H & R Block Inc

NYSE:HRB

Earnings Call Transcript 2022-Q2

[Operator]

Ladies and gentlemen, thank you for standing by and welcome to H&R Block’s Second Quarter Fiscal 2022 Financial Results Conference Call. [Operator Instructions] I would now like to hand the conference over to your speaker today, Michaella Gallina, Vice President, Investor Relations. Please go ahead.

[Michaella Gallina, Vice President, Investor Relations]

Thank you, operator. Good afternoon and welcome to H&R Block’s second quarter fiscal 2022 financial results conference call. Joining me are Jeff Jones, our President and Chief Executive Officer and Tony Bowen, our Chief Financial Officer.

Earlier today, we issued a press release and presentation that can be downloaded or viewed live on our website at investors.hrblock.com. Our call is being broadcast and webcast live and a replay will be available on the website for 14 days.

Before we begin, I’d like to remind listeners that comments made by management may include forward-looking statements within the meaning of federal securities laws. These statements involve material risks and uncertainties and actual results could differ from those projected in any forward-looking statement due to numerous factors. For a description of these risks and uncertainties, please see our annual report on Form 10-K and quarterly reports on Form 10-Q as updated periodically with our other SEC filings. Please note the content of this call contains time-sensitive information accurate only as of today, February 1, 2022. H&R Block undertakes no obligation to revise or otherwise update any statements to reflect events or circumstances after the date of this call.

With that, I will now turn it over to Jeff.

[Jeff Jones, President and Chief Executive Officer]

Good afternoon, everyone and thanks for joining us. We have made significant progress in preparing for this year’s tax season and executing against Block Horizons and we are happy to be with you today. I will begin our prepared remarks by sharing second quarter highlights and discuss why we feel well positioned for tax season ‘22. Then I will provide color on our strategic imperatives, including the launch of Spruce, our new mobile banking platform. Finally, Tony will review our financials, outlook and how we are creating value for shareholders.

Turning to our Q2 results, we built on the momentum from Q1 as revenue increased 12%. We are continuing to appropriately invest while returning capital to shareholders through dividends and buybacks and our repurchases have reduced shares outstanding by 7% so far this fiscal year. Coming off a strong tax season last year, we feel well-positioned to serve clients in ‘22. We have a compelling value proposition and strong customer metrics and feedback. The season is underway and we expect filers to seek help as they navigate the ongoing pandemic tax credits and unemployment.

To help navigate these challenges, we have fine-tuned our marketing against even more precise audience segments and continue to optimize our messages and channels to ensure the most efficient mix of advertising spend. Customer feedback has been loud and clear. Help is both what they need and what they know Block for. So we have leaned into that messaging. Our Help Is Here campaign highlights all the ways we can help consumers, virtually to in-person, DIY to fully assisted, and everything in between.

For decades, clients have trusted our tax pros to get their biggest possible refund guaranteed. Our 60,000 tax pros have unmatched experience, averaging 10 years of Block, which means we are well equipped to handle clients of any complexity. We are leading the convergence of digital capabilities with human expertise and believe our ongoing technology investments and digital experience will continue to enable us to attract new younger customers. Through the Block Experience imperative, we have increased our focus on retail and crypto trading by adding functionality in DIY, enhanced training for tax professionals, and specific marketing acquisition messages.

In the DIY flow, we optimized onboarding and navigation in order to improve conversion from registration to completion and we have seen early success based on these changes. We also advanced the product to identify clients, who may need help along the way, in order to increase adoption of Online Assist and Tax Pro Review. I am very happy with the progress we have made over the last several years and our software continues to be awarded top ratings from third-parties such as Bankrate and NerdWallet.

In addition to digital capabilities, we continue to test ways to improve the efficiency of our labor and physical footprint. For example, in Assisted, our innovative fulfillment network allows customers to provide their data to a centralized queue and then be served by any pro, who has capacity, regardless of where they are physically located. This provides efficiency for both our clients and our network. We are also leveraging the same technology without post locations for drop-off returns as we continue to evolve and better utilize Tax Pro capacity. In summary, we feel good about our consumer tax business.

Turning to our Small Business imperative, this growing segment offers promising opportunity to expand client services year round with both Wave and Block Advisors. Together, we are better positioned than ever to serve this market. Wave is focused on the DIY, small business owner, while Block Advisors is focused on the small business owner who needs expert health.

