直覺電腦 (INTU) 2011 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 fiscal 2011 conference call.

All lines have been placed on mute to prevent any background noise.

After the speakers' remarks there will be a question-and-answer period.

(Operator Instructions) With that, I will now turn the call over to Matt Rhodes, Intuit's Director of Investor Relations.

Mr.

Rhodes?

Thanks, Patty.

Good afternoon, and welcome to Intuit's first quarter 2011 conference call.

I'm here with Brad Smith, our President and CEO; Neil Williams, our CFO; Scott Cook, our Founder; and Jerry Natoli, our VP of Finance.

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

There are a number of factors that could cause Intuit's results to differ materially from our expectations.

You can learn more about these risks in the press release we issued earlier this afternoon, our Form 10-K for fiscal 2010, and our other SEC filings.

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

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

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

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

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

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

Thank you, Matt.

And thanks to all of you for joining us this afternoon.

As you can see from the results we just released, we're off to a good start to fiscal 2011.

Our biggest quarters still lie ahead of us and the macroeconomic environment remains challenging, but we're executing well against our connected services strategy and that's driving solid financial performance.

First quarter revenue was $532 million, up 12% versus last year.

Most of the growth came from our Small Business Group which has now posted three straight quarters of double-digit revenue growth.

We also had strong performance in our Other Businesses segment with contributions from Quicken and Mint, Intuit Health and Small Business in Canada and the UK.

Our first quarter results are in line with what we anticipated and so we're reaffirming our guidance for the year.

That means we still expect fiscal year revenue growth of 8% to 11%, non-GAAP operating income growth of 11% to 14%, and non-GAAP earnings per share growth of 12% to 15%.

As you know, our earnings are highly seasonal and we typically report a loss in the first quarter of the year.

Our first quarter loss was in line with our expectation and slightly higher than prior year primarily due to the acquisitions of Medfusion and Mint.

We're also pulling marketing investments forward into the first half relative to fiscal 2010 which will have an impact on second quarter profitability as well.

These results reflect our continued focus on our three-point strategy, to, first, drive growth in our core businesses.

Second, build adjacent businesses and enter new geographies.

And, third, to accelerate Intuit's transition to connected services.

Here are some highlights to demonstrate how we're performing in each area.

First, behind driving growth in our core businesses.

We generated double-digit revenue growth in the Small Business Group in Q1 led by a strong quarter in Financial Management Solutions which grew 15% as well as Employee Management Solutions which posted 11% growth year-over-year.

The collective Small Business franchise is doing well and we've introduced several compelling new offerings into the market this year.

These include QuickBooks 2011, three new tiers of service and pricing for our QuickBooks Online offering, and several mobile applications and services.

Just one of these is GoPayment, a solution that seamlessly integrates with QuickBooks and helps small businesses process credit card payments on the go using a mobile phone.

Early reviews of QuickBooks 2011 have been very positive.

We've seen strong recommendations including those generated by the accountants that we rely on to grow the business.

And while it's still very early, we're also excited about the new QuickBooks desktop subscription bundle that is designed to keep customers on the current version of the software.

This subscription bundle enables us to deliver new value to the desktop customers while also increasing the predictable and stable revenue streams in our small business franchise.

As you can tell, this year's QuickBooks release is far more than desktop software, and we believe that ongoing transformation will make financial management solutions a strong growth business for years to come.

Shifting to our tax business, we've been talking for some time about the secular shift in the market that are driving the software and online category to grow faster than other tax preparation methods.

A proposed acquisition by one of our competitors has validated the importance of this secular shift and reinforced the strength of tax software as a value proposition versus tax stores and manual preparation.

We're going to continue to take advantage of the ongoing shift to digital tax preparation.

This is the sweet spot in the market and quite frankly it's our home field advantage.

The second part of our strategy is building adjacent businesses and entering into new geographies.

As you know, these are longer-term opportunities that we expect to add one to two points of growth over the next three years.

It's still early but we're also making progress against this second core strategy.

For example, the integration of Medfusion continues in full swing.

We now have more than three million patients on the Intuit Health portal and we have added more than one million patients since January alone.

Our global efforts also remain on track.

We had a good quarter in the UK and Canada and we're working with Nokia to deliver a small business marketing product that we've been testing in India.

And as you know, we are in the very early stages of launching the Intuit payment network.

The network is available now in QuickBooks 2011 and we expect the option to ramp up over time.

The third part of our strategy is accelerating our transition to connected services and we're continuing to build momentum in this area as well.

As we've shared, we currently generate about 60% of the revenue from connected services and our goal is to increase the mix to 75% of our revenue over the next three to five years.

We've factored the necessary investments that we need to accelerate our connected services strategy into our results as well as our guidance and our financial performance already reflects these investments.

Some proof points that demonstrate the momentum we're building in this strategic area include our QuickBooks Online subscribers growing 46% year-over-year in the first quarter.

This was the fourth straight quarter of acceleration in year-over-year growth.

Intuit Websites subscribers and revenue were both up over 60% in the quarter.

And we're working with a hardware partner, MOFI, to offer customers a complete credit card solution.

This is a best-in-class product that enables small businesses to easily process credit card payments using their Apple iPhone.

Clearly, our strategy is working.

We're proud of what we've accomplished so far in fiscal 2011.

We expect to deliver another strong year for our shareholders.

Now I would like to turn it over to Neil to talk about the financial highlights and our guidance in further detail.

Thanks, Brad.

Let's start with overall Company results.

