum, with 13% growth in the quarter, compared to Q1 '07, and a base of 8.1 million end users.

Bill pay end users also continue to grow impressively with 23% growth in the first quarter, compared to Q1 '07, and a base of more than 2.2 million end users.

Growth would have been higher, but one of our larger accounts was acquired, removing about 73,000 Internet banking end users, and 18,000 Bill Pay end users from our customer base.

This movement was anticipated and does not impact our financial plan for fiscal '08.

The Other business segment had revenue of $70 million for the first quarter, up 11%.

Moving to the balance sheet, Intuit ended the first quarter with approximately $1 billion in cash and short-term investments.

Cash used in operating activities was $161 million, capital expenditures were $65 million in the first quarter, up $36 million versus last year, as we have built our new data center, and expand office capacity to support our growth.

We used $250 million to purchase 8.1 million shares of Intuit stock in the quarter.

As of November 1st, we have $550 million in authority for future share repurchases and we have a 10B-51 plan in place, to allow us to consistently repurchase stock through the year.

We are reaffirming our previous revenue and earnings per share guidance, and providing initial operating income guidance for our fiscal second quarter, which ends January 31st, 2008.

For the second quarter, we expect the following: Revenue of $833 million to $848 million, up 11 to 13% versus the year-ago quarter.

Non-GAAP operating income of $185 million to $195 million, down from 237 million in the year-ago quarter.

GAAP operating income of 136 million to $146 million, down from $215 million in the year-ago quarter.

Non-GAAP diluted earnings per share of $0.34 to $0.36, down from $0.44 in the year-ago quarter.

GAAP diluted earnings per share of $0.28 to $0.30, down from $0.40 in the year-ago quarter.

This guidance reflects a number of items that are different from the second quarter of last year.

Q2 '08 revenue has included results from Digital Insight, but won't have revenue from the outsourced customers sold to ADP, or revenue from the discontinued ProSeries Express product.

In addition, approximately $23 million of ProTax revenue will shift from Q2 to Q3 because delivery of the Electronic Filing Services component of our bundled tax software offering will not occur until Q3.

Excluding the impact of these items, we would have had expected Q2 revenue growth of 8 to 10%, and Q2 non-GAAP diluted EPS of $0.40 to $0.42.

We are reaffirming our guidance for the fiscal third, fourth quarter, and the full year, which you can find on our fact sheet.

We will provide TurboTax unit sales updates on a similar schedule to last year, with the first update in February to coincide with our second quarter earnings, followed by an update in mid-March, and a final update at the end of the tax season in April.

The other item and note is that our guidance assumes that the Alternative Minimum Tax legislation will be enacted in time for the IRS to complete forms by January 31st.

If there is a delay beyond January 31st, we will see Consumer and ProTax revenue shift from the second.

quarter to the third quarter, beyond what we have guided.

With that, I will turn the call back over to Steve.

Thanks, Kiran.

This is Kiran's last earnings call as our CFO, I would like to thank him for his excellent contributions, you will continue to hear from Kiran as he leads our TurboTax business, Neil Williams will be in place for next quarter's call.

But before we get to your questions, I would like to provide my perspective.

We continue to execute on our growth strategy of being in good businesses and attractive new markets that have large unmet or underserved needs that we can solve well.

We then apply customer-driven innovation to develop solutions that are easier, and a better value than other alternatives.

As a result, we grow our existing categories and create new categories for Intuit.

This is a strategy we have been executing to the last several years, and we continue to learn and get better.

That is why we believe we are positioned for another strong year.

In Small Business, we released QuickBooks 2008 in September to enthusiastic reviews, with C Net giving it an excellent 8 out of 10 rating.

We are optimistic about the momentum of free Simple Start downloads, with the opportunity to attach Intuit online Payroll and Payments to those Simple Start units.

It also gives us the potential to reach 5.5 million small businesses, that have payroll needs that don't use QuickBooks.

We continue to see strong growth in our Payments business, with plenty of potential in our QuickBooks base to continue to grow penetration, and we continue to look for areas where we can expand the value we provide for small businesses, via partnerships or acquisitions.