First, let’s discuss Wave. Year-over-year revenue again grew more than 30%, driven by increasing the value of existing customers as well as adding new clients. In the last year, Wave doubled the number of customers paying for more than one product, a testament to the work being done to build a full ecosystem of services for the small business owner. I continue to be pleased with the progress this business is making. Regarding Block Advisors, nearly all of our company offices and approximately two-thirds of our franchise locations are equipped to offer Small Business services. We have raised the bar with Tax Pro education, more sophisticated lead generation and better tailored marketing.

As you recall, last year, we certified over 20,000 tax professionals in Small Business. This year, more than half those tax pros elected to take a new, even more advanced certification, enabling them to provide specialized advice to our most sophisticated clients. For example, some of these services include complex, payroll and bookkeeping solutions, estimating quarterly tax payments to optimize cash flow throughout the year, and complex strategies to help deliver the most tax-advantaged outcomes. We have also taken a step forward in our cross-selling efforts with a new lead generation and sales flow program that automates the process of referring clients from tax professionals to our bookkeepers as we continue to grow year-round services.

Now, let me share more about our third imperative, Financial Products. Our mission is to develop solutions that create confidence and ease the financial burden felt by too many, while simultaneously enriching our client relationships year round. Just about 10 days ago, we launched Spruce, our mobile banking platform. This is a meaningful milestone in our journey. We spent 12 million hours in conversations with clients every year about their financial challenges and dreams. Combined with that experience, extensive customer research has highlighted the needs and opportunities in this market. We know that two-thirds of the U.S. population struggle with one or more aspects of their finances, including spending, saving and planning. We also know that the current financial needs of 8 million of our existing clients are not well served.

Additionally, we already have a large base of Emerald Card users, who deposit $9 billion in refunds annually. While several competitors exist, what hasn’t existed until today is a mobile-first banking platform from a trusted brand with 66 years of knowledge from helping people with their money. When we look at the competitive landscape, we see a tale of two halves: one, our banks, who have brand recognition, but generally lack trust in modern customer experiences; and two, challenger banks that are feature-rich, but don’t have deep brand recognition and are trying to build trust. Spruce bridges that gap by combining leading technology and features, with our trusted brand and established financial relationships. I am proud of the platform we launched on day 1. While others have spent years building what their products are today, we came to market with a very robust feature set.

Let me take you through some of the highlights. We have long believed in providing transparency to our customers. That’s why we launched upfront transparent pricing for our tax services a few years ago. And that’s why there are no monthly or sign-up fees with Spruce. We also pride ourselves on low barriers to entry, such as no minimum balances to open accounts. Its unique savings feature, Spruce Rewards, helps consumers with their goals through personalized notifications and automatic cash back offers from over 10,000 retailers, including Costco, Sam’s Club, H&M, Adidas, Office Depot, Shake Shack and Finish Line. It also provides client to access to a free credit score and helps them understand the factors that impact it. In addition, customers can get paid up to 2 days early and get access to over 55,000 fee-free ATMs. Additionally, Spruce features tax refund recommendations that enable clients to become effective at saving a part of their refund.

During this tax season, we are introducing clients to the platform in the DIY experience and beginning to market to our Assisted customers. We will be working everyday to acquire clients and increase deposits in their Spruce accounts. The revenue model is largely driven through interchange fees when clients transact and we have a strong relationship and favorable economics with our partner, MetaBank. We invite you to learn more at our virtual event for analysts in March, where we will demo the product and take a deeper dive into its features. More details will come in the next few weeks.

Before turning it to Tony, let me emphasize how strong I feel about our positioning today, the progress we are making and the path we are on. We continue to advance our operational excellence, blur the lines between human help and technology, drive brand relevance, and make meaningful and innovative progress on our strategic imperatives. I am more than excited than ever about where we are going.

Now, Tony will cover our financial results.

