Intuit Inc. (NASDAQ: INTU) today announced the financial results for its third fiscal quarter ended April 30, 2001.
"Intuit's focus is on growing profits, and we delivered, beating consensus estimates for pro forma earnings per share by two cents," said Steve Bennett, Intuit's president and chief executive officer. "Intuit grew pro forma operating income by 63 percent on revenue growth of 29 percent. We had several businesses that really stood out - our consumer and professional tax businesses, payroll and Quicken Loans."
Third-Quarter Results
Intuit reported revenue of $425.2 million for the third quarter of fiscal 2001, an increase of 29 percent over the $329.1 million for the year-ago quarter. Revenue growth resulted from both increased prices and higher volumes.
On a GAAP basis, Intuit reported a net loss for the quarter of $14.3 million, or $0.07 per share. Year-over-year GAAP comparisons are complicated due to two large, unrelated events that impacted the third quarters of both fiscal 2000 and 2001. Last year's third-quarter GAAP results benefited from a $422.2 million pre-tax gain on the sale of certain marketable securities, which did not occur this year. In the year-ago quarter, Intuit reported net income of $297.1 million, or $1.39 per share. This year's third quarter was impacted by a charge of approximately $77 million (which is included within acquisition-related costs) related to the accelerated write-off of goodwill related to acquisitions made in prior periods. Intuit's policy is to regularly review goodwill and other longer-term assets to evaluate their current value. (See Table A)
On a pro forma basis (explained below), Intuit reported third-quarter net income of $118.4 million, or $0.55 per share, which was 53 percent better than the prior year quarter. Intuit had pro forma net income of $76.3 million, or $0.36 per share, for the third quarter of fiscal 2000. Pro forma operating income was $165.1 million in the third quarter, up 63 percent from the year-earlier quarter. The increase in pro forma operating income resulted from price increases across many business lines, strong volume growth and improved operational rigor efforts throughout the company. (See Table B)
Intuit continues to have a strong balance sheet, with nearly $1.6 billion in cash and short-term investments, or more than $7.00 per share.
Intuit's financial results reflect the highly seasonal nature of its businesses, particularly its tax preparation business. Intuit typically produces more than 100 percent of its annual profits in its second and third quarters combined. Intuit typically reports a loss in its first and fourth quarters when revenues from tax software are minimal, but operating expenses to develop new products and services continue at relatively consistent levels.
Annual results may provide a more meaningful way to compare Intuit's operating performance than quarter-over-quarter comparisons. The timing of product launches and promotions can vary from one year to the next, shifting revenue to different quarters within a year.
The GAAP financial results are prepared in accordance with generally accepted accounting principles and are shown in Table A. Pro forma financial information shown in Table B excludes acquisition-related charges, reorganization costs, net pre-tax gains and losses related to marketable securities and other investments, gain on divestiture, and the cumulative effect of accounting change for derivatives.
Business Highlights
Another Record Tax Season
Intuit had a record season in its consumer tax business, significantly growing both units and revenue. The company had excellent growth in federal units, with 7.6 million total Web and desktop units, up 19 percent over the prior season. Revenue increased 27 percent for the season.
On the desktop, Intuit grew share of both units and revenue at retail. On the Web, the company added one million new users, up 71 percent to 2.4 million. Revenue on the Web increased 130 percent.
Intuit also had a good year in its professional tax business, which was the second largest contributor to the company's profits in the third quarter after consumer tax. In April, the company acquired Tulsa, Okla.-based Tax and Accounting Software Corporation (TAASC). Based on Intuit's history, the company expects to convert between 60 percent and 80 percent of TAASC's 20,000 customers to its Lacerte or ProSeries products, which will help drive additional profit and revenue growth next season.
Payroll Shows Strong Revenue and Profit Growth
Intuit continues to see momentum in its payroll business - a high-growth service business with a recurring revenue stream and strong third-quarter results:
- Year over year, the customer base grew more than 65,000 to a total of 630,000.
- Revenue grew 56 percent to nearly $30 million.
- Intuit posted a pro forma operating profit in this business for the first time since it acquired Computing Resources Inc. in May of 1999.
Quicken Loans Has Outstanding Quarter
Quicken Loans also had an outstanding third quarter, originating $1 billion in closed loans for the first time ever. At $35 million, quarterly revenue tripled (up more than 200 percent) on a year-over-year basis from $11 million in last year's third quarter. Quicken Loans had $12 million in pro forma operating profits in the third quarter and generated over 30 percent operating margins.
Small Business Continues to Grow
Intuit's small business division grew revenue 5 percent over last year's third quarter. As reported last quarter, Intuit continues to see a relatively lower level of QuickBooks desktop product upgrades, resulting from an unusually high number of customers getting a new product last year due to Y2K. QuickBooks continues to attract a large number of new users. The company expects to add between 400,000-425,000 new users this year versus the 500,000 previously expected, in part due to a slower economy.
Investing in Emerging Growth Businesses
The company has spent approximately $85 million on its internal emerging growth businesses during the first three quarters of the fiscal year, mostly in the small business area. This is double the spending during the same period a year ago.
Other Information
As an added measure to provide the company flexibility and take advantage of a slow holiday week, Intuit will require non-customer-facing employees to take vacation on July 5 and 6, following the Fourth of July holiday. Employee pay is not affected and approximately half of Intuit's workforce will be taking this two-day vacation. Intuit's financial guidance for fiscal year 2001 takes into account the expected impact of this measure.
