Intuit Inc. Form 10-Q Summary
Reporting period: Fiscal third quarter ended April 30, 2022; comparisons are with the three and nine months ended April 30, 2021. Intuit provides financial software and services across Small Business & Self-Employed, Consumer, Credit Karma, and ProConnect. Results are seasonal: Consumer and ProConnect tax revenue is concentrated from November through April.
Financial performance
| Metric | Q3 FY2022 | Q3 FY2021 | Nine months FY2022 | Nine months FY2021 |
|---|---|---|---|---|
| Revenue | $5.632B | $4.173B | $10.312B | $7.072B |
| Operating income | $2.395B | $1.914B | $2.646B | $2.098B |
| Net income | $1.794B | $1.464B | $2.122B | $1.682B |
| Diluted EPS | $6.28 | $5.30 | $7.48 | $6.20 |
| Operating margin | 42.5% | 45.9% | 25.7% | 29.7% |
| Net margin | 31.9% | 35.1% | 20.6% | 23.8% |
Q3 revenue rose 35%, operating income 25%, net income 23%, and diluted EPS 18% year over year. Nine-month revenue rose 46%, operating income and net income each 26%, and diluted EPS 21%. Margins shown are calculated from reported revenue and income.
- Revenue mix: Q3 product revenue was $554M and service and other revenue $5.078B. The nine-month figures were $1.476B and $8.836B, respectively.
- Cash flow: Nine-month operating cash flow was $3.550B, versus $2.708B. Investing cash flow was negative $5.110B, including $5.682B for acquisitions; financing cash flow was positive $2.629B. Cash, cash equivalents, restricted cash and equivalents ended the period at $3.870B.
- Liquidity: Cash, cash equivalents and investments were $3.904B, versus $3.870B at July 31, 2021. Working capital was $2.267B and the current ratio 1.6:1, compared with $2.502B and 1.9:1. Customer funds are restricted for customer obligations and should not be treated as freely available liquidity.
- Debt: Balance-sheet long-term debt was $6.853B, up $4.819B from July 2021, primarily reflecting the $4.7B term loan used to fund part of the Mailchimp acquisition. The company also had $170M outstanding under a secured revolving facility; its $1B unsecured revolving facility had no borrowings. Intuit reported compliance with debt covenants.
- Capital returns: Nine-month dividends declared totaled $2.04 per share ($586M). Intuit repurchased 2.4M shares for approximately $1.35B and had $2.0B of repurchase authorization remaining at April 30.
Material changes and drivers
Mailchimp, acquired November 1, 2021 for approximately $12.0B in cash and stock, contributed $257M of Q3 revenue and $497M for the nine months, and is included in Small Business & Self-Employed. The acquisition substantially increased goodwill and acquired intangibles; goodwill was $13.731B and acquired intangible assets, net, were $7.224B at quarter-end.
| Segment | Q3 revenue | Q3 year-over-year change | Nine-month revenue | Nine-month year-over-year change |
|---|---|---|---|---|
| Small Business & Self-Employed | $1.667B | +42% | $4.691B | +37% |
| Consumer | $3.239B | +32% | $3.770B | +39% |
| Credit Karma | $468M | +48% | $1.330B | +189% |
| ProConnect | $258M | +10% | $521M | +12% |
Management attributed growth in Small Business & Self-Employed to online services, including Mailchimp, QuickBooks Online, payroll and payments. Consumer and ProConnect comparisons were affected by the prior-year IRS tax deadline extension: fiscal 2021 tax revenue shifted into Q4, while the fiscal 2022 filing deadline was April 18. Consumer growth also benefited from a mix shift toward higher-priced TurboTax Live and Premier offerings. Credit Karma growth reflected credit card and personal loan activity; its prior-year comparison also includes a shorter post-acquisition period.
Expenses rose substantially, including marketing, staffing, share-based compensation, and acquired-intangible amortization. Nine-month operating expenses increased 56%, faster than revenue growth of 46%, and operating margin declined year over year.
Outlook, risks and unusual items
- Outlook: The filing provides no specific numerical revenue, earnings or EPS guidance. Management expects to continue investing in product development, marketing, sales, technology infrastructure, privacy and security. It believes cash, investments and operating cash flow will cover expected liquidity needs for at least 12 months and expects to return excess cash through repurchases and dividends, subject to operating needs and board decisions.
- Legal settlement: Intuit recorded a one-time $141M charge in Q3 for an agreement with the attorneys general of 50 states and the District of Columbia, entered into May 4, 2022, after the quarter end. The settlement resolved state inquiries and related actions, without admission of wrongdoing, and included advertising and marketing commitments. A separate FTC action remained pending; the court denied the FTC’s requests for a temporary restraining order and preliminary injunction. Intuit said it could not estimate a reasonably possible loss for remaining proceedings.
- Other risks: The filing highlights tax-business seasonality and tax deadline changes; competition and execution of the Mailchimp and Credit Karma integrations; cybersecurity, privacy, fraud and service availability; changing regulation; macroeconomic uncertainty, inflation and interest rates; and debt, credit and small-business lending risks. Management reported no significant operational disruption to date from COVID-19 or the Russia-Ukraine war, but said future effects were uncertain.
- Commitments: New or amended commitments include $555M for Intuit Dome naming rights through 2044 and a cloud-services agreement with a $1.2B minimum purchase commitment over five years. The filing reported no significant off-balance-sheet arrangements.
Key facts for investors to verify
- How much reported growth reflects Mailchimp and Credit Karma acquisition effects, tax-season timing, pricing, customer growth and underlying organic performance.
- The integration progress and returns from Mailchimp, including the substantial goodwill and intangible asset balances and future amortization expense.
- The outlook for margins and expense growth, given operating expenses grew faster than revenue year to date and the $141M settlement charge.
- The status, possible costs and business implications of the FTC matter and other remaining legal proceedings.
- Debt service, covenant headroom and liquidity as the $4.7B term loan and other obligations come due; whether capital returns remain consistent with cash needs.
- Credit Karma’s exposure to lender and financial-institution activity, and Intuit’s small-business loan portfolio and related credit risk.