Our financial results included revenue of $532 million, up 12%, a non-GAAP operating loss of $53 million, and a GAAP operating loss of $104 million, a non-GAAP net loss of $0.12 per share and a GAAP net loss of $0.22 per share.

The operating loss and loss per share are slightly higher than we had last year.

Expenses grew faster than revenue, primarily driven by the acquisitions of Mint.com and Medfusion and increased sales and marketing as we pulled advertising spend forward as expected.

We expect sales and marketing expense to grow a bit slower than revenue for the full year.

Turning to the business segments, total Small Business revenue grew 12% for the quarter.

In Financial Management Solutions, revenue grew 15% for the quarter driven by a favorable product mix and strong revenue performance across the board.

We saw excellent customer growth in QuickBooks Online and QuickBooks Enterprise as well as Intuit Websites.

Recurring revenue from these businesses now makes up more than one-third of this segment and drove FMS growth in the quarter.

This recurring revenue is one of the main reasons that segment revenue is growing faster than QuickBooks units.

In fact, QuickBooks units decreased year-over-year as we grew over the heavy discounting that occurred in the first quarter of last fiscal year.

We break out the growth in the QuickBooks Online and QuickBooks Enterprise customer bases on our fact sheet in addition to the QuickBooks unit figures.

This will help you understand the growing impact that financial management revenue sources beyond QuickBooks desktop have on the overall segment.

Employee Management Solutions revenue grew 11% in the first quarter led by growth in online payroll subscribers.

Total payroll customers were flat versus last year, in line with our expectations.

Payment Solutions revenue grew 7% in the first quarter with merchants up 15% and volume per merchant down 3%.

We've seen good adoption of our GoPayment mobile payment solutions and we've remained confident that the payments business is a double-digit growth opportunity longer term as the economy improves.

Our Consumer Tax Group revenue totaled $29 million in the first quarter, up $7 million from last year.

This increase occurred because more people took advantage of the filing extensions and completed their tax returns by the October 15 filing deadline.

TurboTax for 2010 will go on sale in retail stores on November 26 and the season begins in earnest in January.

We will provide tax season updates this year in the same timeframe as last year with the first update in February when we announce second quarter results.

The second update will be in mid-March and the final update will come in mid-April.

We continue to make TurboTax the easiest way for taxpayers to get the maximum possible refund.

As we discussed at investor day, our priorities are to deliver the customer benefit, create a better first use experience to drive conversion and retention, and improve average revenue per customer.

We have a great product lineup supported by aggressive marketing efforts and we look forward to another strong tax season.

Accounting Professional segment revenue grew 15% in the first quarter and we remain focused on improving Accounting's productivity and growth with our tax and accounting flagship products and new SAS-based offerings.

Financial Services revenue grew 1% in the first quarter.

Adjusted for sale of the lending business in the fourth quarter FY 2010 and a nonrecurring revenue item that impacted FY 2010 core revenue growth would have been approximately 6% year-over-year.

User growth was strong for the quarter.

Internet banking users increased by 11% and bill pay users by 19% versus Q1 last year.

As we look out to the balance of FY 2011, we expect continued strong user growth from adoption and from signing new financial institutions.

This is the primary way we offset the natural price compression in this business.

We also expect to achieve additional revenue growth from increased sales of attached services like FinanceWorks, Mobile and Imaging.

We remain focused on transforming the online banking experience for our banks' customers and are on track to hit the revenue guidance we've set for the fiscal year.

Our Other Businesses segment posted 27% revenue growth in Q1.

Canada, the UK, and Personal Finance performed ahead of expectations.

Quicken 2011 is off to a really strong start with great customer driven product improvements.

The combined Mint and Quicken team has delivered a revitalized best-in-class desktop product as evidenced by external user ratings so far.

Turning to the balance sheet, we continue to generate strong cash flows in line with our operating income and maintain a strong balance sheet.

Sound financial principles support our strategy and objectives, enabling disciplined and thoughtful investment for growth.

Over the long term, we expect double-digit organic revenue growth and we expect to grow expenses slower than revenue.

Our target is to carry $500 million to $1 billion of cash on our balance sheet net of total debt.

This cash balance could vary up or down during the year depending on seasonality and expected cash flow needs.

We always seek to deploy the cash we generate to the highest yield opportunities and we target risk-adjusted returns of 15% to 20%.

We evaluate the investment opportunities within our capital allocation framework.

We first look internally for growth investments, which would include R&D, marketing and infrastructure.

We then consider strategic acquisitions and partnerships.

Beyond that we'll return cash to shareholders, typically in the form of a share repurchase.

We repurchased $330 million worth of stock in the first quarter, and over the past five years, we've repurchased $3.3 billion worth of shares at an average price of $29 per share.

We have $1.67 billion remaining on our current share repurchase authorization.

As Brad mentioned, we are reiterating our full-year guidance.

For fiscal year 2011, we expect revenue growth of 8% to 11%, GAAP operating income growth of 14% to 18%, GAAP diluted EPS growth of 6% to 10% -- note that the GAAP EPS growth rates are seven points higher when the gain from the sale of our discontinued operations is excluded from the FY 2010 GAAP results -- non-GAAP operating income growth of 11% to 14% and non-GAAP diluted EPS growth of 12% to 15%.

While our full year guidance is unchanged, you will see movement in how our results play out by quarter.

As Brad mentioned, we've accelerated our marketing spend into the second quarter to get off to a fast start in our core businesses.

