Intuit Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended April 30, 2013. Comparisons are with the corresponding 2012 periods. Intuit provides financial-management software and services, including QuickBooks, TurboTax, and offerings for payroll, payments, accounting professionals, and financial institutions. Results are seasonal, with tax revenue concentrated in the second and third fiscal quarters.
Key financial results
| Metric | Three months ended April 30, 2013 | Year to date |
|---|---|---|
| Revenue | $2.178 billion, up 13% | $3.793 billion, up 8% |
| Operating income from continuing operations | $1.247 billion, up 12% | $1.271 billion, up 4% |
| Net income from continuing operations | $822 million, up 12% | $842 million, up 5% |
| Diluted EPS from continuing operations | $2.71, up 12% | $2.78, up 7% |
| Operating cash flow | $1.449 billion | $1.560 billion, versus $1.428 billion |
Quarterly operating margin was approximately 57.3% of revenue, compared with 57.7% a year earlier; year-to-date margin was approximately 33.5%, compared with 34.9%. The year-to-date margin comparison reflects, among other factors, higher operating expenses and a $46 million impairment charge.
Quarterly revenue growth was led by Consumer Tax, up 14%, and the Small Business Group, up 17%. Year-to-date Small Business Group revenue grew 17%; Consumer Tax grew 5%. Financial Management Solutions revenue increased 20% year to date, or 9% excluding acquired Demandforce revenue. QuickBooks Online subscribers in the U.S. increased 24% year over year.
Liquidity, debt, and capital allocation
- Cash, cash equivalents, and current investments were $1.995 billion at April 30, 2013, up $1.251 billion from July 31, 2012. The balance sheet separately reports $88 million of long-term investments.
- Working capital was $1.154 billion and the current ratio was 1.7:1, versus $258 million and 1.2:1 at July 31, 2012.
- Long-term debt was $499 million, consisting primarily of 5.75% senior notes due March 2017. The company also had an undrawn $500 million revolving credit facility expiring in 2017 and reported compliance with its covenants.
- Investing activities used $347 million and financing activities used $194 million in the first nine months. Intuit repurchased $292 million of stock and declared $152 million in dividends during that period. A further $1.4 billion of repurchase authorization remained through August 15, 2014.
- Management expected to generate significant operating cash in fiscal 2013 and believed available cash, investments, and operating cash flow would cover anticipated needs for at least 12 months. It expected to pay approximately $320 million in income taxes in fiscal fourth quarter.
Material changes and unusual items
- In March 2013, the largest customer of Intuit Health acquired a competitor. Intuit recorded a $46 million goodwill and acquired-intangible impairment charge, reducing the affected assets to zero.
- Intuit sold its Intuit Websites business in September 2012 for approximately $60 million cash and recorded an approximately $32 million after-tax gain. The business is presented as discontinued operations; the nine-month 2013 results include $32 million of discontinued-operations income.
- Year-to-date revenue growth was partly offset by increased staffing, marketing, and share-based compensation expenses. Selling and marketing expense rose to $1.029 billion from $898 million.
- The IRS began accepting federal returns about two weeks later than in the prior tax season; management said this likely shifted some Consumer Tax revenue from fiscal second quarter to third quarter. Consumer Tax year-to-date growth was 5%, including 4% growth in paid federal units.
- Intuit announced a strategic organizational realignment effective August 1, 2013, focusing on small business, consumer tax, accounting professionals, and financial services. It was still assessing effects on segment reporting.
Outlook, risks, and contingencies
No specific full-year revenue or earnings guidance is provided in the filing. Management emphasized continuing investment in connected services, mobile-first products, open platforms, and use of customer data. It expected connected-services revenue to continue growing as a share of total revenue and anticipated continued seasonality, including typically weaker first and fourth fiscal quarters.
Principal risks include intense competition, execution and monetization of online and mobile offerings, seasonal and tax-agency timing fluctuations, service outages and data-center migration, cybersecurity and privacy breaches, third-party dependencies, regulatory changes, transaction fraud, and litigation. The filing also notes interest-rate exposure in investments and foreign-exchange exposure, though Intuit reported no foreign-currency hedging and characterized historical currency effects as generally immaterial.
Two putative class actions concerning TurboTax refund-processing fees were subject to an agreement in principle to settle for an amount deemed immaterial; court approval remained necessary. Intuit accrued the proposed settlement in fiscal second quarter and considered a material change in the amount remote. The company reported no significant off-balance-sheet arrangements and no significant change in contractual obligations during the first nine months.
Important facts for investors to verify
- Whether small-business and connected-service growth continues, especially QuickBooks Online, and how much reported growth depends on acquisitions such as Demandforce.
- Whether Consumer Tax results normalize after the IRS filing-date shift and whether paid-unit growth and online adoption persist.
- Whether elevated operating expenses and the impairment charge affect ongoing margins; review segment performance and unallocated corporate costs.
- Whether the Intuit Health impairment signals further customer concentration or impairment risk in goodwill and intangible assets.
- Execution and reporting effects of the August 2013 organizational realignment, alongside planned repurchases, dividends, and the expected fourth-quarter tax payment.
- Developments in the TurboTax settlement and the company’s service availability, cybersecurity, privacy, and regulatory exposures.