Intuit's CEO Discusses Q2 2012 Results - Earnings Call Transcript

Intuit (INTU)

Q2 2012 Earnings Call

February 21, 2012 4:30 pm ET


Matt Rhodes -

Brad D. Smith - Chief Executive Officer, President and Director

R. Neil Williams - Chief Financial Officer and Senior Vice President


Kash G. Rangan - BofA Merrill Lynch, Research Division

Brent Thill - UBS Investment Bank, Research Division

Jennifer A. Swanson - Morgan Stanley, Research Division

Kartik Mehta - Northcoast Research

Peter L. Goldmacher - Cowen and Company, LLC, Research Division

Scott A. Schneeberger - Oppenheimer & Co. Inc., Research Division

Gil B. Luria - Wedbush Securities Inc., Research Division

Raimo Lenschow - Barclays Capital, Research Division

Gregory Dunham - Goldman Sachs Group Inc., Research Division

Walter H. Pritchard - Citigroup Inc, Research Division

James Macdonald - First Analysis Securities Corporation, Research Division

Philip C. Rueppel - Wells Fargo Securities, LLC, Research Division

Laura Lederman - William Blair & Company L.L.C., Research Division

Brad A. Zelnick - Macquarie Research

Ross MacMillan - Jefferies & Company, Inc., Research Division

Yun S. Kim - ThinkEquity LLC, Research Division

Saket Kalia - JP Morgan Chase & Co, Research Division

Michael Millman - Millman Research Associates



Good afternoon. My name is Sayif, and I will be your conference facilitator. At this time, I would like to welcome everyone to Intuit's Second Quarter Fiscal 2012 Conference Call. [Operator Instructions] With that, I would now like to turn the call over to Mr. Matt Rhodes, Intuit's Director of Investor Relations. Mr. Rhodes, you may begin.

Matt Rhodes

Thanks, Sayif. Good afternoon, everyone, and welcome to Intuit's Second Quarter 2012 Conference Call. I'm here with Brad Smith, our President and CEO; Nate Williams, our CFO; and Scott Cook, our Founder.

Before we start, 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 2011 and our other SEC filings. All of those documents are available on the Investor Relations page of Intuit's website at 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 numbers in today's press release. Unless otherwise noted, all growth rates refer to the current period versus the comparable prior-year period. The copy of our prepared remarks and supplemental financial information will be available on our website after this call ends.

And with that, I'll turn the call over to Brad Smith.

Brad D. Smith

Thanks, Matt. Hi, everyone, thanks for joining us. We had a strong second quarter, and we continue to build momentum from the great start to the year. For the first time ever, we generated revenue of more than $1 billion in our fiscal second quarter. We grew revenue double-digit, driven by our core businesses and we grew our operating income and earnings per share faster than revenue, which is consistent with our operating principles. We remain confident in this growth trajectory as we continue to benefit from the long-term shift to Connected Services.

Each year, at this time, we recognize that you are increasingly focusing on tax. So are we. It's still early in the season, but I'm pleased with how the business is performing so far. There's still a lot of game left to play and as usual, we've got the moving parts that are reflected in our results.

Our team continues the relentless focus to deliver great products to the light TurboTax customers. Their efforts are validated by the market's reaction to this year's TurboTax product lineup, which includes PC Magazine once again naming TurboTax as Editor's Choice. This year, SnapTax mobile app is earning 5 out of 5 stars in the Apple App Store, and TurboTax for the iPad is currently ranking as the highest grossing iPad app.

In addition, our new free tax advice offering is generating positive customer feedback and is helping TurboTax customers gain confidence that their taxes are done right, and that they're getting the biggest refund that they're entitled to receive.

Stepping back to look at the early tax season results, we believe the total tax returns we filed year-to-date are up slightly versus this time last year, but they're down compared to tax year 2009. This means the trend that we've seen for the past few years is continuing. Consumers are simply waiting until later in the season to file their taxes. With that said, third-party data and the TurboTax unit data through February 18 that we shared today give us confidence that the Software category is growing and that we're performing well. This is consistent with our plans for the season and as a result, we're reiterating our full year guidance for consumer tax revenue growth of 10% to 13%.

Now while tax is top of mind, let's not lose sight of the performance in our other core businesses. Our Small Business group continues to execute well. Small Business revenue grew 9% in the quarter, and is up 11% for the first half of fiscal 2012. We're on track to achieve our Small Business revenue guidance of 10% to 12% for the full year.

Fueling our growth in Small Business is the continued shift to Connected Services. Examples in the second quarter include QuickBooks Online subscribers growing 35% year-over-year, Online Payroll subscribers growing 22% and Payment customers growing 11%, driven by the growth in our mobile payments offering, GoPayment.

The secular shift in digital solution is good news for customer acquisition overall. More than 50% of the customers using the Intuit Online Payroll offering are new to Intuit. And for QuickBooks Online and GoPayment, more than 70% of the customers are new to the franchise.

The digital shift also continues to enrich our mix as Connected Services generate recurring revenue streams and favorable lifetime value economics for Intuit. For example, QuickBooks Online has a lifetime value that is 20% higher than QuickBooks Desktop. And better yet, the shift to Online is accelerating across the entire company, with Connected Services representing 60% of total revenue in the first 6 months of this fiscal year, up from 54% in the first half of last year. That shows up in the financial results that we're announcing today, and it demonstrates that our strategy is working. Just as a reminder, our 3-point growth strategy remains unchanged: To first drive growth in our core businesses, which benefit from high share, low penetration and superior Net Promoter Scores relative to competitive alternatives; second, to build adjacent businesses and enter into new geographies, which we expect to add 1 to 2 points of growth over the next several years; and third, to accelerate our company's transition to Connected Services, which now represent 62% of total annual revenue with over 35 million customers using our hosted offerings. I'm pleased with the results this quarter, but there's a lot of ground yet to cover in the remainder of the year.

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