[Tony Bowen, Chief Financial Officer]

Thanks, Jeff and good afternoon, everyone. Today, I will review our results from the second fiscal quarter discuss our outlook and our financial progress and capital allocation strategy. For the second quarter of fiscal ‘22, we delivered approximately $159 million of revenue, which increased 12% or $17 million over the prior year. The increase was primarily driven by the strength in Emerald Card as well as payment volumes in Wave. Total operating expenses were $436 million, an increase of $15 million to the prior period or 4%, driven by higher compensation as well as banking charges, partially offset by lower depreciation and amortization expenses. Interest expense was $23 million, an increase of $1.6 million or 7%, entirely due to the $500 million notes we preemptively issued last June. As a reminder, the interest on the newly issued notes is about half of the interest on the maturing notes, which we plan to payoff by the end of the fiscal year.

For the quarter, our pre-tax loss was $299 million compared to $300 million in the prior year. Our effective tax rate was 37% as we realized a discrete tax benefit during the quarter. We continue to expect the effective tax rate for the full year to be in the 16% to 18% range. Loss per share from continuing operations improved from $1.38 to $1.09, while adjusted loss per share from continuing operations improved from $1.28 to $1.02. Regarding discontinued operations, there were no changes to accrued contingent liabilities related to Sand Canyon during the quarter. For additional information on Sand Canyon, please refer to disclosures in the company’s reports on Forms 10-K and 10-Q and other SEC filings.

Overall, we had a strong first half and are again reiterating our fiscal year ‘22 outlook. And we remain confident that over the long-term, we can grow revenue 3% to 6%, with the bottom line growing even faster than the top line. Please note that our next update on tax season results, filing volumes and financial performance will be on our fiscal third quarter call in early May.

Turning to share repurchases, we continue to be aggressive in Q2. We bought 6.6 million shares at an average price of $24.10, totaling $159 million and retired another 4% of our float. In total, in the first half of the fiscal year, we have repurchased $325 million, more than 7% of shares outstanding. We have $239 million remaining on our authorization through June 30. We believe this is a good use of capital, especially at today’s share price. Since 2016, we have retired more than quarter of our shares outstanding. Overall, I feel very good about where we are and look forward to finishing the year strong.

With that, I will now turn it back over to Jeff for some closing remarks.

[Jeff Jones, President and Chief Executive Officer]

Thanks, Tony. In summary, we’re proud of the progress we’ve made, the momentum in our business and the path that we are on. We’re confident in our ability to drive shareholder value with both our capital allocation approach today and our future with Block Horizons. As we end our prepared remarks, I owe a debt of gratitude to our associates and business partners for all they are doing. First, I want to thank the team that built Spruce and brought it to market. I’m so pleased with what they have accomplished in such a short period of time.

Second, the team of Wave. This group continues to execute and add value to small business owners, and we’ve appreciated their steadfast efforts throughout the pandemic. Next our hard-working associates, franchisees and tax pros, who inspire confidence in our clients and communities everywhere. Having already spent multiple days in the field, I can tell you, they are in full force this tax season, and I can’t thank them enough.

Last, but certainly not least, I want to personally thank Tom Gerke, who recently retired as General Counsel and Chief Administrative Officer. Tom has provided strong leadership and strategic counsel over the last 10 years, and has been an invaluable partner to me. We wish him all the best.

Now we will open the line for questions.

[Operator]

Thank you. [Operator Instructions] Our first question comes from Kartik Mehta with Northcoast Research. You may proceed with your question.

[Kartik Mehta, Northcoast Research]

Hey, Jeff. Good afternoon. Hey, Tony. Jeff, I wanted to ask you about just recruiting tax preparers and generally just recruiting for H&R Block. Obviously, every company is going through the difficult time of trying to recruit people. I’m interested where Block stands, especially on the tax preparers side?

[Jeff Jones, President and Chief Executive Officer]

Hi, Kartik. I am very pleased to say that we had an excellent hiring year this year. So we think about hiring in two buckets: retention of prior tax pros; and then obviously new tax pros each year. And really given the strength of our business last year, which translated into the earnings of tax pros last year, we had extremely high retention of prior tax pros. And then as you may recall, every year, we run a nationwide income tax course and hire the best of that course as year 1 tax pros. And we were able to do that very successfully, really in all districts across the company this year.

[Kartik Mehta, Northcoast Research]

And then just, Jeff, I know we’ve talked a little bit about price before you’ve given your thoughts. Obviously, the cost of everything is going up and inflation is a big part of the story in the economy. I’m wondering if you’ve changed your perspective at all on what type of price increases might be appropriate for the upcoming tax season?

