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Intuit, Inc., (NASDAQ:INTU)

Q3 2006 Earnings Conference Call

May 17, 2006, 4:30 p.m. EST

Executives:

Bob Lawson, Vice President of Investor Relations, Financial Planning, Analysis

Steve Bennett, President, Chief Executive Officer

Kiran Patel, Chief Financial Officer

Scott Cook, Intuit, Founder

Analysts:

Bryan Keane, Prudential

Greg Smith, Merrill Lynch

Adam Holt, JP Morgan

Jim MacDonald, First Analysis

Michael Millman, Soleil Securities

Scott Schneeberger, Lehman Brothers

Glen Greene, ThinkEquity Partners

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Operator

Good afternoon. My name is Patty, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Intuit Third Quarter 2006 Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks there will be a question and answer period. If you would like to ask a question during this time, simply press the number “1″ on your telephone keypad. If you would like to withdraw your question, press the “#” key. With that, I’ll now turn the call over to Bob Lawson, Intuit’s Vice President of Investor Relations and Financial Planning and Analysis. Mr. Lawson…

Bob Lawson, Vice President, Investor Relations, Financial Planning, Analysis

Good afternoon everyone. Welcome to the Intuit Third Quarter 2006 Conference Call. I’m here with Steve Bennett, Intuit’s President and CEO; Kiran Patel, our CFO; with 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 2005, and our SEC filings. All of those documents are available on the Investor Relations page of Intuit’s website at www.intuit.com. We assume no obligation to update any forward-looking statement. Some of the numbers in this presentation will be presented on a non-GAAP basis. The most directly comparable GAAP financial measures and the reconciliation of the non-GAAP financial measures to GAAP are provided in today’s press release. After this call concludes, a copy of our prepared remarks and supplemental financial information will be available on our website. With that, I’ll turn the call over to Steve Bennett.

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Steve Bennett, President, Chief Executive Officer

Thanks, Bob, and thanks to everyone for joining us today. As you’ve read in our press release, Intuit just delivered another terrific quarter with revenue of $953 million, up 14% year-over-year, driven by an outstanding Consumer Tax season and continued strength in QuickBooks. Non-GAAP diluted EPS was $1.79, up 16% despite $0.08 negative impact from a higher effective tax rate. On a GAAP basis, diluted EPS was $1.68.

Consumer Tax had an outstanding quarter with revenue up 19% year-over-year. For the season, revenue was up 23% versus last year on the strength of 20% federal unit growth excluding Free File. We’re delighted with this performance. With great performance in both Consumer Tax and QuickBooks this year, we’re on track to deliver 13% to 14% revenue growth continuing our track record of double digit revenue growth. With that, I’ll turn the call over to Kiran to walk us through the segment results.

Kiran Patel, Chief Financial Officer

Thanks, Steve. Let’s start with Consumer Tax. Third quarter Consumer Tax revenue of $499 million was up 19% over the same quarter last year. As Steve said, Consumer Tax had another terrific year. TurboTax total units excluding Free File were up 20% year-over-year, driven by 58% increase in TurboTax online units. And at retail, we maintained 79% unit share, retaining the 7-point share gain we made last tax season. We also saw a lift from last year’s FFA customers, which contributed approximately 3 points of revenue growth for the season.

Our Pro Tax business was inline with expectations with third quarter revenues of $105 million, up 5% year-over-year. The QuickBooks related segment had another strong quarter with revenue of $212 million, up 8% year-over-year. Total QuickBooks units were up 8% over the same period last year. QuickBooks Simple Start, Basic, and Pro units were up 5%. Premier units increased 24%. QuickBooks Enterprise Edition was up 16%. QuickBooks Online Edition customer base increased 76%. We had continued strong year-over-year growth in QuickBooks add-on solutions. Revenue from our Payments business was up 40%, driven by 29% increase in the customer base and 15% increase in transaction volume for a customer. Revenue from QuickBooks Standard and Enhanced Payroll increased 20%.

The Intuit branded small business segment had revenue of $63 million, up 12% year-over-year. Our Complete and Assisted Outsourcer Payroll offerings continued to perform well with customers up 13%. Last week, we announced an agreement to sell our Master Builder Construction Management Software and Solutions business. The transaction is expected to close during the fourth quarter. We will continue to serve the construction industry through our line of QuickBooks offerings including a QuickBooks Contractor Edition.

