10-Q: Quarterly report pursuant to Section 13 or 15(d)
Published on November 28, 2023
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________________________
FORM 10-Q
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended October 31, 2023
OR
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | ||||||||
For the transition period from ____________ to ____________ . |
Commission File Number 0-21180
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) |
(Address of principal executive offices, including zip code)
(650 ) 944-6000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol | Name of each exchange on which registered | |||||||||||||||
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
☑ | Accelerated filer | ☐ | Non-accelerated filer | ☐ | Smaller reporting company |
Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. The number of shares (in thousands) of Common Stock, $0.01 par value, outstanding as of November 20, 2023 was 279,936 .
INTUIT INC. FORM 10-Q INDEX |
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Intuit, QuickBooks, TurboTax, Credit Karma, and Mailchimp, among others, are registered trademarks and/or registered service marks of Intuit Inc., or one of its subsidiaries, in the United States and other countries. Other parties’ marks are the property of their respective owners.
Intuit Q1 Fiscal 2024 Form 10-Q
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2 |
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and uncertainties. Please also see the section entitled "Risk Factors" in Item 1A of Part II of this Quarterly Report for important information to consider when evaluating these statements. All statements in this report, other than statements that are purely historical, are forward-looking statements. Words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “forecast,” “estimate,” “seek,” and similar expressions also identify forward-looking statements. In this report, forward-looking statements include, without limitation, the following:
•our expectations and beliefs regarding future conduct and growth of the business;
•statements regarding the impact of macroeconomic conditions on our business;
•our beliefs and expectations regarding seasonality, competition, and other trends that affect our business;
•our expectation that we will continue to invest significant resources in our product development, marketing and sales capabilities;
•our expectation that we will continue to invest significant management attention and resources in our information technology infrastructure and in our privacy and security capabilities;
•our expectation that we will work with the broader industry and government to protect our customers from fraud;
•our expectation that we will generate significant cash from operations;
•our expectation that total service revenue as a percentage of our total revenue will continue to grow;
•our expectations regarding the development of future products, services, business models and technology platforms and our research and development efforts;
•our assumptions underlying our critical accounting policies and estimates, including our judgments and estimates regarding revenue recognition; the fair value of goodwill; and expected future amortization of acquired intangible assets;
•our intention not to sell our investments and our belief that it is more likely than not that we will not be required to sell them before recovery at par;
•our belief that the investments we hold are not other-than-temporarily impaired;
•our belief that we take prudent measures to mitigate investment-related risks;
•our belief that our exposure to currency exchange fluctuation risk will not be significant in the future;
•our assessments and estimates that determine our effective tax rate;
•our belief that our income tax valuation allowance is sufficient;
•our belief that it is not reasonably possible that there will be a significant increase or decrease in our unrecognized tax benefits over the next 12 months;
•our belief that our cash and cash equivalents, investments and cash generated from operations will be sufficient to meet our 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;
•our expectation that we will return excess cash generated by operations to our stockholders through repurchases of our common stock and the payment of cash dividends, after taking into account our operating and strategic cash needs;
•our judgments and assumptions relating to our loan portfolio;
•our belief that the credit facilities will be available to us should we choose to borrow under them;
•our expectations regarding acquisitions and their impact on business and strategic priorities; and
•our assessments and beliefs regarding the future developments and outcomes of pending legal proceedings and inquiries by regulatory authorities, the liability, if any, that Intuit may incur as a result of those proceedings and inquiries, and the impact of any potential losses or expenses associated with such proceedings or inquiries on our financial statements.
We caution investors that forward-looking statements are only predictions based on our current expectations about future events and are not guarantees of future performance. We encourage you to read carefully all information provided in this report and in our other filings with the Securities and Exchange Commission before deciding to invest in our stock or to maintain or change your investment. These forward-looking statements are based on information as of the filing date of this Quarterly Report and, except as required by law, we undertake no obligation to revise or update any forward-looking statement for any reason.
Intuit Q1 Fiscal 2024 Form 10-Q
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3 |
PART I - FINANCIAL INFORMATION |
ITEM 1 - FINANCIAL STATEMENTS |
INTUIT INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
| |||||||||||
Three Months Ended | |||||||||||
(In millions, except per share amounts) | October 31, 2023 |
October 31, 2022 |
|||||||||
Net revenue: | |||||||||||
Service |
$ | $ | |||||||||
Product and other |
|||||||||||
Total net revenue | |||||||||||
Costs and expenses: | |||||||||||
Cost of revenue: | |||||||||||
Cost of service revenue |
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Cost of product and other revenue |
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Amortization of acquired technology | |||||||||||
Selling and marketing | |||||||||||
Research and development | |||||||||||
General and administrative | |||||||||||
Amortization of other acquired intangible assets | |||||||||||
Total costs and expenses | |||||||||||
Operating income | |||||||||||
Interest expense | ( |
( |
|||||||||
Interest and other income, net | |||||||||||
Income before income taxes | |||||||||||
Income tax provision (benefit) | ( |
||||||||||
Net income | $ | $ | |||||||||
Basic net income per share | $ | $ | |||||||||
Shares used in basic per share calculations | |||||||||||
Diluted net income per share | $ | $ | |||||||||
Shares used in diluted per share calculations | |||||||||||
See accompanying notes.
Intuit Q1 Fiscal 2024 Form 10-Q
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4 |
INTUIT INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
| |||||||||||
Three Months Ended | |||||||||||
(In millions) | October 31, 2023 |
October 31, 2022 |
|||||||||
Net income | $ | $ | |||||||||
Other comprehensive income (loss), net of income taxes: | |||||||||||
Unrealized gain (loss) on available-for-sale debt securities | ( |
||||||||||
Foreign currency translation loss | ( |
( |
|||||||||
Total other comprehensive loss, net | ( |
( |
|||||||||
Comprehensive income | $ | $ |
See accompanying notes.
Intuit Q1 Fiscal 2024 Form 10-Q
|
5 |
INTUIT INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
| |||||||||||
(In millions) | October 31, 2023 |
July 31, 2023 |
|||||||||
ASSETS | |||||||||||
Current assets: | |||||||||||
Cash and cash equivalents | $ | $ | |||||||||
Investments | |||||||||||
Accounts receivable, net | |||||||||||
Notes receivable held for investment, net |
|||||||||||
Notes receivable held for sale |
|||||||||||
Income taxes receivable | |||||||||||
Prepaid expenses and other current assets | |||||||||||
Current assets before funds receivable and amounts held for customers | |||||||||||
Funds receivable and amounts held for customers | |||||||||||
Total current assets | |||||||||||
Long-term investments | |||||||||||
Property and equipment, net | |||||||||||
Operating lease right-of-use assets | |||||||||||
Goodwill | |||||||||||
Acquired intangible assets, net | |||||||||||
Long-term deferred income tax assets | |||||||||||
Other assets | |||||||||||
Total assets | $ | $ | |||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||
Current liabilities: | |||||||||||
Accounts payable | $ | $ | |||||||||
Accrued compensation and related liabilities | |||||||||||
Deferred revenue | |||||||||||
Income taxes payable | |||||||||||
Other current liabilities | |||||||||||
Current liabilities before funds payable and amounts due to customers | |||||||||||
Funds payable and amounts due to customers | |||||||||||
Total current liabilities | |||||||||||
Long-term debt | |||||||||||
Long-term deferred income tax liabilities | |||||||||||
Operating lease liabilities | |||||||||||
Other long-term obligations | |||||||||||
Total liabilities | |||||||||||
Commitments and contingencies | |||||||||||
Stockholders’ equity: | |||||||||||
Preferred stock | |||||||||||
Common stock and additional paid-in capital | |||||||||||
Treasury stock, at cost | ( |
( |
|||||||||
Accumulated other comprehensive loss | ( |
( |
|||||||||
Retained earnings | |||||||||||
Total stockholders’ equity | |||||||||||
Total liabilities and stockholders’ equity | $ | $ |
Intuit Q1 Fiscal 2024 Form 10-Q
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6 |
.
