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 April 30, 20202021
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
INTUIT INC.INC.
(Exact name of registrant as specified in its charter)
| Delaware | 77-0034661 | |||||||
| (State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) | |||||||
2700 Coast Avenue,, Mountain View,, CA94043
(Address of principal executive offices, including zip code)
(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 | |||||||||||||||
| Common Stock, $0.01 par value | INTU | Nasdaq Global Select Market | |||||||||||||||
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.
| Large accelerated filer | ☑ | 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. 260,771,340273,259,266 shares of Common Stock, $0.01 par value, were outstanding at May 15, 2020.19, 2021.
| INTUIT INC. FORM 10-Q INDEX | ||
| Page | |||||
Intuit, the Intuit logo, QuickBooks, TurboTax, Mint, Lacerte, ProSeries, and Intuit ProConnect, Credit Karma, and the Credit Karma logo, 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 Q3 Fiscal | 2 | ||||||||||
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and uncertainties. These risks and uncertainties may be amplified by the coronavirus (“COVID-19”) pandemic, which has caused significant global economic instability and uncertainty. The extent to which the COVID-19 pandemic impacts Intuit’s business, operations, financial results, and financial results,condition, including the duration and magnitude of such effects, will depend on numerous evolving factors, which are highly uncertain and cannot be predicted, including, but not limited to, the duration and spread of the pandemic, its severity, the actions to contain the virus or respond to its impact, and how quickly and to what extent normal economic and operating conditions can resume. Please also see the section entitled "Risk Factors" in Item 1A of Part II of this 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 the COVID-19 pandemic 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 and other 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; stock volatility and other assumptions used to estimate the fair value of share-based compensation; 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 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, (including the purchase of Credit Karma, Inc. ("Credit Karma")), 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; and
•our assessments and beliefs regarding the future outcomedevelopments 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; and
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 Quarterly 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 we undertake no obligation to revise or update any forward-looking statement for any reason.
Intuit Q3 Fiscal | 3 | ||||||||||
| PART I - FINANCIAL INFORMATION | ||
| ITEM 1 - FINANCIAL STATEMENTS | ||
INTUIT INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) | INTUIT INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) | INTUIT INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) | ||||||||||||||||||||||||||||||||||||
| Three Months Ended | Nine Months Ended | Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||||||
| (In millions, except per share amounts) | April 30, 2020 | April 30, 2019 | April 30, 2020 | April 30, 2019 | (In millions, except per share amounts) | April 30, 2021 | April 30, 2020 | April 30, 2021 | April 30, 2020 | |||||||||||||||||||||||||||||
| Net revenue: | Net revenue: | |||||||||||||||||||||||||||||||||||||
| Product | $ | 443 | $ | 498 | $ | 1,341 | $ | 1,378 | Product | $ | 533 | $ | 443 | $ | 1,395 | $ | 1,341 | |||||||||||||||||||||
| Service and other | 2,559 | 2,774 | 4,522 | 4,412 | Service and other | 3,640 | 2,559 | 5,677 | 4,522 | |||||||||||||||||||||||||||||
| Total net revenue | 3,002 | 3,272 | 5,863 | 5,790 | Total net revenue | 4,173 | 3,002 | 7,072 | 5,863 | |||||||||||||||||||||||||||||
| Costs and expenses: | Costs and expenses: | |||||||||||||||||||||||||||||||||||||
| Cost of revenue: | Cost of revenue: | |||||||||||||||||||||||||||||||||||||
| Cost of product revenue | 16 | 19 | 57 | 60 | Cost of product revenue | 16 | 16 | 53 | 57 | |||||||||||||||||||||||||||||
| Cost of service and other revenue | 405 | 330 | 982 | 811 | Cost of service and other revenue | 565 | 405 | 1,130 | 982 | |||||||||||||||||||||||||||||
| Amortization of acquired technology | 5 | 5 | 17 | 15 | Amortization of acquired technology | 14 | 5 | 35 | 17 | |||||||||||||||||||||||||||||
| Selling and marketing | 648 | 652 | 1,624 | 1,546 | Selling and marketing | 857 | 648 | 1,799 | 1,624 | |||||||||||||||||||||||||||||
| Research and development | 332 | 311 | 999 | 900 | Research and development | 464 | 332 | 1,157 | 999 | |||||||||||||||||||||||||||||
| General and administrative | 181 | 170 | 486 | 447 | General and administrative | 289 | 181 | 708 | 486 | |||||||||||||||||||||||||||||
| Amortization of other acquired intangible assets | 2 | 1 | 5 | 4 | Amortization of other acquired intangible assets | 54 | 2 | 92 | 5 | |||||||||||||||||||||||||||||
| Total costs and expenses | 1,589 | 1,488 | 4,170 | 3,783 | Total costs and expenses | 2,259 | 1,589 | 4,974 | 4,170 | |||||||||||||||||||||||||||||
| Operating income | 1,413 | 1,784 | 1,693 | 2,007 | Operating income | 1,914 | 1,413 | 2,098 | 1,693 | |||||||||||||||||||||||||||||
| Interest expense | (2 | ) | (4 | ) | (7 | ) | (12 | ) | Interest expense | (7) | (2) | (22) | (7) | |||||||||||||||||||||||||
| Interest and other income, net | (3 | ) | 17 | 26 | 23 | |||||||||||||||||||||||||||||||||
| Interest and other income (loss), net | Interest and other income (loss), net | 14 | (3) | 77 | 26 | |||||||||||||||||||||||||||||||||
| Income before income taxes | 1,408 | 1,797 | 1,712 | 2,018 | Income before income taxes | 1,921 | 1,408 | 2,153 | 1,712 | |||||||||||||||||||||||||||||
| Income tax provision | 324 | 419 | 331 | 417 | Income tax provision | 457 | 324 | 471 | 331 | |||||||||||||||||||||||||||||
| Net income | $ | 1,084 | $ | 1,378 | $ | 1,381 | $ | 1,601 | Net income | $ | 1,464 | $ | 1,084 | $ | 1,682 | $ | 1,381 | |||||||||||||||||||||
| Basic net income per share | $ | 4.15 | $ | 5.30 | $ | 5.29 | $ | 6.16 | Basic net income per share | $ | 5.36 | $ | 4.15 | $ | 6.26 | $ | 5.29 | |||||||||||||||||||||
| Shares used in basic per share calculations | 261 | 260 | 261 | 260 | Shares used in basic per share calculations | 273 | 261 | 269 | 261 | |||||||||||||||||||||||||||||
| Diluted net income per share | $ | 4.11 | $ | 5.22 | $ | 5.24 | $ | 6.06 | Diluted net income per share | $ | 5.30 | $ | 4.11 | $ | 6.20 | $ | 5.24 | |||||||||||||||||||||
| Shares used in diluted per share calculations | 264 | 264 | 264 | 264 | Shares used in diluted per share calculations | 276 | 264 | 271 | 264 | |||||||||||||||||||||||||||||
| Cash dividends declared per common share | $ | 0.53 | $ | 0.47 | $ | 1.59 | $ | 1.41 | Cash dividends declared per common share | $ | 0.59 | $ | 0.53 | $ | 1.77 | $ | 1.59 | |||||||||||||||||||||
See accompanying notes.
Intuit Q3 Fiscal | 4 | ||||||||||
INTUIT INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited) | INTUIT INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited) | INTUIT INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited) | ||||||||||||||||||||||||||||||||||||
| Three Months Ended | Nine Months Ended | Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||||||
| (In millions) | April 30, 2020 | April 30, 2019 | April 30, 2020 | April 30, 2019 | (In millions) | April 30, 2021 | April 30, 2020 | April 30, 2021 | April 30, 2020 | |||||||||||||||||||||||||||||
| Net income | $ | 1,084 | $ | 1,378 | $ | 1,381 | $ | 1,601 | Net income | $ | 1,464 | $ | 1,084 | $ | 1,682 | $ | 1,381 | |||||||||||||||||||||
| Other comprehensive income (loss), net of income taxes: | Other comprehensive income (loss), net of income taxes: | |||||||||||||||||||||||||||||||||||||
| Unrealized gain (loss) on available-for-sale debt securities | (2 | ) | 1 | — | 2 | |||||||||||||||||||||||||||||||||
| Foreign currency translation loss | (7 | ) | (3 | ) | (8 | ) | (4 | ) | ||||||||||||||||||||||||||||||
| Total other comprehensive loss, net | (9 | ) | (2 | ) | (8 | ) | (2 | ) | ||||||||||||||||||||||||||||||
| Unrealized loss on available-for-sale debt securities | Unrealized loss on available-for-sale debt securities | (2) | (2) | (3) | 0 | |||||||||||||||||||||||||||||||||
| Foreign currency translation gain (loss) | Foreign currency translation gain (loss) | 1 | (7) | 11 | (8) | |||||||||||||||||||||||||||||||||
| Total other comprehensive income (loss), net | Total other comprehensive income (loss), net | (1) | (9) | 8 | (8) | |||||||||||||||||||||||||||||||||
| Comprehensive income | $ | 1,075 | $ | 1,376 | $ | 1,373 | $ | 1,599 | Comprehensive income | $ | 1,463 | $ | 1,075 | $ | 1,690 | $ | 1,373 | |||||||||||||||||||||
See accompanying notes.
Intuit Q3 Fiscal | 5 | ||||||||||
INTUIT INC. CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) | INTUIT INC. CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) | INTUIT INC. CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) | ||||||||||||||||
| (In millions) | April 30, 2020 | July 31, 2019 | (In millions) | April 30, 2021 | July 31, 2020 | |||||||||||||
| ASSETS | ASSETS | |||||||||||||||||
| Current assets: | Current assets: | |||||||||||||||||
| Cash and cash equivalents | $ | 3,371 | $ | 2,116 | Cash and cash equivalents | $ | 3,164 | $ | 6,442 | |||||||||
| Investments | 600 | 624 | Investments | 952 | 608 | |||||||||||||
| Accounts receivable, net | 219 | 87 | Accounts receivable, net | 554 | 149 | |||||||||||||
| Income taxes receivable | 6 | 65 | Income taxes receivable | 4 | 12 | |||||||||||||
| Prepaid expenses and other current assets | 277 | 266 | Prepaid expenses and other current assets | 305 | 314 | |||||||||||||
| Current assets before funds held for customers | 4,473 | 3,158 | Current assets before funds held for customers | 4,979 | 7,525 | |||||||||||||
| Funds held for customers | 389 | 436 | Funds held for customers | 348 | 455 | |||||||||||||
| Total current assets | 4,862 | 3,594 | Total current assets | 5,327 | 7,980 | |||||||||||||
| Long-term investments | 19 | 13 | Long-term investments | 41 | 19 | |||||||||||||
| Property and equipment, net | 745 | 780 | Property and equipment, net | 791 | 734 | |||||||||||||
| Operating lease right-of-use assets | 220 | — | Operating lease right-of-use assets | 370 | 226 | |||||||||||||
| Goodwill | 1,653 | 1,655 | Goodwill | 5,614 | 1,654 | |||||||||||||
| Acquired intangible assets, net | 34 | 54 | Acquired intangible assets, net | 3,321 | 28 | |||||||||||||
| Long-term deferred income taxes | Long-term deferred income taxes | 7 | 65 | |||||||||||||||
| Other assets | 231 | 187 | Other assets | 287 | 225 | |||||||||||||
| Total assets | $ | 7,764 | $ | 6,283 | Total assets | $ | 15,758 | $ | 10,931 | |||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||||||||
| Current liabilities: | Current liabilities: | |||||||||||||||||
| Short-term debt | $ | 350 | $ | 50 | Short-term debt | $ | 0 | $ | 1,338 | |||||||||
| Accounts payable | 384 | 274 | Accounts payable | 601 | 305 | |||||||||||||
| Accrued compensation and related liabilities | 348 | 385 | Accrued compensation and related liabilities | 476 | 482 | |||||||||||||
| Deferred revenue | 632 | 619 | Deferred revenue | 650 | 652 | |||||||||||||
| Income taxes payable | 325 | 4 | Income taxes payable | 218 | 11 | |||||||||||||
| Other current liabilities | 285 | 198 | Other current liabilities | 419 | 286 | |||||||||||||
| Current liabilities before customer fund deposits | 2,324 | 1,530 | Current liabilities before customer fund deposits | 2,364 | 3,074 | |||||||||||||
| Customer fund deposits | 389 | 436 | Customer fund deposits | 348 | 455 | |||||||||||||
| Total current liabilities | 2,713 | 1,966 | Total current liabilities | 2,712 | 3,529 | |||||||||||||
| Long-term debt | 48 | 386 | Long-term debt | 2,033 | 2,031 | |||||||||||||
| Long-term deferred income tax liabilities | 22 | 37 | Long-term deferred income tax liabilities | 637 | 2 | |||||||||||||
| Operating lease liabilities | 215 | — | Operating lease liabilities | 365 | 221 | |||||||||||||
| Other long-term obligations | 26 | 145 | Other long-term obligations | 56 | 42 | |||||||||||||
| Total liabilities | 3,024 | 2,534 | Total liabilities | 5,803 | 5,825 | |||||||||||||
| Commitments and contingencies | Commitments and contingencies | 0 | 0 | |||||||||||||||
| Stockholders’ equity: | Stockholders’ equity: | |||||||||||||||||
| Preferred stock | — | — | Preferred stock | 0 | 0 | |||||||||||||
| Common stock and additional paid-in capital | 6,132 | 5,775 | Common stock and additional paid-in capital | 10,382 | 6,182 | |||||||||||||
| Treasury stock, at cost | (11,929 | ) | (11,611 | ) | Treasury stock, at cost | (12,484) | (11,929) | |||||||||||
| Accumulated other comprehensive loss | (44 | ) | (36 | ) | Accumulated other comprehensive loss | (24) | (32) | |||||||||||
| Retained earnings | 10,581 | 9,621 | Retained earnings | 12,081 | 10,885 | |||||||||||||
| Total stockholders’ equity | 4,740 | 3,749 | Total stockholders’ equity | 9,955 | 5,106 | |||||||||||||
| Total liabilities and stockholders’ equity | $ | 7,764 | $ | 6,283 | Total liabilities and stockholders’ equity | $ | 15,758 | $ | 10,931 | |||||||||
See accompanying notes
Intuit Q3 Fiscal | 6 | ||||||||||
.
