Intuit F2Q07 (Qtr End 1/31/07) Earnings Call Transcript

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 |  About: Intuit Inc. (INTU)
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Intuit Inc. (NASDAQ:INTU)

F2Q07 Earnings Call

February 22, 2007 4:30 pm ET

Executives

Steve Bennett - President and CEO

Kiran Patel - CFO

Bob Lawson - VP, Investor Relations and Financial Planning and Analysis

Analysts

Heather Bellini - UBS

Laura Lederman - William Blair

Adam Holt - JP Morgan

Brent Thill - Citigroup

Philip Rueppel - Wachovia Securities

Bryan Keane - Prudential

Jim MacDonald - First Analysis

John Glass - CIBC World Markets

Glenn Greene - ThinkEquity Partners

Daniel Cummins - Banc of America Securities

Presentation

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 Second Quarter 2007 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. (Operator Instructions)

With that, I will now turn the call over to Bob Lawson, Intuit's Vice President of Investor Relations and Financial Planning and Analysis. Mr. Lawson?

Bob Lawson

Good afternoon, everyone. Welcome to Intuit second quarter 2007 conference call. I am here with Steve Bennett, Intuit's President and CEO; Kiran Patel, our CFO; and Scott Cook, our Founder.

Before we get started, I would 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 2006, and other SEC filings.

All of those documents are available on the investor relations page of Intuit's website at intuit.com. We assume no obligations 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 will turn the call over to Steve Bennett.

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Steve Bennett

Thanks, Bob and thanks to everyone for joining us today. As you've read in our press release, Intuit delivered another solid quarter with revenue and non-GAAP EPS above the high-end of our guidance range.

We had strong double-digit growth in the Consumer Tax and the Payroll and Payments segments, partly offset by revenue shifts in QuickBooks and ProTax. As you may recall, the earlier launch of QuickBooks and changes in our ProTax offerings caused about $45 million of revenue to shift out of the second quarter and into the first and third quarters compared to prior years.

We are pleased with the first half results, with year-to-date revenue up 8%. And our deferred revenue balance at the end of the quarter of $295 million was up 15% versus last year. We feel good about the total year and are looking forward to the third quarter.

With that I'll turn the call over to Kiran to walk us through the financial details.

Kiran Patel

Thanks, Steve. Let me start with a summary of the second quarter's results. Revenue of $763 million was up 3% year-over-year. Non-GAAP earnings were $0.45 per share, $0.03 above the high-end of our guidance. On a year-over-year basis, non-GAAP EPS was down 6%.

On a GAAP basis, we earned $0.40 per share. EPS benefited by $0.01 per share from the retroactive renewal of the federal R&D tax credit. As you know, the seasonality of our businesses makes it difficult to assess quarterly results. The earlier QuickBooks launch and forms delays in ProTax moved more than $45 million of revenue out of Q2 into other quarters.

Although revenue moved out of the quarter, our expenses are relatively fixed, resulting in lower operating income and EPS in the quarter than in the second quarter last year. Second quarter operating expenses grew 9% year-over-year. That's in line with our guidance and historical growth rates.

Now, let me turn to business segment results. Second quarter consumer tax revenues of $226 million was up 18% over the year-ago period, partly as a result of higher sell-in to the retail channel to support merchandising and promotional activities.

Today we released the first of our three tax unit sale updates. Through February 17th, TurboTax federal units were up 1% on a season-to-date basis.

As we discussed at Investor Day, we've expanded our offerings at both, the high and low end, including testing a free edition in the market this year designed for new users with simple returns. We have seen the free product attract customers we weren't previously serving, so we expect to increase testing and availability through the rest of the season.

QuickBooks had a solid quarter with revenue of $164 million. Recall, we launched QuickBooks earlier this year than last, which shifted about $20 million of revenue from the second quarter to the first quarter. On a year-to-date basis, QuickBooks revenue is up 5%.

We had excellent growth in our Payroll and Payments business, with revenues of $138 million up 15% year-over-year. The payments revenue growth was driven by 25% growth in customers and 11% growth in transaction volume per customer.

In our Payroll business, we are pleased with the fact that for the first time ever, we crossed over the 1 million customer mark, which we believe is far larger than any other third-party payroll provider.

