直覺電腦 (INTU) 2010 Q1 法說會逐字稿

Good afternoon, my name is Patty, and I'll be your conference facilitator.

At this time I would like to welcome everyone to the Intuit First Quarter 2010 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'll now turn the call over to Jerry Natoli, Intuit's Vice President of Finance and Treasurer.

Mr.

Natoli?

Thanks, Patty.

Good afternoon, and welcome to Intuit's First Quarter 2010 conference call.

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

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 2009 and our other SEC filings.

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

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

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

We've reconciled the comparable GAAP and non-GAAP number 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'll turn the call over to Brad Smith.

Thanks, Jerry.

Thanks everybody out there for joining us.

It's been a busy start to our fiscal year.

Let me share a couple highlights.

In our first fiscal quarter, we delivered solid growth in our core businesses.

In particular, we're pleased with the strong double digit growth in both QuickBooks units and payments merchants.

We're also pleased with the continuing acceleration of revenue growth in our Financial Institutions Business.

In addition, our progress in successfully integrating PayCycle is on track and we completed the acquisition of Mint.com in early November.

These two acquisitions are great examples of our committment to our connected services strategy.

We're both building and acquiring great talent, technology, and products that extend our leadership position in the online space.

As I said, it's been a busy start to the year, but the good news is, all of that activity is translating into solid financial performance.

Today, we announced first quarter revenue of $493 million, which is at the top end of our guidance range.

Our results per share and our operating loss were both much better than the range that we had originally guided.

Now while this was due in part to a shift in marketing expenses from Q1 to Q2, we clearly performed well in the first quarter.

Our Q1 performance enables us to absorb the impact of the Mint acquisition without adjusting our guidance for the full year.

We still expect fiscal year revenue growth of 4% to 8%, operating income growth of 6% to 10%, and free cash flow growth of over 15%.

Said another way, we're on track to deliver another good year for Intuit.

Now this is in spite of the economy.

I'm often asked whether we're seeing signs of an upturn, and while we do believe that we've seen the bottom, we haven't seen any sustained positive trends in consumer spending or new business formations to suggest a rapid recovery.

More positive indicators may come during calendar year 2010, but I don't expect them to materially affect our results this fiscal year.

Now with that said, we do expect to deliver improved operating results without the benefit of a rebound in the economy, and we continue to make the necessary decisions and the investments to position us for accelerated growth when the economy does improve.

I'll talk more about this later, but first let me turn it over to Neil to share the highlights of our first quarter financial results.

Thanks, Brad.

Let's start with overall Company results.

Our financial results included revenue of $493 million, up 2% and at the top end of our guidance range.

A non-GAAP operating loss of $39 million, $21 million better than the top end of our guidance range.

A non-GAAP net loss of $0.10 per share which was $0.05 better than the top end of our guidance range, and a GAAP net loss of $0.21 per share, $0.03 better than the top end of our guidance range.

In addition to the shift in marketing expenses that Brad mentioned, our continued diligence on spending and resource allocation contributed to the better than expected results this quarter.

The operating loss is slightly larger than we had last year, but it's important to note that last year's Q1 results included an unusual $17 million benefit from compensation-related items.

Adjusting for that item, the Q1 operating loss is $7 million less than it was last year.

In our Small Business Group, we continue to play offense growing customers in all of our small business divisions.

The economic environment remains similar to the past few quarters.

Payments charge volume per merchant was down 8% year-over-year.

This is slightly better than last quarter and leads us to believe consumer spending is becoming more stable.

Total Small Business Group revenue in the first quarter was flat with the year ago.

In our Financial Management Solutions segment, all QuickBooks units grew a strong 15%.

Revenue declined 7%, about three points of which was driven by increased use of consignment in our retail channel, and four points of which was driven by heavier promotion of QuickBooks 2009 than we had last year.

We learned a lot last year about how best to balance our promotions for QuickBooks and expect to allocate our promotional dollars differently for QuickBooks 2010.

Our Employee Management Solutions revenue was up 9%.

The PayCycle integration continues to go smoothly, contributing to strong revenue growth, and we continue to see strong retention of our existing payroll customers.

Payment Solutions revenue was up 4%, driven by strong growth in our customer base, which was up 12% in Q1.

As I mentioned earlier, charge volume per merchant was down 8% in the quarter.

Our Consumer Tax Group had revenue of $22 million in the first quarter, up $8 million from last year.

This increase is driven by more people filing extensions and then completing their tax returns by the October 15th filing deadline than in the prior year.

And including E-file in our desktop product, resulted in revenue from tax year 2008 being deferred into the first quarter of our fiscal 2009.

Our final unit share was up three points.

We estimate the total number of returns filed with the IRS that were down versus last year despite the strong finish.

Turbo Tax for 2009 will go on sale in retail stores on November 27th and the season begins in earnest in January.

We'll 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 and the final update will come in mid-April.

We have confidence in our offerings for this season as we continue to focus on making Turbo Tax the easiest way for tax payers to get the biggest refund possible.

You'll see customer driven improvements, new marketing and advertising, and a continued focus on winning.

As we've mentioned, we expect the total number of individual tax returns filed with the IRS for tax year 2009 to be slightly down again this year.

The Financial Institutions Division continues to gain momentum with 7% revenue growth and strong user growth.

Internet banking users were up 4% in Q1 and bill pay users were up 18%.

Our sales activity remains productive.

