Intuit Inc. (INTU
Q1 2009 Earnings Call Transcript
November 19, 2008 4:30 p.m. ET
Jerry Natoli - Vice President, Investor Relations, Treasurer
Brad D. Smith - President, Chief Executive Officer, Director
R. Neil Williams - Chief Financial Officer, Senior Vice President
Scott D. Cook - Chairman of the Executive Committee, Director
Bryan Keane - Credit Suisse
Heather Bellini - UBS
Adam Holt - Morgan Stanley
Brad Zelnick - Banc of America
Michael Millman - Soleil Securities
Laura Lederman for Jeff Keene - William Blair
Gil Luria - Wedbush Morgan
Brent Thill - Citigroup
Brendan Barnicle - Pacific Crest Securities
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 and fiscal year 2009 conference call. (Operator Instructions) All lines have been placed on mute to prevent any background noise. After the speakerís remarks there will be a question-and-answer period. If youíd like to ask a question during this time simply press the number youíre your telephone keypad. If youíd like to withdraw your question press the pound key. With that, I will now turn the call over to Jerry Natoli, Intuit''s Vice President of Investor Relations and Treasurer. Mr. Natoli.
Thanks, Patty. Good afternoon and welcome to Intuitís first-quarter 2009 earnings conference call. Iím here with Brad Smith, our President and CEO; Neil Williams, our CFO; and our founder, Scott Cook. Before we start, Iíll remind you that our remarks include forward-looking statements. A number of factors could cause our results to differ materially from our expectations. You can learn more about these risks in the press release we issued earlier this afternoon. Theyíre also in our Form 10-K for fiscal 2008 and our other SEC filings. All of these documents are available on the Investor Relations page of Intuitís 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. Weíve reconciled the comparable GAAP and non-GAAP numbers in todayís 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, Iíll turn the call over to Brad Smith.
Brad D. Smith
Thanks, Jerry and thanks to all of you for joining us. We just announced results for the first quarter of fiscal 2009 that were in our expected range for revenue and significantly above our expected range for operating income and EPS. Weíre pleased with the quarter, as weíve demonstrated some resiliency on the top line and our ability to manage spending to deliver on the bottom line. We also provided initial guidance for the second quarter and updated our guidance for the full year, reflecting what weíve learned since our last update two months ago. Clearly business conditions have changed. We have seen three factors in particular that impact our business outlook for FY09: first, a decline in merchant transaction volume in our Payroll and Payments segment; second, fewer new QuickBooks users than weíd expected; and third some adverse conditions in our other businesses segment.
As a result, we now expect our fiscal 2009 revenue to grow 6% to 10% instead of the 9% to 12% we originally guided. Let me share a bit more detail on these three factors. Growth in new merchants plus growth in transaction volume per merchant has been driving payments revenue growth over the past couple of years. Growth in transaction volume per merchant began slowing in our third quarter of last year and was flat in our fourth quarter. Like other payments processors, we have seen transaction volume decline as consumers reduce their spending. New merchant acquisition is still strong at 18% but itís not strong enough to compensate for the lower-than-expected transaction volume per merchant. We now expect full-year Payroll and Payments revenue to grow 10% to 14%, four points less than originally estimated.
As for QuickBooks, itís early in the season but paid new users, which make up about a third of our paid units in any given year, are running below expectations. Upgrades so far are actually in line with expectations. And weíre seeing a lot of free Simple Start registrations, which should result in higher small business ecosystem revenue in the future. However, for this year, we now expect full-year QuickBooks revenue to grow 5% to 9%, about three points less than originally estimated. The Other Businesses segment, which consists of our Canadian and U.K. businesses, Real Estate Solutions and Quicken, is being impacted by a stronger U.S. dollar and tough conditions for new license sales. Though less than 5% of our revenue is in a foreign currency, itís all in this segment. Since we established our plan in July, the U.S. dollar has strengthened about 20% and that has created a $20 million reduction in our revenue forecast, which is partly offset by a $13 million reduction in non-U.S. dollar expenses. In addition, weíve reduced our expectations for Real Estate Solutions license sales and Quicken revenue is being impacted by reduced consumer spending, particularly in retail. We now expect full-year Other Businesses segment revenue to grow from a 4% decline to a 2% increase. Thatís about 10 points less than originally estimated. Given this updated outlook, weíve taken a hard look at our spending. Even with the reduced revenue growth of 6% to 10%, we expect to grow non-GAAP operating income from 9% to 13% year-over-year and we expect to grow non-GAAP EPS of $1.82 to $1.89, which is growth of 14% to 18%. These non-GAAP EPS figures include an estimated $0.04 per share benefit from the passage of the research and development tax credit.
Now it is important to note that within this context we see real opportunity. These are challenging times but this is an environment in which we should be able to build our customer base and strengthen our franchises. Our products and services help customers save and make money. Said more simply, we put more money in our customerís pockets. This is beneficial in all business climates and even more so when times are difficult. Itís one of the reasons our core offerings have historically performed well in weak economies and we donít believe this time will be any different and we believe this will be another good year for Intuit.
Iíll share more of my perspective later in the call. But first, letís have Neil take us through the segments and financial details.
R. Neil Williams
Thanks Brad. Letís start with a high-level summary of our overall results. Revenue for the quarter was $481 million, up 8% year-over-year. The non-GAAP operating loss was $29 million, a $26 million improvement from the first quarter of last year. The non-GAAP loss per share was $0.09, $0.01 better than the loss in the first quarter of last year. As a reminder, we normally lose money in the first quarter. Thatís because so much of our revenue comes in our second and third quarters while most of our costs are spread evenly over the year. We improved our non-GAAP operating loss because revenue increased in less-seasonal categories such as Payroll and Payments. We were also very disciplined in our spending. The non-GAAP loss per share didnít improve quite as dramatically as the non-GAAP operating loss because interest income and other income was lower than last year.
Now letís review the segment results. Total Small Business first-quarter revenue grew 11% year-over-year. Within Small Business, QuickBooks revenue grew 6% and Payroll and Payments revenue grew 16%. Excluding Homestead and ECHO, which were acquired in the second and third quarters of fiscal 2008 respectively, Small Business revenue grew 5%, QuickBooks grew 1% and Payroll and Payments grew 9%. Though the season hasnít started as strongly as we expected, we see some positive indicators. QuickBooks share is up about a point in retail. The category is down this year, but no one else is taking share from us. QuickBooks Enterprise revenue and our Web services customers continue to grow strongly. Our customer base growth has held steady in Payroll at 3% and our Payments customer base growth is still strong at 18%. And early feedback from accountants on the QuickBooks í09 release is positive, with almost 40% have saying they are more likely to recommend QuickBooks 09 to their clients than last yearís version. On the other hand, as Brad mentioned, Payments transaction volume per merchant is down 4% from last year and thatís lower than we expected. And we havenít yet seen the inflow of new QuickBooks users that typically occurs in down economies. However, we do consider this the best QuickBooks product weíve released in years and most early product reviews have been favorable. We also have an update planned for December that will further enhance the online banking functionality for accountants and upgraders.
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