Participants
Michaella Gallina; Vice President, Investor Relations; H&R Block Inc
Jeff Jones; President, and Chief Executive Officer; H&R Block Inc
Tony Bowen; Chief Financial Officer; H&R Block Inc
Kartik Mehta; Analyst; Northcoast Research
Scott Schneeberger; Analyst; Oppenheimer
George Tong; Analyst; Goldman Sachs
Alex Paris; Analyst; Barrington Research
Presentation
Operator
Thank you for standing by, and welcome to H&R Block’s Fourth Quarter Fiscal Year 2024 earnings conference call. (Operator Instructions) I would now like to hand the call over to Makela Galena, Vice President, Investor Relations. Please go ahead.
Michaella Gallina
Thank you, operator. Good afternoon, everyone, and welcome to H&R Block’s fiscal year 2024 financial results conference call. Joining me today are Jeff Jones, our president and chief executive officer, and Tony Bowen, our chief financial officer.
Earlier today, we issued a press release and presentation, that can be downloaded or viewed live on our website at investors.hrblock.com. Our call is being broadcast and webcast live, and a replay of the webcast will be available for 90 days. Before we begin, I’d like to remind listeners that comments made by management may include forward-looking statements within the meaning of federal securities laws. These statements involve material risks and uncertainties, and actual results could differ from those projected in any forward-looking statement due to numerous factors. For a description of these risks and uncertainties, please see H&R Block’s Annual Report on Form 10-K and Quarterly Reports on Form 10-Q, as updated periodically with our other SEC filings.
Please note, some metrics we’ll discuss today are presented on a non-GAAP basis. We’ve reconciled the comparable GAAP and non-GAAP figures in the appendix of our presentation. Finally, the content of this call contains time-sensitive information accurate only as of today, August 15, 2024. H&R Block undertakes no obligation to revise or otherwise update any statements to reflect events or circumstances after the date of this call. With that, I will now turn it over to Jeff.
Jeff Jones
Good afternoon, everyone, and thanks for joining us today. We will begin by sharing our results for the full fiscal year and the progress we continue to make on our Block Horizons imperatives; then Tony will discuss our financial performance and outlook for fiscal ‘25, and then we’ll open it up for Q&A.
Beginning with our FY24 results: I am pleased that we were able to deliver another year of revenue growth, EBITDA that grows even faster, and double-digit EPS growth. Our DIY business continued its momentum with market share gains for the second consecutive year.
Performance was driven by paid client and NAC growth, as well as ongoing strength in our Tax Pro Review product. I was pleased with how fast we were able to launch AI Tax Assist, which resulted in higher new client conversion, and our customer satisfaction scores remained strong.
In Assisted, our brand continued to resonate with higher value clients, and we were able to grow NAC. Trends in Assisted small business tax also remained positive this year. In addition, we’re continuing to drive value for shareholders through our capital allocation practice. In fact, today we announced another 17% increase to our quarterly dividend as well as a new repurchase authorization of $1.5 billion which replaces the prior authorization.
Since 2016 through today, we have increased the dividend 88% and repurchased more than 40% of shares outstanding. Looking to fiscal ‘25, we feel well positioned to deliver for clients and shareholders; and Tony will share more about our Outlook in a moment. But first, let me turn to our Block Horizons strategy, where we continue to make important progress in all three of our strategic imperatives.
Starting with Small Business, we had another good year in tax, delivering revenue growth in the mid-single digits. NAC grew 3%, entity trends remained strong, and bookkeeping and payroll had another year of double-digit growth. Our centralized fulfillment model alongside our dedicated sales team have driven services client conversion, and we continue to see a lot of opportunity ahead.
Turning to Wave, I’m pleased with the progress that has been made in the last year on our key priorities to accelerate revenue growth and drive profitability. You’ll recall we recently launched a new paid subscription solution, called Pro-Tier.
This, along with our paid receipt product, are designed to further empower small business owners to manage their business better. These products have been performing better than anticipated. For the full year, revenue growth was 7%. We continue to improve the losses in the business and expect ongoing positive trends in fiscal 25.
Moving on to our Financial Products imperative, we are pleased with the growth of our mobile banking platform, Spruce, and its performance in both the Assisted and DIY channels this season. Since launch through June 30, Spruce has 476,000 sign ups and we are nearing a milestone of $1 billion in customer deposits. We are pleased to see positive deposit trends, with nearly 50% coming from non-tax sources this year. In fact, last month deposits increased 60% year over year.