In Consumer Tax.

we have our strongest combination of products and marketing programs ever, and are looking forward to a successful season.

We expect to continue to enjoy the tailwind of software being the fastest growing tax preparation method, and we believe our offerings, especially free TurboTax online, will generate category growth and unit and revenue growth for the Company.

Our Financial Institutions business continues to show progress, Internet Banking and Online Bill Pay, end user adoption is up nicely again this quarter.

You may have seen the recent announcement about new financial institution customers, we have had the largest new bookings quarter in the history of DI, and we continue to be enthusiastic about this business, and the ability it gives us to capitalize on Internet banking growth, and the new customers in that channel.

I have never felt better about the future of Intuit, our prospects for continued growth, the strength of our leadership team, and the opportunities in front of us.

As you know, this is my last earnings announcement, as the CEO of Intuit.

I am proud of the results we have delivered in my eight seasons, and I am confident handing the reins of this vibrant and healthy company to Brad, I am looking forward to continuing to serve on Intuit's Board, and to helping the team continue this Company's excellent run.

I would like to turn the call over to Brad, who will add his perspective.

Thank you, Steve, and thanks for eight great seasons as the CEO of Intuit.

The progress this Company has made under your leadership is something that under be extremely proud of.

Since we made the CEO transition announcement in August, I have been asked many times if I am going to make any immediate changes to Intuit's strategy, and my answer is quite simple.

I have had the opportunity to be a part of building this strategy, along with the rest of the Intuit leadership team.

Of course we are going to make adjustments as the environment changes, and as new opportunities are uncovered, but in the near term you should expect us to continue focusing on customer needs and solid execution, to drive a steady, double-digit revenue growth, as you have seen for the past several seasons.

I couldn't be more excited about taking the helm of this great company, and building on the strength that we have to make us even better.

I am also excited to welcome Neil Williams to the Intuit leadership team as the next Chief Financial Officer for the Company.

Neil is a great fit for Intuit, his deep and accomplished experience with VisaUSA and in the banking industry overall, gives him great insight and experience into two of our most important growth areas, and I am looking forward to working closely with him for many years to come.

With that, let's get to your questions.

Thank you.

(OPERATOR INSTRUCTIONS) Our first question comes from Adam Holt of JPMorgan.

My first question has to do with the QuickBooks business, you saw 6% growth in units, 9% growth in revenue, and you mentioned in the comments some of that may be due to timing of ship in versus sell-through.

But I was hoping maybe you could talk a little bit about what you think the impact of the average selling prices moving up has been on that business?

And what is the early data that you can get from some of the new lower end products as well?

This is Steve.

I think it is really early to make any of those kind of calls, but this is traditionally our slowest quarter, and so I think it is really hard to project the future, based on what we have seen.

I think we're off to a great start, we have got some momentum on the Simple Start downloads, our attach rates to Payments and Payroll are higher than what we had thought about, but it's still really early in the game.

I did see where one of our competitors raised the price $50 on their core offering, we think there are a lot of positive signs for us, we have remixed the product offering line, in terms of raising the price on Premiere, there is a lot of moving parts, let's wait until we get farther into the season to give you more details on some of that stuff.

Brad, would you add anything to that, do you see anything different?

No, actually, I don't.

I think that the headline here also is, we have an opportunity, as we begin to get Simple Start downloads, and the ability to attach them further into the season, to actually see what the impact will be, but overall everything has performed as we expected.

If I could shift gears for a minute to the Financial Institutions business, if I heard you correctly, Steve, you said you had a record bookings quarter for the Digital Insight business, would you be willing to maybe share what that means in terms of either new signings, or how you look at bookings, obviously there's been some volatility in Financial Services, understanding DI is focused on smaller institutions, is there any trickle down effect, or how would you anticipate the Digital Insight business being resilient within sort of a volatile environment?

We have gotten that question a few times, and I think the key thing is despite the subprime challenges the financial institutions are under, they need to be competitive in the online banking field.