[Jeff Jones, President and Chief Executive Officer]

Yes. So we talked about a couple of points of price in the Assisted business, and that is what we’re planning to execute as the season gets underway. As we continue to look at feedback from clients, we know that we’re starting this year with very high retention, high price for value paid for services. So we feel that’s an appropriate increase. We certainly don’t want to get back to the days of really driving top line exclusively through price. So we think it’s a good first step, as we move back into what we believe we can start taking price moving forward in Assisted. And then in DIY, we were successful last year at moving a number of levers to drive price in NAC, about 20%, and we will continue to be opportunistic and follow the market leader here with how we move price in DIY.

[Kartik Mehta, Northcoast Research]

Okay, thank you very much. I appreciate it.

[Jeff Jones, President and Chief Executive Officer]

Thanks, Kartik.

[Operator]

Thank you. Our next question comes from Hamzah Mazari with Jefferies. You may proceed with your question.

[Mario Cortellacci, Jefferies]

This is Mario Cortellacci filling in for Hamzah. Just – sorry, you’re just reiterating your 3% to 6% growth. Could you just remind us how you get to 6% versus the 3%? What are the building blocks between those two figures? And then also, could you just talk about the time frame or maybe asked a different way around the time frame, is your time line to get there more back-end loaded in your 5-year plan?

[Jeff Jones, President and Chief Executive Officer]

Thanks, Mario. Let me just share a few opening comments and then Tony can jump in as well. One of the things we’re really trying to do for you all is break down the components of how we see our ability to drive that kind of growth range. Obviously, it’s a range. But when we look at just holding share or growing share in the Assisted industry, we think we can get a point there. We will think about the role pricing plays, we think about the role that franchise buybacks play, those are elements that get us in the 3% to 4% zone, before we layer in the real upside from our strategic imperatives and Block Horizons. And so that’s why we provided that range. Obviously, we’re not starting from scratch with small business and financial products, but we’re building new sustainable businesses, but that’s really how we think about the building blocks of that price growth. And Tony, please jump in with anything you want to add.

[Michaella Gallina, Vice President, Investor Relations]

Jeff, it’s Michaella. Tony dropped and is dialing back in. But I would also just like to add that, if you refer back to our Q1 earnings deck, Mario, we broke out a little bit of that growth in more detail. So we think of the low end of that guidance being some amount – small amount of modest, low single-digit pricing within the business. That’s kind of underpinned by our Block Experience initiative. And then you layer on the 1% growth from franchise acquisitions, another 1% growth from Wave, and then to Jeff’s point, Block Horizons really is upside to that 3% to 6% target. So hope that frames it up a little bit better.

[Mario Cortellacci, Jefferies]

Got it. Thank you. And then for my follow-up, I mean you guys have always talked about working with the under-banked population, and you just talked about or mentioned your new mobile banking platform. Could you just comment on what your competitive set is? And in this environment, I guess, who are you competing with specifically? I know there is a lot of pop-ups and new entrants to the market with fin-techs, but I guess could you just comment on that as well?

[Jeff Jones, President and Chief Executive Officer]

Yes, absolutely. So there is no question that there are a number of competitors in the challenger bank fin-tech space. And that’s because the problem in America is large. We know that two-thirds of Americans struggle with some dimension of their financial health. And despite the competitors, that problem remains. And this is a large part of our client base. If you think about, call it, 20 million clients in America for Block, we know right off the bat, 8 million of them consider themselves under-banked. So the addressable market is large, and it includes millions of clients that are currently coming to Block. When we looked at the competitive landscape, and I mentioned this a bit in my prepared remarks, so I’ll expand on it, we see that there are, obviously, the traditional established banks that are moving more and more into offering great technology and mobile applications. The tech is less and less of a differentiator today, now that many companies have caught up, but they generally haven’t been as feature rich. The fin-techs, on the other hand, have had great user experiences, lots of features and there are multiples of those, Chime, Varo, SoFi, Dave, MoneyLion are a few. And while they have come out with great products over time, we know that they are starting from scratch in terms of customer acquisition, relationships, building brand awareness, building trust. And so when we combine the platform that we have launched with what we know to be a highly trusted brand in Block that people are already coming to for financial transactions, that’s really the sweet spot of where we see Spruce playing. And this is our day 1 when we launched. And I’m really proud that we come to market with a very feature-rich product that compares against many that have been doing this for years. And obviously, as the year plays out and the years play out, we will continue to add features and functionality for the customer.

