Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Intuit Inc. (NASDAQ:INTU)

F2Q08 (Qtr End 1/31/08) Earnings Call

February 21, 2008 4:30 pm ET

Executives

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

Brad Smith - President and CEO

Neil Williams - CFO

Scott Cook - Founder

Analysts

Heather Bellini - UBS

Brent Thill - Citi

Aaron Schwartz - JPMorgan

Vikram Churamani - Lehman Brothers

Scott Schneeberger - Oppenheimer

Philip Rueppel - Wachovia Securities

Laura Lederman - William Blair

Jim McDonald - First Analysis

Ross MacMillan - Jefferies

Operator

Good afternoon, my name is Denise and I will be your conference facilitator today. At this time I would like to welcome everyone to the Intuit Second Quarter 2008 Conference Call. (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

Thanks and good afternoon everybody, welcome to Intuit's Second Quarter Fiscal 2008 Conference Call. I am here with Brad Smith, Intuit’s President and CEO, Neil Williams, 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 2007, 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 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 Brad Smith.

Brad Smith

Thanks, Bob, and thanks to everyone for joining us. As you read in our press release, Intuit delivered a very solid second quarter with revenue of $835 million and non-GAAP EPS of $0.40. We believe revenue would have been $8 million to $12 million higher without the delays in the finalization of some tax forms and the acceptance of the [e-file] returns by the IRS.

Highlights include 12% unit growth in consumer tax till February 16, driven by TurboTax Online and continued strong double-digit growth in the Payroll and Payments segment after adjusting for sales of certain assets to ADP.

We are experiencing some lower unit growth in our QuickBooks segment than we expected, and overall we're pleased with the results for the quarter and first half and look forward to another year of strong financial performance.

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

Neil Williams

Thanks, Brad. Let me start with a summary of the second quarter’s results. Revenue of $835 million was up 11% year-over-year. Non-GAAP earnings were $0.40 per share. On a year-over-year basis non-GAAP EPS was down $0.04 per share, driven mainly by the deferral of $23 million of Protax revenue from the second quarter to the third quarter.

The deferral was driven by changes to our offering that resulted in revenue being recognized as [e- commerce]. Those services were delivered primarily in Q3. On a GAAP basis, we earned $0.34 per share versus $0.40 last year.

The second quarter 2008 results include revenue and earnings from Digital Insight which was acquired in February 2007, and excluded approximately $23 million of Protax revenue that is deferred to the third quarter. Results for 2007 include revenue and earnings related to certain assets sold to ADP in the third quarter of 2007. Adjusted for those items, revenue would have grown approximately 9% in the second quarter and non-GAAP EPS would have been $0.47 per share up 7% from last year.

That EPS growth rate is lower than the revenue growth rate, because revenue is shifting to later in the year but cost remained relatively evenly balanced throughout the year. Consumer tax second quarter revenue of $248 million was up 11% over the period a year ago. Total consumer tax units were up 12% through February 16, driven by growth in TurboTax Online. We're pleased with the results of our early season marketing efforts and with TurboTax unit growth overall.

As expected, all the growth in the category is coming from the web. That said the desktop market is still substantial. We are executing well and we've gained actually 3 points of share at retail compared with the second quarter last year as unit share retail is now 85%. We will issue our next tax unit sales update in March and another in April at the end of the tax season.

Professional tax revenue of $105 million was in line with expectations. The results reflect deferral of $23 million of revenue from the second quarter to the third quarter compared with last year. The results also reflect a decision to discontinue our ProSeries Express product which generated $4 million of revenue in the second quarter of last year.

Total small business revenue grew 3% in the second quarter and 5% for the first half. Adjusted for the sale of favorable assets to ADP small business growth it was 10% for the second quarter and 11% for the first half.

Within small business, QuickBooks revenue of $175 million was up 5% over the year ago period. On a year-to-date basis, QuickBooks revenue was up 7%, 1 point more than first half 2007. Though we are showing growth in the quarter and first half, we have seen a 4 point year-over-year decline in the financial accounting software category in the retail fiscal year-to-date. Our share is up 2 points in retail and we are continuing to grow our online business. But unit growth has been less than expected, and we are adjusting guidance for the QuickBooks segment to reflect current market conditions.

