H&R Block, Inc.
Q1 2016 Earnings Call Transcript

Published: 2 Sep 2015

[Operator:]

Good afternoon. My name is Mike and I will be your conference operator today. At this time, I would like to welcome everyone to the First Quarter Earnings Call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question-and-answer session. [Operator Instructions] I will now turn the call over to Colby Brown, Vice President of Investor Relations. You may begin your conference.

[Colby Brown:]

Thank you, Mike. Good afternoon, everyone and thank you for joining us to discuss the divestiture of H&R Block Bank, our capital structure plans and our first quarter fiscal 2016 results. Joining me on the call today are Bill Cobb, our President and CEO and Greg Macfarlane, our CFO. In connection with this call, we have posted today’s press release on the Investor Relations website at hrblock.com. Some of the figures that we will discuss today are presented on a non-GAAP basis. We have reconciled the comparable GAAP and non-GAAP figures in the schedules attached to our press release. Before we begin our prepared remarks, I would 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 2015 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. And with that, I will now turn the call over to Bill.

[Bill Cobb:]

Thanks, Colby and good afternoon everyone. This is a big day for H&R Block and represents the significant milestone during my tenure as CEO. We have put in a lot of hard work to get to this point and I am excited about what today’s announcement means for our company and our shareholders. The four key elements of our announcement include the following

[Greg Macfarlane:]

