H&R Block (HRB) William C. Cobb on Q4 2015 Results - Earnings Call Transcript

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H&R Block, Inc. (NYSE:HRB) Q4 2015 Earnings Call June 8, 2015 4:30 PM ET

Executives

Colby Brown - Vice President-Investor Relations

William C. Cobb - President, Chief Executive Officer & Director

Gregory J. Macfarlane - Chief Financial Officer

Mark Ciaramitaro - Vice President-Health Care

Jason L. Houseworth - President-U.S. Tax Product Strategy and Development

Analysts

Scott A. Schneeberger - Oppenheimer & Co., Inc. (Broker)

George K. F. Tong - Piper Jaffray & Co (Broker)

Gil B. Luria - Wedbush Securities, Inc.

Thomas G. Allen - Morgan Stanley & Co. LLC

Anjaneya K. Singh - Credit Suisse Securities (NYSE:USA) LLC (Broker)

Jeff M. Silber - BMO Capital Markets (United States)

Michael Millman - Millman Research Associates

Operator

Good afternoon. My name is Carol, and I will be your conference operator today. At this time, I would like to welcome everyone to the Year-End Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session.

Thank you. Colby Brown, you may begin your conference.

Colby Brown - Vice President-Investor Relations

Thank you, Carol. Good afternoon, everyone, and thank you for joining us to discuss our full year fiscal 2015 results. Joining me on the call today are Bill Cobb, our President and CEO; and Greg Macfarlane, our CFO. Jason Houseworth, President U.S. Tax Product Strategy and Development; and Mark Ciaramitaro, Vice President, Health Care will be available during our Q&A session.

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'll discuss today are presented on a non-GAAP basis. We've reconciled the comparable GAAP and non-GAAP figures in the schedules attached to our press release.

Before we begin our prepared remarks, I'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 2014 and our other SEC filings. H&R Block undertakes no obligation to publicly update these risk factors or forward-looking statements.

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

William C. Cobb - President, Chief Executive Officer & Director

Thanks, Colby, and good afternoon, everyone.

Earlier today we announced our fiscal 2015 results. This has been a challenging tax season, as the first year implementation of the Affordable Care Act and the continued and growing issue of tax fraud impacted the industry as a whole. We expected industry volume unit growth of approximately 1% to 2%, consistent with growth in employment. Instead, total filings increased less than 1%, and assisted returns were essentially flat to the prior year.

I'm pleased that despite these challenges, we delivered top line revenue growth for the third consecutive year. We saw positive changes in our assisted return mix. Our DIY business did very well, delivering 12% revenue growth on volume growth of 8%. Our tax professionals delivered expert ACA advice to our clients and are positioned to be trusted ACA advisors for years to come. We also successfully launched a timely new product, Tax Identity Shield, designed to combat the growing threat of tax identity theft faced by all Americans.

Greg will provide more details on our fiscal year-end results later, but now I'd like to focus on three specific areas: first, the implementation of the Affordable Care Act and its impact on the industry and our results; second, the growing reality of fraud within the industry; and third, our performance.

Let's start with the ACA. Taxes and healthcare intersected for the first time this year, causing confusion and affecting refunds for millions. Prior to the season, we anticipated that 25% of our clients would be impacted in some way by the ACA, whether by completing an advanced premium tax credit reconciliation, claiming an exemption, or paying a penalty.

Actual results were below expectations, and we completed the season with 16% of our clients impacted, as a greater number indicated that they were covered by non-marketplace insurance than expected. Remember, this year a taxpayer did not have to provide documentation to make this claim, but that will change next year when a 1095-B or 1095-C notice form will be required for a taxpayer to claim coverage.

The vast majority of our clients who were impacted either paid a penalty or claimed an exemption. The average penalty was $178, which was much higher than the $95 many taxpayers expected. For the small percentage of clients that completed an advanced premium tax credit reconciliation, almost two-thirds underestimated their annual household income and had their refunds reduced an average of $729, representing a full 30% of their refund. Twenty-five percent overestimated their household income and received on average an additional refund of $425.

As we've been saying for quite some time, it will be several years before the full impact of the ACA is felt. In fact, there are several important changes coming in just the next year. First, total marketplace enrollment is expected to increase over 65% to nearly 12 million people. Next, penalties for not obtaining healthcare will essentially double to $325 per adult or 2% of household income, whichever is greater. And finally, new documentation requirements will impact those taxpayers claiming to have employer-provided or private insurance.

It's clear that taxpayers will continue to feel the impact of the ACA through their tax returns for years to come. Because of the clients we serve, we believe H&R Block is the best positioned tax preparation company to meet taxpayers' ACA needs, and the work we have done has positioned us to be their trusted advisor going forward.

Next, tax fraud continues to have a significant and growing impact on our country. Specifically, there are two areas in which our industry has seen significant trends over the past several years, tax identity theft and EITC fraud. We'll start by talking about tax identity theft.

To fully understand how tax identity theft occurs, let's walk through a typical scenario. A taxpayer prepares his tax return and electronically files it with the IRS. This return is rejected by the IRS because someone else, a fraudster, stole his personal information, prepared a fraudulent tax return in his name using a DIY product, and filed it with the IRS to improperly receive a refund. The legitimate taxpayer then faces substantial paperwork to prove the return as fraudulent, which leads to lengthy interactions with government and legal authorities. It may take several months or even years of effort to resolve the theft, resulting in significant delays in receiving his tax refund.

In just one year, from 2012 to 2013, tax identity theft occurrences increased over 60%, from 1.8 million to 2.9 million. This increase of over 1 million returns is roughly the same amount as the assisted to DIY shift for the same time period. The stories I've heard from discussions with others in the business community regarding people impacted by tax identity theft has been shocking. And while we don't yet have official numbers from the last tax season, we believe the overall growth in this type of fraud will be stunning.

Turning to the earned income tax credit, in 2014 the government estimated that 27% of all EITC returns contained errors, and that improper payments related to the EITC cost the U.S. Treasury $16 billion to $19 billion annually, up from an estimate of $13 billion to $15 billion just one year earlier. We believe this number will be even higher this year.

Additionally, for those obtaining the EITC, the disparity in requirements between assisted and DIY tax filings has been a factor influencing the material shift in EITC clients' tax preparation methods. In fact, without the shift in EITC filings to DIY, assisted tax filings would have grown over the last several years.

