FOOL CONFERENCE CALL SYNOPSIS*
By Debora Tidwell (MF Debit)

Intuit, Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: INTU)") else Response.Write("(Nasdaq: INTU)") end if %>
2535 Garcia Avenue
Mountain View, CA 94043
(415) 944-6000
http://www.intuit.com

UNION CITY, CA (March 1, 1997)/FOOLWIRE/ --- Intuit, Inc. reported second quarter fiscal 1997 results after the market close yesterday. Revenue for the quarter was $266 million, up 21% from last year and that was within, but at the lower end of the range of analyst estimates. They look at earnings two ways. On their normalized basis, excluding acquisition-related charges and the one-time gain from the sale of their banking/bill pay operation to CheckFree, net income for the quarter was $52.3 million or $1.10 per share, beating analyst estimates by $0.02 per share. On a GAAP basis, reported net income was $115.9 million or $2.44 per share. This includes all the acquisition-related charges and one-time gain from the sale of the banking/bill pay operation which amounted to $71.2 million net of taxes. Excluding the gain, net income from continuing operations were $44.7 million or $0.94 per share for the quarter. The results for this period did not include the banking and bill-pay operations sold to CheckFree. These results have been accounted for as discontinued operations.

This quarter's results were driven by continued strong growth in the company's business products and financial supplies groups as well as the release of the final versions of all of their 1996 tax products. Direct sales in tax, small business, and personal finance were stronger than anticipated and their Internet businesses grew dramatically, albeit from a small base.

SIX MONTH RESULTS. For the six months ended January 31st, net revenue grew 15% to $368.5 million. Net revenue reflects net revenue from continuing operations and does not include $4.1 million in net revenue attributable to the company's former online banking and bill payment transaction processing business. Normalized net income for the six months, excluding acquisition-related charges was a profit of $38.3 million or $0.81 per share versus a profit of $31.7 million or $0.67 per share on a reported basis last year.

TAX PRODUCTS. Although it is too soon to assess the success of their tax season, they did have a strong launch. Both their personal and professional tax products were released earlier this year than ever, getting their personal products into the retail channel faster and extending the selling season. The products are very feature-rich and easy to use this year. Product reviews have been even more favorable than last year. Importantly, their overall product quality is extremely high this year with no significant calculation bugs reported to date for either group. Within their personal tax group, net revenue for the quarter increased 16% versus the same period last year. With the earlier release of tax products including most of their state products, the majority of the retail sell-in for the season occurred in the second quarter. Through the end of January, retail sell-through was up substantially from last year, however they should note that H&R Block appears to be more aggressive at retail this year with pricing and promotion of Tax Cut. They should also note that direct sales have been stronger than they expected for Turbo Tax. Revenues for the professional tax group grew in double-digits in the quarter versus the prior year due to a number of factors including earlier release dates, selective price increases, strong up-selling, and a general migration to higher-priced products. Pro Tax contribution is up over last year due to lower component costs, a mix shift to more CD-based products, and higher product quality resulting in lower warranty costs.

SMALL BUSINESS PRODUCTS. Revenues from their business products group continued to grow at a strong pace both at retail and direct. Revenues grew in excess of 40% in the quarter and units at nearly 30%. A key driver for this growth was the release of QuickBooks 5.0 in late December that resulted in solid sales growth both from new customers and upgrades from existing customers. This quarter's results compare favorably to last year due to the timing of the new release as QuickBooks 5.0 was released earlier in the quarter, allowing the opportunity for re-orders and more direct upgrades business. Business product revenues from other sources continued to grow at a rapid pace as well with Tax Table, fees for customer support, and cross-selling at Parsons continuing to grow substantially.

THE FINANCIAL SUPPLIES GROUP. Revenues for the financials supplies group which also services their small business customers grew in excess of 20% for the quarter again. This is another business that underlies the company's improved direct marketing efforts related to their large installed Quicken and QuickBooks base.