[Mario Cortellacci, Jefferies]

Great. Thank you, so much.

[Jeff Jones, President and Chief Executive Officer]

Thank you.

[Tony Bowen, Chief Financial Officer]

Hey, Jeff, sorry, I had some technical difficulties, but I’m back.

[Jeff Jones, President and Chief Executive Officer]

That’s alright. We’re good.

[Operator]

Thank you. Our next question comes from George Tong with Goldman Sachs. You may proceed with your question.

[George Tong, Goldman Sachs]

Hi, thanks. Good afternoon. Labor represents a significant portion of H&R Block’s operating expenses. What are you budgeting for labor cost increases for the upcoming tax season and how do you expect pricing increases numerically to compare with labor cost increases?

[Jeff Jones, President and Chief Executive Officer]

Tony, do you want to comment on that? And obviously, specifically around how we pay tax pros and what that looks like?

[Tony Bowen, Chief Financial Officer]

Yes, sure. Thanks, George, for the question. So I think you know that largely, the compensation for tax professionals is a commission-type structure, where we pay a percentage based on the revenue that they generate in their book of business. So as revenue goes up or down, then obviously, their compensation, as an individual, goes up and down as well. So we always make slight tweaks around the edges. But for the most part, it’s highly correlated with the move in revenue. So specific to your question on price, as we take price increases, the tax professionals would get an incremental amount for that particular tax return, all else being equal, which would obviously a portion flow due to them. I think if you look back over the last several years, it runs somewhere in the 25% to 28% range depending on the year, as far as what we’re paying to tax professionals for the dollar that they generate. So obviously, H&R Block gets a large portion of that benefit, but then the tax professionals also benefit as we drive incremental revenue as well as incremental price.

[George Tong, Goldman Sachs]

Got it. That’s helpful. And can you provide your latest views on what the growth rate for Assisted volumes at the industry level would look like for this upcoming tax season? And how you expect volumes at H&R Block in Assisted to compare with the industry?

[Jeff Jones, President and Chief Executive Officer]

Yes, George, I’ll take it, and Tony can add on a few ones. So when we provide our outlook, we still believe that the industry will be flat to slightly down. And the variable there is really about the number of those one-time filers. And so what we’ve been focused on is communicating with those onetime filers, ensuring that they understand the benefit of filing again, I think, unemployment, child tax credit, those things can be compelling reasons to stay in the system and file. That’s really the biggest variable. And for ourselves, we expect that we will – our goal is to hold share, but as we provided in our outlook, flat to slightly down in Assisted, again, really driven by those one-time filers.

[Tony Bowen, Chief Financial Officer]

I think the only thing I would add – thanks, George. I mean just given the success we had last year, bringing in so many incremental new clients from that first-time filer base and the fact, George, that we gained so much market share last year with some of those first-time filers will inevitably go back to the sidelines, even though we’re doing everything we can to recruit and retain them to continue to file taxes. That’s why we’re saying that it could be a slight headwind for the industry and then H&R Block obviously would have our share impact as a result of that. So just when you look at it over the 2-year basis, we’re still going to be up in clients and up in share. It’s just a slight reversion based off the growth we had last year.

[George Tong, Goldman Sachs]

Yes. Makes lot of sense. Thanks very much.

[Jeff Jones, President and Chief Executive Officer]

Thank you.

[Operator]

Thank you. Your next question comes from Scott Schneeberger with Oppenheimer. You may proceed with your question.

[Scott Schneeberger, Oppenheimer]

Thanks very much. Good afternoon. There have been some questions around Assisted pricing. Just curious, following up on DIY pricing, we track that pretty closely in the industry and see that basically flat year-over-year for you starting the tax season. Now, you made comments in the past seeing in DIY opportunity to grow the net average charge. And Jeff, you just mentioned earlier on Kartik’s question that you track the industry leader and kind of follow there. Just curious, what is the strategy for later in the tax season, presuming you are still going to look to get some pricing this year in the DIY category? Thanks.

