Good morning. I'm Colby Brown, Vice President of Investor Relations. And on behalf of the H&R Block management team, it's my pleasure to welcome you here in attendance and those participating via the webcast to H&R Block's December 2015 Investor Conference. We have an informative and exciting morning plan for you, and are glad that you're able to join us. Before we get started, we have a few housekeeping items to take care of. Yesterday, we released our fiscal 2016 second quarter results. That release as well as today's presentation includes certain non-GAAP financial measures. We've reconciled the comparable GAAP and non-GAAP figures and the schedules attached to the press release, and you can find those, both the release and the schedules, on the Investor Relations page of our website at www.hrblock.com. I'd also like to remind everyone that today's presentation and various comments made in connection with it 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 such, our actual outcomes and results could differ materially. You can learn more about these risks in our Form 10-K for fiscal 2015 and our other SEC filings. H&R Block undertakes no obligation to publicly update these risk factors or forward-looking statements. Shortly after this morning's presentations conclude, we'll post the slides on our Investor Relations website. As a reminder, our webcast will also be available for replay on the website. To give you a sense of today's agenda, opening presentations will run until approximately 10:00 Eastern and then we'll take a 15-minute break. Refreshments will be available throughout the morning and on a quick logistical note, restrooms are out the door and to your right, just past the registration table. We then expect to begin Q&A around 11:15 Eastern. So again, welcome everyone. Thank you for being here today, and we hope you enjoy the presentations. I'd now like to introduce our President and CEO, Bill Cobb.

Good morning, everybody, and welcome to this year's investor conference. We're pleased to have you join us. Today, we're going to share with you a look back at this company's transformation, the opportunities we see going forward and how we will continue driving value for shareholders. And we have a great lineup of speakers this morning. So let me begin with those introductions. First up, Kathy Pickering, our Vice President of Regulatory Affairs and the Executive Director of the H&R Block Tax Institute. Kathy is going to talk about the impact of tax fraud and the lack of standards on this industry and how H&R Block is leading the industry in partnering with the IRS and others to address these problems. Next on the agenda, Laura Scobie, our Vice President of Client Insights. Laura will talk about the dynamics of the tax season, our seasonal promotions and the launch of a new brand to better serve clients with more sophisticated tax situations. Then Jason Houseworth. Jason leads our Tax Product Strategy and Development group and is going to discuss trends in the DIY industry and how we're positioning ourselves for continued success in that category. Then, as Colby said, we'll take a 15-minute break and when we return, Mark Ciaramitaro, our Vice President of Taxes and Health Care Services. Mark will discuss the Affordable Care Act, what we learned in 2015 and how we see that impacting our business in the industry in 2016 and beyond. And finally, Greg Macfarlane, our Chief Financial Officer. Greg will talk about our second year and year-to-date results, review all the recent changes and activities and then pull it all together with a detailed financial view of why H&R Block is a good investment. But before we get to them, I want to spend a few minutes addressing 3 topics that will help provide context for the remainder of the morning. The first is a look back at H&R Block's transformation over the last few years. Then I'll address some key issues affecting the tax-preparation industry. And then I'll close with the company we are today and why we look to the future with great optimism. So to fully understand the transformation of H&R Block to the company we have today, we have to first understand from where we came. And as many of you know, the period of 2007 to 2011 was an extremely difficult one for this company. To be blunt, the company was in turmoil. Business results were lagging, and we were attempting to be a financial supermarket through diverse business lines that were taking the company away from its core tax business. In short, H&R Block was unsure of what it wanted to be and who its clients were. All of these factors combined to create leadership challenges. There was an activist involved, the company had a revolving door of CEOs, 4 of them from 2007 through April 2011. I joined the Board in August 2010, and so I'm often asked why I took the CEO job. Well, it's because I knew this was a great company with great products and, as I've come to learn, great people. So I was pleased to say yes when the Board asked me to step into the CEO role beginning in May 2011. Starting out, I knew the company needed focus, focus on our core tax business, and focus on sustainably growing the top line and improving margins. So we went about executing -- exiting noncore businesses. We had already stopped originating and servicing mortgages through option 1. So our next step was to sell RSM McGladrey, an accounting and consultancy business. We also divested a smaller underperforming business, Express Tax, and a tax software company, RedGear. But this company needed to grow revenue. So we not only focused on the fundamentals, we innovated as well. We created and implemented a new strategy in fiscal 2013, Tax Plus, which has grown to 5 products that have added value for our clients before, during and after the tax season. And it's important to note, we're the only company with a suite of products like this, a key point of ongoing differentiation. Together, over the period of fiscal 2013 through fiscal 2015, our Tax Plus strategy has generated accumulative product revenue of over $1.2 billion with overall growth of 11% over 3 years. The company's transformation was made possible by a stable leadership team that has executed on our strategy over the last 4 years, and we expect this team to continue. In June of this year, the Board extended my tenure through September 2018, so I plan to be here as CEO for the foreseeable future. And the members of my senior leadership team have multiple tax seasons under their belts with proven results. In August of this year, we completed the final step in our transformation back to a focused tax company when we finalized the divestiture of our bank. Now I have to admit, the bank was starting to feel like my life's work, but we did get it done. And with this final step, we are much better suited to bring even more value to you, our shareholders, through an appropriate new capital structure and the freedom to make capital structure decisions without regulatory oversight. H&R Block has a long history of returning capital to shareholders. For example, in January, we will pay our 213th consecutive quarterly dividend, that's over 53 years and counting. And during my tenure, we've increased the dividend by 33%. Continuing on this tradition of returning capital to shareholders, in September, we outlined a strategy to put an appropriate capital structure in place for our business going forward. Our Board approved a $3.5 billion share repurchase program effective through June 2019. And as part of this, we executed a $1.5 billion tender offer in October, purchasing over 40 million shares at $37 per share. We also replaced and upsized our existing line of credit to $2 billion and issued $1 billion of new long-term debt. Including the tender offer, all of this translates to total repurchases of over 76 million shares since I started in May 2011. That's about 25% of our outstanding shares at an average share price of $26.38. I'm proud of these accomplishments, but I'm even more proud of the fact that we did what we said we would do. So as you can see, these changes have resulted in a fundamentally different company, one transformed from the unfocused financial supermarket of 2007 to the company of today, one focused entirely on tax preparation and related products. So what has this transformation meant for our business results? Company revenues have grown for 3 straight years after a multiyear revenue decline. Profitability has dramatically increased with EBITDA increasing $136 million and EBITDA margins improving 5 points since fiscal 2012 to approximately 31%. In digital, our revenue growth has outpaced the industry over the last 4 years as more and more consumers become aware of our DIY products. Our international operations generated revenues of $239 million in fiscal 2015. Our established businesses in Canada and Australia saw a significant growth in local currency revenue, and we have the beginnings of solid businesses in new markets. And we've invested back into the business where it's made sense. We've enhanced our retail stores inside and out, strengthened our systems and technology infrastructure, designed and implemented new tax-preparation software and as part of our growth strategy, we bought franchise and independent locations at compelling returns. And the total impact of our actions and performance is that the market has responded very favorably. Our stock has outperformed with S&P 500 by greater than 50% for the last 5 years. So with that look back at our performance, I'd like to shift to the present. Based on how we've executed on our strategic vision, it should be crystal clear how committed H&R Block is to continuing to lead the industry we invented over 60 years ago. As the leader, it's important that we take a view on important new issues impacting the industry. While I will briefly comment on some of these issues, the presenters following me will go a bit deeper on each. The first issue is tax fraud. For many of you here, you know this is the third investor conference in a row in which I've been talking about the need to address fraud in a holistic way through a public-private partnership. Interestingly, a competitor, who has been talking about its industry leadership on this matter, began doing so only after it ran into a major problem in the middle of the last tax season. And that problem was SIRF or Stolen Identity Refund Fraud, which reached new and especially alarming levels this past tax season. But this problem is not new. As I discussed at last year's investor conference, from 2010 to the 2013 filing season, the most recent years for which stats are available, there've been over 2.9 million victims of tax identity theft. And as we saw in the last filing season, the problem became so extensive that it now threatens taxpayer confidence in the system. And as a result, earlier this year, the IRS convened that public-private partnership, which includes H&R Block, other members of the industry and state tax authorities to develop solutions that will better protect taxpayers who use DIY methods. I'm encouraged by the progress made so far and Kathy Pickering will talk to you about that progress and what still needs to be done. But it's important to remember that stolen identity refund fraud is just one part of the overall problem of tax fraud. There are others such as fraud or improper payments associated with the earned income tax credit. Simply put, DIY filers don't have to answer the same EITC eligibility questions as those who get help with their taxes. And the result is a high level of fraud or improper payments. It's our belief that the slight migration we're seeing from assisted to digital is primarily due to fraud, committed by EITC filers and identity thieves. Were it not for fraud, we believe this slight migration wouldn't have occurred. In fact, excluding fraud, the percentage of filers getting assistance may have actually grown. Kathy Pickering will go deeper on this issue in the next presentation. The final point I'll cover on fraud is the lack of minimum standards for return preparers. In short, this lack of minimum standards is enabling fraud, perpetuated by unscrupulous tax preparers. Now you've heard me say it before, all 50 states have minimum standards for barbers and hairdressers, yet only 4 states have minimum standards for those who perform one of the most important financial transactions of the year for millions of taxpayers. That makes no sense. We need prudent commonsense measures that include mandatory testing, continuing education and background checks for all return preparers. The outcome of this problem is still to be determined, but we are seeing encouraging movement in legislative circles to address it. H&R Block has been the clear industry leader in fighting tax fraud, and you won't have any trouble finding where we stand or what we've said about all of these important issues. And we'll continue to lead and make our point of view abundantly clear to policymakers and administrators, and you'll hear some of that later this morning. Now you may be wondering why does H&R Block keep talking about fraud. It's actually very simple. The measures we advocate for will level the playing field across the industry, reduce fraud and better protect consumers. It's as simple as that. Now the next issue I'll discuss is complexity and the potential for tax code reform. It's been a topic of the current political campaign, just like it's been a topic of campaigns over the last several decades. The fact is complexity in the tax code is a result of the government administering public policy programs through the tax code, like the EITC or buying a home or saving for retirement. These are very important programs and impact virtually every American. And complexity certainly impacts our business, too. Remember, we have to thoroughly understand and follow the law. And so we have to train over 80,000 tax professionals every year to ensure they're ready to serve our clients. An example is the increased training cost we incurred last year to prepare for the implementation of the Affordable Care Act. In fact, last season was the first time many Americans navigated the intersection between their health insurance and taxes. The ACA directly affected over 3 million of our clients. In this coming season, the ACA will impact even more as the number of people in the exchanges steadily grows. We've said all along that the opportunity presented by the ACA will take several years to fully unfold. But I remain very confident that H&R Block is particularly well positioned to serve our clients going forward. Mark Ciaramitaro will give you our update later this morning. And regardless of whether progress to simplify the tax code actually happens, we know there are basic enduring truths to which tax filers subscribe. They want to pay only the taxes they owe. They want the maximum refund to which they are entitled. They want their tax return to be accurate. And they want to minimize the stress and hassle of filing their taxes. Today, in total, the U.S. tax code and supporting documents are over 74,000 pages long. But in 1955, when we first started, the tax code was much simpler. Still, clients came to us in droves, so much so that Henry and Richard Bloch were able to invent this industry. And so we believe by any logical conclusion, as history has clearly shown, people want help with filing their taxes. But as you know, we are the largest tax preparer serving the entire landscape of filers. Whether clients want help from our highly trained, skilled tax professionals or to do it themselves using our best-in-class software, it doesn't matter. We serve clients however they want to be served. So to this point, you've heard me describe the company's transformation, our new capital structure and how we have led the industry during some tough challenges. And while we're proud of our accomplishments, we understand what matters most is the future, and we couldn't be more excited about the future, for both this industry and for H&R Block. The tax preparation industry is steady, and in many people's minds, not very exciting. But I can tell you that nothing can be further from the truth. Whether it's the challenge of implementing complex new tax laws like the ACA, tackling big issues affecting millions of Americans like fraud, or navigating the ever-changing landscape of the assisted DIY categories, there is much work to be done. And when you are committed to doing the right thing as H&R Block is, these challenges ultimately translate into opportunities. And so the tax-preparation industry isn't just necessary, it's still an industry with opportunity. For decades, people have needed and wanted help in preparing and filing their taxes. 135 million individual tax returns are filed during the tax season and counting. And no one is better able to help these tax filers than H&R Block, the clear industry leader. Virtually everyone knows our brand. With our 10,000 retail offices, we have unmatched scale. Our 80,000 tax pros are the best in the industry. And our innovation from our DIY offerings to our Tax Plus products, to our progress in global markets, these are just a few examples of how this company is leveraging the power of its brand to grow. This growth opportunity is uniquely combined with a stability not often found in other sectors. We generate over $3 billion of revenues on an annual basis and our profitability is growing. Our return on invested capital is nearing the top decile of the S&P 500, and our record of returning capital to shareholders is proven. So even though we're in a steady slow-growing industry, H&R Block has room to run. As you'll hear a little later, we're bringing new ideas to the table in our assisted business to better align our services with the dynamics of the tax season to meet the challenge of growing early-season clients and to serve our clients who have more sophisticated tax situations. In digital, we continue to grow revenue and awareness of our great DIY products. Our international business continues to be fast-growing with exciting opportunities in India and our Expat services. And our innovative Tax Plus products continue to meet a growing need for more and more of our clients. So in conclusion, I've covered a lot of ground this morning. And from my comments, I think you can understand why we're excited to be in this industry, why we will continue leading it, and why we think H&R Block is a great investment. Thank you.

