December 9, 2022

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INTUIT INC MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

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, 2021.
Due to the COVID-19 pandemic we continue to conduct business with substantial
modifications to employee work locations and employee travel, among other
modifications. In June 2021 a small number of employees started returning to
work locations on a limited basis. While we have not experienced significant
disruptions to our operations from the COVID-19 pandemic, we are unable to
predict the full impact that the COVID-19 pandemic will have on our operations
and future financial performance, including demand for our offerings, impact to
our customers and partners, actions that may be taken by governmental
authorities, and other factors identified in "Risk Factors" in Item 1A of Part
II of this Quarterly Report.
In the second quarter of fiscal 2021 we acquired Credit Karma in a business
combination, which operates as a separate reportable segment. We have included
the results of operations of Credit Karma in our condensed consolidated results
of operations from the date of acquisition. Segment operating income for Credit
Karma includes all direct expenses related to selling and marketing, product
development, and general and administrative, which is different from our other
reportable segments where we do not fully allocate corporate expenses.
Therefore, Credit Karma segment operating income is not comparable to the
segment operating income of our other reportable segments.
On November 1, 2021 we acquired all of the outstanding equity of The Rocket
Science Group LLC (Mailchimp) for total consideration of $12 billion and
included $5.7 billion in cash and 10.1 million shares of Intuit common stock
with a value of approximately $6.3 billion. The fair value of the stock
consideration is based on the October 29, 2021 closing price of Intuit common
stock of $625.99.
Pursuant to the equity purchase agreement we also issued approximately 573,000
restricted stock units in substitution of outstanding equity incentive awards.
These restricted stock units have a fair value of approximately $349 million and
will be expensed over three years. Additionally, we will be issuing
approximately $215 million of RSUs to Mailchimp employees, of which $155 million
will be expensed over four years and $60 million will be expensed over six
months. See Note 12 to the financial statements in Part I, Item 1 of this
Quarterly Report for more information.
EXECUTIVE OVERVIEW


This overview provides a high-level discussion of our operating results and some
of the trends that affect our business. We believe that an understanding of
these trends is important in order to understand our financial results as well
as our future prospects. This summary is not intended to be exhaustive, nor is
it a substitute for the detailed discussion and analysis provided elsewhere in
this Quarterly Report on Form 10-Q.
About Intuit


Intuit helps consumers, small businesses, and the self-employed prosper by
delivering financial management and compliance products and services. We also
provide specialized tax products to accounting professionals, who are key
partners that help us serve small business customers. We organize our businesses
into four reportable segments - Small Business & Self-Employed, Consumer, Credit
Karma, and ProConnect.


Intuit Q1 Fiscal 2022 Form 10-Q 27

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                    [[Image Removed: intu-20211031_g2.jpg]]








Small Business & Self-Employed: This segment serves small businesses and the self-employed
around the world, and the accounting professionals who assist and advise them. Our
offerings include QuickBooks financial and business management online services and desktop
software, payroll solutions, merchant payment processing solutions, and financing for
small businesses.
Consumer: This segment serves consumers and includes do-it-yourself and assisted TurboTax
income tax preparation products and services sold in the U.S. and Canada. Our Mint
offering is a personal finance offering which helps customers track their finances and
daily financial behavior.
 Credit Karma: This segment serves consumers with a personal finance platform that
provides personalized recommendations of credit card, home, auto and personal loans, and
insurance products; online savings and checking accounts through our partner, MVB Bank,
Inc., member FDIC; and access to their credit scores and reports, credit and identity
monitoring, credit report dispute, and data-driven resources.
ProConnect: This segment serves professional accountants in the U.S. and Canada, who are
essential to both small business success and tax preparation and filing. Our professional
tax offerings include Lacerte, ProSeries, and ProConnect Tax Online in the U.S, and
ProFile and ProTax Online in Canada.