It's really an apples and oranges thing, what they have learned is customers that do online banking with them are more are profitable, because they have higher balances, higher retention, so I could even argue the other side, that online banking will become more important for financial institutions, as they are under profitability squeeze, and so I think it's --

The good news for us is this business is right on track to where we thought it was going to be, I don't have the magnitude, I don't think we have released the record on bookings, because that's kind of our backlog now to get people up and installed, but I think there is a lot of positive momentum in the marketplace, and people are excited about the finance works, and what we're going to do to make it easier for small businesses and consumers using our online banking solutions to manage their financials.

The business is on track, we are performing well, I don't see much if any correlation, between this and the current short term subprime mess and write-off that we are seeing.

Terrific thank you.

Our next question comes from Heather Bellini of UBS

Hi, thank you.

Steve, I was just wondering, you guys have done a great job in the past expanding the category as other firms, other companies have tried to enter the business.

I was just wondering if you could comment a little bit, and I apologize if I missed this, regarding what Peach Tree announced the other day, how they are trying to go after the QuickBooks installed base?

Actually, I am not even aware of that, it is a conversion kit?

Look, that is pretty standard fare we've had a couple, two or three years ago, we actually built a conversion kit for PeachTree customers, that we had never had any conversion kits, because everybody was trying to steal our customers, and we weren't as aggressive trying to steal theirs, we actually built that about three years ago, and we were surprised.

We got about five times as many converters as we thought we were going to get, so this may be just some retaliation, but at the end of the day, I don't see a lot of QuickBooks customers going to leave us to go to PeachTree, no matter whether they have the conversion kit or not, do you want to add something to this one, either Scott or Brad?

Actually, I would just add to what Steve said.

We have today a pretty good feel for what types of decisions are being made in the market, and where customers are going, if they do end up moving off of QuickBooks, what we see going on with PeachTree right now, there is a lot of change going on within Sage in North America.

I believe they are looking for opportunities, obviously, in the market to capitalize on things that others have done in the market for several years, and so net/net is, I don't see that creating any different trajectory in our business, and I wouldn't at this point, see any different changes from our side on the tactics we would use to respond.

Then just one follow-up, if I may, on the Payroll side of the business, and also payment, people think of those as a little bit more, I guess, not as immune as the rest of your business is to the economic environment.

Can you talk a little bit about Payroll and Payments and I'm not sure if you were that big in these businesses during the time we went through the last recession?

I actually would take a little bit of point of contention on, we don't think our business is that cyclical, depending on the economy, either positively or negatively, because in a time of more challenging employment, most people go out and start a small business, which creates all sorts of opportunity for us, so, and people have to do their taxes, irrespective of the economy, so I think Payroll and Payments are recurring revenue businesses, and so in theory, that may mean that they are less, but I actually think that's a red herring argument, I think our whole business motors along pretty consistently irrespective of the economy, and there is all sorts of movement in and out.

Well, yes, I was just wondering, QuickBooks and Consumer Tax, I agree with you, I was wondering with Payroll and Payments, if those are counterbalances to the growth you get in maybe people starting their own businesses, plus people starting to file their taxes on their own?

I would like to tell you yes, but I don't think it's true I don't think the answer --

Let me add one perspective, our payroll business, unlike some of the others, we don't get paid in general per head per employee, we get paid per company, so we are not that subject to changes in employment levels.

Or flow.

Or flow, because that is not a big thing for us.

Okay that's good.

So if there are in fact large companies who are laying people off in recession, many of those people will go and start small businesses, that is good overall news for us.

Thank you very much.

Our next question comes from Brent Thill of Citibank.

Thanks, good afternoon.

Kiran, if you could provide an update on the Consumer Tax business, you mentioned at the Analyst Day last year, you got off to a little slower start than you would have liked to out of the gate.

Can you just give us an update where you stand now, headed into the two most important quarters for the Consumer Tax business, and perhaps some of the highlights of what you are changing around?

Yes, let me start by saying that I am very excited about the upcoming tax season, as I shared with you at Investor Day, we had tremendous learnings in the second half of last year's season, we rolled out free for everybody the second half of the season, we improved our conversion rates on the [west side] significantly, and we have continued to make the product easier and easier to use.

