直覺電腦 (INTU) 2008 Q4 法說會逐字稿

Good afternoon.

My name is Patti, and I will be your conference facilitator.

At this time, I would like to welcome everyone to the Intuit fourth quarter and fiscal year 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 turn the call over to Jerry Natoli, Intuit's Vice President of Investor Relations and Treasurer.

Mr.

Natoli?

Thank you, Patti.

Good afternoon.

And welcome to Intuit's fourth quarter 2008 conference call.

I am here with Brad Smith, Intuit's President and CEO, and Neil Williams, our CFO.

Before we get started I'd like to remind everyone that our remarks will include forward-looking statements.

There are a number of factors that could cause Intuit's results to differ materially from our expectations, you can learn more about these risks in the press release we issued earlier this afternoon, our form 10-K for fiscal 2007 and our other SEC filings.

All of those documents are available on the investor relations page of Intuit's web site 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, and 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 web site.

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

Thanks, Jerry.

And congratulations on landing that speaking part in our conference call.

For those of you who haven't heard, Jerry is now taking over the lead investor relations role from Bob Lawson and Bob is now leading our finance team in the consumer tax business.

I'd like to thank Bob for all of his good work in investor relations and officially welcome Jerry to the hot seat.

I also want to thank all of you for joining us.

We announced our fourth quarter and our fiscal year 2008 results a few minutes ago.

We had a good year in a tough environment and I am proud of the hard work our team has put in to deliver the results we reported today.

Total revenue grew 15% in fiscal year 2008, excluding mergers and acquisition activity, revenue growth was 11%.

We had an outstanding consumer tax season with 14% revenue growth and 17% unit growth.

We also had to a solid finish to a challenging year in small business.

We drove continued organic growth in QuickBooks and had another year at double digit organic growth in the payroll and payment segment.

In addition, our most recent acquisitions, Homestead and Echo, are already making a contribution to our top line performance.

We are pleased with the progress we've made bringing these two new businesses on [stream] and we're pleased with the response our small business customers are having to the web hosting and ACH services we now offer.

As I've said I'm proud of your teams performance but we're not satisfied.

We can do better.

What better means for us is faster growth and new customers driven by the continuous improvement of our existing products and services and the introduction of new products and services that address important customer problems.

Success in these areas leads to accelerated growth and revenue and operating profit dollars.

Now, this is going be a multiyear journey, we won't get all the way there in one year but we are building momentum and we will make a lot of progress in fiscal year '09.

One way we're doing this is by taking a fresh look of how and where we invest our resources.

We define our resources as our time, our people, and our dollars.

We looked hard at this last year and made some changes that resulted in a charge in the fourth quarter.

The changes we made freed up resources that we are now reinvesting in higher yield opportunities.

Some are going towards R&D and new product initiatives that will move the needle longer term.

Others are going towards short term initiatives, like increased demand generation focused on acquiring new customers which we expect contribute to our success in the coming year.

We also believe we can improve our performance and grow in any macro economic environment.

We have a strong and balanced portfolio that is proven to be remarkably resilient to the economic fluctuations over the past 25 years.

We remain focused on continuing to deliver easy to use products and services that our customers love, because they help them be more successful and are a better value than any competitive alternatives.

This value proposition resonates in any macro economic situation.

And finally, we will be more focused on delivering the kind of connective services that has been driving our growth for the past few years.

Connective services now represents over half of the company's revenue and will be even more critical to driving growth as we look ahead.

For example, in fiscal year '09, we expect to see Turbo Tax online, continue to be a key growth driver in consumer tax.

In small business, Homestead's web hosting services, QuickBooks online and the support and new connective services associated with the QuickBooks product line up, will drive increased growth in the QuickBooks segment.

Our assisted payroll service and new stand alone online payroll offering, coupled with our expanding payment services which includes check verification and ACH, will drive accelerated growth in the payroll and payment segment.

And our financial institutions online banking platform will get a boost from the finance works offering coming in the Fall and the small business services due in December.

I will share a few more thoughts at the end of the call but first I will turn it over to Neil to walk us through the segment and financial details.

Thanks, Brad.

Let me start with a high level summary of the results.

Revenue for the year was $3.1 billion, up 15% year-over-year, full year non-GAAP operating income and non-GAAP diluted earnings per share both increased 12% year-over-year.

Full year GAAP earnings per share increased 14% year-over-year.

Revenue for the fourth quarter was $478 million dollars, 11% higher than the same period last year.

Both the GAAP and non-GAAP results including the charge we took in the fourth quarter for severance and facilities closures.

That charge was originally estimated at $22 million, and came in at $23 million.

Turning to the segment results, total small business revenue grew 12% in the fourth quarter, excluding the effect of Homestead and Echo, the growth was about 6%.

For the full year, small business grew 7%, excluding the impact of the sale of payroll customers APD in FY '07 and the acquisition of Homestead and Echo in FY '08, small business grew 8% for the year.

QuickBooks finished the year with a solid fourth quarter that showed growth over a strong Q4 '07.

The year was more challenging than we expected for QuickBooks but there are a number of positives I'd like to highlight.

QuickBooks units in the second half and full year matched a very strong FY '07, in a tough spending environment.