[Jeff Jones, President and Chief Executive Officer]

Yes. Thank you. I mean I think the answer in DIY is we have the flexibility to be very dynamic in pricing. So, it’s not a decision we have to make now on what we will do at the end of the season. We will be able to watch how the season unfolds in a number of ways. Obviously, the list price and then what happens with mix. And then finally, what are we seeing in terms of attached products like Online Assist in particular, which we have seen year-over-year kind of 50% growth rate the last couple of years. And we will always be dynamic. We will test different pricing, and we will see how the category moves as the season plays out. But we have done a lot of work since last year, just to revisit how do we continue to improve from registration to conversion in DIY. What are we doing to improve the feature set around things like crypto, etcetera, and then a lot of changes in how we think about marketing for DIY, including starting marketing much earlier, refining our audience segments, etcetera, so a lot of things happening in the DIY business that go along with price.

[Scott Schneeberger, Oppenheimer]

Great. Thanks. Next question. Curious on – last year, an industry growth category was increased investor activity at brokerages and stock trades and such, creating more premium or premier level activity. Just curious what you see there on an industry level for this tax season versus that big move up last year? And then specifically, I mean you mentioned crypto, if that plays in, how H&R Block is positioning within that category in this tax season? Thanks.

[Jeff Jones, President and Chief Executive Officer]

Yes. Got it. And again, Tony, please weigh in here. But we absolutely saw an increase in those Schedule D filers last year, both in Assisted and DIY, both retail investing and crypto. So, two different things, same theme and that’s why we really leaned in this year to say, how do we strengthen our offering in a few different ways. Number one is, improving the user flow in the DIY product. Number two is more advanced training for our tax professionals at retail to understand those dynamics, to provide better advice. And number three is leaning into those messages in our advertising, where we are specifically talking about our expertise in those areas. So, we will do all three of those things this year and continue to watch the macro trend.

[Scott Schneeberger, Oppenheimer]

Great. Thanks. And just a quick last one for me and I think it probably is not going to be much of an answer, but that’s why I am asking it, in case it is. We are only one week into the tax season, so I know it’s really early to comment on any grand themes. But just anything you are seeing that’s unique this year that may be surprising to us that wasn’t anticipated or just too early to tell any similar themes at this point? Thanks.

[Jeff Jones, President and Chief Executive Officer]

Yes. I hate to confirm what you thought might be the answer. But it’s too early to tell on any major themes. Obviously, one of the things we are paying close attention to are the child tax credit letters, helping our clients understand the importance of those letters of matching the dollar amount to their return, to not be pulled for special processing. So, that’s something that’s on our radar for sure, just given the tens and millions of those letters that went out. But in terms of results or real trends, it’s just been a week.

[Scott Schneeberger, Oppenheimer]

Great. Thanks. Thanks Jeff.

[Jeff Jones, President and Chief Executive Officer]

Yes. Thank you.

[Operator]

Thank you. Our next question comes from Alex Paris with Barrington Research. You may proceed with your question.

[Alex Paris, Barrington Research]

Hi guys. Thanks for taking my question. I am looking forward to the March virtual demos for Spruce Card. I am wondering, though, if I can get a bit of a preview. I mean just really how this product works in terms of business process? Right now or before this Spruce Card, there was the Emerald Card, which loaded a majority of your tax refunds. What will be different with Spruce and how will Spruce revenues be reported? Will it have its own line item under revenue, or will it land in several buckets?

[Jeff Jones, President and Chief Executive Officer]

Alright. Well, let me give you a little preview, and I will let Tony tag team on the back end of that. But I think the simplest way to think about it is Emerald Card is a product and has been a product, developed and positioned simply as a refund load mechanism, highly tied to the tax event in a way for consumers to get their refund and then really spend the balance down almost like a gift card. And Spruce, while loading refunds, we anticipate to be a great way for our clients to jump start their accounts, is quite different in a number of ways. I think, number one is that there are no hidden fees, no monthly fees, no sign-up fees, no minimum balance fees, no foreign transaction fees, a very large ATM network, all fee free. It has built in to the user experience in the mobile app, a wonderful feature we call Spruce Rewards, which is, without requiring the customer to sign up for anything, automatically delivers cash back from thousands of retailers when they use the card into a savings account. So, when they open their Spruce account, we will concurrently open a savings account. The customer can set micro savings goals for vacation or a pair of shoes or whatever they aspire to. Getting paid faster is a real standard expectation in this category, so to be able to get paid up to two days early. Features around credit score, overdraft protection. A number of things that on day one makes Spruce a very, very competitive fintech offering. And like I said, this is our day one product. We have built over the last 11 or so months, and we will continue to build value for the customer over time with, you can imagine, the linkage to tax preparation and other things. So, that’s a bit of a preview, and I will let Tony comment about the economics in more detail.