The Payroll and Payment segment has continued to deliver excellent growth with revenue of $138 million for the quarter. Adjusted for the impact of the ADP sale, that's up 16% year-over-year. The revenue growth was driven by 20% growth in payment customers and 4% growth in transaction volume per customer.

Financial institution’s revenue for the second quarter was $72 million. The calculated growth rate for this segment is not meaningful because the acquisition of Digital Insight was completed in February 2007. DI's core internet banking business grew slightly more than 9% in the second quarter. Internet banking end user grew 11% and bill pay end user grew 20%.

The growth rate for DI's core internet banking business is slightly lower than it has been due to lower growth and active end users through the first half. Our projection of internet banking end user edge for the second half looks strong. Our other businesses segment revenue of $96 million was up 12% over the year, driven by strong results in our Quicken and Real Estate Solutions businesses.

Moving to the balance sheet. Intuit ended the second quarter with $837 million in cash and investments. Cash flow from operations was $199 million. Capital expenditures were $57 million during the second quarter. This is up from $24 million in the same quarter a year ago. The increase is driven by investments in our new data center and expansion of office capacity to support our growth.

We used $250 million to repurchase $8.2 million shares of Intuit stock during the quarter. As of February 01, we have $300 million in authority for future share repurchases and have a 10b5-1 plan in place to allow us to consistently repurchase stock throughout the year. The previously announced acquisition of Homestead Technologies Inc. closed on December 18, 2007 and is reported as part of the QuickBooks segment as of the second quarter.

Homestead is the leader in website and webstore solutions for small businesses. On December 19, 2007 we announced we had signed a definitive agreement to acquire Electronic Clearing House Inc. or ECHO. ECHO was a leading provider of electronic payment processing solutions including check, debit card and credit card processing, as well as check verification, collection and guarantee services and Automated Clearing House capabilities or ACH.

[To honor] the terms of the agreements, Intuit will pay $17 per share in cash in exchange for each year of ECHO common stock, including shares dissolvable on exercise of options. The total purchase price was approximately $131 million on a fully diluted basis. The acquisition is subject to ECHO shareholder approval and other customary closing conditions and it's expected to close in the first quarter of calendar 2008.

Moving to fiscal 2008 guidance; guidance for 2008 total company revenue is unchanged. Operating income and EPS guidance has changed slightly driven by the following two items. As disclosed in the press release announcing the acquisition of Homestead, the purchase will be slightly dilutive to GAAP and non-GAAP earnings per share for 2008. Including Homestead results we'll reduce 2008 GAAP earnings per share by $0.03 and 2008 non-GAAP earnings per share by $0.02.

Our prior guidance also assumed the renewals of the R&D tax credit. It now appears that tax credit will not be renewed in our fiscal year, and so our effective tax rate will change from 35.5% to 36%. This decreases our non-GAAP EPS by approximately $0.01 for the year. Therefore fiscal 2008 guidance is now revenue unchanged at $3.0 billion to $3.05 billion, which is annual growth of 12% to 14%; Non-GAAP diluted EPS of a $1.56 to $1.58, which is annual growth of 9% to 10%; GAAP diluted EPS of $1.38 to $1.40, which is annual growth of 11% to 13%.

We have also changed our QuickBooks segment revenue guidance from 8% to 12%, and we've changed our growth guidance to 5% to 7% growth to reflect current market conditions. That includes roughly $15 million of revenue from the Homestead acquisition. The change to QuickBooks revenue guidance is not significant enough to affect total company revenue guidance for the year.

We are reaffirming our previous Intuit third and fourth quarter revenue guidance, and providing additional operating income guidance for those quarters. For the fiscal third quarter which ends April 30, we expect the following: revenue of $1.268 billion to $1.293 billion or year-over-year growth of 11% to 14%; non-GAAP operating income of $700 million to $710 million or year-over-year growth of 13% to 14%; GAAP operating income of $644 million to $654 million or year-over-year of 11% to 13%; non-GAAP diluted EPS of $1.31 to $1.34 or year-over-year growth of 16% to 19%; GAAP diluted EPS of $1.23 to $1.26 or year-over-year growth of 18% to 21%.

