Bob Lawson, Vice President of Investor Relations, Financial Planning, Analysis Steve Bennett, President, Chief Executive Officer Kiran Patel, Chief Financial Officer Scott Cook, Intuit, Founder

Heather Bellini, UBS Adam Holt, JP Morgan Bryan Keane, Prudential Laura Lederman, William Blair Jim MacDonald, First Analysis Greg Smith, Merrill Lynch Michael Millman, Soleil Securities Scott Schneeberger, Lehman Brothers Brian Fitzgerald, Morgan Stanley Dan Cummins, Banc of America Securities

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 2006 Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer period. If you would like to ask a question during this time, simply press the "1" on your telephone keypad. If you would like to withdraw your question, press the "#" key. With that, I'll now turn the call over to Bob Lawson, Intuit's Vice President of Investor Relations and Financial Planning and Analysis. Sir, you may begin. Bob Lawson, Vice President of Investor Relations, Financial Planning, Analysis: Good afternoon. Welcome to the Intuit second quarter 2006 conference call. I'm here with Steve Bennett, Intuit's President and Chief Executive Officer; Kiran Patel, our Chief Financial Officer; and Scott Cook, our Founder. Before we get started, I'd like to remind everyone that our remarks will include forward-looking statements. There are a number of factors that could cause Intuit's results to differ materially from our expectations. You can learn more about these risks in the press release we issued earlier this afternoon, our Form 10-K for fiscal 2005, and our SEC filings. All of those documents are available on the Investor Relations page of Intuit's website at www.intuit.com. We assume no obligation to update any forward-looking statement. Some of the numbers in this presentation will be presented on a non-GAAP basis. The most directly comparable GAAP financial measures and the reconciliation of the non-GAAP financial measures to GAAP are provided in today's press release. After the call concludes a copy of our prepared remarks will be available on our website. With that, I'll turn the call over to Steve Bennett.

