直覺電腦 (INTU) 2009 Q1 法說會逐字稿

Good afternoon.

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

At this time, I would like to welcome everyone to the Intuit first quarter and fiscal year 2009 conference call.

(OPERATOR INSTRUCTIONS)

With that, I will now turn the call over to Jerry Natale, Vice President of Investor Relations and Treasurer.

Good afternoon, and welcome to Intuit's first quarter 2009 earnings conference call.

I'm here with Brad Smith, our President and CEO, Neil Williams our CFO, and our Founder Scott Cook.

Before we start, I will remind you that our remarks include forward-looking statements.

A number of factors could cause our results to differ materially from our expectations.

You can learn more about these risks in the press release we issued earlier this afternoon.

They are also in our Form 10-K for fiscal 2008 and our other SEC filings.

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

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

Some of the numbers in this report are presented on a non-GAAP basis.

We have reconciled the comparable GAAP and non-GAAP numbers in today's press release.

A copy of our prepared remarks and supplemental financial information will be available on our website after this call ends.

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

Thanks Jerry, and thanks to all of you for joining us.

We just announced results for the first quarter fiscal 2009 that were in our expected range for revenue, and significantly above our expected range for operating income and EPS.

We're pleased with the quarter, as we've demonstrated some resiliency on the top line, and our ability to manage spending to deliver on the bottom line.

We also provided initial guidance for the second quarter and updated our guidance for the full year, reflecting what we have learned since our last update two months ago.

Clearly business conditions have changed.

We've seen three factors in particular that impact our business outlook for FY '09.

First, a decline in merchant transaction volume in our Payroll and payment segment.

Second, fewer new QuickBooks users than we had expected.

And third, some adverse conditions in our Other Businesses segment.

As a result, we now expect our fiscal 2009 revenue to grow 6% to 10%, instead of the 9% to 12% we originally guided.

Let me share a bit more detail on these three factors.

Growth in new merchants, plus growth in transaction volume per merchant has been driving Payments revenue growth over the past couple years.

Growth in transaction volume per merchant began slowing in our third quarter of last year, and was flat in our fourth quarter.

Like other Payments processors we have seen transaction volume decline, as consumers reduce their spending.

New merchant acquisition is still strong at 18%, but it's not strong enough to compensate for the lower than expected transaction volume per merchant.

We now expect full year Payroll and Payments revenue to grow 10% to 14%, four points less than we originally estimated.

As for QuickBooks, it's early in the season but paid new users which make up about a third of our paid units in any given year, are running below expectations.

Upgrades so far are actually in line with expectations.

And we're seeing a lot of free simple start registrations which should result in higher Small Business ecosystem revenue in the future.

However, for this year, we now expect full year QuickBooks revenue to grow 5% to 9%, about 3 points less than originally estimated.

The Other Businesses segment which consists of our Canadian and UK businesses, Real Estate Solutions and Quicken, is being impacted by stronger US dollar and tough conditions for new license sales.

Though less than 5% of our revenue is in a foreign currency, it is all in this segment.

Since we established our plan in July, the US dollar has strengthened about 20% and that's created a $20 million reduction in our revenue forecast, which is partly offset by $13 million reduction in non-US dollar expenses.

In addition, we have reduced our expectations for Real Estate Solutions license sales, and Quicken revenue is being impacted by reduced consumer spending particularly in retail.

We now expect full year Other Businesses segment revenue to grow from a 4% decline to a 2% increase.

That's about 10 points less than originally estimated.

Given this updated outlook, we have taken a hard look at our spending, even with the reduced revenue growth of 6% to 10%, we expect to grow non-GAAP operating income from 9% to 13% year-over-year.

And we expect to grow non-GAAP EPS of $1.82 to $1.89, which is a growth of 14% to 18%.

These non-GAAP EPS figures include an estimated $0.04 per share benefit from the passage of the research and benefit tax credit.

Now it is important to note in this context, we see real opportunity.

These are challenging times, but this is an environment in which we should be able to build our customer base and strengthen our franchises.

Our product and services help customers save and make money.

Said more simply, we put more money in our customers' pockets.

This is beneficial in all business climates, but even more so when times are difficult.

It's one of the reasons our core offerings have historically performed well in weak economies, and we don't believe this time will be any different, and we believe this will be another good year for Intuit.

I will share more of my perspective later in the call, but first let's have Neal take us through the segments in the financial details.

Thanks, Brad.

Let's start with a high level summary of our overall results.

Revenue for the quarter was $481 million, up 8% year-over-year.

The non-GAAP operating loss was $29 million, a $26 million improvement from the first quarter of last year.

The non-GAAP loss per share was $0.09, $0.01 better than the loss in the first quarter last year.

As a reminder, we normally lose money in the first quarter.

Thus because so much of our revenue comes in our second and third quarters while most of our costs are spread evenly over the year.

We improved our non-GAAP operating loss, because revenue increased in less seasonal categories, such as Payroll and Payments.

We were also very disciplined in our spending.

The non-GAAP loss per share didn't improve quite as dramatically as the non-GAAP operating loss, because interest income and other income was lower than last year.

