Q3 2024 H&R Block Inc Earnings Call
Thank you for standing by and welcome to H&R Block's third quarter fiscal year 'twenty 'twenty four earnings conference call. At this time all participants are in a listen only mode. After the speaker presentation, there will be a question and answer.
Speaker Change: Session to ask a question during the session you will need to press star one one on your telephone to remove yourself from the queue. You May Press Star one again I would now like to hand, the call over to mechanic Galena Vice President Investor Relations. Please go ahead.
Galena: Thank you Latif and good afternoon every one and welcome to H&R block third quarter of fiscal year 'twenty 'twenty four financial results Conference call. Joining me today are Jeff Jones, our President and Chief Executive Officer, and Tony Bowen, Our Chief Financial Officer.
Michaella Gallina: Earlier today, we issued a press release and presentation, which can be downloaded or be it live on our website at investors don't HR block Dot com, our call is being broadcast and webcast live and a replay of the webcast will be available for 90 days.
Michaella Gallina: Before we begin I'd like to remind listeners that comments made by management may include forward looking statements within the meaning of federal Securities laws.
Michaella Gallina: These statements involve material risks and uncertainties and actual results could differ from those projected in any forward looking statements due to numerous factors.
Speaker Change: For a description of these risks and uncertainties. Please see H&R Block's annual report on Form 10-K, and quarterly reports on Form 10-Q, and updated periodically with our other SEC filings.
Speaker Change: Please note some metrics we will discuss today are presented on a non-GAAP basis, we've reconciled the comparable GAAP and non-GAAP figures in the appendix of the presentation.
Speaker Change: Finally, the content of this call contains time sensitive information accurate only as of today may nine 2020 for H&R block undertakes no obligation to revise or otherwise update any statements to reflect events or circumstances. After the date of this call with that I will now turn it over to Jeff. Thank you Mikael good.
Jeffrey J. Jones: Afternoon, everyone and thanks for joining us I.
Jeffrey J. Jones: I will begin by providing commentary on the third quarter detail on our tax season performance and discuss our block horizons progress.
Jeffrey J. Jones: Then Tony will share more on our financials and we'll open it up for Q&A.
Jeffrey J. Jones: Beginning with Q3 results ending March 31 <unk>.
Speaker Change: Revenue grew 4% EBITDA grew 6%.
Speaker Change: And EPS grew 18%.
Speaker Change: In the quarter performance was driven by improvements in net average charge or neck.
Speaker Change: In both assisted and DIY.
Speaker Change: DIY volume growth and ongoing disciplined expense management.
Speaker Change: Based on how we ended tax season, and our third quarter performance. We now expect to finish the year near the high end of our outlook Tony.
Speaker Change: Tony will share more thoughts on outlook in a moment.
Tony G. Bowen: Turning to the tax season after a bit of a slow start the overall industry grew about 2% this year with DIY growing 3% and assisted growing about 1%.
Tony G. Bowen: Our data indicates that last year's California extension had a positive impact on category growth this year.
Speaker Change: Our overall market share was about flat driven by share gains in DIY that were offset by assisted.
Speaker Change: Let's discuss our results in more detail beginning with DIY.
Speaker Change: Our formula for success is to offer an award winning product make it easy for clients to switch and priced competitively.
Speaker Change: This strategy continued to work and we're very pleased with the results in our DIY business.
Speaker Change: We had meaningful growth in paid clients inaccurate season, which translated to strong revenue growth.
Speaker Change: We have an intention to focus on driving more paid skus and this effort is working well.
Speaker Change: Youll see in the appendix of our presentation that for the first time, we broke out free and paid DIY filings in the volume table to add additional transparency.
Speaker Change: We saw an increase in taxpayer identity fraud in the industry concentrated in free Skus that were E file accepted by the IRS.
Speaker Change: Beyond our own fraud prevention measures, we're in discussions on how the IRS in industry can partner to reduce fraud in the future.
Speaker Change: As you can see our pay DIY growth significantly outpaced the DIY category.
Speaker Change: Through April 30 paid volumes grew 6% and many of these filers came from turbotax.
Speaker Change: We saw strong net growth of 7% and paid clients and at the same time customer satisfaction metrics, including ease of use and price per service improved.
Speaker Change: In addition, we focused on curated experiences to help self employed workers feel more confident in their tax outcome, which resulted in notable increases among those filers.