This quarter we signed a large regional bank that will become one of our largest customers when we convert them to our platform in 2010.

Our Other Businesses segment posted a 5% revenue decline in Q1 driven by a later Quicken launch than we had last year.

We expect to generate strong cash flows in line with our operating income and to maintain a strong balance sheet.

We continue to evaluate internal and external investments against a risk adjusted return of 15% to 20% over our five year horizon.

Our priorities are to invest cash into internal growth opportunities, infrastructure that enables growth, and strategic acquisitions and partnerships.

We also expect to continue to repurchase Intuit's securities in the market.

In the First Quarter we repurchased $300 million of Intuit stock, which used the remaining funds from our prior repurchase program.

The Board has approved a new repurchase program of $600 million.

Over the past seven years, we've returned over $5 billion to shareholders in the form of share repurchases.

As Fred mentioned, we are reiterating our full year guidance inclusive of the Mint acquisition.

For fiscal year 2010, we expect revenue of $3.3 billion to $3.43 billion or growth of 4% to 8%.

Non-GAAP operating income of $985 million to $1.025 billion, or growth of 6% to 10%, non-GAAP diluted EPS of $1.89 to $1.96 for growth of 4% to 8%.

As you may recall in FY09, both our GAAP an non-GAAP EPS benefited from certain tax items.

Adjusting for those items, FY10 non-GAAP EPS growth would be 8% to 12%.

GAAP operating income of $785 million to $825 million or growth of 15% to 21% and GAAP diluted EPS of $1.49 to $1.56 or growth of 10% to 16%.

From the second quarter, we expect revenue of $800 million to $835 million or growth of 1% to 6%.

This year we're expecting a $9 million shift in Accounting Professionals revenue from the second quarter to later in the year.

Non-GAAP operating income of $160 million to $175 million compared with $172 million in the year ago quarter, non-GAAP diluted EPS of $0.29 to $0.32 compared with $0.34 in the year ago quarter, GAAP operating income of $94 million to $109 million compared with $109 million in the year ago quarter and GAAP diluted EPS of $0.15 to $0.18 compared with $0.26 in the year ago quarter.

The year-over-year growth in revenue and earnings in Q2 is smaller than it would otherwise be because of the $9 million shift in Accounting Professionals revenue I just mentioned.

That revenue would have passed directly to operating income.

In addition, the operating expenses for PayCycle and Net are in the expense figures this quarter.

And with that I'll turn the call back to Brad.

Thanks, Neil.

So clearly we're off to a good start, and we're on track to deliver solid revenue and earnings growth in Fiscal Year 2010.

Our long term mission as a Company remains unchanged.

We look to be an innovative growth Company that helps consumers and small businesses save and do more with their money, which basically means putting more money in their pockets.

We're making strong progress against our three key strategies that we shared with you on Investor Day.

First, by driving growth in our core businesses.

Second, by building adjacent businesses and entering new geographies, and third, by accelerating our transition to connected services.

Let me share a few highlights of our progress against each of these areas in the first quarter.

In our core businesses, we continued to make progress behind delivering the customer benefit of helping our end-users save and make money, and we continue to do it in a way that is easier and a better value than other alternatives they can find in the market.

We know this formula works, it leads the positive customer experiences, it increases word of mouth and that expands our categories and enables us to grow our customer basis.

In the first quarter, we drove double digit customer growth across all of our core business franchises.

We increased internet banking and bill pay users in our Financial Institutions business, and we continued to expand our share of tax filers who filed an extension after April 15th.

These trends are positive indicators of our future growth potential because we have a proven model of increasing revenue per user over time.

In building our adjacent businesses, we also have good activity occurring across the Company.

In our Small Business group, our mission to help small businesses succeed and improve their bottom line by 20% is being strengthened by our move into the front office.

We're developing solutions that help small businesses acquire new customers and to grow.

In the first quarter, we tested TV advertising behind our Homestead website services and that contributed to 45% growth in new subscribers year-over-year.

This value proposition clearly resonates for small businesses, and it opens new front doors into the Intuit franchise.

Another example of capitalizing on adjacent business opportunities is occurring in our Financial Institutions business where our new Turbo Tax Online Banking Solution recently won the best in show at Synovate, which is a banking industries innovation contest.

Through combining Turbo Tax Online and our digital insight banking platform, we've created a three-way win.

For consumers filing their taxes, we can import much of the information required, which eliminates data entry and reduces the amount of time required for them to complete their tax return and get their hands on that tax refund.

For the financial institution, this service is proven to be a highly valued offering for the customers, with the added benefit of over 90% of the tax refunds being deposited into the host financial institutions account.

And for Intuit, it leverages synergy between two of our core businesses and creates incremental sales and a real competitive advantage.

These are just a couple of examples of our focus on expanding into adjacent businesses, and we'll share more in the future.

Finally, the third element of our strategy is to accelerate our transition as a Company to connected services.

A recent example of this is our acquisition of Mint.com.

Mint reimagined the business that Quicken built 25 years ago, but instead of simply tracking and categorizing expenses, they identified ways to leverage the users' data with their permission to find savings on things like credit cards and home loans.

We plan to make Mint's innovative technology and their ways to save engine available to millions of Intuit customers over time, starting first with Quicken and Turbo Tax.

But Mint is just one example of our committment and execution behind our connected services strategy.