At the same time, Spruce is continuing to deliver on its mission to help people be better with money. We’re excited about new innovations that will be rolling out in the coming months, and our team is focused on acquiring users in and out of the tax season.
Now let’s turn to Block Experience, which is all about blending digital tools with human expertise and care. We feel great about how we’re positioned to serve clients however they want to be served, fully virtual to fully in person and every way in between.
In DIY, our strategy continues to deliver, and we’re pleased with the results. As I mentioned, we had meaningful growth in paid clients and NAC, which translated to strong revenue growth of 11% this year. AI Tax Assist performed well, and we’re excited about our genAI use cases which have the potential to drive future efficiencies and cost savings. We look forward to continuing this momentum in fiscal year ’25.
In the Assisted channel, we were pleased with our NAC growth, improved client satisfaction scores, and success in attracting and serving higher value clients. We’re clear about where we 6 can improve the experience for clients, and recently welcomed Curtis Campbell as President of Global Consumer Tax and Chief Product Officer, who has more than ten years of tax industry experience. His impact is already being felt across the organization and I’m excited about his leadership.
Over the last few years, we’ve made significant strides in our products, services, and features through our Block Horizons plan, and I’m feeling very good about our positioning for fiscal year ‘25. Before I turn things over to Tony to share more about our financial performance and outlook, I want to take a moment to thank him for his incredible tenure at H&R Block.
As we shared on the Q2 call, Tony made the personal decision to retire after a 20-year career with Block. Tony has been an integral part of our company, playing a key role in our growth, transformation, and success. His financial acumen, strategic insights, and industry experience have been invaluable to our team.
During his tenure, Tony helped us navigate through numerous challenges and opportunities, ensuring that we remain on strong financial footing. He began his career with H&R Block as a Senior Treasury Analyst and has since held multiple executive roles.
Under his leadership as CFO, we have returned more than $3.9 billion to shareholders. His impact on H&R Block will be felt for years to come. On behalf of the entire Block family and our Board of Directors, I want to extend our gratitude to Tony for his years of service and leadership, and we wish him all the best in his retirement and future endeavors.
As you may have seen in our announcement last week, I am pleased to share that we have hired Tony’s successor. Tiffany Mason brings a proven track record of financial leadership in consumer services, retail, and franchising, which are all critical to our business. She most recently served as EVP and CFO at Driven Brands, a high-growth auto services company, where she drove strong organic and inorganic growth and led the company through a successful IPO.
Prior to that, Tiffany spent 13 years at Lowe’s, a Fortune 50 omni-channel home improvement retailer. Tony and Tiffany are working closely together to ensure a seamless transition, and she will officially step into the role of CFO on September 13.
In addition, as we continue to transform H&R Block into an agile and innovative company that delivers more value to our clients, associates, and shareholders, I’ve also added another key member to our senior leadership team.
Scott Manuel joined last week as Chief Strategy and Operations Officer and reports directly to me. Within his role, Scott is overseeing functions essential to driving our long-term enterprise strategy and improving our execution. Scott has a long history of delivering customer-centric innovation in complex and dynamic environments.
He’s an accomplished engineer, has worked in large scale companies and private equity, and across industries, and is steeped in artificial intelligence. I’m thrilled to have Curtis, Tiffany, and Scott join the already strong Senior Leadership Team. With that, Tony, I will now turn it over to you
Tony Bowen
Thank you, Jeff. It’s been an incredible journey, and I’m deeply grateful for the career I’ve had at H&R Block. First and foremost, I want to thank our finance department and associates, whose hard work and commitment have been instrumental in driving our success. I also want to extend my gratitude to our Board of Directors, shareholders, and investors for their support and trust.
As I look back on my time with the company, I’m immensely proud of what we have accomplished together. I’m confident that Block will continue to drive value for shareholders in the years to come. With that, I will now turn to our fiscal year ‘24 results.
We delivered $3.6 billion of revenue, an increase of 4% or $138 million, primarily due to a higher net average charge and company-owned volumes in the Assisted category, combined with greater online paid returns at a higher net average charge in DIY, partially offset by lower Emerald Card activity in the current year.