Speaker Change: Our Gen AI powered AI tax assist performed well.
Speaker Change: As we've shared this innovation was launched for the first time this year.
Speaker Change: Feedback indicated that the tool was easy to use and helpful. In the tax prep process and clients found value added.
Speaker Change: Importantly, we saw greater conversion, among new clients, who leveraged AI tax assist.
Speaker Change: Both AI tax assist and human help were included at no additional charge in all of our DIY paid online Skus, which we believe is a competitive differentiator.
Speaker Change: As a result, we exceeded our operational metrics with human health and believe this combination provides clients with the confidence they need in DIY.
Speaker Change: We also continue to see more DIY clients accessing human help with tax Pro review, which grew more than 15% continuing its multi year trend of double digit annual growth.
Speaker Change: Overall, we feel great about the help we're providing our DIY customers.
Speaker Change: Now, let's turn to our consumer tax assisted performance.
Speaker Change: For several years, we've had a focus on transforming our assistant tax client experience.
Speaker Change: And improving the quality and value of our service, we have developed plans to attract and serve more complex and higher lifetime value clients.
Speaker Change: We have made tangible progress in building better our digital options for our clients and tax pros.
Speaker Change: And we've been modernizing our technology across the board.
Speaker Change: This year, we saw many of these efforts yield encouraging results.
Speaker Change: We saw client growth in each segment above $60000 of income.
Speaker Change: Like last year, our fastest growing segment with those in the more than $100000 of income.
Speaker Change: Our efforts slowed the decline of the ITC filers, which was the goal for this year, but we still have work to do in lower income segments.
Speaker Change: In total our assisted volumes declined about 1% through April 30.
Speaker Change: However, modest pricing increases alongside the mix shift among clients led to 4% net growth, while improving client satisfaction scores.
Speaker Change: Our continuous improvement of my block led to double digit growth in the number of authenticated accounts.
Speaker Change: In the nearly 20% increase in the number of documents uploaded to share with the tax professional.
Speaker Change: We also saw growth in the number of assisted clients working with us completely virtually increasing more than 25% year over year.
Speaker Change: We expect this number to continue to grow in the future.
Speaker Change: Additionally, our gen AI efforts to improve the customer experience and our call Center operations provided great learnings and its initial pilot.
Speaker Change: We were pleased with its accuracy, which was relatively high compared to similar offerings.
Speaker Change: We're looking forward to applying our learnings in order to expand the usage. So that we can better serve more customers at a lower cost.
Speaker Change: While I am proud of our progress.
Speaker Change: Also recognize that our pace of change in field offices. This year was high.
Speaker Change: We rolled out our new tax platform to all company and franchise locations.
Speaker Change: We introduced a new phone system we.
Speaker Change: We set lofty goals for scanning more documents in the office and printing fewer pages.
Speaker Change: We modified our tax pro compensation model.
Speaker Change: We introduced an entirely new system for measuring performance down to each tax professional.
Speaker Change: These kinds of changes are necessary to our future, but it was a lot in one year.
Speaker Change: While the appointment and visits to our tax offices were encouraging too many clients that started tax prep ultimately did not finish and I see a large opportunity to ensure those who start with us become happy and loyal clients and this will be a major focus in fiscal 'twenty five.
Speaker Change: Now, let's move on to our block Horizons imperatives.
Speaker Change: We continue to see positive trends in assisted small business tax.
Speaker Change: Through April 30, NAV increased 3%.
Speaker Change: We're outperforming among higher income small businesses.
Speaker Change: And our focus on growing our share of the entity returned market is paying off.
Speaker Change: Bookkeeping and payroll services continued to increased double digits, driven by our dedicated sales force.
Speaker Change: Overall, we are optimistic about the trajectory of small business and the long runway of this opportunity ahead.
Speaker Change: Moving to wave revenue growth was 7% in the quarter.
Speaker Change: As you recall a couple of months ago waived launched a new paid tier subscription service and a new paid receipt product.
Speaker Change: While early monetization has been better than anticipated we.
Speaker Change: We feel good about the strategic direction as we execute against our goals of accelerating revenue growth and driving profitability.
Speaker Change: Turning to financial products. This was the second season. This spruce, our mobile banking platform was offered in the assisted channel.
Speaker Change: Since launch through April 30, spruce had 470000 sign ups and $852 million in customer deposits.
Speaker Change: We saw strong growth this year and customer deposits have nearly tripled from last year.
