Q4 2020 H & R Block Inc Earnings Call
Ladies and gentlemen, thank you for standing by welcome to the fiscal year 2028 in our block earnings Conference call. At this time all participants are in listen only mode. After the speakers presentation, there will be a question and answers.
Question to ask a question during the session you'll need to press star one on your telephone.
A reminder, taste program, maybe recorded I would now like to introduce your host for today's program Colby Brown, Vice President Finance and Investor Relations. Please go ahead Sir.
Thank you Jonathan.
Good afternoon, everyone. Thank you for joining us to discuss our fiscal 2020 results.
On the call today, or Jeff Jones, our president and CEO and Tony Bowen our CFO.
What's the today's press release on the Investor Relations website, HR block Dot com.
Also on the website you will find a link for the webcast contained in today's presentation, which will be posted after this call.
Some of the figures that will discuss today are presented on a non-GAAP basis, we've reconciled the comparable GAAP and non-GAAP figures in the schedules attached to our press release.
Before we begin our prepared remarks, I'll remind everyone that this call will include forward looking statements as defined under the securities boss such statements are based on current information and managements expectations as of the state and are not guarantees of future performance forward looking statements involve certain risks uncertainties and assumptions that are difficult to predict as a result.
Our actual outcomes and results could differ materially.
You can learn more about these risks in our form 10-K for fiscal 2020, and our other FCC filings HR block undertakes no obligation to publicly update these risk factors or forward looking statements.
I think inclusion of our prepared remarks long queue in a session drink culinary we ask that participants limit themselves to one question with the follow up after which they may choose to jump back into the queue with that I'll now turn the call over to Jeff. Thank you Gabi. Good afternoon, everyone and thanks for joining as we hope to you and your families or stay.
Being safe and healthy in these unprecedented times.
We're also saddened by the senseless acts of racial and Justice, which continue to play go country in a tragically taken lines.
We're committed to continue building a culture of belong and get agent or block it doing our part in our communities to help bring about needed change.
Given these into the past several months, we have a lot to cover on today's call.
First I will discuss how we've responded since the start of the pandemic.
I will then provide our perspective on the industry in our results followed by thoughts on how we're executing the remainder of the tax season.
Our next discuss wave, including an exciting new product that began rolling out to more small business owners last week.
Finally, all share perspectives on our future.
And Tony will review, our fiscal 20 results capital allocation and thoughts on fiscal 21.
The pandemic has created business challenges beyond anything we'd experience.
Our financial results have been impacted withdrawn or full line of credit.
And with demonstrated agility and innovation quickly, making dramatic changes to our operating model to continue to serve clients.
And in doing so we've accelerated our efforts to transform HR block.
Never has or purpose been more important as we help consumers gain access to their much needed refunds and assist small business owners as they navigate the financial uncertainty caused by the endemic.
I cannot think our tax grows associates in franchisees enough for their hard work during these unique times.
As they have been incredibly resilient and remain committed to providing help and inspiring competence in our clients in communities everywhere.
In mid March as the spread to the virus began to impact our business. We quickly turned to our crisis playbook, which enabled us to effectively and efficiently react to an extremely challenging situation.
In our retail location virtually every state pursued locked down policies that both affected or ability to operate in preventing people from leading home to be served the way they want it.
At the peak nearly 20% of our office network was close to the public.
For those offices that remained open we made dramatic changes by limiting in person service, including requiring drop off in nearly half the network.
An increasing the use of our virtual capabilities.
In short our obligation to follow local orders is subject to far greater stroot scrutiny been local independence.
Regardless of how we operated one of our top priorities has been providing for the health and safety of our associates franchisees and clients.
Helping clients access the refunds.
The team worked diligently to keep our offices clean.
Followed social distancing protocols in complied with ever changing city and state guideline.
Because of these changes, bringing digital solutions to our clients became more important than ever.
As you may recall coming into this year. Our primary objective was to digitally enabled every aspect of our business to deliver our expertise to consumers in new and exciting ways.
These efforts have been instrumental in allowing us to meet the needs of our clients using methods, we didnt have in the past.
We have seen a dramatic increase in returns leveraging or digital capabilities, including tax Pro go tax Pro review and approval online feature.
Approve online allowance filers to review the return approve it and pay their fees all from their mobile device.
With a significant portion of our clients historically visiting office is more than once to complete the return.
This capability provides tremendous convenience, especially during these uncertain times.
We also enhanced our digital capabilities for our tax burdens.
Because many of them couldn't serve clients from our offices within two weeks, we stood up a work from home model, allowing thousands of tax pros to prepare returns without having to come into the office.
This capability will be invaluable moving forward.
