Operator: Good afternoon, and welcome to the H&R Block Fiscal 2013 Third Quarter Earnings Call. All lines have been placed on mute to prevent any background noise. My name is Rose and I will be facilitating the audio portion of today's broadcast.
It is now my pleasure to turn the call over to your host, Mr. Derek Drysdale, Vice President of Investor Relations. Go ahead, sir.
Derek Drysdale - VP, IR: Thank you, Rose, and good afternoon, everyone. Thank you for joining us today to discuss our fiscal 2013 third quarter results. Joining me on the call are Bill Cobb, our President and CEO and Greg Macfarlane, our CFO. Other members of our senior management team will be available during the Q&A session. They included Jason Houseworth, President, U.S. Client Services; Amy McAnarney, President of U.S. Retail Client Services; and Susan Ehrlich, President of Financial Services.
In conjunction with this call, we have posted today's press release and slide presentation on the Investor Relations website at www.hrblock.com.
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 and in the appendix of today's slide presentation.
Before we begin our prepared remarks, I'd like to 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 a result, our actual outcomes and results could differ materially.
You can learn more about these risks in our Form 10-K for fiscal 2012 and our other SEC filings. H&R Block undertakes no obligation to publicly update these risk factors or forward-looking statements.
With that, I'd now like to turn the call over to Bill.
William C. Cobb - President and CEO: Thanks, Derek, and good afternoon, everyone. Earlier today, we released our U.S tax return volumes through February 28, as well as our fiscal 2013 third quarter earnings ended January 31. Obviously, there is a lot of noise this tax season, but we want you to walk away with three key points.
First, the entire tax industry has experienced unprecedented delays this season which has created near impossible comparisons to last year's results through January 31 and February 28. We believe that industry-wide tax filings are running about two weeks behind the comparable period last year and we expect that will take the balance of the season for the industry to fully normalize.
That said the great thing about our business is that taxpayers must file by April 15. We continue to believe that industry filings this tax season will grow in line with historical levels of approximately 1% to 2%.
Second, we entered the season with a very thoughtful plan and while we've had to make some adjustments due to these delays and competitive factors, I am pleased with our execution to-date. We noticed that many competitors substantially increased their marketing in December and January.
We were pleased that in light of the delays our marketing was better time. As I assess our marketing efforts so far this season, I believe our Chief Marketing Officer, Robert Turtledove and his team have done an outstanding job. Everywhere I go, people complement us on our new ad campaign, which focuses on the expertise of our tax professionals. While it's still early in the season, we believe we're outperforming the market thus far in both the assisted and digital categories. That said there is obviously a lot of execution remaining until the industry fully normalizes by April 15.
Finally, in order for us to be successful and drive long-term shareholder value, we must have a vision and clear goals to strengthen our overall industry position in fiscal 2013 and beyond. We have made good progress towards these goals and this season's performance-to-date is in line with our long-term vision for the Company.
Now with that summary, I'd like to take a few minutes to provide our analysis of the U.S. tax industry through February 28. As you know, the IRS typically begins accepting tax returns by mid-January. Heading into 2013, the IRS had originally planned to open its e-file system on January 22. So, we already expected the season to be delayed by approximately one week. Then the delay was exact further exacerbated by three factors.
First, significant tax legislation was signed in to law in early January, which prompted the IRS to subsequently move its opening of e-file to January 30, just before the end of our fiscal third quarter. Second, the IRS and a number of states and other taxing jurisdictions did not begin accepting certain forms until this month. Third, we believe that the media coverage on the so-called fiscal cliff tax legislation and the associated e-file and form delays has led to changes in the timing of taxpayer filing patterns this season. We believe all of these factors combined have led to industry-wide tax filings running about two weeks behind the comparable period last year.
Turning to our volume results through February 28, it's clear that these delays had a temporary impact on both our assisted and digital channels. However, our analysis of industry data gives us confidence that we are on track with our plans for fiscal 2013. While our U.S. tax return volume fell nearly 6% through February 28, we are currently outpacing the overall industry which we estimate was down approximately 8% on a comparable date-to-date basis.
The temporary impact of these delays has been more pronounced in our assisted business. This is especially true among complex Form 1040 filers who often wait longer to file than Form 1040EZ 1040 or 1040A filers. It's also important to note that our assisted volume has not been materially impacted by our decision to exit Sears last fall. We're pleased that the clients we previously served in Sears' locations are being retained at levels consistent with our expectations.
In the digital category, Intuit, our largest branded competitor, released their tax volume through February 16 about two weeks ago. Intuit reported its online filings fell 6% through February 16, while our online returns were down 2%, a comparable day-to-day basis. From January 30 through February 16 Intuit grew 32% while our online returns were up 44%. As of February 28, our total online returns grew more than 5% fiscal year-to-date.
In desktop, total filings fell 11% through February 28. It's important to highlight that the desktop category is in a slow secular decline and we made a strategic decision to target more profitable clients by exiting certain retailers.