Total operating expenses in the year were $2.8 billion, an increase of 3% or $82 million, primarily due to higher labor costs and bad debt expense, partially offset by lower consulting and outsourced services. Interest expense was $79 million, an increase of 8% over prior year due to higher draws on our line of credit and the higher rate environment.
Pretax income was $762 million, an increase of $51 million, or 7%, primarily due to higher revenues in the current year. Our effective tax rate was 21.6% for the full year versus 21% in the prior year.
Turning to EBITDA, we delivered $963 million compared to $915 million in the prior year, an increase of more than 5%. We are pleased with another year of growing EBITDA faster than revenue. Earnings per share from continuing operations increased from $3.56 to $4.14, or 16%, while adjusted earnings per share from continuing operations increased from $3.82 to $4.41, or 15%. In FY24, we acquired a total of 158 franchise offices. We feel great about franchisees’ willingness to sell to us and are pleased with how this strategy supports our longer-term revenue and earnings growth.
As Jeff shared, our capital allocation story remains strong. Regardless of year-to-year nuances, our disciplined approach drives meaningful value for shareholders. We produce significant and stable cash flow, pay a growing dividend, and buy back a material number of shares.
We also today announced a 17% increase in our quarterly dividend to $0.375 per share. Since 2016, we’ve increased the dividend by 88%. In FY24 we completed $350 million of share repurchases at an average price of $43.66, and today we are pleased to announce a new share repurchase authorization of $1.5 billion. Since 2016, we have repurchased more than $2.3 billion, retiring over 89 million shares, or more than 40% of shares outstanding at an average price of $26.74.
Now turning to our FY25 outlook, let me begin with context around the assumptions we’ve made. First, we believe the industry growth next year will be in line with historical trends, or about 1%. Second, we assume that we will maintain market share in the overall tax category, but our goal, of course, is always to grow share.
Third, we expect to continue taking low single digit price, which we successfully executed again this year with customer satisfaction scores remaining strong. Fourth, we expect Wave and Small Business to continue to be revenue growth drivers, and lastly, we will continue to repurchase franchise locations opportunistically.
As a result, our outlook for FY25 is for revenue to be in the range of $3.69 to $3.75 billion. EBITDA to be in the range of $975 million to $1.02 billion. EPS to be in the range of $5.15 to $5.35, which will benefit from an unusually low effective tax rate of approximately 13%.
The tax rate is positively impacted due to the anticipated closure of various matters under examination and the expiration of statute of limitations. We expect this to contribute approximately $0.50 to EPS in fiscal year ‘25. As we have shared, we have multiple levers to drive annual revenue growth in our targeted range of 3% to 6%, and we believe we can leverage our cost structure for EBITDA to outpace revenue, while utilizing share repurchase to grow EPS even faster. All in all, we are well positioned for fiscal ’25 and beyond.
In closing, it has been an honor to serve as CFO, and I look forward to seeing the company’s continued success in the years to come. With that, I will now turn it back over to Jeff for some closing remarks.
Jeff Jones
Thank you, Tony. As I reflect on all that we have accomplished, I am grateful for our associates and team. Every day, we strive to deliver on our purpose of providing help and inspiring confidence in our clients and communities everywhere. I would like to extend a sincere and meaningful thank you to our tax professionals, our franchisees, and our associates who make our success possible. I am looking forward to all we will accomplish in the next year and sharing our Q1 results in November. Now, operator, we will open the line for questions.
Question and Answer Session
Operator
(Operator Instructions) Kartik Mehta,
Kartik Mehta
Good afternoon. First of all, Tony, it was a pleasure working with you. Best of luck in your retirement. Jeff, if you look at FY25 and over next tax season and kind of compare to this tax season, what changes do you think that Block use to make to make sure that you maintain your market share on the assisted side?
Tony Bowen
Kartik, thank you. I mean there’s no question. And I teed this up a bit in our last call of just the opportunity I saw last year as I traveled in office execution in assisted. We have lots and lots of clients that are choosing the brand, they’re making an appointment, they’re coming to the office, and we just didn’t deliver well enough.
And so that’s really the focus of the entire team as we go into ’25 is how do we improve the experience? How do we better manage expectations? How do we help clients understand the value? And then ultimately, how do we deliver on that? And with a real emphasis on new clients in particular, we saw there’s even more opportunity for those people who are coming to us for the first time and don’t really understand exactly how the process should work at H&R Block. And so there’s many things across all the different businesses that teams are working on. But you know that has everyone’s attention for next year.