Thanks Bill and good afternoon everybody. Before I get into our capital structure plans, let me provide a few comments on the just completed fiscal first quarter. As a reminder, due to the seasonal nature of our business, these results are not indicative of the performance for the full year. Net loss from continuing operations was $97 million or $0.35 per share, a $12 million or $0.05 per share improvement from the prior year loss. Revenues in our Tax Services segment decreased $3 million to $133 million, mainly due to higher piece of mind revenues, which are recognized on a deferred basis. This increase was partially offset by the negative impact of foreign currency rates. Operating expenses in our Tax Services segment increased $18 million to $297 million due to occupancy costs and depreciation and amortization expense related to the franchise acquisitions in the prior year.In our Corporate segment pre-tax loss improved $8 million to $18 million mainly due to lower interest expense as a result of repaying the $400 million note in October of 2014. We also had favorability in taxes compared to the prior year quarter due to discrete items. Turning to discontinued operations, the net loss of $3 million was an improvement of $4 million, primarily driven by a provision for potential losses related to Sand Canyon’s representation of warranty obligations in the prior year quarter compared with no such provision reported in the current quarter. At July 31, Sand Canyon’s representation of warranty accrual was consistent with the prior quarter at $150 million. As a reminder, Sand Canyon is and always have been operated as a separate legal entity from H&R Block. We continue to believe our legal position is strong on any potential corporate veil-piercing argument. With the quarterly results behind us, I would now like to turn to our announcements regarding the closing of the bank transaction and our capital structure plans. First, let me provide some details regarding the impacts of our bank transaction. From a financial perspective, we continue to expect the impact of the program management agreement to be dilutive by approximately $0.08 to $0.10 per share annually based on current fully diluted shares outstanding. Of the $0.08 to $0.10 per share, approximately 60% will be reflected as a reduction of revenue with the remainder reflected as an increase in expenses. The reduction in revenues includes $0.02 per share of loss interest income resulting from the sale of our available for sale securities, which I will talk about later. We will incur one-time charges related to this transaction of approximately $0.02 to $0.03 per share, again to be clear, based on current fully diluted shares outstanding. These charges will be recorded in our second fiscal quarter of this year. Additionally, interest income from our mortgage portfolio and available for sale securities will be reported as other income rather than revenue. This revenue change will only impact future results and will not be applied retroactively. For a more detailed explanation of the impact of these changes, we have elected to provide the pro forma impact of the EPS dilution and reporting changes as part of our related 8-K filing. From a balance sheet perspective, we transferred all of our customer banking deposits to BofI and made a one-time cash payment of approximately $419 million at the time of close. The bank assets offset included available for sale securities and mortgage loans held for investments. As part of the funding of this transaction, we sold $220 million of the bank’s available for sale securities and tend to liquidate the remainder of this investment for approximately $170 million by the end of the fiscal quarter. We currently plan to retain the mortgage portfolio, which totaled $230 million at July 31 and consist of mature performing loans. While for many reasons we prefer not to own a mortgage portfolio, it currently does not make economic sense to sell it instead for now we plan to allow it to wind down naturally, although we will continue to regularly evaluate options for this portfolio in the future. I would now like to spend a few minutes talking about our capital structure. I am excited about the significant changes we are making. We are now able to put our regulatory limitations behind us and move forward with the financial structure that appropriately reflects our capital light business model. The foundation of this new structure is the 4-year $3.5 billion share repurchase program, which represents a continuation of our strong history of and commitment to returning capital to shareholders. In the past, we have been disciplined buyers of our shares and we intend to continue this practice going forward. Also included in the plan is incremental debt and a new committed line of credit. We believe that this was a balanced and appropriate capital structure for H&R Block that is in the best interest of you, our shareholders. Now I would like to take you through each of the elements of this planned capital structure to provide more context about our decision and clarity around what this means for our company and for our shareholders. First, the Board of Directors approved the new $3.5 billion share repurchase program effective immediately through June 2019. Under the new program, we plan to commence a modified Dutch auction tender offer to purchase up to $1.5 billion of our common stock subject to certain terms and conditions at a price per share not less than $32.25 and not greater than $37. The upper end of this price range represents a 12% premium to the company’s closing price today. To ensure we have the appropriate level of liquidity over the next several years the tender offer will be contingent upon among other customary items to successful replacement of our line of credit, which I will discuss momentarily. Additional details regarding the pricing and other terms will be provided upon formal commencement of the tender offer, which we expect to happen tomorrow. After the completion of the offer, we intend to repurchase shares over time in an opportunistic manner through open market purchases and may also repurchase shares through private transaction, exchange offers, additional tender offers or other means. The amounts and timing of such repurchases will be dependent on market conditions and other factors. The funding for share repurchases under the overall program and the tender offer will come from available cash, borrowing and incremental debt and funds from ongoing business operations. Moving to leverage, as we have stated in the past we believe we have capacity to increase our leverage while maintaining investment-grade ratings metrics. We currently believe that the ratio of adjusted debt to adjusted EBITDA of approximately 2.5 times to 3 times would be consistent with our previously stated intention to maintain investment grade ratings metrics. We calculate adjusted debt to adjusted EBITDA into the fiscal four quarter rolling average of total outstanding gross debt including both short-term and long-term and include adjustments for items such as operating leases which are not capitalized in the company’s balance sheet. We estimate that the adjustment for our operating leases equates to approximately a half turn of adjusted debt to adjusted EBITDA. Based on this analysis, we intend to take our borrowing and incremental debt would have not yet determined the amount, timing and composition of such debt. Finally, we are working to replace our current $1.5 billion line of credit. We hope to accomplish a few things with this new facility. First, this will lock in our offseason liquidity needs for the foreseeable future. Second, we will amend certain covenants, which will be more in line with our expected future capital structure. Third, depending on market conditions we intend to upsize the facility. Finally, we will structure the facility such that we draw on the line of credit rather than use commercial paper to fund our off-season needs. And one last note, given the breadth of this announcement regarding our capital structure, we felt it best to preannounce our plans regarding future leverage actions. Going forward however, we expect to return to our historical practice and do not intend to preannounce most capital transactions. To conclude, we have been thoughtful and thorough in our approach to our capital structure and we believe that this new structure perfectly recognizes our business needs and consistent with the company’s long history of returning capital to shareholders. We are committed to driving medium and long-term value for our shareholders. We have been doing just that through our operational performance of the past few years and now we are excited to be supplementing that performance with the right approach to our capital structure. And with that, I will turn the call back to Bill.

[Bill Cobb:]

Thank you, Greg. Again, we are very pleased that we have completed the divestiture of our bank and are no longer regulated as the savings and loan holding company. We are now able to operate the business with a capital structure that makes sense for our operating model and is in the best interest of our shareholders. We are focused on delivering positive results through both capital return and the successful operation of our core business. With that, I will now open it up for your questions. Operator?

[Operator:]

[Operator Instructions] Your first question is from Thomas Allen with Morgan Stanley.

[Thomas Allen:]

Hi, guys and congratulations on the bank closing. Thanks for closing.

[Bill Cobb:]

Thanks, Tom.

[Thomas Allen:]

So, first question, any updated plans for the dividend?

[Bill Cobb:]

Go ahead, Greg.

