Q1 2020 Earnings Call
This time I would like to welcome everyone to into its first quarter fiscal year 2020 conference call.
Lots have been placed on mute to prevent any background noise.
After the speaker's remarks, there will be a question and answer period.
If you would like to ask a question. During this time simply press Star then number one on your telephone keypad.
If you would like to withdraw your question press the pound <unk>.
With that I'll now turn the call over took him walking into its vice President Investor Relations that's why.
Equities, good afternoon, and welcome to into its first quarter fiscal 2020 conference call I'm here with Intuit CEO since <unk>, R&D and Michelle Clutterbuck our CFO .
Before we start I'd like to remind everyone that our remarks will include forward looking statement.
There are number doctors they could cause interest results to differ materially from our expectation.
You can learn more about these risks in the press release, we issued earlier this afternoon, our Form 10-K for fiscal 2018, and our other SEC filings.
All of these documents are available on the Investor relations page of into its website at <unk> Dot com.
We assume no obligation to update any forward looking statements.
Some of the Earth in these remarks are presented on a non-GAAP basis, we've reconciled the comparable GAAP and non-GAAP numbers in today's press release.
Unless otherwise noted all growth rates refer to the current period versus the comparable prior year period, and the business metrics and associated growth rates refer to worldwide business metrics.
Great. Thanks, Kim and thanks for everyone at the joining us today.
Also strong start to first quarter of fiscal 2020 and continue to make progress on our strategy of becoming an AI Jordan expert platform.
First quarter revenue grew 15% overall fueled by 15% growth in the small business and self employed growth.
Online ecosystem revenue was 35% exceeding our target to grow 30% or more.
Consumer growth revenue grew 11% and strategic partner group revenue was inline with our expectations. This is a great start to the year.
At Investor Day, I shared our top five priorities, which we call our big bets.
These big bets focus on the largest problems our customers say.
And also represent durable growth opportunities for until it.
I'd like to share our progress on each of these.
Our first.
Just a revolutionize speed the benefit for our customers when they use our products and services.
We aim to deliver instant benefit and make interactions with our offerings frictionless by accelerating the application of artificial intelligence.
This big bet is foundational everything we do far customers and positions us to accelerate execution across our other formats.
Here are a couple of examples of the progress that we're making.
First I want a path to triple the number of customers, who can apply for working capital loans.
Capital by extending eligibility to our desktop customers using machine learning.
Cookbooks capital leverage as customers data to provide loans to small businesses nearly 60% of home may not qualify for loan elsewhere.
Second we're enhancing our ability to answer customer questions more efficiently through turbotax self-help.
By leveraging AI, we are delivering more relevant answers at the point that need and using natural language processing to expand personalized answers with turbotax assistant.
In fiscal 2019, we handled millions of calls from customers needing help while using turbotax.
We expect this capability to help improve the customer satisfaction survey results and reduce customer contact rates by helping customers find answers to their questions more easily.
Our second big that is to connect people to experts one of the largest problems our customers face is lack of confidence to do their own taxes and manage their business.
Connecting customers to experts on our platform to solve this problem, allowing us to gain share and girl average revenue per customer or a RPC.
We're happy with the progress that we're making.
We launched cookbooks life connecting small businesses with life experts opening up access a new 10 billion dollar market opportunity.
This offering is intended to increase our small business customers confidence, helping them get set up close their books each month and ensure their records are accurate enough today.
Over the last six months, we run more than 50 test to learn what customers truly need.
Helping us develop the offering and refine our go to market and pricing strategies.
At the same time, we continue to build out the expert pipeline as 90% of turbotax like experts expressed interest in working with Quickbooks life.
In Turbotax life, we continue to innovate, making our experts more accessible at different touch points as we see a 32 point improvement and conversion for first time filers when engaging with an expert.
This season, we're launching real time chat and enhancement our customers have asked for since the inception of Turbotax life.
Our third big bet is to unlock smart money decisions for customers by connecting them the financial tools partners and benefits that help put more money in their pockets.
So our offerings, we are addressing key customer problems by helping them reduced headcount cost that girl emergency fund and improve their financial habits.
Based on what we learn from the test we ran during the extension season, we're optimistic about our ability to go beyond tax to help our customers make ends meet.
For example, we introduced credit score goal setting and payment history tracking in trouble to help customers improve their credit score.
This is a key step and improving their spend overall financial health.
Our fourth Big bet is to become the center of small business growth by helping our customers get paid fast managed capital and pay employees with confidence.
We introduced new cookbooks innovation at our flagship Quickbooks connect conference earlier this month to further support our customer small businesses growth.
For example, we announced a cash flow planner to help our small doesn't tough business customers make better decisions as they grow.
We also announced receipt capture in the mobile app and enhanced mileage tracking to enable our customers to automatically at the ducks expenses seamlessly.
All of these innovations that more money in our customers pockets and should increase their success over time, we see an opportunity to better serve product base businesses by transforming omni channel commerce benefiting customers, who sell products through multiple channels.
Our.
Big Baptista disrupt the Midmarket was quickbooks online advance our online offering designed to address the needs of small business customers with 10 to 100 employees.
This offering will help us increase retention of the larger customers.
Track, New mid market customers, who are over served by higher price competitive offerings.
We continue to make progress building out the offerings since launching last year.