INTUIT INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited)
|
Three Months Ended October 31, 2023 | |||||||||||||||||||||||||||||||||||
(Dollars in millions, except per share amount; shares in thousands) |
Shares of Common Stock |
Common Stock and Additional Paid-In Capital |
Treasury Stock |
Accumulated Other Comprehensive Loss |
Retained Earnings |
Total Stockholders' Equity |
|||||||||||||||||||||||||||||
Balance at July 31, 2023 |
|
$ |
|
$ | ( |
$ | ( |
$ |
|
$ |
|
||||||||||||||||||||||||
Comprehensive income | — | — | — | ( |
|||||||||||||||||||||||||||||||
Issuance of stock under employee stock plans, net of shares withheld for employee taxes | ( |
— | — | — | ( |
||||||||||||||||||||||||||||||
Stock repurchases under stock repurchase programs | ( |
— | ( |
— | — | ( |
|||||||||||||||||||||||||||||
Dividends and dividend rights declared ($ |
— | — | — | — | ( |
( |
|||||||||||||||||||||||||||||
Share-based compensation expense | — | — | — | — | |||||||||||||||||||||||||||||||
Balance at October 31, 2023 |
|
$ |
|
$ | ( |
$ | ( |
$ |
|
$ |
|
Three Months Ended October 31, 2022 | |||||||||||||||||||||||||||||||||||
(Dollars in millions, except per share amount; shares in thousands) |
Shares of Common Stock |
Common Stock and Additional Paid-In Capital |
Treasury Stock |
Accumulated Other Comprehensive Loss |
Retained Earnings |
Total Stockholders' Equity |
|||||||||||||||||||||||||||||
Balance at July 31, 2022 |
|
$ |
|
$ | ( |
$ | ( |
$ |
|
$ |
|
||||||||||||||||||||||||
Comprehensive income | — | — | — | ( |
|||||||||||||||||||||||||||||||
Issuance of stock under employee stock plans, net of shares withheld for employee taxes | ( |
— | — | — | ( |
||||||||||||||||||||||||||||||
Stock repurchases under stock repurchase programs | ( |
— | ( |
— | — | ( |
|||||||||||||||||||||||||||||
Dividends and dividend rights declared ($ |
— | — | — | — | ( |
( |
|||||||||||||||||||||||||||||
Share-based compensation expense | — | — | — | — | |||||||||||||||||||||||||||||||
Balance at October 31, 2022 |
|
$ |
|
$ | ( |
$ | ( |
$ |
|
$ |
|
See accompanying notes.
Intuit Q1 Fiscal 2024 Form 10-Q
|
7 |
INTUIT INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
| |||||||||||
Three Months Ended | |||||||||||
(In millions) | October 31, 2023 |
October 31, 2022 |
|||||||||
Cash flows from operating activities: | |||||||||||
Net income | $ | $ | |||||||||
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | |||||||||||
Depreciation | |||||||||||
Amortization of acquired intangible assets | |||||||||||
Non-cash operating lease cost | |||||||||||
Share-based compensation expense | |||||||||||
Deferred income taxes | ( |
( |
|||||||||
Other | |||||||||||
Total adjustments |
|
|
|||||||||
Originations of loans held for sale | ( |
||||||||||
Sale and principal payments of loans held for sale | |||||||||||
Changes in operating assets and liabilities: | |||||||||||
Accounts receivable | |||||||||||
Income taxes receivable | |||||||||||
Prepaid expenses and other assets | ( |
( |
|||||||||
Accounts payable | ( |
( |
|||||||||
Accrued compensation and related liabilities | ( |
( |
|||||||||
Deferred revenue | ( |
( |
|||||||||
Income taxes payable | ( |
( |
|||||||||
Operating lease liabilities | ( |
( |
|||||||||
Other liabilities | ( |
||||||||||
Total changes in operating assets and liabilities | ( |
( |
|||||||||
Net cash provided by (used in) operating activities | ( |
|
|||||||||
Cash flows from investing activities: | |||||||||||
Purchases of corporate and customer fund investments | ( |
( |
|||||||||
Sales of corporate and customer fund investments | |||||||||||
Maturities of corporate and customer fund investments | |||||||||||
Purchases of property and equipment | ( |
( |
|||||||||
Originations and purchases of loans | ( |
( |
|||||||||
Principal repayments of loans | |||||||||||
Other | |||||||||||
Net cash provided by (used in) investing activities |
|
( |
|||||||||
Cash flows from financing activities: | |||||||||||
Proceeds from issuance of long-term debt, net of discount and issuance costs |
|||||||||||
Repayment of debt | ( |
||||||||||
Proceeds from borrowings under secured revolving credit facilities | |||||||||||
Proceeds from issuance of stock under employee stock plans | |||||||||||
Payments for employee taxes withheld upon vesting of restricted stock units | ( |
( |
|||||||||
Cash paid for purchases of treasury stock | ( |
( |
|||||||||
Dividends and dividend rights paid | ( |
( |
|||||||||
Net change in funds receivable and funds payable and amounts due to customers | ( |
||||||||||
Other | |||||||||||
Net cash provided by (used in) financing activities |
|
( |
Intuit Q1 Fiscal 2024 Form 10-Q
|
8 |
Effect of exchange rates on cash, cash equivalents, restricted cash, and restricted cash equivalents | ( |
( |
|||||||||
Net increase (decrease) in cash, cash equivalents, restricted cash, and restricted cash equivalents |
|
( |
|||||||||
Cash, cash equivalents, restricted cash, and restricted cash equivalents at beginning of period | |||||||||||
Cash, cash equivalents, restricted cash, and restricted cash equivalents at end of period | $ |
|
$ |
|
|||||||
Reconciliation of cash, cash equivalents, restricted cash, and restricted cash equivalents reported within the condensed consolidated balance sheets to the total amounts reported on the condensed consolidated statements of cash flows | |||||||||||
Cash and cash equivalents | $ | $ | |||||||||
Restricted cash and restricted cash equivalents included in funds receivable and amounts held for customers | |||||||||||
Total cash, cash equivalents, restricted cash, and restricted cash equivalents at end of period | $ |
|
$ |
|
|||||||
See accompanying notes.
Intuit Q1 Fiscal 2024 Form 10-Q
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9 |
INTUIT INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
|
1. Description of Business and Summary of Significant Accounting Policies |
Description of Business |
Intuit helps consumers and small businesses prosper by delivering financial management, compliance, and marketing products and services. We also provide specialized tax products to accounting professionals, who are key partners that help us serve small business customers.
Our global financial technology platform, which includes TurboTax, Credit Karma, QuickBooks, and Mailchimp, is designed to help consumers and small businesses manage their finances, get and retain customers, save money, pay off debt, and do their taxes with ease and confidence. For those customers who run small businesses, we are also focused on helping them find and keep customers, get paid faster, pay their employees, manage and get access to capital, and ensure their books are done right. Lacerte, ProSeries, and ProConnect Tax Online are our leading tax preparation offerings for professional accountants. Incorporated in 1984 and headquartered in Mountain View, California, we sell our products and services primarily in the United States.
Basis of Presentation |
These condensed consolidated financial statements include the financial statements of Intuit and its wholly-owned subsidiaries. We have eliminated all intercompany balances and transactions in consolidation. We have included all adjustments, consisting only of normal recurring items, which we considered necessary for a fair presentation of our financial results for the interim periods presented. We have reclassified certain amounts previously reported in our financial statements to conform to the current presentation.