Intuit Raises Minimum Target for Pro Forma Operating Income for Fiscal 2001
Despite a challenging environment, Intuit said it expects fiscal year 2001 revenue will be around $1.26 billion. The bottom end of the revenue range the company provided in March was $1.26 billion.
Intuit's focus is on growing profits. Based on its third-quarter performance, Intuit has raised the floor of its fiscal year 2001 pro forma operating income guidance. Intuit's new guidance is between $208 million and $213 million, which represents growth of at least 34 percent year-over-year.
Intuit also announced its guidance for fiscal year 2002, which begins Aug. 1, 2001. Intuit is targeting pro forma operating income growth in the 25 to 30 percent range and revenue growth in the 15 to 20 percent range for fiscal 2002.
The accompanying fact sheet has more details on Intuit's historical performance and financial projections. The company does not confirm or update its financial projections except in compliance with Regulation FD.
Power Point Presentation and Conference Call
A PowerPoint presentation accompanying the Intuit earnings conference call and a live audio Web-cast of the call is available at www.intuit.com/company/investors/ and will remain available for one week. The conference call number is 800-621-5170 (212-346-6384 from international locations). Those planning to listen to the conference call should download the PowerPoint file before the call begins. A replay of the call will be available for one week at www.intuit.com/company/investors/ or by calling 800-633-8284 (858-812-6440 for international locations). The reservation number is 18769223.
Cautions about Forward Looking Statements
This press release includes "forward-looking" statements about future financial results and other events and circumstances that have not yet occurred. For example, statements with words like "expect," "anticipate" or "believe," and statements in the future tense, are forward-looking statements. Investors should be aware that actual results may differ materially from our expressed expectations because of risks and uncertainties about the future. We will not update the information in this press release if any forward-looking statement later turns out to be inaccurate. Risks and uncertainties that may affect future results and performance include, but are not limited to, the following: Our revenue and earnings are highly seasonal, which causes significant quarterly fluctuations in our revenue and net income. Acquisition-related charges (including possible accelerated amortization of acquisition-related intangible assets) can cause significant fluctuation in our net income. Proposed Financial Accounting Standards Board guidelines relating to accounting for goodwill could make our acquisition-related charges less predictable in any given reporting period. Net pre-tax gains and losses related to marketable securities and other investments can also cause significant fluctuation in our net income. We hold equity investments that have been very volatile, with significant declines in value during recent periods. Declining economic conditions could reduce demand for our products and services. We face risks relating to customer privacy and security and increasing regulation, which could hinder the growth of our businesses - particularly our Internet-based businesses. Products and services offered to consumers by government agencies may increasingly overlap with products and services offered by Intuit and others in the private sector, and could have a significant negative impact on our future financial results. If we do not continue to successfully develop new products and services in a timely manner that gain widespread customer acceptance, our future financial results would suffer. If we do not continue to successfully refine and update the business models for our Internet-based products and services and other emerging businesses, and continue to improve our operational support for these businesses, the businesses will not achieve sustainable financial viability or broad customer acceptance. We face competitive pressures in all of our businesses, particularly our consumer tax preparation software business, which can have a negative impact on our revenue, profitability and market position. Significant problems or delays in the development of future tax products would result in lost revenue and customers. If we fail to maintain reliable and responsive service levels for our electronic tax offerings, we could lose revenue and customers in future tax seasons. If we are unable to identify and capitalize on sources of revenue for our QuickBooks business in addition to annual upgrade sales to existing customers and sales to new customers with under 20 employees, the business will not be able to achieve sustained growth. If we are unable to successfully restructure our QuickBooks Internet Gateway services and business model, the services will not achieve and maintain acceptance by customers and the third-party vendors who provide these services, and they will not generate long-term revenue growth or profitability. In order to continue expanding our customer base in the payroll services business, we must continue to improve the efficiency and effectiveness of our payroll processing operations and streamline customer activations for our Deluxe and Premier services. The long-term viability of Quicken.com and our other Internet-based personal finance services will depend on our ability to increase our customer base as quickly as possible, get greater participation by financial institutions, and expand the depth and breadth of our offerings in order to differentiate ourselves from other Internet-based personal finance service providers. It is unlikely that the growth rates experienced by our mortgage business during fiscal 2001 will be sustainable long-term. Mortgage rate increases, the impact of the economic climate on the housing market, business operation risks and other factors could result in significantly lower revenue and profit growth. Business conditions in international markets, other risks inherent in international operations, and changes in our business model in Europe, may negatively impact our financial performance. Despite our efforts to adequately staff and equip our customer service and technical support operations, we cannot always respond promptly to customer requests for assistance. This can adversely affect customer relationships and our financial performance. Actual product returns by our retail and direct customers may exceed return reserves that we have established, which would have a negative impact on revenue. Additional information about factors that could affect future results and events is included in Intuit's fiscal 2000 Form 10-K and its other recent SEC filings.
Intuit, Quicken, QuickBooks, QuickBooks Pro, TurboTax, ProSeries and Lacerte, among others, are registered trademarks and/or registered service marks of Intuit Inc. or one of its subsidiaries. Quicken.com, Quicken Loans and Quicken Store, among others, are trademarks and/or service marks of Intuit Inc. or one of its subsidiaries. Other parties' marks are the property of their respective owners and should be treated as such.
(Financial statements follow)
(Intuit Fact Sheet)
