H&R Block, Inc.

Ladies and gentlemen, thank you for standing by, and welcome to the H&R Block Third Quarter Fiscal 2021 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 session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your host, Vice President of Finance and Investor Relations, Mr. Colby Brown.

Thank you. Good afternoon, everyone, and thank you for joining us to discuss our fiscal 2021 third quarter results. On the call today are Jeff Jones, our president and CEO, and Tony Bowen, our CFO. We've posted today's press release on the investor relations website at hrblock.com. Also on the website, you will find a link for the webcast containing today's presentation, which will be posted after this call. Some of the figures that we discussed 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's expectations as of this date and are not guarantees of future performance. Forward-looking statements involve certain risks, uncertainties, and 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. H&R Block undertakes no obligation to publicly update these risk factors or forward-looking statements. At the conclusion of our prepared remarks, we'll have a Q&A session. During Q&A, we ask that participants limit themselves to one question with a 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, Colby. Good afternoon, everyone, and thanks for joining us. I'm excited to provide an update today on the progress we're making on our Block Horizon strategy, as well as some perspective on the first half of the tax season. Tony will follow with thoughts on our third quarter results, outlook for fiscal 21, and additional detail on our strategic investments. So let's jump right in. Following our investor day in December, we've connected with many of you and have enjoyed hearing your perspectives. Based on these conversations, I thought it would be helpful to start with an update on Block Horizons. our long-term strategy focused on three imperatives, small business, financial products, and block experience. As a reminder, small business and financial products are both categories with structural tailwinds, where we have a right to compete and advantages that will help us win. While these have been components of our business for years, historically, we haven't made a concerted effort to target either opportunity. By leveraging our trusted brand, client relationships, and technology platform, we will accelerate growth in both areas. Over the next five years, they will become a more meaningful part of our business, helping to balance our current once a year purchase frequency. And given our existing assets in these areas, these will not require significant investment, as Tony will outline in more detail later. Our third imperative, block experience, encompasses a new approach to tax as we blend digital capabilities and data with human expertise and care. Through this imperative, we will continue to modernize the consumer tax business, blurring the historical lines between assisted and do-it-yourself. And by digitally enabling our human advantage, we'll increase the relevance of H&R Block. I'll now provide an update on each of these key areas, starting with small business. We're making progress on all three elements of our small business strategy. First, expanding our reach to more small business owners to grow in tax, which includes cross-selling and fully integrating with WAVE. Second, growing our bookkeeping and payroll services and block advisors. And third, embedding WAVE money at the center of the WAVE experience. We've certified over 25,000 professionals to serve the complex tax and financial needs of small business owners. This is a great example of the power of our scale. We've also seen thousands of Wave customers start to engage with the Block Advisors brand for their tax needs. We're continuing to build new capabilities in bookkeeping and payroll. And in mid-February, we launched our Block Advisors marketing campaign to drive awareness of our ability to serve small business owners' unique needs and to reinforce our expertise as a trusted year-round partner. At Wave, we continue to ship meaningful enhancements to our platform that are providing significant value to small business customers. These include the beta launch of the new invoicing features to allow small business owners to better manage their accounts receivable, enabling remote deposit capture for Wave money, and creating new client interfaces to allow users to manage their bookkeeping faster and on more devices. These efforts are paying off as we grew third quarter revenue over 30% at Wave, continuing on the path toward pre-pandemic levels. In financial