Q4 2019 Earnings Call

At this time I would like to welcome everyone to Intuits fourth quarter and fiscal year 2019 conference call.

All lines have been placed on mute to prevent any background noise. After the speakers remarks, there will be a question and answer period. If you would like to ask a question. During this time simply press Star then the number one on your telephone keypad.

If you would like to withdraw your question press the pound key.

With that I'll now turn the call over to Jerry Natoli, Intuit's, Vice President Finance and Treasurer Mr. in Italy.

Thanks <unk>.

Good afternoon, and welcome to Intuits fourth quarter fiscal 2019 conference call.

I'm here with Intuit, CEO , Tsusaka, Darcy and Michelle Satterfield, our CFO .

Before we start I would like to remind everyone that our remarks will include forward looking statements. There are a number of factors that could cause intuit's results to differ materially from our expectations. 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 those documents are available on the Investor Relations page of Intuits website at Intuit Dot com.

We assume no obligation to update any forward looking statement.

Some of the numbers and 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.

A copy of our prepared remarks, and supplemental financial information will be available on our website. After this call ends.

Before I turn it over to society and I wanted to share that I'm retiring at the end of January . So this will be my last into an earnings call.

It's been a privilege working with the leadership teams at Intuit and a pleasure engaging with all of our shareholders over the years I'm, leaving you in good hands as Kim Watkins has been promoted to vice president of Investor Relations.

With that.

On the call over to society.

Thanks, Jerry for your friendship an incredible impact you've had over the years, we're going to Miss you My friend.

Thanks to all of you for joining US today, we had a very strong fourth quarter capping off an excellent finish to fiscal year 2019.

Fourth quarter revenue grew 15% and full year revenue grew 13% exceeding the original guidance of 8% to 10% growth that we provided at the beginning of the year.

We're seeing our AI driven expert platform strategy play out in our results.

And we believe this positions us well for durable growth in the future.

We saw continued momentum across the company in 2019.

Total revenue growth was fueled by 15% growth in the small business and self employed group, an 11% growth in the consumer group.

Quickbooks online and Turbotax online platform revenue grew over 21% totaling approximately 3.9 billion in fiscal year 2019.

We're guiding to another year of strong revenue growth for the company in fiscal year 2020.

Now, let's dig into our results starting with small business.

We delivered another strong quarter in our small business and self employed group with online ecosystem revenue growth of 35% in the fourth quarter and 38% in fiscal year 2019 online ecosystem revenue is that a 1.8 billion annualized run rate and we continue to expect it to grow more than 30%.

We continue to prioritize online services to deliver more value for our customers by addressing their biggest pain points.

We're working to achieve our vision of being the center of small business growth by helping our customers get paid fast manage capital and pay employees with confidence.

Earlier this year, we launched next business day payments.

The service that enables our customers to receive their payment as their fund the next business day, instead of having to wait two to five days to get their money.

This change is resonating with our customers.

Our online payments business remains strong when charge volume up 40% in the fiscal year 2019 for customers using quickbooks online.

Within payroll, we introduced next day and same day direct deposit to enable customers to hold onto their money longer and better manage their cash flow.

Quickbooks online payroll revenue overall grew more than 35% in fiscal year 2019.

At the same time, we're seeing greater adoption of our full service payroll offering.

Well, just going more than 35 point faster than our self service offering as a higher lifetime value.

Full service payroll provide even more support for our customers as we help them pay their employees accurately and stay compliant.

On the time tracking front, we improved the mobile capability of our T., she's offering and added new features such as GPS time, fracking, which increase the accuracy and flexibility for both employees and employers.

More than 1 million employees are tracking their time on this platform each month up nearly 60% from last year.

We are optimistic about quickbooks online advance our online offerings designed to disrupt the midmarket by addressing the needs of small business customers with 10 to 100 employee.

While it's still early days, we like what we see.

We're learning a lot about these customer needs and remain encouraged that this offering to present, a significant opportunity for us longer term.

Now turning to tax.

As we shared last quarter, we had a great tax season and grew revenue for the consumer from 11% in fiscal year 2019.

Our consumer group strategy is to expand our lead in the do it yourself category transformed the assisted tax preparation category and disrupt traditional consumer finance like spending beyond tax to build a consumer platform.

This is all in service to helping our customers make ends meet and maximize their tax refund.

Driven by our innovation and significantly improved customer experiences we grew both the DIY category and our share within it.

Across all tax prep methods turbotax, not how the approximately 28% share of total individual returns, leaving us with a large opportunity.

This season, we further personalize the tax preparation process using artificial intelligence.

We went to market with our most robust free offering.

We expect the strategic decisions, we made this season, including our investment in artificial intelligence and in our free experience to drive durable growth across the consumer business.

Especially as we look for ways to help customers make ends meet going beyond taxes.

We also made significant progress in our effort to transform the assisted category by tripling the number of customers using turbotax lives, which connects people to experts on our platform.

Turbotax slide is not a meaningful contributor to our business and compared to other into a product lines among the fastest ever to reach this revenue level.

We feel great about the experience, we deliver for our customers to drive increased confidence, while improving operating efficiency far pros on our platform.

Beyond tax our consumer platform is aimed at helping customers unlock smart money decision by connecting them the financial products that helps them make ends meet.

We have over 14 million customers registered for turbo up from 5 million last season, while we don't expect a significant contribution to revenue in the near term.