Excluding these units, our desktop returns would have been down about 4%, and finally, our Free File Alliance returns were down 16% as of February 28. Overall, our mix of digital clients continues to improve, which should position us well going forward as we continue to gain momentum in this category.
In conclusion, I like the way, we are executing and we are currently outpacing our competition in both our assisted and digital channels. However, the industry will not formally normalize until the end of the season and there are still over 60 million taxpayers who have to file by April 15.
We have a lot of work to do between now and then, but I believe we are well-positioned, well-positioned to execute on our plans for this year. We look forward to sharing our second half tax volume results with you in late April.
With that, I'll now turn the call over to Greg to discuss our third quarter financial results.
Gregory J. Macfarlane - CFO: Thanks, Bill, and good afternoon everybody. Given the seasonality of our business and the fact that nearly all of our revenue and earnings come in the fourth quarter, our third quarter results generally don't provide a lot of color on our performance.
This is especially true this year as the unprecedented delay to the start of the tax season led to a material shift of business from our third quarter to our fourth quarter. Therefore, we do not believe our third quarter results are indicative of the results we expect to achieve this fiscal year. Our previously announced cost reduction initiatives remain on track and we continue to believe it will deliver significant earnings and market expansion in fiscal 2013.
Fiscal year-to-date through the third quarter we have realized $172 million of total expense savings. It's important to note however that our third quarter and year-to-date expenses are obscured due to the volume driver variable expense shift this year that did not occur last year. As a result we expect our fourth quarter variable expenses primarily tax professional compensation to increase compared to the fourth quarter a year ago. Despite this shift, we continue to expect our cost reduction initiatives will generate $85 million to $100 million of pre-tax earnings in fiscal 2013.
For the third quarter, total revenues were lower by 29% to $472 million as the IRS opened its e-file system on January 30, just before the end of our fiscal third quarter. For accounting purposes, we recognized the revenue and associated expenses from a completed tax return once the return has been accepted by the IRS. As a result, we deferred $50 million of revenue to our fourth quarter as the IRS did not accept returns that contained form such as the education credit as well as a number of other specific forms before our third quarter end on January 31.
Our third quarter adjusted net loss from continuing operations was $60 million, or $0.22 per share compared to breakeven in the prior year.
In our Tax Services segment, revenues were lower by $191 million or 29% due to the delayed start of the tax season and a $15 million revenue deferral that I had mentioned earlier. The segment's pre-tax loss of $64 million compared to a pretax income of $32 million in prior year. Lower revenues resulting from the delays were partially offset by our cost reduction initiatives and lower variable compensation costs.
In Corporate, our pre-tax loss improved by 2% to $32 million. Corporate expenses declined by $1 million, primarily due to lower interest expense resulting from last quarter's refinancing of our senior notes. Corporate revenues declined $1 million due to lower interest income from H&R Block Bank shrinking mortgage loan portfolio.
Our third quarter financial statements also reflect the impact of a settlement with the IRS, which provided closure on substantially all outstanding issues in our 1999 through 2007 tax return. The settlement resulted in a $43 million income tax benefit. This benefit includes the recognition of federal tax in interest receivables not previously recorded as well as the release of federal and state income tax reserves.
As I mentioned in our Investor Conference last December, we are continuing to explore ways lower our effective tax rate over the long term. We will provide more detail once our review is complete and we have more definitive information to share.
Turning to Sand Canyon, third quarter representation in warranty related claims remain low at $16 million, although future claim activity could vary considerably from quarter-to-quarter. Importantly, Sand Canyon reached a settlement with AIG during the third quarter with a settlement payment charge against Sand Canyon's accrual for representation and warranty claim. With the exception of disclosures we are required to make in our form 10-Q that will be filed later today, terms of the agreement are confidential. Sand Canyon's accrual for representation and warranty-related liabilities totaled $119 million at January 31, 2013. Turning to H&R Block Bank, I realize that many of you are interested in update as we continue to explore strategic alternatives. About all I can say at this point is that we are working closely with our partners at Goldman Sachs and First Annapolis and we are pleased by the progress we've made over the past couple of months.
Before we turn the call over for questions, I'd like to make an announcement. Over the next couple of weeks, Derek Drysdale will be transitioning into a new role at H&R Block as Vice President of Corporate Financial Planning & Analysis. As many of you know, Derek has proven to be a great asset over the past six years in Investor Relations. We are excited to have an executive of Derek's caliber moving into this new role, who will have the opportunity to continue working closely with me, Bill and the Board of Directors.
I am also pleased that Colby Brown has been named Derek's successor as Vice President of Investor Relations. Colby has been with H&R Block for three years and has previously served in several key roles in finance. Previously, H&R Block, Colby had successful career in finance with Wyeth Pharmaceuticals. I believe Colby's finance background and institutional knowledge of H&R Block will serve him well in Investor Relations, and I know Colby is very excited to meet many of you at our roadshows later this summer.
