H&R Block, Inc.
Q3 2012 Earnings Call Transcript

Published: 8 Mar 2012

[Operator:]

Good afternoon. My name is Diane, and I will be your conference operator today. At this time, I would like to welcome everyone to the H&R Block Earnings Call. [Operator Instructions] I would now like to turn the call over to Derek Drysdale, Director of Investor Relations. Sir, you may begin.

[Derek Drysdale:]

Thank you, Diane. Good afternoon, everyone, and thank you for joining us. Today, Bill Cobb, our President and CEO; and Jeff Brown, our CFO, will review our third quarter results, as well as our fiscal year-to-date interim U.S. tax results through February 28. Phil Mazzini, our President of Retail Tax Services, and Jason Houseworth, our President of Digital Tax Services, will be available to participate during the Q&A session. I'd like to remind everyone that today's remarks will include forward-looking statements as defined under the Securities Exchange Act of 1934. 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 2011 as well as our other SEC filings. H&R Block undertakes no obligation to publicly update these risk factors or forward-looking statements. With that, I will now turn the call over to Bill.

[William C. Cobb:]

Thanks, Derek, and good afternoon, everyone. At December's Investor Conference, we outlined our strategy to better position ourselves for long-term growth. Our top priority heading into this season was to serve more clients through aggressive marketing and promotional efforts, as well as initiatives to improve our clients' service and retention. With the first half of the tax season now behind us, I'm pleased that these decisions have worked, and we are executing well against our long-term strategy. Through February 28, we've served nearly 700,000 more U.S. clients, a 5.1% increase from the prior year. From our analysis, it is clear that we are gaining share in all digital categories

[Jeffrey T. Brown:]

Thank you, Bill. As many of you know, the third quarter represents only a small portion of the tax season, and so quarterly results are not necessarily indicative of the results we expect for the entire fiscal year. Earlier today, we announced a $0.01 loss from continuing operations, and that compared to a $0.04 loss a year ago. Looking at segment results. Revenues in Tax Services fell by $17 million or 2.5% to $656 million. Tax-preparation fees and related revenues increased 10% during the quarter or approximately $49 million, primarily due to growth in total returns prepared. Increases in tax-prep revenues were offset primarily by a decline of approximately $70 million in financial product revenues. Let me take a minute to review the primary changes in our financial product revenue. [Audio Gap] by 22%, but resulted in a decline of $30 million in quarterly RAC revenues. Another factor contributing to the decline in these revenues was our decision to tighten underwriting relating to our Emerald Advance product. Although this change led to a $16 million decline in revenues, associated credit losses fell by $37 million. Emerald Card revenues were down $7 million, primarily due to IRS delays in processing tax refunds during the quarter. And finally, our results last year included approximately $16 million of nonrecurring revenue from our terminated RAL contract. The segment’s pretax income improved to $32 million compared to $4 million a year ago. This improvement was primarily due to the lower credit losses I mentioned earlier and the decline in impairment and litigation-related charges, which were partially offset by declining revenues and a $20 million incremental investment in marketing. In corporate, our pretax loss of $33 million compared to a prior-year loss of $30 million. Our net principal balance of mortgage loans held for investment at H&R Block Bank continues to wind down, declining by nearly $20 million from the prior quarter to about $430 million at January 31. A shrinking loan portfolio, in moderation of delinquency and loss rates, continues to result in reduced loss provisions at our bank. In fact, year-to-date loss provisions have fallen $7 million compared with the same period last year. As we look at our overall financial position, our balance sheet and liquidity remains strong as we enter our most profitable quarter. Approximately $231 million of commercial paper borrowings that were on the balance sheet at January 31 were fully repaid in February. I would also note that $600 million of debt maturing in 2013 is now classified as current beginning this quarter, due to its contractual maturity. And finally, at January 31, 230 million shares were outstanding. Turning to discontinued operations, we reported net income of $200,000 for the quarter compared with a net loss of nearly $2 million a year ago. Current quarter results included a discrete tax benefit from the sale of RSM, which was offset by litigation charges taken in the quarter. Let me briefly review each of those items. First, the sale of RSM in late November resulted in a gain for tax purposes. At closing, we recognized a tax benefit of approximately $20 million from the utilization of capital loss carry forwards. After accounting for the tax benefit received during the third quarter, our net after-tax loss on the sale of RSM was $37 million. This tax benefit was offset by after-tax charges related to litigation. Sand Canyon has been working with the staff of the FCC in connection with an investigation of matters related to certain residential mortgage-backed securities transactions. Sand Canyon has offered to resolve this matter with the payment of approximately $28 million and has recorded a pretax charge and established a liability for that amount this quarter. Although we believe that this matter can be resolved on satisfactory terms, any resolution would require approval by the SEC and the U.S. district court, neither of which has been or can be assured of being obtained. New claims for alleged breaches of reps and warranties in the principal amount of $35 million were received by Sand Canyon during the third quarter. At January 31, total claims of $399 million remain subject to review. Sand Canyon completed a review of prior claims during the quarter with an approximate principal balance of $220 million, and claims found to be valid had estimated losses totaling $1.2 million. As payments related to these valid claims remained pending at January 31, the accrual for representation and warranty liabilities remained unchanged from the prior quarter at $143 million. And with that, I'll turn the call back over to Bill for closing remarks.

