Intuit Inc. — Form 10-Q Summary
Reporting period: Second quarter and six months ended January 31, 2013; filed March 1, 2013. Intuit provides financial-management software and services, including QuickBooks, TurboTax, payroll, payments, and digital banking. Results are highly seasonal, with tax revenue concentrated in the second and third fiscal quarters. Amounts below are in millions except per-share data.
Financial performance and liquidity
| Metric | Q2 FY2013 | Q2 FY2012 | Six months FY2013 | Six months FY2012 |
|---|---|---|---|---|
| Revenue | $968 | $999 | $1,615 | $1,574 |
| Operating income, continuing operations | $93 | $195 | $24 | $111 |
| Net income, continuing operations | $71 | $121 | $20 | $63 |
| Diluted EPS, continuing operations | $0.23 | $0.40 | $0.07 | $0.21 |
| Operating margin, continuing operations | 9.6% | 19.5% | 1.5% | 7.1% |
| Cash from operating activities | $256 | $260 | $111 | $150 |
- Q2 revenue declined 3% year over year; first-half revenue grew 3%. First-half operating income fell 78%, and continuing-operations net income fell 68%.
- Q2 operating expenses rose $68, including higher staffing and advertising/marketing. First-half operating expenses rose $110; management cited higher staffing and marketing as key drivers.
- At January 31, cash and cash equivalents were $399; investments were $279; long-term investments were $88. Management reported cash, cash equivalents, and investments of $678, down $66 from July 31. Working capital was $316 and the current ratio was 1.2:1.
- Long-term debt was $499, consisting primarily of 5.75% senior notes due March 2017. An unused $500 revolving credit facility is available through February 2017; the company reported compliance with its covenants.
- Dividends declared were $0.34 per share for the first six months. The company repurchased $200 of stock in that period and had up to $1.5 billion of repurchase authorization remaining through August 15, 2014.
Material changes and business drivers
- Small Business Group revenue increased 17% in the first half. Financial Management Solutions grew 18% (7% excluding Demandforce, acquired in May 2012); U.S. QuickBooks Online subscribers increased 24%. Employee Management Solutions grew 12%, and Payment Solutions grew 19%, supported by pricing/fee changes and 9% higher U.S. card transaction volume.
- Consumer Tax revenue declined 25% in the first half. Intuit estimated approximately $140 of consumer tax revenue would shift from Q2 to Q3 because the IRS delayed accepting 2012 federal returns until January 30. The company said tax-season results would not be substantially complete until Q3.
- Accounting Professionals first-half revenue declined 2%; Financial Services rose 3% as reported, or 8% after adjustments described by management. Other Businesses revenue declined 4%.
- Intuit sold its Intuit Websites business in September 2012 for approximately $60 cash and recorded a $32 after-tax gain. The business is reported as discontinued operations. First-half FY2013 net income of $52 included $32 from discontinued operations, while continuing-operations net income was $20.
- The Q2 tax rate was approximately 18%. A retroactive research and experimentation tax-credit reinstatement contributed a discrete tax benefit; excluding discrete benefits, management estimated an effective rate of approximately 33%.
Outlook, risks, and contingencies
- No full-year revenue or earnings guidance is stated in the provided filing text. Management expected significant operating cash generation for the remainder of FY2013 and believed available cash, investments, and operating cash flow would cover anticipated needs for at least 12 months.
- Management’s strategy emphasizes mobile-first product experiences, open platforms and third-party contributions, and using customer data to improve products. It expects connected-services revenue to continue growing.
- Key risks include intense competition, technology and product-development execution, seasonal volatility and tax-filing timing, service availability and data-center migration, cybersecurity and privacy, payment fraud and chargebacks, regulation, third-party dependencies, and litigation.
- Two TurboTax refund-processing-fee class actions reached an agreement in principle to settle for an amount described as immaterial; court approval remained pending. Intuit said routine legal matters were not expected to have a material financial impact, while noting litigation outcomes are uncertain.
- Municipal auction-rate securities totaled $33 and were valued using significant unobservable inputs. Management stated it did not intend to sell them and did not expect their reduced liquidity to materially affect overall liquidity.
- Management disclosed no significant off-balance-sheet arrangements. It also noted that approximately 20% of cash and investments were held by foreign subsidiaries and subject to repatriation tax considerations.
Important facts for investors to verify
- Whether the estimated $140 Consumer Tax revenue shift materialized in Q3 and how the full tax season compared with management’s expectations.
- Whether Small Business growth, particularly QuickBooks Online and acquired Demandforce revenue, translated into improved segment and consolidated margins.
- Drivers of the substantial first-half operating-income decline, including staffing, marketing, hosting, and payment chargeback costs.
- Operating cash flow and seasonal working-capital movements, including accounts receivable and deferred revenue.
- Subsequent status and financial terms of the TurboTax class-action settlement, and any material changes in legal or regulatory exposures.
- Use of remaining repurchase authorization and the sustainability of dividends relative to cash generation and investment needs.