Q1 2021 H & R Block Inc Earnings Call
[music].
Ladies and gentlemen, thank you for standing by and welcome to the HR block first quarter fiscal 2021 earnings call at this.
Time, all participants Saudi listen only mode.
After the speaker presentation, there will be a question and answer session to ask a question. During the session you will need to press star one on your telephone. Please be advised that todays conference maybe recorded if you require any further assistance. Please press star zero I would now like to hand, the conference over to your hosts Vice President Finance and.
Once Colby Brown, Sir please go ahead.
Thank you good afternoon, everyone and thank you for joining us to discuss our first quarter fiscal 2021 results on the call today, our Jeff Jones, our president and CEO, Tony Vaughn our CFO.
We posted today's press release on the Investor Relations website at HR block Dot Com also on the website you will find a link for the webcast continuing 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 laws such statements are based on current information and management expectations as of this date and are not guarantees of future performance forward looking statements involve certain risks uncertainties assumptions that are difficult to predict as.
Such 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 SEC filings HR block undertakes no obligations to publicly update these risk factors or forward looking statements.
At the conclusion of our prepared remarks, we'll have it una session. During today, 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 John.
Thank you Colby good afternoon, everyone and thanks for joining us.
When we last talked we were in the middle of what was the most unique tax season in history.
The pandemic resulted in the first ever extension or the filing deadline in changes to nearly every aspect of our operating model.
Throughout the season, our teams demonstrated agility and resilience, we adapted to an ever changing environment.
And we delivered for our clients when they needed us the most.
The result was a strong finish growing revenue, 300% in the quarter in serving more client than last tax season.
We've also made progress in other areas of our business.
Our results that wave has steadily improved as they have returned to double digit percentage revenue growth. Following the initial disruption caused by the end Devin.
After the close of the quarter. We also successfully issued long term debt and signed an important agreement with meadowbank to be the provider of our suite of financial products.
These developments have resulted in a great start to our fiscal year as we continue to build positive momentum into business.
With that backdrop, Theres, obviously, a lot of ground to cover on todays call.
First I will talk about the recently completed tax season, providing perspectives on both our performance in the overall industry.
Then I'll give some thoughts on the progress, we're making on our strategic roadmap.
Tony will then discuss our Q1 results in share high level thoughts on the balance of fiscal 21.
He'll also provide an update on our capital structure, including details on our recently completed debt offering and we'll talk about our agreement with Mehta.
I'd like to start with the tax season.
The majority of the season took place will the country was dealing with the pandemic.
We navigated the various state and local orders in took steps to promote the safety and well being of our associates in clients.
A significant number of our offices were closed and those that were moved to a drop off model with limited in person interaction with our clients.
The reality is that for mid March through the end of the season. There has been no such thing as business as usual in any of our offices.
This was especially true during the may through July timeframe with around half of our offices closed and those that were open subject to various local orders.
And while this time has been challenging we've looked at it as an opportunity to demonstrate our commitment to our clients and community.
Additionally, we accelerated our efforts to transform our tax business as we innovate to deliver expertise to consumers in new and exciting ways.
It capabilities, we've built to enable clients digitally drop off the reforms.
Interact with tax pros virtually.
To review the returns online and sign in pay remotely provide them with the expertise. They wanted when they weren't comfortable within person service or when our offices were closed.
And these innovations helped us engage with our DIY clients in new ways.
Bringing our expertise the life within our software offering.
In total our digitally enabled returns grew over 150%.
It's clear that consumers are taking notice of how the expanded HR block platform is bringing digital capabilities to those who want assistance and on demand human help to those who prefer to use software to file.
Turning to category results I'll start with our assisted business.
We had a strong start to the tax season, as we were tracking to our goals of improving our client trajectory and holding market share.
Because of the impact of the pandemic and the changes we made to our operating model, we anticipated a decline in volume as well as the loss of market share.
Our results however were strong as we finished with a small share loss.
This is attributable to the agility and resilience of our associates tax grows and franchisees that I mentioned earlier as well was that digital efforts I just discussed.
In DIY why we also finished strong.