And so having pursued on all of those fronts, I feel very good about going into the season, and anxious to get the game going here in January.

Let me just add one thought, I think this is a really important thing that I believe investors have possibly overlooked up to this point.

It is pretty hard, when you're the leader with the kind of share and presence that we have in the Consumer Tax business, the software Consumer Tax business, the performance we had in the second half of last year, if you remember, Investor Day was quite, quite positive, and the thing I am so bullish about this season about, is because that is a very hard message for our competitors to compete with.

I mean up to that point we had left a vulnerability at the low end to other people that were free, and we closed that gap last year, and proved that we could grow the category and grow share in that market, so we are quite excited about the impact that could have on this entire tax season.

We also saw that one of our major competitors in retail raised their price this is year, which we think we held share last year despite a big price gap now with them raising their price, we think that is only going to help us also.

We feel a lot of positive trail signs based on the execution the team has made from the moves competitors have made, and some of the improvements we have made between now and last season, so we are looking forward to a really strong tax season.

Just a quick follow-up on the CapEx, it has obviously jumped up, you had been guiding to that, where do you expect that is going to level out?

So I think we will see at least, this will be the big year of CapEx, we will see some trailing effects into the next fiscal year, and beyond that, we expect CapEx to return in line with our depreciation shield.

Thank you.

No change really from what we said at Investor Day, I think it is tracking pretty much that way, is that --

It is, that is right.

Our next question comes from Ross MacMillan of Jefferies & Company.

Yes, thank you.

Just forward-looking into the Consumer Tax business, we notice that this year you seem to have kept the best [held] for PC based product prices relatively similar to last year, but you have increased some filing prices, can you help me understand what you think about that, the kind of rationale for that?

And I had one very specific question can you help me understand the relationship between the numbers of self prep software Consumer Tax users, that file federal on E-file, and then also file state on E-file?

Is it a similar number, or is there quite a disparity between the two?

Thanks.

So on the second part of your question, Ross, we haven't shared the mix of our business and the attach rate, so I won't go into that.

In terms of pricing, you're right, the product is available for download starting today, and on the desktop, we have not changed prices year-over-year after we took a price increase last year, as Steve mentioned, and still maintained share in our retail channel.

The E-filing fee was increased during last season, and we simply carried that increase over from the second half of last year into this season.

That is just for the desktop product, it is included for the web product, I think it is important to realize again, free E-filing is included in our web offering, so we are really talking about E-filing just for the desktop, and it is a growing business, is really the web, so it is free E-filing on the web product.

That is fair.

Maybe just one quick one on Digital Insight, you mentioned that one customer, a larger customer had been acquired, this is a more general question obviously a lot of your customers at the lower end of the spectrum of Financial Services institutions, how do you think about consolidation, or the potential for more consolidation there, and that ultimately impact on your business, how do you prepare for that or think about that?

Thanks.

That is a good question, one we got frequently on the road trip.

We studied this over the last five years, acquisition is about a neutral for us, in this one case it was a net loss, but net/net it's about a balance, which is people that use our software, use Digital Insight, are acquiring others.

We actually, it's probably not safe to say we are at the smaller end of the food chain, what we are seeing is more and more of the larger banks, banks with assets up to 100 billion, are starting to think about outsourcing versus building their own.

We continually are moving up, and some of the new companies we've recently won, some of the new FIs, are in the larger asset size, as opposed to to the local and regional and community banks, I think that trend is going to continue I don't think we'll get to the Money Center banks, the Top 10, but I think we will continue to make progress in the next hundred banks as the world evolves here, the better we make our solution by integrating our proprietary content like QuickBooks and Payroll, and Online Payroll into Online Banking, I think the more lucrative it is going to be to the larger financial institutions, and the more difficult it is for them to compete on their own.

Great thank you.

Our next question comes from Jim McDonald of First Analysis.

Two questions on Digital Insight.

Now that you've owned it for a while, have you seen any competitive response to the fact that you purchased Digital Insight?

