Intuit Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter and first nine months ended April 30, 2012; comparisons are with the corresponding 2011 periods. Intuit provides financial and business-management products and services, including QuickBooks, TurboTax, Quicken, and professional tax and financial-services offerings. Results are highly seasonal, with tax revenue concentrated in the second and third fiscal quarters.
Financial performance
| Metric | Q3 FY2012 | Q3 FY2011 | Nine months FY2012 | Nine months FY2011 |
|---|---|---|---|---|
| Revenue | $1.945 billion | $1.848 billion | $3.558 billion | $3.258 billion |
| Operating income | $1.107 billion | $1.061 billion | $1.205 billion | $1.068 billion |
| Net income | $734 million | $688 million | $788 million | $691 million |
| Diluted EPS | $2.42 | $2.20 | $2.58 | $2.16 |
| Operating cash flow | $1.278 billion | $1.138 billion | $1.428 billion | $1.185 billion |
- Q3 revenue grew 5%, operating income 4%, net income 7%, and diluted EPS 10% year over year. Nine-month revenue rose 9%, operating income 13%, net income 14%, and diluted EPS 19%.
- Service and other revenue drove growth: Q3 was $1.347 billion versus $1.246 billion; product revenue was $598 million versus $602 million. Nine-month service and other revenue was $2.319 billion versus $2.010 billion, while product revenue was $1.239 billion versus $1.248 billion.
- Calculated operating margin was approximately 56.9% in Q3 versus 57.4% a year earlier, and 33.9% for nine months versus 32.8%. Calculated net margin was approximately 37.7% and 22.1%, respectively, compared with 37.2% and 21.2%.
- Nine-month capital expenditures were $125 million, making operating cash flow less capital expenditures approximately $1.303 billion. Financing cash use was $1.205 billion, including $500 million of debt repayment, $793 million of repurchases, and $134 million of dividends. Investing activities used $82 million.
- At April 30, cash and cash equivalents were $859 million and investments were $663 million. Total assets were $5.116 billion; current assets were $2.330 billion and current liabilities $1.587 billion, including matching $325 million balances for customer funds and customer fund deposits. Working capital was $743 million; the current ratio was 1.5:1.
- Debt was $499 million long-term, with no current portion, after repayment of $500 million of notes due in March 2012. The company also had an undrawn $500 million revolving credit facility expiring in 2017.
Business trends and changes
- For the first nine months, Small Business Group revenue increased 11%; Consumer Tax revenue rose 11%, including 7% growth in paid federal units. Payment Solutions grew 16%, Employee Management Solutions 12%, and Financial Management Solutions 8%. Other Businesses revenue was flat.
- Q3 Consumer Tax revenue rose 3%, but segment operating income declined 1%; year-to-date segment margin fell from 69% to 66%, reflecting costs for new tax-advice and debit-card programs, hosting, staffing, and marketing.
- Nine-month expense growth included approximately $75 million of higher staffing costs and $9 million of higher share-based compensation. Total operating expenses increased $86 million, less than revenue growth.
- Share repurchases were lower year over year: 15.0 million shares for $793 million in the first nine months, compared with 23.3 million shares for $1.1 billion. The board had authorized up to $1.8 billion of additional repurchases through August 15, 2014.
Outlook, risks, contingencies, and unusual items
- Management gave no specific full-year revenue or earnings guidance in the provided filing text. It expects cash, investments, and operating cash flow to cover anticipated needs for at least the next 12 months, and expects to continue comparable quarterly dividends and repurchases, subject to board and management decisions.
- On May 18, 2012, after quarter-end, Intuit acquired Demandforce for approximately $423.5 million in cash and other consideration to expand online small-business offerings. The filing does not provide a clear breakdown of the consideration or a quantified expected contribution.
- Two putative class actions allege that TurboTax refund-processing fees and disclosures violate California and federal law. Intuit disputes the claims; it recorded no accrual because liability was considered possible but not probable, and the possible loss range could not be reasonably estimated.
- Intuit held $54 million of illiquid municipal auction-rate securities, classified as long-term investments and valued approximately at par using a discounted cash-flow model. Management said it did not expect the liquidity limitation to materially affect overall liquidity.
- Other unusual items included a $10 million gain on disposition of stock warrants and an approximately $4 million pretax gain on the sale of the Financial Services corporate banking business. The effective tax rate was approximately 34% in Q3 and year to date.
- Key disclosed risks include intense competition, seasonal revenue swings, product and technology execution, service outages and cybersecurity/privacy incidents, regulatory changes, transaction fraud, litigation, and acquisition integration. The company reported effective disclosure controls and no material quarterly change in internal control over financial reporting.
Investor facts to verify
- Whether service-led growth, online adoption, and paid TurboTax unit growth persist outside the peak tax season.
- Whether rising service costs and staffing, marketing, and program investments affect margins in subsequent quarters.
- Cash and investment levels after the $423.5 million Demandforce acquisition, and the company’s continued capital-return pace.
- Developments in the TurboTax fee litigation, including any change in estimated exposure or accrual.
- Valuation and recovery assumptions for the $54 million auction-rate securities, and progress toward repayment or refinancing of the 2017 notes.