Steve Bennett, President, Chief Executive Officer: Thanks, Bob. And thanks to everyone for joining us. As you've read in our press release, Intuit just delivered another strong quarter with revenue up 15% year-over-year driven by strong performance in our QuickBooks and Consumer Tax businesses. Non-GAAP diluted EPS was $0.97 per share, up 21%. Recall that our decision to eliminate TurboTax rebates and bundle federal and state software changed the timing of Consumer Tax revenue recognition. This moved about 35 million from the third quarter to the second quarter. So without this change, second quarter revenue would have been up 9%. I'm pleased with our progress as we enter the second half of the fiscal year. With that, I'll turn the call over to Kiran to walk us through the quarter details. Kiran Patel, Merrill Lynch, Chief Financial Officer: Thanks, Steve. Let me start with a summary of the second quarter's results. Revenue up $743 million was up 15% year-over-year. Non-GAAP EPS was $0.97 per share, up 21% over second quarter 2005. On a GAAP basis we earned $1.02 per share, $0.25 greater than last year. Second quarter GAAP results include a $0.14 per share gain on the sale of our Information Technology Solutions business and approximately $0.06 per share in share-based compensation expense. Now, let's review the business segment results. Second quarter Consumer Tax revenue of $190 million was up 35% over a year ago. Without this year's shift of $35 million in revenue from Q3 to Q2, Consumer Tax revenue would have been up 10%, which is about the same growth rate we had in the second quarter of 2005. Our efforts to make TurboTax simpler and easier to use are paying off again this year. Through February 4th, TurboTax Federal Paid unit sales were up 6% year-over-year. At this point last year our units were up 3%. We're particularly pleased with the growth in TurboTax online with fully paid, Web tax units up 48% through February 4th. As we've said before, in the last several years, we have seen a trend for Consumer Tax sales to shift to later in the season; at retail and in total. We believe the trend is continuing this year. Overall, we're pleased with our season-to-date performance in Consumer Tax and believe we are on track for another strong year. Now, let's turn to our QuickBooks-related segment, which had an outstanding quarter. QuickBooks revenue of $259 million was up 16% over second quarter of last year. We achieved strong QuickBooks unit growth this quarter with total units up 21% year-over-year driven by an 18% increase in core QuickBooks, Simple Start, Basic, and Pro units, and a 34% increase in Premier units. We also had very strong growth in our newer QuickBooks offerings. QuickBooks Enterprise Edition units were up 30%. QuickBooks Online Edition had 100% increase in its subscription base. We also had strong year-over-year growth in QuickBooks Add-On Solutions. Revenue from our payroll, Payments business was up 51% year-over-year driven by a 23% increase in the customer base, and a 19% increase in transaction volume per customer. Revenue from QuickBooks Standard and Enhanced Payroll increased 30% as the mix shifted to the Enhanced offering, which includes state payroll forms. Our Professional Tax business was in-line with expectations with second quarter revenue of $151 million flat year-over-year. As has been the case in the past years, we believe more of our Pro Tax revenue is shifting to our third fiscal quarter, reflecting the continuing trend towards paper return. Finally, Intuit brand of Small Business had revenue of $70 million, up 15% year-over-year with Outsourced Payroll up 15% despite the continued attrition of the Premier base. The "Other" businesses segment had revenue of $73 million flat year-over-year. Moving to the balance sheet, Intuit had $834 million in cash and short-term investments at the end of the second quarter, up $137 million from the end of the first quarter. We generated cash as follows in the second quarter: $167million in operating cash, excluding discontinued operations; $172 million from the sale of our Information Technology Solutions business; and $126 million in proceeds from the exercise of employee stock options. We used $300 million to purchase 5.6 million shares of Intuit stock during the quarter. We have $296 million remaining in the current repurchase program. Now, let's look ahead to guidance. Based on the strength of performance to date and greater visibility into the remainder of the year, we have raised our fiscal 2006 EPS guidance and have raised the low end of the fiscal 2006 revenue guidance. We now expect revenue of 2.22 billion to $2.26 billion, which is an annual growth of 9 to 11%; earlier guidance was for annual growth of 8 to 11%. Non-GAAP diluted EPS guidance of $2.27 to $2.32, which is an annual growth of 13 to 15%. Prior guidance was $2.23 to $2.31 of growth of 11 to 15%. GAAP diluted EPS of $2.16 to $2.21. Prior guidance was for $2.12 to $2.20. As we now have better visibility into the total year, we are adjusting our QuickBooks and Consumer Tax annual revenue growth guidance. Based on the strong results in QuickBooks in the first half, we're raising our QuickBooks revenue growth guidance for the fiscal year to 12 to 14%, up from our previous guidance of 7 to 12%. First half QuickBooks performance benefited from a few factors we don't expect to see in the second half, including easier first half comparisons, category growth of about 30%, and the benefit of fiscal '05 pricing and mix changes in QuickBooks Payroll. We're also adjusting our Consumer Tax revenue guidance for the year to 10 to 12% growth. Our previous range was 10 to 15% growth. While Consumer Tax has been very strong on the Web with Federal unit sales up 48% through February 4, sales have been softer at retail than we had expected. And while TurboTax retail share has been stable, the category is down so far. Also, the launch of our TurboTax Refund Bonus program has been less successful than we had hoped in its B1 offering. While we still believe this program will be a winner in the long-term, it's unlikely to provide much upside in TurboTax this year. Two notes before we get into the third and fourth quarter guidance. First, we have decided to exclude restricted stock compensation, which has an impact of $0.02 per share in fiscal '06 from our non-GAAP results consistent with our treatment of employee stock options. This change has been included in prior period non-GAAP results and non-GAAP guidance. Second, as you know, at the start of the fiscal year it's difficult to precisely forecast the seasonality of our Tax and QuickBooks businesses. Consequently, it's difficult to predict quarterly results until we are well into the second quarter. So now that we have greater visibility into our seasonality, we have significantly lowered the upper end of our third quarter guidance. We've raised our fourth quarter guidance and we have raised total year EPS guidance. We now expect third quarter results as follows: Revenue of 860 million to $880 million or a year-over-year growth of 3 to 5%. You recall that growth is expected to be slower, because Intuit recognized approximately $35 million in Consumer Tax revenue in the second quarter of fiscal 2006 than in prior years would have been recognized in its fiscal third quarter. Non-GAAP operating income of $440 million to $450 million or a year-over-year growth of 2 to 5%. This was also impacted by the shift of the $35 million in revenue to Q2. While the revenue moved the majority of our costs are fixed. GAAP operating income of 416 to $426 million, non-GAAP diluted EPS of $1.62 to $1.66 or year-over-year growth of 5 to 8%. GAAP diluted EPS $1.54 to $1.58. We have raised fourth quarter guidance. We now expect revenue of $310 to $330 million or a year-over-year growth of 3 to 9%. Non-GAAP diluted EPS of a loss of $0.09 to a loss of $0.07. GAAP diluted EPS of a loss of $0.17 to a loss of $0.15. With that, I'll turn the call back to Steve. Steve Bennett, President, Chief Executive Officer: Thanks, Kiran. Let me take a second to share my perspective about the performance of our two largest businesses, QuickBooks and TurboTax, which make up about two-thirds of our revenue. First QuickBooks. We're excited about the results we've delivered so far in fiscal year 2006 and we feel good about the total year. QuickBooks' first half performance has been stronger than we expected. And while we expect second half growth to be solid, it won't be as strong on a comparison basis as the first half for the reasons Kiran shared. Because of the strong first half performance, we've raised our QuickBooks guidance for the year from 7 to 12% growth to 12 to 14% growth. We're happy with this performance during a year in which QuickBooks faced an aggressive new competitor. We think our success says a lot about the strength of the QuickBooks franchise. With regards to Consumer Tax, there's still a large part of the season to play out especially on the Web. While we feel good in total, we don't see all the upside we thought we might have primarily, because of the softness of desktop sales at retail. While TurboTax share remains stable at a high level, the category growth is slower than we had planned. TurboTax Online performance remains strong and ahead of expectations, but we need that strength to offset the retail softness. In total, we feel confident that TurboTax will deliver 10 to 12% growth in this business within our original guidance range, but at the lower end. One final thought. As we've consistently said, we're solving for long-term revenue and EPS growth rather than margin rates. Our long-term objective remains annual revenue growth of greater than 10% and annual EPS growth greater than 15%, and we're pleased with the expected revenue growth of 9 to 11% and EPS growth of 13 to 15% in fiscal year '06. As you know, we've delivered strong operating profit leverage during my six years as Chief Executive Officer. This year we focused more long-term, investing revenue upside in our two large businesses and in white space opportunities like healthcare to drive our growth in the future. So while we're doing a bit better than we thought on both the top and bottom line this year, we're also spending more on investments to fuel future growth. So to sum-up, I'm pleased with where we are. We've delivered a strong first half, and we're on track to deliver another strong year. With that, I'd like to thank all of the Intuit employees for their great work and our shareholders for your support. Now, let's get to your questions.

