INTUIT INC. Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to provide readers of our condensed consolidated financial statements with the perspectives of management. This should allow the readers of this report to obtain a comprehensive understanding of our businesses, strategies, current trends, and future prospects. Our MD&A includes the following sections: • Executive Overview: High level discussion of our operating results and some of the trends that affect our business. • Critical Accounting Policies and Estimates: Significant changes since our most recent Annual Report on Form 10-K that we believe are important to understanding the assumptions and judgments underlying our financial statements.
• Results of Operations: A more detailed discussion of our revenue and expenses.
• Liquidity and Capital Resources: Discussion of key aspects of our condensed consolidated statements of cash flows, changes in our condensed consolidated balance sheets, and our financial commitments. You should note that this MD&A contains forward-looking statements that involve risks and uncertainties. Please see the section entitled "Forward-Looking Statements" immediately preceding Part I for important information to consider when evaluating such statements. You should read this MD&A in conjunction with the financial statements and related notes in Part I, Item 1 of this Quarterly Report and our Annual Report on Form 10-K for the fiscal year endedJuly 31, 2021 . Due to the COVID-19 pandemic we continue to conduct business with substantial modifications to employee work locations and employee travel, among other modifications. InJune 2021 a small number of employees started returning to work locations on a limited basis. While we have not experienced significant disruptions to our operations from the COVID-19 pandemic, we are unable to predict the full impact that the COVID-19 pandemic will have on our operations and future financial performance, including demand for our offerings, impact to our customers and partners, actions that may be taken by governmental authorities, and other factors identified in "Risk Factors" in Item 1A of Part II of this Quarterly Report. In the second quarter of fiscal 2021 we acquired Credit Karma in a business combination, which operates as a separate reportable segment. We have included the results of operations of Credit Karma in our condensed consolidated results of operations from the date of acquisition. Segment operating income for Credit Karma includes all direct expenses related to selling and marketing, product development, and general and administrative, which is different from our other reportable segments where we do not fully allocate corporate expenses. Therefore, Credit Karma segment operating income is not comparable to the segment operating income of our other reportable segments. OnNovember 1, 2021 we acquired all of the outstanding equity ofThe Rocket Science Group LLC (Mailchimp) for total consideration of$12 billion and included$5.7 billion in cash and 10.1 million shares of Intuit common stock with a value of approximately$6.3 billion . The fair value of the stock consideration is based on theOctober 29, 2021 closing price of Intuit common stock of$625.99 . Pursuant to the equity purchase agreement we also issued approximately 573,000 restricted stock units in substitution of outstanding equity incentive awards. These restricted stock units have a fair value of approximately$349 million and will be expensed over three years. Additionally, we will be issuing approximately$215 million of RSUs to Mailchimp employees, of which$155 million will be expensed over four years and$60 million will be expensed over six months. See Note 12 to the financial statements in Part I, Item 1 of this Quarterly Report for more information. EXECUTIVE OVERVIEW This overview provides a high-level discussion of our operating results and some of the trends that affect our business. We believe that an understanding of these trends is important in order to understand our financial results as well as our future prospects. This summary is not intended to be exhaustive, nor is it a substitute for the detailed discussion and analysis provided elsewhere in this Quarterly Report on Form 10-Q. About Intuit Intuit helps consumers, small businesses, and the self-employed prosper by delivering financial management and compliance products and services. We also provide specialized tax products to accounting professionals, who are key partners that help us serve small business customers. We organize our businesses into four reportable segments - Small Business & Self-Employed, Consumer, Credit Karma, and ProConnect.
Intuit Q1 Fiscal 2022 Form 10-Q 27
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[[Image Removed: intu-20211031_g2.jpg]]
Small Business & Self-Employed: This segment serves small businesses and the self-employed
around the world, and the accounting professionals who assist and advise them. Our
offerings include QuickBooks financial and business management online services and desktop
software, payroll solutions, merchant payment processing solutions, and financing for
small businesses.
Consumer: This segment serves consumers and includes do-it-yourself and assisted TurboTax
income tax preparation products and services sold in the U.S. and Canada . Our Mint
offering is a personal finance offering which helps customers track their finances and
daily financial behavior.