products, our goal is to provide more value to our customers by transforming the Emerald Card into a fully featured, consumer-friendly mobile banking alternative. We're in the design phase and are excited about what we continue to learn with consumers. For this season, we added a simple new digital feature to the Emerald Card, the ability for customers to automatically set up their mobile wallet on both Google Pay and Apple Pay directly from the MyBlock app. This has resulted in a 10x increase and customers using their mobile wallets, which tells us that we're providing meaningful value. And in Block Experience, we're continuing to infuse human help into our DIY offerings and bring TaxPro expertise to our customers, however they want to be served. I'll provide more detail in a minute, but we're seeing positive momentum in several areas, including adoption of digital tools and assisted, DIY filers engaging more with our tax experts, continued operational improvements in our offices, and enhancements to the DIY user experience. The progress we're making in each of these three strategic imperatives in such a short time frame is a testament to the dedication and drive of our teams and further evidence that we are building from a position of strength. Because we have existing assets across small business, financial products, and consumer tax, it is important to emphasize that the investments we are making will be funded through cost savings, with future investments being success-based and tied to revenue growth. Tony will provide additional color on this later in the call. With that recap of Block Horizons, I'd now like to provide some perspective on the tax season. We are executing on our playbook, digitally enabling our assisted business and integrating human help into our DIY products to deliver a best-in-class experience, however consumers want to buy their taxes. It's early in the season, but we're seeing hundreds of thousands of our assisted clients choosing to interact with us digitally by uploading documents electronically through MyBlock, using video chat, for approving their completed return online. And our continued focus on operational excellence in our offices is translating to a consistent experience for our customers that provides tremendous value. All of these efforts are resonating as we continue to see strong client satisfaction scores. We've also improved the DIY user experience around document import. offered additional support to help users understand the pandemic's impact on their taxes, and provided real-time tax information updates for our mobile users. Our work to personalize the experience and to make it faster for our customers to complete their return continues to resonate. And finally, we're using data to offer human help in the moments clients need it most, resulting in online assist and tax probe review adoption significantly outpacing last year. And as I mentioned earlier, in small business tax, we've seamlessly integrated the WAVE and Block Advisor's experience, leading to increased adoption of our tax services by WAVE clients. We're accomplishing all of this during another season in which the industry has experienced a delay in filings. which resulted primarily from the move of the IRS e-file open date from January to mid-February. While the slow start in the industry has obviously impacted our results, we've seen positive trends throughout the business. I'm encouraged by what we're seeing in our efforts to blend human help with digital capabilities. We're seeing greater uptake of our digital tools by assisted customers. and the desire for more human help from our DIY customers as we continue to see the lines between these two categories blurring. An example of this is the double-digit increase in online assist returns that I mentioned earlier, which is remarkable considering the overall decline in returns due to the delayed start. Elsewhere, we're seeing a meaningful lift in DIY net average charge as mix has been favorable and we've been able to partially close the gap in pricing with our primary competitor. And our efforts to deliver exceptional service and assisted are paying off with continued strong client satisfaction scores. While we're off to a good start, we recognize there's certainly a long way to go. We're focused on executing our playbook in the second half of the season to build on our momentum. In summary, we're executing on our block horizon strategy seeing significant progress in key areas. We're performing well in the tax season, and assuming an April 15th deadline, are on track to deliver our financial outlook for the year. With that, I'll now hand the call over to Tony.

