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Rating Action:

Moody's assigns A3 to Intuit's proposed sr unsecured notes; outlook remains stable

25 Jun 2020

$2 billion of proposed notes rated

New York, June 25, 2020 -- Moody's Investors Service ("Moody's") affirmed Intuit Inc.'s ("Intuit") A3 senior unsecured rating and assigned an A3 rating to Intuit's proposed senior unsecured notes. The outlook remains stable.

The net proceeds from the proposed notes will be used to partially fund the cash portion of the acquisition funding for Credit Karma, Inc. ("Credit Karma"). On February 24, Intuit announced it would acquire Credit Karma for $7.1 billion in equal portions of cash and Intuit stock. The transaction is expected to close in the second half of calendar 2020.

RATINGS RATIONALE

"Although the $2 billion note offer will drive Intuit's debt up substantially, debt to EBITDA is still expected to remain below 1.5 times over the next 12 to 18 months, leading to the A3 senior unsecured rating affirmation," said Edmond DeForest, Moody's Vice President and Senior Credit Officer.

The A3 senior unsecured rating incorporates Moody's expectations for high single digit organic revenue growth, ongoing customer expansion, robust EBITDA margins approaching 30%, debt to EBITDA remaining below 1.5 times and approaching $2.0 billion of free cash flow.

All financial metrics cited reflect Moody's standard adjustments. In addition, capitalized software costs are expensed.

The TurboTax consumer do-it-yourself ("DIY") tax filing service and QuickBooks small business accounting software have high customer retention rates, leading market share and wide brand recognition in their operating segments. Although Intuit operates mostly in the US and Canada, the high growth of non-US Quickbooks Online subscribers provides evidence that the company can expand its addressable market and geographic scope, providing support for the high revenue growth expectations. Profitability expansion could be limited by investments in customer support, marketing and research and development required for Intuit to maintain and expand its service offerings and competitive position. TurboTax revenues and profits are normally concentrated in the fiscal third quarter ending April; however, in 2020, TurboTax financial results will be spread into the fiscal fourth quarter ending July due to the US tax filing deadline extension to July 15, 2020. Quickbook's growth rate may slow substantially in 2020 and 2021 due to the adverse impacts of the current recession on its small business customers.

Intuit's revenue base is smaller and more concentrated than a number of other A3 rated companies. However, Intuit is very large and more profitable compared to its direct competitors in DIY consumer tax filing services and small business accounting software. That said, indirect small business software competitors include Microsoft Corporation's (Aaa stable) Excel and Alphabet Inc.'s (Aa2 stable) Google Sheets.

Adding the Credit Karma products and brand to Intuit's TurboTax, QuickBooks and Mint businesses could accelerate revenue, customer and average revenue per subscriber growth rates, balancing the negative credit impact of incremental debt to fund the acquisition. Moody's anticipates the $3.55 billion of cash needed to fund the acquisition will come from the net proceeds of the proposed notes, cash on hand as of April 30, 2020 and the free cash flow generated between now and the acquisition closing expected later this year.

The coronavirus outbreak, deteriorating global economic outlook, low oil prices and asset price volatility have created a severe and extensive credit shock across many sectors, regions and markets. The combined credit effects of these developments are unprecedented. The small business software sector has been significantly affected by the shock given the sensitivity of small businesses to customer demand and sentiment. Moody's regards the coronavirus outbreak as a social risk under its ESG framework, given the substantial implications for public health and safety.

Moody's considers Intuit's liquidity profile excellent. The company had about $4 billion of cash and current investments as of April 30, 2020. Moody's anticipates appraoching $2.0 billion of annual free cash flow, although the majority of free cash flow is generated by the consumer tax business during fiscal third quarter (ending April). There was full availability under its $1 billion senior unsecured revolving credit facility, which matures in May 2024, as of April 30, 2020. The company has $350 million outstanding under a term loan coming due in February 2021.

A subsidiary of Intuit maintains a $300 million secured revolving credit facility due February 2022 (unrated). Advances under this secured revolving credit facility are used to fund a portion of the loans made to qualified small businesses through Quickbooks Capital. The secured subsidiary revolving credit facility is secured by cash and receivables of the subsidiary and is non-recourse to Intuit Inc.

As a software and services company, Intuit's environmental risks are considered low. Intuit's SaaS products are supported by databases of highly sensitive consumer tax and small business financial information. The company must maintain a reputation for safety in order to preserve its leading market position. A data breach could be detrimental to its business. To date, reputational risks surrounding data security have been managed well. Moody's notes the company's history of returning cash to shareholders through dividends and share repurchases. Moody's considers Intuit's financial policies balanced and predictable.

The stable ratings outlook reflects Moody's anticipation of high single digit revenue growth, an expanding customer base, debt to EBITDA below 1.5 times and excellent liquidity.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

The ratings could be upgraded if Intuit expands its revenue scale and addressable market through expanded geographic scope and increased service offerings while maintaining high ongoing revenue and subscriber growth, solid profits, modest financial leverage and balanced financial policies.

The ratings could be downgraded if revenue growth or customer expansion stalls, profitability rates or free cash flow levels decline, debt to EBITDA is expected to remain above 1.5 times for an extended period or there is a shift to more aggressive financial policies that favor shareholders to the detriment of creditors including large acquisitions or shareholder returns before Credit Karma has been integrated.

The principal methodology used in these ratings was Software Industry published in August 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1130740. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Issuer: Intuit Inc.

.Senior Unsecured Bank Credit Facility, Affirmed A3

.Proposed Senior Unsecured Notes, Assigned A3

Outlook, remains Stable

Intuit, based in Mountain View, CA, provides tax and accounting software and related services for consumers and small to medium sized businesses under the TurboTax and QuickBooks brands, professional tax software and consumer financial management service Mint.com.

Credit Karma is a free credit and financial management platform which features free tax preparation, monitoring of unclaimed property databases and a tool to identify and dispute credit report errors. All of Credit Karma's services are free to its consumer members. Credit Karma earns revenue from advertisements pushed to its members and from lead generation agreements with advertisers. Revenue for the 12 months ended December 31, 2019 was about $1 billion.

Moody's expects Intuit's fiscal 2021 (ends July) revenue will exceed $8 billion.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Edmond DeForest
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Karen Nickerson
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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