Credit Karma: This segment serves consumers with a personal finance platform that
provides personalized recommendations of credit card, home, auto and personal loans, and
insurance products; online savings and checking accounts through our partner, MVB Bank,
Inc. , member FDIC ; and access to their credit scores and reports, credit and identity
monitoring, credit report dispute, and data-driven resources.
ProConnect: This segment serves professional accountants in the U.S. and Canada , who are
essential to both small business success and tax preparation and filing. Our professional
tax offerings include Lacerte, ProSeries, and ProConnect Tax Online in the U.S , and
ProFile and ProTax Online in Canada .
Our Growth Strategy
At Intuit, our strategy starts with customer obsession. We listen to and observe
our customers, understand their challenges, and then use advanced technology,
including artificial intelligence (AI), to develop innovative solutions designed
to solve their most important financial problems. For more than three decades,
we have reinvented and disrupted ourselves in order to ensure our customers are
armed with the technology they need to grow and prosper.
Our strategy for delivering on our bold goals is to become an AI-driven expert
platform where we and others can solve our customers' most important problems.
We plan to accelerate the development of the platform by applying AI in the
three key areas:
•An Open Platform: None of us can do it alone, including Intuit. The best way to
deliver for customers is by creating an open, collaborative platform. It's the
power of partnerships that accelerates the world's success. Our open technology
platform integrates with partners so together we can deliver value and benefits
that matter the most to our customers.
•Application of AI: AI helps our customers work smarter because we can automate,
predict and personalize their experience. Using AI technologies, we are:
leveraging machine learning to build decision engines and algorithms that learn
from rich datasets to transform user experiences; applying knowledge engineering
and turning compliance rules into code; and using natural language processing to
revolutionize how customers interact with products and services.
•Incorporating Experts: One of the biggest problems our customers face is
confidence. Even with current advances in technology that deliver personalized
tools and insights, many people want to connect with a real person to help give
them the confidence they are making the right decision. By bringing experts onto
our platform we can solve this massive problem for customers. The power of our
virtual expert platform allows us to scale the intelligence of our products,
elevating experts to advisors and delivering big benefits for customers.
Intuit Q1 Fiscal 2022 Form 10-Q 28
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Table of Contents As we build our AI-driven expert platform, we are prioritizing our resources on five strategic priorities across the company. These priorities focus on solving the problems that matter most to customers and include: •Revolutionizing speed to benefit: When customers use our products and services, we aim to deliver value instantly by making the interactions with our offerings frictionless, without the need for customers to manually enter data. We are accelerating the application of AI with a goal to revolutionize the customer experience. This priority is foundational across our business, and execution against it positions us to succeed with our other four strategic priorities. •Connecting people to experts: The largest problem our customers face is lack of confidence to file their own taxes or to manage their books. To build their confidence, we are connecting our customers to experts. We offer customers access to experts to help them make important decisions - and experts, such as accountants, gain access to new customers so they can grow their businesses. •Unlocking smart money decisions: Crippling high-cost debt and lack of savings are at unprecedented levels across theU.S. To address these challenges, we are creating a personal financial assistant that helps consumers find the right financial products, put more money in their pockets and access financial expertise and advice. Our acquisition of Credit Karma accelerates our ability to achieve this vision, by combining two trusted brands, customer reach, data and platform capabilities to deliver breakthrough benefits that will power prosperity for customers around the world. •Be the center of small business growth: We are focused on helping customers grow their businesses by offering a broad, seamless set of tools that are designed to help them get paid faster, manage and get access to capital, pay employees with confidence, and use third-party apps to help run their businesses. At the same time, we want to position ourselves to better serve product-based businesses to benefit customers who sell products through multiple channels. •Disrupt the small business mid-market: We aim to disrupt the mid-market with QuickBooks Online Advanced, our online offering designed to address the needs of small business customers with 10 to 100 employees. This offering enables us to increase retention of these larger customers, and attract new mid-market customers who are over-served by available offerings. We expect our acquisition of Mailchimp will help us accelerate two of our strategic priorities to become the center of