Thanks, Jeff. Good afternoon, everyone. Today I'll provide an update on our third quarter results, thoughts on our outlook for the fiscal year, and additional color on the investments we're making to support our strategic imperatives. Starting with the third quarter, our results were significantly impacted by the delayed start to the tax season, which resulted in industry-wide shift of returns from the first half into the second half. This resulted in both lower return volume through January, as well as a deferral of revenue related to the e-file open date moving to February. As a result, we reported revenue of $308 million for our third quarter, a decline of 41%. This was primarily related to the delayed return volume while approximately $69 million was due to the deferral of tax prep fees and the delayed recognition of refund transfer fees to Q4. Partially offsetting this decline was continued strong performance at WAVE, where we posted an increase of over 30% for the second consecutive quarter. Additionally, Emerald Card revenue improved due to additional loads from the second round of stimulus in January, and we saw improved performance in our international businesses. Turning to expense, total operating expenses decreased 15% to $572 million. Approximately two-thirds of the decline was related to variable compensation and product expense, which was driven by lower return volume. Additionally, marketing expenses were lower as we shifted spend to the fourth quarter. Reductions in travel, legal, and occupancy costs account for the remainder of the decrease. Interest expense declined $4 million, which reflects lower draws on our line of credit, as well as a lower interest rate on our debt issuance earlier in the fiscal year. The changes in revenue and expenses resulted in pre-tax loss from continuing operations of $284 million. Gap loss per share increased from $0.66 to $1.27, while adjusted loss per share increased from $0.59 to $1.17. Though the majority of this change was driven by the increase in pre-tax loss, it was also impacted by lower effective tax rate as well as lower shares outstanding resulting from repurchases earlier in the year. As we've discussed, while beneficial on a full year basis, the lower tax rate and share count negatively impacts EPS in quarters in which we report a loss. In discontinued operations, there were no changes to accrued contingent liabilities related to Sand Canyon during the quarter. For additional information on Sand Canyon, please refer to disclosures in the company's reports on forms 10-K and 10-Q and other SEC filings. Turning to our outlook for the fiscal year, we expect industry volume to recover in the second half and end relatively flat for the tax season, assuming the deadline remains April 15th. Based on these expectations and the positive trends Jeff mentioned earlier, we continue to expect revenue in the range of $3.5 to $3.6 billion and EBITDA of $950 million to $1 billion. We have identified additional favorability in corporate taxes and, as such, now expect our effective tax rate to come in at the low end of our 18% to 20% outlook range. Turning to our strategic imperatives, I'd like to spend some time on the related investments and how we plan to fund them. As Jeff mentioned, our established operations in small business, financial products, and consumer tax provide a strong base from which to build. It's also important to note that we're implementing each strategic imperative in phases over the next several years. This allows us to take a methodical approach, making modest initial investments with incremental investments being funded through revenue growth. In small business, current investments are primarily in technology necessary to develop our capabilities, compensation as we build the team required to provide services, and marketing to acquire customers. In financial products, the investment this year is limited and is primarily related to product design and experience. This will continue into next year as we invest in technology to support the mobile banking platform. And in block experience, we continue to invest in technology and new operating models to deliver expertise and care to consumers however they want to do their taxes. All in, these costs total approximately $20 to $25 million in fiscal 21. We've done an excellent job this year of finding efficiencies and eliminating unnecessary spend to fund these investments. To summarize how we're thinking about this, our initial investments will be in the tens of millions of dollars, not hundreds of millions. We'll fund them through cost reductions elsewhere in the business. Additional investments will be funded by incremental revenue growth. And as a reminder, M&A is not a core part of our strategy. though we'll remain open to opportunistically investing in external capabilities when we believe they will drive appropriate returns. On a related note, following our investor day in December, we received several questions regarding our baseline earnings and expected run rate going forward. We understand the importance of providing this perspective and plan to do so following the conclusion of this fiscal year. Ultimately, our goal is to grow our top line at a rate in which we leverage our fixed costs which translates to improved earnings and free cash flow. This ability to generate a significant amount of cash while our strategic imperatives provide a platform for accelerated growth gives us confidence in our future and supports our capital allocation priorities, which remain consistent. At the top of the list is maintaining adequate liquidity for our operational needs to account for our seasonality. Next, we will fund the investments I discussed earlier. Finally, we will deploy excess capital through quarterly dividends and share repurchases. We're committed to continuing our dividend with the goal of increasing it over time. The health of our business and our outlook for the future have allowed us to increase the dividend in four of the last five years, amounting to a total increase of 30% during that span. We are also committed to repurchasing shares to offset dilution and will opportunistically repurchase shares beyond that. This fiscal year, we have repurchased 5% of shares outstanding, and during my tenure as CFO, we have repurchased 19% of shares outstanding. In summary, we're accomplishing great things in our tax business and are on track to deliver our financial objectives for the fiscal year. And our prudent, measured investments in our strategic comparatives are putting us on a path towards long-term growth in revenue, earnings, and cash flow. I couldn't be more excited about the future of H&R Block. With that, I will now turn the call back over to Jeff. Thanks, Tony.

