H & R Block Inc (HRB) 2016 Q1 法說會逐字稿

Good afternoon.

My name is Mike and I will be your conference operator today.

At this time I'd like to welcome everyone to the first quarter earnings call.

All lines have been placed on mute to prevent any background noise.

After the speakers' remarks there will be a question-and-answer session.

(Operator Instructions)

I will now turn the call over to Colby Brown, Vice President of Investor Relations.

You may begin your conference.

Thank you, Mike.

Good afternoon, everyone.

Thank you for joining us to discuss the divestiture of H&R Block Bank, our capital structure plans and our first quarter of FY16 results.

Joining me on the call today are Bill Cobb, our President and CEO, and Greg Macfarlane, our CFO.

In connection with this call, we have posted today's Press Releases on the Investor Relations website at hrblock.com Some of the figures that we'll discuss today are presented on a non-GAAP basis.

We reconciled the comparable GAAP and non-GAAP figures in the schedules attached to our Press Release.

Before we begin our prepared remarks, I'd like to remind everyone 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 a result, our actual outcomes and results could differ materially.

You can learn more about these risks in our Form 10-K for FY15 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 will have a Q & A session.

With that, I'll now turn the call over to Bill.

Thanks, Colby, and good afternoon, everyone.

This is a big day for H&R Block and represents a significant milestone during my tenure as CEO.

We've put in a lot of hard work to get to this point and I'm excited about what today's announcement means for our Company and our shareholders.

The four key elements of our announcement include the following.

First, we have now closed the H&R Block Bank divestiture transaction and H&R Block is no longer regulated as a savings and loan holding company.

Second, we are implementing a new capital structure plan, highlighted by a $3.5 billion share repurchase program.

Third, we are taking immediate action toward establishing this new structure as we plan to commence a modified Dutch auction tender offer tomorrow, September 2, to repurchase up to $1.5 billion of our common stock, which represents approximately 16% of the Company's current market capitalization.

Finally, we are updating our debt and liquidity profile and intend to take on incremental debt and replace our committed line of credit within the confines of maintaining investment grade ratings metrics.

The capital structure we are implementing positions us to deliver meaningful returns to our shareholders while maintaining the appropriate access to liquidity given the seasonal nature of our business.

This is an important step in the journey we embarked on four years ago that has been focused on creating value for our shareholders.

We're going to use today's call to walk through a number of specifics regarding these announcements.

Oh, and by the way, we are also going to talk briefly about the first quarter results for FY16 which ended July 31.

Starting with the bank divestiture, I'm pleased to announce that we've reached the final milestone in our efforts to divest our bank and cease being regulated as a savings and loan holding company.

Yesterday H&R Block, Inc, H&R Block Bank and BofI Federal Bank closed the definitive purchase and assumption agreement and related agreements, a full month earlier than expected and previously announced.

This is the final step in our multi-year effort to return back to our core business of providing the best tax preparation and related services to our clients.

We believe that this transaction provides real value to you, our shareholders, by giving us control over our financial structure.

As many of you know, H&R Block is an incredibly efficient user of capital and this change facilitates our ability to continue this practice.

Under the agreement, H&R Block Bank sold certain assets and transferred certain liabilities including all of its deposit liabilities to B of I. The parties also executed a program management agreement, forming a long term relationship in which BofI will offer core financial services products: the Emerald Advance line of credit, refund transfers, and the award- winning general purpose reloadable debit card, the Emerald prepaid MasterCard to H&R Block clients.

We are also pleased that we've completed the steps required to allow us to cease being regulated as a savings and loan holding company.

H&R Block Bank has merged into its parent Company, surrendered its bank charter, and H&R Block, Inc.

is now officially deregistered as a savings and loan holding company.

Further details of these events can be found in our Form 8-K filed with the Securities and Exchange Commission today and in previous public disclosures.

With the bank divestiture behind us, it seems appropriate to put some context around not only our decision to divest the bank, but the journey we've been on as a Company over the last several years.