For example, we recently introduced a revenue streams dashboard that allows customers to easily compare revenue across products services projects customers and employees and other attributes to better understand their business performance.
In summary, the entire companies focused on executing against these big bets to deliver for our customers and accelerate growth.
Before I hand, it over to Michelle.
I wanted to address the questions we've been getting on our free strategy.
Well the debate continues around what are the government's presents a tax bill or taxpayer should prepare their own returns. Our primary focus remains on meeting our customers' need helping them back to my third tax refund and going beyond tax to help them make ends meet.
Let me give you some additional context around free.
Based on IRS estimates nearly 104 million Americans are eligible to file for free through the IRS free fall program.
However that number does not tell the whole story.
Recently, the Iris acid independent organization Mitre to conduct this study of the free file program.
The study concluded that overall, the free fall programs effective and that the majority of these 104 million taxpayers make a personal choice to use an alternative filing method for a variety of reasons.
For example, many taxpayers regardless of their income or complexity preferred have assistance as they lack the confidence the five on their own.
As a result, the study concluded that the actual number of filers using do it yourself software and eligible to use free file is roughly 30 million customers.
Over 20 million taxpayers are already filing for free.
Either through the free filed for commercial free offerings, including many that are not eligible for FIFA.
And roughly 13 million of those Americans filing for for use turbotax software and paid into it nothing.
This is a testament to the quality of our free offerings. Both the product we donated to the IRS, we file program and our commercial free offerings.
We offer millions of customers the option to fall for free because we believe they will stick with us over time as their life changes and their tax situation becomes more complex in the future.
Therefore, we remain very confident in our durable free strategy.
To wrap up we're very pleased with our results in the first quarter and we remain focused on delivering against our objective in fiscal 2020. Thank you and let me hand, it over to Michel to walk you through the financial details.
Thanks to find good afternoon, everyone.
For the first quarter of fiscal 2020, we delivered revenue of $1.2 billion up 15% year over year GAAP operating income of $10 million versus a loss of $10 million a year ago, non-GAAP operating income of $129 million versus $102 million last year.
GAAP diluted earnings per share of 22 cents versus 13 cents a year ago.
non-GAAP diluted earnings per share a 41 cents up from 29 cents last year.
Turning to the business segments.
Small business and self employed revenue grew 15% during the first quarter fueled by online ecosystem revenue growth of 35% I.
Our strategic focus within small business and self employed is to grow the core connect the ecosystem and expand globally.
Starting with grow the core Quickbooks online accounting revenue grew 41% in fiscal Q1, driven mainly by strong customer growth.
And to a lesser extent higher effective prices and mix shift.
Second we continue to make progress connecting the ecosystem.
Services revenue, which includes payroll payments time tracking and capital grew 27% in fiscal Q1.
We think quickbooks online payroll, we continued to see revenue tailwinds from a mix shift to our full service offering which is priced 75% higher than self service.
Within Quickbooks online payments revenue growth reflects continued customer growth along with an increase in charge volume per customer.
Third our progress expanding globally added to the growth of online ecosystem revenue during fiscal Q1.
Total international online revenue grew over 60%.
I'm also excited to share that in the UK, we now for the number one position for cloud accounting subscribers.
We believe the best measure of the health and success of our strategy going forward in online ecosystem revenue press, which we continue to expect to grow better than 30%.
Desktop ecosystem revenue was up 1% in the first quarter inline with our expectations.
No. The first quarter is our largest desktop quarterly year, reflecting the annual watch our new version of Quickbooks desktop software.
Consumer group revenue grew 11% in fiscal Q1.
During the October tax expenses season, we ran three times a number of tests. We did two years ago. These tasks will inform our tax offerings for the upcoming season.
We're gearing up for our third season offering turbotax lives, we're continuing to test new customer experiences as we work to provide our customers and even higher level of confidence this season.
Also seeing great engagement from experts and over 90% of those we asked back plan to return this season.
Our technology first approach gives us confidence, we can expand our live offerings and maintain attracted into an operating margin longer term.
And in a strategic partner group professional tax revenue grew 6% in the first quarter inline with our expectations.
We've got a lot of questions about the macro environment and what we're seeing in our business. At this time, we're not seeing any evidence of a slow down in our business related to the macroeconomic environment.
Charge volume trends remain strong and the number of employees being paid in our ecosystem remains on trend.
Turning to our financial principles, we remain committed to growing organic revenue double digits and growing operating income dollars faster than revenue.
We take a disciplined approach to capital management investing the cash we generate an opportunity that yield and expected return on investment greater than 15%.
We continue to focus on reallocating resources to top priorities that the company with an emphasis on becoming any I driven extra platform.
Our first priority for the cash regenerate is investing in a business to drive customer and revenue growth.
We consider acquisitions to accelerate our growth and thought our product roadmap.
We returned excess cash that we can't invest profitably in the business to shareholders via both share repurchases and dividends.
We finished the quarter with $2.3 billion in cash and investments on our balance sheets.
We repurchased $139 million a stock in the first quarter.
We have approximately $2.5 billion remaining on our authorization and we expect to be in the market each quarter.
The board approved a quarterly dividend of 53 cents per share payable January 21st 2020. This represents 13% increase versus last year.
Turning to guidance, our Q2 fiscal 2020 guidance includes revenue growth of 11% to 13%.