Finally, the other businesses segment had revenue of $74 million, up 17% year-over-year led by strong results in Canada.

Moving to the balance sheet, Intuit had $1.3 billion in cash and short-term investments at the end of the third quarter, up $448 million from the end of the second quarter. In the quarter, we generated $659 million in cash from operations and received $70 million in proceeds from the exercise of employee stock options. We used $285 million to purchase 5.5 million shares of Intuit stock during the quarter. Today, we announced a new stock repurchase program for up to $500 million over the next three years.

As Steve mentioned, we had $0.08 impact on non-GAAP EPS from an increase in our effective tax rate. This is a result of higher pretax income and higher state tax rate and true-up of provisions as we’ve completed our 2005 tax returns. Additionally, on a GAAP basis, we expect a tax liability associated with the sale of our Master Builder Business, which is expected to close in the fourth quarter.

Now, let me share our guidance. For updating our full year revenue and EPS guidance, we now expect revenue of $2.31 billion to $2.33 billion, which is an annual growth of 13% to 14%. Prior guidance was $2.295 billion to $2.315 billion. GAAP diluted EPS of $2.20 to $2.22 as a result of a higher GAAP tax rate primarily related to the sale of our Master Builder Business. This is an annual growth of 8% to 9%. Previous guidance was $2.26 to $2.29. Non-GAAP diluted EPS of $2.40 to $2.42, which is an annual growth of 19% to 20%. Prior guidance was $2.37 to $2.40.

We’re updating our fourth quarter guidance; we now expect revenue of $310 million to $330 million or year-over-year growth of 3% to 9%. GAAP diluted EPS of a loss of $0.24 to a loss of $0.22 due to the tax liabilities arising from the sale of our Master Builder Business. Previous guidance was a loss of $0.17 to a loss of $0.15. Non-GAAP diluted EPS of a loss of $0.09 to a loss of $0.07. With that, I’ll turn the call back to Steve.

Steve Bennett, President, Chief Executive Officer

Thanks, Kiran. With the better part of the year now under our belt, I’d like to share my perspective on why we’ve been successful and why we’re confident about our future growth

First, think back to where we were just a year ago. We were getting ready to take on a major new competitor in QuickBooks and coming off 16% revenue growth in Consumer Tax creating a tough year-over-year comparison combined with immediate uncertainty about the future of the Free File alliance in fiscal 2006. Flash forward to today, we’ve just completed a record tax season, and once again we’ve proven there’s lots of room to grow with the Do-It-Yourself software category. We’re acquiring new customers from both non-consumption, i.e., pencil and paper, and by disrupting higher price alternatives like store front tax preparers. So, let’s take a second to put some strategic perspective around what’s going on and why we believe we will continue to grow in Consumer Tax.

Through last tax season based on IRS data, we estimate that Do-It-Yourself software on the web and desktop has grown at a compound annual rate of 10% a year over the last five years, which makes it the fastest growing tax preparation method in the total market that’s grown about 1% each year. Over the same five years, we estimate that pro prepared returns have grown about 3% per year, store front tax prepare returns have grown about 1% per year, and pencil and paper returns have declined about 12% per year. Preliminary market data from this year suggests that the historical trend has continued. We believe the market is evolving this way because Do-It-Yourself software is the best value proposition as evidenced by the highest net promoter score of any tax prep method, and we will see significant opportunities to continue to expand the self-prep software category.

In the 2004 tax year, only 32 million of 132 million consumer federal tax returns were prepared using Do-It-Yourself software. We think that creates an ongoing growth opportunity for Intuit. We believe we will continue to grow the self-prep software category through our net promoter efforts to create delighted customers and positive word of mouth, as we have been doing for the last few seasons. We also see longer term potential to move up market and drive additional growth by disrupting higher priced store front operations with alternatives like TurboTax Personal Pro. We like the Consumer Tax business and still see lots of reasons to be optimistic about future growth.