INTUIT INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (unaudited) | |||||||||||||||||||||||||||||||||||
| Three Months Ended April 30, 2021 | |||||||||||||||||||||||||||||||||||
| (In millions, except 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 January 31, 2021 | 273,961 | $ | 10,212 | $ | (12,104) | $ | (23) | $ | 10,783 | $ | 8,868 | ||||||||||||||||||||||||
| Comprehensive income | — | — | — | (1) | 1,464 | 1,463 | |||||||||||||||||||||||||||||
| Issuance of stock under employee stock plans, net of shares withheld for employee taxes | 423 | (48) | — | — | — | (48) | |||||||||||||||||||||||||||||
| Stock repurchases under stock repurchase programs | (954) | — | (380) | — | — | (380) | |||||||||||||||||||||||||||||
| Dividends and dividend rights declared ($0.59 per share) | — | — | — | — | (166) | (166) | |||||||||||||||||||||||||||||
| Share-based compensation expense | — | 218 | — | — | — | 218 | |||||||||||||||||||||||||||||
| Balance at April 30, 2021 | 273,430 | $ | 10,382 | $ | (12,484) | $ | (24) | $ | 12,081 | $ | 9,955 | ||||||||||||||||||||||||
| Three Months Ended April 30, 2020 | Nine Months Ended April 30, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (In millions, except 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 | (In millions, except 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 January 31, 2020 | 260,517 | $ | 6,014 | $ | (11,889 | ) | $ | (35 | ) | $ | 9,637 | $ | 3,727 | ||||||||||||||||||||||||||||||||||||||||||||
| Balance at July 31, 2020 | Balance at July 31, 2020 | 261,740 | $ | 6,182 | $ | (11,929) | $ | (32) | $ | 10,885 | $ | 5,106 | |||||||||||||||||||||||||||||||||||||||||||||
| Comprehensive income | — | — | — | (9 | ) | 1,084 | 1,075 | Comprehensive income | — | — | — | 8 | 1,682 | 1,690 | |||||||||||||||||||||||||||||||||||||||||||
| Issuance of stock under employee stock plans, net of shares withheld for employee taxes | 369 | 14 | — | — | 14 | Issuance of stock under employee stock plans, net of shares withheld for employee taxes | 1,790 | (108) | — | — | — | (108) | |||||||||||||||||||||||||||||||||||||||||||||
| Stock repurchases under stock repurchase programs | (137 | ) | — | (40 | ) | — | — | (40 | ) | Stock repurchases under stock repurchase programs | (1,424) | — | (555) | — | — | (555) | |||||||||||||||||||||||||||||||||||||||||
| Dividends and dividend rights declared ($0.53 per share) | — | — | — | — | (140 | ) | (140 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends and dividend rights declared ($1.77 per share) | Dividends and dividend rights declared ($1.77 per share) | — | — | — | — | (486) | (486) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation expense | — | 104 | — | — | — | 104 | Share-based compensation expense | — | 510 | — | — | — | 510 | ||||||||||||||||||||||||||||||||||||||||||||
| Balance at April 30, 2020 | 260,749 | $ | 6,132 | $ | (11,929 | ) | $ | (44 | ) | $ | 10,581 | $ | 4,740 | ||||||||||||||||||||||||||||||||||||||||||||
| Issuance of stock in business combination | Issuance of stock in business combination | 11,324 | 3,798 | — | — | — | 3,798 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at April 30, 2021 | Balance at April 30, 2021 | 273,430 | $ | 10,382 | $ | (12,484) | $ | (24) | $ | 12,081 | $ | 9,955 | |||||||||||||||||||||||||||||||||||||||||||||
| Three Months Ended April 30, 2020 | |||||||||||||||||||||||||||||||||||
| (In millions, except 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 January 31, 2020 | 260,517 | $ | 6,014 | $ | (11,889) | $ | (35) | $ | 9,637 | $ | 3,727 | ||||||||||||||||||||||||
| Comprehensive income | — | — | — | (9) | 1,084 | 1,075 | |||||||||||||||||||||||||||||
| Issuance of stock under employee stock plans, net of shares withheld for employee taxes | 369 | 14 | — | — | — | 14 | |||||||||||||||||||||||||||||
| Stock repurchases under stock repurchase programs | (137) | — | (40) | — | — | (40) | |||||||||||||||||||||||||||||
| Dividends and dividend rights declared ($0.53 per share) | — | — | — | — | (140) | (140) | |||||||||||||||||||||||||||||
| Share-based compensation expense | — | 104 | — | — | — | 104 | |||||||||||||||||||||||||||||
| Balance at April 30, 2020 | 260,749 | $ | 6,132 | $ | (11,929) | $ | (44) | $ | 10,581 | $ | 4,740 | ||||||||||||||||||||||||
| Nine Months Ended April 30, 2020 | ||||||||||||||||||||||
| (In millions, except 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, 2019 | 260,180 | $ | 5,775 | $ | (11,611 | ) | $ | (36 | ) | $ | 9,621 | $ | 3,749 | |||||||||
| Comprehensive income | — | — | — | (8 | ) | 1,381 | 1,373 | |||||||||||||||
| Issuance of stock under employee stock plans, net of shares withheld for employee taxes | 1,745 | 33 | — | — | 33 | |||||||||||||||||
| Stock repurchases under stock repurchase programs | (1,176 | ) | — | (318 | ) | — | — | (318 | ) | |||||||||||||
| Dividends and dividend rights declared ($1.59 per share) | — | — | — | — | (421 | ) | (421 | ) | ||||||||||||||
| Share-based compensation expense | — | 324 | — | — | — | 324 | ||||||||||||||||
| Balance at April 30, 2020 | 260,749 | $ | 6,132 | $ | (11,929 | ) | $ | (44 | ) | $ | 10,581 | $ | 4,740 | |||||||||
| Three Months Ended April 30, 2019 | ||||||||||||||||||||||
| (In millions, except 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 January 31, 2019 | 259,110 | $ | 5,623 | $ | (11,328 | ) | $ | (36 | ) | $ | 8,537 | $ | 2,796 | |||||||||
| Comprehensive income | — | — | — | (2 | ) | 1,378 | 1,376 | |||||||||||||||
| Issuance of stock under employee stock plans, net of shares withheld for employee taxes | 767 | 60 | — | — | 60 | |||||||||||||||||
| Stock repurchases under stock repurchase programs | (543 | ) | — | (135 | ) | — | — | (135 | ) | |||||||||||||
| Dividends and dividend rights declared ($0.47 per share) | — | — | — | — | (126 | ) | (126 | ) | ||||||||||||||
| Share-based compensation expense | — | 99 | — | — | — | 99 | ||||||||||||||||
| Balance at April 30, 2019 | 259,334 | $ | 5,782 | $ | (11,463 | ) | $ | (38 | ) | $ | 9,789 | $ | 4,070 | |||||||||
| Nine Months Ended April 30, 2019 | Nine Months Ended April 30, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (In millions, except 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 | (In millions, except 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, 2018 | 258,616 | $ | 5,338 | $ | (11,050 | ) | $ | (36 | ) | $ | 8,564 | $ | 2,816 | ||||||||||||||||||||||||||||||||||||||||||||
| Balance at July 31, 2019 | Balance at July 31, 2019 | 260,180 | $ | 5,775 | $ | (11,611) | $ | (36) | $ | 9,621 | $ | 3,749 | |||||||||||||||||||||||||||||||||||||||||||||
| Comprehensive income | — | — | — | (2 | ) | 1,601 | 1,599 | Comprehensive income | — | — | — | (8) | 1,381 | 1,373 | |||||||||||||||||||||||||||||||||||||||||||
| Issuance of stock under employee stock plans, net of shares withheld for employee taxes | 2,603 | 138 | — | — | 138 | Issuance of stock under employee stock plans, net of shares withheld for employee taxes | 1,745 | 33 | — | — | — | 33 | |||||||||||||||||||||||||||||||||||||||||||||
| Stock repurchases under stock repurchase programs | (1,885 | ) | — | (413 | ) | — | — | (413 | ) | Stock repurchases under stock repurchase programs | (1,176) | — | (318) | — | — | (318) | |||||||||||||||||||||||||||||||||||||||||
| Dividends and dividend rights declared ($1.41 per share) | — | — | — | — | (376 | ) | (376 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends and dividend rights declared ($1.59 per share) | Dividends and dividend rights declared ($1.59 per share) | — | — | — | — | (421) | (421) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation expense | — | 306 | — | — | — | 306 | Share-based compensation expense | — | 324 | — | — | — | 324 | ||||||||||||||||||||||||||||||||||||||||||||
| Balance at April 30, 2019 | 259,334 | $ | 5,782 | $ | (11,463 | ) | $ | (38 | ) | $ | 9,789 | $ | 4,070 | ||||||||||||||||||||||||||||||||||||||||||||
| Balance at April 30, 2020 | Balance at April 30, 2020 | 260,749 | $ | 6,132 | $ | (11,929) | $ | (44) | $ | 10,581 | $ | 4,740 | |||||||||||||||||||||||||||||||||||||||||||||
See accompanying notes.
Intuit Q3 Fiscal | 7 | ||||||||||
INTUIT INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) | |||||||
| Nine Months Ended | |||||||
| (In millions) | April 30, 2020 | April 30, 2019 | |||||
| Cash flows from operating activities: | |||||||
| Net income | $ | 1,381 | $ | 1,601 | |||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
| Depreciation | 145 | 147 | |||||
| Amortization of acquired intangible assets | 23 | 19 | |||||
| Non-cash operating lease cost | 46 | — | |||||
| Share-based compensation expense | 321 | 303 | |||||
| Deferred income taxes | (102 | ) | (44 | ) | |||
| Other | 22 | 12 | |||||
| Total adjustments | 455 | 437 | |||||
| Changes in operating assets and liabilities: | |||||||
| Accounts receivable | (132 | ) | (165 | ) | |||
| Income taxes receivable | 58 | 67 | |||||
| Prepaid expenses and other assets | (55 | ) | (30 | ) | |||
| Accounts payable | 111 | 205 | |||||
| Accrued compensation and related liabilities | (32 | ) | (55 | ) | |||
| Deferred revenue | 15 | (7 | ) | ||||
| Income taxes payable | 322 | 334 | |||||
| Operating lease liabilities | (42 | ) | — | ||||
| Other liabilities | 46 | 59 | |||||
| Total changes in operating assets and liabilities | 291 | 408 | |||||
| Net cash provided by operating activities | 2,127 | 2,446 | |||||
| Cash flows from investing activities: | |||||||
| Purchases of corporate and customer fund investments | (487 | ) | (379 | ) | |||
| Sales of corporate and customer fund investments | 105 | 60 | |||||
| Maturities of corporate and customer fund investments | 408 | 175 | |||||
| Purchases of property and equipment | (107 | ) | (129 | ) | |||
| Originations of term loans to small businesses | (240 | ) | (235 | ) | |||
| Principal repayments of term loans from small businesses | 229 | 188 | |||||
| Other | (19 | ) | 3 | ||||
| Net cash used in investing activities | (111 | ) | (317 | ) | |||
| Cash flows from financing activities: | |||||||
| Proceeds from borrowings under secured revolving credit facility | — | 48 | |||||
| Repayment of debt | (38 | ) | (38 | ) | |||
| Proceeds from issuance of stock under employee stock plans | 160 | 231 | |||||
| Payments for employee taxes withheld upon vesting of restricted stock units | (128 | ) | (93 | ) | |||
| Cash paid for purchases of treasury stock | (323 | ) | (408 | ) | |||
| Dividends and dividend rights paid | (419 | ) | (374 | ) | |||
| Net change in customer fund deposits | (47 | ) | 16 | ||||
| Other | (1 | ) | (7 | ) | |||
| Net cash used in financing activities | (796 | ) | (625 | ) | |||
INTUIT INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) | |||||||||||
| Nine Months Ended | |||||||||||
| (In millions) | April 30, 2021 | April 30, 2020 | |||||||||
| Cash flows from operating activities: | |||||||||||
| Net income | $ | 1,682 | $ | 1,381 | |||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Depreciation | 122 | 145 | |||||||||
| Amortization of acquired intangible assets | 128 | 23 | |||||||||
| Non-cash operating lease cost | 45 | 46 | |||||||||
| Share-based compensation expense | 509 | 321 | |||||||||
| Deferred income taxes | 69 | (102) | |||||||||
| Other | (49) | 22 | |||||||||
| Total adjustments | 824 | 455 | |||||||||
| Originations of loans held for sale | (41) | 0 | |||||||||
| Sale and principal payments of loans held for sale | 144 | 0 | |||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Accounts receivable | (267) | (132) | |||||||||
| Income taxes receivable | 68 | 58 | |||||||||
| Prepaid expenses and other assets | (7) | (55) | |||||||||
| Accounts payable | 194 | 111 | |||||||||
| Accrued compensation and related liabilities | (122) | (32) | |||||||||
| Deferred revenue | (13) | 15 | |||||||||
| Income taxes payable | 206 | 322 | |||||||||
| Operating lease liabilities | (45) | (42) | |||||||||
| Other liabilities | 85 | 46 | |||||||||
| Total changes in operating assets and liabilities | 99 | 291 | |||||||||
| Net cash provided by operating activities | 2,708 | 2,127 | |||||||||
| Cash flows from investing activities: | |||||||||||
| Purchases of corporate and customer fund investments | (904) | (487) | |||||||||
| Sales of corporate and customer fund investments | 152 | 105 | |||||||||
| Maturities of corporate and customer fund investments | 401 | 408 | |||||||||
| Purchases of property and equipment | (101) | (107) | |||||||||
| Acquisitions of businesses, net of cash acquired | (3,064) | 0 | |||||||||
| Originations of term loans to small businesses | (135) | (240) | |||||||||
| Principal repayments of term loans from small businesses | 86 | 229 | |||||||||
| Other | 37 | (19) | |||||||||
| Net cash used in investing activities | (3,528) | (111) | |||||||||
| Cash flows from financing activities: | |||||||||||
| Repayments on borrowings under unsecured revolving credit facility | (1,000) | 0 | |||||||||
| Repayment of debt | (338) | (38) | |||||||||
| Proceeds from issuance of stock under employee stock plans | 137 | 160 | |||||||||
| Payments for employee taxes withheld upon vesting of restricted stock units | (245) | (128) | |||||||||
| Cash paid for purchases of treasury stock | (542) | (323) | |||||||||
| Dividends and dividend rights paid | (482) | (419) | |||||||||
| Net change in customer fund deposits | (107) | (47) | |||||||||
| Other | (2) | (1) | |||||||||
Intuit Q3 Fiscal | 8 | ||||||||||
| Effect of exchange rates on cash, cash equivalents, restricted cash, and restricted cash equivalents | (12 | ) | (6 | ) | |||
| Net increase in cash, cash equivalents, restricted cash, and restricted cash equivalents | 1,208 | 1,498 | |||||
| Cash, cash equivalents, restricted cash, and restricted cash equivalents at beginning of period | 2,352 | 1,631 | |||||
| Cash, cash equivalents, restricted cash, and restricted cash equivalents at end of period | $ | 3,560 | $ | 3,129 | |||
| 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 | $ | 3,371 | $ | 2,946 | |||
| Restricted cash and restricted cash equivalents included in funds held for customers | 189 | 183 | |||||
| Total cash, cash equivalents, restricted cash, and restricted cash equivalents at end of period | $ | 3,560 | $ | 3,129 | |||
| Net cash used in financing activities | (2,579) | (796) | |||||||||
| Effect of exchange rates on cash, cash equivalents, restricted cash, and restricted cash equivalents | 14 | (12) | |||||||||
| Net increase (decrease) in cash, cash equivalents, restricted cash, and restricted cash equivalents | (3,385) | 1,208 | |||||||||
| Cash, cash equivalents, restricted cash, and restricted cash equivalents at beginning of period | 6,697 | 2,352 | |||||||||
| Cash, cash equivalents, restricted cash, and restricted cash equivalents at end of period | $ | 3,312 | $ | 3,560 | |||||||
| 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 | $ | 3,164 | $ | 3,371 | |||||||
| Restricted cash and restricted cash equivalents included in funds held for customers | 148 | 189 | |||||||||
| Total cash, cash equivalents, restricted cash, and restricted cash equivalents at end of period | $ | 3,312 | $ | 3,560 | |||||||
| Supplemental schedule of non-cash investing activities: | |||||||||||
| Issuance of common stock in a business combination | $ | 3,798 | $ | 0 | |||||||
See accompanying notes.
Intuit Q3 Fiscal | 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, 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.