Now let's review the segment results.

Total Small Business first quarter revenue grew 11% year-over-year.

Within Small Business, QuickBooks revenue grew 6% and Payroll and Payments revenue grew 16%.

Excluding Homestead and Echo, which were acquired in the second and third quarters of fiscal 2008 respectively, Small Business revenue grew 5%, QuickBooks grew 1%, and Payroll and Payments grew 9%.

Though the season hasn't started as strongly as we expected, we see some positive indicators.

QuickBooks share is up about a point in retail.

The category is down this year, but no one else is taking share from us.

QuickBooks Enterprise revenue and our web services customers continue to grow strongly.

Our customer base growth has held steady in Payroll at 3%, and our Payments customer base growth is still strong at 18%.

And early feedback from accountants on the QuickBooks '09 release is positive.

With almost 40% saying they're more likely to recommend QuickBooks '09 to their clients than last year's version.

On the other hand, as Brad mentioned, Payments transaction volume per merchant is down 4% from last year, and that's lower than we expected.

And we haven't yet seen the inflow of new QuickBooks users that typically occurs in down economies.

However, we consider this the best QuickBooks product we've released in years, and most early product reviews have been favorable.

We also have an update plan for December that will further enhance the on-line banking functionality for accountants and upgraders.

Finally, it's important to point out that our Small Business revenue is still growing in what is historically our slowest Small Business quarter, even as Small Businesses our slowest Small Business quarter, even as Small Businesses themselves face a tough market environment.

But we're being cautious and have updated our outlook accordingly.

Turning to tax, we have not changed our full year revenue guidance for Consumer Tax or our Accounting Professional segment.

TurboTax will go on sale in retail stores on November 28th, and the season begins in earnest in January.

We will provide tax season updates this year, in the same time frame as last year.

The first update is scheduled for February, when we announce second quarter results.

The second will be in mid-March, the final update will come when the tax season ends in mid-April.

We're excited about our offerings for this season as we continue to focus on ease, winning with free, and continued improvements in our marketing.

One more note on TurboTax.

Including Federal E-file with our desk-top products results in a shift of $10 million to $15 million in revenue, from the second quarter to the third quarter.

Financial Institutions revenue for the first quarter grew 3% year-over-year as planned.

This is down about $3 million from the fourth quarter FY '08, and that's because the fourth quarter included a seasonal uptick in revenue associated with our on-line financial exchange product, which financial institutions use to convert their information to a Quicken compatible format.

Active on-line banking users grew 8%, a little lower than the second half of FY '08, and down sequentially from Q4 '08.

New Internet banking users continue to be added about same rate as prior quarters, but financial institutions are scrubbing their user bases, and this quarter, we had a relatively high number of Internet banking users taken off the active list.

Bill pay users which generate about four times the incremental revenue per user, as on-line banking users grew 18%.

That's up from the second half of FY '08, and as we said at Investor Day, we expect to show continued user growth as we move throughout FY '09 and expect end the year, with revenue growing at a double-digit rate.

We have not changed our full year revenue guidance for the financial institutions.

Other businesses first quarter revenue was flat versus the first quarter of last year.

This segment would have grown 3% in constant currency.

And as Brad mentioned, the strength of the US dollar and revised expectations for our Real Estate Solutions Business and Quicken, have led to us reduce growth expectations in the segment by about 10 points.

Of the 10, about 6 points are related to currency.

Moving to the balance sheet, we ended the first quarter with $747 million in cash and investments.

We expect to generate about $1 billion in operating cash flow this fiscal year, and we've got a $500 million revolving line of credit that we have not accessed.

We have a strong balance sheet and we are not concerned about liquidity.

We have reviewed our potential customer credit risk, particularly with respect to retail and financial institutions.

We continue to closely monitor the financial strength of our retail partners and believe we have taken the appropriate steps to limit our exposure.

And we haven't seen significant weakness in our financial institutions customers.

Capital expenditures in the first quarter were $67 million, and we returned about $165 million of excess cash to shareholders, by repurchasing 6 million shares of Intuit's stock.

We have $435 million remaining in our current repurchase program.

Over the coming quarters, you are likely to see us dial back our repurchases a bit, but we're still comfortable with the overall share count for the year that we guided back in August.

Let me conclude with this.

We're comfortable with this updated guidance, in the context of the current environment and based on what we know today.

And in an environment where consumers and Small Businesses need product and services that help them save and make money, we should do well, and with that I will turn the call back over to Brad.

Thanks, Neal.

In prior earnings calls and Investor Day, I have talked about our focus on accelerating our growth rate by executing a clear strategy.

That strategy is to deliver easy to use connected services, that solve important customer problems like saving money and making money, in an increasingly social, mobile, and global world.

We remain committed to our strategy and the objective of accelerating revenue growth, but today I am going to focus on delivering the result in this year and what we are doing to execute effectively in the current market conditions.

As we all know, we're in extremely volatile business environment today.

Even in this environment, we believe there are opportunities for companies who stay focused on delivering for customers, to expand their franchises and strengthen their market positions.

That's what we're doing.

