Business context and reporting period
Intuit Inc. filed this Form 10-K for the fiscal year ended July 31, 2020. The company provides financial, accounting, payroll, payments and tax software and services, principally in the United States, through Small Business & Self-Employed, Consumer and Strategic Partner segments. Fiscal Q4 ended July 31, 2020; this annual filing reports full-year results as well as unaudited quarterly data.
Financial performance and liquidity
| Metric | FY2020 | FY2019 | Change |
|---|---|---|---|
| Revenue | $7.679 billion | $6.784 billion | +13% |
| Operating income | $2.176 billion | $1.854 billion | +17% |
| Net income | $1.826 billion | $1.557 billion | +17% |
| Diluted EPS | $6.92 | $5.89 | +17% |
| Cash from operations | $2.414 billion | $2.324 billion | +4% |
Operating margin was approximately 28.3% versus 27.3%; net margin was approximately 23.8% versus 23.0%. Service and other revenue was $6.044 billion, or 79% of total revenue. Fiscal 2020 segment results: Small Business & Self-Employed revenue of $4.050 billion (+15%) and segment operating income of $1.911 billion (+23%); Consumer revenue of $3.136 billion (+13%) and segment operating income of $1.942 billion (+11%); Strategic Partner revenue of $493 million (+4%) and segment operating income of $333 million (+5%). QuickBooks Online Accounting revenue grew 38%; the Online Ecosystem grew 31%.
At July 31, 2020, cash, cash equivalents and investments totaled $7.050 billion, working capital was $4.451 billion, and the current ratio was 2.3:1. Total debt was approximately $3.4 billion: $1.338 billion short-term and $2.031 billion long-term. Capital expenditures were $137 million. Dividends declared were $2.12 per share, totaling approximately $562 million. The company reported no significant off-balance-sheet arrangements.
Material changes and unusual items
- Revenue and operating income each grew 13% and 17%, respectively. Growth was led by online small-business services and higher-priced TurboTax offerings, including TurboTax Live.
- The IRS and states extended 2019 tax filing deadlines to July 15, 2020 (states predominantly to July), shifting sales and revenue from fiscal Q3 to Q4. Fiscal Q4 revenue was $1.816 billion versus $994 million in the prior-year quarter; net income was $445 million versus a $44 million loss.
- Intuit recorded $30 million of nonrecurring Paycheck Protection Program-related revenue. A one-time $40 million restructuring charge and $29 million of professional fees related to pending business combinations contributed to higher expenses.
- In June 2020, Intuit issued $2 billion of senior unsecured notes. It also drew $1 billion under its revolving credit facility in May, repaying that amount in August 2020. Share repurchases were temporarily suspended in connection with the proposed Credit Karma acquisition.
- Effective August 1, 2019, Intuit adopted the lease accounting standard, recognizing operating lease right-of-use assets and liabilities; prior periods were not restated.
Outlook, management commentary and risks
Management provided no specific fiscal 2021 revenue or earnings guidance in the supplied filing text. It expects to continue generating significant operating cash and believes available cash, investments and operating cash flow will cover seasonal working capital, capital expenditures, contractual obligations—including the pending Credit Karma acquisition—and other liquidity needs for at least 12 months. Management expects comparable quarterly dividends, subject to board approval.
The proposed $7.1 billion Credit Karma acquisition, announced February 24, 2020, was expected to close before the end of calendar 2020, subject to regulatory approval and other conditions. Consideration is split equally between cash and Intuit stock. Certain termination circumstances could require a $230 million to $350 million fee.
COVID-19 had negatively affected small-business results as some customers closed or reduced operations. Its future effects on demand, payments volumes, loan collections, tax filings and operations remained uncertain. Other material risks include intense competition and free tax products; cybersecurity, privacy and fraud; dependence on cloud and other third-party providers; regulatory changes affecting tax preparation and financial services; and pronounced tax-season seasonality.
Intuit disclosed approximately 42,000 pending arbitration claims tied to its free online tax programs. It recorded about $14 million in arbitration fees in FY2020, disputed their applicability and propriety, and said additional fees of approximately $120 million could arise beginning in FY2021. The company could not estimate a reasonably possible loss range for these proceedings. The financial statement audit and internal-control audit received unqualified opinions; management and the auditor found internal control over financial reporting effective as of July 31, 2020.
Important facts for investors to verify
- Whether online ecosystem growth and customer adoption sustain the FY2020 growth rates, particularly QuickBooks Online Accounting.
- How COVID-19, small-business conditions and tax-filing timing affect FY2021 demand, loan performance and quarterly comparisons.
- Regulatory progress, final consideration and integration costs for Credit Karma, including potential dilution and the transaction’s effect on leverage and returns.
- Developments in the 42,000 arbitration claims and whether the potential $120 million in additional fees materializes; the filing does not quantify a loss range.
- Debt service, liquidity and the resumption or continuation of share repurchases while dividends and strategic spending are maintained.