For the fiscal fourth quarter, we expect revenue of $466 million to $471 million or year-over-year of 8% to 9%, non-GAAP loss per share of $0.05 to $0.03, a GAAP loss per share of $0.14 to $0.12.

With that I will turn the call back over to Brad.

Brad Smith

Thanks, Neil. Before we get to your questions, I'd like to provide some perspective on the second quarter and remainder of 2008, and this year how I feel about the long-term prospects. Let me start with 2008. In tax, we are off to a good start, our focus on ease of use continues to pay off and the improvements we made in our marketing program and our execution has us positioned for another successful season.

We said before the year that we wanted to win at every stage throughout the season playing whistle-to-whistle, wining with [free] and succeeding on the web. And it's still early in the season, but we are pleased with our results. We gained share in retail, and more importantly, we are winning online where we believe future growth will come from.

In small business, the year is playing out a little differently than we expected. QuickBooks units are growing slower than expected, as is the financial management software category. It is hard to say definitely what's impacting category growth, but we believe two factors are playing a role. First, the macroeconomic environment is tougher on small businesses than it has been for some time.

Second, category growth is affected by the marketing efforts of the main players in the category. We are seeing less activity this year from other players, and our own marketing programs are designed to be peaking in the third quarter. What’s important to know is, we aren’t seeing any competitive or structural changes in the market. On the competitive front, we are gaining share in retail, and we are executing online to bring new users into the franchise.

As for the overall market, the facts remain there are 26 million small businesses in the US, with 6 million new businesses starting each year. 60% of those small businesses still haven’t adopted financial management software. We are confident such dynamics will continue to create an attractive long-term growth opportunity for us.

And small business is about more than QuickBooks software. As we discussed before, we view the small business space as an ecosystem space, that leverages stand alone software and related services. While the stand alone software segment is growing slower than expected year-to-date, the services components of the small business ecosystem continue to perform well led by the Payroll and Payment segment. The total small business revenue adjusted for the ADP sales is still growing double digits despite the current market conditions.

Moving to our Financial Institutions business, we are now coming up on our one year anniversary since the acquisition of Digital Insight. With four quarters under our belt, the strategic rationale for this acquisition is as compelling as ever. However, it's clear that we underestimated the complexity of taking DI's offerings to the level where we wanted to be. We have recognized this fact, we are on the right track, we have the right team in place to make progress. if needed moving forward. We are also seeing good growth in our other businesses and that’s why I'm confident that we will deliver another good year.

Now let me talk about my longer term perspective, starting with our people. We filled several key positions and now have a fully staffed and strong leadership team in place. Our leaders and all of our employees are focused as we begin the next chapter for Intuit. They are continuing to deliver for customers and they have a contract to deliver another good year.

And looking beyond this year, one of the questions I often get asked is, how our future strategy will differ from what Intuit has done up until now. Well I had a part in developing that strategy and I believe in it. And so a lot what you see will be the same. However, we do recognize it's increasingly becoming a services world, many of which are delivered online. As we continue to nurture our growth engines, you are going to see us apply even more focus on services, which are already nearly half of the company's revenue and are highly profitable.

We also recognize that the world is a dynamic one. It's a world where customer behaviors continue to change. Where and how we get work done is changing, and the geographic boundaries that have confined us in the past are coming down. We will be ready for this change. We are already embracing it today. Social technologies are fueling the way our ecosystem interacts, they are enabling our customers to connect with other customers, accountantss with other accountants, third party developers with other developers and end users, and all with the level of speed and ease that we have not seen before, and we are helping to facilitate that dialogue.

We are also observing the evolution of the work place and the computer. Mobility is evolving from a work place luxury to a business necessity, and the computer is moving from the tops of our desks to the palms of our hands. Our leaders and more importantly our engineers are actively assessing the implication and opportunities to this trend for our customers.

And finally we're seeing the borders of the traditional business landscape come down. Whether it's employing great talents across the globe as evidenced by our own recent expansion of our R&D team in Bangalore, India, or the fact that many of customers are already doing business across the world, new opportunities are emerging in other markets and we will find new ways to embrace them.