Our flagship brands, QuickBooks, TurboTax, and Mint, help customers run their small businesses, pay employees and send invoices, separate business and personal expenses, track their money, and file income taxes. ProSeries and Lacerte are our leading tax preparation offerings for professional accountants. On December 3, 2020 we acquired Credit Karma, Inc. (Credit Karma), a consumer technology platform that enables us to provide personalized financial offers to members including credit cards, loans, insurance, and savings and checking accounts. 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 significant 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.
On December 3, 2020 we acquired Credit Karma, a decreaseconsumer technology platform. We have included the results of operations for Credit Karma in net cash used in financing activities withour condensed consolidated statements of operations from the date of acquisition. Credit Karma operates as a corresponding offset to net cash used in investing activities.separate reportable segment. 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, 2019.2020. Results for the nine months ended April 30, 20202021 do not necessarily indicate the results we expect for the fiscal year ending July 31, 20202021 or any other future period.
| Seasonality | ||
Due to the COVID-19 pandemic, the Internal Revenue Service extendedtiming of tax filing seasons for fiscal 2021 and fiscal 2020 varied significantly. In fiscal 2020, the IRS began accepting returns on January 27, 2020 and the tax filing deadline for the 2019 tax year from April 15, 2020 towas July 15, 2020. Additionally, all states with a personal incomeIn fiscal 2021, the IRS began accepting returns on February 12, 2021 and the tax have also extended their due dates, predominantly to July. As a result,filing deadline was May 17, 2021. The inconsistent tax filing seasons during fiscal 2021 and 2020 impacted our revenue and results of operations for the seasonal pattern for fiscal 2020 will be different than what we have historically experienced.
three and nine months ended April 30, 2021 and April 30, 2020.
| Significant Accounting Policies | ||
We describe 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, 2019.2020. See the discussion of changes to our lease accounting policy for revenue recognition due to the acquisition of Credit Karma below and the adoption of ASC 842, the new leases standard,accounting pronouncements in "Accounting Standards Recently Adopted" below.There have been no other changes to our significant accounting policies during the first nine months of fiscal 2020.
Intuit Q3 Fiscal | 10 | ||||||||||
Cost-per-click and cost-per-lead revenue is primarily related to mortgage and insurance businesses. Cost-per-click revenue is earned as users click on our customers' advertisements and is recognized based on the present valuenumber of clicks recorded each month. Cost-per-lead revenue is earned via customer advertisements that allow the future minimum lease payments overgeneration of leads from consumers interested in the lease term. Our leases generally do not have a readily determinable implicit rate, therefore we use our incremental borrowing rateadvertised products and is recognized at the commencement date in determining the present value of future payments. Our incremental borrowing ratetime a consumer request or lead is determined based on a yield curve derived from publicly traded bond offerings for companies with similar credit ratings to us. Our lease terms may include options to purchase, extend or terminate the lease when it is reasonably certain that we will exercise that option. We account for the lease and non-lease components as a single lease component.
customer.
| Use of Estimates | ||
In preparing our condensed consolidated financial statements in accordance with U.S. generally accepted accounting principles (GAAP), we make certain judgments, estimates, and assumptions that affect the amounts reported in our financial statements and the disclosures made in the accompanying notes. For example, we use judgments and estimates in determining how revenue should be recognized. These judgments and estimates include identifying performance obligations, determining if the performance obligations are distinct, determining the standalone sales price (SSP) and timing of revenue recognition for each distinct performance obligation, and estimating variable consideration to be included in the transaction price. We use estimates in determining the collectibility of accounts receivable and notes receivable, the appropriate levels of various accruals including accruals for litigation contingencies, the discount rate used to calculate lease liabilities, the amount of our worldwide tax provision, and the realizability of deferred tax assets.assets, the credit losses of available-for-sale debt securities, and the fair value of assets acquired and liabilities assumed for business combinations. We also use estimates in determining the remaining economic lives and fair values of acquired intangible assets, property and equipment, and other long-lived assets. In addition, we use assumptions to estimate the fair value of reporting units and share-based compensation. Despite our intention to establish accurate estimates and use reasonable assumptions, actual results may differ from our estimates. Additionally, in the context of the ongoing global COVID-19 pandemic, while there washas been no material impact toon our estimates in the current period,to date, in future periods, facts and circumstances could change and impact our estimates.
| Computation of Net Income (Loss) 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 Q3 Fiscal | 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 | Nine Months Ended | ||||||||||||||
| (In millions, except per share amounts) | April 30, 2020 | April 30, 2019 | April 30, 2020 | April 30, 2019 | |||||||||||
| Numerator: | |||||||||||||||
| Net income | $ | 1,084 | $ | 1,378 | $ | 1,381 | $ | 1,601 | |||||||
| Denominator: | |||||||||||||||
| Shares used in basic per share amounts: | |||||||||||||||
| Weighted average common shares outstanding | 261 | 260 | 261 | 260 | |||||||||||
| Shares used in diluted per share amounts: | |||||||||||||||
| Weighted average common shares outstanding | 261 | 260 | 261 | 260 | |||||||||||
| Dilutive common equivalent shares from stock options | |||||||||||||||
| and restricted stock awards | 3 | 4 | 3 | 4 | |||||||||||
| Dilutive weighted average common shares outstanding | 264 | 264 | 264 | 264 | |||||||||||
| Basic and diluted net income per share: | |||||||||||||||
| Basic net income per share | $ | 4.15 | $ | 5.30 | $ | 5.29 | $ | 6.16 | |||||||
| Diluted net income per share | $ | 4.11 | $ | 5.22 | $ | 5.24 | $ | 6.06 | |||||||
| 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 | — | 1 | — | 1 | |||||||||||
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| (In millions, except per share amounts) | April 30, 2021 | April 30, 2020 | April 30, 2021 | April 30, 2020 | |||||||||||||||||||
| Numerator: | |||||||||||||||||||||||
| Net income | $ | 1,464 | $ | 1,084 | $ | 1,682 | $ | 1,381 | |||||||||||||||
| Denominator: | |||||||||||||||||||||||
| Shares used in basic per share amounts: | |||||||||||||||||||||||
| Weighted average common shares outstanding | 273 | 261 | 269 | 261 | |||||||||||||||||||
| Shares used in diluted per share amounts: | |||||||||||||||||||||||
| Weighted average common shares outstanding | 273 | 261 | 269 | 261 | |||||||||||||||||||
| Dilutive common equivalent shares from stock options | |||||||||||||||||||||||
| and restricted stock awards | 3 | 3 | 2 | 3 | |||||||||||||||||||
| Dilutive weighted average common shares outstanding | 276 | 264 | 271 | 264 | |||||||||||||||||||
| Basic and diluted net income per share: | |||||||||||||||||||||||
| Basic net income per share | $ | 5.36 | $ | 4.15 | $ | 6.26 | $ | 5.29 | |||||||||||||||
| Diluted net income per share | $ | 5.30 | $ | 4.11 | $ | 6.20 | $ | 5.24 | |||||||||||||||
| 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 | 0 | 0 | 0 | 0 | |||||||||||||||||||
| Deferred Revenue | ||
Our performance obligations are generally satisfied within 12 months of the initial contract date. As of April 30, 20202021 and July 31, 2019,2020, the deferred revenue balance related to performance obligations that will be satisfied after 12 months was $6$7 million and $4$13 million, respectively, and is included in other long-term obligations on our condensed consolidated balance sheets.
| Notes Receivable and Allowances for Loan Losses | ||
Notes receivable held for investment consist of term loans to small businesses and are included in prepaid expenses and other current assets and other assets on our condensed consolidated balance sheets. As of April 30, 20202021 and July 31, 2019,2020, the notes receivable balance was $89balances were $93 million and $95$40 million, respectively, and the allowances for loan losses were not material. The term loans are not secured and are recorded at amortized cost, net of allowances for loan losses. We maintain an allowance for loan losses to reserve for potentially uncollectible notes receivable. We evaluate the creditworthiness of our loan portfolio on a pooled basis due to its composition of small, homogeneous loans with similar general credit risk and characteristics and apply a loss rate at the time of loan origination. The loss rate and underlying model are updated periodically to reflect actual loan performance and changes in assumptions. We make judgments about the known and inherent risks in the loan portfolio, adverse situations that may affect borrowers’ ability to repay and current economic conditions. When we determine that amounts are uncollectible, we write them off against the allowance.
Paycheck Protection Program – In April 2020, Intuit was approved as a non-bank Small Business Administration (SBA) lender for the Paycheck Protection Program (PPP). The PPP was authorized under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) to provide small businesses loans to pay payroll and group health costs, salaries and commissions, mortgage and rent payments, utilities, and interest on other debt which is designed to provide assistance to small businesses during the COVID-19 pandemic. Lending under the program expired on August 8, 2020. All of the loans held for sale under this program have been sold. When loans under this program do not qualify to be sold, they are held for investment. As of April 30, 2021 and July 31, 2020, the amountsPPP loans held for investment were not material and are included in the notes receivable balanceprepaid expenses and other current assets and other assets on our condensed consolidated balance sheet were insignificant.
Intuit Q3 Fiscal | 12 | ||||||||||
| Concentration of Credit Risk and Significant Customers | ||
No customer accounted for 10% or more of total net revenue in the three or nine months ended April 30, 20202021 or April 30, 2019.2020. No customer accounted for 10% or more of gross accounts receivable at April 30, 20202021 or July 31, 2019.2020.
| Accounting Standards Recently Adopted | ||
Goodwill Impairment -– In January 2017 the FASB issued ASU 2017-04, “Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.” This standard eliminates Step 2 from the goodwill impairment test. Instead, an entity should compare the fair value of a reporting unit with its carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value, not to exceed the total amount of goodwill allocated to the reporting unit. TheWe adopted this standard is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, which means that it will be effective for us in the first quarter of our fiscal year beginning August 1, 2020. Early2020 on a prospective basis and will apply the guidance during our annual goodwill impairment test for the year ending July 31, 2021. The adoption is permitted. We are currently evaluating thedid not have a material impact of our pending adoption of ASU 2017-04 on our condensed consolidated financial statements.
Financial Instruments -– In June 2016 the FASB issued ASU 2016-13, “Financial Instruments—Credit Losses (Topic 326).” This standard requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. TheWe adopted this standard is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, which means that it will be effective for us in the first quarter of our fiscal year beginning August 1, 2020. EarlierThe adoption is permitted in the first quarter of our fiscal year beginning August 1, 2019. We are currently evaluating thedid not have a material impact of our pending adoption of ASU 2016-13 on our condensed consolidated 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.
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.
•Level 3 uses one or more unobservable inputs that are supported by little or no market activity and that are significant to the determination of fair value. Level 3 assets and liabilities include those whose fair values are determined using pricing models, discounted cash flow methodologies or similar valuation techniques and significant management judgment or estimation.
| 13 | |||||
| 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.
| April 30, 2021 | July 31, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||
| (In millions) | Level 1 | Level 2 | Total Fair Value | Level 1 | Level 2 | Total Fair Value | |||||||||||||||||||||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||||||||||||||||||||||||||
| Cash equivalents, primarily money market funds and time deposits | $ | 2,090 | $ | 0 | $ | 2,090 | $ | 5,765 | $ | 0 | $ | 5,765 | |||||||||||||||||||||||||||||||||||
| Available-for-sale debt securities: | |||||||||||||||||||||||||||||||||||||||||||||||
| Municipal bonds | 0 | 34 | 34 | 0 | 9 | 9 | |||||||||||||||||||||||||||||||||||||||||
| Corporate notes | 0 | 1,061 | 1,061 | 0 | 752 | 752 | |||||||||||||||||||||||||||||||||||||||||
| U.S. agency securities | 0 | 57 | 57 | 0 | 47 | 47 | |||||||||||||||||||||||||||||||||||||||||
| Total available-for-sale debt securities | 0 | 1,152 | 1,152 | 0 | 808 | 808 | |||||||||||||||||||||||||||||||||||||||||
| Total assets measured at fair value on a recurring basis | $ | 2,090 | $ | 1,152 | $ | 3,242 | $ | 5,765 | $ | 808 | $ | 6,573 | |||||||||||||||||||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||||||||||||||||||||||||||
Senior unsecured notes(1) | $ | 0 | $ | 1,980 | $ | 1,980 | $ | 0 | $ | 2,042 | $ | 2,042 | |||||||||||||||||||||||||||||||||||
| April 30, 2020 | July 31, 2019 | ||||||||||||||||||||||
| (In millions) | Level 1 | Level 2 | Total Fair Value | Level 1 | Level 2 | Total Fair Value | |||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Cash equivalents, primarily time deposits, savings deposit accounts, and money market funds | $ | 2,157 | $ | — | $ | 2,157 | $ | 1,647 | $ | — | $ | 1,647 | |||||||||||
| Available-for-sale debt securities: | |||||||||||||||||||||||
| Municipal bonds | — | 8 | 8 | — | 5 | 5 | |||||||||||||||||
| Corporate notes | — | 765 | 765 | — | 800 | 800 | |||||||||||||||||
| U.S. agency securities | — | 27 | 27 | — | 19 | 19 | |||||||||||||||||
| Total available-for-sale debt securities | — | 800 | 800 | — | 824 | 824 | |||||||||||||||||
| Total assets measured at fair value on a recurring basis | $ | 2,157 | $ | 800 | $ | 2,957 | $ | 1,647 | $ | 824 | $ | 2,471 | |||||||||||
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.
| April 30, 2020 | July 31, 2019 | ||||||||||||||||||||||
| (In millions) | Level 1 | Level 2 | Total Fair Value | Level 1 | Level 2 | Total Fair Value | |||||||||||||||||
| Cash equivalents: | |||||||||||||||||||||||
| In cash and cash equivalents | $ | 2,157 | $ | — | $ | 2,157 | $ | 1,647 | $ | — | $ | 1,647 | |||||||||||
| In funds held for customers | — | — | — | — | — | — | |||||||||||||||||
| Total cash equivalents | $ | 2,157 | $ | — | $ | 2,157 | $ | 1,647 | $ | — | $ | 1,647 | |||||||||||
| Available-for-sale debt securities: | |||||||||||||||||||||||
| In investments | $ | — | $ | 600 | $ | 600 | $ | — | $ | 624 | $ | 624 | |||||||||||
| In funds held for customers | — | 200 | 200 | — | 200 | 200 | |||||||||||||||||
| Total available-for-sale debt securities | $ | — | $ | 800 | $ | 800 | $ | — | $ | 824 | $ | 824 | |||||||||||
| April 30, 2021 | July 31, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||
| (In millions) | Level 1 | Level 2 | Total Fair Value | Level 1 | Level 2 | Total Fair Value | |||||||||||||||||||||||||||||||||||||||||
| Cash equivalents: | |||||||||||||||||||||||||||||||||||||||||||||||
| In cash and cash equivalents | $ | 2,090 | $ | 0 | $ | 2,090 | $ | 5,765 | $ | 0 | $ | 5,765 | |||||||||||||||||||||||||||||||||||
| Available-for-sale debt securities: | |||||||||||||||||||||||||||||||||||||||||||||||
| In investments | $ | 0 | $ | 952 | $ | 952 | $ | 0 | $ | 608 | $ | 608 | |||||||||||||||||||||||||||||||||||
| In funds held for customers | 0 | 200 | 200 | 0 | 200 | 200 | |||||||||||||||||||||||||||||||||||||||||
| Total available-for-sale debt securities | $ | 0 | $ | 1,152 | $ | 1,152 | $ | 0 | $ | 808 | $ | 808 | |||||||||||||||||||||||||||||||||||
We value our Level 1 assets, consisting primarily of time deposits, savings deposit accounts, and 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 municipal bonds, 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 that are 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 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.
