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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
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RESULTS OF OPERATIONS
Total Net Revenue
The table below and the discussion of total net revenue that follows it are categorized by our five reportable business segments. In the fourth quarter of
fiscal 2004 we revised our reportable segments to reflect the way we currently manage our operations and view our results. We combined our fiscal 2003 QuickBooks segment with the businesses from our fiscal 2003 Small Business Products and Services segment that relate to and support QuickBooks
to form the fiscal 2004 segment called QuickBooks-Related. We also combined our outsourced payroll and information technology businesses with our fiscal 2003 Vertical Business Management Solutions segment to form the fiscal 2004 segment called Intuit-Branded Small Business. We made no changes to our Consumer Tax, Professional Tax and Other Businesses segments. We have reclassified previously reported fiscal 2003 and 2002 segment results to be consistent with the fiscal 2004 presentation.
We reclassified a total of $28.1 million for certain fiscal 2003 electronic filing revenue in our Consumer Tax and Professional Tax segments from
product revenue to service revenue to be consistent with our fiscal 2004 presentation. Total fiscal 2003 revenue for each of these segments did not change as a result of these reclassifications. See Note 11 to the financial statements for additional information about our business segments.
| (Dollars in millions) |
FISCAL
2002 |
% TOTAL NET
REVENUE |
FISCAL
2003 |
% TOTAL NET
REVENUE |
FISCAL
2004 |
% TOTAL NET
REVENUE |
2002-2003
% CHANGE |
2003-2004
% CHANGE |
|
QuickBooks-Related
Product |
$ |
396.6 |
|
|
|
|
$ |
465.1 |
|
|
|
|
$ |
534.1 |
|
|
|
 |
| Service |
|
50.1 |
|
|
|
|
|
70.5 |
|
|
|
|
|
97.1 |
|
|
|
|
| Other |
|
13.4 |
|
|
|
|
|
17.0 |
|
|
|
|
|
22.7 |
|
|
|
|
|
|
|
|
|
|
| Subtotal |
|
460.1 |
|
|
35 |
% |
|
552.6 |
|
|
33 |
% |
|
653.9 |
|
|
35 |
% |
|
20 |
% |
|
18 |
% |
|
|
|
|
|
|
|
Intuit-Branded Small Business
Product |
|
9.1 |
|
|
|
|
|
63.0 |
|
|
|
|
|
72.3 |
|
|
|
|
| Service |
|
77.6 |
|
|
|
|
|
173.4 |
|
|
|
|
|
195.0 |
|
|
|
|
| Other |
|
0.3 |
|
|
|
|
|
3.5 |
|
|
|
|
|
5.1 |
|
|
|
|
|
|
|
|
|
|
| Subtotal |
|
87.0 |
|
|
7 |
% |
|
239.9 |
|
|
15 |
% |
|
272.4 |
|
|
15 |
% |
|
176 |
% |
|
14 |
% |
|
|
|
|
|
|
|
Consumer Tax
Product |
|
219.4 |
|
|
|
|
|
231.1 |
|
|
|
|
|
231.7 |
|
|
|
|
| Service |
|
128.4 |
|
|
|
|
|
189.2 |
|
|
|
|
|
257.9 |
|
|
|
|
| Other |
|
3.3 |
|
|
|
|
|
2.6 |
|
|
|
|
|
0.4 |
|
|
|
|
|
|
|
|
|
|
| Subtotal |
|
351.1 |
|
|
27 |
% |
|
422.9 |
|
|
26 |
% |
|
490.0 |
|
|
26 |
% |
|
20 |
% |
|
16 |
% |
|
|
|
|
|
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Professional Tax
Product |
|
219.2 |
|
|
|
|
|
223.8 |
|
|
|
|
|
226.1 |
|
|
|
|
| Service |
|
6.5 |
|
|
|
|
|
19.6 |
|
|
|
|
|
25.8 |
|
|
|
|
| Other |
|
- |
|
|
|
|
|
- |
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
| Subtotal |
|
225.7 |
|
|
17 |
% |
|
243.4 |
|
|
15 |
% |
|
251.9 |
|
|
13 |
% |
|
8 |
% |
|
3 |
% |
|
|
|
|
|
|
|
Other Businesses
Product |
|
129.5 |
|
|
|
|
|
141.2 |
|
|
|
|
|
148.2 |
|
|
|
|
| Service |
|
7.3 |
|
|
|
|
|
4.5 |
|
|
|
|
|
7.8 |
|
|
|
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| Other |
|
51.5 |
|
|
|
|
|
46.2 |
|
|
|
|
|
43.5 |
|
|
|
|
|
|
|
|
|
|
| Subtotal |
|
188.3 |
|
|
14 |
% |
|
191.9 |
|
|
11 |
% |
|
199.5 |
|
|
11 |
% |
|
2 |
% |
|
4 |
% |
|
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Total net revenue |
$ |
1,312.2 |
|
|
100 |
% |
$ |
1,650.7 |
|
|
100 |
% |
$ |
1,867.7 |
|
|
100 |
% |
|
26 |
% |
|
13 |
% |
|
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Fiscal 2004 total net revenue increased compared with fiscal 2003 primarily due to growth in DIY revenue in our QuickBooks-Related segment and to growth in TurboTax for the Web and electronic filing services in our Consumer Tax segment. Fiscal 2003 total net revenue increased over fiscal 2002 primarily due to higher revenue in our QuickBooks-Related, Consumer Tax and Intuit-Branded Small Business segments. In fiscal 2003 our Intuit-Branded Small Business segment included revenue from the date of acquisition for three companies we acquired in the fourth quarter of fiscal 2002 and one company we acquired in the first quarter of fiscal 2003.