                             Our Growth Strategy


At Intuit, our strategy starts with customer obsession. We listen to and observe
our customers, understand their challenges, and then use advanced technology,
including artificial intelligence (AI), to develop innovative solutions designed
to solve their most important financial problems. For more than three decades,
we have reinvented and disrupted ourselves in order to ensure our customers are
armed with the technology they need to grow and prosper.
Our strategy for delivering on our bold goals is to become an AI-driven expert
platform where we and others can solve our customers' most important problems.
We plan to accelerate the development of the platform by applying AI in the
three key areas:
•An Open Platform: None of us can do it alone, including Intuit. The best way to
deliver for customers is by creating an open, collaborative platform. It's the
power of partnerships that accelerates the world's success. Our open technology
platform integrates with partners so together we can deliver value and benefits
that matter the most to our customers.
•Application of AI: AI helps our customers work smarter because we can automate,
predict and personalize their experience. Using AI technologies, we are:
leveraging machine learning to build decision engines and algorithms that learn
from rich datasets to transform user experiences; applying knowledge engineering
and turning compliance rules into code; and using natural language processing to
revolutionize how customers interact with products and services.
•Incorporating Experts: One of the biggest problems our customers face is
confidence. Even with current advances in technology that deliver personalized
tools and insights, many people want to connect with a real person to help give
them the confidence they are making the right decision. By bringing experts onto
our platform we can solve this massive problem for customers. The power of our
virtual expert platform allows us to scale the intelligence of our products,
elevating experts to advisors and delivering big benefits for customers.

Intuit Q1 Fiscal 2022 Form 10-Q 28

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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 acquisition of Credit Karma accelerates our ability to
achieve this vision, by combining two trusted brands, customer reach, data and
platform capabilities to deliver breakthrough benefits that will power
prosperity for customers around the world.
•Be the center of small business growth: We are focused on helping customers
grow their businesses by offering a broad, seamless set of tools that are
designed to help them get paid faster, manage and get access to capital, pay
employees with confidence, and use third-party apps to help run their
businesses. At the same time, we want to position ourselves to better serve
product-based businesses to benefit customers who sell products through multiple
channels.
•Disrupt the small business mid-market: We aim to disrupt the mid-market with
QuickBooks Online Advanced, our online offering designed to address the needs of
small business customers with 10 to 100 employees. This offering enables us to
increase retention of these larger customers, and attract new mid-market
customers who are over-served by available offerings.
We expect our acquisition of Mailchimp will help us accelerate two of our
strategic priorities to become the center of small business growth and to
disrupt the small business mid-market.
Industry Trends and Seasonality


Industry Trends
AI is transforming multiple industries, including financial technology.
Disruptive start-ups, emerging ecosystems and mega-platforms are harnessing new
technology to create personalized experiences, deliver data-driven insights and
increase speed of service. These shifts are creating a more dynamic and highly
competitive environment where customer expectations are shifting around the
world as more services become digitized and the array of choices continues to
increase.
Seasonality
Our Consumer and ProConnect offerings have a significant and distinct seasonal
pattern as sales and revenue from our income tax preparation products and
services are heavily concentrated in the period from November through April.
Typically, returns are accepted by the IRS starting in January and the tax
filing deadline ends in April. This seasonal pattern results in higher net
revenues during our second and third quarters ending January 31 and April 30,
respectively. However, in fiscal 2021 the IRS began accepting returns on
February 12, 2021 and the tax filing deadline was extended to May 17, 2021.
These changes to the fiscal 2021 tax filing season impacted our second and third
quarter financial results.
We expect the seasonality of our Consumer and ProConnect businesses to continue
to have a significant impact on our quarterly financial results in the future.
Key Challenges and Risks


Our growth strategy depends upon our ability to initiate and embrace disruptive
technology trends, to enter new markets, and to drive broad adoption of the
products and services we develop and market. Our future growth also increasingly
depends on the strength of our third-party business relationships and our
ability to continue to develop, maintain and strengthen new and existing
relationships. To remain competitive and continue to grow, we are investing
significant resources in our product development, marketing, and sales
capabilities, and we expect to continue to do so in the future.
As we offer more online services, the ongoing operation and availability of our
platforms and systems and those of our external service providers is becoming
increasingly important. Because we help customers manage their financial lives,
we face risks associated with the hosting, collection, use, and retention of
personal customer information and data. We are investing significant management
attention and resources in our information technology infrastructure and in our
privacy and security capabilities, and we expect to continue to do so in the
future.