There were no transfers between Level 1 and Level 2 of the fair value hierarchy during the nine months ended April 30, 2020.
Intuit Q3 Fiscal 2021 Form 10-Q | 14 | ||||||||||
| 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 based on valuation methods which may include a combination of the observable transaction price at the transaction date and other unobservable inputs including volatility, rights, and obligations of the investments we hold. As of April 30, 2021 and July 31, 2020, the carrying value of long-term investments was $41 million and $19 million, respectively, and adjustments to the carrying value of these investments for the nine months ended April 30, 2021 were not significant.
| 3. Cash and Cash Equivalents, Investments, and Funds 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 time deposits, savings deposit accounts, and money market funds.funds and time deposits. Investments consist primarily of investment-grade available-for-sale debt securities. Funds held for customers represent 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. 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 held for customers by balance sheet classification at the dates indicated.
| April 30, 2020 | July 31, 2019 | ||||||||||||||
| (In millions) | Amortized Cost | Fair Value | Amortized Cost | Fair Value | |||||||||||
| Classification on condensed consolidated balance sheets: | |||||||||||||||
| Cash and cash equivalents | $ | 3,371 | $ | 3,371 | $ | 2,116 | $ | 2,116 | |||||||
| Investments | 597 | 600 | 622 | 624 | |||||||||||
| Funds held for customers | 388 | 389 | 436 | 436 | |||||||||||
| Long-term investments | 19 | 19 | 13 | 13 | |||||||||||
Total cash and cash equivalents, investments, and funds held for customers | $ | 4,375 | $ | 4,379 | $ | 3,187 | $ | 3,189 | |||||||
| April 30, 2021 | July 31, 2020 | ||||||||||||||||||||||
| (In millions) | Amortized Cost | Fair Value | Amortized Cost | Fair Value | |||||||||||||||||||
| Classification on condensed consolidated balance sheets: | |||||||||||||||||||||||
| Cash and cash equivalents | $ | 3,164 | $ | 3,164 | $ | 6,442 | $ | 6,442 | |||||||||||||||
| Investments | 948 | 952 | 600 | 608 | |||||||||||||||||||
| Funds held for customers | 347 | 348 | 455 | 455 | |||||||||||||||||||
| Total cash and cash equivalents, investments, and funds held for customers | $ | 4,459 | $ | 4,464 | $ | 7,497 | $ | 7,505 | |||||||||||||||
The following table summarizes our cash and cash equivalents, investments, and funds held for customers by investment category at the dates indicated.
| April 30, 2020 | July 31, 2019 | ||||||||||||||
| (In millions) | Amortized Cost | Fair Value | Amortized Cost | Fair Value | |||||||||||
| Type of issue: | |||||||||||||||
Total cash, cash equivalents, restricted cash, and restricted cash equivalents | $ | 3,560 | $ | 3,560 | $ | 2,352 | $ | 2,352 | |||||||
| Available-for-sale debt securities: | |||||||||||||||
| Municipal bonds | 8 | 8 | 5 | 5 | |||||||||||
| Corporate notes | 762 | 765 | 798 | 800 | |||||||||||
| U.S. agency securities | 26 | 27 | 19 | 19 | |||||||||||
| Total available-for-sale debt securities | 796 | 800 | 822 | 824 | |||||||||||
| Other long-term investments | 19 | 19 | 13 | 13 | |||||||||||
| Total cash, cash equivalents, restricted cash, restricted cash equivalents, and investments | $ | 4,375 | $ | 4,379 | $ | 3,187 | $ | 3,189 | |||||||
| April 30, 2021 | July 31, 2020 | ||||||||||||||||||||||
| (In millions) | Amortized Cost | Fair Value | Amortized Cost | Fair Value | |||||||||||||||||||
| Type of issue: | |||||||||||||||||||||||
| Total cash, cash equivalents, restricted cash, and restricted cash equivalents | $ | 3,312 | $ | 3,312 | $ | 6,697 | $ | 6,697 | |||||||||||||||
| Available-for-sale debt securities: | |||||||||||||||||||||||
| Municipal bonds | 34 | 34 | 9 | 9 | |||||||||||||||||||
| Corporate notes | 1,057 | 1,061 | 744 | 752 | |||||||||||||||||||
| U.S. agency securities | 56 | 57 | 47 | 47 | |||||||||||||||||||
| Total available-for-sale debt securities | 1,147 | 1,152 | 800 | 808 | |||||||||||||||||||
| Total cash, cash equivalents, restricted cash, restricted cash equivalents, and investments | $ | 4,459 | $ | 4,464 | $ | 7,497 | $ | 7,505 | |||||||||||||||
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 on our condensed consolidated statements of operations. Gross realized gains and losses on our available-for-sale debt securities for the three and nine months ended April 30, 20202021 and April 30, 20192020 were 0tnot significant.
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.sheets, except for certain unrealized losses described below. Gross unrealized gains and losses on our available-for-sale debt securities at April 30, 20202021 and July 31, 2019 were 0t significant.
Intuit Q3 Fiscal 2021 Form 10-Q | 15 | ||||||||||
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 statement of operations, not to exceed the amount of the unrealized loss. Any excess unrealized loss greater than the 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 securities as of April 30, 2021. Unrealized losses on available-for-sale debt securities at April 30, 20202021 were not significant and were due to changes in interest rates, including market credit spreads, and not due to increased credit risks associated with specific securities.significant. We do not intend to sell these investments. In addition, it is moremore likely than not that we will not be required to sell them before recovery at par,of the amortized cost basis, which may be at maturity.
The following table summarizes our available-for-sale debt securities, included in investments and funds held for customers, classified by the stated maturity date of the security at the dates indicated.
| April 30, 2021 | July 31, 2020 | ||||||||||||||||||||||
| (In millions) | Amortized Cost | Fair Value | Amortized Cost | Fair Value | |||||||||||||||||||
| Due within one year | $ | 419 | $ | 421 | $ | 389 | $ | 390 | |||||||||||||||
| Due within two years | 334 | 336 | 256 | 261 | |||||||||||||||||||
| Due within three years | 390 | 391 | 137 | 139 | |||||||||||||||||||
| Due after three years | 4 | 4 | 18 | 18 | |||||||||||||||||||
| Total available-for-sale debt securities | $ | 1,147 | $ | 1,152 | $ | 800 | $ | 808 | |||||||||||||||
| April 30, 2020 | July 31, 2019 | ||||||||||||||
| (In millions) | Amortized Cost | Fair Value | Amortized Cost | Fair Value | |||||||||||
| Due within one year | $ | 386 | $ | 387 | $ | 415 | $ | 416 | |||||||
| Due within two years | 243 | 245 | 208 | 208 | |||||||||||
| Due within three years | 146 | 147 | 163 | 164 | |||||||||||
| Due after three years | 21 | 21 | 36 | 36 | |||||||||||
| Total available-for-sale debt securities | $ | 796 | $ | 800 | $ | 822 | $ | 824 | |||||||
The following table summarizes our funds held for customers by investment category at the dates indicated.
| (In millions) | April 30, 2021 | July 31, 2020 | ||||||||||||
| Restricted cash and restricted cash equivalents | $ | 148 | $ | 255 | ||||||||||
| Restricted available-for-sale debt securities | 200 | 200 | ||||||||||||
| Total funds held for customers | $ | 348 | $ | 455 | ||||||||||
| (In millions) | April 30, 2020 | July 31, 2019 | ||||||||||||
| Restricted cash and restricted cash equivalents | $ | 189 | $ | 236 | ||||||||||
| Restricted available-for-sale debt securities | 200 | 200 | ||||||||||||
| Total funds held for customers | $ | 389 | $ | 436 | ||||||||||
| 4. Goodwill and Acquired Intangible Assets | ||
| April 30, 2020 | July 31, 2019 | ||||||
| (In millions) | |||||||
| Restricted cash and restricted cash equivalents | $ | 189 | $ | 236 | |||
| Restricted available-for-sale debt securities | 200 | 200 | |||||
| Total funds held for customers | $ | 389 | $ | 436 | |||
| Goodwill | ||
Changes in the carrying value of goodwill by reportable segment during the nine months ended April 30, 2021 were as shown in the following table. Our reportable segments are described in Note 12, “Segment Information.”
| (In millions) | Balance July 31, 2020 | Goodwill Acquired | Foreign Currency Translation | Balance April 30, 2021 | |||||||||||||||||||||||||
| Small Business & Self-Employed | $ | 1,518 | $ | 59 | $ | 1 | $ | 1,578 | |||||||||||||||||||||
| Consumer | 42 | 0 | 0 | 42 | |||||||||||||||||||||||||
| ProConnect | 94 | 0 | 1 | 95 | |||||||||||||||||||||||||
| Credit Karma | 0 | 3,899 | 0 | 3,899 | |||||||||||||||||||||||||
| Totals | $ | 1,654 | $ | 3,958 | $ | 2 | $ | 5,614 | |||||||||||||||||||||
Goodwill is net of accumulated impairment losses of $114 million, which were recorded prior to July 31, 2020 and are included in our Consumer segment. The fiscal 2021 increase in goodwill in our new Credit Karma segment was primarily due to the acquisition of Credit Karma. See Note 5, "Business Combinations."
| April 30, 2019 | July 31, 2018 | ||||||
| (In millions) | |||||||
| Restricted cash and restricted cash equivalents | $ | 183 | $ | 167 | |||
| Restricted available-for-sale debt securities | 200 | 200 | |||||
| Total funds held for customers | $ | 383 | $ | 367 | |||
Intuit Q3 Fiscal 2021 Form 10-Q | 16 | ||||||||||
The following table shows the cost, accumulated amortization and weighted average life in years for our acquired intangible assets at the dates indicated. The increases in intangible assets during the nine months ended April 30, 2021 were primarily due to the acquisition of Credit Karma. See Note 5, "Business Combinations." 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 April 30, 2021: | |||||||||||||||||||||||||||||
| Cost | $ | 3,038 | $ | 686 | $ | 400 | $ | 42 | $ | 4,166 | |||||||||||||||||||
| Accumulated amortization | (330) | (439) | (35) | (41) | (845) | ||||||||||||||||||||||||
| Acquired intangible assets, net | $ | 2,708 | $ | 247 | $ | 365 | $ | 1 | $ | 3,321 | |||||||||||||||||||
| Weighted average life in years | 15 | 5 | 15 | 3 | 14 | ||||||||||||||||||||||||
| At July 31, 2020: | |||||||||||||||||||||||||||||
| Cost | $ | 256 | $ | 421 | $ | 25 | $ | 42 | $ | 744 | |||||||||||||||||||
| Accumulated amortization | (248) | (404) | (25) | (39) | (716) | ||||||||||||||||||||||||
| Acquired intangible assets, net | $ | 8 | $ | 17 | $ | 0 | $ | 3 | $ | 28 | |||||||||||||||||||
| Weighted average life in years | 5 | 3 | 0 | 3 | 4 | ||||||||||||||||||||||||
The following table shows the expected future amortization expense for our acquired intangible assets at April 30, 2021. Amortization of purchased technology is charged to amortization of acquired technology in our 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 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, | |||||
| 2021 (excluding the nine months ended April 30, 2021) | $ | 69 | |||
| 2022 | 274 | ||||
| 2023 | 264 | ||||
| 2024 | 248 | ||||
| 2025 | 247 | ||||
| Thereafter | 2,219 | ||||
| Total expected future amortization expense | $ | 3,321 | |||
| 5. Business Combinations | ||
| Credit Karma | ||
On February 24,December 3, 2020 we entered into an agreement and planacquired all of merger (the Merger Agreement) to acquirethe outstanding shares of Credit Karma, Inc., (Credit Karma) for $7.1 billion, subject to certain customary adjustments set forth in the Merger Agreement.a consumer technology platform. We are acquiringacquired Credit Karma to expand our consumer finance platform,help consumers unlock smart money decisions and accelerate our mission of powering prosperity around the world, by creating a personal financial assistant that helps consumers find the right financial products, put more money in their pockets and help consumers unlock smart money decisionsaccess financial expertise and advice. Credit Karma is a separate reportable segment. See Note 12, "Segment Information," for more information. We have included the financial results of Credit Karma in the condensed consolidated financial statements from the date of acquisition. For the nine months ended April 30, 2021 and April 30, 2020, the transaction costs associated with the acquisition were approximately $31 million and $10 million, respectively, and were recorded in general and administrative expenses.
We acquired Credit Karma for total consideration of $8.1 billion which included assumed equity awards and restricted shares subject to help make ends meet.a revest provision.
Intuit Q3 Fiscal 2021 Form 10-Q | 17 | ||||||||||
The fair value of the purchase price for Credit Karma will be payabletotaled $7.2 billion and included $3.4 billion in equal portionscash, 10.6 million shares of cash and Intuit common stock with a fair value of $3.8 billion and assumed equity awards for services rendered through the acquisition date of $47 million.
We also issued shares of common stock with a fair value of $275 million which are restricted due to a revest provision, and are being valued at $299.7306 per share (which price was calculatedexpensed over a service period of three years. The share-based compensation expense related to these restricted shares is non-deductible for income tax purposes. Additionally, we assumed equity awards for future services with a fair value of $663 million that are being charged to expense over the remaining service periods, which average approximately three years.
The fair value of the stock consideration is based on the daily volume-weighted average salesDecember 2, 2020 closing price per share forof Intuit common stock for the ten trading days ending on February 21, 2020). The per share price of these shares has been fixed as of the Merger Agreement signing date. The aggregate value of these shares will fluctuate based on changes in our share price between the signing date and the closing date.$355.49.
The cash portionpreliminary allocation of the Credit Karma purchase price is as follows:
| (In millions) | Amount | ||||
| Cash and cash equivalents | $ | 436 | |||
| Accounts receivable, net | 141 | ||||
| Income taxes receivable | 59 | ||||
| Prepaid expenses and other current assets | 8 | ||||
| Long-term investments | 3 | ||||
| Property and equipment, net | 63 | ||||
| Operating lease right-of-use assets | 167 | ||||
| Goodwill | 3,899 | ||||
| Intangible assets | 3,372 | ||||
| Other assets | 83 | ||||
| Accounts payable | (86) | ||||
| Accrued compensation and related liabilities | (113) | ||||
| Other current liabilities | (24) | ||||
| Operating lease liabilities | (172) | ||||
| Long-term deferred income tax liabilities | (632) | ||||
| Other long-term obligations | (10) | ||||
| Total preliminary purchase price allocation | $ | 7,194 | |||
The excess of purchase consideration over the fair value of the net assets acquired was recorded as goodwill, which is primarily attributed to the assembled workforce of Credit Karma and the synergies expected to be financed with our existing cash and unsecured revolving credit facility.