Whether it's Turbo Tax Online, QuickBooks Online, our online payroll services, digital insight, or the broad array of other hosted applications that we offer, we are extending our leadership position in every online category in which we compete, and you can expect us to continue to invest more of our focus and more of our resources in these areas as we move forward.

Now, look, if I sound encouraged, quite honestly it's because I am.

Despite this economic uncertainty, we're continuing to build momentum, and I like our position a lot.

Our vision is clear.

We have a clear game plan to win, we have three defined strategies to accelerate growth, and we have a motivated team of talented employees who are making it happen.

Now, before we get to your questions, I'd like to first pause and extend a special thank you to Steve Bennett for the leadership, professionalism, and operational rigor that he brought to our Company during his eight years as our CEO and the last two years as a Board member.

Steve contributed a lot to Intuit and was a wonderful mentor and a friend to me personally, and we all wish him the very best in his next chapter.

In addition to that, I'd like to mention that we've nominated David Batchelder to stand for election for the Board.

David brings extensive outside experience, and he will offer an institutional shareholder perspective on our Board.

We look forward to David joining the Board after the December shareholder meeting.

And finally, I'd like to thank our employees who have helped contribute to a good start to a new fiscal year.

We're looking forward to the rest of the year and to capitalizing on the opportunities that we see in our future.

Now with that, let me turn it over to you for your questions.

Thank you.

(Operator Instructions).

Our first question comes from Adam Holt of Morgan Stanley.

Good afternoon, thank you.

My first question is around QuickBooks.

I understand there was some pricing discounting that impacted the difference between units and total revenue this quarter.

As we look into the next couple of quarters, can you talk to us about how you're thinking about what will drive that business between units and average selling prices.

What should we think about as the mix being there?

Yes, hi, Adam, it's Brad.

We clearly saw a spike in our unit growth.

It isn't what we had anticipated for the full year.

It was driven by the fact that we were depleting the QuickBooks 2009 inventory and making room for QuickBooks 2010.

As Neil mentioned, we learned a lot about the balance between how deep we needed to go with promotional offers and what kind of unit growth we could generate.

So I think what you're going to see us continue to do is go for driving more units and category growth but doing that with a better understanding of how we can capture more price per unit.

So you're going to see the gap between units and revenue hopefully over the balance of this fiscal year start to narrow, and our ultimate goal is to continue to bring customers into the franchise because we know we can increase the revenue per user 3 X over a five year period by selling things like payroll and payments and other services, but we'll be doing that with much, hopefully, much less reliance on promotion to the balance of the fiscal year.

And if I could just ask one follow-up on the FI Group.

It sounds like you saw a nice big customer win there.

How were total signings in the quarter for FIs, and do you feel like that market has stabilized a little bit in terms of being able to sign new institutions?

Yes, Adam.

We have seen a continued healthy pipeline of sales in our sales pipeline for financial institutions.

We've also seen as we've talked in the past, that pipe lane that was already sold but we're waiting for implementations to happen, those are starting to break free.

It's not anything that I would scream as a tremendous rapid recovery, but it's starting to move forward in the right direction.

And remind us how big the backlog is at banks that have not yet been implemented?

We haven't talked specifically about that.

We've talked a couple of quarters about the fact that while our sales pipeline was healthy, there were flips from one quarter to the next as the financial institution had to get their resources aligned for the implementation, and we're starting to see them free those resources up to get this implementation started.

Terrific.

Thank you.

Okay, thank you.

Our next question comes from Jim Macdonald of First Analysis.

Good afternoon guys.

On Turbo Tax, could you talk a little bit about your strategy this year?

It looks like once again you're pushing for units at the low end especially.

Yes, Jim, our strategy this year is consistent with our prior years, and that is the biggest opportunity we have to grow Turbo Tax is to expand the share of our category by capturing more people going to tax stores and continuing to convert people who are doing with paper-and-pencil, and converting more people who come into the category for the first time.

So it's always about expanding the category and capturing our share of those users, so what you see us doing is we have a pricing strategy that begins on the low end with free, and we also continue to capture value on the high end when our value proposition is one-third cheaper than a tax store, and ultimately the goal is to grow that category, grow our share, and then ultimately drive revenue as a result.

And just as a follow-up, could you give us an update on your view of what's happening with the free file alliance and with any possible legislation on refund anticipation loans?

Yes, Jim.

On the free file alliance, the free file association and the IRS continue to have very productive conversations.

Nothing has been announced yet, but I like the momentum.

I think the whole industry and the IRS are moving in the right direction, and when something has been completed that will be announced.

In terms of the refund anticipation loans, the good news for us is, as you know, we moved out of that business somewhere four or five years ago because we didn't feel that was aligned with how we operate as a Company and the way we wanted to be working with our customers.

So while I hear the intense negotiations going on in the industry, regardless of how that plays out, that won't have enough impact on Intuit.

Thanks.

Okay, thank you.

Our next question comes from Heather Bellini of ISI Group.

Hi, can you hear me?

Yes, Heather.

Oh, great.

Thanks, Brad.

I was wondering if you could -- I know it's early with QuickBooks 2010, but I was wondering what you're seeing so far with this release versus last year and also was wondering if you could share with us any signs that things are starting to get better.

Salesforce.com made some comments on their earnings call they've seen their SMB business start to uptick a little bit, and I was just wondering if you could share any thoughts on that.

Yes, I'd be happy to, Heather.

I think first of all on QuickBooks 2010, it's still pretty early.