Additionally, as we have seen through our acquisition and development efforts, fraudulent or inaccurate payments are not limited to the DIY space. There are numerous independent tax preparers whose tax preparation methods illegally achieve higher EITC payments and overall refunds for their clients at the expense of tax law compliance. Whether these efforts are purposeful or due to lack of understanding of tax regulations, it places those completing accurate and compliant returns such as H&R Block at a disadvantage.

H&R Block has been advocating for actions to address tax fraud for several years. Now, meaningful attention within the tax preparation industry is finally being paid to these issues that continue to cost taxpayers billions of dollars. We have led the industry's fight against fraud, and we remain focused on advocating for change that benefits consumers by strengthening anti-fraud measures. There are some common sense solutions that should be implemented immediately, including: minimum standards for paid tax preparers, clarity between assisted and DIY returns for claiming refundable credits; and more stringent information security managers within DIY tax software such as uniform authentication requirements.

I will be in Washington DC later this week with the IRS Commissioner and others in the industry to continue this discussion, with the hope of implementing real change before the 2016 tax season. As investors and analysts, we believe it is important that you understand how serious this growing problem is. These matters require immediate attention, and we will continue to lead the charge to bring solutions to the industry.

Now that I've provided some context on the season, I'd like to focus on our performance. For the third consecutive year, we grew the top line and delivered strong margins despite a decline in returns prepared by and through H&R Block of 0.1% to $24.2 million worldwide. This was primarily the result of a 4.4% decrease in returns prepared through our U.S. assisted offices to $13 million, which was mainly driven by the continued decline of returns containing the EITC, and to a lesser extent, the second-year impact of the company's decision to discontinue the free federal 1040EZ promotion. The decline in volume also negatively impacted volumes of some of our Tax Plus products including refund transfers and the H&R Block Emerald Prepaid MasterCard.

Despite these challenges, we had numerous successes this season. Our DIY products had a very strong year, increasing revenues, return counts, and market share. Considering the market pressure placed by our top competitor who gave away certain products for free, I'm very pleased with our revenue and volume share gains, which demonstrates H&R Block's outstanding user experience and effective marketing. And while we achieved an 8% increase in accepted e-files, I'm especially pleased in our 12% revenue growth, which outpaced the industry. Our advertising and promotion efforts were strong, increasing product awareness 6 points. And by improving our product and the overall user experience, we're better able to monetize and improve our mix.

Internationally, our operations in Canada and Australia continued their strong performance, growing local currency revenue by 8%. Our Tax Plus products continue to provide tremendous value to our clients. We launched Tax Identity Shield, a timely product that helps to protect our clients from the growing threat of tax identity theft. Sold as a bundle with Peace of Mind, the product met our expectations and helped to drive Peace of Mind attach rates, which improved 2 points.

Other products such as the Refund Transfer and Emerald Card were negatively impacted by the decline in volume and the shift away from EITC returns but continued to be profitable offerings that our clients value. And on an operational note, we were ready for the ACA. Our significant investment in training, systems, and marketing ensure that we're well positioned to assist our clients who navigated the intersection between tax and healthcare for the first time this year.

We also focused on our infrastructure to ensure we're well positioned for success going forward. We implemented a new tax preparation tool in our assisted channel. The new software allows our tax professionals to better use our tax knowledge while providing an improved client experience. The majority of company-owned offices have now been upgraded to achieve a more welcoming professional look and feel. And we purchased and integrated approximately 340 franchise offices into the company management structure that we believe are best suited to be company-run locations.

In summary, although this season had its challenges, we achieved much of what we set out to accomplish. We served our customers well, continued to deliver value to our shareholders, invested wisely with an eye toward the future, and advocated for improvements within the industry. As we head into fiscal year 2016, we will capitalize on our successes and continue our focus on profitable growth, ensuring we continue to provide value to our clients and deliver for you, our shareholders.

With that, I'll now turn the call over to Greg to discuss our results in more detail.

Gregory J. Macfarlane - Chief Financial Officer

Thank you, Bill, and good afternoon everybody.

This year we were able to achieve both top line and strong EBITDA margin growth, despite a decline in total returns, the growing impact of fraud in the industry, and the negative effect of foreign exchange rate fluctuations. Total revenue has increased $54 million or 1.8% to $3.1 billion and our adjusted EBITDA margin up 30.8% was slightly better than our guidance and was consistent with the prior year.

Earnings per share from continuing operations on an adjusted non-GAAP basis declined 2.2% to $1.75. Free cash flow totaled $283 million and the company ended the fiscal year with unrestricted cash of $2 billion.

In our Tax Services segment, U.S. assisted tax preparation fees and royalties combined increased 2.3% to $2.1 billion. This was the result of pricing increases, improved return mix, and the impact of franchise acquisitions, which together offset a 4.4% decrease in assisted returns prepared.

I would like to spend some time walking through the details of the increase in tax preparation and royalty revenues. First, we achieved price increases of approximately 3% this year in line with our plans. We were pleased with the results of our pricing efforts, which were consistent in both our company-owned and franchise network. This does not include the impact of pricing related to the ACA or offers such as the 50% off promotion.

Second, we saw a mix improvement of approximately 2.4% to the declines in EITC and EZ returns and the impact of ACA-related forms. Finally, the remaining increase was due to the impact of franchise buybacks and discount controls, offset by the midseason 50% off promotion.

Now, as Bill mentioned, our DIY business had a very successful year. Increase product awareness and improved user experience and well-designed promotions contributed to 8% client growth and improved monetization. The overall result was a 12% increase in digital tax return preparation revenue to $228 million.

International return volume increased 4%, and local currency revenues increased 8%. The negative impact of foreign exchange rate translation, however, reduced current year revenues by $18 million.

For the second consecutive year, Canada's tax season was extended to May 5th, which resulted in a similar revenue shift out of fiscal 2015, as we experienced the previous year.

Turning to our Tax Plus products, both refund transfers and Emerald Card units were negatively impacted by lower assisted volume. Additionally, with fewer EITC and 1040EZ clients, attach rates declined for both products. Overall, we sold approximately 5.1 million refund transfers and issued 2 million Emerald Cards.

Offsetting the decline in volume in attach, Emerald Card average deposits and usage increased, which resulted in revenue of $51 per card, up from $44 in the prior year. This is a continuation of our multiyear effort to drive usage, which has resulted in a 40% increase in revenue per card since 2012. Additionally, Peace of Mind attach rates increased 2 points to 26.5%, and we achieved strong take rates with our new product, Tax Identity Shield, because revenue was recognized over multiple years for Peace of Mind and over two years for Tax Identity Shield, the majority of the financial impact on increased volume for these products is not realized in the year of sale.