ProTax was in line with guidance with revenue of $131 million, reflecting the increase in deferred revenue which we expect to recognize in the third quarter. Our Other Businesses segment revenue of $105 million was up 1%.

Moving to the balance sheet, Intuit ended the second quarter with $1.1 billion in cash and investments. Capital expenditures were $24 million during the second quarter. We used $205 million to repurchase 6.7 million shares of Intuit stock during the quarter. We have $301 million remaining in the current repurchase program.

The previously announced acquisition of Digital Insight closed on February 6th, at which time Digital Insight became a wholly-owned subsidiary of Intuit. The business, combined with our existing financial institutions group, will become a new segment beginning in the third quarter of fiscal 2007.

To finance this acquisition, we obtained $1 billion in bridge financing. Subject to market conditions, we expect to replace the bridge financing with longer-term non-convertible debt in the third quarter.

We also announced in a press release earlier today, the expected sale of certain assets of our Premier and Complete Payroll businesses to ADP for up to $135 million in cash. The sale price is contingent on the number of customers that transition to ADP, among other factors. The sale will allow us to focus on our core, Do-It-Yourself and Self-Directed with Assistance customers while transitioning our, Can’t Be Bothered customers to a highly regarded outsourced payroll provider.

We expect the transaction to close in the third quarter. The sale will not be treated as a discontinued operation, so it will impact 2007 results, but we expect it will accelerate our payroll growth going forward.

Revenue for our QuickBooks Payroll offerings has grown at a compound annual growth rate of 17% over the last three years.

Moving to fiscal 2007 guidance, the outlook for our existing businesses is unchanged. Changes to the guidance are the result of three one-time items. First, as expected, Digital Insight will add $120 million to $125 million of revenue and be $0.03 non-GAAP EPS dilutive for the year compared to the previous guidance.

The disposition of our fully outsourced payroll business will reduce revenue by about $21 million to $23 million and non-GAAP EPS by $0.03 versus prior guidance.

The retroactive renewal of the R&D tax credit will increase non-GAAP EPS by $0.03 versus previous guidance.

Therefore, the fiscal 2007 guidance is now: Revenue of $2.625 to $2.675 billion, which is an annual growth of 12% to 14%. Non-GAAP diluted EPS guidance of $1.33 to $1.37, which is an annual growth of 10% to 13%. The GAAP diluted EPS of $1.10 to $1.14 inclusive of the amortization of the intangible assets associated with the acquisition of Digital Insight.

Segment guidance is unchanged, with the exception of Payroll and Payments, which is impacted by the transaction with ADP and Financial Institutions, which is a new segment for the quarter. Guidance details are available on our fact sheet at www.intuit.com.

We are also providing guidance for our fiscal third and fourth quarters. For our fiscal third quarter, which ends April 30, 2007, we expect the following: Revenue of $1.102 billion to $1.132 billion or a year-over-year growth of 16% to 19%. Non-GAAP operating income of $572 million to $599 million. GAAP operating income of $527 million to $554 million. Non-GAAP diluted EPS of $1.05 to $1.09. GAAP diluted EPS of $0.94 to $0.98.

For the fiscal fourth quarter, we expect revenue of $405 million to $418 million or a year-over-year growth of 18% to 22%, non-GAAP EPS of negative $0.07 to negative $0.05, and GAAP EPS of negative $0.12 to negative $0.10.

With that, I'll turn the call back over to Steve.

Steve Bennett

Thanks, Kiran. Before we get to your questions, I'd like to provide some longer-term perspective. We've demonstrated that when we grow revenue, good things happen, strong cash flow, operating income and earnings per share growth. So the question we always get from investors is, "how will you continue to grow?"

Well, I have never felt better about our long-term growth potential and here's why. We continue to execute on our growth strategy of being in good businesses that have large unmet or underserved needs that we can solve well. We apply customer-driven innovations to deliver Right For Me Solutions that create customer delights, because they are easier and have a better value.

We apply this rigorous methodology to continually improve our existing offerings, as well as create new offerings that solve additional important customer pain points. We've been executing this same recipe for success over the last five years and we continue to get better at it as we move up the experience curve. We constantly assess our businesses to ensure they fit our growth strategy and the moves we have announced today are a 100% aligned with that strategy.