Our efforts during this crisis to continue to meet the needs clients digitally enabled our business and serve our clients. However, they want has led to strong feedback with service quality scores improving two points in assisted and five points in DIY why building on significant increases in.
Both areas in fiscal 19.
Beyond taking djurberg clients. We also took significant measures to take care of our associates.
Our tax grows our greatest asset and I'm proud of the investment we made to create a leading benefit program for a seasonal associates if they were directly impacted.
And finally I'm also proud of how we've responded and are continuing commitment to our communities.
We joined the American Express stand for small coalition in support of small businesses.
At wave, we provided instant payouts, so all of our payments customers for free.
Given instant access to their money.
And we offered free tax preparation to frontline workers do tax pro go in May in June which received overwhelmingly positive feedback.
With this context on our operations I'd like to spend a minute on what we're seeing in the industry as a result of the pandemic as well as our results.
Industry returned volume has been unusual due to the filing extension as well as the stimulus package.
Through June 5th the IRS reported total filings down 6%.
The IRS is volume includes millions of returns completed by those who typically don't file that did so this year to receive stimulus payments.
We believe the vast majority of these returns were completed through the IRS is Philip will form site, which is inflating the number of Guy why returns in the market.
Excluding these returns we estimate DIY Y E files are down approximately 4%.
Compared to assisted E files down 15% through June 5th.
We expect this gap to moderate toward the end of the tax season, and we'll provide more thoughts during our Q1 call.
With respect to our volumes in DIY why we've maintained relatively flat share through early June.
In assisted we had share gains through the end of April but are seeing that moderate in this extended filing season.
It's important to recognize that an extension like this has never happened in U.S history. So theres no precedent for forecasting consumer behavior.
Despite states beginning to reopen there is no business as usual.
We have more offices open ended expanded our hours of operation compared to a typical first quarter.
But a substantial portion of these locations are not serving clients in the office.
Instead, we continue to interact with their clients either virtually or through drop off.
And while we have more tax pros working the normal this time of year. It is far less number we would have at the end of the typical tax season in April.
For these reasons client volumes may be impacted.
As such we've updated our marketing plan through the quarter to make sure consumers know were open and to help them understand the variety a drop off in digital options we have available.
We're doing this through multiple channels to make sure we appropriately target those who havent file.
In addition to the help of providing consumers. We're also doing everything we can to help small business owners during this difficult time.
We've entered a three small business resource center on our website to provide a regular updates on government assistance programs.
Additionally, in May we launched our recovery action plan servers, which helps entrepreneurs navigate the cares act, including loan program and tax credits.
This is another great example of leveraging our human advantage.
Turning to wave.
After posting strong result of over 40% revenue growth through mid March we've seen flat revenues in April and May as small businesses were impacted by the pandemic.
We've taken measures to ensure we are limiting operating losses at wave without sacrificing Creek key investments in the business.
Despite these actions we expect the near term performance in resulting valuation of the business to be negatively impacted similar to many other businesses. During this pandemic.
As such we've recorded a noncash impairment of goodwill, which Tony will talk about later.
While there has been a short term impact on the business, we remain confident in the long term viability and future growth of late.
One reason for this confidence is waves innovation in the pipeline of valuable products and services were working on for the future.
A great example of this is wave money, which was expanded to more customers last week.
Wave money is a business bank account that does what others can manage all aspects of bookkeeping automatically giving entrepreneurs more time to focus on their business.
This is the first to market softwood powered small business bank account, which provides several unique benefits to waive customers, including no monthly fees are minimums.
Seamless integration to waves accounting platform for expense categorization and tax readiness and instant access to funds via wave payments.
We're excited about this product as we continue to innovate to simplify the lions a small business owners.
In summary, as we navigate this new normal we haven't lost sight of what we've accomplished this year, making significant progress toward our strategic objectives in ways, we couldn't have anticipated.
We are taking this opportunity to thoroughly and objective we evaluate our progress determine what we can do better into reinforce our sense of urgency in these efforts.
We remain committed to continuing the transformation of our business.
We're in the process of evaluating in Reprioritizing, our strategic imperatives.
While simultaneously examining our expense structure to identify areas, where we can save to help fund the future.
This work is ongoing and will remain fluid given our current operating environment.
We will be we'll be providing more detail later this year.
With that I'll hand, the call over to Tony.
Thanks, Jeff Good afternoon, everyone.
Last time, we spoke we were on track to deliver deliver on our outlook for the tax season in the fiscal year.
However, like most companies the pandemic has negatively impacted our business and financial performance.
Because the timing of the pandemic alignment the time in our fiscal year, and which we recognize the majority of our revenue we would through our fiscal year 20 financial outlook.
As such I won't be detailing our performance against those expectations as I normally would.
I will however provide insights regarding our fiscal year 2000 financial results, how we see the remainder of the tax season impacting our financial performance in fiscal 21.