Operating expenses increased 5.1% to $2.2 billion. Franchise acquisitions drove much of the increase, specifically resulting in higher occupancy and equipment expense of $12 million and amortization of $18 million. Additionally, the office upgrade Bill discussed increased depreciation amortization by another $17 million. Because of the acquisitions and other infrastructure investments, depreciation amortization is expected to remain elevated for the next few years at $170 million to $180 million. Approximately one-third of this amount is attributable to amortization of intangibles related to the repurchase of franchisees or acquisition of other businesses. Marketing cost and increased variable compensation also contributed to the increase in operating expenses.

In our corporate segment, pre-tax loss decreased $19 million to $18 million, mainly due to lower interest expense as a result of repaying the $400 million note in October of 2014. Additionally, the provision for losses related to our mortgage loans helped for investment decreased as loan performance improved and property values increased. Finally, our effective tax rate was 34.5%, which was consistent with the prior year.

Turning to discontinued operations, the net loss of $13 million was an improvement of $12 million from the prior year. As we discussed during the third quarter call, Sand Canyon entered into a settlement agreement with a counterparty related to certain of its representation and warranty obligations. The settlement was fully covered by prior accruals and was paid in the fiscal third quarter.

Sand Canyon continued to engage a constructive settlement discussions with the counterparties from which it has received a significant majority of its asserted claims. At year-end, the representation warranty approval was $150 million. As a reminder, Sand Canyon is and always has been operated as a separate legal entity from H&R Block. We continue to believe our legal position is strong on any potential corporate veil-piercing argument.

Turning to cash flow and our balance sheet, we continue to maintain a strong financial position. By focusing on expense management, we have been able to invest significant dollars back into the business while achieving a 30.8% EBITDA margin. After dividends, we achieved free cash flow of $283 million in fiscal 2015, and as of April 30, total unrestricted cash was $2 billion and total outstanding debt was $506 million.

As we have mentioned previously, until the bank sale is complete, we will continue to maintain a considerable amount of capital on our books due to regulatory requirements. While this year's free cash flow increased the amount of available capital, the paydown of our $400 million note in October offset that increase. As such, we continue to expect to have approximately $1 billion of excess capital on the balance sheet when the bank deal closes. It is the desire of the board and management to use this capital and also incur some incremental net debt while maintaining an investment grade rating to return capital to shareholders. More details regarding the capital plan will be shared after the bank deal closes.

Before concluding, I would like to spend a few minutes talking about a key metric in the tax -preparation industry, unit count. Unit or return count is widely used to evaluate performance in our industry. It is generally viewed as a proxy for market share, so given the differences in tax for our complexity and methods of filing, we believe that revenue share is a more relevant measure.

And while unit count is viewed as an important measure, it is not clearly defined. One may assume that a unit equals a tax return, but this is not always the case. Consider the example of desktop software sold in a box at a retail location. When sold, it can be clearly counted as one unit. However, one box can be used to prepare multiple returns. Further, the unit count method used by one tax preparation company may differ from other tax preparation companies or even from the IRS.

As tax preparation fraud becomes more prevalent, without a defined methodology, we are not able to clear quantify the impact identity theft and other irregularities are having on unit counts. For more than 10 years, taxpayers have used an assisted tax preparation method approximately 60% of the time as a DIY method, including software the remaining 40%.

In the past five years, however there has been a slow gradual shift from assisted to DIY. Considering that the vast majority of tax identity fraud occurs through the DIY channel, in our opinion this is impacting unit counts. For example, from 2012 to 2013, the number of tax identity theft victims increased by $1.1 million. In 2012, following a 60:40 filing pattern, approximately 700,000 of the returns would have been filed using an assisted method and approximately 400,000 using a DIY method. Then, when the identity thefts occurred in 2013, virtually all 1.1 million of those returns would have been filed using the DIY method, effectively decreasing the returns prepared in the assisted channel by 700,000 returns.

To be crystal clear, we believe the shift from assisted to DIY is driven by fraud. In fact, if you took a reasonable position on the level of fraud in the DIY category, including tax identity theft and EITC fraud, the DIY category actually declined over the past five years. Said differently, despite the increasing number of free DIY options, if we were to exclude the impact of fraud, we believe the proportion of DIY returns would have actually decreased while the proportion of assisted returns would have increased.

Having said all this, there is some benefit in providing unit counts. For this measure to be valuable, however, it's important it is clearly defined. Thus, we are taking the lead in fully disclosing how we define a unit.

A key element of our count methodology is the need for a payment, which we believe discourages fraudsters. For assisted returns, a unit is defined as an individual tax return that has been accepted by the client who has either paid for our services or settled with a refund transfer, regardless of whether the return is electronically filed or printed and mailed. This includes returns for both the current and prior tax years. Also included in our assisted returns are extensions and business returns, each of which account for less than 1% of assisted returns.

For desktop and online returns, we define a unit as a return that has been electronically filed and accepted by the IRS. We also count online returns purchased with a credit card and printed for mailing, which constitute a very small portion of our total. We do not count state-only returns as part of desktop and online returns.

Now that we have taken the first step and shared our unit count methodology, we strongly encourage others in the industry to provide transparency into the method they use to record and report tax return units.

Now with that, I'd like to turn the call back over to Bill.

William C. Cobb - President, Chief Executive Officer & Director

Thanks, Greg.

Before we conclude, I'd like to comment on H&R Block Bank. Let me be clear. While we respect the work of the regulators, we are frustrated by this process and the length of time it is taking for the transaction to come to conclusion. We continue to work with BMI and our regulators, and believe that on its merits this transaction should be approved.

We understand your desire for additional information as the approval process timeline lengthens and appreciate your patience throughout this process. At this time, however, we do not have any additional information to share. We remain committed to providing updates when appropriate.

To wrap it up, we are pleased with our performance this year, growing revenues, gaining share in DIY, maintaining strong margins, and advocating for industry-wide fraud controls. We're already hard at work on next tax season and are excited about what the future has in store.

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

Question-and-Answer Session

Operator

Your first question comes from the line of Scott Schneeberger from Oppenheimer. Your line is open.