As a reminder, the divestiture of our bank represents the final step in a multi-year effort to focus on our core purpose, which is to look at our clients' lives through the lens of tax and find ways to help.

The divestiture also allows us to regain flexibility in our capital structure where we have a strong tradition of returning capital to shareholders, having repurchased 12% of the Company's stock and increased our dividend 33% during my tenure to date.

From an operational perspective, we have also brought more discipline to the organization, stabilizing the Management team and creating a clear vision.

We divested non-core businesses and successfully navigated to the largest change to the tax code in decades, the Affordable Care Act.

This focus on our tax-plus strategy has resulted in revenue increases in each of the last three fiscal years at a considerable increase in our margins over that same period.

The net result for our shareholders has been a significant increase in value with our market capitalization more than doubling.

This value creation was accomplished while regulation related to the Dodd-Frank Act required H&R Block, as a savings and loan holding company, to maintain levels of capital that are not appropriate for a capital light retail consumer services business such as ours.

Now that we are out from under these regulatory constraints, we are putting into place a capital structure plan that shows a strong commitment to and excitement about H&R Block's opportunities, with a goal of building sustainable medium- and long-term value for you, our shareholders.

This capital structure plan recognizes the fact that our balance sheet was restricted and strikes an appropriate balance in how we capitalize our business going forward.

To that end we are now taking decisive, thoughtful and immediate steps to achieving this capital plan.

First, I'm very pleased that the Board has approved a new $3.5 billion share repurchase program.

Given our current market capitalization of approximately $9 billion, this is a bold and aggressive move toward our future.

Next as part of this program we intend to commence a modified Dutch auction tender offer tomorrow to repurchase up to $1.5 billion of common stock, which represents approximately 16% of the Company's current market capitalization.

Finally, we announced our intention to raise incremental debt and put into place a new line of credit.

These new debt instruments will allow us the ability to return capital to our shareholders and fund our seasonal liquidity needs, all while maintaining investment-grade ratings metrics.

It's taken a lot of work to get to this point and I'm appreciative of the support and patience that you, our shareholders, have shown.

We believe this plan will provide the appropriate reward for that patience and will get us back to managing the financial architecture and operations of the business in the most optimal way possible.

Greg will provide further details during his prepared remarks.

But before turning the call over to Greg, I'd like to provide a few thoughts regarding our plans for the upcoming tax season.

Following a solid year in 2015 where we achieved our third consecutive year of revenue growth, navigated the first year of the ACA, and successfully launched our new product, Tax Identity Shield, we are excited about our plans to deliver a successful tax season in 2016 for our clients and shareholders.

As we head into the second year of the ACA, increased documentation requirements, higher healthcare, marketplace enrollment and larger penalties will result in an increase in the number of people impacted by the ACA.

As we have consistently said, this is the largest change to the tax code in decades and it will take several years for taxpayer behaviors and thus the full impact of the change to be realized.

Once again, we will be ready to assist our clients in understanding what the ACA means to them.

We've also continued this summer in our work to advocate for taxpayers as we lead the industry's efforts to stem fraud in the tax industry.

We are working with other tax preparation companies, the IRS, and state departments of revenue to implement stronger fraud prevention measures prior to the start of the next tax season.

In addition to these efforts, we are fully focused on a seamless transition to BofI for our clients.

We consider this to be a key element of a successful 2016 tax season and are committing resources necessary to facilitate a smooth transition.

We do not expect significant changes to existing products and our operational teams are working closely with BofI to implement the necessary processes.

These efforts will allow us to continue providing consistent best-in-class financial services products to our clients who trust our brand.

In conclusion, I'm excited about the upcoming tax season and about the future of H&R Block.

We are moving forward with an appropriate capital structure and have solid plans in place to execute on our tax-plus strategy.

I look forward to sharing more about these plans with you at our investor conference later this year.

With that, I'll turn the call over to Greg.

Thanks, Bill, and good afternoon, everybody.