[Tony Bowen, Chief Financial Officer]

Yes, Alex. I mean as you know, we provide a lot of transparency on our products, in our MD&A table in our financials that breaks up an incredible amount of detail. I do expect that this card continues to grow. Spruce may be its own line item. I think early on, it will likely be combined with kind of other bank fees, just because of the materiality of it, in the early days won’t be large enough. But one of the things we have been thinking about is, how do we provide transparency on what is that progress. So, things like looking at number of sign-ups, dollars loaded, and other early indicators will be something that we are going to commit to share in the coming quarters, once we kind of get this up and running. So, longer term, I think it likely would be its own line item, but we are getting a lot of lines of revenue breakout. And consolidate some of those I think will probably be a benefit for everybody at some point.

[Alex Paris, Barrington Research]

Great. Thank you. And while I have you, Tony, could you give us a little bit more information on the discrete tax item. It looked kind of on the large side. What was it? And then related to that, your full year guidance, does it exclude the discrete tax item or does it include the discrete tax item?

[Tony Bowen, Chief Financial Officer]

Yes. So, it does include it. So, we have that contemplated in our guidance that we said at the beginning of the year. So, we are not changing that outlook. And what it was is, we had a statute of limitations expire on some reserves that we have put up over the last few years, that basically the October period was the expiration. So, we are able to release those reserves. It was about $50 million, which is why the tax rate during the quarter was pretty unusual, obviously, getting a higher tax rate in a quarter where you are operating a loss is a good thing. Usually, a high tax rate is a bad thing. But when you operate in a loss, it’s a good thing. And it’s obviously allowing us to have a low tax rate for the full year of 16% to 18%. You may remember, Alex, I mean we used to be in the mid-30s from a tax perspective, and we have continued to run in these mid to high teens for the last several years, which we have just done a really awesome job of taking advantage of some tax planning and ultimately creating a lot of extra cash flow for the company. Obviously, releasing a reserve is not necessarily cash connected this time, but obviously, when we made those tax planning strategies several years ago, that’s when we got that cash benefit at that time, so contemplating our full year outlook and still feel good about the 16% to 18%.

[Alex Paris, Barrington Research]

Great. And then the last thing is more of a comment. With your change in the fiscal year from April 30th to June 30th, I use FactSet to gauge consensus. And FactSet is all over the board. I think it has some analyst estimates based on the previous quarters and – the previous April fiscal year quarters. And so it’s hard to tell how H&R Block did relative to the consensus. But I would point out that you beat my estimates on every line item, revenues, adjusted EBITDA and EPS. So, I just wanted to offer you congratulations there? And that’s it from me. Thank you so much.

[Tony Bowen, Chief Financial Officer]

Yes. Thank you. Thanks, Alex. We have been working to obviously clean that up and we are in different kind of evolutions with different analysts. But and I think that’s part of the growing pains of change in your fiscal year end. It takes a little bit of time for everybody to get on the new cycle. I think it’s been a good change. I am glad we did it, but it’s a little bit painful in the interim. The nice thing is, assuming tax season starts on time, which already has, and then ends at the expected time line of April 18th, obviously, all of our revenues will be in the current fiscal year from a tax season perspective. We will have a clean year to report and we will have a nice baseline going forward versus if we hadn’t made the fiscal year change, we would have had a tax season from last year rolling into May 17th, and would have been an unusual comparable. So, it’s a little bit painful making the change. I appreciate everybody’s effort and work going into it, because I think we are all going to be better off once we get to the other side.

[Operator]

Thank you. And I am not showing any further questions at this time. I would now like to turn the call back over to Michaella Gallina for any further remarks.

[Michaella Gallina, Vice President, Investor Relations]

Thank you, Josh, and thank you, everyone for joining us today. This concludes our second quarter 2022 financial results conference call.

[Operator]

Thank you. This concludes today’s conference call. Thank you for participating. You may now disconnect.