Kartik Mehta
And then turning just on free cash flow. Obviously your free cash flow measure was much higher than net income. I’m assuming depreciation will be higher than CapEx again next year. But any other changes on the operating cash flow line that might impact free cash flow next year?
Tony Bowen
No. I mean, you’re right that depreciation and amortization continues to exceed CapEx, which is why we’re generating more than 100% of free cash flow relative to net income. So that trend should continue. As you know, FY23, we had unusually high free cash flow because of some tax benefits that we got. But this year, I’d say it was more of a normal year, I think for free cash flow as defined by cash flow from operations plus CapEx is north of $650 million. I think that’s a pretty good run rate number for us going forward.
Kartik Mehta
Thank you. Appreciate it.
Operator
Scott Schneeberger, Oppenheimer.
Scott Schneeberger
Thanks very much. Good afternoon. And Tony, I’m going to miss you as well. All the best. And I’ll get a question to you, I promise. But starting now, Jeff, high level and looking out to next year, the — given a little bit of color on what you’re expecting, probably the next earnings call is going to be right around the election.
I’m curious how you’re thinking about the political outlook and developments in that 1% growth for the industry. Just kind of maybe compare and contrast candidate and other things you’re thinking about out there that could influence the tax season next year? And then I’ll follow with a quick follow up.
Jeff Jones
All right. Yes, I’ll leave the compare and contrast candidates for the political pundits. And so, you know, it’ll happen. And then as we get into whatever happens in terms of who wins, whatever policy changes they may make and how that trickle down and impacts the consumer. I mean, we certainly aren’t trying to predict that, but that’s where it really starts to potentially have an impact positive, potentially on the business as well.
So as we think about the season, you know, Tony mentioned we expect it to be a more normal season. Each year, there’s always a little something that pops up. I think we have proven and a great ability to respond to whatever those things are.
1099 case have been on the agenda for a couple of years. We’re ready. If it happens, it’s not built into the plan. We don’t know if it will happen. So that does hang out there, and we’ll wait and see. But otherwise, we’re most focused on what can we best do to serve our customers and how do we build the best products and experiences to win more people to the brand.
Scott Schneeberger
Thanks. I appreciate that, Jeff. Just one more follow-up for you, and then I’ll get to Tony. But Kartik asked about our market share opportunity in assisted and what you can do there? You’ve done a nice job the last couple of years and do it yourself on the market share front? Is that sustainable? And what are some of the levers you’re pulling to trying to keep that position?
Jeff Jones
Well, it’s been a couple of years of really nice performance as you said. And the key always starts with having an excellent product, you know, and experience that is easy for the consumer. And we feel very good about the product. Of course, there’s always things we want to do every year to make it better and better, but that’s always the starting point.
We have to deliver great value and price competitively. We’re doing that. That’s obviously a more dynamic conversation as the season unfolds and we see competitive moves. And then the third thing is, you know, we continue to be very aggressive about going after dissatisfied TurboTax clients.
And we’ve made that very easy to switch from. We have been very aggressive in how we market against them. Then you should expect us to follow that recipe but not take anything for granted.
Scott Schneeberger
Great. Thanks. Appreciate that. And then, Tony, congrats again. My question to you is on margin expansion. It looks like got a little bit this year. You referenced growing EBITDA faster than revenue. And the guidance next year appears — the ranges imply kind of in line. What is the opportunity as you kind of pass the baton to Tiffany. What type of margin expansion can be achieved in years to come? And where might the levers be there? Thanks.
Tony Bowen
Thanks, Scott, and I really appreciated working with you over the years. We’ve delivered pretty consistently EBITDA growing faster than revenue for a number of years. And we’ve talked about, you know, if we can hit that 3%-plus revenue number, EBITDA can grow over the long term, 1.5 times that rate.
And I think that just takes advantage of the cost structure, takes advantage of cost managing expenses, trying to drive productivity, figuring out ways to invest in the business by taking out costs in other places. And as you said, margins has expanded several years in a row, and I think it will continue.
We guided to obviously top line growth again in ’25. We guided to EBITDA growing faster than the revenue and EPS growing even faster. So the model is working. There’s always your specific nuances one year over another.
