H & R Block Inc (HRB) 2019 Q3 法說會逐字稿

Good morning.

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

At this time, I would like to welcome everyone to the H&R Block Third Quarter Earnings Call.

(Operator Instructions)

I would now like to turn the call over to Mr. Colby Brown, Vice President, Finance and Investor Relations.

Please go ahead.

Thank you, Michelle.

Good morning, everyone, and thank you for joining us to discuss our fiscal 2019 third quarter results.

On the call today are Jeff Jones, our President and CEO; and Tony Bowen, our CFO.

We 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'll discuss today are presented on a non-GAAP basis.

We've reconciled the comparable GAAP and non-GAAP figures in the schedules attached to our press release.

Before we begin our prepared remarks, I'll remind everyone that this call will include forward-looking statements as defined under the securities laws.

Such statements are based on current information and management'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 2018 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.

(Operator Instructions)

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

Thank you, Colby.

Good morning, everyone, and thanks for joining us.

With the first half of the season behind us, we're pleased with our performance and continue to be excited about the strategic changes we're making.

Feedback from our clients regarding the improvements to our services and products, including our new upfront, transparent pricing, has been fantastic.

We're continuing to lead the industry in the virtual space, with new offerings and an improved client experience.

And while the season has gotten off to a slow start for the entire industry, we are seeing volumes pick up and are focused on executing for the second half.

Before I jump into the details, let me outline the areas we'll cover on today's call.

First, I'll provide our perspectives on what we've seen in the industry.

Then I will talk about our performance and expectations for the second half of the season.

Finally, Tony will review our third quarter financial results and thoughts on our fiscal year outlook.

Starting with what we've seen in the overall industry.

The latest results from the IRS show a decline in returns of 3.5% on the day-to-day basis through February 22.

While it's typical to see declines at this point in the season, this year, the industry has been impacted by a slower-than-normal start due to uncertainty surrounding both the government shutdown and the tax law changes.

Consistent with the recent years, industry results through February show a change in mix from Assisted to DIY.

Early-season filers are more likely to change tax preparation methods, so the change in the early season is typically greater and then moderates in the second half.

And at this point, the industry mix shift is in line with the average of the last 5 years and is not accelerating due to tax reform.

Over the past several weeks, the industry has been catching up to the slow start, and the industry mix has been normalizing as expected.

For these reasons, we continue to expect overall industry returns to increase approximately 1%, with Assisted category volume flat to slightly up and the remainder of the industry growth coming in DIY.

In other words, the shift from Assisted to DIY will remain moderate at levels similar to the last several years.

Turning to our performance.

We've made significant improvements this season in how we serve our clients.

As a reminder, we announced this strategy in June and provided more detail on our Q1 and Q2 calls, including our key objectives by channel.

To recap, in our Assisted business, we focused on improving the value we deliver while developing a clear brand promise to differentiate H&R Block.

In DIY, we made investments to improve the product and grow awareness, while pricing competitively to deliver tremendous value.

And in Virtual, we continued to innovate, leading the industry as consumer expectations evolve.

We've made progress towards each of these objectives this season, which are not just about producing results this year, but represent important steps to set us up for success over time.

In Assisted, we've made significant improvements across every aspects to the business from field operations to pricing.

Starting with price.

As we detailed last quarter, we made meaningful changes to improve our value proposition by addressing what was the significant pain point for our clients.

We did this in 2 ways: by investing in price decreases for certain segments of our clients and by making our prices upfront and transparent.

This new pricing structure enables consumers to know the price before they begin as well as throughout the entire process; no mystery, no surprises and no hidden fees.

The feedback from our clients and our tax pros has exceeded our expectations.

Tax pros have indicated that upfront, transparent pricing helps them serve clients and alleviates the often uncomfortable price discussion at the end of the process.

And the response from our clients has been even better as we have seen a 7-point improvement in our client satisfaction scores when asked about price for value.

Many of you may be wondering about the overall level of price decrease, given the increase in our net average charge through the first half of the tax season.

This increase was expected and is attributable to the elimination of the Free Federal 1040EZ promotion.

In addition, many of the targeted price decreases will occur in the second half.

So we continue to expect an overall decline in net average charge by the end of the season, which Tony will discuss later in the call.

Of course, we've done much more than change our pricing model.