PERSONAL FINANCE. Quicken remains the most popular personal finance software in the market today with more than 80% share of retail sales in its category. Quicken for Windows retail unit sell-through rose 14% versus the year-ago quarter. Direct sales of Quicken grew much more strongly driven by upgrades and sales to OEM consumers and are now a significant portion of Quicken sales. Combining the direct and retail channels, the company estimates that Quicken strong share of sales is essentially unchanged year-over-year. Despite Windows progress, total personal finance revenues declined slightly, reflecting lower Quicken for Macintosh sales, a lower average selling price, and lower sales of non-Quicken software products. The company is cautious about further growth in personal finance as they expect softness in consumer software during the remainder of the year.

PARSONS. Parsons revenue for the quarter increased 10% over the prior year's quarter driven predominantly by the release of their tax product line. This is slower growth than they had expected for the year. They know that in their review of Q1 results that Parsons revenue was affected by lower response rates on direct mailings, catalogs, and shipping inserts. They now project this trend to continue through the remainder of the year.

INTERNATIONAL REVENUES. International revenues in the second quarter were flat on a year-over-year basis, both for the quarter and year-to-date. Revenue comparisons for international, particularly Europe, are difficult with last year because of the timing of product releases and the fact that revenue was skewed to the first half last year due to channel management issues in Germany. Tax products international are selling well, Canada for example had a strong quarter as a result of its successful product Quick Tax. Japanese revenue was up modestly on a yen basis but, due to currency fluctuations, was down slightly in dollars. As a part of their plan to build a presence in small business accounting internationally, they have previously announced that they intend for their Milkyway KK subsidiary to purchase Nihon Micon KK. Nihon Micon brings a strong product line that is becoming increasingly popular in the retail channel in Japan. The transaction, valued at approximately $39 million, is expected to close in the current quarter.

INTERNET BUSINESSES. While relatively small in revenues, these businesses are the fastest growing and represent a major part of Intuit's future. Unfortunately, comparisons to last year are not very relevant as these are new businesses. Included in this category are interactive insurance services, network and QFN sites with their associated advertising transactions and partner fee revenues. This has been a busy quarter in terms of partner building.

OPERATING INCOME. Although revenues were slightly below expectations, operating income of $79.9 million was up 24% as a result of tighter expense management. As a percent of revenue, gross profit was slightly better and operating expenses were flat with the comparable quarter last year. Gross profit improvement of about 0.5% of revenue was driven primarily by the impact of the $10 million license fee from CheckFree for Quicken Connectivity. Without the effect of the license revenue, the gross margin percentage was essentially flat. Importantly, while they held operating expenses as a percentage of revenue flat, they did ship the mix from customer support and G&A to R&D and sales and marketing by about 1% each. This results from improvements in utilization of their call centers as well as higher quality products that generate fewer calls. Interest income was $1.8 million or 34% higher than last year, reflecting the increase in their average cash balance. The tax rate was 36% and the shares were down slightly as a result of fewer in-the-money options. Excluding acquisition-related charges, normalized net income in the quarter was a profit of $52.3 million or $1.10 per share versus a profit of $40.8 million or $0.85 per share last year.

BALANCE SHEET. Many of their balance sheet changes quarter-to-quarter are due to the seasonal nature of their business. Cash, cash equivalents, and short term investments have grown $105 million over the quarter and $73 million over the year. Sales and collections are typically higher in the second and third quarter and the year-over-year growth is due to increased sales and lower capital expenditures. They have a new line item on the balance sheet this quarter, short-term marketable securities of $179.6 million. This represents the 12.6 million shares of CheckFree Corporation that Intuit acquired as part of the sale of the banking and bill pay operations. Net accounts receivable were $146.3 million at quarter end. The increase from last quarter reflects the seasonality and the increase over prior year is actually less than the sales growth as a result of better collections. Property, plant and equipment balance of $78.9 million has decreased $18.2 million. The decrease reflects the sale to CheckFree and the resulting reduction in assets. Other accrued liabilities of $140.7 million includes several categories of reserves. This quarter's balance increased $80.6 million from the most recent quarter and increased $39.6 million from last year. Approximately $20 million of the change from last year is the reserve resulting from the sale of their banking operations. The remaining change from prior year is in line with higher sell-through, rebate, warranty, and post-contract support reserves resulting from higher sales. Deferred revenue at $29.6 million is essentially flat with last quarter and increased $13.8 million from last year. The increase is due to higher remaining balances from their tax headstart products, growth in their tax payable revenues which are amortized over a 12-24 month period, and deferred maintenance fees in Japan which they did not have last year. Another line item related to the CheckFree sale is deferred income taxes. The balance of approximately $45 million represents the deferred taxes resulting from the gain on the sale as this was treated as a tax-free transaction.