We've been out in market for four or five weeks.

We've got some positive indicators, positive reviews from PC Magazine and others.

If you go to Amazon.com and you read user reviews, they're positive.

If we check the sentiment in the accountant community who recommends these solutions to small businesses, it's very positive, but quite frankly, those are all words until we actually see the customers buying the product and using the product and so far, we like the early results, but there's still a lot of game left in the year, so I would tell you that we've put our best effort into this product this year.

The team is proud of it, and they have a reason to be.

The early results suggest that the customers like it, but we'll have to see if we can translate that sentiment into revenue and customer growth.

And in terms of what we're seeing in small businesses, we continue to hear the optimism and the voices of small businesses, but as I've said before, they tended to be the last ones to see the downturn and the first ones to believe we were coming out because they're resilient by nature.

And that's what I love about small business owners, but what we look for is whether or not the businesses are getting healthy and the best indicator we have is charge volumes.

Are consumers shopping in the stores and using their credit cards and are they able to continue to buy, and while we saw a slight uptick this quarter, charge volume is still down 8% year-over-year.

It was down 9% for three consecutive quarters, but I don't think that's anything at this point that I would point to say we see a sustained recovery.

So net-net, I think we've seen the bottom in our rear view mirror.

I don't see a real fast upswing, but we do see small businesses continuing to stay in there and fight it out, and we're continuing to do our best to execute and help them.

Great, thank you.

Thank you.

Our next question comes from Kash Rangan of Banc of America.

Hi, guys.

This is [James Ansoni] in for Kash Rangan.

I had a quick question on QuickBooks Online.

You mentioned at Analyst Day about increasing focus for QuickBooks Online and we see the units improved slightly sequentially.

I was wondering if you can give us some color on your activities over there, and I have one follow-up.

Yes, hi, we are continuing our effort and focus on QuickBooks online.

We have increased our engineering effort.

We've increased our marketing and promotions.

You saw some healthy growth in customers as you just pointed out year-over-year, and we're just getting started, quite frankly.

We're looking at the QuickBooks online platform as the new platform to begin to introduce a free version.

It will be a less featured product that will basically help customers send a bill or send an invoice and then as they want to unlock more functionality they move into the paid version of the product.

So net-net nothing has changed since Investor Day other than we've made more progress and execution.

We're seeing solid growth in customers and in revenue, and quite frankly, it's still early in the game and we're just getting started.

Okay, and one quick follow-up then on the Mint.com integration.

Can you give us an update on how that is progressing and which areas of the portfolio do you expect to see the first impact from Mint.com?

Yes, so we're just about a week into the game after officially closing.

I'm proud to tell you though that [Aaron Patser] and [Dan Mower], who leads our consumer group, have already worked out the plan and we've communicated internally and we've made some of the changes we need to do to get the resources aligned.

Aaron has already defined a multiyear road map and a vision of where he would like to take the Personal Financial Management business, and in terms of the first things you'll see, you'll see Mint continue to execute well in the market, you'll see Mint being more tightly aligned with Turbo Tax this year.

If you use Turbo Tax, you can access and get out to Mint to look for ways to save with your refund, and you'll see us start to take the technology we use in Mint and build it into the underpinnings of Quicken as well.

So those are the first priority we have in the coming 12 months, and even though we have a week under our belt, it feels pretty good so far.

Great.

Thanks.

Thank you.

Our next question comes from Bryan Keane of Credit Suisse.

Hi.

I saw you guys released desktop tax pricing the other week.

It looked like to me federal maybe dropped price a little, but state you raised it.

Is that accurate?

Yes, Brian, actually, on the low end of federal, which was our basic product, we dropped $5.

Everything else was basically the same year-over-year, and on the state, we did have a modest price increase.

As you know, the game going forward is not about retail.

It's about the web, and we haven't released our pricing yet on the web, neither have our other competitors, but we like where our pricing came out and where our competitors have announced their pricing in retail, but that's yesterday's news in terms of where this business is going.

Yes, and you guys have any ideas where you'll come out in online pricing yet, or we'll learn that in weeks to come?

Yes, we'll be releasing that a little bit later a little closer to game time.

We do have a point of view on where we'll come out, but we just haven't made it public yet.

And then just a question on the tax.

I notice the federal product is always a lot cheaper than the state product.

Is there any reason why that is?

Brian, I'm not sure what you're pointing to on the federal versus the state.

We have a good, better, best line up in federal -- a basic, a deluxe, a premier, and those product prices go up because we have more functionality in there and the state product is pretty standard, so I actually don't think the federal product is cheaper than state.

When you get down to the low end of the skew, you do have a lower entry level price point for federal, but by and large the state product is less expensive than the federal product across the line.

Okay, and then just turning to the small business area, how much did PayCycle contribute in revenue in the quarter?

We haven't said, Brian, publicly what the contribution is in the first quarter or for the full year.

We didn't break that out.

Okay, but I think at one point it was about $30 million annually, so we can just I guess assume it was $6 million or $7 million I guess in revenue?

Yes, pre-acquisition that was the run rate.

As we've said before, as we integrate it into our online products, it's going to be harder to decompress, but that was the historic run rate, about $30 million a year.

And so on an organic basis then, did the payroll business actually slow a little bit, or what do we expect from the payroll business on our organic basis?

