Cloud Platform Strategy to Accelerate Long-term Growth; Increases Dividend by 32%

 Intuit Inc. (Nasdaq: INTU) announced financial results for the fourth quarter and full year of fiscal 2014, which ended July 31. The company also provided guidance for fiscal year 2015 and its longer-term outlook.

“We closed fiscal 2014 on a strong note.  Overall customer growth is accelerating, active use and attach rates are increasing, and global adoption is in full swing,” said Brad Smith, Intuit’s president and chief executive officer. “We’ve reached an inflection point, as more new customers chose QuickBooks Online over QuickBooks Desktop, fueled by the success of our reimagined QuickBooks Online product experience.

“We’re fully committed to winning in the cloud, with more than 30 million Intuit customers using these offerings anywhere, anytime across a variety of devices. The benefits are clear: online experiences are better for customers, expand the total addressable market, and generate more predictable, recurring revenue streams.

“Our acceleration to subscription services and the changes to how we’ll develop desktop products beginning in fiscal 2015 will result in recognizing desktop revenue over time instead of as up front license revenue, as we’ve historically done. This creates a transition year in fiscal 2015 for reported financial results. We fully expect fiscal 2016 results to return to double-digit top and bottom line growth,” Smith said.

CFO Remarks

“The cloud is a better experience for our customers, and it is also better for our shareholders,” said Neil Williams, Intuit’s chief financial officer. “Delivering better products and increasing our focus on our online ecosystem will generate more customers and faster growth longer term. Bottom line, we see longer-term financial gains with online subscriptions and will measure our progress by focusing on subscriber growth and annual recurring revenue.”

Financial Highlights

Unless otherwise noted, all growth rates refer to the current period versus the comparable prior-year period, and the business metrics and associated growth rates refer to worldwide business metrics.

During the fourth quarter, Intuit:

• Delivered total company revenue of $714 million, up 13 percent.
• Reached a key inflection point in Small Business; for the first time more new customers chose QuickBooks Online over QuickBooks Desktop.
• Increased QuickBooks Online subscribers by 40 percent, adding approximately 60,000 customers.
• Finished the year with 7 percent revenue growth in Consumer Tax, above the high end of guidance for the segment.
• Accelerated adoption of QuickBooks Online subscribers outside the U.S., growing more than 150 percent to 84,000.

For the full fiscal year, Intuit:

• Delivered total company revenue of $4.5 billion, up 8 percent, and diluted earnings per share (EPS) growth of 9 percent.
• Ended with 683,000 QuickBooks Online customers, and more than 1 million total QuickBooks subscribers.
• Finished the fiscal year with cash and investments of over $1.9 billion.
• Completed 10 acquisitions, adding talent and technology across the small business and consumer ecosystems.

Business Segment Results

Small Business

Total Small Business revenue grew 12 percent for the fourth quarter and 10 percent for the year.

• Total QuickBooks paying customers grew 6 percent in fiscal 2014, up from 4 percent.
• Small Business Online Ecosystem annualized recurring revenue (ARR) grew 34 percent, driven by subscriber growth and improved attach rates for additional services.
• Annualized recurring revenue (ARR) is defined as four times the most recent quarterly revenue for online offerings serving small business customers.
• Small Business Online Ecosystem
• QuickBooks Online subscribers grew 40 percent, compared to 36 percent last quarter.
• Online payroll subscribers grew 25 percent with the attach rate improving to 19 percent from 16 percent a year ago.
• Attach rates for payments improved to 5 percent, from 3 percent a year ago.

Consumer and Professional Tax

• Consumer Tax revenue grew 22 percent for the fourth quarter and 7 percent for the year.
• ProTax revenue grew 16 percent for the fourth quarter and 4 percent for the year.

Snapshot of Fourth-quarter Results

GAAP and non-GAAP fourth-quarter and full-year results include a restructuring charge of $42 million. GAAP fourth-quarter and full-year results also include a gain of $21 million related to the sale of an equity stake.

GAAP				Non-GAAP
	Q4 FY ’14	Q4 FY ’13	Change	Q4 FY ’14	Q4 FY ’13	Change
Revenue	$714	$634	13%	$714	$634	13%
Operating Income (Loss)	$(73)	$(60)	NM	$2	$9	(78)%
EPS	$(0.14)	$(0.05)	NM	$(0.01)	$0.00	NM

Dollars are in millions, except earnings per share (EPS). See “About Non-GAAP Financial Measures” below for more information regarding financial measures not prepared in accordance with Generally Accepted Accounting Principles (GAAP). All figures in the table above have been reclassified to reflect Intuit Websites, Intuit Financial Services, and Intuit Health as discontinued operations and to exclude their results from non-GAAP EPS.