I now like to turn the call back over to Derek for our closing remarks.
Derek Drysdale - VP, IR: Thank you, Greg. Over the past six years, I have thoroughly enjoyed having the opportunity to work so closely with our analysts and investors. I value all the relationships we've established and I will certainly miss our daily interactions. That said, I am very excited to lead our Corporate Financial Planning and Analysis team and I'd like to thank Greg and Bill for allowing me this opportunity. Although, my involvement in Investor Relations will diminish over the coming weeks, I will be available for calls later tonight and tomorrow.
I also look forward to seeing many of you next week at the Credit Suisse Global Services Conference in Scottsdale and then in Boston on March 20. Colby will join me on both trips and I look forward to making the introductions. So, I hope you'll join both me and Greg and congratulating Colby. I know, he'll do a great job and that you'll really enjoy working with both Colby and Ryan Sands going forward.
With that, we are now ready for question. Operator?
Operator: Kartik Mehta, Northcoast Research.
Kartik Mehta - Northcoast Research: Bill, can you talk about what type of pricing you are getting so far in the tax season and maybe how that compares to you long-term goals?
William C. Cobb - President and CEO: We're not going to talk about pricing today. I mean it's been a seasonal with a lot of discounts annuities. It is a full seasonal business, a lot of the pricing is mix related. I will say that we put together, what you know – we described it as a thoughtful plan and that included pricing and I'm pleased that we're executing that plan in line with our expectations.
Kartik Mehta - Northcoast Research: Bill, can you talk a little bit about Emerald Card business. Obviously you didn't have a the free RACs this year to as an incentive for people to take the Emerald Card. Maybe where you stand in terms of how the Emerald Card is doing and in light of your expectations for the business as well?
William C. Cobb - President and CEO: I'm going to let Susan comment on that in a second. I will say that with the start of the second being pushed to January 30, there is not a lot of data to share with you. But I will let Susan comment on how Emerald Card is going.
Susan Ehrlich - President, Financial Services: As we talked about at Investor Day, a big part of what we were doing with Emerald Card this year was a focus on product enhancements with the cash rewards, with the redevelopment of our online banking platform, and the mobile app and really the focus has been on growing the year-round use of the card. I would say that what we have seen so far this season, we're pleased with the early indicators around things like online enrollment and the mobile app downloads. But I think this is going to be a continuing effort.
Kartik Mehta - Northcoast Research: Then just one last question though. As you look at the tax season, and how it's shaping up, what are your expectations for the digital market in terms of the entire – growth for the entire market.
Gregory J. Macfarlane - CFO: Jason, if you want to add any comments, I think we said this back in the – back at Investor Day. We do think it's mid-single digit circa 5% growing market for this year as the market continues to be really source it's volume from the decline in pen and paper. So, we still think that's about the size of what digital be. But Jason, I don't know if you have anything to add?
Jason Houseworth - President, U.S. Tax Services: I would say that say same thing I said in December, which is we believe with the pen and paper forecast and we think the digital category and I'd just say a will grow roughly 5% to 6% and I think that that's even with what I would call a lot of early season spending by some of what you call a lot of early season ending, some of our competitors in marketing and I'd say that we felt like a better-time and the non-pleased with the following performance in the category.
Operator: Scott Schneeberger, Oppenheimer.
Scott Schneeberger - Oppenheimer: You've mentioned, hey, there is still a lot of tax season left to. With the fiscal cliff related delays, when do you think we hit that year-over-year inflection point, is it something in mid-March, is it the end of March or what's your view on that because apparently we're not there yet?
William C. Cobb - President and CEO: Yeah, we are not there yet and that probably data point keeps bouncing around, but I wouldn't look for anything this month. I think it will be sometime next month, but I'm not spending a lot of time trying to figure out that. We're just trying to service our clients right now and do every tax return we can.
Scott Schneeberger - Oppenheimer: I appreciate the commentary on how you're progressing through the season and giving us the February 15 split on how digital is progressing. Is that – Bill, your response I assume just now was for the whole tax industry. Specifically to digital, do you say – would it be the same answer or might we see an inflection point sooner in relation to that category?
William C. Cobb - President and CEO: Yeah, I was talking about the tax industry in total and Jason, if you want to add anything. I mean, I think I would note that our primary business the way we look at the digital business is online and through the end of February, our number of returns is up 5%, but Jason, I don't know, if you want to add anything to that.
Jason Houseworth - President, U.S. Tax Services: No, I think that at this point it's really a question of when exactly, but what we know is it will be April 15 at the end of the year.
Scott Schneeberger - Oppenheimer: A couple of more if I can jumping around. You alluded to a strong Sears retention level at what you had anticipated. Do you care to share that level? And just a question relating to that. How would this season year-to-date have looked, if you can cut it this way without having closed 200 Block stores and moved out of Sears?
