Intuit Inc. — Form 10-Q Summary
Business context and reporting period
Quarter ended October 31, 2009 (first quarter of fiscal 2010), compared with the quarter ended October 31, 2008. Intuit provides business and financial-management products and services, including QuickBooks, TurboTax, Quicken, payroll, payments, and online banking solutions. Results are unaudited and the first quarter is seasonally weak; the company typically reports a loss while tax revenue is limited.
Financial results and liquidity
| Metric | Q1 FY2010 | Q1 FY2009 |
|---|---|---|
| Net revenue | $493 million | $481 million |
| Operating loss | $99 million | $76 million |
| Net loss | $68 million | $52 million |
| Basic and diluted loss per share | $0.21 | $0.16 |
| Cash used in operating activities | $140 million | $200 million |
| Capital expenditures | $32 million | $67 million |
- Revenue grew 2%; product revenue fell to $206 million from $220 million, while service and other revenue rose to $287 million from $261 million.
- Operating margin was approximately negative 20.1%, versus negative 15.8%. Gross margin, including purchased-intangible amortization in cost of revenue, was approximately 64.3%, versus 66.7%.
- Operating cash flow less capital expenditures was negative $172 million, compared with negative $267 million. Cash and cash equivalents ended the quarter at $313 million.
- Cash, cash equivalents, and current investments totaled $927 million, down $420 million from July 31; an additional $92 million was classified as long-term investments. Working capital was $616 million and the current ratio was 1.6:1.
- Long-term debt was $998 million carrying value ($1 billion principal); the $500 million revolving facility was undrawn. The company reported compliance with its credit-facility covenants.
- Repurchased 10.6 million shares for $300 million during the quarter. A new authorization for up to $600 million of repurchases was announced November 19, 2009.
Material changes versus the prior comparable period
- Net loss increased $16 million, or 31%, and loss per share increased 31%, despite $12 million of revenue growth. Costs and expenses rose $35 million.
- Management attributed higher costs in part to PayCycle, acquired in July 2009, higher share-based compensation, and infrastructure depreciation. The prior-year quarter included $17 million of compensation-related benefits that did not recur.
- Segment revenue changes: Employee Management Solutions +9%, Payments Solutions +4%, Financial Institutions +7%, Consumer Tax +57% (from a small seasonal base), Accounting Professionals +3%, Financial Management Solutions −7%, and Other Businesses −5%.
- QuickBooks unit volume increased 15%, but lower average selling prices reduced Financial Management Solutions revenue. Payments customer growth was partly offset by lower transaction volume per customer; Quicken revenue declined 19%.
Outlook, commentary, risks, and unusual items
- No quantified earnings or revenue guidance was provided. Management expects seasonality to continue and stated that cash, investments, and operating cash generation should cover anticipated needs for at least 12 months.
- On November 2, 2009, Intuit acquired Mint Software for approximately $171 million. On November 23, it agreed to sell Intuit Real Estate Solutions for approximately $128 million, subject to customary conditions; the company expected closing before the end of fiscal Q2 2010 and planned discontinued-operation presentation beginning that quarter.
- The IRS Free File Alliance agreement was extended through October 2014. Management noted tax-season results would not be substantially complete until fiscal Q3.
- Municipal auction-rate securities totaled $224 million; auctions had generally continued to fail since 2008. Intuit valued them at approximately par, said it had received contractual interest, and intended to exercise a UBS put option covering $135 million at par. UBS counterparty risk remains.
- Amortization expense included a $6 million write-off of purchased technology no longer intended for use. Litigation was described as routine; management did not expect pending claims to materially affect financial results, but outcomes remain uncertain.
- Key risks include seasonality, competition, product launch and technology execution, economic weakness affecting consumers and small businesses, customer-data and system security, third-party relationships, acquisitions and divestitures, litigation, and investment liquidity. Intuit reported effective disclosure controls and no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether seasonal tax-quarter revenue and customer trends support management’s outlook once fiscal Q2 and Q3 results are reported.
- Drivers of expense growth and whether operating losses narrow as revenue rises in the tax season.
- Liquidity and valuation of auction-rate securities, and execution of the UBS put option.
- Funding and integration effects of the Mint acquisition, and completion, proceeds, and accounting treatment of the IRES sale.
- Cash deployment under the new repurchase authorization relative to operating cash generation and the $1 billion of debt.