Thank you. Ladies and Gentlemen, if you would like to ask a question, please press the "1" on your telephone keypad. If you would like to withdraw your question, press the "#" key. Our first question comes from Heather Bellini of UBS. Q - Heather Bellini: Hi, Steve and Kiran. Good afternoon. Steve, I had a question, just one on QuickBooks, and the other on TurboTax and your comments about retail. On QuickBooks is there a way to get a sense for how much category expansion you think you're seeing and any way to kind of give an estimate as to what category expansion could look like over the next 12 months with Microsoft spending more on advertising? And then how much of your success do you think would come, is coming from upgraders due to the strong product reviews that QuickBooks Pro has received? And then the only other question on Consumer Tax would be, at retail I think a lot of people have seen the weakness, and I guess I'm just wondering what do you think, I mean like you said, you're maintaining your share there, but what do you think is going on at retail that unit volume doesn't look as good as you would have expected? A - Steve Bennett: Thanks, Heather. I think you're over the target of two of the big questions that we stay on top of. With regard to category growth in QuickBooks, the category at retail, which is the only data we have visibility into, was up about 30% in the first half of the year. Part of the reason that was so strong is because, you remember we had very strong end-of-life promotions on our QuickBooks 2005 at a time when Microsoft was entering the market. And so we believe that we've got an unusual lift of unit growth at that time versus a normal year, and that's one of the reasons we had such a strong first half. We think the positive reaction to QuickBooks 2006, our best upgrade in more than 10 years, will continue as it continues to get out there. But we have a very tough first half, second half compare. So we expect continued strong growth in QuickBooks and the attached services, and I don't think, based on what we've seen with the new more aggressive pricing posture from Microsoft, we don't believe that has had a big impact in changing the category growth rate. And the feedback we're getting from retailers is that it hasn't made much difference to them, and I wouldn't expect retailers to continue to spend a lot of time and energy on that because, it doesn't seem to have paid off in helping them grow the revenue and profits for their organization. So I don't think we're going to see as much of a lift in the second half from that as we did in the first half. So I think that's a negative for category growth. But I think the positive QuickBooks 2006 customer experience that we're hearing about will help drive continued category growth. So we'll have to see how that plays out. On the Consumer Tax front, look we're right in the middle of really interesting things. This big huge snowstorm we had on the East Coast last week, it's hard to understand what the impact is on the total retail sales when the whole East Coast was digging out from a snowstorm. Did it delay purchases? And every year it goes later, so we are a little bit uncertain. We feel very, that we're very competitively positioned at retail. Our share is holding and so our position is as strong as ever. And remember last year we gained seven points a share. I actually didn't, I wasn't sure we'd be able to hold that and so far our share performance in retail is holding up. So I think it really is more people are going to the Web, and more people are delaying their purchase, and we feel good about all the signs, but it's still too early to make a call on how it's going to play out. I mean these are like the next two weeks are pretty critical at retail. Q - Heather Bellini: Okay, great. Thank you very much.