QuickBooks online revenue continued to grow at a 50% rate and we've got Homestead providing a new fast growing web posting business, with services like web site design and e-commerce we now offer to our 4 million QuickBooks install base.

We said we feel we could have done more this year to drive growth in the financial management software category.

In FY '09 we'll start with a more compelling Quick Book offering.

We will provide more details on investor day in September, but you can expect new features and more connective services designed to have small business owners and their accountants succeed.

We'll also be more aggressive with our use of free and we'll step up demand generation to bring more new users in to the category.

Our payroll and payment segment, had a solid year.

Growth in the fourth quarter was 16% excluding the impact of Echo, growth was 9%.

The payroll customer base is up 4% for the year, a little slower growth than we've historically reported, while some of the downturn in the customer base is attributable to weaker QuickBooks unit growth, we also implemented a modest price increase, that contributed to a small decrease in customer retention.

But we would not that our payroll customer retention is still in the high 80's which we believe is best in class.

Payments customer growth was 18% for the year and total transaction volume grew 23% for the year.

We expect growth in FY '09 in this segment, to be driven by continued payments customer growth and a makeshift in payroll to our higher value payroll products.

In addition, having Echo in the segment for the full year, is expected to add approximately 5 points of growth.

Before I move on, I want to talk about some changes we've made to our segment definitions that better align our product groups with the customers they serve.

Quick Base has moved from the other businesses segment to the QuickBooks segment.

QuickBooks accountant edition and the ProAdvisor program for accountants, have moved out of the QuickBooks segment and into the professional tax segment.

With this move the professional tax segment is being renamed The Accounting Professional Segment.

The segment revenue presented here and on the back sheet reflects these changes for all periods presented.

Quick Base revenue was $10.5 million in FY '07 and $15.6 million in FY '08.

Accountant addition and ProAdvisor revenue was $22.5 million in FY '07 and $31.5 million in FY '08.

In our tax business, consumer tax finished the year with 14% revenue growth and 17% units growth.

It was an excellent year and as we've said, we won in Tax because it was our best offering ever and the team executed extremely well.

We expect next year to be strong as well and will continue to focus on growing the category in our share using our free offer.

We will also focus on continuing to improve ease of use on the product, optimizing our demand generation programs and improving our conversion rates.

As we do every year, we are reviewing what worked well and what we feel we could have done better as we develop our strategy for the coming tax season.

We will share more details on the product line up and pricing for FY '09 at investor day in September.

Our accounting professionals segment also had a nice finish and delivered a solid year.

Growth was 4% including QuickBooks accountant addition and ProAdvisor revenue.

Adjusting for the discontinuation of ProSeries Express in FY '07, growth would have been 9%.

Financial institutions revenue for the fourth quarter was $78 million, this reflects 10% growth in internet banking users and 16% growth in bill pay users for the full year.

We're making progress, but we have work to do before this unit achieves the growth rates we believe it's capable of delivering.

We're taking a number of important steps in FY '09 including improving the ease of use and the core digital inside platform and we expect the first version of finance works to be available in October followed by the first small business services in December.

Our other businesses segment grew 17% for the quarter.

For the full year, other businesses grew 14%.

This growth was driven by strong results in our Canada, UK and real estate solutions business.

The weaker dollar contributed to the Canadian business growth and currency gains account for about 3 points of the segment growth rate for the quarter, 5 points for the full year.

Moving to the balance sheet, Intuit ended the year with $828 million in cash and short term investments.

We also have $285 million of auction rate securities that are classified as long term investments and valued at par.

Cash flow from operations was $830 million for the year, capital expenditures were $89 million in the fourth quarter, $306 million for the full year.

As we've discussed on prior calls, the increase in capital expenditures in FY '08, was driven by investments in our new data center and the expansion of office capacity to support our growth.

We expect capital expenditures to drop to about $200 million in FY '09.

So, those of you looking at operating cash flow minus CapEx should see a nice jump in that metric.

We did not repurchase stock in the fourth quarter because the action that resulted in the fourth quarter charge, was not announced until late June.

As of August 1 we still had the full 600 million of stock repurchase authority approved by the board.

We didn't have any M&A activity, in the fourth quarter, as Brad mentioned our two most recent acquisitions are performing well.

And as we did last quarter we summarized the M&A impact on our fourth quarter and year-to-date growth rates, in a table that is included in our posted conference call materials.

Now, let me share our guidance for fiscal '09.

We expect revenue of $3.35 billion to $3.43 billion or a growth of 9% to 12%.

We expect the following revenue growth by segment.

QuickBooks, 8% to 12%.

Payroll and payments 14% to 18%.

Consumer tax 8% to 12%.

Accounting professionals 5% to 9%.

Financial institutions 5% to 9%, other businesses 6% to 10%.

We expect non-GAAP operating income of $970 million to $990 million or year-over-year growth rate of 13% to 16%.

That translates into a margin rate of 29%.

We expect non-GAAP diluted earnings per share of $1.86 to $1.90 or year-over-year growth of 16% to 19%.

And as I mentioned we expect capital expenditures or approximately $200 million in fiscal '09.

For the first quarter of fiscal 2009, we expect revenue of $480 million to $492 million, up 8% to 11% versus the year ago quarter.