We are identifying ways to deliver more value to our customers.

As we look to next season, our team is actively developing the next wave of innovation to better serve consumers.

We're confident in our consumer group strategy and excited about the opportunities that lie ahead for this business.

To wrap up we're very pleased with our results in fiscal year 2019 and were energized for another great year in fiscal year 2020.

Thank you and let me now hand, it over to Michel to walk you through the financial details.

Thanks, Don Good afternoon, everyone for the fourth quarter of fiscal 2019, we delivered revenue of $994 million up 15% year over year.

GAAP operating loss of $153 million versus a loss of $200 million a year ago.

non-GAAP operating loss of $47 million versus a loss of $15 million last year.

GAAP diluted loss per share of 17 cents versus a loss per share of 15 cents a year ago.

And non-GAAP diluted loss per share of nine cents versus a loss per share of one cents last year.

Turning to the business segments in small business. The self employed revenue grew 16% during the quarter and 15% in fiscal 2018.

Online ecosystem revenue remained strong with growth of 35% in the fourth quarter and 38% for the year.

We believe the best measure of the health and success of our strategy going forward is online ecosystem revenue growth, which we continue to expect to grow better than 30%.

Quickbooks online subscribers grew 33% ending the quarter with over 4.5 million subscribers.

Growth remains strong across multiple geographies with U.S. subscribers growing 25% to over 3.2 million and international subscribers growing 58% to 1.3 million.

Within Quickbooks online self employed subscribers grew to over 1 million up from roughly 720001 year ago.

We continue to expect total subscriber growth to moderate as we place a greater focus on additional services.

Desktop ecosystem revenue was up 1% in the fourth quarter and roughly flat for the year in line with our expectations.

Within the desktop ecosystem, our Quickbooks enterprise revenue continued to grow at a double digit pace in the fourth quarter. This further reinforces our interest in addressing the needs of mid market small business customers with our TV I would danced offering.

Consumer group revenue grew 11% in fiscal 2019 above the high end of our original guidance.

Fiscal 2019 is the second consecutive year of double digit revenue growth for the consumer group.

Turbotax online units grew 7% this Stephen well overall units increased 5%.

As we shared last quarter, the DIY category share grew over a point the fastest pace since 2016 once again outpacing the assisted tax prep category.

Within the DIY category, we estimate our turbotax online share grew half a point.

We were also pleased to see retention increased again this year for our online tax customers.

We made great progress with our turbotax online offering this year the number of turbotax like customers more than tripled year over year.

We also enhanced the efficiency of our pros this season, improving both the onboarding experience and technology tools for pros on our platform.

This resulted in lower attrition and better operating efficiencies throughout the season.

For example, we utilize natural language processing and application of artificial intelligence to route 100% of Turbotax live customer questions to the optimal trial based on their time and complexity.

It's this technology for its technology first approach that gives us confidence, we can expand our online offerings and maintain attractive into an operating margin longer term.

And then the strategic partner group.

We reported $476 million of professional tax revenue in fiscal 2019 up 4%. The high end of the original guidance that we provided at the beginning of the year.

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 in opportunities that yield an expected return on investment greater than 15%.

We continue to focus on reallocating resources to top priorities at the company with an emphasis on continuing to build our AI driven expert platform.

Our first priority for the cash we generate is investing in the business to drive customer and revenue growth, we consider acquisitions to accelerate our growth and fill out our product road map.

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 $2.7 billion in cash and investments on our balance sheet.

We repurchased $148 million of stock in the fourth quarter and $561 million during the fiscal 2018.

We have approximately $2.7 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 October 18, 2019. This represents a 13% increase versus last year.

Turning to guidance, our full year fiscal 2020 guidance includes revenue growth of 10% to 11%.

GAAP earnings per share of $6.35 to $6.45.

And non-GAAP earnings per share of $7.50 to $7.60.

Our Q1 fiscal 2020 guidance includes revenue growth of 9% to 11%.

GAAP loss per share of two cents to four cents.

And non-GAAP earnings per share of 23 cents to 25 cents.

We expect a GAAP tax rate of 21% for fiscal 2020.

You can find our Q1 and fiscal 2020 guidance details in our press release and on our factsheet.

With that I'll turn it back over to Suzanne.

Great. Thanks, Michelle to recap, we had a great year and couldn't be more excited about the future as we head into fiscal year 2020.

I want to thank our employees customers and partners for their contributions.

I look forward to sharing more with you about the evolution of our strategy at our Investor Day on October the third.

As a preview of what you're going to experience at Investor Day, Let me remind you what matters most to our customers.

All of our customers had a common set of needs. They're all trying to make ends meet maximize their tax refund and save money and pay off debt.

And those that have made the bold decision to become entrepreneurs and go into business for themselves have an additional set of me.

They want to keep fine customers and keep customers they want to get paid access capital to grow and ensure their books all right.

That's why our mission is the power prosperity around the world and that's why our one intuit ecosystem focuses on unlocking the power of money for the prosperity of one.

The evolution of our strategy is to become an AI driven expert platform.

This is about becoming an open trusted and easy to build on platform, where we and other partner solve the most pressing customer problems and deliver awesome experiences.

It's about significantly accelerating our application of artificial intelligence, which progressively learns from that rich dataset across the platform.

To bring a strategy to life, we are applying artificial intelligence to accelerate speed to benefit revolutionizing our customer experiences.

