Intuit Inc. (INTU)

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Intuit (INTU)

Q2 2011 Earnings Call

February 17, 2011 4:30 pm ET


Matthew Rhodes -

R. Williams - Chief Financial Officer and Senior Vice President

Brad Smith - Chief Executive Officer, President and Director


Laura Lederman - William Blair & Company L.L.C.

Philip Rueppel

Brian Bedell - ISI Group Inc.

Michael Millman - Millman Research Associates

Peter Goldmacher - Cowen and Company, LLC

Brent Thill - UBS Investment Bank

Yun Kim - Gleacher & Company, Inc.

Brendan Barnicle - Pacific Crest

Bryan Keane - Crédit Suisse AG

Ross MacMillan - Jefferies & Company, Inc.

Walter Pritchard - Citigroup Inc

Jennifer Swanson

Stephanie Withers - Goldman Sachs Group Inc.

Scott Schneeberger - Oppenheimer & Co. Inc.

Nick Setyan - Wedbush Securities Inc.

Bradley Sills - Barclays Capital

Kash Rangan - BofA Merrill Lynch



Good afternoon. My name is Latif, and I will be your conference facilitator. At this time, I would like to welcome everyone to the Intuit Second Quarter Fiscal 2011 Conference Call. [Operator Instructions] With that, I'll now turn the call over to Matt Rhodes, Intuit's Director of Investor Relations. Mr. Rhodes?

Matthew Rhodes

Thanks very much, Latif. Good afternoon, and welcome to Intuit's 2nd Quarter 2011 Conference Call. I'm here with Brad Smith, our 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 could 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 website at 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've reconciled the comparable GAAP and non-GAAP numbers in today's press release. A copy of our prepared remarks and supplemental financial information will be available on our website after this call ends.

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

Brad Smith

Thanks, Matt. Thanks to all of you for joining us today. We just reported second quarter revenue of $878 million, up 5% from last year. These results reflect the shift of about $60 million in tax revenue from our second fiscal quarter into our third quarter. Now you may recall that the IRS announced it would not be accepting certain e-filed returns until mid-February. As a result, we've seen some taxpayers delay the filing of their tax returns. Earlier in the season, we had estimated the shift to be between $40 million and $60 million, and we now estimate the shift to be near the high end of that range. Adjusted for the shift, we had a very good quarter.

Now it’s clear the IRS delay has made the start of the tax season more complicated than normal, so let me try to sort through the noise upfront and put what is happening into perspective. All of the data that we monitor indicates that the tax filing season has simply gotten off to a slower start regardless of the tax preparation method. However, our four major assumptions about the overall tax season remain unchanged: First, we haven't seen anything that leads us to change our outlook on the total number of tax returns that will be filed with the IRS this tax season, which we estimate will be approximately 140 million tax returns. Second, we expect to see the multi-year shift in consumer preference continue towards the digital do-it-yourself tax software category. Third, internal and external data indicate that we are executing well and gaining share in terms of the competition season to date. And fourth, we continue to strengthen our execution in driving improved revenue per tax filer.

Now what the data also suggests is that we're in for a condensed tax season as more people file later. The press release we issued today confirms this trend in our own results. After a slow start, TurboTax unit growth has accelerated meaningfully since February 1. As you can see from the season-to-date tax release, units are up 1% through February 12 versus the comparable period a year ago. But drilling a little deeper into these results, you'll see momentum has picked up considerably since February 1, with total units growing 11% and online units growing 16% year-over-year for the period of February 1 through the 12. This recent acceleration confirms our assumptions on the delayed start and has us on track to deliver the results we've guided for the full season. We'll have more insight into how the season is progressing when we update our units in March.

Now while there's a lot of energy around tax results this quarter, it's important to focus on the rest of the company's performance, and in particular our Small Business results. Small Business is on a roll. It was a big contributor again this quarter, posting 15% revenue growth. Within Small Business, Financial Management Solutions had an excellent quarter, with 21% growth, and our Employee Management Solutions grew 11%, all organically. We're performing extremely well in Small Business, and we're confident that this momentum will continue.

Turning to our overall business outlook, we're reaffirming our revenue and our operating income guidance for the year. This means we still expect fiscal year revenue growth of 8% to 11% and non-GAAP operating income growth of 11% to 14%. In addition, the R&D tax credit was retroactively reinstated in December. This lowers our effective tax rate and allows us to raise our fiscal year '11 guidance for non-GAAP EPS growth to 14% to 18%.

Our reaffirmation of our full year revenue guidance and the expression of confidence that you're hearing from me is directly attributable to the momentum that we're building behind executing our three-point plan which, as you may recall, is first, to drive growth in our core businesses; second, to build adjacent businesses and enter new geographies; and third, to accelerate Intuit's transition to Connected Services.

Now here are some of the highlights that demonstrate how we're performing in each area. First, a look at what's driving growth in our core businesses. In Small Business, the Online and Enterprise versions of QuickBooks continue to grow faster than Desktop. It's driving higher revenue per customer and stable recurring revenue streams. And as expected, our share at retail bounced back to the low 90s this quarter, thanks to solid execution across the board.

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