OUTLOOK FOR THE REST OF THE YEAR. They do see slower revenue growth in the second half than they previously expected due primarily to softness in consumer software sales in both personal finance and Parson's product lines. They now anticipate total revenue for the year to be in a range of roughly $600-620 million. They do believe, however, that they can continue to reduce expenses in line with the slower revenue growth so that full-year earnings per share will still fall in the range of analyst expectations, although with some shift from third quarter to fourth quarter. They think 12-15% operating margins are realistic looking 3 years out. For the next couple of years they expect they will see operating margins somewhere between where they are at an 10%. They wouldn't expect margin expansion over the next fiscal year. Their software tends to be lower net margin than many other companies because they have higher tech support costs and they have higher expenses in getting state and tax software out in just a short season. They see opportunities to improve that. The tech support, for example is a good leverage they are working for improvement in. What will build their margins are the new Internet-based businesses because they tend to have no costs and virtually no tech support, so once you get volume on the fixed cost of building the engine, some of these look like they will be very profitable. It will take 2-3 years for those to be enough of a percentage of the mix of revenue to have an effect on margins.

BUSINESS/OPERATIONS OVERVIEW

One can look at Intuit as an Internet company that, unlike most, already has a predominant customer base and built-in brand preference. Or, one can look at Intuit as a PC software company that, unlike most, has a big growth opportunity ahead coming from new Internet businesses.

SOFTWARE BUSINESSES. They are delighted with the implementation they have had in their tax areas this year. They have won 100% of the trade reviews and the reviews have been glowing. The Consumer Reports review is a gem, particularly because of their independent, unbiased status. The business is doing well by any measure -- the best product quality they have ever produced and product feature additions that are very notable, such as the "Where am I?" feature that inside what can be a very complex process with dozens of forms always lets the customer know and navigate to exactly where they want to be. The Tax Center, the Refund Monitor, the Improved Final Review that looks at your final return and compares it to the US average, and the seamless implementation of states are all things that they have been looking to get into their products for years. They also this year launched the Java-based, on the Internet, 1040-EZ. They don't expect a lot of volume on that this year. This is a test bed for them of taxes delivered by the Internet. In fact they are using the Internet in many ways in their tax businesses including the sale of the state versions, rich tax information in the Tax Center, but frankly this is only the preamble to the Internet efforts of the next few years.

Tax-Cut is very aggressive this year at retail in pricing and promotion. This is yielding some sale prices as low as $5 for Tax-Cut. Very often they are priced $5-15 below TurboTax. This was surprising to Intuit and they think it is odd that H&R Block which has a large number of independent franchisees who run Block tax centers and sell tax returns at around $50 a throw, it is interesting how long Block can subsidize the money losing software business to get prices of $5 to $15 for tax returns in competition with their franchisees who are charging $50. While this may not be a durable strategy for Block, Intuit is treating it as if it is. They are responding vigorously at retail and have achieved loss-leader sale prices at some accounts as low as $12 for TurboTax. They just got the January PC Data numbers and they confirm that their response is working, they are outselling Tax-Cut 4-to-1 on dollars and 2.5-to-1 on units in sell-through.

