Is Intuit's revenue growth accelerating or slowing?

Revenue grew 13% in fiscal 2004, but management explicitly says growth is slowing as its markets mature. Growth came mainly from higher-priced QuickBooks versions, Do-It-Yourself Payroll, TurboTax for the Web and electronic filing, and the Innovative Merchant Solutions acquisition.

How much of the EPS improvement came from operations versus accounting items?

Diluted EPS from continuing operations rose to $1.58 from $1.25. Part of the gain came from a $35.7 million reversal of income tax reserves, which lowered the effective tax rate to 30%, and part came from a lower share count after buybacks. Operating income grew about 22%, so operations were the primary driver.

What are the main threats to the Consumer Tax business?

The Free File Alliance and state-sponsored free tax programs (22 states, including California, offered their own online services in 2004) allow competitors to offer free federal and state filing, which can cost Intuit paid customers. Management warns that future government action could materially hurt this segment, which generated $490 million of revenue in fiscal 2004.

Is Intuit's balance sheet and cash position sound?

Yes, though cash is declining. Cash and short-term investments were $1.0 billion at July 31, 2004, down $187.6 million, and working capital fell to $659 million. Management believes existing cash will cover seasonal working capital and capital expenditure needs for at least the next twelve months. Stockholders' equity fell to $1.82 billion because buybacks exceeded net income.

What should investors watch in the coming year?

Watch the rollout of new information systems, which management says has not yet closed a financial reporting period and could disrupt operations in the critical second and third fiscal quarters. Also watch the sale of Intuit Public Sector Solutions, Microsoft's push into small business, and the Sarbanes-Oxley 404 internal control certification due July 31, 2005.

INTU 10-K FY2004 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed September 24, 2004. Cited figures are marked; the original filing is the authoritative source.

Intuit's fiscal 2004 10-K (year ended July 31, 2004) shows a company with strong profitability but decelerating top-line growth.

Total net revenue rose 13% to $1.87 billion^a from $1.65 billion, and income from continuing operations climbed 22% to $420.3 million. Diluted EPS from continuing operations reached $1.58, up from $1.25, helped by a $35.7 million reversal of tax reserves and a 3.6% reduction in average diluted shares from buybacks. Growth was led by QuickBooks-Related (up 18%, driven by higher-priced QuickBooks versions and Do-It-Yourself Payroll) and Consumer Tax (up 16%, driven by TurboTax for the Web and electronic filing).

Management explicitly states that revenue growth is slowing as its core markets mature. The balance sheet and cash flow are solid but less flush than before. Operating cash flow was $574.6 million^b, while the company spent $609.4 million repurchasing 13.5 million shares and $123.6 million on acquisitions.

Cash and short-term investments fell $187.6 million to $1.0 billion^c, and stockholders' equity declined to $1.82 billion from $1.96 billion because buybacks exceeded earnings. Management says it will rely on existing cash for seasonal working capital and capital needs over the next twelve months.

Key risks for investors include intensifying competition from Microsoft in small business, the publicly funded Free File Alliance and state free-filing programs that threaten the Consumer Tax franchise, a new information system rollout that had not yet closed a financial reporting period, and a goodwill base of $670 million^d that could be impaired. The company also announced plans to sell its Intuit Public Sector Solutions unit after a $18.7 million goodwill impairment.

02—Key points

Key Highlights

Total net revenue grew 13% to $1,867.7 million in fiscal 2004, up from $1,650.7 million, led by QuickBooks-Related (+18%) and Consumer Tax (+16%) segments.
Income from continuing operations rose 22% to $420.3 million, and diluted EPS from continuing operations increased to $1.58 from $1.25, aided by a $35.7 million tax reserve reversal.
Effective tax rate fell to 30% in fiscal 2004 from 33% in fiscal 2003, largely due to the reserve reversal.
Intuit repurchased 13.5 million shares for $609.4 million at an average price of $45.01, and a new $500 million Repurchase Plan IV was announced in May 2004.
Operating cash flow was $574.6 million, but cash and short-term investments declined $187.6 million to $1.0 billion as buybacks and acquisitions outpaced cash generation.
Management states that revenue growth is slowing as core markets mature, and the company is pursuing new products to offset this trend.
Key risks include Microsoft's growing small-business competition, government free-filing programs, a new ERP and information systems transition, and $670 million of goodwill subject to impairment.

03—Questions

Frequently Asked Questions

Is Intuit's revenue growth accelerating or slowing?
Revenue grew 13% in fiscal 2004, but management explicitly says growth is slowing as its markets mature. Growth came mainly from higher-priced QuickBooks versions, Do-It-Yourself Payroll, TurboTax for the Web and electronic filing, and the Innovative Merchant Solutions acquisition.
How much of the EPS improvement came from operations versus accounting items?
Diluted EPS from continuing operations rose to $1.58 from $1.25. Part of the gain came from a $35.7 million reversal of income tax reserves, which lowered the effective tax rate to 30%, and part came from a lower share count after buybacks. Operating income grew about 22%, so operations were the primary driver.
What are the main threats to the Consumer Tax business?
The Free File Alliance and state-sponsored free tax programs (22 states, including California, offered their own online services in 2004) allow competitors to offer free federal and state filing, which can cost Intuit paid customers. Management warns that future government action could materially hurt this segment, which generated $490 million of revenue in fiscal 2004.
Is Intuit's balance sheet and cash position sound?
Yes, though cash is declining. Cash and short-term investments were $1.0 billion at July 31, 2004, down $187.6 million, and working capital fell to $659 million. Management believes existing cash will cover seasonal working capital and capital expenditure needs for at least the next twelve months. Stockholders' equity fell to $1.82 billion because buybacks exceeded net income.
What should investors watch in the coming year?
Watch the rollout of new information systems, which management says has not yet closed a financial reporting period and could disrupt operations in the critical second and third fiscal quarters. Also watch the sale of Intuit Public Sector Solutions, Microsoft's push into small business, and the Sarbanes-Oxley 404 internal control certification due July 31, 2005.

04—Continue

← View all 10-K filings