We focused on enhancing the experience for new clients and have put significant effort behind tax pro training and system enhancements to better showcase our expertise.

Nearly 1/3 of our tax pros have increased their certification levels.

And all of our pros took specialized training to help clients understand the impact of tax law change and plan for the future.

And it's shown as the feedback clients have provided around our expertise has improved significantly.

Our focus on operational execution is also having a positive impact.

By driving improvements in the quality and consistency of service delivery in our offices, we're doing a better job of scheduling the right tax pros at the right time and are converting clients at a greater rate.

Moving on to our Tax Plus products.

We're pleased with our early-season results.

Refund Advance, our no-fee interest-free loan continues to provide compelling value as nearly 1 million clients took advantage of this offer.

And overall attached rates have increased for our other Tax Plus products, as they continue to be an important aspect of the benefits we provide to our clients.

The changes we have made have resulted in great feedback from our clients.

In fact, our Assisted NPS has increased 8 full points, making it clear that we're executing on our plans.

And when excluding the impact of free EZ, we estimate that our Assisted return volume was comparable to the industry.

Moving to DIY, we've made a number of significant improvements to our product this year, which are translating to very strong performance.

We've improved the experience for mobile users, giving more visibility to where they are in the process.

We continue to leverage data to make our products smarter and more personalized.

This has allowed us to reduce the number of screens the client sees, and in some cases, reduce the number of questions they need to answer by more than half.

We've redesigned our Help Center, leveraging machine learning to deliver highly targeted responses and resolving over half of supported inquires within the tool.

We've also taken price transparency to another level for the DIY consumer by launching price preview, so clients know in real time when their price changes and why, setting a new expectation in the industry.

Collectively, these efforts have translated into strong results.

Conversion is up over 2 full points from the prior year.

Growth in mobile has been outstanding, and we continue to see increased adoption.

Our product continues to receive accolades, including the Editors' Choice award from PC Magazine.

And as a sign that we are delighting our clients, we've increased our NPS a full 8 points compared to last year.

Given these results, it's no surprise that DIY client volumes have increased over 6% through February 28, and we're on our way to taking share for the third straight year.

Finally, we are innovating by creating a new third platform in the industry we call Virtual Tax.

As a reminder, we now have 3 distinct products that fit between the physical assisted and DIY online businesses, making H&R Block the only company to be able to serve consumers, no matter how little or how much help they want.

Our first Virtual product, Tax Pro Go, is the easiest way for consumers to have someone prepare their taxes for them.

After uploading documents to a secure portal and being matched to a tax pro based on their needs, the consumer simply waits for the work to be done for them.

H&R Block is the only major brand offering this type of mobile-first assisted experience for consumers.

This year was the national introduction of Tax Pro Go, and it's attracting new younger clients to the brand.

Additionally, our client satisfaction scores and feedback indicate that we have a winning proposition.

We will continue to improve the experience and ensure consumers are aware of this breakthrough offering in the industry.

Our next virtual product, Tax Pro Review, is for the DIY consumer who wants an expert review before submitting their return.

The consumer completes their tax return using our DIY online product, and then one of our tax pros reviews their work and source documents and then signs and e-files for them.

We've done a much better job of helping our clients understand the benefits of this product, and the results have been strong.

In fact the growth rate for Tax Pro Review have outpaced our overall growth in DIY.

Finally, this year, we launched our third virtual product called Ask a Tax Pro.

This is designed for the DIY consumer that wants instant access to their questions.

With the push of a button, the consumer is connected to a tax pro within 1 minute.

Using voice or chat as well as screen sharing, the consumer has unlimited access to their tax pros for help while preparing their own taxes.

Based on the accessibility of our tax pros, our expertise and our price, we believe Ask a Tax Pro is the best live product for those DIY filers who want help along the way.

It's been encouraging to see that 1/3 of the client using this service are new to H&R Block, and the feedback we've received has been positive.

In the second half of the season, we'll enhance the user experience and ensure more DIY consumers are aware of this outstanding offering.

Not only do these 3 virtual products offer consumers modern solutions in tax preparation, they begin to enable H&R Block to optimize our labor, attract new consumers to our brand and provide trade-up opportunities for those consumers who are DIY filers due to price, but are fully comfortable doing taxes themselves.

