Intuit Inc. — Form 10-Q Summary
Business context and reporting period
Intuit provides financial and business management products and services, including QuickBooks, TurboTax, Quicken, payroll and payments solutions, and online banking services. This filing covers fiscal Q2 and the six months ended January 31, 2012; amounts are in millions except per-share data. Results are seasonal, with tax-related revenue concentrated in the second and third fiscal quarters.
Financial performance
| Metric | Q2 FY2012 | Q2 FY2011 | Six months FY2012 | Six months FY2011 |
|---|---|---|---|---|
| Revenue | $1,019 | $878 | $1,613 | $1,410 |
| Operating income | $192 | $111 | $98 | $7 |
| Net income | $118 | $73 | $54 | $3 |
| Diluted EPS | $0.39 | $0.23 | $0.18 | $0.01 |
| Cash from operations | $260 | $258 | $150 | $47 |
Q2 revenue increased 16%, operating income 73%, and net income 62% year over year. For the six-month period, revenue rose 14%; operating income increased to $98 from $7 and net income to $54 from $3. Approximate operating margin was 18.8% in Q2 versus 12.6% a year earlier, and 6.1% year to date versus 0.5%. Growth in revenue outpaced expense growth, improving margins; reported tax rates and the prior-year tax benefit also affect comparisons.
At January 31, cash and cash equivalents were $277, current investments $682, and long-term investments $59. Management reported cash, cash equivalents and investments of $959, down $462 from July 31, 2011. Working capital was $121, versus $449, and the current ratio was 1.1:1 versus 1.2:1. Six-month operating cash flow was $150; capital expenditures were $92. Financing used $526, including $586 of share repurchases and $89 of dividends, partly offset by $106 from employee stock plans. Cash and cash equivalents fell $445 to $277.
Total debt was approximately $999: $500 of 5.40% notes due March 15, 2012 and $499 of long-term debt, including the 2017 notes. The company said it planned to repay the 2012 notes with operating cash. It reported no borrowings under its revolving facility. A replacement $500 revolving credit facility was entered into on February 17, 2012, maturing in 2017.
Material changes and operating drivers
- Consumer Tax revenue increased 44% in Q2 and 43% year to date, driven by TurboTax Online federal units. Year-to-date online federal units grew 39%. Comparisons benefit in part from the prior-year IRS delay in accepting certain e-filed returns, which shifted revenue into the prior-year third quarter.
- Small Business Group revenue rose 9% in Q2 and 11% year to date. Payment Solutions grew 17% and 18%, respectively, supported by fee changes and merchant-customer growth; Employee Management Solutions grew 9% and 11%.
- Financial Services revenue increased 9% in both periods, with mobile banking and bill-pay growth. Other Businesses revenue declined 5% in Q2 and 4% year to date, primarily due to lower Quicken sales.
- Six-month operating expenses increased $69, including about $51 of higher staffing costs and $10 of higher share-based compensation. Q2 expenses increased $30, mainly from staffing.
- Intuit repurchased 11.4 million shares for $586 in the first six months, compared with 18.5 million shares for $860 a year earlier. It declared and paid $0.15 per share quarterly dividends and declared another $0.15 dividend for payment in April 2012.
Outlook, risks and unusual items
- No numerical full-year earnings or revenue guidance was provided. Management said cash, investments and operating cash flow should meet anticipated seasonal working capital, capital spending, contractual, debt-service and other liquidity needs for at least 12 months. It expected to continue comparable quarterly dividends and return excess cash through dividends and repurchases, subject to board decisions.
- Tax and small-business operations are seasonal; the company noted that Consumer Tax and Accounting Professionals results for the tax season would not be substantially complete until fiscal Q3. Tax-form availability and government e-filing timing can shift revenue between quarters.
- Two putative class actions filed in January 2012 challenge TurboTax refund-processing fee disclosures and allege the fees constitute refund anticipation loans. The claimed loss amount is unspecified and cannot currently be reasonably estimated. Intuit said it believes it has meritorious defenses; no accrual was recorded because liability was considered possible, not probable.
- The company held $54 of illiquid municipal auction-rate securities, classified as long-term investments. It reported no fair-value reduction for the six months and did not expect the reduced liquidity to materially affect overall liquidity.
- A $10 gain on disposition of stock warrants contributed to year-to-date interest and other income. The prior-year period included an approximately $9 discrete tax benefit from retroactive reinstatement of the federal research and experimentation credit.
- Principal disclosed risks include intense competition, cybersecurity and privacy breaches, service or data-center disruptions, transaction fraud, regulation and litigation, seasonal volatility, product launch and tax-filing execution, and potential impairment of goodwill and acquired intangibles. Management reported effective disclosure controls and no material change in internal control over financial reporting.
Most important facts for investors to verify
- Whether Consumer Tax growth persists after accounting for the prior-year IRS filing delay and the full tax-season results.
- Whether operating cash generation and liquidity support repayment of the $500 million notes due March 2012 while maintaining repurchases and dividends.
- Whether the lower working capital and cash balance reflect seasonal timing or a lasting change in liquidity needs.
- Developments and potential exposure in the TurboTax fee litigation, for which the filing provides no estimable loss range.
- Progress in online payroll, QuickBooks Online, payments and mobile banking, and the continuing decline in Quicken and other-business revenue.