Hello, I'm Kathy Pickering. I've been with H&R Block for over 17 years and I've held a number of different roles during that time. Today, in my current role as Vice President of Regulatory Affairs and Executive Director of the Tax Institute at H&R Block, we're talking about the impact of fraud and the lack of standards on the tax industry. You've heard the term fraud thrown around a lot, but I'm going to talk about 3 very different types of tax refund fraud: Improper payments on the Earned Income Tax Credit or EITC, return preparer standards and Stolen Identity Refund Fraud or SIRF. On the surface, these types of fraud seem quite different, but there are 2 common themes: A lack of consistent minimum standards and the anonymity of the DIY product, which opens the door for tax refund fraud. But why should you care about these issues? Well, as you will see later, we believe that fraud is distorting industry and competitor results, and the solutions that are being implemented for next tax season and beyond will help level the playing field and Block will benefit because of this. But you should also care because the amount of fraud and the dollars represented are staggering. Of all the EITC payments, 22% to 26% a year are improper payments or between $14 billion and $17 billion. Of all the federal benefit programs, including Medicare and Social Security, the percent of EITC improper payments is, by far, the worst. For comparison, Medicare has an 8.5% improper payment rate and Social Security, it's less than 1%. On return preparer standards, H&R Block has unique insight on competency across the industry. Over the last few years, our acquisitions team has screened thousands of independent tax firms who are interested in becoming H&R Block franchisees. These potential acquisitions need to meet certain minimum criteria such as number of returns, professional appearance and adequate computer systems before we'll seriously take a look at them. One step in our evaluation process is to review the actual tax returns in order to assess the level of quality. The results are shocking. We are finding that nearly 1 in every 2 prospects has some form of noncompliance and 1 in 4 is committing fraud, such as falsely inflating refunds to attract new clients. And this is what we're finding from the firms that have been prescreened or qualified, so supposedly, we've weeded out the worst firms before we spend a lot of time on them. Turning to Stolen Identity Refund Fraud, this problem is growing worse. Starting in 2010, there were roughly 400,000 incidents and it has grown to some 2.9 million incidents through 2013, the last year for which we have data. Why is this problem growing worse? Because like this New Yorker magazine cartoon of years ago shows, the Internet allows anonymity. Simply put, current gaps in authentication allow criminal online filers to easily mask their identity. And remember, there've been no minimum standards in place. And the problem of Stolen Identity Refund Fraud is reaching a tipping point, meaning, it must be addressed effectively or else it puts the entire tax administration process at risk. H&R Block is leading the way forward for this industry and when this problem is effectively addressed, not only will government, industry and consumers benefit, but H&R Block may benefit as well because we've led the way on developing solutions and it will tip the balance back to a level playing field. With all that as a backdrop, now let's go a little deeper into each of these 3 fraud areas. Let's start with EITC. EITC is an antipoverty program for low income working families. The maximum credit for next year will be about $6200, that's a lot of money, especially for a low income family. For most, it's the largest single financial payment of the year and for working families, it can be a lifeline. They use that money to cover bills, often late bills or pay for car repairs, rent and just catching up. The rules for EITC eligibility may seem fairly simple, the children must live with the taxpayer for at least 6 months and the taxpayer has to have earned income, but it's never that simple. Especially in complex family structures such as blended or multigenerational families. So proving who cared for the children and where they lived can be difficult. The government doesn't call it EITC fraud, but rather, improper payments. Because it's a mixture of things, payments made to the right household, but the wrong person, lack of documentation or actual fraud. And given the sensitivity around this program, there's no publicly available data that shows how treasury classifies the improper payments between unintentional mistakes and actual fraud. We know that about 22% to 26% of EITC payments were improper in taxes in '15 and that amounts to $14 billion to $17 billion last year. And there is a history here of billions in fraud and improper payments each year, it's absolutely mind-boggling. That's why we're so passionate about driving change in this area. We need to implement practical measures to reduce the fraud, and in doing so, protect the EITC program for those it was meant to benefit. I want to spend just a minute on the relationship between filing status, income, number of children, and how that impacts getting the maximum EITC credit. If you look at this chart, the X axis is for income and the Y axis is for the EITC credit amount. For example, in 2014, if you were a single head of household with 3 children, and you wanted to get the maximum credit of $6143, you would see that you needed to have income between $13,650 and $17,850. If your income was more than that or less, you would not get the maximum EITC amount. For a fraudster, filing an online tax return, it's quite similar to using the solve 4 function in the spreadsheet. And many EITC returns managed to file exactly within that income range. Coincidentally, these returns may also have a Schedule C, which is the form for self-employment, small business profit or loss, which enables the fraudster to either increase income or reduce it with expenses to stay right within that sweet spot, without any additional documentation. As we've discussed in previous investor conferences since the increased due diligence was required when an EITC taxpayer chose to use a paid preparer, the EITC filings are migrating from paid preparer to DIY methods and the fraud problem is migrating with them. In 2008, it was roughly 70% assisted and 30% DIY. In 2015, it has migrated to 55% assisted and 45% DIY. And during that same period of time, assisted returns, excluding EITC returns, actually grew at the same rate as the industry. This really doesn't make sense. EITC returns can be complicated and many families want help preparing that return. Thus, the shift to DIY is difficult to explain other than for the growth in fraud. There are several reasons that DIY makes fraud easier. The increasing availability of online technology enables an anonymous transaction and doesn't require the signature of a third-party preparer. Access to online tax prep software facilitates that solve 4 function to maximize the claim. It's much less risky to do a what-if analysis online versus sitting in front of a preparer, and saying, "Well, what if I claim another child? What will that get me?" And with online methods, you don't have to provide any documentation or answer intrusive questions. In contrast, paid preparers are required to document additional, and sometimes, embarrassing information to verify the EITC claim. If they don't, the preparer can be penalized $500 per return even if the tax return itself is correct and the taxpayer isn't being audited. So to avoid those penalties, some independent preparers become ghost preparers, which means they use DIY software to prepare the return and don't even sign it, often the taxpayer doesn't even know. So to the IRS, it looks like a self-prepared return and, of course, with an aggressive DIY competitive offer for free federal and free state e-filing, fraudsters don't even need to have a credit card to pay the fees, which means they can dodge another point of verification. But there is some good news. Government and industry are making progress. For the upcoming 26 filings -- 2016 filing season, H&R Block, along with 3 other software companies, is part of a DIY pilot test run by the Treasury Department. This pilot will measure the impact of additional questions on DIY filers claiming the EITC. And IRS has retrained their due diligence auditors so that they will no longer be required to ask paid preparers to ask certain invasive questions. And there's more to come for 2017. The IRS is expected to have consistent EITC eligibility requirements regardless of filing channel, plus the IRS has asked Congress for additional legislation, such as the ability to reduce the refund amount of EITC for claims that can't be substantiated. So will this stop EITC fraud? In the short term, no. But in conjunction with return preparer standards, all the SIRF fraud fighting initiatives and other legislation we hope and believe that this will reduce EITC fraud and improper payments. It will get fixed. It's simply a question of when. So now, let's shift gears for a quick update on minimum standards for return preparers. Currently, there are no federal minimum standards in the industry. The IRS's attempt to implement the return preparer program was overruled by the courts in 2014 despite stating in their opinion that they thought the program was needed. Congress needs to give the IRS this authority, and it just hasn't gotten done yet. In response to the IRS's inability to regulate at the federal level, the states are implementing their own state return preparer programs. California and Oregon have had programs in place for a number of years and Maryland and New York have recently implemented programs. And we're aware that there are a few other states like Illinois that are also looking at their own programs, and we support that because there are no federal standards today. Looking at the case of Oregon, it provides compelling evidence that establishing return preparer standards makes good sense. In a study done by the Government accountability office, they reported that paid preparers in Oregon were more likely to file an accurate tax return as compared to the rest of the country. And for Oregon's 1.6 million individual tax filers, this equated to over $390 million more paid in federal income taxes, more than if they had been prepared by preparers in the rest of the country. Right now, to be a paid tax preparer, all the IRS is able to require is a PTIN or a Prepare Tax Identification Number, and in order to get a PTIN, all you need is a name, Social Security number, date of birth and pay a $50 fee and answer a couple of questions. H&R Block has much higher standards. We've been in the business for 60 years, and we understand what it takes to competently and ethically prepare and submit a federal or state tax return. We set high standards for all 80,000 of our tax preparers. H&R Block requires each one to stay current on the tax law and comply with the rules through 60 hours of basic income tax training, a competency exam and 18 hours of continuing education every year. We also conduct background checks and have an internal compliance and ethics oversight program. Clearly, for taxpayers who choose to get assistance, competency and ethics should be table stakes. Finally, I'd like to spend some time drilling down on Stolen Identity Refund Fraud. To commit SIRF, all a fraudster needs to create a false tax return is name, Social Security number and date of birth, that's it. And with DIY software, it's an anonymous transaction. There's no identity or other validation required. The fraudster simply creates a fraudulent return, e-files it and typically funnels the stolen money to an account. For anyone who does online banking, you're accustomed to having to validate your identity, but not so for tax filing. There are no minimum requirements for the tax industry to do any validation. The nature and scale of refund fraud is changing. We have this example of an individual posting on Facebook that she was the queen of IRS tax fraud and taunting the authorities. Well, she was arrested and sentenced to 21 years in prison. Over the last few years, the fraudsters have evolved. There are now international and domestic organized crime rings with sophisticated IT capabilities. They have a good understanding of the tax code, especially the holes in the tax administration systems. They have computer programmers who write scripts to submit returns in large volume. And based on what gets rejected versus accepted, they can methodically reverse engineer the IRS and state fraud filters. There have also been large-scale data breaches ranging from Target and Home Depot, to Anthem and the office of personnel management. Stolen data is widely available for sale on the dark web where criminals can buy it in volume. And with computer scripts that they write, they are able to submit hundreds, thousands, possibly millions of fraudulent returns through online methods. Even if only a small percentage makes it through and pays out, it means a huge payday for the fraudsters. This kind of fraud is almost a perfect crime. The probability of getting caught is relatively low, but the payoff is very high. There are other reasons why SIRF has grown. There has been a rise in the availability of anonymous accounts, such as unauthenticated debit cards to make it faster and easier to negotiate the stolen funds. And as we've discussed, millions of personal identities are available for exploitation. And social media provides a platform for the fraudsters to share their best practices, real-time learnings about what's working and what's not. As you know, H&R Block has been an industry leader for years and that leadership includes the security protocols we've had in place. For example, we required and accepted federal return before filing a state return. We have a team of dedicated fraud analysts, and we authenticated identity for our prepaid Emerald Card and many other things that we're not going into. Clearly, to protect consumers against this growing threat, government and industry needed a cohesive and unified way forward. So Bill Cobb called on Commissioner Koskinen to bring the industry together in a public-private partnership to fight fraud. Commissioner Koskinen's background and experience as the Y2K czar uniquely positioned him to know how to bring together such different organizations as the tax industry, the IRS and the states. And all of us have differing agendas, levels of technology sophistication, capability, and budgets. But everyone can agree that we have a common enemy, fraudsters, and a common goal, fighting fraud with a unified defense for 2016 and beyond. All of the industry has to implement a consistent set of standards; ensuring a level playing field is critical, or else the fraudsters will simply go after the weakest links. So how are government and industry leveling the playing field? Remember, one of the key reasons that SIRF has increased is because the DIY online filing process is virtually anonymous. In part because the IRS and the states can't always see the tax filer behaviors such as what device was used, which IP address the return was sent from. So a number of measures are being implemented at the federal, state and industry levels for the upcoming tax season. Under authentication, there are a number of tools being put in place to help verify the identity of online filers and implement strong security protocols. Examples of these measures include requiring stronger passwords and asking security questions if something is different or appears suspicious. For H&R Block, we already had most of these standards in place. So for us, our work is about refinement. For some of our competitors, this is a whole new way of doing business. Another component that is critical for detecting and fighting fraud is appropriate information sharing so government and the industry are addressing that too for the coming tax season. Tax-preparation companies with more than 2,000 returns will be required to conduct fraud monitoring and analysis, and share their findings or report leads to the IRS in a timely manner. It will be done through a secure infrastructure and process that will respect taxpayer rights and protect personal identifying information. Again, not a heavy lift for us as we've had the fraud program in place for over 3 years. For a government industry effort that is as interconnected as this, these are really important commonsense steps. These changes will be in effect in January, just a month from now. Looking to the future, there will be additional changes in 2017 and beyond. In the areas of security technology, centralized information sharing and financial products, H&R Block is well positioned for these changes. We believe our relationships with the IRS and the states are on solid ground, which better protects our programs and products. Simply put, our competitors have to catch up with us. For the assisted independent competitors, many without an IT fraud or compliance staff, the risks become that much greater. For the smaller DIY competitors, many have not had centralized fraud detection and compliance capabilities. Now they have to scramble to create this. The potential consequences are great. We've seen states refuse to accept e-filing from companies who have unacceptable levels of potentially fraudulent submissions. Again, H&R Block is well-positioned. The work to defeat the fraudsters is a good start, but more work needs to be done. This is a holistic problem, and it can only be solved by all of us working on it together, the IRS, our competitors, and the states. More work needs to be done in standards, technology, investment, and legislation. None of the steps taken individually solve the problem, but all of these steps combined in tandem with the IRS, the states, and industry will make a positive difference. It's the right thing to do for taxpayers, and it's the right thing to do for the tax industry. Thank you.

