For about five million small-business owners, QuickBooks financial software is a lifeline – an inexpensive, easy-to-use program that satisfies their often relatively uncomplicated needs. The same is true for the millions of individual income-tax filers who use TurboTax, which generally costs much less than using an accountant.
Both products are among those in the stable of Intuit, a Fortune 1000 software firm. At the finance wheel since 2008 is Neil Williams, a former CFO of Visa USA. He’s presided during a period of relatively modest but steady growth, much of it accomplished through acquisition. For its fiscal year ended July 31, Intuit recorded $4.2 billion of net revenue, up about 10 percent from the previous year and 40 percent since Williams came aboard.
More impressive has been its stock’s performance, which was trading at just over $66 on Wednesday morning. The shares opened at $31.50 on Williams’ first day at Intuit almost six years ago.
This has been an eventful year for the company, which made significant progress in its effort to integrate its various software products aimed at small businesses on a single platform. It also divested two business units: Intuit Financial Services, which hosts online banking and bill-payment for about 2,000 bank websites; and Intuit Health Group, which provides portals through which patients exchange information with medical providers. And Intuit launched an effort to get accountants around the world to help distribute QuickBooks, as many in the United States already do.
CFO recently spoke with Williams about the company and its recent changes. An edited version of the conversation follows.
Unlike most software companies, Intuit is quite mature. How does that shape your role as CFO?
Lots of goodness comes to a 30-year-old company like ours, in terms of funding, a stable investor base and many constituents who know and love the products. But one question is, how do you keep it nimble, progressive and innovative like a company that’s just starting up? There are both challenges and opportunities in making sure we can adjust quickly, recognize new things going on in the market, and don’t get too comfortable or complacent with the successful products we already have.
With new ideas and products that are just getting off the ground, we try not to press them for profitability or revenue growth too early in their life cycle. We like to give them an opportunity to bloom and attract a loyal following first.
Companies we’ve acquired, like DemandForce, PayCycle and Mint, all bring in fresh perspective, energy, new skills and different perceptions of the marketplace that permeate the organization. It’s one of the things that keeps us on our toes.
Intuit CEO Brad Smith was recently quoted as saying, “We’ve evolved from a portfolio of business units to an ecosystem of products and services with unique interdependencies.” What’s that about?
This company has done really well making individual products. Where customers have gotten frustrated at times, and quite frankly it’s frustrated us as well, is that it hasn’t been as easy to integrate our products as we would like it to be. For example, we have payment and payroll services that our small-business customers might need, but many of them don’t know we provide those things. And it hasn’t been easy in the past for QuickBooks customers to initiate those services.
So the idea behind our product development going forward is to have all our small-business services integrated in one package. Once you initiate QuickBooks, the other services – payments, payroll, marketing, supplies – will all be there without you having to buy a new product and register all over again.
Integrating our tax offerings into QuickBooks Online is a big opportunity for us. It’s a major feature in the new version announced on Sept. 27. An accountant has to make just one click to transfer all the information from QuickBooks Online into your federal tax return.
This integration is something customers might have expected for a long time from a company with all our offerings. But operating as individual product units, we really hadn’t spent the time to integrate them very elegantly. The new version of QuickBooks Online is a big step forward in that regard.
How is the product priced?
It’s pay by month. There’s a free trial period, after which you pay based on the number of users you have and how many customers and payments you have. There are versions priced at $12.95, $19.95 and $29.95. You can cancel any time.
How do you know those price points are optimal? Couldn’t even a very small business, like a florist, handle a few hundred dollars a year for its operational and accounting system?
The only way to know is by testing. There’s no magic, no algorithm you can use to determine the absolutely perfect price point. We still do what we’ve done over the years, which is test different price points and bundles.
You would be surprised at the sensitivity of a small-business owner toward putting down $300 or $400 at one time. Most prefer to pay on a monthly basis. It takes away one of the barriers to initiation. Think about going to Staples or Office Depot and plunking down that much for a box of desktop software without knowing whether you’re going to like it or whether it will serve your needs, versus trying out something online.
What was behind the sale of Intuit Financial Services (to private-equity firm Thoma Bravo for $1.025 billion on Aug. 1)?
If you go back to 2007 when we acquired the business, the strategic thought was to convert people who used online banking as their primary financial software to the products we make and sell. Over time we found that there were easier ways to do that, and that integrating with the banks was actually a pretty large challenge.
And the sale of Intuit Health Group (on Aug. 21, for an undisclosed amount to Steve Malik, the same person who sold it to Intuit three years ago)?
When we acquired the company its service was cutting edge, and lots of doctors and clinics wanted it. But since then some of the large electronic health records companies have integrated online portals into their existing applications, so a stand-alone portal is less relevant now. Most doctors and clinics seem to prefer an integrated, end-to-end electronic system. So Intuit Health will be better aligned with a company in the electronic-health-records business.
How much revenue will the two divestitures be taking out of the company?
We expect to be classifying them as discontinued operations that brought in a combined $320 million in 2012 and $340 million in 2013. Their EBITDA was about $100 million this year.
In July Intuit announced it had reorganized its Accounting Professionals Division, breaking out two of its functions as separate business units. What’s that for?
One of the best ways we sell our software to small businesses is based on accountant recommendations. No matter how small your business is, you’re probably going to have a relationship with an accountant to do your taxes. There are about 400,000 CPAs in the United States, about 280,000 of which are what we call QuickBooks Pro Advisors. They’re trained on and knowledgeable about our accounting software.
The new Accountant and Advisory Group is the group inside the company that provides the training. But a key part of this move was to expand around the world what we’ve done with accountants in the United States. Most of our revenue is here, but we think there is a big opportunity to serve a similar customer set globally. We have targeted the U.K., Australia, India and Canada as our first wave.
The other new group, ProTax, is focused on winning in the professional tax category in North America, capitalizing on the shift to cloud and mobile-based solutions. The group works with accountants who use our business tax products.