Intuit's CEO Is Stepping Down, but Will Leave the Company in Fighting Trim
Financial metrics in Intuit's (NASDAQ: INTU) fiscal fourth-quarter 2018 earnings report were overshadowed by the news that CEO Brad Smith will step down from his post at the end of December. The eminently successful software executive will end his tenure with a solid record of achievement behind him. Let's first review the quarter's details, then discuss what Smith's departure means for Intuit shareholders.
Intuit: The raw numbers
What happened with Intuit this quarter?
- Intuit's small-business and online-ecosystem segment enjoyed an increase in revenue of 20% against the prior-year quarter.
- The segment's flagship product, QuickBooks Online, or QBO, amplified its total U.S. subscriber base by 38% year over year, to 2.6 million total subscribers. Non-U.S. QBO subscriptions again exhibited rapid growth, as international subscribers expanded by 62% to 800,000 in total.
- QuickBooks Self-Employed subscribers grew to 720,000, from 390,000 in the comparable prior-year period. This year-over-year growth rate of nearly 85% is tempered by sequential growth of just 5.4% from the third quarter of 2018.
- Intuit booked an operating loss of $81 million, in line with management's expectation of an operating loss of $75 million to $85 million. In July, the organization announced that it was selling its largest data center in Quincy, Washington, to privately held H5 Data Centers. The sale comes as Intuit seeks to complete migration of customer data to the public cloud via Amazon Web Services.
- As anticipated, the loss on sale of the data center ($79 million) was offset by tax benefits stemming from the transaction, resulting in positive net income and earnings per share (EPS), as denoted in the table above.
- The company increased its share-repurchase authorization from $1.2 billion to $3.2 billion. After several years of vigorous share repurchases, Intuit bought back a relatively small amount of shares -- worth just $270 million -- during the recently completed fiscal year.
- The organization's board of directors increased the quarterly dividend by 21% to $0.47, which yields just under 1% annually at the current share price.
A change in Intuit's leadership
Alongside earnings, Intuit announced that CEO Brad Smith is stepping down from the company's helm effective Jan. 1, 2019, as part of a planned transition. Smith will be succeeded by Sasan Goodarzi, who currently heads Intuit's Small Business and Self-Employed Group. Smith will remain with Intuit, however, and assume the role of Executive Chairman of the company's board of directors.
As Intuit pointed out in its press release announcing the transitions, the company's annual revenue has doubled to $6 billion, and shareholders have enjoyed a 600% total return, over the 11 years of Smith's tenure. Smith also extended Intuit's reach beyond the U.S. into the global market for tax and accounting services.
More pertinently, Smith transitioned the company from selling desktop software to a software-as-a-service model while simultaneously building out the once-fledgling Quickbooks unit. QuickBooks has evolved into a business ecosystem that now grosses more than $3 billion annually, eclipsing TurboTax as Intuit's most important revenue driver.
Smith achieved this transformation with the help of Chief Technology Officer Tayloe Stansbury, who will also step down on Jan. 1, 2019, after nine years at Intuit. Stansbury will be replaced by Marianna Tessel, who currently serves as chief product development officer in the Small Business and Self-Employed Group.
The departure of two architects of Intuit's impressive revenue growth isn't likely to substantially affect the company's near-term fortunes. Intuit's business plans are now focused on unifying different services into a comprehensive platform (the "One Intuit" initiative) while also plumbing cross-selling opportunities between small-business and tax products.
Thus, Goodarzi and Tessel can focus on optimizing growth opportunities and extending market share. There's no need for any wide-scale changes to Intuit's current strategy. And as they've both honed their executive skills in the small-business group, Goodarzi and Tessel are well suited for the immediate tactical task of completing Intuit's transition to the public cloud.
During the company's earnings conference call, Smith reflected on Intuit's achievements during his years as CEO and expressed high confidence in the promoted executives:
Within its earnings report, Intuit issued guidance for both the first quarter of fiscal 2019 and for the full fiscal year. For the first quarter, the company expects revenue of between $955 million and $975 million, which would mark year-over-year growth of 5% to 7%. As the first quarter seasonally entails a small loss in the run-up to the next tax season, Intuit projects a first-quarter operating loss of $70 million to $80 million, and a net loss per share of $0.17 to $0.19.
For fiscal 2019, management anticipates a top line of between $6.53 billion and $6.63 billion, for approximately 8% to 10% year-over-year revenue growth. Operating income is expected to improve to a range of $1.725 billion to $1.775 billion, which would equal 11% to 14% profit expansion. Finally, diluted EPS is slated to land between $5.25 and $5.35, equating to a growth range of 3% to 5%. Overall, Intuit projects another strong year: Smith leaves the company in good hands, and in good shape.
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