We're also solving one of the largest problems our customers face lack of confidence by connecting them with experts on our platform.

And in doing so we're a leader in digitizing the services industry.

At the same time, we're helping customers make smart smart money decisions using artificial intelligence and by connecting them to financial experts.

For small business owners, we're focused on being the center of small business growth using artificial intelligence across our platform to expand the problems, we can solve with our offerings.

And last we aim to disrupt the midmarket with a robust quickbooks online offering that grows with our customers.

We had a great year in fiscal year 2019, and we're excited for what fiscal year 2020 holes now with that let's open it up for questions to hear what's on your mind.

Thank you, ladies and gentlemen, if you would like to ask a question. Please press Star then the number one on your telephone keypad. If you would like to withdraw your question press the pound key.

Our first question comes from the line of Kirk Materne of Evercore ISI. Your line is open.

Thanks, very much and congrats on a great fiscal year, that's the fun I actually just wanted to get maybe an update on Cubo advance in how do you feel that's going thus far and kind of your expectations for that.

In fiscal 20, I guess juxtaposed against the 30% growth you expect in the online ecosystem for next year. Thanks.

Sure Hi, Hi, Kurt you know first of all one of the focus areas for the company is about focusing on disrupting the midmarket, which we define as 10 to 100 employees and this segment is not new to US we serve that for years with our desktop enterprise platform and it's one of the reasons why our desktop revenues held up the way it has.

We've made quite a bit of progress with that cookbooks and bad some rationally encouraged by what we see we built out the offering were integrating literally on a monthly basis weve built out roles permissions a batch invoicing that allows our customers invoice at the rapid speed plus priority circle and we're focused on just being deliberate about go to market and what's most effective so we do like our progress and we believe that this is a this is a promising opportunity for us as we look down the road.

Right. Thanks, very much of course in it sounds like that.

Thank you.

Thank you. Our next question comes from Brad Zelnick of Credit Suisse. Your line is open.

Great. Thank you so much congrats on a great year and congrats Jerry you on a great run and congratulations all around to Kim as well so.

Thanks for taking the question.

Sorry can you talk about your confidence for 9% to 10% consumer tax growth next year and how much of that is driven from continued adoption turbotax live and perhaps what were some of the things you've learned when the briefing from last season.

Sure Hi, Brad. Thank you for for your question first of all I'll take you back to our strategy, which is about expanding our lead and the do it yourself category about transforming the assisted category and really about disrupting traditional consumer finance and our our view is that we are at the very very early innings of transforming the assisted category. The 20 billion dollar category over 84 million customers and we believe with an agnostic platform. While we can match our customers in financial products and benefits. We're just getting started to be able to really deliver benefits and unlock smart money decision for our customers and that's really holistically what gives us confidence in the guidance that we provided around the 9% to 10% and we feel like with the combination of expanding our lead in the do it yourself category by really penetrating deeper into it in the assisted category and begin.

Turning to deliver I really benefit beyond taxes, so our customers that not only or do we have confidence in the.

Titans, but also as we think about our long term expectations that we've set of 8% to 12%.

Thanks, so much and if I could follow up one real quickly for Michelle just on tour on consumer margins. Your investments in Turbotax live are clearly paying off but as we think about you know the margins having been flat.

You know do we see.

Going forward, a a point where the margin on light relative to court turbotax balances out to where we should eventually see it expense.

Thanks for your question, Brad and first of all I say no. Our big focus is on the same with term it's like five it's really focusing on solving the customer's problems that we have there.

And then next I would say one of the things we have done when we look at our approach to our services business like Turbotax like it's really we come with a technology first approach and so we're increasingly able to solve those problems by using AI and that enables us to really be able to maintain on a good margin there and when we've had some early success with what we're doing with Turbotax live and that gives us confidence as we think about this going forward. For example, you saw this past just the season, we were able to increase the customer base three x., while keeping basically the same number of promos year over year and so we'll continue to look at and innovations that enable us to better use AI in that space.

Excellent. Thank you so much for taking the questions.

Hey, Brad.

Our next question comes from Kash Rangan of Bank of America. Your question. Please.

Yeah from Bank of America. So.

In terms of.

The QB or business I think the second quarter and the goal I think the baby. If he has been growing nicely in the mid single digits can you just help us walk us through what are the drivers.

That help you with that growth and hopefully do you think about the he speak off in that in that business long term.

Sure Hi, Kash. Thank you for your question you know first of all I would share with you that.

We don't really focus on a RPC, what we're really focused on is the customer problems that we're trying to solve and all the services and the potential is whether its payments payroll time tracking cookbooks capital and now with our focus on going after non consumption with quickbooks live connecting people to experts and focusing on disrupting the mid market, where our customers generally have 10 to 100 employees, where you know the ASP agenda in the past as then upwards of $2000. When you put all that in the mix really our focus is delivering for our customers and the guidance that we've provided you all that we want to grow north of 30% online revenue and so what I would say is that's really what we're focused on and the ASP is really just the result of some of the decisions that we would makes I would I would just hold us accountable for our online ecosystem revenue growth being greater than 30% and.

And that allows us to you know managed strategically in the marketplace to deliver for our customers.

Got it so I'll follow up on the fax business, but because there are many drivers in the fax business you have a pre filing you have.

FX products services.

Premium services, but if you could if we were to think about you know what does the previous drivers of growth for tax next year.