And actions, we're taking to enable continued investment for future growth.
Excluding wave our total operating expenses would have declined though at a lower percentage than the decline in revenue due to legal fees cobot 19 related benefits and planned investments in technology.
We recorded $106 million noncash goodwill impairment at wave due to the pandemic and its impact on small businesses.
As Jeff mentioned, we've been pleased with ways performance since the acquisition with solid growth through mid March.
However revenue growth has slowed during the pandemic, which has impacted the invoicing and payments volume of small businesses.
We remain confident in waves future and in our ability to continue to deliver tremendous value to small business owners through ways innovative platform.
Turning to the rest of the income statement interest expense increased by $9 million.
Approximately half of this increase was due to higher draws on our line of credit during the normal course of the business through our fiscal third quarter.
While the other half was due to additional interest expense associated with the $2 billion drawl in late March.
The changes in revenue and expenses resulted in a pre tax loss from continuing operations of $3 million.
GAAP earnings per share was positive at three cents due to favorable discrete tax items.
Adjusted earnings per share.
Which excludes the impact of the impairment and amortization of intangibles related to wave and tax office acquisitions was 84 cents.
In discontinued operations, there were no changes to accrued contingent liabilities related to sand canyon during the year.
For additional information on sand Canyon, please refer to disclosures in the company's reports on forms 10-K in 10-Q and other SEC filings.
I'll now turn to capital allocation in the balance sheet.
Despite the unique circumstances related to covert 19, our capital allocation priorities remain the same.
At the top list is maintaining adequate liquidity for our operational needs.
Our current liquidity position remained strong as we ended the year with $2.7 billion in cash which includes the full $2 billion drawn on our line of credit.
As we announced in late March we believe we have sufficient funds to support the business through the start of taxis and 21.
Our line of credit is subject to various conditions, including a covenant, which requires us to maintain a debt to EBITDA ratio of three and a half times on April thirtyth.
Based on our fiscal year 2000 financial results, we did not meet this covenant, but we have secured a waiver with our lenders with no changes to the terms of our line of credit.
After ensuring adequate liquidity within make strategic investments back into the business that we believe will drive sustainable growth ultimately benefiting our shareholders.
As Jeff mentioned, given the Pandemics impact to our business, we have undertaken undertaking a review of our expense structure to eliminate any unnecessary spend in order to continue funding the initiatives that will fuel future growth.
I will talk about these expense measures in a moment.
The last step of our capital allocation process is to deploy excess capital through quarterly dividends and share repurchases.
I'm pleased to announce that despite the financial impact of Cobot 19, and the extended tax season. Our board of directors has declared a 26 cents per share dividend payable July onest.
We've never missed a dividend payments since going public in 1962.
We remain committed to perform in an annual review of the dividend after each fiscal year.
With respect to share repurchases in fiscal 2000, we repurchased a total of 10.1 million shares or $247 million at an average price of $24 in 36 cents.
We made no share repurchases in the fourth quarter.
For the past two years, we have committed to at a minimum repurchasing shares to offset dilution from equity grants and opportunistic share repurchases thereafter.
Given the uncertainty created by Cobot 19, we have not yet determine our share repurchase approach for fiscal 21.
I'll now discuss our thoughts on regarding fiscal 21.
As a reminder, last year, we provided our fiscal year financial outlook on our Q4 call.
Given we havent yet completed the current tax season, and there remains uncertainty due to the pandemic, we will not be providing financial outlook at this time.
Instead, we plan to provide a tax season recap on our first quarter call in September and our full financial outlook for fiscal 21 on our second quarter call in December.
Let me provide some high level thoughts on how we expect to close out the tax season, and our efforts to mitigate cost increases as a result of the extension.
First while its natural to expect all volume loss in Q4 fiscal 22 shift into the first quarter fiscal 21 that may not necessarily be the case.
As Jeff mentioned during this quarter, we are still operating under a modified model.
While we have more offices opened unusual we're still operating which is half of our total network in a substantial portion unable to serve clients face to face.
This may impact our ability to retain clients and attract new clients to the brand.
Regarding expenses due to the extension of the tax season, we anticipate additional costs during the first quarter.
We expect an increase of approximately $10 million and marketing expense and approximately $10 million and interest expense.
Additionally, we expect variable expenses related to compensation benefits and bad debt to be approximately 40% of incremental assisted revenues generated.
We are actively evaluating ways to mitigate any additional cost by taking a detailed look at all spend categories and making prudent reductions across our business.
We're still in the process of finalizing these plans that can offer a few areas of focus.
Including renegotiating rents with landlords across our retail footprint.
Implementing a hiring freeze.
Eliminating merit increases for fiscal 21.
