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FY 1999: The Year in Review

FY 1999: The Year in Review. August 26, 1999.

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FY 1999: The Year in Review

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  1. FY 1999: The Year in Review August 26, 1999 This slide presentation, including any oral presentation that may accompany it, includes “forward-looking” statements about future financial results, future products and other events that have not yet occurred. For example, statements with words like “expect”,”anticipate” or “believe” and statements about fiscal 2000 are forward-looking statements. Investors should be aware that actual results may differ materially from our expressed expectations because of risks and uncertainties about the future. We will not update the information in the presentation if any forward-looking statement later turns out to be inaccurate. Details about risks and uncertainties affecting various aspects of our business are discussed throughout this presentation. Investors should consider all of these risks carefully, and should pay particular attention to risks described on slides 15 and 16.

  2. Overview FY 1999 Financial Performance Investments & Balance Sheet Core Businesses New (Internet) Businesses Employee Metrics Electronic Finance Review of FY 1999

  3. Fiscal 1999 Highlights • Strong Financial Performance NOTE: GAAP comparisons are favorably impacted by realized gain on the sales and revaluation of marketable securities and unfavorably impacted by acquisition-related charges for Lacerte and CRI. Without these items, EPS would have been a negative $0.39 for Q499, and a positive $1.26 for the full year. NOTE: Pro Forma financial information excludes acquisition-related costs, discontinued operations, restructuring charges, material non-recurring marketing charges, and income/loss for sales of investments and marketable securities. See slide 13 for more details on Pro Forma adjustments and slides 15-16 for risks and uncertainties relating to future results.

  4. The Total Earning Power of Our Core Businesses Has Never Been Stronger Core Businesses • Quicken Continued growth: active users to over 11 million • QuickBooksRevenue up 57% and profits doubled • SuppliesConsistent growth & profitability • InternationalChanging business model in Europe • Pro Tax High renewal rates and high profitability • Personal Tax Revenue up 36% and profits up 39% Please see slides 15-16 for risks and uncertainties relating to future results.

  5. 157% Growth In FY99 New (Internet) Businesses Internet Revenue ($ Millions) $125.3 $48.7 $21.0 Please see slides 15-16 for risks and uncertainties relating to future results.

  6. Revolutionize How People Do Financial Work Connectivity (The Internet) Computers (The PC) Electronic Finance Intuit is the leader in eFinance … on the PC and on the Web

  7. Total Pro Forma Revenue $ Millions $848 Incl. CRI & Lacerte $593 $526 Please see slide 13 for a description of Pro Forma adjustments and slides 15-16 for risks and uncertainties relating to future results.

  8. Internal Growth Rate Doubled In One Year Internal Revenue Growth Rate Pro Forma Revenue, Excluding Revenue from Acquisitions (Lacerte & CRI) 27.1% Excl. CRI & Lacerte 13.7% 12.5% Please see slide 13 for a description of Pro Forma adjustments and slides 15-16 for risks and uncertainties relating to future results.

  9. 43.0% Incl. CRI & Lacerte Internal Growth Rate Doubled In One Year Total Revenue Growth Rate Pro Forma Revenue, Including Revenue from Acquisitions (Lacerte & CRI) 27.1% Excl. CRI & Lacerte 13.7% 12.5% Please see slide 13 for a description of Pro Forma adjustments and slides 15-16 for risks and uncertainties relating to future results.

  10. Pro Forma Op Income Percent As a Percent of Pro Forma Revenue 14.2% Incl. CRI & Lacerte 10.2% 8.2% Please see slide 13 for a description of Pro Forma adjustments and slides 15-16 for risks and uncertainties relating to future results.

  11. Op Income Doubled In One Year Pro Forma Operating Income $ millions $120.6 Incl. CRI & Lacerte $60.5 $43.2 Please see slide 13 for a description of Pro Forma adjustments and slides 15-16 for risks and uncertainties relating to future results.

  12. Overview FY 1999 Financial Performance Investments & Balance Sheet Core Businesses New (Internet) Businesses Employee Metrics Electronic Finance Review of FY 1999

  13. Notes • Forward-Looking Statements This slide presentation, including any oral presentation that may accompany it, includes “forward-looking” statements about future financial results, future products and other events that have not yet occurred. For example, statements with words like “expect”, “anticipate” or “believe” and statements about fiscal 2000 are forward-looking statements. Investors should be aware that actual results may differ materially from our expressed expectations because of risks and uncertainties about the future. We will notupdate the information in the presentation if any forward-looking statement later turns out to be inaccurate. Details about risks affecting various aspects of our business are discussed throughout this presentation. Investors should consider all of these risks carefully, and should pay particular attention to risks described on slides 15 and 16. • Pro Forma Accounting Intuit looks at its financial performance in two ways: GAAP, and Company Pro Forma. Pro Forma financial information excludes acquisition-related costs, discontinued operations, restructuring charges, material non-recurring marketing charges, and income/loss for sales of investments and marketable securities. Please note that there are significant differences between our GAAP and Pro Forma results. See our August 26, 1999 press release for details.