Scott A. Schneeberger - Oppenheimer & Co., Inc. (Broker)

Thanks, good afternoon. Bill, following up on the bank, we realize no update at this time. I'm just curious, though. Are you in regular dialogue with the regulators? Has it been radio silent for a while, or is there interaction back and forth?

William C. Cobb - President, Chief Executive Officer & Director

Scott, I am not going to comment on the specific work we are doing with the regulators. Suffice it to say that any questions they have, we answer timely and quickly. The discussions have been professional and courteous, thorough. And like I said all along, on its merits we believe the transaction will be approved.

Scott A. Schneeberger - Oppenheimer & Co., Inc. (Broker)

Okay, thanks. I'm curious. On ACA, I think in the press release you mentioned 16% of Block clients ACA-affected. I think that was a little lower than what Block anticipated going into the season. I'm just curious. Is that in fact accurate? And what drove that? What do you think was the dynamic affecting it itself?

William C. Cobb - President, Chief Executive Officer & Director

I'll have Mark comment in a second. I do want to say that while we did think that it was going to be upwards of 25% of our clients impacted, we have said repeatedly that this is going to unfold over a few years; that with all the consumer confusion and all of really the newness of taxes intersecting with healthcare that this was going to take a while to unfold. Now specifically, I'll let Mark speak to the difference between the 16% that actually occurred and the 25% we were anticipating.

Mark Ciaramitaro - Vice President-Health Care

Scott, this is Mark. We came up with that figure of 20% to 25% based upon survey market research work. But what we found this past tax season is that more of our clients actually filed indicating non-marketplace coverage for them and their household members. We think this is related to the fact that the IRS had really limited mechanisms in place really to enforce compliance, and a lot of people used the checkbox process as a way of avoiding ACA-related penalties.

Scott A. Schneeberger - Oppenheimer & Co., Inc. (Broker)

Great. Thanks, guys, a couple more if I may. The franchise, the acquisitions of franchisees into company-owned stores, Greg, any quantification of impact of that to the extent you can comment? And then following up on that, what is the strategy going forward with regard to M&A and perhaps buying additional franchisees?

Gregory J. Macfarlane - Chief Financial Officer

So as we outlined back in the last quarter and then again on December, we had a unique opportunity this year to buy back a number of our franchise locations that at one point were actually company-run territories. We think that the total population of those is somewhere in the 600 office range. This past season we completed 341 store acquisitions. That was the old territories that we bought back. For the most part, we think that program is coming at the end of it and we go back to our normal level of independent acquisitions, which were in every season, and that while that ebbs and flows a little bit, we think it will be in line with historical experience.

William C. Cobb - President, Chief Executive Officer & Director

Scott, I think this is a healthy piece for a franchisor to enable franchisees to have an exit strategy. In addition to some of the acquisitions we made, we are also working with some of our franchisees who are looking to buy other franchisees. So this is a pretty dynamic environment we think is going to ultimately lead to a healthier system.

Scott A. Schneeberger - Oppenheimer & Co., Inc. (Broker)

Thanks, one final one, and I think I get it. Bill, you have a quote in the press release saying tax season challenging, impacted by changes and the timing of tax filings. And I think Greg may have answered it with regard to Canada. But I'm curious, should we read in any more to that? Is that what that comment was or were you alluding to something else? Thanks.

William C. Cobb - President, Chief Executive Officer & Director

No, I think that's consistent with what we're getting.

Gregory J. Macfarlane - Chief Financial Officer

There's one certainly does, Scott, and it's actually one of those kind of important details. It's just an industry thing, but this season there were a lot more balance due clients than we had seen in last several years. So this is a situation where many Americans had an amount due to the IRS. And we know from many years ago, and that's true they tend to wait later in the season to file. It's one of the reasons there was more of a backend load this year. As an operational statement, that obviously would – if we'd known that better in advance, we would have had better – sort of the way we marketed, in terms of timing, our labor models, and things like that. But in the grand schemed of things, it wasn't a huge issue, but it was one of those things that we've spent a lot of time talking about.

Scott A. Schneeberger - Oppenheimer & Co., Inc. (Broker)

Understood, great. Thanks, I'll turn it over. Thanks, guys.

William C. Cobb - President, Chief Executive Officer & Director

Thanks, Scott.

Operator

Your next question comes from the line of George Tong from Piper Jaffray. Your line is open.

George K. F. Tong - Piper Jaffray & Co (Broker)

Thanks and good afternoon.

William C. Cobb - President, Chief Executive Officer & Director

Hi, George.

George K. F. Tong - Piper Jaffray & Co (Broker)

So return volumes were impacted this year by EITC-related filings. Can you discuss what your expectations are for the behavioral shifts associated with EITC filers and if you expect stabilization, or if this is a structural issue where volumes will need to be made up for elsewhere?

William C. Cobb - President, Chief Executive Officer & Director

I think – and, Greg, if you want to add anything – there are a couple of components here. One is the shift of EITC filers from assisted to DIY that has occurred over the last six or seven years, which we think is driven in large part by the disparity and documentation requirements between having to file with a paid preparer and having to file yourself. The other piece is the increase in fraud or improper payments, whatever term you want to use, that we've seen occurring with EITC filers specifically. We continue to study this part. What I'm talking, going to Washington so frequently for is to look at ways to – this is not good for anybody to be having fraudulent return filed, having improper payments taken from the U.S. treasury. So I do think it is a combination of both of those issues, both of which can be solved with some commonsense solutions. I don't know, Greg, if there's anything you want to add to that.

Gregory J. Macfarlane - Chief Financial Officer

Maybe I'll address the broader question you're asking as well, George. So, in the EITC form and the clients that use them, the rout is this is an area that has a traditional strength for H&R Block. We have a lot of experience with this type of client, we've got retail locations and a lot of them – the neighborhood that buys that way, this is a complicated format, it has very real consequences getting it wrong, and it has very real consequences being right as well. It just represents a very significant refund amount for those clients who are eligible.

The fact that there is a problem here is not something, in addition to the government strategy that Bill talked about, is not lost on Block, and we are spending a lot of time talking about other solutions, which for competitive reasons we're not going to get into right now. I will say that in December, you'll probably hear a more robust answer to this question.

George K. F. Tong - Piper Jaffray & Co (Broker)

That's very helpful. And drilling deeper into the ACA impact, assuming that 25% of your clients were impacted by the ACA this year, how much of an additional mix benefit do you estimate you would have seen on a percentage basis?

William C. Cobb - President, Chief Executive Officer & Director

Do you want to...