[William C. Cobb:]

Thanks, Jeff. As I reflect on my past 10 months as CEO, we have sharpened our strategy, taken steps to resolve outstanding litigation and shed noncore assets such as RSM McGladrey, McGladrey Capital Markets and EXPRESSTAX, which have negatively impacted our margins over the years. More importantly, they detracted focus away from our core Tax Services. Today, we are running a much better business, and we are squarely focused on serving more clients. I am pleased by our total U.S. return growth of more than 5% through February 28. We are executing well, and our growth initiatives are performing to expectation. We like our current position, and we believe we will continue that momentum in the second half of the quarter. And with that, we're now ready for questions. Operator?

[Operator:]

[Operator Instructions]

[Derek Drysdale:]

Diane, before we get started in the Q&A, I just want to make one correction. Earlier in our scripted remarks, we said there were 230 million shares outstanding at quarter end. That number is actually 293 million.

[Operator:]

Your first question comes from Michael Millman with Millman Research.

[Michael Millman:]

We've heard discussions about how taxpayers are showing less urgency. And in that connection, I was wondering if you could discuss whether you're seeing some switching between -- because of that or related to that between retail and digital. And I was also curious regarding the IRS numbers that you referred to that the Digital were up substantially and would be affected by the same Schedule A’s. So maybe you could discuss a little bit more what you think is going on with those IRS numbers.

[William C. Cobb:]

So why don't I let -- Jason, why don't you comment on this? And then I think, Phil, maybe you should also lend your perspective.

[Jason Houseworth:]

Mike, this is Jason Houseworth. The first thing I want to say is that within H&R Block as a brand, we've seen no material changes in the year-over-year migration between our Digital business and our assisted business. And I think it's important to note that from our perspective, that's 22 million filers. So we don't see anything that's really different from what we've seen in past years as far as movement within H&R Block. I would say that with no IRS data out there, it's really difficult to get a sense of the broader market. But I'll also let Phil comment.

[Philip L. Mazzini:]

Mike, I think just as a general comment, whenever we see IRS data, remember, that it's e-file data and not everyone on the assisted side is e-filing yet. There's an adoption curve. H&R Block has e-filed for years, 100%, so it tends to understate -- or overstate performance and understate our performance and so…

[Michael Millman:]

Could you -- this year, the IRS required over 10 filings to go digital, do you -- to go e-file. Do you think that, that's had a major effect on why the e-file was up something like 7% on the latest IRS numbers?

[Philip L. Mazzini:]

I would say that we're not -- we don't have enough information to really comment on that, Mike, yet.