Online growth was 10.6%, which led the total DIY return growth of 8% as we held share in the category when excluding stimulus returns.
Our product continues to evolve and when accolades from third party.
And our clients love the experience as well as net promoter scores improved again following a significant increase in the previous season.
We're also seeing this in our retention rates, which improved over two points.
Our strategy and DIY is working.
We're pricing competitively, providing tremendous value and people are taking notice as we continue to drive awareness.
Turning to the industry, it's important to consider two key factors when reviewing the data.
First there were millions of people, who file tax returns solely for the purpose of receiving stimulus payments.
We believe there are between 7 million to 8 million returns with a one dollar of income and are being tracked as stimulus filers.
However, there are likely more in filed solely for the purpose of receiving a stimulus payment, but reported additional income making the exact number of stimulus filers unknown.
The second factor to consider is paper filings, which fluctuated significantly during the last few weeks of the season, making that key piece of the puzzle unreliable.
Regardless of these two variables there were a couple of significant learnings from this season.
The first is that the industry itself is strong.
The tax refund, which is typically the largest financial transaction for most Americans each year became even more important to people as they were adversely impacted by the end demand.
And second the assisted category is resilient.
Given the various stay at home orders mandates for business to close and the general fear of physical interaction caused by the virus. Many expected a dramatic decline in assisted filings.
Instead, we sold just a 40 basis point decline in assisted files.
In a moderate change in mix between assisted and DIY when excluding the estimated number of onetime spaniel its filings.
In fact during the pandemic from mid March through mid July assisted filings actually increased 50 basis points, which is telling considering the circumstances.
With this tax season behind us I'd like to look ahead and provide some thoughts on our strategy.
As I mentioned earlier the work of digitally enabling our business was a key enabler of our success this year.
In other words the investments, we made allowed us to adjust or operating model, while still providing expertise in service our clients expect.
And these capabilities will continue to benefit us in the future.
Looking ahead, our strategy is evolving and we'll go beyond the digital efforts, we've undertaken in our tax business.
We continue to evaluate in Reprioritize, our strategic imperatives.
And examine our cost structure as we remain focused on growing volume revenue and earnings over time.
When we speak in December we will have more to share in addition to providing our outlook for fiscal 21.
With that I'll now turn the call over to Tony.
Thanks, Jeff Good afternoon, everyone.
The strong finish to the tax season, our fiscal year is off to a great start.
Today I'll share our results for the quarter thoughts on the remainder of fiscal 21, an update on our capital structure and finally, some color around our recent agreement with Meadowbank.
Due to our seasonality, we typically report lower revenues and a net loss during our first quarter.
This quarter's results however, improved due to the significant tax return volume during the month of May June and July.
Before jumping into the financials that'd be helpful to provide some context on our volume and net average charge performance, which we report in late July as well as an update on way.
And tax we posted overall volume growth in the us for the third consecutive year with at 3.3% increasing returns.
This was led by continued strengthen our DIY business with a 10.6% increase in online filings.
In assisted given that we had approximately half of our total network open and those offices were operating and our modified model. We expected a decline in return volume and a loss of market share.
Our finish to the tax season was strong however, resulting in a decline returns of just 2.8% and a small share loss.
Regarding pricing our net average charge in DIY declined due to mix as well as our decision to keep our free state filing promotion through the end of the tax season.
In assisted we targeted flatten that flat net average charge coming into the year.
What we saw a slight decrease due to mix in our company offices, partially offset by improved pricing in our franchise network.
Turning to waive during last quarter's call, we talked about the impact as a pandemic has had on small businesses and consequently wage growth trajectory.
Following a couple of months a flat year over year revenue.
Im pleased to report that we've seen progressively better results in the subsequent months.
Resulting in year over year growth of nearly 20% during the quarter.
Considering the circumstances. This was a tremendous outcome and a positive sign that weighs innovative platform continue to provide value to small business owners.
The increase in tax filing volume and ways contribution resulted in revenue of $601 million in the fiscal first quarter.
An increase of $451 million or 300% compared to the prior year.
This improvement in revenue resulted in higher variable operating expenses, primarily in tax pro compensation in credit card transaction fees.