Gregory J. Macfarlane - Chief Financial Officer

I'm not going get into hypothetical numbers here for you. What we do know is that Block has the best position in the tax industry to take our clients through this challenging time this year and the years to come here. The Block client in himself is twice as likely to be impacted by the ACA. We don't think that as a general idea is going to change much. I think that many people for the first time began to realize that their taxes and healthcare decisions are related, and we believe that Block has the best position to take advantage of this. Mark, do you have a comment?

Mark Ciaramitaro - Vice President-Health Care

Probably, George, it will be good to mention that next year, we believe that things are going to – kind of the ante is going to be upped even more when we have penalties increasing. But one of the big substantial changes next year is we expect IRS compliance to increase, and because, really, everyone who has received any kind of coverage is going to have to provide that verification through a 1095-A, 1095-B, or 1095-C. So we do think the combination of increased enrollment, increased penalties, and really this verification process is going to increase the number of filers impacted by ACA going forward.

George K. F. Tong - Piper Jaffray & Co (Broker)

Got it. And you mentioned that about 2.4% mix impact is attributable to a combined combination of the EITC, the 1040EZ, and the ACA. Is it possible to split out that 2.4% between those three components?

Gregory J. Macfarlane - Chief Financial Officer

So we said that roughly two-thirds of the loss is more on the EITC and one-third is the EZ. Now, offsetting that, of course, was we had a very successful mid-season promotion, the 50% off promotion that was really targeted between the first peak and the second peak, so we called that trough in the industry. And that a very successful program, and we found that we're able to attract a lot of high-value clients for the first year, but we understand that a high number of those will be retained for year two, three, and beyond.

George K. F. Tong - Piper Jaffray & Co (Broker)

Got it. And then lastly, digital is doing well in both sales and monetization. Can you discuss what production and marketing initiatives over the next 12 to 18 months you have in place to help drive the same share gains from digital?

William C. Cobb - President, Chief Executive Officer & Director

George, we're not going to talk specifically about the future, but I will let Jason address generally that the journey we've been on, which I think has been quite successful. He's done a remarkable job leading that business. Why don't you talk in general terms about what we've been trying to do?

Jason L. Houseworth - President-U.S. Tax Product Strategy and Development

Sure. As you said, George, our goal every year to outpace the industry in digital growth and improve our average revenue per user. And our results this year, plus 8% unit growth, plus 12% revenue growth, they really demonstrate a strong execution by our product team, delivering on what has been a multiyear product redesign. It was really started out as a journey just to make our product responsive, but what we've seen along the way is product innovation. And highlighted this year was our Refund Reveal feature, and I'm not going to give away a lot of where we're going, but I think that that's really a great example of what I've called intelligence-as-a-service and what we're going to continue to see as features which really help the user not only understand how they get the most refund back with H&R Block but also how the software really helps make the process a lot easier as they do their taxes.

George K. F. Tong - Piper Jaffray & Co (Broker)

Very helpful, thank you.

Operator

Your next question comes from the line of Gil Luria from Wedbush Securities. Your line is open.

Gil B. Luria - Wedbush Securities, Inc.

Good afternoon, a couple related questions. In your prepared remarks, you talked about the fact that the regulator hasn't approved, or doesn't seem to have any merits for not approving the bank sale. It sounds like you're maybe implying that there's other factors at hand here. And if that's the case, and even if it's not the case, and the regulator's going to take an unknown period of time to approved this, doesn't that make this the new normal? And if it is the new normal and even in consideration of everything that you talked in terms of volumes and unit accounting, how do you generate earnings growth on a sustainable basis going forward without a bank sale? How – units in assisted, regardless of accounting decline, is that sustainable for you to be able to generate earnings growth for a long period of time with declining units within assisted especially where this year, you've seen it drag down your Tax Plus product as well?

And then on margins, you've talked about a range in the past. You're still at the high end of that range with less revenue growth, and again the inability to buy back shares. Wouldn't you want to stretch that margin target upwards in order to generate sustainable earnings per share gains even without the ability to get rid of the bank?

William C. Cobb - President, Chief Executive Officer & Director

All right, there is a lot there. Again, also thank you for that. Let me take the beginning part and make sure that we're clear in terms of what we're saying on the bank update. And then, Greg, I think if you want to take in general, and I'll pipe in if there's something I want to add. I don't think we wanted to indicate anything other than there is no information at this time. And while we're frustrated by the pace of the project, we don't see any reason why this wouldn't – transaction would not be approved on its merits.

Now, so there's no signaling, there's no, nothing of – and this seems to be taking a long. That is from our perspective, and probably many people would be with the same way. I'm not sure the regulator does. And for those of you who would deal with other banks and this whole industry, things are taking a long time in terms of any kind of deals that are being approved. I don't want to speak for the regulators, but I don't think they think this is – I think they feel they're being thorough and complete as they approach this transaction.

So while it's frustrating, while I would have thought we would have had an answer by now, there is nothing – and hopefully, we've gotten this through -there's nothing to indicate that anything other than that this will move forward. However, the timing is something that is still in the hands of the regulators, and I think from their perspective, and again I can't speak for them and I don't think they're going to speak about this, I think the timing is consistent with some of the ways they look at other deals.

Now, as for what the implications of that are – and again, I think every one of us also want to be very clear, we are not going to change our mind, if you will. We do not want to be regulated as a savings and loan holding company any further, and our intention is to exit holding – owning our own bank. So in terms of share counts and things like that, we'll get to that at the appropriate time, but our intent has never wavered on this. This is a particular transaction we believe it will be approved, but that is not going to waver. Now as for the long-term growth, let me turn that over to Greg.

Gregory J. Macfarlane - Chief Financial Officer

And so the broader point that you're making really is about the investment thesis, and what I would say is that we continue to believe very strongly that our investment thesis remains true. Specifically, the growth levers that we've got, international growth or digital growth, our Tax Plus strategy, we believe is on a favorable tailwind from this business. We've had a good story on pricing. We've had a good story on mix. The unit count has been disappointing, but we are narrowing down the issue. And actually, if you sort of neutralize just this past season for EITC and EZ, we actually grew, and that's exactly what we wanted to do.

Importantly, and something that we've talked about before is – and that's why I've gotten this in my prepared remarks is that all units are not created equal. In fact if we looked at the lifetime value, there is a major discrepancy between a sort of more sophisticated tax return client and one that has a more simple return. So as an example, our decision to get rid of EZ was the right decision then, and we continue to believe it was the right decision. We gave up a lot of units, but the overall client experience for those clients that are left are better. We're going to have a deeper relationship with them, and they're higher-value clients from a financial perspective.