small business growth and to disrupt the small business mid-market. Industry Trends and Seasonality Industry Trends AI is transforming multiple industries, including financial technology. Disruptive start-ups, emerging ecosystems and mega-platforms are harnessing new technology to create personalized experiences, deliver data-driven insights and increase speed of service. These shifts are creating a more dynamic and highly competitive environment where customer expectations are shifting around the world as more services become digitized and the array of choices continues to increase. Seasonality Our Consumer and ProConnect offerings have a significant and distinct seasonal pattern as sales and revenue from our income tax preparation products and services are heavily concentrated in the period from November through April. Typically, returns are accepted by theIRS starting in January and the tax filing deadline ends in April. This seasonal pattern results in higher net revenues during our second and third quarters endingJanuary 31 andApril 30 , respectively. However, in fiscal 2021 theIRS began accepting returns onFebruary 12, 2021 and the tax filing deadline was extended toMay 17, 2021 . These changes to the fiscal 2021 tax filing season impacted our second and third quarter financial results. We expect the seasonality of our Consumer and ProConnect businesses to continue to have a significant impact on our quarterly financial results in the future. Key Challenges and Risks Our growth strategy depends upon our ability to initiate and embrace disruptive technology trends, to enter new markets, and to drive broad adoption of the products and services we develop and market. Our future growth also increasingly depends on the strength of our third-party business relationships and our ability to continue to develop, maintain and strengthen new and existing relationships. To remain competitive and continue to grow, we are investing significant resources in our product development, marketing, and sales capabilities, and we expect to continue to do so in the future. As we offer more online services, the ongoing operation and availability of our platforms and systems and those of our external service providers is becoming increasingly important. Because we help customers manage their financial lives, we face risks associated with the hosting, collection, use, and retention of personal customer information and data. We are investing significant management attention and resources in our information technology infrastructure and in our privacy and security capabilities, and we expect to continue to do so in the future.
Intuit Q1 Fiscal 2022 Form 10-Q 29
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Table of Contents For our consumer and professional tax offerings, we have implemented additional security measures and are continuing to work with state and federal governments to implement industry-wide security and anti-fraud measures, including sharing information regarding suspicious filings. We received ISO 27001 certification for a portion of our systems and we continue to invest in security measures and to work with the broader industry and government to protect our customers against this type of fraud. Additionally, Credit Karma's security measures are regularly reviewed and updated. For a complete discussion of the most significant risks and uncertainties affecting our business, please see "Forward-Looking Statements" immediately preceding Part I and "Risk Factors" in Item 1A of Part II of this Quarterly Report. Overview of Financial Results The most important financial indicators that we use to assess our business are revenue growth for the company as a whole and for each reportable segment; operating income growth for the company as a whole; earnings per share; and cash flow from operations. We also track certain non-financial drivers of revenue growth and, when material, identify them in the applicable discussions of segment results below. Service offerings are a significant part of our business. Our total service and other revenue was$7.9 billion or 82% of our total revenue in fiscal 2021 and we expect our total service and other revenue to continue to grow in the future. Key highlights for the first three months of fiscal 2022 include the following: Small Business & Self-Employed Cash, cash equivalents, and Revenue of revenue of investments of$2.0 B$1.4 B
fiscal 2021
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
In preparing our financial statements, we make estimates, assumptions and judgments that can have a significant impact on our net revenue, operating income or loss, and net income or loss, as well as on the value of certain assets and liabilities on our condensed consolidated balance sheets. We believe that the estimates, assumptions and judgments involved in the accounting policies described in Management's Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year endedJuly 31, 2021 have the greatest potential impact on our financial statements, so we consider them to be our critical accounting policies and estimates. We believe that there were no significant changes in those critical accounting policies and estimates during the first three months of fiscal 2022. Senior management has reviewed the development and selection of our critical accounting policies and estimates and their disclosure in this Quarterly Report on Form 10-Q with theAudit and Risk Committee of our Board of Directors.
