Intuit (INTU) Q3 2016 Earnings Call

Intuit (INTU) CEO Brad Smith said consumers are increasingly choosing to do their annual tax returns themselves

“The second driver is the percentage of those returns filed using do-it-yourself software. This season, the category grew nearly 6% versus the assisted category, which was up only slightly. This suggests that do-it-yourself software category gained more than a point of share again this year, driving more than 3 points of revenue growth for TuboTax.”

And they’re increasingly trying to complete their taxes on their mobile devices

“Our seamless cloud-based experience drove increased mobile discovery and usage. Our mobile app downloads were up 85% versus last season and the number of completed returns through the mobile app and through mobile browsers doubled. This year, customers snap 5 million photos of tax documents with mobile devices. That is up 4x greater than it was last year. This represented 25% of all the documents imported into TurboTax, which save time and reduce errors while delighting customers.”  \

Intuit (INTU) CEO Brad Smith feels customers still want to ultimately connect with a live person who has expertise in accounting

“We know QuickBooks Online retention is 11 points better when a Small Business works with an accountant. So, we are tapping into our accountant network to make these connections. Nearly 600,000 QuickBooks Online subscribers are now linked to an accountant. That is up 70% versus last year. This all nets out to a strategically important, highly profitable business.”

Growing internationally but are taking a country by country approach as opposed to using the same strategy in each market

“So in each country, we have the different set of strategic outcomes. We fundamentally believe that certain markets right now we have a real advantage and we have momentum and we are going to invest to win in that market. In other countries, we know that we are moving in and we are the second placed player. And so we want to be a challenger in that market and for every specific country, Neil and I have sat with the country managers and we have agreed upon an LTV to cap and it’s a multiyear target. So, we actually have where should we be a year from now, 2 years from now, 3 yeas from now.  In some cases, we pushed that number a little further out for strategic reasons. In other cases, we say we think we can get the profitability a little bit sooner. But it truly as a country by country formula and make no mistake, we see a lot of upside and the number one focus we have is expanding TAM and accelerating customer growth, because we know lifetime value will come over time. We just want to mature we are doing that prudently with the right cost to acquire.”

Intuit (INTU) CFO Neil Williams said customers in the US are paying significantly more for the software than their international counterparts

“On the average revenue per user, there is a pretty big gap right now. We talked about around $425 a year for the U.S. subscriber versus something around $125 a year for a subscriber outside the U.S.  We don’t see a QBO subscriber outside the U.S. getting to the same average revenue per user we see in the U.S. for a considerable time period.  And so we think that disparity is going to exist for a while.”

Using data to improve customer acquisition and effective marketing

“We can use machine learning and data science to look for more creative ways to expose them to these kinds of offers. And so I have to tell you, TurboTax has been leading the way and using data as a way to attach products and services. And we are now bringing that same level of rigor to the QuickBooks Online team and we are trying to use that as a way to improve the attach rates for payroll and payments as well.”

 

 

Intuit (INTU) 4Q 2015 Earnings Call Transcript

Intuit (INTU) CEO Brad Smith mentioned they took market share

“TurboTax Online units grew 12% through February 20, with total units up 9%. We’re growing our accepted e-files season-to-date faster than the category, which implies that we’re once again taking share.  So right now, season to-date, we’re seeing market share increases in TurboTax Online. We’re seeing market share increases in TurboTax desktop at retail, and we’re also seeing an increase in the number of Free File Alliance customers using TurboTax. So it’s across the board.”

And you can now take a picture of your W-2 form and import the data digitally to help file your taxes

This season, all mobile and online customers can snap a photo of their W-2, and TurboTax will import the information into their tax return, whether they are on a phone, a tablet or a computer, which also saves time and reduces errors.

Intuit (INTU) CEO Brad Smith said the economic landscape remains murky but Intuit’s products remain essential regardless of economic climate

“Now we recognize that the macro environment looks choppy. But if you look back over the three-plus decades as a company, it is during uncertain times that our products are needed most by our customers. They still need to file their taxes, pay their bills, and look for ways to stretch their hard-earned dollars as far as they can. And we’ve never been in a stronger position to serve our customers.”

Intuit (INTU) CFO Neil Williams reiterated the company’s internal 15% return on investment criteria

We continue to take a disciplined approach to capital management, investing the cash we generate in opportunities that yield an expected return on investment greater than 15% over five years.”

Intuit (INTU) CEO Brad Smith said they focus on the lifetime value of a customer

In terms of volume relationship, our goal is always to expand the category and then to grow customers faster than revenue, because as you know ultimately, over time, those customers tax situations will become more complex. And over multiple years we can maximize the lifetime value.”