Switching to small business, we’ve had a great year in QuickBooks as we again brought many new customers into the QuickBooks franchise and better monetized them by selling upgrades and add-on solutions such as Payroll and Payment services. Our QuickBook software unit and dollar share at retail has grown despite the entry of Microsoft. The QuickBooks ecosystem offer a variety of products and services -- more than 3 million QuickBooks users, 250,000 accounts that use and recommend QuickBooks, 40,000 developers, and hundreds of educational institutions around the country teaching QuickBooks, gives us a powerful advantage in what drives sales -- word of mouth.

And as we continue to refine our Right-From-Me strategy to uncover additional growth opportunities, we’ve learned that roughly $26 million small businesses in the U.S. fall into three fundamental groups. First, what we call small and simple, typically Quicken or QuickBooks Simple Start customers or prospects; second, mainstream or our traditional QuickBooks Pro and Premier customers or prospects; and third, mid market, larger businesses who today user QuickBooks enterprise or competing higher priced alternatives. From our numerous Follow-Me-Homes and other learnings, small businesses in each of these groups have many unmet and underserved needs that we can solve well. And while many of these needs are the same, there are an awful lot of differences between the groups.

So, we’re excited about the growth opportunities in all three groups. Small and simple, which is the largest, has an estimated 21 million small businesses, with the lowest penetration of Intuit accounting and business management products, estimated at about 25%. We also continue to see opportunity in the other segments where we estimate our penetration in mainstream at about 55% and mid market at about 30%. We also have a great growth opportunity in our attached service businesses. We barely scratched service in our payroll and payments businesses, which continues to be among Intuit’s fastest growing businesses. We estimate we’ve currently penetrated approximately 40% of the payroll opportunity within the existing QuickBooks base and approximately 10% of the payments opportunity.

So, where is Intuit today? A strong and vibrant company getting better at executing a winning strategy in the small business and tax markets, with an interesting and exciting new white space opportunity in healthcare, and additionally, unlike most software companies, we estimate that approximately 80% of our revenue comes from recurring or highly predictable sources. First, from subscriptions and businesses like payroll and payments; second, from tax renewals; customers who reliably buy our Consumer and Pro Tax products each year; and third, from upgrades of Quicken and QuickBooks and consumables like Supplies. In combination, these revenue sources create a strong stable revenue base from which to grow.

So, to sum up, I’m thrilled with where we sit today. We’ve had strong performance across our businesses in fiscal year 2006 with outstanding results in Consumer Tax and QuickBooks. Our long-term goals remain revenue growth greater than 10% annually and EPS growth greater than 15%. As a sign of our confidence in the future, we announced a new $500 million share buyback program and a 2-for-1 stock split to broaden the share pool for our investors and employees. I’d like to thank all the Intuit employees for all they’ve done over the quarter and year and for our shareholders for your continued support. Now, let’s get to your questions.

Question-and-Answer Session

Operator

Thank you. Ladies and gentlemen, if you would like to ask a question, please press the number “1” on your telephone keypad. If you would like to withdraw your question, please press the “#” key. Our first question comes from Bryan Keane of Prudential.

Bryan Keane, Prudential

Hi, good afternoon. Those Do-It-Yourself growth numbers that you recorded initially, I think was 10%, is that just the software market or does that include the online web market?

Steve Bennett, President, Chief Executive Officer

I’m still missing it…I think you’re asking about Consumer Tax?

Bryan Keane, Prudential

Yeah, the Do-It-Yourself software grew 10% and you talked about pro and then store front, just a clarification question, I’m trying to figure out if the web stuff, the online Web Prep is in that 10% number.

Steve Bennett, President, Chief Executive Officer

Yeah, I think the term I used is self-prep software which is both desktop and web, Bryan, and that has grown on average 10% a year over the last five years, according to IRS data.

Bryan Keane, Prudential

And just with that, the 58% number that you guys put up in online was obviously way past mine and I think everybody’s expectations. Do you guys know exactly what grew that number so large?