Intuit Q1 Fiscal 2022 Form 10-Q 30
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RESULTS OF OPERATIONS
Financial Overview
Q1 Q1 $ %(Dollars in millions, except per share amounts) FY22 FY21
Change Change Total net revenue$ 2,007 $ 1,323 $ 684 52 % Operating income 195 209 (14) (7) % Net income 228 198 30 15 % Diluted net income per share$ 0.82 $ 0.75 $ 0.07 9 % Total net revenue for the first quarter of fiscal 2022 increased$684 million or 52% compared with the same quarter of fiscal 2021. Credit Karma contributed$418 million to total revenue during the first quarter of fiscal 2021. Our Small Business & Self-Employed segment revenue increased during the quarter primarily due to growth in our Online Ecosystem revenue. Revenue in our Consumer and ProConnect segments was seasonally light, consistent with the same quarter of fiscal 2021. See "Segment Results" later in this Item 2 for more information about the results for all of our reportable segments. Operating income for the first quarter of fiscal 2022 decreased$14 million or 7% compared with the same quarter of fiscal 2021 primarily due to increases in expenses for staffing, share-based compensation, marketing, and amortization of other acquired intangible assets, partially offset by the increase in revenue described above. See "Cost of Revenue" and "Operating Expenses" later in this Item 2 for more information. Net income for the first quarter of fiscal 2022 increased$30 million or 15% compared with the same period of fiscal 2021. The increase in net income was due to$39 million of net gains on other long-term investments which more than offset the decrease in operating income described above. Diluted net income per share increased 9% to$0.82 for the first quarter of fiscal 2022, due to the increase in net income partially offset by an increase in the weighted average shares outstanding due to the shares issued as part of the acquisition of Credit Karma in the second quarter of fiscal 2021. Segment Results The information below is organized in accordance with our four reportable segments. See "Executive Overview - About Intuit" earlier in this Item 2 and Note 11 to the financial statements in Part I, Item 1 of this Quarterly Report for more information. All of our segments operate and sell to customers primarily inthe United States . Total international net revenue was approximately 6% for the three months endedOctober 31, 2021 andOctober 31, 2020 . InDecember 2020 we acquired Credit Karma in a business combination which operates as a separate reportable segment. We have included the results of operations of Credit Karma in our condensed consolidated results of operations from the date of acquisition. Segment operating income or loss is segment net revenue less segment cost of revenue and operating expenses. See "Executive Overview - Industry Trends and Seasonality" earlier in this Item 2 for a description of the seasonality of our business. For our Small Business & Self-Employed, Consumer, and ProConnect reportable segments, we include expenses such as corporate selling and marketing, product development, and general and administrative, which are not allocated to specific segments, in unallocated corporate items as part of other corporate expenses. For Credit Karma, segment expenses include all direct expenses related to selling and marketing, product development, and general and administrative. Unallocated corporate items for all segments include share-based compensation, amortization of acquired technology, amortization of other acquired intangible assets, and goodwill and intangible asset impairment charges. These unallocated corporate items for all segments totaled$873 million in the first three months of fiscal 2022 and$552 million in the first three months of fiscal 2021. Unallocated corporate items increased in the fiscal 2022 period due to increased corporate product development, selling and marketing, and general and administrative expenses in support of the growth of our businesses, higher share-based compensation expenses, higher amortization of acquired technology, and higher amortization of other acquired intangible assets. See Note 11 to the financial statements in Part I, Item 1 of this Quarterly Report for reconciliations of total segment operating income or loss to consolidated operating income or loss for each fiscal period presented.
Intuit Q1 Fiscal 2022 Form 10-Q 31
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Small Business & Self-Employed [[Image Removed: intu-20211031_g3.jpg]]
[[Image Removed: intu-20211031_g4.jpg]]
Small Business & Self-Employed segment includes both Online Ecosystem and
Desktop Ecosystem revenue.
Our Online Ecosystem includes revenue from QuickBooks Online, QuickBooks Live,
QuickBooks Online Advanced and QuickBooks Self-Employed financial and business
management offerings; small business payroll services, including QuickBooks
Online Payroll, Intuit Online Payroll, Intuit Full Service Payroll; merchant
payment processing services for small businesses who use online offerings;
QuickBooks Commerce, QuickBooks Cash, and financing for small businesses.
Our Desktop Ecosystem includes revenue from our QuickBooks Desktop packaged
software products (Desktop Pro, Desktop for Mac, Desktop Premier, and QuickBooks
Point of Sale); QuickBooks Desktop software subscriptions (QuickBooks Desktop
Pro Plus, QuickBooks Desktop Premier Plus, and QuickBooks Enterprise, and
ProAdvisor Program memberships for the accounting professionals who serve small
businesses); desktop payroll products (QuickBooks Basic Payroll, QuickBooks
Assisted Payroll and QuickBooks Enhanced Payroll); merchant payment processing
services for small businesses who use desktop offerings; financial supplies; and
financing for small businesses.