Intuit Q1 Fiscal 2022 Form 10-Q 29

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For our consumer and professional tax offerings, we have implemented additional
security measures and are continuing to work with state and federal governments
to implement industry-wide security and anti-fraud measures, including sharing
information regarding suspicious filings. We received ISO 27001 certification
for a portion of our systems and we continue to invest in security measures and
to work with the broader industry and government to protect our customers
against this type of fraud. Additionally, Credit Karma's security measures are
regularly reviewed and updated.
For a complete discussion of the most significant risks and uncertainties
affecting our business, please see "Forward-Looking Statements" immediately
preceding Part I and "Risk Factors" in Item 1A of Part II of this Quarterly
Report.
Overview of Financial Results


The most important financial indicators that we use to assess our business are
revenue growth for the company as a whole and for each reportable segment;
operating income growth for the company as a whole; earnings per share; and cash
flow from operations. We also track certain non-financial drivers of revenue
growth and, when material, identify them in the applicable discussions of
segment results below. Service offerings are a significant part of our business.
Our total service and other revenue was $7.9 billion or 82% of our total revenue
in fiscal 2021 and we expect our total service and other revenue to continue to
grow in the future.
Key highlights for the first three months of fiscal 2022 include the following:
                                      Small Business & Self-Employed            Cash, cash equivalents, and
Revenue of                            revenue of                                investments of
$2.0 B                                $1.4 B                                

$3.3 B
up 52% from the same period of up 22% from the same period of
fiscal 2021

                           fiscal 2021


CRITICAL ACCOUNTING POLICIES AND ESTIMATES


In preparing our financial statements, we make estimates, assumptions and
judgments that can have a significant impact on our net revenue, operating
income or loss, and net income or loss, as well as on the value of certain
assets and liabilities on our condensed consolidated balance sheets. We believe
that the estimates, assumptions and judgments involved in the accounting
policies described in Management's Discussion and Analysis of Financial
Condition and Results of Operations in Part II, Item 7 of our Annual Report on
Form 10-K for the fiscal year ended July 31, 2021 have the greatest potential
impact on our financial statements, so we consider them to be our critical
accounting policies and estimates. We believe that there were no significant
changes in those critical accounting policies and estimates during the first
three months of fiscal 2022. Senior management has reviewed the development and
selection of our critical accounting policies and estimates and their disclosure
in this Quarterly Report on Form 10-Q with the Audit and Risk Committee of our
Board of Directors.

Intuit Q1 Fiscal 2022 Form 10-Q 30

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RESULTS OF OPERATIONS


Financial Overview

                                                      Q1           Q1           $           %

(Dollars in millions, except per share amounts) FY22 FY21

  Change      Change
Total net revenue                                  $ 2,007      $ 1,323      $  684         52  %
Operating income                                       195          209         (14)        (7) %
Net income                                             228          198          30         15  %
Diluted net income per share                       $  0.82      $  0.75      $ 0.07          9  %


Total net revenue for the first quarter of fiscal 2022 increased $684 million or
52% compared with the same quarter of fiscal 2021. Credit Karma contributed $418
million to total revenue during the first quarter of fiscal 2021. Our Small
Business & Self-Employed segment revenue increased during the quarter primarily
due to growth in our Online Ecosystem revenue. Revenue in our Consumer and
ProConnect segments was seasonally light, consistent with the same quarter of
fiscal 2021. See "Segment Results" later in this Item 2 for more information
about the results for all of our reportable segments.
Operating income for the first quarter of fiscal 2022 decreased $14 million or
7% compared with the same quarter of fiscal 2021 primarily due to increases in
expenses for staffing, share-based compensation, marketing, and amortization of
other acquired intangible assets, partially offset by the increase in revenue
described above. See "Cost of Revenue" and "Operating Expenses" later in this
Item 2 for more information.
Net income for the first quarter of fiscal 2022 increased $30 million or 15%
compared with the same period of fiscal 2021. The increase in net income was due
to $39 million of net gains on other long-term investments which more than
offset the decrease in operating income described above. Diluted net income per
share increased 9% to $0.82 for the first quarter of fiscal 2022, due to the
increase in net income partially offset by an increase in the weighted average
shares outstanding due to the shares issued as part of the acquisition of Credit
Karma in the second quarter of fiscal 2021.
Segment Results