Steve Bennett, President, Chief Executive Officer

To be honest, it grew past our expectations too. I think there’s just the fundamental sea shift happening in the way people do their taxes with 5 million new people coming in every year; a lot of them are choosing the web because they’ve found it’s a better way to do your taxes -- more convenient, more acceptable, acceptable from home, and I think it’s important to remember that our Desktop Business still grew this year and gained share of tax prep total method, but the web has grown much faster. I think the game in the future is on the web, because I think it’s a better value for people to do their taxes, for those that are self-directed. Obviously, pro prepared still grows but not as fast as the self-directed software driven by the web. I don’t see that trend changing and I think the good news for us is there’s $135 million roughly returns this year, we think this still creates a lot of opportunity for us to grow by winning on the web.

Bryan Keane, Prudential

So, you don’t see any major one-time event, so that online growth, it grew last year and only grew at 13%. So, the fact that it grew 58% going forward, it’s probably going to grow in that 50% plus range?

Steve Bennett, President, Chief Executive Officer

Well, I think if you look backward, you’d see the tax start of the self-prep category, desktop and web has grown 10% a year with obviously the web growing faster. It’s hard to predict the future. The way I think about it, the better job we do of making it simpler and easier for customers, the faster it’s going to grow. So, I think a lot of it just becomes a positive word of mouth that comes from us delivering a better tax payer experience, and as you know we’ve been working on this for multiple years, and the last two years we’ve delivered results better than we expected, which says we must be making some progress.

Bryan Keane, Prudential

The FFA 3 points of revenue growth for the season, those FFA revenue points probably went into the online site?

Steve Bennett, President, Chief Executive Officer

Yeah, that would be my hypothesis. We haven’t done all the final matching yet, but I think that’s a safe assumption.

Bryan Keane, Prudential

And that didn’t really show up much?

Steve Bennett, President, Chief Executive Officer

We again wouldn’t know that, but our guess is it would have gone into the Free File program.

Bryan Keane, Prudential

Okay, great, solid results.

Steve Bennett, President, Chief Executive Officer

Thank you.

Operator

Our next question comes from Heather Bellini of UBS. Heather, you’re line is open, did you have a question? Please press your mute button. We’ll move ahead. Our next question comes from Greg Smith of Merrill Lynch.

Greg Smith, Merrill Lynch

Hi, good afternoon. Steve or Kiran, as we look at the operating margin continue to see nice expansion, can we expect a similar type of operating margin expansion as we look in 2007 and 2008, is that a fair assumption?

Steve Bennett, President, Chief Executive Officer

Greg, this is Steve. For seven years in a row now, we’ve seen significant operating margin expansion because the number one driver in our company of margin expansion is volume leverage, and the nature of every business that we’re in is high fixed, low variable cost. So, as we drive unit growth, we get nice operating profit leverage. At the same time, we continue to work diligently on managing expenses, managing price, managing mix; all of the levers that help us grow the operating performance of our company. So, I think it’s safe to say that we may in the future not grow operating profit as fast relative to revenues we had in the past where we were growing one and half to two times, because we’re finding more new good things to invest in to grow revenue faster. So, we’re pleased with the operating margin expansion again this year and it’s the seventh year in a row where we’re delivered; I think over 100 basis points of profit leverage, but it’s the nature of the businesses that we’re in.

Greg Smith, Merrill Lynch

And then just looking at the Professional Tax business and Quicken, both real nice cash counts for you, but is there any reason for us to expect anything more than just kind of modest mid single digit growth or something like that in those businesses.

Steve Bennett, President, Chief Executive Officer

We talked about this before. The reason that we’re quite excited about Quicken these days is because there are 3 million small businesses that use Quicken to run their business and we’ve been doing a lot of work in the small and simple category that says that Quicken for many customers is better than Quick Books, even Simple Start. So, we think Quicken plays an important role and has a big growth opportunity that we’ve not really focused on in growing in the small business area. So I think we will see better performance from Quicken going forward if we can capture the small business opportunity. With regard to ProTax, there’s nothing new to talk about. We’ve made some changes there. I’m encouraged by some of the early signs, but I think this is a business that’s been growing 3% to 5% a year for a while. We’re focused on making it better, but we don’t have anything new to talk about at this point.

Greg Smith, Merrill Lynch

Okay, and then just real quickly, on the tax rate for pro-forma EPS, what should we be thinking about for 2007?

Kiran Patel, Chief Financial Officer

Yeah, we’ll have more insight into that at the end of August when we have our full plans completed, but we do expect the tax rate to come down from where it has been this year as some of the discrete items, so we don’t expect that to reoccur next year.