Segment product revenue is primarily derived from revenue related to delivery of
software licenses and the related updates, including version protection, for our
QuickBooks Desktop subscriptions and desktop payroll offerings which are part of
our Desktop Ecosystem. Segment service and other revenue is primarily derived
from our Online Ecosystem revenue and revenue from the services and support that
are provided as part of our QuickBooks Desktop subscription and desktop payroll
offerings as well as merchant payment processing services.
Q1 Q1 %
(Dollars in millions) FY22 FY21 Change
Product revenue $ 378 $ 348 9 %
Service and other revenue 1,065 833 28 %
Total segment revenue $ 1,443 $ 1,181 22 %
% of total revenue 72 % 89 %
Segment operating income $ 921 $ 767 20 %
% of related revenue 64 % 65 %
Intuit Q1 Fiscal 2022 Form 10-Q 32
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Revenue classified by significant product and service offerings was as follows:
Q1 Q1 %
(Dollars in millions) FY22 FY21 Change
Net revenue:
QuickBooks Online Accounting $ 519 $ 392 32 %
Online Services 326 229 42 %
Total Online Ecosystem 845 621 36 %
QuickBooks Desktop Accounting 267 241 11 %
Desktop Services and Supplies 331 319 4 %
Total Desktop Ecosystem 598 560 7 %
Total Small Business & Self-Employed $ 1,443 $ 1,181 22 %
Revenue for our Small Business & Self-Employed segment increased $262 million or
22% in the first quarter of fiscal 2022 compared with the same quarter of fiscal
2021. The increase in was primarily due to growth in Online Ecosystem revenue.
Online Ecosystem Revenue
Online Ecosystem revenue increased 36% in the first quarter of fiscal 2022
compared with the same quarter of fiscal 2021. QuickBooks Online Accounting
revenue increased 32% in the first quarter of fiscal 2022 compared with the same
quarter of fiscal 2021 primarily due to an increase in customers as well as
higher effective prices and a shift in mix to our higher priced offerings.
Online Services revenue increased 42% in the first quarter of fiscal 2022
compared with the same quarter of fiscal 2021 primarily due to an increase in
revenue from our payroll and payments offerings. Online payroll revenue
increased due to an increase in customers and a shift in mix to our full service
offering. Online payments revenue increased due to an increase in customers and
an increase in charge volume per customer.
Desktop Ecosystem Revenue
Desktop Ecosystem revenue increased 7% in the first quarter of fiscal 2022
compared with the same quarter of fiscal 2021 due to the growth in our
QuickBooks Desktop Enterprise subscription offering which was partially offset
by a decrease in Desktop unit sales. Late in the first quarter of fiscal 2022 we
discontinued our QuickBooks Desktop packaged software products and now sell
predominantly on a subscription basis. Additionally, during the first quarter of
fiscal 2022 there was an increase in revenue from our Desktop Payroll and
Desktop Payments offerings.
Small Business & Self-Employed segment operating income increased 20% in the
first quarter of fiscal 2022 compared with the same quarter of fiscal 2021
primarily due to the increase in revenue described above, partially offset by
higher expenses for staffing, outside services, and marketing.
Intuit Q1 Fiscal 2022 Form 10-Q 33
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Consumer [[Image Removed: intu-20211031_g5.jpg]]
[[Image Removed: intu-20211031_g6.jpg]]
Consumer segment product revenue is derived primarily from TurboTax desktop tax
return preparation software and related form updates.
Consumer segment service and other revenue is derived primarily from TurboTax
Online and TurboTax Live offerings, electronic tax filing services and connected
services, and also from our Mint offering.
Q1 Q1 %
(Dollars in millions) FY22 FY21 Change
Product revenue $ 7 $ 7 - %
Service and other revenue 113 112 1 %
Total segment revenue $ 120 $ 119 1 %
% of total revenue 6 % 9 %
Segment operating income (loss) $ (11) $ 4 NM
% of related revenue (9) % 3 %
NM = Not Meaningful
Revenue for our Consumer segment increased slightly in the first three months of
fiscal 2022 compared with the same period of fiscal 2021. Due to the seasonal
nature of our Consumer offerings, we typically generate minimal revenue from
Consumer products and services in our first fiscal quarter compared with our
second and third fiscal quarters. The majority of revenue for the first quarter
of each fiscal year is for the filing of extended returns for the previous tax
year.