In the first quarter of fiscal 2024, to align our presentation of revenue and cost of revenue with our current revenue mix, we began to aggregate other revenue with product revenue, rather than service revenue, and cost of other revenue with cost of product revenue, rather than cost of service revenue. We reclassified the previously reported balances to conform to the current presentation. The reclassification was not material and had no impact on previously reported total net revenue or cost of revenue.
On August 1, 2023, we reorganized certain technology functions in our Consumer and ProTax segments that support and benefit our overall platform. Additionally, certain workplace and real estate functions in our Small Business & Self-Employed segment are now managed at the corporate level. As a result of these reorganizations, costs associated with these functions are no longer included in segment operating income and are now included in other corporate expenses. For the three months ended October 31, 2022, we reclassified expenses totaling $9 million from Small Business & Self-Employed, $40 million from Consumer, and $15 million from ProTax to other corporate expenses. See Note 12, "Segment Information," for more information.
These unaudited condensed consolidated financial statements and accompanying notes should be read together with the audited consolidated financial statements in Part II, Item 8 of our Annual Report on Form 10-K for the fiscal year ended July 31, 2023. Results for the three months ended October 31, 2023 are not necessarily indicative of the results we expect for the fiscal year ending July 31, 2024 or any other future period.
Seasonality |
Significant Accounting Policies |
We described our significant accounting policies in Note 1 to the financial statements in Part II, Item 8 of our Annual Report on Form 10-K for the fiscal year ended July 31, 2023. There have been no changes to our significant accounting policies during the first three months of fiscal 2024.
Intuit Q1 Fiscal 2024 Form 10-Q
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10 |
Use of Estimates |
Computation of Net Income Per Share |
We compute basic net income or loss per share using the weighted-average number of common shares outstanding during the period. We compute diluted net income per share using the weighted-average number of common shares and dilutive potential common shares outstanding during the period. Dilutive potential common shares consist of the shares issuable upon the exercise of stock options and upon the vesting of restricted stock units (RSUs) under the treasury stock method.
We include stock options with combined exercise prices and unrecognized compensation expense that are less than the average market price for our common stock, and RSUs with unrecognized compensation expense that is less than the average market price for our common stock, in the calculation of diluted net income per share. We exclude stock options with combined exercise prices and unrecognized compensation expense that are greater than the average market price for our common stock, and RSUs with unrecognized compensation expense that is greater than the average market price for our common stock, from the calculation of diluted net income per share because their effect is anti-dilutive. Under the treasury stock method, the amount that must be paid to exercise stock options and the amount of compensation expense for future service that we have not yet recognized for stock options and RSUs are assumed to be used to repurchase shares.
All of the RSUs we grant have dividend rights. Dividend rights are accumulated and paid when the underlying RSUs vest. Since the dividend rights are subject to the same vesting requirements as the underlying equity awards, they are considered a contingent transfer of value. Consequently, the RSUs are not considered participating securities, and we do not present them separately in earnings per share.
In loss periods, basic net loss per share and diluted net loss per share are the same since the effect of potential common shares is anti-dilutive and therefore excluded.
Intuit Q1 Fiscal 2024 Form 10-Q
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11 |
The following table presents the composition of shares used in the computation of basic and diluted net income per share for the periods indicated.
Three Months Ended | |||||||||||
(In millions, except per share amounts) | October 31, 2023 |
October 31, 2022 |
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Numerator: | |||||||||||
Net income | $ | $ | |||||||||
Denominator: | |||||||||||
Shares used in basic per share amounts: | |||||||||||
Weighted-average common shares outstanding | |||||||||||
Shares used in diluted per share amounts: | |||||||||||
Weighted-average common shares outstanding | |||||||||||
Dilutive common equivalent shares from stock options | |||||||||||
and restricted stock awards | |||||||||||
Dilutive weighted-average common shares outstanding | |||||||||||
Basic and diluted net income per share: | |||||||||||
Basic net income per share | $ | $ | |||||||||
Diluted net income per share | $ | $ | |||||||||
Shares excluded from diluted net income per share: |
|||||||||||
Weighted-average stock options and restricted stock units that have been excluded from dilutive common equivalent shares outstanding due to their anti-dilutive effect |
Deferred Revenue |
We record deferred revenue when we have entered into a contract with a customer, and cash payments are received or due prior to transfer of control or satisfaction of the related performance obligation. During the three months ended October 31, 2023, we recognized revenue of $638 million that was included in deferred revenue at July 31, 2023. During the three months ended October 31, 2022, we recognized revenue of $535 million that was included in deferred revenue at July 31, 2022.
Our performance obligations are generally satisfied within 12 months of the initial contract date. As of October 31, 2023 and July 31, 2023, the deferred revenue balance related to performance obligations that will be satisfied after 12 months was $4 million and $5 million, respectively, and is included in other long-term obligations on our condensed consolidated balance sheets.
Concentration of Credit Risk and Significant Customers |
No customer accounted for 10% or more of total net revenue in the three months ended October 31, 2023 or October 31, 2022. No customer accounted for 10% or more of gross accounts receivable at October 31, 2023 or July 31, 2023.
Accounting Standards Not Yet Adopted |
We do not expect that any recently issued accounting pronouncements will have a material effect on our financial statements.
2. Fair Value Measurements |
Fair Value Hierarchy |
The authoritative guidance defines fair value as the price that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. When determining fair value, we consider the principal or most advantageous market for an asset or liability and assumptions that market participants would use when pricing the asset or liability. In addition, we consider and use all valuation methods that are appropriate in estimating the fair value of an asset or liability.
Intuit Q1 Fiscal 2024 Form 10-Q
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12 |
The authoritative guidance establishes a fair value hierarchy that is based on the extent and level of judgment used to estimate the fair value of assets and liabilities. In general, the authoritative guidance requires us to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. An asset or liability’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the measurement of its fair value. The three levels of input defined by the authoritative guidance are as follows:
•Level 1 uses unadjusted quoted prices that are available in active markets for identical assets or liabilities.
•Level 2 uses inputs other than quoted prices included in Level 1 that are either directly or indirectly observable through correlation with market data. These include quoted prices in active markets for similar assets or liabilities; quoted prices for identical or similar assets or liabilities in markets that are not active; and inputs to valuation models or other pricing methodologies that do not require significant judgment because the inputs used in the model, such as interest rates and volatility, can be corroborated by readily observable market data for substantially the full term of the assets or liabilities.
Assets and Liabilities Measured at Fair Value on a Recurring Basis |
The following table summarizes financial assets and financial liabilities that we measured at fair value on a recurring basis at the dates indicated, classified in accordance with the fair value hierarchy described above.
October 31, 2023 | July 31, 2023 | ||||||||||||||||||||||||||||||||||
(In millions) | Level 1 | Level 2 | Total Fair Value |
Level 1 | Level 2 | Total Fair Value |
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Assets: | |||||||||||||||||||||||||||||||||||
Cash equivalents, primarily money market funds and time deposits |
$ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
Available-for-sale debt securities: | |||||||||||||||||||||||||||||||||||
Corporate notes | |||||||||||||||||||||||||||||||||||
U.S. agency securities | |||||||||||||||||||||||||||||||||||
Total available-for-sale debt securities | |||||||||||||||||||||||||||||||||||
Total assets measured at fair value on a recurring basis | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
Liabilities: | |||||||||||||||||||||||||||||||||||
Senior unsecured notes(1)
|
$ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
(1) Carrying values on our condensed consolidated balance sheets at October 31, 2023 and July 31, 2023 were $5.45 billion and $1.49 billion, respectively. See Note 6, “Debt,” for more information.
The following table summarizes our cash equivalents and available-for-sale debt securities by balance sheet classification and level in the fair value hierarchy at the dates indicated.