[William C. Cobb:]

Mike, I think -- this is Bill. I think the other piece is let’s let the tax season play out. Some of the numbers that are out there would be -- have growth rates that would not have been seen since the end of World War II, if you've taken -- except for maybe the Economic Stimulus Act of 2008. I mean, I think the point is that I made in the script was I think in the end, category growth should be around 1.5%, which has been our estimate, been others' estimate. It reflects what nonfarm employment was at the end of December. So I think we're managing to that.

[Operator:]

Our next question comes from Kartik Mehta with Northcoast Research.

[Kartik Mehta:]

Bill, I wanted to get your thoughts on pricing for the year. What has the competitive landscape been? And have you been able to garner pricing maybe both at a corporate level and a franchise level?

[William C. Cobb:]

Phil, why don't -- you want to take the how it's -- why don't we take Jason on Digital and Phil on Assisted, and then I'll offer any perspective.

[Philip L. Mazzini:]

Kartik, I'm sorry, can you just be specific on what the question is? I don't -- it seems like a broad question. Can you just repeat it?

[Kartik Mehta:]

Sure. At your retail tax stores at the corporate level, what kind of pricing increases have you seen? And then at the franchisees, what kind of price increases have they pushed through at the retail store level? And then on Jason's side, I was just wondering maybe what he's seen in terms of mix that’s resulted in a price increase or decrease for the Digital business.

[Philip L. Mazzini:]

Okay. I think on our side -- I'll just comment on we're at knock [ph] end of the year -- end of the quarter. And I think we're roughly flat. And as we get to the end of the year, I don't think -- I think we'll be probably slightly better than that. I don't have a lot of information on competitive pricing. We continue to look at it, but there's nothing major, I think, going on.

[William C. Cobb:]

Jason?

[Jason Houseworth:]

Yes. Kartik, this is Jason. We didn't have a pricing increase this season in online. But what I would say at mid-season is that we're very happy with the product mix and how it's turned out this year, and especially the added product taxes we've seen, specifically our RACs. And that was really given the focus that my team had on looking at the product and specifically the monetization pages within the product, and we feel like that those tactics had borne fruit.

[William C. Cobb:]

Kartik, I would just add that, as you know, our #1 stated goal is to grow clients. And pricing is just one of the levers we use to try to drive toward that goal.

[Kartik Mehta:]

That's fair. Jason, just -- I know this is a tough question, but based on your internal analysis, what do you think the software category or Digital category is growing at so far this year?

[Jason Houseworth:]

Well I think that, as frustrating as it is for all of us, I'd like to be able to give you a bigger picture of that or a clearer picture of that. I think that we don't have IRS data. What I can tell you is that we report on day to day, on a day-to-day basis. And on a day-to-day basis, our comparable numbers as of 2/18 outpace Turbo in all 3 digital categories. That's online, software and FFA. And given that we weren't in mobile or we had 0 mobile units last year, we did it as well in mobile. So I think we're really pleased with that. And the one thing I would point you to is I think that -- related to online and the online segment only, there was on Monday an article by comScore that I think had -- what we think is a fairly accurate overview of the online segment through 2/18.

[Kartik Mehta:]

And Bill, just a final question. Obviously, you have additional flexibility now with the covenant renegotiation. Any thoughts on how you might return that capital back to shareholders? Will it be a share buyback, maybe a dividend increase or onetime dividend? Any thoughts on that, Bill?

[William C. Cobb:]

Yes. I think, Kartik -- and I'll try to answer this, but I'll give you somewhat of a non-answer, if you will. I've been on the job 9 or 10 months. Effectively, our board -- and it's a relatively new board with a majority of us being very new, some of us being only 6 months or so. I'm really pleased with the steps we have taken in terms of buying back the shares that we did in Q2 by raising the dividend, by amending the covenant. So I think we're making great strides as a company in terms of capital stewardship. I think the board and I are working very closely on this. I think we'll have more to say on this at year end in June. But at this point, it would be premature to comment further. But be aware that obviously this is a topic we are discussing very closely with our board of directors.

[Operator:]

Your next question comes from Scott Schneeberger. Please state your company name, sir.