A non-GAAP operating loss of $65 million to $50 million, versus a loss of $56 million in the year ago quarter and a non-GAAP loss per share of $0.14 to $0.11 versus a loss of $0.10 per share in the year ago quarter.

And with that I will turn the call back over to Brad.

Thanks, Neil.

Before we get to your questions I'd like to share some closing thoughts about our business.

We've talked about the fact that our growth for the past few years has been driven be the performance of the connective services in our three biggest businesses.

And as we look ahead, we see an increasing emphasis on these connective services to serve our customers and accelerate our growth rates over time.

Now, as a reminder, we think of connective services as including three types, the first is fast or software added service, wired solution delivers revolutionary benefits or cost advantage like TurboTax on line, digital (inaudible) online banking platform or QuickBooks online edition.

The second is what we call software advantage services or connecting the service we deliver to our desktop software makes this solution clearly superior for what matters most to customers.

Examples include our payroll and payments offerings and the way they connect to QuickBooks.

And the third is where our eco system serves as a platform that connects people to other people.

Like the Turbo Tax live community and QuickBooks ProAdvisors community.

One of the key points I'd like to emphasize is the advantage that we gain when we have a blend of software and connective services.

For example, we had a great year in consumer tax in FY '08 driven by 37% growth in online units.

We helped grow the tax category and we grew share on line but we also grew share in retail.

It's that combination that sets us apart.

In small business, our connective services portfolio continues to deliver strong results.

Payroll and payments revenue grew double digits and QuickBooks online revenue grew 50%.

Payments customers grew 18% and the fast customer base, which includes QuickBooks online, QuickBooks Enterprise and Homestead, grew 22%.

Those are great numbers.

But we also added to a large install base of QuickBooks desktop users, so we can offer additional services too.

With 1.7 million units of QuickBooks sold in fiscal year '08, we have and active QuickBooks customer based of about 4 million users and they are prime candidates for Homestead's web hosting services, for our new Echo, ACH and check verification services, our existing debit and credit card services and our payroll services.

Again, it 's the combination of services and desktop software that sets us part.

And our financial institutions business, the entire business model, is a connective service that delivers critical online banking solutions to 8.7 million banking customers.

To accelerate growth for this business in the near term we need to drive adoption of our online banking and bill pay services with the financial institutions who are customers today and in the new financial institutions we sign up tomorrow.

The gain here is ease.

No, one has solved it as well as we believe we can and it remains the key barrier to end user adoption.

So, to win we're improving the ease of use of existing platform and releasing our first version of finance works in October.

Longer term, we'll focus on driving growth by continuing to improve our solutions and by rolling out small business services to the installed base.

And our first small business services will be available in December of this year.

In addition to these businesses we also have two longer term growth initiatives that are both rooted and hosted technology, health care and global.

We'll begin rolling out our Quicken Health expense tracker solution to Medical Mutual of Ohio and Cigna customers, later this calendar year.

On the global front we plan to begin end market testing of several new product experiments in southern Asia in calendar year '09 to solicit customer feedback and refine our go to market strategy and offerings.

Now, that I have mentioned accelerating growth is our primary focus.

As I look around the company, I am very optimistic about our prospects for doing this.

We have lots of opportunities.

Now that I share by enthusiasm with investors who tend to be a little more of a realistic group, I sometimes get asked, "Okay, Brad, that's all good but what's keeping you awake at night?" Well, quite frankly I'm sleeping pretty well, and I do so because we are staying laser focused on delivering for customers and winning with ease, both within our core products and services as well with new offerings.

This should enable us continue to succeed regardless of the macro environment.

But that's not enough, we are revving up our innovation engine that has driven the company's success for 25 years.

This includes sustaining invasion to strengthen our existing brand such as live communities in our flagship products and introducing new disruptive offerings, like free offerings that will redefine the market.

I am pleased to say we've got our entire company involved and contributing with the introduction of unstructured time as well as an entire end user community with the announcement of Intuit [Labs] earlier this week.

Plus, we're engaging the third party developer community with new tools and services such as our recently announced Quick Base developer platform with Adobe Flex.

Finally, we're making certain that we have a healthy partnership with government agencies, which means working with the IRS and state Governments the insure both our business objectives and their goals for providing services to citizens are met.

Now, this is all possible because we maintain strong operating discipline.

We've talked about our financial operating principles for how we run the business.

First, our objective is to grow organic revenue double digits, supplemented of acquisitions.

You can see this principle at work in FY '08 performance, where we grew revenue 11% organically and 15% overall when including acquisitions.

In general, we expect to manage the company so we grow expenses slower than revenue which will result in margin expansion.

While our recent M&A activity, and the charge in the fourth quarter, kept us from delivering margin leverage in FY '08, our guidance for next year shows we expect to grow operating income faster than revenue in FY '09.

We use the cash we generate to fund growth initiatives and make strategic acquisitions.

We'll pursue inorganic growth opportunities, when they make sense.

Our M&A strategy is to acquire technologies and capabilities that will enable faster growth.

We also work to build alliances and partnerships that add to the value we can provide customers, or provide access to customers we can't otherwise reach.

And finally, we return excess cash to shareholders in the form of share buy backs.

We've repurchased almost $5 billion of stock in the last five years and have authority from the board to repurchase an additional 600 million.