Before Q&A, I'd like to take a moment to thank our franchisees, tax pros, and associates who continue to deliver for our customers and who deserve all the credit for the progress we're making on Block Horizons. The dedication and resolve they've shown over the past 12 months are truly remarkable. I'm confident in where H&R Block is heading. We're redefining the tax category, blending human expertise and care with technology and data, delivering more value for our customers. And we're making good progress in our small business and financial product strategic imperatives, which will be key growth drivers in the future. We're not only poised to deliver on this year's outlook, but are also well positioned for an even stronger future. I look forward to sharing more with you when we report our full year results in June. With that, we'll now open the line for questions. Operator?

Thank you. As a reminder, to ask a question, you will need to press star 1 on your telephone. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. Our first question comes from the line of Jeff Silver of BMO Capital Markets. Your question, please. Thank you so much.

Appreciate the color. I just was wondering on your reiteration of your financial outlook for this year, if you can give us some color of what we should expect from both a volume and a net average charge perspective by your different product lines. Thanks.

Hey, Jeff. It's Jeff Jones. I'll start us off, and Tony can tag team on if he wants. So as part of our overall financial outlook for the year, you know, we expect to hold share of in the assisted business. We like where we're positioned today. Obviously, a lot of business left, but we think we're on track to do that. We expect to grow share in the DIY business, really building on the strength of this combination of a great competitive pricing, much improved product, and continuing to build awareness of that offering in the market. With respect to pricing, again, I'll split it out. This is another year where we have held NAC flat in the assisted business. And we believe as we pay close attention to client satisfaction scores that continue to be very strong, that clients are seeing the value for price paid. And we expect to be able to get back to inflationary level price increases moving forward. In the DIY business, this was a year where we felt our price advantage versus our largest competitor had gotten too great, and so we intentionally took price in DIY this year, and you can see that starting to play out in the results today.

Okay, that's really helpful. I appreciate it. I know we were only a couple weeks or two, three weeks into tax season, and And I know sometimes comparisons to the IRS data are a little bit misleading. But based on what you know, do you think you've gained share in both channels so far this tax season?

So far this season, we're really pleased with our results. We like where we are. To your point, you know, there's a lot of noise given the delay in the season. And, you know, when we look ahead to the balance of the season, you know, we know we have to continue to execute the playbook. It's, you know, the right value, continuing to reiterate the digital capabilities. We're seeing nice consumer uptake of our virtual capabilities. We're seeing DIY clients continue to upgrade into human health. So really all of those things, we feel good about the progress, and, you know, we like where we stand so far in the season. Okay, fantastic. Thank you so much. Thanks, Jeff.

Thank you. Our next question comes from Jeff Goldstein of Morgan Stanley. Your line is open.

Hey, guys. Can you add some more color about what you're seeing in terms of the assisted customer base so far? So is it new customers? Is it better retention of existing customers? And then are there more people coming to the platform because tax situations have gotten more difficult given COVID and things like working from home or maybe opening a new brokerage account? Just anything to call out on the trends and demographics of what you're seeing in the assisted channel.

Yeah, Jeff, you had a number of little nuanced questions there. Let me see if I can catch them all. But I think just in general in the assisted channel, we continue to see – nice uptake of our digital capabilities. We think that's a reflection probably of some of the pandemic and just people embracing new ways of doing their taxes. We also see about 50% of all of our new clients in assisted being millennial. We think that's another important demographic shift that we've seen for a couple years. That remains true. What else?

What other pieces, Tony? Well, yeah, I mean, the one thing I would mention is, you know, when we look at our performance of new and prior, Jeff, news are doing relatively well, so we know we're attracting, you know, incremental new clients to the brand, which is a really good sign. You know, our market share right now, you know, looks really strong on the assisted side, but we also know that we over-indexed in market share earlier in the season and And with the tax season being delayed, you know, comparability year over year is a little bit unusual. Obviously, that will moderate a bit by the end, but to Jeff's point, you know, a really good start across the business, and there's a lot of positive metrics to point to, but we also know there's a lot of tax season to go, and, you know, we're preparing to execute.

Okay. That's all very helpful. And then this may fall under what you said about long-term baseline earnings and giving guidance later this year, but I just want to ask it a slightly different way. So if you look at the EBITDA guide for the year, and I know it's an odd year given the tax deadline shift, but if you normalize it, it seems like you're below the EBITDA margin you were at in 2019. So maybe just high level, you could talk about the puts and takes there. Is it conservatism? Is it investments around some of the new initiatives? Maybe just help us through kind of like the EBITDA bridge from then to now and anything you could talk about moving forward? Thanks.

It's a great question, Jeff, and there has been a lot of moving parts, you know, from FY19 to FY21 for sure. I think one of the things I would call out is in this year, obviously, you know, we're talking about it relative to Outlook, to your first point. We also know that this year is going to include some one-time expenses related to COVID that I don't view as kind of run rate, and that's some of the things that we'll adjust out for when we get to the end of the year because there are a lot of unusual things when we think about compensation being higher this year due to a lot of the tax season happening in Q1 and obviously a full tax season happening in part of Q3 and into Q4. We've also had some expenses related to some of the things we've done in our offices around sick leave as well as just buying different materials to keep our clients and associates safe. So all of those things add up and I think are impacting our margin. When we think about comparing back to FY19, you know, that's probably a longer conversation because there have been a lot of moving parts. Part of this is, you know, the client volume and change from FY19 through FY21. As we talked about last year, you know, we were really pleased with how we ended the tax season in both the CIS and in DIY. But we're operating with, you know, a suboptimal network for a good portion of the tax season where we didn't have all of our offices open. We didn't have all of our tax bros at full force. And that definitely, you know, resulted in some modest client decline. That is now built into the new baseline going forward. We'll see where we end this year. But those are all pieces of the puzzle that help kind of connect the dots from FY19 to 21.