William C. Cobb - President and CEO: Let me answer the second question. I'm not sure I got the first one. We'll go to somebody else who did. We had an initiative and we've been executing against it. It's called leave no client behind. And to-date we believe we're executing well against retaining the clients which were in our what we called moved offices, because we believe these are our clients obviously and Sears these are our clients. We've been very aggressive without outreach and I think we've been very successful to-date on retaining those clients at the levels in line with our expectations. Not sure I caught the first half. Greg, do you want to try?
Gregory J. Macfarlane - CFO: I can. It's about Sears specifically, so we've had historical experience in closing Sears' locations down. This year obviously we closed the rest of them and so we've used our historical experience and we went store by store and looked at what we thought would happen, put specific plans in place, have executed a lot of that and I can by the way tell you I've been to a number of Sears locations, our formal locations. And what we've done in each market and I think we've been basically in line with our expectations and quite pleased with where we're at.
William C. Cobb - President and CEO: We have no regrets over the decision to exit Sears.
Scott Schneeberger - Oppenheimer: So, the latter part, Bill of that question was, if you can cut it this way, year-to-date cash returns per payor through February 28, down probably 28%, it was getting at – what would that have been if you hadn't adjusted for Sears? But if you don't have any idea, I mean probably that part of the question?
William C. Cobb - President and CEO: I think we're looking at everything relative to the – over our estimates of where the industry is at and we believe that in both assisted and digital we are to-date outperforming both channels, but there is a long way to go.
Scott Schneeberger - Oppenheimer: Then lastly, you guys outperformed what I was expecting just in the January quarter on the revenue line, but a little lighter relative to what I was expecting on the income line. Greg I think you were touching on that in the prepared remarks. But how with your maintained guidance of $85 million to $100 million of costs coming out, was it simply just the timing in the like quarter of revenue getting pushed into fourth quarter and we'll see a much more defined benefit from the cost savings. If you could speak to it a little bit more.
Gregory J. Macfarlane - CFO: I think this is a new record. It's like question number 8 that I finally get asked a question. So, thank you, Scott, for getting me (early). Well, in the quarter, I mean, the main thing here is we had a dramatic late opening here and that's affected not just the revenue line but the expense line. When you look at the amount of cost that we'll be shifting to the fourth quarter that are variable in nature, primarily being the (tax pro) compensation, but there are some other variable expenses. Those will come back in as the revenue will. When you isolate those items, what you'll see from my perspective is exactly the track record you'd expect to see to deliver the $85 million to $100 million. So, I'm comfortable at the end of the third quarter where we ended up on expenses.
Scott Schneeberger - Oppenheimer: While I have you and if I can sneak one more in, it was quite a loan number of mortgage putbacks, new mortgage putbacks in the quarter which was quite a number. With the AIG settlement that didn't change the loan loss reserve. I didn't go back and look where it was last time. Was there a change with the loan loss reserve or no change and now we have that behind us, correct?
Gregory J. Macfarlane - CFO: So, the AIG settlement is confidential, so I really can't comment on that. Unfortunately, the settlement was booked through the representation of warranty reserve I mentioned that and there were changes in the representation and warranty reserve which you can see in the 10-Q here shortly.
Operator: Thomas Allen, Morgan Stanley.
Thomas Allen - Morgan Stanley: Can you give us more color on how certain your consumer tax expenses are trending both in the third quarter and then cash season to-date specifically I'm seeing comp and benefits occupancy marketing and bad debt, especially given the expansion of Emerald Advances here?
William C. Cobb - President and CEO: I'll start and maybe – you may have to repeat some of the line items you're looking for, but relevant to bad debt the way our model works is we'll originate a loan, the Emerald Advance loan in the pre-season, that loan will open and at the end of the third quarter, at that point, we really not yet into the collection season. So, we will just be booking an estimated reserve at that point in time. So, from – that's mechanically, how it works. What I'll point out however is we made a lot of changes both to the underwriting models this season, as well as the collection practices that are in place and based on some of the early season and this was getting back to somewhere in fall time for us, those collection procedures were in place and I was actually quite pleased with their results. So, it's too early to talk about sort of the trend for bad debt, but I think, generally speaking that we've got a good program in place. I'm looking forward. Do you want to comment on this, Susan?
Susan Ehrlich - President, Financial Services: Yeah. I was just going to add Tom, just on your question about what happened on the expenditures of the variable expenses associated with booking those loans since we started earlier. I think this year as well we were very focused on ensuring that we had a efficiency in the program in that regard too. So, we opened offices where we knew we would see the kind of volume for applications and we worked very closely with retail client services to ensure that we made improvements on productivity there too.
William C. Cobb - President and CEO: I guess I would just add, Thomas, not to speak any specific line item, but I think you'll see that in virtually every case. The expense controls we've put in place, the project runway initiatives, we're in below year ago on virtually every measure and I think Greg pointed out that on the variable compensation around tax pro some of that will come back in the fourth quarter as we do more volume.