The acquisition of Digital Insight and the sale of certain of our outsourced payroll assets reflect rigor in ensuring we are focused on businesses where we can build a durable advantage, and a portfolio that can deliver long-term double-digit revenue growth with profit leverage.

We've had two strong growth engines, small business and consumer tax, for years. But now we have a third growth engine with the acquisition of Digital Insight and the creation of our Financial Institutions segment. We also have a potential growth engine in healthcare, if we are successful solving those important problems well. We'll get an initial read following the expected launch of our new healthcare V-1 offering sometime this coming summer.

In small business, we are particularly pleased with the growth we are seeing in the Payroll and Payments segment, and the early results of our focus on the 22 million small and simple businesses, the group today with by far the highest degree of non-consumption.

Our newer offerings such as Premier Flavors, Enterprise, POS, and Online Edition are all growing nicely. Consumer tax is off to a solid start, and we believe we are well positioned for another great year.

Over the last five years, the number of individual federal returns prepared using self-prep software has been growing at a compound annual rate of 10% per year, more than five times faster than tax stores and the overall category.

The demographics of new filers entering the market favors self-prep software, because it has the highest Net Promoter score, and we believe the best value versus other methods. And we keep working hard to widen the gap and make it easier for customers who want to do their own taxes.

The creation of our Financial Institutions segment gives us a third exciting platform for growth. DI was growing revenue at double-digit rates before the acquisition. And as we combine Intuit's leading consumer and small business applications, and our proven skills of ease-of-use and customer-driven innovation with Digital Insight's industry-leading online banking platform and strong distribution capability, we think we can accelerate that growth rate.

We've been working together for nearly a year on a new small business online banking offering which we expect to launch this summer. We believe it will raise the bar and begin the development of version 2.0 next generation online banking solutions. That's why I feel so great about this year, and the years ahead.

Thanks to all of you for your support and to all the Intuit employees that stay so focused on delivering for our customers.

Now, let's get to your questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). Our first question comes from Heather Bellini of UBS.

Heather Bellini - UBS

Hi, thank you. Good afternoon, Steve and Kiran. I was just wondering if you could talk a little bit about your Consumer Tax business this quarter. You guys had a really tough comp, if I recall. And to see that business up as much as it is, given the fact that I think last year at this time you had about, if I'm not mistaken $40 million flow in to the January quarter because of the change in the rebating. What do you think was driving that this quarter? And if you could shed any light in terms of how some of the new offerings are being accepted into the market? Thanks.

Steve Bennett

Well. Heather, the gap between such strong performances in revenue was driven primarily by strong retail buy-in for some merchandising and promotional efforts, all of which are on the desktop software side. We still continue to see the filing patterns extend in this year, total units are what, plus one versus at the same time last year we were plus five. I think that we feel that the season is playing out pretty much the trend I have seen in the last eight seasons, and with all the puts and takes between quarters. We also had some price increases in retail which increased the revenue on a year-over-year basis. But those are really the two big drivers on why revenue was up 18 and units in total were only up one. I think you will see us be aggressive on the web going forward, and we still feel comfortable about the guidance we've given for Consumer Tax and I think it will be another good season.

Heather Bellini - UBS

Well Steven, can I just ask a follow-up then? In regards to your outlook, you guys have been talking about how unit growth and revenue growth should pretty much equal each other. But over the last few years, that hasn't been the case. Your revenue growth has been outpacing unit growth by a pretty nice margin. What would cause that to change this year?

Steve Bennett

I think it's hard to predict, there are so many moving parts, Heather. I think at this point on the desktop units, we clearly are going to grow revenue faster than units. On the web, we'll still have to see. As Kiran mentioned, we're going to experiment more aggressively with a free federal offering where we charge for state add-on services, because we think that might help us expand the category and serve customers that we haven't served as well up to this point. I think the desktop products we clearly had more revenue than units. We'll have to see how the web comes down. That's why when you put it all together for the whole season, the units and revenue, we still feel comfortable on the 10% to 15% growth range.

Heather Bellini - UBS

Okay, great. Thank you.

Operator

Our next question comes from Laura Lederman of William Blair.