I am excited about what lies ahead for all of us and I look forward to sharing our plans to win in this changing world as the future unfolds. But I'd like to close by bringing us back to why I am excited about today. We have three strong growth engines, and we are as confident as ever about the growth that we see in them. Our categories remain under penetrated, and we will continue to grow by offering better ease and value in alternative solutions. I feel good about this year and about the excellent foundation we have in place, and I see opportunity all around us if we execute well.

Thank you for your support and thanks to all of Intuit's employees who are so focused on delighting our customers. And now I will turn back to Denise for questions.

Question-and-Answer Session

Operator

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

Heather Bellini - UBS

Hi, excuse me, thank you very much. Brad I was wondering if you could comment a little bit on the type of weakness you're seeing in the QuickBooks market and in particular, what in your view is that the result of? Is it the lack of new businesses starting up because maybe they can't get financing or is there something else that's just causing people – is it just kind of a general freeze in the market?

Brad Smith

Yeah. Thanks Heather. It's actually tough to nail note down definitively. What I would say is the press that you see is the same press we see. Small businesses are out there competing in this market and the small business customers we serve are very much like consumers. And so a lot of small businesses today will operate their business with lines of credit, credit cards, home equity loans- and we know the condition there.

But I also want to be careful, because we are unable to prove any causality with the economy. There is other thing at play. The category is down 4 points. We are the category leader. And I would say that in addition to the fact that we know that some of our marketing efforts are more backend loaded. The other thing is this year as we released our products we put a lot of efforts into making sure we are Vista compatible and quite frankly, that hasn't played out the way we hoped.

So I think we can put a combination of variables together. The economy is definitely one piece of that. Yeah it is showing up in small business sentiment, but once again we are a product that's pretty affordably priced and it's a mission critical [lap]. So I think it's a combination of things that are playing into the QuickBooks segment, for this point here.

Heather Bellini – UBS

Okay, thank you.

Operator

Our next question comes from the Brent Thill of Citi.

Brent Thill - Citi

Thanks. Just on the consumer and Protax: are there any hurdles left in some of these certain tax forms that need to be uploaded to not be filed or are all those constraints now removed from the process?

Brad Smith

Hi Brent this is Brad. Actually those constraints have now been removed from the process. As you can see from the results that we've reported, we think there's somewhere between $8 million to $12 million of revenue that shifted from Q2 to Q3, but by and large all the delays that we had seen have already been resolved and now it's just up to the tax-payers to get their tax returns filed.

Brent Thill - Citi

Okay. You don’t expect anything as it relates to any other hurdles through the rest of the tax season?

Brad Smith

No, we don’t. We know that the $140 million in returns need to be filed sometimes between now and April 15.

Brent Thill - Citi

Okay and just a quick follow-up on the financial institution business. The last three quarters have been sequentially flat. Can you just walk through what you are doing to help reinvigorate the growth rate as it relates to the financial institution business?

Brad Smith

Yes, sure. I would say a couple of things about financial institutions business. As we said before, we think it is a great strategic asset for us and a long-term play. We also continue to see record sales in our pipeline and record retention levels with our customer base. But we also acknowledge that we have some lumpiness right now as evidenced in the second quarter.

If you look at what we see coming up in the back half of the year, we do have a forecast that has guidance that there's a lot more active users on the back half of the year, the pipeline starts to get implemented into actual sales. So by and large, I think that what you see right now is just a process of us having made the acquisition, having the market get comfortable of that fact, and us being able to integrate [DMCs] the business into Intuit and now get into execution mode.

Brent Thill - Citi

Thanks.

Operator

Our next question comes from Aaron Schwartz of JPMorgan.

Aaron Schwartz - JPMorgan

Hi, good afternoon. I had a question on the consumer tax business in terms of the timing of filers. I don’t know if you have this data historically, but when you've seen a consumer led recession, has their been any impact on the timing of filers whether people look to file earlier for chance to get a rebate.

Brad Smith

You know Aaron, we haven’t seen anything to that effect. What we do know is that filers are going to have to get their returns filed April 15. There has been a natural move closer towards the back end of the filing season over the last several years, but nothing that I have seen correlates to the situation in the economy.

Aaron Schwartz - JPMorgan

Okay, thank you. And just a quick follow up on the QuickBooks business. I know you talked about the units being a little below where you expected, but with the sales that you didn’t see in the quarter, have you seen any increases in ASPs there, do you have any commentary on that?

