Now turning to the details, our recurring revenue gross margin of 69.5% was consistent with our expectations as we continue to make investments in our tax filings and our SaaS infrastructure that we've discussed in the past. The services gross margin was 5.9%, which was impacted favorably by the higher services revenues. As a reminder, Q1 also includes annual revenues related to the production of W-2s for our clients. And these do not occur in any other quarter of the year. We are maintaining our 2% to 5% gross margin guidance for 2012 as we will continue to add billable consultants due to continued sales growth.
The gross margin rate for total revenues was 55.7%. The change from 2011 was related to the expected lower recurring revenues gross margins based upon the planned headcount additions to our tax filing and SaaS infrastructure teams in the beginning of this year.
Operating expenses were $37.1 million for the quarter and were favorable to our expectations. We expect a significant portion of these expense savings to be incurred later this year.
Operating income was $6.4 million, and our operating margin was 8.2% for the quarter compared to $4.9 million and 7.6% for the same quarter last year. The excess margin over our guidance was due to the higher recurring and services revenues, coupled with slightly lower costs. Net income was $3.7 million or $0.13 per diluted share compared with $2.8 million and $0.10 per diluted share for the same quarter last year. Our non-GAAP income tax rate for the quarter was 42%.Read the rest of this transcript for free on seekingalpha.com