Gregory J. Macfarlane - CFO: I could talk about occupancy too, because you mentioned that one. As part of our cost reduction initiatives that came in the last season, we targeted a number of locations for closure. We've executed that successfully. This was mentioned earlier, we will leave no client behind just because we closed the location. It doesn't mean that we're not going to continue to service those clients and we've been very good at moving those clients to the closest location that convenient to them. We also took that opportunity to renegotiate a number of leases because of the way the commercial market was and those were successfully executed. We didn't get into specific line items in terms of how we're going to expect these $85 million to $100 million to come into the income statement, but as specific to occupancy and specific to all line items they are all delivering what we expected them to do.
Thomas Allen - Morgan Stanley: Then in terms of RACs I don't think you guys have touched on it yet, how is that trending season-to-date both on a pricing side and volume side?
William C. Cobb - President and CEO: Well I will talk to the pricing side. We have charged for all the RACs that we have done this year. There is no free RAC. With regard to volume, we're not disclosing that because obviously we're only two days into the season, so that is most of the deductive fees volume is going to be in the fourth quarter.
Thomas Allen - Morgan Stanley: Then final question if I can fit it in. I think everyone is interested in the potential impact of the Affordable Care Act. Do you guys have any thought or can you give any numbers around how it could expand the number of filers or increase pricing for you in the future?
William C. Cobb - President and CEO: I don't think Thomas we're ready yet to talk about volume or pricing or the business model itself. We've been studying this market. We're deeply involved in it. I do think the tax and healthcare review we've done so far this year has been very well received by clients. They appreciate us taking the time to inform them of the upcoming changes which really starts with being triggered by the 2012 tax return. I think that as we go forward, this is getting – it appears to be that complexity will be the order of the day here. Complex tax laws generally are good for our assisted business. But again, as I have said many times, the great thing about our business model is, we are here to serve clients the way that they want to be served since we have every form of business and we use the term anywhere, anyway, anytime. So, I think we are well-positioned to take advantage of whatever happens in the Affordable Care Act. There is still a lot of initiatives; there's still a lot to hear from HHS and the IRS. So, I have to do a stay tuned on this one.
Operator: Mike Turner, Compass Point.
Unidentified Analyst - Compass Point: This is (indiscernible) on for Mike. I just wanted to follow up on the healthcare. I know it's still a limit premature to take about health care reform and what it will mean to the and what it will mean to the business, but just a few questions. In 2007, when Massachusetts instituted the health care instituted the healthcare reform. Can you talk about the impact it had on your business plans.
William C. Cobb - President and CEO: That was well before my time and I think anybody else in this room. So, I'm not sure I could speak the impact we've had back then. I think that a couple of points on Massachusetts and I don't pertain for a second to be deep on this agency. But obviously the demographics in Massachusetts are different. You have a wealthier state. You have a state that actually had a relatively low percentage of uninsured population that was – think only in mid-single 5% or 6% range. The comparable number I have seen in the U.S. is approaching 20%, the 18% to 20% range. It's a different law. It's a different approach. So, I don't think that there is frankly a lot to learn from Massachusetts because this is unique with all the various exchanges, some of which are going to be states, some of which are in states are going to be done via what they are growing at federal exchange. So, we're not spending a lot of time looking back on Massachusetts. We're trying to manage through what are the complexities of this law and how best can we serve our clients as it impacts them.
Unidentified Analyst - Compass Point: I know you guys don't usually give color around buyback, but is there any reason to believe that you guys won't to be in the market buying back more stock until the bank transaction is completed? Is there any reason why you guys didn't repurchase anything in Q2?
Gregory J. Macfarlane - CFO: So, we don't provide forward-looking guidance, to answer your first part of your question on pretty much most matters. So, and then our track record however historically has been very favorable to shareholders. We've done a great job of buying back shares historically, and as you just saw, we've also just announced our quarterly dividend here, which we're quite proud of.
Unidentified Analyst - Compass Point: My last one, if I could, how tightened due diligence requirements on e-tech filers, how is that impacted the overall number of filings or is it still too early based on the delays?
William C. Cobb - President and CEO: I'm not sure I heard you correctly. Did anyone – could you repeat the question?
Unidentified Analyst - Compass Point: On the e-tech filers, the earned income tax credit filers.
William C. Cobb - President and CEO: Okay. And the question is...
Unidentified Analyst - Compass Point: Additional due diligence requirements that were instituted this year. I was wondering how that impacted your overall number of filers.
William C. Cobb - President and CEO: We haven't seen anything. There is additional data. The extra page as it called. We haven't seen anything of note. Amy, I don't know if there is anything you want to comment on, but I don't think that hasn't come up and I think our tax professionals have done a nice job handling their clients with that.
Amy McAnarney - President, Retail Client Services: The only thing that I would add is that you know just with any regulation and adherence to the IRS, it's part of what we do. So, we have not seen really any impact at all serving our clients.