Yes, well, I think the answer is that the big new thing is no surprise is that Fiserv bought Check Free, I think we started the turmoil by buying Digital Insight, that has been a terrific acquisition for us, we are pleased with the progress, as I talked about earlier, I know there is a lot of noise in the marketplace right now from some of the competitors.

I think at the end of the day, we think that this, as we said at Investor Day, the Fiserv acquisition of CheckFree created some risk, but also a lot of opportunity for us, being the fact that we are CheckFree's, I think, third largest customer.

There is a balance of trade between the Company.

At the end of the day our focus is as it's always been since Scott founded the Company, is the focus on doing what is best for the end customers, the financial institutions, and we are having all sorts of discussions with Fiserv, and it is my hope as the outgoing CEO and a continuing Board member, that we will find a way to work with Fiserv, to provide a better value proposition to financial institutions, we will grow the category, and that will result in both companies being more successful.

My follow-up is related to the personal and business finance works products, can you just give us an update on introduction timing, and kind of how the introduction has gone so far with the personal version?

We have rolled out the initial launch of consumer finance works to three different financial institutions, so we are launching, we are learning, and remember we roll out each financial institution one at a time, so we are rolling out with the first three, we are learning a lot, we are pleased with the response, I think there is a lot of interest, there are a lot of people that are signed up to take it, so we are now into a, before we step on the gas, we are into fine-tuning, but there is a lot of demand, it is going to take us quite a while to get all the people that are interested up and running, so we are quite excited about that, and then small business will follow at some point in the future after we get the learning on the consumer finance works.

Thanks.

Our next question comes from Michael Millman of Soleil Securities.

Thank you a couple of questions on the tax.

Last year you gave up, or passed at least, on a large bulk deal, can you talk about your strategy, given what you have been doing in the free market, are you going to get the profitability for the free product?

Are you going to get to the point or are you at the point where you are either offering the product free for these bulk deals, and/or are you actually paying to get them into the distributors?

That is an easy one we are not paying anybody to sell TurboTax, and the bulk deals still exist, there are different opportunities than a pure consumer play, Michael, so we will see what happens, competition is always tough, and we will see how we prevail, too early to comment on that, we will see how that plays out, we will have more information on that as we go forward.

Also on tax, differentiate between the free and the FFA, and maybe in regard to state attachments, RT, and E-file?

Yes I think that is a really good point, because free, and the commercial free is not completely free.

Free in Free File is completely free, it is free state, free federal, free E-filing, that is eligible for, I think our free offering target is 50% of the population, that's no different than it has been the last five or six years, and so what is new is the Free Federal, Free 1040 with then charges for State, and for RT's, and things like that.

So I think the bottom line here is, as we saw in the second half of last year, if those two can co-exist, and we grew the category by attracting new customers, I think 80% of which were new to the TurboTax franchise, because we offered a Free commercial product, so when you think free commercial, we need to be careful about that, you can keep your eye on that, too it is really inbred, it's Free Federal, but then we do monetize those customers in a different way, and we make money on every Free Commercial customer.

And FFA doesn't take RT?

No.

FFA is free, no RT's in the FFA program, we worked with the IRS to clean up all of the add-ons, there are no RAL's in FFA, there are no RT's, it's completely, no add-on products, that was part of the negotiation for the FFA program.

Can you give us an idea of what you calculate the lifetime value is of a web TaxCut customer versus a desktop tax customer?

They are both very, very high.

Can you quantify that slightly?

No.

(laughter)

Okay thank you.

Our next question comes from Scott Schneeberger of CIBC World Markets.

Hey, good afternoon.

Well after that last response, I think I know the answer to this one, but you guys had mentioned looking for some legislation to be done in time for the start of the tax season on AMT, any quantification on that?

And if you can't answer that, can you give us a feel on modeling?

We have seen the trend of fiscal 2Q getting pushed back into 3Q in Consumer Tax over the years, just a feel for those two quarters this year at all?

That would help, thanks.

