Intuit Inc. — Fiscal 2010 Form 10-K
Business context and reporting period. Intuit provides financial and business software and services, including QuickBooks, TurboTax, Quicken, professional tax products, payroll, payments and online banking. The report covers the fiscal year ended July 31, 2010; it is an annual filing, not a standalone quarterly filing. Fiscal 2010 Q4 ended July 31, 2010.
Financial performance and condition
| Metric | Fiscal 2010 | Prior comparable period |
|---|---|---|
| Total net revenue | $3.455 billion | $3.109 billion; up 11% |
| Operating income, continuing operations | $863 million | $683 million; up 26% |
| Operating margin, continuing operations | 25.0% | 22.0% |
| Net income, continuing operations | $539 million | $447 million; up 21% |
| Diluted EPS, continuing operations | $1.66 | $1.35; up 23% |
| Net cash from operating activities | $998 million | $812 million |
| Cash, cash equivalents and investments | $1.622 billion | $1.347 billion |
| Working capital and current ratio | $1.074 billion; 1.9:1 | $884 million; 1.8:1 |
| Long-term debt | $998 million | $998 million |
- Service and other revenue was $2.043 billion, versus $1.733 billion; product revenue was $1.412 billion, versus $1.376 billion. Cost of revenue was 19% of revenue, compared with 20%.
- Fiscal 2010 Q4 revenue was $537 million; operating loss from continuing operations was $64 million and net loss was $48 million. This reflects Intuit’s disclosed seasonality: tax revenue is concentrated in the second and third fiscal quarters, and the company typically reports losses in Q1 and Q4.
- Investing activities used $997 million, including $895 million of net investment purchases, $218 million for acquisitions and $130 million of capital expenditures. Financing activities used $467 million, including $900 million of repurchases, partly offset by $440 million of employee stock-plan proceeds.
Material changes versus fiscal 2009
- Revenue increased across all segments. Consumer Tax rose 15% to $1.146 billion, driven by 19% growth in TurboTax Online units; it remained the largest segment.
- Employee Management Solutions grew 15% to $418 million, reflecting the PayCycle acquisition and payroll pricing. Payment Solutions increased 8% to $313 million as the merchant customer base grew, although transaction volume per merchant declined 3%.
- Financial Management Solutions increased 6% to $611 million, supported by Intuit Websites and higher QuickBooks average selling prices. Financial Services grew 7% to $332 million. Other Businesses increased 22% to $262 million, including Quicken growth and favorable currency effects.
- Operating expenses increased $150 million, including higher performance-based incentive compensation and expenses from PayCycle, Mint and Medfusion. The effective tax rate rose to approximately 34% from 31%; fiscal 2010 included approximately $20 million of discrete tax benefits.
- Total net income was $574 million, versus $447 million. Fiscal 2010 included $35 million of net income from discontinued operations, principally the gain on the sale of Intuit Real Estate Solutions (IRES); fiscal 2009 reported none.
Outlook, commentary, risks and unusual items
- Management said cash, investments and expected operating cash flows should meet anticipated liquidity needs for at least 12 months. No numerical revenue or earnings guidance for a future period is provided in the supplied filing text.
- Management’s strategy emphasizes growth in core products, adjacent businesses and connected services. Connected services generated nearly 60% of fiscal 2010 revenue; SaaS offerings accounted for roughly one-third. Research and development expense was $573 million, or 17% of revenue.
- Intuit acquired Mint for approximately $170 million and Medfusion for approximately $89 million, and sold IRES for $128 million in cash. The IRES sale produced a $35 million net gain reported in discontinued operations.
- Intuit repurchased 28.7 million shares for $900 million in fiscal 2010. After year-end, it authorized an additional $2 billion repurchase program. The company has never paid cash dividends and did not anticipate doing so in the foreseeable future.
- Debt consists principally of $500 million of 5.40% senior notes due March 2012 and $500 million of 5.75% notes due March 2017. The $500 million revolving facility was undrawn at year-end; Intuit reported compliance with its covenants.
- Risks include intense competition, including free and low-cost offerings; dependence on seasonal tax and small-business sales; online service outages and data-center migration; customer privacy and cybersecurity; payment fraud and transaction processing; regulation and litigation; economic weakness; and acquisition integration and impairment risk. The filing reports $1.9 billion of goodwill and $256 million of net acquired intangible assets. No goodwill impairment was recorded in fiscal 2010.
- The company held $87 million of municipal auction-rate securities classified as long-term investments; auctions had failed since 2008. Management estimated fair value at approximately par and said the reduced liquidity was not expected to materially impair overall liquidity. The independent auditor issued unqualified opinions on the financial statements and internal control over financial reporting.
Important facts for investors to verify
- Whether TurboTax Online unit growth and service-revenue expansion persist, and how the shift from desktop products affects margins and revenue timing.
- Whether merchant transaction volumes recover, and whether growth in customer counts translates into stronger payments revenue.
- The cash and investment composition, including restricted customer funds, liquidity of the remaining auction-rate securities, and the timing of the 2012 debt maturity.
- The impact of the new $2 billion repurchase authorization on cash, share count and per-share results.
- Future acquisition performance, especially Mint and Medfusion, and the assumptions supporting goodwill and intangible-asset carrying values.
- Exposure to service interruptions, security breaches, fraud, tax-industry regulation and pending or future legal claims.