Finally, our marketing efforts have been quite effective so far this year.

We're engaging with consumers in new ways and driving those who are more likely to become clients to our website.

By using real-time targeted messaging, we're seeing better linkage between our brand and our core qualities of expertise and care, which is leading to stronger brand consideration.

To wrap up, we are pleased with our progress this season.

The changes we are making are having a positive impact and will position us for success in the years ahead.

We're leading the industry by offering upfront, transparent pricing and by taking our virtual offerings to a new level.

And while we're pleased with the progress, we aren't satisfied.

We know there's much more we can accomplish as we focus on finishing the season strong and looking to the future.

With that, I'll hand the call over to Tony to discuss our quarterly financial results and outlook for fiscal '19.

Thanks, Jeff.

Good morning, everyone.

Before I get into the details of our Q3 results, as a reminder, we typically report a loss during the fiscal third quarter due to the seasonality of our business.

Therefore, third quarter results are not representative of our full year performance.

Starting with revenues.

We saw year-over-year decrease of $20 million or 4% to $468 million.

This is primarily the result of the delay in the overall industry filings, which shifted business out of the third quarter and into the fourth quarter.

Turning to expense.

Total operating expenses increased $21 million or 4% to $606 million.

This is primarily due to planned technology spend related to our long-term strategic initiatives as well as expenses related to marketing, bad debt and supplies.

Moving through the remainder of the income statement.

We saw interest expense decrease $2 million due to lower draws on our line of credit compared to the prior year.

The changes in revenue and expenses resulted in an increase in pretax loss from continuing operations at $38 million.

Loss per share, however, improved from $1.16 to $0.58 due to prior year impact of corporate tax rate changes.

Turning to 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 Form 10-K and 10-Q and other SEC filings.

Turning to capital.

Our priorities remain unchanged.

We first focus on maintaining adequate liquidity to fund the business.

Next, we look to invest in the business to drive long-term growth.

We then fund our dividend, which we have done consistently since going public.

And finally, we look to opportunistically return capital to shareholders through share repurchases and at a minimum, plan to repurchase shares to offset dilution from equity grants.

Year-to-date, we have repurchased a total of 4.7 million shares for $109 million.

This includes approximately 500,000 shares repurchased for $12 million during the fiscal third quarter.

I'd now like to provide thoughts on our outlook for the remainder of the year.

As a reminder, our outlook for fiscal '19 is driven by our investments in 3 key areas: price, technology and operational excellence; each of which that will position us for long-term growth.

And overall, we continue to expect results in line with the outlook we provided in December.

Given the variables at play this season, I thought it would be helpful to provide a little more color on our expectations to return volume and net average charge.

For the full year, we expect overall client growth driven by DIY, offset by Assisted.

Specific to Assisted, the client declines and improvement in net average charge from the first half of the season were expected due to the discontinuation of the free 1040EZ promotion.

For the second half, we are anticipating return growth due to our improved value proposition related to the new pricing structure and other client experience enhancements.

However, we anticipate a decline in net average charge in the second half as price decreases for certain Assisted consumer segments were weighted more to the back half of the season.

And net result for the full year is a decline in both Assisted clients and net average charge.

Moving to DIY.

For the first half of the season, we saw client growth driven by the product improvement and increasing conversion that Jeff discussed earlier.

Net average charge was slightly lower in the first half, as we continue to price competitively in this category.

We anticipate this client growth to continue in the second half and net average charge to increase due to improved mix.

So for the full year, we anticipate growing DIY clients and taking share, and for net average charge to be flat to slightly up.

Turning to the income statement.

We are reiterating the outlook we provided the last few quarters as we continue to expect total consolidated revenues of $3.05 billion to $3.1 billion and EBITDA margin of 24% to 26%.

And on corporate taxes, our expected long-term rate remains at 23% to 25%.

However, there are pending discrete items that could occur during the fourth quarter that will lower our fiscal '19 rate 4 to 5 points.

The remainder of our fiscal outlook remains largely unchanged, with depreciation and amortization of $165 million to $175 million, capital expenditures of $95 million to $105 million, and interest expense of $85 million to $90 million.

In summary, we're executing against our plans and are on track to achieve our financial goals for the year.

I'm extremely pleased with the progress we're making.

We have a great plan in place for long-term sustainable growth, and we've taken the initial steps this season.

