Good afternoon. My name is Latif, and I will be your conference facilitator. At this time, I would like to welcome everyone to Intuit's 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. [Operator Instructions] With that, I'll now turn the call over to Jerry Natoli, Intuit's Vice President of Finance and Treasurer. Mr. Natoli?

Thanks, Latif. Good afternoon and welcome to Intuit’s fourth quarter fiscal 2019 conference call. I’m here with Intuit's CEO Sasan Goodarzi; and Michelle Clatterbuck, our CFO. Before we start, I’d 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 Intuit’s website at intuit.com. We assume no obligation to update any forward-looking statement. Some of the numbers 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. 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 Sasan, I wanted to share that I’m retiring at the end of January, so this will be my last Intuit 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, I’ll turn the call over to Sasan.

Thanks, Jerry for your friendship and the incredible impact you've had over the years. We are 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 are 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, and 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 are 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 at 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, a service that enables our customers to receive their funds the next business-day instead of having to wait…

Thanks, Sasan. 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 $0.17 versus a loss per share of $0.15 a year ago, and non-GAAP diluted loss per share of $0.09 versus a loss per share of $0.01 last year. Turning to the business segments. In Small Business and Self-Employed, revenue grew 16% during the quarter and 15% in fiscal 2019. 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 720,000 one 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 QBO Advanced offering. Consumer Group revenue grew 11% in fiscal 2019, above the high end of our original guidance. Fiscal…

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 3. 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 have a common set of needs. They are all trying to make ends meet, maximize their tax refund, save money and pay off debt. And those who've made the bold decision to become entrepreneurs and go into business for themselves have an additional set of needs. They want to find customers and keep customers, they want to get paid, access capital to grow and ensure their books are right. That's why our mission is the Power Prosperity Around the World, and it’s why our One Intuit Ecosystem focuses on unlocking the power of many 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 our partners solve the most pressing customer problems and deliver awesome experiences. It's about significantly accelerating our application of Artificial Intelligence, which progressively learns from the rich data sets across the platform. To bring this strategy to life, we are applying Artificial Intelligence to accelerate speed to benefit, revolutionizing our customers' experiences. We're also solving one of the largest problems 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 money decisions using Artificial Intelligence and by connecting them to financial experts. For small business owners, we are 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 mid-market 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 holds. Now with that, let’s open it up for questions to hear what's on your mind.

[Operator Instructions] 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. Sasan, I actually just wanted to get maybe an update on QBO Advanced and how do you feel that's going thus far and kind of your expectations for that in fiscal 2020, I guess, juxtaposed against the 30% growth you expect in the Online Ecosystem for next year. Thanks.

Sure. Hi, Kirk. First of all, one of the focus areas for the company is about focusing on disrupting the mid-market which we define as 10 to 100 employees. And this segment is not new to us, we've serve it for years with our Desktop Enterprise platform, and it's one of the reasons why our desktop revenue is held up the way it has. We've made quite a bit of progress with QuickBooks Advanced and we're actually encouraged by what we see. We've built out the offering, we're iterating literally on a monthly basis, we've built out rules and permissions, batch invoicing that allows our customers to 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 promising opportunity for us as we look down the road.

Great. Thanks very much. Looking forward to seeing you at the Analyst Day.

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 on a great run, and congratulations all around to Kim as well. So thanks for taking the question. Sasan, 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 in TurboTax Live? And perhaps what were some of the things you've learned when debriefing from last season?

Sure. Hi, Brad. Thank you for your question. First of all, I'll take you back to our strategy, which is about expanding our lead in the do-it-yourself category, about transforming the assisted category and really about disrupting traditional consumer finance. And our view is that we are at the very, very early innings of transforming the assisted category. It’s a $20 billion category over 84 million customers, and we believe with an agnostic platform where we can match our customers to 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 in the assisted category and beginning to deliver really benefit beyond taxes to our customers that’s not only do we have confidence in the guidance, 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 consumer margins, your investments in TurboTax Live are clearly paying off, but as we think about the margins having been flat, do we see going forward a point where the margin on Live relative to core TurboTax balance is out to where we should eventually see it expand?

Thanks for your question, Brad. First of all, I'd say our big focus, as Sasan was saying with TurboTax Live, is really focusing on solving the customers' 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 a services business like TurboTax Live, it's really we come with a technology first approach. And so we are increasingly able to solve those problems by using AI and that enables us to really be able to maintain 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 this season, we were able to increase the customer base 3x while keeping basically the same number of pros year-over-year. And so, we'll continue to look at innovations that enable us to better use AI in that space.