Today's environment is certainly different than what we anticipated when we set our operating plans up for fiscal year '09.

Since then we have analyzed and created scenarios to identify levers that we can pull to adapt to the changing business conditions.

That game plan has been vetted with our Board of Directors, and what our employees are focused on delivering.

We are playing offense, not defense.

This plan boils down to four key points.

First, we're going to continue to focus on acquiring customers.

We've proven that we can monetize them over time, so the focus inside of Intuit is customers, customers, customers.

Second, we'll grow revenue faster than expenses.

We'll maintain our operational rigor, and we will adjust our spending as needed to the changing market conditions.

Third, we'll continue to pursue innovation.

We've made some strategic decisions at the end of fiscal year '08, that reallocated investment to higher yield opportunities, and we're not going to put those investments at risk.

And finally, we'll look for assets in the market that will further strengthen our position and help us execute our growth strategy.

We're maintaining a balanced perspective, neither optimistic, nor pessimistic.

I think it's realistic.

Reality comes with acknowledging potential risks, and while some elements of our business are well insulated from tough macroeconomic conditions, some do face potential risks.

And here's how we assess them.

I will start with our tax business.

Taxes need to be filed regardless of the economy.

And our solutions are the best combination of value and customer experience.

We feel confident this business will perform well.

We remain confident with financial institutions as well, particularly in the short term.

People still need to pay their bills and manage their bank accounts.

Regional and community banks and credit unions need to offer competitive solutions to remain competitive and to keep their best customers.

We help them do that.

And this business unit operates with multiyear contract,s so we have good visibility into the projected revenue stream.

Now, we're often asked whether consolidation in the industry will hurt us.

We haven't seen that.

And we don't see the largest banks aggressively acquiring smaller institutions in this environment.

When there is consolidation among institutions in our target markets, we generally pick up about as many end users as we lose.

In Small Business we've got Payroll, Payments, and QuickBooks.

We feel confident with Payroll, where price is the low end disruptor, and are generally paid in advance starting at $99 a year.

Retention rates remain the highest in the industry, and we haven't seen a significant change in that since last quarter.

We have already talked about the declining transaction volume in Payments.

However, we're very pleased with our new merchant acquisition.

When charge volume picks up again, we'll be well positioned for revenue in this segment to rebound nicely.

We've also talked about the exposure in QuickBooks to new Small Businesses postponing their purchases.

Though it's early in the season, trends we've seen have led to us reduce our growth expectations for this segment.

However, we expect organic revenue growth, because we have the best product in years, it's got new features like a free website, and a company dashboard that appeals to customers, and we have made improvements that make it more likely for accountants to recommend it.

We're also continuing to invest in demand generation, and this should raise awareness and drive customer growth.

Keep in mind that our flagship product in QuickBook,s cost little more than a couple tanks of gas.

Price shouldn't be an issue, and if is, we've got a free offer to appeal to those customers who are worried about costs.

And as you know, we believe we get incremental lifetime value for the customers we acquire using a free model.

So let me summarize.

We believe in the strength of our product and our strategy for FY '09.

Our products help customers save and make money.

We're prepared to respond to the changing scenarios.

We remain committed to acquiring more customers and growing revenue and earnings per share, and we will continue to invest in innovation, and take advantage of acquisition opportunities that may arise that will improve our growth capabilities going forward.

By doing all this, we will deliver the best outcome possible fiscal year '09 while strengthening our position for the future.

Now, these are challenging times, but these are the times when Intuit's product and services are needed most.

I would like to thank Intuit's employees for delivering another strong quarter in a tough environment, and with that we'll now turn to your questions.

(OPERATOR INSTRUCTIONS).

Our first question comes from Bryan Keane of Credit Suisse.

Hi and good afternoon.

I guess my first question is just looking at the second quarter guidance that you provided, it's a little different than the Street's estimates.

I think its a little bit lower.

I was hoping to get some color on why that might be -- on why that might be.

why the Street might have modeled it.

I know historically, going back in history the second quarter has had lower growth rates because of timing of revenue recognition.

I wonder if that's partly the cause here.

And then secondly, it sounded like there was some switch in E-file.

Could you talk about it.

Yes Bryan, this is Neil.

Good afternoon.

Two things on revenue side and one on the expense side, that contribute to what -- the phenomenon you are seeing there.

The bundling of our E-file from a Federal basis and our retail product, as I mentioned, is going to cause to us move our revenue recognition from the second quarter to the third quarter which we estimate at this point is going to be about a $10 to 15 million switch.

Secondly, on the revenue side, we're continuing to see people file later in the season.

Bryan, and we continue to see that trend of moving people closer to the filing date.

So again, more of our revenue and our on-line product which we collect when you hit send, moves back to closer to the April 15th filing date, and that's just a continuation of a trend we have seen.

In our expense side, we built in a pretty aggressive plan and demand generation, both in our Small Business products and in our tax products.

And we really haven't moved away from that.

We're sticking with the plan to build demand and get customers in, and tax and Small Business, so it causes our expenses to be a little more skewed to the second quarter than you might have seen seen in prior periods.

Those are the biggest factors causing that.