There's a lot of the same losses. This year you know how do you think about the industry code share growth.

Maybe some color on that would be helpful.

Sure and just very quickly as you know is our focus is expanding a leading the do it yourself category of transforming assisted and again disrupting consumer finance and you know we typically think about IRS returns the growth of IRS returns the growth of the category and then our share growth in the category and then ultimately are a RPC and as we communicated last year at Investor Day, We continue to assume that the IRS number of IRS returns will grow.

As category champions, we have confidence in growing the category and our focus is making sure that we can increase our share and then with turbotax lives, we have a huge opportunity to deliver for customers deliver significant benefit at their place I was home or office at a disruptive price, but that disrupt the price for customers the hiring RPC than the normal turbotax online. So the drivers are consistent with what we've talked about last year and it's just we're one year better than we were this time last year and we have confidence in the guidance that we provided.

Thank you guys.

Thank you. Our next question comes from Jennifer Lowe of UBI, Yes. Your question. Please.

Oh, Hi, this is the Turkish Kumar sitting in for Jennifer.

You guidance for 12% to 14% small business or revenue growth is slightly better than if it's a six guy at the at this time last year, but we have seen some moderation in the U.S. can you be a sub CASM in a meaningful driver of revenue growth in recent years.

Are there any other areas that you see coming in a more meaningful growth driver. This theater as that used to be a sub growth start to moderate.

I'd I guess, thank you for your question you know first of all I would say that the goal line. We want you to focus on is our online ecosystem revenue growth being greater than 30%.

And the reason that's important is one we're focused on acquiring customers, whether theyre self employed with HBO now with Cubo live which has higher a RPC and with Quickbooks advance and then based on our customer pain planes wanting to get paid wanting access to capital wanting to have access to payroll we have a breadth of services that our teams have been improving significantly year over year, which is why it's so important to stay focused on the goal line of online revenue greater than 30% and with that said I would actually say that when you look at our fourth quarter of GBS, we did not moderate versus this time last year and actually we accelerated our growth. So we feel good both around the customer growth and cubo, but more importantly, the services that we're providing a and the fact that I. We believe that it will continue to allow us to grow north of 30% for our online revenue.

Great and then if I could add a follow up or some companies have noted a weakness in Australia and UK. There you have some exposure. There I was wondering if you could comment on the macro environment in international region.

Sure you know there's a couple of things that we look at we look at the strength in consumer spending you know is the charge volume the same growing or declining in our base. We look at our small businesses are they spending at the same amounts with one another because they buy and sell to one another and then the number of employees that they hire.

And we've not seen in our data that we look at any weakness in any of those areas and or any macroeconomic impact in the countries that you mentioned, we don't see any of that in our data.

Thanks.

Thank you. Our next question comes from Brent Thill of Jefferies. Your line is open.

Thanks Hassan just on SMB, where do you think the lowest hanging fruit is from your perspective, there are a couple of areas that you're particularly excited about the next year and.

Michelle I wanted to go back to Brads comment on the broader margin.

And this will be now the fifth year in a row with margin.

Roughly in the 33% range and I know you're focused on the top line, but at some point how do you think about the fall through on on margin do you believe that overtime that that 33% that's been a a ceiling. If you will for the last four or five years does that not become a ceiling at some point going forward.

Hey, Brett maybe let me take on the question you pose for me and then I'll turn it over to Tim Michelle Yeah first of all I'm incredibly proud of our team across the company and then in small business, which translates into several areas that I'm excited about because they are squarely focused on what matters most to our customers I would say services as one bucket. Our team is really focused on how to ensure our customers can get paid fast how do they ensure that they can seamlessly pay their employees and hold onto the money. The long thus ensuring that they can get access to capital when they need it and also time tracking which is good for accuracy and complain. So I'm excited about the work our team is doing in the bucket of services, which translates into payments payroll time tracking and cookbooks capital and the second thing is although very early innings really excited about being able to penetrate non consumption with took books life you know one of the biggest.

Pain points, our customers face is confidence can I do it myself, which is why they typically engage with accountants proll pros and roll agents, both in small business and to get their taxes done right and this is where we are we're building out a platform, where we can connect experts to people on our platform that really allows significant penetration instead on consumption. So I'm very excited about that and of course, then the opportunity that we have as we look into the long term disrupting midmarket, where the customers are over served and then they overpaid and we have an opportunity to serve them with a platform. That's very easy to use at a price that's very very disruptive. So those are the key areas that excite me about small business not only in this coming year, but as we look at in the next several years.

Hi, Brian . Thanks for your question on margin I would say, we've got confidence in the strong guidance that we haven't got revenue growing at double digits. We've got op margin in the Thirtys as you said with 20 to 40 bps of expansion and that is in line with our financial principles that we have and that we really do not see any structural issue are any feeling it is very intentional on what we're doing and that's where we're investing we're allocating I'm investment dollars across the company across our portfolio and really looking at the areas, where we think there are the highest yielding opportunity.

To continue building on our strategy of being an AI driven export platform and that's why we say we manage margins at the company level because it enables us to put that next dollar in a place where we can best drive customer and revenue growth and that's what we continue to be focused on.

Thanks, Good luck here.

Thank you. Thank you.

Thank you. Our next question comes from Ken Wong of Guggenheim Securities. Your line is open.

