01—Abstract
Summary
Summary of the 10-K filed October 12, 1999. Cited figures are marked; the original filing is the authoritative source.
Intuit's fiscal 1999 (year ended July 31, 1999) was a year of strong top-line growth and a headline net income figure inflated by investment gains.
Net revenue rose 43% to $847.6 milliona from $592.7 million, though management estimates organic growth (excluding the Lacerte and CRI acquisitions) at roughly 27%. Reported net income of $376.5 million ($1.97 diluted EPS) included $579.2 million in pre-tax gains from marketable securities, mainly the sale of Excite stock. Management's own figure excluding those gains and one-time charges was $88.9 million, versus $46.7 million in fiscal 1998, so underlying profitability improved but was far below the headline number.
Operating results were considerably weaker. Income from operations was only $19.9 millionb, held down by $100.7 million in acquisition-related charges, rising Internet infrastructure costs, and heavier spending on selling and marketing and R&D. Tax products (40% of revenue) and Small Business (35%) were the main growth engines, while Consumer Finance grew 14% and International grew about 12%, with management warning of reduced European revenue in fiscal 2000 following the Lexware arrangement.
Internet-based revenue was about 15%c of the total, and the company flagged several risks: expected entry by Microsoft into the personal tax market, rising interest-rate sensitivity in its online mortgage business, service outages, and dependence on Excite@Home and AOL distribution deals. Leadership and balance sheet changes also matter for investors. CEO William Harris resigned on September 27, 1999, and Chairman William Campbell became acting CEO while a search proceeds.
The company held $823.4 milliond in cash and short-term investments plus $431.3 million in marketable securities, and it announced or completed several acquisitions after year-end, including Rock Financial (about $370 million in stock), SecureTax.com (about $52 million), and Boston Light Software. Ongoing exposure to volatile stakes in Checkfree (about 19%) and Excite@Home (a trading security) means future earnings may swing sharply with market prices.
02—Key points
Key Highlights
- Net revenue grew 43% to $847.6 million in FY1999, though excluding the Lacerte and CRI acquisitions, organic growth was about 27%.
- Reported net income of $376.5 million ($1.97 diluted EPS) was driven by $579.2 million in pre-tax securities gains; management's adjusted net income excluding these items and one-time costs was $88.9 million, versus $46.7 million in FY1998.
- Operating income was only $19.9 million, weighed down by $100.7 million in acquisition-related charges and rising Internet infrastructure and marketing costs.
- Tax division (40% of revenue) and Small Business division (35%) drove growth; Quicken and Internet-based revenue (about 15% of total) remain key focus areas, with Microsoft's expected entry into personal tax a major competitive threat.
- CEO William Harris resigned on September 27, 1999; Chairman William Campbell is acting CEO pending a permanent appointment.
- Strong liquidity with $823.4 million in cash and short-term investments and $431.3 million in marketable securities, but significant concentration in volatile holdings such as Checkfree (about 19% stake) and Excite@Home.
- Pending and completed acquisitions after year-end, including Rock Financial (about $370 million in stock), SecureTax.com (about $52 million), and Boston Light Software, will add further integration risk and amortization expense.
03—Questions
Frequently Asked Questions
Why is reported net income so much higher than operating income?
Intuit recorded $579.2 million in pre-tax gains on marketable securities in FY1999, mainly from selling 4.8 million Excite shares and converting the remainder to Excite@Home shares. Operating income was only $19.9 million, so the securities gains account for nearly all of the reported profit. Management points to adjusted net income of $88.9 million as a better measure of underlying performance.
What is driving revenue growth, and how much of it is from acquisitions?
Revenue rose 43% to $847.6 million. Lacerte (acquired June 1998) contributed most of the increase, and CRI (acquired May 1999) added three months. Excluding both acquisitions, growth was about 27%, driven by QuickBooks upgrades, strong TurboTax unit sales, and Internet services such as electronic filing and QuickBooks Online Payroll.
What are the biggest risks to the business going forward?
The main risks are Microsoft's expected entry into the personal tax market for the 1999 tax season, which could pressure prices and retailer terms; competition for Internet and mortgage businesses; interest-rate sensitivity in online mortgages; reliance on distribution partners like Excite@Home and AOL; and possible service outages during peak tax season. Year 2000 litigation over Quicken's online banking features is also pending. The company's earnings can also swing with the volatile Checkfree and Excite@Home stakes.
Who is leading the company after the CEO's departure?
William H. Harris Jr. resigned as President and CEO on September 27, 1999. Chairman William V. Campbell became acting CEO and will handle day-to-day operations while the board searches for a permanent CEO. Harris remains on the board to help with the search.
What major acquisitions were announced or completed after fiscal year-end?
Intuit completed the acquisitions of Boston Light Software (about $33.5 million in stock, roughly $49 million total with assumed options) and SecureTax.com (about $52 million cash) in August 1999, and Hutchison Avenue Software (about $7.5 million cash) on August 10, 1999. It also announced the proposed acquisition of Rock Financial Corporation for about $370 million in stock, expected to close in the second quarter of fiscal 2000 and be accounted for as a pooling of interests.
04—Continue