The information below is organized in accordance with our four reportable
segments. See "Executive Overview - About Intuit" earlier in this Item 2 and
Note 11 to the financial statements in Part I, Item 1 of this Quarterly Report
for more information. All of our segments operate and sell to customers
primarily in the United States. Total international net revenue was
approximately 6% for the three months ended October 31, 2021 and October 31,
2020.
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 results of operations
from the date of acquisition.
Segment operating income or loss is segment net revenue less segment cost of
revenue and operating expenses. See "Executive Overview - Industry Trends and
Seasonality" earlier in this Item 2 for a description of the seasonality of our
business. For our Small Business & Self-Employed, Consumer, and ProConnect
reportable segments, we include expenses such as corporate selling and
marketing, product development, and general and administrative, which are not
allocated to specific segments, in unallocated corporate items as part of other
corporate expenses. For Credit Karma, segment expenses include all direct
expenses related to selling and marketing, product development, and general and
administrative. Unallocated corporate items for all segments include share-based
compensation, amortization of acquired technology, amortization of other
acquired intangible assets, and goodwill and intangible asset impairment
charges. These unallocated corporate items for all segments totaled $873 million
in the first three months of fiscal 2022 and $552 million in the first three
months of fiscal 2021. Unallocated corporate items increased in the fiscal 2022
period due to increased corporate product development, selling and marketing,
and general and administrative expenses in support of the growth of our
businesses, higher share-based compensation expenses, higher amortization of
acquired technology, and higher amortization of other acquired intangible
assets. See Note 11 to the financial statements in Part I, Item 1 of this
Quarterly Report for reconciliations of total segment operating income or loss
to consolidated operating income or loss for each fiscal period presented.

Intuit Q1 Fiscal 2022 Form 10-Q 31

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Small Business & Self-Employed [[Image Removed: intu-20211031_g3.jpg]]

                    [[Image Removed: intu-20211031_g4.jpg]]




Small Business & Self-Employed segment includes both Online Ecosystem and
Desktop Ecosystem revenue.
Our Online Ecosystem includes revenue from QuickBooks Online, QuickBooks Live,
QuickBooks Online Advanced and QuickBooks Self-Employed financial and business
management offerings; small business payroll services, including QuickBooks
Online Payroll, Intuit Online Payroll, Intuit Full Service Payroll; merchant
payment processing services for small businesses who use online offerings;
QuickBooks Commerce, QuickBooks Cash, and financing for small businesses.
Our Desktop Ecosystem includes revenue from our QuickBooks Desktop packaged
software products (Desktop Pro, Desktop for Mac, Desktop Premier, and QuickBooks
Point of Sale); QuickBooks Desktop software subscriptions (QuickBooks Desktop
Pro Plus, QuickBooks Desktop Premier Plus, and QuickBooks Enterprise, and
ProAdvisor Program memberships for the accounting professionals who serve small
businesses); desktop payroll products (QuickBooks Basic Payroll, QuickBooks
Assisted Payroll and QuickBooks Enhanced Payroll); merchant payment processing
services for small businesses who use desktop offerings; financial supplies; and
financing for small businesses.
Segment product revenue is primarily derived from revenue related to delivery of
software licenses and the related updates, including version protection, for our
QuickBooks Desktop subscriptions and desktop payroll offerings which are part of
our Desktop Ecosystem. Segment service and other revenue is primarily derived
from our Online Ecosystem revenue and revenue from the services and support that
are provided as part of our QuickBooks Desktop subscription and desktop payroll
offerings as well as merchant payment processing services.
                                Q1            Q1           %
(Dollars in millions)          FY22          FY21        Change
Product revenue             $   378       $   348           9  %
Service and other revenue     1,065           833          28  %
Total segment revenue       $ 1,443       $ 1,181          22  %
% of total revenue               72  %         89  %

Segment operating income    $   921       $   767          20  %
% of related revenue             64  %         65  %



    Intuit Q1 Fiscal 2022 Form 10-Q      32


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Revenue classified by significant product and service offerings was as follows:
                                                      Q1           Q1           %
            (Dollars in millions)                    FY22         FY21        Change
            Net revenue:
            QuickBooks Online Accounting           $   519      $   392         32  %
            Online Services                            326          229         42  %
            Total Online Ecosystem                     845          621         36  %
            QuickBooks Desktop Accounting              267          241         11  %
            Desktop Services and Supplies              331          319          4  %
            Total Desktop Ecosystem                    598          560          7  %
            Total Small Business & Self-Employed   $ 1,443      $ 1,181         22  %