Before I get into our capital structure plans, let me provide a few comments on the just completed fiscal first quarter.

As a reminder, due to the seasonal nature of our business, these results are not indicative of our performance for the full year.

Net loss from continuing operations was $97 million or $0.35 per share, a $12 million or $0.05 per share improvement from the prior-year loss.

Revenues in our tax services segment increased $3 million to $133 million, mainly due to higher peace of mind revenues, which are recognized on a deferred basis.

This increase was partially offset by the negative impact of foreign currency rates.

Operating expenses in our tax services segment increased $18 million to $297 million due to occupancy costs and depreciation in amortization expense related to the franchise acquisitions in the prior year.

In our corporate segment, pretax loss improved $8 million to $18 million, mainly due to lower interest expense as a result of repaying the $400 million note in October of 2014.

We also had favorability in taxes compared to the prior-year quarter due to discrete items.

Turning to discontinued operations, the net loss of $3 million was an improvement of $4 million, primarily driven by a provision for potential losses related to Sand Canyon's representation of warranty obligations in the prior-year quarter, compared with no such provision recorded in the current quarter.

At July 31, Sand Canyon's representation of warranty accrual was consistent with the prior quarter at $150 million.

As a reminder, Sand Canyon is and always has been operated as a separate legal entity from H&R Block.

We continue to believe our legal position is strong and ante any potential corporate veil-piercing arguments.

With the quarterly results behind us, I'd now like to turn to our announcement regarding the closing of the bank transaction and our capital structure plans.

First, let me provide some details regarding the impact of our bank transaction.

From a financial perspective, we continue to expect the impact of the program management agreement to be dilutive by approximately $0.08 to $0.10 per share annually, based on current fully diluted shares outstanding.

Of the $0.08 to $0.10 per share, approximately 60% will be reflected as a reduction of revenue with the remainder reflected as an increase in expenses.

The reduction in revenues including $0.02 per share of lost interest income resulting from the sale of our available-for-sale securities, which I will talk about later.

We will incur one-time charges related to the transaction of approximately $0.02 to $0.03 per share, again, to be clear, based on current fully diluted shares outstanding.

These charges will be recorded in our second fiscal quarter of this year.

Additionally, interest income from our mortgage portfolio and available-for-sale securities will be reported as other income rather than revenue.

This revenue change will only impact future results and will not be applied retroactively.

For a more detailed explanation of the impact of these changes, we have elected to provide the pro forma impact of the EPS dilution and reporting changes as part of our related 8-K filing.

From a balance sheet perspective, we transferred all of our customer banking deposits to BofI and made a one-time cash payment of approximately $419 million at the time of close.

The bank assets also included available-for-sale securities and mortgage loans held for investment.

As part of the funding of this transaction, we sold $220 million of the bank's available-for-sale securities and intend to liquidate the remainder of this investment, or approximately $170 million, by the end of the fiscal quarter.

We currently plan to retain the mortgage loan portfolio, which totaled $230 million at July 31 and consists of mature, performing loans.

While for many reasons we prefer not to own a mortgage portfolio, it currently does not make economic sense to sell it.

Instead for now, we plan to allow it to wind down naturally, although we will continue to regularly evaluate options for this portfolio in the future.

I'd now like to spend a few minutes talking about our capital structure.

I'm excited about the significant changes we are making.

We are now able to put our regulatory limitations behind us and move forward with a financial structure that appropriately reflects our capital light business model.

The foundation of this new structure is the four-year, $3.5 billion share repurchase program, which represents a continuation of our strong history of and commitment to returning capital to shareholders.

In the past, we have been disciplined buyers of our shares and we intend to continue this practice going forward.

Also included in the plan is incremental debt and a new committed line of credit.

We believe that this is a balanced and appropriate capital structure for H&R Block that is in the best interest of you, our shareholders.

Now I'd like to take you through each of the elements of this planned capital structure to provide more context around our decision and clarity around what this means for our Company and for our shareholders.

