INTU

Intuit Inc. (INTU)

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Intuit (INTU)

Q3 2011 Earnings Call

May 19, 2011 4:30 pm ET

Executives

Matthew Rhodes -

R. Williams - Chief Financial Officer and Senior Vice President

Brad Smith - Chief Executive Officer, President and Director

Analysts

Michael Millman - Millman Research Associates

Justin Furby

Sterling Auty - JP Morgan Chase & Co

Peter Goldmacher - Cowen and Company, LLC

Yun Kim - Gleacher & Company, Inc.

Bryan Keane - Crédit Suisse AG

Kartik Mehta - Northcoast Research

Jennifer Swanson - Morgan Stanley

Ross MacMillan - Jefferies & Company, Inc.

Walter Pritchard - Citigroup Inc

Scott Schneeberger - Oppenheimer & Co. Inc.

Gil Luria - Wedbush Securities Inc.

James Macdonald - First Analysis Securities Corporation

Bradley Sills - Barclays Capital

Presentation

Operator

Good afternoon. My name is Armand, and I'll be your conference facilitator. At this time, I would like to welcome everyone to the Intuit Third 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

Thank you, Armand. Good afternoon, and welcome to Intuit's Third 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 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 website 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'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. 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

Hey, thanks, Matt, and thanks, all of you, for joining us.

Okay. We're pleased with our financial performance in the third quarter. Intuit continues to benefit from the ongoing secular shift to digital solutions. It's driving our customer growth, share gains and is generating the financial results that we are sharing with you today.

Revenue grew 15% and non-GAAP earnings per share was up 23%. We closed out another great tax season, growing total TurboTax units slightly faster than we did last season and growing consumer tax revenue 13% year-to-date versus fiscal 2010.

We also continue to build momentum in Small Business, where a balanced attack across Financial Management Solutions, our Employee Management Solutions and Payments drove revenue growth of 13%. Small Business remains a key driver of overall growth.

In light of our third quarter performance and our expectations for the fourth quarter, we're raising our revenue and EPS guidance ranges for the full year. Neil will cover more of that and the details in a few minutes.

Based on these results, we're pleased with the quarter. We're confident in the year and we're optimistic about the progress we're seeing across the company. We are in the jetstream of a shift to digital services, a trend that is powering growth for both our core and our adjacent businesses. And to capitalize on this trend, we continue to execute on our 3-point growth strategy: The first, drive growth our core businesses; second, to build adjacent businesses and enter new geographies; and third, to accelerate our transition to connected services. The strategy is working. Let me share a few examples, and I'll start with the progress behind driving growth in our core businesses.

Customer acquisition remains the key lever for growing high-margin core businesses. And in the third quarter, we grew our customer base in Consumer Tax, and in Small Business, we grew connected services customers by double digits. In a particularly competitive tax season, we grew tax units 11% for the season, and that comes on top of 11% unit growth in fiscal 2010. So we had strong growth on top of strong growth. There were no easy comparisons versus prior year.

The IRS delays were a challenge early in the season, but we finished strong and we expect to come in near the high end of our tax revenue guidance. For the season, the tax software category, which you know includes both desktop and online software, grew as manual filers continue to shift to digital solutions. Our data indicates that we took share in desktop at retail and we gained share online, tapping off our fourth straight year of share gains.

However, we didn't take shares from tax stores this season as we had planned. We respect our competitors, but we won't feed anything to them. We're taking lessons learned and we're already applying them to the plans for next year. We see opportunities for better execution and our goal remains the same: to continue to effectively compete with tax stores by clearly demonstrating that there is an ease-of-use and a better value when you use digital do-it-yourself tax preparation. Long term, we have the demographic and the technological tailwinds at our back to continue to grow our tax business double digits.

Now shifting to Small Business. We now serve nearly 5 million unique customers. In the third quarter, we delivered double-digit revenue growth by growing customers of our connected services offerings and by improving revenue mix. Customer growth was driven by 42% growth in QuickBooks Online subscribers and double-digit growth in Online Payroll subscribers. Customer growth in Payments also continues to remain robust with merchants growing 12% in the third quarter. And we finally saw the rebound that we've been anticipating in our Payments revenue growth, which Neil will discuss in a moment.

We're also accelerating the acquisition of new customers using our GoPayment offering, which you may recall is our mobile credit card processing app. In fact, in April, we acquired 8x as many new customers as we did in December. So overall, our Small Business Group is on track for another great year, and we believe that the accelerating adoption of connected services by our customers creates a sustainable growth opportunity in this business for years to come.

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