Laura Lederman - William Blair

Yes. Good afternoon. Just a few questions. One, could you talk about the integration so far of Digital Insight, I realize its early days, but how are things going versus plan? Any thoughts as to what type of turnover there has been if there has been any? And then I'll have another follow-up. Thank you.

Steve Bennett

Sure. Laura, to be honest, I don't know how. I talk to Jeff Stiefler, who runs that business for us this morning. I don't know how it could be going any earlier at the risk of sounding too bullish. I think we are already talking about to have candidates for Intuit to move into help on customer-driven innovation. Jeff and I had talked about a candidate. We talked about a couple of marketing candidates there to move into DI. They are up on our network, that all happened in the first weekend. I'm not aware that we've lost anybody so far based on the acquisition. I think the advantage we had is the teams dated for a your partnership and we decided we liked each other. I was down at a session with the top 70 or 80 people at Digital Insight last week, and I would just tell you the people are still very positive and bullish. And, so we feel great about the acquisition and we feel great about next generation online banking. So, no news here, other than we expect continued strong performance from that business, now that is a part of Intuit.

Laura Lederman - William Blair

Back to the point of the tax selling and retail leading to the difference between units and dollar increase. Can you just talk a little bit about those promotions? Are they different than in years passed? In other words, does that give you an edge-up versus other companies in terms of the tax software? I haven't been out to a lot of the stores to see the promotions, but can you talk a little bit about what's going on from a promotional standpoint?

Steve Bennett

Yeah, a couple of thoughts. The two factors were higher price in retail, because clearly we raise the price and that would have given us some lift versus unit growth. And the second was buying in for supporting merchandising programs. I think the thing that's always hard for us to know is whether it's pulling demand in from the future or whether it's creating an expanding demand. I mean, so far the data that we show on retail our shares our relatively flat in total. So some of that may just be timing, would be my guess. So, we know the price leverage of retail is real and some of it on the unit growth maybe more timing. We'll just have to wait and see. We'll have a better view of this when we release the next set of results in March.

Laura Lederman - William Blair

Thanks so much.

Operator

Our next question comes from Adam Holt of JP Morgan.

Adam Holt - JP Morgan

Good afternoon. My first question is about the QuickBooks business. I was wondering if you look at the business year-to-date, you are looking at about 5% growth. You've got a pretty tough comp in the third quarter. But you seem to be comfortable that we are still going to get to double-digit growth at the midpoint of your guidance. Can you talk a little bit about what gives you the comfort with the acceleration in the back half of the year for QuickBooks? And maybe as a second question, are some of the newer services and relationships like Google starting to ramp more quickly?

Steve Bennett

Adam, couple of quick thoughts. Actually the comparison in the third quarter last year is an easier compare than it was last year at this point in time. So, we actually have one of the reasons why we are quite confident is, the year-over-year compare is easier. The second is, as you may have heard, as we've done the last two years in consumer tax, we've launched some advertising for QuickBooks which has been giving us a nice lift in units. So it's really a combination of those two things, better compares, easier compares, and then the lift we are seeing from advertising that makes us feel comfortable with QuickBooks. And we feel like we will be solid in the range that we gave at the beginning of the year on QuickBooks. On the Google stuff, we are gaining some momentum, but I would tell you its still early and we haven't seen a huge lift on that yet. But I think we are making progress and learning everyday and we are quiet excited about the longer-term opportunity for that.

Adam Holt - JP Morgan

And if I can turn for a minute to ProTax, you mentioned upfront there were about $45 million and it's a one-time revenue impact in the quarter. Were any of those related to the ProTax line in the quarter? Was there any change in seasonality around that business that you are starting to see?

Steve Bennett

No. It's really just the forms availability and that's why, it's in our deferred revenue. So, the deferred revenue balance that went up 15% is revenue that's already booked. It just will flow through in the third quarter. And so, sometimes this happens at the end of January 31. You don't get all the forms in, so that you can sell the product and book all the revenue, but we know its coming. So it's just timing.

Adam Holt - JP Morgan

Terrific. And just one last question, if I could, on the Digital Insight side. CheckFree just announced to the acquisition of Corillian. I was wondering if may be you could comment on what you think that does to the relationship with CheckFree and Digital Insight, if anything?