Yes, Scott, I think I should joke with everybody that was listening, the reason obviously we don't want to share the lifetime value, is because there is a lot of proprietary information in there that we just wouldn't want to expose, but we've talked before, the people that buy TurboTax, you see the retention, if they are happy and we deliver a good experience, they buy for a lot of years to come, more than 10, and so it's a very high lifetime value.

With respect to the shift from Q2 to Q3, I think you have heard Kiran and Bob, and I talk about this continuously, at the end of the day, what we know is there is going to be about 135 million people file their tax returns this year, and this quarter 2/quarter 3 split is kind of an arbitrary split.

There are always things moving back and forth, so we don't get as focussed on that as you guys do trying to look at how this tax season is going, and because of that, we started giving you these updates, which we do during the season, and you saw that we had a 23 million move from Q2 to Q3 this year for ProTax for the same reason we had it in Consumer Tax in the past.

I would tell you that every year, there is more noise about AMT this year, but every year we have these same things waiting for the government to get forms out, they come in at the last second, there is just more those about it this year.

It is something that we deal with every year at the end of the day, if we know something specific, as soon as we know, we will let you know if it does push from Q2 to Q3, we know the revenue is going to be there in Q3, so it is just as you said, a trend, I have seen it for eight seasons in a row, so I just think there is more noise, I don't think there's a lot more risk this year, to more revenue moving out than we thought but we will see,

Sure, fair enough thanks.

And then a question about your marketing margin line, and your R&D margin line, could you just talk a little bit about how you see those trending over the year?

I know you started some TV ads with QuickBooks as well last year, can you talk about how a little bit on how that is helping or hurting, and what you are going to do there?

Thanks.

I think as we have talked about over the last few years, we expect to continue to invest and see our R&D as our sales grow, speaking a little bit for Brad here, I think our marketing, we are spending more but we are getting more efficient, so I think that marketing, my view, grow about in-line with revenue, R&D should grow higher as you have seen G&A will grow slower, and our support costs, as we eliminate the reasons customers have to call, by making the product easier should go down over time.

We have done this over the last four or five years, to reallocate money to development, R&D, for products that are going to drive long-term growth, and that, I would be surprised if that didn't continue under Brad's leadership, that is the right path for the Company, that is the path we have been on,

Thanks, that is helpful.

And comments on TV advertising for QuickBooks and TurboTax?

I think TurboTax, QuickBooks, our advertising last year was accretive but not as accretive as we thought, and TurboTax continued to be accretive, so we keep raising the level a little bit on QuickBooks until we find that sweet spot, every year we have raised it, it has still been current period positive ROI.

QuickBooks I think we did some things and I think we thought there might be better ways to spend our advertising for our marketing funds for QuickBooks going forward, so we did the test last year, we didn't get the same kind of positive uplift that we do in TurboTax.

This is Brad.

I think in QuickBooks what we learned last year is unlike in TurboTax heavy up on TV didn't get the results, as much as what we would have liked, what we have done this year is shifted a investment with a mix of radio and some TV, and then some local print, so you are going to see more of media mix coming up with QuickBooks, continuing to focus on growing the category, and growing the new users, it is not a QuickBooks franchise it will more of a mix, and less on TV than it was last year.

And more and more online, too.

Thanks, that's helpful, congrats on a good start to the year.

Thank you.

Our next question comes from David Joseph of Morgan Stanley.

Hi guys, just a quick question related to the prior question.

Actually, I am looking at your gross margin, and it seems like it was relatively stable this quarter versus the year-ago period after being down a little bit last quarter.

I know that there is a little bit of a mix issue going on there, especially with the recent acquisition of Digital Insight.

I am wondering if you could give us an idea of where that goes in the future?

Also again related to the margin is really -- you've mentioned in the past you expect the margin to improve, operating margin to improve to the mid 30% range roughly, are as we still heading in that direction longer term?

Yes, David, I think that as our business mix continues to shift to more and more service businesses,you are not going to see software-like gross margins in service businesses, at the same time the service businesses, for all sorts of reasons, have great operating margins, so our focus is more on operating margin, and as we have talked about, and what happened this year, we continue to get volume leverage, and we expect roughly, you know, operating profit leverage every year, and it had been running about 100 basis points-plus the last seven or eight years.

