Intuit Inc. — Q2 Fiscal 2024 Form 10-Q
Reporting period: Three and six months ended January 31, 2024. Intuit provides financial, tax, payments, lending, and marketing products and services, including QuickBooks, TurboTax, Credit Karma, and Mailchimp. Tax-related revenue is seasonal, typically concentrated from November through April.
Financial performance
| Metric | Q2 FY2024 | Q2 FY2023 | First six months FY2024 | First six months FY2023 |
|---|---|---|---|---|
| Revenue | $3.386 billion | $3.041 billion | $6.364 billion | $5.638 billion |
| Operating income | $369 million | $270 million | $676 million | $346 million |
| Net income | $353 million | $168 million | $594 million | $208 million |
| Diluted EPS | $1.25 | $0.60 | $2.10 | $0.73 |
| Operating margin | 10.9% | 8.9% | 10.6% | 6.1% |
Q2 revenue rose 11%; service revenue increased 11% to $2.693 billion and product and other revenue rose 11% to $693 million. For the six-month period, revenue grew 13%. Q2 cost of revenue was 25% of revenue, unchanged year over year; the six-month ratio improved to 25% from 26%.
Six-month operating cash flow was $516 million, down from $612 million. Investing activities provided $244 million versus $704 million used in the prior-year period; financing activities provided $833 million versus $1.355 billion used. Cash, cash equivalents, and investments totaled $1.489 billion at January 31, down $2.173 billion from July 31, 2023. The filing says approximately 80% of these funds were in the U.S.; these figures exclude customer funds held for customer obligations.
At January 31, working capital was $1.084 billion and the current ratio was 1.2:1. Current assets and liabilities each included $3.390 billion of funds receivable/held for customers and funds payable/due to customers, respectively. Long-term debt carrying value was $5.950 billion, with $6.000 billion of principal outstanding. Intuit reported compliance with applicable debt covenants.
Segments and material changes
- Small Business & Self-Employed: Q2 revenue grew 18% to $2.245 billion; operating income rose 28% to $1.323 billion. Online Ecosystem revenue increased 21%, led by QuickBooks Online, payroll, payments, and Mailchimp.
- Consumer: Q2 revenue fell 5% to $492 million and operating income declined 39% to $134 million. Six-month revenue was up 2%, but operating income fell 26%. Management cited increased staffing and marketing costs and tax-season timing.
- Credit Karma: Q2 revenue was flat at $375 million; operating income declined 33% to $64 million, primarily on higher marketing expense. Management cited economic uncertainty affecting lending partners and mixed performance across product verticals.
- ProTax: Q2 revenue rose 8% to $274 million and operating income rose 9% to $247 million. Six-month growth reflected earlier availability of forms and higher average revenue per customer.
Consolidated Q2 operating income increased 37%, while net income rose 110%. Net income benefited from higher operating income and a very low tax provision, including $56 million of Q2 excess share-based compensation tax benefits. The six-month effective tax rate was approximately 4%, versus approximately 24% excluding discrete items; the comparable prior-year rates were approximately 20% for six months and 24% excluding discrete items.
In September 2023, Intuit issued $4 billion of senior unsecured notes and used the proceeds, together with operating cash, to repay its $4.2 billion term-loan balance. At January 31, $4.0 billion of the new notes and $1.5 billion of 2020 notes remained outstanding; $500 million was drawn on secured revolving facilities supporting small-business lending. On February 5, 2024, Intuit replaced its prior unsecured credit facility with a $1.5 billion revolving facility maturing in 2029.
Outlook, risks, and unusual items
- The filing provides no specific full-year revenue or earnings guidance. Management expects to generate significant operating cash and believes cash, investments, and future operating cash flow will meet liquidity needs for at least 12 months.
- Management expects to continue investing in product development, marketing, sales, technology, privacy, and security, and expects to return excess cash through repurchases and dividends. The board had authorized up to $2.7 billion of repurchases remaining at January 31; $1.1 billion was repurchased in the first six months. The company declared $1.80 per share in dividends for that period.
- Consumer and ProTax results are highly seasonal. The IRS began accepting 2023 tax returns on January 29, 2024, later than the prior-year January 23 start. Management cautioned that first-half tax-segment results are not indicative of the full tax season, which would not be substantially complete until Q3.
- The FTC affirmed an order requiring changes to certain marketing practices; the order contains no monetary penalty and was scheduled to take effect March 23, 2024. Intuit petitioned the Fifth Circuit for review and sought a stay. The company says it cannot estimate a reasonably possible loss or range for remaining proceedings and warns that defense or resolution could involve significant costs.
- Key stated risks include competition, macroeconomic uncertainty and effects on Credit Karma lending activity, cybersecurity and fraud, service availability during tax-season peaks, privacy and AI regulation, small-business loan credit risk, and potential impairment of $13.8 billion of goodwill and $6.1 billion of acquired intangible assets.
Important facts for investors to verify
- Whether Q3 tax-season performance offsets the Q2 Consumer decline, given seasonality and the later IRS filing-season opening.
- Whether Small Business & Self-Employed growth and margin gains continue, and whether Credit Karma partners’ lending activity improves or weakens.
- How operating cash generation develops relative to the first-half decline and to repurchases, dividends, lending, and debt service.
- The effective impact and implementation of the FTC marketing order, including the outcome of Intuit’s appeal and stay request.
- Debt service and liquidity after the $4 billion note issuance, alongside the distinction between corporate liquidity and restricted customer funds.