Speaker Change: We're starting to gain traction with how we offer this product and I am proud we saw significant growth this year.
Speaker Change: This season was the first time, we offered assisted and DIY tax in the spruce App and we saw good results.
Speaker Change: Among new spruce clients that also filed a tax return, 54% were new to H&R block.
Speaker Change: And we are pleased with the low associated customer acquisition cost.
Speaker Change: We continue to make significant improvements and released new features on the platform.
Speaker Change: Last month spruce launched a variable interest rate feature that pays three 5% APAC Y on savings account balances, which is seven times the national average.
Speaker Change: There are no monthly fees and no minimum balance or direct deposit requirements, making it an appealing option for clients versus other competitors in the marketplace.
Speaker Change: We're proud of how <unk> Bruce is delivering on its mission to help people take control of their finances.
Speaker Change: Stepping back to review results Holistically.
Speaker Change: In DIY, we are pleased with our strong performance driven by paid clients and paid knack.
Speaker Change: Tax Pro review growth.
Speaker Change: Customer satisfaction scores and the launch of AI tax assist.
Speaker Change: And assisted I'm happy to see our brand resonating with higher value clients. The knack increase this year and the strength in assisted small business tax.
Speaker Change: At the same time, we can improve the experience for assisted clients and with so many new changes now behind us I am excited to see the improvements I know we can make.
Speaker Change: From a financial perspective as I shared earlier, we expect to deliver results near the high end of our outlook ranges, which means top line growth robust cash flow generation and double digit EPS growth that allows for continued return of capital to shareholders through dividends and repurchases.
Speaker Change: With that I will now turn it over to Tony to discuss our financials.
Tony G. Bowen: Thanks, Jeff and good afternoon, everyone.
Tony G. Bowen: In the third quarter, we delivered $2 $2 billion of revenue, which grew 4% or $91 million to the prior year.
Tony G. Bowen: The increase was primarily due to a higher net average charge and higher company owned volumes in assisted and higher volumes in Natkin DIY.
Tony G. Bowen: Partially offset by lower volumes and franchise locations due to franchise acquisitions.
Tony G. Bowen: Total operating expenses in the quarter were $1 3 billion.
Tony G. Bowen: An increase of $27 million or 2%, primarily due to higher field wages because of greater company owned volumes and higher legal fees and settlements.
Tony G. Bowen: Partially offset by lower marketing and advertising expenses.
Tony G. Bowen: EBITDA was $964 million compared to $910 million in the prior year, an increase of 6%.
Tony G. Bowen: Interest expense was $26 million compared to $22 million in the prior year due to higher borrowings on our line of credit and the higher interest rate environment.
Tony G. Bowen: We will benefit from higher interest rates as we move into a positive cash position.
Tony G. Bowen: Pretax income increased by $52 million to $907 million.
Tony G. Bowen: Primarily due to higher revenues in the current year and our effective tax rate in the corner was 23, 8% compared to 24, 5% last year.
Tony G. Bowen: We did not execute any share repurchases in the third quarter.
Tony G. Bowen: Youll recall that given our narrow trading windows, we typically execute most of our share repurchases in the first half of the year.
Tony G. Bowen: In Q1, and Q2, we completed $350 million of share buybacks are another five 5% of shares outstanding.
Tony G. Bowen: Both earnings per share from continuing operations and adjusted earnings per share from continuing operations increased 18% to $4 87.
Tony G. Bowen: And $4 94, respectively.
Tony G. Bowen: We continue to be opportunistic in our franchise acquisitions, which are a core driver of our longer term revenue growth target of 3% to 6%.
Tony G. Bowen: This year, we have purchased 156 offices, which is lower than the approximately 200 offices, we repurchased last year.
Tony G. Bowen: We feel great about franchisees willingness to sell to US and are pleased with how this strategy supports our longer term revenue and earnings growth.
Tony G. Bowen: As Jeff shared based on how we ended the tax season and our performance in the third quarter. We now expect to finish the year near the high end of our outlook.
Tony G. Bowen: We also expect our effective tax rate to be in the 21% to 22% range.
Tony G. Bowen: As I have said for a long time, despite year to year nuances the strength of our capital allocation story remains the same.
Tony G. Bowen: We produced consistent cash flow pay a growing dividend and buyback a meaningful amount of shares.
Tony G. Bowen: Fiscal year 'twenty four will be another year of top line growth strong cash flow generation and double digit EPS growth.