Intuit (INTU) CEO Brad Smith stated they still have a sizable target market opportunity in front of them

In terms of opportunity ahead in total addressable market, there’s about 29 million small businesses in the U.S. If you back out the self-employed, you’re still looking at the neighborhood of between eight million and 12 million, and we currently have one million that are using QuickBooks Online. So we aren’t running out of any sort of opportunities to grow. It’s just a matter of us continuing to lean in and execute.”

JS Earnings Call Notes 11.23.15 – Total Energy Services, Ross Stores, Workday, & Intuit

Total Energy Services CEO Daniel Haylk said he won’t go after top line growth at the expense of profitability   

“We also seek to strike a strategic balance between equipment utilization and price and we have been continued to declined pursue business opportunities that are not profitable. Simply put we’ll not wear out our equipment for nothing.”

He expects the industry to consolidate in order to earn a respectable rate of return

We strongly believe that the North American energy services industry must consolidate to provide the efficiencies in economies of scale necessary to compete in an increasingly global market. We believe this need for rationalization will become more apparent over the next few quarters. However we’ll remain disciplined in the deployment of the owner’s capital as we continue to look to use our financial capacity and flexibility to pursue opportunities that will provide acceptable risk adjusted returns over the life of the investment.  Our view is things are going to settle out here over the next few quarters, there is going to be a lot of good acquisition and consolidation opportunities we’re going to use the strength of our balance sheet and our abilities to generate substantial cash at low utilizations.”

Total Energy Services CEO Daniel Haylk said his firm doesn’t play accounting games and back out one time expenses

“Unlike many in our industry we do not cargo so called one-time cost related to right-sizing our operations, as we view these costs to be part of the ordinary course of managing our business as well we take no pleasure in highlighting the difficult decisions that must be made during these difficult times that such decisions involve real people with real families.”

And he plans to reduce operating expenses in a challenging environment for energy

“Substantially lower activity levels coupled with excess industry capacity have resulted in a very challenging operating environment that is expected to continue for the foreseeable future. In such an environment we will seek to work with our stakeholders, increase operating efficiencies and reduce our operating costs so is to make the various markets in which we participate competitive from a global perspective.”

While pricing of their services continues to deteriorate

“Price seems horrible and at the end of the day we are seeing competitors work for prices that we simply can’t get to. And we are in a position where we are in business to make money that includes covering depreciation.  And there comes a point where you see park it, and we deliberately parked a bunch of equipment and we are keeping some core activity going to maintain employment for key people, but at the end of the day we are not going to work at a loss.”

Total Energy Services CEO Daniel Haylk said they have been very rational with how they have accounted for their assets on the balance sheet

We are disciplined. And so we’ve – this quarter obviously auditors are interested in the impairment issues. We’ve done a lot of the work that we typically would do at year-end now and we’re very comfortable with the caring values of our asset based and we do not expect to incur any capital asset impairments and again it’s being disciplined and you can argue there are non-cash isn’t that someone pays for it at some point, it also goes to rectificational issues and they were proud of the fact we’ve never return down any of our capital assets, acquisitions good will period and again it requires the intestinal fortitude not to jump on the bandwagon when times are booming.”

And he thinks there could be more pain ahead for other rig operating companies

And I can tell you the pricing that’s going on both in the rentals and the rig side we’ll lead to train wrecks the good thing about the rental and transportation side is those happen fairly quickly and I expect while you are already seeing a few insolvency some public most private that’s going to accelerate.”

Total Energy Services CEO Daniel Haylk reminded investors that he doesn’t give guidance and he wants to remain flexible to adapt to changing market conditions

For the same reason, we don’t give guidance generally, customer intentions are difficult at any time to predict.

And that scale matters in this particular business

“Scale matters, you’re spreading your cost over a larger asset base, you can definitely achieve efficiencies. The flip side is, we’re also seeing market exists in terms of insolvency.  So there is select markets that we compete in both above and below the border, where we’re already seeing the competitive landscape tighten up. And that’s going to continue. Whether we’ve hit bottom or not, I’m not going to give a forecast, but the longer this drags on the more people will go broke and the better of the remaining companies will be coming out of this.”

 

 

 

 

 

Ross Stores (ROST) CFO Michael Hartshorn said the company saw reduced buying costs as they continue to take advantage of opportunities to buy marked down merchandise

“Cost of goods sold was declined 45 basis points driven by a 45 basis points increased in merchandise margins and 5 basis points improvement each in freight and buying cost.  We continue [see] a really strong supply of excess goods in the marketplace.”