Operator: Michael Millman, Millman Research.
Michael Millman - Millman Research: Do you think that the – what we've learned from the push of rebate program, it will give some indication of what ACA may mean in terms of volume? Also regarding ACA, on your program on your review program, are you saying that retention from those people who used the program are you saying, the clients from that program as well? And then to change the subject a little bit, can you give us some indication of whether you think you can make up what you lost in the third quarter and the fourth quarter, I would assume that you had efficiencies in the third quarter and assume you'd have some inefficiencies when we get this end of mid-April crunch as people rush to file? Then finally, the last year easy returns were up about 25%. Are you seeing anything like that this year?
William C. Cobb - President and CEO: Any other questions, Mike? Let me try the first four. So, on the ESA, the Economic Stimulus Act from the Bush administration, we've thought about this, whether that's a proxy for what may happen in the Affordable Care Act, I don't think – that was a one-timer. It was an one-time way for individuals to get money from the government. This is so different because a tax return filed in 2012, which indicates whether you have eligibility for a subsidy for an exchange that's opening in October of 2013 which has impact for the insurance you're going to take on in 2014 and then has to be trued up in 2015. I mean, it is just – the Economic Stimulus Act was a one-timer. It was a benefit to the industry. I think that in the long run this is going to add a lot of ne filers. I don't know. I think it is going to be a slow ramp though. Our research is quite clear. People are very confused about this act. So, that's kind of the first area. I think with regard to retention, you asked about with regard to healthcare, this is the first year we're doing a healthcare review. So, we won't see that in any numbers. We'll see that next year, but I do think it has certainly been something that as print off that healthcare review for people that they've been very appreciative of our clients. We believe it has driven new filers into our offices. So, we think that has been a good thing and with regard to EZ, we won't comment about specific forms at this point. I think what I would do Greg is maybe turn it over to you to talk about – Mike was asking about third quarter inefficiencies and fourth quarter inefficiencies, as I turn it over to you though I will say that I think Amy's team did a terrific job with the change in season. Obviously, we had a lot of clients coming in the door in the last two days of January and certainly into the first week, I think they handled it beautifully and I expect them to do the same at the end of the season. But why don't you speak to any of the financial implications of that?
Gregory J. Macfarlane - CFO: Yeah. So, we spent a lot of time looking at various models. The good thing about Block is we've been doing this for a long time and we know how do labor modeling. We understand how the cost structure works. We understand how then to actually roll that down into the field. So, as we had leading information, real-time information, we are able to adjust pretty quickly. There were some inefficiencies, I think that's a fair statement, but they were not material. So, I wouldn't get too worried about it from your perspective. As it relates to the fourth quarter, there are a lot of people who start to get their taxes done and we are looking forward to serving them and I think that we'll be fine coming out of the season.
Operator: Adam Liebhoff Loomis Sayles.
Adam Liebhoff - Loomis Sayles: Let me offer my congratulations to Derek and Colby. Just one question really, I wonder what sort of share gain is implied by the 7.8% decline at retail, and I suppose, said another way, do you guys have any sense for the overall market for retail returns, how that market trended, I guess through Feb 28?
William C. Cobb - President and CEO: Yeah. Adam and then if Jason want to augment my comment. We're not going to talk about share gains. It's a full season business. We'll obviously have full information as we get toward final season results. So, I'm not going to speak to any share gain nor do we have good insight into the mix between system and digital other than our own estimates. But Jason do you want to…
Jason Houseworth - President, U.S. Tax Services: This is Jason Houseworth. I think the problem at this point is that the IRS hasn't made any data public that would show the split between assisted and digital filers and until they do that it's very hard to tell. The down 8% number was our estimate and really beyond that we're not able to get a read on the assisted to digital break out.
William C. Cobb - President and CEO: And that was for the total business, the 8%.
Operator: Sandy Mehta, Value Investment Principals Ltd.
Sandy Mehta - Value Investment Principals Ltd.: First of all I'd like to congratulate the entire management team. The stock has had a very good move from the December Analyst Day from $18 to $26 here almost in the aftermarket. Just a couple of questions on the sale of the bank, I know you cannot comment much, but is there – can you give us some color in terms of timing, is this still and expectation of – likely in the next couple of quarters and the negotiations and what you are seeing, are you comfortable in terms of the revenue sharing of profits and products that are within the bank? Does that appear to be in line with your expectations?
Gregory J. Macfarlane - CFO: We announced earlier in the fall time our decision to find a way to exit the bank. To be really clear, with everyone, I'm going to say this is every time I get this question. Financial service is a very important part of our future at Block. We think it's a very important way to add value to our clients and an important way to add value to our shareholders and that commitment we're are delivering through the season and we've given some highlights today and at the end of the season, we'll talk more about that. Since we made that announcement about the bank back in the fall time, we've engaged both Goldman Sachs and (indiscernible) as our advisors and we've been methodically working through a process to find out what the right option is for H&R Block. Our objective is number one to get the right deal and number two is to do it as expeditiously as possible. And the problem is, when you are in the middle of these things, it's hard to provide real-time updates. But suffice to say, we've had good response out there and we are moving quickly along here. I'm really not going to give you any idea of what timing looks like though.