Good morning. I'm Laura Scobie, and I lead the client insight team here at H&R Block. I'm going to talk to you today about 3 things that focus on growing our assisted tax business. First, I'll review our strategic foundation for growth, and that is consumer segmentation. Because the customer is the driving force behind all major business decisions, you will see it woven throughout other topics in today's discussion. Starting with our plan for achieving growth in the assisted business early in the tax season, and moving into a new brand launch that focuses on an important consumer segment that until now was only partially addressed with our current model. Starting with segmentation. Just a quick overview for you. We have decades of experience understanding tax filers and their needs. We constantly refine and deepen this knowledge base. This deep knowledge of the tax filing universe, some 135 million filers in the tax season, shows us exactly what they want from tax-preparation. This customer knowledge is a sustainable advantage for H&R Block. We're able to group people with similar tax needs into distinct segments. This isn't data for data's sake. Our understanding of the tax marketplace is deeper and better than anyone else in the category, and we're leveraging that knowledge in every decision we make. Today, we're talking about segments in terms of 3 broad groups. This is just to illustrate a point. It's actually much more complex than we'll discuss today. There are defining attributes that surround each segment, and I could go into great detail, but I summarized it into the key things I want you to know about each segment. First, for people in Segment A, these clients have needs that are all about the money. For these tax filers, the refund is likely their biggest payday of the year and they want to maximize their refund each and every year. Next, Segment B is a high-touch tax segment that needs year-round service. They value assistance, but believe their tax situation is too complex for just any tax preparer to handle. So they're willing to pay for more expertise. Our research shows that 65% of tax filers fall into segments A and B. This number has remained fairly constant over time. Finally, tax filers in Segment C believe they're capable of preparing their own return, so they want a DIY method. Jason Houseworth will talk more about our DIY business later today. With the detailed understanding of how each of these segments wants to be served, we have a way forward for how to win all types of new clients based on what they want and need. To fuel new client growth in our assisted tax business, I'd like you to meet Diane, who represents Segment A. She works 60 hours a week as a waitress, is a single mother of 2 and receives the earned income tax credit because she is 1 of the 33 million whose economic situation allows her to qualify for this program. When it comes to tax prep, Diane wants all the deductions she's entitled to, and she wants to know her tax preparer did everything possible to help her. The need for the refund is so great that most of Segment A file as quickly as they can. When we looked at Segment A's return count over our 4-month tax season, January and February saw the highest volume of Segment A returns, with a spike at the end of the season. January and February are what we refer to as the early-season. The sooner they come in, the sooner they get their refund, which to many like Diane is her annual bonus. I'd like to put this in context of our total tax season '15 results. Last year, we saw that our client loss came solely from the early-season. We saw steady growth during the late season, which was encouraging. Our analysis of the early-season showed that 1/3 of the client loss was driven by our decision to eliminate the free easy program. But more importantly, the other 2/3 of the client loss was made up of EITC clients. Looking deeper, we found this isn't unique to H&R Block's assisted tax business. EITC clients were down across the assisted tax prep industry in total. But it was particularly concerning to us for a couple of reasons. EITC clients are highly valuable and they're a group that historically H&R Block has done well with. We're a brand that is well-known and respected by EITC clients, we have products that benefit them, and we are skilled at handling the complexity that comes from EITC forms. H&R Block does meet several needs of the EITC client. To start to win them back, we had to craft an early-season program that appealed to their hearts and their minds. To do this, we leveraged what we learned from talking to hundreds of clients firsthand, sitting in their homes, having coffee with them, which I was doing in this photo taken just last Friday, talking very openly about their lives. And the bottom line is we know what really matters to these folks. We know what it takes to win them back. And winning them back starts now. On January 9, you will see, hear and feel a powerful early-season program from H&R Block that will make a positive difference in the lives of our clients. It will stand out in the marketplace, it will be impactful. For competitive reasons, I'm not sharing this initiative with you today, but I can assure you that come tax-season, you'll be very aware of it. But I can tell you about the targeted marketing we used to reach these tax filers. Through our segmentation, we know, for clients and non-clients alike, who switchers might be. These are people who are most likely to consider H&R Block, and even those who may think about leaving us. We can then go directly to them with enticing offers that matter to each of them. Our customer relationship management is a capability we've invested in over the past 2 years. It allows us to expose specific groups to targeted products and messages that meet their needs. And of course, we can speak to them in their preferred language. We also use W-2s to target customers with offers. We can purchase W-2s based on industry of employment and tailor our messages accordingly. This is just the first step in a targeted multi-year multidimensional plan to win back EITC clients. We know this client loss happened over a number of years, not just last tax season. And we know it will take an investment of time and resources to get them back. We created a plan that will force consideration or reconsideration of H&R Block. It starts with targeted marketing and includes an improved client experience that speaks to Segment A, as well as taking a stance through government relations in a way that benefits these consumers. Let me say a little about each of these other items. Starting with the client experience. We continue to enhance our experience to make sure that we're delivering the right environment for this early-season client. We're hiring more tax pros, improving their training and enhancing their skills. We'll have more bilingual associates to help Spanish-speaking clients maneuver through the system. It means continuing to leverage technology to personalize the experience. The tax interview will be customized to the client sitting across the desk. This client experience gets them through the process and out the door with the maximum refund. For government relations, which Kathy Pickering spoke to, this is about standing up for our clients and protecting them where they need our help. As Kathy explained, the 3 areas of interest are: return preparer minimum standards; EITC fraud and improper payments; and Stolen Identity Refund Fraud. These are the 3 pillars of our multi-year, multidimensional plan to win back EITC clients. We're excited about this comprehensive plan. So that's Segment A. Now let's shift to an equally exciting growth area, and that's with Segment B. Segment B has a different and more complex set of tax needs. This client is looking for an added level of expertise when it comes to taxes because they believe their tax situation is complicated and they're probably right. They're looking for a tax professional that's available year-round to answer questions and meet with them if they need it. They expect to work the same preparer every year because they want their tax professional to get to know their personal situation. We have a portion of our offices that currently meets the needs of Segment B. That is H&R Block Premium. Premium started in 1982, and we currently have around 300 offices across the country. Premium tax professionals are experts at navigating a wide variety of complex situations. They're capable of doing anyone's taxes. In fact, these tax professionals have delivered for Segment B clients year after year. Historically, the premium business lacked focus. But with our tax professionals' capabilities, our current footprint, and the underserved Segment B audience, we decided to give it more attention and more closely align it with the needs of Segment B. With Premium as our starting point, we created a new brand and business model that's more intensely focused on serving Segment B. Happy and excited to introduce to you today, Block Advisors, an ideal tax solution for the millions of Segment B clients that have real help -- or need real help with their complicated tax needs. Because this is a different consumer, we will meet their needs in different ways. Block Advisors gives clients a private office and a more intimate experience. The offices are more sophisticated, more CPA like, but still approachable. Block Advisors will address your complex tax needs, as well as provide tax planning and year-round tax advice. And in many cases, these Segment B clients have other needs as well. For example, about 1 in 5 of them are small business owners. Block Advisors will offer them payroll, bookkeeping, business tax services, and of course, we will be there to handle their personal taxes as well. What a perfect opportunity to deliver on a real need. So what we have are 2 businesses, 2 types of clients and 2 avenues for growth. To recap, H&R Block has served us well for 60 years and will do so for another 60. Within that business model, tax is an annual financial event. It's about well-trained tax professionals who work hard to get their clients every dollar they deserve, and it's largely about the refund. Block Advisors meets the needs of a different consumer segment. These clients have year-round tax needs, they're more complex and have needs that may extend into planning and small business services. And importantly, tax is one part of their financial plan. Different consumers, different needs, different value propositions. Block Advisors will launch with 287 offices nationally. Most of these are converted H&R Block Premium offices. The cost associated with this fits within our ordinary capital expense plans, which Greg will outline later. We expect to grow the Block Advisors brand over the next few years, building a larger footprint as we establish this value proposition. I told you a lot about Block Advisors and the clients they will serve, but now I'd like to show you a video that really brings this new brand launch to life. [Presentation]

The Block Advisors website is now live, so we encourage you to go to the website for more information at blockadvisors.com. In closing, we're excited about our plan for growth. It's based on understanding and meeting client needs across all segments. H&R Block now has 2 distinct brands and each is positioned to serve different types of clients. These brands can literally sit side-by-side, and prosper and grow because they have 2 distinct value propositions. This focus allows us to build solutions that differentiate rather than just trying to meet the basic needs for all. Thank you.

Good morning. I'm Jason Houseworth, and as the President of Product Strategy and Development, my role is to create great experiences for all of our tax clients. And today, I plan to share what we believe is a winning formula for DIY clients and discuss how this formula is designed to succeed going forward within the digital category, given 2 key trends shaping this dynamic category: the material presence of fraud, and the convergence of value and premium. But I'm going to start by outlining our winning formula in this competitive environment with the goal year in and year out to outpace the category in overall e-file growth, and grow profitably as we do it. As Laura just mentioned, at the highest level, we categorize tax filers into 3 general groupings. We look at these groupings aligned with the 60-40 split of assisted and DIY users and believe strongly our DIY products should be designed for the roughly 40% of tax filers who choose to do it themselves. These users have specific needs that they're looking to be fulfilled or validated within the tax offer experience. They're confident in their ability to perform tax-preparation. And, in contrast to the assisted user, they want to control the process. They love the flexibility and convenience of preparing taxes on their own schedule. And finally, they expect a trade-off, that is to say, to be rewarded for the investment of their time with a lower price. This is the do-it-yourself client, and these are the requirements that form the basis of our maniacal approach to build the best tax software in the digital category. You should recognize our formula for this client from last year's investor conference. It has 3 components: product innovation or delivery to the consumer of intelligence as a service; a multiscreen focus to design first for the native device, whether it's desktop, smartphone or tablet; and a brand that has awareness and can support the full set of integrated tax services that consumers expect. Our focus, first and foremost, has been consistent product innovation. The result of which has been a dramatic set of changes that have completely redesigned the product since 2011, both on the surface and behind-the-scenes. In tax season 2011, our product was primarily on focus on conversion or the rate at which registered users become completed or filed returns within our tax interview. And this data-driven approach led us to recognize the key areas of opportunity within the product, but also led us to what was then a small but exponentially growing number of mobile users. While we were able to optimize this flow from a conversion perspective, we recognized the opportunity to design first for the mobile user, really as a chance to start over, to rebuild the product from the ground up, beginning with this version in 2013. This was Version 1 of a product designed to be optimal on every screen size. But the focus of the redesign wasn't just on conversion and the need to design the interview for a mobile screen, it was also to enhance the user's perception of value, especially for more complex tax users. How can software deliver on this to the DIY user? By embedding logic to help anticipate what the user needs, like how our interview can begin by taking a picture of your W-2 to automatically pull name and address information as opposed to asking you to manually enter it on your phone. Our ability to import tax form data, including the 1095 -- 1095A import feature to auto populate your health coverage details, the way we proactively recognize things that you may have otherwise forgotten to take advantage of, through a feature that we call Pro Tips, and giving you the desired confidence you expect by demystifying things that don't make sense, like through our Refund Reveal. Refund Reveal is a unique trademark feature released in our product for all users in tax season 2015, and it exemplifies how we deliver on the central expectation of the DIY user to understand how the software calculates the refund. In a way that enhances value perception. This feature is unique in the digital category, and it differentiates H&R Block tax software and our expertise to the DIY user. All of these features that I've mentioned are now live in this year's product, and collectively, they represent, what I call version or year 3 of our redesign. Another example of our consistent focus on product innovation is how we've iterated on MyBlock. MyBlock, for those of you who haven't already created your account, is the virtual account available for all H&R Block tax clients, DIY and assisted, to maintain a year-round relationship with our brand. It also represents how the product innovation we've developed in our tax software area is adding value for assisted clients. Launched in tax season 2013, MyBlock has been used by over 8 million clients, more than half of which are assisted clients leveraging this tool to do things like review their tax history with H&R Block to access prior year returns and other supporting documents and to visualize the personal history that exist inside their tax data that's securely held by H&R Block. Product innovation has propelled advancements for both the DIY and assisted H&R Block clients. But for the DIY business, the most important thing is how this translates to results. Since Bill took over as CEO 4 years ago and empowered us to pursue this winning formula, we've seen the 7% tax return or e-file growth and the 9% revenue growth as validation of our innovation and testing process. I'm especially pleased in the quality of our growth over this time period with a new 1040 or complex clients growing the fastest. We also know that we must be mobile-first in our design thinking so that we create a responsive, multiscreen product. That is to say, our products must seem to the mobile or tablet user as if the product was designed specifically for that device. Our focus in this area to design with a multiscreen mentality for all 6,000 of our federal and state product pages has improved our waterfall for all clients over the past 4 years. But it is been most dramatic for mobile users, as we've improved conversion by more than 30 points as a result of this effort. This helps us more efficiently convert the clients that our marketing efforts help add to the top of the funnel. And speaking of marketing, we know that the whether DIY users are value or premium consumers, they will demand that their software be built by a great and trusted brand. Over the past 4 years, we've seen awareness that H&R Block makes tax software grow 16 points, from 51% to 67%, 67% is a number that both dwarves value competitors, because it has taken significant investment to achieve, but it also has a lot of headroom and therefore continues to represent the largest opportunity to challenge the category leader. So that's our winning formula, a formula that created unit and revenue share gains in tax season 2015, and one that we see as a winning formula going forward with one update. We will continue to ensure we are the industry leader when it comes to proactively preventing fraud and providing a secure platform from which to file. This has long been a consistent and continual focus for H&R Block, but a fight that we have waged alone, until this past tax season. Thanks to the leadership of Kathy Pickering and others within H&R Block, we're pleased to see others in the industry adopt many of these standards that we've had in place for years, which leads me to the first of 2 trends shaping the digital category, fraud. Many of you have asked me how do I see fraud or to quantify the amount of fraud in the digital industry. So I thought I would share a few anomalies within the IRS' own data that point to the material effect of fraud and on the filing patterns and how this fraud is distorting competitor e-file growth. So let's begin with Florida federal e-files and some very concerning fluctuations over the past few years. Typically, we say that return growth should match nonfarm employment or conversely, unemployment. And the gray bars that you see, they represent unemployment rate for tax seasons '12, '13 and '14, rather steady. In Florida, the unemployment data varied slightly, but it generally follow the national unemployment averages. Now let's see how closely IRS e-file and Florida e-file data matched up. It's interesting to see that Florida did not file -- follow the national trends in e-filing. Importantly, Florida has no state income tax requirement so it's a good barometer to use to evaluate federal tax filings. We would normally expect e-file rates to follow IRS filing data given it matched almost exactly with unemployment data. However, it not only varied in tax season 2013, it varied dramatically, given historical filing fluctuations typically fall within a low range. What explains this? Is it because Florida return filing patterns changed unexpectedly? Or because possibly, that fraud that was being generated from Florida shifted to originate from other states? Our view is that as federal fraud filters shifted to scrutinize returns originating from Florida addresses, that the fraud moved to originate from other states, something easily accomplished via online filings. This is why the change the category leader made to allow its customers to file their state return absolutely free without the requirement of an approved federal return seemed more in line like a quest for volume rather than "consistently leading the fight against potential refund fraud, " which was a statement that served as a headline at their recent investor conference. During an interview in the middle of last tax season, their Chief Information Security Officer admitted that this unlinked state return practice had created 3 to 37 fold increases in state-only returns, returns that the company was convinced were fraudulent. The change to correct this was made in early February, a month after the launch of Absolute Zero, and past the first peak of the filing season. Now let's discuss IRS or federal e-file rejects. And for some context, a federal e-file reject can be rejected by the IRS for a whole host of reasons, and I would say many of these are valid, like when a DIY user fat fingers their Social Security number, and it doesn't much the IRS database. These e-files get rejected and then they're returned to the user to correct. However, if we assume that these mistakes are common across DIY users, then it would mean that generally we would expect the rate of rejects to be consistent across all software providers. But what I'm going to show you is that it is not. And so the question you should be asking yourself is, why would it be different? Now I want to show you a chart that demonstrates federal e-file rates -- pardon me, federal e-file reject rates or the percentage of filings that were rejected by the IRS by provider over the last 3 tax seasons, and I'm going to start by showing our own reject rate, which has been the industry's lowest reject rate for the past 3 tax seasons and one that has continued to come down as we've improved our backend fraud monitoring, and security controls. So next, you see the category leader. They are the first example of how a higher reject rate can correspond to higher e-file growth. In tax season 2014, their e-file growth of 9% came with a 5-point or nearly 30% increase in rejected returns. This by the way, was their largest e-file growth that they've had since 2011. Here the reject rates of another major online competitor, which has continued to grow overtime. But if you want more evidence regarding how the reject rate corresponds with e-file growth, here's an online competitor who saw strong 8% e-file growth in tax season 2013. But when their reject rate was cut in half, their e-file growth halted. Interestingly, another online competitor saw their own reject rates spike the next year, which corresponded with an increase in their e-file growth. In fact, it almost doubled in size. My argument is that fraud exists within the system, and it can likely be seen as it moves around the system. We continue to partner with the IRS in order to push for industry standards in order to prevent this. And just one last note before I leave this page. I've included the reject rate of H&R Block's assisted business on the right. Our rate that is lower than all DIY competitors, half of retail competitor Liberty Tax, and one that has only marginally changed over time. Let's continue discussing trend shaping the digital category by picking up on a topic that I covered last year during our Investor Day. During that presentation, I previewed the season, noting that we should continue to expect a convergence of value and premium within DIY users. Specifically, I outlined how small value competitors created through the Free File Alliance or FFA will lose their ability to compete on price alone. Our view is that even value DIY-ers expect more than what I call, pen and paper on a webpage, given that prize is no longer a differentiator. I also noted how premium DIY-ers, the most complex and valuable clients, are seeing the category leader raise price on their software to level the playing field with these value competitors. I argued then, and continue to believe now, that H&R Block is well-positioned to take advantage of both of these shifts. Our online offering puts the expertise in Tax Services of the most trusted tax advisors together with innovative, easy to use tax software that is built to lead for what's next in the evolution of the DIY category. So let's review what actually happened in tax season 2015. First, the category leader opened the season by offering its online product free for both federal and state filing. This software both tightened the federal forms for free users, and it relaxed the state price, making it $0 for 1040EZ and 1040A filers. At H&R Block, we offered the value DIY-er a free federal filing, coupled with a promotional offer for $9.99 state filing. And despite the existence of a $0 state price, $9.99 was still the best value in DIY for 1040 filers who were eligible for our free federal online product but squeezed in the tightening by the category leader. In contrast, the category leader raised price for complex users. Generally speaking, many of these users were asked to pay $40 more to use filing systems, whether it's online or software, or desktop software. Let me give you an example. So the tightening of the form's coverage within their online products meant that the user of last year's free federal edition, particularly the most common 1040 user who needs the Schedule A to file basic itemization, was forced to pay $40 more to file federal and state for effectively the same return year-over-year. We held price consistent for complex users. What happened? Well, the result was that the category leader gained volume of simple filers meaning 1040EZ filers. We gained ground with high-value desktop, and 1040 online clients. In desktop, we gained an unprecedented 3 points of share in a single tax season, demonstrating the impact the simple filer pricing has on previously loyal, high-value DIY clients. And when the final tally came from the IRS, we learned that we outpaced them in total e-file growth. And given each year, we strive for profitable growth at a rate faster than the digital category; we were very pleased with the 12% revenue growth that we saw. We see this growth as sustainable growth compared to growth via price, whether it was to fund low-quality volume by the category leader or to mask a lack of growth. To summarize, we believe our formula in DIY is winning. Product innovation delivered seamlessly to all devices while continually growing in awareness. A formula based on sustainable, profitable growth, and given the category dynamics, one we believe will continue to win in tax season 2016 and beyond. So we will now take a 15-minute break and come back at 10:05. [Break]

Okay, everyone, thank you so much for taking your seats. And now, I'd like to introduce Mark Ciaramitaro, our Vice President of taxes and health care.

