Intuit Inc. — Form 10-Q Summary
Business context and reporting period
Reports the first quarter of fiscal 2012, the three months ended October 31, 2011, compared with the three months ended October 31, 2010. Intuit provides business and financial management products and services, including QuickBooks, TurboTax, Quicken, payroll, payments and online banking solutions. Results are unaudited and the company cautions that this seasonally weak quarter is not necessarily indicative of full-year results.
Financial results and liquidity
- Revenue: $594 million, up 12% from $532 million. Product revenue was $222 million; service and other revenue was $372 million.
- Profitability: Operating loss was $94 million, versus $104 million; net loss was $64 million, versus $70 million. Basic and diluted loss per share improved to $0.21 from $0.22. Approximate gross margin was 71%, compared with 70%.
- Costs: Total costs and expenses rose to $688 million from $636 million. Operating expenses increased $39 million, including about $21 million of higher staffing costs. Amortization of acquired intangible assets increased to $21 million from $11 million.
- Cash flow: Operating activities used $110 million, versus $211 million used a year earlier. Investing activities used $50 million, versus $285 million provided; financing activities used $226 million, versus $177 million used. Cash and cash equivalents declined $389 million to $333 million.
- Liquidity: Cash, cash equivalents and investments totaled $1.051 billion at October 31, down $370 million from July 31. Working capital was $244 million and the current ratio was 1.1:1. Cash and investments exclude $321 million of funds held for customers, matched by customer fund deposits.
- Debt: Total debt was approximately $999 million: $500 million of 5.40% notes due March 15, 2012, and $500 million of 5.75% notes due March 15, 2017, less discount. The $500 million revolving credit facility was undrawn; the company was in compliance with its covenants.
- Capital returns: Repurchased 5.2 million shares for $255 million and declared and paid its first quarterly dividend, $0.15 per share, totaling about $45 million. The board declared another $0.15 dividend payable in January 2012.
Material changes and business drivers
- Small Business Group revenue grew 13%. Financial Management Solutions rose 9%, Employee Management Solutions 13%, and Payment Solutions 19%. Growth drivers included connected services, payroll adoption and pricing, and payment fee changes and customer growth.
- Financial Services revenue increased 9%, supported by bill-pay and mobile banking; the company cited downward pricing pressure on bill-pay revenue per user.
- Consumer Tax revenue rose 39% and Accounting Professionals revenue rose 6%, but both are highly seasonal; first-quarter results largely reflect extended returns and are not considered indicative of current tax-season trends.
- Other Businesses revenue fell 3%, primarily due to lower Quicken sales; its segment operating result shifted to a $3 million loss from $1 million income.
- Consolidated operating loss improved despite higher expenses, as revenue growth exceeded the increase in costs. A $10 million gain on disposition of stock warrants contributed to interest and other income.
Outlook, risks and unusual items
- No specific revenue or earnings guidance is provided. Management expects cash, investments and operating cash flows to be sufficient for anticipated needs for at least the next 12 months, and expects to continue comparable quarterly dividends, subject to board approval.
- The company typically incurs losses in the first and fourth fiscal quarters; revenue is generally highest in the second and third quarters due to tax-season and small-business product seasonality.
- Management intended to repay the $500 million notes due March 2012 with operating cash or refinance if credit markets were favorable. The revolving credit facility was scheduled to expire in March 2012.
- Intuit held $54 million of illiquid municipal auction rate securities. Management did not expect the reduced liquidity to materially affect its ability to meet liquidity needs and did not record a fair-value decrease in the quarter.
- Key disclosed risks include intense competition, ability to innovate and monetize online and mobile offerings, service availability and data-center migration, cybersecurity and privacy, fraud and transaction processing, regulation, seasonal volatility, macroeconomic weakness, litigation and intellectual-property claims, and investment and currency risks.
- Routine legal proceedings and claims were disclosed; management believed potential losses beyond amounts accrued would not materially affect the financial statements, while noting litigation outcomes remain uncertain. The filing reported no significant off-balance-sheet arrangements.
Important facts for investors to verify
- Repayment or refinancing plans and funding for the $500 million March 2012 debt maturity, as well as the revolving facility’s renewal or replacement.
- Whether Small Business Group and connected-services growth persists, and whether payment growth and margins withstand competition and pricing pressure.
- Performance through the full tax season; first-quarter tax-segment comparisons are seasonally limited.
- Cash generation and liquidity after buybacks, dividends and capital spending; confirm customer funds remain appropriately matched to customer deposits.
- Developments affecting the $54 million auction rate securities, litigation and other contingencies, and risks from data security, system availability and regulatory changes.