Got it. Thanks for the call.

Thanks, Jeff.

Thank you. Our next question comes from Scott Schneeberger of Oppenheimer. Your question, please.

Thanks very much. Good afternoon. I guess for first question, DIY, the net average charge change is plus 15% year over year, which is very strong. Jeff, you referenced narrowing the gap with the leader in the industry, but this year you didn't really raise rates on your products. So I'm curious, could you break down a little bit more what's driving the nap? Is it less free returns is what's driving the mix? Or I think you did increase price or rate in self-employed. Is that particularly strong? If we could just go a little deeper on that, please. Thanks.

Yeah, I think you really hit on a couple of the things that are driving that increase was, you know, having more people move into deluxe. was a piece of the puzzle, self-employed, as you commented on. Those were all intentional strategies to grow NAC this year. You know, if you take a step back, we believe that it's important for us to maintain a price advantage, but we just saw that gap widening. So these are some of the first moves we've made to start to close that gap, and you're seeing that reflected in the NAC improvements in DIY so far.

And Jeff, following on that, you mentioned just now a move up, presumably from basic or free to deluxe. Do you view this as primarily the dynamic of a lot of new brokerage accounts being opened? And it's my understanding that if someone has some stock transactions, that would drive them into premium as opposed to deluxe. Could you just speak a little bit to the tier level? And what's being delivered by new brokerage accounts? Do you see that as a meaningful driver of the tiering up? And also, if you can qualify, what affects in which tier level things?

Yeah, we're obviously aware of just the growth in retail investors and what that's meant to brokerage accounts so far in the pandemic. We tend to under-index in those type of clients in general. So that's not really a driving force behind the move from free to deluxe in our product.

Yeah, and the other thing I would ask, guys, you know, we aren't seeing a lot of those type of clients, you know, so far this season either. You know, a lot of those brokerage statements come out later. So even if that's, you know, a bit of a driver by the end, we aren't seeing a lot of that early on. I think it really is the upgrade triggers that we have in the free product and across the lineup. that's causing clients to upgrade is one of the main drivers of the NAC increase for sure. The other thing I'd point out is online assist, you know, increased take rate as well is obviously a big tailwind for NAC as well.

Excellent. Sounds good, Tony. And just one more, if I can follow up. How are you with, in the assisted, how are your stores open? There were times last year due to COVID that you had half of the platform was unavailable to be open. You're doing a great job with this hybrid model of digital and storefronts. But just curious, how open are you, if you can compare to last year during the COVID period, how open are you as far as storefronts? Thanks.

Yeah, great question and you have good memory as well. That's exactly right. Last year there was not a single office open in what we would call normal and about half the network was closed. This year the network is open. What we're dealing with this year in a much, much more minor way are those states that have capacity restrictions where they limit the number of people based on the square footage of the location. That hasn't presented as a major issue at all to this point in the season, but that's the degree that we're operating in COVID situation is state-level capacity restrictions.

Great. Thanks very much, guys.

Thanks, Scott.

Thank you. Our next question comes from the line of Kartik Mehta of North Coast Research. Please go ahead.

Hey, Jeff and Tony. Jeff, you know, as you look at the season, I know it's early, but your thoughts on kind of how, what type of transition or mix we'll see from an assisted and DIY standpoint? Any change from the past or any change in your expectations for the growth rate of those two segments?

Yeah, Cardick, for sure. Let me kick us off. You know, before I talk about the mix, I mean, obviously we're focused on the total market to compete in and we're focused on continuing to digitize the assisted business and continuing to offer human help in the DIY business. So we literally see those lines continuing to blur. I think it's also important to remember that we always see any migration that happens being greater in the early part of the season. And then every year that moderates to a much different level toward the end of the season. You know, we're seeing that happen now. You know, in just the last week we've seen it moderate over 100 basis points, you know, headed in the direction that it's headed in every year. And the final point I'd make about it, I guess, until I hear your follow-up is, you know, we are really the only business that has a large assisted business and a large DIY business, and we're not seeing any signs in our own data of a major shift from one channel to the other.