[Scott A. Schneeberger:]

It's Scott Schneeberger with Oppenheimer. Following up on that last question, were there any stock buybacks in the quarter?

[Jeffrey T. Brown:]

There weren't any, Scott. No stock buybacks in the third quarter.

[William C. Cobb:]

Scott, we didn't get the amendment done until just a few days ago, which is why we're announcing it now. So as of Jan 31, we didn't have the amendment done, and that is the time when we get closest to hitting -- obviously, we didn't come close to it. But we have a buffer, and I think, Jeff, we were at about $800 million in equity?

[Jeffrey T. Brown:]

Right. We finished the quarter at about $800 million in equity, and that would have been against, at that time, Scott, the $650 million equity covenant.

[Scott A. Schneeberger:]

Okay. And now that you've reduced the covenant $150 million, a few questions on that. Why not remove the covenant altogether? Why did that not occur? And then why no announcement of any type of financial commitment to buybacks going forward at this time?

[William C. Cobb:]

So let me try both of those, as I think this was a very positive step that -- I appreciate our bankers coming forward and agreeing with us that a lower covenant was appropriate. So as I said, I'm pleased with that step, and as I just said to Kartik, I think we're making really positive steps in capital stewardship. So I feel good about where we are, and we will -- we are working with our board. We're considering a number of options, and we'll have more to say about this in June.

[Scott A. Schneeberger:]

Okay. Yes. So no commitment to any way of how the large amount of cash proceeds from RSM are going to be handled at this point?

[William C. Cobb:]

So I'll say it again. We're in the middle of a tax season. So we have to complete the tax season. We then have to close our books for the year. And I have a 6-month board. I’m a 9-month CEO. We are working through that. But we will be discussing this in June with all of you.

[Scott A. Schneeberger:]

Okay. More positively, Jeff, on validity, am I calculating that right on the 220 that you assessed in the quarter of put-backs? It looks like that was only a 1% rate. Is my math accurate?

[Jeffrey T. Brown:]

You're right, Scott. We did have a very low validity rate this quarter. I don't know that I'd read anything extraordinary into that. I think claim volumes can go up quarter-to-quarter. Validity rates can sometimes fluctuate quarter-to-quarter. I would tend to look at kind of our longer-term trend, which in recent quarters, has been high single-digit validity rates. That's probably where I would tend to focus.

[Scott A. Schneeberger:]

Okay. And it's true that those -- though, that 220 that you would have reviewed was from that -- the sizable amount from the prior quarter, correct?

[Jeffrey T. Brown:]

They would have been principally from the Q2 claims. It might have included a little bit of carryover from the first quarter, but principally from the new claim volume in Q2.

[Scott A. Schneeberger:]

The Emerald Card level of -- it was nice growth. I think it was 22% year-over-year, up to 2.6. I recall a different target at Investor Day. Could you just clarify the difference between the 2 and the longer-term plans for Emerald card overall?

[William C. Cobb:]

Scott, I think that's a great question. Let me just go back for a second. The Emerald Card, we do have high hopes for this. We think we've done a good job. We're pleased that we're moving in the right direction. Obviously, the Emerald Cards were a beneficiary from the free-RAC program, and we have Susan Ehrlich on board right now. She's building her team out. And so I think all -- it's all green lights on that, and stay tuned for more to come. I think with regard to whether we hit -- we had a pretty big goal out there. We're going to come short of that. But again, the most important point of what we're trying to do in the first half of the season was to be able to offer the free RAC program and be able to use that against what competitors are doing and what ultimately maybe the last season of RALs. So I think that we're -- that was our first priority was around the competitive arena. But when you look at the take-up on Emerald Cards through Q3, these are the highest numbers we've ever done in history. We're at 2.6 million. So while we may have shot higher, I'm really pleased to say that we have 22% more out there, and I'm looking for Susan and Kathy Barney and the team to continue to drive us north in that whole area.