In our first fiscal quarter, our Consumer segment typically generates operating
losses because we continue to incur operating expenses for general and
administrative functions and research and development while revenue is minimal.
Segment operating loss was $11 million in the first three months of fiscal 2022
compared to segment operating income of $4 million for the same period of fiscal
2021. In the first quarter of fiscal 2022 expenses were higher compared to the
same period of fiscal 2021 due to higher expense for staffing which were
partially offset by lower expenses for marketing.
Because of the seasonality of our Consumer revenue, we do not believe that the
revenue or operating results for the first quarter of fiscal 2022 is indicative
of trends for the current fiscal year. We will not have substantially complete
results for the 2021 tax season until the third quarter of fiscal 2022.
Intuit Q1 Fiscal 2022 Form 10-Q 34
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Credit Karma [[Image Removed: intu-20211031_g7.jpg]]
[[Image Removed: intu-20211031_g8.jpg]]
Credit Karma revenue is derived from cost-per-action transactions, which include
the delivery of qualified links that result in completed actions such as credit
card issuances and personal loan funding; and cost-per-click and cost-per-lead
transactions, which include user clicks on advertisements or advertisements that
allow for the generation of leads, and primarily relate to mortgage and
insurance businesses.
Q1 Q1 %
(Dollars in millions) FY22 FY21 Change
Product revenue $ - $ - N/A
Service and other revenue 418 - N/A
Total segment revenue $ 418 $ - N/A
% of total revenue 21 % - %
Segment operating income $ 169 $ - N/A
% of related revenue 40 % N/A
In the second quarter of fiscal 2021 we acquired Credit Karma. Our results of
operations include the operations of Credit Karma beginning on the date of
acquisition.
Credit Karma contributed $418 million in revenue for the three months ended
October 31, 2021 . Revenue is primarily generated from cost-per-action
transactions related to credit card issuances and personal loan funding.
Segment operating income was $169 million for the three months ended October 31,
2021 . Expenses were primarily related to staffing and marketing.
Intuit Q1 Fiscal 2022 Form 10-Q 35
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ProConnect [[Image Removed: intu-20211031_g9.jpg]]
[[Image Removed: intu-20211031_g10.jpg]]
ProConnect segment product revenue is derived primarily from Lacerte, ProSeries,
and ProFile desktop tax preparation software products and related form updates.
ProConnect segment service and other revenue is derived primarily from
ProConnect Tax Online tax products, electronic tax filing service, connected
services and, bank products.
Q1 Q1 %
(Dollars in millions) FY22 FY21 Change Product revenue
$ 12 $ 12 - % Service and other revenue 14 11 27 % Total segment revenue$ 26 $ 23 13 % % of total revenue 1 % 2 % Segment operating loss$ (11) $ (10) 10 % % of related revenue (42) % (43) % Revenue for our ProConnect segment revenue increased$3 million or 13% in the first three months of fiscal 2022 compared with the same period of fiscal 2021. Due to the seasonal nature of our ProConnect offerings, we typically generate minimal revenue from professional tax products and services in our first fiscal quarter compared with our second and third fiscal quarters. The majority of revenue for the first quarter of each fiscal year is for the filing of extended returns for the previous tax year. In our first fiscal quarter, our ProConnect segment typically generates operating losses because we continue to incur operating expenses for general and administrative functions and research and development while revenue is minimal. In the first quarter of fiscal 2022 expenses increased compared to the same period of fiscal 2021 primarily due to higher expense for staffing. Because of the seasonality of our ProConnect revenue, we do not believe that the revenue or operating results for the first quarter of fiscal 2022 is indicative of trends for the current fiscal year. We will not have substantially complete results for the 2021 tax season until the third quarter of fiscal 2022.
Intuit Q1 Fiscal 2022 Form 10-Q 36
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Cost of Revenue
% of % of
Q1 Related Q1 Related
(Dollars in millions) FY22 Revenue FY21 Revenue
Cost of product revenue $ 15 4 % $ 15 4 %
Cost of service and other revenue 387 24 % 234 24 %
Amortization of acquired technology 15 n/a 7 n/a
Total cost of revenue $ 417 21 % $ 256 19 %
Our cost of revenue has three components: (1) cost of product revenue, which
includes the direct costs of manufacturing and shipping or electronically
downloading our desktop software products; (2) cost of service and other
revenue, which includes the direct costs associated with our online and service
offerings, such as costs for data processing and storage capabilities from cloud
providers, customer support costs, costs for the tax and bookkeeping experts
that support our TurboTax Live and QuickBooks Live offerings, and costs related
to credit score providers; and (3) amortization of acquired technology which
represents the cost of amortizing developed technologies that we have obtained
through acquisitions over their useful lives.