  14. Notes • Cyclical Business Cycle The seasonal nature of our desktop software products, especially our tax products, typically causes the Company to experience higher revenue in the January and April fiscal quarters. Costs to develop, market and support these products are incurred at relatively consistent levels throughout the year. Consequently, the Company generally reports a loss, or lower profits, in the October and July fiscal quarters. • Period-to-Period Comparisons In performing year over year comparisons, please note the following: FY98 includes only six weeks of results for our Lacerte professional tax software subsidiary, which we acquired in June 1998. FY99 includes a full year of Lacerte results. FY98 does not reflect any results for CRI, our payroll processing subsidiary, which we acquired in May 1999. FY99 includes three months of CRI results. Year over year comparisons are also impacted by the timing of major product launches. Specifically, we had QuickBooks launches in June 1998 and January 1999, which had a positive impact on FY99 results. Prior to these QuickBooks releases, we had not launched a new version of QuickBooks since December 1996.

  15. Risks & Uncertainties Risks and Uncertainties Relating to Future Performance and Results Anyone who may be considering an investment in Intuit Common Stock should carefully consider the following risks and uncertainties that may affect Intuit’s future performance and financial results. More details about these issues are included in Intuit’s fiscal 1998 for Form 10k, its fiscal 1999 Form 10Qs and its other recent SEC filings. • Our revenue and earnings are highly seasonal. • Our quarterly and annual financial results fluctuate significantly. • We face intense competition from many companies in all of our business areas, both domestically and internationally. • We expect Microsoft to enter the personal tax preparation market in the 1999 tax year, and we may also face competition from the Internal Revenue Service and state tax agencies. • Our Internet-based products and services require us to successfully adopt, refine and operationally support a new business model. • We must continue to maintain important distribution and other contractual relationships for our Internet-based products and services and successfully market and promote these products and services. • Our Internet businesses face risks relating to customer privacy and security and increasing regulation. • Our Internet businesses require significant research and development and marketing expenditures. • The expansion of our Internet-based products and services has had a significant impact on our development process. • Expansion of our desktop product Internet connectivity initiatives depends to some extent on industry adoption of OFX as a connectivity standard. • In order to succeed in the payroll business, we must continue to improve the integration of the operations of our payroll processing service provider and expand availability for our online payroll processing service. • Our tax products must follow a demanding and rigid annual development and release cycle. • Our web-based tax preparation and electronic filing services must handle extremely heavy customer demand during the peak tax season.

  16. Risks & Uncertainties, cont. • Product bugs can be expensive to fix and can cause Intuit to lose customers. • Product returns might exceed reserves. • We face increasing competition for access to retail distribution channels. • Businesses that we acquire must be integrated into our business. • Our recent acquisitions have resulted in significant acquisition-related expenses. • Our recent acquisitions of Lacerte and CRI pose a number of risks that could affect our ability to achieve the anticipated benefits of those acquisitions. • We must provide responsive customer service and technical support. • Business conditions in international markets can negatively impact our financial performance. • We depend on a single source supplier of checks. • We face intense competition for qualified employees. • Our ability to protect our proprietary technology is limited. • We rely on third party licenses for some of our products and services. • Some of our products and services are regulated businesses under federal or state laws that do not apply to most software companies. • Regulation of encryption technology could adversely affect our international sales and services. • Problems related to the Year 2000 could have a significant adverse effect on our operations. • We hold significant investments that have been very volatile. • The market price of our common stock has been volatile. • We have implemented a number of anti-takeover provisions that may adversely affect the market price of our common stock.

  17. Internat’l 10% Small Business 34% Tax 40% Consumer 16% * General & Administrative, and other common costs not allocated to specific business divisions. Business Divisions

  18. GAAP - Fourth Quarter $ Millions, except EPS NOTE: Q499 comparison is favorably impacted by realized gain from the sale of Excite stock and revaluation of remaining holdings in Excite@Home, and unfavorably impacted by additional amortization of acquisition-related items. Without the impact of these items, Net Loss would have been $26 million and a negative EPS of $0.39. Please see slides 15-16 for risks and uncertainties relating to future results.

  19. Pro Forma - Fourth Quarter $ Millions, except EPS NOTE: Q498 includes benefit from QuickBooks 6.0 launch in June 1998. Please see slide 13 for a description of Pro Forma adjustments and slides 15-16 for risks and uncertainties relating to future results.