Good morning. As Colby said, I'm Mark Ciaramitaro, Vice President of taxes and health care services at H&R Block. And as Bill indicated earlier, I'm back again to provide an update on the Affordable Care Act, both in terms of what happened this past tax season and what's to come. The Affordable Care Act, along with introducing new health plan regulations, insurance marketplaces and coverage mandates, effectively created a new and dynamic intersection between taxes and health insurance. This intersection exists because many of the ACA's key provisions are administered via the federal tax code. You'll soon see that we expect the breadth and depth of the intersection will continue to grow as new mandates, new notice types, higher penalties and increased IRS enforcement begin to phase in. You'll also hear that we believe H&R Block is best positioned to take advantage of the opportunities tied to the growing impact of ACA on tax filers. We can't talk about the impacts of the Affordable Care Act without understanding its long-term goal, which, simply put, was to expand health insurance coverage among a large pool of historically uninsured households. And by doing so, reduce overall health care costs. ACA sought to accomplish this by driving higher quality, improved affordability and greater access. To achieve these ends, ACA regulations created a number of new mechanisms, including the individual and employer mandates, new federal and state-based insurance marketplaces and expanded Medicaid. So with this ACA context, as an investor, you may reasonably ask, "So why should I care and what does it have to do with H&R Block?" Well first, it's important to understand that because of this new intersection, ACA has brought significantly more complexity and confusion to the annual tax filing process. We believe that these newly embedded tax impacts will create opportunities for the tax industry in terms of client growth, retention and incremental revenue. We also believe, based upon our industry-leading investments and assets, that H&R Block is best positioned to capitalize in the consumer needs emerging from the tax code changes introduced by ACA. That being said, we're still in the early stages of the ACA's impact, as 2015 was really the first year many the law's tax provisions took effect. As we move into 2016 and beyond, the opportunity for H&R Block will continue to evolve. This morning's session will be broken down into 3 primary sections. First, we're going to talk about what actually happened this past filing season, starting at the category level and then moving into specific H&R Block results. Next, we will share the ACA headlines for 2016, focusing on changes typical tax filers will experience. And finally, we will close with a short discussion around future implications and expectations for H&R Block. Let's begin by reviewing the major outcomes from the 2015 tax season. While there's ongoing political controversy regarding many of the ACA's provisions, virtually everyone acknowledges that its implementation has led to a significant reduction in the percent of uninsured households in America. Gallup, one of the most widely referenced surveys, has closely tracked a material 2-year decline since the fourth quarter of 2013 from 18% to just under 12% in 2015, which has resulted in over 17 million people gaining insurance coverage. Uninsured levels are expected to continue to decline, albeit at a reduced rate, and will likely achieve historic lows in 2016. But beyond the higher coverage levels, one of the most tangible impacts of the Affordable Care Act was the new notices and forms required in the tax-filing process. Those that enrolled via state or federal marketplace received a new tax information document, the 1095-A, which included critical information needed to reconcile their premium tax credits. Importantly, households that received advance payments of the premium tax credit reported on the 1095-A, must file a tax return even if their income is below that usual filing threshold. The tax form used to calculate the reconciliation of premium tax credits is the 8962. In frank terms, this is a complicated form, requiring multiple steps to complete it. And you'll see coming up that many households made the mistake of not including this form when they filed last year or they didn't file at all. Now households who did not have insurance coverage for all or a part of 2014 and who did not qualify for an exemption, confronted a new worksheet that calculated their shared responsibility payment. Filers made mistakes on these forms as well. In fact according to the IRS, about 300,000 filers paid a penalty when they shouldn't have, another 75,000 made basic math errors. Now thankfully, ACA allows eligible, non-covered households to receive an exemption from the penalty, but they needed to include a penalty exemption form, 8965, in order to claim it. Altogether, 2015 ACA filers experienced added complexity to a tax filing process that was already daunting for many. So how many filers were directly impacted by ACA in 2015? Well, according to the IRS, about 25 million returns either included an ACA-related tax form or needed to. Beyond the 3 million that reconciled their premium tax credits, the 8 million that paid a penalty and the 12 million that filed for an exemption, about 2 million households did not properly file or didn't know they needed to file at all. Now historically, the relative percentage of assisted versus DIY tax returns has been in the range of 60-40. But among reconciliation and penalty ACA-impacted returns, filers tended to use assisted channels at that same or higher rate; while filers who submitted an exemption form tended more towards using DIY solutions. This is an interesting outcome that may or may not tie to other fraud trends we are seeing in the category. It's too early to determine yet if filers are making different channel choice decisions based on their newly discovered complexity, but we're going to be keeping a close eye on those trends. Beyond having to file new tax forms, perhaps the most significant impact faced by ACA filers was on their refund. Despite all of the media focus this past tax season, many tax filers were caught off-guard. This is a pretty emotional topic because for many households, the tax refund is the single biggest financial transaction of the year that they count on to cover critical household expenses. The first major refund impact concerned the shared responsibility payment. In 2015, about 7.5 million filers had to pay $1.5 billion in shared responsibility payments, with an average penalty of over $200, which, according to our figures, resulted in an average refund decline of 7% to 10%. Over half of penalty payers had annual incomes below $30,000, which correlates closely with their lower employment and insurance coverage levels. But penalties were not the only source of refund impacts, premium tax credit reconciliation had an especially large and unexpected impact on refunds, primarily due to filers underestimating their household income when they enrolled in a marketplace plan. In 2015, the IRS issued almost $10 billion in premium tax credits, with an average household credit of almost $3,000. However, of the 3 million filers who received these credits and reconciled, just over half had to pay back a portion of that credit. Our results indicated that these clients experienced a very significant impact, amounting to over a 30% or a $730 decrease in their tax refund. One of the signs of added tax complexity is the degree to which filers make mistakes. Based on IRS data, over 2 million households made tax filing mistakes related to ACA. Beyond math errors, probably the most worrisome trend was connected to reconciliation, as about 40% of the households that enrolled via the marketplaces in 2013 and early 2014 simply got their reconciliation requirement wrong. They either didn't file or extend with an 8962, or they didn't know they needed to file at all. The reality is, because of the added complexity, ACA-impacted households that did not get qualified assistance have a much higher likelihood of making mistakes, and those mistakes can have important ramifications even beyond the tax return, such as losing future access to premium tax credit assistance. So after talking about ACA trends in the overall tax category, let's hone in on some specific H&R Block results from this past tax season. Let's start with one of the most important investments we made going into 2015, which is insuring our network of tax professionals with the most thoroughly equipped and trained ACA tax experts in the industry. As we shared last year, our ACA certification training was compressive, averaging 7 dedicated hours of tax theory, software practice and extensive case study work. We also deployed additional tools and support resources to assist tax professionals in handling especially complicated ACA scenarios. In terms of 2015 tax results, we ended up investing over 600,000 hours of ACA-specific training across 80,000 tax professionals staffed in 10,000 offices. And clients who received their refund benefits of our ACA expertise gave our tax professionals higher Net Promoter Scores. We believe this strategic investment in our people will continue to pay dividends because it has ensured our tax professionals competency in handling the full range of ACA tax situations that their clients are likely to face, both now and in the future. In terms of describing what a typical ACA impact to client looks like, based upon our year-end results, they tend to file earlier in the tax season; are substantially more likely to be lower income; tend toward being a single or head of household filer, with a higher relative mix of Latino clients; have a higher probability of being a new retail client versus do-it-yourself; tend to file either an EZ or 1040A-based tax form, including clients applying for an earned income tax credit; and finally, in terms of geography, have a higher propensity to reside in states that make up a large percentage of the historically uninsured population, such as California, Texas and Florida. According to the IRS, in 2015, about 16.6% of filers were directly impacted by ACA tax forms. The mix of ACA impacts, as you can see, was primarily driven by exemptions in penalty forms. H&R Block's overall percent and mix of ACA forms was similar to the tax category. That being said, we did see that the proportion of our new retail clients impacted by ACA was materially higher than those who used our DIY products. In terms of the shared responsibility payment, H&R Block clients paid a slightly lower dollar amount than the category average, this is likely due to differences in our client's average household size and income, which in turn impacts the average penalty amount. But we expect these amounts to increase in the future as higher penalty rates go into effect. All told, after the first full year of implementation of the Affordable Care Act, we gained some important insights. First, while a significant number of overall tax filers were impacted by ACA, the impact was heavily concentrated on lower-income segments, who typically file earlier in the tax season and tend to use assisted channel solutions. Next, the added form complexities led to tax-filing issues. We have said all along that one of the major outcomes of ACA is higher complexity levels and corresponding client confusion, and the numbers bear this out. While the total proportion of H&R Block clients whose returns were directly impacted by ACA was similar to the overall tax category, our retail clients sought assistance at a higher rate, which isn't surprising, as our historical experience is that higher tax complexity tends to drive demand for face-to-face professional expertise. And lastly, despite all of the ACA media attention and focus, many tax filers were surprised by the impact on their tax refund, which, in some cases, was very significant. In fact, this refund impact actually altered client-filing behavior as, on average, ACA households went in to file 7 to 10 days later than they had in prior years. So after taking a look back, now let let's look forward and talk about the surprising number of changes filers will face as we go into the 2016 tax season. Let's start by talking about important changes in coverage verification notices. As with last year, households who enrolled in a marketplace plan will receive a 1095-A notice in order to reconcile their premium tax credits. We consider this to be a must-have tax document because it's needed to complete the reconciliation process. But probably the biggest change in 2016, for most covered households, will be the emergence of a new tax notice, the 1095-B or C. Unlike the 1095-A, the essential purpose of the 1095-B or C is to provide qualified insurance verification with respect to the individual mandate coverage requirement. Because of the added volume, virtually overnight, these insurance coverage notices will become the most common tax-related document households receive, and we expect it there will be lots of questions about them. The good news, for preparers like H&R Block, is that the -- in the vast majority of cases, specific inputs from the 1095-B or C will not be required when a client actually files their tax return, provided all the household members are covered. At this point you might be asking, "Well, okay, but what's going to happen when a filing household doesn't accurately indicate their coverage status, well I have news for you, IRS enforcement is coming. With the advent of 1095-B and C data matching, the IRS now has the ability to cross-reference tax filer's coverage claims. Simply put, if a filing household indicates coverage, but the IRS has no matched record, the IRS has the ability to send out notices requesting verification of the claim. If no verification is provided, ACA penalties will be applied to the filer's tax account. Additionally, as with last year, the IRS gets monthly data feeds from HHS for households who enrolled in a marketplace plan. This means that the IRS has the real-time ability to hold refunds for those who do not properly file and reconcile using Form 8962. Now, the IRS typically uses automated mailed notices to inform taxpayers regarding filing inconsistencies and issues, and the same is going to be true for ACA-related notices. In fact, the IRS has provided over a dozen notices that they intend to send out to address the full range of potential ACA-related inconsistencies, all the way from simple math errors to tax collection and refund offset protocols, and we expect millions to be sent later in 2016. Filers will soon learn that the error of tax leniency with respect to ACA is coming to an end. Moving on to penalty changes. Last tax season, ACA penalties were the higher of $95 per adult or 1% of household income, which as a result translated into an average penalty amount of about $200. This coming tax year, penalties for noncoverage will increase to the higher of $325 per adult or 2% of household income, which practically means that the average household without coverage could face a $400 to $500 hit to their tax refund. The implication of this penalty increase will play out in 2 key areas: enrollment and exemptions. As penalty rates increase, the expectation is that households will have higher and higher incentives to get qualified coverage, but the open question is whether the impact of these higher-tax penalties is enough to overcome premium and out-of-pocket affordability issues many households face. But the other really important implication is that the relative value of tax expertise tied to determining a household's eligibility for exemptions will also increase. Now last year, H&R Block clients who secured an exemption saved an average of about $120. In 2016, we expect the effective value of finding penalty exemptions for eligible clients to exceed the entire cost of an average tax return. Let me repeat that, the dollar value of a found ACA exemption alone will be more than what our filers will pay for a typical assisted tax refund, and these penalties are going to continue to escalate. For tax year 2016, non-covered filers will face the higher of 2.5% or almost $700 per adult. Now we are talking about really painful consequences. We expect there to be more reconciliation clients impacted in 2016 as well. As we stated, marketplace-enrolled clients who received premium tax credits must file using Form 8962, and this complexity impact will be experienced by both prior 2014 year enrollees and a whole new group of 2015 marketplace customers. In terms of volume, according to the IRS, about 4.5 million filers will be required to reconcile last tax season. We expect that number to approximately double in 2016, because double the number of people enrolled this past year. But you may ask, "What's the longer-term forecast for marketplace enrollment." Well, the general answer is, marketplace enrollment growth will continue, but the rate of that growth is uncertain. Recall 7 million initially enrolled in 2014, and that number climbed to over 11 million in 2015, with about 85% receiving premium credit tax assistance. HHS' current enrollment estimate for 2016 is in the range of 11 million to 14 million, which reflects a significant slowing of the growth rate due to the combination of factors. The general consensus is that we'll now take up to 5 years to achieve the original CBO estimates of 21 million. And according to the Kaiser Foundation, the likely upper limit of marketplace enrollment is in the range of 20 million to 25 million, with the key drivers being the combined effect of higher penalties and IRS enforcement, coupled with more targeted enrollment marketing. But on the limiting said, there are factors at play that could end up reducing the cap, such as core affordability issues, increased premiums, high churn rates and just increased HHS compliance enforcement. Last of the changes for 2016 concerns marketplace open enrollment dates, which are shifting yet again. For the 2016 calendar year coverage, open enrollment began on November 1 and will end on January 31. The biggest practical implication for filers who choose to stay uncovered is, after January 31, these clients will not only be faced with a shared responsibility payment for 2015, but they will be essentially locked in to the much higher penalty rates for 2016 as well. And while healthcare.gov has made big strides, the enrollment process continues to be confusing for many in terms of selecting the right plan with the right coverage and deductible levels, as well as ensuring access to preferred doctors, providers and prescription drugs. That's why we're continuing our enrollment services partnership with GoHealth to provide health for any H&R Block clients needing professional enrollment guidance. So what does this all mean as we head into 2016 tax season and beyond? I'd like to share some implications and expectations. Let's start with 2016. With millions of new 1095 documents being sent out, we expect there to be lots of consumer confusion, and our tax offices will be ready to address the full range of clients' questions and concerns. Next, we think higher penalties will be a painful reminder to those who have not acquired qualified coverage. And when combined with increased IRS enforcement, would trigger increased interest in professional expertise around acquiring exemptions, which is another area we are set up well to address client needs. Many of our ACA clients will experience big tax refund surprises. This represents both a challenge and an opportunity. The challenge is to address our client's emotional reaction to a reduced refund by clearly demonstrating our efforts to leave no stone unturned in trying to maximize their outcome. The opportunity is to add value by providing personalized advice that puts our clients in a better position to make informed decisions going forward. In overall terms, we expect the volume and magnitude of ACA will continue to broaden and deepen, which means the relative importance of ACA tax expertise will also grow. Now looking farther in the future, we expect the mix of ACA-related tax forms to shift over time. We expect instances of more complicated reconciliation and exemption forms to grow, while the relative proportion of less-complicated penalty worksheets decreases. This will be driven by increasing marketplace enrollment, higher and higher penalties, vigorous IRS compliance and interest in exemptions expertise. We also expect over time that our volume of ACA-impacted returns will continue to grow over the next 2 to 4 years, from our current 16.4% to between 20% to 25%, depending on how the key drivers play out. This combination of tax form volume and mix changes has the potential to positively impact client growth, retention and revenue. We've covered a lot of ground in a short period of time today. We looked at our prior tax season's ACA-related results, we identified major changes for the upcoming tax season and even shared our view of future drivers' impacts and expectations. But there's one thought I'd like to leave you with today, is that we believe we are best positioned to take advantage of the opportunities presented by ACA because of our unique brand assets, our deep tax expertise, the unrivaled investments we've made in our network readiness and the ACA profile of our clients. And that these opportunities will continue to develop over time as the impact of the Affordable Care Act broadens and deepens. Thanks for your time today.