Examining vendor spend to renegotiate existing contracts and reducing capital expenditures to only what is necessary.
In addition of these savings we have entered into a nonbinding letter of intent with meadowbank to be the provider of our financial products, including refund transfer refund advance and will advance and Emerald card, which will result in savings.
Meadowbank is a leader in providing financial solutions to consumers and has significant experience in the tax preparation industry.
We're excited to partner with them to come to continue providing valuable products to our clients.
In summary, we have taken prudent steps to adjusted the pandemic, including our modified operating model line of credit drawl and cost reduction efforts.
These measures will allow us to operate effectively while enabling continued investments in our future.
With that I'll now turn the call back over to Jeff.
Thanks, Tony.
I'd like to again, thank our franchisees associates and tax pros, we're continuing to live our purpose.
We've been challenged during the last few months unlike any other time in our history.
The resilience and dedication of our team our strong financial foundation, and our ability to adjust our operating model has enabled us to continue delivering tremendous value to our clients at a time when they need us most.
I'm confident we'll come out of this crisis stronger than ever as we continue work to transform our business.
I look forward to speaking with you in September with that we'll now open the line for questions Jonathan.
Certainly ladies and gentlemen, if you have a question at this time. Please press Star then one and you touched on telephone answer. Your question has been answered if you'd like to move yourself from the Q. Please press the pound key.
And our first question comes from the line of Jeff Goldstein from Morgan Stanley. Your question. Please.
Hey, guys.
And seeing assistance share gains moderating in the extended tax season. So im just curious what you attribute that to you and are there any strategies in place to mitigate bad in the final month season here.
Absolutely. Thanks to the question. So if you think about our operating model as we said in the prepared remarks, you know there really is no normal about how were opened as an assisted business.
In many many places we're operating in drop off only.
And even when we are serving clients in an office there are many steps we've taken to protect both the tax pro and the client for example, they both sit in separate cubicles just as one small example.
And I think the fact is.
As a national retail brand, we are subject to the scrutiny of following local orders quite differently than local independence.
For example, we operate in a strip center and independent May operate in a building or honestly at their kitchen counter.
So that scrutiny and how we have to operate has really disrupted the way that our clients know when have come to expect how they do business with us so and we see that that could have an impact on our ability to serve clients.
Now that said the entire organization is focused on winning in Q1.
And there are several steps, we're taking in order to offset that.
I think one of the biggest things we're doing is making sure that.
We are doing everything we can to retain the clients. We've had that we know haven't filed yet.
And so we can reach out to them individually and honestly, what we try to do is to pull them forward to mitigate the possibility of having a rush at the end of the season like we would normally see in April.
In addition to that really in all channels of marketing.
Television performance marketing E Mail marketing, we're making sure that clients know a were open.
Obviously were open in ways that normally HR block is an open this time of year and be making sure. They understand the full breadth of options of how we can serve them, whether it's coming due in office under those conditions drop off virtual et cetera.
So we're taking steps to mitigate it but theres no question, it's kind of hard to overstate how unusual our operating model is in the retail footprint.
Understood that's helpful and then.
Curious if there any longer term opportunities.
On this initial co head period for instance, like you think that success in some of the digital and drop off services could result in a lower physical footprint in the future or maybe there's something else that you think changes in a post comment where I'll. Just just curious in your thoughts around the opportunity longer term yep great. Great question, you know over the last couple of years.
In particular, we've really been accelerating our investments to build these virtual capabilities.
And there's no question.
No. This pandemic has really shine the light on those capabilities and I can say with confidence there very strong.
Our ability to serve clients, whether its approving the return online or getting the various forms of assistance if you're at DIY filer are all capabilities that we know that we've been doing a great job of building in perfecting.
Now that said consumer demand tax pro understanding Theres still more work ahead for us to make sure that people really understand this is an easy safe option.
If you take a big step back from that overtime, certainly as business shifts we have flexibility to think about or retail footprint.
When I look at taxis and 21, I'm confident our footprint will look more similar to 20 like it is today, but unlocking these digital capabilities and enabling people to get human help on their terms as been part of our strategy now for a couple of years and really really shown through.
This time.
Got it thanks a lot.
Thank you.
Thank you. Our next question comes from a line of Scott Schneeberger from Oppenheimer. Your question. Please.
Thanks, very much good afternoon.
I guess guys you mentioned some numbers for all for the IRS filing and.
Backing that it looks like you say got about 6 million.
Stimulus returns where were filed.
Uh huh.
Do you think thats over these things more to come we've seen numbers out there that it could be as large as 10 million I would've thought that that would have occurred by now for those who were going to do it but just just thoughts on what remains there from from what you know at this point. Thanks.