So, to summarize we have a strong and growing franchise that is increasingly being fueled by a healthy portfolio of connective services.

We have an exciting new growth initiatives, two, like health care and global, as well as a robust pipeline of early innovative ideas pumping through the company.

And we remain grounded in a set of disciplined operating principles to translate that activity into strong operating performance regardless of the macro economic environment.

All and all we have pretty exciting growth opportunities for FY '09 and beyond.

I'd like to thank Intuit's employees for another great year, we look forward to seeing all of you at investor day on September 24, and with that we'll turn it over to your questions.

Thank you.

(Operator Instructions).

Our first question comes from Adam Holt of Morgan Stanley.

Good afternoon and congratulations on a good year.

Thanks, Adam.

I had a couple of questions about the QuickBooks business.

It looked like you saw a reacceleration in the fourth quarter.

I was wondering if you can start with what was behind I guess the reacceleration there and then as you look into next year, obviously even if you strip out the acquisitions it looks like you're guiding to an acceleration in organic growth in QuickBooks.

Maybe just walk us through some of the key variables there in terms of market growth expectation, share gains and pricing.

Thanks.

Yes, thank you, Adam.

It's Brad.

Let me start with Q4.

So, what you saw was execution against our adjusted game plan when we came out of Q2 and we noticed the market was shifting, we increased our demand generation, we got a lot sharper on the marketing messages, we got more aggressive with free and we just executed better.

So, we saw a better run rate coming into Q4 as we hoped we would when we reached that guidance.

As you look at fiscal year '09, there's really a couple of things that we're really banking on.

The first is we have a compelling FY 09 QuickBooks version coming out.

We've had it in Alpha -- we've gotten really good feedback from the Alpha users and we're excited about this years release.

It will include new features as well as additional connective services that will help small businesses succeed.

The second thing you will see is increased demand generation.

We learned a lot this year about what it takes to make sure that small businesses are aware of (inaudible) of opportunities that we have to offer them regardless of any sort of economic situation.

And the third thing you're going to see us to is continue to double down on free, just like in Turbo Tax, Free Works and QuickBooks, and that will be another part of the game plan for next year.

So, that's pretty much it for the Q4 and QuickBooks as well as what we're looking at for '09.

Terrific.

And if I could just ask a quick follow-up on finance works, obviously coming out this Fall, what should we expect to see in terms of the impact of that product.

Would you expect to be able to actually raise prices for customers that moved to the finance works product, or should we just expect to see an acceleration of end users?

You know, Adam, the primary gain on finance works is to get more end users, either in online bill payment and online banking in general.

We're still finalizing our pricing approach for excess to the finance works functionality but the main game is getting more active users into the franchise and not on an initial fee.

Terrific.

Thank you.

Thank you.

Our next question comes from Brian Keen of Credit Suisse.

Hi, good afternoon.

Guidance looks real strong, especially small business.

I guess, Brad, what makes you confident that double digit revenue growth in small business is possible considering obviously it's a tough economic climate?

Yes, Brian, it kind of goes back to the earlier answer, with a couple of additional comments.

So, one is we're very excited about the '09 release.

We are also excited about the game plan we have for demand generation and free, but the other key element here is opening new front doors to the franchise.

So, with the acquisition of Homestead, we now have an opportunity to get to a small business owner earlier in their life stage, where they're thinking about getting up online and getting a web site, before they even think about accounting.

So, that's a great way for us to get new customers into the franchise.

We also have the same (inaudible) with new front doors being opened in other parts of the echo system like online payroll.

So, we can get somebody to come in and start using online payroll services and then if they want to have that work with financial software, they'll buy QuickBooks.

So, when you put it all together, it's the (inaudible) release, it's increased demand generation and free with simple start and it's new hosted services like Homestead as well as online payroll and a set of other connective services you'll hear more about at investor day.

Okay.

And payroll and payments it doesn't look like it gets much -- or it really isn't affected much by the economy?

No, the great news about the businesses there, is they continue to grow strongly you saw the payments customer growth.

And I think revenues -- revenue speaks for itself and we're excited about the future of that segment.

Okay, and then Brad, consumer tax, 8% to 12% growth, I think that was similar to where it was last year, I guess just some quick comments in general, how you feel about consumer tax going into fiscal year '09.

Yes, we think we've got momentum coming out of this year, we had a really good release this year, which usually bodes well for retention the following year.

We lake our game plan on free.

We know the category has grown for about the past six years about 10% and we historically want to continue to perform better than the category, which is why we set our guidance at 8% to 12%.

And, I feel good about our prospects as we head into the year with that guidance.

Okay, and then just finally two quick ones for Neil.

CapEx dropped significantly to $200 million.

Is that a more normal CapEx number for the company?

You know, Brian, it is definitely on the right [guide] path.

You know we've got most of the investment in our ops center and office space behind us this year.

Some remaining tie-up ends in 2009 but we're on the right [guide] path.

Okay.

And then last one for Neil.

Share count guidance of 328 to 331 for fiscal year '09, does that include some of the stock buy backs in it or at least how much?

Yes, it does have stock buy backs in there, Brian, I don't think we've talked about exactly the timing or when, but it does include -- assume that we use, you know, a big part of the 600 million.

Okay.

Great.

Congratulations.

Thanks, Brian.