While we anticipated this increase it was lower than expected as we manage labor more efficiently.
In addition to the variable expenses, we spent more and more and marketing due to tax season extension.
These increases were partially offset by other expense reductions, resulting in an overall increase in operating expenses at just 30% to $448 million.
Interest expense increased $11 million as a result of our line of credit being fully drawn which I'll discuss later.
The net result of revenues increasing at a greater rate than expenses was pre tax income from continuing operations of $124 million.
Compared to last year's pre tax loss of $207 million, which is typical for our fiscal first quarter.
GAAP earnings per share improved to 48 cents compared to a prior year loss of 72 cents.
While non-GAAP EPS improved to 55 cents compared to a loss of 66 cents.
In discontinued operations. There were no changes are accrued contingent liabilities related to sand canyon during the quarter.
For additional information on and Canyon. Please refer to disclosures in the company's reports on forms 10-K, and 10-Q and other SEC filings.
With that recap of the quarter, let me provide some perspective on our expectations for fiscal 21.
Before doing so please note that our expectations assume next tax season is completed by the normal filing deadline of mid April.
Overall, we expect to see a significant increase in revenue and cash flow. This fiscal year, not just compared to fiscal 20, but also in comparison to a typical year.
This is due to both the carryover tax season 20 into our first quarter and our expectation for a normal taxis and 21.
In addition to achieving these increases were also focused on driving cost efficiencies in order to fund our growth imperatives.
These reductions, including hiring freeze the elimination of merit increases examining vendor spend renegotiating rent across our retail footprint and limiting capital expenditures.
So hopefully that provides helpful context, we will provide more details during our Q2 call in December.
I'll now turn to capital allocation in the balance sheet.
Despite the unique circumstances related a pandemic our capital allocation priorities remain the same.
At the top list is maintaining adequate liquidity for operational needs.
We then look to make strategic investments back into the business to drive growth.
Finally, we returned excess capital to shareholders through dividends and opportunistic share repurchases.
Given our priorities are unchanged or for specific areas I'd like to provide additional clarity on given recent events.
Our line of credit the recent issuance of long term debt, our dividend and future share repurchases.
Let's start with our line of credit.
At the onset of the pandemic, we drew down the full balance has aligned to maximize our liquidity given the uncertainty.
The draw had a six month interest lock, which matures this month.
Given the strong finish to the tax season, we had a cash position of $2.6 billion at the ended the quarter.
And as such and tend to pay down the full balance of the draw later this month.
We anticipate returning to our normal cycle of seasonal borrowings on our line of credit later this calendar year as we head into the upcoming tax season.
In addition, given the strength of our financial performance in the first quarter, we met our debt covenants and currently expect to be Incompliance going forward.
Turning to our recent debt offering im pleased with our successful issuance of $650 million of 10 year notes at a coupon of 3.875%.
We intend to use the proceeds of these notes to retire existing debt that matures in October.
This was a positive result for us as we're replacing five year notes with 10 year notes at a lower interest rate.
It's also assigned and investors have confidence and our future.
Moving on to our dividend we've continued our streak of paying quarterly dividends consecutively since going public nearly six years ago.
As we've shared in the past, we evaluate our dividend after each fiscal year, which we did in June.
This review, resulting in us maintaining the dividend at its current level.
To be abundantly clear, we have no plans to change our dividend payout level for the balance of this fiscal year.
Our next devaluation of the dividend will be in June of next year, and while we cannot guarantee future dividend payments or at the level of dividend would be at that time, we do have a goal of increasing the dividend over the long term as evidenced by the 30% increase over the past five years.
Finally, turning to share repurchases, we have decided to resume our practice of repurchasing shares to offset dilution from equity grants.
Consistent with prior practice, we will not discuss potential additional share repurchases other than mentioning it would be done opportunistically.
The last thing I'd like to discuss today as the agreement we reached at Meadowbank to be the provider of our financial products, including refund transfer refund advance and will advance animal card.
Meadowbank as a leader in providing financial solutions to consumers and significant experience in the tax preparation industry.
We've worked with met in the past and know them to be an excellent partner.
Both of our teams are hard at work to make the transition as seamless as possible for our clients.
