Intuit Inc. Q3 FY2021 Form 10-Q Summary
Reporting period: Quarter and nine months ended April 30, 2021. All amounts are U.S. dollars; financial figures are in millions unless stated otherwise. Intuit provides financial management and tax products and services through Small Business & Self-Employed, Consumer, ProConnect, and Credit Karma. Credit Karma has been included from its December 3, 2020 acquisition date.
Financial performance
| Metric | Q3 FY2021 | Q3 FY2020 | Nine months FY2021 | Nine months FY2020 |
|---|---|---|---|---|
| Revenue | $4,173 | $3,002 | $7,072 | $5,863 |
| Operating income | $1,914 | $1,413 | $2,098 | $1,693 |
| Net income | $1,464 | $1,084 | $1,682 | $1,381 |
| Diluted EPS | $5.30 | $4.11 | $6.20 | $5.24 |
| Operating margin | 45.9% | 47.1% | 29.7% | 28.9% |
- Q3 revenue rose 39%, operating income 35%, net income 35%, and diluted EPS 29% year over year. Nine-month revenue increased 21%, operating income 24%, net income 22%, and diluted EPS 18%.
- Q3 product revenue was $533 million versus $443 million; service and other revenue was $3,640 million versus $2,559 million. Nine-month product revenue was $1,395 million versus $1,341 million, and service and other revenue was $5,677 million versus $4,522 million.
- Credit Karma contributed $316 million of Q3 revenue and $460 million for the nine-month period. Its inclusion and the tax-season calendar shift affect year-over-year comparability.
- Nine-month revenue by segment: Small Business & Self-Employed $3,436 million, up 14%; Consumer $2,711 million, up 12%; ProConnect $465 million, up 7%; and Credit Karma $460 million. Q3 segment revenue grew 20%, 34%, and 22% for the first three segments, respectively; Credit Karma recorded $316 million.
- Management attributed Small Business growth primarily to its Online Ecosystem. QuickBooks Online Accounting revenue grew 25% year to date; Online Services grew 24%.
Cash flow, liquidity, and debt
- Nine-month operating cash flow was $2,708 million, compared with $2,127 million. Investing cash outflow was $3,528 million, including $3,064 million for business acquisitions; financing cash outflow was $2,579 million.
- Cash, cash equivalents, and investments totaled $4,116 million at April 30, 2021, down $2,934 million from July 31, 2020. Working capital was $2,615 million and the current ratio was 2.0 to 1.
- Balance-sheet cash and cash equivalents were $3,164 million; cash flow statement cash, including restricted customer funds, was $3,312 million. Customer funds are restricted for customer obligations.
- Long-term debt was $2,033 million. Intuit had no borrowings under its $1 billion unsecured revolving facility at quarter-end and repaid the remaining $325 million term-loan balance in February. A subsidiary had $48 million outstanding under its secured revolving facility. Intuit reported compliance with debt covenants.
- Intuit generated $486 million of declared dividends and repurchased 1.4 million shares for $555 million during the first nine months. Up to $1.8 billion remained authorized for repurchases at April 30.
Material changes and unusual items
- Intuit acquired Credit Karma for total consideration of approximately $8.1 billion, including assumed awards and restricted shares; the preliminary purchase price allocation was $7.2 billion, including $3.4 billion cash and $3.8 billion in Intuit stock. The acquisition added $3,899 million of goodwill and $3,372 million of identifiable intangible assets. Goodwill was non-deductible for tax purposes.
- Acquisition-related amortization, staffing, marketing, and share-based compensation increased expenses. Nine-month share-based compensation expense increased to $509 million from $321 million; acquired-intangible amortization was $128 million versus $23 million.
- Nine-month results included a $30 million gain from sale of a previously written-off note receivable and $17 million of gains on other long-term investments.
- Tax-season timing differed between years: the IRS began accepting returns February 12, 2021 versus January 27, 2020, and the 2021 filing deadline moved to May 17. Intuit said substantially complete results for the 2020 tax season would not be available until Q4 FY2021.
Outlook, risks, and contingencies
- The filing provides no specific numerical revenue or earnings guidance. Management expects to generate significant cash from operations, believes available cash, investments, and operating cash flow will cover liquidity needs for at least 12 months, and expects service and other revenue to continue growing as a share of total revenue. It expects to continue investing in product development, marketing, technology, privacy, and security.
- Intuit said COVID-19 had not significantly disrupted operations to date, but its duration and effects on demand, small businesses, tax filing, Credit Karma’s financial-institution partners, and the broader economy remained uncertain. The company highlighted substantial tax-season seasonality and competitive, cybersecurity, privacy, fraud, and third-party service risks.
- Credit Karma’s reporting-unit fair value approximated its $7.2 billion carrying value at acquisition. A prolonged credit-market downturn, reduced lender marketing or participation, or weaker member creditworthiness could reduce its value and lead to goodwill impairment.
- In the Free File matter, Intuit reported a May 20, 2021 agreement resolving the putative class action on an individual, non-class basis for a non-material amount, without admission of wrongdoing. Approximately 126,000 individual arbitration claims remained pending at April 30. Intuit said future arbitration fees could be approximately $360 million, disputed their applicability and propriety, and could not estimate a reasonably possible loss for the remaining matters.
- Credit Karma was excluded from the period’s internal-control-over-financial-reporting assessment while integration proceeds; management reported disclosure controls were effective and no other material control changes.
Important facts for investors to verify
- How much of reported growth reflects Credit Karma and the altered tax-filing calendar, versus underlying growth in Intuit’s existing businesses.
- Q4 tax-season results and whether the May 17 filing deadline changes revenue timing or customer activity.
- Credit Karma integration, partner participation, performance against acquisition expectations, and potential goodwill or intangible-asset impairment.
- Developments in the remaining arbitration claims, the disputed potential legal fees, and any eventual estimate of related costs or losses.
- Cash generation and liquidity after acquisition spending, dividends, repurchases, and debt service.