Next question comes from Heather Bellini of UBS.

Hi, yes, thank you.

This is Terry [Wong] for Heather.

Just a question on the quarter's results for small business, could you talk about the impact of M&A in the quarter for QuickBooks and payroll and payments?

Sure, we have a summary table in the material we posted, but the revenue from Homestead and Echo in the fourth quarter was about $15 million and about $30 million for the full year for both of those.

So, you can see that broken out there, but that's kind of the way it's -- came out for the fourth quarter for the full year.

Okay.

Thank you.

You're welcome.

Our next question comes from Jim McDonald of First Analysis.

Yes, good quarter, guys.

On -- so the impact seems a little bit less than I would have thought.

Is there some company eliminations or something there?

I'm sorry Jim, you were cutting out.

The impact of -- ?

The impact of Echo seems to be less than I would have thought.

Is there some accounting issue there?

Not really, Jim.

It's actually performing better than we had expected.

Okay, so --

Full year revenue this year is about $15.8 million, about $9.2 million in the quarter, which we're really pleased with.

Okay.

And could you talk about the magnitude of the price increase in payroll and kind of your thoughts around that?

Yes, Jim, actually what we did with the payroll increase is we had a product line positioning and a pricing action which lowered it on the low end of the business, to get more new customers into the franchise and on the higher end where we offer more value we took a modest price increase, keeping in mind that the next nearest competitor on the high end tends to be ADP and pay checks, or in that $1,500 to $1,800 price range, when we're in a much lower price range.

So, net-net it was an overall impact given our current install base, it was modest price increase, but it also has new entry level pricing on the low end, that will help us grow customers as we head into FY '09.

And do you think the attrition done and you're going to be back to growth there now or is there (inaudible) attrition next quarter?

You know our belief right now is that we've got the right positioning in the market and we feel good about the customers coming in as well as the current installed base accepting the (inaudible).

We've had very little noise from customers, we see this actually as an accessible attrition rate right now and it still keeps us in what we consider to be best in class (inaudible) levels relative to others in the industry.

So, I think it's a way of saying that I think we're pretty much stabilized and heading on the up trend here.

Okay.

Thanks very much.

Our next question comes from Sasha [Zuravick] of Goldman Sachs.

Yes, thank you very much.

So, could you tell us what kind of changes competitively are you seeing or really more relatively preparing for as we go into '09 specifically in tax and also QuickBooks?

Yes, Sasha, it's Brad.

Let me start with tax.

We don't see anything that is materially different from prior years.

In the tax business we historically have a competitor who's head to head with H&R block with (inaudible) and software and retail.

And then on the web, you have a whole host of players that have come in with online tax services.

And we like our position there because we continue to pick up share both online and in retail.

And we think by continuing to offer easy products, being aggressive with free and continuing our demand generation program will only strengthen our position in the market.

And QuickBooks, no news is good news.

The basic program out there is QuickBooks has a very strong share in retail.

We're up in the 90% range, I think it's on our fax sheet.

There hasn't been a lot of change out there from either (inaudible) and Peachtree or Microsoft and when you go on the web it's a similar story to the Turbo Tax story.

And we have the leading solution on the web today.

With QuickBooks online addition, which grew about 50% in revenue this year and even though we don't report it customers grew over 30% as well.

So, really there's nothing meaningful or material in terms of known competitors, I'll tell you the thing that I keep my eye on and the team keeps their eye on, are competitors that aren't out there today but could be starting with four or five people in a garage.

Because those are the ones that bring disruptive business models.

And we have to stay on our toes and make sure we continue to inter innovate.

Thank you.

And my second question would be regarding the recent risk that you have had, do you believe at this point you're right sized for the year coming up?

Yes, Sasha I would say what we did is we took a hard look at where we're allocating our resources and quite frankly a lot of the focus was in general and administration.

We realized that we had an opportunity to put more resources against some of the engineering product management and sales and marketing areas and so we took an action to get those resources put in to the best areas that would drive growth.

Are we right sized?

We feel good going into fiscal year '09, but resource allocation is an on going process as we continue to see more opportunities, we'll continue to allocate our resources accordingly but I don't anticipate -- we don't have anything planned right now that would represent what we just did this past Spring.

Thank you.

Okay.

Our next question comes from Scott Schneeberger of Oppenheimer.

Thanks and congratulations on a fine year.

I am going to start off with the consumer tax area.

The, could you speak a little bit about retention and then brad you mentioned something about working conversion rates.

And I'm just curious if you could follow up on those comments.

Thanks.

Yes, Scott.

Actually, we haven't yet revealed our retention numbers.

We'll be talking more about those as well as conversion rates as we go into investor day on September 24.

I would tell you a good indication is how the net promoter scores were the prior year, that's a good predictor of what retention will look like.

And we like what happened this year.

We also like the net promoter increase as we go both on desktop and our web offering as we head into next year.

On the conversion side, our team has continued to execute.

We had great online marketing this year in addition to TV advertising and it showed up in the unit growth and if you saw 37% unit growth in the Turbo Tax on line.

So, our conversion continues to improve, and we'll share more of the specific details in exactly how much and what we're doing to improve is again next year on investor day.