GAAP earnings per share of 70 cents to 73 cents and non-GAAP earnings per share of $1 to one dollar and three cents.
Earnings guidance reflects a shift of marketing investments for the consumer group into our fiscal second quarter.
We expect to GAAP tax rate of 21% for fiscal 2020, you can find our Q2 and fiscal 2020 guidance details in our press release and on our factsheet.
With that I'll turn it back Novitas is on great. Thanks, Michelle as I shared with you at Investor Day, all of our customers have a common set of needs. They're all trying to make ends meet maximize their tax refund save money and pay off debt and those who made the bold decision to become entrepreneurs and go into business or themselves have an addition.
Outside of needs and wants to finding keep customers get paid access capital to grow and ensure their books all right well.
We remain focused on becoming an a. I don't have an expert platform to solve our customers' most pressing problems now let's open it up for questions to heal what's on your mind.
Thank you, ladies and gentlemen, if you like to ask a question.
Please press Star then but number one on your telephone keypad. If you would like to withdraw your question press the pound Keith.
Our first question comes from a lot of Ken Wong of Guggenheim Securities. Your line is open.
Great. Thanks for taking my question.
I'm not sure. If this goes this honor Michel but up Michel towards the end you mentioned that you guys are going to bring some marketing spend entered into Twoq you.
Can you help us understand just based on your learnings from last year, what what kind of returns you guys are looking for what are some of the areas channel wise or otherwise that you guys might be putting this money behind and when I when we think about.
No that incremental spend is it fair to assume that that's pretty much just all filled the marketing and not kind of other other line item.
Hey, Thanks for your question adds this on a first of all it is all pretty much marketing and down it's really focused on ensuring that we can raise awareness to transform the assisted category.
As we talked about before you know really last year was our first year and raising awareness in terms of you can do your taxes and we'll be there every step of the way for you and we can help you I would really doubling down on that this year and based on the behaviors that we learned last year, we thought that shifting more dollars to raise awareness early in the season that throughout.
The season will give us the opportunity to serve as many customers as we can so that's really the primary driver for it.
Got it great. Thanks, guys.
Thank you. My next question comes from Scott Schneeberger of Oppenheimer. Your line is open.
Thanks very much.
All up on the on the second quarter guidance question just on on it sounds like it's entirely possible for to marketing spend that that had an adverse impact in the second quarter uniquely let's just curious what is your expectation for the started the tax season I would be the Iris is announced yet I'm just curious what type of what you're expecting.
And how that affects the off the Twoq you guys. Thanks.
First of all you're absolutely right. It's a it's adult marketing based on what I've just described earlier and what we expect based on.
Customer behavior and when the IRS opens is that just like we've seen in previous years. The moment. The W. Twos that the door a those early filers, they're going to be ready to file and I'm going to be there for them I wanted to make sure that we raise awareness that they know we're ready for them and that they can have helped that they need it and then to give them the ability to be able to father tax.
Yes, and get their refund right away and so we're really obsessively focused on our customers and making sure that they're ready to file the moment the IRS opens.
The next is on it and it.
The.
Just not looking for much of a change in a year over year as far as the started the taxis analogous to the extent you can answer that.
Yeah, not really much of a change other than again, what we've learned and what we're gonna do differently from an execution perspective, we don't expect much of a behavior change and that's all all of what has informed our our guidance for the quarter and we remain unfortunately many from here.
Hi, Thanks, very much on that and then.
I recently tested the Quickbooks connect.
Barry.
Dynamic golf event for sure I was just curious if you could give us an updates is on comparing and contrasting what you're seeing thus far with quickbooks, why customers endorse staff or whatnot and or add staffing relative to a when you initiated turbotax life. Thanks.
Well first of all thank you for attending cookbooks connect I was truly blown away by just a number of innovation from our team and they use quickbooks connect as the opportunity to launch many of the innovations across.
Many fronts and of course inspired by our customers and their passion, we actually use cookbooks and act as as really an opportunity to activate cookbooks lives, we had thousands of accountants and ER and pros there and there was a great opportunity just to share the fact that we're solving.
The two sided platform or a few side of problem I should say and the opportunity they have to solve those very problems on our platform for our customers and generate more income and I would tell you. The two sessions that we that we did it was standing room only.
With that folks knocking on the door after they've got their questions answered to figure out how to participate on joining me on the platform in terms of customer insights and learnings you know we ran Oh, we ran over 50 task in the last six months both in terms of really getting the product market fit thinking through better Mark.
Okay and pricing strategies.
And we feel that were really position for something that's very early in its jerre journey going into busy season, helping customers get set up providing help along the way it when they need it and in some cases doing it for them. So we're excited heading into busy seizing in January knowing that our primary focus his eyes to learn but so far both on the.
Pro side of customer demand side, it's been exciting to watch.
Sounds good thanks, I'll turn it over.
Thank you. Our next question comes from Matthew Wells with Citi. Your line is open.
Hi, Michelle Thanks for taking my question.
If you talk little bit about the customer cohorts that are purchasing quickbooks at bats are the existing desktop ecosystem customers or are they not need that news.
Yes, you know the primary focus that we have our our customers that had between 10 to 100 employees, but that's not it's not a hard line. It really depends on the number of customers that they have the number of invoices that they have to do the number of.
Accounts payables that they have and just the scale in which they operate.