Steve Bennett

Yeah. I don't think it has any impact, because the CheckFree is a partner of Digital Insight for the bill payback and service. They are partnered with both Metavante and CheckFree. And so, I don't see any direct impact on that and you will have to see how that evolves.

Adam Holt - JP Morgan

Terrific. Thanks very much.

Steve Bennett

Thanks, Adam.

Operator

Our next question comes from Brent Thill of Citigroup

Brent Thill - Citigroup

Thanks. Steve just on the consumer tax side, I think this year-to-date you already have 20%, your guidance for the year is implying 10% to 15% growth. And I think you have alluded that you expect the tax season to be more backend loaded in Q3. So, I guess what are the dynamics that you are seeing or why you think that would decelerate through the year?

Steve Bennett

Okay. I get the tricky question about this quarter when we look at it. It has to do with the nature of the retail sell-in and the price we got early in the retail, which overstates potentially the revenue growth based on relative units. I mean, look, the units are up one and revenue is up 20%. That would tell you that there is a mismatch in timing. And so, as we look forward, there is always some uncertainty at this time of the year. At the end of the day, it's going to be how strong our units and really how strong our web units and at this time of the year, it's really hard to call the total season and that's why we have a mismatch in timing at this point.

Kiran Patel

And Brent just a small point, it's up 18%.

Steve Bennett

Year-to-date that’s up 20, and it's up 18 in the quarter, but year-to-date 20. The math is right, it's just a question of mismatch on timing. With only 1% unit growth so far, remember last year, we had 5% unit growth at this time and we ended up with over 20%. So it's just sometimes hard to predict the curve and how it's going to come in at the web. What we know for sure, and I think this is the big message for all our investors. We know for sure there's going to be $135 million give or take federal 1040's file. We've seen and shared with you the fact pattern for the last six or seven years on what percentage of those $135 million are going to be filed using self-prep software. And every year we've been gaining, self-prep software has been gaining a part of that $135 million. So that's the first question. The second question is what happens to our share of that self-prep software. Those are really the two questions that you have to think about and evaluate its whole market. But that's why timing for us is less, we're less concerned about other than how the whole season comes down. What percentage of the $135 million does self-prep software get, and then what percentage of that do we get? So far we're feeling pretty good about what we're seeing. But there's still a long way to go in the season.

Brent Thill - Citigroup

Okay. And just a quick follow-up. I know you've been reluctant to share your secrets in the healthcare market, but as you alluded to, this summer we'll see the first release. Can you give us just a sense of, kind of where the first spot you're headed with it. And I guess we'll wait for more of the secrets later in the year?

Steve Bennett

I think you actually, going to have to wait for more of the secrets. Even today the story hasn't changed. It's really focusing on helping consumers manage the financial aspects of their healthcare challenges, given the fact that more and more are being asked to manage things that are more complicated, disputes in HSAs and FSAs. So there is a lot of customer pain out there and that's what we're focused on. And our Version-1 fashion is starting to solve when we launch our first product which is expected to be this summer. As we get closer, we'll share more of the details, but it's still too early to let the cat out of the bag.

Brent Thill - Citigroup

Thanks.

Operator

Thank you. Our next question is comes from Philip Rueppel of Wachovia Securities.

Philip Rueppel - Wachovia Securities

Great, thanks and good afternoon. Couple more questions on consumer tax. First of all, the impact to the FFA has that been about as anticipated or is there anything unusual there? Second of all, you had mentioned refund cards, I know it's early in the whole filing process. But is any qualitative thoughts around whether that's working better or worse than last year? And then finally, you mentioned your share perspective on the retail side, how about your view of sort of how your market share gains or losses from the government's e-filed data, how is that going?

Steve Bennett

On the Free File Alliance front, I think we announced today we were up how much, 7%? 7% year-over-year, so we feel good about how we've participated in partnership with the IRS and the Free File to come up with a consumer free zone in the Free File Alliance. So I think that's playing out Phil pretty much as we expected. With respect to refund bonus, I actually haven't seen any debt. Just think it's not material in terms of the total scope of things.

Philip Rueppel - Wachovia Securities

Right.