Will you also see us get closer to break even in the fourth quarter driven by growth in recurring revenue from connected services.

For the second quarter, we expect revenue of $920 million to $940 million for growth of 10% to 12%, GAAP operating income of $135 million to $155 million compared with $139 million in the year-ago quarter, GAAP diluted EPS of $0.24 to $0.28 compared with $0.35 in the year-ago quarter -- GAAP diluted EPS in the year-ago quarter included $0.10 for the gain on the sale of our Intuit Real Estate Solutions business -- non-GAAP operating income of $190 million to $210 million compared with $206 million in the year-ago quarter, and non-GAAP diluted EPS of $0.36 to $0.40 compared with $0.38 in the year-ago quarter.

With that, I'll turn the call back to Brad.

Thanks, Neil.

So we're off to a good start.

We're on track to deliver strong revenue and earnings growth for fiscal 2011.

We're executing against a strategic plan that rewards our shareholders and generates the cash that we need to make our core products better while also making the investment aggressively into new opportunities and the infrastructure required to deliver our connected services strategy.

While we're not immune to the ongoing economic challenges, we've demonstrated that we can be resilient if we remain focused and continue to deliver great value for our customers.

We remain committed to growing and delighting our 50 million customers and looking for new ways to improve their financial lives.

We also continue to benefit from the long-term ongoing shift away from bricks and mortar, paper and pencil solutions, towards more intuitive digital products that save customers time and money and help them grow.

Bottom line, we believe we can continue to grow revenue double-digits and earnings and cash flow even faster than revenue.

We see lots of headroom in these large and growing markets that we serve and as we like to say, it is all about execution from here.

We're looking forward to a good year in all of our businesses and I want to take a moment to thank all our employees in advance for their ongoing dedication and hard work.

And with that, Patty, I would like to turn it over to you to open it up for questions.

Thank you.

(Operator Instructions) Our first question comes from Adam Holt of Morgan Stanley.

Great, thank you.

Two questions about the QuickBooks business.

First, if you look at the difficult comp on a year-on-year basis on the units, obviously, you had a tough comp versus last year but the unit numbers are still sort of below where you were a couple years ago.

Is there any reason outside of just a tough comp that that number might start to be trailing off a little bit?

And then, secondly, on the pricing side, obviously, you had a good pricing quarter.

Was that primarily just getting rid of the discounts, or did you see any benefit from some of the price actions that you've taken?

Great.

Thanks for the question, Adam.

It's Brad.

Let me start with the QuickBooks units.

First and foremost I think that the biggest contributor that you see is growing over the deep discounts.

Last year we mentioned in the first half we got aggressive with discounting.

We learned after the fact that we didn't to have go as deep to still drive the kinds of results we wanted.

So we're growing over some net to zeros and some really deep discounts in retail.

The other thing you'll notice is we've shifted from having a Simple Start version in retail as well as free Simple Start version in desktop to more of an Online focus.

So you are going to see the mix of units starting to shift more to these connected services in our Financial Management Solutions business.

And the last thing I would say is, it really comes down to having a compelling offering.

This year is one of the best products we've put out in QuickBooks in year.

We've got really good early reviews from users on Amazon.

We've got really good accountant recommendations happening in the market, and I'm confident that you are going to see the long-term growth prospects of this business continue to improve.

So that's the headline on the units.

On the pricing, it's really a combination of a few things.

First and foremost it's favorable mix.

You see customers selecting our Online edition, our QuickBooks Enterprise product.

Remember, we also have our Intuit Websites as a part of this business unit.

All of those carry a higher annual selling price than buying a version of QuickBooks desktop.

So that's helping with the overall pricing.

The second thing that you see happening is we're doing a better job of helping customers find which product is right for them, so you are starting to see them buy the versions of Premier and Enterprise.

And then the last thing I would say is our QuickBooks Pro pricing, it's the one SKU we took a price increase on this year from $199 to $229.

So far it's holding in the market.

It's combination of mix, getting the right product in customers' hands, and ultimately having a price increase on our QuickBooks Pro product that so far is sticking that has helped with the pricing in the Financial Management Solutions business.

If I could just ask a quick follow-up on that Online transition, it looks like you actually saw an acceleration in the Online business this quarter, in the QuickBooks Online business.

Do you think the growth rate we saw in first quarter is sustainable or is there anything anomalous about what we saw there?

Thank you.

Yes, Adam, you're welcome.

We've seen four consecutive quarters of accelerating growth in QuickBooks Online.

While it's hard to suggest that four quarters are going to be predictive of the next however many years, we do see an ongoing shift to digital for these customers and we like the product.

The product continues to get better and stronger.

So, yes, I think you are going to continue to see strong growth in QuickBooks Online for the foreseeable future.

Great, thank you.

You're welcome.

Our next question comes from Brad Sills of Barclays Capital.

Hey, guys, just a question on Quicken and Mint.

You mentioned strength coming from those businesses.

Can you just provide a little bit more color?

Is it you think you have the right features in the 2011 release for Quicken, and on Mint is it monetization that you're seeing strength there?

Hi, Brad.

The answer is yes to both points.

We have a much better version of Quicken this year in the market.

The Mint team brought the magic of how to make a simpler UI a part of the Quicken product.

Of course, the Quicken product has more full features than Mint.

And we've had better execution in retail.

All those combined have helped drive a very strong early season for Quicken in 2011.

We're excited about the road map for Quicken as we look out over the next several years.

Mint continues to be on a tear.