Greg Smith, Merrill Lynch

Okay, great, thanks a lot guys.

Operator

Our next question comes from Adam Holt of JP Morgan.

Adam Holt, JP Morgan

Good afternoon guys. The first question is on consumer tax. For the season it looked like consumer tax revenue grew a couple hundred basis points faster than paid units. I know you had said all throughout the season that tax revenue growth would be in line with units. I was wondering if you could talk a little bit about maybe some of the puts and takes there and also some of the newer programs and the influences they might have had this year, particularly maybe comment on the gift card program, some of the paid sort of higher end assisted programs and maybe a few other things that went to the mix.

Bob Lawson, Vice President of Investor Relations, Financial Planning, Analysis

As we said the whole season that we were going to grow revenues in units about the same and nobody believed us, given the competitive pressures in the marketplace. I don’t think there is anything special and unique about 20% unit growth and 23% growth, but as a gift card program, which we like, it has less of an attach, the customers that used really liked it, and you should expect to see that again next year, I think we can do better in execution on that, but we love the concept. But, it didn’t have a significant impact on contributing to revenues growing faster than units. I think it was just the way the season played out, the mix that customers picked and how it worked out, nothing magical that I’m aware of, or Kiran or Bob or Scott, do you know anything different.

Scott Cook, Intuit, Founder

The only thing I say is it shows that when customers choose to do tax through the reference we provide, they tend to pick a reasonably rich mix of higher inversions and add-on services. So, that’s what you can see working in the numbers you cite.

Bob Lawson, Vice President of Investor Relations, Financial Planning, Analysis

And I would add on to that. There is an interesting phenomenon that happens. These are peoples’ taxes and they want the best to do their taxes. They don’t want the low end down in 30, they want the best, and a lot of customers have a brand preference to buy the best as opposed to buy the down and dirty cheapest, and I think we benefit from people wanting to buy the premium brands.

Adam Holt, JP Morgan

One more question on Consumer Tax; you obviously made some changes to your strategies surrounding rebates this year. With the benefit of hindsight, do you expect to have the same strategy for next year or should we look for any changes?

Steve Bennett, President, Chief Executive Officer

I think we’ll always look every year. I think the changes we made this year were very, very well received by customers, because rebates were the number one source of negative energy. I think Brad Heskey and the team will be looking holistically about what we do to continue to expand the category and grow our share on both the desktop and the web. I think we have some interesting ideas and my guess is that we will probably share some of those in September at our Investor Day, but it’s too early. I don’t think we’ve made a lot of decisions at this point.

Adam Holt, JP Morgan

And just lastly, if I could, a question on payroll, the 40% penetration number would apply, if my math is right, a total sort of aggregate market that is smaller than your QuickBooks space. I was wondering if you could talk about how you viewed the addressable market there and where you think penetration can go in that business line. Thanks.

Steve Bennett, President, Chief Executive Officer

I think we tried to share for the first time some scope of the size of opportunity that we see, and I think the point you make is a good one, because that’s only of the existing QuickBook space, and as you realize our QuickBooks unit year to date are up 18% this year. So, we continue to grow both the opportunity to attach payroll to new customers and then to execute better at attaching to existing customers. So the basis is basically QuickBooks customers that do payroll, and we have roughly 40% of those that are buying one of our payroll products.

Adam Holt, JP Morgan

Thank you.

Operator

Your next question comes from Jim MacDonald of First Analysis.

Jim MacDonald, First Analysis

Hi, good quarter guys.

Steve Bennett, President, Chief Executive Officer

Thanks Jim.

Jim MacDonald, First Analysis

Just a followup on that last question, in terms of the tax revenue being higher than units, do you know if there is a significant price increase component or was it all mix, do you have that data?

Steve Bennett, President, Chief Executive Officer

There are a lot of variables, a lot of small things that added up that we know that it was, but we know that it was not a price increase. As we said all year, we said the prices on an apples-and-apples basis were roughly the same, but it was surely mix and maybe a slight tax change on few of the different things we attached.

Jim MacDonald, First Analysis

Can you make any comments on which ones changed there?