Great. Thanks for taking my question, maybe first for you saw last year, you guys were really aggressive pursuing the free market I'm just wondering as we look to 20.

Should we think of you guys harvesting those units or should we expect you guys to again focus on bringing more customers into the franchise and then for Michelle You mentioned Asia has delivered some leverage in your turbotax life business, how should we think about your investment here as far as adding incremental reps or can you continue to do more with the same number of of professional.

A great Ken Thanks for your for your question you know I would share with you that.

You know, we have been very assertive and delivering for our customers and especially the simple filers a with the focus on free and I would take you back to even my years at Turbotax when I joined Turbotax seven years ago, we launched absolute zero, where a customer can get there a simple filers that gets all their taxes done by paying nothing and that that's been a very strategic focus for us for years, because really we're focused on expanding our lead in the do it yourself category and then transforming the assisted category and ultimately helping these customers connect the financial products that are right for them, whether it's better savings accounts better credit card rates that are home loans that are personal loans, which is what we're focused on doing what turbo. So this is just really as we think about the future. It's a continuation of focusing on customer benefits what matters most to our customers really will be a very important element of that but it's not new it's been the case for years and we.

We expect to continue to focus on what matters most to our customers as we as we look ahead and we take all that into account when we think about the long term expectation for this business of 8% to 12% and specifically the guidance that we provided of nine to 10 for next year.

Hi, Ken Thanks for the question and if I think about Turbotax Liveengage as I mentioned, the AI innovations and then you asked about adding more reps.

What I would say is will we need to add more on agent more experts to help yes.

What do you see what we really are focused on is continuing to use AI to drive productivity and efficiency. So that there isn't a need to add in a linear fashion as we look at the units.

This past year some of the things specifically, we did as I mentioned I'm using it to manage called I am.

We've also been doing other types of productivity for turbotax lives and optimizing our scheduling and set up so that there is a better experience for the pros on the platform and really modernizing our operations and so all of those in conjunction with artificial intelligence innovations that we have we do see us being able to.

Really digitize our services there and from a like I said of technology for standpoint, and not needing to add agents in a linear fashion.

Great. Thanks, a lot guys.

Thank you.

Thank you. Your next question comes from Michael Turits of Deutsche Bank. Your line is open.

Hey, there. Thanks. Good afternoon, I was hoping we could go back to the continued confidence and 30 plus percent online ecosystem growth. This that run rate continues to scale.

Typically focusing in on the mix of services to Sanya provided some useful metrics in terms of payroll, but is there anything else you could add in terms of contribution and then maybe secondarily is there a house view at all and the opportunity there to layer on additional services over time.

Hi, Michael Thank you for your for your question.

We are.

I would say at the early innings of what's possible with services and I'll just use payments as an example, you know we are customers that over 214 million plus invoices and there's like 14%. Yeah, you payment enabled and that's just one example, demonstrating the opportunity and and so when we think about pain points for our customers getting paid access to capital paying their employees and being able to hold on to their money the longest time tracking, especially with employees being out in the field.

We see with just those four offerings and a very significant opportunity I had to deliver for our customers and by the way that it becomes even more important when we serve mid market, which is the segment was 10 to 100 employees.

With that said that one of the focus areas that we framed earlier is around being the center of small business growth for our customers really shifting from being the source of truth for your books the source of truth for your business and an additional area that we are focused on is really about transforming omni channel commerce, how do we ensure that the 40% of the customers out there that are product based businesses, ensuring that they can sell their products on multiple different channels, but more importantly, being able to understand their sales or what the profitability of customers connecting that to their inventory. That's another leg of that we are focused on that in earlier innings than even cookbooks live and cookbooks advanced but to your question of are there other opportunities there are but actually don't want us to lose focus on the services that we already have in the significant opportunity that we have to penetrate deeper into the base that we have to deliver benefits for our customers.

And those are all the things that gives us confidence around being.

Or having the ability to deliver more than 30% online ecosystem revenue growth.

That's great maybe just a quick follow up for Michele on on Capex, you're guiding for a fairly significant step up in fiscal 20 anything specific to call out there in terms of what's driving that increase.

Thanks for the question Michael No I wouldn't you know, we've typically said of our Capex would be about 2% to 3% of revenue and an endpoint 18, you saw that enough why 20, you see about the same and I find 18, we did have a little bit.

I'm capex that slipped out of the year some of our sites that we are making some improvements on you know how construction projects. Sometimes work we had something that actually was just the timing in it. It has moved indefinitely 20.

Got it thanks.

Thank you. Your next question comes on line.

Matt Pfau of William Blair. Your line is open.

Hey, guys. Thanks for taking my question just wanted to ask a follow up on the Quickbooks life. Maybe you can just give us an update on what you're seeing in terms of interest level on both the demand and the supply side for it.

And then you know in terms of pricing of the product. It seems like currently it's between 400 and $500 a month.

Is this sort of the go forward model that you're going to leverage or there are still other pricing options that are that are on the table. Thanks.

Great Hi, Matt so.

We're excited about the potential of cookbooks slide I just want to remind us we are in the very early innings. The reason. We're excited about this is is there's a huge unsaid customer problem, which is our confidence.

And the confidence is really around the notion of new customers feel like they can do it themselves versus just stick with what they're doing XL, Google sheets, Dropbox, and Oh by the way of dealing with a bookkeeper and accounting and so really the problem. We're going after solving here as to the confidence problem to give them confidence that they can use a digital platform to run their entire business and at the click of a button be able to have access to a bookkeeper through a chat box outward to a live conversation through a very.