Okay, but it doesn't seem like there's anything fundamental driving the lower revenue.

It seems like it's kind of -- filing later in the season and the switch of E-file recognition.

That's correct.

Okay.

And then just historically, as unemployment rises, haven't you guys seen a pickup in QuickBooks users, and any way to quantify the potential impact of that?

Yes, Bryan, it's Brad.

If you go back and look at the last three down turns, there's some work done by Kauffman Institutes and a few others, that will show typically unemployment drives new business formations, but there's a little bit of lag effect there.

And it's been different in each of the three down turns.

I think what makes this one unique, and therefore why we're not banking on any material upside this current fiscal year is, this started as a consumer slow down.

And we know that Small Businesses often finance their Small Businesses with either credit cards, or home equity loans, or lines of credit.

And we all know what the current credit conditions are in the market.

And so net-net, we do anticipate this won't be different, that there will be new business formations happening, but that right now we're being prudent and not building it into our plan for the balance of this fiscal year.

Okay, and then just finally for me, any thoughts on Intuit tax products getting an extra boost due to the economy, as tax consumers look for low-cost alternatives away from tax franchisees and accountants?

Bryan, we believe the reason why we're holding our guidance this year on tax is two factors.

One is we know the government will want 140 million tax returns filed regardless of economy.

The secondly, is we appreciate the fact we're in a category right now that's growing four times faster than the next nearest alternative, which is growing faster than pros and tax stores.

Given that right now, what consumers are looking for is the way to get the taxes done the easiest and the cheapest and to get the maximum refund, we stack up extremely nicely at $65 for one of our mid-tier lines of Turbo Tax versus $180 for a tax store.

So I think all the factors play in our favor, which is why we are holding our guidance for Tax, despite what's going on in the marketplace.

thanks a lot.

Our next question comes from Heather Bellini of UBS.

Hi thank you for taking the question.

Brad, I had -- a two parts actually.

First, if could you share with us what are your assumptions now regarding organic QuickBooks growth for fiscal year '09, and I guess in general, what risks do you see in being able to achieve the new total revenue growth target you just put forth.

I guess embedded in that question, are your expectations that things are going to get worse, stabilize, or get better?

Thank you.

You're welcome, Heather.

Good to speak with you this afternoon.

So let me start first with the organic assumptions in QuickBooks.

As you saw coming out of Q1, we saw about a 1% growth in QuickBooks, then the rest was made up by Homestead that in segment.

We have not built in any appreciable improvement in that in QuickBooks.

So you are going to see very modest organic growth in QuickBooks for the balance of the fiscal year.

In terms of what we built into our assumptions, we have not built any improvement into the macro economic conditions, nor have we factored in any material improvements in our own operational execution today.

And so net-net, is I think what we see, is reality is what we reflected in our guidance.

No improvement in the economy and the balance of this fiscal year, and the results that we see, we've tried to do our best to come up with a range of scenarios, and we've built those scenarios into the guidance for QuickBooks as well.

Thank you very much.

You are welcome.

Thank you.

Our next question comes from Adam Holt of Morgan Stanley.

Good afternoon.

My first question is actually a follow-up on your commentary around tax, understanding that people have to file their taxes, we he eve gotten plenty of negative data points out of the retail channel.

I was wondering what specifically your expectations are for the retail, component of Turbo Tax and how comfortable, are you those don't change at all given what's happened on the retail side?

Yes Adam, I think first of all, it starts with a universe of 140 million tax returns that will be have to be filed.

And the choice will be up to the consumer whether they want to do those in desktop or on the web.

We have seen for the last several years that the web is growing much faster than desktop.

And in fact last year, our units grew somewhere in the neighborhood of 37% on-line, and in the low single digits, I think of roughly 3% in retail.

So the net-net is, we don't see that trend going anyway other than the direction it's already been going.

It comes down to someone's comfort level with processing their taxes, in one way or another.

What we haven't seen, is a lot of people who process on the desktop switching over to the web.

Now whether this is a catalyst or not, is yet to be seen but what we do know it's immaterial to us.

Our goal is to capture the maximum number of tax filers out there in the marketplace, and if they go to the web based version, we're happy with that as well.

And so if retail has a tough time, we know they're going to have to file their tax returns.

We believe the alternatives are, they can go back to paper and pencil, which will do two things.

It will take them a lot more time with more risk of mistakes, and it will take them several weeks, almost up to 30 days to get their tax refund back, or they can go on-line into Turbo Tax, or one of the other alternatives in the market and get their refund done with maximum deductions and get their money back quicker.

So we think net net, we're going to do very well in this economy, and we are going to do fine, in terms of whether the retail market has a tough time with desktop or not.

Great, terrific.

If I could turn quickly to the financial institution business, sounds like you feel pretty good about the visibility level there.

At the Analyst Day, you talked about backlog number being up close to 40% on a year-on-year basis.

Can you maybe correlate for us or tie a little bit more closely, what the backlog number means with respect to this years guidance.

Or said another way, maybe drill down on the level of visibility, and do you think that the financial institution end user number on the banking side this quarter, was an anomaly or should we expect that to continue?