Okay, I am sure on this next question too you'll allude to investor day, but any initial thoughts on, on price volume within Turbo Tax going into the next year and then tying into that, but also Turbo Tax and QuickBooks you've made a lot of commentary on your free strategy, if you can elaborate on both fronts.

Thanks.

Yes, I think, Scott, your lead in was correct, we are planning to share as we typically do every year, more detail on our products and pricing approach at investor day.

And so you'll hear more about that in Turbo Tax.

In terms of free what you're hearing us talk about today and you will see more when we get together on September 24, is both tax and small business are going to continue to double down on free.

It's a model at work it brings new customers into the franchise.

We have found ways to monetize those relationships, we like the impact on our position both short and long.

And we're going to continue to push hard against both of those opportunities.

Okay.

Thanks.

And then finally, on international it sounds like you are doing some things in Asia there, it sounds very preliminary and then of course with the health care area, within the guidance you provided should we assume that there's very little material impact from both of those and then just -- that's the financial question.

Then the follow up is -- just a little bit more color on international and what happened in there.

Okay.

So, Scott, first of all you are correct.

When you think about anything in the next couple of years, it would be material for either healthcare or global.

The reason that we talk about it is, we know we've been talking about it for some time.

We've been talking about health care for a couple of years and we're excited to be moving into market officially, but that product is calendar year.

We'll obviously learn a lot when we get out into market and on the global front, even though we've only been talking about it since Fall of last year, I'm excited to show that we're moving into end-product or end-market experiments in Southern Asia.

So, we'll learn a lot there but nothing meaningful or material in terms of revenue has been built into our guidance at this point.

You had a follow up question on international?

Yes, just curious what -- you're just doing some beta testing and looking around or are you organically building something to generate revenues now or maybe looking for acquisitions, just a little more elaborations, thanks.

Okay, okay.

So, we've been working since we announced global back in the Fall and we announced a President for Global, [Alex Letner], who sits on my staff.

We've completed strategy work, we've done over 200 follow me homes, which is where Intuit goes out and actually spends time with local consumers in those markets.

And we've got half a dozen, what we think are potentially, promising ideas, if you look for where will we be focused, it will be primarily a small business.

Obviously, Tax is not something we can get other countries to be willing to impart the US tax system.

So, it's primarily a small business focus and it will also be predominately hosted or online offerings versus desktop.

Think of them being more localized products built for the market need and not something you would recognize in the US today and we will talk a little more about that when you (inaudible) on investor day on September 24.

Sounds good.

Thanks a lot.

You're welcome.

Thank you.

Our next question comes from Laura Lederman of William Blair.

Yes, my congratulations on a good year as well and thank you for taking my questions.

One is and I realize you might be giving more detail on this at analysts day, can you give us just a bit of a preview on some of the new features that might be in QuickBooks '09, given that you are expecting that to help the growth of QuickBooks in '09 and separately, can you talk a little bit about the competitive environment in Homestead?

Obviously, you see that as a new logical entry for customers to from Homestead to QuickBooks, talk a little bit about who you see competitively, how fragmented is the market, what are your advantages in that market, versus a web.com or something like that, and final Quick Book question category growth you're assuming for QuickBooks next year?

Thanks.

Okay.

So, let me start with the first one, Laura.

First of all, it's good to hear from you.

QuickBooks '09, you're right, we won't, at this point, want to preannounce our features but I'll give you a couple of head lines.

We are working hard to include some features that we know are critical to the accountants and small business owners so that it improves their ability to interact.

We're also going to be adding some connective services around the QuickBooks product.

And you'll hear more about those, but we're excited about them.

We've talked about what kinds of spaces we might focus on and one of the things we said, is moving out of the back office and into the front office, helping small businesses get online and get customers.

So, you'll hear more about that on September 24.

Specifically around Homestead and competition, when we made the acquisition we did a pretty strong assessment of the marketplace both of free offerings, paid offerings and even local agencies that will build these on a consulting fee, for small business owners.

And what we discovered is Homestead has the highest net promoter score, actually, about two times higher than the next nearest competitor in the market, which means that the ease of use and word of mouth of this product is very strong competitively.

The other thing that I would tell you that makes it unique for us is Homestead is a great example of a connective service which means it gets a competitive advantage because it has the ability to tap into the 4 million installed QuickBooks users, just like payroll and payment, its another razor blade that connects to the QuickBooks razor.

And so, when someone is in using QuickBooks, they'll be able to actually go out and get a web site using a lot of the data input books relatively pain free.

So, I think net-net on the competitive front, we liked Homestead as a stand alone offering because of it's net promoter score already, head-to-head with these competitors and then when you add the power of integrating with QuickBooks we like our position in the market.

The last question you had I'm sorry was around?

The category growth for small business accounting that you're kind of, basing your growth rates guidance for '09 around.

Yes, you know that's actually difficult question, Laura, to ask -- or excuse me to answer rather because we really are in the category, when we have a 92, 93 share, we take full responsibility for where the categories growing or not.

And so, I think it comes down to how much juice we put into the '09 product offering as well as their demand generation, and my hope is that it's going to reflect the kinds of guidance numbers that we shared with you today for '09.

Thanks so much.

So, in other words you don't expect anything coming out of Peachtree or Sage that would change the shift in terms of market shares at all?

I haven't seen anything yet.