[Scott A. Schneeberger:]

I'm going to sneak one more in. Just on some of the new initiatives. On the 350,000 downloads on mobile tablet, that sounds good. I'm curious, I think the term used was downloads. I'm curious, is there a conversion number? And I think you said 90% of that was new to Block people. So that sounds great. But just wondering how many went through. Were there any tech issues in the process? And then, Bill, I think you Block Live ahead of the curve. I was just wondering if you could give kind of what measures you're using and what your benchmark was.

[William C. Cobb:]

Okay. Jason, why don't you take the first half? And I'll talk about Block Live.

[Jason Houseworth:]

Okay. Scott, this is Jason. So yes, the 350,000 number was our downloads across all of our apps. And what we said was that when we've seen people file, that 9 out of 10 are new H&R Block customers, and that's what we're excited about. We're glad that we're in a channel where we can serve people any way that they want to be served. And then we're finding new -- ways to reach new customers that we weren't doing before. I think we're still learning in mobile. I think that we have some things that I think we’ve improved over the course of the season, particularly in regards to our OCR capabilities. But if we're not there, we don't have any chance to really improve. So I think that we’ve made a solid first step. And I think that the season has really allowed us to use [ph] our mobile product suite even better.

[William C. Cobb:]

Now with regard to Block Live, and Phil, feel free to jump in on some of the operational aspects or your perspective on this. When I said well ahead of the curve, obviously, we're faced with Intuit coming out with their 700 people. We felt that Block Live was a much better experience because it is a web-based service. It provides virtualized access. It's realtime assisted tax-preparation. So when I was talking about well ahead, I think it's in terms of being on trend, being ahead of the time, being a platform, a service platform that we can build upon going forward. And our real intention this year was twofold. One, to make sure that the people who did use it, the user experience was a positive one, and I think we're pleased on that. And the other was to operationalize this, and why don't I let Phil comment on that?

[Philip L. Mazzini:]

Okay. I'll just reiterate the goal was to launch a virtual product, and I think we've done that successfully. We're creating a very good user experience. Behavior -- consumer behavior in this category changes -- it doesn't change real quickly. But we're very pleased to have this product out there. From an operations standpoint, the people involved in this launch have done a great job. And when you -- I visited a number of tax offices this year that have the Block Live in them, and I can tell you there's a lot of enthusiasm around the product, around the offering. And I think what I see in the future is that this will be another way that we can serve all of our clients in the way they want to be served. And I think most people or the people in our network are very excited about that as we move forward.

[Operator:]

Your next question comes from Vishnu Lekraj with MorningStar.

[Vishnu Lekraj:]

I just wanted to follow up here on pricing again, if you guys can repeat this for me. For the retail branches, Phil, you said that pricing is going to be slightly up this year, correct? Or you expect that?

[Philip L. Mazzini:]

Yes. We expect it to be slightly up this year. Correct.

[Vishnu Lekraj:]

And then, Jason, you said your online returns are going to be kind of down this year, correct?

[Jason Houseworth:]

I didn't say that. I said in online we've seen a favorable product mix, and we've had stronger product attaches with regards to RACs.

[Vishnu Lekraj:]

Got you. All right. As far as your growth here over the first half of the season for the retail operations, it looks like about 2% for total retail. How should we think about this for the second half in terms of year-over-year growth? And if you can characterize it in terms of an acceleration or not.

[William C. Cobb:]

Phil, you want to take that?

[Philip L. Mazzini:]

Yes, I will. I'll just say that we're very excited about the second half. In the last few seasons, we've seen satisfaction improved in the second half. And we’ve had relatively good performance in our second half. So we're excited about it. We look forward to working hard through the season. We're very focused on our Second Look offering, which -- it doesn't just drive people in for the product itself. But it says a lot about the expertise in our offices, and we're excited about it, and we think we'll have a solid second half.