[Greg Macfarlane:]

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

[Thomas Allen:]

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

[Greg Macfarlane:]

Yes. I am going to answer maybe a little bit differently if that’s okay. But as we outlined in the prepared remarks, effectively we are talking about the adjusted gross debt divided by adjusted EBITDA. And the adjustment, of course, in our view is really the operating leases which is the convention that both Standard & Poor’s and Moody’s follows. Given the nature of Block’s business, we have a large number of operating leases. We quantify that roughly about $450 million, just for the record. The gross debt is really a reflection of both short-term and long-term so that’s seasonal funding as well as long-term/medium-term funding and you should calculate on a four-quarter outstanding sort of gross basis, so adding up those things over four quarters. So, that’s kind of how it ends the question.

[Thomas Allen:]

Okay. A couple of more questions on the capital structure. Are you going to be willing to buyback stock during tax season going forward?

[Greg Macfarlane:]

So for now, the $1.5 billion tender offer is what we have outlined. And as we said in the prepared remarks, we are really just talking about the opportunistic path then, but the focus for now remains the tender offer.

[Thomas Allen:]

Okay. Maybe I will ask one question about – not about the banks and about the capital structure and then I will be done. The Senate Appropriations Committee proposed that changing the earning income tax credit forms, I think you guys have been – you have advocating that. What do you think the chances are that the full Congress changes the forms ahead of next tax season?

[Bill Cobb:]

So, we are obviously working closely with the treasury on that. I think we are getting close to a decision. We are very hopeful that there will be progress in this tax season, but I don’t have anything to update you on at this point.

[Thomas Allen:]

Okay, thank you.

[Bill Cobb:]

Thanks, Thomas.

[Operator:]

The next question is from Scott Schneeberger with Oppenheimer.

[Scott Schneeberger:]

Thanks. Good afternoon, everyone and congratulations.

[Bill Cobb:]

Thanks, Scott.

[Scott Schneeberger:]

I guess, Bill, let’s start out the, or Greg, the timeline for how the tender, the shares will open – will work. I understand that opens tomorrow. You will complete the new CLOC prior to the completion of the tender. What’s the timeline? How will this work to the extent you can help us think about that?

[Greg Macfarlane:]

Yes. And just to be clear for everybody, when you announce a tender like we are today, there are very strict rules on what we can’t say, so I cannot be very factual here, if that’s okay. And for future questions, please keep that in mind. We are intending to open it up tomorrow, September 2. As we outlined in the presentation, it is continued upon successfully closing the CLOC and other customary conditions and we certainly point you to the document which will be available really starting tomorrow morning would be our estimate and then the plan is to have it closed on October 2, the tender, in this case, continued upon both CLOC and these other requirements.

[Scott Schneeberger:]

Okay, thanks for that. The new CLOC, I guess you said in the press release market conditions will dictate, I suppose, the size, how will it change? You may have mentioned no more commercial paper, I am curious about that decision and what shape or form this new CLOC will take and what type of covenants will it have? Will it require that you pay all borrowings off by April 30 every year and anything else, Greg, that you would throw in that maybe interesting about it? Thank you.

[Greg Macfarlane:]

Yes. I mean, commercial paper has always been kind of more a luxury from our perspective. It’s really more of a cost savings. I think in the last few years, with the regulatory changes and the way that banks look at the economics of CLOCs that sort of arbitraged as it were has changed little bit. We felt it very appropriate given these broader announcements that our capital structure to use this as an opportunity to re-look at the CLOC. We have a great facility right now. We have got great banks that are part of that. We are going to re-look at that. And we have talked about three major benefits in the prepared remarks. I can’t comment on what may come out of that, because obviously it’s not finalized at this point in time. Of course, when it is finalized, we will provide more details as appropriate.

[Scott Schneeberger:]

Hi, thanks. Just one more for me actually going off that topic. Was curious about the discrete tax items in the quarter and just thinking about going forward, could you give us a little more color on what that was and maybe some ideas to keep in our head as we model for the remainder of the year? Thanks.

[Greg Macfarlane:]

Yes. As many of you know, we have got a tax rate that is naturally at the high end of the range for corporations in the United States, in the high 30% range. We have been actively looking at a number of strategies and we have been successfully able to execute them pretty consistently over the last couple of tax seasons and they also continued through this current quarter. Those are discrete in nature. And what I mean by that is they are one-time, all really good there is real benefits to the company. We have not yet communicated what we think the more permanent or long-term view is we think the effective tax rate is, but we plan to do so at some point in the future.

