01—Abstract
Summary
Summary of the 10-K filed September 15, 2009. Cited figures are marked; the original filing is the authoritative source.
Intuit's fiscal 2009 10-K (year ended July 31, 2009) shows a company that grew revenue modestly during a severe consumer and small business downturn.
Total net revenue rose 4% to $3.18 billiona, driven by Consumer Tax (+7%, with TurboTax Online units up 36% offsetting a 11% decline in desktop units), Payments Solutions (+15%), Employee Management Solutions (+8%), Accounting Professionals (+8%) and Financial Institutions (+4%). Financial Management Solutions (QuickBooks) fell 2% and Other Businesses (Quicken, Canada, UK) fell 14%, reflecting weaker small business and consumer spending. Operating income from continuing operations grew 5% to $682.1 million, but diluted EPS from continuing operations rose only 2% to $1.35 because of the absence of a $51.6 million payroll asset sale gain in fiscal 2008, lower interest income, and a higher effective tax rate of about 31% that was helped by discrete items.
Cash generation remained strong, with $812.4 millionb in operating cash flow from continuing operations. Management used $300.2 million for buybacks, $182.5 million for capital expenditures (including the new Washington state data center), and $187.4 million for acquisitions, primarily PayCycle. Cash, cash equivalents and investments reached $1.3 billion.
Balance sheet risk is concentrated in $244.5 millionc of municipal auction rate securities, which have been illiquid since February 2008, though the UBS put option covering $140.9 million partly mitigates this. Investors should also weigh the seasonality of the business, the expiration of the IRS Free File Alliance agreement in October 2009, and the fact that $1.8 billion of goodwill is exposed to future impairment. A pending $170 million acquisition of Mint Software was announced after year end.
02—Key points
Key Highlights
- Total net revenue grew 4% to $3.18 billion, with Consumer Tax up 7% and Payments Solutions up 15%, while Other Businesses fell 14% and QuickBooks fell 2%.
- Operating income from continuing operations rose 5% to $682.1 million, but diluted EPS from continuing operations rose only 2% to $1.35 after a non-recurring $51.6 million payroll asset gain in fiscal 2008.
- Operating cash flow from continuing operations was $812.4 million, funding $300.2 million in share repurchases, $182.5 million in capital expenditures and $187.4 million in acquisitions.
- TurboTax Online units grew 36% while TurboTax desktop units fell 11%, showing a shift toward connected online services, which made up more than 56% of revenue.
- Cash, cash equivalents and investments reached $1.3 billion, but $244.5 million of municipal auction rate securities remain illiquid, with $140.9 million covered by a UBS put option from June 2010.
- Goodwill of $1.8 billion and purchased intangibles of $293 million create impairment risk, and the IRS Free File Alliance agreement is set to expire in October 2009 with renewal uncertain.
- A definitive agreement to acquire Mint Software for about $170 million was signed on September 11, 2009, and is expected to close before the end of calendar 2009.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2009, Intuit kept $0.14.
- Revenue$3.11B100.0%
- Cost of revenue−$156.0M5.0%
- Gross profit$2.95B95.0%
- Operating costs−$2.27B73.0%
- Operating income$683.0M22.0%
- Interest, other & tax−$236.0M7.6%
- Net income$447.0M14.4%
Where FY2009 revenue went
$3.11B- Other operating costs: $1.71B, 55% of revenue
- R&D: $556.0M, 18% of revenue
- Net income: $447.0M, 14% of revenue
- Cost of revenue: $156.0M, 5.0% of revenue
- Interest, other & tax: $236.0M, 7.6% of revenue
Kept 14% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2009filed September 15, 2009Financial Statements
FY2009 against FY2008
| Line item | FY2009FY2008 | Change |
|---|---|---|
| Revenue | $3.11B$2.99B | +3.9% |
| Cost of Revenue | $156.00M$154.00M | +1.3% |
| Gross Profit | $2.95B$2.84B | +4.0% |
| R&D Expenses | $556.00M$593.00M | −6.2% |
| Operating Expenses | $2.43B$2.35B | +3.3% |
| Operating Income | $683.00M$644.00M | +6.1% |
| Interest Expense | $51.00M$52.00M | −1.9% |
| Net Income | $447.00M$477.00M | −6.3% |
| EPS (Basic) | $1.39$1.45 | −4.1% |
| EPS (Diluted) | $1.35$1.41 | −4.3% |
| Shares Outstanding (Basic) | 322.00M329.00M | −2.1% |
| Shares Outstanding (Diluted) | 330.00M339.00M | −2.7% |
05—Questions
Frequently Asked Questions
How did Intuit perform financially in fiscal 2009?
Intuit grew total net revenue 4% to $3.18 billion and operating income from continuing operations 5% to $682.1 million. Diluted EPS from continuing operations rose 2% to $1.35. Net income from continuing operations was $447.0 million, roughly flat, because fiscal 2008 included a $51.6 million pre-tax gain on the sale of outsourced payroll assets and interest income fell with lower rates.
Which business segments drove growth and which declined?
Consumer Tax grew $67.0 million (7%) on strong TurboTax Online growth, Payments Solutions grew $37.4 million (15%), Employee Management Solutions grew 8%, Accounting Professionals grew 8% on price increases, and Financial Institutions grew 4%. Other Businesses declined 14%, mainly due to lower Quicken sales and the stronger U.S. dollar, and Financial Management Solutions (QuickBooks) declined 2% as consumer and small business spending weakened.
Is Intuit's cash position at risk because of auction rate securities?
Intuit holds $244.5 million in municipal auction rate securities, valued at par, which have failed to auction since February 2008. Of this, $150.9 million is classified as short-term and $93.6 million as long-term. Management believes the reduction in liquidity will not materially affect its ability to meet liquidity needs. It also accepted a UBS offer allowing it to sell $140.9 million at par during a two-year window beginning June 30, 2010, and it intends to exercise that option within twelve months. Intuit also has a $500 million undrawn revolving credit facility and $1 billion in senior notes due 2012 and 2017.
What are the main risks investors should monitor?
Key risks include the seasonality of revenue, with losses typically in the first and fourth fiscal quarters, and the expiration of the Free File Alliance agreement with the IRS in October 2009, which could allow government-provided free tax filing to compete with TurboTax. Other risks include intense competition from free online offerings, reliance on a single manufacturing vendor, $1.8 billion of goodwill that could face impairment, and the effect of the economic downturn on consumer and small business spending.
What is Intuit's capital allocation strategy?
Intuit is using cash to repurchase its own stock, having bought back 10.9 million shares for $300.2 million in fiscal 2009, and it has $299.8 million of remaining authorization through May 2011. It is also investing in infrastructure, including a new Washington state data center and capitalized software, and is pursuing acquisitions such as PayCycle for about $169 million and Mint Software for about $170 million. The company has never paid a cash dividend and does not expect to do so in the foreseeable future.
06—Continue