It's tax season -- the four months when tax and small-business software provider Intuit Inc. (NASDAQ:INTU) makes most of its profit for the year. On Thursday, Intuit filed its fiscal second-quarter 2017 earnings report and issued a progress report on its tax business so far this year. Tax volumes are well off last year's pace: Let's review the details, as well as management's interpretation, after a look at the headline numbers.

Intuit results: The raw numbers

MetricQ2 2017Q2 2016Change (YOY)
Revenue $1.016 billion $923 million 10.5%
Net income $13 million $24 million (45.8%)
Diluted earnings per share $0.05 $0.09 (44.4%)

Data source: Intuit 8-K filing.

What happened with Intuit this quarter?

  • On Feb. 8, the company issued a press release stating that second-quarter revenue and earnings would not meet the company's previously provided guidance because of a slower start to the 2017 U.S. tax season.
  • Revenue of $1.016 billion met a revised target contained in the Feb. 8 release of $1.010 billion to $1.015 billion. Similarly, Intuit's diluted earnings per share of $0.05 fell in line with a revised range of $0.04 to $0.05.
  • Alongside earnings on Thursday, Intuit provided the first of two tax-season updates it will provide this year. In this document, the company noted that IRS data through Feb. 17 indicated a 13% drop-off in e-filed returns versus last year, and an 11% decline in self-prepared returns.
  • In comparison, Intuit's flagship TurboTax e-filed returns have declined 10% to date, implying that the company is holding its market share during the lethargic start to the 2017 season.
  • Total units of TurboTax across desktop and online versions have declined 5% to 18.3 million units through Feb. 18.
  • Outside the tax business, Intuit's small-business ecosystem continues to experience extremely healthy growth. During the quarter, total QuickBooks Online (QBO) subscribers grew to 1.87 million subscribers, a 49% increase. That figure represents an acceleration from Q1 2017's 41% subscriber gain. 
  • Non-U.S. QBO subscribers expanded by 61% to 370,000 customers. 
  • QuickBooks Self-Employed grew to 180,000 customers, versus 50,000 last year. 
  • The company repurchased $198 million worth of Intuit shares during the quarter.
Colorful drawn image of a man seated at laptop filling out tax form 1040.

Image source: Getty Images.

What management had to say

During management's earnings conference call on Thursday, CEO Brad Smith noted that the IRS had indicated that implementation of the PATH Act, which combats refund fraud, was responsible for some of the anemic tax filing numbers thus far. Smith suggested that volumes would normalize by April 18, this year's tax filing deadline:

Despite the slow start to tax season, we remain confident it's simply a shift in timing, with the do-it-yourself software category and TurboTax performing well season to date. This timing shift did lead us to update our outlook for the quarter, while reaffirming our full-year guidance.

Smith also mentioned the extremely positive performance of QBO online and related products, which, far from peaking, continue to show high adoption rates worldwide:

Subscriber growth is accelerating, driven by product and platform innovation, improved product market fit outside of the United States, and a further expansion of our addressable market by targeting the self-employed segment. ... We saw a notable pickup in markets where our product market fit meets our test of readiness, including the UK, Australia, and Canada. In fact, both the UK and Canada surpassed 100,000 subscribers in Q2.

Moving forward

Confidence that tax filings will pick up heading into the final two months of tax season, as well as the solid results within the small business ecosystem, underlie management's confidence in maintaining the previous full-year projections issued last quarter.

For the year, Intuit still expects total revenue growth of 7% to 9%, to a range of $5.0 billion to $5.1 billion. It also continues to project diluted EPS of $3.47 to $3.57.

Next quarter, in which the company promises to make up the slack for fiscal Q2 2017, is likely to be of more immediate concern to investors. Intuit expects 9%-11% growth in revenue, to between $2.50 billion and $2.55 billion. It also anticipates operating income of $1.42 billion to $1.44 billion, and quarterly diluted EPS of $3.61 to $3.66. 

While shareholders were reassured by management's conviction on fiscal 2017, the third quarter will be the most consequential of the year. Any further shortcomings in earnings on the next reporting date may prove difficult to make up in the fourth quarter. 

Asit Sharma has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Intuit. The Motley Fool has a disclosure policy.