And so far and our primary focus has been ensuring that we take care of our existing customers. Those that are ready to upgrade the platform that can better serve them and perform for them. While we build our capabilities to also acquire new so we've seen about a 75%, 25% mix, 75% existing customers upgrading and 25%.
New and you know overtime.
We expect that to have all the best because we want to actually accelerate the acquisition of by new customers. A we have you guys. We've shared before there's not a 180000 customers within our cheaply or cubo base that our except for Ti Vo advance and dives. Our primary initial focus in the coming on a year in 18 months as.
Our existing customers, but that's the mix, we're seeing so far when new customers find out that we have to capability there just naturally coming over to the platform.
That's really helpful color and switching gears to the consumer segments with the pull forward of marketing spend are there any specific products you plan to lean into here is it going to be focused on turbotax lives or some of the lower tier skews.
You know if it's all the all the above our teams have worked really hard this year in context.
Enabling us to expand our leading the do it yourself category, enabling us to transform the assisted category and going beyond taxed and.
Finding ways to provide benefits beyond tax and so really the focus areas has been self employed it's been let CNX, it's been improving our experiences for those that have that investments in stocks allowed the same time, making sure health is available through turbotax wide for all the cohort so really what we've learned in the.
Last couple of years is all customers seek help from day, one and so we're ready to provide that both through if you want to do it yourself or through lives while at the end of the tax experienced helping you understand that theres ways to save money, there's ways to connect the financial products that are right for you to get out of that.
Overtime, so were really ready on all those fronts from day, one because what we've learned as customers have those needs from day, one one taxis and opens up.
That's that's really helpful. That's it for me thanks for taking my question.
Thank you.
Thank you. Our next question comes from Keith Weiss of Morgan Stanley . Your line is open.
Hi, Mark R&D here on for Keith Weiss. Thanks for taking my questions. So first maybe I'm on Quickbooks live.
How about how much of the existing Curio base do you think will be interested Matt and kind of just how track them and going in <unk> do you expect us to be material contributor contributor to revenue growth.
This year and maybe next year any color on that would be helpful.
Sure first of all important reminder, that's how we're very early in our journey with cookbooks like literally we just went went GA and use quickbooks connect to add to activate it.
We're excited about what more we can learn so it's very early and the journey. There are lot of similarity turbotax live and the similarities our because of customer behaviors. The largest problem our customers face, whether it's a consumer or small business is it has confidence eyes confidence.
Whether or not they're making good business decisions, whether they need access to capital, whether they're going to be able to make their payroll this coming week.
How to think about profitability for their customers. So it's really a confidence problem and the confidence question that they have which means that this will apply to.
Cohort I had a portion of our existing base.
Plus it's really an opportunity to penetrate non consumption a lot of customers that sit on the sidelines and use Google sheets and excel and then just use the approach to help them run their business. This becomes the potential trigger for them to lot to switch and we're seeing all of that we're seeing existing customers opt for help I'm, we're seeing new customers that are.
Come in opting for either getting set up or engaging for help along the way because they need advice. So thus far we're seeing that across the spectrum. We really have not accounted for this to be a material impact far revenue in this coming year again, where this is we're early in the journey, but this is one of the company's five big bats.
We believe that at the huge customer problem and a big growth driver for the company in the future.
Great. Thanks, so much and then maybe one more quick one I'm on the UK subscribers, where you know Holden number one position on can you talk a little bit about the driver that growth is like the making taxes digital AG still a big tailwind in Ah how do you see that trending I guess for the rest of the year.
Yeah, you know I am extremely proud of our team five years ago, we weren't even on the map in the UK and and they set a goal to maniacal focus on customers getting the product markets that and when we do making sure that.
We really execute against our go to market strategies and raised awareness and I would say, it's their hard work and focusing on product market fit that's gotten us that a number one position because making taxes digital has been an opportunity for everyone.
But our team has really done the incredible job nailing the product experience of course, we always have room to improve and really accelerating a marketing investments and ER and now our expectation the Arthur really hold that number one position continue the growth.
Excellent. Thanks, so much.
Thank you weren't next question comes from Jennifer Lowe of UBI, Yes. Your question. Please.
Great. Thank you.
I think this one is Michelle question to start with but given the commentary of international growth being greater than 60%. If I look at at some of the metrics. We got in the past, namely international subs growth in the high Fiftys I think at analyst day last year earlier. This year was discussed the average revenue per customer is actually down in international it.
Feels like that's an acceleration, but I'm not I'm also comparing apples and oranges, a little bit tight maybe just can you comment a little bit on that how should we sort of put 60% north of 60% growth in the context of some of the metrics. We've we've gotten in the past and what that trajectory looks like.
Hi said, yes, the total international online revenue growth for Q1 was 60% and obviously a lot of that was driven through the UK assigned just mentioned.
With the move into first.
First with online accounting subs in the UK that and then a driver of the revenue growth.
We're very pleased with what we're seeing that we do believe that international longer term is a large opportunity for US right now the revenue from international is still a very small portion of our overall.
But we are seeing the UK picking up steam there and we would expect that to continue.
And then one more on keep you up for me you mentioned subs growth being the majority of the driver, but also higher effective prices Inc. Q B O and there's no few reasons why that that could be but can you just give us little color on what is driving that higher effective price and what the durability of that might.