October 31, 2023 | July 31, 2023 | ||||||||||||||||||||||||||||||||||
(In millions) | Level 1 | Level 2 | Total Fair Value |
Level 1 | Level 2 | Total Fair Value |
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Cash equivalents: | |||||||||||||||||||||||||||||||||||
In cash and cash equivalents | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
Available-for-sale debt securities: | |||||||||||||||||||||||||||||||||||
In investments | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
In funds receivable and amounts held for customers | |||||||||||||||||||||||||||||||||||
Total available-for-sale debt securities | $ | $ | $ | $ | $ | $ |
We value our Level 1 assets, consisting primarily of money market funds and time deposits, using quoted prices in active markets for identical instruments.
Financial assets whose fair values we measure on a recurring basis using Level 2 inputs consist of corporate notes and U.S. agency securities. We measure the fair values of these assets with the help of a pricing service that either provides quoted market prices in active markets for identical or similar securities or uses observable inputs for their pricing without applying significant adjustments. Our fair value processes include controls designed to ensure that we record appropriate fair values for our Level 2 investments. These controls include comparison to pricing provided by a secondary pricing service or investment
Intuit Q1 Fiscal 2024 Form 10-Q
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manager, validation of pricing sources and models, review of key model inputs, analysis of period-over-period price fluctuations, and independent recalculation of prices where appropriate.
Financial assets whose fair values we measure using Level 3 inputs consist of notes receivable held for sale. These loans are recorded at the lower of cost or fair value. As of October 31, 2023, total notes receivable held for sale were not material and the difference between amortized cost and fair value was not material.
Financial liabilities whose fair values we measure using Level 2 inputs consist of senior unsecured notes. See Note 6, “Debt,” for more information. We measure the fair value of our senior unsecured notes based on their trading prices and the interest rates we could obtain for other borrowings with similar terms.
There were no transfers between Level 1 and Level 2 of the fair value hierarchy during the three months ended October 31, 2023.
Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis |
Long-term investments represent non-marketable equity securities in privately-held companies that do not have a readily determinable fair value. They are accounted for at cost and adjusted based on observable price changes from orderly transactions for identical or similar investments of the same issuer or impairment. These investments are classified as Level 3 in the fair value hierarchy because we estimate the value of these investments using a valuation method based on observable transaction price changes at the transaction date. We recognized no upward adjustments during the three months ended October 31, 2023 or October 31, 2022. Impairments recognized during the three months ended October 31, 2023 and October 31, 2022 were not material. Cumulative upward adjustments were $71 million, and cumulative impairments were not material through October 31, 2023 for measurement alternative investments held as of October 31, 2023. The carrying value of long-term investments on our condensed consolidated balance sheets was $107 million and $105 million at October 31, 2023 and July 31, 2023, respectively.
3. Cash and Cash Equivalents, Investments, and Funds Receivable and Amounts Held for Customers |
We consider highly liquid investments with maturities of three months or less at the date of purchase to be cash equivalents. In all periods presented, cash equivalents consist primarily of money market funds and time deposits. Investments consist primarily of investment-grade available-for-sale debt securities. Funds receivable and amounts held for customers represent funds receivable from third-party payment processors for customer transactions and cash held on behalf of our customers that is invested in cash and cash equivalents and investment-grade available-for-sale securities, restricted for use solely for the purpose of satisfying amounts we owe on behalf of our customers.
During the three months ended October 31, 2023, we updated our terms of service and end user license agreements related to our payroll and payments offerings to reflect a change in our obligations with respect to funds we transmit on behalf of our customers. As a result of the change, our obligations are now satisfied when the funds are settled in the customers' accounts. These obligations are reflected in funds payable and amounts due to customers in the accompanying condensed consolidated balance sheets. Under our previous agreements, our obligations were satisfied as of the point that we initiated the transmission of the funds on the customers' behalf.
Except for direct obligations of the United States government, securities issued by agencies of the United States government, and money market funds, we diversify our investments in debt securities by limiting our holdings with any individual issuer.
The following table summarizes our cash and cash equivalents, investments, and funds receivable and amounts held for customers by balance sheet classification at the dates indicated.
October 31, 2023 | July 31, 2023 | ||||||||||||||||||||||
(In millions) | Amortized Cost |
Fair Value | Amortized Cost |
Fair Value | |||||||||||||||||||
Classification on condensed consolidated balance sheets: | |||||||||||||||||||||||
Cash and cash equivalents | $ | $ | $ | $ | |||||||||||||||||||
Investments | |||||||||||||||||||||||
Funds receivable and amounts held for customers | |||||||||||||||||||||||
Total cash and cash equivalents, investments, and funds receivable and amounts held for customers | $ | $ | $ | $ |
Intuit Q1 Fiscal 2024 Form 10-Q
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The following table summarizes our cash and cash equivalents, investments, and relevant portion of funds receivable and amounts held for customers by investment category at the dates indicated. As of October 31, 2023 and July 31, 2023, this excludes $281 million and $216 million, respectively, of funds receivable included on our condensed consolidated balance sheets in funds receivable and amounts held for customers not measured and recorded at fair value.
October 31, 2023 | July 31, 2023 | ||||||||||||||||||||||
(In millions) | Amortized Cost |
Fair Value | Amortized Cost |
Fair Value | |||||||||||||||||||
Type of issue: | |||||||||||||||||||||||
Total cash, cash equivalents, restricted cash, and restricted cash equivalents |
$ | $ | $ | $ | |||||||||||||||||||
Available-for-sale debt securities: | |||||||||||||||||||||||
Corporate notes | |||||||||||||||||||||||
U.S. agency securities | |||||||||||||||||||||||
Total available-for-sale debt securities | |||||||||||||||||||||||
Total cash, cash equivalents, restricted cash, restricted cash equivalents, and investments | $ | $ | $ | $ |
We use the specific identification method to compute gains and losses on investments. We include realized gains and losses on our available-for-sale debt securities in interest and other income, net in our condensed consolidated statements of operations. Gross realized gains and losses on our available-for-sale debt securities for the three months ended October 31, 2023 and October 31, 2022 were not material.
We accumulate unrealized gains and losses on our available-for-sale debt securities, net of tax, in accumulated other comprehensive income or loss in the stockholders’ equity section of our condensed consolidated balance sheets, except for certain unrealized losses described below. Gross unrealized gains and losses on our available-for-sale debt securities at October 31, 2023 and July 31, 2023 were not material.
For available-for-sale debt securities in an unrealized loss position, we determine whether a credit loss exists. The estimate of the credit loss is determined by considering available information relevant to the collectibility of the security and information about past events, current conditions, and reasonable and supportable forecasts. The allowance for credit loss is recorded to interest and other income on our condensed consolidated statements of operations, not to exceed the amount of the unrealized loss. Any excess unrealized loss greater than the allowance for credit loss at a security level is recognized in accumulated other comprehensive income or loss in the stockholders' equity section of our condensed consolidated balance sheets. We determined there were no credit losses related to available-for-sale debt securities as of October 31, 2023. Unrealized losses on available-for-sale debt securities at October 31, 2023 were not material. We do not intend to sell these investments. In addition, it is more likely than not that we will not be required to sell them before recovery of the amortized cost basis, which may be at maturity.
The following table summarizes our available-for-sale debt securities, included in investments and relevant portion of funds receivable and amounts held for customers, classified by the stated maturity date of the security at the dates indicated.
October 31, 2023 | July 31, 2023 | ||||||||||||||||||||||
(In millions) | Amortized Cost |
Fair Value | Amortized Cost |
Fair Value | |||||||||||||||||||
Due within one year | $ | $ | $ | $ | |||||||||||||||||||
Due within two years | |||||||||||||||||||||||
Due within three years | |||||||||||||||||||||||
Due after three years | |||||||||||||||||||||||
Total available-for-sale debt securities | $ | $ | $ | $ |
Intuit Q1 Fiscal 2024 Form 10-Q
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The following table summarizes our funds receivable and amounts held for customers by asset category at the dates indicated.