First, the Board of Directors approved a new $3.5 billion share repurchase program, effective immediately through June of 2019.

Under the new program, we plan to commence a modified Dutch auction tender offer tomorrow to purchase up to $1.5 billion of our common stock, subject to certain terms and conditions, at a price per share not less than $32.25 and not greater than $37.

The upper end of this price range represents a 12% premium to the Company's closing price today.

To ensure we have the appropriate level of liquidity over the next several years, the tender offer will be contingent upon, among other customary items, the successful replacement of our line of credit, which I'll discuss momentarily.

Additional details regarding the pricing and other terms will be provided upon formal commencement of the tender offer, which we expect to happen tomorrow.

After the completion of the offer, we intend to repurchase shares over time in an opportunistic manner through open market purchases and may also repurchase shares through private transactions, exchange offers, additional tender offers or other means The amount and timing of such repurchases will be dependent on market conditions and other factors.

The funding for share repurchases under the overall program and the tender offer will come from available cash, borrowing, and incremental debt and funds from ongoing business operations.

Moving to leverage, as we have stated in the past, we believe we have capacity to increase our leverage while maintaining investment grade ratings metrics.

We currently believe that a ratio of adjusted debt to adjusted EBITDA of approximately 2.5 times to 3 times would be consistent with our previously-stated intention to maintain investment grade ratings metrics.

We calculate adjusted debt to adjusted EBITDA using a fiscal four-quarter rolling average of total outstanding gross debt, including both short term and long term, and include adjustments for items such as operating leases, which are not capitalized in the Company's balance sheet.

We estimate that the adjustment for our operating leases equates to approximately a half turn of adjusted debt to adjusted EBITDA.

Based on this analysis, we intend to take on borrowings and incremental debt, but have not yet determined the amount, timing, and composition of such debt.

Finally, we are working to replace our current $1.5 billion line of credit.

We hope to accomplish a few things with this new facility.

First, this will lock in our off-season liquidity needs for the foreseeable future.

Second, we will amend certain covenants, which will be more in line with our expected future capital structure.

Third, depending on market conditions, we intend to upsize the facility.

Finally, we will structure the facility such that we draw on the line of credit rather than use commercial paper to fund our off-season needs.

And one last note: given the breadth of this announcement regarding our capital structure, we felt it best to pre-announce our plans regarding future leverage actions.

Going forward, however, we expect to return to our historical practice and do not intend to pre-announce most capital transactions.

To conclude, we've been thoughtful and thorough in our approach to our capital structure and we believe that this new structure appropriately recognizes our business needs and is consistent with the Company's long history of returning capital to shareholders.

We are committed to driving medium- and long-term value for our shareholders.

We've been doing just that through our operational performance of the past few years and now we're excited to be supplementing that performance with the right approach to our capital structure.

With that, I'll turn the call back to Bill.

Thank you, Greg.

Again, we are very pleased that we have completed the divestiture of our bank and are no longer regulated as a savings and loan holding company.

We are now able to operate the business with a capital structure that makes sense for our operating model and is in the best interest of our shareholders.

We are focused on delivering positive results through both capital return and the successful operation of our core business.

With that, I'll now open it up for your questions.

Operator?

(Operator Instructions)

Your first question is from Thomas Allen with Morgan Stanley.

Hi, guys, and congratulations on the bank closing, bank's deal closing.

Thanks, Tom.

So first question.

Any updated plans for the dividend?

Go ahead, Greg.

Yes, we have no comment on our dividend at this point in time, Thomas.

Okay.

And then around your leverage ratios, can you help us think about -- can you give us what your current adjusted debt to adjusted EBITDA is so we can think about it going forward?

Yes, I'm going to answer it a little bit differently, if that's okay.

But as we outlined in the prepared remarks, effectively we're talking about adjusted gross debt divided by adjusted EBITDA.

And the adjustment, of course, in our view is really the operating leases which is a convention that Standard & Poor's and Moody's follows.