With that, I will now turn the call back over to Jeff.

Thanks, Tony.

To wrap up, I want to thank our tax professionals, franchisees and associates who are living our purpose of providing help and inspiring confidence in our clients and communities and are doing a great job of executing against the initiatives that we put in place ahead of the season.

Their dedication and the feedback we have received from our clients gives us reason to be excited for the remainder of the season.

We're keenly focused on executing in the second half to deliver on our financial outlook.

We've made numerous improvements across all aspects of our business, and we continue to innovate, positioning us not only for this season, but for the long term.

And while we are just at the beginning of our journey, we are taking the right steps toward long-term growth in clients, revenue and earnings and ultimately, creating value for our shareholders.

We look forward to sharing more when we report our full year results in June.

With that, we'll now open the line for questions.

Michelle?

(Operator Instructions) And your first question comes from Thomas Allen from Morgan Stanley.

So Jeff, I find your comments all very positive.

I mean, the Net Promoter Score improvements are great.

I guess, as we think about your guidance with all of these kind of positive things going on, why wouldn't you increase your guidance for the year?

Kind of what's keeping you a little bit cautious?

Thanks for your comment very much.

I mean, on the Net Promoter Score real quickly, we're very, very pleased.

In fact as we look back historically, we don't think we've ever seen these kind of improvements in the amount of time we have seen it.

So clients are responding favorably.

There are lots of pieces of the puzzle here.

We're still about to enter a very competitive part of the season.

We think when you remove free EZ, we're about consistent with industry.

We hope to finish just slightly down in assisted clients, continuing that trajectory we've been on for a few years.

But there's still a lot more we see we can do to improve across how we execute in offices, continuing to improve the experience in DIY, making sure consumers really understand the shift in value proposition, as we reduce our dependency on promotions, which we've done more of in the past.

So we're reaffirming our outlook, because we like the momentum we're seeing, but we also know that there are a lot of things that we're doing brand new this year for the first time, and we still see room for improvement.

That's helpful.

And then just my follow-up question, there was an article out earlier this week about long wait times for virtual products.

Is that a problem that the industry is seeing and you specifically?

So our live product we call Ask a Tax Pro and we're seeing consistently able to connect to a tax pro within 1 minute.

We do have room to improve in how the co-browsing experience works, which is one of the things we know we can do better in screen sharing for the second half.

But one of the things that we really love about this space is we have a network of 100,000 tax pros.

And so what we're really doing is activating them with a layer of technology.

And because of that, it enables us to optimize our labor more.

And so that ability to connect fast to a tax pro is something we feel good about.

Your next question comes from Kartik Mehta from Northcoast Research.

Jeff, I know you talked a little bit about the 1040EZ.

And you had indicated you're anticipating losing some because of the pricing dynamics for this year.

I'm wondering, just as a reference point, what percentage of 1040EZs have the loss from last year?

So we don't break out by form type or client type exactly.

But when we look at where we've seen the early-season decline, obviously the industry is late for everybody, so that's playing into things.

But we really see that losing the free EZ promotion, we are losing the clients at the rate we expected we would.

That's why we feel good about the other strategies that we've put in place.

It's easy to say this but, if we isolate the free EZ decline, we feel good that we're keeping pace with the industry, and that's really what we're most focused on right now.

So for -- Jeff, just so I understand, for the rest of this season for March and April, would you expect that your results would be internally better than what the IRS reports, because we're probably through the 1040EZ season?

Yes, the 1040EZ promotion ended on the 28th and so -- 28th last year, sorry, so we're past that period.

So we expect to be comparable with industry as we move into the back half.

There's a lot of things that we're focused on, as I mentioned in my prepared remarks.

That's when our investment and price for more clients will kick in.

So the combination of the operational momentum, the investment in price declines, upfront pricing, all of that as things we're feeling good about, we think we'll finish comparable to the industry in Assisted.

Tony, you want to add anything?

Yes.

Just -- Kartik, to add on to that.

As you know, the Assisted category specifically is fairly delayed.

I think through 2/22, the IRS is showing down almost 7% in Assisted.

So we still expect, I think, as well as you do in your recent write-up, that we're going to end essentially flat to slightly up on the Assisted category.

So we'll obviously carry that momentum with us going in the second half.