[Scott Schneeberger:]

Alright. Thanks, again and congratulations again.

[Bill Cobb:]

Thanks, Scott.

[Operator:]

The next question is from Kartik Mehta with Northcoast Research.

[Kartik Mehta:]

Hey, good afternoon, Bill and Greg. Greg, are you able to talk at all about what type of rate you anticipate on this new CLOC, will it be similar to what you have or is there an opportunity to lower that?

[Bill Cobb:]

Yes. I can’t really give you a forecast at this point in time. It’s going to be subject to market conditions, timing. We are going to look at tenure structures. Our view is it will be consistent with other market transactions similar to this, but I can’t give you more guidance than that.

[Kartik Mehta:]

Yes. What about – I know you are going to use the CLOC obviously to buyback shares and do some off season funding, but is there thought that after you do this initially, you will term out some of that debt or we use the CLOC and then the cash to get in as the season ends to kind of manage the CLOC?

[Greg Macfarlane:]

Yes. I mean, provided through the press release and today’s comments and guidance on how we think that we have additional incremental debt capacity on the balance sheet we are not at a point, we are going to get more specific than that, I don’t think sort of buying back shares with sort of daily overnight money is the right sort of term structure to go with, but we feel very comfortable with the tenant that we have announced with the contingency around the CLOC as well as other customary conditions that we will be able to fulfill the $1.5 billion tender offer.

[Bill Cobb:]

And again, Kartik, I would caution everyone what we are doing here and I will leave it to Greg to talk about the sources and uses. What we are trying to do here is not position us as incremental debt to do this is that we are trying to reset the capital structure here. We are no longer a savings or loan holding company. This gives us an ability to setup our capital structure in line with our true business model going forward. And then from that, we will then make decisions within the framework of what we talked about today from a capital structure perspective.

[Kartik Mehta:]

Thanks, Bill. And then maybe just one last question, Greg, in the past you have talked about kind of the cash that’s on the balance sheet and maybe some of the cash that might not be available whether it’s offshore or the available-for-sale securities. Can you kind of walk through that just to give an idea of what’s on the balance sheet and how the CLOC plays into that?

[Greg Macfarlane:]

Yes. We have been pretty consistent communicating with you, especially last quarter or so that when we expected the time the bank transaction had closed, which of course now closed that we have about $1 billion of extra capital available. And I am confirming that again today with you. That’s one of the primary sources, of course, for what we are planning to do here announced. In terms of my good sense, this structure outside of the country and/or restricted that’s not really in our minds as part of the permanent capital structure. We have done a good job in the last couple of years bringing some of that back from Canada and Australia and that’s part of what the $1 billion represents.

[Kartik Mehta:]

Thank you very much.

[Operator:]

Your next question is from Gil Luria with Wedbush Securities.

[Gil Luria:]

Yes. Thank you. Let me add my congratulations. And Bill you talked about this being a milestone, after a few years you finally have the company you wanted it to be and so going forward for you, could you remind us of the strategic focus now that you have your Tax Plus business without the distraction. And some questions to you Greg, you have worked very hard changing the cost structure of the company and then now you have setup the changes to the capital structure and I am sure you still have a lot of work obviously, to execute on this transition on this reset, but once you have done that, what’s the next big task in transformation that you would like to take on?

[Bill Cobb:]

Well, thanks Gil for your comments. And yes, it does – it has been a bit of a long journey here. And again, you said it well and you know I have talked about this, we now if you will, have the company that we wanted. The core of our strategy is what we call Tax Plus. We are going to center the company on the tax preparation event and that is consistent whether we are talking about international or here in the U.S. Our principle is to serve clients the way that they want to be served whether that be through digital efforts or in – with the systems. And we will continue to operate with that’s consistent with our brand and determine and I think what we did last year with Tax Identity Shield is an example, where can we add value to our clients lives. If we are able to monetize that, but ultimately we want to be the place where we do the best job on taxes and most accurate job where we get the maximum refund for our clients and do it in a way that protects our security And that will continue to be – it’s somewhat of a simple notion, but I think a lot of times in business and when I first started with this company, a lot of investors said to me, your story is too complicated, your story is too complicated. Well, I think we got a nice simple story right now that I am really proud of and I think we can continue to drive a lot of value. You want to take the second part, Greg?