And Jeff, I know this might be way too early, but I'm curious on your Emerald card. Obviously, you're trying and you have improved that product. Any signs or statistics that you can talk about that could show that consumers are using it just for more than getting their tax refund and spending that tax refund?

Yeah, and I appreciate the question a lot because I want to make sure to distinguish what we're doing this year with Emerald Card versus what we're building separate from Emerald Card for the future when we talk about financial products because those are really different things. This year in Emerald Card, As Tony mentioned, we definitely saw some benefit from stimulus payments being loaded onto the card. This year we enabled the ability to digitally provision the card into Google Pay or Apple Pay, and we've seen a significant increase in the usage of the card as it relates to that. That's this year. That's quite different than building a fully featured mobile bank that we're in development in now, and that will start to launch in iterations over the next year. And, you know, a lot more to say on that as we get deeper into the next year, but I just wanted to make sure to draw that distinction.

Thank you very much. Appreciate it. Thanks, Gordy.

Thank you. Our next question comes from Hamza Mazari of Jefferies. Please go ahead.

Good evening. Thank you. You touched on this in your prepared remarks a little bit and in the Q&A, but just kind of flushing it out a little bit, with the line blurring between DIY and assisted, what exactly are the implications to your business? Does the store base shrink a lot? How do you handle that? I know it's early innings, but just thoughts as to how that impacts your business from just a margin standpoint. I know the net average charge matters too in both of those businesses, but just any thoughts there would be great.

Absolutely. And let me try to hit a few points, which I think are all real potential implications for the business. I think I would start with an important choice we made for this year on NAC and assisted that was different from our past. And that was that the consumer will pay the assisted price no matter how many digital capabilities they use. So using digital is not a downgrade in NAC for assisted clients. If you start as a DIY client, given the take rate we're seeing with online assists, And with TaxPro Review, that's an important add-on to NAC and the DIY business. So the more digital capabilities in human health get blurred, the more we see positive benefit in really both our assisted and DIY businesses. Specifically in the assisted business, we've really been focusing on building capabilities to serve the client frankly faster than consumer demand has been happening over the last few years. So we think we're in a really good position now with ability to digitally upload your docs, to have video and chat with tax pros, to approve and pay online, using MyBlock as the centerpiece to that. We're paying close attention to consumer adoption because the business benefit, as we see the consumer take rate accelerate, is our ability to look closely at the physical retail footprint. As we've talked about, that footprint is 100% leased, and every year we have flexibility to open, close, or reposition. And then the second is with respect to labor utilization, both the number of pros and how those pros are deployed when you're not limited to a physical environment. So really important upside in the P&L, important impact to margin, and that's why we're paying such close attention to building the right capabilities that can shape consumer behavior over time.

Got it. Very helpful. And just my follow-up question is just around, it's more of a clarification. I think you had said M&A is not part of the core strategy here, Does that mean you just don't need to do M&A to sort of execute on the strategy around either financial products specifically or small business? I know you did Wave a while back, but just any thoughts on M&A there?

Yeah, so the important message we want to leave everyone with is a block horizon strategy is not a strategy dependent on M&A. We also know and we've talked about that we will stay open if we see capabilities that would accelerate our growth in small business or financial products and that they made the right financial sense, they generated the right returns for the business. We are open to those, but we're not trying to build an M&A dependent growth strategy, and that's how we've tried to be transparent on both sides of that question.

Got it. Thank you so much.

Thanks, Andres.

Thank you. Our next question comes from George Tong of Goldman Sachs. Your line is open.

Hi, thanks. Good afternoon. The tax season this year was delayed because the IRS accepted the e-file just a little bit later. Could you estimate perhaps how much revenue and volumes were shifted from fiscal 3Q to fiscal 4Q? Was it a delayed start based on prior years and based on what you're seeing so far this tax season?

Yeah, George, I don't know if I have the exact way or the number, the exact way that you ask it. I mean, what we shared in the opening comments was for the volume we did do and the tax returns we already essentially processed through the Q3 period, it was about $69 million of revenue that was directly shifted to Q4 because of the e-file delay alone. I think the bigger part of it is the delay of the overall tax season and And that I would just refer to you to look at the volume released by the IRS and then our volume tables as well. I mean, the IRS is still showing whether it's 20% to 30% decline across the industry. So there's obviously a large volume delay that is now starting to catch up. We see that on a week-over-week basis based on the data the IRS has released. But that would be the bigger impact, I think, for us and the overall industry through that January 31 period.