  20. Fourth Quarter Comments • 28% Revenue Growth vs Prior Year • Stronger-than-expected QuickBooks sales in U.S. • Strong Quicken & QuickBooks launches in Europe • Higher growth in Internet-based businesses • One-Time European Expense • Transition of German operations to licensing model • CRI Results Included in 4Q99 • Neutral impact on Pro Forma operating income Please see slide 13 for a description of Pro Forma adjustments and slides 15-16 for risks and uncertainties relating to future results.

  21. GAAP - Full Year $ Millions, except EPS NOTE: FY99 comparison is favorably impacted by realized gain on sales and revaluation of marketable securities, offset somewhat by higher amortization of acquisition related costs from Lacerte & CRI. Without the impact of these items, FY99 Net Income would have been $80 million and EPS $1.26. Please see slides 15-16 for risks and uncertainties relating to future results.

  22. Pro Forma - Full Year $ Millions, except EPS Please see slide 13 for a description of Pro Forma adjustments and slides 15-16 for risks and uncertainties relating to future results.

  23. Full Year FY99 Comments • 27% Internal Growth Rate(excl. Lacerte & CRI) • Strong season for personal tax -- PC, Web and e-filing • QuickBooks and related revenue up 57% (two launches) • Internet-based revenues up 157% vs prior year • 43.0% total growth rate (including Lacerte and CRI) • Pro Forma Operating Income Doubled • QuickBooks and related profit contribution doubled • Personal tax profit contribution increased nearly 40% • Includes strong profitability from Lacerte (not included in FY98) • FY99 Challenges • Quicken: profit / Europe: business model / Insurance: slow ramp Please see slide 13 for a description of Pro Forma adjustments and slides 15-16 for risks and uncertainties relating to future results.

  24. Overview FY 1999 Financial Performance Investments & Balance Sheet Core Businesses New (Internet) Businesses Employee Metrics Electronic Finance Review of FY 1999

  25. Strategic Investments Excluding Investments Without a Public or Third-Party Valuation ($ Millions) All but one up at least 70% Please see slides 15-16 for risks and uncertainties relating to future results.

  26. Balance Sheet Value of Cash and Marketable Securities at Fiscal Year-End ($ millions) $1,255* * Does NOT include $131 million of cash held as “float” in payroll business $882 $431 Please see slides 15-16 for risks and uncertainties relating to future results.

  27. Overview FY 1999 Financial Performance Investments & Balance Sheet Core Businesses New (Internet) Businesses Employee Metrics Electronic Finance Review of FY 1999

  28. Quicken Millions of Active Users* • Moderate Growth • Units: 7% vs prior year • Revenue: 5% vs prior year • Retail share down slightly • Connectivity • Over 150 FI connections • Over 700 including QIF import • Access to 50% of U.S.accounts • Profitability • Declined in FY99, but still one of • Quicken’s most profitable years • Strategic Role • Customer acquisition • Less than 10% of total revenue 11.2 10.4 9.4 Money 3.0 2.9 2.5 * Based on survey of PC-owning US households done by Genesis Research in January and August of 1999, 1998 and 1997. Please see slide 15-16 for risks and uncertainties relating to future results. Quicken Customer Base Continues to Grow ...

  29. Palm Pilot The Web “very powerful Internet-enabled version” -Jupiter Communication Quicken 2000 • Six weeks early • Back on the Mac! • And connected ...

  30. Unique Registered Users* (Millions at year-end) 2.7 • 1½ Launches Benefit of 6-month release cycle (Will not get this benefit in FY00) • Retail Unit Share From 75% to 81% to 85% (PC Data) • Revenue Up 57% • Profits Doubled 2.1 1.6 * Based on cumulative number of product registrations. QuickBooks Robust Growth … and Doubling Profits Please see slides 15-16 for risks and uncertainties relating to future results.

  31. Consistent Growth FY 99: Systems • Direct-To-Plate: 50% to 90% • Turn-around time cut in half Processes • Status Calls: 25% to 8% • Web Ordering: 5% to 19% … Profits $97.6 $87.0 $79.6 Financial Supplies Group Revenue ($ Millions) Please see slides 15-16 for risks and uncertainties relating to future results.

  32. Small but leading retail sales in its category International • Focusing Efforts on Small Business • Revenue up 12% in FY99 • Swung from small loss to small profit • Canada • Strong Across the Board: Quicken, QuickBooks & QuickTax • Japan • Revenue flat: traditional businesses mature • QuickBooks-J launched • Europe • Uneconomic business models: transitioning to partnerships • Established relationship with Haufe in Germany

  33. $155.2 $81.0 Pers. 53% Pro 47% $61.1 FY99 Pro Forma Contribution Mix by Personal and Professional Groups Please see slide 13 for a description of Pro Forma adjustments and slides 15-16 for risks and uncertainties relating to future results. Tax Division Pro Forma Contribution ($ Millions)

  34. TurboTax TurboTax & MacInTax Federal Units (Millions) Record Sales Volumes 4.1 million NOTE: Microsoft Entering Personal Tax Market in FY 2000 Please see slides 15-16 for risks and uncertainties relating to future results.