Excellent. Thank you so much for taking the questions.

Thank you, Brad.

Thank you. Our next question comes from Kash Rangan of Bank of America. Your question please.

Yes, from Bank of America. So, in terms of the QBO business, I think the second quarter in a row, I think the ASP has been growing nicely in the mid-single digit. Can you just help us walk us through what are the drivers that help you with that growth? And how should we think about the ASP growth in that business long-term.

Sure. Hi, Kash. Thank you for your question. First of all, I would share with you that, we don't really focus on ARPC. What we're really focused on is the customer problems that we're trying to solve and all the services and the potentials, whether it's payments, payroll, time tracking, QuickBooks 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 the ASP in the past has been upwards of $2,000. 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 are focused on and the ASP is really just a result of some of the decisions that we would make. So I would just hold us accountable for our Online Ecosystem revenue growth being greater than 30%. And that allows us to manage strategically in the marketplace to deliver for our customers.

Got it. So I have a follow-up on the tax business. Obviously, there are many drivers in the tax business, you have a pre-filing, you have TurboTax products, premium services. But if we were to think about what are the various drivers of growth for tax next year. Does it follow the same process of this year? How do you think about the industry growth, your share growth? Maybe some color on that, what’s going to be helpful.

Sure. Just very quickly as you know our focus is expanding the lead in the do-it-yourself category, transforming assisted and again disrupting consumer finance. And 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 our ARPC. And as we communicated last year at Investor Day, we continue to assume that the IRS number – 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 Live, we have a huge opportunity to deliver for customers, deliver significant benefit at their place of home or office at a disruptive price, but that disruptive price for customers is the higher ARPC 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’re 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 UBS. Your question please.

Hi, this is Rakesh Kumar sitting in for Jen Lowe. Your guidance for 12% to 14% Small Business revenue growth is slightly better than ASC 606 guide at this time last year. But we have seen some moderation in U.S. QBO subs it has been a meaningful driver of revenue growth in recent years. Are there any other areas that you see coming in as more meaningful growth driver this year as that U.S. QBO sub growth starts to moderate?

Hi, Rakesh. Thank you for your question. 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 they're Self-Employed with QBO, now with QBO Live, which has higher ARPC and with QuickBooks Advanced. And then based on our customer pain points, 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 QBO, it did not moderate versus this time last year, it actually we accelerated growth. So we feel good both around the customer growth in QBO, but more importantly the services that we're providing and the fact that 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. Some companies have noted weakness in Australia and UK where you have some exposure. I was wondering if you could comment on the macro environment in international region.

Sure. There's a couple of things that we look at. We look at strength in consumer spending, 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. Sasan, just on SMB, where do you think the lowest hanging fruit is from your perspective? There are a couple areas that you're particularly excited about the next year. And Michelle, I wanted to go back to Brad's comment on the broader margin. And this'll be now the fifth year in a row with margins roughly in the 33% range. And I know you're focused on the topline, but at some point, how do you think about the fall through on margin? Do you believe that over time that that 33% that's been a ceiling if you will for the last four years or five years, does that not become a ceiling at some point going forward?

Hey Brent, maybe let me take on the question you pose for me and then I'll turn it over to Michelle. First of all, I'm incredibly proud of our team across the company in Small Business, which translates into several areas that I'm excited about because they're squarely focused on what matters most to our customers. I would say services is 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 as ensuring that they can get access to capital when they need it. And also time tracking which is good for accuracy and compliance. So I'm excited about the work our team is doing in the bucket of services, which translates into payments, payroll, time tracking, and QuickBooks Capital. And the second thing is although very early innings, really excited about being able to penetrate non-consumption with QuickBooks Live. One of the biggest pain points our customers face is confidence. Can I do-it-myself, which is why they typically engage with accountants pros enrolled agents, both in Small Business and to get their taxes done right. And this is where we are building out a platform where we can connect experts to people on our platform that really allows significant penetration into non-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 mid-market, where the customers are overserved and then they overpay 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 ahead in the next several years.