[Greg Macfarlane:]

Yes. I mean to keep it simple, I think you did it on sort of a very nice high level summary there Gil, but cost, capital, I mean, what’s next, I mean what’s next, I mean it’s not next. We have been working on it already, but it helps us to continue to focus on even more is really the revenue side of the business model. As you know and many people on the phone know, we really want to get to a point where we are sustainable growing four plus percent and to borrow a quote from my good friend, Jason Houseworth, who runs our digital business and our product side, we are maniacally focused on that. And we at that point will be able to spend much more time talking about the early season challenges that we had in the last few seasons, continue to talk about the value proposition, continuing to talk about all the things we can to do to execute to be more relevant for our clients and frankly to win more clients from some of our competitors.

[Gil Luria:]

That’s great. Thank you very much.

[Bill Cobb:]

Thanks, Gill.

[Operator:]

The next question is from George Tong with Piper Jaffray.

[George Tong:]

Hi, good afternoon. I will also add my congratulations on the bank divestiture closing.

[Bill Cobb:]

Thank you.

[George Tong:]

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

[Bill Cobb:]

Well, the opening number we are kind of coming out with a big production, if you will, but again I would go back to the facts here. The Board has authorized a $3.5 billion authorization through June of 2019 that’s essentially four tax seasons. We will have a tender offer we will launch tomorrow which we think is a great way to take immediate action. And then from there, we are not going to be – we have options in front of us, but I think what I would focus on is that we are looking at this over that 4-year timeframe. I don’t know, Greg if you have anything you want to add?

[George Tong:]

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

[Greg Macfarlane:]

Yes. I mean our focus right now is what we have announced today and we don’t really have much comments in our dividend policy I mean obviously everyone knows we pay a dividend and yield depending where the stock price is at, in the mid-2% range and we have been in that range now for a couple of years. So but we have…

[Bill Cobb:]

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

[George Tong:]

Great. And then last question around the fundamentals, you have indicated you are targeting 4% top line growth, can you – now that the bank divestiture is behind us, you can focus on your Tax Plus strategy, can you give maybe two or three initiatives that you think will help bridge growth today to that target 4% growth?

[Bill Cobb:]

Yes. A very fair question and consistent with the way we have handled this. I think, in the past – I am not going to get into that, certainly on September 1 as we get closer to Investor Day and the actual tax season, we will share more of those plans then.

[George Tong:]

Great. Thank you.

[Bill Cobb:]

Thanks George.

[Operator:]

The next question is from Anjaneya Singh with Credit Suisse.

[Anjaneya Singh:]

Congratulations guys and thanks for taking my questions. I have just got…

[Bill Cobb:]

Thanks Anjaneya.

[Anjaneya Singh:]

Two quick ones for you. One on the capital structure, first. Could you give us a sense of what the ratings agency discussions have fared like on the capital structure, I am just trying to get a sense of whether your leverage levels under this investment grade rating has a likelihood of being extended as you go forward?

[Greg Macfarlane:]

Yes. So we have regular conversations with Standard & Poor’s and Moody’s. We have good relationships. We have a lot of respect for the team at both firms. We would of course talk about our business performance. What we said today is we believe that with this plan that will maintain investment grade metrics, but ultimately that’s the decision that the ratings are going to make and that’s really their call, not ours.

[Anjaneya Singh:]

Understood. And then one on the business at hand, one of your competitors has talked about their expectations of about 2% growth for the industry and over 2% growth in the assisted channel, I am wondering if you can discuss some of the moving pieces as to why your expectations are slightly more muted there?

[Bill Cobb:]

Yes. I don’t know that we have commented on certainly the upcoming tax season. The extensions are still out there. We are still doing tax returns for tax season ’15. So we haven’t come out with a position on growth going forward. Again as we get closer to the tax season and/or at Investor Day, we will have an indication on that. We will build a study there. The tax season will have closed. And then we will give you what our belief is the best estimate.

[Anjaneya Singh:]

Okay, thanks.

[Operator:]

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

[Jeff Silber:]

Thank you so much. Just wanted to go back to the dividend questioning, I know you have no comments specifically, but is there anything for excluding you right now that the divestiture of the bank is done from changing the amount of your dividend?

[Greg Macfarlane:]

No. Sorry, no, just to be clear.