Let me start with the backlog number.

We think the backlog number is a healthy indication of how well our product are being received in the market by banks, who recognize that they need to continue to offer these services to consumers and Small Businesses.

So that's a healthy indicator.

What we also recognize is, once we actually get this contract signed, we go through an implementation window, then that revenue gets recognized over a period of time, because it's a subscription basis.

So net-net, what we're looking for is leading indicators are the number of active users, whether it's on-line banking or bill pay.

And you will see that start to manifest itself, as that pipeline turns into real implementations.

So we've said keep an eye on the trends over the second and third quarter of this fiscal year.

And we believe you are going to see the number of adoption -- users adopting on-line banking and bill pay continue to increase.

Now what we saw this go-around, is we didn't see a slowdown in the number of people signing up for on-line banking.

What we did see was an increase in the number of banks going in and purging customers that they felt weren't actively using the products.

And so they literally took out customers that weren't actively using internet banking.

I couldn't tell if you that purging is done, because we don't have that visibility into where each of the financial institutions are today.

So what we are focused on, is acquiring as many financial institutions as possible, making the production easy to use so many new users will adopt it, and then over time we think that we'll continue to net out to a strong, healthy growth as we exit this fiscal year and go into next year.

Thank you.

Our next question comes from [Brad Zelnick] of Bank of America.

Hi and thanks for taking my question.

How much of a role do you believe pricing will play in the Consumer Tax business this year given the economic climate?

Will customers be more price sensitive?

Have you given any thought to aligning your pricing structure more closely to that of your competitors?

Thank you, Brad.

First of all, let me start by saying at the end of the day, consumers always looked for easiest and the lowest cost way to get the maximum refund, and we feel very good with our position in the market, because our starting price point is free.

And so it's going to be pretty difficult for any competitive alternative to go lower than that.

That in terms of retail or desktop, there really is only one major competitor.

That's us and H & R Block.

And what we have seen so far is that both us and that competitor have taken similar steps toward building the E-file into the actual purchase of the product.

And our data suggests, or somewhere in the neighborhood of about $10 within the price range of our product line.

And if we look back at history, when the price points are aligned that closely, we do very well in the market.

So I would say on the desktop side, relative to the alternative, which is the major competitor in the market.

We are at a price point that we think is a good value for the price.

And in terms of the web.

we have range of price points starting with free.

And so if there truly is price sensitivity in the market we think we're well positioned to capitalize on the opportunity.

Thanks.

And if I could turn to the expense side of the equation, looking at your efficiencies there, and you talked about the different scenarios that you vetted out with your board.

Can you speak a little more to what are the various levers that will enable you to modulate expense with revenue growth, in these various scenarios?

Thank you.

Brad, this is Neil.

As we've have talked before, the main work that we have been doing over the last year or so, is more closely aligning our resource levels, and our expenses with our products and offering and with revenue there.

So we're very closely monitoring which offerings and products are doing well from a user adoption and from a revenue standpoint, and adjusting the investment level or the spend level, based on the success metrics that we see there.

So particularly in things like marketing and other more expenses where we can adjust more quickly.

Those are areas where we want to see a close match up with the results, and with the customer adoption and exception.

So those are probably the main levers that you would think about.

Thanks.

Our next question comes from Michael Millman of Soleil Securities.

Thank you.

Regarding the tax, couple questions.

Why wouldn't you expect in this environment, people to switch from the paid web to the free web?

Secondly, why wouldn't you expect taxpayers to actually accelerate their payment in this environment in order to access their refunds quicker?

And also, I'm a little confused as to why, if you bundled the price, therefore increased the price of desktop, and recognize revenues when sold at retail, that wouldn't help the second quarter versus the third.

In regard to looking at the total guidance for the year, you indicated that you didn't assume that the economy would get better the rest of the year.

It doesn't sound like you assumed that would it get worse either.

So is it fair to say your guidance is very much dependent on which way the economy goes?

Or maybe you could just tell us what the importance of organizing tax documents is and means?

Thanks, Michael.

I took notes on that one, to make sure I could cover each of the points because they're all very important.

Sorry for the length.

No, no, I'm glad you got them out there.

So let me take them one at a time.

First of all, why do we not anticipate seeing paid go to free?

A couple thoughts here.

We have been at the free game now for a several years.

And what we've noticed is a little over two-thirds of the people who come in on the free product, weren't actually in the category prior.

So it brings new people into the category out of a shoebox, out of a piece of paper or out of a tax store.

Secondly is, actually when you go into free, it tends to be for the simple filers.

And one of the things that you have to do is key in all the information.

And people who have been use a paid version are able to actually able to import their prior information electronically.

You cannot import prior year information into the free version of the product.

And so literally, what we have found is most people are willing to go ahead and pay a modest amount to stay on the paid version, so they don't have to re-key in all that information.

They simply import it from a prior year.

So the two things that give us confidence one is, for two years of history, we have not seen anything that would indicate that it cannibalizes the paid version.

And secondly, there is benefits to using the paid version and importing the information prior year, as opposed to going down to free.

Unless they're unemployed, and their time value of money has changed.