BUSINESS PRODUCTS. The new release of QuickBooks 5 has taken an already strongly growing business and pushed it to even stronger growth rates and a new record high share of sales, the highest they have ever achieved on QuickBooks. They have received ecstatic reviews of the new version of QuickBooks. The Accountant Review feature allows people to continue to run their books while their accountant goes in and revises. The picture process-oriented user interfaces means that if you don't know the terms, you can find the right part to go in the program by looking at a picture and a custom form. Peachtree and MY aren't doing that well. They haven't figured out how to compensate for the technical and product weakness they have compared to the product architecture in QuickBooks.

PERSONAL FINANCE. On the one hand they are very excited because they have executed very well. Their product is great, the reviews have been tremendous. It has new features like Quicken live Internet feature and their debt reduction feature. The advertising and marketing, the in-store merchandising, the product quality, tech support levels are all good. In fact they think it is very notable that company-wide their tech support expense growth has been slower than their revenue growth. This is a turnaround in a long-term trend where their tech support costs have been rising more rapidly than their revenues and it is a trend that a lot of people have worked very hard to make happen. At the same time, Microsoft has a new version that shipped last year. It shows less progress in the progress and evidence of less investment than Intuit had expected. In fact, Intuit has been expecting Microsoft to launch a revised version of their product any month now and it hasn't yet come out. Microsoft, like H&R Block with Tax-Cut, is trying to make up for it with strong in-store merchandising, the heaviest Intuit has ever seen in the 5 years they have competed with Microsoft. But, in spite of that, the overall share of sales appears to be unchanged. On the other hand, the category growth of standalone personal finance software is not as fast as any of them would like to see. Consumer software is not as robust and personal finance software is not as robust as they would like to see. They have run their Quicken business for customer acquisition, not for revenue growth because of that. The goal of the build is to continue to amplify that base of loyal and happy customers from which they can derive other revenue and deliver volume into their new Internet-based services. We will see increased focus from Intuit on deriving profits from that base. At the same time, they are not content with slower growth in consumer finance software. That's why they are working the Internet to drive new businesses to produce new growth. The basic reason that is possible is that the Internet enables them to deliver new kinds of benefits they just could not deliver with standalone software.

INTERNATIONAL. In international, they see one notable trend which is real progress in their tax software businesses in a number of countries, not only the US and Canada where in Canada QuickTax has won every major review, but also in Germany which is a tough tax market with a tough competitor. Intuit's product has won all reviews there but two ties, and initial volumes are up nicely versus a disappointing year-ago period. In France they also launched their first tax software product. Microsoft Money has gained share versus Quicken in France and the UK. This has occurred at the end of their product lifecycle. They will launch a new version of Quicken in those two countries next month and expect to make real progress in reversing this share loss. Also, Sage, the big European accounting software company that Intuit competes against in several countries, is now rumored to be acquiring KHK. KHK is the leading German accounting software company. Intuit doesn't view this as bad news. They compete very successfully against Sage in the UK and in the US and that is largely due to Sage's focus. They focus on the VAR channel and have VAR-oriented products whereas Intuit focuses on retail and have a retail-oriented product and business.

PARSONS. It is notable the disappointing classes at Parsons. Interestingly, Parsons' businesses appear to be strongest where that business relates to Intuit's core financial focus, such as their tax business. Where they are seeing disappointment is where there is not a synergy with the rest of Intuit, in their areas such as publishing products, religious products, and genealogy products.

THE INTERNET. The slowing growth in personal finance software is not a fault of execution. Intuit feels they are executing well. The Quicken business grew in units, but not in revenue and that is below what they expected. They think the big thing that will change the growth rates in this category is not minor pieces of execution but a fundamental new benefit that adds on top of the benefits people already get. You have to have something big and something new. That is where Intuit sees the use of the Internet and is why they are so focused on Internet-based businesses which allow them to deliver new benefits they couldn't do before with standalone software. One of the big benefits is saving people money. This has been a period of a bunch of interesting Internet milestones, while they still have many yet to come. Among those milestones is a tremendously strong traffic growth and registered user growth across their Web site. As mentioned in the press release, Intuit is now Top 50 in consumer use from home of Web sites. They've got significant applications up, going beyond just the use of HTML and the Web, they have significant software applications up on the Web site. The two of note are the Retirement Planner in the Quicken Financial Network Web site -- actual software to help people plan how much they need to save for retirement -- and the 1040EZ online tax preparation application that is up on their Web site that was mentioned earlier. They have expanded the number of insurers they work with. They are making real progress toward building the Internet market spaces of the future. They have pushed traffic volume or registered user volume up past some significant milestones and added to Quicken Live CNN/fn this past week as well as Money Magazine, The Wall Street Journal, The Motley Fool, and USAToday as participants in the Quicken Live Internet feature in Quicken. One last achievement is, together with Beneficial Finance, they are pioneering online lending for tax customers where loans can be made at delightful economics because of the existence of a tax form.