This year we have some ERC credits that we got the benefit of in ’24 that aren’t continuing in ’25. So that it has EBITDA being a little bit lower on a year-over-year basis, but it’s still outpacing revenue when you look at the guidance range.
So overall, the model is still working. No inflation has moderated versus what we saw kind of coming out of the pandemic. So that’s obviously helpful. We’re still seeing things like merit increases and rent go up. But some of those other things like supplies and utilities that were kind of out of control for a few years are now kind of more normal rate. So the model is working, and I think it will continue to work for the foreseeable future.
Scott Schneeberger
Great. Thanks, Tony.
Operator
George Tong, Goldman Sachs.
George Tong
Hi, thanks. Good morning or good afternoon. I’d also like to extend the thanks and congrats to Tony. Best wishes ahead.
Tony Bowen
Thank you. I appreciate it.
George Tong
Yes. So you mentioned that looking at the outlook, industry volumes, you’re expecting to be up 1%. Can you break that down into expectations for the Assisted and DIY categories, how fast you expect both of those to grow in 2025 tax season?
Tony Bowen
Yes. I mean, I don’t think our expectations for this upcoming season are different than what we would have thought over the last several years. Obviously, this most recent one was a little bit unusual because of the California extension causing some kind of rebound this most recent tax season.
But I think going into next year, we expect DIY to grow a little bit faster than assisted. I think that’s consistent with the longer-term trend. Overall industry growth of 1% probably means DIY growing a couple of percent, assisted slightly up. I think that’s been our mantra for a long time. And I think overall, you know, year to year you might have slight nuances. But over the longer term, that’s been the trend.
George Tong
Okay. Got it. That’s helpful. And then with respect to the goal to maintain market share, is that — how much of that is a reflection of overall tax volumes versus individually on assisted and DIY? In other words, would you expect to be gaining share in DIY? Is that the base case assumed in guidance? And is the guide — does the guidance also assume assisted market shares stable?
Tony Bowen
Yes, I think we start with we want to make sure we maintain overall share. And we want to make sure that we’re serving as many as many customers as the category is growing. And obviously, we did that in this most recent year. So that’s a starting place.
And then obviously, given the trends in our assisted business over the last few years, we know that that’s more of a headwind. And DIY has got a lot of tailwinds. So we know that wouldn’t be surprising. But as Jeff said, we’re making a lot of changes in focus in the assisted channel to try to get back to flat share. So that’s definitely the goal, but it’s current expectation overall share being flat across the tax category is the base expectation.
George Tong
Got it. That’s helpful. And just one more quick follow up on our initiatives to drive higher stable or higher market share in assisted. I know last year the trying to maintain market share was a big area of focus for assisted, and you’ve tried a number of initiatives. I guess how will the approach this year be different than last year? Given last year you had such a big focus on maintaining market share in assisted as well?
Tony Bowen
Yes, you’re exactly right. We did and we will for sure. I mean, last year, we were able to slow the decline among EITC filers. So we did see progress there. That’s good news, but it’s not enough. And some of the things I mentioned about converting more of the people who are choosing us and starting with us, it is really what is a big shift for this year.
And as I mentioned a couple of times already, George, I mean, when we look at the customer journey and the fact that they’re choosing us and they’re coming and they’re starting with us, the two big reasons that they didn’t finish last year had a lot to do with, they were new clients to block. They didn’t fully understand how the process was going to work. We didn’t do a good enough job communicating and welcoming them to the brand. And that’s a breakdown and execution.
So what the team has been working on is real changes to the client experience in the office. We think about before during and after-tax prep, and then specifically within into selling new clients on which we know is an extra area of emphasis.
George Tong
Very helpful. Thank you very much.
Jeff Jones
Thanks, George.
Operator
Alex Paris, Barrington Research.
Alex Paris
I’d like to add my congratulations to Tony. We’ll definitely miss you. And I just wanted to say to Tiffany, who I’m sure is listening, we look forward to working with you. So just to dive a little bit more into the fiscal 2025 guidance, you basically have revenue growth at 3%, EBITDA growth at 4%, and adjusted EPS growth at about 8%. So the first question is, what sort of assumption do you have for share repurchases in fiscal 2025?