We're adding subscribers at a rapid rate.

The team is adding new monetization models to monetize those customers, and, of course, we're also looking at other ways to expand the growth of Mint, looking into other countries as well as taking their Ways to Save engine and apply those to other products inside of Intuit.

So it's just having the right combination of products in the market, good leadership team, and a thoughtful strategy that's driving the growth in Quicken and Mint.

Got it.

Thanks.

And then one more, if I may.

Just on the expenses and marketing that you are pulling into the first half of year with break-even expectation in Q4 as being better, can you just explain a little bit more on where that's coming from and why the decision to accelerate it this year?

Yes, I sure can.

We've been talking about for some time that we look to play whistle-to-whistle.

Our season starts early and we want to be out there and we're not going to give up an inch in the early part of the season.

This applies particularly to our Small Business franchise as well as our Tax franchise.

And so we had planned this entire year to have advertising come out of the gates early in Q2.

Obviously, as you know, we didn't provide Q2 guidance.

We provide full-year guidance and then one quarter at a time.

So some of the assumptions that may be out there in the market were different than what we had planned.

But this is pretty much playing out the way we thought.

We wanted to make sure in Tax that we began advertising aggressive and early.

We also wanted to make sure in Small Business that were advertising and making sure we had good marketing programs in the market.

I don't know if you have seen any of the ads that are coming out now, but you are pretty much -- it's hard to flip a channel and not see a Small Business ad somewhere on the TV at this point.

Got it.

Okay, thanks, guys.

You're welcome.

Our next question comes from Peter Goldmacher of Cowen and Company.

Hey, guys.

Thanks for taking my question.

Hey, Brad, just following up on that marketing investment theme, can you talk a little bit about how you are going to spend those marketing dollars?

I've seen the TV ads on websites.

I actually can't watch a channel where I don't see them.

What are some of the other methods you are going to be using to -- how you will be spending those marketing dollars?

A big part of the selling additional products into your install base was from usability and getting people to naturally buy another product from within the product, so is that going to be an area of investment for you guys?

Thank you, Peter.

Let me first start by saying that the way we grow our franchise is by building compelling products that are so easy to use that customers tell friends and family to use it.

That's still 80% of our sales.

We've put a lot of that energy into the products we've put into the market, and we're excited to see very positive user reviews and accountant recommendations on the products across the line.

That really is going drive the core of our business.

But the other things that we have to do in addition to that is to make sure that if you're in the product and you want to find an additional solution we make in-product discovery easier.

We've built that into the product as well and will continue to make enhancements throughout the year.

Then we have overlay programs.

Whether it's online marketing through search engine marketing and search engine optimization, or it is TV, radio, and print, which are programs that you are currently referencing and I mentioned a few minutes ago that you can see on some of the major channels.

And so really it's a combination of those things that drive our marketing programs in the market.

We've already put the product in the market.

We think they're compelling.

We're seeing good recommendations in referrals.

And now this sales and marketing expense you see is more of the overlay program, it's our Web marketing as well as our radio, our TV and our print ads.

Okay, great, thank you.

Thank you, Peter.

Our next question comes from Gil Luria of Wedbush Securities.

Hi, this is actually Nick Setyan for Gil.

What kind of early traction are you seeing with the Intuit payments network now that is available on QuickBooks 2011?

And is it also available on Intuit Online?

Thanks.

Yes, thanks, Nick.

It's still very early days.

We've got some leading indicators that let us know if the conversion rate, the quick-throughs and the usage are looking positive, and the answer is, yes, they are.

In terms of having material revenue or an impact we're going to have to continue to look at how the results happen in the market and refine our value proposition, but so far we like what we see.

But I wouldn't look for anything that is material for some time.

We're going to have to continue to play this out in the market.

The second part of your question, today it is not available in the QuickBooks Online edition, but we do have that as part of our ongoing road map if we continue to see success in the desktop product.

Great, thank you.

Thank you.

Our next question comes from Jim MacDonald of First Analysis Corp.

Yes, thanks, guys.

Two questions.

First, going back on QuickBooks, your retail share went down a little.

Maybe you could comment on that.

Secondly, for the Employee Service business, could you discuss a little more how you're able to grow revenue so much faster than units there and how that's playing out?

Thanks.

Hi, Jim.

On the first piece on retail share, it's a combination of two things.

First and foremost, as we mentioned earlier, we're growing over some pretty aggressive in-store discounting and promotions we had last year.

So comparing ourselves to ourselves, that's one of the things we're growing over.

The second, quite honestly, is we've got a competitor out there who is borrowing our last year playbook, which as we told you half way through the year, we decided wasn't giving us the returns that we wanted, so we actually abandoned that.

But they seem to be using that playbook themselves, and so they're getting a little bit of in-store shift right now to them and, quite frankly, I hope they have better results than we did.

So that's what's happening with the share-to-share comparison right now in the short term.

I still like our position and I like our share and I like our game plan for the balance of the year.

The second question was in our payroll business, or our Employee Management Solutions.

Specifically you wanted to know if our growth rates, what was driving them.

It's a combination of our online payroll product continues to grow at a very fast rate.

We're having tremendous success in having brought PayCycle into the business.

We're able to bring our marketing muscle behind that and we continue to add customers at a strong clip.

I also have to tell you that our retention rate in our desktop product remain at best-in-class levels and they are holding firm even in a tough downturn.

When you look at customer growth and our average revenue per customer and compare it to the competitors we're actually outperforming the industry.