Well in the first quarter, of our fiscal first quarter, is typically not one of the strongest one for the payroll business as a whole, but we're still expecting good growth in the category in terms of customers, retention of our existing customers, and the PayCycle customers will just be on top of that.

Okay, and just last question for me.

The total business revenue grew 1% year-over-year in the first quarter, and I think you guys are talking about 4%-8% for the full year.

Which areas of the business, is it QuickBooks, the payroll business, or the payments business, which areas are supposed to accelerate in order to get us into that 4%-8% range?

Thanks.

Yes, actually, Brian, we'll see an acceleration across each of those, but the payments business and the payroll business will continue to deliver the stronger growth, which we seen for several years, but we also expect to have a healthy year this year relative to last year in QuickBooks.

Okay, great.

Thanks guys.

Okay.

Your next question comes from Sarah Friar of Goldman Sachs.

Great, thanks for taking my call.

Can I ask very briefly on the marketing expense that fell out of this quarter into next quarter, can you give us a size for that, Neil?

I'm just trying to understand what the impact is to guidance next quarter, where we would be without that?

And if you could give us a little bit more color on why it's shifting around, that would be great.

Yes, Sarah, this is Brad.

Neil and I would be more than happy to tag team on this one.

It's about half of our beats in the first quarter was marketing shift and the other half was what we're going to use to absorb the dilution of the Mint acquisition.

And the reason why it shifts is because as we get into the fiscal year we have programs that may be scheduled for the late October time frame that we end up pushing over into November based upon how our performance is looking .

So we had a later launch this year with Quicken than what we had last year and also our marketing team and some of the things we're working on in our Accounting Professionals division shifted out more into the next quarter.

And it's why those calendar things depending upon when we feel like we'll have the launch of the product and how that compares to prior year it will shift between weeks, and those weeks oftentimes cross a

Okay, that's super helpful.

And then if I could just one follow-up question, which I know you tend to get asked a lot, which is the value of offering kind of a free or kind of low end price point to get people on ramped.

If I look at the revenue per incremental user in the QuickBooks area, it's still down a fair amount year-over-year.

Is there a point where we should start to see it grow again year-over-year, or I guess, how much more are you willing to keep letting that come down to keep seeding the market?

Yes, I think there's a couple offer points at play here.

First of all, that revenue per user that you see going on in QuickBooks is more reflective of the deep discounts in promotions we use this past year to continue to bring customers into the franchise when the small businesses were basically frozen in their tracks.

The economy hit hard, and people were uncertain, and the reason we do that is because we manage the business for lifetime value.

We know that we can get a customer in on QuickBooks and then over a multi-year period they upgrade to a more featured version.

They will buy payroll and payments, they will buy supplies and support plans, and that's a real financial win for us over time as well as for the small business.

So our goal will always be to continue to expand the category and get customers into the franchise, but I think you'll see as I said a little bit earlier, that we believe we can begin to rely less and lesson on heavy promotions as we head into the balance of this fiscal year.

The other thing I would tell you is we're learning that we have new ways of getting customers into our small business franchise beyond leading with accounting.

For example, this most recent promotion behind homestead, helping customers sign up at the website and eventually selling them payments or some other service we have, is another good way of getting customers into the Intuit franchise and that takes pressure off the promotional discount from QuickBooks.

Okay, so it sounds like maybe it takes a year to run through but that we should start to see some year-over-year growth again as the economy improves?

Yes.

Terrific.

Thank you.

Thank you.

Our next question comes from [Brad Zelnick] of Macquarie.

Hi, thanks for taking my questions.

Just to follow-up to Adam's question on the disconnect between the strong unit growth that you saw in QuickBooks and the 7% revenue growth decline.

When we break that down and I go to your comments for three points due to increased consignment and four points from increased promotion, there's clearly an inventory issue going into the 2010 version, but firstly on the consignment, can you give us any perspective on what are the trends in consignment been year-over-year, and what you expect them to look like going forward, and perhaps the percentage of retailers you work with that work on a consignment basis.

And then on the inventory issue, if you've moved so many units in 2009 this quarter, as we look forward to 2010, I guess the question there would be whether or not working off all that inventory would be, would have an impact and whether or not we should expect to see the typical three-year upgrade cycle and whether or not you'd expect users who just purchased 2009 to then be purchasing 2010.

Yes, Brad, this is Neil.

First of all, on the consignment issue, I think it's, we see retailers more and more looking for ways to get inventory in the store with less investment on their side.

It's much better for us to get the product on the shelves earlier on, and so for the strongest retailers, for the ones where we have the best partnerships, I think it's important for us to have the product on the shelf early on and consignment as a tool that we use to help us do that, and we do see that becoming more prevalent in some of the larger retailers.

To your second point, as we think about going forward with that, I think that's going to be more prevalent, and it's critical for us to get the products out, and I don't see us changing the three-year upgrade cycle.

It gets it in their hands quicker, it gets it installed and gives us a better opportunity to do an attach and to sell them other services faster.

So we think it's all upside for us and remember, product that didn't sell they return to us anyway, so it's better to get it off the shelf and get it in the customers hands and get the relationship going and established, so I don't really see that being a threat to the normal upgrade cycle.

Yes, I think one other point I would say is we keep in mind there's 27 million small businesses out there and we have about 4 million using QuickBooks, so we have a lot of opportunity to continue to grow customers and grow our revenue, and I think that what we're able to do with discounts is we continue the sales momentum and we cleared the way for this next version of the product.

