Intuit Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended April 30, 2011, compared with the corresponding periods ended April 30, 2010. Amounts are in U.S. dollars; financial statement amounts are in millions except per-share data.
Business context and results
Intuit provides business and financial management products and services, including QuickBooks, TurboTax, Quicken, and payroll, payments, and online banking solutions. Results are highly seasonal: tax-related revenue is concentrated in the second and third fiscal quarters.
For the nine-month period, management attributed growth primarily to Consumer Tax and the Small Business Group. Consumer Tax benefited from TurboTax Online growth; Small Business growth reflected connected services and improved offering mix.
Key financial metrics
| Metric | Three months ended April 30, 2011 | Three months ended April 30, 2010 | Nine months ended April 30, 2011 | Nine months ended April 30, 2010 |
|---|---|---|---|---|
| Revenue | $1,848 | $1,607 | $3,258 | $2,918 |
| Operating income from continuing operations | $1,061 | $888 | $1,068 | $927 |
| Net income from continuing operations | $688 | $576 | $691 | $587 |
| Net income | $688 | $576 | $691 | $622 |
| Diluted EPS from continuing operations | $2.20 | $1.78 | $2.16 | $1.80 |
| Cash provided by operating activities | $1,138 | $1,044 | $1,185 | $1,149 |
- Revenue increased 15% in the quarter and 12% year to date; continuing-operations operating income rose 19% and 15%, respectively.
- Approximate operating margin was 57% for the quarter versus 55% a year earlier, and 33% year to date versus 32%.
- Quarterly revenue growth was led by Consumer Tax, up 18%; year-to-date growth included Consumer Tax up 13% and the Small Business Group up 13%.
- At April 30, cash and cash equivalents were $1,369 and current investments were $459. The company reported cash, cash equivalents, and investments of $1,828, excluding customer funds. Funds held for customers of $383 were matched by customer fund deposits of $383.
- Total debt was approximately $998, comprising $500 due March 2012 and $498 long term. The $500 note was reclassified as current because its maturity was within one year.
- Working capital was $600, down from $1,074 at July 31, 2010; the current ratio declined to 1.3:1 from 1.9:1. Management cited the debt reclassification as a balance-sheet change.
- For the nine months, investing activities provided $780, primarily reflecting net investment sales; financing activities used $816, including $1,110 of share repurchases. Cash increased $1,155 to $1,369.
Material changes and notable items
- Quarterly Consumer Tax revenue growth included a shift from the second quarter: delayed IRS acceptance of certain electronic returns was believed to have moved revenue into the third quarter. Management said year-to-date TurboTax federal units rose 11%, with Online units up 18%.
- Small Business Group year-to-date revenue growth was 13%. Financial Management Solutions revenue grew 16%, although total QuickBooks software units declined 11%; higher average selling prices and growth in online and enterprise offerings supported revenue.
- Operating expenses rose $193 year to date. Management cited higher staffing ($65), marketing ($50), acquired-business costs ($36), and share-based compensation ($16). Total operating expenses increased to 52% of revenue from 51%.
- Share repurchases totaled 23.3 million shares for $1.11 billion year to date, versus 24.6 million shares for $750 million in the prior-year period. A $250 million accelerated repurchase delivered 4.9 million shares at $51.12 each. $890 million remained authorized for repurchases through August 16, 2013.
- The prior-year nine-month comparison included $35 of net income from discontinued operations, principally the gain on the 2010 sale of Intuit Real Estate Solutions; the current period had none.
- The fiscal 2011 nine-month effective tax rate was approximately 34%, including a roughly $9 discrete benefit from retroactive reinstatement of the federal research and experimentation credit. Excluding discrete benefits, the rate was approximately 35%.
Outlook, risks, and contingencies
- No specific revenue or earnings guidance is provided in the supplied filing text. Management expected cash, investments, and operating cash generation to be sufficient for anticipated needs for at least the next 12 months.
- The $500 million 5.40% notes mature in March 2012. Intuit said it intended to repay them from operating cash or refinance if credit-market conditions were favorable. A $500 million revolving facility, expiring March 2012, was undrawn; the company reported compliance with its covenants.
- Intuit held $77 of illiquid municipal auction-rate securities, classified as long-term investments. Management reported no impairment and did not expect the reduced liquidity to materially affect overall liquidity needs.
- Goodwill was $1.91 billion. The Intuit Health reporting unit’s estimated fair value exceeded carrying value by only approximately 5% to 10%; management identified potential impairment risk if business assumptions weaken and planned its annual test for fiscal Q4.
- Routine litigation and intellectual-property claims were pending. Management did not expect pending claims, individually or collectively, to materially affect financial position, results, or cash flows, while noting litigation outcomes remain uncertain.
- Key disclosed risks include intense competition and free offerings; seasonal and tax-agency timing fluctuations; product quality and launch execution; outages, data-center migration, cybersecurity and privacy; regulation; fraud and transaction processing; economic conditions; and acquisition, goodwill, and refinancing risks.
- Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether the third-quarter tax revenue increase partly reflects timing shifted from Q2, rather than a sustained change in demand.
- Progress in online and connected-service growth, including customer adoption, unit trends, pricing, and profitability by segment.
- Liquidity and refinancing plans for the $500 million March 2012 notes, and the effect of the current-debt classification on working capital.
- Execution of share repurchases, remaining authorization, and the balance between buybacks and investment in operations.
- Intuit Health reporting-unit performance and assumptions underlying the relatively narrow goodwill fair-value cushion.
- Exposure to cybersecurity, service interruptions, regulation, litigation, and the liquidity and recovery timing of auction-rate securities.