Intuit Inc. — Form 10-Q Summary
Reporting period: Fiscal first quarter ended October 31, 2013; comparisons are with the three months ended October 31, 2012, unless noted. Intuit provides financial-management products and services, including QuickBooks, TurboTax, Quicken, Lacerte and ProSeries. Results reflect continuing operations unless otherwise specified.
Financial performance
| Metric | Q1 FY2014 | Q1 FY2013 |
|---|---|---|
| Revenue | $622 million | $562 million |
| Operating loss from continuing operations | $77 million | $73 million |
| Net loss from continuing operations | $57 million | $54 million |
| Net loss per diluted share | $0.20 from continuing operations; $0.04 total | $0.18 from continuing operations; $0.06 total |
| Operating cash flow | $(190) million | $(145) million |
- Revenue increased 11%. Service and other revenue rose to $393 million from $335 million; product revenue was $229 million versus $227 million.
- Cost of revenue was $143 million, or 23% of revenue, compared with $139 million, or 25%. Selling and marketing was $258 million; research and development $176 million; and general and administrative $118 million.
- Small Business revenue rose 11% to $520 million, with segment operating income of $190 million (37% of segment revenue). Consumer revenue rose 7% to $77 million, while its operating loss widened to $24 million. Professional Tax revenue increased 16% to $25 million; its operating loss narrowed to $9 million.
- At October 31, cash and cash equivalents were $417 million, investments $699 million, and long-term investments $45 million. Management reported cash, cash equivalents and investments of $1.116 billion, down $545 million from July 31. Working capital was $797 million and the current ratio was 1.7:1.
- Long-term debt was $499 million, consisting principally of 5.75% senior notes due March 2017. The $500 million revolving credit facility was undrawn; Intuit reported compliance with its covenants.
Material changes and unusual items
- Intuit sold Intuit Financial Services (IFS) on August 1, 2013 for approximately $1.025 billion cash and reported a $36 million after-tax disposal gain. It sold Intuit Health in August and reported a $10 million net disposal gain. These and the previously sold Intuit Websites business are presented as discontinued operations.
- Total net loss was $11 million, versus $19 million a year earlier, including $46 million net income from discontinued operations versus $35 million. Continuing-operations results therefore give a different picture from the consolidated net loss.
- Investing activities provided $949 million, mainly reflecting IFS sale proceeds. Financing activities used $1.350 billion, including $1.4 billion for share repurchases and $55 million in dividends. Cash and cash equivalents declined by $592 million during the quarter.
- An accelerated share repurchase agreement was entered into for $1.4 billion; Intuit initially received 17.6 million shares, with final settlement based on the pricing period scheduled to end in December 2013. The company had up to $2.0 billion of additional repurchase authorization through August 2017.
- Revenue growth was led by Small Business. QuickBooks Online subscribers grew 29%, QuickBooks Enterprise Solutions subscribers 21%, online payroll customers 18%, and Demandforce subscribers 36%. Management attributed higher costs partly to accelerated customer-data and small-business marketing spending; operating expenses rose $60 million year over year.
Outlook, risks and contingencies
- Management expects significant operating cash generation in fiscal 2014 and believes available cash, investments and operating cash flow will cover seasonal working capital, capital spending, contractual obligations and other liquidity needs for at least 12 months. It expects connected-services revenue to continue growing and anticipates ongoing quarterly repurchases and comparable dividends, subject to board and management discretion. The filing provides no numerical earnings or revenue guidance.
- Results are highly seasonal: tax revenue is concentrated from November through April, and QuickBooks revenue is typically strongest in the second and third fiscal quarters. Management cautions that first-quarter Consumer and Professional Tax results are not indicative of full-year trends; the 2013 tax season would not be substantially complete until the third quarter.
- Key stated risks include intense competition, execution of mobile and cloud-service strategies, service interruptions and cybersecurity/privacy breaches, reliance on third parties, regulatory changes, transaction fraud, product launch or quality issues, and seasonal or macroeconomic fluctuations.
- The TurboTax refund-processing class-action settlement received final approval in October 2013; an objector appealed, and the related state case remains stayed. Intuit considered a material change to the settlement amount remote. The filing says other pending claims were not expected to have a material financial impact, while noting litigation outcomes are uncertain.
- Intuit held $28 million of illiquid municipal auction-rate securities classified as long-term investments. Management said it did not intend to sell them and did not expect to be required to sell before recovery at par.
Important facts for investors to verify
- Whether Small Business growth and margins persist as marketing, staffing and product-development spending increase.
- Progress during the tax season, given management’s warning that first-quarter tax results are not representative and that filing timing can shift revenue between quarters.
- Final share delivery and settlement under the $1.4 billion accelerated repurchase, and the effects of continued buybacks and dividends on liquidity.
- Cash generation after the one-time IFS sale proceeds, including the effect of seasonal operating cash use and customer-fund balances and deposits.
- Developments in the TurboTax settlement appeal and the company’s disclosed technology, privacy, security, regulatory and competitive risks.