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Intuit Inc. (INTU 2.69%) opened its new fiscal year with renewed growth in its flagship online accounting product, QuickBooks Online, or QBO. As is typical, the company incurred a first-quarter loss as it gears up for the upcoming tax season. Let's review the highlights of the report and delve into QBO's first-quarter metrics, as well as its benchmarks for the rest of the year.
Intuit results: The raw numbers
| Metric | Q1 2017 | Q1 2016 | Year-Over-Year Change |
|---|---|---|---|
| Revenue | $778 million | $713 million | 9.1% |
| Net loss from continuing operations | ($30 million) | ($31 million) | N/A |
| Diluted EPS | ($0.12) | ($0.11) | N/A |
Data source: Intuit 8-K filing.
What happened with Intuit this quarter?
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QBO subscribers grew by 41%, ending the quarter at 1.6 million subscribers.
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Non-U.S. QBO subscriptions ramped up 50% to 323,000 at quarter's end. This marks a sequential acceleration, as last quarter (fiscal Q4 2016), international QBO subscriptions improved by 45%.
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Management attributed the international momentum to strong sales in the U.K., Australia, and Canada. In particular, U.K. subscriptions leaped 87%.
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QuickBooks Self-Employed, one of the newest products in the QBO ecosystem, saw subscriptions resume a vigorous trend, growing 29% to 110,000 subscriptions -- a sequential improvement from the nearly 12% growth in Q4 2016.
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The company's consumer tax division reported $60 million in revenue, and the small business focused ProConnect tax division reported revenue of $112 million. In total, consumer and business tax revenue advanced marginally by 3% over Q1 2016.
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Intuit's loss from operations more than doubled, from $29 million in Q1 2016 to $61 million during the current quarter. This was due to higher services costs, selling and marketing expenses, and research and development costs versus the prior year. An income tax benefit of $42 million absorbed most of this difference, to bring the ultimate net loss nearly even with the comparable 2016 quarter, as seen in the table.
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Intuit reported $192 million of share repurchases during the quarter. Last year, the company bought back $2.3 billion of its own shares, a significant purchase relative to the size of its balance sheet. Roughly $2.2 billion remains on the current board-approved repurchase authorization, although investors shouldn't expect that Intuit will again compress such a huge repurchase into a single fiscal year.
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The company declared a quarterly dividend which remains at $0.37 per share, an annualized increase of 13% over the prior year.
What management had to say
The QBO ecosystem is poised to be Intuit's primary growth engine for the near future. Management's goal is to increase total QBO subscriptions worldwide, from 1.5 million at the end of fiscal 2016 to a range of between 2.0-2.2 million subscriptions in 2017.
In the company's earnings conference call with analysts held on Nov. 16, CEO Brad Smith discussed QBO's strong market fit in the U.K., Australia, and Canada and indicated that the company would invest heavily in these countries to meet its 2017 QBO subscriber targets. More generally, on the viability of the overall goal, Smith stated:
If you go back and look at what it would take for us to deliver the 2 million to 2.2 million [subscriptions], it would take subscriber growth between 32% to 45%. And right now, we just clocked 41% in Q1 which is an uptick from last quarter. And then we did walk through some of these innovations we have in the market now that we've introduced that we think gives us confidence that we're going to be able to deliver that 2 million to 2.2 million.
It's still too early in the game for us to say, hey, our confidence is now that we're going to go past that 2 million to 2.2 million, but hopefully it gives you enough assurance to say you can see momentum in the base growing and you can hear the innovations coming.
Last year, QBO subscriptions grew at a 41% pace, so the projected range of between 32% to 45% is ambitious, but achievable.
Moving forward
Intuit provided slightly updated guidance for the remainder of fiscal 2017 in its earnings release. The company left revenue expectations unchanged from last quarter, as it anticipates growth of between $5.0 billion and $5.1 billion, a percentage increase of 7% to 9%. The projection for full-year operating income of $1.33 billion to $1.38 billion remains the same as well.
Diluted earnings per share, however, are now expected to fall between $3.47-$3.57, against last quarter's calculated range of $3.35-$3.45. Most of this bump is due to a slight anticipated decrease in the company's effective tax rate for fiscal 2017. Shareholders may see more significant revisions to full-year guidance during the next two quarters, as Intuit works its way through tax season, which, for the company and its customers, is right around the corner.
