Business Context and Reporting Period
Company: Intuit Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: January 31, 2009 (Second Quarter of Fiscal Year 2009)
Business Overview: Intuit provides business and financial management solutions for small businesses, consumers, and accounting professionals. Key products 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 thousands, except per share) | Three Months Ended Jan 31, 2009 | Three Months Ended Jan 31, 2008 | Six Months Ended Jan 31, 2009 | Six Months Ended Jan 31, 2008 |
|---|---|---|---|---|
| Total Net Revenue | $790,976 | $834,874 | $1,272,355 | $1,279,812 |
| Operating Income | $109,557 | $173,630 | $33,527 | $70,431 |
| Net Income | $85,040 | $115,247 | $32,896 | $94,443 |
| Diluted EPS (Continuing Ops) | $0.26 | $0.34 | $0.10 | $0.20 |
| Cash and Cash Equivalents | $338,708 | $230,148 | $338,708 | $230,148 |
| Long-Term Debt | $998,089 | $997,996 | $998,089 | $997,996 |
| Working Capital | $333,610 | $306,324 | $333,610 | $306,324 |
Note: Working Capital calculated as Total Current Assets ($1,569,870) minus Total Current Liabilities ($1,236,260) for Jan 31, 2009.
Material Changes vs. Prior Period
- Revenue Decline: Total net revenue decreased 5% ($43.9 million) in the quarter and 1% ($7.4 million) year-to-date compared to the prior year. This was primarily driven by a 25% drop in Consumer Tax revenue and a 21% drop in Other Businesses revenue.
- Profitability Compression: Operating income fell 37% in the quarter and 52% year-to-date. Net income from continuing operations declined 27% in the quarter and 52% year-to-date.
- Revenue Shifts: Approximately $70 million of Consumer Tax revenue was deferred from Q2 to Q3 2009 due to a change in TurboTax desktop software offerings. Conversely, $12 million of Accounting Professionals revenue shifted from Q3 to Q2 2009.
- Expense Increases: Operating expenses increased due to acquisitions (Homestead Technologies and Electronic Clearing House) and higher marketing spend for QuickBooks 2009. These were partially offset by lower compensation-related expenses.
- One-Time Gains: The prior year period included a $14.0 million pre-tax gain on the sale of outsourced payroll assets, which did not recur in the current period.
Guidance, Outlook, and Risks
- Seasonality: Management notes that revenue is highly seasonal, with tax businesses peaking in Q2 and Q3. Losses are typical in Q1 and Q4.
- Economic Environment: Slower small business spending and reduced consumer spending negatively impacted QuickBooks and Payments segments. The slow real estate market affected Intuit Real Estate Solutions.
- Auction Rate Securities: Intuit holds $251.0 million in municipal auction rate securities classified as long-term investments. Due to market illiquidity, these securities have failed to auction since February 2008. Management recorded a $16.0 million unrealized loss in other comprehensive income but believes the decline is temporary and will not materially impact liquidity needs.
- Stock Repurchases: The company repurchased 7.4 million shares for $200.3 million in the first six months of fiscal 2009. Authorization remains for an additional $400 million through May 2011.
- Capital Expenditures: Expected to decrease from approximately $300 million in fiscal 2008 to $200 million in fiscal 2009.
Investor Verification Checklist
- Revenue Recognition Timing: Verify the impact of the $70 million Consumer Tax revenue deferral on Q3 2009 results.
- Auction Rate Securities Liquidity: Monitor the status of the $251 million in municipal auction rate securities and the potential impact of the UBS put option (exercisable starting June 2010).
- Acquisition Integration: Assess the operating margin impact of the Homestead and ECHO acquisitions, which currently have lower margins than the core business.
- Effective Tax Rate: Note the effective tax rate of 18% for the quarter was driven by discrete tax benefits; the normalized rate is approximately 36%.
- Customer Concentration: Review Note 1 regarding significant retail customers representing 18% and 16% of accounts receivable respectively.