Our next question comes from Adam Holt of JP Morgan. Q - Adam Holt: Good afternoon. It looks like your paid tax units in the quarter were up about 2% and you grew revenue organically around 10%. I was wondering if you could reconcile those two numbers and then also remind us what your average selling price assumptions are heading into the remainder of the tax season? A - Steve Bennett: I think the last data that we released, Adam, was six, remember, you got revenue pulling and shifts between the quarters that may be factoring into the analytics you're using. The last data we showed was units fully paid, federal units fully paid were up 6%. So I think actually revenue and unit growth are more in-line than the data that you were looking at. So we'll have new data. When, Bob, in the next? Next Thursday we'll have our next two weeks of data. I think that will be an important data point for investors to see kind of what's happened these two very busy weeks both at retail and on the Web. But I don't see a big difference in ASP. It's really still a unit game. And the data you have is the latest that we've shared. Q - Adam Holt: Oh, okay. I guess I was just looking at the fact sheet that came out with the quarter. I guess let me ask a different question. As you think about the difference between the unit growth and the revenue growth, are you assuming in your average selling price commentary all of the other ancillary services or are you looking at kind of an apples-to-apples price mix plus then things like E-file and attach? A - Steve Bennett: Let me, we look at it, Let me get Bob. Bob, I think, Lawson has an answer to your question in terms of why it effects you, on a quarterly basis may be misleading. It may have to do with the lag of the attach stuff that you just mentioned. A - Bob Lawson, Vice President of Investor Relations, Financial Planning, Analysis: Yes, where, Adam, I think it's tough to do a price volume comparison on a quarterly basis because, of rev/rev changes based on the offers that we make. You really got to look at it on a total season basis. And if we factor in everything that you were describing on E-file and attach and all of that, we think our average revenue per customer this year will be similar to what it was last year. A - Steve Bennett: Yes, and that was one of the things we shared last quarter when we made the change to eliminate rebates. We thought that the impact on ASP of all these moves was about neutral and a much better customer experience. And so far in the season, the feedback we're getting from customers about eliminating the rebate is very positive. Q - Adam Holt: And just quickly, if I could, a question on the payroll. It looked like you actually saw an acceleration in branded Outsource Payroll and Do-It-Yourself actually upticked a little bit. I know there's some seasonality in the Payroll business. Anything else that you think may be driving what looks like a little bit of an acceleration there? A - Steve Bennett: Yes, I, fundamentally better execution by our payroll team. I'm thrilled with the 15% growth in Outsource Payroll, which combines both branded and, Intuit branded and QuickBooks branded but, frankly, we don't talk about it much. But our team continues to execute better in Payroll and I think they've built a nice foundation for some things that we're doing. And so I'm pleased with the performance. 15% growth and having Outsource Payroll be accretive to the Company growth rate is a positive, and we expect to continue to see good performance in that business. Q - Adam Holt: Thank you.

Your next question comes from Bryan Keane of Prudential. Q - Bryan Keane: Hi, good afternoon. I just want to be clear because, I think consensus estimates for third quarter were up a little bit compared to where you're guiding now. And the upside in QuickBooks I thought maybe would offset that, the kind of weakness in tax. But I guess where did we all go wrong in terms of our estimating and what is kind of different from your original guidance? A - Steve Bennett: I think we gave you a very wide range in the beginning of the year because, there's so much uncertainty in quarter three based on all the new things we were doing with Free File, Microsoft entering the market and just the general dynamics of Web and retail. So I think it's really hard for us to get the quarterly split right going into the year. And I think what we do is we get into, as Kiran said, closer into the second quarter we start to really get better trail signs on how the season's going to progress. And I think we tighten up our guidance when we know more about how the season is playing out. And I think we'll look at in retrospect whether it was the right thing to do to be so wide in quarter three again next year. I think we may have contributed part of that with such a broad range. But every year we continue to learn and try and get better at this. When you put it altogether, we took up fourth quarter. We outperformed in quarters one and two. We took down Q3 and the total year we took up. So I think in total it's still an annual game, Bryan, in my viewing. I think we're on track for another good year. And part of this process is to get better alignment as we go through the year when we have more transparency into what's going to happen. Q - Bryan Keane: Okay, and just two follow-up questions, one, on Tax and QuickBooks. The tax one, obviously TurboTax Online has done real well. Is that ASP, I assume, though, is a lot lower than the desktop and the federal, or in the retail. I'm just trying to get a sense of that ASP being lower and how much lower so we can try to model that correctly. A - Steve Bennett: Yes, not, actually, not really as much lower as you might think because, you do have state attach. And also remember on the desktop people on average file 2.1 returns. And every unit that's not on the Web we get paid for. So I think that the ASPs are closer than you think. I think it's a little bit higher on the desktop when you all-in, but it's not as much different as you might think. Q - Bryan Keane: Okay. And then just on the units in QuickBooks, I have, this is obviously the biggest unit push I've ever seen in the history I've covered the Company. How much of that is being driven by upgraders of Basic? I know you eliminated Basic, and I've seen the promotions e-mailed out to, "Hey, upgrade your Basic. It's getting cancelled." So is that pushing a lot of this growth because, I can't imagine how, what else is driving a lot of that? A - Steve Bennett: Well, I think, I remember from our discussions about this three years ago, when we were more in a flat unit growth, I think last year we had almost 20% unit growth. This is the second year in a row of very significant unit growth, and I think it comes from two primary reasons. Number one, we continued to get better at making the products simpler and easier to use for our customers in fixing things that were pain points. And I think that has resulted in a higher upgrade rate, more people upgrading, and more positive word-of-mouth that's creating more new users. We also launched QuickBooks Simple Start, which has been a wonderful new, very successful product to help us convert nonconsumption and expand the category. And the third factor is we continue to grow QuickBooks Online Edition, up 100% in subscribers; QuickBooks Enterprise, every year now we're growing again 30%; and QuickBooks POS. So all of our QuickBooks offerings are getting better, growing the category, and it's just fundamental better execution. A - Scott Cook: Yes, Bryan, this is Scott. Let me add that, in fact, our fear was the reverse, that by eliminating the lowest cost upgrade option, QuickBooks Basic, that, in fact, we'd see hurt to our upgrades. And, in fact, we haven't. And I think one of the reasons that upgrades remain strong is what Heather was mentioning earlier, the strong reviews we've gotten reflecting the real product advance that Steve has described. A - Steve Bennett: And the fact on, Scott's, point is that Premier units were up 34%. So a lot of people are actually upgrading from Basic to Premier or Pro to Premier as witnessed by 34% unit growth in Premier. So I think we just keep delivering great value to customers and making it easier to use. And in eliminating Basic, we've simplified the line, and I think there's a lot of positive, kind of good/better investment that's helping us from a better execution, too. Q - Bryan Keane: No, the volume has been real strong. What's the upgrade rate now in QuickBooks this quarter versus, let's say, a year ago quarter? A - Steve Bennett: I don't actually know the data off the top. I mean we'll see if that's something we'll talk about at Investor Day next year, kind of the new user split versus the upgrade split. We generally do that once a year and not at a quarterly basis. And I think the answer is, we have more upgraders and more new users. But I don't have the exact split for you, Bryan. We'll take that as a good input for Investor Day. Q - Bryan Keane: Right, well, I just, the thing I'm worried about is if we got a lot of upgraders this year, then are we going to be able to duplicate that next year; that's the fear? A - Steve Bennett: Well, I think you saw last year, you saw that Simple Start was, 125,000 units of Simple Start were all new users, and so on the data that we're seeing, actually, I think we have better new user acquisition than we've ever had. And so your concern, we'll share the data at some point, but I don't see that from where I sit. We're very strong for both new users and upgraders. Q - Bryan Keane: Okay, thanks a lot for the help.