Given the nature of Block's business, we have a large number of operating leases.

We quantify that roughly about $450 million, just for the record.

The gross debt is really a reflection of both short-term and long term, so that's seasonal funding as well as long-term/medium-term funding.

And you should calculate on a four-quarter outstanding gross basis, so adding up those things over four quarters.

So that's kind of how I'd answer the question.

Okay.

A couple more questions on the capital structure.

Are you going to be willing to buy back stock during tax season going forward?

So for now the $1.5 billion tender offer is what we've outlined and, as we said in the prepared remarks, we're really just talking about being opportunistic path then, but the focus for now remains the tender offer.

Okay.

And maybe I'll ask one question about -- not about the bank and about the capital structure.

And then I'll be done, promise.

The Senate Appropriations Committee proposed changing the Earned Income Tax Credit forms.

I think you guys have been advocating that.

What do you think the chances are that the full Congress changes the forms ahead of next tax season?

So we're obviously working closely with the Treasury on that.

I think we're getting close to a decision.

We're very hopeful that there will be progress in this tax season, but I don't have anything to update you on at this point.

Okay, thank you.

Thanks, Thomas.

The next question is from Scott Schneeberger with Oppenheimer.

Thanks, good afternoon, everyone.

Congratulations.

Thanks, Scott.

I guess, Bill, let's start out -- or Greg, the timeline for how the tender of the shares will open -- will work.

I understand that opens tomorrow.

You'll complete the new C-Lock prior to the completion of the tender.

What's the timeline?

How will this work to the extent you can help us think about that, please?

Yes, and just to be clear for everybody, when you announce a tender like we are today, there are very strict rules on what we can say and can't say, so I'm going to have to be very factual here, if that's okay.

And for future questions, please keep that in mind.

We are intending to open it up tomorrow, September 2. As we outlined in the presentation, it is contingent upon successfully closing the C-Lock and other customary conditions and we would certainly point you to the document which would be available starting tomorrow morning would be our estimate.

And then the plan is to have it close on October 2, the tender in this case, contingent upon both C-Lock and these other requirements.

Thanks for that.

The new C-Lock, I guess you've said in the Press Release marketing conditions will dictate, I suppose, the size.

How will it change?

You made mention no more commercial paper.

I'm curious about that decision and what shape or form this new C-Lock will take.

And what type of covenants will it have?

Will it require that you pay all borrowings off by April 30 every year?

And anything else, Greg, that you would throw in that may be interesting about it.

Thank you.

Yes, commercial paper has always been more of a luxury from our perspective.

It's really more of a cost savings.

I think in the last few years with the regulatory changes and the way that banks look at the economics of C-Locks, that that arbitraged, as it were.

It's changed a little bit.

We felt it very appropriate, given these broader announcements, about our capital structure to use this as an opportunity to relook at the C-Lock.

We have a great facility right now.

We've got great banks that are part of that.

We're going to relook at that and we've talked about the three major benefits in the prepared remarks.

I can't comment on what may come out of that because obviously it's not finalized at this point in time.

Of course, when it is finalized, we'll provide more details as appropriate.

Thanks.

Just one more for me actually going off that topic.

Was curious about the discrete tax items in the quarter and just thinking about going forward.

Could you give us a little more color on what that was and maybe some ideas to keep in our head as we model for the remainder of the year?

Thank you.

As many of you know, we've got a tax rate that is naturally at the high end of the range for corporations in the United States, in the high 30% range.

We've been actively looking at a number of strategies and we've been successfully able to execute them pretty consistently over the last couple of tax seasons and also continuing through this current quarter.

Those are discrete in nature, and what I mean by that is they're one-time.

All really good.

There's real benefits to the Company.

We have not yet communicated what we think the more permanent or long-term view is, what we think the effective tax rate is, but we plan to do so at some point in the future.

All right.

Thanks again and congratulations again.

Thanks, Scott.

The next question is from Kartik Mehta with Northcoast Research.

Good afternoon, Bill and Greg.