Cost of product revenue as a percentage of product revenue was relatively
consistent in the first quarter of fiscal 2022 compared with the same periods of
fiscal 2021. We expense costs of product revenue as they are incurred for
delivered software and we do not defer any of these costs when product revenue
is deferred.
Cost of service and other revenue as a percentage of service and other revenue
was relatively consistent in the first quarter of fiscal 2022 compared with the
same period of fiscal 2021. Credit Karma contributed $94 million to cost of
service and other revenue for the three months ended October 31, 2021 .
Operating Expenses
% of % of
Total Total
Q1 Net Q1 Net
(Dollars in millions) FY22 Revenue FY21 Revenue
Selling and marketing $ 550 27 % $ 362 27 %
Research and development 530 26 % 325 25 %
General and administrative 262 13 % 169 13 %
Amortization of other acquired intangible assets 53 3 % 2 - %
Total operating expenses $ 1,395 70 % $ 858 65 %
Total operating expenses as a percentage of total net revenue increased in the
first quarter of fiscal 2022 compared to the same period of fiscal 2021. Total
net revenue for the first quarter of fiscal 2022 increased $684 million or 52%
due to the increase in revenue described above. Total operating expenses for the
quarter increased $537 million or 63%, which included $217 million of operating
expenses related to Credit Karma. Total share-based compensation expense
increased $157 million ; total staffing increased $202 million , including $96
million related to Credit Karma; total marketing increased $74 million , which
included $56 million related to Credit Karma, and total amortization of other
acquired intangible assets increased $51 million , which was primarily related to
Credit Karma.
Non-Operating Income and Expenses
Interest Expense
Interest expense of $7 million for the first three months of fiscal 2022
consisted primarily of interest on our senior unsecured notes and secured
revolving credit facility. Interest expense of $8 million for the first three
months of fiscal 2021 consisted primarily of interest on our senior unsecured
notes, unsecured term loan, unsecured revolving credit facility, and secured
revolving credit facility.
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Interest and Other Income (Loss), Net
Q1 Q1
(In millions) FY22 FY21
Interest income (1) $ 5 $ 3
Net gain (loss) on executive deferred compensation plan assets (2) 4 (1)
Other (3) 41
7
Total interest and other income, net$ 50
(1) Interest income in the first quarter and the first three months of fiscal 2022 increased compared to the same period of fiscal 2021 primarily due to higher average interest rates. (2) In accordance with authoritative guidance, we record gains and losses associated with executive deferred compensation plan assets in interest and other income and gains and losses associated with the related liabilities in operating expenses. The total amounts recorded in operating expenses for each period are approximately equal to the total amounts recorded in interest and other income in those periods. (3) In the first quarter of fiscal 2022 and 2021 we recorded$39 million and$8 million of net gains on other long-term investments, respectively. Income Taxes We compute our provision for or benefit from income taxes by applying the estimated annual effective tax rate to income or loss from recurring operations and adding the effects of any discrete income tax items specific to the period. We recognized excess tax benefits on share-based compensation of$47 million and$52 million in our provision for income taxes for the three months endedOctober 31, 2021 and 2020, respectively. Our effective tax rate for the three months endedOctober 31, 2021 was approximately 4%. Excluding discrete tax items primarily related to share-based compensation tax benefits mentioned above, our effective tax rate was 25%. The difference from the federal statutory rate of 21% was primarily due to state income taxes and non-deductible share-based compensation, which were partially offset by the tax benefit we received from the federal research and experimentation credit. Our effective tax rate for the three months endedOctober 31, 2020 was approximately 6%. Excluding discrete tax items primarily related to share-based compensation tax benefits mentioned above, our effective tax rate was 25%. The difference from the federal statutory rate of 21% was primarily due to state income taxes and non-deductible share-based compensation, which were partially offset by the tax benefit we received from the federal research and experimentation credit. In the current global tax policy environment, theU.S. and other domestic and foreign governments continue to consider, and in some cases enact, changes in corporate tax laws. As changes occur, we account for finalized legislation in the period of enactment. LIQUIDITY AND CAPITAL RESOURCES
Overview
AtOctober 31, 2021 , our cash, cash equivalents and investments totaled$3.3 billion , a decrease of$620 million fromJuly 31, 2021 due to the factors discussed under "Statements of Cash Flows" below. Our primary sources of liquidity have been cash from operations, which entails the collection of accounts receivable for products and services, the issuance of senior unsecured notes, and borrowings under our credit facility. Our primary uses of cash have been for research and development programs, selling and marketing activities, capital projects, acquisitions of businesses, debt service costs and debt repayment, repurchases of our common stock under our stock repurchase programs, and the payment of cash dividends. As discussed in "Executive Overview - Industry Trends and Seasonality" earlier in this Item 2, our business is subject to significant seasonality. The balance of our cash, cash equivalents, and investments generally fluctuates with that seasonal pattern. We believe the seasonality of our business is likely to continue in the future.