The EITC solution is one that we're working on. There's multiple solutions that we're talking about. We've talked about a couple of them publicly. We've got a couple other ideas there. That's one that we will be addressing more formally as we get into the next tax season. But overall, we very much – the investment thesis around a growth company remains solid here.

Gil B. Luria - Wedbush Securities, Inc.

Okay. Let me just follow up on one aspect to your – it's great to hear that your resolved about not wanting to be in the bank charter business is unchanged. Is there not a possibility for you to unwind the bank without having to sell it, and therefore not have to go through the same regulatory approval cycle? Is that not a possibility that you would have if this process was to keep going on or was to end with an unfavorable ruling?

Gregory J. Macfarlane - Chief Financial Officer

The important point number one is what Bill said, is we're going to get out of this business. That's just something we've committed to. We will get it figured out. It's been frustrating, but we believe that the transaction we've entered into with BofI and talked about with all you many times is the way to go. As a hypothetical, in the event that doesn't work out, what is the next backup? There is a way to separate the going-forward bank support that this company needs to continue to sell Tax Plus products, which we're very committed to, and the actual formality involved with having a bank balance sheet. So effectively, we want to still be in the business of offering bank products, and we'll need a partner bank to do that. So think of that as one transaction.

We do have a legacy bank. We've got deposits. We've got liabilities, other liabilities. We've got assets that require a bank charter CD to find a home for those. So that would have to be a second step of that transaction. And frankly, it's really the second part that's really the hang-up in terms of getting that taken care of because whoever buys those will need to get approval from their regulator. But clearly, if you keep it small and go to a much larger bank, it makes it a little bit easier. So these are all considerations that we've got. But really, just to finish up my response to your question, the plan that we have with BofI is the right plan we believe, on its merits, will be approved.

Gil B. Luria - Wedbush Securities, Inc.

Very good, thank you very much.

William C. Cobb - President, Chief Executive Officer & Director

Thanks, Gil.

Operator

Your next question comes from the line of Thomas Allen from Morgan Stanley. Your line is open.

Thomas G. Allen - Morgan Stanley & Co. LLC

Hey, hi, guys. On the bank sale, at the end of April on their earnings, BofI said that they believed a positive resolution would happen relatively soon. Do you share their timing optimism at all?

William C. Cobb - President, Chief Executive Officer & Director

I'm out of the forecasting business. I think what we share and we continue to work very closely with BofI. We're committed to them. I think they're a terrific partner. We think the deal is going to be approved. But as for timing, we've been wrong a couple times on this. That's why I'm out of the timing business.

Gregory J. Macfarlane - Chief Financial Officer

You have to keep in the mind that we could be optimistic, they could be optimistic, but we're not the ones making the decision here; it's up to the regulator. So I think it's our position on this; it's just better not to comment. Greg and the both of you guys can do what they want to do. But I don't think there is a difference of opinion overall, it's really just how we want to represent a decision that the regulator has to make.

Thomas G. Allen - Morgan Stanley & Co. LLC

Okay. And then, Greg, as an answer to the last question, you talked about potentially winding down or restructuring the transaction. As it stands, if I remember correctly, you estimated it would be about – the sale to BofI, the dilution will be about $0.07 to $0.09 a year. If you were to go down plan B, any help in how to think about the ongoing dilution?

Gregory J. Macfarlane - Chief Financial Officer

Just to be clear, I talked about it as a hypothetical. I didn't say whether there's any plan to restructure by any means. And I guess the specific answer to your question is the best estimate I could give you is in line with what we currently understand, the $0.07 to $0.09. But it would clearly be a reflection of – if there was feedback from a regulator, a different party may have a different viewpoint, we may structure it differently, but I couldn't answer those questions specifically right now. So I'd say $0.07 to $0.09 is still the right number.

Thomas G. Allen - Morgan Stanley & Co. LLC

Okay, and then just a final question for me. So your survey work had suggested that 25% of your filers would be impacted by ACA. It came in at 16%. You obviously invested some money both one-time and then ongoing in terms of ACA. Have you thought at all about right-sizing the investment? You were very good at driving efficiencies a few years ago. I'm just wondering if you think you're going to do something some more now.

William C. Cobb - President, Chief Executive Officer & Director

I think, Thomas, we're obviously looking, starting our planning for 2016 and we'll take a look at that. I do think the investment we made in training, in marketing, that really established us certainly from the research we've gotten back as the people to turn to when it comes to this issue. I think our people were very well prepared, handled all of the simple and complex areas of this tax law change. I think our feedback on our marketing efforts was very strong. So it was an investment. I think that we've established that. Therefore, do we have to spend at that same level? Probably not, but we're not prepared at this point to get into specifics going forward. You'll obviously hear more about that in December.

Gregory J. Macfarlane - Chief Financial Officer

But just to be clear, that is not a reflection. We continue to be very bullish about the ACA in our business. Reduction in investment is really just a reflection of the one-year startup costs going away theoretically.

William C. Cobb - President, Chief Executive Officer & Director

And also I think all the feedback we got, which I think shows that that investment was worthwhile.

Thomas G. Allen - Morgan Stanley & Co. LLC

Great, thank you.

William C. Cobb - President, Chief Executive Officer & Director

Thanks, Thomas.

Operator

Your next question comes from the line of Anjaneya Singh from Credit Suisse. Your line is open.

Anjaneya K. Singh - Credit Suisse Securities (USA) LLC (Broker)

Hi, thanks for taking my questions. First off, I just wanted to touch on the decline attributable to the EZ clients. Do you have any sense as to how these clients may react next year? Do you foresee any of the carryover impact you saw this year into next, or do you believe that we've worked through most of that decline?

Gregory J. Macfarlane - Chief Financial Officer

So we think that most of the impact of the decision has been worked through the system at this point. So it's really going to be a mostly a nonissue for us last year. And just as a reminder, we ran this free EZ promotion for several years. It had a life. We did a lot of financial assessment of the value of those clients, retention of those clients, propensity to buy new products. We believe that the program had run its life. We terminated the product. Of course, there was that one-year benefit because we started charging for it again, but we lost a lot of units. There was a bit of an echo effect this year. But to be clear, our research and our belief is that a lot of those clients that left us are extremely price-sensitive and all they'll do is continue to shop around. They're not loyal to any particular company. So any company that's declaring victory over capturing a bunch of those units I think is a little bit misguided in what the real value of those clients are, unless they keep their prices at the low end.

