H&R Block Earnings Call Nuggets: Bank Sale Details and Emerald Card
H&R Block Inc (NYSE:HRB) recently reported its first quarter earnings and discussed the following topics in its earnings conference call.
Bank Sale Details
Kartik Mehta – Northcoast Research: I think initially when you talked about the bank sale, you had indicated that you thought it was going to be $0.06 to $0.09 dilutive and as you look at the fact that it’s been delayed, would that mean there won’t be, at least, that dilutive for the upcoming fiscal year or have things changed or are there other expenses may be that you weren’t thinking about that have to be considered now?
Gregory J. Macfarlane – CFO: So, in earlier this summer, when we made the announcement about the signing of the purchase assumption agreements that were filed with the various regulators, we’d also shared our thoughts on what the financial implications of the transaction would be and so you’re correct and that we had said, but we would expect $0.06 to $0.09 per share in fiscal year 2014 and we also indicated that there’d be an additional $0.03 to $0.04 of one-time charges that we’d incur. Given the regulatory delay and our belief that tax season ’14 will be processed in H&R Block Bank, the $0.06 to $0.09 will not impact us this year. However, the one-time cost, $0.03 to $0.04, we still estimate will impact us. In fact, in the first quarter that we just reported, you already saw $0.02 of that included in those numbers.
Kartik Mehta – Northcoast Research: Then, I think Bill, you talked about, you had gone to the regulators to try to buy back share, but obviously they said no. Maybe a two part question here. Can you talk about maybe the amount of authorization you were requesting and maybe what their hesitation was, if they told you?
William C. Cobb – President and CEO: So, no and no. The answers to the question, but I’ll elaborate a little bit. No, I’m not going to discuss conversations we have with our regulator. I don’t think that’s appropriate. So, I’m not going to talk about that. Obviously, with regard to – there are very specific capital holding requirements that have been published and we are obviously fully mindful of those, but Greg, I don’t know if you want to add anything but we’re not going to discuss amounts…
Gregory J. Macfarlane – CFO: Our theme continues to be the same, that we’re working hard to sell the bank and there are two reasons we’re selling the bank is, first and foremost, we’re looking to find great solutions for our clients and we’re excited about the opportunity to sit there and so we need to find a partner that we need to support that, which we have in Republic and the second goal is to cease being regulated as a savings and loan holding company and this is really tied up in the capital requirements that were part of the Basel III legislation that was passed.
Kartik Mehta – Northcoast Research: Then, just one final question. Bill or Greg, any change in strategy on the bank products now? Especially with you controlling them this year, thoughts about – this year it’ll be different now versus when Republic was going to take control of them?
William C. Cobb – President and CEO: No, there’s no change in strategy. The same products that we’ve offered in the past will continue to be offered, and that was the same whether we were able to have received regulatory approval or as we indicated now we’re likely to use the H&R Block Bank. So, the products – remember this, our H&R Block branded products, whether it was Republic or H&R Block Bank, these are the products – it’s about the clients facing products and we always wanted to make this seamless so there is no change in strategy.
Thomas Allen – Morgan Stanley: You mentioned in your prepared remarks that Emerald Card usage was improving. Can you give us any additional metrics or color you can on that?
William C. Cobb – President and CEO: So we are very excited by the Emerald Card. Last December at our investor meeting we shared with you a lot of the features and functions that we have been beefing up. We had a tax season where we sold a lot of those cards. We continue to believe that selling more cards is not an opportunity but the real magic for H&R Block is convincing clients that that card, that Emerald Card product, is fully functioning and can be used as a year-around debit card solution, and I t think early results are positive, Thomas. But truthfully, I think that we still have a long room for improvement to get to where we sort of expect entitlement to be and this will be one that we will talk about more in December, but we don’t have any specific metrics that I would want to share with you right now.
Thomas Allen – Morgan Stanley: Any update or thoughts on your dividend? Do you look at it on a payout ratio basis or yield and kind of are you being restricted on increasing your dividend too or is that different?
William C. Cobb – President and CEO: So, we just I guess declared again our quarterly dividends so that’s good news. As we said before, we don’t talk about specific discussions with the regulators. What we shared with you today, as is specific commentary we felt appropriate around share repurchases. But I am not prepared to talk about dividend at this point…
William C. Cobb – President and CEO: But obviously we have been able to continue the dividend throughout this time and plan to continue to do so.
Thomas Allen – Morgan Stanley: Just one final one. Why did you choose Arizona for the Navigator program for the pilot?
William C. Cobb – President and CEO: Yes. I mean there is variety of reasons. There is internal reasons around execution, et cetera. But overall we like the market characteristics, the demographic characteristics. We felt it was – it was going to be a good pilot for us and a good place to do that and there is a variety of factors but we are excited about the team we have put in place down there and we are ready to go on October 1.