Snapshot of FY ’14 Full-year Results

GAAP				Non-GAAP
	YTD FY ’14	YTD FY ’13	Change	YTD FY ’14	YTD FY ’13	Change
Revenue	$4,506	$4,171	8%	$4,506	$4,171	8%
Operating Income	$1,298	$1,233	5%	$1,555	$1,470	6%
EPS	$3.09	$2.83	9%	$3.49	$3.20	9%

Dollars are in millions, except earnings per share (EPS). See “About Non-GAAP Financial Measures” below for more information regarding financial measures not prepared in accordance with Generally Accepted Accounting Principles (GAAP). All figures in the table above have been reclassified to reflect Intuit Websites, Intuit Financial Services, and Intuit Health as discontinued operations and to exclude their results from non-GAAP EPS.

Capital Allocation Summary

• Intuit repurchased $152.5 million of shares in the fourth quarter; about $1.9 billion remains on the authorization.
• The company approved a dividend of up to $1.00 per share for fiscal 2015. This represents a 32 percent increase versus last year and reflects a large and growing cash position, as well as more recurring and predictable revenue streams. The first quarterly dividend of $0.25 per share will be payable on Oct. 20.

• Forward-looking Guidance

Intuit provided guidance for full fiscal year 2015 and the first quarter of fiscal 2015, which ends Oct. 31.

These results factor in the company’s strategic decisions to invest in the acceleration to cloud-based subscriptions and to improve the company’s future desktop offerings to encourage migration to online services. As a result, desktop software license revenue will be recognized as services are delivered, rather than up front.

For fiscal year 2015, the company expects:

• Revenue of $4.275 billion to $4.375 billion, a decline of 3 percent to 5 percent.
• Adjusted revenue of $4.75 billion to $4.85 billion, growth of 5 percent to 8 percent. This adjusted revenue guidance takes into account the expected increase in deferred revenue due to the change in future desktop product offerings, as well as acceleration in QuickBooks Online ecosystem growth, which impacts near-term revenue growth as customers pay monthly subscription fees.
• GAAP operating income of $800 million to $830 million.
•  Non-GAAP operating income of $1.11 billion to $1.14 billion.
• GAAP diluted EPS of $1.70 to $1.75.
• Non-GAAP diluted EPS of $2.45 to $2.50.

Fiscal 2015 Revenue Guidance Bridge
$ millions	Fiscal 2015 Revenue Guidance	Add Impact of Desktop Product Offering  Change	Add Impact of Accelerated QuickBooks Online Growth	Adjusted Fiscal 2015 Revenue
Revenue	$4,275 – $4,375	Approx. $400	Approx. $75	$4,750 – $4,850
Revenue Growth	(5%) – (3%)	NA	NA	5% – 8%

Intuit also provided segment guidance. For fiscal year 2015, the company expects:

• Small Business revenue decline of 3 percent to 6 percent. Adjusting for the financial impact of the acceleration in QuickBooks Online growth and the changes in future desktop product offerings, Small Business revenue would grow approximately 10 percent.

 QuickBooks Online subscriber growth of 35 percent to 39 percent.

• Consumer Group revenue growth of 3 percent to 4 percent, which includes the financial impact of the changes to future Quicken desktop product offerings.

 Within Consumer Group, Consumer Tax revenue growth of 5 percent to 7 percent.

• Professional Tax revenue decline of 34 percent to 37 percent. Adjusting for the financial impact of the change in future desktop product offerings, ProTax revenue would grow approximately 5 percent.

For the first quarter of fiscal 2015, Intuit expects:

• Revenue of $620 million to $630 million.
• GAAP operating loss of $155 million to $160 million.
• Non-GAAP operating loss of $80 million to $85 million.
• GAAP loss per share of $0.36 to $0.37.
• Non-GAAP loss per share of $0.20 to $0.21.

Long-term Outlook

Looking beyond fiscal 2015, the company shared financial targets for fiscal 2017:

• Revenue of approximately $5.8 billion, 9 percent growth on average over the next three years.
• Non-GAAP earnings per share of approximately $5.00, compounded annual growth of 13 percent.
• Adjusting for share-based compensation expenses and amortization of intangibles, GAAP earnings per share of approximately $4.25.
• QuickBooks Online subscribers of approximately 2 million, an increase from 683,000 at the end of fiscal 2014, compounded annual growth rate of more than 40 percent.

Conference Call and Replay Information

Intuit executives will discuss the financial results on a conference call at 1:30 p.m. Pacific time on Aug. 21. To hear the call, dial 866-764-6260 in the United States or 973-935-8700 from international locations. No reservation or access code is needed. The conference call can also be heard live at http://investors.intuit.com/events.cfm. Prepared remarks for the call will be available on Intuit’s website after the call ends.

A replay of the conference call will be available for one week by calling 888-266-2081, or 703-925-2533 from international locations. The access code for this call is 1642102.

The audio webcast will remain available on Intuit’s website for one week after the conference call.