Total Net Revenue by Business Segment
QuickBooks-Related
QuickBooks-Related product revenue is derived primarily from QuickBooks desktop software products; QuickBooks Do-It-Yourself Payroll, or DIY, which
offers payroll tax tables, forms and electronic tax payment and filing on a subscription basis to small businesses that prepare their own payrolls; and
financial supplies such as paper checks, envelopes and invoices. QuickBooks-Related service revenue is derived primarily from QuickBooks Online Edition,
QuickBooks support plans and merchant services. Other revenue for this segment consists primarily of royalties from small business online services.
Fiscal 2004 Compared with Fiscal 2003. QuickBooks-Related total net revenue grew in fiscal 2004 compared with fiscal 2003 due to increased
sales of higher-priced industry-specific versions of QuickBooks and higher DIY revenue driven by growth in the average customer base, an increase
in QuickBooks-related services and the full impact in fiscal 2004 of a December 2002 price increase. Our October 2003 acquisition of Innovative Merchant Solutions also contributed to the higher fiscal 2004 total net revenue.
Fiscal 2003 Compared with Fiscal 2002. QuickBooks-Related total net revenue increased in fiscal 2003 compared with fiscal 2002, reflecting higher QuickBooks unit sales as well as higher average selling prices driven by the introduction of certain higher-priced QuickBooks products and a shift in revenue mix toward those products. DIY revenue increased due to growth in the average customer base and higher average selling prices driven by price increases. QuickBooks support revenue grew due to an increase in the number of support plans sold and strength in the higher-priced support plans for higher-end QuickBooks products.
Intuit-Branded Small Business
Intuit-Branded Small Business product revenue is derived primarily from business management software for information technology and four selected
industries: wholesale durable goods; residential, commercial and corporate property management; construction; and nonprofit organizations, universities
and government agencies. In August 2004 management formally approved a plan to sell our Intuit Public Sector Solutions business. Intuit-Branded Small
Business service revenue is derived from technical support, consulting and training services for those software products and from outsourced payroll
services. Service revenue for this segment also includes interest earned on funds held for payroll customers.
Fiscal 2004 Compared with Fiscal 2003. Intuit-Branded Small Business total net revenue increased in fiscal 2004 compared with fiscal 2003
primarily due to new client acquisition in our wholesale durable goods and property management solutions businesses as well as higher average
selling prices from increased customer use of support and other services in these businesses and in our information technology business.
Fiscal 2003 Compared with Fiscal 2002. Intuit-Branded Small Business total net revenue was higher in fiscal 2003 compared with fiscal 2002 due
to our acquisition of several businesses. Higher outsourced payroll revenue in fiscal 2003 was primarily a result of our acquisition of CBS Employer Services, Inc. in the fourth quarter of fiscal 2002. We also acquired our wholesale durable goods, property management and nonprofit businesses in the fourth quarter of fiscal 2002. They contributed $80.6 million in revenue for fiscal 2003 compared with $3.4 million in fiscal 2002. Finally, we acquired Intuit Information Technology Solutions in the first quarter of fiscal 2003.
Consumer Tax
Consumer Tax product revenue is derived primarily from TurboTax federal and state consumer desktop tax return preparation software. Consumer Tax service revenue is derived primarily from TurboTax for the Web online tax return preparation services and consumer electronic filing services.
Fiscal 2004 Compared with Fiscal 2003. Consumer Tax total net revenue increased in fiscal 2004 compared with fiscal 2003 as a result of TurboTax for the Web and retail desktop unit growth, higher attach rates for electronic filing services and higher average selling prices.