I always want to hear Mark's point of view on that stuff for me. Anyway, good morning, I'm Greg Macfarlane, and I'm really going to wrap things up here today. So I'll conclude the presentation by providing a financial view on the strategy and topics that were presented in more detail today. Now, I'll do so by focusing on H&R Block's unique role in this industry, with a specific look at the company and the issues impacting our industry. I'll also provide some thoughts about our financial structure and our outlook. Before those, however, I'd like to take a moment to review the pass quarter. It's been a busy quarter, and I'll provide some context around the recently completed bank divesture and the changes to our capital structure. First, a few words about our second quarter results, which we released yesterday. As you're likely aware, this is a seasonally slow quarter for us. One in which we report a loss. Revenues for the quarter decreased by 4.6% to $128 million. While we saw a slight improvement in our off-season result in the United States, these were more than offset by the negative impact of foreign currency rates in Australia and, to a lesser extent, Canada, as we translate those results into U.S. dollars for financial reporting purposes. Total operating expenses increased by $43 million, or 13.5%. This increase was expected, resulting primarily from approximately $22 million in transaction costs related to the bank divestiture and capital structure actions, which I'll talk about shortly. Additionally, occupancy costs and amortization expenses increased due to the annualized impact of acquisitions of independent tax preparations -- preparers and in particular, the franchise businesses last year. As a result, net loss for the quarter increased 26% to $143 million and a loss per share increased 32% to $0.54 per share. While our losses were higher year-to-date, in a business as seasonal as ours, it's difficult to read too much into the off-season results. As many of you know, tax season performance during our fourth quarter represents a substantial majority of our revenues and earnings for the year. Turning to discontinued operations. Sand Canyon remains engaged in bulk settlement discussion with the counterparties from which it has received a significant majority of its asserted claims. It's accrual for representation of warranty obligation increased modestly by $4 million to a total of $154 million as of October 31, 2015. Though there is still work ahead and while it will take time, Sand Canyon continues to make progress in its efforts to wind down its remaining obligations. With that, let's turn to the divestiture of H&R Block Bank and our capital structure changes. There would be no conversation about the first 1/2 of H&R Block's year if we didn't talk about this more fully, so let me take a few minutes to walk back through a bit of history just for the sake of completeness. As we stand here today, H&R Block is no longer in the banking system. We were simultaneously able to enter into a new bank relationship that allows us to offer our bank products going forward to our clients. That then allowed us to go ahead and move forward with announcing our capital structure and making some very specific steps forward in realizing that. Now, I'm not going to spend much time going through the history of the actual application, but I do want to talk a little bit about why were in the banking situation and the value these offer for us. At the core basis of our relationship, with hundreds of millions -- excuse me, tens of millions of our clients, is this basic financial transaction that they trust us with that information. And we know that over the years that if we have the right product, the right financial product available to them, we can add value to their lives and make some money too. That need has not changed in this. To recognize that need many years ago, H&R Block decided to start a bank de novo. We chartered the bank, capitalized the bank, and ran that bank very successfully for a number of years. Unfortunately, in the 2008 banking crisis, there were substantial amount of changes that affected all the banks in the banking system, and in particular for H&R Block, H&R Block, Inc., the parent company, was deemed a savings and loan holding company. The main implication of that was that we would've been required to build up an additional almost $1 billion of capital to support an overcapitalized bank. We looked at a lot of alternative solutions for us to be able to continue to keep the bank, but be able to meet these compliance rules, but were unable to. And so the natural and formal conclusion we came to is we need to enter the banking system. 620-odd days later, we finally received regulatory approval. And I will not go through those 620 days with you, because I'm through my counseling now. But the point of it is, on October -- excuse me, on August 5th, this summer, we received the go-ahead to go ahead and formalize our transaction and we were able to, in less than a month, close that transaction successfully. The reality is, there was a lot of work to get that done and I'm quite proud of our team that we were able to do that as smooth as possible. As we stand here today, we are no longer a savings and loan holding company, and we have successfully transitioned all those operational requirements to our new bank partner, BofI. In fact, as we stand here today, if you went to one of our stores, you could apply for the Emerald Advance preseason loan offered by BofI, and things have gone well so far and we have great expectations for the season and seasons to come, that this is a great relationship for ourselves and for our clients. There is a cost, however, to this transaction. And I need to just walk you through very specifically the cost numbers here so that your models are as accurate as possible as you think about H&R Block in the new world. This chart shows you the annual impact and I've broken it down both between revenue and expense, and on the far side, the EBITDA or pretax net income side. In total, on a go-forward basis, you should expect about $36 million to $41 million of negative impact on our EBITDA to this transaction. That is broken down to 3 subcomponents. The first and primary one, which is the amount of money that we will owe on our new bank partner, ever season [ph] for doing this transaction. The main basis for that economics is really one around transactions. The more cards we sell, the more the cards are used, the more Emerald Advances, the more refund transfers, they will make more money. We would estimate that between $30 million to $35 million of net cost per year to the company. The second cost that we incurred is that during this time frame, we had accumulated a lot of cash and kept some of that money in marketable securities. Those have since been liquidated and sold, and we will no longer receive interest revenue of approximately $6 million per year. The third and final piece is really more just an accounting thing for -- it's more of a technical point, as we're no longer sort of deemed a financial accounting model, we are now going to change the way we recognize some revenue and recharacterize expenses. As you notice, there's no net impact to this, but it will decrease our revenue, but the offset will go to expenses. In total, for this tax season, we are guiding you to say this will impact us by about 1 full point on revenue and 1 full point on EBITDA margins. It's important to please update your models. This is the cost page. Let me move to the benefit side of this conversation. By selling and transacting our bank, we're now able to be back in control of our balance sheet, and we outlined to you at the beginning of September what our capital structure looked like. The first step was actually redoing our line of credit. We were successfully able to renegotiate a larger line from $1.5 billion to $2 billion, and at the same time, renew it for a 5-year time period. The second step was really to go ahead and begin raising some long-term debt, and we actually executed a 2-tranche bond deal early this fall, as you can see the details here. To be honest, I was actually quite pleased with the execution of that, and we're glad we got it done. The third step was really the share repurchase program. Our board authorized us, over the next 4.5 years, to purchase up to $3.5 billion of shares. This covers 4 full tax seasons. We made an initial down payment with a successful tender offer that we completed this fall, where we purchased $1.5 billion worth of our shares at an average price of $37, representing 40.5 million shares. And as you can see at the bottom of the page, as we stand here today, our average shares outstanding are about 236 million. Another important point though is more strategic. We have worked very hard to get back to this core business of tax preparation. And we talk about our strategy about being a leading global consumer tax company, our capital structure needs to reflect our business model. And as business people, when you look at this model, there are really, in my mind, 3 unique things to point out. The first is just the cash flow nature that we enjoy here. We have a strong cash flow profile. In fact, from the time at which I transact from a client's perspective and recognize it as revenue to cash collection is either days or weeks. Secondarily, the amount of capital that we need to reinvest back in the business would be described as modest, when you look at the comp curve with the S&P 500. We are a mature footprint. We have a scale DIY product, and typically that requires about 3% to 4% of annual reinvestment to continue to make that sure it's fresh and contemporary. The third thing, which is a very real issue for H&R Block is this extreme seasonality that we have as part of our model. We are the most seasonal company in the S&P 500, and our capital structure needs to reflect that. The CLOC that we renegotiated at $2 billion, solves that problem. Another important point that I want to talk to you about is a little bit more technical, and this is really about our debt capacity. As you know, we've been investment-grade for 60 years, we've reaffirmed our commitment to be an investment grade. For us, it's a technical matter right now. We're BBB stable, Baa3 stable credit. We have quantified what we think investment grade looks for H&R Block, between 2.5 adjusted gross debt to adjusted EBITDA to 3x. And I want to spend a minute actually talking to you about the adjusted growth debt calculation, just to make sure that you all have it straight. That calculation is made up of 3 subcomponents, the first is the obvious debt that you can look up on the balance sheet at any point in time. The second factor is following a rating agency convention, where they look at operating leases as a pseudo debt instrument, and they factor that into your debt. So that needs to be taken care of in your calculations. And the third step here is that we are seasonal. And while most of the year we don't have any money outstanding in our CLOC or historically commercial paper, we do borrow quite heavily, for example this time of the year. And the proper way to model that is to take the average for the year, which we're seeing is about $400 million. If you take those numbers, compare it to where we are right now in terms of our adjusted EBITDA, we stand somewhere between 2.2 to 2.5x adjusted gross debt to adjusted EBITDA. So please understand that as you're doing your calculations. Now, this needs to be put in a broader context. One of the key investment pieces that we have that we think many of you are attracted to is our ability to return cash to you in a very efficient way. And there are 2 primary ways we do that. First, of course, is our dividends; and secondarily, is through our share repurchases. What you're seeing here is our track record since 2010 for those 2 components. What you might not be able to see at the bottom, actually, is we've taken that number in total, the total return of capital, and compared it to what our net income is. And what you're seeing there is for the 2010 to 2013 time frame, we were actually greater than our net income in terms of return to you. You can also quite clearly see here in 2014 and '15, the 2-year timeout that we had, because during the saving and loan holding period, we were prohibited from buying back more shares. Now that we've moved past that, we've been back on the train of being able to buy back shares, and you can see an up-to-date chart here on the far right-hand side. This is the 6 months to date, by the way, just for the record. In particular though, in this graph, I want to focus on really just the last 4.5 years. And the reason that matters is that's really the time that Bill's been our CEO and our management team has been in place. During that time frame, since May of 2011, we have successfully bought back a quarter of the company. We have raised the dividend by 33%, and we've been able to return a total of $3 billion, which for a market capital, about $9 billion is not a bad track record. We, as a management team, have a good track record in this area. So with that, let me take a few minutes to reflect a little bit on some of the themes you've heard today and try to put it into more of a financial context for you. And I want to really start with what I think is the most important point overall, is this is the business we have. We invented this industry 60 years ago. We have been here for the long term and we're going to be here for the long time. And we are 100% committed to being successful in the tax preparation industry. We like this industry. It is slow growth. It is very mature. But it consistently grows somewhere between 1% and 2% of total returns per year, and we understand that. We also like the pricing power this industry has. At H&R Block, we have successfully been able to increase price per year, roughly double the rate of inflation for the last 10 years. There are many reasons why pricing is inelastic in this industry, and I've listed a few here for you. The first is taxes are nondiscretionary. I mean, sure, you don't have to file for a couple of years, that's a short-term strategy, you're going to get caught eventually. You have to file your taxes. Secondarily, as an industry, we typically price on complexity. So for those of you that go to a CPA, the number of hours they spent on your account will correlate to how much they charge you, which is approximately for complexity. In our business, we typically look at the forms we need to fill in for you and how complicated those forms are to actually train, to execute, and the risks that's involved in those. The third, and perhaps most important reason we have pricing power is, the majority of Americans receive this very big refund, $2,500, $3,000, $3,500. And when you look at the average charge that we pay them in the $200 range, that's a good investment of their money, to get it done right, to make sure they have peace of mind. We like the pricing in this industry. We also, importantly, know more about this industry than anybody. If you actually think about the years that we've been around, the amount of data that we've collected, the number of experiences that we've been involved in, we have this knowledge base that is a very powerful way for us to understand things. And as you -- as we move forward here strategically, we're going to take more and more advantage of that. And you saw some examples of that today through Laura Scobie's presentation. The other implicit part of our strategy is now that we're back to this basic tax preparation company is, this is all we've got. We have no distractions with other industries. We are only about tax and we are going to live and die based on how successful we are in this industry. Importantly, we're the only company that says, "If you want to do your taxes your way, we are here for you." If you want to sit at home in your pajamas late at night and just do it yourself, we're going to have a great product for you. If, on the other hand, you want somebody to sit next to you and go line-by-line and explain every aspect of your taxes with you, we've got people for you, too. And as you can imagine, there're many shades of gray between those 2 extremes, and H&R Block is really the only company that can deliver that. This is a large industry. It's $20 billion in total. And as you can see here from the graph, we're the largest participant in the industry. But you can also see that we have room to grow here. What you've seen from us today is an articulation of the strategy that says we now have an answer and a plan to deal with independence. We also now have a plan and an approach to CPAs. And of course, we always worry about our assisted competitors and our DIY-branded competitors. We believe, over the next several years, that we will continue to grow a larger share of this market. The other important part of our model is we are a medium and long-term thinking management team. We are here for the long term. This is the way we make decisions. The average American starts filing at age 18, 19 or 20. They then file for an additional 60 years or so, and H&R Block wants to be considered every year along that journey, that's an important part of our strategy. Now with that, let me spend a few minutes talking more about what we at Block think are some of our competitive differentiators and our sustainable competitive advantages, and that really starts with our brand. If you think about H&R Block, this is a ubiquitous term, it means taxes. In fact, 96% of Americans know exactly who we are. And when you ask them who we are, they would say things like taxes, trust and expertise, exactly what we want. And that's a direct result of decades of experience doing hundred millions of returns and spending hundreds of millions of dollars on our brand. Any competitor that comes into the tax space is going to have to fight this brand. And if you think about this, in fact you heard Jason talk about it, this is going to be a source for growth to us in the DIY, because awareness is still not at the 96% there. And there's a strong correlation between awareness and DIY and our ability to grow successfully in the future. The next advantage is we have money to make things happen. Our first priority, of course, is to make sure that we invest from a CapEx and expense basis back into this core profitable business, and we're doing that. The second priority for us, of course, is to invest in what we call strategic initiatives. And you saw some examples of that today with our DIY investment, you saw that with our Block Advisors, you saw that with our health care ACA investments. This is an important part of our ability to be more relevant and to grow market share over time. Now the nice thing about H&R Block is even after we finish investing in these 2 areas, we always have cash left over in terms of supporting the dividend and at times, of course, being able to return additional capital to you. This is a nice business model. Next is our distribution. We are pervasive. If you cannot go onto the Internet and you cannot go into a distribution in terms of where software is available, you cannot go anywhere in the country where you won't be able to find H&R Block. This is a very real competitive issue in this industry because you're always going to have to compete against H&R Block. Today, you heard a new expression of this distribution strategy really around Block Advisors. The clients that we're focusing on here are clients that we've got familiarity with, and they've got familiarity with you -- with us through our H&R Block Premium experience. The reality is that we did not pay as much attention to this over the last several years. That's changed, and you heard Laura talk very specifically about some of the exciting ideas that are going on there. We are focused on winning here in the medium and long term. Importantly, from my perspective, in terms of financial model, the cost that we will be incurring for CapEx and expenses to support this program are in all of our current guidance for you, so there'd be no additional expenses or CapEx required to help this transition. But, also importantly, this is not a 1-year solution for us, we are committed to this. And success for this case will be measured over the medium and long term. Next, I want to spend a few minutes