Our next question comes from Laura Lederman of William Blair. Q - Laura Lederman: Yes. Following up on the weakness of Consumer Tax at retail, is there any sense there's not as much conversion of non-users? In other words, can you really know at this point if it is shifting simply to later and later or maybe potentially less demand? A - Steve Bennett: Yes, I think it's a good question, Laura. And we really don't like to make any guesses in the middle of the season, because, we don't know what's changed in the buying behavior, have people slowed. For instance, since we eliminated rebates on the desktop product at retail, Have people delayed their purchase because, without a rebate there's less incentive to buying now, just psychologically? So I think it's a good question for us to deal with after, in the third quarter call after we finish the year and have the total season facts in. I think it's dangerous for us to speculate at this point. I'd rather have the facts all in and then share kind of our conclusions. I don't know Scott what your thoughts are on that? A - Scott Cook: That's exactly right, though. We'll have a lot more data points at the end of the season than we have now. One data point we do have now is our retail share. And if we were losing share of new users or something you would see it in retail share. But our share is actually, holding actually up a hair, suggesting that it's not a share issue that it's a category thing, and delay is, there's clear data that the season has been once again moved slightly later than before. A - Steve Bennett: And shift from retail to the Web, or desktop to the Web. Those are the two factors that we monitor every day. Q - Laura Lederman: Kind of a strange related question. Have you noticed that Web users tend to purchase later? And, if so, why would that be? A - Steve Bennett: No, I think the seasonal pattern, we saw a big rush on the Web, actually, you'll see that in the data we will release next Thursday. Because, as soon as people get their W-2s in the first week of February, there's a peak then. So there's two peaks in this business. We always focus on April 15th, but there's a peak in early February, too, which you'll see the numbers in, because those are the people that are early filers and want to get their money; want to get a refund. So I think that's true irrespective of the Web and desktop. A - Scott Cook: Yes, Steve's right about the inherent peaks of filing. There's a big peak in early February and then another one on April 15th, of course. What the Web does, however, is time the purchase to when you file. On desktop, you have to buy the software before, often weeks or months before you file, so we sell a good amount of TurboTax in December. Nobody could actually file with TurboTax Online in December because, you don't have your W-2 yet. So there is, while the timing of filing is the same, the timing of our revenue event is earlier on desktop on average than it is on the Web. So as things move to the Web, that's another factor of delay. A - Steve Bennett: And that's why more and more of the revenue comes in the third quarter versus the second quarter every year as more people, as the Web grows faster, it's just math on the mix. Q - Laura Lederman: All right. And turning to the white spaces, we haven't talked about what's happening in the Medical Expense Manager, Real Estate, all that new stuff that you introduced. Can you give us an update on, I realize it's early days, but how that's coming along? A - Steve Bennett: Yes, I think we'll save that, I mean, we talked about that to give an, that we are investing in new white spaces, but we don't have virtually any revenue in this year's guidance for new white spaces, and the point isn't what the impact will be this year because, we're doing this for long-term growth rate as opposed to short-term. So we'll save that for potentially investor session. But like Intuit Portfolio Minder, our new ASP hosted offering for financial planners, we just launched a week ago. So too early for any of these things. We just launched Version 2 for Medical Expense Manager. We have the new things that are just hitting the market. We are excited about the prospects. We have not baked much revenue in. And we'll let you know kind of where we're thinking at Investor Day would be my guess, on some of the new stuff. That will give us at least six months in the market to share early results. Q - Laura Lederman: Thank you.