And then Jeff, just one last question.

As you look at the results, the franchisees are performing better, and that's usually the case.

I'm wondering as you looked at the results, why do you think the franchise operations performed better than the company?

And what -- is there anything to take away from that, that you could implement in the company operations, so that they both could be similar?

So just a broad comment first.

I mean, I spend a lot of time with our franchisees, and I always believe there's opportunity to learn from how they execute, for sure.

I think in particular right now, even though franchisees participated in free EZ last year, not all of them did.

And so the impact of elimination of free EZ had less impact on the franchise performance so far this year.

So that's part of it.

And then they are able to set their own pricing.

So when you look at nat differences, we have very wide adoption of our pricing structure, but actual price points have varied a bit across the country, which is their discretion.

So I think the combination of those 2 things have really been what's driving that difference in the performance so far this year.

The next question comes from Scott Schneeberger from Oppenheimer.

Could you guys please discuss the dynamic in RALs this year?

How would you assess the performance at H&R Block relative to your expectations, and then just kind of a view of how their play in the broader industry?

Scott, this is Tony.

Overall, we're pleased with the number of RAL applications we have, the overall approval rates.

The average loan amount was up a little over 9%, so obviously a trend in the right direction, really good benefit for our clients.

As you know, there were a number of competitors in the space that were offering higher loan amounts for a fee.

We feel really good about the fact that we stayed interest-free, no fees for our customers, which is really how we launched this product a few years ago, and we were consistent with that execution this year.

We'll see how this plays out over the next several years.

Some individuals are definitely looking for the largest loan amount, but you do have to have an incredible refund to be able to qualify for some of the loan amounts that are being advertised out in the marketplace.

We'll continue to look at it every single year, but we feel really good about how we executed this year.

Okay.

Similar question, and Jeff, primarily for you, the transparency offering from H&R Block this year, how do you expect it to be different in the second half or received differently in the second half versus the first half just based on the type of customer with whom you meet?

And then kind of the second and third part of the question are, what has been the competitive reaction?

And what do you see in future tax seasons for the industry at storefronts?

All right, Scott, thanks.

I'll try to kick through those.

So second half versus first half, I mean one of the things that we're paying close attention to is just how much does the market even know we're doing this, right?

It's a brand new idea.

It's new to the industry.

We're actively marketing it, and we'll continue to actively market it as we get into the second half.

We know from our research that it's a very compelling message when consumers hear it.

It creates a lot of interest in the brand, which we're seeing translate into website traffic, et cetera.

Actual implementation of pricing, many of the investments we made in lowering prices are for more second half clients: working families, individuals with just more involved lifestyles, situations where we thought we had an opportunity to really deliver more value for them.

And so that will be a big difference.

We think more consumers will have lower prices in the second half, which is reflected in the [nat] shift we talked about.

I'm on the road a lot, in offices with tax pros.

And the thing that I just feel so good about is the feedback from the field about -- it just removes the really hard conversation that tax pros don't love to have.

They like to focus on serving clients, not on dealing with price.

And so I think the combination of lower prices for more of our target consumers, continuing to make sure that the marketplace knows this is part of our value prop, and then just continuing to help tax pros learn it and get more comfortable with it are all 3 things we expect to see in the second half versus first.

That covered the first part well.

Sorry for the 3 parter, yes.

Just kind of how did we, how does it feel vis-à-vis others in the industry?

And what do you see in future tax seasons?

Yes.

So an important thing I want to reiterate is we are not trying to be the low-price provider.

As we've talked over my 1.5 years, this is really about resetting price to enable our total value proposition to be realized.

And so because the variety of what our competitive set looks like, it's hard to just say it's our price versus their price.

But in general, we believe that competitive pricing was already lower than H&R Block.

And so from that standpoint, there really hasn't been a difference.

And we haven't actually seen with our field network, to this point, any competitive response.

We have seen with the branded competitors, promotions of cash to switch, those types of things, but not fundamental shifts in pricing structure.

And I think your third was more about the future, and I'm just going to ask you to hold until we get through the season.

We'll have a lot to debrief, both how we're executing it in Assisted, in virtual and in DIY, assess how we performed overall and make decisions for next year and the future.

Next question comes from George Tong from Goldman Sachs.

Assisted tax volumes declined 6.5% at HRB through February 28.

