The first wave of tax filings in 2019, as tracked by the IRS, reveal an early slump in volume versus 2018. Yet Intuit (NASDAQ:INTU), the small business and tax software provider that books a significant amount of annual profit in the first four months of each year, returned impressive results to shareholders nonetheless in its fiscal second-quarter earnings report released on Thursday.
In addition, management expressed confidence that filings would pick up in the remaining weeks of the current tax season. Below, we'll walk through the quarter's highlights and visit management's earnings outlook for both next quarter and the remainder of the fiscal year.
Note that in the discussion that follows, all comparative numbers refer to the prior-year quarter, the fiscal second quarter of 2018.
Intuit: The raw numbers
|Metric||Q2 2019||Q2 2018||Year-Over-Year Change|
|Revenue||$1.5 billion||$1.33 billion||12.8%|
|Net income||$189 million||$183 million||3.3%|
|Diluted earnings per share||$0.72||$0.70||2.8%|
What happened with Intuit this quarter?
- The company exceeded the top range of its previous revenue guidance, which anticipated 11% year-over-year growth for the quarter. Intuit's top-line performance was fueled by its small business ecosystem, which expanded revenue by 38%.
- QuickBooks Online (QBO) users likewise grew by 38%, ending the quarter at a total of 3.9 million subscribers.
- Non-U.S. QBO customers jumped 56% for a quarter-end subscriber tally of 980,000.
- Within the company's small business and self-employed group segment, management highlighted growth in its new small-business lending arm, QuickBooks Capital. The business has issued $277 million in loans cumulatively since its launch roughly one year ago.
- Within this segment, management also lauded growth in its new QuickBooks Advanced software, an accounting service aimed at middle market companies.
- Intuit reported that the current-year tax season is well off last year's pace, as was expected given the U.S. government shutdown and reopening, as well as a redesign of IRS Form 1040.
- Per management, IRS total e-files have decreased by 7.1% through Feb. 8, with assisted e-files down 12.5% and DIY (do-it-yourself) filings down 3.2%. In comparison, the company's DIY TurboTax product saw e-files drop 3.5% during the same period. Management expressed confidence in its overall strategy for the current season. Intuit will provide a final tax update in its fiscal third-quarter report in May.
- The company's strategic partner group, which provides professional tax preparation, reported revenue of $208 million, conforming to management's expectations.
- Intuit's operating margin increased by 1 percentage point, to 15.5%, as higher revenue offset an uptick in costs of services, as well as an increase in selling, marketing, and research and development expenses.
- Intuit repurchased $177 million worth of its own shares in the second quarter. So far in fiscal 2019, management has completed $274 million in share repurchases; $3 billion remains on the company's current buyback authorization.
- The company's board authorized a quarterly dividend increase of 21%, to $0.47. Intuit's dividend now yields 0.7% on an annualized basis.
What management had to say
CEO Sasan Goodarzi discussed a number of product innovations during Intuit's earnings conference call. Intriguingly, Goodarzi signaled to investors that Intuit is preparing to invest significantly to enrich both its tax and accounting platforms with a higher degree of artificial intelligence (AI), both in client-facing applications and for analytical purposes:
It's about significantly accelerating our application of artificial intelligence, which progressively learns from the large data sets across the platform and delivers the benefits customers seek with speed, and it's about solving the largest problem customers face, confidence, by connecting them with experts on our platform. With that context, let me provide a few examples to bring this to life. When it comes to connecting people to experts, we are doing this today with TurboTax Live. Imagine the opportunity we have to expand live expertise across the platform to serve consumers, self-employed, and small businesses.
It's our chance to digitize the service industry. For small business owners, we are focused on being the center of small business growth using artificial intelligence across our platform to accelerate faster funding and payments and to help our customers access capital. Over time, we see an opportunity to better serve product-based businesses as they find and sell to customers across channels. We're also focused on helping customers make smart decisions with their money by connecting our customers to financial products to make ends meet.
Goodarzi also affirmed the potential for AI within the new QBO Advanced platform and stated Intuit's ambition to apply the technology to "provide what mid-market customers need at a disruptive price."
Management left previously issued guidance for fiscal 2019 unchanged in its earnings release. The company expects 8%-10% year-over-year revenue growth against fiscal 2018, within a range of $6.53 billion-$6.63 billion. Diluted earnings per share (EPS) of $5.25-$5.35 will represent 3%-5% expansion over 2018's earnings.
For the current fiscal third quarter, management projects revenue growth of 10%-12% against the prior-year quarter's top line of $2.93 billion. Executives anticipate diluted EPS of $5.03-$5.08, which, at the midpoint, will capture an improvement of 8% against the $4.68 that Intuit inked in its books in the third quarter of 2018.