Greg, are you able to talk at all about what type of rate you anticipate on this new C-Lock?

Will it be similar to what you have or is there an opportunity to lower that?

Yes, I can't really give you a forecast at this point in time.

It's going to be subject to market conditions, timing.

We're going to look at 10-year structures.

Our view is we'll be consistent with other market transactions similar to this, but I can't give you more guidance than that.

Greg, what about -- I know you're going to use the C-Lock obviously to buy back shares and do some off-season funding.

But is there thought that after you do this initially you'll term out some of that debt?

Or will you use the C-Lock and then the cash to get in as the season ends to kind of manage the C-Lock?

Yes, I mean, provided through the Press Release and today's comments and guidance on how we think that we have additional incremental debt capacity on the balance sheet.

We're not at a point we are going to get more specific than that.

I don't think buying back shares with daily overnight money is the right sort of term structure to go with.

But we feel very comfortable with the tender that we've announced with the contingency around the C-Lock as well as other customer conditions, that we'll be able to fulfill the $1.5 billion tender offer.

And again, Kartik, I would caution everyone.

What we're doing here and there's -- I'll leave it to Greg to talk about the sources and uses.

What we're trying to do here is not position this as incremental debt to do this or that.

We're trying to reset the capital structure here.

We're no longer a savings and loan holding company.

This gives us an ability to set up our capital structure in line with our true business model going forward.

And then from that, we will then make decisions within the framework of what we talked about today from a capital structure perspective.

Thanks, Bill.

Maybe just one last question.

Greg, in the past you've talked about the cash that's on the balance sheet and maybe some of the cash that might not be available, whether it's offshore or the available-for-sale securities.

Can you kind of walk through that just to give an idea of what's on the balance sheet and how the C-Lock plays into that?

Yes, we've been pretty consistent in communicating with you, especially last quarter or so, that when we expect at the time the bank transaction to close which is, of course, now closed, that we would have about $1 billion of extra capital available.

And I'm confirming that again today with you; that's one of the primary sources, of course, for what we're planning to do here and announced.

In terms of [mind assent] this structure outside of the country and/or restricted, that's not really -- in our minds, that's part of the permanent capital structure.

We have done a good job in the last couple of years bringing some of that back from Canada and Australia and that's part of what the $1 billion represents.

Thank you very much.

The next question is from Gil Luria with Wedbush Securities.

Yes, thank you.

Let me add my congratulations.

And, Bill, you talked about this being a milestone, and after a few years you finally have the Company you wanted it to be.

And so going forward for you, what could you remind us of the strategic focus, now that you have your tax-plus business without the distractions?

And same question to you, Greg.

You've worked very hard changing the cost structure of the Company and then now you've set up changes to the capital structure, and I'm sure you still have a lot of work obviously to execute on this transition on this reset.

But once you've done that, what's the next big task and transformation that you'd like to take on?

Thanks, Gil, for your comments and, yes, it has been a bit of a long journey here.

And again, you said it well and you and I have talked about this.

We now, if you will, have the Company that we wanted.

Yes, the core of our strategy is what we call tax-plus.

We're going to center the Company on the tax preparation event and that is consistent, whether we are talking about international or here in the US.

Our principle is to serve clients the way that they want to be served, whether that be through digital efforts or with assistance.

And we will continue to operate with -- that's consistent with our brand and determine -- and I think what we did last year with Tax Identity Shield as an example.

Where can we add value to our clients' lives?

If we're able to monetize that, but ultimately we want to be the place where we do the best job on taxes, the most accurate job, where we get the maximum refund for our clients, and do it in a way that protects their security.

And that will continue to be -- it's somewhat of a simple notion, but I think a lot of times in business -- and when I first started with this Company, a lot of investors said to me, can you -- your story is too complicated; your story is too complicated.

Well, I think we've got a nice, simple story right now that I'm really proud of and I think we can continue to drive a lot of value.

You want to take the second part, Greg?

