Intuit Inc. — Q1 Fiscal 2021 Form 10-Q
Reporting period: Three months ended October 31, 2020; compared with the three months ended October 31, 2019. Intuit provides financial management, tax and related services, principally through QuickBooks, TurboTax, Mint and professional tax offerings. The quarter is seasonally light for Consumer and ProConnect tax businesses.
Financial performance
| Metric | Q1 FY21 | Q1 FY20 |
|---|---|---|
| Revenue | $1.323 billion | $1.165 billion |
| Operating income | $209 million | $10 million |
| Net income | $198 million | $57 million |
| Diluted EPS | $0.75 | $0.22 |
| Operating cash flow | $45 million | $(127) million |
- Revenue grew 14%. Service and other revenue was $956 million, up from $812 million; product revenue was $367 million, up from $353 million.
- Operating margin was approximately 15.8%, versus 0.9%; net margin was approximately 15.0%, versus 4.9% (calculated from reported figures).
- Small Business & Self-Employed revenue rose 13% to $1.181 billion, led by 24% growth in the Online Ecosystem. QuickBooks Online Accounting revenue increased 28%. Segment operating income rose 29% to $767 million.
- Consumer revenue increased 19% to $119 million; ProConnect revenue increased 21% to $23 million. Both businesses remain highly seasonal, and management cautioned that first-quarter results are not indicative of the tax season.
- Cash, cash equivalents and investments totaled $5.793 billion, down $1.257 billion from July 31, 2020. Working capital was $4.499 billion and the current ratio was 3.1.
- Debt was approximately $2.4 billion. Intuit repaid $1 billion drawn on its unsecured revolving facility; $325 million remained outstanding under its term loan and $48 million under a subsidiary’s secured facility. The company reported covenant compliance.
Changes, outlook and notable items
- Operating income improved by $199 million. Management attributed the increase to revenue growth and lower cost of revenue and operating expenses. Cost of service revenue fell as a percentage of service revenue, primarily due to fewer customer contacts and lower depreciation. Selling and marketing and R&D expenses declined; G&A increased, partly reflecting Credit Karma transaction-related professional fees.
- Operating cash flow improved from a use of $127 million to generation of $45 million. Financing cash outflow was $1.153 billion, principally reflecting repayment of the $1 billion revolver balance and $158 million of dividends paid.
- The effective tax rate was approximately 6%, including $52 million of excess tax benefits from share-based compensation; excluding discrete items, management reported an approximately 25% rate. The prior-year quarter included a $35 million tax benefit.
- Intuit agreed to acquire Credit Karma for $7.1 billion, payable in equal portions of cash and Intuit stock, subject to regulatory approval and other conditions. The filing expected closing before the end of calendar 2020. A $230 million to $350 million termination fee could apply in certain circumstances. Share repurchases were suspended in connection with the pending deal.
- On November 12, 2020, after quarter-end, Intuit entered a proposed $40 million settlement of a putative class action concerning its free online tax preparation programs, subject to court approval. Approximately 125,000 individual arbitration claims were pending at October 31; Intuit reported $10 million in arbitration fees for the quarter and said future fees could reach approximately $400 million. The company continues to dispute the fees.
- Management said cash, investments and expected operating cash flows should cover anticipated needs, including the Credit Karma acquisition, for at least 12 months. No specific quarterly or full-year financial guidance is provided in the supplied filing text. COVID-19 impacts remain uncertain; management had not experienced significant operational disruption to date but warned of potential effects on demand, customers and partners.
- Key risks include COVID-19-related economic and small-business weakness, tax-season variability, competition, cybersecurity and fraud, privacy regulation, and acquisition execution and integration. The filing also describes tax-preparation litigation and regulatory inquiries.
Important facts for investors to verify
- Whether Credit Karma received required regulatory approvals, closed on expected terms and delivered anticipated benefits, including the cash and share consideration and transaction-related costs.
- The status and financial consequences of the proposed $40 million settlement, arbitration claims and potential future arbitration fees.
- Whether growth in QuickBooks Online, payments and payroll continues, and how COVID-19 affects small-business customers and transaction volumes.
- How seasonal tax results develop in the second and third fiscal quarters, particularly following the prior-year filing-deadline extensions.
- Cash generation, debt repayment and liquidity after the acquisition, alongside the resumption or continued suspension of share repurchases and dividend decisions.