Ross Stores (ROST) CEO Barbara Rentler remains cautious regarding near term performance of the company due to the highly promotional nature of competitors 

There is ongoing uncertainty in the macroeconomic environment and, based on the current retail landscape, we expect the upcoming holiday season to be highly promotional.  As a result, while we always hope to do better, we believe it is prudent to maintain a conservative posture.”

Ross Stores (ROST) CFO Michael Hartshorn said they are seeing particular geographic strength in the Midwest

The sales performance was fairly broad-based across regions as we mentioned the Midwest was our strongest region which has been true over the past seven quarters, California our largest region performed in line with the chain and then as far as Texas, Texas was in line with the chain average for the quarter.”

Ross Stores (ROST) CEO Barbara Rentler highlighted the firms flexible buying strategy as a competitive advantage

The buyers have plans, it’s not just free-for-all they have their buying. There is a strategy, there is a plan, there is a plan by business segment of how much we think is appropriate. All that being said one of the benefits for model is that reflect able. So if we were to see a large amount of product and the classification or a business we weren’t planning on particularly driving and that product could help us drive the business, we would put money into that plan and we reflect. So that’s just one of the benefits of being a new up rise business.”

And their consumer skews to the younger side

“In terms of your point about the age we’ve always disproportionately attracted a slightly younger customers and that continues to be true. When you look at the growth of our junior’s business overtime that’s a good manifestation of that, but I would say that demographic for our new customers are pretty similar to the demographics from our existing customers.”    

 

 

 

 

 

Workday (WDAY) Workday CEO Aneel Bhusri says their software products continue to gain momentum with the Fortune 500

Aon and Saint Luke’s join our growing customer list of Financial Management customers that already includes Fortune 500 names such as Unum, Netflix, and J.B. Hunt, as well as large universities such as University of Texas at Austin and Yale.  Demand for our industry-leading Human Capital Management application suite also remains very strong. I’m excited to share that Workday was selected by FedEx, which is now our largest HCM customer. I’m also proud to share that General Mills and Denny’s both selected Workday in Q3.”

And customer satisfaction remains very high

For the past three years, we have earned a 97% customer satisfaction rating and this year that number increased to 98%.  We believe this level of customer satisfaction is far unmatched in ERP software.”

They believe they are taking market share from the legacy software ERP providers

“Another quarter of record revenues, billings and cash flow metrics was driven by strong momentum in financials and accelerating win rates over legacy incumbents.  Another quarter of record revenues, billings and cash flow metrics was driven by strong momentum in financials and accelerating win rates over legacy incumbents.”

And they said that positive customer references are helping drive their win rate

“In terms of competitive dynamics, I think we’ve gotten back to focusing on the technology differentiation. We’ve really pushed customers to do their homework and prospects to do their homework on reference ability.  Neither of our main legacy customers really have much in the way of large referenceable customers and as the customers do their homework, we tend to win the deal.”

Workday (WDAY) Workday CEO Aneel Bhusri says he isn’t impressed with his competitors updated product portfolio 

There were no new moves I think they are running out of new ideas. I didn’t see any moves.  We’re winning all of the large accounts and at the end of the day the models are all based on — all the pricing models are based on employee counts, so we just continue to win both in the mid-market with our mid-market strategy but the large accounts we just dominate and the reason is because we have proof points of getting these large companies into production, one after another. We have another big Fortune 100 company that just went live which we’ll announce in a couple weeks.  It’s about getting value and getting into production and we have that down and our competitors just don’t.”

 

 

 

 

 

 

 

Intuit (INTU) CEO Brad Smith said he is encouraged by the rate of growth in new customers

“We are generating strong new user growth in the online ecosystem. Over 80% of QuickBooks Online customers continue to be new to the Intuit franchise and total QuickBooks paying customer growth was also healthy.”

And they continue to benefit from an acceleration of individuals starting their own companies and the trend of the “gig economy” 

“Roughly 35,000 of our QBO subscribers are using the QuickBooks self employed SKU, which is up from 25,000 last quarter.”

Intuit (INTU) CFO Neil Williams said they maintain a disciplined capital allocation framework and so they won’t invest in anything which doesn’t generate a double digit return over 5 years

We continue to take a disciplined approach to capital management, investing the cash we generate in opportunities that yield an expected return on investment greater than 15% over five years.”

100 million consumers come to TurboTax.com during tax season

“And right now, we’re in the neighborhood of having almost 100 million people in the United States already coming to TurboTax.com. So it’s not about getting even more people to the website, it’s about getting more of that 100 million roughly between the US and Canada to convert into paying customers.”