So I don't have any concerns either on this pantry stocking of our product or impacting our upgrade cycle.

Thank you and if I could just ask one brief follow-up on the $9 million expected shift in professional tax revenue from Q2 to Q3.

Can you just give us anymore insight into why we would see that, thank you.

It's all related, Brad, to just revenue recognition and the professional community, a part of our revenue is recognized when the accountant actually uses the product and files a return, and so as we adjust the product offering and things like that for this season, the revenue is deferred and recognized when the accountant actually files returns and uses the product.

So that's when we see it shifting from Q2 into later in the year.

Thank you again.

Okay, thank you, Brad.

Our next question comes from Laura Lederman of William Blair.

Yes, thank you for taking my question and sorry for the background noise.

I'm at a conference.

I wasn't sure you talked about how much of the $0.05 expense shift into Q2 or how much of the $0.05 you beat by what's the expense shift versus how much was from better cost controls.

Yes, Laura, we said that about half of that beats in the first quarter was marketing spend shift from Q1 to Q2.

Okay, thank you.

And the other half of that beat we're going to use to absorb the dilution of Mint, so we can maintain our full year guidance.

Great, thank you.

Can you talk a little bit about QuickBooks and what the impact you think Windows 7 may have going forward?

Yes, Laura.

It's a great question.

I'll tell you, the more people we talk to in the market, the more positive buzz we hear about Windows 7.

We built nothing into our guidance for our full year plan in terms of a positive impact from Windows 7, so if we start to see any momentum in PC upgrades and Operating System upgrades, we know some times those correlate with purchases of other software, and I'm hoping for a successful Windows 7 launch because that could be good news for many of us in the industry.

And separately, the Mint product, is there tie to the [Yodely] product or is it all IP underneath that product belonging to Mint and actually now you?

Laura, the Mint product will be using our customer central application for aggregation of financial institution data, and so Mint I think had a prior relation with Yodely to provide that functionality for the Mint product that will be shifting to our application.

Okay, thank you so much.

That's the only relationship I'm familiar with right now.

Okay, thank you.

Thank you, Laura, have a good conference.

A loud one.

Our next question comes from Gil Luria of Wedbush.

Yes, thank you for taking my question.

A couple of days ago, you introduced a customer management product and I was wondering whether you could give us a couple more details on that.

What's your sweet spot in terms of small business size for that?

Is this a derivative of the product you're working on in India that's really most cell phone-oriented, and the category is very large and the penetration especially at the low end is probably pretty low.

At what point do you see this moving the needle, what year should we expect this to move the needle, and then finally, what line would this revenue go into?

Yes, thanks, Gil.

Couple of things.

First of all, it is not the same product as the one that we're testing in India.

They're two separate products.

Secondly, we've been doing quite a bit of work over several years looking at how best to help small businesses manage their customer relationships and continue to acquire new customers, and as we've learned, many small businesses we deal with have fewer than 20 employees.

They don't have sales teams.

They don't need to manage sales pipelines, so product by salesforce.com and others meet the needs of lots of customers, more up market, but the customers we're talking about don't tend to need that kind of functionality.

So what we've done is we've created a very simple, clean customer management tool that works both online as well as on a mobile phone, that enables a small business owner to get access to their contact information, their customers' profile, and also access things like Accounts Payable, Accounts Receivable, invoicing items, and basic financial data around that customer.

We'll continue to learn more in the market with the product, and we'll continue to add out functionality based upon what we learn, and in terms of its ability to impact the financials, right now it rolls up in our Financial Management Solutions group, FMS, and hopefully that plus homestead and other front office products we introduce will help accelerate the growth of that business over time.

I assume it's integrated into QuickBooks?

It is, yes.

The data flows from QuickBooks into this application, and then you can access this application any time, anywhere, whether it's through a website or through a mobile device.

Great.

Thank you.

Thank you.

Our next question comes from Scott Schneeberger of Oppenheimer.

Thanks, good afternoon.

Two questions.

First, we had a little shift of marketing spend and some timing.

Could you guys refresh us on seasonality with regard to marketing on a total Company basis, but take us a little bit lower into some of the segments, and then just a discussion of how or what venues you're using, obviously TV has been very good with homestead.

Any new changes that you seen that you'd like to highlight at this time?

Yes, Scott.

I'll probably hit it at a high level and you tell me if we answer the question sufficiently or not.

The easiest answer on how our marketing spend breaks out tends to track our revenue, so you'll see us start to ramp up more in Q2, and we'll hit our stride in Q3, which is where the peak of our business is, and then depending upon the ROI on that advertising, we will continue into Q4, but that's always contingent upon whether or not we think it's a good investment of the dollar.

So you see primarily Q2 and Q3.

Our advertising means, still this number one reason while we're able to get new customers into the category, comes from the fact that our product gets recommended by other users, so our primary focus of marketing is making sure we build great products that lead to word of mouth.

After that, we have investments in online advertising, SEO, and SEM, and we also have TV and radio advertising behind Turbo Tax and behind some of our small business products, and that basically ends up breaking out the bulk of our marketing spend.

After that you have things like direct mail, but that's primarily the way we prioritize our marketing spend today, build a great product, make sure we're winning on the web because people are looking for solutions on the web, after that TV and radio and then after that direct mail and direct marketing means.

Great.

Thanks, that's helpful, and then one more if I could.

In the area of Quicken Health Expense Tracker.