Brad Smith

No, in fact what we do in the small business base is we mange it for a life time value, and what we are seeing is still healthy growth with our Payroll and Payments business which is a part of the small business ecosystem, and in terms of ASP we've seen nothing that has jumped out surprisingly.

Aaron Schwartz - JPMorgan

Okay. Thanks for taking my questions

Brad Smith

Okay, thank you.

Operator

Our next question comes from Vikram Churamani of Lehman Brothers.

Vikram Churamani - Lehman Brothers

Hi guys just a couple of quick questions. First on tax, pretty solid unit growth there. Did you guys sign any bulk deals this quarter which you guys passed on last quarter?

Brad Smith

You know, Vik, thank you. We actually are feeling pretty good about the results as well. In terms of the bulk deals, as we said, we were going to aggressively go after this deal this year. We had lost two deals last year. The team did just that, they got into the competitive biding process and I was very pleased with the way we interacted in that process. At the end of the day the price came back to a level that we didn’t think made economic sense and so we did not get those two deals back, but the better news is despite not getting those two deals you can see the healthy growth rate which reflects pure consumer demand and great execution on the part of Kiran Patel and the team.

Vikram Churamani - Lehman Brothers

Okay, great. And just on the QuickBooks side, I see a new metric you guys put on your fact sheet which is the Free Simple Start Activations. I don't believe it was there before. Do you expect that number to accelerate maybe and what's your assumption in terms of unit growth based off of that number? Because when you kind of back that in, your number is about 3% growth for the simple start category.

Brad Smith

Yeah you know Vik we are early in the game and learning about how free is going to play with small business space. much like over taxed. There is a new number that's a number of people who downloaded a free application and registered. We are liking what we see right now in terms of the free downloads and the [cash] rates but we haven't provided any guidance in terms of what we expect of that particular program going forward.

Vikram Churamani - Lehman Brothers

Okay, great. Thank you.

Brad Smith

Thank you.

Operator

Our next question comes from Scott Schneeberger of Oppenheimer.

Scott Schneeberger - Oppenheimer

Thanks, good afternoon. If I could start on QuickBooks, I think Brad you said something about the marketing spend peaks in the third quarter and it was my understanding historically that second quarter has been the strongest quarter. Could you just clarify the timing of the marketing spend on that and what trends you are seeing into the current quarter?

Brad Smith

Yes you're correct that typically there is a fall launch period and we have marketing activities which we did out last year and we did again this year. But in terms of TV and radio and some other incremental advertising efforts, we actually had this scheduled more for the third quarter this year. If you take a look at last year, we came out of the gate actually about a point below where we are at this time a year ago to date. But we have pretty strong back half, somewhere in the neighborhood of 20 plus percent in third quarter and I think 12% in second. So we knew we had a pretty strong roll over and we put some power in the back half to try to make sure we were able to put some strong results in Q3. So that's really what the decision was this year going in to the year.

Scott Schneeberger - Oppenheimer

Okay, thanks. And kind on the same topic but going over to TurboTax. I believe it might have been in the press release, you might have said in the prepared remarks, but I think I heard that there is some increased marketing spend I guess towards the beginning of the season. Could you speak to basically the timing of the marketing budget this year for TurboTax?

Brad Smith

Yes we learned last year that we had played back in the first half, we had held back and we came out in the back half of the season. This year we decided we are going to play with what I refer to as whistle-to-whistle. From the moment we blew the whistle at the start of the season till the end of the game. And so what we do is we put our marketing efforts across the entire season not just the back half, and you can see that some of those results are showing up right now at year-to-date. So the incremental investment which you see is compared to prior year.

Vikram Churamani - Lehman Brothers

Okay, thanks. And just as far as the marketing line item for you guys for the full year, do you imagine that will trend with revenue as I think you said in the past, or might we see an increase this year.

Brad Smith

Yeah, we expect (inaudible) and we expect it to trend as we had said at the beginning in the year.

Vikram Churamani - Lehman Brothers

Okay, thanks. And I believe you've also said R&D should trend a little bit higher- just some background on what you guys are looking into and where you are spending those dollars? Thanks.