Look like as we move through the year I mean is it just circle one up I'm, great thing or is it mix or what how should we think about that going forward.
I'm really pleased when we think about saw business and we have three pillars of the strategy of grow the core connecting ecosystem and expanding globally and we're pleased with the growth we saw in growing the core with online accounting in Q1 of 41% of the majority of that was driven by customer growth the passage.
With that.
Part of that and to a lesser extent that was our higher air PC the higher effective prices. There that is some price increase but also lower discounting.
And then we also had the impact of some mix shift to higher priced products, which is like TV advantage, that's really what's driving that.
Thank you.
Thank you. Your next question comes from Brad Zelnick of Credit Suisse. Your line is open.
Hi, This is Joe Chew on for Brad Zelnick.
Congrats on the quarter just had a question on competition here.
Sure I'll blocks is it coming out earlier this year on pricing in a very aggressive way.
Especially on free online, where the continued to message the differentiation from turbotax.
The initial comment on that in terms of pricing, especially in the free skew and is this related to the pull forward and marketing spend the next quarter in any way.
Yes. Thank you for your question are our choices in investments.
Our really focused on our beliefs around what we can execute against and really grow the category and grow share is not an end to do with any choices that.
HR block has made and I mean, I can't comment on the choices that weve, they've made but at a lot of confidence in the choices that we've made and our focus as we head into season.
Great. Thank you and second second question, Joe just moving to the UK again, congrats on the number one position can you remind us what the offering their internationally is payroll and payments available has cupule library advanced started to scale or if so when will these be made available on international basis.
Yes, so in terms of whats available in the UK. It is our Cubo platform and we have our partners that solve some of the most pressing problems for our customers. The primary problems around paid employees like payroll and payments is all through partners.
So we do solve those very important problems, but they're all through partners.
Our intent is ultimately too.
Rollout cookbooks advanced and that cookbooks lives in the UK and beyond their critical opportunities to solve customer problems and their drivers are both for the future. So where we've been very deliberate about getting the product market fit in the U.S.
While the platform is global ready and building the capabilities to roll this out globally and that UK and that Canada will be the first stops.
Thank you very much.
Very welcome.
Thank you. Our next question comes from Brent Thill.
Of Jefferies. Your line is open.
Hi sits on nice to see UK and the full position if you look at other surrounding.
International countries in kind of stack rank, where where you're most excited can you walk through.
Where are your I'd, maybe perhaps two were were some areas that you wish you would be making bigger improvements that you think that may take a little bit longer time, but are there any other markets that you're you're seeing that that could be could be in the UK position here. Shortly thank you.
Sure sure when first of all just as a if I could remind all of us that.
Outside the U.S., wherein UK, Canada, and Australia, where we've gotten the product market fit and then our emerging markets that we're focused on which is France, Brazil, and India and you know we are we are excited about the UK, but we're very hungry because I think we'll just say we're getting started in the UK, especially to solve cuts.
From a problems in a way that will drive.
Revenue growth, our focus has been growing our customer base and growing share I now, it's about accelerating to build a big business over over time. So that's from just the paint the picture of where we aren't in the UK I would just said we're just getting started in terms of the opportunity ahead and I would say we're in the same place in not in Canada the growth in Canada.
Based on just the market dynamics with our is a bit slower, but the same opportunities still exist in Canada and so those are two markets, where we we believe that there's an opportunity for overtime.
Contribution to add to revenue growth in terms of the emerging markets. The twos that we are continuing to see progress it's not yet material from the lens out how much it contributes but we're excited about is France, and Brazil, I, we're seeing really good traction in France, we're seeing good traction in Brazil.
Those are markets that are very different but the opportunities are in the long term ones that we like and India is one that we continue to focus on product market fit we have not made the progress that we would want to see us ourselves make and not in India, and we're really still searching for product market fit but when I look at.
Our UK, Canada, Australia, France, and Brazil, I, just view that we have good opportunities outside of the of the U.S. and it's sufficient and we're being very intentional and deliberate in India in terms of the deliverables on what we're focused on to see if we can get the product market fit.
And just a quick follow up from shell Nice earnings beat was there anything that.
Didn't think it spend that you were hoping to spend that it seems like you're maybe pushing some things around that maybe that marketing spending get.
Fully.
You know flush through in Q1 that goes to next quarter is it.
It was not the case.
Now for Q1, we really didn't see much of that as we called out we are pulling in some of the marketing expenses Q2 for the consumer group.
But when you look at our Q1 and what we were trying to accomplish there.
Our spend was was pretty much where we had anticipated it to me.
Excellent. Thank you.
Thank you. Our next question comes from Sterling Auty JP Morgan Your question. Please.
Yes, hi, thanks actually want to follow up on that last point. If we look you know obviously you over performed very nicely on revenue, but just given the operating income guidance that you gave it does look.
The medically like you Underspent on total expenses during the quarter. So maybe not in marketing, but was there anything else in cost of revenue or something else that led to the total expenses coming in you know shy of what.
The operating income guidance would have implied.
We really look at at our guide for the year I would continue to encourage you to look into guide for the year. When we look at our span I don't get overly concerned with quarter to quarter, there's always going to be some quarter to quarter chefs and in some expenses and so that's why I would continue to focus on the total year.