What I would welcome is a whole bunch of other players coming into the market and stirring up the dust just like they did a few years ago because the more people who come out with compelling offers, the more small business owners who are in shoe box, raise their head and think about looking for an option.

And we like our odds when that happens.

So, the more people we can get coming out into the market the better off the category is.

Thank you.

Thank you.

Our next question comes from Brent Thill of Citi.

Thanks.

Brad, just over the last three years our operating margins have been hovering close to 28%.

Your guidance implies modest operating margin improvement.

Can you walk through who you're thinking about this trade off of your comments about accelerating growth as the number one focus and how you look at the [mearing] expansion near term and then how much do you think there is long term left in the model?

Hi, Brent, this is Neil.

I will talk to you about the math and Brad can add some comments later about the longer term, how it fits in with the accelerated revenue strategy.

You know, as we've said all along, our first focus is on growing revenue.

And that's still the case.

We've made some big investments starting out in '09 with some reallocation of resources to get those revenue products growing.

And we think as Brad mentioned in the call, we've made a great start on that, but it is a multi-year effort.

You are seeing margin improvement in '09 because the second principle we have is that we'll grow expenses slower than revenue and '08 was a unique year with some acquisitions and some investment situations there.

So, we think we're getting back more to normal in '09 and certainly getting back to our operating principles for goal number one and goal number two.

You will see our G&A expenses are actually down year to year and going in the right direction as a percent of revenue.

So, I think you know we've have got the right momentum there and our plan is to keep pushing those but in the order that we talk about them.

Revenue growth is first, and we want to be sure we're investing for sustained revenue growth and new products and offerings.

And if we do that well and we focus on revenue dollars and we focus on expense dollars and those growing slower than revenue, I think we'll be fine.

You know, Brad, as far as other things you see?

Yes, I would just put a goal around what Neil said by simply saying that our number one focus is new customers and revenue dollars, and we also focus on profit, operating income dollars and not percent but the good news is giving the scale nature of our business as we accelerate the top line and we have good physical management on the bottom, line we can make that happen.

And I think over the long term, you know, we've talked at times that we'll continue to see operating leverage expansion and I think you'll see us move into the 30's.

Okay.

And just a quick follow up on the technical side, if you look at some of the build out for some of these online services they're certainly a bigger community that's coming into play, that's building new applications that occurring faster in the (inaudible) of innovation for your customers, or how do you view this next year in terms of opening up your platform to creating a broader online connected services community to build some of these new applications for you?

Yes, Brent, thank you for the question because we just announced a couple -- probably six weeks ago quick base with Adobe flex, it's a new developer platform that enables third party software developers, in addition to our normal (FBK) that works with QuickBooks, to be able to build hosted applications that work very well with QuickBooks.

And we're embracing open.

We're encouraging third party developers to come in and build products, even products to compete directly with ours, and we'll let the market choose.

So, I think short answer to your question is you see us moving more aggressively into that kind of space.

We also have QuickBooks Enterprise that works on Lenox, and so we know that the world is going forward is going to be much more of an open world and we have a large ecosystem that people can tap into and we're welcoming that.

Thanks.

Thank you.

Our next question comes from Gill [Laria] of Wedbush.

Thank you for taking my question.

How much of the QuickBooks little bit of acceleration is going to come from the life cycle and then just people that bought in 2006 attached and needing to upgrade in 2009 -- 2006, I think, was a particularly good year, those people have -- you've probably got at least some of them attach to payroll and payments and they would need a new QuickBooks platform, how much of that is the acceleration of QuickBooks?

Yes.

I think, Gill you called it the average cycle is every two to three years but it's also hard to predict.

And we've been pretty aggressive in the markets (inaudible) how many of those have moved into a current version of QuickBooks.

So, we don't see anything materially different in this coming year than we've seen in the past, I think it's sort of the normal cycle we've gone through, and what we're really banking on is a pretty compelling '09 offering and the free and demand generation things I talked about earlier plus the fact that we're going to be adding some more connective services in addition to Homestead.

I think those will be the real catalysts and not necessarily the upgrade cycle.

Got it.

And then, as the transition from retail to online and a few of our product categories happened it seems that you're getting some competitors to abandon the retail channel, I think Microsoft recently announced that it's taking money off the shelves in the retail channel.

Is there an incremental opportunity there, at least within quicken to gain a couple of points even from your very high market share?

You know for Quicken and Money and Retail, I think that we will get some opportunity, but Quicken is a small piece of our overall companies revenue, it's our most recognized brand but it's been reported in the all other category for years because it's relatively small overall.

I like the bigger game in Quicken being some of the stuff we announced this past week was Intuit [Labs], where we have Quicken online and now we have Quicken Beam, which is currently beta version but it's a mobile application that taps into the power of Quicken.

I think its going to be much more of those opportunities going forward but we're certainly going to take advantage of anyone who still prefers software, we're going to like the fact that Microsoft's not in retail anymore and we'll capitalize on that to the extent that it drives some upside.

Okay, great.

Thank you.

Thank you.

Our next question comes from Michael Millman from Soleil Securities .

Thank you.

