Business Context and Reporting Period
Company: Intuit Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: April 30, 2009 (Third Quarter of Fiscal Year 2009)
Business Overview: Intuit provides business and financial management solutions for small and medium-sized businesses, financial institutions, consumers, and accounting professionals. Key brands include QuickBooks, TurboTax, Quicken, and Digital Insight. The company operates six reportable segments: QuickBooks, Payroll and Payments, Consumer Tax, Accounting Professionals, Financial Institutions, and Other Businesses.
Key Financial Metrics
| Metric (in millions, except per share) | Three Months Ended Apr 30, 2009 |
Three Months Ended Apr 30, 2008 |
Nine Months Ended Apr 30, 2009 |
Nine Months Ended Apr 30, 2008 |
|---|---|---|---|---|
| Total Net Revenue | $1,434.4 | $1,313.0 | $2,706.8 | $2,592.8 |
| Operating Income | $764.1 | $674.5 | $797.6 | $744.9 |
| Net Income (Continuing Ops) | $484.8 | $444.2 | $517.7 | $512.6 |
| Diluted EPS (Continuing Ops) | $1.47 | $1.33 | $1.57 | $1.50 |
| Cash & Cash Equivalents | $1,222.0 | $471.5 | $1,222.0 | $471.5 |
| Long-Term Debt | $998.1 | $998.0 | $998.1 | $998.0 |
| Working Capital | $910.0 | $306.3 | $910.0 | $306.3 |
Note: Cash and cash equivalents figures represent the balance at the end of the period. Nine-month cash flow from operating activities was $877.9 million for 2009 versus $869.5 million for 2008.
Material Changes vs. Prior Period
- Revenue Growth: Total net revenue increased 9% in Q3 and 4% year-to-date (YTD) compared to the prior year. The Consumer Tax segment drove Q3 growth with an 18% increase, primarily due to a 36% rise in TurboTax Online units. Payroll and Payments revenue grew 11% in Q3 and 14% YTD due to price increases and customer base growth.
- Segment Performance: QuickBooks revenue declined 8% in Q3 and 2% YTD, attributed to slower small business spending and price promotions. Other Businesses revenue fell 9% in Q3 and 11% YTD, impacted by reduced consumer spending on Quicken products and a stronger U.S. dollar affecting Canadian revenue.
- Operating Expenses: Operating expenses increased due to higher marketing spend for TurboTax and QuickBooks launches, costs associated with 2008 acquisitions (Homestead and ECHO), and infrastructure depreciation. These were partially offset by lower compensation-related expenses and a decline in the market value of executive deferred compensation liabilities.
- One-Time Items: The prior year (2008) included a $51.6 million pre-tax gain on the sale of outsourced payroll assets, which was not present in the 2009 period. Conversely, 2009 included a $10.6 million charge for historical use of technology licensing rights.
Guidance, Outlook, Risks, and Unusual Items
- Seasonality: Management notes that revenue is highly seasonal, with tax products peaking in Q2 and Q3. The company typically reports losses in Q1 and Q4 due to minimal tax revenue while operating expenses remain consistent.
- Liquidity and Investments: The company holds $265 million in municipal auction rate securities classified as long-term investments. Due to market illiquidity, auctions for these securities have failed since February 2008. Management believes these are not other-than-temporarily impaired and that the liquidity reduction will not materially impact operations. A put option with UBS AG allows the sale of $145.9 million of these securities at par starting June 30, 2010.
- Capital Allocation: The company repurchased 7.4 million shares for $200.3 million during the first nine months of fiscal 2009. As of April 30, 2009, $400 million remained authorized for repurchases through May 15, 2011.
- Risk Factors: Key risks include intense competition, reliance on seasonal tax revenue, potential disruption from IT failures, and the impact of general economic conditions on small business and consumer spending. The company also faces risks related to the valuation of auction rate securities and potential changes in tax laws.
- Subsequent Event: On May 14, 2009, Intuit entered into a $120 million technology licensing agreement payable over ten years. Approximately $10.6 million was accrued as a charge in the current period for historical use.
Key Facts for Investor Verification
- Auction Rate Securities Liquidity: Verify the status of the $265 million in municipal auction rate securities and the terms of the UBS put option, as market liquidity remains a concern.
- Consumer Tax Mix Shift: Confirm the sustainability of the shift from desktop to online tax preparation (TurboTax Online), which drove significant revenue growth but may have different margin profiles.
- QuickBooks Headwinds: Monitor the impact of the economic downturn on small business spending, which has negatively affected QuickBooks unit sales and revenue.
- Acquisition Integration: Assess the financial contribution and integration costs of the Homestead Technologies and Electronic Clearing House (ECHO) acquisitions.
- Stock Repurchase Activity: Track future share repurchases against the remaining $400 million authorization to gauge management's confidence in capital allocation.