Hi, Brent. Thanks for your question on margins. We've got confidence in the strong guidance that we have, we've got revenue growing at double-digits, we’ve got op margin in the 30s as you said with 20 to 40 bps of expansion, and that is in line with our financial principles that we have. And we really do not see any structural issue or any feeling. It is very intentional on what we're doing. And as for where we're investing, we're allocating on investment dollars across the company, across our portfolio and really looking at the areas where we think there are the highest yielding opportunities to continue building on our strategy of being an AI-driven expert platform. And that's why we say we manage margins at the company level because it enables us to put that next dollar in the place where we can best drive customer and revenue growth, and that's what we continue to be focused on.

Thanks. Good luck Jerry.

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 Sasan, last year you guys were really aggressive pursuing the free market. Just wondering as we look to 2020, should we think you guys harvesting those units or should we expect you guys to again focus on bringing more customers into the franchise? And then from Michelle, you mentioned AI has delivered some leverage in your TurboTax Live business, how should we think about your investments here as far as adding incremental reps or can you continue to do more with the same number of professionals?

Great. Ken, thanks for your question. I would share with you that we have been very assertive in delivering for our customers and especially the simple filers with the focus on free, and I would take you back to even my years at TurboTax Live, joined TurboTax seven years ago, we launched Absolute Zero, where our customer can get –simple filers to get all their taxes done by paying nothing. And 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, better home loans, better personal loans, which is what we're focused on dealing with 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, free will be a very important element of that, but it's not new, it's been the case for years, and we expect to continue to focus on what matters most to our customers as we look ahead. And we take all of that into account when we think about the long-term expectation for this business of 8% to 12% and specifically the guidance that we've provided of 9% to 10% for next year.

Hi, Ken. Thanks for the question. If I think about TurboTax Live and 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 agents more experts to help? Yes. 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 call volume. We've also been doing other types of productivity for TurboTax Live, optimizing our scheduling and set up so that there's 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, like I said, a technology first standpoint and not needing to add agents in a linear fashion.

Great. Thanks a lot guys.

Thank you.

Thank you. Our next question comes from Michael Turrin 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 Online Ecosystem growth as that run rate continues to scale, specifically focusing in on the mix of services. Sasan, you provided some useful metrics in terms of payroll, but is there anything else you can 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?

Yes. Hi, Michael. Thank you for your question. We are I would say at the early innings of what's possible with services. I'll just use payments as an example. Our customers send over 214 million plus invoices and there's like 14% e-payment enabled. And that's just one example of demonstrating the opportunity. 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 the money the long as, time tracking especially with employees being out in the field. We see with just those four offerings a significant opportunity I had to deliver for our customers. And by the way that becomes even more important when we serve mid-market, which is the segment with 10 to 100 employees. With that said, 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 with the profitability of customers connecting that to their inventory. That's another leg that we are focused on. That's in earlier innings than even QuickBooks Live and QuickBooks Advanced. But to your question of other opportunities, there are, but actually don't want us to lose focus on the services that we already have and 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 – having the ability to deliver more than 30% Online Ecosystem revenue growth.

That's great. Maybe just a quick follow-up for Michelle on CapEx you’re guiding for a fairly significant step up in fiscal 2020. Anything specific to call out there in terms of what's driving that increase?

Thanks for the question Michael. No, I wouldn't – we've typically said that our CapEx would be about 2% to 3% of revenue and in FY2019 you saw that in FY2020 you see about the same. In FY2019, we did have a little bit of CapEx that slipped out of the year. Some of our sites that we are making some improvements on, how construction projects sometimes work. We had some of that that actually was just the timing and it had moved into FY2020.

Got it. Thanks.

Thank you. Our next question comes from the line of 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 Live. 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 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 are there still other pricing options that are on the table? Thanks.

Great. Hi, Matt. So we're excited about the potential of QuickBooks Live. I just want to remind us we are in the very early innings. The reason we're excited about this is there's a huge unsaid customer problem, which is about confidence. And the confidence is really around the notion of do customers feel like they can do it themselves versus just stick with what they're doing Excel, Google Sheets, Dropbox, and all by the way, dealing with their Bookkeeper and Accountant. And so really that the problem we're going after solving here is 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 or through a live conversation through a very set of experiences that they may need. So I'll give you an example, I was actually in Boise this past week visiting our TSheets team and sat for several hours listening to multiple QuickBooks Live calls because we've got some of our bookkeepers actually set up in Boise. And the particular experiences that I was listening in on were, in essence, customers that have come into our bookkeeper, said hey, here's all of 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 then learning QuickBooks at the same time. And so I used that as an example of – it's…

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

Hey. This is Pree Gadey for Raimo Lenschow. I wanted to get a little bit more color on payroll. Can we get an idea of where we are in terms of penetration for self-serve? And can we expect another 35% type growth in FY2020? And finally, how much the TSheets help in terms of growth this year?