Our next question comes from Jim MacDonald of First Analysis. Q - Jim MacDonald: Yes, on the TurboTax, one more, guys. Since there may be less people going in early because of less rebates, aren't you going to get, I mean, you're still talking about getting the same kind of revenue with less rebates going forward? And kind of the follow-up is does that mean that the higher state attach rate will be offset by maybe a lower E-file number? A - Steve Bennett: Jim, to be honest, you asked two questions there, and I didn't understand either one of them. What I meant to say earlier is that because of the elimination of rebate we think psychologically that may defer the purchase, not pull it in. Which might be one of the reasons why retail is still slow. But all the things you said, I don't, I didn't see any correlation to those in what we are forecasting or what we see happening in the market. But I may have misunderstood what you asked. Q - Jim MacDonald: Well, this year you bundled state with the product at retail, right? A - Steve Bennett: Yes. Q - Jim MacDonald: So that means you're more likely to sell that as a product, I would believe? A - Steve Bennett: We did the same thing last year. Deluxe has always included a state bundle. The only difference is we didn't require you to fill a rebate to get credit for it. Q - Jim MacDonald: But last year E-file was included, correct? A - Steve Bennett: There were two E-files last year, one for federal and one for state, and this year my understanding is we only have one. Q - Jim MacDonald: But I think you have to pay that later, right? A - Scott Cook: Yes, I think that, sooner reality is, there's enough of these adjustments and changes season-over-season. That it's hard to give you any sense for the net mix of those because of the timing differences, the rebate versus non-rebate, what's included, what's not, the shift to the Web, and that's why you hear Steve describing that we can make our best guess now, which we have. But we'll really be able to talk those results after the season is over. Q - Jim MacDonald: Okay. Thanks very much.

Our next question comes from Greg Smith of Merrill Lynch. Q - Greg Smith: Hi, good afternoon. Can you remind us what the margins look like for the TurboTax on the Web versus the shrink wrap, and also just the total profit dollars? I know it's a little tough given that you get paid for each Web user, but can you give us some frame of reference there? A - Steve Bennett: Yes, Greg. We love both of them. I mean, they're both, because one of it depends on whether you're looking at it on a gross margin line or an operating margin line. And an operating margin line they're closer than you think. At a gross margin line the Web unit I think might be higher because, we have a lot of other associated costs on the desktop. But on an operating margin line we love both businesses. They're great businesses. So we don't generally talk a lot about the margins by individual products. But the game in Consumer Tax is units, and it has been units for the six years I've been here. So we'll stay focused on growing units and, when we do that, we get normal attach, and we continue to have another good tax season. So keep your eye out for the unit thing that we release every two weeks. That's the best indicator of the health of our TurboTax business. Q - Greg Smith: Okay. And then can you comment on your Free File Alliance performance so far this year, is it in-line with your expectations? And are you seeing the conversion of folks that qualified for it last year that don't qualify this year? A - Steve Bennett: Yes, I think we're disappointed in Free File, with our performance in Free File so far this year, and we're pleased with the amount of people that we acquired last year that we were able to convert to paid. So it's kind of a mixed bag, and we continue to look at Free File, our Free File offering to make sure that we have something that's competitive. Obviously, we're enormously supportive of the Free File program and the work that was done there and excited about the four-year extension. And I think we're always looking at our offer to make sure that, other people have made offers that were more commercial in nature, and ours was, as it has been for the last 10 years, more philanthropic in nature and that's something that we continue to look at. Q - Greg Smith: Okay, and then lastly, just on the tax theme. The Professional Tax business was flat. Anything unusual with the competition or any surprises this year? A - Steve Bennett: No, I think last year we had a strong finish in Consumer Tax, or Pro Tax. We were flat after the second quarter, and we finished in the neighborhood of up 5 or 6%, because of the same paper return phenomenon we see. We'll see where it ends up this year in the third quarter, but we expect the same kind of phenomenon. Q - Greg Smith: Great. Thank you.

