Intuit Inc. — Form 10-Q Summary
Reporting period: Three and six months ended January 31, 2010 (fiscal 2010 second quarter and first half). Financial statements are unaudited. Intuit provides business and financial management software and services, including QuickBooks, TurboTax, Quicken and online banking services.
Financial performance
| Metric | Q2 FY2010 | Q2 FY2009 | Six months FY2010 | Six months FY2009 |
|---|---|---|---|---|
| Revenue | $837 million | $773 million | $1,311 million | $1,235 million |
| Operating income, continuing operations | $139 million | $111 million | $39 million | $36 million |
| Net income, continuing operations | $80 million | $86 million | $11 million | $34 million |
| Diluted EPS, continuing operations | $0.25 | $0.26 | $0.03 | $0.10 |
| Net cash from operating activities | $245 million | $143 million | $105 million | $(57) million |
- Q2 revenue grew 8%; first-half revenue grew 6%. Q2 operating margin was approximately 16.6%, compared with 14.4%; first-half operating margin was approximately 3.0%, compared with 2.9%.
- Total net income was $114 million for Q2 and $46 million for the first half, including $34 million and $35 million, respectively, from discontinued operations. The latter largely reflects the $35 million net gain on the IRES sale.
- For the first half, product revenue was $627 million and service and other revenue was $684 million. Cost of revenue was $344 million, or 26% of revenue, versus $317 million, also 26%, a year earlier.
- At January 31, cash and cash equivalents were $337 million and short-term investments were $609 million; together, $946 million, down $401 million from July 31, 2009. Long-term investments were $92 million. Working capital was $562 million and the current ratio was 1.4:1.
- Long-term debt was $998 million on the balance sheet; the company had issued $1 billion of senior notes. The $500 million revolving credit facility was undrawn, and Intuit reported compliance with its covenants.
Changes and business drivers
- Q2 revenue increased across most segments, led by Consumer Tax (+15%), Other Businesses (+38%), Payment Solutions (+14%), Employee Management Solutions (+12%) and Financial Institutions (+10%). Financial Management Solutions declined 3%; Accounting Professionals declined 7%.
- First-half Consumer Tax revenue rose 18%, with TurboTax Online units up 36%. Financial Management Solutions revenue fell 5%, reflecting lower QuickBooks unit sales; Accounting Professionals revenue fell 6%, including approximately $9 million shifted from Q2 to Q3 due to changes in offerings and revenue recognition.
- Management attributed higher first-half operating costs to acquired businesses, share-based compensation and infrastructure depreciation, partly offset by improved cost-of-revenue ratios. Continuing-operations income fell year over year despite higher revenue, partly because of higher interest expense and prior-year discrete tax benefits.
- Cash from operations improved to $105 million for the first half from cash used of $57 million a year earlier. Investing used $32 million, including $141 million for acquisitions and $66 million for capital expenditure, partly offset by IRES sale proceeds. Financing used $416 million, including $550 million of share repurchases.
Outlook, risks and unusual items
- No specific revenue or earnings guidance is stated in the provided filing text. Management expects cash, investments and operating cash generation to meet anticipated liquidity needs for at least the next 12 months. It notes that revenue is seasonal, usually highest in Q2 and Q3; the 2009 tax season was not yet substantially complete at the reporting date.
- Intuit sold Intuit Real Estate Solutions (IRES) in January 2010 for approximately $128 million in cash and recorded a $35 million net gain. Results were reclassified as discontinued operations. It acquired Mint for approximately $170 million in November 2009 and had acquired PayCycle for approximately $169 million in July 2009.
- Liquidity risk remains for $216 million of municipal auction-rate securities whose auctions had generally continued to fail. Intuit valued them at approximately par, reported receiving contractual interest, and intended to exercise a UBS put option covering $127 million at par. Management said it did not expect this restricted liquidity to materially impair overall liquidity; UBS counterparty risk remains.
- Other risks cited include competition, economic weakness affecting consumers and small businesses, seasonal volatility, product execution and technology changes, data security and service interruptions, reliance on third parties, acquisitions, debt and litigation. Intuit said routine legal matters were not expected to materially affect its financial position, results or cash flows. It reported no significant off-balance-sheet arrangements.
Investor facts to verify
- Separate recurring operating performance from the IRES disposal gain when assessing reported net income.
- Track the third-quarter tax-season results and the effect of the Accounting Professionals revenue deferral.
- Review cash conversion and working-capital movements, including seasonal receivables and deferred revenue.
- Monitor auction-rate securities liquidity, the UBS put option, and the company’s debt and repurchase commitments.
- Assess whether growth from acquisitions and online offerings offsets weaker QuickBooks unit sales and segment cost increases.