We did reiterate the year for our guide and so yes, there's always going to be a little bit of movement between quarters. That's just something that I don't I don't get overly focused on because we really do look at the total year and the total company and not worry too much about individual quarters.
That's fair and then society you talked about some of the.
The big bets and initiatives I Didnt hear one of the things on Quickbooks was too you know how the product based businesses, specifically would consolidating orders I think was.
Third of any update on that initiative.
Yes, so one of as it used to just the one of our beds is about being the center of small business growth and one elements of that is to be really be able to transform omni channel commerce and our focus first and foremost we do have a road map of what problems, we want to solve and when and the first set of deliverables are really about enabling customers to see.
All their orders in one place up they sell on Etsy that they sell on Amazon and then if there is orders coming in from their own website. One of the biggest challenges. They had is actually seeing everything in one place.
And then eventually understanding their profitability in having a tight inventory. So the first step in terms of what our teams are focused on is delivering that on the road map and we've not yet delivered it but we're excited about the clarity that we have in terms of what when you do for customers and then a roadmap that we've got the rate team behind so we will certainly on a quarterly based.
Does provide an update to you all but.
But we're excited about the progress of team is making.
Great. Thank you.
Thank you. Your next question comes from Chris Merwin Goldman Sachs. Your question. Please.
Hi, This is Kevin on for Chris Thanks for taking my question.
We see a lot of third party solutions in the Quickbooks ecosystem, including acquisitions into it has made such as T. sheets, I guess as the growth focus shifts more towards revenue per sub does it make more sense to do strategic acquisitions to more fully monetized the ARPU opportunity.
You know our our principal really are clear in terms of what guides decisions that we make first and foremost it's about what's most important to our customers. The second is actually being able to solve that extremely well and then the third is really assessing whether its core versus contacts.
And how critical it is to the masses.
And if its core like teaches as a great example of although we were partners with Tcs, what we learn and found out overtime that time tracking is very core to us and the reason its core das as that is a big input into automating the data that we get and therefore, how we leverage the data applying artificial until.
Surgeons to it to really deliver more innovation for our customers and so those are the principle that then drive whether its partnership our versus acquisition. It's less about just monetization of course monetization matters over time, but first and foremost it's about customer problems and we solve and well into the core versus context, then we.
Left that drives whether it's a potential build acquisition or if it's a partnership.
Great. Thank you.
Thank you. Our next question comes from Kurt return of Evercore. Your line is open.
Yes, thanks very much that's it's not I wanted to circle back just on Quickbooks connect and maybe just some of your takeaways I guess in terms of where you look at Quickbooks lives in particular, what or maybe some things we should think about that could either help throttle adoption faster the things that maybe people orders are worried about.
Thank you think somebody accounts just have to kind of get more comfortable with to maybe see some real acceleration adoption I'm sure you're expecting could adopt you already but just kind of wondering if he had any any quick takes on that in terms of some of that some of the questions you're getting back more specifically thanks.
Sure absolutely.
Let's start with broader context, the whole purpose of Quickbooks connect which is something we started about five years ago was really to bring the ecosystem. Together. So you know the ecosystem of our partners our customers our employees and let really leveraging it as a launching pad.
From new innovation for training for our customers actually providing best practices in terms of how do you grow your from how do you go your practice have you grow your business and it's something now that we stream outside of the 5000 folks to that.
That attended really as a platform to launch big innovation teach how to where are your business and it's a huge opportunity for us to add to learn and so at Quickbooks connect of a number of things that we launched whether it's the the lineup for payroll and some of the.
New innovations around auto pay integration fatigue, or cash flow planning, where small business can now I understand their cash flow issues plan for their cash flows so that they can make better decisions, which as you know the number one reason why small businesses go out of business to me.
Many innovations and launch is on the.
Canton platform to help accounts do a better job.
Running their business and running their firm so I wanted to start with a broader context that there was many aspects of that in many areas across the platform, where we shared new innovations across the board specifically on on cookbooks live. Although we ran 50 test over the last six months and I've been in market and learning.
Along with making sure that accounts are aware of our narrative of what we're trying to do here, we really use quickbooks connect as an activation platform and I would tell you that once we got through these two standing room only sessions there was incredible.
Excitement about.
Being part of the platform because ultimately they have the ability to grow their income grow their practice and serve customers and do something that they don't like which is marketing. We also addressed concerns because if you are not aware of the narrative as an accountant you have a national concern, which is intuit trying to compete with me and isn't.
Trying to take business away from me, we believed by the way that will always be a concern that we'll be out there until we get our narrative to every single prone enrolled age at an accountant that's out there and so we were excited about quickbooks connect because we were able to address some of those questions. Some of those concerns face to face.
And we had by the way well over 1000 folks that want to sign up on the platform.
After those events, which by the way below US away, we did not have those high of expectation so net net.
This is the two sided problem the most important to solving the problem for small businesses and solving the problem for pros, which is helping them grow their practice and we feel good about what we're learning we feel good about our progress and cookbooks connect was a great activation of them.
Thanks for the color appreciate it.
Anytime.
Thank your next question comes from Brad Reback, Oh Stifel. Your line is open.
Great. Thanks, very much on Turbotax lives do you expect increased headcount this year.
Well, let me start with.
We are still very early in the journey of Turbotax live as we've talked about before they are 86 million folks that.