So it's strong online payroll performance, really good service that's driving good retention, and we're holding good, strong revenue per customer numbers, and that's what's driving the growth.

Thanks a lot.

Thank you, Jim.

Our next question comes from Heather Bellini of ISI Group.

Hi, good afternoon, gentlemen.

I was just wondering if you could walk us through, and I apologize, there's a lot of calls going on tonight so you might have commented on this a little, but in particular in your QuickBooks business, your existing customers, you've talked a lot about how we're not seeing cannibalization of people who are migrating to Online from your box products.

I'm just wondering if you could give us what you are seeing with your traditional box product users.

Have they changed their upgrade patterns?

And kind of how should we think about that number, the units that you're selling in that business as the economy starts to gradually improve?

Thanks, Heather.

The short answer is we haven't seen a shift in our current upgraders or new users.

We typically get about two-thirds of our users, as you know, from upgraders and another third from new customers to the franchise on QuickBooks.

We're very early in the game here.

We're only weeks into the year.

But so far the patterns haven't played out any differently for upgraders and new users.

What we're seeing in the Online is basically new people to the franchise and people that are new to accounting software in general.

We're expanding the category with the Online edition and it's helping us grow our franchise overall.

And I guess, Brad, I just add follow-up on that then.

In terms of the box product users, because I guess they typically have refresh kind of every three years.

For that base of people since they're not migrating to Online, what do you see in the behavior of their upgrade patterns?

Thanks for further clarification, Heather.

So far we haven't seen any change.

You have got new platforms out there.

You have Windows 7 in the marketplace, you've got customers who have payroll and payment services and, of course, they need to be on the last three years to continue to have those services.

Then we have a pretty compelling product in the market this year.

We have added some new features that are getting very good reviews from accountants and other small businesses, things that are driving customers to want to go to the upgrade.

So far our upgrade patterns are on target but we still have a lot of year to play out.

Great, thank you.

Thank you.

Our next question comes from Kash Rangan of Merrill Lynch.

Kash?

Please check your mute button, sir.

Okay, let's move to the next.

Thank you.

Sarah Friar of Goldman Sachs, your line is open.

Great.

Thanks very much for taking my question, folks.

Brad, you alluded to the little in your prepared remarks about the H&R Block acquisition of TaxACT.

TaxACT traditionally has been, I would say, a bit more of a price aggressor.

Do you expect to see pricing maybe stabilize, get a little more rational with that?

Then also, all this noise on the discontinuation of refund loans, I would think that would start to make you look even more competitive against an H&R Block who has typically used that as a way to get people into the stores.

How do you think about those two competitive changes?

Thanks, Sarah.

First of all, on TaxACT and H&R Block, when you come to price, they've both had free offerings in the market for years as we have.

We've been taking share for years.

We shared those numbers with you at investor day.

So it's going to be hard to go lower than free and be more aggressive than free.

If they do, we've got a pretty good formula we continue to refine which is enabling us to get customers in on our free product and then convert them to paid.

So we don't take any competition for granted but really nothing has change.

We've got two known players in the market that may be combining to one.

We know how both of them interact in the market and we know how we stack up, and so we'll continue to just stay on our toes and continue to take share.

In terms of refund anticipation loans, as you know, Sarah, we don't have that product.

We walked out of that market about six years ago.

And in the meantime, we like the fact in that in the digital tax prep category that category is growing just because that's the way the demographics are shifting in our favor.

People prefer to do taxes on their own.

One of the things that tax stores have always held on to is these refund anticipation loans as way to try to get you into their store and get a refund much faster.

I think it's going to be a challenge for them if now that availability is drying up.

I think that's just another chink in the armor that tax stores are going to have to deal with.

But with or without RALs, the facts have been the same.

For the last half dozen years, digital tax category has been growing at 6% to 8%.

Tax stores have been flat.

Now you take the RAL out and we'll just have to see if that accelerates their decline even faster.

Is that anything behind your thinking to kind of accelerate the marketing spend, either the tax back deal or just some other RAL stuff going away, or is that just a plan that you had anyways?

Sarah, we've learned a lot over the years that we don't want to let anybody get into the game and score a couple buckets on us before we come back down the court.

I would tell you that's certainly factored into it, but we've always committed ourselves to playing whistle-to-whistle.

So, yes, we don't want to give up an inch and we're not going to give up an inch.

Great, okay, appreciate the perspective.

Our next question comes from Bryan Keane of Credit Suisse.

Hi, guys.

Just want to clarify the fact sheet.

The QuickBooks units of 281,000 does that include the new QuickBooks Online users in the quarter?

It's the net new, Bryan, so it includes the net new QuickBooks Online users which you'll see below in terms of the customer base.

Okay.

So units overall was down 20%, I guess, year-over-year.

Some of that obviously is due to the discounting.

In the fourth quarter it was down 9% so it did accelerate.

I just want to be clear.

It sounded like the competitor, is it Peachtree, came out with an aggressive free offering that they are going to be pushing?

Bryan, they ran a couple net zero ads in some retail stores.

And as we shared with you, at least our own experience, when we ran net to zero we got the kinds of lifts we wanted when we didn't go down that deep, and so that's what you're looking at in the first quarter.

Okay.

And then just on tax, obviously the taxes can be released on November 26.

Any thoughts on pricing this year?

Should we expect many changes?

As you might suspect, Bryan, given the fact that we've got these announcements in the market and what Sarah was talking about with some of the competitive changes, we'll talk about pricing as we get closer to the actual release date.