Can you discuss how much you estimate industry volumes decline by over the same period?

And internally, how much of HRB's decline you would attribute to the government shutdown versus elimination of the 1040EZ promotion versus other factors?

Yes, George, I'll take that.

I think the easiest way to think about it is to compare our data to the same data the IRS released.

So let me just walk you through what those numbers look like.

So in Assisted, their 2/22 e-file data, IRS was down 6.7%; H&R Block would have been down 8.9%, so it's about a 2-point difference.

And as we said in our opening comments, we think that difference is entirely due to the elimination of the free EZ promotion.

So if we haven't had the free EZ headwind, we essentially would have been in line with the IRS.

The 6.7% through 2/22 as you know is on a day-to-day basis.

Again, we expect the overall Assisted industry to essentially end flat by the end of the year, just slightly up.

So we've got a pretty big tailwind going into the second half, as we -- 2 things happen: one, we adjust per day-to-day to day-to-day, which, obviously is just a calendar thing; and then there is some level of delays/uncertainty, tax reform, other things that's causing people to file a little bit slower.

And when we look at it, you're not talking weeks of delay, but just a few days can obviously have a pretty big impact on the results.

So again, we think it's just timing.

The industry will catch up.

It's just a matter of getting to more margin through the end of the season.

Got it.

That's helpful.

And for my follow-up, the net average charge for Assisted increased 3.9% through February 28, which I think you said reflects the elimination of the 1040EZ.

Can you talk about how much Assisted pricing declined by excluding this impact, and how tax reform has affected your pricing from a mix perspective?

Yes.

I don't want to share the exact number, but obviously the tax reform changes and the increase in the standard deduction were all contemplated in our new pricing model that we've rolled out this year.

They were also contemplated in our revenue guidance, which included our net expectations for the year and we're essentially on track with where we expect to be.

Again, we said in the second half, net average charge will be down as the later-season filers who are getting the larger price decreases coming to the offices, as well as we won't have the nat benefit from the elimination of free EZ, which drove in the entire increase.

For the year we will be down in net average charge, but we're not guiding to the specific amount, it's more tied up at overall revenue outlook.

Next question comes from Alex Paris from Barrington Research.

This is Chris Howe sitting in for Alex.

All right, one topic here and one follow-up.

You had mentioned earlier just about your improvements in leveraging data, the reduction that you're seeing in screens and questions.

How should we assess the growth that you're seeing here in regard to client acquisition, client retention?

Have these changes or improvements been reactive or would you say more proactive?

And how much room is there to grow as far as simplifying the products for the consumer?

This is Jeff.

I'll kick it off and see if Tony wants to add anything.

Yes, I think specifically in our DIY product, I just think great product management is constantly improving the experience, constantly removing friction and steps and always trying to make it easier.

The team last year saw really clear feedback in our client surveys around pricing, around steps in the experience and around the ability to get help.

And so they very, very directly tackled all 3 of those things.

And I think that's why we continue to see the consumer feedback improve the way it is and the volume improve the way it is.

If you just take a step back, our strategy in DIY broadly is very simple.

We want to continue to have a great product that gets recognized by third parties.

We want to actively market the product so people know we're in the business.

And we want to price very aggressively.

And so the combination of those 3 things is what we continue to do.

It's driving great results, and it's what you'll see us continue to do as we move into the second half as well.

Sorry for my cold, guys, but I'll let Tony file in if he wants.

Okay, and then I had just one quick follow-up here.

It's -- Regardless of where you are in your tax journey, it seems the H&R Block has a product suited for you, as you move from Ask a Tax Pro with some of the new virtual products that you've introduced.

Have you seen any material shift or a migration of on-premise assisted customers moving towards the review product?

Or should I think of these as different, how would I say it, segments to look at?

Our introduction of each of the products has really been about a different use case.

And so that is how we're going to market with each of the different ones.

And I think you summarized the range well.

When I look at the industry when I arrived, it was an industry that basically forced people to 2 extreme ends of the spectrum: either you wanted a lot of help, or you had to do it yourself.

Obviously, we have a lot of confidence in the work underway to improve the Assisted side.

For a long time, we weren't as aggressive as we are now in pure DIY.

But then we recognized that there are people that, in the DIY space, that weren't fully confident doing it themselves.