Revenue for our Small Business & Self-Employed segment increased $262 million or
22% in the first quarter of fiscal 2022 compared with the same quarter of fiscal
2021. The increase in was primarily due to growth in Online Ecosystem revenue.
Online Ecosystem Revenue
Online Ecosystem revenue increased 36% in the first quarter of fiscal 2022
compared with the same quarter of fiscal 2021. QuickBooks Online Accounting
revenue increased 32% in the first quarter of fiscal 2022 compared with the same
quarter of fiscal 2021 primarily due to an increase in customers as well as
higher effective prices and a shift in mix to our higher priced offerings.
Online Services revenue increased 42% in the first quarter of fiscal 2022
compared with the same quarter of fiscal 2021 primarily due to an increase in
revenue from our payroll and payments offerings. Online payroll revenue
increased due to an increase in customers and a shift in mix to our full service
offering. Online payments revenue increased due to an increase in customers and
an increase in charge volume per customer.
Desktop Ecosystem Revenue
Desktop Ecosystem revenue increased 7% in the first quarter of fiscal 2022
compared with the same quarter of fiscal 2021 due to the growth in our
QuickBooks Desktop Enterprise subscription offering which was partially offset
by a decrease in Desktop unit sales. Late in the first quarter of fiscal 2022 we
discontinued our QuickBooks Desktop packaged software products and now sell
predominantly on a subscription basis. Additionally, during the first quarter of
fiscal 2022 there was an increase in revenue from our Desktop Payroll and
Desktop Payments offerings.
Small Business & Self-Employed segment operating income increased 20% in the
first quarter of fiscal 2022 compared with the same quarter of fiscal 2021
primarily due to the increase in revenue described above, partially offset by
higher expenses for staffing, outside services, and marketing.

Intuit Q1 Fiscal 2022 Form 10-Q 33

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 Consumer    [[Image Removed: intu-20211031_g5.jpg]]


                    [[Image Removed: intu-20211031_g6.jpg]]



Consumer segment product revenue is derived primarily from TurboTax desktop tax
return preparation software and related form updates.
Consumer segment service and other revenue is derived primarily from TurboTax
Online and TurboTax Live offerings, electronic tax filing services and connected
services, and also from our Mint offering.




                                     Q1          Q1          %
(Dollars in millions)               FY22        FY21       Change
Product revenue                   $   7       $   7           -  %
Service and other revenue           113         112           1  %
Total segment revenue             $ 120       $ 119           1  %
% of total revenue                    6  %        9  %

Segment operating income (loss)   $ (11)      $   4             NM
% of related revenue                 (9) %        3  %


NM = Not Meaningful
Revenue for our Consumer segment increased slightly in the first three months of
fiscal 2022 compared with the same period of fiscal 2021. Due to the seasonal
nature of our Consumer offerings, we typically generate minimal revenue from
Consumer products and services in our first fiscal quarter compared with our
second and third fiscal quarters. The majority of revenue for the first quarter
of each fiscal year is for the filing of extended returns for the previous tax
year.
In our first fiscal quarter, our Consumer segment typically generates operating
losses because we continue to incur operating expenses for general and
administrative functions and research and development while revenue is minimal.
Segment operating loss was $11 million in the first three months of fiscal 2022
compared to segment operating income of $4 million for the same period of fiscal
2021. In the first quarter of fiscal 2022 expenses were higher compared to the
same period of fiscal 2021 due to higher expense for staffing which were
partially offset by lower expenses for marketing.
Because of the seasonality of our Consumer revenue, we do not believe that the
revenue or operating results for the first quarter of fiscal 2022 is indicative
of trends for the current fiscal year. We will not have substantially complete
results for the 2021 tax season until the third quarter of fiscal 2022.