talking more broadly about the industry and some of our thoughts on them -- on these issues. First of all, we talked to you about 3 different forms of fraud happening in this industry at a great level of detail. We think it's important as investors in this company to understand this very macro issue. Our view is that there's a lot of overlap between them. Quality and fraud are a growing issue in this industry and it's distorting the results. It's also creating an unleveled playing field for companies like Block that play by the rules. Our view is that this will be fixed over time. Standards are inevitable. It's just common sense. I cannot, however, look at you and say this will be fixed in one year. But if you're a medium and long-term investor and you look at the realities and the facts of the situation, I hope that you conclude, as we have, that this is inevitably going to be fixed, and Block will be a key part of getting that done. The next major thing we talked about really is the strategic change in the DIY space. As many of you know, historically, there's been a value segment that has a value product and a value price. There has been, on contrast to that, a premium segment that has a premium product and a premium price. And what's happened here in the last 2 years, is the premium product provider has basically pushed pricing down to the point where the value players who don't have a good-enough product will not -- no longer be to compete for those value people. And we think as time goes on here, in the next few years, these smaller competitors in the DIY space will get squeezed out of the industry. Their product will not be able to keep up with what's being offered by the market leaders here. And we believe that H&R Block is very well positioned to take advantage of this change. The next topic really is one of health care. And we've talked to you a lot about health care. We're very interested in health care. The ACA was the biggest change to the tax code since Ronald Reagan was president in the 1980s. This is a big deal for our industry. And what I want you to take away from this is that, in particular, at Block we feel like we're the best people to provide solutions for taxpayers. We have a lot of strengths in this area, and it's an area that we're investing money in and will continue to invest money in. But make no mistake about it, this is not a 1-year opportunity, this is a multiyear opportunity. And the reason why is because it deals with people's behavior. And the reality is it's hard to understand how people's behavior is going to change. Things are changing already, there'll be more this year and there'll be more in years to come. One question I do get a lot from you is, "Can you help me to quantify this?" I don't have all the answers for you, but I want to provide you a bit more of a structure to think about as you continue to reflect on ACA and H&R Block. When we talk about a client being impacted by ACA, there's only 1 of 3 ways they get impacted from our perspective. The first is they actually chose through the health care exchange to buy a policy. At the end of that year, they now have to do a new reconciliation form. Okay? That's a premium tax credit reconciliation on this chart. The second situation is an individual who should've gotten health care chose not to, and they now have to pay a penalty. Those people, when they do their taxes, have to fill in a new worksheet or series of worksheets. The third category is that person who will be subject to a penalty, but because of their circumstances, may be eligible for a partial or full exemption. They also have new forms to fill in during the tax event. This bar chart that's on this page is actually proportionately accurate for how those 3 categories broke down last year using IRS data. As we go forward in the future, these things will change, what we'll find is less people will be subject to the penalty, more people will be applying and getting exemptions for part or all of the year. And of course, more people will be getting health care, and therefore, then have to fill in a premium tax credit reconciliation. Why does this matter? Well, this is mix. And if you remember the way we charge is based on complexity. The more complex the work we do, the more we charge. And from bottom to top, we charge more money. This is a mix-based pricing opportunity for us. The proportions on the right-hand side are directional, by the way, not completely forecasting accurate. The next phenomena that I would say is working in our favor, is really what I would call the unit side of things. Last year, 16.4% of our clients were impacted 1 of the 3 ways that we talked about in the previous page, and we expect over the next few years that number will be 20% to 25%, representing more economic opportunity for H&R Block to make money. There are other economic opportunities available, but these are 2 primary ones that we talk about. So hopefully, that's a little bit helpful for you. Moving on, I do want to talk a little bit more financially for you. And that conversation for me always starts on the top line, really about revenue. A successful H&R Block is a Block that actually is showing growth in the 4 primary drivers of revenue. We're seeing price, we're getting reasonable volume, we're seeing a reasonable mix, and we're able to attach products onto that. So let me spend a few minutes giving you my perspective, really on last year and some of our thoughts going forward. Prices have very real opportunity in this industry. I talked to you about the fact that we have low elasticity. We have spent a lot of time understanding the data behind that and turning price into more of a tactical, historical solution for Block into one that's more strategic. And we're very pleased with our results in pricing and expect pricing opportunities to continue to be available to us. In terms of volume, we are not happy with our volume results. What we have though done, is clarify what the issue is. We are not winning the early season EIC and we're embarked on a multiyear journey to fix that problem and you heard some of our plans today from Laura, and it's an overall theme as a management group that we're very focused on. If you set that aside, however, we are actually okay with our volume results. We can always do more. But the reality is, that if it wasn't for that one group of people, we would be okay with our volume. In terms of mix, as a company and as an industry, we have done a bad job educating U.S. investors on what mix matters, okay? Let me give you a simple example. We know, with a high degree of probability, that an EZ filer will continue to be an EZ filer for the next several years. We present value that relationship back, include the additional products we might sell them, include their propensity to take ACA and look at them as a lifetime value. Then you do that same type of math with someone who's more of a 1040, like many of you people in the audience. The difference in lifetime value between those 2 clients are magnitude differently. We're talking more than 10x. And we, at Block have spent a lot more time to understand what that math looks like, to understand what we can do and where our strengths are, and to change some of the way we communicate and hold people in terms of behavior in the field. We're doing okay in mix in our perspective. The fourth category, really, is one of attach. We talk about this as our Tax Plus strategy. And here, the 2 main variables, of course, are getting more products available. As an example, last year, we offered Tax Identity Shield, which is a new product to the industry, an example of H&R Block's innovation. And frankly, were very pleased with first year results, and expect that product to continue to be more and more relevant. The second thing we focus on attach, of course, is our existing 5 products that we have, can we sell them to our clients? And if you look over the last 3 years, we had a good track record of being more and more relevant for more clients, and we expect these trends to continue. Next, I want to talk a little bit about EBITDA. At H&R Block, we start with approximately $3 billion of revenue per year and we turn that into almost $1 billion of EBITDA. It's a fairly remarkable business model. On a percentage basis, you can see over the last several years that we've operated in the low 30% range. As a matter of guidance, we basically indicate we expect Block to continue to be in the 28% to 32% range. Just for contrast and comparison sake, I'm showing you here what the average S&P 500 company is. We're a very profitable company. The next I really want to talk about is capital. Now, we talk about a CapEx range of being somewhere between 3% to 4% of revenues per year. And as you can see -- you may not be able to see, but that last dot is what our guidance is for this year. I'll get -- at the end, I'll confirm all that for you. But we expect to be within that 3% to 4% range. We were elevated for 1 year in 2014, which was really making up for some previous years prior to 2011, and so -- where we were underinvesting in the business model. This is the cash view. When you now turn to more of an accounting view and talk about depreciation and amortization, there's a normal time lag. So what I'm showing you here at the top of the page now is how depreciation and amortization is behaving. As expected, as you increase from 12, 13, and 14-year CapEx, that then takes time to come through depreciation and amortization line, which is kind of what you're seeing here. But I want to be clear with you, it's not the only reason depreciation and amortization is going up. So what I'm going to do for you now is break down depreciation and amortization into the subcomponent parts. As you would expect, the main driver of depreciation and amortization is CapEx, which is the bottom larger bar. Normally, we have a program where we have 50 people whose job it is to go out and actually look at independents to buy them. And the way that gets accounted for is part of the purchase price we pay for them is capitalized and then amortized over time. And if you notice that sort of that middle, that green bar, independent acquisitions, and that reflects a normal $35 million to $45 million of investment that we make in those. Very stable, doesn't change too much. The one thing you'll notice in 2014 and very pronounced in '15 and we're sure will be in '16, is this onetime opportunity that we had to buy back a bunch of our franchisees that had been sold several years back. That program is going to actually wrap up the year, and I'll be a bit more specific on that later on. While I'm talking here about independents and franchisees, let me reflect a bit more strategically on this. We do have a team of people whose job it is to go out and find competitors that may make sense to come into H&R Block's family. Several years ago, management's decision was to sell a number of prime H&R Block territories to become franchise territories. The 2 basic strategies behind that were: One, we think they actually operate the stores better than Block can. There's no evidence to support that before, after and during that time frame. The second strategy, of course, was to generate a quick gain on sale. We went back and looked at that program and made the strategic decision to go back after those 600 stores, which we started last year and will complete this year. Last year, in fact, we bought back 340 stores. This year will be about 260. At the end of this year, we're pretty finish with that program. Once we finish that program, however, we will continue to do what we've always done, which is to look for quality independents to bring them into the H&R Block family to the tune of $35 million to $45 million per year. Importantly, in both cases, when we do the math on it, I'll give you a simple example, we're able to buy them at compelling financial returns. H&R Block trades at roughly 10x EBITDA, ballpark. When I buy back these independents, when I buy back these franchisees, I'm typically paying somewhere between 2x to 3x earnings. The moment at which that transaction closes, I'm able to create financial arbitrage that benefits you as an investor. Next I want to talk about our efficiency of investment. The reality is if we use return on equity, given our recapitalization, we're now pretty much at [indiscernible] so we prefer to talk about return on invested capital. This is a number -- or this is a metric that we think is actually very relevant. Now as you can see, our history was one that we weren't paying attention to up until a few years ago, but we've been successfully able to move our return on invested capital to the mid-20s. What I'm not showing you here, though, is under the new world with the recapitalization and things to come, what it will look like. But I will tell you, you'll find us go to the mid-30s here very quickly. What's even more impressive, when you compare that to our cost of capital, the line at the bottom, for every dollar of equity and debt that we're given, we're able to basically generate a 2x to 3x return on that. So very strong ROIC. Next, income taxes. Now for those of you that are -- have been here multi-years, the normal conversation for income taxes is we give you what we think the tax rate will be for this year. Well, this year we're going to do it differently, we'll actually give you forward-looking guidance on tax rates. I joined H&R Block in 2012 and when you look back at what our tax rate was for many years before that, what you saw was effectively Block paying at the high end of the corporate tax rate at approximately 40%. The other thing that many of you may not know is that we at Block actually had real issues with how we accounted for. We had controllership and compliance issues in our income tax area. If you roll the clock forward to today, what you've seen is we've been able to materially drop our tax rate by a full 5 points as well as fix all the compliance and controllership issues. This change, itself, just the tax rate over the last 3 years has generated $100 million of cash savings for the company, which is part of what was refunded back through the share repurchase program earlier this year. Now going forward, as we look through our next several years and where we think we're going to be at, I want to provide you guidance that we think our expected base tax rate will be 35% to 36%. So please update your models to reflect that. So moving on. I now want to give you actually a bit more specifics on the outlook, and these are more of the modeling-type questions many of you are looking forward to. So starting with really just the broader view of what we think returns will be, no news. We think it'll continue to be about 1% to 2% growth in total returns in the United States, both for this year and as we look out over the next 3 years. There will be some differences between assisted and DIY, really with the DIY continuing to benefit from really the tail end of the pen-and-paper filers that are converting over to DIY. That will moderate and we will expect the DIY to actually slow down. Now specific to H&R Block, I went through a slide before with you, but I want to reinforce this very important impact from the bank divestiture that we completed earlier this year. This year, our revenues will be impacted by negative 1% because of the bank transaction. It will also impact EBITDA by 1 full point. And because that's an annual cost, that will go forward for the foreseeable future. Next, we have incurred onetime costs, as you would expect, to transact both the bank and our recapitalization. Most of that cost, by the way, was recognized in the second quarter, but it'll be a small amount here for rest of the year. But in total, we expect those onetime costs to be about $22 million. They're one time; they will not reoccur next year or the years out. Next is foreign exchange. It's a reality that every company with international operations is facing right now. As it stands here today when we look at the Canadian dollar and the Austrian dollar, it will impact my reported revenues by 1% this year and will have a much smaller impact on earnings, but it will be about a $0.01 of earnings this year. We do not forecast foreign exchange rates and so therefore I'm not going to be able to give you a 3-year expectation of what that looks like. This is just accounting, but it's a real issue. Next are compensation and benefits expenses. As many of you know, last year, we actually increased our compensation and benefit, specifically training, to include the costs for rolling out the ACA, the health care strategy that you heard from Mark. And we also, last year, incurred some costs because we introduced a new system in our tax stores that actually drives the tax interview. That was successfully completed. And so those costs would actually come back down this year and they are. Offsetting that, however, is with us buying back a lot of these franchisees, we're bringing those staff on now full-time year around and therefore our C&B costs, our compensation and benefits costs, will be up. If you put that aside, all you're going to see there for this year and the years out really is more inflationary. And we've done a good job controlling our C&B costs over the last several years. Next is our adjusted EBITDA margins. Our margins this year are expected to be 29% to 30%, really exclusively because of the things that were listed above here. As we go out into the future, we'll continue to guide to 28% to 32%. That is not a forever statement, that's a short-term and medium-term guidance on what we think EBITDA margins should be for H&R Block. Next is interest expense. We successfully completed a $1 billion bond deal earlier this year. We're also now utilizing our CLOC and so that will be interest expense between $66 million to $69 million this year. There is no forward-looking guidance in here or for the 3 years about when and how much we would do additional debt raises. This is simply reflective of the debt that we've done to year as well as our seasonal liquidity interest costs. Moving on. In terms of CapEx, we'll continue to guide between 3% to 4% of revenues for this year and for the next 3 years. In terms of A&D/franchise buybacks, the program that we embarked last year in buying back our franchise partners is basically winding down, so that program will finish. But this year, with the completion of additional 260 of those offices, plus our normal level of independent acquisitions, we expect to spend somewhere between $90 million and $100 million and then we would typically then go back to a more normal range, which would be $35 million to $45 million in the years following. Next, in terms of depreciation and amortization, we expect to incur somewhere between $175 million and $180 million this year. And as you can see, I've broken it down into the subcomponents. I'm not going to get into that right now, however. In terms of the next 3 years, really because of the way that D&A lags the cash expenditure, we would expect it to continue to be elevated at $180 million to $195 million. Next. In terms of our tax rate, I did give you the 3-year-plus expectation where the base rates were between 35% and 36%, but for this year, because of some continued onetime opportunities, we expect taxes to be somewhere between 33% and 34%. So that may be something else you want to adjust in your models. And then next, in terms of our average diluted shares outstanding. Right now, we're expecting 250 million to 250 million (sic) [ 250 million to 255 million ] of weighted shares outstanding for the year. But as you know, as a primary practice of ours, we don't give forward-looking guidance on share repurchases. So we're not saying whether we will or we won't, but this is kind of where we stand right now. So hopefully, that's helpful. This is really the summary of our presentation for you. Many of you are familiar with the overall investment thesis, but what you've seen today hopefully is an articulation at a more level of detail about the excitement and the opportunities that H&R Block has available to us. We think that H&R Block represents both a greater growth opportunity as well as a very compelling value opportunity for you. So thank you all for coming. Thank you for your time today. Give us a few minutes and then we'll be able to do Q&A session with you all. Thank you.