Brad Smith

Yeah, this is Brad. We continue to invest on our core code basis to ensure they are fresh and we are able to keep a productive engineering group and release new products that helps small businesses and consumers solve important problems. We are also investing in R&D efforts to make sure that our infrastructure is in place and so you'll see us continue to invest in R&D and make sure that we can be competitive in the market and also be the most productive we could be internally with our engineering groups.

Vikram Churamani - Lehman Brothers

Okay thanks very much. Thank you.

Operator

Our next question comes from Philip Rueppel of Wachovia Securities.

Philip Rueppel - Wachovia Securities

Great, thanks very much. Back to consumer tax, now that you've fully deployed the free version, can you talk about what sort of trends are in the mix for consumer tax versus basic premier, pro, etc. Is that above what you had expected or was there any difference that you saw in the quarter, and in sort of the price realized for consumer, is that sort of trending where you thought it would?

Brad Smith

Yeah, thanks for the question Phil. We don't release the mix on the free versus the different skews. I will tell you that we are excited with the program we have in place. We do believe that managing the lifetime value of the customer in tax makes a lot of sense, and right now we are very happy with the results.

Philip Rueppel - Wachovia Securities

Okay. And then just vis-à-vis pricing, any change compared with your competitors, are you seeing any greater price pressure in the consumer tax segment or less this tax season?

Brad Smith

No we are not. We are saying exactly what we have heard at the first of the season and what we expected to play out.

Philip Rueppel - Wachovia Securities

Okay, great. Thank you very much.

Operator

Our next question comes from Laura Lederman of William Blair.

Laura Lederman - William Blair

Yeah, hi. Thanks for taking my question, just a few additional thoughts. One is, in the past you guys have said that during economic downturns your QuickBooks business is not impacted. What do you think is different this time versus past economic downturn, and separately how is the on-demand business doing and is that any healthier or has that slowed down as well? And then I have another question. Thanks.

Brad Smith

Yeah, thanks Laura. So first on the economic side, we do see over the long-term that we are resilient to the economic ups and downs. And what typically happens is, when the economy gets tough, larger businesses end up laying off employees and many of them start small businesses, and I think that that's going to continue to play out of the situation as well. That's why it's very hard for us to say that the economy is the only factor impacting QuickBooks.

Yet still [I think] it might be a little different this time as this is more of a consumer led economic downturn, and many of these small business are like consumers, and they finance their small businesses on a credit card, or home equity loan. And so while we don’t have any data right now that I can point to that says there is causality, there is enough of a feel here in terms of what we are hearing and seeing in the market to say it certainly played a role in its overall picture.

But long term I would tell you, I believe the viability of the small business market in economic upfront and downturns- this is a great place to be in the market, and we are well positioned.

On the second piece on the on-demand business, we are excited with what we are seeing in on-demand. We are getting very aggressive there. We've had a great offering in the market for many years, we're growing that customer base that continues to grow a very healthy double digit rate, and I think you will continue to see that well in to the future.

Laura Lederman - William Blair

And has that business been slower than you expected, too, or is it really too small to date to really get a sense of trends?

Brad Smith

It's small relative to our over all portfolio, it's large relative to the comparable alternative, significantly larger than any other player in the market and it is performing as we had hoped and we are going to invest in its growth.

Laura Lederman - William Blair

More of a long term to question, you mentioned that you are going to focus more on services going forward, I guess just give us a little bit of sense of what you mean by that

Brad Smith

I sure can Laura. If you think about this small business ecosystem, you clearly see that in this past year Payroll and Payments, now are roughly the same size as QuickBooks software. They are actually growing about three times the rate on a compounded annual growth rate, and so we like these kinds of businesses. We also see that our software to service product lines whether the QuickBooks Online edition or even TurboTax Online continued to grow at a healthy cliff, and we have a new pipeline of products coming out like our standalone Payroll products we released this past fall, and the acquisition of Homestead Technologies. And so those are the types of businesses that we believe as long as they are solving important customer problems, they are great businesses for us and we are going to continue to invest in those businesses if the customer begins to adopt these types of services.

Laura Lederman - William Blair

And will that be external growth and acquisition or more internal growth?

