Intuit (NASDAQ: INTU) released fiscal fourth-quarter 2017 earnings on Tuesday after the markets closed, concluding a healthy fiscal year in which it overcame a rocky start to tax season. In the company's earnings call with analysts, management also discussed an evolution of the company's business strategy and outlined important investment areas going forward. Let's start by reviewing the headline numbers and key points from the quarter:
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Intuit results: The raw numbers
|Metric||Q4 2017||Q4 2016||Year-Over-Year Change|
|Revenue||$842 million||$754 million||11.7%|
|Net income||$24 million||($40 million)||N/A|
|Diluted earnings per share||$0.09||($0.16)||N/A|
What happened with Intuit?
The company held onto its revenue gains for the year: Intuit finished fiscal 2017 with a top-line advance of 10.3% over the prior year.
QuickBooks Online (QBO) subscribers increased 58% year-over-year during the quarter, eclipsing the 41% growth mark achieved in Q4 2017. For the year, Intuit increased its customer base by the same rate of 58%, ending 2017 with nearly 2.4 million active subscribers.
International QBO subscribers jumped by 75% to 500,000. During the quarter, Intuit crossed the 100,000-subscriber mark in three key global markets: Canada, Australia, and the U.K.
After a phenomenally successful third quarter in which QuickBooks Self-Employed subscriptions nearly doubled, customer additions in this relatively new product line fell back to earth in the year's final quarter. The company added 30,000 new users to end 2017 with a total of 390,000 Self-Employed subscriptions.
For the full year, Intuit recorded diluted earnings per share of $3.72, versus $3.69 in 2016.
Beginning with next quarter's earnings filing, Intuit is modifying its reporting segments. The company will shift its consumer ecosystem business from the small business segment to the consumer tax segment. In addition, Intuit is renaming its segments. Consumer tax will now be known simply as "consumer." Small business will be rebranded as "small business & self-employed." The ProConnect segment, which deals primarily in business tax services, will be rebranded as the "strategic partner" segment, and will take on the added responsibility of finding partners for Intuit's product ecosystem.
Intuit executed $360 million in share repurchases during the quarter, and ended the year having purchased $830 million of its own shares on the open market. This pales in comparison to the massive $2.3 billion share repurchase of fiscal 2016, however, approximately $1.5 billion remains on the company's current authorization.
The organization's board of directors approved a 15% dividend hike, bringing the quarterly payout to $0.39. Intuit has increased its dividend by a total of 30% since fiscal 2015. At the current share price, the company's dividend yields 1.1%.
Intuit announced separately on Tuesday that current CFO Neil Williams, who has held the position since 2008, will resign in January to be replaced by Michelle Clatterbuck, who currently serves as senior vice president of finance for the consumer tax group and acting finance leader for the small business group.
What management had to say
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In recent quarters, Intuit's small business ecosystem, that is, the suite of products centering around QBO, has expanded in scope. The company now cross-markets tax and accounting solutions between its flagship tax preparation software, TurboTax, and QBO. During the post-earnings conference call, CEO Brad Smith discussed this evolution into a single businesswide ecosystem, and how Intuit intends to utilize it for further growth:
Our One Intuit Ecosystem strategy, as we're calling it, will power the next chapter of growth. It capitalizes on our tens of millions of active customers and the vast amounts of data that we steward on their behalf. When you match that data with our leading technology and our machine-learning capabilities, we are able to deliver deeply personalized experiences through a trusted open platform and create indispensable connections not only between people, but between products, and we can do it in a way that is not easily matched by our rivals.
CFO Williams elaborated on the magnitude of resources required and delineated investment priorities in using this data to extend new services to customers:
...we're reallocating over 10% of our annual spend to strengthen our investment in several key priorities over the next 3 years, including increasing our capability in artificial intelligence and machine learning, accelerating our transition to Amazon Web Services, enhancing our brand and marketing effectiveness globally and enabling our engineering organization to increase effectiveness and efficiency. We expect these initiatives to set us up to deliver strong growth in the coming years.
Intuit's rapid uptake of QBO customers will inevitably slow at some point. But Smith and Williams are signaling that enormous present and future opportunity exists within the current combined customer bases of QBO and TurboTax. Committing resources to the "One Intuit" ecosystem today creates new avenues of revenue growth, and can possibly offset slower customer "adds" when current momentum cools.
For now, expansion isn't an issue: Intuit's full-year fiscal 2018 guidance signals another 12 months of brisk growth. QBO is forecast to end 2018 at between 3.275 million and 3.375 million total subscribers; a rate of increase of 37% to 42%.
The company expects its top line to land between $5.46 billion and $5.74 billion, for revenue growth of 9% to 11%. Operating income is slated to land between $1.49 billion and $1.54 billion (growth of 6% to 10%).
Finally, management is targeting fiscal 2018 diluted earnings per share of $4.00 to $4.10, for an 8% to 10% improvement over fiscal 2017. How will the new priority investments affect profitability? At least for fiscal 2018, CFO Williams projects that operating margin won't suffer; it's also penciled in for a slight improvement.
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