Intuit Q1 Fiscal 2022 Form 10-Q 34

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Credit Karma    [[Image Removed: intu-20211031_g7.jpg]]


                    [[Image Removed: intu-20211031_g8.jpg]]






Credit Karma revenue is derived from cost-per-action transactions, which include
the delivery of qualified links that result in completed actions such as credit
card issuances and personal loan funding; and cost-per-click and cost-per-lead
transactions, which include user clicks on advertisements or advertisements that
allow for the generation of leads, and primarily relate to mortgage and
insurance businesses.



                               Q1         Q1         %
(Dollars in millions)         FY22       FY21      Change
Product revenue             $   -       $ -            N/A
Service and other revenue     418         -            N/A
Total segment revenue       $ 418       $ -            N/A
% of total revenue             21  %      -  %

Segment operating income    $ 169       $ -            N/A
% of related revenue           40  %       N/A


In the second quarter of fiscal 2021 we acquired Credit Karma. Our results of
operations include the operations of Credit Karma beginning on the date of
acquisition.
Credit Karma contributed $418 million in revenue for the three months ended
October 31, 2021. Revenue is primarily generated from cost-per-action
transactions related to credit card issuances and personal loan funding.
Segment operating income was $169 million for the three months ended October 31,
2021. Expenses were primarily related to staffing and marketing.



    Intuit Q1 Fiscal 2022 Form 10-Q      35

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ProConnect      [[Image Removed: intu-20211031_g9.jpg]]


                    [[Image Removed: intu-20211031_g10.jpg]]




ProConnect segment product revenue is derived primarily from Lacerte, ProSeries,
and ProFile desktop tax preparation software products and related form updates.
ProConnect segment service and other revenue is derived primarily from
ProConnect Tax Online tax products, electronic tax filing service, connected
services and, bank products.

                               Q1          Q1          %

(Dollars in millions) FY22 FY21 Change
Product revenue

             $  12       $  12           -  %
Service and other revenue      14          11          27  %
Total segment revenue       $  26       $  23          13  %
% of total revenue              1  %        2  %

Segment operating loss      $ (11)      $ (10)         10  %
% of related revenue          (42) %      (43) %


Revenue for our ProConnect segment revenue increased $3 million or 13% in the
first three months of fiscal 2022 compared with the same period of fiscal 2021.
Due to the seasonal nature of our ProConnect offerings, we typically generate
minimal revenue from professional tax products and services in our first fiscal
quarter compared with our second and third fiscal quarters. The majority of
revenue for the first quarter of each fiscal year is for the filing of extended
returns for the previous tax year.
In our first fiscal quarter, our ProConnect segment typically generates
operating losses because we continue to incur operating expenses for general and
administrative functions and research and development while revenue is minimal.
In the first quarter of fiscal 2022 expenses increased compared to the same
period of fiscal 2021 primarily due to higher expense for staffing.
Because of the seasonality of our ProConnect revenue, we do not believe that the
revenue or operating results for the first quarter of fiscal 2022 is indicative
of trends for the current fiscal year. We will not have substantially complete
results for the 2021 tax season until the third quarter of fiscal 2022.


Intuit Q1 Fiscal 2022 Form 10-Q 36

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Cost of Revenue

                                                   % of                    % of
                                        Q1        Related       Q1        Related
(Dollars in millions)                  FY22       Revenue      FY21       Revenue
Cost of product revenue               $  15           4  %    $  15           4  %
Cost of service and other revenue       387          24  %      234          24  %
Amortization of acquired technology      15            n/a        7            n/a
Total cost of revenue                 $ 417          21  %    $ 256          19  %


Our cost of revenue has three components: (1) cost of product revenue, which
includes the direct costs of manufacturing and shipping or electronically
downloading our desktop software products; (2) cost of service and other
revenue, which includes the direct costs associated with our online and service
offerings, such as costs for data processing and storage capabilities from cloud
providers, customer support costs, costs for the tax and bookkeeping experts
that support our TurboTax Live and QuickBooks Live offerings, and costs related
to credit score providers; and (3) amortization of acquired technology which
represents the cost of amortizing developed technologies that we have obtained
through acquisitions over their useful lives.
Cost of product revenue as a percentage of product revenue was relatively
consistent in the first quarter of fiscal 2022 compared with the same periods of
fiscal 2021. We expense costs of product revenue as they are incurred for
delivered software and we do not defer any of these costs when product revenue
is deferred.
Cost of service and other revenue as a percentage of service and other revenue
was relatively consistent in the first quarter of fiscal 2022 compared with the
same period of fiscal 2021. Credit Karma contributed $94 million to cost of
service and other revenue for the three months ended October 31, 2021.
Operating Expenses