Go to someone else to have them do their taxes form at the 20 billion dollar opportunity and we just got started a couple of years ago and so our number one focus is customer growth and we're very focused this year on first time use additional access points. So that you can get access to experts and improving the.
Experience for experts, we do expect to increase the number of pros because now we're actually it's both for cookbooks lives and turbotax, five and actually that's where being a platform and leading this in a digital way really comes into play because it's about having experts for for both platforms.
But we do expect it to grow it we do not expect the grow it in any way shape or form as fast as our revenue will grow but being very intentional to ensure that we have enough people to serve our customers and I think I would just remind us that this is a technology driven expert platform, which means that we're really applying a high.
Efficiently and effectively deliver experiences for our customers and we do not see this as a impact on margin at all this year or beyond.
Great and then just don't work.
Unrelated follow up with the Windows 10 upgrade cycle looking through a base in the first half.
Calendar Twentys should we expect that to have any impact on the desktop business does that thanks.
You know, we have not that we've not including any expectations of that sort in our guidance nor do we expect that just from an execution our perspective, but of course, we're ready for our customers.
Great. Thank you.
Very welcome.
Thank you. Your next question comes from Alex.
RBC.
Line is open.
Hey, guys. Thanks for taking my question I wanted to ask a question about QB desktop.
And.
Had a really strong quarter. If you want to I guess do you expect that to continue and then.
How do you think about Quickbooks online works are equipped with lives.
As being a potential accelerant for conversion for from QB desktop that.
So yes.
Yeah, you know so when we think about desktop in the long term first and foremost we are obsessive leave focused on delivering for our desktop customers, while educating them on the benefits of the cloud because they can.
Over time, they can run their business and a much more effective way on the cloud, but what's important and what we learn thrown experiences is educating them on the benefits of the cloud and also educating them in terms of what's different on a cloud platform versus the desktop hot form is very important because our desktop customers, one or turbotax or cookbooks they love.
There are desktop.
So that's point number one we do expect to that this is a business that will decline overtime.
What's really kept at the level that it's been that has been our enterprise desktop business, that's been growing double digits.
We don't we expectations that we shared on desktop with you all I still stand in terms of Quickbooks live.
It certainly could be a potential catalyst we have no proof at this point that it is because we're really focused on our online customers. The real catalyst will be educating our desktop customers as to the benefits of online and making sure that there are prepared to make that make that jump and and I think we will just be a natural migration has.
We've seen over the last several years and plus five could play a role at this point, we don't have proof that it will end the biggest opportunities really with non consumption and current customers.
Perfect and then just as a follow up to that on Quickbooks lives with some of the early testing you've done in the feedback you gathered have you had any surprises.
Other positive or negative is that the rock sector.
It was your question around cookbooks live.
Yes.
Got it sorry, you cut out on me.
You know then the I would say the biggest surprised that says that we've had is the the varied number of needs to the customers have.
There are customers that will come in and just say hey, Here's all of my stuff from word from excels from Google she'd all the receipt boxes that I have can you just help me get set up so I know what's going on in my business I would cookbooks and help me understand out of then.
Run Quickbooks, so that the whole notion of set up.
Has been a huge need for customers and then the other is actually just advice.
You know I. This is my cash flow. This is my net income now that I understand that what choices can I make a win win I need access to capital is it works for me to take out capital should I buy Moyer inventory.
That said multiple times in different session listening to cold between our bookkeepers.
And small businesses and just the amount of reliance and need that they have to understand what's going on their business what choices that they have.
Intellectually wheel understandable when you really listen to these calls you get how important advice is how important.
Expertise is and how much they lack confidence and so that's not a surprise, but just when you listen to these called it just amplifies how important it is but I would say this whole notion of getting set up and understanding what's going on and off and my business and how blinded. They are in what's happening has been probably the biggest surprising the biggest needs that we're looking to figure out how to solve.
That's fascinating thank you guys.
Very welcome.
Thank you. Your next question come from Josh Beck Keybanc. Your line is open.
Thanks for taking the question wanted to ask about Quickbooks capital certainly.
Hi.
Underwriting and spent.
One of the focus areas I think underneath that theme. So are you getting to a point when you think about.
Inflecting messes disaggregate it quicker than you think about maybe some of the ancillary announcements like you just mentioned like cash flow planner that were maybe on the cost both seem more loans facilitated or is it more likely to be it kind of a steadier pace as we've seen in terms of.
The additional origination volumes.
Yes, we use first of all I'll step back and reiterate.
How the ecosystem works together and what we're excited about is the notion of a customer being on our platform opt to get organized to be able to invoicing get paid to be able to pay their employees and with cash flow planner rationally. We can now give customers insight as to whether or not even need access to alone.
But the loan is not the only way to solve their problems. That's also do you want you want us to follow up with some of your customers that are overdue to get paid you want to slowdown paying a few vendors. He can make your payroll Friday. So the cash flow planner is really that to help them thrive to help them make better decisions because.
They're lonely and running their business. They don't have business partners to give them analytics and castle planners really is just going to be the beginning of something that will be there kind of their assisted in the in their pocket. If I may then offer ways for them to run their business access to capital could be one the second element to get to your question.
There are two ways that we provide capital one is the marketplace. One is through our own capital, where we are partnered with a blue chip financial farm, where they have no recourse, but but we also have actually provide access and that way and I and based on the growth that we see we continue to both leverage our.