From a financial perspective, we expect this agreement to result in savings of $25 million to $30 million on a run rate basis.
So that number will be approximately 10 million lower in fiscal 21, as we are transitioning midyear and we'll incur some one time expenses.
In summary, we are off to a great start this fiscal year.
Recently had a successful debt issuance and are excited to be partner with matter for years to come on.
Im looking forward to sharing more Ricky regarding our expectations for the fiscal year in December.
With that I'll now turn the call back over to Jeff. Thanks, Tony.
Before concluding I'd like to thank our associates franchisees and tax gross for the agility and resilience have demonstrated over the past several months.
They truly make HR block of special place and or why we were able to accomplished so much during such a difficult time.
We're now focusing on the future and I'm looking forward to sharing an update with you in December.
With that we'll open the line for questions operator.
As a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound key again that star wanting your touched on telephone to ask a question. Please standby, while we compile the QNX roster.
Our first question come from a line of Kartik Mehta of Northcoast research.
Your question please.
Hi, Jeff and Tony did figures, Tony maybe to just to start off with your thoughts on margins as we go forward I know flight 20 was up high gear, but if you can look at 519 as a base year.
As we move forward and get to more of a normal tax season.
What do you anticipate for EBITDA margin.
Yeah. Thanks, Kartik, we're not going to provide a long term outlook today, but obviously as we grow the business both on the topline and then grow EBITDA. Obviously, we would expect EBITDA margin to grow with it and Thats really what we're focused on both starting this year in and into future is not investing where we need to invest to continue to grow.
And then as we go to the topline that net resulting in improvement on the margin as well we've talked about how we're now has specific goal of getting EBITDA margin to a specific number over the next several years that it's more in growing that top line, which will eventually grow the bottom line as well.
And Jeff I know this question you could probably take an hour to answer so I apologize for it but maybe if you could just give some highlights as.
As you see more of the business migrate from traditional all face to face differential what kind of benefit to could that have for HR block.
Yes, kartik, thanks, and we could spend a lot of time, but.
I think the first thing I would say is we're obviously building a kind of platform of capabilities that means a lot of different things right. It means everything from digital up load of your docs a proven payonline.
Good health as the DIY filer upload with mobile and led us to do all the work for you. So there is really an array of products. Obviously the number one benefit is to the customer and continuing to make this experience as easy in personal lines as possible.
From our perspective, we're building these capabilities really ahead of consumer demand, we're seeing high growth rates, but still a relatively low base, but we're getting great feedback from clients about the products, we're attracting new younger clients to the brand those are all positive.
On the operating side note when we look into the future. This this is not a 21 thing that it's in the future.
The more that we're able to serve clients.
Virtually in whatever way that means.
It means we have an opportunity to look closer at efficiency in both our utilization of our of our experts and that the physical footprint and you know over the next several years that has potential to be real benefit to us. While we're also driving value for the customer.
Thank you very much I appreciate it.
Didier funding.
Thank you. Our next question comes on the line of Jeff Goldstein of Morgan Stanley. Your question. Please.
Hey, guys, just just thinking about the assistant trajectory going forward, maybe just help us with what type of recovery you're expecting from here. So I mean, you're expecting returning to 2019 volumes or maybe it's maybe returns at some place in between 2019, 2020, and I know you're not providing any specific numbers, but.
In broad strokes, how should we think about the pace of covering from here on the assistant side given co heads seems to at least this year seems to have altering the path forward on that as well.
Yes. Thanks. Thanks for the question, obviously, a few different pieces there let me let me to start with no. This is the second year of making real changes to our assisted business on the price value relationship the quality of execution digitizing. The way we can serve customers and you know you may remember.
That in mid March when we had our call.
We were on track to deliver our year, which met holding share in the category, which was a real improvement year over year in the assisted business, obviously that that got derailed a bit but nevertheless, we're very pleased with how we ended the year.
What we're doing now is really trying to develop multiple different scenarios given potential variables in the industry.
But in starting with you know a large large number of filers that were IP only.
When you remove those from the mix.
And you start looking at unemployment rates for next year.
How long it how rich the state and fed unemployment benefits remain.