This year it is not because of a bunch of one-time events that we shared, the sale of the outsource payroll business, so we are not solving property margin percent.

we are solving for revenue and EPS growth, but as a result of our business model, with high fixed, low variable costs, as long as we continue to drive unit growth, we get volume and profit leverage, so I would and I know Brad talked about this, we still expect double-digit revenue growth with operating profit leverage, and that is still the financial guidance we are using to run the company.

Great, thank you.

Our next question comes from Vick Churamani of Lehman Brothers.

Hi guys.

Just a question to know the Digital Insight business on the finance books portfolio, you mentioned a particular finance books product is at the three institutions, when do you expect that to take mass market with everyone?

And then on the SMB finance books portfolio, when do you expect that to be launched?

You mentioned I think early next year when we spoke to you guys last.

And then just switching over to the healthcare side, Microsoft has made some noise in that space recently with their acquisition of Global Care Solutions, and also introduced health wars.

Do you see any overlap there in terms of functionality, or is that just a different segment of the market they are addressing?

Let's take the last one first, we don't see any overlap with what Microsoft is doing with health [balls] at all, so set that aside because that is completely different than what we're focused on.

With regard to Finance Works Consumer, as I said, we roll out of Financial Institution at the time, so it will be a consistent kind of get it right, roll it out over the next, my guess would be a year, year and a half, and because we will learn as we go, and there is a lot of demand, but there won't be, it is not like shipping TurboTax on release, all of a sudden we let it go and 1,000 financial institutions are signed up in a week, it will be more like we have got to get them all set up.

It will be a consistent, steady rollout, which I think is good for everybody, that will be a lower risk and a much more smooth, better experience for Financial Institutions, and we will be able to execute better with that plan.

Finance Works small business, we are saying some time in calendar year '08, so that is about how we want to bound it at this point.

We are quite excited about the need and the opportunity, there is a lot of execution that we have to do, to deliver the kind of quantum change in customer experience for small businesses, that is going to really wow them, and so that is the current view of what that is going to take.

Vick, this is Scott, let me add one more dimension to the question that you asked, and it is entirely right what Steve said, that we'll be rolling out Finance Works over a period of a year or two to financial institutions.

However, the revenue upside happens before that, because the actual institutions, when they make their decision on who their online banking vendor is, they look at the product road map, and they look at the futures in deciding who to cast their future with.

So the presence of Finance Works in the queue provides something that our sales team uses very effectively to help financial institutions, make the decision to go with us and stay with us.

So the revenue benefit, it's different, as you said, unlike Tax where suddenly you are in every store in a week, but you get no revenue the week before, here we get benefit from Finance Works, even before a financial institution would take advantage of it.

It is more of an enterprise-like sale.

Just to follow up on that, any thoughts on or comment on pricing, as to how you guys are pricing the portfolio?

No.

Okay and then just a follow-up to a question earlier, on DI, you guys have mentioned that you don't see any impact given the volatility in the financial services market, do you expect any of DI's customer base, or banks to essentially go out of business?

Do you see any risks like that happening, and you end up losing customers?

Or what is your assumption there, in terms of exposure to that segment of market?

I think the simple answer to that is that we see that online banking penetration is so low, and growing so rapidly, there is a long-term opportunity there, and if an individual financial institution, I think we can have the first failure in 10 years of a financial institution, if that happens a little bit more, those customers have to go somewhere, and they are going to use online banking, so I think that is not material at all to the performance and/or the opportunity for the future for online banking.

Okay that is a key point in other words, they will still end up in the same bucket, just in a different bank?

Yes, they are going to go online banking to someplace, at the end of the day, there is still such a large amount of non-consumption, that this is a double-digit growth industry in my view for five to 10-plus years, it is kind of like the ATM penetration, when we first launched ATMs, it took ATM's 25 years to get to 95% participation, or something like that.

I think we are still at a pretty early phase of adoption of Online Banking.

I can't imagine in 10 years that people are going to be still writing paper checks, but we will see if I am right or wrong.

Great congratulations on the quarter!