Intangible assets consist of 1976 oruser relationships, trade names/trademarks, purchased technology, and partner relationships. We amortize purchased intangible assets on the termination date there is in effect an order or injunction or similar restraint preventing consummationa straight-line basis over their respective useful lives. The weighted average life of the transaction under applicable U.S. antitrust laws, then under certain circumstances we would be obligated to pay Credit Karma a termination feetotal acquired identifiable intangible assets is 14.4 years. The following table presents the details of between $230 million and $350 million.identifiable intangible assets acquired.
| (In millions, except years) | Estimated Useful Life | Amount | |||||||||
| User relationships | 15 years | $ | 2,781 | ||||||||
| Trade names/Trademarks | 15 years | 375 | |||||||||
| Purchased technology | 6 years | 216 | |||||||||
| Total identifiable intangible assets | $ | 3,372 | |||||||||
Intuit Q3 Fiscal | |||||||||||
The following table summarizes the long-term deferred income tax liabilities included in the purchase price allocation above:
| Amount | |||||
| Intangibles | $ | (850) | |||
| Federal and state net operating loss carryforwards | 132 | ||||
| Federal research and experimentation credit carryforwards | 51 | ||||
| Other, net | 35 | ||||
| Total long-term deferred income tax liabilities | $ | (632) | |||
The unaudited financial information in the table below summarizes the combined results of operations of Intuit and Credit Karma on a pro forma basis, as though the companies had been combined as of the beginning of our fiscal 2020. These pro forma results were based on estimates and assumptions, which we believe are reasonable. The pro forma financial information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of our fiscal 2020. The pro forma financial information assumes our senior unsecured notes were issued as of the beginning of our fiscal 2020 and includes adjustments to share-based compensation expense, amortization for acquired intangible assets, interest expense, transaction costs, capitalization and amortization of certain activities associated with the development of internal use software to conform with Intuit's accounting policy, and related tax effects.
The pro forma financial information for the nine months ended April 30, 2021 combines our results for the nine months ended April 30, 2021, which include the results of Credit Karma subsequent to December 3, 2020, and the historical results for Credit Karma for the three months ended September 30, 2020 and one month ended November 30, 2020. The pro forma financial information for the three and nine months ended April 30, 2020 combines our historical results for those periods with the historical results of Credit Karma for the three and nine months ended March 31, 2020.
The following table summarizes the pro forma financial information:
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| (In millions) | April 30, 2021 | April 30, 2020 | April 30, 2021 | April 30, 2020 | |||||||||||||||||||
| Total revenue | $ | 4,173 | $ | 3,242 | $ | 7,315 | $ | 6,623 | |||||||||||||||
| Net income | $ | 1,476 | $ | 949 | $ | 1,581 | $ | 1,027 | |||||||||||||||
| Basic net income per share | $ | 5.41 | $ | 3.49 | $ | 5.77 | $ | 3.78 | |||||||||||||||
| Diluted net income per share | $ | 5.35 | $ | 3.46 | $ | 5.71 | $ | 3.73 | |||||||||||||||
| 6. Current Liabilities | ||
| Short-Term Debt | ||
On May 2, 2019 we entered into an amended and restated credit agreement with certain institutional lenders with an aggregate principal amount of $1.4 billion, including a $400 million unsecured term loan that matures on February 1, 2021 and a $1 billion unsecured revolving credit facility that matures on May 2, 2024. This agreement amended2024 and restated our prior unsecured revolving credit facility dated February 1, 2016.
| Unsecured Revolving Credit Facility | ||
The amended and restated credit agreement we entered into on May 2, 2019 includes a $1 billion unsecured revolving credit facility that will expire on May 2, 2024. Under this agreement we may, subject to certain customary conditions including lender approval, on one or more occasions 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 2 times. Advances under the unsecured revolving credit facility accrue interest at rates that are equal to, at our election, either Bank of America's alternate base rate plus a margin that ranges from 0.0% to 0.1% or LIBORthe London Interbank Offered Rate (LIBOR) 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. The amended and restated credit agreement includes customary affirmative and negative covenants. See "Short-Term Debt" above for more information. Atcovenants, 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 as of any date 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 April 30, 2020 0 amounts2021 we were compliant with all required covenants. We repaid the $1 billion that was outstanding as of July 31, 2020 under this unsecured revolving credit facility.facility during the first quarter of fiscal 2021, and at April 30, 2021 0 amounts were outstanding. We paid 0$1 million in interest on the unsecured revolving credit facility during both the nine months ended April 30, 20202021 and 2019. In May 2020, we borrowed0 interest during the full $1 billion under this unsecured revolving credit facility.nine months ended April 30, 2020.
Intuit Q3 Fiscal 2021 Form 10-Q | 19 | ||||||||||
| Term Loan | ||
On February 1, 2021, we paid the $325 million remaining balance of the term loan upon maturity and at April 30, 2021, no amount was outstanding. The term loan accrued interest at rates that were equal to, at our election, either Bank of America's alternate base rate plus a margin that ranges from 0.0% to 0.125% or LIBOR plus a margin that ranges from 0.625% to 1.125%. Interest on the term loan was payable monthly. We paid $2 million for interest on the term loan during the nine months ended April 30, 2021 and $8 million during the nine months ended April 30, 2020. Under the amended and restated agreement we may, subject to certain customary conditions including lender approval, on one or more occasions increase commitments under the term loan in an amount not to exceed $400 million in the aggregate. This option continues to be available to us through the expiration of the amended and restated credit agreement on May 2, 2024.
| Other Current Liabilities | ||
Other current liabilities were as follows at the dates indicated:
| (In millions) | April 30, 2020 | July 31, 2019 | |||||
| Executive deferred compensation plan liabilities | $ | 113 | $ | 108 | |||
| Current portion of operating lease liabilities | 50 | — | |||||
| Reserve for promotional discounts and rebates | 15 | 11 | |||||
| Reserve for returns and credits | 60 | 24 | |||||
| Current portion of deferred rent | — | 6 | |||||
| Current portion of dividend payable | 9 | 7 | |||||
| Other | 38 | 42 | |||||
| Total other current liabilities | $ | 285 | $ | 198 | |||
| (In millions) | April 30, 2021 | July 31, 2020 | |||||||||
| Executive deferred compensation plan liabilities | $ | 152 | $ | 123 | |||||||
| Current portion of operating lease liabilities | 74 | 46 | |||||||||
| Reserve for promotional discounts and rebates | 16 | 11 | |||||||||
| Reserve for returns and credits | 57 | 24 | |||||||||
| Current portion of dividend payable | 8 | 6 | |||||||||
| Interest payable | 7 | 3 | |||||||||
| Amounts due for share repurchases | 13 | 0 | |||||||||
| Other | 92 | 73 | |||||||||
| Total other current liabilities | $ | 419 | $ | 286 | |||||||
The balances of several of our other current liabilities, particularly our reserves for product returns and promotional discounts and rebates, are affected by the seasonality of our business. See Note 1, “Description of Business and Summary of Significant Accounting Policies – Seasonality,” for more information.
| 7. Long-Term Obligations and Commitments | ||
| Senior Unsecured Notes | ||
In June 2020 we issued four series of senior unsecured notes (together, the 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.
The carrying value of the Notes was as follows at the dates indicated:
| (In millions) | April 30, 2021 | July 31, 2020 | Effective Interest Rate | ||||||||||||||
| Senior unsecured notes issued June 2020: | |||||||||||||||||
| 0.650% notes due July 2023 | $ | 500 | $ | 500 | 0.837% | ||||||||||||
| 0.950% notes due July 2025 | 500 | 500 | 1.127% | ||||||||||||||
| 1.350% notes due July 2027 | 500 | 500 | 1.486% | ||||||||||||||
| 1.650% notes due July 2030 | 500 | 500 | 1.767% | ||||||||||||||
| Total senior unsecured notes | 2,000 | 2,000 | |||||||||||||||
| Unamortized discount and debt issuance costs | (15) | (17) | |||||||||||||||
| Net carrying value senior unsecured notes | $ | 1,985 | $ | 1,983 | |||||||||||||
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 Notes under the effective interest method. We paid $12 million for interest on the Notes during the nine months ended April 30, 2021.
The 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 Notes, we will be required to repurchase the Notes at a repurchase price equal to 101% of the aggregate outstanding principal plus
Intuit Q3 Fiscal | |||||||||||
any accrued and unpaid interest to but not including the date of repurchase. The indenture governing the Notes requires us to comply with certain covenants. For example, the Notes limit our ability to create certain liens and enter into sale and leaseback transactions. As of April 30, 2021 we were compliant with all covenants governing the Notes.
| Secured Revolving Credit Facility | ||
On February 19, 2019, a subsidiary of Intuit entered into a two-year $300 million secured revolving credit facility with a lender. The revolving credit facility is secured by cash and receivables of the subsidiary and is non-recourse to Intuit Inc. Advances under this secured revolving credit facility are used to fund a portion of our loans to qualified small businesses and accrue interest at LIBOR plus 2.39%. Unused portions of the credit facility accrue interest at a rate of 0.50%. On March 2, 2020, we amended the secured revolving credit facility to extend the commitment term from February 19, 2021 to February 19, 2022 and the final maturity date from August 19, 2021 to August 19, 2022. On February 26, 2021, we amended the secured revolving credit facility to extend the commitment term to May 31, 2022 and the final maturity date to November 30, 2022. On October 13, 2020 the agreement was amended to allow for the transition of the benchmark interest rate used to calculate finance charges from LIBOR to the Secured Overnight Financing Rate (SOFR) plus related benchmark adjustments that represent the prevailing market convention for dollar-denominated syndicated credit facilities. The agreement includes certain affirmative and negative covenants, including financial covenants that require the subsidiary to maintain specified financial ratios. As of April 30, 20202021 we were compliant with all required covenants. At April 30, 2020,2021, $48 million was outstanding under this facility, with a weighted-average interest rate of 6.04%5.67%, which includes the unused facility fee. The outstanding balance is secured by cash and receivables of the subsidiary totaling $143$173 million. Interest on the facility is payable monthly. We paid $3$2 million for interest on the secured revolving credit facility during the nine months ended April 30, 2020. Interest paid on the secured revolving facility was 0t significant2021 and $3 million during the nine months ended April 30, 2019.
2020.
| Other Long-Term Obligations | ||
Other long-term obligations were as follows at the dates indicated:
| (In millions) | April 30, 2020 | July 31, 2019 | |||||
| Long-term income tax liabilities | $ | 7 | $ | 89 | |||
| Total deferred rent | — | 47 | |||||
| Total dividend payable | 14 | 11 | |||||
| Other | 14 | 12 | |||||
| Total long-term obligations | 35 | 159 | |||||
| Less current portion (included in other current liabilities) | (9 | ) | (14 | ) | |||
| Long-term obligations due after one year | $ | 26 | $ | 145 | |||
| (In millions) | April 30, 2021 | July 31, 2020 | |||||||||
| Long-term income tax liabilities | $ | 28 | $ | 10 | |||||||
| Total dividend payable | 16 | 12 | |||||||||
| Long-term deferred revenue | 7 | 13 | |||||||||
| Other | 16 | 17 | |||||||||
| Total long-term obligations | 67 | 52 | |||||||||
| Less current portion (included in other current liabilities) | (11) | (10) | |||||||||
| Long-term obligations due after one year | $ | 56 | $ | 42 | |||||||
| Unconditional Purchase Obligations | ||
We describe our purchase obligations in Note 8 to the financial statements in Part II, Item 8 of our Annual Report on Form 10-K for the fiscal year ended July 31, 2019.2020. In December 2020 we acquired Credit Karma and assumed certain non-cancellable contractual commitments totaling approximately $318 million as of January 31, 2021. These commitments primarily relate to cloud hosting services. There were no other significant changes in our purchase obligations during the nine months ended April 30, 2020.2021.
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 1110 years, some of which include 1 or more options to extend the leases for up to 10 years per option, 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 significant finance leases.
We sublease certain office facilities to third parties. These subleases have remaining lease terms of up to 4 years, some of which include one or more options to extend the subleases for up to 5 years.
Intuit Q3 Fiscal | |||||||||||
The components of lease expense were as follows:
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| (In millions) | April 30, 2021 | April 30, 2020 | April 30, 2021 | April 30, 2020 | |||||||||||||||||||
Operating lease cost (1) | $ | 21 | $ | 16 | $ | 54 | $ | 53 | |||||||||||||||
| Variable lease cost | 2 | 3 | 8 | 9 | |||||||||||||||||||
| Sublease income | (4) | (5) | (12) | (19) | |||||||||||||||||||
| Total net lease cost | $ | 19 | $ | 14 | $ | 50 | $ | 43 | |||||||||||||||
| Three Months Ended | Nine Months Ended | ||||||
| (In millions) | April 30, 2020 | April 30, 2020 | |||||
Operating lease cost (1) | $ | 16 | $ | 53 | |||
| Variable lease cost | 3 | 9 | |||||
| Sublease income | (5 | ) | (19 | ) | |||
| Total net lease cost | $ | 14 | $ | 43 | |||
Supplemental cash flow information related to operating leases was as follows:
| Nine Months Ended | |||||||||||
| (In millions) | April 30, 2021 | April 30, 2020 | |||||||||
| Cash paid for amounts included in the measurement of operating lease liabilities | $ | 52 | $ | 50 | |||||||
Right-of-use assets obtained in exchange for new operating lease liabilities (1) | $ | 32 | $ | 328 | |||||||
| Nine Months Ended | |||
| April 30, 2020 | |||
| (In millions) | |||
| Cash paid for amounts included in the measurement of operating lease liabilities | $ | 50 | |
Right-of-use assets obtained in exchange for new operating lease liabilities (1) | $ | 328 | |
Other information related to operating leases was as follows at the datedates indicated:
| April 30, 2021 | July 31, 2020 | ||||||||||
| Weighted-average remaining lease term for operating leases | 6.6 years | 5.5 years | |||||||||
| Weighted-average discount rate for operating leases | 2.3 | % | 3.1 | % | |||||||
Future minimum lease payments under non-cancellable operating leases as of April 30, 20202021 were as follows:
| (In millions) | Operating Leases (1) | ||||
| Fiscal year ending July 31, | |||||
| 2021 (excluding the nine months ended April 30, 2021) | $ | 17 | |||
| 2022 | 88 | ||||
| 2023 | 78 | ||||
| 2024 | 74 | ||||
| 2025 | 59 | ||||
| Thereafter | 157 | ||||
| Total future minimum lease payments | 473 | ||||
| Less imputed interest | (34) | ||||
| Present value of lease liabilities | $ | 439 | |||
(1) Non-cancellable sublease proceeds for the remainder of the fiscal year ending July 31, 2021 and the fiscal years ending July 31, 2022, 2023, 2024, and 2025, of $3 million, $9 million, $3 million, $2 million, and $1 million, respectively, are not included in the table above.
| (In millions) | Operating Leases (1) | ||
| Fiscal year ending July 31, | |||
| 2020 (excluding the nine months ended April 30, 2020) | $ | 13 | |
| 2021 | 59 | ||
| 2022 | 56 | ||
| 2023 | 47 | ||
| 2024 | 45 | ||
| Thereafter | 66 | ||
| Total future minimum lease payments | 286 | ||
| Less imputed interest | (21 | ) | |
| Present value of lease liabilities | $ | 265 | |
Intuit Q3 Fiscal 2021 | 22 | ||||||||||
Supplemental balance sheet information related to operating leases was as follows at the datedates indicated:
| (In millions) | April 30, 2020 | ||
| Operating lease right-of-use assets | $ | 220 | |
| Other current liabilities | $ | 50 | |
| Operating lease liabilities | 215 | ||
| Total operating lease liabilities | $ | 265 | |
| (In millions) | April 30, 2021 | July 31, 2020 | |||||||||
| Operating lease right-of-use assets | $ | 370 | $ | 226 | |||||||
| Other current liabilities | $ | 74 | $ | 46 | |||||||
| Operating lease liabilities | 365 | 221 | |||||||||
| Total operating lease liabilities | $ | 439 | $ | 267 | |||||||
As of April 30, 2020,2021, we have additional operating leases of $80$42 million, primarily for office facilities, that have not yet commenced and therefore are not reflected on the condensed consolidated balance sheet nor in the tables above. These
operating leases will commence between fiscal year 2020 andin fiscal year 2022 with lease terms of 3 to 11 years. One of these leases allows for acceleration of the term from 10 years to 3 years if certain conditions are met, which would reduce the future obligations by $18 million.
| 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.
income taxes. For the three and nine months ended April 30, 2020, we recognized excess tax benefits on share-based compensation of $7 million and $59 million, respectively, in our provision for income taxes. For
Our effective tax rates for the three and nine months ended April 30, 2019, we recognized excess2021 were approximately 24% and 22%, respectively. Excluding discrete tax items primarily related to share-based compensation tax benefits onmentioned above, our effective tax rate for both periods was approximately 25%. The difference from the federal statutory rate of 21% was primarily due to state income taxes, non-deductible share-based compensation of $20 million and $69 million, respectively, in our provision for income taxes.non-deductible transaction costs related to the Credit Karma acquisition, which were partially offset by the tax benefit we received from the federal research and experimentation credit.