Anjaneya K. Singh - Credit Suisse Securities (USA) LLC (Broker)

Okay, got it. And sorry to belabor this point, but the 25% of your clients being impacted that you talked about at the Analyst Day versus 16% you saw, do you still think the true number is 25%? Was the result this year just impacted by really no control around documentation? I'm just wondering if you still believe the 25% figure is the accurate one or if it sits closer to the 16%.

William C. Cobb - President, Chief Executive Officer & Director

I'll take first one, and then, Mark, you should add your perspective. I do think it is. I think it's a combination of not only the documentation requirements that will enhance next year, but also this year the number of people who are going to be enrolled in the exchanges, coupled with I think a greater awareness that this is something that you have to comply with. But go ahead, Mark.

Mark Ciaramitaro - Vice President-Health Care

I think the Supreme Court ruling notwithstanding that really, if you look at that the drivers of volume going forward – Bill already mentioned them – compliance is a big factor. We think that that obviously explained one of the big area of the shortfall this year, just the doubling of enrollment and the continuing climb in enrollment. If you look at the CBO estimates eventually climbing close to $20 million, we'll have a significant impact on the number of people impacted by ACA. So we absolutely believe over the long run that we'll be in that 20% to 25% range.

William C. Cobb - President, Chief Executive Officer & Director

I think that if you go back to our statements, we believed all along, and we didn't – we kept hedging on the first year. We weren't sure where it was going to land. Okay, so now we have, if you will, a baseline. But we have felt all along with this would take a few years to really unfold, and we'll see if that's true. But we do believe it will be.

Anjaneya K. Singh - Credit Suisse Securities (USA) LLC (Broker)

Okay, got it. And I'm not sure if I missed this, but another one on ACA. I realize there was a lot of confusion and delay in mailing out the forms from the IRS. But did the sort of profile of the clients that were ACA-impacted – could you discuss how many of those were assisted versus DIY? Was there any share shift from those clients that were H&R Block clients last year? Just hoping to better understand what the dynamics are between assisted and DIY as it relates to the ACA-impacted population.

William C. Cobb - President, Chief Executive Officer & Director

What I would say, and then Mark, correct me if I don't – or, augment this. The impact was about the same between both assisted and DIY. There was not much of a shift either way, I think primarily because as people walked into using their filing methods, and the many, many people, a high, high percentage in this industry stay within their filing method, there's some degree of switching. But I think that contributed to that, so there was not a material shift and the impact was about the same whether you sought assistance of did it yourself.

Mark Ciaramitaro - Vice President-Health Care

I think, I slightly it's slightly higher on the assisted side, Bill, because of the client mix there, but agree we did not see any significant evidence of shifting going forward. That doesn't mean that as complexity increases with more people have into go through the reconciliation process and with it facing the refund impacts of that that we aren't going to see the potential for some shifting going forward. What we have learned this year is that when people do see refund impacts, and we do see delays in issuing of forms and corrected forms, that that does have the potential to alter both filing behavior timing and method. But we didn't see substantial impacts this year.

Anjaneya K. Singh - Credit Suisse Securities (USA) LLC (Broker)

Okay, got it, and one final one from me. If you could, just help us with what retention rates look like in DIY and assisted, and in the latter, particularly for the, say, the non-EZ filers, and how that might have compared to your branded retail competitors?

William C. Cobb - President, Chief Executive Officer & Director

You want to take that or...?

Gregory J. Macfarlane - Chief Financial Officer

We were actually very big with our retention rates overall on the assisted side. They crept up. It wasn't quite at point, but a little bit shy of that. So all things being equally – which included, by the way, the issues we've talked about, so that's actually a very good result. And then, Jason, you want to talk about DIY?

Jason L. Houseworth - President-U.S. Tax Product Strategy and Development

On the online side, although I still think we have a lot of room for growth, in online, we were up about 200 basis points and in desktop software, we were up about a 160 basis points.

Anjaneya K. Singh - Credit Suisse Securities (USA) LLC (Broker)

Okay, great. That's all from me. Thanks a lot.

William C. Cobb - President, Chief Executive Officer & Director

Thanks, Anj.

Operator

Your next question comes from the line of Jeff Silber from BMO Capital Markets. Your line is open.

Jeff M. Silber - BMO Capital Markets (United States)

Thank you so much. I apologize for going back to the bank, but just a couple of quick follow-up questions. If the deal does go through, can you just remind us what steps are needed and the timeline for any potential capital return?

Gregory J. Macfarlane - Chief Financial Officer

Happy to. So upon receiving regulatory approval, what would happen is at that point, we would have what I would call mechanical closed process with BofI. The steps themselves, they're really administrative in nature. We don't have, for example financing contingences and things like that. The amount of time, there's like client notices, there's like articles of incorporation you'd have to change, there are some bid transfers that have to go through, and just very mechanical things. That would be somewhere between 30 to 45 days.

Our preference is typically to try to close the transaction at the end of a month. It just makes all the accounting easier. So that might just have to factor in. But 30 days 45 days would take to close the transaction, and we would think effectively – effectively means not precisely, but effectively, at the same point, we would then no longer be deemed as a savings and loan holding company, so call that concurrent, as it were. And then at that point, we'd wash our hands, BofI would then be responsible for our tax products going forward that are bank-related, and we'd look forward to a successful tax season with them really running the engine for us. That would be how the process works.

Jeff M. Silber - BMO Capital Markets (United States)

And then again, after that is there any issue in terms of timing for you being able to return capital to shareholders?

Gregory J. Macfarlane - Chief Financial Officer

Well, we mean there's obvious considerations. We have historical blackout periods and things like that. But these are things that we well understand. And our intent would be, of course, just given the timeline that we've already gone through, to be fairly quick and expeditious in getting information back to the shareholder base about what our plans and thinking would be. So I'd say it's fairly much when we close, we get up and start talking people more publicly what our plans and thinking are.

Jeff M. Silber - BMO Capital Markets (United States)

Okay. That's great. And then if the deal does not happen, do the restrictions on the share repurchase and any increase in dividends, are they still in force?