Yes, Scott so yes, that's about what we see as well when you back out those from kind of what's being reported by the IRS. Obviously, the IRS hasn't reported that number publicly yet we're working with them. We think it's important ultimately to be very clear about what that number is.
We do not think theres going to be a second round of stimulus payments based on everything we're hearing and learning and Washington, So that would suggest that.
Most of that wave is over.
That people, obviously with the economy the way it's been.
People were very eager to get their stimulus payments and we definitely saw in our own product that we changed to allow a zero dollar return as well as the syllable forms at the IRS that there was a very very big rush to make sure people were registering their bank accounts.
So, we'll see where the number nets out but based on what we know today, we would say most of that's behind us.
Thanks, Jeff on that.
Similarly.
Yes.
And the DIY category free file Alliance that was all rankings made April April 10-K was actually the IRS updated that.
Moving to 28% increase year over year, all mid $2.9 million returns sale versus 2.3 and averaged 2.8 for the whole as tax season last year. So that elevating just would like to get your perspective on on what's occurring there and is that is that a dynamic that you think slows.
Down going forward are or will we see some more at free file alliance activity in the canopy. Thanks.
So you're right on that's the number that they reported a 28% and you know our results at HR block, we're right in line with that.
I think that growth is a reflection of just simply more attention paid by the IRS communicating the benefits of that program. This year.
Absolutely.
It's important to also note today that last week I had a conversation with the commissioner of the IRS. So let them know that at the end of this tax season in October we would be stepping out of the partnership with free file Alliance.
It's been an important partnership for almost two decades, and as Weve really reassessed Oliver priorities as a company as I mentioned in the prepared remarks, we believe it's in the best interest as the company to move forward into different direction, and the fact is and I share with commissioner.
It's a positive program and Weve been.
Then happy to participate in it for 20 years. The fact is there are many different ways to file for free now the industry dynamics are quite different we offer three ways to file for free outside of out of the free file program and so we just think it's in the best interest to the company to move forward in a different direction.
When we left and know that last week.
Thanks, Jeff will now ill turn it over and bagging accumulating just a follow up on that that's an interesting development.
In those conversations do you anticipate the IRS moving in a different directions on the free file alliance might there ultimately and given your decision and might they become more involved themselves just from any anything you are intact.
Yes. Another another great question, obviously, the the alliance was comprised of more than 18 or block. So there are many other companies that are participating we're not aware of any when else's decisions.
We think we're leaving with the program on strong footing, having three years of growth in a row and.
The IRS has always maintain the option to.
To do something different to do this themselves.
Thats always been present in the Mou each year and so we don't think our decision in particular changes that.
But we're not aware of any other companies decisions.
Thanks, guys appreciate the color.
Thank you.
Thank you. Our next question comes from a line of Kartik Mehta from Northcoast Research. Your question. Please.
Hey, good afternoon.
Jeff Im just wondering what your thoughts are for this tax season in terms of just industry growth for the assisted channel and self prepared channels and there's been so many moving parts.
Absolutely let me, let me try to break it down into a few different buckets in bear with me because to your point there are a lot of different pieces here I think the first thing I would say is we went into the season expecting about 1% growth in total.
And as an industry, we don't expect Cobra do have an impact on that so total industry growth about what we thought going in going into the pandemic.
Obviously, there have been so many things happening in the industry really since mid March.
The stay at home orders.
All of a local and state requirements. The filing deadline decision you may remember in May before the deadline was extended there was a lot of confusion because it was announced comp balance due was extended the deadline was an extended so then the stimulus payments kicked in so a lot.
Lot of things that that really cause confusion and delay.
As we said in our prepared remarks, you know through June 5th.
E files for assisted down 15, DIY why up seven.
We think when you pull out those stimulus payments.
DIY why are down about four.
And we have seen a shift between assisted to DIY why of just shy of 300 basis points.
So that's kind of how we see the current dynamic.
And you know over the balance of this season.
No as orders start to become listed.
And people start to get back to normal we expect the end of July through the Fiftyth to feel more like through April 15th.
We recently did a survey of about 10000 consumers.
Who have not yet filed in asking them why and the answer was because we don't have to yet.
The second answer was around safety.
So you definitely have this sense of.
Even though the IRS is open and even though people the tax season is still underway. It feels like people aren't yet ready to complete and we think the July 4th holiday is going to be kind of a wake up and all of sudden the deadlines going to be close.
One of the things, we didn't pay and really close attention to obviously is the assisted to DIY migration.
And we expect that to moderate as the season comes closer to July 15th.
But if I just take a step back from it.
This is second year of tax reform.
The conditions.
For massive shifted VI why couldn't have been more presence in this year.
People were told to stay home.
There are all kinds of conditions in even with all those conditions.
