Intuit Reports Earnings In Line With Expectations
MOUNTAIN VIEW, Calif.--Intuit Inc. (NASDAQ:INTU) today announced the financial results for its second fiscal quarter ended January 31, 1998.
Consistent with expected seasonal patterns, Intuit reported GAAP and pro forma revenue of $237.5 million. Intuit also reported second quarter GAAP net income of $41.8 million, or $0.85 per share on a diluted basis, and pro forma net income of $47.0 million, or $0.95 per share on a diluted basis, in line with First Call consensus estimates.
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 discontinued operations, acquisition-related charges, restructuring costs and Parsons. The Company uses pro forma financials to measure the performance of its ongoing business because pro forma results include current business operations and exclude activity that is no longer applicable to Intuit's present operations, such as the Parsons business sold in August 1997.
Financial Review
As the Company discussed in October, Intuit's revenue pattern varies from year to year. Therefore, annual results may provide a more meaningful comparison of operating results, while quarterly comparisons can be misleading. In particular, there is no seasonal pattern for the Company's QuickBooks product launches. For example, last year, QuickBooks 5.0 launched in the second quarter of the fiscal year, while QuickBooks 6.0 is anticipated to launch at the end of the fourth quarter of fiscal 1998.
For the second quarter of fiscal 1998, pro forma net revenue of $237.5 million was down approximately 3% when compared to the corresponding quarter of the prior year. The year-over-year pro forma comparison was impacted in part by the difference in timing of the QuickBooks launches. GAAP revenue declined by 11%, primarily because last year's results included revenue from the Parsons operation sold in August 1997.
Results for the second fiscal quarter included pro forma earnings per share of $0.95, consistent with First Call consensus expectations and below the $1.07 pro forma earnings per share for the corresponding quarter of fiscal 1997. The lower earnings reflected a decline in operating income driven primarily by lower revenue, increased development costs, and greater marketing costs associated with channel incentive programs.
As previously noted, Intuit's financial results reflect the highly seasonal nature of its tax and Quicken products. Historically, revenue and profitability are highest in the January quarter. The Company experiences significantly lower revenue levels in the April, July, and October quarters, while operating expenses to develop new products and services continue during these periods. As a result, Intuit typically produces more than 100% of its annual profits in the January quarter.
Business Highlights
Scott D. Cook, Chairman of the Board, commented, "Our strategy and execution continued on track. This past quarter we have seen solid success, both in our shrink-wrap software business and our Internet business. In our shrink-wrap tax, accounting, and personal finance businesses, we have maintained or grown our clear leadership positions. During the second quarter, we launched QuickenMortgage and came up on CNNfn, furthering our efforts to build Quicken.com's leadership as the objective source to make the most of your money."
To date, TurboTax has experienced an outstanding retail launch. The December 3 launch enabled TurboTax to be on retail shelves several weeks earlier than the prior year's launch, resulting in a significant increase in unit sales over the previous year. Intuit has sought to grow its market presence and, as of January 31, had increased its share at retail in units by 3 points, based on internal data. TurboTax continues to win major press awards. Notably, for the first time, Money Magazine recommended TurboTax as their preferred tax preparation software package. For the quarter, total tax revenue declined 6% due in part to deferred accounting recognition of electronic filing service revenue into next quarter and conversion of Parsons customers to Intuit's tax products at initially discounted prices.
Intuit is also automating key pieces of the tax return preparation and filing process. In mid-January, the Company turned on its electronic filing system. By the end of January, over 100,000 returns had been filed electronically by consumers, representing an increase of 250% over this time last year. In February, Intuit launched TurboTax Online. This Internet-based service enables people to prepare and file federal 1040 and California state returns, all online. One of Intuit's goals is to gain 1040A and EZ filers; to date, 1040A and EZ filers have been a majority of TurboTax Online customers.
While initial indications of this year's tax launch are encouraging, Intuit expects aggressive competitive response and it remains too early to predict results for the entire tax season.
Even without a new version launch, QuickBooks maintained its clear leadership with approximately 80% share of dollars at retail for January 1998 as measured by internal data. This represents a 5 point increase versus a year ago. This accomplishment came despite a new version launched by the leading competitor. QuickBooks revenue was up over the first quarter of fiscal 1998 and down compared to the same quarter of the prior year. The year ago quarter benefited from a spike in demand associated with the launch of QuickBooks 5.0 in the second quarter of fiscal 1997.
Quicken remains the clear leader and favorite of consumers buying personal finance software at retail. At the end of January, Quicken 98 commanded over 80% share of retail unit sales in this category, calculated on internal data. In addition, consumers have demonstrated a strong preference for the higher-end deluxe versions, leading to solid revenue growth for Quicken in the second fiscal quarter. Quicken 98 includes a rich set of integrated Internet features including free access to investment news, mutual fund tracking, insurance and mortgage quotes along with other financial information.
The market response to Quicken 98 is encouraging, although it is too soon to assess the entire season.
During the second quarter, Intuit forged ahead with its web strategy executing two major milestones. First, in early November, Intuit launched QuickenMortgage, a new website enabling consumers to comparison shop for mortgages. The initial launch included six of the nation's top 25 lenders. During the first week, over 50,000 consumers visited the site, and currently the site hosts over 125,000 visitors a week. In fact, nearly 1 million consumers have visited the site during the first three months.
Intuit also introduced the QuickenMortgage Refinance Center in early January, responding to record low interest rates and the dramatic increase in refinancing activity. Both the Refinance Center and QuickenMortgage can be found at Quicken.com.
During the second quarter, Intuit added a source of new Web traffic. On December 9, Intuit launched Quicken.com on fn, an extensive co-branded personal finance area on CNNfn.com. This site integrates in one place business news, comprehensive tools and expertise in important areas of personal finance.
In January, average page views-per-month for Quicken.com totaled 44,000,000. To date, February is running over 10% above January's rate, before any benefit from the newly announced relationships with AOL and Yahoo!. According to MediaMetrix (PC Meter), Quicken.com's Web household reach rose to a new record of 4.0 in January, up from an average of 3.2 for the prior three months.
More recently, Intuit announced a multi-year agreement with America Online to drive increased traffic to Quicken.com. Under the terms of the agreement, Intuit will be the exclusive provider of tax preparation and filing, and multi-carrier life and auto insurance, and multi-lender mortgage services on both the AOL service and AOL.com. Plus, on AOL.com, Intuit will be the primary source of financial content for the Personal Finance Web Channel. Over the term of the agreement, Intuit will pay AOL $30 million, with approximately $16 million paid upon signing.
Starting February 23, Intuit began providing tax information and content, as well as TurboTax Online, on the Yahoo! Finance Tax Center. This arrangement will help drive additional traffic to the TurboTax website.
While the Internet presents many opportunities, it represents less than 5% of overall revenue. We remind investors that potential Internet-related revenue and profits may be difficult to predict or achieve.
Cautions about Forward Looking Statements
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