Gregory J. Macfarlane - Chief Financial Officer

So we are a savings and loan holding company at the parent company level, and we're actually regulated by the Federal Reserve Bank. That's the parent company regulated; the bank itself is regulated by the OCC. So we fall, as a parent company, under all the capital requirements and things that the bank holding companies typically are. We have been in a period now for two years effectively where we've been building capital to meet those requirements. We don't believe that there's any issues with the pace of which we're doing that. So that's one thing I just sort of set aside. Then, of course, when the bank transaction completes, at that point we start with a $1 billion number we mentioned earlier, and then any potential incremental debt we may want to raise and then of course it also has impacted go forward capital policy at that point.

Jeff M. Silber - BMO Capital Markets (United States)

Okay. And then if I could just focus back on the core business, I know it's still too early to look at fiscal year 2016 and with the caveat you gave us regarding just looking at volume growth. But with that being said, is there any reason that we should not expect the industry volume growth to increase 1% to 2% next year, as you thought might line have occurred in 2015?

William C. Cobb - President, Chief Executive Officer & Director

Jeff, that's a great question that obviously we're contemplating right now. We were surprised this year that the unit account was under 1%. So we're studying that, and I'm not trying to kick the can down the road, but I guess I am to December. We'll look at that. You would not – there is no obvious reason why it wouldn't – it's been pretty consistent for 50-plus years, pretty much in line with nonfarm employment. But, we've got to study what – when we get the full information, which frankly, from an IRS perspective, we really don't get until the fall, that we can really understand why we're short this year. So more to come, but I think your supposition is not a bad one. But we were surprised this year with the growth in employment and everything that it didn't, even to some extent go towards the higher end to that 1% to 2% range.

Jeff M. Silber - BMO Capital Markets (United States)

Okay, fair enough. And just a couple of quick modeling questions for fiscal year 2016. What tax work should we be using and what should we be modeling for both capital spending in any potential franchise or purchases? Thanks.

Gregory J. Macfarlane - Chief Financial Officer

I think we can certainly get in a more detail conversation offline. But in general, I'd say that at this point, we have had great success in the tax rate this year with 34.5% in line with last year. A lot of reasons for that were especial one-off type things, and now we've had a couple of good years there. So I'm pretty happy with that. But what we said is the core base tax rate for the company continues to be the 38% to 39% range. At some point in the near future, we'll give you a better indicator what we think that will be long-term, but for now I keep it there. And then as we've said, consistently we think the right CapEx level for this company is really between 3% and 4% of revenues. It's been little higher than that and trended toward to the high end, really, as we've made up a few years – several years ago that we're under spent. But we think we'll revert back to the 3% to 4%. That's the best guidance, I can give you.

Jeff M. Silber - BMO Capital Markets (United States)

All right, great. And any potential franchiser purchases built in?

Gregory J. Macfarlane - Chief Financial Officer

Nothing, just like we've seen this year, would be my position right now.

William C. Cobb - President, Chief Executive Officer & Director

But we will continue on that path, as Greg said, in terms of we're in discussions right now that usually occurs after the tax season, it takes a while. So we don't really have anything to report except we will probably proceed in that matter again, but as Greg said, not to the level that we did this past year.

Jeff M. Silber - BMO Capital Markets (United States)

Okay, got it. Thank you so much.

Gregory J. Macfarlane - Chief Financial Officer

Thanks Jeff.

Operator

Your next question comes from the line of Michael Millman from Millman Research Associates. Your line is open.

Michael Millman - Millman Research Associates

Thank you. So following up on couple of things that's been discussed, one, ACA could you give us the cost that you incurred this year for ACA? And secondly, regarding the balance due increase, you'd think – or maybe I should say, I would think that would be beneficial to Block, beneficial to assisted, probably detrimental to do it yourself and maybe and certainly suggest that the economy is improving. So we have that unknown factor, but going forward it – what does more balance due suggest to you?

William C. Cobb - President, Chief Executive Officer & Director

It's an interesting question, Mike. Does that – one of the answers here, Jason's commented would the balance do impact – I can't see a reason why it would impact do-it-yourself versus assisted. But maybe I'm missing the point there, because I think it's a matter of – no matter how you filed, the balance due what was higher this year for a variety of reasons. In terms of this specific cost, we're not going to break out specifically what it costs. Obviously, you can see in our some of our numbers we did increase marketing, we did increase training, and we felt it was an important investment. We think it was a good investment. But we're not going to breakout anything specifically.

Gregory J. Macfarlane - Chief Financial Officer

I can break the costs in three buckets for you, and Bill mentioned a couple of them. The marketing costs, for sure, which had included merchandising and store merchandising signs and things like that, that may be a season-to-season type of thing. It may not go up or may not go down, because we continue to be very bullish about ACA. The second bucket is really all the changes we had to make to our systems, programming changes that required a fair amount of hours, and that cost money. Those for the most part are one-time in nature. We're not going to have at a same level this coming season and beyond. And then third is really the training, and there was, as you could imagine a big blip upfront is to get people up to speed on that law itself, the changes. But that's fairly durable now, so most of that would go away next year. We are not going to, as Bill said, quantify specifically, but these are not immaterial amounts of money that are in the non-recurring buckets.

Michael Millman - Millman Research Associates

Getting back to the balance due, I would expect that Block would generally do better than the retail firms. On the other hand, maybe the CPAs take market share. Do you have some thoughts regarding...

William C. Cobb - President, Chief Executive Officer & Director

Jason, you want to give a perspective on that?

Jason L. Houseworth - President-U.S. Tax Product Strategy and Development

I think when we talk about complexity change, complexity is perceived. So if I have a balance due change and ultimately I feel like because of that, I'm now more complex, then that's something that I think, getting back to your original question, Michael, I mean that something that I could understand. But as far as how we approach the CPAs and the independents, I mean, not just on balance due but in every aspect, I mean we think about this as how do we create a superior experience. And that's something that we are certainly designed for as we look forward to next year and beyond.

Gregory J. Macfarlane - Chief Financial Officer

I will say that – we mentioned it briefly but I'll repeat it. The 50% off promotion worked out really well from our perspective, and it was probably somewhat because of the balance due clients. People saw that and felt it may be a good chance to come talk to us. And so we sort of saw those intersection points quite clearly.

Michael Millman - Millman Research Associates

Thank you.

Operator

This concludes today's Q&A session. I turn the call now back over to Mr. Colby Brown for concluding remarks.

Colby Brown - Vice President-Investor Relations

Okay. We would like to thank everyone for joining us. And this will conclude today's call.

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