[Jeff Silber:]

Okay. Sorry. Thank you. And then again sorry to ask this one, but the size of the share repurchase I think is much larger than most people had expected, I am just curious why $3.5 billion, why not $2.5 billion or $4.5 billion, why that amount?

[Greg Macfarlane:]

Yes. So this is one of those awkward questions, because of the tender situation I am not able to get into much detail. All I can tell you is that it well considered and discussed with the Board and management and outside advisers and we felt it was the appropriate number.

[Bill Cobb:]

Yes. I was going to say the same thing. I mean, there was great deliberation given to this. Obviously, during the time when the – we are in the regulatory approval process we couldn’t talked much about it, but obviously we have spent a lot of time on that. And we had said consistently that upon closing of the transaction and us being be registered we would come out with our plan shortly thereafter and hopefully we hit that marker.

[Jeff Silber:]

Okay, you did. Thanks so much.

[Bill Cobb:]

Thank you.

[Greg Macfarlane:]

Thanks, Jeff.

[Operator:]

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

[Michael Millman:]

Thank you. Just considering the stability of the tax business, what’s the financial benefit of being investment grade?

[Bill Cobb:]

Do you want to go Greg?

[Greg Macfarlane:]

Yes. I mean we have been – thanks for the question Mike. So, we have been very consistent in our perspective on this, but it’s been a well considered topic of discussion with the Board and management. We talked to a lot of external people over the last couple of years. And we have gone public and said we believe there is value in maintaining investment grade metrics for H&R Block. We have not been specific as to why. There are a number of considerations that are unique to Block, but there are some general things as well. We just don’t think it’s very valuable at this point to get into specific articulation of that.

[Michael Millman:]

Okay. Just talking about the financial difference in cost, well under the non-discussable items?

[Greg Macfarlane:]

Sorry, can you repeat the question?

[Bill Cobb:]

I am not sure I understood that question there, Mike. Can you...

[Michael Millman:]

No, I was kind of curious in saying that you didn’t want to get into some aspects of it I was just wondering to what extent that why is that the case?

[Bill Cobb:]

Yes, I mean, as we said and say again, we are not going to get into specific articulation of the pros and cons. We think consistent, we think there is value in it, and we are not going to share more than that.

[Michael Millman:]

Okay. Could you talk a little about Sand Canyon to how much equity is left in the business that you have in the business? If you indeed finish your constructive discussions, would that free up some additional actual cash?

[Bill Cobb:]

So, thank you for that question. It wouldn’t be a call if we didn’t have a Sand Canyon one, so thanks Mike for bringing that here at the end of this. So, I mean, as I said in the script, there is no real major change this quarter in Sand Canyon’s perspective on things. The representation of warranty reserve continues to be at $150 million. And there are several counterparties that are in tooling arrangements that are moving along with Sand Canyon. In addition to that $150 million, there is a couple of $200 million plus of equity and if you sort of reverse tax effect that, that sort of means there is net assets as it were of $450 odd million in total. The view that H&R Block has and I think Sand Canyon would have is this is a time bound issue. It will take multiple years to resolve. My personal view is getting to sort of a situation where there is no exposure to Block is really kind of the expected outcome at this point in time. I don’t think we would be in a position where we would be able to forecast down the road anything more in terms of positive cash back to the company. And as always, we point you to the quarterly disclosures and the annual disclosures for a lot more detail on this.

[Michael Millman:]

And a tax question, for the EITC, what do you expect – do you expect that to make the percentage effect online going back to assisted and to what extent how much do you think that’s going to be?

[Bill Cobb:]

With regard to making the documentation requirements consistent, we are certainly in active discussion as part of an overall software working development group with the IRS and with Treasury. And I think that there has been a lot of discussion. It’s a policy question, but I think we are – the ball is being advanced. I just don’t know how far for this tax season, but we certainly believe that it’s the right principle that no matter what your method of filing that would be consistent in terms of what you need to document. And I am hopeful that, that will happen certainly for this tax season.

[Michael Millman:]

Thank you.

[Greg Macfarlane:]

Thanks Mike.

[Bill Cobb:]

Thanks Mike.

[Operator:]

There are no further questions at this time. I will turn the call back over to the presenters.

[Bill Cobb:]

Okay. Thank you everyone for joining us on today’s call. We will look forward to talking to you down the road.

[Operator:]

This concludes today’s conference call. You may now disconnect.