(In millions) | October 31, 2023 | July 31, 2023 |
|||||||||
Restricted cash and restricted cash equivalents | $ | $ | |||||||||
Restricted available-for-sale debt securities and funds receivable | |||||||||||
Total funds receivable and amounts held for customers | $ | $ |
(In millions) | October 31, 2022 | July 31, 2022 |
|||||||||
Restricted cash and restricted cash equivalents | $ | $ | |||||||||
Restricted available-for-sale debt securities and funds receivable | |||||||||||
Total funds receivable and amounts held for customers | $ | $ |
4. Notes Receivable and Allowances for Loan Losses |
As of October 31, 2023, our notes receivable portfolio consisted of notes receivable held for investment, including term loans to small businesses and refund advance loans to consumers, and notes receivable held for sale, including term loans to small businesses.
Notes Receivable Held for Investment |
Notes receivable that we have the intent and ability to hold until maturity are classified as notes receivable held for investment.
Term loans to small businesses. We provide financing to small businesses via term loans that we originate directly or through an originating bank partner. During the three months ended October 31, 2023 and 2022, we purchased loans from our originating bank partner with principal balances in the amount of $279 million and $26 million, respectively. As of October 31, 2023, we had commitments to purchase $13 million in loans that were originated on or prior to October 31, 2023.
The term loans are not secured and are recorded at amortized cost, net of allowances for loan losses. As of October 31, 2023 and July 31, 2023, the net notes receivable balance for term loans to small businesses was $743 million and $757 million, respectively. The current portion is included in notes receivable held for investment and the long-term portion is included in other assets on our condensed consolidated balance sheets.
We maintain an allowance for loan losses to reserve for potentially uncollectible notes receivable. We evaluate the creditworthiness of our term loan portfolio on a pooled basis due to its composition of loans with similar general credit risk and characteristics and apply a loss rate at the time of loan origination. The allowance is subjective and requires management estimates. The loss rate and underlying probability of default methodology are updated periodically to reflect factors such as actual loan performance, changes to assumptions, portfolio growth, our current credit policies, changes to our applicant base, and macroeconomic conditions. Factors taken into consideration in the methodology include historical performance, customer creditworthiness, changes in the size and composition of the loan portfolio, delinquency levels, and actual credit loss experience. We use empirical data and management judgment to estimate losses for new credit tests or products which do not have enough history. We make judgments about the known and inherent risks in the loan portfolio, adverse situations that may affect borrowers’ ability to repay and current and future economic conditions. When we determine that amounts are uncollectible, we write them off against the allowance. As of October 31, 2023 and July 31, 2023, the allowances for loan losses on term loans to small businesses were not material.
We consider a loan to be delinquent when the payments are one day past due. We place delinquent loans on nonaccrual status and stop accruing interest revenue. Loans are returned to accrual status if they are brought current or have performed in accordance with the contractual terms for a reasonable period of time and, in our judgment, will continue to make periodic principal and interest payments as per contractual terms. Past due amounts were not material for all periods presented.
Interest revenue is earned on loans originated and purchased and held for investment in accordance with the specified period of time and defined interest rate noted in the loan contract. Interest revenue is recorded net of amortized direct origination costs and is included in service revenue in our condensed consolidated statements of operations. Interest revenue was not material for all periods presented.
Intuit Q1 Fiscal 2024 Form 10-Q
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Refund Advance Loans. Refund advance loans are loans available to eligible TurboTax customers based on a customer's anticipated income tax refund, at no cost to the customer. The loans are repaid from the customer's income tax refund, which is generally received within three to four weeks after acceptance of the customer's income tax return by the IRS. We partner with a third-party issuing bank to originate the loans and subsequently purchase full participating interests in those loans. The refund advance loans are not secured and are recorded at amortized cost, net of an allowance for loan losses. As of October 31, 2023 and July 31, 2023, the net notes receivable balances for refund advance loans were not material. We maintain an allowance for loan losses to reserve for potentially uncollectible loans. We estimate the allowance based on the expected funding of refunds by the IRS using historical trends. When we determine that any amounts are uncollectible, we write them off against the allowance. As of October 31, 2023, the allowance for loan losses on refund advance loans was not material.
Notes Receivable Held for Sale |
Term loans to small businesses. In August 2023, we entered into a forward flow arrangement with an institutional investor. Pursuant to this arrangement, we have a commitment to sell to the institutional investor a minimum of $250 million in participation interests in unsecured term loans purchased or made to small businesses over the next 18 months, subject to certain eligibility criteria.
Term loans to small businesses originated or purchased with the intent to sell are considered notes receivable held for sale. We have the intent and ability to sell substantially all of our rights, title, and interests in these qualified loans to a third-party investor after origination or purchase. These loans are recorded at the lower of cost or fair value until the loans are sold. To determine fair value, we utilize a cash flow methodology, taking into account estimated timing and expected selling prices. As of October 31, 2023, the balance of loans held for sale was $9 million and is included in notes receivable held for sale on our condensed consolidated balance sheets. Total sales of term loans during the three months ended October 31, 2023 were not material.
5. Acquired Intangible Assets |
The following table shows the cost, accumulated amortization, and weighted-average life in years for our acquired intangible assets at the dates indicated. The weighted-average lives are calculated for assets that are not fully amortized.
(Dollars in millions) | Customer Lists / User Relationships |
Purchased Technology |
Trade Names and Logos |
Covenants Not to Compete or Sue |
Total | ||||||||||||||||||||||||
At October 31, 2023: | |||||||||||||||||||||||||||||
Cost | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
Accumulated amortization | ( |
( |
( |
( |
( |
||||||||||||||||||||||||
Acquired intangible assets, net | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
Weighted-average life in years | |||||||||||||||||||||||||||||
At July 31, 2023: | |||||||||||||||||||||||||||||
Cost | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
Accumulated amortization | ( |
( |
( |
( |
( |
||||||||||||||||||||||||
Acquired intangible assets, net | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
Weighted-average life in years |
Intuit Q1 Fiscal 2024 Form 10-Q
|
17 |
The following table shows the expected future amortization expense for our acquired intangible assets at October 31, 2023. Amortization of purchased technology is charged to amortization of acquired technology in our condensed consolidated statements of operations. Amortization of other acquired intangible assets, such as customer lists, is charged to amortization of other acquired intangible assets in our condensed consolidated statements of operations. If impairment events occur, they could accelerate the timing of acquired intangible asset charges.
(In millions) | Expected Future Amortization Expense |
||||
Twelve months ending July 31, | |||||
2024 (excluding the three months ended October 31, 2023) | $ | ||||
2025 | |||||
2026 | |||||
2027 | |||||
2028 | |||||
Thereafter | |||||
Total expected future amortization expense | $ |
6. Debt |
The carrying value of our debt was as follows at the dates indicated:
(In millions) | October 31, 2023 |
July 31, 2023 |
Effective Interest Rate |
||||||||||||||
Senior unsecured notes issued June 2020: | |||||||||||||||||
$ | $ | ||||||||||||||||
Senior unsecured notes issued September 2023: |
|||||||||||||||||
Term loan | |||||||||||||||||
Secured revolving credit facilities | |||||||||||||||||
Total principal balance of debt | |||||||||||||||||
Unamortized discount and debt issuance costs | ( |
( |
|||||||||||||||
Net carrying value of debt | $ | $ | |||||||||||||||
Short-term debt | $ | $ | |||||||||||||||
Long-term debt | $ | $ |
Future principal payments for debt at October 31, 2023 were as shown in the table below.
(In millions) | |||||
Fiscal year ending July 31, | |||||
2024 (excluding the three months ended October 31, 2023) | $ | ||||
2025 | |||||
2026 | |||||
2027 | |||||
2028 | |||||
Thereafter | |||||
Total future principal payments for debt | $ |
Intuit Q1 Fiscal 2024 Form 10-Q
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18 |
Senior Unsecured Notes |
2020 Notes. In June 2020, we issued four series of senior unsecured notes (together, the 2020 Notes) pursuant to a public debt offering. The proceeds from the issuance were $1.98 billion, net of debt discount of $2 million and debt issuance costs of $15 million. As of October 31, 2023, $1.5 billion of the 2020 Notes remained outstanding.