What the operating environment looks like in next tax season, that's obviously a variable that could go different ways.
When you net all of that we're expecting the industry to be flat to down slightly next year.
Our goal remains to grow the business to grow assisted clients and we think we're on a nice trajectory to do that there are many variables obviously that are weighing on next year.
And that's how we're thinking about the industry overall in the scenarios that we have to develop and again when we're in the in December we'll be providing our exact outlook on the year.
Okay. Those are great and I think as one is for Tony interest looked like you've got a lot of leverage on your field wages line item relative to your overall revenue growth. This quarter. So were there any added efficient in there that can be more permanent in nature, just what was really driving that leverage.
Yes, I mean, obviously was a challenging environment to try to think about how we were going to staff offices, given really the unprecedented no history to really guidance, but.
We went into the quarter expecting a certain efficiency level, we did a lot better than what we even thought part of that was volume related on the assisted side, where we just had more returns and more clients that we served.
Which was a good paying we also saw really nice management, a labor model buyer field staff, where is having the right tax pros and the write offs is at the right times, all drove that efficiency, but the way that we have our compensation model work during the Q1 period as a little bit given and how it typically works during tax season, just some of the changes we had to implement.
To get cash professionals to work during this extended period. So theres. Some learnings we think we can take out from that no kind of immediate changes that we're making but there's definitely a lot to we learned genetic ended period from an efficiency perspective that we can think about going forward.
All right thanks for the color.
Thank you.
Thank you. Our next question comes from the line of Amazon Mazari of Jefferies. Your line is open.
Hey, good Hey, good afternoon, just just a question on our digital.
Again, I think or digital market share correct me if I'm wrong third is maybe 15 or so percent and I think has historically you've talked about getting to 20% who could you maybe talk about our deals view their timeline that get to 20% if thats the right number.
Our as accelerator because of Goldberg.
And any kind of hurdles that you see in getting to that is it more brand awareness or.
Is there sort of additional features pricing just any thoughts us through.
Gaming more critical mass and digital and what you need to do there and obviously this was a very good here for you.
Yes. Thanks. This is Jeff I'll kick it off and Tony can chime in if you ones, but I think by digital you're referring to our DIY business, Yes, and we're currently you know in 14, 15% market share related to my knowledge on the since I've been here, we've not provided any outlook to get to 20% market share.
I don't know in the prior years, there could have been something you're remembering.
Make no mistake I mean, our strategy in DIY remains three very clear things.
Number one is just the continued evolution improvement in our product I feel great about our product today, and we're getting the kind of third party accolades as well.
Pricing is an area, where we're looking very closely at our pricing strategy, what we've been doing.
Meaning in the last couple of years is maintaining a price advantage to the to the category leader and being very dynamic in terms of how we think about pricing.
The reality is they are taking large price increases every year and so we'll be looking carefully at our pricing strategy as we move forward more to come there.
And third is telling the story.
We continue to build awareness, we continue to build a retention and customer satisfaction. So we are in this business to compete and I feel very good about the progress within making.
Got it does vary very helpful. Then just my follow up question.
I'll turn it over is is there still an opportunity to be buying back franchisees I know with Goldberg.
You know things May have changed obviously, we've talked about liquidity and the balance sheet and Tony touched on that but just any updated view on.
Franchisee buying back strategy. Thank you.
Yes, absolutely. Thanks for the questions. So this year, we did buyback more this year than the prior year call. It around a couple of hundred which is been right in the zone of our five year average and the way I think about franchise buybacks moving forward is there's really two different categories.
Where where I believe we'll continue to look one is those franchisees that for various reasons.
Decide they want to exit.
We can buy them at the right multiple and we're a good acquirer so that will remain a category.
Another category is what I would just call cleaning up the footprint from how we've expanded historically in a good example of this is what we call.
Spot franchisee.
Further back in history, there were much more defined geographic boundaries between the company offices and franchise offices over many years that line got blurred to the point, where we might have a franchisee in urban area.
Possibly down the street from accompany location.
And that doesn't make sense to the franchisee and that's an opportunity where we can clean up the footprint and Thats a second category that we will definitely continue to look at.