So far it's only shifted about 300 basis points.
And again, we expect that to moderate to end higher than it did last year, but the ultimately be less than 300. So again a lot of moving parts as you said, but we're paying close attention to that migration into consumer behavior.
Just real quickly Jeff the one thing I would add on just to clarify is our expectation for the industry and 1%.
Does exclude the stimulus returns that have been filed obviously, so we're kind of backing those out just because they're so unusual and not a typical tax return, but then as Jeff said, we have no reason to believe that overall tax return volume would be materially different than what we thought it began a season yeah. Thanks for that.
And then Tony.
As I look at the adjusted EBITDA reported for this year.
There was a significant decline much more so than revenue and I'm wondering.
I understand some of the increased cost, but maybe you could walk through why there was such a discrepancy between revenue and EBITDA.
Yes, I mean, we definitely had some onetime expenses that that hit us, but also when we think about the variable cost and our business model that you know very well kartik.
A lot of the drop in revenue does shop to the bottom line I mean, if you think about the decline in the DIY business. For example, almost a huge percentage of it drops to the bottom line and the assisted business, you're essentially offsetting revenue declines with a little bit of save and labor that as we've talked about that.
Labour ratio, usually runs 25% to 30%.
And we didnt, even see that big of a drop this year because we did have some incremental coated related expenses due to some special benefits we put in place. So thats Thats why we did have such a.
Impact on EBITDA relative decline we saw in revenue.
And then just to on capital allocation.
Jeff I know you mentioned that you paid dividends through since the company when public and it sounds like that is the shift from tier one from assisted to DIY why isn't going to be as great as maybe originally thought.
And so nextshares tax season, obviously will be better because you're going to get all the people that then file this year. So sounds like long as the EBITDA growth is kind of where it was in the past or the absolute dollar amount. The dividend is something that the board seems committed to pay I know, it's a long winded question or statement, but.
Is that reasonable.
Yes, Kartik ill take this and this is Tony we share that typically after the end of the fiscal year. We review the dividend, which obviously is right now. So we're pleased that the board has continued to support the dividend at the prior rate of 26 cents per share.
You may recall that we raised the dividend for prior years in a row. So really pleased with the increase over that period I think we are up over 30% over that four year period. So the fact that obviously with revenue being down two and given the shift from Q4, Q1, and EBITDA being down we're really pleased and were able to maintain a given at the current rate obviously net.
Last year.
We're looking towards a favorable year with the kind of the double dip of tax season happening in Q1, and then we will continue to review the dividend after each fiscal year, which would be this time next year.
Hey, Thank you appreciate Italian Jeff.
Sorry, Thanks art.
Thank you. Our next question comes from one line of George Tong from Goldman Sachs. Your question. Please.
Hi, Thanks, good afternoon.
Based on your marketing outreach to customers do you have insights into how many traditionally assisted customers of HR block of files or returns digitally already either through HR block or through a competitor.
So we definitely do research George trying to understand method and whether it was us or competitors and I think the thing that we learned in this study I mentioned earlier was.
People made some different choices this year as a result of the circumstances.
The overwhelming majority that people we spoke to told US that their stated intention for next year is to go back to what they are accustomed to doing.
And again I think when you just look at all the circumstances that were right for rapid migration to de Iwai This year.
And we haven't really seen that and again, we think it will moderate as the season closes out.
Just continues to reinforce our core belief that.
It's not about simplicity, it's about competence and people really having a preference for relationship are getting human health.
Even in our DIY business, we're very pleased to see that online assist in taps prove review have really shown meaningful growth. This year. So those are DIY filers, who at some point in the process decided they also wanted health and they either chose to get questions answered that.
To have a full review of their return.
So again, if we just take a step back consumers are telling us some made a different choices this year because they had to.
They expect to return to their prior method next year in large numbers and the capability. We're building to provide health no matter. The channel is a really important capability. We've been building in really came to light this season.
Got it that's helpful and then turning to the wave business indicated that revenue growth was approximately flat in April and May have can you talk about what your expectations are for wave growth longer term in light of the impairment that you took as your longer term view for wave changed and how're you.
Adjusting your investment spend given to evolving growth dynamics.
Absolutely the short answer is.
We we step backwards because of what's happened in the macro landscape with small businesses as their businesses were impacted obviously impacted waves ability to serve them.
But we have not changed our expectations on having bought a high growth company.
And importantly to say neither has wave.
As I worked closely with that team and their bench.
They are fully committed to growing fast like we used to and we're paying close attention to the recovery of small businesses in the market. We're talking actively with small business owners every day and we've seen a nice little change in June and you know, we're going to be trying to.
We do everything we can to get back to high growth rates in the near future.
Got it thank you.
Thanks George.