Intuit (INTU) CEO Brad Smith said he is in favor of tax simplification

We are for tax simplification. We have been from day one, quite frankly, that’s what our business is.  Trying to take a complicated tax code and make it simple for people to comply with, and to be able to get their tax obligations done, and obviously, to get the money back in their pocket if they overpaid.”

JS Earnings Call Notes 8.25.2015 – Intuit, John Deere, Ross Stores

Jeremy S., an investment analyst who contributes to Avondale’s company notes database. Below are quotes from some of the calls that Jeremy has read this week.

 

Intuit (INTU) CEO Brad Smith has decided to divest all businesses not correlated to the company’s core mission of helping customers organize their financial lives

“We’re focusing our attention and investments on assets that accelerate our ability to deliver our two strategic goals, first, to be the operating system behind small business success, and second, to do the nations’ taxes. With this focus, we have decided to divest Demandforce, QuickBase and Quicken.  Let me provide some context about why we made these decisions. Demandforce and QuickBase are great businesses, but they do not support the QuickBooks Online Ecosystem and both serve customers that are up-market from our core small business customers.  Quicken is a desktop-centric business and it doesn’t strengthen the small business or tax ecosystems. Our strategy is focused on building ecosystems and platforms in the cloud.”

Already being the category leader in helping individuals file their taxes, Quickbooks continues to gain market share versus competitors

“Within the software category, we estimate that TurboTax Online gained about a point-and-a-half of share, translating into four points of share gains over the past two seasons.”

Intuit (INTU) CEO Brad Smith reiterated their $5 per share earnings target for 2017 even though they are selling non-core businesses.  Earnings targets are dangerous because they cause management to focus on “meeting the number” as opposed to building the business for the long term 

“We still see a path to achieve a $5 EPS target in 2017.”

Management reminded the investors that Intuit has a 15% return on capital hurdle whenever they are making a business decision

We invest in things that we can see a 15% rate of return and whether those are internal investments to expand R&D or new market or they are stock repurchases or acquisitions we’re going to continue to use our capital judiciously, so we get the best return on that capital.”

Intuit (INTU) CEO Brad Smith said the firm has a process where they go back and look at their own tracked record of acquisitions

I have learned a lot of lessons from our M&A track record, but during my time here, as well as those that were done before us and we do a rigorous study of those and we sit down with the Board once a year and we do a 10-year look back. We compare those to the business cases. We put together for the Board, as well as what we share with the street and the pattern recognition increasingly clear.  We have a mixed record in terms of bolt-on businesses, new businesses that may not plug-in directly with QuickBooks or tax businesses and those are the things that we’ve now got a new set of patterns that we’ve defined as printable and we are saying, if we are going to look in the space going forward these are the criteria that these acquisitions have to meet.”

 

 

 

 

 

Ross Stores (ROST) CEO Barbara Rentler sees macroeconomic conditions taking a toll on the business  

“The macroeconomic environment remains uncertain, and we expect the retail landscape to be highly promotional during the fall season, especially given the recent results from other retailers. Based on these factors, while we hope to do better, we believe it is prudent to remain cautious in forecasting our business for the second half of 2015.”

Ross Stores (ROST) CEO Barbara Rentler says she isn’t concerned about some of the department store competitors (such as Macy’s & Nordstrom’s) business plans to go down market

What I would say about that is, we’re clearly operating in a very promotional and competitive environment. And that’s really true across the entire retail landscape including our biggest competitor. But our focus really is on our own business. So our top priority really remains providing the best compelling bargains possible to the customers and that’s really not going to change.”

Ross Stores (ROST) CEO Barbara Rentler says they aren’t seeing any weakness in economic regions tied to energy such as Texas

Texas, overall, has consistently been a good performer for us. In the second quarter and year-to-date, it’s performed above the chain average for us. So it continues to be one of our best-performing regions.”

 

 

 

 

 

Deere’s (DE) Susan Karlix said lower crop prices are hurting demand for their products

“Lower commodity prices and falling farm income are continuing to pressure demand for farm equipment, especially larger models.”

Deere’s (DE) Susan Karlix said energy price weakness is starting to dampen their order book

In spite of these encouraging economic indicators and positive dealer and customer sentiment, we are seeing weakening in our order books. Some contributing factors to the slowdown in demand are the conditions in the energy sector and energy producing regions, wet weather that slowed construction activities this spring and summer, the decline in rental utilization rates and sluggish economic growth outside the United States.”

Deere (DE) says their equipment continues to sell at a premium versus their competitors 

“Pricing is holding in okay, its, if you look at it kind of from a two-year average, we would be slightly below that. But believe we continue to maintain a healthy premium versus our competition.”