Steve Bennett

And the share on the web. The answer is hard for us about that is it's really hard. You deal separate web versus desktop, so you got to really bake into a bunch of numbers and do a bunch of assumptions and estimates that I will be nervous to share any data with you about, because I couldn't prove any of it. So, I think at the end of the year, I think we just keep going in how we're doing in units, and we'll get the data from the IRS and see how it all plays out.

Philip Rueppel - Wachovia Securities

Okay. So, its kind of implicit in your revenue guidances consistent share or slight share gains?

Steve Bennett

I wouldn't want to comment on that. I think the answer is at the end of the year was 10% to 15% revenue growth.

Philip Rueppel - Wachovia Securities

Okay.

Steve Bennett

And over the last six years, the category has grown 10. But as Heather mentioned earlier, on retail we have gotten some price this year. So, I think the best guidance on it is still revenue and price. Our revenue and units will grow about the same, but that's a combination of a lot of moving parts that all adds up to that. Clearly on the retail side, we've raised price and we're going to get more revenue per unit, and maybe on the web we are going to be a little bit more aggressive and might have a little bit less revenue per units that all yields out to be revenue and units about the same. But we'll have to see.

Philip Rueppel - Wachovia Securities

Okay, great. Thanks, that's it for me.

Steve Bennett

Thank you.

Operator

Our next question comes from Bryan Keane of Prudential.

Bryan Keane - Prudential

Hi, good afternoon. Online tax is up about 50% paid at this time last year. This year, if I'm looking at the numbers right it's up only 4%. Is that a concern for you guys, that drop-off from 50% last year?

Steve Bennett

Say again, Bryan?

Bryan Keane - Prudential

I think paid Online tax is up about 50% at this point last year. Now it looks like if I am reading the data right, it's up about 4%? Is that a concern, that drop-off from 50 to 4 or is there something in the 50% that boosted that number that you tend to get back later in the year that you are planning on this year?

Bob Lawson

Hi, Bryan, it's Bob Lawson. I think we didn't expect the kind of wild web growth that we saw early in the season last year when we were up so much at this stage. And also keep in mind, it's still early days for the web or for the retail season, we are still pretty early on the web and we are about where we expected to be overall.

Bryan Keane - Prudential

Okay. Any idea how you guys are doing in terms of market share gains or losses? I guess both on the desktop and the web so far year-to-date?

Steve Bennett

Retail, the data we show sees that in total. It's relatively flat. And we have been competing against pretty aggressive competitors using price very, very aggressively and we still seem to be holding our own. Maybe if they have gone down to pretty low prices, I think we may have lost a couple of points a share in the last couple of weeks. But in total for the season, we think we are relatively flat. On the web, it's just too early to tell and all the stuff going on and there's a lot moving parts. But, I would tell you, I don't expect web units to grow 57% this year. And that's why we still feel comfortable with 10% to 15% growth for revenue per our consumer tax.

Bryan Keane - Prudential

Okay and then just switching over to QuickBooks. I am having a little bit trouble getting on to the website. Year-to-date, QuickBooks' revenue is up 5%. Can you just give us a sense of how units are doing and the three or so categories that you guys have year-to-date?

Steve Bennett

Yeah. In aggregate, on a year-to-date basis and the QuickBooks' software units are essentially flat with the same period last year with a good mix shift. Premier units are up 26% and so in aggregate that's up flat.

Bryan Keane - Prudential

Okay. And the mix shift is the reason why you'll get that higher, the revenue is up 5 but units are flat?

Steve Bennett

Yeah. We are doing well at a bunch of low-end stuff and we are doing well on the high-end stuff. But Pro is not doing as well on a year-over-year basis. So, I think as always, the line now it's becoming more mature. It's becoming more right for me and consumers are picking the thing that's right for them, which tends to be more bifurcated than what we used to have a few years ago when we had more one-size that fits all offerings.

Bryan Keane - Prudential

Okay and then just finally, Kiran, the stock-based comp, what's that number for the fiscal year '07, I guess implied in the guidance?

Kiran Patel

It's running at above $19 million a quarter for the first two quarters. I would expect that to be the trend for the balance for the year. Call it between $75 and $80 million.

Bryan Keane - Prudential

Okay. Thanks a lot for the help.

Steve Bennett

Thanks, Brian.

Operator

Our next question comes from Jim MacDonald of First Analysis.