Thank you. Our next question comes from the line of handset, Missouri from Jefferies. Your question. Please.
Good evening. Thank you.
First question is just if you think the tax deadline or potentially be extended again just September.
And then just as part of that if you could just tie in work your cash burn looks like a rather defer liquidity I think you mentioned you have enough liquidity through fiscal 2021, you mentioned, a covenant waiver part, but we didnt catch sort of timing of how long that wherever last.
So I know you detailed would be appreciated thanks, absolutely Hamzah, let me take the first part and Tony will we'll tag team on here on the waiver but.
Theres been a lot of rumors flying as you've probably seen about the possibility of another extension and as recently as of this morning.
The the sentiment in Washington is that there will not be another extension.
And while obviously thats not our decision and we don't know Theres things, we don't know, but all of the commentary we get all the conversations we're having those with members in Congress incentive with Treasury with the IRS is the current sentiment is no more extension.
And specific to liquidity as I did say in my opening comments, we do believe we have enough liquidity to get us through to next tax season, which would be obviously January February 2021.
And the waiver was specific to April thirtyth. So, it's just that quarter end.
Have a debt to EBITDA ratio of at least on one three and half times and we did not achieve that given the level of EBITDA than we had in the trailing 12 month period, but as we continue to move forward, obviously picking up the Q1 results will be in which will be an improvement in EBITDA on a year over year basis.
It was really just onetime in nature will continue to monitor that as we view EBITDA on a historical basis, but again expect no issues on liquidity perspective going forward.
Got it. Thank you and my follow up question I'll turn it over is.
It looks like you're thinking you know your operating model both covert some most most companies are whether it be realistic footprint or any other dynamics is this different relative to.
What we're doing in regard to collect transformation and looking at your operating margin when you sort of first skim into H. and our block.
And then timing wise, one can investors hair back on.
Whatever changes you may have boasts over to the operating model. Thank you.
Absolutely the to answer your second when first on our September call, we'll talk obviously about how the quarter wrapped up in the season wrapped up and on our December recall, when we provide outlook on the future will be the time, we provide more context on how we're thinking about expenses our commitment to earnings in revenue growth.
Moving forward and really the result of all the strategic reviews that we're doing right now.
In many many ways cobot has accelerated our agenda as opposed to been something completely different.
We've been talking now for a couple of years about improving the quality in our offices competing aggressively in DIY why building virtual capabilities and having done those things going into the pandemic. It really helped us operate in a fundamentally different way and I think as we now.
Come out of the pandemic, we'll take a step back again and look at what have we done for tax pros what are we done for consumers in which of those do we want to accelerate even further moving forward.
Thank you.
Thanks on the.
Thank you. Our next question is a follow up to the line of Scott Schneeberger from Oppenheimer. Your question. Please.
Thanks, very much for taking my follow up.
Speaking of too.
Pretty straightforward.
First one is in his tunnel.
Qualitative Jeff what do you expect from.
Competitive behaviors store fronts.
Since a lot of caution and in your comments today.
Because you guys are clearly abiding by the rules do you think that in the assisted category.
There are others smaller and less visible that may be.
Have an edge because they they can be a little bit more flexible just curious any thoughts on that and then a follow up for Tony. Thanks.
Yes, absolutely and you know you know quite well that there are.
Quarter of a million independent locations in that zone.
So there are lots and lots of independent competitors, which we always compete against.
And in this case.
We think that we have a different obligation a different burden.
To have to follow the local orders that are being put in place that are different than if you are operating in an office building or if you're doing 20 or 30 or 50 returns how your kitchen table, where the that scrutiny just isn't a play.
And.
We take a lot of pride for protecting our people protecting our clients in operating in the safe required way.
But you have seen firsthand or you've heard from other retailers.
The local orders are very intense.
Change regularly and staying current on those just puts a burden on our ability to serve clients. The normal way that are used to being served that just isn't the same if you're one of these local independence.
Thanks appreciate that color and then an internally for you and.
The bank partnership I know it has been finalized yet so I'm not sure how much you can share.
Prior to that but add you've alluded to and internationally.
Our filing an improved economics.
Could you elaborate a little bit on what you might expect Justin give us a sense of the benefit there its model. Thanks.
Yes. Thanks, Scott as you said, we Havent signed a definitive agreement we've signed a letter of intent, which we announced several weeks ago. So we're pretty far along and we're now finalizing those details and hope to be signed a final agreement really really soon that agreement should be in place before next time.
Next season, so all of our product offerings for taxis and 21 will be with that new bank partner not a bank.
We're really excited to partner with as far as the economic side, all we're saying at this point as it will be savings.
Relative to what we're currently operating under but as far as the details were going to hold often and share those once we have the final agreement in place.
Okay fair enough thanks, guys.