Tony Bowen
Yes. I mean, we obviously we don’t share the specific number that we’re targeting, but obviously, we’ve assumed some share repurchase, which is obviously driving EPS benefit obviously. Some of the share repurchase we did even in ’24 gives us a benefit going into 25 as well.
But I think you should expect us to be on a trend that’s similar to what we’ve done the last several years. And obviously, we’re trying to be opportunistic and take advantage of volatility in the stock price. It naturally happens over time, but I think our approach will be very consistent with what you’ve seen in the last several years.
Alex Paris
Great. And then as seasonally refresh my memory, you do more of your share repurchase in the first half of the fiscal year?
Tony Bowen
That’s right. We typically come out of this call and have a focus on it. So in Q1 and into Q2, and we do that for a couple of reasons. One is we get a better EPS benefit that earlier we bite in the year. Secondly, we’re typically in blackout a lot of time during tax season. So for that reason, we tried to do most of it in the first half of the year.
It isn’t always the case. There have been years where we’ve done 10b5-1 programs that we’ve executed during tax season. We’ve done open market purchases coming out of tax season. So it’s not always the case, but generally, we tried to do it in the first half of the year.
Alex Paris
Great. Thank you. And then it’s regarding the long-term growth algorithm for fiscal 2025, you’re kind of at the low end of that revenue range, I assume there’s some conservatism built into that. The adjusted EBITDA is definitely growing, or EBITDA is growing faster than revenue. But I think you said it earlier and perhaps in response to your question, you have some not ERC numbers that are not going to repeat this year versus last year. Is that the entire explanation for the slightly lower EBITDA growth rate than I would expect But with all that said, I just want to be clear, I realize your guidance is above consensus.
Tony Bowen
Yes, the employee retention credit is about a $15 million impact. So I definitely push EBITDA quite a bit higher if it wasn’t for that that roll-off that we received in ’24. But regardless, as you said, we tried to set these numbers in a level we can achieve. And the fact that the top line is even if it’s a lower end of the range is still in the range.
Top end of the EBITDA number is over $1 billion on the guidance range, which is an incredible feat. Obviously, EPS has benefited from the much lower tax rate, which I talked about in the opening comments. In fact, we exceeded $4 even on an adjusted or a regular GAAP basis and EPS in ’24 and now guiding to a number that’s over $5, even if it’s benefited from tax rate is in the credit.
P&L nuances, if you will, but the trajectory remains the same, which is up and to the right.
Alex Paris
Even with that expected one-time $0.5 per share gain as a result of the tax benefit, the adjusted EPS guidance, excluding that benefit is still above consensus. I wanted to ask you about the that tax benefit. Is there a particular quarter that you expect that to hit or is that going to hit evenly over the four quarters?
Tony Bowen
No, it’ll hit in a particular quarter once we resolve the open audit and kind of the statutes expire. We’re not exactly sure which quarter that will be yet. Could be Q2 could be later in the year, but it will definitely happen, we believe, in the fiscal year, which is why we included in the guidance range.
Alex Paris
So will you answer that question? It’s unlikely in Q1, it’s going to be Q2 or later in the year?
Tony Bowen
Yes, it’s possible that we just we aren’t in complete control of when that’s going to happen, but it will happen by the end of the fiscal year.
Alex Paris
And then I think my last question for you is California. You got a little benefit in fiscal ’24 because of the extent of the extended deadline from April 15 to October 15 as I recall. How much did that contribute to that extra bolus of revenue from the California? Because I’m assuming you got two boluses of revenue from California last fall and then this spring. What’s the grow over for fiscal 2025 because of that?
Tony Bowen
Yes. I mean, maybe the way to think about it is how much it drove the industry volume. And as you saw, the assisted category was probably up about a point more because of that California extension in the prior year. So you think that’s driving a point of volume.
But obviously not all of that is that doesn’t equal a point of revenue. So it’s probably 75% of that from a revenue perspective. So three-quarters of 1 point of revenue, about 1 point of industry, the tax prep volume.
Alex Paris
Great. Super helpful, guys.
Jeff Jones
Thanks again.
Operator
Thank you. I would now like to turn the conference back to Michaella Gallina for closing remarks.
Michaella Gallina
Thanks, everyone, for joining us. We’ll look forward to speaking with next quarter.
Operator
And this concludes today’s conference call. Thank you for participating. You may now disconnect.
