Business context and reporting period
Intuit Inc. filed this unaudited Form 10-Q for the quarter ended January 31, 2022, the second quarter of fiscal 2022. The company provides financial management, tax, and small-business services through Small Business & Self-Employed, Consumer, Credit Karma, and ProConnect. Comparisons are affected by acquisitions and tax-season timing: Mailchimp was acquired November 1, 2021, while Credit Karma was included for a full six months in fiscal 2022 versus about two months in the prior-year period.
Key financial results
Amounts are in millions, except per-share data. Q2 refers to the three months ended January 31; six-month figures are year to date.
| Metric | Q2 FY22 | Q2 FY21 | Six months FY22 | Six months FY21 |
|---|---|---|---|---|
| Revenue | $2,673 | $1,576 | $4,680 | $2,899 |
| Operating income (loss) | $56 | $(25) | $251 | $184 |
| Net income | $100 | $20 | $328 | $218 |
| Diluted EPS | $0.35 | $0.07 | $1.16 | $0.81 |
| Operating margin | About 2.1% | About (1.6)% | About 5.4% | About 6.3% |
- Q2 revenue increased 70%; six-month revenue increased 61%. Service and other revenue was $2,148 in Q2 and $3,758 for six months, versus $1,081 and $2,037, respectively, in the prior year.
- Q2 operating income turned positive, while six-month operating income rose 36% despite margin compression. Higher staffing, marketing, share-based compensation, and acquired-intangible amortization contributed to expense growth.
- Q2 net income included a $70 tax benefit on $30 of pretax income; the six-month period included a $60 tax benefit on $268 of pretax income. Excess tax benefits on share-based compensation were $62 and $109, respectively.
- Operating cash flow for six months was $230, down from $324. Investing cash outflow was $4,682, including $5,682 for acquisitions, net of cash acquired; financing cash inflow was $3,072, including $4,700 of term-loan proceeds.
- At January 31, cash and cash equivalents were $1,257, investments were $157, and long-term investments were $90. Working capital was $522 and the current ratio was 1.2:1. Management reported cash, cash equivalents, and investments of approximately $1.4 billion, down 63% from July 31, 2021.
- Long-term debt was $6,732, up from $2,034 at July 31, principally reflecting the $4.7 billion term loan used to fund Mailchimp. A separate secured revolving facility had $50 outstanding; the $1 billion unsecured revolving facility was undrawn. Intuit reported compliance with debt covenants.
- Dividends declared were $0.68 per share in Q2 and $1.36 for six months. The company repurchased 1.4 million shares for $857 during the six-month period.
Material changes versus the prior comparable period
- Mailchimp added $240 of revenue from its November 1 acquisition date through January 31. Purchase consideration was approximately $12.0 billion: $5.7 billion in cash and $6.3 billion in Intuit shares. The preliminary allocation included $8.1 billion of goodwill and $4.34 billion of identifiable intangible assets.
- Small Business & Self-Employed revenue rose 47% in Q2 and 34% for six months, mainly from online services and Mailchimp. QuickBooks Online Accounting revenue grew 35% and 34%, respectively; Online Services grew 139% and 92%.
- Consumer revenue increased 180% in Q2 and 100% for six months, primarily because the IRS began accepting returns earlier in fiscal 2022 (January 24 versus February 12 in fiscal 2021). ProConnect six-month revenue rose 14% for the same seasonal reason.
- Credit Karma revenue rose 208% in Q2 and 499% for six months. The comparison reflects a full six months of Credit Karma results in fiscal 2022 versus roughly two months in fiscal 2021, as well as growth in credit card and personal loan activity.
- Expenses increased substantially: six-month operating expenses rose 65%, faster than revenue growth of 61%. Acquired-intangible amortization increased to $174 for six months from $38.
Outlook, risks, contingencies, and unusual items
- No specific numerical fiscal 2022 revenue or earnings guidance is provided in the supplied filing text. Management expects to generate significant operating cash and believes available cash, investments, and operating cash flow will meet liquidity needs for at least the next 12 months. It expects to continue investing in product development, marketing, sales, technology, privacy, and security, and to return excess cash through repurchases and dividends, subject to business needs and board discretion.
- Tax businesses are seasonal, and management cautions that Q2 Consumer and ProConnect results are not indicative of full-year trends; substantially complete results for the tax season were expected in Q3. COVID-19, tax-calendar changes, competition, acquisition integration, cybersecurity, fraud, service availability, and regulatory changes are identified risks.
- At January 31, approximately 152,000 individual arbitration claims related to free online tax preparation remained pending. On February 23, 2022, after quarter-end, Intuit agreed to settle a majority of them without admission of wrongdoing. The eventual payment depends on claimant releases; the filing says the amount of potential loss for remaining matters could not be reasonably estimated.
- New commitments include $1.2 billion of minimum cloud-services purchases over five years and $555 million for a naming-rights partnership through July 31, 2044. Management reported no significant off-balance-sheet arrangements.
- Goodwill and acquired intangible assets were $13.7 billion and $7.4 billion, respectively, and may be subject to future impairment. Mailchimp purchase-price allocation remained preliminary. The filing also notes an additional $166 million office lease not yet commenced.
Important facts for investors to verify
- How much reported growth reflects underlying customer and usage trends versus Mailchimp and the fuller-year Credit Karma comparison.
- Whether the earlier tax-season opening and filing activity translate into sustained results through Q3.
- Mailchimp integration, synergy realization, acquisition-related costs, and the final purchase-price allocation.
- Debt repayment capacity and the effect of $6.7 billion of debt, including interest costs and covenant requirements.
- The final cost and resolution of the tax-program arbitration settlement and any remaining regulatory or legal proceedings.
- Future operating cash flow, particularly given six-month cash flow of $230 and substantial acquisition and contractual commitments.