Before we take questions, one quick ask. If you all could please state your name and your company, just for the transcript purposes, when we get the mic to you. We have a couple of runners with the mics and please stating your question into the microphone would be great. So starting there with George.

George Tong with Piper Jaffray. I want to talk with EITC fraud. It accounted for about 2/3 of the volume decline last year in the assisted business, so clearly an important part of the business. Bill, can you talk about how the conversations are going with legislators, with the IRS in terms of addressing the fraud? How much you expect the fraud to slow in the coming years? And what additional steps need to be taken?

Yes, so -- and then Kathy, if you want to add anything after I try to answer George's question. The conversations, I mean, there is clear recognition that for this program to sustain, and there is support for the EITC program generally on both sides of the aisle. But that $14 billion to $17 billion in the last year of, call it, as Kathy said, improper payments for fraud, is not sustainable. When you have 25% of the payments going out that are improper, something needs to be done about that. So there's great recognition on that. There's clear understanding now that the disparity between the documentation requirements between DIY and assisted is not -- doesn't makes sense. So that's why, for this year, the number of questions has been reduced for paid preparers. And then as Kathy indicated, there's a pilot going on, which ourselves and a few other DIY preparers are participating in with the intent that, in '17, the following tax season, we would have parity along those lines. So that is proceeding quite well. Again, we're working with the -- there's always a misbelief that the IRS controls everything. IRS basically takes their direction from the Treasury. So there is real understanding with the Treasury -- I've talked to the highest levels of the Treasury and the IRS, that this is the way forward. So I'm very pleased -- sometimes people will say, why are you guys -- you'll never get anything done with the government, et cetera. Well, Kathy and Marie van Luling and the whole GR team works really hard on this. So we have made some real progress on that. How this translates to how much of the fraud will decline, hard to say. It's difficult for us to really forecast that that will lead to X, Y or Z. The public-private partnership that Kathy referenced where we're doing a lot of things, which is more around SERF, but really impacts EITC because all of this stuff is tied together, are ways forward. So we've got real change on the documentation requirements. We have a public-private partner. We've all signed a memorandum of understanding, all the names you know in the DIY space. So I do think the ball is being advanced. But I think Kathy said at the end, is it going to stop fraud, no, but I think we are moving along. So I'm pleased that we're making -- this is part of the job is really to try to impact this. Is there anything else you want to add just...

I think you really captured it. We're in great shape for the progress that we've made for 2016, really pleased with the pilot and the changes in the audit questions. And then for 2017, we're really looking to see those form changes for consistency across the filing channels and then the additional legislation that the IRS is pushing for. And with all that, I think we'll definitely see more progress in that area.

Okay. Scott?

Scott Schneeberger with Oppenheimer. First, I'd like to start, you guys typically do not provide a revenue guidance and there is a lot of guidance here and it's appreciated. Could you just speak to the top line a little bit outside of these puts and takes, but how you think about it perhaps in this year, if you want to share, and then again longer term?

Yes, I'll let Greg address that. And again, Scott, I think Greg will, I think, reiterate what he said earlier about the 4 components of revenue with -- go ahead, Greg.

Yes, we try to provide you with things that we think will be meaningful for you. I mean, I know it's always a question where people want more. But the reality is when you go into a tax season, when you look at even our internal models, we've got sort of lots of champion-challenger models. There's still a fair amount of -- even coming down to the last week, and so that's partly why we don't do it. But there's also a portion of why we don't do it is because the reality is that we are the industry leaders and a lot of competitors' strategy is to copy what we do and so we don't want to make it easy for them. But in terms of our ideas about revenue, it really is those 4 drivers: it's price, it's volume, it's mix and it's attach. We feel good about 3 of the 4, but the reality is, for us to be successful, it's got to be 4 of the 4 moving together. These are things that take time. These are things we're optimistic about. We're continuing to make investments smartly into a number of programs that will drive that. But when you only really have a chance to do business once a year, progress is measured over time and that's just a reality for our business. That's kind of our high-level thoughts on it, Scott.

I appreciate that. And just a similar question, different category. In return of capital, just your thoughts on what you're going to do with the dividend longer term. And also have you been buying back stock since the tender? And I know you're not going to forecast that, and I haven't done the math of what's implied in this year's share count guidance. But just thoughts on those two, dividend, and then what's the ongoing plan with the repurchases?

Yes, so let me start with the dividend. I mean, as you all know, we've been paying a dividend for 50-plus years. It's something we take very seriously. We did increase it, but the increase was actually 3-plus years ago. We were prohibited also during the time we were a savings and loan holding company from increasing the dividend. We did ask, but we were prohibited from doing that. We have chosen not to yet clarify dividend policy for a number of reasons, the main one is that we had a lot of other things we wanted to get out of the way. We understand, as a company, this is one of the things that we can do to create value for us. So you'd expect sometime in the near future for us to have a more specific articulation of dividend policy. As it relates in the share repurchase, we bought back 1.5 billion of shares, it was a very material execution for us.

$1.5 billion.

Sorry, $1.5 billion. Thank you, Bill. So soon, I forget. So we completed successfully $1.5 billion and the reality is that that was a very big step forward. There were a lot of things that were moving. Since then, we've not bought back shares. To be very clear, we're very happy at buying them back at $37. But the way we think about share repurchase is opportunistic, and we think about creating medium- and long-term value. And we want the historic record to reflect that we were very smart on how we bought those shares back on your behalf. Part of which you heard from us in our articulation is, over the years we think we've done a good job at that, so let us do our jobs here for you. We have $2 billion of remaining authorization. We have some time to work with, but we're also going to be smart about how we do that.

Okay. Let's go with Anj and then Gil and then Kartik.

Anj Singh from Crédit Suisse. Really appreciate all the color and transparency that you guys gave around ACA, EITC, fraud and even the financial outlook. But wanted to get a little bit more color on the ACA opportunity as we think about it longer term. You guys said 16.4% of your clients were impacted, 16.6% for the overall market. Could you, I guess, get into why are you still trailing the market in that category. And also I'd be interested to see how much of your ACA impacted mix is DIY versus assisted. And do you have a sense of how much of the market is DIY versus assisted in that ACA-impacted category?

So let me just understand trail. When you say trailing in the market, I just want to understand what do you mean by...

So you have slightly lower...

16.6% versus 16.4%.

Yes, it's slightly lower.

Oh, okay, okay, okay. You guys want to take that?

Go ahead, Mark.

So first of all, I'm just going to say, generally, this is going to take time to play out. We don't believe that there's a material difference between ourselves in the category. One of the -- probably what would account for that biggest change this year, as you saw, a lot of exemptions are being done in the DIY space, and so that's part of the explanation of what's going on, at least in this current year results. If not for that, we would be at or above. I also indicated that on our assisted side, a significantly larger percentage of our retail clients are -- were the ACA impacted and that's going to begin to play out at a greater degree going forward. But it's going to be a long term kind of -- we gave you a little bit of a sense of where we think we're headed ultimately, but it's going to take a number of years for this to play out, we've always said that. And we believe that over time, as Greg said, that the mix of that impact will change over time. More complicated reconciliation and exemption clients, fewer penalty clients will be impacted. So there's both a volume and a mix impact.

I will say that from last season, more sort of broadly as management, we were very pleased with how ACA went from Block's perspective. We were really looking at the client experience because the reality is it was a lot of education that we had to provide to our tax professionals through all the changes to our DIY experience, and we looked very carefully at the client experience from that. And we also compared ourselves to a lot of the competition out there, and the reality is, there was a lot of very poor execution by other companies out there. And we think over time that will matter because this is a very real issue for people. As Mark said, the penalties are very real here. The notices are going to start coming. People will have to sit down and account for their decisions as it relates to their taxes, but also for their health care. And that's why, for us, it wasn't so much about the numbers last year, it was about our execution and we were very pleased with that. Yes, Gil.

We had a very -- you had a very interesting discussion about...

Just say -- I know who you are, but say your name first.

Gil Luria, Wedbush Securities. We had a very interesting conversation about identity fraud and you don't have the numbers for this last season, but based on anecdotal evidence, it went from $3 million a couple of years ago, maybe double in the last couple of years. That's a very big number. Assuming that's all online and digital, I'm assuming there's very little of that happening in the stores. Do you think the steps this year will be effective enough to either reduce that number or reduce those growth rates? And then if it does, per the charts that you put up there, there is still a gap between the rejection -- you file rejection rates online versus in-stores. So wouldn't that impact your digital business somewhat? Your competitor from Mountain View has talked about the fact that yes, it would impact them if there was less fraud, but it would impact everybody. Wouldn't you be concerned that if that particular line, that you'd have some impact from the fraud declining?

So yes, about 3 questions in there. So let me try to carve it up. One is you're correct, the IRS commissioner himself acknowledges that, still on identity refund fraud, it's virtually all DIY. So it is not an assisted issue for any assisted preparer. It's really a digital preparer. Now when it comes to the volume piece, I guess, Jason, you should take that. And then your middle question was, I think, more for Kathy, was you wanted to know the -- would that affect our volume if everything went down?

Do you expected the decline or just slow growth and then if it does decline or slow growth, wouldn't that impact the digital line?

Jason, you want to take that?

Well, so what I showed as far as our own reject rates, there is a difference between assisted and DIY because for a do-it-yourself user, as I mentioned, they're really confident in their preparation skills, but that doesn't mean that they're very good at it. So we would always expect the difference between assisted and DIY, there to be a gap or potentially double. Our rates, when we look at it -- we're always trying to improve our reject rate and I think that we're making progress. But as I mentioned, there are -- there's a wide disparity in the reject rates among competitors and the tax software industry and I think that you see those rates and how they correlate to e-file growth. As those come down, what I think that you'll see is competitors in the industry looking more like H&R Block tax offers. I think our own tax offer, I think we have opportunity, but I do think that it will affect other competitors going forward.

Then a question on Block Advisors. Do you feel you have the appropriate staffing? Or are you going to need to hire CPAs or fold in other CPA practices in order to deliver the Block Advisors and extend the brand? And then Bill and Greg have worked really hard over the last few years to get out of all the ancillary business and you put up a slide that says you're getting into payroll and bookkeeping. Is there a slippery slope there that extends you into far-field businesses that after all that hard work of getting into it, how many -- 600 and how many days, Greg?

Yes, all right. So let me take both of those, and Laura, if you want to add anything. So for this year, it's essentially a transition, translation of what was formally H&R Block Premium to Block Advisors. So we have staff in place already, and these are -- as part of H&R Block Premium, these are among our most experienced and knowledgeable. The H&R Block Premium team has always dealt with more sophisticated tax clients. We think that we can build a brand here that would involve having to train and potentially be able to absorb more CPAs, so that, in the long run, you're in the right zone. But in terms of for this particular tax season, we feel very confident that we have the staff to handle that and we have obviously recruited more. And we think that we're going to be able to attract more people to a brand like this that might be more for CPAs or independents serving that kind of clientele to really impact that -- to want to seek to be part of Block Advisors. So we feel good about that. Now with regard to the payroll in that regard, I would caution you not to go too far because we have a business services Package today. We have an ability to serve clients on their business returns, both tax, et cetera. This is a small movement out. We're testing it. I don't see it as a slippery slope at all. I see it as a natural extension of what a more sophisticated client would want. As Laura said earlier, about 1 in 5 in our research are small business owners, so we want to be able to serve them on what I would call -- and this is small -- when we're talking small business, we're talking everyone from self-employed to a few employees. So that's -- I think it's in pretty close here. It's more of a bookkeeping play. That's what I would say.

Just keep in mind, Gil, offering doesn't mean that we're actually doing it right, so we typically are leveraging partnerships to do a lot of that.

Yes.

So then last one, for you, Greg. You talked about the cost of the [indiscernible] being 1 point of EBITDA margin and that's the extent of reduction in EBITDA that you have from last year to this year. What about operating leverage? To the extent that you get revenue and you're getting very high incremental rates, when do we start seeing the operating leverage on that?

So if you think top-down about our business model and the way our costs behave, we tend to be kind of a mix between fixed costs and variable costs. The main variable cost we incur, there're really 2 forms, and one is on the assisted side, the tax professional's variable comp, okay. But that represents for the next dollar of revenue, about 1/3 of that goes in their pocket, and after that, once you've paid for fixed costs, its margin. On the DIY side, it's really actually the marketing dollars because those actually are quite variable and we push those up and so, there's also the next dollar of revenue, there's something less than 50% that goes up into our variable costs. When we model all that out, you include things like wage inflation and rent inflation in that, we would typically hit our fixed costs inflection point at about 3.5% of revenue growth. There are some, depends on what the revenue is, but for all intents and purposes. So as we're able to get to 4%, you then would have a natural impact on your margin percentage expansion. So as I've said to many of you over the years, Block is able to successfully get to 4-plus percent of revenue will naturally be EBITDA margin expansion and so that's what we're focused on, is getting to that fixed cost leverage point.

Let's go to Kartik in the third row.

Kartik on the aisle.

You talked a lot about EITC and maybe the processes that are going to take place over the next couple of years. But as you look at this tax season, is there another headwind you're anticipating because of EITC at least for the retail business, and if so, what would you -- how would you quantify that?

Another -- I don't know. No, I don’t see...

No, I mean, for example, 2 years ago we decided to eliminate the free EZ program. That had an initial 1-year impact. Last year was sort of the echo effect, that's not going to recur this year. But really there's nothing that I would -- that jumped to my mind unless Bill's got something I've forgotten about.

No.

Well, I thought last year, you said 2/3 of the clients that you didn't retain were because of EITC that migrated away from retail to digital. So you don't expect that to happen this year? You don’t expect any type of migration from retail to digital on the EITC side?

No, I don't think we -- I thought you meant for a new -- I think until we get real parity, real -- I think that that possibility, we're going to work hard, we've got a lot of programs against that, but that -- the trend on that would, at this point, probably continue. The question is how deep? Will it be as extensive as past seasons? I'm not going to forecast any of that. But that would be a continuing issue because we don't have documentation requirements at parity. There's still all the stuff that Kathy talked about with regard to the fraud piece. There's still 25% impact. That doesn't flip in a year. I think we're making some strides, but -- so that will be -- I guess, you could term that a continuation.

Just to be clear, Kartik, we never said that all of them went to digital. Some of them went to digital, some of them went to other assisted competitors, yes.

Yes. And then, Jason, just for you. You showed the products you're going to have on digital and what your competitors are doing. Does this mean you don't anticipate having an absolute 0 product or a product that has no cost for federal and no cost for state, and no cost a financial product?

Thanks for your question, Kartik, but I'm not going to comment on any pricing or promotion that we might offer in the upcoming season.

You'll find out soon.

Could we go back to Thomas Allen back there.