Our effective tax rates for the three and nine months ended April 30, 2020 were approximately 23% and 19%, respectively. Excluding discrete tax items primarily related to share-based compensation tax benefits mentioned above, our effective tax rate for both periods was 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.
enactment.
| Unrecognized Tax Benefits and Other Considerations | ||
The total amount of our unrecognized tax benefits at JulyJanuary 31, 20192021 was $120$168 million. Net of related deferred tax assets, unrecognized tax benefits were $75 million at that date. If we were to recognize these net benefits, our income tax expense would reflect a favorable net impact of $75$101 million. The increase in the unrecognized tax benefits during the six months ended January 31, 2021 was primarily related to the acquisition of Credit Karma. There were 0no material changes to these amounts during the ninethree months ended April 30, 2020.2021. 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 have offset a $56an $80 million long-term income tax receivable against our long term liability for uncertain tax positions against our long-term income tax receivable at April 30, 2020.2021. The long termlong-term income tax receivable is primarily related to the government’s approval of a method of accounting change request for fiscal 2018.
2018 and a refund claim related to Credit Karma's alternative minimum tax credit that was recorded as part of the acquisition.
Intuit Q3 Fiscal 2021 Form 10-Q | 23 | ||||||||||
| 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. We repurchased 1.21.4 million shares for $318$555 million under these programs during the nine months ended April 30, 2020.2021. Included in this amount were $13 million of repurchases which occurred in late April 2021 and settled in early May 2021. At April 30, 2020,2021, we had authorization from our Board of Directors to expend up to an additional $2.4$1.8 billion for stock repurchases. In connection with our pending acquisition of Credit Karma, we have temporarily suspended share repurchases. Future stock repurchases under the current programs areprogram is 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. 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 nine months ended April 30, 20202021 we declared quarterly cash dividends that totaled $1.59$1.77 per share of outstanding common stock for a total of $421$486 million. In May 20202021 our Board of Directors declared a quarterly cash dividend of $0.53$0.59 per share of outstanding common stock payable on July 20, 202019, 2021 to stockholders of record at the close of business on July 10, 2020.12, 2021. 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.
| 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 | Nine Months Ended | ||||||||||||||
| (In millions) | April 30, 2020 | April 30, 2019 | April 30, 2020 | April 30, 2019 | |||||||||||
| Cost of revenue | $ | 15 | $ | 15 | $ | 44 | $ | 44 | |||||||
| Selling and marketing | 27 | 23 | 86 | 78 | |||||||||||
| Research and development | 36 | 32 | 111 | 101 | |||||||||||
| General and administrative | 25 | 28 | 80 | 80 | |||||||||||
| Total share-based compensation expense | $ | 103 | $ | 98 | $ | 321 | $ | 303 | |||||||
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| (In millions) | April 30, 2021 | April 30, 2020 | April 30, 2021 | April 30, 2020 | |||||||||||||||||||
| Cost of revenue | $ | 16 | $ | 15 | $ | 47 | $ | 44 | |||||||||||||||
| Selling and marketing | 51 | 27 | 127 | 86 | |||||||||||||||||||
| Research and development | 82 | 36 | 187 | 111 | |||||||||||||||||||
| General and administrative | 69 | 25 | 148 | 80 | |||||||||||||||||||
| Total share-based compensation expense | $ | 218 | $ | 103 | $ | 509 | $ | 321 | |||||||||||||||
We capitalized $1 million and $3 million in share-based compensation related to internal useinternal-use software projects during the three and nine months ended April 30, 2020 and $1 million2021 and $3 million during the three and nine months ended April 30, 2019.2020.
Intuit Q3 Fiscal 2021 Form 10-Q | 24 | ||||||||||
| Assumed Share-Based Compensation Plans | ||
In connection with our acquisition of Credit Karma on December 3, 2020, we assumed the Credit Karma, Inc. 2015 Equity Incentive Plan, as amended (Credit Karma Plan), under which the assumed equity awards were granted. The assumed equity awards will be settled in shares of our common stock and will retain the terms and conditions under which they were originally granted. See Note 5, "Business Combinations," for more information on the Credit Karma acquisition and the related equity awards assumed.
On December 3, 2020, we filed a Form S-8 to register a total of 4,298,127 shares of common stock. This includes 1,997,881 shares of common stock that are issuable upon vesting of assumed equity awards and 2,300,246 shares that are available for future issuance under the Credit Karma Plan.
| Share-Based Awards Available for Grant | ||
A summary of share-based awards available for grant under our 2005 Equity Incentive Planplans for the nine months ended April 30, 20202021 was as follows:
| (Shares in thousands) | Shares Available for Grant | ||||
| Balance at July 31, | |||||
| Shares available for grant under an assumed plan | 4,298 | ||||
Restricted stock units granted (1) | |||||
| Options granted | |||||
Share-based awards canceled/forfeited/expired (1) (2) | |||||
| Balance at April 30, | |||||
(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. Shares granted from the Credit Karma Plan reduce the pool by one share for each share granted. Shares forfeited and returned to the pool from the Credit Karma Plan increase the pool by one share for each share forfeited.
(2)Stock options and RSUs canceled, expired or forfeited under our 2005 Equity Incentive Plan and Credit Karma 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. Under the Credit Karma Plan, shares withheld for income taxes are also returned to the pool of shares available for grant.
| Restricted Stock Unit and Restricted Stock Activity and Related Share-Based Compensation Expense | ||
A summary of restricted stock unit (RSU) and restricted stock activity for the nine months ended April 30, 20202021 was as follows:
| (Shares in thousands) | Number of Shares | Weighted Average Grant Date Fair Value | |||||||||
| Nonvested at July 31, 2020 | 5,664 | $ | 231.97 | ||||||||
| Assumed through acquisition | 1,998 | 355.49 | |||||||||
Granted (1) | 1,793 | 376.34 | |||||||||
| Restricted stock subject to revest provisions issued in connection with acquisition | 775 | 355.49 | |||||||||
| Vested | (1,486) | 244.57 | |||||||||
| Forfeited | (878) | 240.99 | |||||||||
| Nonvested at April 30, 2021 | 7,866 | $ | 305.03 | ||||||||
| Restricted Stock Units | ||||||
| (Shares in thousands) | Number of Shares | Weighted Average Grant Date Fair Value | ||||
| Nonvested at July 31, 2019 | 5,683 | $ | 186.22 | |||
| Granted | 660 | 262.61 | ||||
| Vested | (1,000 | ) | 165.90 | |||
| Forfeited | (590 | ) | 149.44 | |||
| Nonvested at April 30, 2020 | 4,753 | $ | 205.65 | |||
At April 30, 2020,2021, there was approximately $754 million$2.1 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 Q3 Fiscal 2021 Form 10-Q | 25 | ||||||||||
| Stock Option Activity and Related Share-Based Compensation Expense | ||
A summary of stock option activity for the nine months ended April 30, 20202021 was as follows:
| Options Outstanding | ||||||
| (Shares in thousands) | Number of Shares | Weighted Average Exercise Price Per Share | ||||
| Balance at July 31, 2019 | 3,374 | $ | 150.75 | |||
| Granted | — | — | ||||
| Exercised | (790 | ) | 107.07 | |||
| Canceled or expired | (75 | ) | 183.90 | |||
| Balance at April 30, 2020 | 2,509 | $ | 163.50 | |||
| Exercisable at April 30, 2020 | 1,791 | $ | 131.47 | |||
| Options Outstanding | |||||||||||
| (Shares in thousands) | Number of Shares | Weighted Average Exercise Price Per Share | |||||||||
| Balance at July 31, 2020 | 2,681 | $ | 185.83 | ||||||||
| Granted | 0 | 0 | |||||||||
| Exercised | (465) | 126.79 | |||||||||
| Canceled or expired | (72) | 261.11 | |||||||||
| Balance at April 30, 2021 | 2,144 | $ | 196.11 | ||||||||
| Exercisable at April 30, 2021 | 1,478 | $ | 156.43 | ||||||||
At April 30, 2020,2021, there was approximately $35$40 million of unrecognized compensation cost related to non-vested stock options with a weighted average vesting period of 2.7 years. We will adjust unrecognized compensation cost for actual forfeitures as they occur.
Beginning in May 2019, various legal proceedings were filed and certain regulatory inquiries were commenced in connection with theour provision and marketing of our free online tax preparation programs. We believe that the allegations contained within thethese legal proceedings are without merit. We intend toare vigorously defend againstdefending our interests in the legal proceedings and cooperatecooperating in the inquiries. These proceedings include, 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”) and demands for arbitration that were filed beginning in October 2019. In August 2020, the Ninth Circuit Court of Appeals ordered that the putative class action claims be resolved through arbitration. Intuit entered into a proposed settlement agreement in November 2020 to resolve the putative class action, which was rejected by the court. On May 20, 2021, Intuit entered into an agreement that resolved the Intuit Free File Litigation on an individual non-class basis, without any admission of wrongdoing, for a non-material amount.
As of April 30, 2021, there are approximately 126,000 individual arbitration claims pending and we could incur significant arbitration and legal fees associated with the defense of these claims. We have incurred and continue to incur legal and otherrecorded approximately $14 million in arbitration fees related to these proceedingsclaims in fiscal 2020. The amount of our fiscal 2021 arbitration fees net of insurance proceeds and inquiries.rebates is not material. The ongoing defense,arbitration fees are unrelated to the underlying merits of the claims and any resolutionare accrued at the earlier of when invoiced or settlementwhen the services are rendered. We could incur additional arbitration fees of approximately $360 million in future periods. We are continuing to dispute the applicability and propriety of these proceedingsfees. An immaterial number of claims have been resolved through the arbitration process to date and inquiries, could involve significant costs to us. we expect that more claims will continue through the process.
In view of the complexity and ongoing and uncertain nature of thesethe 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 matters.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 license 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 not have a material impact on our condensed consolidated financial statements. The ultimate outcome of any litigationlegal proceeding is uncertain and, regardless of outcome, litigationlegal proceedings can have an adverse impact on Intuit because of defense costs, negative publicity, diversion of management resources and other factors.
We have defined our 34 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 product and service offerings.
Intuit Q3 Fiscal 2021 Form 10-Q | 26 | ||||||||||
In August 2020 we reorganized certain technology and customer success functions that support and benefit our overall platform. Additionally, certain legal, facility and employee service costs are now managed at the corporate level. As a result, these costs are no longer included in segment operating income and are now included in other corporate expenses. For the three and nine months ended April 30, 2020, we reclassified $43 million and $131 million from Small Business & Self-Employed, $29 million and $82 million from Consumer, and $3 million and $10 million from ProConnect to other corporate expenses. In August 2020, we also renamed our Strategic Partner segment as the ProConnect segment. This segment continues to serve professional accountants.
In December 2020 we acquired Credit Karma in a business combination and it operates as a separate reportable segment. We have included the results of operations of Credit Karma in our condensed consolidated statements of operations from the date of acquisition. See Note 5, "Business Combinations," for more information. Segment operating income for Credit Karma includes all direct expenses, which is different from our other reportable segments where we do not fully allocate corporate expenses.
Small Business & Self-Employed: This segment serves small businesses and the self-employed around the world, and the accounting professionals who 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 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; and access to their credit scores and reports, credit and identity monitoring, credit report dispute, and data-driven resources. | ||
All of our segments operate primarily in the United States and sell primarily to customers in the United States. International totalTotal international net revenue was less than 5% of consolidated total net revenue for all periods presented.the three and nine months ended April 30, 2021 and April 30, 2020.
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, 20192020 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 Q3 Fiscal 2021 Form 10-Q | 27 | ||||||||||
The following table shows our financial results by reportable segment for the periods indicated. Segment results for fiscal 2020 have been reclassified to conform to the fiscal 2021 segment presentation, as described earlier in this footnote.