Interest is payable semiannually on January 15 and July 15 of each year. The discount and debt issuance costs are amortized to interest expense over the term of the 2020 Notes under the effective interest method. We paid no interest on the 2020 Notes in either of the three months ended October 31, 2023 and 2022.
The 2020 Notes are senior unsecured obligations of Intuit and rank equally with all existing and future unsecured and unsubordinated indebtedness of Intuit and are redeemable by us at any time, subject to a make-whole premium. Upon the occurrence of change of control transactions that are accompanied by certain downgrades in the credit ratings of the 2020 Notes, we will be required to repurchase the 2020 Notes at a repurchase price equal to 101 % of the aggregate outstanding principal plus any accrued and unpaid interest to but not including the date of repurchase. The indenture governing the 2020 Notes requires us to comply with certain covenants. For example, the 2020 Notes limit our ability to create certain liens and enter into sale and leaseback transactions. As of October 31, 2023, we were compliant with all covenants governing the 2020 Notes.
2023 Notes. In September 2023, we issued four series of senior unsecured notes (together, the 2023 Notes) pursuant to a public debt offering. The proceeds from the issuance were $3.96 billion, net of debt discount of $20 million and debt issuance costs of $24 million, and were used, together with operating cash, to repay the outstanding balance on our unsecured term loan. As of October 31, 2023, $4.0 billion of the 2023 Notes remained outstanding.
Interest is payable semiannually on March 15 and September 15 of each year, commencing on March 15, 2024. The discount and debt issuance costs are amortized to interest expense over the term of the 2023 Notes under the effective interest method.
The 2023 Notes are senior unsecured obligations of Intuit and rank equally with all existing and future unsecured and unsubordinated indebtedness of Intuit and are redeemable by us at any time, subject to a make-whole premium. The indenture governing the 2023 Notes requires us to comply with certain covenants. For example, the 2023 Notes limit our ability to create certain liens and enter into sale and leaseback transactions. As of October 31, 2023, we were compliant with all covenants governing the 2023 Notes.
Unsecured Credit Facility |
The 2021 Credit Facility includes customary affirmative and negative covenants, including financial covenants that require us to maintain a ratio of total gross debt to annual earnings before interest, taxes, depreciation, and amortization (EBITDA) of not greater than 3.25 to 1.00 and a ratio of annual EBITDA to annual interest expense of not less than 3.00 to 1.00 as of the last day of each fiscal quarter. As of October 31, 2023, we were compliant with all required covenants.
Term Loan. On November 1, 2021, we borrowed the full $4.7 billion under the unsecured term loan to fund a portion of the cash consideration for the acquisition of Mailchimp. Under this agreement, we may, subject to certain customary conditions, on one or more occasions, increase commitments under the term loan in an amount not to exceed $400 million in the aggregate through November 1, 2024. In September 2023, we repaid the outstanding balance under the term loan with the proceeds from the 2023 Notes and operating cash, and at October 31, 2023, there was no balance outstanding. The term loan accrued interest at rates that were equal to, at our election, either (i) the alternate base rate plus a margin that ranges from 0.0 % to 0.125 %, or (ii) the Secured Overnight Finance Rate (SOFR) plus a margin that ranges from 0.625 % to 1.125 %. Actual margins under either election were based on our senior debt credit ratings. Interest on the term loan was payable monthly. We paid $42 million and $41 million in interest on the term loan during the three months ended October 31, 2023 and 2022, respectively.
Unsecured Revolving Credit Facility. The 2021 Credit Facility includes a $1 billion unsecured revolving credit facility that will expire on November 1, 2026. Under this agreement, we may increase commitments under the unsecured revolving credit facility in an amount not to exceed $250 million in the aggregate and may extend the maturity date up to two times, subject to customary conditions including lender approval. Advances under the unsecured revolving credit facility accrue interest at rates that are equal to, at our election, either (i) the alternate base rate plus a margin that ranges from 0.0 % to 0.1 %, or (ii) SOFR plus a margin that ranges from 0.69 % to 1.1 %. Actual margins under either election will be based on our senior debt credit ratings. At October 31, 2023, no amounts were outstanding under the unsecured revolving credit facility. We paid no interest on the unsecured revolving credit facility in either of the three months ended October 31, 2023 and 2022.
Secured Revolving Credit Facilities |
2019 Secured Facility. On February 19, 2019, a subsidiary of Intuit entered into a secured revolving credit facility with a lender to fund a portion of our loans to qualified small businesses (the 2019 Secured Facility). The 2019 Secured Facility is secured by cash and receivables of the subsidiary and is non-recourse to Intuit Inc. We have entered into several amendments to this
Intuit Q1 Fiscal 2024 Form 10-Q
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7. Other Liabilities and Commitments |
Other Current Liabilities |
Other current liabilities were as follows at the dates indicated:
(In millions) | October 31, 2023 |
July 31, 2023 |
|||||||||
Executive deferred compensation plan liabilities | $ | $ | |||||||||
Current portion of operating lease liabilities | |||||||||||
Sales, property, and other taxes | |||||||||||
Interest payable | |||||||||||
Reserve for returns, credits, and promotional discounts | |||||||||||
Amounts due for share repurchases | |||||||||||
Other | |||||||||||
Total other current liabilities | $ | $ |
The balances of several of our other current liabilities, particularly our reserves for product returns, credits, and promotional discounts, are affected by the seasonality of our business. See Note 1, “Description of Business and Summary of Significant Accounting Policies – Seasonality,” for more information.
Other Long-Term Obligations |
Other long-term obligations were as follows at the dates indicated:
(In millions) | October 31, 2023 |
July 31, 2023 |
|||||||||
Income tax liabilities | $ | $ | |||||||||
Dividend payable | |||||||||||
Deferred revenue | |||||||||||
Other | |||||||||||
Total other long-term obligations | $ | $ |
Intuit Q1 Fiscal 2024 Form 10-Q
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20 |
Unconditional Purchase Obligations |
We describe our unconditional purchase obligations in Note 9 to the financial statements in Part II, Item 8 of our Annual Report on Form 10-K for the fiscal year ended July 31, 2023. There were no significant changes outside the ordinary course of business in our purchase obligations during the three months ended October 31, 2023.
8. Leases |
We lease office facilities under non-cancellable operating lease arrangements. Our facility leases generally provide for periodic rent increases and may contain escalation clauses and renewal options. Our leases have remaining lease terms of up to 18 years, which include options to extend that are reasonably certain of being exercised. Some of our leases include one or more options to extend the leases for up to 10 years per option, which we are not reasonably certain to exercise. The options to extend are generally at rates to be determined in accordance with the agreements. Options to extend the lease are included in the lease liability if they are reasonably certain of being exercised. We do not have material finance leases.
We sublease certain office facilities to third parties. These subleases have remaining lease terms of up to 7 years, some of which include one or more options to extend the subleases for up to 5 years per option.
The components of lease expense were as follows:
Three Months Ended | |||||||||||
(In millions) | October 31, 2023 |
October 31, 2022 |
|||||||||
Operating lease cost (1)
|
$ | $ | |||||||||
Variable lease cost | |||||||||||
Sublease income | ( |
( |
|||||||||
Total net lease cost | $ | $ |
(1) Includes short-term leases, which were not material for each of the three months ended October 31, 2023 and 2022.