Our next question comes from Michael Millman of Soleil Securities. Q - Michael Millman: Thank you. I have a couple of questions. I wanted to go back to something you suggested. The R&D is up almost 25%. Was that the original plan or does that incorporate some of this better-than-expected volume this year? A - Steve Bennett: It's above, we are reinvesting, as I mentioned at the end, Michael. We are investing more than the original plan to accelerate long-term growth. And we like all of these interesting growth opportunities that we're seeing, and we're fortunate that we've been able to, by performing better than expectations on both the revenue and profit line, reinvest some of that in things that we think will accelerate long-term growth. Q - Michael Millman: Should we assume, we'll maybe, what should we assume for the growth for the full year in R&D? A - Steve Bennett: Yes, we don't give guidance on that. I mean, you've got two quarters through, so I don't, Kiran, how would you answer that one? A - Kiran Patel: We've seen two quarters at about 24%. We shouldn't expect to see significant change, because expenses are relatively flat. So on a full-year basis we shouldn't expect to see significant change. A - Steve Bennett: Yes, the only thing, the only additional insight that I would give you is, I think as a company, we are focused even more on more money in R&D and the things that are going to, and create new products to drive future growth. And through our resource allocation process funding more R&D through tough movements and other parts of the ways we spend money. So I wouldn't be surprised over the long-term to see us continue the trend that you're seeing now. And so I would expect that. Some of it would be funding at a higher level and some of it would be reallocation from other things that we have traditionally spent money on. Q - Michael Millman: Okay. It sounds like since the soft, the desktop category is not showing much, or any growth, that you're not seeing much of the promotion that Block promised us, or is that a poor assumption? A - Steve Bennett: Yes, I don't know anything about the promotion that Block promised you. But I think last year the second half grew faster at retail than the first half, and we, so we expect that same phenomenon. And so I don't know about the Block promotion, but we expect growth to pick up versus where it is year-to-date. It's just a question of how far and how fast. So we still expect retail growth during the whole season when everything is said and done like we saw last year. This pattern is similar to last year. We just are sharing today that we don't think it will be to what we originally expected. So, but the good news is the Web is offsetting that or more than offsetting that, and so that's part of how the whole season plays out. And we'll see how it looks when we release the data next Thursday and at the end of the season. Q - Michael Millman: Could you also talk a little bit about how you expect to scale Personal Pro? A - Steve Bennett: Well, I think we got a new pilot product in the market and we're doing a few things, and I think the answer is, let's prove the v1 theory of the case first, get our learning from that, and then talk about how we're going to scale it. But let's get it right and deliver a compelling competitive offering that wins with consumers and then Act II will be, how are we going to scale it? How far and how fast? And so it's too early really to comment on that until we get something that we think is quite compelling to consumers. And we're quite bullish on the opportunity there, so let's see how it goes. Q - Michael Millman: And last question, can you, any indication of what the retention rate has been on the desktop and the conversion rate from Free File lines to paid? A - Steve Bennett: Well, we don't do retention rate until the end of the season for obvious reasons. And so we get some early indicators, and the bottom line is no huge shift. We didn't see a huge shift last year. And since we changed the Free File program this year, the whole comparison is a lot different. So I don't think that's a big factor that investors should be concerned about. Q - Michael Millman: Thank you.

Our next question comes from Rene Solorzano of Lehman Brothers. Q - Scott Schneeberger: Hi, this is Scott Schneeberger, I'm with Rene. A question on the refund discount program, the bonus program. You mentioned that you didn't see the start that you would have liked to have seen. Can you give, since that's unique to TurboTax, can you guys give us an idea of what type of acceptance rates you've seen and some added color? A - Steve Bennett: Yes, I think let's save that for the end of the year in terms of attach. We generally don't show a lot of specifics on attach. In Version I, I mean it's still a significant amount of people, but not what we had expected based on the research. So we have to go back and figure out exactly why that was. We still think the concept adds lots of value, our discussions with our retail partners, they see value especially if we can scale it. Especially if we can scale it. So I think the concept works with consumers. It works for retail partners. I think what we have to do now is figure out, on an execution front, what we can learn so that we can execute more effectively in the future and scale the problem, or scale the opportunity. So we'll take that one, but we're just into this. We've only had it in the market for about two or three weeks. So let's, again, wait until the season is over and see where it ends up. Q - Scott Schneeberger: Sure understandably. But basically what your saying is probably you're not going to change anything too dramatically through the end of the season and just learn from this one on to the next? A - Steve Bennett: I think that, Scott, is a really good summation. I've learned in seven seasons here that the trend pattern, whatever it starts the year, is generally relatively consistent through the year unless there's some fundamental intervention. And I think this one is going to turn out to be a nice Version I, and nice pilot, and I know there's a lot of press out there about how exciting this would be and, frankly, the research was quite exciting about this. But sometimes research and getting it into the market doesn't payoff to what the research said, and I think that's, we like the concept, and we've got to go back and see if there's something in our execution that got in the way of a higher attach rate. And I still like the concept, and we're learning a lot, let's see. But I wouldn't expect a big change in attach trajectory between now and the end of the season. There's not much we can actually change in the program. We have had to live with the way it is for the rest of the year. Q - Scott Schneeberger: Sure, thanks. And one more on the Consumer Tax. TeleFile ending this year, I'm just curious if you can give us any idea if you're tracking how many conversions you're doing there. I mean, you don't have to quantify, but are you getting a good feel for what's coming over from that? Is that driving a lot or would you allude more of what's driving the strong online performance you've had to converting Free File line for last year, or combination of all? Just a little more color there, please. A - Steve Bennett: Yes, well, the TeleFile, the telefilers would all be Free File customers, and as you've seen from the numbers we shared, our Free File is in the neighborhood of two-thirds of what it was last year. And we don't know who the telefilers were, so we can't match a before and after. So I think ultimately the telefilers, if they go to the Web, will show up in Free File, and so we'll see where that comes down at the end of the year. Q - Scott Schneeberger: Okay, thanks.