Tony G. Bowen: Now I will turn it back over to Jeff for some closing remarks. Thank you Tony as we end our prepared remarks I want to thank our tax professionals associates and franchisees for their efforts this tax season.
Jeffrey J. Jones: Together, we are continuing to deliver on our purpose of providing help and inspiring confidence in our clients and communities everywhere I look forward to sharing more details on our year end call in August now operator, we will open the line for questions.
Speaker Change: As a reminder to ask a question you will need to press star one one on your telephone to remove yourself from the queue. You May Press Star one one again, please standby, while we compile the Q&A roster.
Speaker Change: Our first question comes from the line of Kartik Mehta.
Kartik Mehta: Northcoast research.
Kartik Mehta: Hey, Jeff and Tony.
Kartik Mehta: Jeff maybe just on the assisted market share loss.
Kartik Mehta: Syed.
Kartik Mehta: What can the company do you think to mitigate that and maybe even turn that around.
Kartik Mehta: Hey, Kartik thanks for the question.
Kartik Mehta: Listen this has obviously been a challenge for us for a long time and we remain focused on trying to solve it and we think it's a combination of the right message in the market the role of refund advance getting pricing and value right in the moment when we're providing service.
Kartik Mehta: And we remain focused on continuing to slow the decline and ultimately turn it.
Kartik Mehta: I am very happy with what we're seeing on the other end of the spectrum, we continue to attract higher value clients higher agi and more complexity.
Kartik Mehta: So it is definitely a balance of both but we're not going to let up our focus on continuing to try to make that value for the under $30000 customer better and better while we're also attracting more clients at the higher end.
Speaker Change: So would you say Jeff.
Jeffrey J. Jones: Almost all of the market share.
Jeffrey J. Jones: Share loss the result.
Jeffrey J. Jones: But.
Jeffrey J. Jones: Key clients.
Jeffrey J. Jones: Mhm.
Jeffrey J. Jones: It was a big part Kartik, but.
Jeffrey J. Jones: As you heard in my prepared remarks.
Jeffrey J. Jones: First of all there are a number of great things. We did in assisted this year I don't want to overlook that but you also heard me mentioned that.
Jeffrey J. Jones: I just saw too many experienced breaks overall than assisted.
Jeffrey J. Jones: I spend more time in the field this year than I ever have.
Jeffrey J. Jones: And I just saw too many examples of breaks in the experienced standard that we have for our clients.
Jeffrey J. Jones: Really across the board and definitely at lower income.
Jeffrey J. Jones: And keep in mind when I talk about this I'm talking about clients that chose block.
Jeffrey J. Jones: Made an appointment came to the office started tax prep and for a variety of reasons didn't complete.
Jeffrey J. Jones: This year for the first time, we started serving those clients and actually the number one reason they told US was we did not demonstrate enough expertise and the number two reason they told US was we didnt do a good job of managing their expectations.
Jeffrey J. Jones: And so while that's obviously frustrating.
Jeffrey J. Jones: This is a significant number of clients that are choosing us coming to the office and starting and I know, we can do better at executing and I am excited about what that volume opportunity really represents.
Speaker Change: And then just one last question Jeff.
Jeffrey J. Jones: You, obviously had very good Mac on both the assisted and DIY side.
Jeffrey J. Jones: As we move forward.
Jeffrey J. Jones: Do you think you'd be able to sustain that type of Nash or was this a little bit of a unusual year.
Jeffrey J. Jones: Well I think our strategy for knack is unchanged I mean, we feel very good about the value we're delivering in general across the board.
Jeffrey J. Jones: Obviously, the dynamics are different in DIY versus assisted.
Jeffrey J. Jones: In DIY, we continue to believe that with the mix changes and modest price increases we can continue to see that knack increase we pay close attention to competition there obviously.
Jeffrey J. Jones: And in the assisted business.
Jeffrey J. Jones: Every year, we will do the same thing will wrap the season will evaluate client feedback.
Jeffrey J. Jones: Which by the way for those that we're surveying continues to remain strong on value for price paid.
Jeffrey J. Jones: And we continue to think that that price can play a role in our growth that has not changed.
Speaker Change: Perfect. Thank you very much.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Okay.
Speaker Change: Our next question.
Speaker Change: Comes from the line of.
Speaker Change: George Tong of Goldman Sachs.