Steve Bennett, President, Chief Executive Officer

No.

Jim MacDonald, First Analysis

Could you talk a little about the Personal Pro test this year?

Steve Bennett, President, Chief Executive Officer

It was like 2000 or 2500 units something like that. As a feedback from the people that did it, our net promoters score was in the neighborhood of 60%, which is really, really strong, and I think the challenges that we have in this business…I mean, we’ve got the customer experience right, and we’ve got the value equation price within spectrum. The challenge we will have will be how you ramp up the supplies of the Pros to deliver the advice when people are doing it. So, that’s why I believe this is a big long-term opportunity and Brad Heskey and the team will be working hard to figure out how to scale this, and the thing we won’t do is scale it beyond our ability to deliver good customer experience, and that’s how we will have to manage it over the next few years. We think this is a big long-term opportunity to both deliver a better experience to customers and gain more revenue for customers to the segment of customers that we call…many of you have heard us talk about self-directed with some assistance, and so we think this is the same opportunity we have in payroll and the reason payroll is growing is because we are able to take people in between from out stores and Do-It-Yourself and serve them with our QuickBooks Assisted Payroll product, which is the same Do-It-Yourself Assisted model, Jim. So, we’re very excited about the long-term prospects of this, but I don’t there will be any huge short-term hits next year. It will be a slow and steady ramp.

Jim MacDonald, First Analysis

Thanks very much.

Operator

Our next question comes from Michael Millman of Soleil Securities.

Michael Millman, Soleil Securities

Thank you. I have a couple of questions. First, can you talk more about your long-term thinking on some of the existing verticals or what used to be called the verticals, and in that connection also Outsource Payroll. What drives the Outsource Payroll and it does seem to have a different model than you suggested of great leverage on volume? I have a couple other unrelated.

Steve Bennett, President, Chief Executive Officer

First, with respect to the verticals, I think for the last couple of years, I said and I told investors that buying the two small verticals was a mistake, and so nobody should be surprised. They just weren’t of the scale and size that was worth the time and energy we had to put to try and grow the businesses. The two large verticals were both in the $40 million to $50 million range. They’re growing nicely. We’ve got strong teams and big market opportunities, but the bottomline is there is not much synergy between those businesses and our core, there’s no adjacency. So, they’re really not in the core of the company, they’re standalone, and their performance as long as they are accretive to the portfolio will stay in those businesses and if they’re not — we don’t believe they’re going to be — then we’ll make a different decision. With respect to Outsource Payroll, I think over time…we’ll probably talk more about this at Investor Day…but at a high level we think our opportunity is the Do-It-Yourself customer and the Do-It-Yourself with Assistance, and we think those are both really big opportunities for us, and over time it’s likely we’ll migrate away from a full outsource offering to a Do-It-Yourself with Assistance and Do-It-Yourself model.

Michael Millman, Soleil Securities

In the fourth quarter, selling and marketing was up 19%, research and development was up 24%. More on the selling and marketing, I can understand early in the year when you had Microsoft, where’s it selling now and should we expect to see that kind of rise continue both for selling and marketing and R&D?

Steve Bennett, President, Chief Executive Officer

Yeah, I think this actually should be great news for investors that we are performing at a high enough level that we are able to reinvest more than we originally planned on new products and services that are going to accelerate long-term growth. And on the marketing spend, frankly it’s getting better with marketing on the web. I think the web is becoming much more important, much more strategic, and we have dramatically ramped up our spending to win on the web, and I think that’s another strategic investment that will help us accelerate long-term revenue growth.

Michael Millman, Soleil Securities

Finally, on the healthcare, could you tell us of the progress you may be having in signing up health insurance companies, I guess parallel your banks to quicken, health insurance companies to your…

Steve Bennett, President, Chief Executive Officer

I think it’s a great question, Michael. It’s a little bit early. I will tell you I’ve got my first board meeting with the folks at Ingenix in a couple of weeks, and I’m pleased with the progress, but again I would see this as a long-term gain. We just made the first announcement with some of the partnerships we started with, but it’s too early to release more details. We don’t expect to have our first offering in the market until early next year. So, there will be a little bit of a lag here between a lot and new news. We’ll probably have an updated Investor Day in September/October.