I guess a couple -- or several questions, on your tax guidance, what's your assumption on blocks, activity and free, can you also talk about what you expect both to be in selling and marketing and it looks like this year it about doubled revenue maybe you could split out how much of that, I'm sorry, how much of that is marketing and if you can -- will continue it and you also had -- I think the 28% probably applies to R&D.

And if you continue to do that, and then maybe you can give us an idea of what in fact the economic model looks like in health care and whether the economic model in the international product is the same as in the US.

Thank you.

Okay, Michael.

A couple of questions there obviously.

So, I will try to take them one at that time and answer them to the best of our ability today.

It's hard to tell what block is going to do, we've been in the market with them for years.

I think we come up with multiple scenarios of what we think they might do, but our number one driver is what we think is most important for customers and what will give us the best position in the market.

They've had a couple of statements in the market around their review of free and whether they thought it was a profitable strategy or not.

We clearly have our point of view.

So, I don't know if they will be free or not.

But what I do know is the more people who get out there with aggressive offers, the more people we get to convert out of a tax store, and I think that's going to be the challenge that blocks up against because they have their tax stores and their software at times, can compete with their own stores.

So, at this point we haven't put a lot more into it than that.

We've got a game plan we're feeling pretty good about as we head into next tax season.

The second question you had was around growth and sales and marketing, and we haven't at this point -- I'm not sure if that was regarding tax specifically, Mike.

Let me ask you.

Was that regarding tax or was the regarding the company overall?

That was regarding the total and just -- on a block -- if you knew that block was going to be aggressive this year and free, they were basically not in the market for free last year, would that change your outlook for your tax guidance and your tax spending?

Yes.

Go ahead.

Michael, this is Neil.

Yes, I think I can say that we assume that all of our competitors are going to be aggressive.

I wouldn't call out anyone specifically, but you know, I think, in putting our plan together for '09, we assume we're going to get good competition and aggressive competition.

So, I don't know that your scenario would necessarily change our outlook.

If you look at the way we've allocated our resources for 2008 versus 2007, you know you can see a pretty nice shift for G&A up into research and development and selling and marketing.

We have -- we have been cautious with the demand generation, we've kind of launched and learned and we've taken that in incremental steps and I think that's more of what you will see in 2009.

We don't solve for percentages necessarily in categories.

We focus on what works and try it and see what happens, the same way with R&D.

We have invested more in 2008 than in 2007, but there are a lot of other initiatives going on right now and that kind of heads and flows so, I think we are going to focus on things that generate revenue.

That's what we have talked about a lot.

So, to the extent we prove demand generation works and does that, to the extent that we can have more compelling offerings through engineering and through R&D, we'll do that but we're not solving for a number or for a percentage at the end of the day other than to be sure we get a good return for the dollars we investment, and as we mentioned earlier you can see the dollars coming out of the general administrative category.

So, we kind of left the percentages solve for themselves, and I will tell you on healthcare your last question, I suppose, we are still -- we're still very much in experimental stage on that.

We're still experimenting with pricing structures and different ways to monetize the offering.

As Brad mentioned, we don't have anything in our outlook that 's material for revenue from the healthcare products yet.

And I think we'll be working out monetization priorities as we go through the test and learning in 2009.

Yes, Michael.

And you had also asked about global.

And global is just simply premature at this point.

We're going to be in market with some product experiments and we'll learn more about what the right value (inaudible) is and once we know that we'll share that with you.

But I think Neil nailed it on the healthcare as well as the questions around block and others and what they may or may not have an impact on as we think about our own plan.

Thank you.

Thank you.

Our final question comes from Greg Smith of Merrill Lynch.

Yes, hi, guys.

I don't believe this has been asked but the 9% to 12% revenue growth guidance for FY '09, what is that on purely an organic basis?

It's about 10%, Greg.

There's about 2 points coming from Homestead and Echo.

Okay, okay.

That makes sense.

And then, the financial institutions segment guidance of 5% to 9% growth, having followed digital insight for a number of years, that seems pretty low, is there anything unusual going on there?

The growth in bill payment users and just banking end users seemed okay.

I'm just surprised the revenue growth is so low there.

Yes, actually there's not anything, that's materially different, what we're focused on is getting the ease of use of the existing platform to drive more people adopting online banking and bill pay.

We're also looking at seeing what the impact will be of releasing finance works in October and I think right now, just given our current trajectory coming out of Q4 we feel pretty good and we're actually anticipating exiting at a very healthy double digit rate coming out of Q4 fiscal year '09 but right now I think what we have plan is our best guidance for next year.

Okay.

But is the underlying core business there, how is it performing relative to your expectations when you did that acquisition.

Well, it's performing better everyday.

It's certainly not up to the standards that we would expect of ourselves.

The sales pipeline remains very healthy.

The retention rates are in the ZIP code of where they have been and we're clearly just focusing on execution and getting the finance works offering out and continuing to improve the ease of use of the existing products.

So, there's nothing fundamentally broken in the digital insight business, this is just about building up momentum, as we head into fiscal year '09 and fiscal year '10, we continue to increase the trajectory.

Okay.

Great.

Thank you.

Thank you.

Gentlemen, would you like to proceed with any additional remarks?

Yes.

I just want to thank everybody again for joining us.

We hope to see many of you at investor's day on September 24.

With that I want to wish everybody a great afternoon or great evening depending upon your time zone.

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

This concludes the call.