Fiscal 2003 Compared with Fiscal 2002. Consumer Tax total net revenue grew in fiscal 2003 compared with fiscal 2002 due to an increase in
desktop revenue that was driven by unit growth and higher average selling prices for federal tax offerings with enhanced functionality; higher TurboTax for the Web revenue due to unit growth and higher average selling prices; and an increase in electronic filing revenue due to higher federal desktop
unit sales and higher average state electronic filing prices.
Professional Tax
Professional Tax product revenue is derived primarily from ProSeries and Lacerte professional tax preparation software products. Professional Tax service revenue consists of electronic filing and training services.
Fiscal 2004 Compared with Fiscal 2003. Professional Tax total net revenue grew slightly in fiscal 2004 compared with fiscal 2003 due to additional sales to existing customers, higher average selling prices related to product enhancements and increased sales of our unlimited electronic filing
product as a result of new government rules requiring the electronic filing of certain professionally prepared 2003 income tax returns.
However, revenue growth in fiscal 2004 was negatively impacted by competition from lower-priced professional tax preparation software products. Although we have revised our product strategy to address this competition for the 2004 tax year, it is possible that this competition may continue to negatively affect revenue growth rates for our Professional Tax segment in the future.
Fiscal 2003 Compared with Fiscal 2002. Professional Tax total net revenue grew in fiscal 2003 compared with fiscal 2002 due to price increases related to product enhancements, new customer acquisition initiatives and successful cross-sell efforts to the existing tax client base. Renewal rates for our existing customer base remained strong during fiscal 2003.
Other Businesses
Other Businesses consist primarily of Quicken and Canada. Quicken product revenue is derived primarily from Quicken desktop software products. Quicken other revenue consists primarily of fees from consumer online transactions and from Quicken-branded credit card and bill payment offerings that we provide through our partners. We exited the online advertising business in the fourth quarter of fiscal 2004. In Canada, product revenue is derived primarily from localized versions of QuickBooks and Quicken as well as QuickTax and TaxWiz consumer desktop tax return preparation software and ProFile professional tax preparation products. Service revenue in Canada consists primarily of revenue from software maintenance contracts sold with QuickBooks.
Fiscal 2004 Compared with Fiscal 2003. Other Businesses total net revenue grew slightly in fiscal 2004 compared with fiscal 2003 primarily due to
higher Quicken revenue.
In fiscal 2004 Quicken direct unit sales increased in response to direct mail campaigns for upgrades due to the discontinuation of support for older versions of the product and for TurboTax cross-selling offers. Retail unit sales also increased. Aggregate average selling prices for Quicken were higher in fiscal 2004 compared with fiscal 2003 due to a shift in demand to our higher-priced Quicken Premier and Quicken Home and Business
products. Partially offsetting these increases, Quicken other revenue declined in fiscal 2004 due to the expiration or termination of contracts with several significant online advertising customers. We exited the online advertising business in the fourth quarter of fiscal 2004.
Canadian revenue in U.S. dollars was slightly higher in fiscal 2004 compared with fiscal 2003 due to the favorable effect of the strengthening
Canadian dollar in fiscal 2004. Total net revenue in Canadian dollars decreased in fiscal 2004 compared with fiscal 2003, primarily due to lower demand for QuickBooks in Canada. QuickTax revenue was also down in fiscal 2004 due to a decline in unit sales that was partially offset by higher average selling prices related to a shift in demand toward the higher-priced specialty versions of that product.
Fiscal 2003 Compared with Fiscal 2002. Other Businesses total net revenue increased slightly in fiscal 2003 compared with fiscal 2002. Quicken
revenue decreased while Canadian revenue grew.
Quicken product revenue decreased due to lack of growth in the market for personal finance desktop software and slow consumer spending. Lower unit sales for all Quicken products more than offset higher average selling prices for Quicken Premier and Quicken Home and Business. Quicken other revenue also decreased due to continuing slowness in Internet advertising and our exit from certain online businesses in fiscal 2002.
Total net revenue from Canada grew in fiscal 2003 compared with fiscal 2002, due partially to slightly higher revenue from QuickTax. Higher average selling prices and higher unit sales for this product were fueled by the introduction of Right for Me consumer tax products targeted at taxpayers who maintain home offices or who are preparing for retirement. Our new TaxWiz consumer tax preparation software also contributed to fiscal 2003 revenue growth. Canadian QuickBooks revenue for fiscal 2003 declined due to lack of growth in the software category and decreases in the level of inventory purchasing by retailers.
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