Set of experiences that they may or may need. So I'll give you. An example, I was actually in Boise. This past week visiting our t. sheets team and sat for several hours listening to multiple cookbooks live calls because we've got some of our bookkeepers actually set up in a in Boise and the particular.

Experiences that I was listening in on where in essence customers that had come into our bookkeeper said, hey, Here's all my documents digitally can you set everything up and then I'll check in with you in 48 hours and can you just tell me how my business is doing and it was incredible to watch a customer really understand their net income for the first time really understand their expenses, where they're spending their money and actually getting educated by our bookkeeper on how to run a business, but they're learning cookbooks at the same time and so I use that as an example of it's a it's a really large opportunity to go after non consumption to truly become a the the advisor to our customers I, because small businesses, our technicians and what they do well a hair salon welder plumber. They don't actually know how to run a business and so quickbooks lives gives us the opportunity to either deliver the experience that I, just shared or actually use quickbooks yourself.

But then engage with a bookkeeper if you have questions along the way like Hey, do I have enough money to increase my inventory should I borrow money and those are the very different experiences that were delivering based on the different needs that we are learning about and the biggest area that we're focused on is actually how to solve demand supply will be the easier part because this is where an AI driven expert platform strategy comes into play a lot of the pros that we hire for turbotax lives also have the capability to deliver the experiences that our quickbooks customers need and by the way because of the fact that we have very high net promoter, we're creating income for pros theyre actually knocking on our door wanting to be on the platform. So the supply side is really the least of our focus areas. Although we're solving it through technology, it's really nailing I'm how to solve the customer problems specifically going around your question around pricing, we're doing a lot of testing and in fact, you'll see something different on our web site and three weeks.

Based on a bunch of testing that we've done so I wouldn't take what you are seeing as the go forward pricing, we're kind of exactly where we were in turbotax life, two and a half years ago I testing demand based on different experiences for our customers hopefully that answered your question.

Thank you. Our next question comes from Raimo Lenschow of Barclays. Your line is open.

Hey, this is that pre got it for Raimo Lenschow.

I want to get a little bit more color on on payroll.

Can you give an idea of where we are in terms of penetration for self serve and come to expect another.

35% type growth and a fine 20.

And finally, you know how much of the tissue to help in terms of corrupt the share.

Thank you for your question, Yes, we view, a payroll and with the combination of TG as as a continued opportunity to move.

Looking ahead really in context of continuing to deliver more than 30% online revenue growth and you know the biggest interest that we're actually seeing and payroll is full service payroll, where our customers want to outsource everything to us because it actually is more accurate better compliance.

And actually it's a higher a RPC for for the company I, coupled with TC, we we've been working on integrating tea sheet than payroll because if you put yourself in the shoes of the customer they have employees out in the field and what they really need is mobile devices with GPS that allows them to track when the customer starts on a job or aren't employee starts on the job when they end on the job that automatically getting dumped into payroll and that not only deliver significant accuracy compliance and monetary value for our customers. But also is a revenue opportunity for us when you look at the combination of payroll and tissue. So we believe in this area. We continue to be in the early innings, we don't time share what the penetration numbers are but but we like the 35% growth that we're seeing and payroll.

Thank you and if I could get another quick one and.

You got it consumer 9% to 11% last year around this time.

And we're starting off this year a little bit lower.

Rich I was little surprised what with Turbotax lives.

Being a little bit more evolved a bit can you guys go through kind of the thought process into a into that guide of 19% for the year.

Sure first of all we did guide 9% to 10% I last year and our guide. This year is very consistent with last year, and secondly, I have a lot of confidence in the progress in the business, we've got crystal clear strategy around expanding the do it yourself category. We are at the very early innings of transforming the assisted category with over 20 billion market size, and 84 million customers and even earlier innings, disrupting consumer finance and so I feel great about our progress. It's the second year in a row, we delivered double digit growth in the consumer group and love what the team is doing and feel good about our guidance.

All right. Thank you and congrats on a great numbers.

Thank you.

Thank you. Our next question comes from Sterling Auty of JP Morgan Your question. Please.

Great. Thanks, Hi, guys that Jackson ader on for Sterling Tonight.

Our question is about the the tax.

Law changes that went into effect for for 2018 services.

The tax season coming up it's going to be the second goal.

Tax here with some of the changes. So do you expect that that maybe people are more comfortable with their return the second go around them. So we could maybe see a little bit.

Faster unit growth, but.

Maybe on simpler packages or lower priced packages this year.

Yes. Thank you for your question first of all were huge fans of anything that can be done to simplify taxes for for consumers because it gives them the ability to do their taxes themselves. The second thing is you know last year. Its actually form was new which means some of the changes in the product line ups were also new to mop up with some of the changes and I know the second year and will always be better and easier because customers will that we'll have more confidence about our we've not baked any of that into our assumptions. We are focused on.

Making the experience so drop that easy that we can get to a place where taxes are done and it doesn't matter what tax reform has been implemented but that most of your taxes are done for you. When you come in and all of that has informed the guidance that we've provided in the air.

Okay. That's all we had thank you.

Thank you.

Thank you. Your next question comes from Chris Merwin of Goldman Sachs. Please go ahead.