Sandy Mehta - Value Investment Principals Ltd.: Can you give us an update on buyback activity and many of us have expectations for sizeable buybacks going forward. Given the stock has moved to a more reasonable level than previously, is it fair to expect that probably we'll see more dividend increases than buybacks going forward?
William C. Cobb - President and CEO: So, let me go first and then Greg, you should certainly weigh in. I would remind everybody that for the fiscal year-to-date we have bought back 8% of the stock on top of 4% last year. So, I'm pleased with the performance we've had in returning capital this year. We also, as Greg mentioned, we just announced our 202nd consecutive quarterly dividend. But I'd let Greg speak to anything beyond that.
Gregory J. Macfarlane - CFO: We have a philosophy at Block about being shareholder friendly. We've been able to deliver that historically. We don't provide forward-looking guidance however. So, we'll find out what the future looks like. Our thinking about share buyback is really a two-part question that we need to be able to answer. The first is, do we have the cash available from our capital allocation waterfall and then the second thing we have to do is, do we like the price the stock is trading at and that's also a number that we're not going to provide. We don't think that's in the interest of the shareholder base to talk about what points of the market we're going to be in at this point in time. But we end up going back to the point that Bill mentioned which is our philosophy is to be shareholder friendly.
Operator: Steve O'Brien, Jefferies.
Steve O'Brien - Jefferies: I know you're not talking about pricing directly, but I was wondering if you see potential for the late filing season to result in some ASP lift given kind of normal and the season price increase as we normally see in the digital DIY market.
Gregory J. Macfarlane - CFO: Yeah. I'm not going to signal to competitors what our plans are coming up. This is a business that you have to manage very closely as there is seasons within seasons and there are timeframes and mix obviously plays into that. But we are not unaware of where you're going with that question Steve and I just would again say, let us play out the season and then you'll have full insight into it.
Steve O'Brien - Jefferies: If I could on another topic regarding the retail strategic exits, could you provide a little bit more color around like what portion of the channel that was for H&R Block. I mean, how do you come to that down 4% figure versus the true reported figure and should we think of that as a same-store sales number or something like that? Just any color or metrics around that you could provide, would be great.
Gregory J. Macfarlane - CFO: Well, there isn't a true reported number at this point because the IRS has not released anything publicly. We obviously have our – a lot of historical data in the context and we try to figure out how we are doing. But we've released what we think is decent progress to-date, but the reality is there is a lot of tax season to go here still and that's probably the better time to talk about share and…
William C. Cobb - President and CEO: Were you talking about office closings, office moves?
Jason Houseworth - President, U.S. Tax Services: Desktop returns.
Steve O'Brien - Jefferies: I was just talking about the desktop – the retail channel (indiscernible).
William C. Cobb - President and CEO: I then misunderstood. Jason is the only one who got it, so he gets to answer it.
Jason Houseworth - President, U.S. Tax Services: Thanks Steve. I appreciate the question. Well in desktop, you know where we sell our box software, this year we targeted more profitable clients and what we see is the declining channel and our focus this season, it really remains on growing online and within that mobile units. And as Bill mentioned, if you take out the strategic exits that we made, we'd already be down 4% as on February 28, and that was really what we meant to do this season.
Steve O'Brien - Jefferies: I mean was it a quarter of your retail presence or is there any kind of just so I can try to get my arms around how big the exit in terms of getting to the 4% number versus the reported number?
William C. Cobb - President and CEO: I mean – I think the plan, I mean we obviously still have a very viable business. We did over 1.2 million returns through February 28. This was certain, a couple of retailers that we just thought the – ask was egregious and we decided to focus our money and our desire for space and our merchandising on certain retailers, so that – it was not wholesale shift. This is a segment of the market that is in a secular decline. We think that the highest growth, highest profit area is online that's where we've really staked our claim. Jason and his team have had a very successful 2.5 years and we have a season yet to complete. But this is still a fair amount of return to us. Jason, do you have anything you want to add?
Jason Houseworth - President, U.S. Tax Services: The only other color I would add, Steve, is just in this channel unlike online we really deal by retailer-by-retailer. So, again, next year we'll look at each specific deal and evaluate it based on the profitability we can make there.
Operator: Mike Hughes, (indiscernible).
James Albin: Actually, it's (James Albin) calling in for him. A quick question on the bank sale. How do you think about what you're going to be giving up in terms of revenue in your financial services products to the new bank JV partner versus how much you're going to keep. I imagine the more you give up to the bank partner, the more the value of the bank will be. The more higher percentage of the revenues you want to keep, the lower the value to the bank.