Jim MacDonald - First Analysis

Hey. Good afternoon, guys.

Steve Bennett

Hi, Jim.

Jim MacDonald - First Analysis

Yeah. On Payroll, you said you are divesting substantially all the Complete business in Premier. Is there some piece you are keeping? I'm a little bit confused with that.

Steve Bennett

Yes. We are selling customers a customer base and sales force and a couple of facilities. But there are some people that were using those offerings that we believe are self-directed that we are going to keep and try and convert into our assisted product.

Jim MacDonald - First Analysis

But essentially all of the assets of CBS and the Premier business are going over to ADP?

Steve Bennett

Yeah. Essentially, except some of the customers that are staying.

Jim MacDonald - First Analysis

Okay.

Steve Bennett

Yeah. But essentially I think that's accurate. I think that's the simple way to say, but I mean, it's not precise, but it's accurate.

Jim MacDonald - First Analysis

Okay. And then switching to low-end QuickBooks, you just mentioned that Pro is not doing well but the real low-end is apparently doing well. Can you talk a little bit more about that and why that's happening, because the low-end in general seems to have tailed off a bit this year?

Steve Bennett

I think it's still early. We are in the middle of the season and I think we think that Simple Start is aggressively growing to help people convert non-consumption. We've been much more aggressive in promoting Simple Start targeted to 22 million Home and My Business customers, just trying to convert them from non-consumption to buy our product, and Simple Start is getting rave reviews. So, we are gaining momentum on that. QuickBooks Online continues to grow.

So, we think the way we continue to grow QuickBooks is to grow the category and expand the category. And that's what we are doing and then sell a full range of solutions that help customers migrate to us. And we are seeing continued growth in POS enterprise and the Premier Flavors. So, I mean our strategy is working as we planned. Let's see how the numbers come out at the end of the third quarter. We feel good at another good solid season in QuickBooks. It won't be a blowout season like we've seen in the last two years, but it's still going to be another good solid season.

Jim MacDonald - First Analysis

Steve, just one quick follow up. You are not worried about cannibalization of your free product and Microsoft's free product?

Steve Bennett

We obviously keep a very close eye on that and what we see is, that we are both targeting the same customer, the 22 million folks with non-consumption. We feel that Simple Start, which we've had a free edition of Simple Start up for a while, competes very, very well against everybody and that's why it's doing well. So, we would expect to continue to use Simple Start as our low-end platform to help us expand the category and compete with whoever we are seeing in the low end.

Jim MacDonald - First Analysis

Thanks.

Operator

Our next question comes from Scott Schneeberger with CIBC World Markets. I'm sorry if I mispronounced your name.

John Glass - CIBC World Markets

That's fine, it's John for Scott. Good afternoon, guys. Just wanted to, first ask you about QuickBooks in the TV advertising. This is, I think, the first year for that. How effective do you think that has been this year? I think you mentioned during the call that it did have an impact overall on advertising. But specifically how did TV impact results? And then I just have a quick follow-up.

Steve Bennett

Yeah. We don't share the specific list that we see in the test markets. But we've been doing this for four or five years in Consumer tax with pretty rigorous methodology where we test. And then every year we found the returns, and we've take the spending up.

This is just the first year we've ever done that. It's TV, it's radio, it's comprehensive. So far it's giving good results and we're pleased with the returns. So, we'll get a lot of learning this season and figure out how to factor that into what we do next year. But it's giving us a lift. But I'd rather not say at this point what that specific lift is.

John Glass - CIBC World Markets

Great. And then just one quick follow-up. Can you give us an idea of which week the updates for the March TurboTax unit data will be reported? Which week in March?

Kiran Patel

We haven't made that decision yet.

John Glass - CIBC World Markets

Oh! You haven't made a decision yet? Okay, thank you very much.

Steve Bennett

We think it's about March 20th, right? It's about a month from now is what we're guessing. I guess 15 to 20.

John Glass - CIBC World Markets

When do we think we'll know?

Steve Bennett

We will make a decision next couple of weeks.

John Glass - CIBC World Markets

Great. Thank you very much.

Operator

Our next question comes from Glenn Greene of ThinkEquity Partners.

Glenn Greene - ThinkEquity Partners

Thank you. Good afternoon guys.