INSURANCE VIA THE INTERNET. In insurance, they have two competitors in the Web arena. One is a company located in California named InsWeb. They are partially owned by a number of insurance companies, principally CNA. They do not, in general, do the multi-insurer firm quoting capability that Intuit is focused on. They have that, however, in auto where you can get live quotes from two companies if you are a resident of California, but the interface isn't very good and it does not appear to be built on scalable technology. This is important because you want to be able to serve people in every state, not just one, and you want to be able to serve a lot of carriers. So, it appears that they have a technical bridge to cross there before they can expand. Quick Quote, a firm that gives live term-life quotes from a number of carriers is also a competitor. Intuit thinks they have done a fairly good job of getting a number of carriers up and are ahead of Intuit there. However, their business model is one that Intuit thinks they will lap and pass. They involve traditional agents to close the sale and deliver the paperwork, thus they have a set of fairly expensive mouths to feed built into their economics. Intuit's system involves agents if the insurance firm wishes, but is also capable of not involving agents and the cost they require. It is up to the insurance firm and the customer. Looking forward in the whole area of bringing buyers and sellers together for financial products, they think there is an immense opportunity with thousands of financial service providers, insurance companies, lenders, and others. The difficulties people have, even in the Internet world, is figuring out who has got the best deal in insurance or in a small business loan or mortgage. That is why the only way to solve it is to combine the Internet and the current software engines they have build on the server side for insurance. Important milestones ahead for Intuit is to be able to expand the number of insurance carriers, the number of carriers actually up and on the site quoting, so people can get a bunch of quotes, not just one or two quotes. That's when they think customers will start seeing the value that will turn them into buyers. Selling the insurance companies is something Intuit has mastered quite well, they are selling them faster than they can technically get them up on the site. They have sold nine companies but still only have a few quoting. There is a technical backlog there that they have to work through. Then, beyond life insurance, they need to expand into additional forms of insurance and additional kinds of financial services. When they are done, they think that consumers will benefit and word of mouth should be dramatic if people save hundreds of dollars making the financial decisions that they need to make and can do it in as little as 15 minutes from the convenience of their home. Nothing like this has ever existed before and they think it is revolutionary in its impact to the delivery and distribution of financial service product.

BANKING VIA THE INTERNET. There was big news this quarter in this area. The key objective is connectivity. There was a real risk that among the various banking groups out there, including Visa and Integrion, etc. that there could have been a vulcanization of the banking connectivity area with four standards with three-fourths of the financial institutions incompatible with Quicken. That would not be good. So the big news of the quarter was the OFX conversion, the fact that they have broad, wide, and speedy adoption of OFX or Open Financial Exchange (a combined set of protocols that Intuit, Microsoft, and CheckFree assembled). This has been adopted broadly without a major dissention because it was done and done well. Most importantly, big players like Integrion and Visa who were moving in different directions with standards are now working with them and supporting their direction with OFX and are leading in that as well.

* A Fool conference call synopsis represents an effort to highlight the salient points of a conference call and should not be taken as an authoritative accounting or transcription of the entire event. Note: Statements made by a company other than historical information may constitute forward-looking statements for which the company can claim protection under the Safe Harbor Act. Please consult the company's filings with the SEC for information on risk factors which might cause actual results to differ materially from the information contained in these forward-looking statements.