Okay. Thanks, very much for taking my question.

Got a question about guidance, but more as it relates to small business and self employed I think last year you guided I think nine to 11 and ended up doing for team. This year and this year regarding 12 to 14 cents. So just in terms of where you sit right now relative to last year, maybe just talking a bit more about what's what's driving that optimism at the start of the year is that quickbooks lives. It all might advanced international.

Maybe some combination gets just curious what you see is that those main drivers.

Sure Chris. Thanks for your question you know, it's all the above it's the it's really that the as a result of the great work of the team just looking back over the last several years really being clear about how we convince customers to come to US and then how we deliver a great first time user experience. So it's the combination of having the ability to be able to add an offering to serve the self employed to be able to have the quickbooks platform that can serve customers that have less than 10 employees, but then now having a platform where we can disrupt the midmarket by serving a small businesses that have between 10 to 100 employees and then it's the services you know that we've been really focused on how do we ensure our customers can get paid fast how do we ensure they have access to capital how do we ensure we automate time tracking ensuring that when it comes to payroll not only is it an easier process an experience, but also being able to hold onto their money the longest.

Because you know typically small businesses the money goes out of their bank account, where they're doing payroll seven days in advance and now we have same day next day payroll. So the combination of really understanding whats important to our customers being able to serve our customers from zero to 100 employees and really.

Improving all the services that we provide and we have high hopes for quickbooks lives in the coming years to really be able to go after non consumption being able to connect.

Our customers to experts its really the combination of all of that that gives us confidence in the potential of the business.

Okay, that's great and maybe just to follow up on services can you just provide us a bit about your strategy of white labeling versus developing your own products. There I mean do you ever see it start to do invoice payer or jets automation I guess I'm just curious how you think about it.

Doing one or the other.

Sure I'll take you back to our strategy of being in a I have driven an expert platform and the platform. Alan This is really about being an open platform because were customer back in the customer first and I'll use payments as an example, you know we want and what's important to our customers as they want to get paid the way their customers want to pay them and so we provide options whether its pay pal whether its square whether it's our own payments offerings, we provide those options to customers to ensure that they can use our platform to run their business.

Because the more we can get our customers to use our platform to run their business, whether it's an asset that's been made or created by into it or not by one of our our partners. We ultimately care about the benefit for our customer. So you know we have over 600 apps on our platform I've been mentioning more the core ones, but even in the area of payments, we have multiple payment providers on our platform Paypal and square being one of them. So ultimately all of our decisions around the asps on our platform is around being an open platform and its customer back.

Okay, great. Thank you.

Thank you. Our next question comes from the line of Kartik Mehta of Northcoast Research. Your line is open.

This is Don I wanted to ask you a little bit about Turbotax live obviously had success. This tax season I'm wondering as you look at the numbers and turbotax like what percentage of customers come from either Doug just turbo traditional turbotax or other digital players versus the assisted market.

Trying to figure out how much turbotax live is encroaching on the assisted and how much success you're having.

Getting assisted customers to convert.

Hey, Kartik. Thanks. Thanks for your question you know, it's a it's kind of an and then all the above as you know there's a lot of churn within the assisted category and even those that come from the assisted category to do it themselves.

What we reported in Investor Day last year was that there was 10 million customers to that kind of go back and forth between the categories to turbotax lives really does several things one if you come into Turbotax and you had a question something changed in your life you bought a home you got married you had you had a baby. Your uncle is now you know sleeping on your couch those little questions Dr., a lack of confidence that can drive someone out of the category and now on a click of a button you can get help in any way in which way shape or form even if you didn't say that.

Pick Turbotax lives you can actually go into turbotax live from the product that you're in so one it really helps with final conversion helps with retention, which is all driven by confidence. We also have seen and we'll talk about this more in Investor day, you know more conversion coming from prior year assisted because these are folks that are coming in for the first time. They are used to engaging with you know a human being on the other side to get their taxes on and now they can come in and again had a click of a button. They can get the help that they need so isn't and it's all the above because there's so much turned back and forth within the categories and between the categories that this really is going to go after the heart of what matters, most which is confidence.

Let me show I know, there's been a lot of discussion about margins I wanted to get your perspective on the you're obviously using <unk> and other technologies to make all the products that are but especially the turbotax, who quickbooks lives. So is there a situation right now where you're maybe investing more.

In these technologies and as a result babies impacting margins and then in a few years the benefits will really start accruing.

Or is this something where you think the investment will level will stay the same.

Hi, Kartik think sort of the question.

We are investing in AML and as I said last year actually in Investor Day, and gave the example of the five big investment areas for us for a finite team and I am now with one of them.

As was our migration to the cloud turbotax online and so forth.

Yes, one more I would say it's more of prioritization. So we are absolutely seeing the productivity impacts on turbotax line of using AI, we're seeing the benefits to the customer on from a customer experience standpoint in our products both in consumer group and in small business.

But if you're thinking of that after where are we going to be done are leveling off in a couple of years and then therefore some of that will flow to the bottom line from our standpoint, we follow our financial principles and its really every single year looking at what is the best use.

The cash we have and where can we invest in the best way to drive customer and revenue growth I wouldn't think of it so much as we're going to be done with investing in the near for we just want to invest those dollars anymore.

Thank you. Thank you Stan we sure appreciate it.

Thank you.

Thank you. Our next question comes from Josh back of Keybanc. Your line is open.