But I think if you look at our advertising and you look at our historical approach to making sure that we remain competitive but also grow the franchise we'll be on our toes.

But at this point I'd rather not talk about our pricing until we get closer to game time.

Okay.

And can you just remind what you say pricing benefited last year?

I just can't recall.

In the tax season?

There are a couple of small changes, primarily on the state side, but it wasn't a huge impact to the Consumer Tax line.

Okay, just last question for me.

I think the only acquisition left in the quarter was Medfusion.

If that's correct, I'd just be curious to know the revenue contribution of that acquisition or any other acquisitions?

We didn't break it out, but there's Medfusion and Mint both in the Other segment line and both of those were not in the same quarter a year ago.

That contributes to the growth in that segment.

Okay, thanks, guys.

All right, Bryan, thank you.

Our next question comes from Sterling Auty of JPMorgan.

Thanks.

Hi, guys.

On the tax item, you've had two quarters that I would look at as kind of above seasonal trend.

You mentioned the filing extension, but should we be reading this as just an anomaly because of the extension behavior, or is there anything that we might be able to extrapolate and read into the upcoming tax year off of what you have just done?

Yes, Sterling, it's been a trend for probably a half a dozen years that people are waiting to file taxes later and later.

We used to historically say, but, of course, they had to get them done by April 15.

Well, with this downturn in the economy and 9.6% unemployment we've seen that go past April 15 the last couple years and people are taking advantage of some of the government decisions to say, hey, we'll give you amnesty if you file it by this date.

So we have seen people pushing to extensions in the summertime and in October.

Right now what we do is we just make sure we make it easy for you to file when you're ready to file.

We do that for people who have to file extensions, which you saw our results in the first quarter here, but more importantly we also do it for people who want to start right now thinking about April 15.

So short story long, I think the headline is procrastination is the natural and benefit of having online services that make it easy to file.

The second thing is I think you've seen the economic downturn have an impact on extensions and we'll see how long that continues to perpetuate as the economy starts to stabilize.

Okay, and the one follow-up would be in the accelerated marketing spend that you described, how much of that is going to be focused at trying to give a kick in the butt to the Small Business part of the overall revenue?

Yes, I kind of like our kick-in-the-butt results already.

We're growing that business double digits for three-quarters in a row.

The fact that we're bringing new customers into the franchise and our online offerings are exciting.

But I'll tell you what we're learning, our biggest competitor remains inertia and non-consumption.

We still have 40% of small businesses running their business in a shoebox or in an Excel spreadsheet.

Right now they are painfully aware that things aren't good with this downturn, and so they're starting to think about solutions.

And so our advertising campaign is to basically help them understand that there are good solutions in the market, and if we can create that awareness while they're feeling the pain we hope to grow the category and grow our share.

And that's really what's behind the advertising right now is to build the awareness of the fact there are better alternatives than shoeboxes and spreadsheets.

All right, great, thank you.

Great, thank you.

Our next question comes from Ross MacMillan of Jefferies.

Thanks.

A lot of mine have been answered already, but maybe just one on actually the Other segment.

Obviously, that business has got some inorganic contribution.

I think you're still seeing some benefit of the Microsoft Money transition to Quicken and Mint customers.

Is there any way you could frame kind of how we should think about the growth of Other?

It's clearly going to decelerate given your full-year guidance and where we started the year.

But is this -- should we think about the Other category as being kind of higher growth on a go-forward basis than it has been historically in the last two to three years?

Thanks.

Yes, thank you, Ross.

First of all, on the Personal Financial Management segment that you mentioned, which is a part of the Other category, we are still benefiting from the tail end of that Microsoft Money conversion.

So there's no doubt that that factors into some of the Quicken results.

But I also believe if you get the chance to go out and look at the product reviews you are going to see we have a very compelling offering out there for Quicken desktop right now for people who may have been using older versions and want to buy the new version.

And Mint continues to grow as well.

That's just bringing new people in.

There is some real structural strength in the business that we have, but we're also still benefiting from the fact there aren't a lot of alternatives now with Microsoft Money choosing to get out of the desktop business.

So that certainly is a piece of it.

If you go to the second piece, the global business, we have a franchise in Canada and the UK that has been taking share in the last 12 months the likes of which we haven't seen for ten years.

We've got stronger products in both markets.

We have more complete small business ecosystem solutions like payroll and payments moving into those markets.

So we have good organic growth happening in that portion of the Other category.

The last piece is our Intuit Health business in Medfusion.

Medfusion is growing very nicely.

Only 10% of doctors today have adopted a patient portal, and with this meaningful use legislation out there and the ability to get access to funds more and more are adopting.

We've got good year-over-year growth happening there.

Ultimately over time those three factors, a stronger financial management product, good small business ecosystem in Canada and the UK, and as we move into other markets, and then ultimately the healthcare stuff is what's driving that growth.

But you are right, we have a couple acquisitions in there that are driving a portion at 27% but the large majority of that growth is organic results.

That's helpful.

Maybe just one other last one.

Just to go back on TaxACT.

Is your working assumption in line with H&R Block's comments that really this year TaxCut and TaxACT will be run as autonomous business units so the reality is there's very little change in the market?

Is that your working assumption?

Thanks.

Ross, it's certainly what they talked about publicly, and that's one of the scenarios that we've planned on.

But, as you might suspect, we also plan on alternative scenarios.

What if something changes in that thinking, what if there is a second request with HSR.