[William C. Cobb:]

I would just add, Vishnu, obviously this is my first tax season, looking at it on a day-to-day basis. And unfortunately, with some of the unfortunate delays that came from the IRS and the way it affected our clients, with clients being -- getting their refunds later and obviously with this being -- with much of our target the biggest financial event of the year, I think it was unfortunate for those clients, the delays. But I'm really proud of the system, how well they've handled this. I think, and everyone has told me, I mean this is an operational machine, and this is one of the best years, I've been told, in terms of operational readiness. So we are, I think, well positioned. There's nothing that should inhibit us, but we are well set up. Phil and his team have done a great job. So I'm really looking forward to the second half of the year. And I think that the IRS thing was unfortunate. It affected our clients. But I'm really excited about the way our teams are ready.

[Operator:]

[Operator Instructions] Your next question comes from Mike Turner with Compass Point.

[Michael Turner:]

It looks like on your retention rate, could you maybe confirm -- I wanted to make sure I got these right. There was a bunch of numbers thrown out there. It looks like your retention rate through -- these would all be through the end of February. Total retention rate was up 40 basis points?

[Jeffrey T. Brown:]

Correct.

[William C. Cobb:]

It's correct.

[Michael Turner:]

And then on the 1040EZ, plus 5%? And new clients...

[William C. Cobb:]

500 basis points. 500 basis points, and that was taking, Mike, last year's new EZ clients relative to our historical level, and that's up 500 basis points.

[Michael Turner:]

Okay. And then new -- I guess retention of new clients from last year was up 10%. Is that right?

[William C. Cobb:]

So that was only on Second Looks.

[Michael Turner:]

On Second Looks. Okay. Could you talk about then maybe just overall new client growth and then also how that relates to kind of what you set out in your Investor Day of targeting those really first 3 segments, maybe how your success has been there relative to your expectations?

[William C. Cobb:]

I'll let Phil comment on this. We're not breaking out segment growth or anything like that at this point. But I'll let Phil comment on generally how we feel to where things are going.

[Philip L. Mazzini:]

Yes. I think what I would say here is that our new client growth last year was extremely strong, and you have to keep that in mind. And we're very proud of that. And as we go forward, we're very pleased with our new client generation this year as well. If you look at our base last year and the year before, it's a good way to think about how we're growing new clients. And we feel very good about our new client generation in the first half. And as we move forward, I think we'll continue to feel good about how we've closed out the season.

[Operator:]

Your next question comes from Thomas Allen of Morgan Stanley.

[Thomas Allen:]

So at your December Investor Day, you outlined that you plan to invest $50 million to $65 million this year on marketing, product development and client growth promotions. Can you give us an update on if that's still the right goal and also what percentage of that you think you've incurred already, especially with you guys coming short with Emerald Card conversions?

[Jeffrey T. Brown:]

Thomas, this is Jeff. So yes, we still plan to and, in fact, have executed the investments that we talked about in our Investor Day conference. Just a reminder that we frame that as investments in the aggregate of about $60 million to $65 million, and they were principally focused on media spend, the free RAC promotion, as well as the launch of some of our new products, mobile and Block Live this year. Most of that investment was really focused on early-season growth targets, both in our Emerald Cards, as well as tax clients. And so I think you're seeing substantially all of that investment in the first quarter results.

[William C. Cobb:]

And I would also add one thing, Thomas. I think we're kind of facing 2 -- as we looked at the season, and it has really played out this way, we're sort of facing 2, what we believe, if you will, were competitive onslaughts. One was we anticipated and all the signaling from Intuit was that TurboTax was going to come out and spend very aggressively not only on their 700 folks, but also in media, and that has played out. They have been very aggressive on the media line, as have we. Their spending level is probably, as a percentage, even higher than ours. And then we're also up against the RAL issue with some of our -- with a number of independents and some of the branded retail competitors. So we were working against 2 arenas. And they also were, as Jeff has outlined, primarily going to be early-season initiatives. I mean, I think anybody who was watching television from December 26 through January 31, during the [indiscernible] the tax wars were kind of -- there were plenty of ads on the air from everybody, including other digital competitors, et cetera, and Jackson Hewitt. So there was a lot of noise in the category. I think we were very effective in being there, being ready, not being left behind. But to your overall point, I think Jeff's laid out the majority of that increment, if you will, is behind us.