                                                                               % of                                 % of
                                                                              Total                                Total
                                                             Q1                Net                Q1                Net
(Dollars in millions)                                       FY22             Revenue             FY21             Revenue
Selling and marketing                                    $   550                   27  %       $  362                   27  %
Research and development                                     530                   26  %          325                   25  %
General and administrative                                   262                   13  %          169                   13  %
Amortization of other acquired intangible assets              53                    3  %            2                    -  %

Total operating expenses                                 $ 1,395                   70  %       $  858                   65  %


Total operating expenses as a percentage of total net revenue increased in the
first quarter of fiscal 2022 compared to the same period of fiscal 2021. Total
net revenue for the first quarter of fiscal 2022 increased $684 million or 52%
due to the increase in revenue described above. Total operating expenses for the
quarter increased $537 million or 63%, which included $217 million of operating
expenses related to Credit Karma. Total share-based compensation expense
increased $157 million; total staffing increased $202 million, including $96
million related to Credit Karma; total marketing increased $74 million, which
included $56 million related to Credit Karma, and total amortization of other
acquired intangible assets increased $51 million, which was primarily related to
Credit Karma.
Non-Operating Income and Expenses


Interest Expense
Interest expense of $7 million for the first three months of fiscal 2022
consisted primarily of interest on our senior unsecured notes and secured
revolving credit facility. Interest expense of $8 million for the first three
months of fiscal 2021 consisted primarily of interest on our senior unsecured
notes, unsecured term loan, unsecured revolving credit facility, and secured
revolving credit facility.

Intuit Q1 Fiscal 2022 Form 10-Q 37

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  Table of Contents
Interest and Other Income (Loss), Net
                                                                         Q1        Q1
(In millions)                                                           FY22      FY21
Interest income (1)                                                    $  5      $  3
Net gain (loss) on executive deferred compensation plan assets (2)        4 

(1)

Other (3)                                                                41 

7

Total interest and other income, net                                   $ 50 

$ 9


(1)  Interest income in the first quarter and the first three months of fiscal
2022 increased compared to the same period of fiscal 2021 primarily due to
higher average interest rates.
(2)  In accordance with authoritative guidance, we record gains and losses
associated with executive deferred compensation plan assets in interest and
other income and gains and losses associated with the related liabilities in
operating expenses. The total amounts recorded in operating expenses for each
period are approximately equal to the total amounts recorded in interest and
other income in those periods.
(3)  In the first quarter of fiscal 2022 and 2021 we recorded $39 million and
$8 million of net gains on other long-term investments, respectively.
Income Taxes
We compute our provision for or benefit from income taxes by applying the
estimated annual effective tax rate to income or loss from recurring operations
and adding the effects of any discrete income tax items specific to the period.
We recognized excess tax benefits on share-based compensation of $47 million and
$52 million in our provision for income taxes for the three months ended October
31, 2021 and 2020, respectively.
Our effective tax rate for the three months ended October 31, 2021 was
approximately 4%. Excluding discrete tax items primarily related to share-based
compensation tax benefits mentioned above, our effective tax rate was 25%. The
difference from the federal statutory rate of 21% was primarily due to state
income taxes and non-deductible share-based compensation, which were partially
offset by the tax benefit we received from the federal research and
experimentation credit.
Our effective tax rate for the three months ended October 31, 2020 was
approximately 6%. Excluding discrete tax items primarily related to share-based
compensation tax benefits mentioned above, our effective tax rate was 25%. The
difference from the federal statutory rate of 21% was primarily due to state
income taxes and non-deductible share-based compensation, which were partially
offset by the tax benefit we received from the federal research and
experimentation credit.
In the current global tax policy environment, the U.S. and other domestic and
foreign governments continue to consider, and in some cases enact, changes in
corporate tax laws. As changes occur, we account for finalized legislation in
the period of enactment.
LIQUIDITY AND CAPITAL RESOURCES