Brad Smith

A combination of all the above.

Laura Lederman - William Blair

Thank you.

Operator

Our next question comes from Jim McDonald of First Analysis

Jim McDonald - First Analysis

Hi. Two questions on financial institutions. The user base seems to be growing more quickly than revenues, can you talk about that and also could you give us maybe a revised time line on the development of the new financial products there.

Neil Williams

Yeah Jim, this Neil Williams. You are right that the revenue has been a little bit slower in DI; we are still doing very well in terms of adding end users. As Brad mentioned earlier, the process of implementation and conversion is taking a little bit longer than we thought. We feel very good about the pricing, the margin compression is about where we thought it would be when DI joined Intuit. But the implementations have been slower than we thought. So we're very focused on that and have a great team on the ground there, and we do have a good pipeline net ads to end users scheduled for the last half of the year.

Now as you know this has a lot to do with bank conversions, so there can be things in the minds and on the businesses of our customers that can affect those implementation schedules, but we are doing every thing on our side to be sure that we can implement those as quickly as they come along and as quickly as our customer's requests.

Brad Smith

Jim to the second part of your question around finance works products. We are continuing to make good progress there. Clearly we are not on the schedule that we had originally anticipated. We are still in test with three of the financial institutions, we're getting really good feedback from the daily users. But we have not announced at this point any date for broad deployment. We are continuing to work towards making sure that we have the learning we need to roll out a product that we are going to be proud of in the market.

Jim McDonald - First Analysis

Okay, thanks.

Operator

Our next question comes from Ross MacMillan of Jefferies.

Ross MacMillan - Jefferies

Thanks. Just coming back to QuickBooks, Brad. Can you just talk about linearity, I mean as you went through month by month in the quarter did the numbers gradually get further away from plan or was it more consistent through the months, thanks?

Brad Smith

You know Ross it's interesting we came out of the first quarter in the year as you may recall looking pretty healthy and then we got in to the early months in the second quarter and we saw a pretty significant shift in the run rate of the business. We've had some weeks that have responded well and we've had some weeks that haven't. So there hasn't been any linearity here. What we do know is the overall category is down about four points.

We see it as part of our responsibility to grow that category and the good news is in this [pass it] down category we've picked up two points a share. So there isn’t anything I can point to in terms of linearity. I think it's just a matter of trying to get our finger on the right levers and trying to find through, if any short term market conditions- if they are having an impact, and making sure we also learn lessons from our own decision that we've made, so that we come out of the gates strong heading into next year.

Ross MacMillan - Jefferies

And then just on financial services, the comments that you made around some things. Customers have things on their minds that can impact timing. Is any of that related just to what's going on within the credit markets in the banking sector overall or is it very specific to particular costumers, you know internal issues away from that?

Neil Williams

Well again as Brad said, it's hard to draw a straight line between an event on our side and an event on our customer side. We do know, and in conversation with all these financial institutions, that they are clearly focused very much on their cost structure, they are focused on credit quality, and they have an agenda that may be is a little different than it was six months or 12 months ago, when we signed an agreement and established an implementation date.

That said, that means the implementation date may slip a bit, but we still have a strong commitment from those, we still have a very strong pipeline going forward. So we can't point to anything definitively on the banking side, other than we know that they've got a lot of other things going on that may be weren’t there when we signed the contracts and scheduled implementation initially.

Ross MacMillan - Jefferies

That makes sense, thanks. And one very last one, Neil. On closing ECHO can we expect - I think you mentioned that would also be slightly dilutive. So is that still to come into the numbers, in other words, we could still have a few pennies of dilution from ECHO when it closes?

Neil Williams

That is still to come, that's correct. It's not in the numbers that we gave you today.

Ross MacMillan - Jefferies

Thank you.

Operator

Gentleman, I am not showing any further questions. Would you like to proceed with any additional remarks?

Brad Smith

Thanks Denise and thanks to everybody else. Once again just want to reiterate: we feel good about where we are right now at this point in the season. In fact, we feel good about where we are as a company for the full year. I appreciate your support and am looking forward to seeing you the next time.

Operator

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

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Intuit Inc. F2Q08 (Qtr End 1/31/08) Earnings Call Transcript
This Transcript
All Transcripts