Thank you for your question. We view payroll and with the combination of TSheets as a continued opportunity to move looking ahead and really in context of continuing to deliver more than 30% online revenue growth. And the biggest interest that we're actually seeing in 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 ARPC for the company. Coupled with TSheets, we've been working on integrating TSheets and payroll because if you put yourself in the shoes of a 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 an employee starts on a job, when they end on a job that automatically getting dumped into payroll. And that not only delivers significant accuracy compliance and monetary value for our customers, but also it’s a revenue opportunity for us when you look at the combination of payroll and TSheets. So we believe in this area, we continue to be at the early innings. We don't share what the penetration numbers are, but we liked the 35% growth that we're seeing in payroll.

Thank you. And if I could get another quick one in. You guided consumer 9% to 11% last year around this time and we're starting off this year a little bit lower, which I was a little surprised with TurboTax Live being a bit more involved. Can you guys go through kind of the thought process into that guide of 9% to 10% for the year?

Sure. First of all, we did guide 9% to 10% last year and our guide this year is very consistent with last year. And secondly, I had 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 at 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 the great numbers.

Thank you.

Thank you. Our next question comes from Sterling Auty of JPMorgan. Your question please.

Great. Thanks. Hi guys. It’s Jackson Ader on for Sterling tonight. Our question is about the tax law changes that went into effect for 2018. So this is – the tax season coming up, it's going to be the second full tax year with some of the changes. So you expect that maybe people are more comfortable with their return this second go around? And so we could maybe see a little bit faster unit growth, but maybe on simpler packages or lower price packages this year?

Yes. Thank you for your question. First of all, we're huge fans of anything that can be done to simplify taxes for consumers so it gives them the ability to do their taxes themselves. The second thing is last year tax reform was new, which means some of the changes in the product lineups were also new to map up with some of the changes. And the second year will always be better and easier because the customers will have more confidence. But our – we've not baked any of that into our assumptions. We are focused on making the experience so drop-dead 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 year.

Okay. That's all we had. Thank you.

Thank you.

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

Okay. Thanks very much for taking my question. Also my question about guidance, but more as it relates to Small Business and Self-Employed. I think last year you guided I think 9% to 11% and ended up doing 15% this year, and this year you’re guiding 12% to 14%, so just in terms of where you sit right now relative to last year. Maybe if you don't mind just talking a bit more about what's driving that optimism at the start of the year. Is it QuickBooks Live? Is it Online Advanced, international, maybe some combination? Just curious what you see as main drivers? Thanks.

Sure, Chris. Thanks for your question. It's all the above, it's really 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 convinced customers to come to us and then how we deliver a great first time use experience. So it's the combination of having the ability to be able to have an offering to serve the Self-Employed to be able to have the QuickBooks platform that could serve customers that had less than 10 employees, but then now having a platform where we can disrupt the mid-market by serving small businesses that have between 10 to 100 employees. And then it's the services. 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 and experience, but also being able to hold on to their money the longest. Because, typically, small businesses, the money goes out of their bank account with earning payroll seven days in advance. And now we have same day and next day payroll. So it's the combination of really understanding what's important to our customers, being able to serve our customers from 0 to 100 employees, and really improving all the services that we provide. And we have high hopes for QuickBooks Live in the coming years to really be able to go after non-consumption, being able to connect our customers to experts. So it's really the combination of all of that that gives us comfort in the potential of the business.

Okay. That's great. And maybe just to follow up on services. Can you just remind us a bit about your strategy of white labeling verse developing your own products there? I mean, do you ever see it start to do invoice pay or tax automation on your own? Just curious how you think about doing one or the other?

Sure. I'll take you back to our strategy of being an AI-driven expert platform and the platform is truly about being an open platform, because we're customer back and customer first. And I'll use payments as an example, we want – and what's important to our customers is, they want to get paid the way their customers want to pay them. And so we provide options, whether it's PayPal, whether it's 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 app that's been made or created by Intuit or an app by one of our partners, we ultimately care about the benefit for customers. So 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 apps on our platform is around being an open platform and as 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.

Hi, Sasan. 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 in TurboTax Live, what percentage of customers come from either traditional TurboTax or other digital players versus the assisted market. Just trying to figure out how much TurboTax Live is encroaching on the assisted and how much success you are having getting assisted customers to convert?