Thank you.

Our next question comes from Greg Smith of Merrill Lynch.

Hi guys, just looking at QuickBooks, the Enterprise, and the online edition, both were flat in the quarter year-over-year, and actually flat with '06 as well.

I know it is early in the season, is that basically the answer and we shouldn't read too much into it, until we see more progress in the year, or is there anything we should read into those numbers?

Well, QuickBooks Online Edition isn't flat year-over-year, is it?

Online Edition is up dramatically in the numbers.

Growth approaching 50%--

It is up 124% over --

Okay, I'm just looking, okay, I see I'm looking at the wrong number, but then enterprise is flattish?

Yes and I think, Brad, what would you say about that?

QuickBooks Online Edition is growing really really rapidly, to capitalize on the great work the team has done there, adding Payroll really accelerate that growth rate

I think on Enterprise, the short answer is it is rounding, we are getting increased customers using that, in fact we're also getting a higher number of seats, we introduced 15 and 20 seat licenses, we are seeing that mix move up.

So really there is no material change in terms of the trajectory and growth rate of that business, it a simply a rounding situation on what you have got.

I think what Brad said is really important for investors, so this is units, and you have got rounding on small numbers, revenue continues to grow nicely in that business, because we are charging a much higher price for 15 and 20 seat licenses, so this is a business where we would expect revenue to grow faster than units most of the other ones, units and revenue are probably more akin, but this one it may not be as accurate, so we should think about that over time.

Okay.

Maybe add a decimal.

That is a good input.

And/Or switch the focus there to revenue.

One real quick question, on Digital Insight, the bank that went away, was there any kind of material termination fee, that impacted the results in any material way?

No, it's something that we planned for, and so we filtered it in over time, and it has all been part of the projection.

Okay perfect.

Thanks a lot, appreciate it

Thanks Greg.

Our final question comes from Terry Babe of ThinkEquity.

Thanks, good afternoon.

Digital Insight, the revenues kind of declined sequentially a little bit, and user adds were up a couple points sequentially, you can talk about that, and I guess within that, an update on the lending business, maybe if that explained part of it, and I guess what your expectation is for the lending piece, and thoughts or an update around strategic alternatives for that business?

Thanks.

I think it is a good point, as we have talked about before, there are a couple of businesses that are core to Digital Insight, that when you take them out, the growth is more in the mid to high teens, and so plus we added, remember, in these numbers that you see, it is broader than just Digital Insight, it also is our Financial Institutions business, where we charge financial institutions money to download and connect with Quicken and QuickBooks, and things like that.

That business isn't growing like it once was, because not surprisingly, many of the FI's didn't like that, so we are looking at how to deliver a better value proposition especially to the Digital Insight customers, with respect to their connectivity fees for Quicken and QuickBooks, so the Digital Insight business is growing nicely, and we do have some businesses though that aren't part of core, and we are evaluating our strategic options on what the right way to approach those are.

Okay so no specifics on the lending business, then, in terms of an update on or an expectation for that business?

When we know the specifics, we will tell you guys the specifics.

Okay thanks.

Thanks.

Gentlemen, I'm not showing any further questions would you like to proceed with any additional remarks?

Well, I would just like to thank everybody for their support over the last years.

Eight years has been a nice run, we have built a really, really strong foundation, and I am pleased with where we are.

I think this is going to be a really good season, as we saw in Consumer Tax.

I think the two areas we hear about, Consumer Tax and Digital Insight, I feel really good about, we are on good track for another season.

I am pleased to turn the reins over to somebody as capable and talented as Brad Smith, I am looking forward to working with him to ensure success for the Company for the next 10 years, and I am really glad that Neil Williams is here, and Kiran is especially happy about that, since he doesn't have to wear two hats, so he can focus on Consumer Tax.

So thanks for your support!

This is Scott Cook, I would like to lead us all in a great round of applause for Steve and his years of growth and success, and to what a foundation, and what a growth platform you have built, what results you have delivered!

(applause)

Thanks everybody, good bye!

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

This concludes the call, you may all disconnect.

Have a great day.