| Three Months Ended | Nine Months Ended | ||||||||||||||
| (In millions) | April 30, 2020 | April 30, 2019 | April 30, 2020 | April 30, 2019 | |||||||||||
| Net revenue: | |||||||||||||||
| Small Business & Self-Employed | $ | 982 | $ | 887 | $ | 3,001 | $ | 2,628 | |||||||
| Consumer | 1,827 | 2,150 | 2,426 | 2,701 | |||||||||||
| Strategic Partner | 193 | 235 | 436 | 461 | |||||||||||
| Total net revenue | $ | 3,002 | $ | 3,272 | $ | 5,863 | $ | 5,790 | |||||||
| Operating income: | |||||||||||||||
| Small Business & Self-Employed | $ | 413 | $ | 375 | $ | 1,365 | $ | 1,155 | |||||||
| Consumer | 1,321 | 1,678 | 1,439 | 1,801 | |||||||||||
| Strategic Partner | 152 | 195 | 313 | 341 | |||||||||||
| Total segment operating income | 1,886 | 2,248 | 3,117 | 3,297 | |||||||||||
| Unallocated corporate items: | |||||||||||||||
| Share-based compensation expense | (103 | ) | (98 | ) | (321 | ) | (303 | ) | |||||||
| Other common expenses | (363 | ) | (360 | ) | (1,081 | ) | (968 | ) | |||||||
| Amortization of acquired technology | (5 | ) | (5 | ) | (17 | ) | (15 | ) | |||||||
| Amortization of other acquired intangible assets | (2 | ) | (1 | ) | (5 | ) | (4 | ) | |||||||
| Total unallocated corporate items | (473 | ) | (464 | ) | (1,424 | ) | (1,290 | ) | |||||||
| Total operating income | $ | 1,413 | $ | 1,784 | $ | 1,693 | $ | 2,007 | |||||||
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| (In millions) | April 30, 2021 | April 30, 2020 | April 30, 2021 | April 30, 2020 | |||||||||||||||||||
| Net revenue: | |||||||||||||||||||||||
| Small Business & Self-Employed | $ | 1,177 | $ | 982 | $ | 3,436 | $ | 3,001 | |||||||||||||||
| Consumer | 2,445 | 1,827 | 2,711 | 2,426 | |||||||||||||||||||
| ProConnect | 235 | 193 | 465 | 436 | |||||||||||||||||||
| Credit Karma | 316 | 0 | 460 | 0 | |||||||||||||||||||
| Total net revenue | $ | 4,173 | $ | 3,002 | $ | 7,072 | $ | 5,863 | |||||||||||||||
| Operating income: | |||||||||||||||||||||||
| Small Business & Self-Employed | $ | 620 | $ | 456 | $ | 1,979 | $ | 1,496 | |||||||||||||||
| Consumer | 1,773 | 1,350 | 1,622 | 1,521 | |||||||||||||||||||
| ProConnect | 196 | 155 | 358 | 323 | |||||||||||||||||||
| Credit Karma | 117 | 0 | 155 | 0 | |||||||||||||||||||
| Total segment operating income | 2,706 | 1,961 | 4,114 | 3,340 | |||||||||||||||||||
| Unallocated corporate items: | |||||||||||||||||||||||
| Share-based compensation expense | (218) | (103) | (509) | (321) | |||||||||||||||||||
| Other corporate expenses | (506) | (438) | (1,380) | (1,304) | |||||||||||||||||||
| Amortization of acquired technology | (14) | (5) | (35) | (17) | |||||||||||||||||||
| Amortization of other acquired intangible assets | (54) | (2) | (92) | (5) | |||||||||||||||||||
| Total unallocated corporate items | (792) | (548) | (2,016) | (1,647) | |||||||||||||||||||
| Total operating income | $ | 1,914 | $ | 1,413 | $ | 2,098 | $ | 1,693 | |||||||||||||||
Revenue classified by significant product and service offerings was as follows:
| Three Months Ended | Nine Months Ended | ||||||||||||||
| (In millions) | April 30, 2020 | April 30, 2019 | April 30, 2020 | April 30, 2019 | |||||||||||
| Net revenue: | |||||||||||||||
| QuickBooks Online Accounting | $ | 353 | $ | 260 | $ | 989 | $ | 708 | |||||||
| Online Services | 207 | 179 | 602 | 496 | |||||||||||
| Total Online Ecosystem | 560 | 439 | 1,591 | 1,204 | |||||||||||
| QuickBooks Desktop Accounting | 173 | 181 | 577 | 563 | |||||||||||
| Desktop Services and Supplies | 249 | 267 | 833 | 861 | |||||||||||
| Total Desktop Ecosystem | 422 | 448 | 1,410 | 1,424 | |||||||||||
| Small Business & Self-Employed | 982 | 887 | 3,001 | 2,628 | |||||||||||
| Consumer | 1,827 | 2,150 | 2,426 | 2,701 | |||||||||||
| Strategic Partner | 193 | 235 | 436 | 461 | |||||||||||
| Total net revenue | $ | 3,002 | $ | 3,272 | $ | 5,863 | $ | 5,790 | |||||||
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| (In millions) | April 30, 2021 | April 30, 2020 | April 30, 2021 | April 30, 2020 | |||||||||||||||||||
| Net revenue: | |||||||||||||||||||||||
| QuickBooks Online Accounting | $ | 437 | $ | 353 | $ | 1,233 | $ | 989 | |||||||||||||||
| Online Services | 278 | 207 | 747 | 602 | |||||||||||||||||||
| Total Online Ecosystem | 715 | 560 | 1,980 | 1,591 | |||||||||||||||||||
| QuickBooks Desktop Accounting | 193 | 173 | 594 | 577 | |||||||||||||||||||
| Desktop Services and Supplies | 269 | 249 | 862 | 833 | |||||||||||||||||||
| Total Desktop Ecosystem | 462 | 422 | 1,456 | 1,410 | |||||||||||||||||||
| Small Business & Self-Employed | 1,177 | 982 | 3,436 | 3,001 | |||||||||||||||||||
| Consumer | 2,445 | 1,827 | 2,711 | 2,426 | |||||||||||||||||||
| ProConnect | 235 | 193 | 465 | 436 | |||||||||||||||||||
| Credit Karma | 316 | 0 | 460 | 0 | |||||||||||||||||||
| Total net revenue | $ | 4,173 | $ | 3,002 | $ | 7,072 | $ | 5,863 | |||||||||||||||
Revenue from our QuickBooks Desktop packaged software products was $43 million and $89 million for the three and nine months ended April 30, 2021, respectively, and $36 million and $97 million for the three and nine months ended April 30, 2020, respectively, and $53 million and $119 million for the three and nine months ended April 30, 2019, respectively. These amounts are included in the QuickBooks Desktop Accounting revenue presented in the table above.
Intuit Q3 Fiscal | |||||||||||
| ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | ||
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 ended July 31, 2019.
In March 2020 the World Health Organization declared the COVID-19 outbreak as a pandemic. The COVID-19 pandemic has
had significant adverse impacts on the U.S. and global economies. We are conducting business with substantial modifications
to employee work locations and employee travel, among other modifications. While we have not experienced significant
disruptions to our operations thus far 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 mid-MarchAugust 2020 we beganreorganized certain technology and customer success functions that support and benefit our overall platform. Additionally, certain legal, facility and employee service costs are now managed at the corporate level. As a result, these costs are no longer included in segment operating income and are now included in other corporate expenses. For the three and nine months ended April 30, 2020, we reclassified $43 million and $131 million from Small Business & Self-Employed, $29 million and $82 million from Consumer, and $3 million and $10 million from ProConnect to seeother corporate expenses. In August 2020, we also renamed our Strategic Partner segment as the COVID-19 pandemic negatively impact our small businessProConnect segment. This segment continues to serve professional accountants. Segment results as many small businesses are closed orfor fiscal 2020 have scaled back their offerings. Additionally, duebeen reclassified to conform to the extension of the Internal Revenue Service (IRS) tax filing deadline from April 15th,fiscal 2021 segment presentation.
In December 2020, to July 15th, 2020, and all states withwe acquired Credit Karma in a personal income tax extending their due dates predominantly to July, it is difficult to anticipate the tax filing behavior for the 2019 tax year. We will continue to actively monitor the situation and evaluate the nature and extent of the impact to our business and financial performance.
Intuit Q3 Fiscal 2021 Form 10-Q | 29 | ||||||||||
| 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 threefour reportable segments – Small Business & Self-Employed, Consumer, ProConnect, and Strategic Partner.Credit Karma.
(1) Credit Karma revenue from December 3, 2020Small Business & Self-Employed: This segment serves small businesses and the self-employed around the world, and the accounting professionals who 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 | ||
| Our Growth Strategy | ||
Intuit Q3 Fiscal | |||||||||||
•Machine Learning – Building algorithms which progressively learn from data to automate tasks for our customers.
•Knowledge Engineering – Turning rules, such as IRS regulations, and relationships about data into code to eliminate work and provide tailored experiences.
•Natural Language Processing – Processing, analyzing and understanding human language to create interactions with customers and automate repetitive tasks.
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 the U.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 recently completed 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.
| Industry Trends and Seasonality | ||
Industry Trends
Seasonality
Due to the COVID-19 pandemic, the timing of tax filing seasons for fiscal 2021 and fiscal 2020 varied significantly. In fiscal 2020, the IRS extendedbegan accepting returns on January 27, 2020 and the tax filing deadline for the 2019 tax year from April 15, 2020 towas July 15, 2020. Additionally, all states with a personal incomeIn fiscal 2021, the IRS began accepting returns on February 12, 2021 and the tax have also extended their due dates, predominantly to July. As a result, we expect a shift in sales and revenue from our third fiscal quarter to our fourth fiscal quarterfiling deadline was May 17, 2021. The inconsistent tax filing seasons during fiscal 2020. 2021 and 2020 impacted our revenue and results of operations for the three and nine months ended April 30, 2021 and April 30, 2020 as discussed below.
We expect the seasonality of our Consumer and Strategic PartnerProConnect businesses to continue to have a significant impact on our quarterly financial results in the future.
Intuit Q3 Fiscal 2021 Form 10-Q | 31 | ||||||||||
| 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.
For our consumer and professional tax offerings, we have implemented additional security measures and are continuing to work with state and federal governments to shareimplement 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 $5.2$6.0 billion or 76%79% of our total revenue in fiscal 20192020 and we expect our total service and other revenue to continue to grow in the future.
Key highlights for the first nine months of fiscal 20202021 include the following:
| Revenue of | Consumer revenue of | Small Business & Self-Employed revenue of | ||||||||||||||
| $ | $ | $ | ||||||||||||||
| up | up 14% from the same period of fiscal | |||||||||||||||
| Operating income of | Net income of | Diluted net income per share of | ||||||||||||||
| $2.1 B | $1.7 B | $ | ||||||||||||||
| 2020 | ||||||||||||||||
Intuit Q3 Fiscal 2021 Form 10-Q | 32 | ||||||||||
| 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 ended July 31, 20192020 have the greatest potential impact on our financial statements, so we consider them to be our critical accounting policies and estimates. WeExcept for the critical accounting policy and estimates discussed below, we believe that there were no significant changes in those critical accounting policies and estimates during the first nine months of fiscal 2020.2021. 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 the Audit and Risk Committee of our Board of Directors.
As discussed in our Annual Report on Form 10-K for the fiscal year ended July 31, 2020, in the absence of indicators of impairment we test goodwill for impairment annually during our fourth fiscal quarter. As part of that test, we compare the estimated fair value of each reporting unit to its carrying value. We determine the estimated fair value of each reporting unit based on a weighted combination of income and market approaches. We describe the estimates, judgments and assumptions we make in connection with goodwill impairment assessments under "Goodwill, Acquired Intangible Assets and Other Long-Lived Assets" in Note 1 to the financial statements in Item 8 of that report and "Goodwill, Acquired Intangible Assets and Other Long-Lived Assets - Impairment Assessments" in the Critical Accounting Policies and Estimates section of Item 7 of that Form 10-K.
In December 2020 we acquired Credit Karma and have determined it is a separate reporting unit. As of the acquisition date the estimated fair value of the Credit Karma reporting unit approximated its carrying value of $7.2 billion. In the course of estimating the fair value of that reporting unit, we considered the current macroeconomic environment, Credit Karma's ongoing recovery from the macroeconomic environment surrounding the COVID-19 pandemic, its performance compared to internal financial expectations and key business milestones, and its financial performance compared to that of similar lines of business within comparable companies.
For all of our reporting units, estimates of fair value can be affected by a variety of factors, including external factors such as industry or economic trends, and internal factors such as changes in our business strategy and our internal forecasts. The recent global economic downturn has caused significant disruptions in the credit markets. Potential events or circumstances that could reasonably be expected to negatively affect the key assumptions we used in estimating the fair value of our Credit Karma reporting unit include a prolonged downturn in the credit markets that leads to credit card companies and lenders offering fewer credit cards and loans, a reduction in their marketing activities, and a decrease or suspension of their activity on Credit Karma's platform. Additionally, the creditworthiness of Credit Karma's members may continue to be negatively impacted, which could reduce participation on Credit Karma's platform by financial institution partners. If the estimated fair value of our Credit Karma reporting unit declines due to any of these factors, we may be required to record future goodwill impairment charges.
Intuit Q3 Fiscal | |||||||||||
| RESULTS OF OPERATIONS | ||
| Financial Overview | Financial Overview | Financial Overview | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in millions, except per share amounts) | Q3 FY20 | Q3 FY19 | $ Change | % Change | YTD Q3 FY20 | YTD Q3 FY19 | $ Change | % Change | (Dollars in millions, except per share amounts) | Q3 FY21 | Q3 FY20 | $ Change | % Change | YTD Q3 FY21 | YTD Q3 FY20 | $ Change | % Change | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total net revenue | $ | 3,002 | $ | 3,272 | $ | (270 | ) | (8 | )% | $ | 5,863 | $ | 5,790 | $ | 73 | 1 | % | Total net revenue | $ | 4,173 | $ | 3,002 | $ | 1,171 | 39 | % | $ | 7,072 | $ | 5,863 | $ | 1,209 | 21 | % | ||||||||||||||||||||||||||||||||||||||||||
| Operating income | 1,413 | 1,784 | (371 | ) | (21 | )% | 1,693 | 2,007 | (314 | ) | (16 | )% | Operating income | 1,914 | 1,413 | 501 | 35 | % | 2,098 | 1,693 | 405 | 24 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | 1,084 | 1,378 | (294 | ) | (21 | )% | 1,381 | 1,601 | (220 | ) | (14 | )% | Net income | 1,464 | 1,084 | 380 | 35 | % | 1,682 | 1,381 | 301 | 22 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Diluted net income per share | $ | 4.11 | $ | 5.22 | $ | (1.11 | ) | (21 | )% | $ | 5.24 | $ | 6.06 | $ | (0.82 | ) | (14 | )% | Diluted net income per share | $ | 5.30 | $ | 4.11 | $ | 1.19 | 29 | % | $ | 6.20 | $ | 5.24 | $ | 0.96 | 18 | % | |||||||||||||||||||||||||||||||||||||||||
Current Fiscal Quarter
Total net revenue for the third quarter of fiscal 2020 decreased $270 million2021 increased $1.2 billion or 8%39% compared with the same quarter of fiscal 2019. As a relief measure in response2020. The acquisition of Credit Karma contributed $316 million to total revenue during the third quarter of fiscal 2021. Revenue for our Consumer and ProConnect segments increased compared to the COVID-19 pandemic, the IRS extended the filing deadline for the 2019 tax year from April 15, 2020 to July 15, 2020 and all states with a personal income tax have also extended their due dates, predominantly to July.same period in fiscal 2020. As a result of the extensionshift in timing of the fiscal 2021 and 2020 tax filing seasons discussed above, a certain amount of sales shifted from our third fiscal quarter to our fourth fiscal quarter for both years. However, as the tax filing deadline revenue for our Consumer and Strategic Partner segments also decreasedwas earlier in fiscal 2021 as compared to fiscal 2020, there was an increase in revenue during the same quarter of fiscal 2019.2021 period. Our Small Business & Self-Employed segment revenue increased during the quarter primarily due to growth in our Online Ecosystem revenue. See “Segment“Segment Results” later in this Item 2 for more information about the results for all of our reportable segments.
Operating income for the third quarter of fiscal 2020 decreased $3712021 increased $501 million or 21%35% compared with the same quarter of fiscal 2019. The decrease was due to the decrease in revenue2020. Revenue increased as described above, and higher expenses for staffing and professional fees for the close of a pending business combination, which werewas partially offset by a decreasean increase in expenses primarily for salesstaffing, marketing, share-based compensation, and marketing.amortization of other acquired intangible assets. See “"Cost of Revenue" and “Operating ExpensesExpenses”” later in this Item 2 for more information.
Net income for the third quarter of fiscal 2020 decreased $2942021 increased $380 million or 21% due to35% compared with the decreasesame period of fiscal 2020 in line with the increase in operating income described above. Diluted net income per share decreased 21%increased 29% to $4.11$5.30 for the third quarter of fiscal 2020, in line with2021, due to the decreaseincrease in net income.income, partially offset by the 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.
Fiscal Year to Date
Total net revenue for the first nine months of fiscal 20202021 increased $73 million$1.2 billion or 1%21% compared with the same period of fiscal 2019. As a relief measure2020. The acquisition of Credit Karma contributed $460 million to total other revenue in responsethe fiscal 2021 period. Revenue for our Consumer and ProConnect segments increased compared to the COVID-19 pandemic, the IRS extended the filing deadline for the 2019 tax year from April 15, 2020 to July 15, 2020 and all states with a personal income tax have also extended their due dates, predominantly to July.same period in fiscal 2020. As a result of the extensionshift in timing of the fiscal 2021 and 2020 tax filing seasons discussed above, a certain amount of sales shifted from our third fiscal quarter to our fourth fiscal quarter for both years. However, as the tax filing deadline revenue for our Consumer and Strategic Partner segments decreasedwas earlier in fiscal 2021 as compared to fiscal 2020, there was an increase in revenue during the same period of fiscal 2019.2021 period. Our Small Business & Self-Employed segment revenue increased during the periodprimarily due to growth in our Online Ecosystem revenue. 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 nine months of fiscal 2020 decreased $3142021 increased $405 million or 16%24% compared with the same period of fiscal 2019. The decrease was primarily due to the decrease in Consumer and Strategic Partner segment revenues2020. Revenue increased as described above, and higherwhich was partially offset by an increase in expenses primarily for staffing, outside services, corporate related expenses,share-based compensation, amortization of other acquired intangible assets, and professional fees for the closemarketing. See "Cost of a pending business combination. See “Revenue" and “Operating ExpensesExpenses”” later in this Item 2 for more information.