Supplemental cash flow information related to operating leases was as follows:
Three Months Ended | |||||||||||
(In millions) | October 31, 2023 |
October 31, 2022 |
|||||||||
Cash paid for amounts included in the measurement of operating lease liabilities | $ | $ | |||||||||
Right-of-use assets obtained in exchange for operating lease liabilities | $ | $ |
Other information related to operating leases was as follows at the dates indicated:
October 31, 2023 |
July 31, 2023 |
||||||||||
Weighted-average remaining lease term for operating leases | |||||||||||
Weighted-average discount rate for operating leases | % | % |
Intuit Q1 Fiscal 2024 Form 10-Q
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21 |
Future minimum lease payments under non-cancellable operating leases as of October 31, 2023 were as follows:
(In millions) |
Operating
Leases (1)
|
||||
Fiscal year ending July 31, | |||||
2024 (excluding the three months ended October 31, 2023) | $ | ||||
2025 | |||||
2026 | |||||
2027 | |||||
2028 | |||||
Thereafter | |||||
Total future minimum lease payments | |||||
Less imputed interest | ( |
||||
Present value of lease liabilities | $ |
(1) Non-cancellable sublease proceeds for the remainder of the fiscal year ending July 31, 2024 and the fiscal years ending July 31, 2025, 2026, 2027, 2028, and thereafter of $7 million, $6 million, $1 million, $1 million, $1 million, and $2 million, respectively, are not included in the table above.
Supplemental balance sheet information related to operating leases was as follows at the dates indicated:
(In millions) | October 31, 2023 |
July 31, 2023 |
|||||||||
Operating lease right-of-use assets | $ | $ | |||||||||
$ | $ | ||||||||||
Operating lease liabilities | |||||||||||
Total operating lease liabilities | $ | $ |
As of October 31, 2023, we have an additional operating lease of $4 million for office facilities that has not yet commenced and therefore is not reflected on the condensed consolidated balance sheets nor in the tables above. This lease is expected to commence in fiscal year 2024 with a lease term of 6 years.
9. Income Taxes |
Effective Tax Rate |
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 $28 million and $7 million in our provision for income taxes for the three months ended October 31, 2023 and 2022, respectively.
Our effective tax rate for the three months ended October 31, 2023 was approximately 9 %. Excluding discrete tax items primarily related to share-based compensation, our effective tax rate was approximately 24 %. 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.
We recorded an $8 million tax benefit on pretax income of $32 million for the three months ended October 31, 2022. Excluding discrete tax items primarily related to share-based compensation, our effective tax rate was approximately 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.
The Inflation Reduction Act was enacted on August 16, 2022. This law, among other provisions, provides a corporate alternative minimum tax on adjusted financial statement income, which is effective for us beginning in fiscal 2024. We do not expect any impact from the corporate alternative minimum tax in fiscal 2024.
In the current global tax policy environment, the U.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.
Intuit Q1 Fiscal 2024 Form 10-Q
|
22 |
Unrecognized Tax Benefits and Other Considerations |
The total amount of our unrecognized tax benefits at July 31, 2023 was $246 million. If we were to recognize these net benefits, our income tax expense would reflect a favorable net impact of $152 million. There were no material changes to these amounts during the three months ended October 31, 2023. We do not believe that it is reasonably possible that there will be a significant increase or decrease in our unrecognized tax benefits over the next 12 months.
We offset a $61 million and $85 million long-term liability for uncertain tax positions against our long-term income tax receivable at October 31, 2023 and July 31, 2023, respectively. The long-term income tax receivable at October 31, 2023 was primarily related to the government’s approval of a method of accounting change request for fiscal 2018. The long-term income tax receivable at July 31, 2023 was primarily related to the government’s approval of a method of accounting change request for fiscal 2018 and a refund claim related to Credit Karma’s alternative minimum tax credit that was recorded as part of the acquisition.
10. Stockholders’ Equity |
Stock Repurchase Programs and Treasury Shares |
Intuit’s Board of Directors has authorized a series of common stock repurchase programs. Shares of common stock repurchased under these programs become treasury shares. During the three months ended October 31, 2023, we repurchased a total of 1.2 million shares for $603 million under these programs. Included in this amount were $27 million of repurchases, which occurred in late October 2023 and settled in early November 2023. On August 22, 2023, our Board approved an increase in the authorization under the existing stock repurchase program under which we are authorized to repurchase up to an additional $2.3 billion of our common stock. At October 31, 2023, we had authorization from our Board of Directors for up to $3.2 billion in stock repurchases. Future stock repurchases under the current program are at the discretion of management, and authorization of future stock repurchase programs is subject to the final determination of our Board of Directors.
Our treasury shares are repurchased at the market price on the trade date; accordingly, all amounts paid to reacquire these shares have been recorded as treasury stock on our condensed consolidated balance sheets. Any direct costs to acquire treasury stock are recorded to treasury stock on our condensed consolidated balance sheets. Repurchased shares of our common stock are held as treasury shares until they are reissued or retired. When we reissue treasury stock, if the proceeds from the sale are more than the average price we paid to acquire the shares, we record an increase in additional paid-in capital. Conversely, if the proceeds from the sale are less than the average price we paid to acquire the shares, we record a decrease in additional paid-in capital to the extent of increases previously recorded for similar transactions and a decrease in retained earnings for any remaining amount.
In the past, we have satisfied option exercises and restricted stock unit vesting under our employee equity incentive plans by reissuing treasury shares, and we may do so again in the future. During the second quarter of fiscal 2014, we began issuing new shares of common stock to satisfy option exercises and RSU vesting under our 2005 Equity Incentive Plan. We have not yet determined the ultimate disposition of the shares that we have repurchased in the past, and consequently we continue to hold them as treasury shares.
Dividends on Common Stock |
During the three months ended October 31, 2023, we declared quarterly cash dividends that totaled $0.90 per share of outstanding common stock for a total of $261 million. In November 2023, our Board of Directors declared a quarterly cash dividend of $0.90 per share of outstanding common stock payable on January 18, 2024 to stockholders of record at the close of business on January 10, 2024. Future declarations of dividends and the establishment of future record dates and payment dates are subject to the final determination of our Board of Directors.
Intuit Q1 Fiscal 2024 Form 10-Q
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23 |
Share-Based Compensation Expense |
The following table summarizes the total share-based compensation expense that we recorded in operating income for the periods shown.
Three Months Ended | |||||||||||
(In millions) | October 31, 2023 |
October 31, 2022 |
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Cost of revenue | $ | $ | |||||||||
Selling and marketing | |||||||||||
Research and development | |||||||||||
General and administrative | |||||||||||
Total share-based compensation expense | $ | $ | |||||||||
Share-Based Awards Available for Grant |
A summary of share-based awards available for grant under our plans for the three months ended October 31, 2023 was as follows:
(Shares in thousands) | Shares Available for Grant |
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Balance at July 31, 2023 | |||||
Restricted stock units granted (1)
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( |
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Options granted | |||||
Share-based awards canceled/forfeited/expired (1) (2)
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Balance at October 31, 2023 |
(1)RSUs granted from the pool of shares available for grant under our 2005 Equity Incentive Plan reduce the pool by 2.3 shares for each share granted. RSUs forfeited and returned to the pool of shares available for grant under the 2005 Equity Incentive Plan increase the pool by 2.3 shares for each share forfeited.
(2)Stock options and RSUs canceled, expired, or forfeited under our 2005 Equity Incentive Plan are returned to the pool of shares available for grant. Under the 2005 Equity Incentive Plan, shares withheld for income taxes upon vesting of RSUs that were granted on or after July 21, 2016 are also returned to the pool of shares available for grant. Stock options and RSUs canceled, expired, or forfeited under older expired plans are not returned to the pool of shares available for grant.