Got it thank you.
Thank you.
Thank you. Our next question comes from Scott Schneeberger of Oppenheimer. Your line is open.
Thanks, very much good afternoon.
My first question kind of a follow up on that Jeff you, you kind of foreshadowed potentially some sort of pricing in DIY in the coming year.
Yeah, why was down 8.5% this year and I think Tony call about predominantly that would have been you keeping.
Federal free and state Freon, all year, which you Didnt do last year.
So I guess it did the question is kind of a two pronged.
Assuming that was the primary driver was it was it everything or where they are so was there some mixed in there just a little bit more granularity on what occurred this year on pricing and then the follow up is.
Jeff just say to squeeze out a little bit more of year of your hint there how should we think about as we as we work our models. Maybe your approach next year I think were can be confident in your volume growth in digital how should we think about pricing. Thanks.
Yes, you got it let me let me start again, Tony will jump in but a lot of different pieces. There on DIY pricing. You know you may recall, we got off to a bit of a slow start in the season, we had some impact on ourself that impacted NAC in the early part of the season.
We made that change and we caught up and then we made a strategic change to your point on state.
As a way to compete and grow volume.
And so those were things it this year impacted indefinitely some mix in there as well.
Moving forward and again I don't want to get too far ahead of myself, but I believe we're at a place now where our product is very competitive.
So we have to be looking for ways that we continue to grow and pricing could be one of those levers.
If we're not getting enough credit from the consumer for the price advantage then were strategically can we take price and be very transparent about it that's something that super important or overall positioning is price transparency.
You May you may know today that.
Yes could AFFO consumer is in our flow and for any reason is the price changes on them, we call that price preview, we expose it to the client. So we want that did not feel like a bait and switch like it might and others and be very very straightforward, how we think about price, but more to come on fiscal 21.
Hi, Thanks on that.
And then I guess shifting gears, a little bit for my follow up.
I guess, if what are you could kind of speak for the board here I'm curious.
Mid August every year for the last few years, you've increased the dividend.
This year you chose not to.
It is a very good dividend no doubt and Tony mentioned on the call Hey, where we're still a dividend growth company, but he also said we don't plan to grow it this year, so that decisions kind of been made.
The question is why Im curious why why not be increase this year on on still solid cash flow.
Yes, well I, obviously cant speak for the board, but just to reiterate some things that we've talked about one is this company is committed to a dividend.
You know as we've mentioned we look at it once a year the board makes that decision once a year and.
And I think this year as we've looked at capital strategy in general It was a year to be conservative make sure that we were doing the right things to protect liquidity as a business. We did that we came out of that successfully.
In the board will evaluate.
If we're what kind increase we take again in June when we review the policy again, but.
I think as Tony mentioned, 30% increase in the dividend over the last five years. So it's definitely a accompany thats oriented toward returning capital to shareholders in.
Creating value through the dividend as well.
Okay. Thanks, very much thanks Scott.
Thank you. Our next question comes from Michael Millman of Miller Millman Research. Your line is open. Thank you.
Hi, too.
Follow up on just talking about.
Okay, Taiwan, the high why pricing and was wondering how once I assume it launched and assuming.
Added to it.
Completes its purchase.
Credit Palmer.
I'm guessing that they're going to be pushing.
Price significantly downward.
And audit to get to as a business, where separately view and do it yourself and secondly on assisted.
Assuming that you are able to grow some odd but it does look like the industry decline somewhat.
Please view.
With absolute growth, so where does assisted CFO.
And going forward.
Thank you.
Well thanks, Michael There is couple of different questions. The first on DIY pricing.
You know, it's hard to speculate on what they may do if that deal closes in what pressure it could put on the on the industry. The way that we think about it is first of all we remain committed to free.
We have a very successful can meet a free product today, our commercial free product that for example.
College students can file for free at HR block they can't.
Add into it people with unemployment income could file for free of block not there.
So we'll always compete with free we think it's an important entry point into the category with an opportunity over time for them to buy other services like live help as a great example.
Absolute product pricing.
We have maintained the price advantage for a number of years and in part that was because of a belief that our product needed to significantly improve so the customer didnt feel like they were making a downgrade or a bad choice and were there.