Intuit Q1 Fiscal 2022 Form 10-Q 38
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The following table summarizes selected measures of our liquidity and capital
resources at the dates indicated:
October 31, July 31, $ %
(Dollars in millions) 2021 2021 Change Change
Cash, cash equivalents, and investments $ 3,250 $ 3,870 $ (620) (16) %
Long-term investments 84 43 41 95 %
Long-term debt 2,037 2,034 3 - %
Working capital 2,349 2,502 (153) (6) %
Ratio of current assets to current liabilities 2.1 : 1 1.9 : 1
We have historically generated significant cash from operations and we expect to continue to do so in the future. Our cash, cash equivalents, and investments totaled$3.3 billion atOctober 31, 2021 . None of those funds were restricted and approximately 92% of those funds were located in theU.S. Based on past performance and current expectations, we believe that our cash and cash equivalents, investments, and cash generated from operations will be sufficient to meet anticipated seasonal working capital needs, capital expenditure requirements, contractual obligations, commitments, debt service requirements, and other liquidity requirements associated with our operations for at least the next 12 months. We believe that our financial resources will allow us to manage the impact of COVID-19 on our business operations for the foreseeable future, which could include potential reductions in revenue and delays in payments from customers and partners. We expect to return excess cash generated by operations to our stockholders through payment of cash dividends, after taking into account our operating and strategic cash needs. Our secured revolving credit facility is available to fund a portion of our loans to qualified small businesses. AtOctober 31, 2021 ,$50 million was outstanding under the secured revolving credit facility. We evaluate, on an ongoing basis, the merits of acquiring technology or businesses, or establishing strategic relationships with and investing in other companies. Our strong liquidity profile enables us to quickly respond to these types of opportunities. OnNovember 1, 2021 we acquired all of the outstanding equity of Mailchimp for total consideration of$12 billion and included$5.7 billion in cash and 10.1 million shares of Intuit common stock with a value of approximately$6.3 billion . The fair value of the stock consideration is based on theOctober 29, 2021 closing price of Intuit common stock of$625.99 . Pursuant to the equity purchase agreement we also issued approximately 573,000 restricted stock units in substitution of outstanding equity incentive awards. These restricted stock units have a fair value of approximately$349 million . Additionally, we will be issuing approximately$215 million of RSUs to Mailchimp employees. See Note 12 to the financial statements in Part I, Item 1 of this Quarterly Report for more information. OnNovember 1, 2021 the existing amended and restated credit agreement described in "Credit Facilities - Unsecured Revolving Credit Facility and Term Loan" below was terminated and we entered into an unsecured credit agreement with certain institutional lenders with an aggregate principal amount of$5.7 billion , including a$1 billion unsecured revolving credit facility that matures onNovember 1, 2026 and a$4.7 billion unsecured term loan that matures onNovember 1, 2024 . OnNovember 1, 2021 we borrowed the full$4.7 billion under the unsecured term loan to fund a portion of the acquisition of Mailchimp. See Note 12 to the financial statements in Part I, Item 1 of this Quarterly Report for more information. Statements of Cash Flows The following table summarizes selected items from our condensed consolidated statements of cash flows for the first three months of fiscal 2022 and fiscal 2021. See the financial statements in Part I, Item 1 of this Quarterly Report for complete condensed consolidated statements of cash flows for those periods.
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