Yes, to keep it simple, I think you did sort of a very nice, high-level summary there, Gil.

But cost, capital, what's next?

I mean, not next, we've been working on it already, but helps us to continue to focus on even more is really the revenue side of the business model.

As you know and many people on the phone know, we really want to get to a point where we are sustainably growing 4%-plus.

And to borrow a quote from my good friend Jason Houseworth, who runs our digital business and our product side, we're maniacally focused on that.

And we, at that point, will be able to spend much more time talking about the early season challenges that we've had the last few seasons; continue to talk about the value proposition; continuing to talk about all of the things we can do to execute to be more relevant for our clients and, frankly, to win more clients from some of our competitors.

That's great.

Thank you very much.

Thanks, Gil.

The next question is from George Tong with Piper Jaffray.

Hi, good afternoon.

I will also add my congratulations on the bank divestiture closing.

Thank you.

Could you provide some thoughts around just your general philosophy around how you'd like to stage your buyback program through 2019?

Well, the opening number, we're kind of coming out with a big production, if you will.

But again, I would go back to the facts here.

The Board has authorized a $3.5 billion authorization through June of 2019, that's essentially four tax seasons.

We will have a tender offer we will launch tomorrow which we think is a great way to take immediate action.

And then from there, we are not going to be -- we have options in front of us, but I think what I would focus on is that we're looking at this over that four-year time frame.

I don't know, Greg, if you have anything you want to add.

Great, that's helpful.

And around your ongoing dividend policy, could you share your thoughts around just in general your dividend policy and any room for potential dividend step ups down the line?

Yes, our focus right now is what we've announced today and we don't have much comments in our dividend policy.

Obviously everyone knows we pay a dividend and the yield, depending where the stock price is at, is in the mid 2% range and we've been in that range now for a couple years.

But we have no (multiple speakers).

We did raise the dividend 33% a few years ago, but we don't have any comment beyond what we stated today.

Great.

And then last question around the fundamentals.

You've indicated you're targeting 4% top line growth.

Now that the bank divestiture is behind us, you can focus on your tax-plus strategy.

Can you give maybe two or three initiatives that you think will help bridge growth today to that target of 4% growth?

Yes, a very fair question and consistent with the way we've handled this, I think in the past.

I'm not going to get into that, certainly, on September 1. As we get closer to Investor Day and the actual tax season, we will share more of those plans then.

Great, thank you.

Thanks, George.

The next question is from Anjaneya Singh with Credit Suisse.

Congratulations, guys, and thanks for taking my questions.

Thanks.

Two quick ones for you.

One on the capital structure first.

Could you give us a sense of what the ratings agency discussions have fared like on the capital structure?

I'm just trying to get a sense of whether your leverage levels under this investment grade rating has a likelihood of being extended as you go forward.

Yes, so we have regular conversations with Standard & Poor's and Moody's.

We have good relationships.

We have a lot of respect for the team at both firms.

We would, in a normal course, talk about our business performance.

What we've said today is we believe that with this plan that we'll maintain investment grade metrics.

But ultimately that's a decision that the rating agency is going to make and that's really their call, not ours.

Understood.

And then one on the business at hand.

One of your competitors has talked about their expectations of about 2% growth for the industry and over 2% growth in the assisted channel.

I'm wondering if you can discuss some of the moving pieces as to why your expectations are slightly more muted there.

Yes, I don't know that we've commented on certainly the upcoming tax season.

The extensions are still out there.

We're still doing tax returns for tax season 2015, so we haven't come out with a position on growth going forward.

Again, as we get closer to the tax season and/or at Investor Day, we'll have an indication on that.

We'll be able to study -- the tax season will have fully closed and then we'll give you what our belief is as a best estimate.

Got it, thank you.

The next question is from Jeff Silber with BMO Capital Markets.

Thank you so much.

Just wanted to go back to the dividend questioning.

I know you have no comments specifically, but is there anything precluding you right now that the divestiture of the bank is done from changing the amount of your dividend?