Bob Lawson

Hi, Glenn

Glenn Greene - ThinkEquity Partners

I guess the first question, I wanted to go back to the Consumer tax and the retail buy-in. I was wondering if there a way for you to quantify what the incremental impact was? Did you get $15 million to $20 million revenue due to the buy-in this quarter or any way to quantify that or think about that?

Steve Bennett

That's why you get the big bucks, Glenn. You get to figure that stuff out on your own.

Glenn Greene - ThinkEquity Partners

That's dangerous, though.

Steve Bennett

Too big ground for both of us. But two big factors, price is the part and the buy-in was the part. And units were up 1 and the revenue was up 18, and you can allocate between those two things. That would actually explain the difference between units and revenue.

Glenn Greene - ThinkEquity Partners

Okay. That's helpful. And just quickly, Payroll business looks like it's a $45 million to $50 million business that has been sold, roughly revenue run rate.

Kiran Patel

On an annualized basis, yes. For the six months, it's a $21 million to $23 million impact.

Glenn Greene - ThinkEquity Partners

Okay. And Digital Insight, I think you said $120 million to $125 million assuming. That look like, not a big yield, but it looks somewhat conservative, given their trajectory and run rate and growth profile. So you are just being cautious there?

Steve Bennett

I think we'll have to do a good job of investing to the investors. As Digital Insight signs four year contracts on average, they'd renew 25% each year. It's 93% recurring revenue, all software to service, all the kind of characteristics we like. There are no huge jumps that are going to happen in the short term.

It's a subscription business, four year contracts. There is no big license fee arrangement. And Digital Insight signs a new customer, its like Payroll or payments to recurring revenue. So I think you will see us try and accelerate the rate of the curve, but there will be no hockey stick, quick big bump-ups and so we'll share the key drivers there with investors in next quarter's fact sheet, so that we can be as transparent as we can, on what drives revenue in that business.

Glenn Greene - ThinkEquity Partners

Okay, thank you.

Operator

Our final question comes from Daniel Cummins of Banc of America.

Daniel Cummins - Banc of America Securities

Well thanks. Couple of questions. Is that a GAAP or non-GAAP revenue convention for the Digital Insight contribution, Kiran? It's GAAP, right?

Kiran Patel

It's GAAP.

Steve Bennett

It's the same for GAAP or non-GAAP.

Daniel Cummins - Banc of America Securities

There is no deferred breakdown. And I guess, CIBC question was a good one on the advertising. My sense has been, I am hearing a lot of your national advertising, TV and radio, around QuickBooks Online. And it did jump this quarter. Is there a strong possibility that you'll double down this national advertising spending even within the current season?

Steve Bennett

No.

Daniel Cummins - Banc of America Securities

Okay. And then last question I had, you've been piloting with some free offers for TurboTax Online, I believe. What contribution has that made to the plus 1%?

Steve Bennett

I think we have tied some, dabbled in some stuff and it is minimal. Basically no, and I think as the season evolves here you will see it feel a little bit more aggressive on that. We've got enough to do some tests and different offerings on our website. We are doing a lot of interesting tests that we've talked to you about. And we've learned a lot of things, and I think the one that we have learnt is a different customer. And so I think you'll see us continue to test and learn and try and try different things to make sure that we are competitive at the low-end of the market as I said at Investor Day and also collecting for the value that we add at the high-end of the market. So I think we're going to continue to test and explore and learn new things, because I think that's what the web is all about. I am pleased with the progress that Brad Henske and the team are doing to continue to learn how the market works, and help for us to be even more successful as the leader in the market.

Steve Bennett

Thank you.

Operator

Gentlemen, I'm not showing any further questions. Would you like to proceed with any further remarks?

Steve Bennett

I'll just close by saying; not a lot of moving parts in this quarter hard to understand. I think we're taking a little bit of short-term pressure on these two negative $0.03 hits to do absolutely the right thing long-term for the company. Our Payroll growth is going to accelerate much faster now, and we think Digital Insight is going to be nicely accretive to our long-term growth rate and another growth platform.

I am looking forward to a solid strong third quarter and talking to you again at the third quarter, as we're on path for another great year for Intuit. Thanks, everybody, for their support. Goodbye.

Operator

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

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