Keen Fai Tong: Hi, Thanks, good afternoon.
Keen Fai Tong: You mentioned, both your AI tax assessed in human health were included at no additional charge and all of your DIY paid online Skus can you elaborate on that your monetization strategy and how going forward you might look to potentially monetize chat AI or human help with the DIY.
Speaker Change: Yes, Hey, George Thank you.
Speaker Change: First of all including it in our paid Skus.
Keen Fai Tong: I am sure was part of the strength and growth in our paid Skus, that's great to great value proposition for customers.
Speaker Change: And so with respect to what we do next on monetization, especially with Gen AI.
Speaker Change: Say, it's just too early to say I mean, we believe that Gen. AI can play a strong role in improving customer experience. As you also heard me mention.
Speaker Change: We sold the new clients that engage with AI taxes. This convert at a higher level and so we will continue.
Speaker Change: To learn and test different ways of including Gen. AI in our DIY products, but I feel very good about year, one at such an early stage of what we saw this year.
Speaker Change: Of course tax Pro review is is another product, that's performing very well, where we're monetizing human help in that DIY filer chooses to.
Speaker Change: To get access to humans and that product has been growing very very nicely for many years in a row now so that's another way we're monetizing.
Speaker Change: Great. That's helpful. And then last year, there were a couple of filing.
Speaker Change: Pensions are you previously noted the California has the biggest impact can you estimate how much the filing extensions from last year.
Speaker Change: Essentially impacted the growth from a comp perspective, this year and if any of the filing extensions this year.
Speaker Change: What impact.
Speaker Change: Results.
Speaker Change: Hey, George it's Tony So as Jeff said in the opening comments, we think the industry grew about 2% and we think California, probably had close to a 1% impact on that year over year growth given the extension from last year, obviously, the other smaller states had some marginal impact that but I think most of it is California.
Speaker Change: And this year, while there have been some extensions we think they're relatively small versus what we saw last year. So we don't think it's having a material impact on the performance of the overall industry. This year.
Keen Fai Tong: Got it very helpful. Thank you.
Speaker Change: Thanks George.
Speaker Change: Thank you.
Speaker Change: Our next question.
Speaker Change: Comes from the line of Scott Schneeberger of Oppenheimer and company.
Speaker Change: Sure.
Scott Andrew Schneeberger: Thanks, very much good afternoon all.
Scott Andrew Schneeberger: I'd like to start out.
Scott Andrew Schneeberger: <unk>.
Scott Andrew Schneeberger: Slide seven highlights that.
Scott Andrew Schneeberger: Many of the filers.
Scott Andrew Schneeberger: Took share relative to industry and DIY. Many of this virus came from turbotax was that specifically paid or was that that overall could you just elaborate on.
Speaker Change: How do you track that and what you saw thank you.
Speaker Change: Hey, Scott.
Speaker Change: We obviously have some insight based on when clients upload documents from prior years, and where they're likely likely filed and I think it's across the board. Obviously some of those are starting to free skew. Some of those are in the paid SKU I think when you look at the appendix slides. We included a breakout of free versus paid as Jeff said for the first time.
Speaker Change: And you can see we had really strong performance in the paid SKU.
Speaker Change: So I think it shows that that obviously a portion of that had to come from turbotax as well just given the size that they are in the marketplace. So I think it was across the board from our perspective.
Scott Andrew Schneeberger: Thanks.
Speaker Change: I mean very very strong in both Tony do you have a sense of the IRS status shared and in the DIY category I think it grew two 7%.
Speaker Change: Do you have an estimate of what of that is paid versus what of that is free.
Speaker Change: We don't for the category Scott I mean, all we know is our data I mean, we were pleased to see that obviously the paid number grew so much and grew more than the overall category. We obviously know that free is a big part of the growth in the category.
Scott Andrew Schneeberger: And to see that our paid number grew almost double what the category a little bit more than what the category grew in total I think is a really good sign that that we just delivered a really solid year in DIY.
Speaker Change: Thanks, I appreciate that and then I'm curious on your comments and also in your in your section of the.
Speaker Change: The press release the timing of.
Speaker Change: The marketing.
Speaker Change: And all.
Speaker Change: We are seeing in the quarter here. So I'm just curious what was that a pull forward was it a push back on the marketing.
Speaker Change: If you could elaborate on that a little bit thanks.
Speaker Change: Yes, it was.