  35. 93% Lacerte Reliable Recurring Revenues PRO TAX Pro Tax Renewal Rate (excluding pay-per-return customers) 92% ProSeries 89% ProSeries 85% ProSeries 82% ProSeries Please see slides 15-16 for risks and uncertainties relating to future results.

  36. 1 5 OUT OF EVERY income tax returns in the United States is prepared on Intuit software* America’s Choice * Based on company estimates: Unit sales times number of returns filed per unit sold, as reported by users on survey questionnaires.

  37. Overview FY 1999 Financial Performance Investments & Balance Sheet Core Businesses New (Internet) Businesses Employee Metrics Electronic Finance Review of FY 1999

  38. 15% of Intuit’s Revenue from the Internet in FY99 “Internet Revenue” is the sum of “Internet Product and Service” revenue (products and services performed and delivered using the Internet) and “Internet Commerce” revenue (software or other products sold and/or downloaded via the Internet). New (Internet) Businesses Multiple New Internet-Based Businesses Are Ramping • Online Tax Filing • Online Tax Prep • Online Payroll • Online Business Services • Online Investments • Online Mortgage • Online Insurance • Online Billing & Payment • Online Orders & Downloads TO THE WEB

  39. Internet Revenue Internet Revenue as a Percent of Total Revenue 20% 12% 11% 6% Please see slides 15-16 for risks and uncertainties relating to future results.

  40. FY99 FY98 Internet businesses span all business divisions, and are not a separate division or segment. 59 50 47 46 33 29 23 21 14 12 4 11 Internet Revenue $ Millions Please see slides 15-16 for risks and uncertainties relating to future results.

  41. 2.4x 2.3x 2.9x 1.7x Electronic Filing Plus, Another Million+ Pro Federal Returns Personal Federal Returns (000s) DOUBLING EVERY YEAR Please see slides 15-16 for risks and uncertainties relating to future results.

  42. WebTurboTax Usage Up Ten-Fold from FY98 WebTurboTax Full Desktop Capability … On the Web!

  43. 400,000 subscribers Payroll Tax TableService (NOT predominantly Internet-delivered) Payroll Services Payroll Tax Table Service Subscribers (000s) STEP ONE Please see slides 15-16 for risks and uncertainties relating to future results.

  44. Payroll Services Gross Payroll Dollars Processed Through Online Payroll Service, Excl. CRI $267 million More customers in first year than Paychex got in first six years Online Payroll Service STEP TWO $ Millions NOTE: Early-Stage Effort Fast Growth, But Small Base Please see slides 15-16 for risks and uncertainties relating to future results.

  45. Almost 4 Million Unique Visitors Per Month Quicken.com Millions of Page Views Per Month • Page Views Up 78% • Ad Revenue Doubled Page Views and Reach Soft in Late Spring Please see slides 15-16 for risks and uncertainties relating to future results.

  46. Life Insurance: • 100% U.S. Coverage • RapidApplication Growth Policy Applications Insuremarket Small Revenue Please see slides 15-16 for risks and uncertainties relating to future results.

  47. Life Insurance: • 100% U.S. Coverage • RapidApplication Growth Auto Insurance: • 70% U.S. Coverage • Rapid Quote Growth Policy Applications Thousands of Quotes Insuremarket Small Revenue Minimal Revenue Please see slides 15-16 for risks and uncertainties relating to future results.

  48. 0.1% in 1998 10% in 2003 • Small Revenue • But Fast Growth • Over $1.2 Billion • Loans Originated • in FY 1999 Forrester Research Online Mortgages Percentage of Total Mortgage Market Originated Online Rapid Growth Projected for Online Mortgages Please see slides 15-16 for risks and uncertainties relating to future results.

  49. Quicken Mortgage Number of Loans Closed*, as an Index versus E-Loan * Partially based on Intuit estimates 100 Index vs E-Loan Calendar Quarters Please see slides 15-16 for risks and uncertainties relating to future results.

  50. 21% More Than E-Loan Quicken Mortgage Number of Loans Closed*, as an Index versus E-Loan * Partially based on Intuit estimates 100 Index vs E-Loan • NOTE: • $ Loans & Revenues Lower than E-Loan • Interest Rate Increases Reduce Volumes Calendar Quarters Please see slides 15-16 for risks and uncertainties relating to future results.

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