Yes. Thank you for the question I wanted to ask about international it seems like the.

Click online subs, there may be accelerated to the high fiftys from.

The mix. This is the last couple of quarters so anything.

Inflecting or that you'd call out in terms of the success, you're having there.

Hi, Josh, Yes, I would touch on two things.

Talent and our global playbook I by the way. The just the same thing applies also to our services and the progress that we're making in services was is just really.

Adding great team members that are focused entirely on pinpoint that matter most to our customers. You know in this case, we have that structure and international such that we have an international leader that owns delivering for our customers and international and owns growth, which means that he's able to ensure that we allocate the proper resources the proper focus across the portfolio of countries to ensure that we're going after the biggest customer impact some of the biggest growth opportunities. So the investment in just talent and people really has made a difference. The other is we now have a global playbook, where several years ago, we stepped back and we studied our own history.

The decisions that we made the mistakes that we've made what worked what didn't work. We studied others that are in our space. We also studied others that are global players that are not in our space interviewed dumb understood their playbook and that'll inform a playbook that we now have that we are following I think it's a combination of having a very systematic play book.

Being very deliberate about resource allocation and the talent that that's just given us the ability to maintain the this kind of growth rate at a far larger base than even where we were a couple of years ago.

Okay, great and if I could ask one follow up on consumer you talked a bit about the opportunity beyond.

Action, obviously almost tripled the number of turbo users. So maybe just help us understand what your.

Imagine it will we think its going with other services that you could add to turbo users.

Sure the biggest problem that our customers face beyond making sure that they get especially in the United States. The largest check of the year, which is the tax refund is making ends meet this is about being able to pay off that and saving money.

And you know most of folks and I'll just use U.S. as an example, and are under duress. When it comes to how do I put food on the table, how do I pay my bills, how do I ensure that I've got close on my kids back and so our focus is really to help our customers make ends meet my really being an agnostic platform that.

Matches, our customers to products that are right for them. So I just paint the picture of what this looks like as you know I imagine at tax time, helping our customers find the highest yield savings account, where we're not pushing a financial product. We are helping them understand the best financial product, it's helping connecting them to our personal loan at the best rate versus because on the financial institution only providing one rate, it's helping them understand their credit score and the actions that they can take to improve their credit score is to understand how to best you know get an auto loan before they go by the auto so that they can actually save money. So it's really and those are just illustrative examples but based on the customers consent.

I'm letting us use their data to deliver benefits for them, we can in essence match them the benefits that.

But really help them prosper back to our mission are powering prosperity around the world. So that's our focus and we're excited about the fact that we have 14 million customers that we're testing with in terms of what benefits and make the most sense for them from a revenue perspective, very early innings, but from a focusing on what matters most to our customers, which is where our focus is right. Now we're excited about the possibilities. So that's kind of the picture of what it would look like.

Very helpful. Thanks again.

Sure. Thank you.

Thank you. Our next question comes from Scott Schneeberger of Oppenheimer. Your line is open.

Oh, thanks, very much and congratulations Jerry and Kim and good work all the the first question on retention I heard online tax retention improved.

Hi, Michelle if you could just put some some color around that and maybe if you could delve into some categorization and actually touch upon what you saw as far as retention over in Turbotax alive.

If you don't want your numbers, maybe some anecdotes either one of you. Thanks so much.

Hi, Scott. Thanks for the question and you know as as we looked at this year or one of the issues that we know we've had just with customers overall, when you think about turbotax and they're going through to complete their return is they're going to they lose confidence and so that's one.

The reasons why we said very excited about turbotax light is it gives us an opportunity to provide an expert who can really provide that level of competence to someone so they can complete their return and opens up the AI assisted market for us and so we had number one as I said hope to put people in from assisted never to hope to keep people in the category overall and so I decided that you know we have seen increases in our turbotax online retention for this year, we haven't given any additional details on that you might get some more information around that and.

Our Investor day on October 3rd, but right now we haven't given any additional information.

Thanks.

Fair enough as a follow up.

Just a lot of cash on the balance sheet right now looks like you're going to generate a lot of free cash flow next year, even though you have slightly tweaked up capex.

It just kind of curious I mean, you saw the the.

Smaller acquisition in the quarter, and obviously, a very nice dividend increase but still it looks like you're going to have a lot more cash at the end of next year than you do right now.

At this at this buyback pace just curious I know your your your your typical approach to it but what's your view of what type of cash or what amount of cash you want to carry and might we see a step up in spending or returning or or what have you. Thanks.

Oh, Thanks, Scott I would say, yes, we do have more cash than last year, but none of our financial principles have changed our M&A strategy hasn't changed and so our approach is really we step back we look at our financial principles and then we see what makes sense to us when we look at our investments we absolutely want to invest that cash in the business to drive customer and revenue growth and then we will look at acquisitions to fill out our product road maps and then we'll return cash to two customers I mean give me to shareholders.

That we can't use profitably in the business and we have the financial principles that are in place and we'll continue to follow this we have not changed status.

Thanks very much.

Ladies and gentlemen, I'm not showing any further questions would you like to close with any additional remarks.

Yes first of all thank you so much for joining and again as huge thank you to our employees for an amazing fiscal year 19, we're very excited about 2020, and we look forward to seeing all of you at Investor Day until then thank you.

Ladies and gentlemen, thank you for participating this concludes today's conference call.

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