So with a great product, we feel like we can start thinking about price as a lever more than maybe we have in recent past.
On the assisted question.
Again, a couple pieces to what you're asking but first of all.
This every year there as a another new reason why this is going to be the year that assisted has a major decline.
This year it was going to be the second year of TC Jay and then obviously the pandemic on top of that added another underwear and I think what we continue to see in believe year over year is the fundamental truth that people need assistance and want to help with their taxes.
So the business shifted a little bit this year, but in the context of being told the stay home and people unsafe to go out in physical distancing and all those things we feel like the industry prove that it's quite strong and resilient.
So that means for us, it's an industry worth continuing to invest to compete in.
And again when I look back over the last couple years, the significant improvements were making in you know customer satisfaction value for price paid.
The trajectory that we've been on year over year improvements in volume this year pre pandemic getting back to holding share those are all meaningful changes in our business in meaningful changes in the results and we'll continue to stay on that path.
Digital capabilities unlock something entirely different in its important to remember that digital does not mean VI why.
Digital means things like I can upload might docs, while someone does the work or I can drop them off at an office, but approve online payonline.
Those are ways, we make the experience easier for the customer and those ideas have no impact on NAC, because the consumers still pays the assisted price.
So we come out of this year very excited about where we're headed and very pleased with the results that we drove.
So so you would think in three years.
Assisted should be you should increase here earnings from assisted.
So that domestic.
Mike.
So I think them. So a couple of messages. One is I think the definition of assistance, we'll continue to evolve.
That attacks pro may sign or return, but it will always because a client set for an hour in a physical office with a tax pro.
That were unlocking capabilities to get human help that's changing the definition of what the old assisted model used to look like.
And when we do that we're able to attract people because of the ease in expertise that we're known for.
And our goal remains to grow assisted clients and that hasn't changed.
Okay, great. Thank you very much. Thanks you.
Thank you. Our next question Gunflint alignment George Tong of Goldman Sachs. Your question. Please.
Hi, Thanks, good afternoon.
So HR blocks net average charge declined 1% in assisted in the 2020 tax season can you talk about how you plan to approach pricing in assisted next year I think you touched on digital DIY, perhaps flush out a little bit around your strategy within assistant.
Yes, Thanks, George this is Tony.
So.
You recall this is a second year of upfront transparent pricing, where we took a hard look and essentially change our entire pricing model Manchester business two years ago.
And at that time lower price for several million dollars of our customers going into this year, we expected our net average charged to essentially be flat.
Each year for the last couple of years, we've continued to make tweaks to the model we hear feedback from customers. We hear feedback from tax professionals, we make slight tweaks to that model at the same time, we obviously serve.
Several new clients we also.
Theres, a few clients and leave us so the mix shift is always kind of plus or minus a zone of 1%. If you will so it was basically in that zone. There was no overall trends that were up to note.
It's just more of a rounding error on the mix shift going forward.
Now that we've kind of stabilized and where we are on price perspective, we've had really good feedback from customers on the price for value question, specifically masking. Our survey we feel really good about the price of we're charging for the value we are delivering and as we've shared in the past we do expect to return to modest price increases in the future, we're not saying today.
And Thats necessarily next tax season, but over the next several years, we do believe that we can take modest price increases as inflation continues to have commented a pan out when we can offset that.
Got it that's helpful and the follow up on an earlier point that was made up indicated that you expect the industry to be flat to slightly down next year I just wanted to confirm that this was specifically for assisted and perhaps you could talk about what your expectations are for digital DIY volume growth into 2021 testing.
Yeah, Jeff Jeff talked about this in his remarks, and then on a couple of questions I mean, theres a lot of moving parts going into next year.
The assisted category.
In India and the overall when we started the overall industry will definitely be impacted by how many ERP returns are in the base that will roll off.
Thats going to be a pretty significant negative for the overall industry numbers. We believe there's seven 8 million that we're kind of be official E. IP and then there were several returns that are on top of that net were filed as part of the tax preparation process at weren't necessarily track by the IRS, you're also going to have unemploy.