Our next question comes from Brian Fitzgerald of Morgan Stanley. Q - Brian Fitzgerald: Hi. Most of my questions have been answered. A couple quick ones. You mentioned that the file rate on the desktop is 2.1. I'm assuming that's roughly analogous to what you see on the Web product? A - Steve Bennett: No, No, Web is one for one. That's the point I was trying to make, Brian. That because of, within the license that our desktop units, we do a lot of research on this, and we've done it three, four, five years in a row. And it always says that TurboTax does about 2.1 returns per license that we sell. And on the Web it's one for one. There is no pass along on the Web. Q - Brian Fitzgerald: Okay, got it. And then are you seeing anything with purchases directly from your site impacting retail or can you give any color on that? A - Steve Bennett: No, actually, on our desktop product, we have continually planned for, I think the last release on our direct units were down 11% year-over-year. So we are actually doing great on the Web and we have been trying to work with our retail partners to actually push more of the desktop volume through retail, because we think that's, because they're very strong partners and we want them to have a healthy and vibrant TurboTax business. And so we actually moved volume from our desktop volumes direct to retail. So let's say tuned for the rest of the season and see how strong the, if retail picks up and, if so, how much. I still believe it's going to grow. We just don't know how much. And it's below what we were planning for. But we are absolutely not, and this is different than some of our competitors. We are actually pushing more desktop volume through retail while others are trying to take retail volume direct. So we think our retailer partners appreciate that and are working hard on our behalf to finish the season strong. Q - Brian Fitzgerald: Okay, great. I appreciate it.

Our next question comes from Dan Cummins of Banc of America. Q - Dan Cummins: Thank you. Just a couple of questions. Can you give us a sense of your expectations around cash flow from operations relative to the non-GAAP earnings growth projection of 13 to 15%? Do you think it will be materially above or below that range? And then just a question on your appetite for acquisitions, small acquisitions related to your several businesses now, your several hosted businesses. I'm just kind of wondering what you're thinking around investment in that area. A - Kiran Patel: Well, the first part of your question, Dan, you should expect cash flow from operations to generally be in-line with growth in non-GAAP income. A - Steve Bennett: That's the trend we've had in the last few years is look at our operating profit growth, and that's generally our cash flow for operations about one to one. With respect to your second question, I wouldn't focus just on online businesses. We continue to look for great businesses that would be accretive to our franchise. I mean, look at our performance in our Payments business that we bought a couple years ago. It's just generating great results. I think that we also have invested more time and energy on organically growing some of these white spaces, so we're always looking for accretive acquisitions. We just haven't made as many because, we haven't seen stuff that we were really interested in. But we're always looking at that. Whether they're ASP hosted, which some would argue is more of the future or other business models. But we'll continue to look and if we find things that we like, we will participate. Q - Dan Cummins: Can I ask you a follow-up? Is there anymore interesting penetration color around the Quick Base product in terms of your ability to sell it to medium and large business? A - Steve Bennett: Yes, actually the market for Quick Base is really corporate work groups. It's not a Small Business-focused product. And the business continues to perform very, very well. It's very viral, and it's growing nicely. One of these days we'll actually start talking about it, but it's not material yet in the total scope of the Company. But we think it's a very, very great product that meets a very important need mostly for corporate work groups. And so part of our challenge is it's a great offering, but we're not a great company that's skilled at marketing to corporate work groups. So part of what we have to figure out is the marketing and sales equation because, we think we have a real winner in the product, and it's growing nicely. So I think the ability to scale that will be on our ability to figure out the right distribution strategy, and that's something we're working on. Q - Dan Cummins: Thank you.

Gentlemen, I'm not showing any further questions. Would you like to proceed with any further remarks? Steve Bennett, President, Chief Executive Officer: Well, I'll just sum by saying everybody I think we feel good about the first half. We feel good about the second half. And we'll keep providing the big driver on how good the season, how good the year is going to be for us is going to be TurboTax units. We'll continue to give you visibility into this. The next report is next Thursday and I think that will ultimately determine how strong a season, how great a year we have, so stay tuned for those numbers. And we'll share those as on an every two-week basis like we have in the past. Thanks for your support, and stay tuned.

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