And so now they have 2 options: either get live access to their questions, or have someone review all their work.

Tax Pro Go is really a brand new product in the industry and that product is conceived based on the insight that consumers know and trust H&R Block, but they didn't have the time or they didn't have the ability to come to an office and sit with a tax pro, and so that's why at this stage of being brand new in the market, we're excited to see so many clients being new to the franchise.

Nearly half of them are new and most of them are young.

And so they represent a very attractive audience for the future of the company.

The next question comes from Jeff Silber from BMO Capital Markets.

As we were leading up to this tax season, one of the issues was with the new tax laws, there might be some uncertainty from your client perspective, that you might see people that used to file DIY needing more advice, needing more handling, maybe going to either your Assisted products or some of your virtual products.

Have you seen any indication of that so far this filing season?

Again, I'll kick it off and see if Tony wants to add.

I think offering this full range very much gives people lots of choices.

Given that there might be some questions, we know there are questions from tax reform.

I think in DIY especially, to see the Tax Pro Review growth rate being a lot higher than what we're seeing in pure DIY.

I think that's a great example of people who are in DIY, but they recognize that they had questions they wanted someone to review their work before they file.

And so I think that's a great example of a product that is helping people get the help they need even though they start from a place of confidence in DIY.

Tony, I'll ask you to...

Yes.

I think, Jeff, the only thing I would add is when we look at the industry mix at this point of the year, it's fairly in line with the average we've seen in the last several years.

We've included that chart in the opening slide.

So it doesn't feel like tax reform is having an impact on how people are filing their taxes at this point.

We know that it's going to moderate in the second half as the mix will shift more towards Assisted, as more complex filers file later on in the season for the industry.

So there's definitely some data points within our own data showing that people are seeking help in choosing some of our help products along the way.

But I think from an overall industry perspective, we're not seeing a change in the trajectory that we're seeing in the last several years.

Okay, great.

And as my follow-up question, I know this might be difficult to do.

But you mentioned the fact about shift of timing from the fiscal third quarter to the fourth quarter, both because of the government shutdown and some of the uncertainty around tax reform.

Is there any way to quantify that impact?

And also did you see more of an impact maybe on your Tax Plus products?

Or maybe you've lost some revenues per se that [years] may have disappeared this filing season?

Yes.

I think the easiest way to think about it, Jeff, is take our full year guidance and then essentially back out year-to-date through January 31.

It's probably the easiest way to get an idea on what we think is going to happen in the fourth quarter.

I mean, even though the assisted tax returns were delayed in Q3, it was partially offset by the improvement in net average charge, as we talked about, through the elimination of the free EZ as well.

But I think the way to get your head around Q4 is just to probably look at year-to-date relative to our overall guidance.

And then the second part of your question, I'm pretty getting a little bit...

Sorry, the Tax Plus product, do you think you might have lost some revenues per se this filing season because of the uncertainty.

Yes -- no, I don't think so at all.

We're actually seeing improvement in attach rates.

Now again, our attach rates are relative to the base.

And given the assisted volume was delayed in Q3, that obviously impacted the revenue that we recorded in Q3 related to refund transfer and then we're [caught in] other things.

But assuming that we approve for the rest of the year, which we will, we expect those Tax Plus revenues to come along within in Q4.

Great.

So really just the timing issue pretty much across the board?

Yes, that's right.

Yes, I think that's exact.

Your next question comes from Hamzah Mazari from Macquarie.

My first question is just around return on investment.

So we've talked about pricing.

We talked a lot about technology.

Jeff, when you came in, we made these investments.

Margins went down a couple hundred basis points.

How should investors judge return on investment on these initiatives?

I know you make all your money in one quarter.

So just curious, how do investors judge return on investment?

Is it -- has to show up in the organic growth, I presume?

But just give us a sense of that.

Great to hear from you.

This is Jeff.

So yes, we did obviously lower the guidance to make investments in the business.

We dropped our EBITDA margin ranges from $27 million to $30 million to $24 million to $26 million, and we're reaffirming that we're on our path to deliver for this year what we said we would do.

The investments we're making are really important investments to position the business for growth.

And so what I like seeing not only do we make all of our money in one quarter, we're at the very beginning of the fourth quarter.

So there's a lot that still coming for H&R Block.