In the press release said by 2010 free access to 26 million people, I know it's a long term opportunity for the Company, but just a few things we can focus on this year to monitor progress?

Yes, we are excited that now the third plan has moved into market, Medical Mutual of Ohio has now joined Cigna, and United and as we head into December and they get into the open enrollment period, they will be imposing that product free to 26 million consumers on those plans.

What's also exciting for us so we've been able to implement a pay now button, using our small business payments application, so that consumers can go in and understand how they owe, how much their deductible is covering, and they can actually click a button and pay now, and we are able to monetize that relationship because we get transaction fees on every payment that goes out.

The exciting thing is, we've seen the consumer satisfaction is two times higher than any other alternative in the market today in terms of figuring out what they owe, and also the doctors are getting paid 18 days faster because consumers are able to figure out what's their obligation versus the plan and they're willing to pay the doctor faster so we're starting to see some early indication.

In terms of what we're putting into any outlooks, we're seeing over a three year period our hope is to get somewhere in the neighborhood of one to two points of growth out of this business opportunity over the next three years, and right now our primary focus is on making sure the customers like it and adopt it and that the doctors are excited about the fact that this is something they would recommend to their patients.

It's all about customer adoption at this point.

Great.

Thanks.

Thank you.

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

Thanks for taking my question, Brad.

We talked a little earlier about the CRM offering and what's going on in that space.

Any other adjacencies as you look at the SAS space outside of the core finance piece you've been building on nicely that would make sense to go into the next add-on things, like HR or other aspects of CRM or the marketing side or collaboration or anything along those lines?

Yes, Brendan.

We have quite a few small experiments going on now to see if we can find an important problem that we can solve well and turn it into a big business.

And our small business space, one of the primary areas of focus is helping small businesses retain customers and acquire more customers, so think of homestead websites, think of the customer relationship management tool.

We released a couple of other small web services applications that are along the same lines.

If you move into our Employee Management Solutions business, which is payroll, we've already formed a relationship with Hartford to do pay by pay workers comp, and we're also running tests with a 401 (k) services business to help you begin to offer retirement plans and other services to your employees.

And then when you start to move beyond that, you get into areas like healthcare, and that's clearly all an adjacent business for us as a Company, and last but not least, the things we're doing in the emerging market, so those are the primary spaces we're looking at now in terms of adjacent opportunities.

And then that's a great and complete answer, I'd add one element to a different kind, which is the Intuit Workplace App Center, where our Intuit partner platform is being used by a wide range of adjacent business services, and those are offered on the Intuit App Center for our business customers, so this covers a range of adjacencies, like you can maximize your outbound marketing to vertical spots, you can manage your sales leads through things called Fuel Station, also do web searches, you can book appointments online or your customers can (inaudible).

All of this is integrated into QuickBooks and is sold to QuickBook customers in a common App center, so that's another way we're working with third parties to extend and develop new adjacent solutions for our business customers.

And as you make this transition, do you start to think differently about lifetime value of customers versus how you monetize that or model that maybe more likely in the past?

Well, I think it just gives more opportunity, Brendan, to monetize the relationship and deepen the relationship going forward, the more products they use the more delighted they are, clearly the longer they stick with us.

Great.

Thanks for taking my questions.

Thank you.

Our next question comes from Michael Millman of Millman Research.

Thank you.

I guess I have a couple questions.

First, this year's guidance on revenue of 4%-8%, how much of that is organic?

So PayCycle we said, this is Jerry, Pay Cycle was about $30 million last year so if you back that out that's roughly a point.

And Mint?

We've said that that's not material to revenue.

Okay, second question is how much do you typically get from RT payments from Santa Barbara?

Yes, Michael, we don't break out that revenue number in that detail.

I guess the reason I ask is because as you well know, they are reducing their rebate, they're going to reduce their rebate to you as well?

I'm not sure I understood the question Michael.

Yes, Michael, I think the guidance that we've issued for this year includes a relationship that we have with Santa Barbara Bank & Trust, and I can tell you that we're very much looking forward jointly to a great tax season.

But do you expect RTs to generate the same amount this year as last year?

We haven't talked about the mix, the revenue for the tax business for 2010, but what I can just tell you is that all of the changes or any changes we may have anticipated are baked into the guidance that we gave for the category.

Okay, and does Batcholder come with any suggestions or maybe even demands that you can give us some clues about?

I would say that what David Batcholder and investors come with is a big belief in Intuit, a belief that lead to a pretty meaningful position in our Company over the summer, and as we continue to have meetings with them they express an interest in joining our Board, and we took a lot of thoughtful consideration and quite frankly spoke to others where they set on their Board and based upon that input we felt that his breadth of experience and their institutional shareholder perspective would be positive.

What we've heard repeatedly from David and others out there is that the way we communicate our capital allocation philosophy and the things we're solving for as a Company are in alignment philosophically with the things they believe in, so I think it will be another strong voice at the table.

In other words, he hasn't come in with any specifics, but generally is going to you expect him to be as you say another strong voice?

Is thats correct?

Yes, that's correct Michael.

Thank you.

Thank you.

Our next question comes from Sasa Zorovic of Janney

My first question is you've given us a good explanation on the earnings, but looking at the overall year, you've reiterated the guidance on the top line, and you said the title of the press release that you're beaten on revenue, so you beat the revenue the first quarter and you're keeping the guidance for the full year, then obviously you're taking a little bit down out of the second, third and fourth quarter.