Thanks, Thank you.
Thank you. Our next question comes on line of Jeff Silber from BMO capital markets. Your question. Please.
Thank you so much wanted to go back to results. So far on the tax side I know, there's a lot of moving parts with the IRS data, but but I'm just curious for this past season do you think you'll be gaining or losing share in both DIY an assistant if you could talk about those separately that'll be great.
Yes, so through early June our DIY share has remained relatively flat.
And we're competing aggressively with value prop in the strategy that we've been doing in.
Our goal is to gain share and that's that's what we're trying to do but we've seen it be relatively flat through June.
In assisted as I mentioned, it's really kind of into a tale of two seasons.
Early in the season, we feel great about our progress.
Through the end of April we had some share gains.
But we have started to see those moderate and just kind of building on what I was sharing with Scott earlier, explaining why we're being cautious about that.
I would just reiterate what I also shared earlier in terms of the approach, we're taking to retain and bring forward. Prior clients. We know haven't filed and abroad marketing that we're putting in the markets and make sure that people know that were open and that they have various options to do business with us. So those are steps, we're taking too.
To mitigate the caution given the operating model.
Okay, and I don't think you talked at all about net average target can you talk about what happened in the quarter or what you're seeing from a competitive perspective are there any pricing changes going on there. Thanks.
Yeah, Thanks specific to the assisted business.
Just to recall this is the second year of our upfront transparent pricing model.
We went into the year expecting that average charge should be relatively flat compared to the prior year.
The results for the fiscal year are down slightly which you'll see and our full filings of our 10-K, which which is will be filed imminently.
Part of that is just due to a shift of clients from Q4 ended Q1, and some of the mix impacts from that but nothing that's that's significant or material I don't think we're seeing anything from a competitive perspective that unique or different obviously, when you're dealing with the independent market, there's always a way.
Side variation of how independence or pricing, but theres nothing thats been a holistic change our response to our pricing model that I would call to note everything's pretty much as we would expect and we still feel good about the model and as Jeff said.
The early part of the tax season, we were gaining really good traction and continue to do well, but definitely moderated in this and this later part of the season.
But we feel like we're putting some really good things in places can allow us to tas excess and gain market share in the future.
And I'm, sorry, when will the 10-K profile.
Thank God today.
Today, Okay, we'll get that information today, okay, great. Thank you so much.
Thank you. Our next question comes on line, a Michael Millman from Millman Research Associates. Your question. Please thank you.
Miss.
I heard you.
When you talked about.
We do it yourself.
And subtracting the stimulus, but the IRS numbers as far as I know.
Already subtracted those numbers.
And they still come up with 7% increase.
What am I doing wrong.
Well Michael in fact, the IRS numbers have not subtracted those out yet and the IRS has not published the actual number of those kinda not required to file filers.
So the number that's being reported by the IRS still includes.
As someone said earlier about 6 million filers that haven't yet been backed out.
So you're correct.
Current total returns is lot for.
Yes.
Based so through June five.
Total.
Down 6%.
Actual numbers please.
Yes, I don't know Michael if we have the numbers off if we can definitely follow up I mean, its public information is out there if you back out what we believe our this stimulus returns. We believe IRS returns are down about 10% through June fan.
Which is a combination of assisted and DIY with assisted being down 15.
And DIY being down about four.
But we don't have the exact counts we can follow up on as we've got those who don't have met our at our fingertips, Okay. The interested in.
Seeing those numbers and.
Over the years doesn't seem that.
Hi shifts back.
The average getting changing status.
Why do you think.
And next year in particularly 22, maybe we should talk about.
We shift back shifting back.
Yes, so I'll try to to be more clear on kind of what we're seeing in maybe expectations for next year.
My comment about this year was.
Season to date, we're seeing a shift of just under 300 basis points.
And we expect that will be less by the time, we get to July 15.
Year over year over year, we see that GAAP moderate as we get toward the end to tax season.
So that's how we kind of view this year, finishing.
And part of what we've been reflecting on is.
Theres been a lot of belief that in year two of tax reform.
There would be a much faster migration to DIY.
And then when you combine year two of tax reform with all of the conditions people not being able to leave home office is closed or not operating normally et cetera.
One could have expected that migration to be much higher at this point, the 300 basis points, but we're not seeing that happen.
Saying in terms of what people are telling US is they may have moved the DIY. This year because they had no choice.
But their preference is to do their old method and thats, what they're saying about next year. So two different points that we're trying to make.
Okay, great. Thank you.
Thanks, Michael.
Thank you. This does conclude be question and answer session of today's program I'd like to hand, the program back to Colby Brown for any further remarks.
Thanks, everyone for joining us this concludes todays call.
Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program you may now disconnect good day.
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