These are multiyear investments.

Especially when you think about the IT road map, these are things that will unlock value over time, our ability to serve consumers differently, the cloud migration, the single tax engine.

Our road map is on track, so I feel good about the progress the IT team is making.

When I take a step back from that, we do not have a stated goal of how quickly can we get back to 30% EBITDA margins.

We think we can expand margin over time by growing the business, and that's what we're most focused on right now.

So $24 million to $26 million is where we are.

And as we get more efficient, we get more reps under our belt.

Under the IT road map, we can grow the business and serve more clients.

I think those are ways that we can expand margin over time.

Great.

And just a follow-up question, is there any benefit to being public for H&R Block?

I mean, we talked about pricing, pricing is very competitive.

You're the leader in the industry.

You make all your money in one quarter.

There's no public comps for you.

Is there a reason -- what are the benefits of the company being public in your mind right here?

Thanks again, Hamzah.

I mean, that's not a question that I spend time thinking about, it's a -- that's a board decision.

We are focused on improving the business, investing in the business, delivering value for shareholders broadly over time, serving more consumers.

And that's why we feel good about the progress we've made so far this season and kind of what we see for the balance of the year.

We don't spend time as a management team asking ourselves that question.

And your next question comes from Michael Millman from Millman Research.

So following up on some previous questions, this year because of the new tax law, as you suggest, there's probably people who've been -- taxpayers been concerned, and so wanted to visit and get some help from a tax preparer.

Given that itemized -- itemization is likely to decline substantially, is it likely that some of these people will say, "My, we don't really need to go to a tax preparer.

We can do this online.

We can do-it-yourself." And so that we're going to see a considerable shift more than we've seen in the past several years to do it yourself.

And now that this year becomes your seventh year of being down, are we likely -- and are you prepared to see this continue eighth and ninth as the market moves?

And so related, is the company looking at making related acquisitions?

Thanks, Michael.

Again, this is Jeff.

I'll kick it off.

So a couple of things on the standard deduction question.

Obviously, this has been an important topic now for many, many months.

And there's 2 things I would comment on it.

Number one is before tax reform in general, about 70, mid -- low 70% of American consumers already took the standard deduction.

That number was far higher at H&R Block, and it will increase at H&R Block as well.

But the chart in -- the table in the slides is a way to try to indicate what we're seeing in terms of the migration from people who want help to people who want to do taxes themselves, given the changes to tax reform this year.

And like we've seen year-over-year for the last several years, that number bounces around a bit.

But as of this point in time, we're right on the 5-year average of kind of mid-February, how much migration happens.

We're already seeing that migration moderate as we start to move into the back half and expect that to end up kind of 40 to 90 basis points for the total year.

So I never want to pretend like we have our head in the sand, and that there isn't some migration happening, which is why we're investing like we are in building out our DIY business and building out this range of options for consumers, so they know they have more choice for how to get help on their terms from H&R Block than any place sells.

I think what we're seeing though is that tax reform isn't accelerating the migration from what we've seen in prior years.

This -- we're on track this year to be the third straight year with improved performance in Assisted business, so -- excluding the elimination of free EZ.

And so while you are right in terms of the multiyear trend, that is absolutely not what our goal is.

Our goal is to improve the quality, improve the value proposition, and ultimately grow clients in the Assisted business.

So we're not settling for being down.

I think your third point was about related acquisitions.

And if you refer back to our strategic framework that we introduced last year, the fifth strategic pillar is to invest for the long term.

And in that pillar, there is work where we're trying to do a couple of things.

Number one is -- and by the way, this is all in addition to everything we've talked about in the core business.

You've heard me say we have a number of adjacencies in our portfolio today.

And we're just beginning the hard work with every single one of those products and services, like we've done with DIY and Assisted, to figure out how to get more value from each of them.

That work is just beginning.

We also will remain open if there's -- if that work uncovers a new capability that we could add to the portfolio to help us serve our clients better, we will consider that.

But we're really thinking about it in that sequence of core business, innovation in the third platform, further develop our adjacencies, and then determine what else may be possible.

I have no further questions.

Thank you.

I turn the call back over to the presenters for closing remarks.

Thanks again, everyone, for joining us today.

This will conclude today's call.

Thank you, everyone.

This concludes today's conference call.

You may now disconnect.