Kind of -- could you explain that a little bit just in addition being a little bit conservative in light of that you're saying that the worst is in the rear view mirror?

Yes, Sasa, I guess it's a matter of perspective.

I would actually say that we've raised guidance in that we've absorbed the dilution from Mint that we had originally announced and said we would be once we got the acquisition done we would be talking about that.

I think some people out there actually factor that into their models already, so the way we look at it is we had a good solid first quarter.

Some of that will shift between quarters and some it was a beat, and in that beat we are able to offset something that otherwise would have been a dilution and continue to maintain our guidance for the year.

I'd like to say that this is -- if I have to use a sports metaphor here, we're probably a few games into the season.

We're 3 and 0 so far, but we haven't played any conference games yet.

We haven't had any real stiff competition.

There's a lot of season left, and while we're feeling pretty good and I think we've got our mojo and our momentum, I want to wait until we get a little further in the year before we know whether or not we're going to continue this progress.

But right now, I feel good with our outlook for the year, and I think that given what we did in the first quarter we've been able to offset the dilution of Mint, and I think we're well positioned for a strong Fiscal Year.

My second question would be regarding Microsoft specifically, and sort of their abandoning Money and also their accounting product.

Do you anticipate any impact for that or really for that to be minimal?

Yes, Sasa, I think it's going to be minimal.

We've been working closely with the customers of Money and the customers of small business accounting.

We've built free conversion tools that will help them convert their data over from the Microsoft product into our own, and I think over time we'll see how successful we are and how interested they are at moving over.

We certainly are out there to help them, we would love to get them into the Intuit franchise, but I don't see any material change one way or another based upon those announcements that Microsoft has put out in the market.

Finally, I would like to get a little bit more of an update on your international strategy and if you could sort of give us really more details specifically what's going on in India, any kind of timelines, product you could share with us would be great.

Sure, Sasa.

We've been over there for some time doing follow me homes with roughly a thousand small businesses and consumers.

We've narrowed down on a handful of experiments that we think have some early promise, but we'll have to get them into market and get them in a more scalable fashion to see if they turn into big businesses.

One is something called Intuit Money Manager, which helps a consumer or small business aggregate their financials from multiple banks and have one view of all of their money.

We're going to be moving into market with that over the next three to four months, and we have a couple of key partners that we're working with.

ICICI, which is one of the largest private banks over there, as well as a company called Money Control, which is an online financial portal.

Another product we've put into the market and we'll continue to move forward in beta and hopefully get it into general release is a product we have code named Jasmine, which is a mobile CRM app, and we talked a little bit about that at Investor Day.

I want to caveat these.

These are two of multiple experiments we'll continue to put into the market, and hopefully they're going to be something that turn out to be a success for the customer and a commercial success for us.

We're committed to continuing to experiment in the market, and hopefully we're going to find a winner and these happen to be the first two, and we'll be getting into market in the next three to four months.

Thank you very much.

Thank you.

The final question comes from Ross MacMillan of Jefferies & Company.

Thanks for sneaking me in.

A couple of questions on Turbo Tax if I could.

The first is, I notice you had a new business product for $110 on the retail side.

Could you just remind me, is that a brand new product, and should we expect to see a similar launch on the online at that price point?

Yes, so Ross, this is Brad.

It's not a new product, we had a version of this product last year at roughly the same price point in retail.

Basically targeted at small business owners, Schedule C filers, and it's not new, and we do have it in retail.

I don't know, we have the same thing on the web as well.

Okay, thanks for the clarification.

And then maybe just another one on Turbo Tax.

I think in your PR release you talked about how a lot of customers get access to Turbo Tax from certain financial institutions this year.

Could you give us any sense of how that's expanded relative to last year, and is it all just in the digital insight base, or is it moving beyond that?

Thanks.

Yes, Ross, it's both actually, so one piece of it is tied to the ability to integrate Turbo Tax online with our digital insight platform, and that's enabling consumers to download information from their online banking account plus import their W2 and get a lot of that data entry done for them.

With this integration, we now have this successfully integrated, and we'll be working with over 1,200 financial institutions this tax season.

And based upon our results we've seen that this creates incremental sales, so these will be incremental to Turbo Tax and incremental into Intuit.

The other thing I'll tell you is we've gotten more aggressive through our alliance channel in selling Turbo Tax to banks that aren't using digital insight, and so we'll continue to go after those opportunities as well.

And that 1,200 this year, was that fully addressed last year, or is that net new?

No, that is net new.

That was from basically a standing start.

That's all I had, thanks a lot.

Thank you, Ross.

Glad we snuck you in.

Gentlemen, that's all we have time for today.

I'll turn it back over to you for any final comments.

Great.

Listen, I want to thank everybody for your participation today and for your great questions as always.

Obviously, we feel good about our first quarter.

We realize there's a lot of season left, but we think we're well positioned to finish up strong.

We're continuing to build momentum and grow our customer bases and we're making wise investments internally as well as bringing some exciting acquisitions on board like Mint and PayCycle, and we're looking forward to another strong fiscal year.

I also want to thank the Intuit employees for their hard work.

I think all of you know this tough macroeconomic environment can be somewhat distracting, but our team has remained focused, they're executing well, and I'm looking forward to another good quarter.

So we'll speak with you next time.

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

This concludes the call.

You may all disconnect.