[Jeffrey T. Brown:]

And I think I'll just add, at the same time, we feel good -- without getting specific, we feel good about our investment levels in the second half.

[Jason Houseworth:]

And Thomas, this is Jason Houseworth. With our investment from a marketing perspective in Digital, I think Bill made the point in his remarks, but year-over-year, we're up 13% on our awareness, even with all the noise that he mentioned. And that -- in one year, that's a big jump, as well as seeing, what I mentioned, as far as product improvements yielding retention and monetization are really product mix and attach improvements.

[Thomas Allen:]

And as the -- I don't think the 10-Q is out yet. Can you give us a sense of how much advertising spend was up this quarter and then what your expectations are for the fourth quarter, given the investment was mostly in the third quarter? And as that's a short question, can I also ask, have you seen any positive signs where to increase usage of the Emerald Card? And anything that gives you guys confidence that people will continue to use it post the end of tax season?

[William C. Cobb:]

Jeff, why don't you take the first part?

[Jeffrey T. Brown:]

Sure. Thomas, so I would just say that we did file our 10-Q late this afternoon, so I'm sure it's not available for you to see yet or you haven't had a chance, but it will be available for you to see tomorrow. And relative to the increased level in media spend, I did comment in the prepared remarks that within the first quarter, our media spend was $20 million higher than third quarter last year.

[William C. Cobb:]

Third quarter to third quarter.

[Jeffrey T. Brown:]

Third quarter to third quarter.

[William C. Cobb:]

You meant third quarter to third quarter. Okay. Now Thomas, with regard to the Emerald Card, with some of the catching up that the IRS needs to do on refunds, it's still early yet to see the impact. I will say that I think the team has really done a nice job. We had never done a direct mail campaign. We're welcoming people to the card. I think we've got some plans in place. But I look for this to be -- to only grow for us over the coming years. So too early to tell yet on attach rates and year-round usage as we embark into the season. But I think, again, we're more prepared, and I think we're moving in the right direction.

[Thomas Allen:]

The 10-Q literally just hit my e-mail.

[Jeffrey T. Brown:]

There you go.

[William C. Cobb:]

Did I give the right answer, Thomas?

[Thomas Allen:]

And then if I could fit in another one quickly. Can you remind us about the economics around the Second Look program? And then how much of your fourth quarter growth last year came from it?

[William C. Cobb:]

I'll let Phil -- we're not going to -- I don't think we disclose any specifics around Second Looks. But I'll let Phil comment.

[Philip L. Mazzini:]

The Second Look program goes beyond -- what I would say -- I want to simplify this. It is twofold. We can -- it's an invitation to try our service and to get connected to one of our expert tax professionals, and that -- it's very effective at doing that. It's a very easy way to invite someone in, a risk-free way. And it's worked very effectively. I think beyond that, we do use it in our advertising, of course. And it's not just about the Second Look itself, it's about what it means and what our experts are able to determine about tax returns generally.

[William C. Cobb:]

I'd say a couple of other things in addition to what Phil just outlined, Thomas. And one of these is probably hard to measure. But we're really proud of the Second Look program. What the folks did in Indiana a couple of weeks ago, I mean, that fired the whole building here up and the team. And saving clients almost $1.5 million says something about the character of the company and the brand. Now specific to the business itself, we've put a big effort on this. It was more of a second-half initiative last year. We did these rallies this year. And for our reviews to be up 100% and then to get out of that the number of returns generated growing nearly 50%, that not only is meaningful to us from a brand and a satisfaction for all of us who work here. But I mean, that's real business growth, and with the client retention rate up 10 points, this is a big important deal to us as a company.

[Operator:]

There are no further questions at this time.

[Derek Drysdale:]

All right, everyone, thank you for joining us. That does conclude our call today. If you have any follow-ups, please call us at Investor Relations. Thank you.

[Operator:]

This does conclude today's presentation. You may now disconnect. Speakers, please hold.