Restricted Stock Unit and Restricted Stock Activity |
A summary of RSU and restricted stock activity for the three months ended October 31, 2023 was as follows:
(Shares in thousands) | Number of Shares |
Weighted-
Average
Grant Date
Fair Value
|
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Nonvested at July 31, 2023 | $ | ||||||||||
Granted | |||||||||||
Vested | ( |
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Forfeited | ( |
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Nonvested at October 31, 2023 | $ |
At October 31, 2023, there was approximately $4.3 billion of unrecognized compensation cost related to non-vested RSUs and restricted stock with a weighted-average vesting period of 2.8 years. We will adjust unrecognized compensation cost for actual forfeitures as they occur.
Intuit Q1 Fiscal 2024 Form 10-Q
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24 |
Stock Option Activity |
A summary of stock option activity for the three months ended October 31, 2023 was as follows:
Options Outstanding | |||||||||||
(Shares in thousands) | Number of Shares |
Weighted-
Average
Exercise
Price
Per Share
|
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Balance at July 31, 2023 | $ | ||||||||||
Granted | |||||||||||
Exercised | ( |
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Canceled or expired | ( |
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Balance at October 31, 2023 | $ | ||||||||||
Exercisable at October 31, 2023 | $ |
At October 31, 2023, there was approximately $102 million of unrecognized compensation cost related to non-vested stock options with a weighted-average vesting period of 3.0 years. We will adjust unrecognized compensation cost for actual forfeitures as they occur.
11. Legal Proceedings |
Beginning in May 2019, various legal proceedings were filed and certain regulatory inquiries were commenced in connection with our provision and marketing of free online tax preparation programs. We believe that the allegations contained within these legal proceedings are without merit and continue to defend our interests in them. These proceedings included, among others, multiple putative class actions that were consolidated into a single putative class action in the Northern District of California in September 2019 (the Intuit Free File Litigation). In August 2020, the Ninth Circuit Court of Appeals ordered that the putative class action claims be resolved through arbitration. In May 2021, the Intuit Free File Litigation was dismissed on a non-class basis after we entered into an agreement that resolved the matter on an individual non-class basis, without any admission of wrongdoing, for an amount that was not material. These proceedings also include a class action lawsuit that was filed in the Ontario (Canada) Superior Court of Justice on August 25, 2022.
These proceedings also included individual demands for arbitration that were filed beginning in October 2019. As of January 31, 2023, we settled all of these arbitration claims, without any admission of wrongdoing, for an amount that was not material. In June 2021, we received a demand and draft complaint from the Federal Trade Commission (FTC) and certain state attorneys general relating to the ongoing inquiries described above. On March 29, 2022, the FTC filed an action in federal court seeking a temporary restraining order and a preliminary injunction enjoining certain Intuit business practices pending resolution of the FTC’s administrative complaint seeking to permanently enjoin certain Intuit business practices (the FTC Actions). On April 22, 2022, the Northern District of California denied the FTC’s requests for a temporary restraining order and a preliminary injunction. Beginning on March 27, 2023, a final hearing on the administrative action was held before an administrative law judge at the FTC. That hearing concluded in April 2023 and, on August 29, 2023, the FTC's administrative law judge issued an initial decision that was in favor of the FTC and was adverse to Intuit. The decision contains a proposed order that would require us to adhere to certain marketing practices if the FTC approves the order. The decision does not contain any monetary penalties. We are appealing this decision to the FTC Commissioners and, if necessary, we will then appeal to a federal court of appeals. We intend to continue to defend our position on the merits of this case. However, the defense and resolution of this matter could involve significant costs. The state attorneys general did not join the FTC Actions, and, on May 4, 2022, we entered into a settlement agreement with the attorneys general of the 50 states and the District of Columbia, admitting no wrongdoing, that resolved the states’ inquiry, as well as actions brought by the Los Angeles City Attorney and the Santa Clara County (California) Counsel. As part of this agreement, we agreed to pay $141 million and made certain commitments regarding our advertising and marketing practices. We recorded this as a one-time charge in the quarter ended April 30, 2022, and paid the full amount to the fund administrator in the quarter ended January 31, 2023.
In view of the complexity and ongoing and uncertain nature of the outstanding proceedings and inquiries, at this time we are unable to estimate a reasonably possible financial loss or range of financial loss that we may incur to resolve or settle the remaining matters.
To date, the legal and other fees we have incurred related to these proceedings and inquiries have not been material. The ongoing defense and any resolution or settlement of these proceedings and inquiries could involve significant costs to us.
Intuit is subject to certain routine legal proceedings, including class action lawsuits, as well as demands, claims, government inquiries, and threatened litigation, that arise in the normal course of our business, including assertions that we may be infringing patents or other intellectual property rights of others. Our failure to obtain necessary licenses or other rights, or litigation arising out of intellectual property claims could adversely affect our business. We currently believe that, in addition to any amounts accrued, the amount of potential losses, if any, for any pending claims of any type (either alone or combined) will
Intuit Q1 Fiscal 2024 Form 10-Q
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25 |
12. Segment Information |
We have defined our four reportable segments, described below, based on factors such as how we manage our operations and how our chief operating decision maker views results. We define the chief operating decision maker as our Chief Executive Officer and our Chief Financial Officer. Our chief operating decision maker organizes and manages our business primarily on the basis of service and product offerings.
On August 1, 2023, we reorganized certain technology functions in our Consumer and ProTax segments that support and benefit our overall platform. Additionally, certain workplace and real estate functions in our Small Business & Self-Employed segment are now managed at the corporate level. As a result of these reorganizations, costs associated with these functions are no longer included in segment operating income and are now included in other corporate expenses. For the three months ended October 31, 2022, we reclassified expenses totaling $9 million from Small Business & Self-Employed, $40 million from Consumer, and $15 million from ProTax to other corporate expenses.
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 QuickBooks offerings include financial and business management online services and desktop software, payroll solutions, time tracking, merchant payment processing and bill pay solutions, checking accounts through an FDIC member bank partner, and financing for small businesses. Our Mailchimp offerings include marketing automation and customer relationship management.
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.
Credit Karma: This segment serves consumers with a personal finance platform that provides personalized recommendations of credit card, home, auto, and personal loan, and insurance products; online savings and checking accounts through an FDIC member bank partner; and access to their credit scores and reports, credit and identity monitoring, credit report dispute, credit building tools, and tools to help understand net worth and make financial progress. Our Mint offering is a personal finance offering which helps customers track their finances and daily financial behaviors.
ProTax: 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.
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All of our segments operate primarily in the United States and sell primarily to customers in the United States. Total international net revenue was approximately 10 % of consolidated net revenue for each of the three months ended October 31, 2023 and 2022.
We include expenses such as corporate selling and marketing, product development, general and administrative, and non-employment related legal and litigation settlement costs, which are not allocated to specific segments, in unallocated corporate items as part of other corporate expenses. For our Credit Karma reportable segment, segment expenses include certain 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, goodwill and intangible asset impairment charges, and professional fees and transaction charges related to business combinations.
The accounting policies of our reportable segments are the same as those described in the summary of significant accounting policies in Note 1 to the financial statements in Part II, Item 8 of our Annual Report on Form 10-K for the fiscal year ended July 31, 2023 and in Note 1, "Description of Business and Summary of Significant Accounting Policies – Significant Accounting Policies" in this Quarterly Report on Form 10-Q. Except for goodwill and purchased intangible assets, we do not generally track assets by reportable segment and, consequently, we do not disclose total assets by reportable segment.
Intuit Q1 Fiscal 2024 Form 10-Q
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26 |
The following table shows our financial results by reportable segment for the periods indicated.
Three Months Ended | |||||||||||
(In millions) | October 31, 2023 |
October 31, 2022 |
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Net revenue: | |||||||||||
Small Business & Self-Employed | $ | $ | |||||||||
Consumer | |||||||||||
Credit Karma | |||||||||||
ProTax | |||||||||||
Total net revenue | $ | $ | |||||||||
Operating income: | |||||||||||
Small Business & Self-Employed | $ | $ | |||||||||
Consumer |