In which case, Michael, I would tell you two things.

If we can retain that customer in the franchise, we know once they get back on their feet they will stay with Intuit.

So if they did downgrade to free, we would be happy with keeping the customer in the franchise, because we've actually proven that we can monetize them in year one, and can continue to monetize them over a lifetime.

But we will wait to see how that plays out.

The second is accelerating -- you asked about accelerating the payments, the people wanting to get their refund quicker and why we don't think they will file earlier.

I would hope that's the case, but the reality is a couple of things, they can't file until they get their W-2's from their employer.

And many of us today, as we have now seen in this economy now have equities.

We have 401(k) plans and other types of investments we need to get from various financial institutions.

And unfortunately those institutions have been notoriously been late in getting that information to tax filers.

And so at the end of the day, tax filers are a little bit beholden to the fact they can't file until they have all their documents to be able to send in their tax return.

So we will see, but so far procrastination has continued to be an issue.

But what we do like is that if you want to go ahead and file a return with us today, and then you get more documents and you want to go ahead and file a subsequent return, you can do that with TurboTax as well.

So the sooner they file, the happier we are because we'd like to help them get their money back.

The third is desk top.

And you talked about, why would we see a shift from Q2 to Q3, if we have actually raised the price on retail and desktop and shouldn't we see more revenue.

First of all, the way we have actually bundled the E-file price into the desktop.

There is accounting recognition which will defer about $10 million to $15 million into Q3.

And that's something Neil described earlier.

And secondly is, while it could end up being the case, we just see a bigger shift of people going more online.

And we think that is going to have a bigger impact on the overall quarter's numbers, than somebody actually getting a price increase in desktop.

The last question you asked me was about the economy.

And you heard the words, we hadn't assumed any improvement in the economy, does that mean we haven't assumed any downturn?

What we have actually done, is we have done our best, as many people out there are trying to do to assess, what the high end is and the worse case is.

And we have tried to put scenarios in place, and the guidance we've provided captures what we believe the high end and the low end is.

Now no one has a crystal ball, now I hope ours is as good as anybody else' s out there in the market.

But we've done our best to capture what we think the ups and downs are based upon what we're seeing today.

And the other question was about organizing tax documents.

And Michael, could you repeat that piece of the question again?

I'm sorry, I didn't jot that one down.

I was just curious as to what organizing tax documents meant in this press release you put out the other day.

Organizing tax documents, Okay, I have to admit you stumped me so -- so as the team actually flips through here what I would like to do if I could, is I will go on to the next question, and if I find that information I will be more than happy to answer it so everybody can hear the answer.

I appreciate your answer.

Thank you, Michael.

Take care.

Our next question comes from Jeff Keene of William Blair.

Yes hi, it's Laura Lederman.

A quick question following up on the economy, when you talk about the guidance reflecting a more positive end, to one of the more negative scenarios.

Can you give a sense of how negative and positive those are?

In other words, I know you can't give us an exact (inaudible) or GDP, but can you give us a feel for how negative the negative scenario is?

Yes.

So its hard to put -- I'll try in the way.

Like many people in the market, we don't see any rebound in the economy at all until the fourth quarter of 2009.

And that's a calendar year basis, which basically means outside of our current fiscal year.

Because our fiscal year is August 1 to July 31st.

What we've also seen, is we have seen the early indications of new users not coming in on QuickBooks like we had hoped.

And the actual charge volume and Payments going down, and some of the currency fluctuations, so we have not built any sort of improvement there.

We have built a continuation of what we actually see happening today, into the balance of the year.

So it's really hard -- and we have also not banked on any sort of increase in Small Business formations, despite the unemployment typically being a leading indicator for new businesses starting.

We haven't built any of that in as well.

So we've tried to be conservative Laura on this one.

We've built what we think is reality into the low end of our guidance, but I think a lot of us have seen over the last six weeks, seven weeks, that it's hard to predict these things, but we have done our best to put a floor in and a ceiling in.

But just -- a quick clarification, the low end doesn't assume things get any worse in terms of QuickBook's volume getting a little worse, and Payments and Payroll getting a little worse, than what you saw over the last six weeks?

Laura, the thing I would suggest there is, as Brad mentioned in the call.

We look at each one of the business units separately, and we think the economy has very different impacts on each one.

So you might think of the scenarios for Payments and for Small Business being much more sensitive, than our financial institutions or tax business.

So when we run different scenarios by business unit and aggregate them for the total company level, we feel comfortable they fall within the guidance range we've adjusted, but, you know that reflects a much more -- higher level of sensitivity in the Small Business category, than it would in Consumer Tax or financial institutions.

Laura, it's Brad.

I'll finish up object what Neal said by saying, we have assumed that it can get worse.

So as we've looked at QuickBooks and we've looked at credit card transaction volume per merchant, we haven't just taken today and straight-lined.

We have actually looked what it we think could be a bottom end scenario for us and a top end scenario.

Okay, thats helpful.

Could you talk a little bit -- given the difficulty retailers are having, whether or not you take more of the QuickBooks, or actually Tax for that matter on consignment, and if that's been factored into cash flow at all.