No.

Sorry, no, just to be clear.

Okay, good, thank you.

And then again, sorry to ask this one, but the size of the share repurchase I think is much larger than most people had expected.

I'm just curious why 3.5 billion.

Why not 2.5 billion or 4.5 billion?

Why that amount?

Yes, so this is one of those awkward questions, because of the tender situation, I'm not able to get into in much detail.

All I can tell you is that it was well-considered and discussed with the Board and Management and outside advisors, and we felt it was the appropriate number.

Yes, I was going to say the same thing.

There was great deliberation given to this.

Obviously, during the time when we were in the regulatory approval process we couldn't talk too much about it but obviously we spent a lot of time on that.

And we had said consistently that upon closing of the transaction and us being deregistered we would come out with our plan shortly thereafter.

And, hopefully, we hit that marker.

Okay, you did.

Thanks so much.

Thank you.

Thanks, Jeff.

The next question is from Michael Millman with Millman Research Associates.

Thank you.

Considering the stability of the tax business, what's the financial benefit of being investment grade?

Do you want to go, Greg?

Yes, we've been -- thanks for the question, Mike.

So we've been very consistent in our perspective on this, but it's a well-considered discussion of topic with the Board and Management.

We've talked to a lot of external people over the last couple of years and we've gone public and said we believe there's value in maintaining investment-grade metrics for H&R Block.

We've not been specific as to why.

There are a number of considerations that are unique to Block, but there are some general things as well.

We don't think it's very valuable at this point to get into a specific articulation of that.

Is talking about the financial difference in cost fall under the non-discussionable items?

Sir, can you repeat the question?

I'm not sure I understood question that question there, Mike.

Can you --

So I was kind of curious, consider -- in talking -- in saying that you didn't want to get into some aspects of it, I was just wondering what extent or why is that the case?

Yes, I mean, as we said and say again, we are not going to get into specific articulation of the pros and cons.

We think consistent -- we think there's value in it and we are not going to share more than that.

Okay.

Could you talk a little bit on Sand Canyon?

How much equity is left in the business or that you have in the business?

If you indeed finish your constructive discussions, would that free up some additional actual cash?

So thank you for that question.

It wouldn't be a call if we didn't have a Sand Canyon one, so thanks, Mike, for bringing that here at the end of this.

So as I said in the script, there was no real major change this quarter in Sand Canyon's perspective of things.

The representation of warranty reserve continues to be at $150 million and there are several counterparties that are in [tolling] arrangements that they are moving along with Sand Canyon.

In addition to that $150 million, there's a couple hundred -- $200 million plus of equity.

And if you sort of reverse-tax effect that, that means there's net assets, as it were, of $450 million-odd in total.

The view that H&R Block has and I think that Sand Canyon would have, is that it's a time bound issue.

It will take multiple years to resolve.

My personal view is getting sort of a situation where there's no exposure to Block is really kind of the expected outcome at this point in time.

I don't think we would be in a position where we would be able to forecast down the road anything more in terms of positive cash back to the Company.

And as always, we point you to the quarterly disclosures and the annual disclosures for a lot more detail on this.

And a tax question.

For the EITC, what do you expect or do you expect that to make a percentage of that online going back to assisted?

And to what extent or how much do you think that's going to be?

Yes, with regard to making the documentation requirements consistent, we are certainly in active discussion as part of an overall software working development group with the IRS and with Treasury.

And I think that there's been a lot of discussion.

It's a policy question, but I think we are -- the ball is being advanced.

I just don't know how far for this tax season, but we certainly believe that it's the right principle, that no matter what your method of filing, that it be consistent and in terms of what you need to document and I'm hopeful that will happen for certainly for this tax season.

Thank you.

Thanks, Mike.

There are no further questions at this time.

I will turn the call back over to the presenters.

Okay, thank you, everyone, for joining us on today's call.

We will look forward to talking to you down the road.

This concludes today's conference call.

You may now disconnect.