Michael Millman, Soleil Securities

Thank you.

Operator

Our next question comes from Scott Schneeberger.

Scott Schneeberger, Lehman Brothers

Can you hear me…nice work, and I won’t cover a lot here, but a question on Free File lines, there’s been a little bit of talk going on from some political officials saying they’re not happy with how the new Free File alliance has been re-negotiated — we know we have a four-year agreement in place. Does this is of concern, do you think that there’s a chance that the agreement may break, I just want to get your comments on that.

Steve Bennett, President, Chief Executive Officer

I met with Commissioner Everson about a month ago in Washington. This is a political year and it’s funny I’ve been in this job now for seven seasons. It’s interesting how the rhetoric and noise level goes up dramatically in an election year, so I think you have a lot of that going on. I feel very good about the program and where it’s going. I think the RS has to continue to work to tighten the program. We’ve been on the leading edge of trying to make it philanthropic. I think the program is a good program that continues to require to be managed to be pro-consumer, but I think the fundamental concept is solid and we feel good about it.

Scott Schneeberger, Lehman Brothers

Great, thanks. Excellent news on the share repurchase, the question that you guys are often asked and I want to ask it again here, it’s not true dividend in your views on whether that’s a possibility in the future and how that might be perceived by investors.

Steve Bennett, President, Chief Executive Officer

Scott, I think the answer on that is pretty straightforward. Since May 2001, this is a technology company that has returned excess cash to its shareholders. We have no religious position on dividend versus share repurchase, but it’s the stock price, and our view of the future growth prospects of the company and with interest rates where they are we feel that by far the best use of the excess cash is to share repurchase and that’s why we announced another $500 million authorization. So, we’re open minded, we continue to talk to investors to see what they think, but this is still the path we’re on now at this point in our journey. I think the important point is we are returning excess cash to shareholders.

Scott Schneeberger, Lehman Brothers

Great, thanks, that’s all from me.

Operator

Once again, if you have a question, please press the “1” key. Our next question comes from Glen Greene of ThinkEquity Partners.

Glen Greene, ThinkEquity Partners

Good afternoon. The first question, I’m just wondering if you could give us an update on SBA and your success and what kind of market share they have and just some color on what Microsoft is doing in terms of sort of promoting that product.

Steve Bennett, President, Chief Executive Officer

The data that we see shows less than 5% share on a standalone basis and/or in a bundled fashion in the bundled unit. So, we’ve seen all sorts of different price moves, we’ve seen $39 at Amazon and all sort of low prices. It hasn’t really moved the needle. I think we’re quite pleased with our performance. We’ve actually gained share at retail since they’ve entered and all of their share, which has been as I said less than 5%, has come at the expense of our competitors. So, I think we’re real pleased with round one, but there are many rounds in this battle and I think that we’re prepared to fight for a long time here to maintain our leadership and continue to grow this market.

Glen Greene, ThinkEquity Partners

Okay, and then just quickly on the TurboTax side, just sort of directionally, if you have a sense at this point on client retention or is it sort of too early to tell?

Steve Bennett, President, Chief Executive Officer

Too early to tell, but that stated, we will have it shared at investor day like we have in previous years.

Glen Greene, ThinkEquity Partners

Okay, thank you.

Operator

Gentlemen, I’m not showing any further questions, would you like to proceed with any further remarks?

Steve Bennett, President, Chief Executive Officer

I just like to say to everybody, I think this is the second year in a row that by focusing back on our core business, small business, QuickBooks and Consumer Tax, we’ve delivered results beyond what we expected and I think that formula is working. I think the important thing to realize though is we have high shares as we’ve traditionally defined the market, but as you define the market the way we’re thinking about it now, we have actually high share and very low penetration and that gives us comfort that as we continue to get better at executing our formula for success, we have an opportunity to continue to deliver double digit revenue growth with operating profit and EPS leverage. So, thanks for your support. We’re excited about the things we’re working on for next year, some really cool things, and we’re looking forward to sharing some of those with you both in August and at Investor Day. Thanks again for your support, and goodbye.

Operator

Ladies and gentlemen, thank you for participating in today’s conference call. This concludes the call. You may all disconnect. Goodbye.

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