Or is that not something you expect?

You know Laura, that's something we're certainly open to.

And as we have on a case by case basis, seen issues with retailers not taking in as much inventory early in the season.

That is something we are open to.

I would tell you we have not seen significant moves in that direction so far in the season.

Final question from me.

Brad, can you talk about thoughts and acquisitions?

Are they likely to be quite small, or would you be more opportunistic than that?

And just give us the general loose guidelines on what you're thinking on the acquisition side.

Yes, I would say, Laura, that as a part of our strategy in each of the businesses, we are very clear what we see as opportunities to accelerate growth.

And we have always had options in place to build, buy, or partner to accelerate the execution on that growth strategy.

Typically, as we looked back the last 10 years of acquisitions, we know that talent and technology acquisitions, where services and products that can be sold into our existing base of Small Business and consumers are the ones that we have a good track record of executing well.

And so, I would typically look at those types of acquisitions as being the type of acquisitions we would capitalize on.

We obviously know what spaces we want to move into in Small Business for example.

And so now it comes down to if there's an opportunity in the market that is priced right.

And there is a good fit between our company and their's, we will capitalize on it.

Are there a number of things out there you are looking at, or is this all theoretical or are there just a lot of properties out there that are interesting?

Yes, let me first start by saying-- we're not on a shopping spree.

We actually have been doing some work for the last 12 to 15 months with each of the businesses at the Company level to say, "what are the spaces that we think we could accelerate our time to market with an acquisition." So we had a list of potential players that we continue to have dialogue about and potentially had conversations with them.

And this market just provides a catalyst for some of those players to say, "hey, this is now a better time than others." I would say we are being very prudent right now.

And if it fits with our strategy, and we think it's going to accelerate our progress as we come out of the downturn, then we are going to capitalize on it.

Thanks for taking my question.

you are welcome.

Our next question comes from Gil Luria of Wedbush.

Thank you for taking my question.

One question on Payroll, and one on financial institution.

For Payroll, what percentage of your rev -- for Payments, I'm sorry, what percentage of the revenue is driven by the size of the transaction.

What percentage are you charging interchange -- is comprised of interchange -- and how big of impact has been the decreasing that ticket sizes on that?

And the second question on Financial Institutions is, what are some of the early results for Finance Works?

Have you signed up any customers?

What are some -- what is some of the early feedback?

Hey, Gil this is Neil.

On the first part we really haven't talked publicly, the composition of our Payments revenue, as to what portion comes from interchange.

As we said on the call earlier, certainly we see the decline in transaction volumes more than offset the growth in merchant volume we have seen.

But we really haven't talked about the individual component pieces.

In terms of the financial institutions, last time I looked we had 70 that had signed up for it and have been converted to Finance Works.

Do you have a more recent number Brad?

No, Gil thats right.

I would tell you the pipeline continues to come in strongly, so we are seeing really good progress.

And you asked specifically about the feedback?

We are actually helping some of these financial institutions quantify it, but they have seen an increase adoption of the services, they have offered through Finance Works, which is good news for them because it is fee revenue.

And so as a result, once we can actually capture that, we are using that as a way to help other financial institutions make the decision.

But it is having an impact on their business and we are getting good feedback.

Great, thank you.

Before we go to the next one Michael had asked a question about tax documents, and I wanted to simply follow up on that one quickly.

Our accounting professional division, APD has introduced an Intuit document e-sort.

It's basically a new system capability that allows people to take the process of scanning documents that otherwise would have been paper and labor intensive and get those easily imported to an accountant so they can get them right into the tax preparation system.

And its actually and exciting thing that will help professional tax preparers that use ProSeries or Lacerte in our accountant base.

Michael, this is Scott.

One thing I would add to that is, we find since accountants bill for their time, time is money.

And the more time we can save them, the more excited they get about our offerings.

So this is one of several efforts that is dedicated to automate and save time for accountants, and thats, boy, thats such an important buying reason for them, when you can automate getting the documents into the software.

Next question.

Thank you.

Our next question comes from Brent Thill of Citigroup.

Thanks.

Brad, you outlined a fairly agressive ramp in your QuickBooks marketing campaign (inaudible) I think you mentioned a 50%.

Can you continue that type of ramp and still preserve the overall margin improvement for the year?

I guess at what point, when do you start to dial that back a little bit, considering the results are a little below what you expected?

Yes, thanks, Brent.

First of all, the macro answer to the question is yes, we could sustain that ramp of investment and still deliver the margins.

However, I would say that one of the benefits at Intuit,is we have a very strong marketing organization and one of the things they've already done, is they have quick reads on what part of the advertising mix is working well, and what parts they would actually shift resources from into the higher ROI areas.

The second thing I would say, there's always opportunity in a downturn.

And one of the challenges that's happening is the advertising community is struggling to get advertisers to keep their commitments, which means that inventory that we may be willing to pay for in the back half of the year, may actually cost us less than what we thought it would have cost us.

So we could do one of two things -- we can either increase by keeping the level of spending the same and get more advertising dollar bang for the buck.

Or we could actually cut back a little bit, and maintain the current advertising levels, and have a little bit of savings at the same time.