Just a whole bunch of combinations.

And we've got a playbook for whichever one plays out.

But I think most importantly is we like the playbook that we have right now.

We've got a good product moving into market, we've got a very aggressive marketing and advertising campaign.

We've got a team that continues to learn every day and adjust.

So regardless of however they choose to bring those businesses together, if it is approved and becomes a completed acquisition, I think we've got a set of alternatives in front of us that we'll be ready to move with.

Great, thank you.

Okay, thank you.

Our next question comes from Michael Millman of Millman Research Associates.

Thank you.

I guess, just following up on the last and then some others, it would seem very likely that Block will substantially increase the TaxACT marketing.

I'm not sure if your marketing anticipates that or if you're prepared to move with that flow.

But also, when you look back about five years ago, and compare with today, it looks like DIY and Preparer have had about the same ratio.

So that doesn't suggest necessarily that the market is growing, and I think we're down to 12 million DIY in the last year.

So maybe you can talk about where you see that growth.

Then on TurboTax, could you give us -- remind us total retention but particularly first-year retention and second-year retention?

Thank you on the tax.

Okay, thanks, Michael.

Let me start with TaxACT and H&R Block's suggestion they're going to aggressively market.

Again, we'll have to wait and see how it all plays out but I can tell you what I hope for.

I hope they do, because we have prior experiences with different competitors who have moved into the market and they've upped the advertising campaigns, and they've basically created increased awareness that do-it-yourself solutions are great solutions.

Then it comes down to who has the easiest, the best product, and the best execution.

So if they do come in with a deep war chest of advertising dollars and they get to talking about digital services online, we'll be out there as well.

And I like that, I like that a lot because it will grow the category and then we'll have to just rely on ourselves to out execute and take a bigger share of that category.

In terms of DIY, I'm not sure what numbers you are looking at but what we're referencing are the IRS published numbers that come out at the end of every tax season.

You have got to remember in DIY there's two components.

There is the software category which includes desktop, and online, then there's manual.

There's no question manual has been decreasing.

It's down to 11 million or 12 million people now.

But if you also look tax stores, tax stores as reported by those numbers, have been flat for many, many years and have managed to get 1% or 2% increases in some years but pretty much, pretty close to zero.

It's been the CPAs, which are the paid preparers, the accountants that have actually been growing on that side.

So manual has been declining in the DIY category.

The software category has been growing 6% to 8% compounded annually.

When you get into the prepared returns, the CPAs have been growing and the tax stores have been roughly flat.

We've been taking share from the tax stores in the last few years and I believe you are going to continue to see that happen.

Your last question was on --

Retention.

TurboTax retention.

Have we talked about TurboTax retention?

We have not talked about breaking out first year from the average year, so we are not going to do that now.

Yes, so, Michael, we haven't talked about those numbers outside and so ultimately we'll leave it with what we've shared so far.

Is it fair to assume that your first-year retention is lower than your average retention?

Oh, yes, we have talked about across the Company that we see an opportunity to improve our first-use experience across all of our products and that our first year retention tends to be lower than second.

But this year at investor day Dan Mauer, who leads the Consumer Group, did talk about the fact that we have improved our retention in TurboTax year-over-year, and it's been the first time in awhile that we've been able to get that kind of a meaningful improvement.

So I like the things the team is focused on right now.

I think we're going continue to chip away at that.

Can you just remind us what that retention number was last year?

It wasn't -- we didn't give the actual percentage.

We gave a year-over-year or points improvement, and I can't remember off the top of my head.

I know it was in the DAC when we gave the summary page.

We'll have to go back and see.

Thank you.

I hope my memory is correct.

If it not, then you'll have to call me and tell me that I told a fib but I didn't mean to.

No problem, we will.

All right, I know you will, buddy.

Thank you.

All right.

Thanks, Mike.

Our next question comes from Scott Schneeberger of Oppenheimer.

Thanks.

Brad, just curious on the comment you made on Hart-Scott-Rodino with regard to TaxACT.

Is that a consideration?

Has the government contacted you?

How would you do things differently if that didn't progress and had you looked at TaxACT as well before H&R Block who made that acquisition?

Yes, so, Scott, to answer the first part of your question on HSR, we're simply participating when asked.

We have been contacted.

We're simply providing facts as we see them and ultimately it will have to be sorted out by the DOJ in terms of what they ultimately decide.

In terms of have we looked at the marketplace and TaxACT in the past?

Obviously, we spend a lot of time understanding the market and understanding the competition and also understanding how we think we can best grow the category and then grow our share.

So over the years we've been aware of all those alternatives, and basically where we've landed is we think we have a game plan to continue to grow the category and grow the franchise.

You can see how our strategy has played out and we'll have to see how H&R Block's plays out with this particular announcement.

And, Scott, this is Scott Cook.

The comment on HSR and a second request is just a comment on what standard practice is in acquisition, proposed acquisitions of this type.

We have no special knowledge.

It's just standard practice for there to be an HSR investigation by the government and the possibility of a second request.

Thanks, both.

With regard to having an RT product this year are you in good shape, will it continue to be the provider you had last year or have you diversified?

Just curious if you are in good standing there?

Yes, Scott, this is Neil.

We're in good shape for this tax season.

We've got the products customers are going to be looking for on the RT side.

Excellent.

And then just one more quick clarification.

I'm sorry, Neil, if you have mentioned it.

In the Financial Services, the nonrecurring item, if you just -- what that was in size and just anything we need to know additionally on that?