Gregory J. Macfarlane - CFO: So, I'll again provide some guidelines to how we think about this and I shared this really back at the Investor Day as well for you all. Our objective is obviously the ongoing business here. I mean, it's not really a present value goal that we have in mind here. However, having said that, it's going to come down to a function of which partner or partnership model we decide to go with and because of that deal we have to figure out exactly what that looks like and then therefore the economics would be. It's hard for us to speculate on that. What I have said about the overall economics and you have to go product by product. You've got three main products; Emerald Card, Emerald Advance and then the (refund transfer). We have to think that the refund transfer, it's fairly administrative in nature. We don't see a lot of risk in that product and therefore we don't believe we have to give a lot of the economics. On the Emerald Card, it's a prepaid reloadable general purpose card. Again, we don't think there is a lot of risk, mostly with the partner we'll be doing as administrative. And then it's really on the Emerald Advance, the lending product where we probably have talked about a bit more – about what a bank's responsibilities are and understand that, but that's the smallest of the three products from a revenue perspective. So, that's just kind of where we're at in terms of what I can provide different commentary.
James Albin: One other question, this would be thinking about ACA. For better or worse many of your customers going to walk from the office, but do you think you are pretty close (to akin) to the IRS itself, how do you manage the process so that there is not backlash against H&R Block for charging additional costs for a complexity or even if you're not charging for ACA that it's just a more complex and more cumbersome process? And then on the other hand, how do you deal with potential political blowback from trying to make money off of ACA when it's known that it's going to be something that at least the democratic administration wants to go smoothly and be a big win for everyone?
William C. Cobb - President and CEO: I think if Amy wants to weigh in. So, our clients – listen, we don't have a political agenda here. Let me be crystal clear on this and crystal clear on this when I go to Capitol Hill. The Affordable Care Act has put in the law. We are here to interpret the law. We do not – our political action committee gives equally to both sides of the House and the Senate. We're not political activists in any way. This is (indiscernible). Our job is to inform our clients of the potential eligibility for a subsidy. If they are eligible, we give them an indication of based on the silver level of coverage that is currently the only pricing mechanism we know of with the Affordable Care Act. What their monthly charge will be and if they choose not to take healthcare, what their potential tax spend well be. Our clients really appreciate this. We are not pushing people into healthcare. We are informing our clients of the choice that they have to make. So, while you are always in this politically toxic environment going to get social media cry or whatever, it has been very minimal, and I think the receptivity form our tax and healthcare review is that our clients view us as on their side and that is our principle. That's what this company was founded on 58 years ago and that continues to be the principle today. We're only interpreting the law and trying to service our clients as best we can.
Operator: Anna Shtromberg, National Australia Bank.
Anna Shtromberg - National Australia Bank: I just wanted to understand you comfort level with investment grade rating after you spin-off the banks because you have said in the past that you didn't really need to maintain investment grade, and I just wanted to get a refresh on that?
Gregory J. Macfarlane - CFO: I think the bank and the investment grade are kind of independent to be honest. The bank as a regulated entity holds capital. It's regulated by the OCC. We have extra – we have very well capitalized bank at this point that's safe and sound. We've been up and running for six plus year now and we feel very comfortable with that. When we obviously figure out what to do with the bank, we'll be relooking as we always do everything. But the broader question about investment grade is, we are investment grade company. Based on our current capital structure go into the tax season the position where we do use the commercial paper markets to fund ourselves and that obviously requires an investment grade rating. But having said that, there are other solutions out there and we always think about what the right solution is at this point in time. But the factual statement we have been investment grade and even through this tax season.
Anna Shtromberg - National Australia Bank: And just the final question, I don't know here if someone's already asked the timeframe on the bank's spin-off, and you had already answered that, so I apologize for that, but can you just repeat if you had already answered that. What is the timeframe you're looking at for the bank spin-off?
Gregory J. Macfarlane - CFO: Yeah. So, we are not providing guidance and what the timeline looks like at this point.
Operator: (Joe Janssen, Barrington Research).
Joe Janssen - Barrington Research: I just thought I sneak one in there. Bill, historically, there are 228 filing number. It's a pretty useful data point. Given the delays you've commented that you believe you are about two weeks behind. Any thought as we move through March, when you think we have at apples-to-apples comparison, you potentially could release some data points?
William C. Cobb - President and CEO: I think we're going to release at the end of the season. I think this has been such a strange season that we are going to wait for the end of the season. I think Scott or somebody there asked really about when I think it's going to normalize? I don't know. So, I don't think in our opinion, this is a full season business. We'll release tax volume results at the end of April.
Operator: Mr. Drysdale, do you have any closing remarks?
Derek Drysdale - VP, IR: We just want to thank everyone for joining us today and we'll put our next volume results through April 15 on during the week of April 23 and we look forward to talking to you in Investor Relations after this call. Thank you.