Right. And I guess just as a follow-up to that, perhaps in the season that you've seen so far, could you talk a little bit about how competitors are responding with respect to price and assisted, how competitive pricing is and how HRB intends to respond with its go-to-market as it relates to pricing?

Yeah, George, I'll kick that off and Tony can add in. You know, our pricing strategy in the assisted business is unchanged for this year. We feel very good about the reset we did a couple years ago. We feel very good about the client feedback we're getting year over year and the value for price paid. And we feel very good about the results that we're starting to see in terms of attracting new clients and where we're at from a share position. As we've talked before, we're not trying to be the low price provider. There will always be local competitors that offer a lower price. That's not where we're trying to play. And I think you also see from time to time different promotions that will be offered in the market. But we're focused on building a strong value offering that's not dependent on lowering price more and is trying to stay out of the high-low promotion game that you see others playing. But again, We feel very good about our results and the clients that are choosing Block.

Yeah, nothing to add. I think that was well said.

All right. Got it. Very helpful. Thank you. Thanks, George.

Thank you. Our next question comes from Michael Millman of Millman Research. Please go ahead.

Thank you. So a couple things. One, are you seeing any – oh. from Intuit's basically getting into assisted? And if so, how much? Secondly, this is the second year that we've had the virus come, be strong at least around the heart of the tax season. Will the people who now had two years sitting at home doing their taxes say kind of may as well continue to do this and change the long-term slope of the business?

Yeah, Mike, I'll jump in first. You know, I think on your first question, we feel very good about our leadership stand in the assisted business, adding the digital capabilities that we're adding to the results that we're seeing, the client satisfaction scores, improvements year over year. I think when it's all said and done, we'll report our business. Perhaps they'll report their business and break out their volume in assisted. Who knows? But where we stand right now, we feel very good about the progress we're making year over year and where we are in the assisted business. And your second question is just, you know, impact of the pandemic and is that causing a migration between channels, I think is the essence of your question. And, you know, every year at this time, we see the shift being a bit higher. That has always moderated every year to be much lower by the end of the season. We're already seeing that happen. There's been over 100 basis points moderation just in the last week in terms of that migration. And then I think the final point I'd reiterate is, you know, given that we have business in both the assisted and DIY categories, we're not seeing any significant shift from one channel to the other season to date as a result of COVID.

And the only thing I would add on, Jeff, is, you know, last year we look at the assisted category through October 15th. It essentially ended flat. So despite there being an incredible environment where people were forced to stay at home, encouraged to stay at home, I think it showed the resilience of the industry. And, you know, we'll see where this year ends, but, you know, we're seeing a lot of demand for our assisted products. And to Jeff's point, we've got the ability to see it across both business lines and just doesn't feel like there's a big shift in how people think about doing their taxes.

Yeah, thank you. And just one quick follow-up. If, as the chatter suggests, and you're kind of suggesting that we have another July 15th. Will this increase your costs kind of in the same way as last year, or is that already built into your forecasts?

Yeah, obviously, you know, we're paying close attention to all the same chatter and headlines. You know, we don't see a reason to delay from a consumer perspective, but We respect everything the IRS has on their plate. When that decision gets made, if that decision gets made, there's a number of things that we'll have to evaluate. When is the decision made? What is the ultimate date of the extension? Is it the same as last year? How much business remains? And then we'll have to re-forecast our business to execute against that remaining part of the business. Obviously, it's the second year in a row. If that happens, we would go through that process. So, you know, I would expect us to be smarter this year as we've been through it once.

Yeah, I mean, we said this in the opening comments, but, you know, the outlook we provided was assuming the tax season ends April 15th. So to your point, Michael, if that gets pushed out, then there's not only expenses that would get pushed into Q1, but also revenue. You know, last year we were in the middle of the pandemic, and people, again, were forced to stay at home. So even though the tax season is extended, we may not see, you know, the same level of volume shift that we saw last year. You know, if it were to happen, who knows? Obviously, still a lot of questions up in the air.

Okay.

Thank you. Thank you.

Thank you. At this time, I'd like to turn the call back over to Colby Brown for closing remarks. Sir?

All right, thanks, Lateef, and thanks, everyone, for joining us. This will conclude today's call.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.