Speaker Change: Last year, we did more in Q3. So this year more of it is going to show up in Q4. So I don't think we think theres going to be much of a change for a full year basis. So it is just timing of shifting from Q3 to Q4.
Speaker Change: Okay. Thanks, but it was it was three and four.
Speaker Change: The new structure, I guess that captures different alright.
Speaker Change: Alright. Thanks.
Speaker Change: Thanks, Scott Thanks, Scott.
Speaker Change: Thank you.
Speaker Change: Yes.
Speaker Change: Our next question.
Speaker Change: Comes from the line of Alex Paris Barrington Research.
Alexander Peter Paris: Hi, guys. Thanks for taking my questions.
Alexander Peter Paris: Congrats on the strong quarter.
Speaker Change: I've got a couple of clarifications sort of questions.
Speaker Change: You had said in prepared comments that the company owned operations outperformed the franchise operations and I can see that in the appendix as well.
Alexander Peter Paris: And attributing the relatively worse position in franchise due to franchise repurchases what was that the only thing or are there other things any other color there would be helpful.
Speaker Change: Yeah, Hey, Alex Thanks for thanks for the question, Yes, most of that almost all of that difference in performance is due to franchise buybacks. So I think we highlighted that the.
Alex: The revenue growth was driven by company on volumes not necessarily relative outperformance versus franchise. So it's a little bit of left pocket to right pocket as we've talked about in the past.
Speaker Change: Okay got you.
Alex: And then.
Alex: Yeah.
Alex: You said a couple of times now both in the prepared comments any questions that.
Alex: The DIY outperformance versus the category.
Alex: A lot of it came from Turbotax and you could see that because theyre uploading previous year returns.
Alex: On the assisted side.
Alex: Underperformance down one, 2% and volume versus up one 2% for the category.
Alex: Is where are you losing market share.
Alex: And assisted.
Alex: Yes, Alex it Jeff Thank you.
Jeffrey J. Jones: This stage of the year, we don't know where our business is going to like we do every year, we will have a sense once we file for the <unk>.
Jeffrey J. Jones: We do have information that report this fall, so I don't know where but.
Jeffrey J. Jones: As I alluded to were down call. It 130000 clients year over year and our own performance.
Jeffrey J. Jones: The number of clients that came to our offices started tax prep and didn't finish tax prep is significant hundreds of thousands of clients and so that's really what I'm focused on now is how do we solve some of these experience breaks that are keeping people who are choosing us for <unk>.
Jeffrey J. Jones: Converting.
Speaker Change: Great. That's very helpful. I appreciate that additional color.
Speaker Change: And.
Speaker Change: I'm sure. This is a de Minimis thing, but just following up on the news story.
Speaker Change: You had a tax day outage in your downloaded software business you had indicated at least at a press article that there maybe it was 2000 inquiries out of 20 million, who filed through H&R block during tax season.
Jeffrey J. Jones: Obviously that has been resolved at this point.
Jeffrey J. Jones: And what what is the likely impact on H&R block and its fourth quarter results.
Speaker Change: Yes, I appreciate that question I mean, obviously, we don't want to disappoint any single client.
Jeffrey J. Jones: <unk>.
Jeffrey J. Jones: Technical outage like that.
Speaker Change: It was not material to business or results in any way that doesn't take away from what it might have felt like to that client, but we had it resolved in a couple of hours that day and it was more of an inconvenience and filing as opposed to an inability to file.
Speaker Change: Got you and then the last question kind of in the same vein.
Alex: IRS put the IRS put out a press release that they hit their goal of 100000 filers and their direct style product.
Alex: Just wondering if you have any thoughts there I think it was only offered in 12 pilot states.
Speaker Change: Yeah, absolutely we've seen the same thing what they reported.
Speaker Change: We also know we had very strong DIY paid growth performance.
Alex: And our stand again on direct file really Hasnt changed you know we know that there are over 30 organizations that already offer free tax prep and we think it's a solution in search of a problem.
Speaker Change: Totally agree well. Thank you very much I'll take the other questions offline.
Speaker Change: Thanks for the questions.
Speaker Change: Thank you.
Speaker Change: Question.
Speaker Change: Comes from the line of.
Speaker Change: George Tong of Goldman Sachs.
Keen Fai Tong: Hi, Thanks, just a quick follow up question and this is related to some of the questions asked previously I have turbotax.