Payment, which we would typically think about one way, but given the significant benefits that are being paid out or people that are unemployed that could actually caused people to may be file maybe otherwise wouldn't file so that may actually be and in some ways that a tailwind.
Not just a headwind.
Obviously does the migration between assisted and DIY or from DIY back to assisted in year two at a pandemic for individuals that may be a switch thinking they want to switch back to assist said now that that stay at homeowners and other things may have lifted and then the overall overhang of the pandemics still being around.
Theres a lot of lot of moving parts and Weve ran multiple scenarios and thinking about how this could impact the assisted business and DIY business and thinking about being prepared for all those scenarios. What Jeff was alluding to is if you set the IP returns aside the seven 8 million plus we think the overall industry is going to be flat.
Slightly down and we've got several scenarios showing you know assisted and DIY kind of being in that zone, depending on what you believe and each of the different variables. So.
It's hard to predict each of those specifically, there's a lot of moving parts will continue to update you guys as we learn more and.
Thats, probably all we can say at this point.
Got it very helpful. Thank you.
Thanks George.
Thank you. Our next question comes from Henry Chan I'll be ammo your question. Please.
Hey, good afternoon.
Yes, I wanted to add.
Hi level as it.
Related to some of the other questions. What what are you looking for the next tax season.
Just added there.
Any sense of blurring between assisted and digital or and that needs to be the the strategy I guess, what is sort of here I will focus is is it growing volumes.
And how do you expect that kind of the shift between.
I guess, how should we think about it.
Because the lines of Lorraine.
And I'd like to that kind of theater and is.
Pilar would there be.
In the digital side.
Yeah, just kind of like high level goals and to kind of frame, how you're approaching next years.
Thanks.
Absolutely again, we'll tag team a little bit but.
At the highest level it remains our focus on growing volume.
Growing revenue and growing earnings mean that that has not changed in any in any quarter I think.
What is definitely changing is the definitions of what these two historical businesses have been.
And when you say digital it used to mean DIY why and we continue to find ways to make getting help easier for people put tax flows are still doing the work. So that still makes it an assisted return it just overtime is looking less and less like in our waiting in the physical office.
Every time.
Other we can obviously still very focused on restoring waves growth back to where they were we're seeing nice recovery in the business, we're seeing a nice not change and how they're thinking about customer acquisition.
Wave money is off to a really strong start.
And that fit nicely into our overall belief that there is opportunity for HR block in small business generally.
Which is something we'll talk to you more about in December so.
Number of things that continue to improve and grow the core consumer tax business. While we also think about growing businesses were already in like small business lightwave Unlike financial products.
Yeah got it Okay, and then just as a follow up and and so when you think about growth.
Either and consumer products that are on wave.
Okay.
How much of that or I guess, how much of that strategy is dependent on on taking share.
Or is it.
Or is there like a specific segment that that Delaware might be.
Better suited to.
Yeah, Great Great question, and obviously each of those businesses I mentioned has a slightly different dynamic obviously in the consumer tax business.
Given it to define number of filers generally every year, maybe becoming one as an exception.
That is about taking share whether that's in pure DIY why we're assisted we have obviously, a very known set of competitors in DIY why a much broader set of independent competitors and assisted.
But there we have to have great quality, the right price value and continue to make it easier.
In waves business for example, they are.
Laser like focused on that small business year to nine employees that is currently not using any product.
It's much like the DIY tax business would have been years ago, where those small businesses are using.
Pencil paper spreadsheet shoe box and wave as a core free accounting product has a low cost of entry to get them off the sidelines.
So each business is a little bit different as we think about moving more into small businesses.
Those are other examples where there's more industry tailwinds and headwinds in we know from the customer that the agent or block brand building on the 2 million small business clients. We serve today has a great right to win so more to come in December but each business has a slightly different dynamic.
Got it okay. Thanks, thanks, so much yeah. Thanks, Andy.
Thank you at this time I'd like to turn the call back over to Colby Brown for closing remarks, Sir.
Thank you, let heath and thanks, everyone for joining this concludes todays call.
Thank you. This concludes the conference call. Thank you for participating you may now disconnect.
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