Thomas, we'll try to get you a better seat next year, okay?

If you guys can please just state your name and company.

Thomas Allen, Morgan Stanley. So 3 initiatives you guys are doing, buying back the franchisees and buying independents is the first. Second one is obviously all your investments are in the Affordable Care Act. Third one is switching from the Premium to Block Advisors. Can you just talk about kind of the investment period? For example, I think you invested heavily in ACA last year and then when do you start to see these be tailwinds rather than headwinds?

Yes, so let's take them one at a more time. I think, as Greg said, we've made a big investment on the A&D side, especially on the franchise buybacks, we will have completed 600 in 2 years, 600 buybacks. It has moved the mix to 65-35. As Greg said, and I said in my opening, compelling returns. We're buying these really well. But they do increase our expense base, especially in off-quarters like you saw here. So I think that that -- we're near the end of the runway or at the end of the runway on the franchise buybacks. We'll continue to look at independents. So that -- and obviously, when we look at independents with the stuff that Kathy talked about, we have to make sure we're buying somebody that we think can fit our ethics, our accuracy, et cetera. Then on ACA, big increase last -- or big investment last year in training and marketing. We think we're going to be able to realize that. We think we did a great job with our tax pros. The refresher training is much more limited, as Greg pointed out. So we actually think we're going to start to reap the benefits of that investment from last year and being the place to go for ACA. The third area was Block Advisors. Okay, so I think that, we're going to see how this plays out. We did convert 300 offices. We want to see how this plays out. Our plans are in the, longer term, that this fits within our capital structure and our expense structure as we said. The offices will be profitable this year because they are essentially going concerns, so I think we'll be able to realize that. We're not indicating levels or amounts or anything like that, but we feel good about the transition. I know our tax pros that are in the office are very excited about it. In various markets, you can stop in and see them. There're a couple here in New York that are almost finished. So I think we feel pretty good about -- that's obviously an investment we did, but I think we'll start to reap the benefits of that. I don't know, Greg...

Yes, and just to kind of get a summarized answer. Basically, 3 to 5 years is when we would say it pays back. Do you want to go down to an IRR perspective? The reality is that we have more good ideas to invest in and then we have the resources, the people to be able to execute. So we continue to think sort of most of these -- we're not solving for 3 to 5 years. We typically think IRR is the best benchmark. But we continue to see good opportunities out there and it's really just a matter of how much the system can handle with the number of good people we've got available to do these things.

And then since you closed on the bank sale, there's been some scrutiny around your bank partner. The stock's down a decent amount. Can you just talk about the diligence you did before you picked a partner to kind of assuage some of the fears around what's going on there.

Yes, I mean I'm not going to comment on that issue, that's another company. But the diligence was extensive. We're very comfortable with the execution and the integration that's happened over the past few months. We're off to a good start with EA in terms of integration. We look forward to the tax season that's executing it so...

All right. There's a question on this side of the room and then we'll go to Michael after that.

This is Herb Buchbinder, Wells Fargo. Years ago, you had executive tax, which didn't really take off and then it became Premium and now Block Advisors. But is it that the problem that the market perceives Block is serving the lower-income taxpayer and you never really are able to do that well with the middle- or upper-income taxpayer? So how can Block Advisors overcome that and succeed this year and longer term?

We'll find out. We believe that we've done extensive research on this. Laura has led the team in terms of looking at the segments. I think, we kind of rolled the ball onto the court before and said let's see who wants to pick that up. I think now we have a much more focused marketing effort. I think we have a much more focused value proposition and we think we're going to be able to, both in terms of the real estate we pick, the services we provide, be able to offer at a very compelling service. So I don't -- the world's different now. I don't worry about what executive tax service was. We think we have the right proposition. And by the way, H&R Block Premium was doing fine. We just think we can accelerate it.

You don’t have any regrets that you got rid of RSM McGladrey?

No, I do not. I think it was a good deal for H&R Block and it was a good deal for the partners that are RSM McGladrey.

The other thing is it's a simple deal, but the fact that your clients got a less refund last year, might that have a negative influence on them coming back with them looking for help somewhere else because they may not understand why their refund was down?

No, I think all of our indications from the offices were people understood this was the law of the land. This was -- we did -- I don't recall one instance where anyone blamed the tax preparer. So I don't view that was a threat at all.

Okay. Let's get to Michael and then we'll go in the back with Paul.

Michael Millman, Millman Research Associates. Just following up on the BofI question. Is there a plan B if that blows up? Couple of other questions. On investment grade, can you quantify the cost and the risk of being off investment grade and maybe discuss, I guess, why investment grade is so wonderful? And on Sand Canyon, can you give us kind of a bid-and-ask between what you're offering and what's asked? And if indeed you were able to close it out at this level, how much cash would you free up?

Okay. So on BofI -- there's no plan B. We have a 7-year deal we signed with BofI and we're confident that that will be executed. With regard to investment grade, quantifying the cost and I don't know...

Yes, I mean, what we've said consistently is we have been investment grade for 60 years and we have now publicly said that we're committing to that. We've not said these are the 16 reasons we don't think that's a very valuable exercise to go through. We're comfortable being at the low end of investment grade. We've now quantified what that looks like and that's who we are.

And with regard to Sand Canyon?

Yes, so the way I would best answer this always is, look at the 10-Ks, look at the Qs because there are lots of great disclosure in there. The representation and warranty reserve is the best estimate of the expected liability. So that is the best estimate. That reserve, as you looked at it over the last several years, has changed very modestly, really just to reflect kind of real-time negotiations the Sand Canyon management team is in. We've had some successful settlements through that process. They continue to be in a limited number of engagements to go through that. I get frustrated with the time personally, I'm business person in life, which is move on with life, but the reality is you're dealing with very complex legal issues with a number of counterparties and so it just takes time. It's frustratingly slow. In addition to the $154 million reserve, of course, they've got additional equity, which, I think Mike, you were asking about, to the tune of $200 million-plus of additional equity. Our view at Block, I think, if you talked to the Sand Canyon management team, they'd say it's going to take multiple years to unwind. And frankly our case that we think is most likely is it comes down to 0. So I'm not expecting any cash back in the future. I'd be happy at a 0 outcome.

When you say 0, you're talking about the equity as well?

Correct.

And why have all these banks -- and obviously there's good reason, but why have they been able to settle some years ago and Sand Canyon's still working this out?

Yes, it's actually good question, Mike. I mean, the broadest answer is they have ongoing relationships with the GSEs, they have ongoing relationships with their regulators and they have motivation to settle that and move on so they can continue to do business. Sand Canyon's perspective is we don't do mortgages anymore. We're not in the banking system. And realistically, the best strategy that Sand Canyon's Board of Directors and its management has said, this is just something that we think will take time and we're going to do it properly and thoroughly. There is no rush to a simple answer because of other reasons.

So we'll go to Paul in the back and then Jeff right next to Michael.

Paul Hamilos from RS Investments. You guys make a compelling case about eliminating EITC fraud and identity fraud. And as a taxpayer, I'm outraged by it. I'd love to see that effort succeed. But how does that actually drive revenue for H&R Block? I can see how it might change the market share statistics to look more favorable, but how would that -- how would eliminating fraudulent returns actually drive more revenue?

So let me take an attempt and then, Greg, if you want to add anything. First of all, as a principal, I don't want to make money on the fraudulent returns, as the CEO of this company, as a company that's been in the business for 60 years. If we eliminate fraud and -- I don't want to make money on fraudulent returns. I think taxpayer confidence, I think that overall, fraud is not a good thing for an industry. So the first thing is, I think, as an industry, we have to concentrate on trying to have as much integrity in this system as we can. So that's part of the -- part of the reason why I push on this issue so much. I think, though, as we can get to better compliance, getting fraudsters out of there, I think the net benefit as an industry leader is that we will benefit. I can't quantify what that amount is, but that's probably the way I'd answer it. I don’t know, Greg, if you have anything to add.

Yes, I mean, Paul, I can go on for an hour here, but a couple of ones that come to my mind; 40% of all returns in the United States are done by independents and independent can be defined as a lot of things. Half of those half or 20% of all returns are people that do less than 100 returns. Half of the half or 20% of all returns are done by the people that do over 100 returns. And the reality is that the quality of work that gets done there is awful and it's increasingly where most of the fraud is. A lot of those people have no business doing tax returns. In the event that there are minimum standards in place, they're going to have difficulty meeting those and will likely, to some extent, some of them will exit the system. That return still has to get done somewhere. We would be a natural place for that, we would think. So that's one example. And just to be clear, there are a number of independents that do a very fine job and we see those as well. But when you actually look and -- we shared some statistics. I mean, when we go on diligence and we're actually reunderwriting tax returns from better quality people and we're saying 1 in 4 have an issue, and of those, like half of them are basically committing fraud, it's shocking, okay. The DIY side, I mean, that is one of those ones that, I think, Bill's point is when a brand is -- if you've got a product that people have belief in that you see yourself as a safe harbor, as people are impacted personally by fraud or as fraud is fixed in the system, those people who have their taxes done will naturally gravitate to, we think, to companies like Block. There are other examples, but those are just some.

It's Jeffrey Silber with BMO Capital Markets. I actually wanted to go back to the DIY products. I'm not going to ask you about pricing, don't worry about that. But maybe if we can talk just about overall marketing? Maybe I'm not your target market, but I'm just surprised that we don't see more marketing specifically for your DIY product. Can you talk about the strategy and how you think you can increase awareness on it?

Let me try that first and then Jason, okay. There's a lot of marketing on the DIY. The large majority of our spend is online, which we think that is the most effective and most payout, but we spend very competitively with -- as Jason terms them, the market leader. That is a real grind it out, day by day, hour by hour. So we spend a large majority of our spend online, which you maybe don't see or whatever. We also have historically, and again we're not going to comment on this, have run over the year television advertising and other broad market advertising. We're not going to comment on whether we will or will not do that. But as Greg said earlier, the real variable cost we have with DIY is the marketing line. We don't break it out specifically. I don’t think the market leader does either. But I'm satisfied that we have sufficient weight behind DIY. I don't know if there's anything you want to add, Jason.

No. I appreciate the question, Jeff. And as I mentioned, we've increased awareness by 16 points in the last 4 seasons. And I haven't seen tax awareness numbers, but I don't think that they come anywhere close to that. That's the first thing I would say. But to me, the best way to ultimately market the product is by having a great product. And I think, that's where, regardless of how much we've marketed and how much we've seen the awareness grow, I think our product is what's really changed over the last 4 years and I outlined some of that. But even coming off last tax season, we saw our retention increase over 200 basis points. And coming off last tax season, we feel really good about the changes that we have in place for the product this year. I mentioned that we've done a lot of work to make the product responsive, we're multiscreened, but this year, really behind the scenes, we've completely rewritten the beginning; the middle, the topic transitions, which is really where the client looks for the software to tell me what's next and what should I expect, what do I need to do and the logic we've put in there is brand-new; and then we've completely rewritten the ending experience where we really close the client. And then we proactively used our analytics team in order to put what we call pro tips to look at specific clients and figure out what something we can tell them provocatively throughout the interview in order to help them explain something and use our expertise that otherwise they might have missed. And so those are just some of the changes that we put in place this season, but I'm really excited about the product that we released and just went live last Friday.

Any other questions?

Last one.

Scott, yes.

Scott Schneeberger, Oppenheimer, again. Greg, going over the -- all the pieces of guidance for this year, it looks like there's going to be a significant reduction once everyone updates their models for EPS. Could you speak to the first 2 points, the bank divestiture? That's incremental to what we've had modeled for the transaction for a couple of years, correct?

So the numbers that we outlined should be consistent with prior numbers that we've shared with you.

We've said $0.08 to $0.10 all along.

Yes.

And that's -- and what you provided today was just reiteration.

Details to make sure that you're all up-to-date and squared away with that.

And it was also to break out between revenue and expense. We had generally given a large -- and Greg and the accounting team have worked through that piece. So that's what -- Greg was trying to give you real specific details so that you could build those models.

Got it. That's helpful. And then the $22 million, that's onetime and we wouldn't -- that's not in the 29% to 30% EBITDA margin, correct?

That's one time. So that was adjusted EBITDA number we gave you, yes. That's adjusted out.

Okay. And then, lastly, I know the maintained long-term guidance is 28% to 32%, just a bit of feel from the 29% to 30% EBITDA margin this year. How -- are we going to have a nice rebound directionally thereafter?

Yes. I mean, we -- 28% to 32% is kind of what we think is the right margin for now. Our goal is not to increase margin percentage other than if it's a byproduct of revenue growth, which is the question that Gil had asked earlier. The way to create real sustainable value for shareholders is to get revenue growing greater than 4%, we then get natural margin expansion. If we don't get that, then -- so what my point is we're going to take costs out of the system, but we're reinvesting it in future revenue opportunities that we believe will happen. If under some hypothesis that doesn't happen, we can take costs out of the business and move margin percentage up like we've done. I mean, it wasn't that long ago that we were 26% EBITDA margin. So the 28 % to 32% is really reflective of a short term -- to sort of short term, medium term. We may revise it. But it really is going to be mostly a function of our revenue performance.

And Scott, I think what we're trying to do, because we want to be clear that from the highest level, we are very excited, very committed. We're finally, if you will, running the company we wanted to run, focused on core tax preparation. This is a transition year, so we have to go through the onetimer of the BofI piece we just talked about. We have the literal onetime transaction costs, which also are not only BofI but include all the capital structure stuff that we did effectively onetimer. And then, with really the number being higher than what we had probably anticipated a couple of years ago, that 600 franchise locations coming back in, some success on the independent piece, that there are expenses associated with -- especially on the franchise, just we're paying for the payroll now and the rent and everything else and the revenue will catch up. So that what we'll find is, what Greg was trying to lay out is, take those to the side here. Beyond that, we think we have controlled expenses pretty well in this company. Greg has put a terrific productivity team together that's stamped on everyone's heads, so I wouldn't assume that we're trying to set a new course in terms of spending or whatever. I think you can count on us being within -- executing the way we have in the past. And when there are investments we have to make, like last year's training piece and we think that's going to pay out, we'll do that as a onetimer. But for the most part, setting those 3 things aside, we're sort of within the balance of what we've been doing.

And I agree and then, there has been a good job of expense control. One final question of a financial nature. The, I think, it's 240 locations bought in this year, about $100 million, I think you spent about the same last year for more locations. Is this just going up higher on the tree to pick the fruit? And I understand you're getting great margins for what you're acquiring. And if you could elaborate a little bit more on strategically where are these locations, is this is Latino market targeted? Or just any elaboration there.

We'll clarify with you off-line, but the numbers are not -- they were more different and it was reflective of -- the average purchase price per store is really not that different year-to-year, so I think that's maybe just how you wrote your notes or something. We can get you those exact numbers. The markets themselves typically were, I would call, the middle sized cities around the country. It isn't -- I wouldn't point out that it was heavily Latino or not. But these are sort of secondary, third sort of, say, like Springfield, Missouri, Lansing, Michigan places like that.

And it's 260 for this year, not 240. Last year was 340.

We'll do one last question with Herb.

Can you just comment briefly about the focus of your TV advertising this year and how much you'll hit on ACA issues on television?

Not going to talk about marketing. Never do with these meetings.

You'll like it.

All right. We'll wrap. Yes.

Well, thank you all very much for coming. And thank you for those of you listening online. And here's to a great tax season.