Keen Fai Tong: But they've stated that they are increasingly focused on the assisted category I guess over the past tax season have you noticed any changes in competitive behaviors or competitive dynamics from turbotax in the assisted category.
Alex: Hey, George obviously, we don't know how they performed this year, we'll hear more in a couple of weeks, but I've seen no signs that what theyre doing is impacting our assisted business I think the only thing we saw different competitively this year.
Keen Fai Tong: They were very promotional and sweepstakes driven.
Alex: So I guess, we'll see what those promotions and sweepstakes may have done but.
Alex: Our what we really saw that impacted our own assisted performance. This year was in our own shop, it's not doing a great job of converting.
Speaker Change: Got it very helpful. Thank you.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Next question.
Speaker Change: Comes from the line of Scott Schneeberger of Oppenheimer and company. Thanks, Scott.
Scott Andrew Schneeberger: Thanks, again, and thanks for taking the follow up.
Scott Andrew Schneeberger: It's two separate questions awesome separately.
Scott Andrew Schneeberger: The first one.
Alex: Jeff.
Alex: You cited you mentioned some reasons of the assisted filers not completing.
Alex: <unk> demonstrated expertise it sounds like execution, there and didn't manage expectation that could be anything.
Alex: Child tax credit that created some confusion this year could you address if you think that had anything to do with that second point and all of those.
Alex: How much of this I guess, what I'm getting at is how much of it is execution and what you can control and how much of it is maybe other competitors promoting something that you simply are not going to offer.
Speaker Change: Yeah very good question.
Speaker Change: I'm going to simplify it and say it is execution, but let me give you a couple of examples of what I have what I saw too often.
Speaker Change: So imagine the marketing team drives and new client to the office they sit down for tax prep.
Speaker Change: And a new client doesn't know how to do business with us they don't they don't understand how the process works. They don't know how long it'll take they don't know what it will cost to.
Alex: So the breakdown and execution is around managing expectations, how it's going to work make sure we're always delivering upfront transparent pricing and that's about the new client experience.
Alex: We've been successful of getting them to the building, but we haven't done a good job of teaching them how to work with us.
Alex: That's one one category of examples.
Alex: Another category of examples is really in the clients that are working with us virtually.
Alex: So whether thats completely virtually or exchanging documents with a tax pro.
Alex: We just saw too many times this year that we weren't responsive enough a client would wonder the status of their return they werent getting emails quick enough to let them know the progress and how things were happening and so you can imagine youre not physically together and you're wondering what's happening and thats a breakdown in communication.
Alex: So I think those are two broad categories of examples where.
Alex: Of course, all the newness, we had in retail this year.
Alex: Certainly could impact our ability to execute most of those things are now behind us.
Alex: But this is an area where I am just excited because I see how many people are choosing us and coming to the office and are wanting to do business with us and I know, we can do better.
Alex: Thanks.
Speaker Change: Part of that ending there was a segue to my next question, which is the changes in retail space.
Alex: My question is modified tax pro compensation.
Alex: Is that going to have maybe address a little bit.
Alex: I guess will that have any material financial impact this year is it a.
Alex: Relative to your expectation at the start of the year and now what you're saying about the guidance for the full year.
Alex: Is it the same as it was just in a different structure or did it move the needle one way or the other.
Alex: It's mainly the same as it was just a different structure.
Alex: We tested this tax pro comp for a couple of years before we implemented it and the real goal was to make it more clear about driving revenue growth and more transparent and easier for the taxpayer to understand but it was one of several changes we made that they had to learn and execute against so that was real.
Alex: More of the point I was making tone anything you could add yes, I mean, you said it but it's we expect it to be cost neutral. So it wasn't a change in how much or how we're ultimately paying them, but it does simplify the program yes.
Speaker Change: Alright, thanks for taking the follow up guys.
Speaker Change: Thanks Scott.
Alex: Thank you I would now like to turn the conference back to mechanical Lina for closing remarks.
Lina: Thanks, Latif and thanks, everyone for joining us today, we look forward to speaking with you next quarter.
Speaker Change: This concludes today's conference call. Thank you for participating you may now disconnect.
Speaker Change: Okay.
Alex: [music].
Alex: Yeah.
Alex: Okay.
Alex: Okay.
Alex: [music].
Alex: Okay.
Alex: Sure.
Alex: Okay.
Alex: [music].
Alex: Yes.
Alex: [music].
Alex: Okay.
Alex: [music].