Blue chip partner and the marketplace and it's all really driven by the demand that we see both our online platform and aren't that desktop platform. So it's an important retention driver overtime as could be a a growth driver, but most importantly, what it's doing is helping our customers.
Thrive and be able to get through the tougher earlier years to be able to.
Survive as a business and improve their success right.
Okay very helpful. Then just a quick follow up maybe for Michelle.
Very modest deceleration in the online services growth should we be thinking that's driven by things like law of large numbers, obviously international mix seems to be going up so I imagine that would probably be pressured this line.
So any color.
On the modest b cell that we've seen there.
Oh for online services first of all I'd say that we continue to be focused on our online ecosystem revenue growth of greater than 30% and that was 35 corridor in online services for the quarter, we did grow 27%.
And that the two major drivers there were quickbooks payroll.
And payments and then to a lesser degree time tracking and Quickbooks capital one of the things that I would remind everyone about which you may be thing is that online services has parts that are growing very nicely, but it also has a part of that about 25% of online services that's not.
Integrated payroll and payments offering and that is growing and so that's some of what you're seeing there, but we're very pleased with the growth that we see there and expect that to continue.
Very helpful. Thank you.
Thank you. Our next question comes from Jacqueline charge off.
Bank of America. Your line is open.
Hi, Thanks for taking my question. This is on behalf of capturing then I.
I have a couple of questions around Cubo advance well, what's the go to market strategy for this product.
And what has initial customer feedback been like and then finally can you realize that catalyst for more quickbooks desktop customers to move to Cubo.
Sure, Yes, I'll start at the top which is there is about a million a have customers in the mid market and we defined mid market.
Tend to about 100 employees and that's about a 40 billion dollar Mark and based on the math that we've done when you include services.
And that and when when we think about our go to market. Our initial focus is our existing customers we have about 180000.
Deal customers that outgrow kibo and ultimately they need a platform that can perform at a different level that has rolled in permissions.
That is has integrations with CRM that meet their needs just as an illustrative example, and so our go to market is really making sure our existing customers are aware of the of the platform and right now we're actually seeing a 75% of our growth coming from existing customers and about 25.
5% of the customers our new.
Eventually over time, we're right now building the capability, we're studying the best practices externally of those that have served the midmarket very well I, putting together a great talented team that knows how to serve the Midmarket and then ultimately our plan is to raise awareness top of the funnel and and pursue.
These mid market customers that typically by the way are still running their business on XL unbelievable sheets are stretched then use multiple accountants and so we foresee the combination of cookbooks advanced and cookbooks live working very well together in fact, a certain percentage of our current quickbooks live customers are.
Bucks advanced customers and so when you think about our Beth I add one connecting people. The experts and then the second is disrupting the led market. They actually play very wealthy other hand in hand, and what we've learned seen so far is a lot of delight from our existing customers, where they see that this platform I can meet their needs overtime.
Time, it can be a source of.
The reason for migration from desktop to Cook cookbooks advanced but right now our main focus is existing cubo customers.
Got it thank you very helpful.
You're welcome.
Thank you right next question comes from Raimo Lenschow of Barclays. Your line is open.
Hey, Thanks, a lot of questions were also would make it to short one.
You talked which you talked earlier about the international MP UK, Canada and then.
Do you still working on market fit for India. The opportunity were where you don't have done a lot of workaround were strong from Brazil can you just double click on that one wherever you are in the evolution there. Thank you.
Yes for sure. So France is really where are the U.S. was about 15 to 20 years ago, There's already a financial management solutions category, primarily on not on desktop.
Most accountants are on desktop and like desktop, but now we're seeing small businesses I want to use the cloud because they see that as far better to be able to use a cloud platform to be able to run their business and they are now engaging accountants to be able to pull accountants to be able to come to the cloud. So they can in essence help them run there.
Our business on the cloud and that's really where the U.S. was.
15 to 20 years ago, and our team has done a really a wonderful job of getting the product market fit by blocks on what what I mean by that is we're focused on a street in Paris, and making sure that we nailed the experiences for that street in Paris, and then go to the second Street in Paris, and now we're starting to expand across parents because.
The fastest way to get the product market fit is one customer at a time and so we're seeing a nice acceleration and you know we foresee given our progress that.
Brands could be interesting and material three to five years from now.
Again, it's where the U.S. was.
You know about 15 years ago, Brazil, I had the large our compliance marketplace. It's mainly an accountant marketplace you know Brazil is a.
Market, the where they rely heavily on services and so you know the likes that cookbook live if I could use that as an example is a natural thing that they would actually go to which they would love for an account to do all their business taxes for them and to be able to provide advice for them and so those are some of the test them. We're now running in Brazil.
Which is shifting more towards services because that's the what the market is oriented towards a very different marketplaces in very different places.
And I like the progress of our team, but again these are more thinking about these opportunities three five years out from now don't look at them as near term opportunities.
Okay makes sense. Thank you.
Very welcome.
Ladies and gentlemen, I'm not showing any further questions would you like to close with any additional remarks.
Yes. Thank you very much are for your questions and we look forward to the chatting with you at our next earnings call have a great rest and then great rest of the week Bye bye.
Ladies and gentlemen, thank you for participating this concludes todays conference call.