Net income for the first nine months of fiscal 2020 decreased $2202021 increased $301 million or 14%22% compared with the same period of fiscal 20192020 primarily due to the decreaseincrease in operating income described above.above, a $30 million gain from the sale of a note receivable that was previously written off, and a $17 million gain on other long-term investments. These increases were partially offset by a higher tax expense for the period. Diluted net income per share decreased 14%increased 18% to $5.24$6.20 for the first nine months of fiscal 2020, in line with2021 due to the decreaseincrease in net income.
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 threefour reportable segments. See “Executive Overview – About Intuit” earlier in this Item 2 and Note 1112 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 in the United States. International totalTotal international net revenue was less than 5% for the three and nine months ended April 30, 2021 and April 30, 2020.
In August 2020 we reorganized certain technology and customer success functions that support and benefit our overall platform. Additionally, certain legal, facility and employee service costs are now managed at the corporate level. As a result,
Intuit Q3 Fiscal 2021 Form 10-Q | 34 | ||||||||||
these costs are no longer included in segment operating income and are now included in other corporate expenses. For the three and nine months ended April 30, 2020, we reclassified $43 million and $131 million from Small Business & Self-Employed, $29 million and $82 million from Consumer, and $3 million and $10 million from ProConnect to other corporate expenses. In August 2020, we also renamed our Strategic Partner segment as the ProConnect segment. This segment continues to serve professional accountants.
In December 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 total net revenueresults of operations from the date of acquisition. See Note 5, "Business Combinations," to the financial statements in Part I, Item 1 of this Quarterly Report for all periods presented.more information.
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. SegmentFor our Small Business & Self-Employed, Consumer, and ProConnect reportable segments, we include expenses do not include certain costs, such as corporate selling and marketing, product development, and general and administrative, expenses, and share-based compensation expenses, which are not allocated to specific segments.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 costscorporate items for all segments totaled $1.4$2.0 billion in the first nine months of fiscal 20202021 and $1.3$1.6 billion in the first nine months of fiscal 2019.2020. Unallocated costscorporate items increased in the fiscal 20202021 period due to increased corporate product development, selling and marketing, and general and administrative expenses in support of the growth of our businesses, and higher share-based compensation expenses. Segment expenses, also do not includehigher amortization of acquired technology, and higher amortization of other acquired intangible assets which totaled $22 million in the first nine months of fiscal 2020 and $19 million in the first nine months of fiscal 2019.assets. See Note 1112 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 Q3 Fiscal | |||||||||||
| Small Business & Self-Employed |  | ||||
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; 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 financial supplies.financing for small businesses.
Segment product revenue is derived from revenue related to software license and version protection for our QuickBooks Desktop products and subscriptions, license and related updates for our desktop payroll products and financial supplies, which are all part of our Desktop Ecosystem. Segment service and other revenue is derived from our Online Ecosystem revenue;revenue and Desktop Ecosystem revenue related to support and connected services for our QuickBooks Desktop and desktop payroll products and subscriptions and merchant payment processing services.
| (Dollars in millions) | Q3 FY21 | Q3 FY20 | % Change | YTD Q3 FY21 | YTD Q3 FY20 | % Change | |||||||||||||||||||||||||||||
| Product revenue | $ | 250 | $ | 226 | 11 | % | $ | 825 | $ | 797 | 4 | % | |||||||||||||||||||||||
| Service and other revenue | 927 | 756 | 23 | % | 2,611 | 2,204 | 18 | % | |||||||||||||||||||||||||||
| Total segment revenue | $ | 1,177 | $ | 982 | 20 | % | $ | 3,436 | $ | 3,001 | 14 | % | |||||||||||||||||||||||
| % of total revenue | 28 | % | 33 | % | 49 | % | 51 | % | |||||||||||||||||||||||||||
| Segment operating income | $ | 620 | $ | 456 | 36 | % | $ | 1,979 | $ | 1,496 | 32 | % | |||||||||||||||||||||||
| % of related revenue | 53 | % | 46 | % | 58 | % | 50 | % | |||||||||||||||||||||||||||
| (Dollars in millions) | Q3 FY20 | Q3 FY19 | % Change | YTD Q3 FY20 | YTD Q3 FY19 | % Change | |||||||||||||||
| Product revenue | $ | 226 | $ | 243 | (7 | )% | $ | 797 | $ | 803 | (1 | )% | |||||||||
| Service and other revenue | 756 | 644 | 17 | % | 2,204 | 1,825 | 21 | % | |||||||||||||
| Total segment revenue | $ | 982 | $ | 887 | 11 | % | $ | 3,001 | $ | 2,628 | 14 | % | |||||||||
| % of total revenue | 33 | % | 27 | % | 51 | % | 45 | % | |||||||||||||
| Segment operating income | $ | 413 | $ | 375 | 10 | % | $ | 1,365 | $ | 1,155 | 18 | % | |||||||||
| % of related revenue | 42 | % | 42 | % | 45 | % | 44 | % | |||||||||||||
Intuit Q3 Fiscal | |||||||||||
Revenue classified by significant product and service offerings was as follows:
| (Dollars in millions) | Q3 FY20 | Q3 FY19 | % Change | YTD Q3 FY20 | YTD Q3 FY19 | % Change | (Dollars in millions) | Q3 FY21 | Q3 FY20 | % Change | YTD Q3 FY21 | YTD Q3 FY20 | % Change | |||||||||||||||||||||||||||||||||||||||||||
| Net revenue: | Net revenue: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| QuickBooks Online Accounting | $ | 353 | $ | 260 | 36 | % | $ | 989 | $ | 708 | 40 | % | QuickBooks Online Accounting | $ | 437 | $ | 353 | 24 | % | $ | 1,233 | $ | 989 | 25 | % | |||||||||||||||||||||||||||||||
| Online Services | 207 | 179 | 16 | % | 602 | 496 | 21 | % | Online Services | 278 | 207 | 34 | % | 747 | 602 | 24 | % | |||||||||||||||||||||||||||||||||||||||
| Total Online Ecosystem | 560 | 439 | 28 | % | 1,591 | 1,204 | 32 | % | Total Online Ecosystem | 715 | 560 | 28 | % | 1,980 | 1,591 | 24 | % | |||||||||||||||||||||||||||||||||||||||
| QuickBooks Desktop Accounting | 173 | 181 | (4 | )% | 577 | 563 | 2 | % | QuickBooks Desktop Accounting | 193 | 173 | 12 | % | 594 | 577 | 3 | % | |||||||||||||||||||||||||||||||||||||||
| Desktop Services and Supplies | 249 | 267 | (7 | )% | 833 | 861 | (3 | )% | Desktop Services and Supplies | 269 | 249 | 8 | % | 862 | 833 | 3 | % | |||||||||||||||||||||||||||||||||||||||
| Total Desktop Ecosystem | 422 | 448 | (6 | )% | 1,410 | 1,424 | (1 | )% | Total Desktop Ecosystem | 462 | 422 | 9 | % | 1,456 | 1,410 | 3 | % | |||||||||||||||||||||||||||||||||||||||
| Total Small Business & Self-Employed | $ | 982 | $ | 887 | 11 | % | $ | 3,001 | $ | 2,628 | 14 | % | Total Small Business & Self-Employed | $ | 1,177 | $ | 982 | 20 | % | $ | 3,436 | $ | 3,001 | 14 | % | |||||||||||||||||||||||||||||||
Revenue for our Small Business & Self-Employed segment increased $95$195 million or 11%20% in the third quarter of fiscal 20202021 and $373$435 million or 14% in the first nine months of fiscal 20202021 compared with the same periods of fiscal 2019.2020. The increase in both periods was primarily due to growth in Online Ecosystem revenue.
Online Ecosystem Revenue
Online Ecosystem revenue increased 28% in the third quarter of fiscal 20202021 and 32%24% in the first nine months of fiscal 20202021 compared with the same periods of fiscal 2019.2020. QuickBooks Online Accounting revenue increased 36%24% in the third quarter of fiscal 20202021 and 40%25% in the first nine months of fiscal 20202021 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 16%34% in the third quarter of fiscal 20202021 and 21%24% in the first nine months of fiscal 20202021 primarily due to an increase in revenue from our payments and payroll offerings. Online payments revenue increased due to an increase in customers and payments offerings.an increase in charge volume per customer. Online payroll revenue increased due to a shift in mix to our full service offering and an increase in customers. Online payments revenue increased due to an increase in customers and an increase in charge volume per customer.
Desktop Ecosystem Revenue
Desktop Ecosystem revenue decreased 6%increased 9% in the third quarter of fiscal 20202021 compared with the same quarter of fiscal 2020. The increase was due to growth in our QuickBooks Desktop Enterprise subscription offering as well as Desktop Payments and decreased 1%Desktop Payroll offerings primarily as a result of an increase in customers. Additionally we experienced higher Desktop unit sales in the third quarter of fiscal 2021 compared to the same period in the prior year which had fewer units as a result of the pandemic.
Desktop Ecosystem revenue increased 3% in the first nine months of fiscal 20202021 compared with the same periodsperiod of fiscal 2019. The decrease was2020. Revenue in the first nine months of fiscal 2021 increased due to a decline in Desktop units, which was partially offset by growth in our QuickBooks Desktop Enterprise subscription offering due to an increase in customers.customers, higher revenue for Desktop Payroll and Desktop Payments, revenues both decreased due to fewer customers.and higher Desktop unit sales. During the first quarter of fiscal 2021 there was an increase in revenue from license updates associated with our Pro Advisor offerings and higher revenue from version protection as a result of price increases in the prior year.
Small Business & Self-Employed segment operating income increased 10%36% in the third quarter of fiscal 2020 and 18% in the first nine months of fiscal 20202021 compared with the same periodsperiod of fiscal 2019,2020 primarily due to the increase in revenue described above, partially offset by higher expenses for staffing and outside services.marketing. Operating income increased 32% in the first nine months of fiscal 2021 compared with the same period of fiscal 2020, primarily due to the increase in revenue described above, and lower expenses. Decreases in marketing and depreciation expense were partially offset by an increase in staffing.
Intuit Q3 Fiscal | |||||||||||
| Consumer |  | ||||
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 and Turbo offerings.offering.
| (Dollars in millions) | Q3 FY20 | Q3 FY19 | % Change | YTD Q3 FY20 | YTD Q3 FY19 | % Change | (Dollars in millions) | Q3 FY21 | Q3 FY20 | % Change | YTD Q3 FY21 | YTD Q3 FY20 | % Change | |||||||||||||||||||||||||||||||||||||||||||
| Product revenue | $ | 83 | $ | 94 | (12 | )% | $ | 179 | $ | 198 | (10 | )% | Product revenue | $ | 110 | $ | 83 | 33 | % | $ | 183 | $ | 179 | 2 | % | |||||||||||||||||||||||||||||||
| Service and other revenue | 1,744 | 2,056 | (15 | )% | 2,247 | 2,503 | (10 | )% | Service and other revenue | 2,335 | 1,744 | 34 | % | 2,528 | 2,247 | 13 | % | |||||||||||||||||||||||||||||||||||||||
| Total segment revenue | $ | 1,827 | $ | 2,150 | (15 | )% | $ | 2,426 | $ | 2,701 | (10 | )% | Total segment revenue | $ | 2,445 | $ | 1,827 | 34 | % | $ | 2,711 | $ | 2,426 | 12 | % | |||||||||||||||||||||||||||||||
| % of total revenue | 61 | % | 66 | % | 41 | % | 47 | % | % of total revenue | 58 | % | 61 | % | 38 | % | 41 | % | |||||||||||||||||||||||||||||||||||||||
| Segment operating income | $ | 1,321 | $ | 1,678 | (21 | )% | $ | 1,439 | $ | 1,801 | (20 | )% | Segment operating income | $ | 1,773 | $ | 1,350 | 31 | % | $ | 1,622 | $ | 1,521 | 7 | % | |||||||||||||||||||||||||||||||
| % of related revenue | 72 | % | 78 | % | 59 | % | 67 | % | % of related revenue | 73 | % | 74 | % | 60 | % | 63 | % | |||||||||||||||||||||||||||||||||||||||
Segment operating income decreased 20%increased $101 million or 7% in the first nine months of fiscal 20202021 compared with the same period of fiscal 20192020 primarily due to the decreaseincrease in revenue described above, as well aspartially offset by higher expenses for staffing, marketing, and outside services.
In August 2020, we reorganized certain technology and customer success functions that support and benefit our overall platform. Additionally, certain legal, facility and employee service costs are now managed at the corporate related expenses,level. As a result, these costs are no longer included in segment operating income and advertisingare now included in other corporate expenses. For the three and marketing.nine months ended April 30, 2020, we reclassified $29 million and $82 million from Consumer to other corporate expenses.
Due to the extension of the tax filing deadline from April 15, 20202021 to July 15, 2020, we expect a shift in sales and revenue from our third fiscal quarter to our fourth fiscal quarter during fiscal 2020. As a result,May 17, 2021, we will not have substantially complete results for the 20192020 tax season until the fourth quarter of fiscal 2020.2021.
Intuit Q3 Fiscal | |||||||||||
 | |||||
ProConnect segment service and other revenue is derived primarily from ProConnect Tax Online tax products, electronic tax filing service, connected services and, bank products.
| (Dollars in millions) | Q3 FY20 | Q3 FY19 | % Change | YTD Q3 FY20 | YTD Q3 FY19 | % Change | (Dollars in millions) | Q3 FY21 | Q3 FY20 | % Change | YTD Q3 FY21 | YTD Q3 FY20 | % Change | |||||||||||||||||||||||||||||||||||||||||||
| Product revenue | $ | 134 | $ | 161 | (17 | )% | $ | 365 | $ | 377 | (3 | )% | Product revenue | $ | 173 | $ | 134 | 29 | % | $ | 387 | $ | 365 | 6 | % | |||||||||||||||||||||||||||||||
| Service and other revenue | 59 | 74 | (20 | )% | 71 | 84 | (15 | )% | Service and other revenue | 62 | 59 | 5 | % | 78 | 71 | 10 | % | |||||||||||||||||||||||||||||||||||||||
| Total segment revenue | $ | 193 | $ | 235 | (18 | )% | $ | 436 | $ | 461 | (5 | )% | Total segment revenue | $ | 235 | $ | 193 | 22 | % | $ | 465 | $ | 436 | 7 | % | |||||||||||||||||||||||||||||||
| % of total revenue | 6 | % | 7 | % | 8 | % | 8 | % | % of total revenue | 6 | % | 6 | % | 7 | % | 8 | % | |||||||||||||||||||||||||||||||||||||||
| Segment operating income | $ | 152 | $ | 195 | (22 | )% | $ | 313 | $ | 341 | (8 | )% | Segment operating income | $ | 196 | $ | 155 | 26 | % | $ | 358 | $ | 323 | 11 | % | |||||||||||||||||||||||||||||||
| % of related revenue | 79 | % | 83 | % | 72 | % | 74 | % | % of related revenue | 83 | % | 80 | % | 77 | % | 74 | % | |||||||||||||||||||||||||||||||||||||||