Hey, Kartik. Thanks for your question. It's kind of an and, and all the above. As you know, there is a lot of churn within the assisted category and even those that come from the assisted category to do-it-themselves, what we reported at Investor Day last year, of those 10 million customers that kind of go back and forth between the category. So TurboTax Live 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 a baby, your uncle is now sleeping on your couch. Those little questions drive a lack of confidence and can drive someone out of the category. And now on a click of a button, you can get help in any way, which way, shape or form, even if you didn't pick TurboTax Live, 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 will talk about this more at Investor Day, more conversion coming from prior year assisted, because these are folks that are coming in for the first time, they're used to engaging with a human being on the other side to get their taxes done and now they can come in, and again, with the click of a button they can get the help that they need. So it's an end, it's all the above, because there's so much churn 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.

Michelle, I know there's been a lot of discussion about margins. I wanted to get your perspective on that. You're obviously using AI and other technologies to make all the products better, but especially the TurboTax and QuickBooks Live. So is there a situation right now where you maybe investing more in these technologies? And as a result, maybe it's 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. Thanks for the question. We are investing in AI/ML. As I said last year, actually at Investor Day, and gave the example of the five big investment areas for us for FY2019. AI/ML was one of them as was our migration to the Cloud, TurboTax Live and so forth. It is one more of, I would say, it's more of prioritization. So we are absolutely seeing the productivity impacts on TurboTax Live abusing AI, we're seeing the benefits to the customer, from a customer experience standpoint in our products, both in Consumer Group and in Small Business. But if you're thinking of that afterward are we going to be done or 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 it's really every single year looking at what is the best use of the cash we have, and where can we invest it in a 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 and then therefore we just want to invest those dollars anymore.

Thank you, Sasan and Michelle. I appreciate it.

Thank you.

Thank you. Our next question comes from Josh Beck of KeyBanc. Your line is open.

Yes. Thank you for the question. I wanted to ask about International. It seems like the QuickBooks Online subs there may be accelerated to the high 50s from the mid 50s in 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. By the way, the same thing applies also to our services and the progress that we're making in services, which is just really adding great team members that are focused entirely on pain point that matter most to our customers. In this case, we have structured international such that we have international leader that owns delivering for our customers 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 impacts and the biggest growth opportunity. 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 step 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 them, understood their playbook and that will inform a playbook that we now have, that we are following. I think it's a combination of having a very systematic playbook, being very deliberate about resource allocation and the talent of that, just giving us the ability to maintain this kind of growth rate at a far larger base than even when 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 tax and, obviously, almost tripled the number of Turbo users. So maybe just help us understand what you're imagine is when we think it's going to be 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 debt and savings money. And most of folks, and I'll just use U.S. as an example, are under duress when it comes to how do I put food off 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 by really being an agnostic platform that matches our customers to products that are right for them. So if I just paint the picture of what this looks like is, imagine a tax time helping our customers find the highest yield savings account, where we're not pushing a financial product, we're helping them understand the best financial product. It's helping connecting them to a personal loan at the best rate versus because 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. It's to understand how to best 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 customer consents, letting us use their data to deliver benefits for them, we can, in essence match them the benefits that could really help them prosper back to our mission of 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 benefit 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 Sasan.

Sure. Thank you.

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

Thanks very much. And congratulations, Jerry and Kim. And good work all. My first question on retention, I heard online tax retention improved. Michelle, if you could just put 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 Live? If you don't want to share some numbers, maybe some anecdotes either one of you. Thanks so much.

Hi, Scott. Thanks for the question. As we looked at this year, one of the issues that we know, we've had just with customers overall, when you think about TurboTax when they're going through to complete their return is, they're going through, they leave confidence. And so that's one of the reasons why we've been very excited about TurboTax Live is, it gives us an opportunity to provide an expert who can really provide that level of confidence to someone so they can complete their return and opens up the assisted market for us. And so, we had, number one, as I said, hope to pull people in from assisted, number two, hope to keep people in the category overall. And so, as we said, 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 in our Investor Day on October 3, 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, it 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 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, then you do right now at this buyback pace. Just curious, I know 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 what have you? Thanks.

Thanks Scott. I would say, yes, we do have more cash than 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 products road maps and then we will return cash to customers. I mean, excuse me, to shareholders that we can use profitably in the business. And we have those financial principles that are in place and we will continue to follow those. We have not changed those.

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, a huge thank you to our employees for an amazing fiscal year 2019. 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.