Intuit Conference Call Summary
Intuit (NASDAQ: INTU) reported its third quarter earnings on Wednesday. Shares of the company traded up 0.83 percent or $0.64 to $77.48.
Below are some key takeaways from the company's conference call:
Brad Smith, President and CEO:
• Today, we reported third quarter revenue of $2.4 billion, up 14%. Overall, I feel very good about our performance. Let me begin by sharing my reflections on the quarter, starting with our Consumer Tax business. In the U.S., TurboTax Online units grew 14% and total TurboTax units grew 10% for the season. Both results were double last year's growth rates.
• Our investment in product improvements paid off across the board, and we now expect Consumer Tax revenue to grow about 7% for the fiscal year, handily beating the original guidance of 4% to 5%.
• And finally, while we delivered revenue growth above our guidance range and achieved our goal of growing our customer base several points faster than revenue, the end result was a decrease in revenue per customer of about three points for the season. This was expected as we strive to build a strong foundation for the future through category and unit growth.
• While these are compelling metrics, I'm most proud of the results we generated on our product investments and our end-to-end experience
improvements. We spent 10% less on TurboTax marketing versus last year, yet we increased traffic and both conversion and retention improved. In addition, our support calls declined by more than 20%, and our Net Promoter Scores improved as well. While our primary goal was to take share this season, these product investments as an effective marketing strategy drove Consumer group margin expansion as well.
• So to put a bow around our progress so far, the secular shift to the cloud is powering our strategy. We're delivering awesome product experiences. We're leveraging the contributions of others, and we're capitalizing on data to deliver real customer delight.
• Executing against this strategy, we won this tax season. And on the small business side, our subscriber growth in the online ecosystem continues to accelerate both domestically and globally. So with that overview, I'll turn it over to Neil to walk you through the financial details.
• So we're pleased with our strong finish to the tax season. We grew the digital category, took share, and plan to come in above the high end of our original revenue guidance range in Consumer Tax. However, as we shared before, we're just getting started. It will be a multiyear effort to re-imagine the tax preparation experience, but our teams are already working on the product for next season.
• On the small business side, our momentum continued to build and our transition to the cloud continues to accelerate, driving value for customers and for Intuit. We see a lot of opportunity in front of us and we remain deeply committed to accelerating customer and revenue growth.
Neil Williams, Chief Financial Officer:
• Thanks, Brad. Let's start with overall company results. For the third quarter of fiscal 2014, we delivered: revenue of $2.4 billion, up 14%; non-GAAP operating income of $1.56 billion, up 16%; GAAP operating income of $1.49 billion, up 17%; non-GAAP diluted earnings per share of $3.53, up 20%; and GAAP diluted earnings per share of $3.39, up 25%. As you know, these growth rates reflect revenue shifting from our second quarter to the third fiscal quarter.
• Now turning to the business segments, total Small Business group revenue grew 8% in the third quarter. Within Small Business, Small Business Financial Solutions revenue grew 4%. Our financial performance reflects our ongoing strategic shift toward our online ecosystem and core payments offerings.
• Moving to our financial principles, we continue to take a disciplined approach to capital management, investing the cash we generate in opportunities that yield 15%-plus return on investment. With over $2 billion in cash on our balance sheet, our first priority is investing for growth in the business. We also look for M&A opportunities. And through the third quarter, we've made six acquisitions totaling approximately $155 million. When it's the best use of our cash, we'll return it to shareholders via share repurchases. We repurchased 23.4 million of shares in the third quarter and about $2 billion remains on our authorization.
• We expect to reduce our share count by about 4% net this year. And our board approved a $0.19 dividend for the fiscal fourth quarter, payable on July 18. We've provided our updated guidance for the fourth quarter and for fiscal 2014 in our press release. And with that, I'll turn it back over to Brad to close.
• Brad Smith: Our goals this year were to accelerate growth in the DIY digital category, acquire and retain more customers, and take share. We succeeded on all fronts.
• Brad Smith: Total returns received by the IRS grew slightly faster than our expectation of 0.5 point. The DIY software category gained about 1.5 points of share from alternative methods compared to the 1% that we had expected. In fact, IRS data show the DIY E-file group was up more than 6%, contrasted with the assisted E-files being up less than 1% for the season.
• Brad Smith: Within the DIY software category, improvements in our TurboTax product and our go-to-market execution drove a gain of about two points of share. Our plan was to win share within the context of the multiyear journey towards our ultimate product vision. But we made great strides this season focusing on improved experiences for new filers with simple returns and for returning users.
• Brad Smith: Now shifting to small business, our cloud solutions continue to build momentum, and our subscriber growth is accelerating. QuickBooks Online subscribers grew 36% in the third quarter to 624,000, adding more than 60,000 net customers in the past quarter.
• Brad Smith: QuickBooks Online subscribers outside the U.S. were up more than 130% to 64,000, further accelerating from the 90% growth last quarter. Total QuickBooks subscriber growth, which includes QuickBooks Desktop and Enterprise plans, grew 30%, and we're quickly approaching the 1 million subscriber milestone. And last but not least, Intuit Online Payroll subscribers also grew 23%. Each of these growth rates represents an acceleration from the prior quarter, and we are quite pleased with the ongoing success of our online ecosystem.
• Brad Smith: As we look ahead, our goal is to win every new small business customer and to win every cloud decision with the new QuickBooks Online. In service to this goal, we expect our desktop units to decline, and that is a trend that continued once again this quarter.
• Brad Smith: On the payments front, as we mentioned last quarter, we shifted our strategic focus to QuickBooks merchants, which support our ecosystem approach. We improved our payments integration within QuickBooks and we simplified our pricing. More than 80% of new customers are now selecting our pay-as-you-go pricing model instead of paying a fixed monthly fee.
• Brad Smith: As a result, our current period growth rates are being impacted by these decisions, but we think these are good decisions as we've realized our pricing to be more competitive, and we've consciously shifted away the emphasis from the non-core payments businesses. Even with the strategic repositioning of our Payments business and the business model shift to the cloud in QuickBooks, we continue to expect small business revenue growth of 10% this year.
• Neil Williams: QuickBooks revenue grew 7%, while Payments revenue was flat.
• Neil Williams: Customer acquisition in our online ecosystem continues to drive growth. QuickBooks Online subscribers grew 36%. QuickBooks Desktop subscribers grew 22%. QuickBooks Enterprise subscribers grew 18%. QuickBooks Desktop units declined 12% versus last year, as we continue to lead with our online ecosystem. The shift in business model and the acceleration of QuickBooks Online growth combined to lower small business revenue growth by about a point this fiscal year.
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