Overview


At October 31, 2021, our cash, cash equivalents and investments totaled $3.3
billion, a decrease of $620 million from July 31, 2021 due to the factors
discussed under "Statements of Cash Flows" below. Our primary sources of
liquidity have been cash from operations, which entails the collection of
accounts receivable for products and services, the issuance of senior unsecured
notes, and borrowings under our credit facility. Our primary uses of cash have
been for research and development programs, selling and marketing activities,
capital projects, acquisitions of businesses, debt service costs and debt
repayment, repurchases of our common stock under our stock repurchase programs,
and the payment of cash dividends. As discussed in "Executive Overview -
Industry Trends and Seasonality" earlier in this Item 2, our business is subject
to significant seasonality. The balance of our cash, cash equivalents, and
investments generally fluctuates with that seasonal pattern. We believe the
seasonality of our business is likely to continue in the future.

Intuit Q1 Fiscal 2022 Form 10-Q 38

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  Table of Contents
The following table summarizes selected measures of our liquidity and capital
resources at the dates indicated:
                                                 October 31,         July 31,             $                  %
(Dollars in millions)                                2021              2021             Change             Change
Cash, cash equivalents, and investments          $   3,250          $  3,870          $  (620)                 (16) %
Long-term investments                                   84                43               41                   95  %

Long-term debt                                       2,037             2,034                3                    -  %
Working capital                                      2,349             2,502             (153)                  (6) %
Ratio of current assets to current liabilities        2.1 : 1           1.9 

: 1


We have historically generated significant cash from operations and we expect to
continue to do so in the future. Our cash, cash equivalents, and investments
totaled $3.3 billion at October 31, 2021. None of those funds were restricted
and approximately 92% of those funds were located in the U.S.
Based on past performance and current expectations, we believe that our cash and
cash equivalents, investments, and cash generated from operations will be
sufficient to meet anticipated seasonal working capital needs, capital
expenditure requirements, contractual obligations, commitments, debt service
requirements, and other liquidity requirements associated with our operations
for at least the next 12 months. We believe that our financial resources will
allow us to manage the impact of COVID-19 on our business operations for the
foreseeable future, which could include potential reductions in revenue and
delays in payments from customers and partners.
We expect to return excess cash generated by operations to our stockholders
through payment of cash dividends, after taking into account our operating and
strategic cash needs.
Our secured revolving credit facility is available to fund a portion of our
loans to qualified small businesses. At October 31, 2021, $50 million was
outstanding under the secured revolving credit facility.
We evaluate, on an ongoing basis, the merits of acquiring technology or
businesses, or establishing strategic relationships with and investing in other
companies. Our strong liquidity profile enables us to quickly respond to these
types of opportunities.
On November 1, 2021 we acquired all of the outstanding equity of Mailchimp for
total consideration of $12 billion and included $5.7 billion in cash and 10.1
million shares of Intuit common stock with a value of approximately $6.3
billion. The fair value of the stock consideration is based on the October 29,
2021 closing price of Intuit common stock of $625.99.
Pursuant to the equity purchase agreement we also issued approximately 573,000
restricted stock units in substitution of outstanding equity incentive awards.
These restricted stock units have a fair value of approximately $349 million.
Additionally, we will be issuing approximately $215 million of RSUs to Mailchimp
employees. See Note 12 to the financial statements in Part I, Item 1 of this
Quarterly Report for more information.
On November 1, 2021 the existing amended and restated credit agreement described
in "Credit Facilities - Unsecured Revolving Credit Facility and Term Loan" below
was terminated and we entered into an unsecured credit agreement with certain
institutional lenders with an aggregate principal amount of $5.7 billion,
including a $1 billion unsecured revolving credit facility that matures on
November 1, 2026 and a $4.7 billion unsecured term loan that matures on November
1, 2024. On November 1, 2021 we borrowed the full $4.7 billion under the
unsecured term loan to fund a portion of the acquisition of Mailchimp. See Note
12 to the financial statements in Part I, Item 1 of this Quarterly Report for
more information.
Statements of Cash Flows


The following table summarizes selected items from our condensed consolidated
statements of cash flows for the first three months of fiscal 2022 and fiscal
2021. See the financial statements in Part I, Item 1 of this Quarterly Report
for complete condensed consolidated statements of cash flows for those periods.

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