So we are playing this thing in sort of a no huddle fashion, which is we are seeing which is producing the best results.

And we are also keeping our powder dry, so we can shift it and take advantage of mark opportunities.

Okay.

And just to follow up on QuickBooks, you are number three in the most popular in Amazon's software list, so obviously ranking pretty high.

What -- has there been a surprise on any of the SKUs between pro or premier?

Anything else in terms of the initial QuickBooks uptake that has surprised you on the up side?

You know, I would say not so much from a mix perspective.

I would say there's two things that have been surprise.

One is we're very excited to see how willing the accountants are this year to recommend this version of the product over prior years.

It up about 40% over last year's version, which is very positive because we know many Small Businesses turn to their accountant for advice.

Also, we've heard very positive feedback on the multicurrency, the free website, as well as some of the other feature functionality.

I will tell you we also have a mea culpa.

And our mea culpa is this year we introduced some new functionality on online banking and it was really designed to drive new user adoption.

We have about 4% of existing QuickBooks users today that use the current feature functionality in on-line banking and we wanted to get more, 96% of them who don't actually use it.

What we did is we changed the user interface and the good news it's easier for people who haven't used it.

The challenge, if you are used to using the old version, there's a new learning curve, and so I've heard a little bit of feedback, "gosh, I wish you would have left it the old way for me.

I was used to it." So we are working our way through that, and we took some learning to say, "Okay, next time we'll say let's make sure to bring those 4% of customers along who were already using the old version as well." I would say net-net, what you are seeing on the website of us being the third most popular software, and what's been the up side surprise, is despite the macro economy our upgrades are in line with our expectations.

And that's two-thirds of all the units in a given year that we get in QuickBooks people willing to upgrade to newest version, and we're delighted to have that kind of result given what's going on around us.

Thanks, Brad.

Our final question comes from Brendan Barnicle of Pacific Crest Securities.

Thanks so much for taking my question.

Brad, I wanted to follow up a little on your strategy around protecting EPS.

You noted could it get worse.

Is the low end EPS guidance, can that be sort of achieved and protected, even if revenues were to fall below the current low end of revenue guidance expected?

Brendan, this is Neil.

I'm not really sure I understand your question, but I'm going to take a shot at it.

I think would we've said, is that we feel very confident with our ability to allocate resources and our investments against the offerings and categories producing revenue growth we expect.

And then the earnings per share is just really kind of a result, its not something we solve for, it's kind of what happens at the end of the day.

I think what you are hearing from us, though is that we do feel a strong commitment and feel like we have the ability to keep our expense growth below our revenue growth.

So when we have looked at different scenarios and thought about things we would do, as Brad stated earlier, we feel very comfortable about our ability to keep our expense rate growing slower than revenue, which provides the operating leverage that we're looking for in the guidance.

Maybe just to follow up on that, were there any risks or significant changes in your spending patterns in the most recent quarter, or areas that are sort of obvious areas to go to if we do end up with some more dramatic slowdown in the economy?

There were no unusual items that I can think of in the first quarter, and, I think as we talked about, we're looking to the performance of each business unit and the offerings within that business unit to really determine the revenue growth, and to match up the investment level along with it.

And so as we look at the success of the demand generation advertising campaigns, as Brad mentioned, these are typically in very small pieces so we can measure very quickly, if we're getting the results and the uptake we anticipated from an investment in an offering.

And we can adjust accordingly.

So I think those are the levers we would pull, as we see how the season plays out in the second and third quarter in our segments, and we feel like we have good transparency into those.

Great.

Last, can you remind us of what the assumptions are in share count, tax rate, and interest income that's embedded in the full year EPS guidance?

The share count is on the fax sheet that we anticipated.

As I mentioned, we haven't changed that, so the basic range is $3.17 to $3.20, and fully diluted was $3.28 to $3.31.

As far as the income and expense and things like that -- yes, the tax rate is on the sheet as well.

It's 33%.

The interest income and expense is not a huge factor for us, and we don't anticipate a significant change in that.

Great.

Thanks for the help.

Okay.

Are there any other questions?

Patty, that was it?

That does conclude our question-and-answer session.

Okay, thank you.

So let me wrap up, by thanking everybody for their time this afternoon.

I want to reiterate that I feel good with our first quarter results.

I think we've been able to demonstrate is as I said earlier, some resiliency on the top line, while also managing our spending and making sure we deliver on the bottom line.

The other thing I would say is, we feel we've taken prudent actions, as we revised our guidance to do our best scenario planning on what the low end and the high end could be.

And we have reflected that in our guidance, but most importantly I want to reiterate, that the focus we have in the company right now is an offensive game plan.

We think we've taken the right actions to strategically align our resources, and our goal is to grow customers, and gain market share so that we come out of this downturn, if you want to call it at recession or a slow down, even stronger than we went in.

And I feel confident with the plan we haven place, with the team we have on the field, and with the focus of our employees.

So I will look forward to giving you an update and speaking with you soon, next time we get together.

Neil, any closing comments?

No.

Alright, take care, everybody.

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

This concludes the call.

You may all disconnect.