Yes, we had a contract last year, Scott, that had some minimum requirements, in their minimum sales requirements from the financial institution.

I think it's about a point for the full year on the IFS revenue.

Great, thanks, I appreciate it.

Our next question comes from Brad Zelnick of Macquarie.

Brad?

Please check your mute button, Mr.

Zelnick.

Please lift your handset.

We'll move on.

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

Great, thanks so much, guys.

I wanted to just touch base on the payment solutions portion.

If you made comments on it I apologize.

There's a lot going on tonight.

But I wanted to check there.

Still down in year-over-year volume, still down 3%.

Modest sequential improvement at 297 in terms of number of customers, which is a little bit less than it was sort of a year ago sequentially.

What are the factors that are going in there that may help to turn that business around?

Just the macro economy?

Yes, Brendan, it's Brad.

First and foremost we like the fact we're continuing to grow our new merchants double digits.

It's up 15% year-over-year, first quarter this year versus first quarter last year.

You do note that the sequential merchants did slow down a little bit.

That's because we have been working with a third party independent sales organization that was bringing merchants in.

Ultimately, when we looked at the quality of those merchants, we decided they didn't fit the profile of the kinds of customers we wanted to serve and so we've discontinued that particular partnership.

But still, despite that discontinuation the new merchants were up 15% year-over-year.

The second part is absolutely on target which is the volume per merchant we're seeing right now down 3% year-over-year.

Let me put that into context.

Our total charge volume is up 11%.

And that's pretty much consistent with what you hear with other credit card companies.

But what you see in terms of our revenue result is we chose not to pass through a price increase until October of this year, even though the interchange fees went up in the spring of last year and that cost us about four points of revenue.

We simply did not want to pass along a price increase when small businesses were hurting.

And now that we're starting to see a little more of a stabilization in the market we have announced that price increase in October.

So we have really good merchant growth happening, as charge volume continues to improve we're going to see tail ind in this business and we'll see it continue to go into double-digit revenue growth ranges like it has been in the past.

So we should see acceleration in the remainder of the year between the change in the partnership and the change in pricing?

Well, we're going to continue to grow the merchants, and we're hopeful that as the economy stabilizes you will see the improvements on the charge volume and ultimately that will drive double-digit revenue growth.

Okay, great.

Neil, just on the Other income, the decline of $7 million was a little more than we had been modeling.

Is that about what we should be expecting on a quarterly basis through the remainder of the year, or is there anything exceptional in Q1?

This is Jerry.

There's a little bit of an exceptional thing in there.

In Q1, there is a gain from executive deferred comp that's popping it up just a bit and that really moves with the market.

It's offset by an increase in OpEx so it's neutral to the income line, but Other income is up just a bit from what you might have modeled.

So should we be modeling back at more of a loss of $10 million a quarter like we saw back last year?

Yes.

Okay.

And then lastly, I think I heard you guys say this that given the pull forward in the sales and marketing that we should see Q4 be break-even, is that right?

We said that would you see it start to approach break-even, we'll have to see as the seasonality plays out.

If all the [counterization] things that we see play out the way we have planned, but we're certainly narrowing that gap as we get a larger percentage of our revenue from connected services.

Terrific, thanks so much for the clarity.

Thank you.

Our final question comes from Justin [Fervey] of William Blair & Company.

Great, thanks, guys, for sneaking me in.

This is Justin in for Laura.

Just a couple questions.

First, Brad, you alluded to it a little bit in your opening remarks about obviously still a challenging environment, but I guess as you went through the quarter did you see any changes in terms of the small business environment, anything that was ahead of expectations or below or just any update there would be helpful?

Okay, Justin, it's still a mixed bag.

Obviously, we're seeing some strong results in our Small Business franchise, but if I look past that at some of the key indicators, charge volume is still off on a charge volume per merchant basis, down 3%, which we talked about a few minutes ago on our payments business.

The other is a small business employment index that we use.

We have seen a slight up tick.

It's now an annualized employment increase of about 2.7%.

It had been down closer to the high 1.8% to 2.1% so it's improving somewhat, but 2.7% employment increase isn't going to get anybody out of the recession any time soon.

So it's a mixed bag, and what we're going to have to do is just continue to execute well and make sure that we understand that our products are needed most when the economy is tough.

And if we can get out there and help small businesses through these tough times then we're going do fine.

Okay, great.

And then one last one, if I may, in terms of the acquisition market.

Just curious what you're seeing in terms of pricing out there?

And I guess would you guys be interested in really only small tuck-ins, or are larger acquisitions, as well, a potential for Intuit?

Yes.

We typically look for acquisitions that bring us technology or talent that will help us accelerate our core businesses or accelerate our strategy into new markets.

In terms of the size, you can look at our last three transactions.

They've but in the $150 million to $200 million range.

That's not to say we wouldn't look at acquisitions that may be large if we thought they strategically made sense.

But we tend to go for those kinds of transactions because we find them easy to integrate, and they basically become rocket fuel to help us power up our core businesses.

Okay, great.

Thanks very much.

I appreciate it.

Thank you.

Gentlemen, I'm not showing any further questions.

Would you like to proceed with any additional remarks?

I simply want to thank everybody for your questions today.

Appreciate -- I know it's a very busy day today in terms of all the different earnings calls, so I appreciate your time and attention, and we're looking forward to seeing you soon.

Take care, everybody.

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

This concludes the call.

You may all disconnect.