H&R Block, Inc. Price & Performance (HRB)

For a description of these risks and uncertainties, please see H and R Block's H&R report on Form 10 ks and quarterly reports on Form 10 Q as updated periodically with our other SEC filings. Please note, some metrics we'll discuss today H&R are presented on a non GAAP basis.

We H&R 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 February 4 H&R, 2025. H and 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'll now turn it over to Jeff.

Thank you, Colby. Good afternoon, everyone, and thanks for joining us. I'll kick us off today with a recap of our results from the second quarter, provide an update on the progress we continue to make across each of our Block Horizon strategic imperatives and then share more on the plans we are executing this tax season. Tiffany will then discuss our financials including the ongoing strength of our capital allocation practices. Starting with our performance, the first half of the year was in line with our expectations. Overall, we are well prepared to deliver in the second half of the fiscal year and I'm pleased to reaffirm our fiscal twenty twenty five outlook. In the second quarter H&R, we successfully wrapped up the extension season and we're pleased to see continued strength in various aspects of our business including small business services. Total revenue however was flat year over year due to lower Emerald Advanced volume. From a capital allocation perspective, we continued our disciplined practices highlighted by our share repurchase program. Buying back another $190,000,000 in the quarter and bringing our total repurchases for the year to nearly 5% of the float. Now let's turn to our Block Horizon strategic imperatives.

Starting with small business, Assisted small business tax performed well again this quarter. Delivering strong revenue growth In DIY, we continue to improve the appeal of small business SKU, Last season, we launched new custom experiences for clients tailored to their occupation, which drove a seven point increase in conversion. This year, we have increased the number of custom experiences from five to 20.

We also continue to see favorable trends in bookkeeping and payroll which altogether delivered double digit revenue growth year over year. At WAVE, our key priorities of and driving profitability remain unchanged. To that end, I'm pleased that we achieved revenue growth of 15% in the H&R. Monetization trends are positive as we continue to see strong adoption of our high margin subscription H&R, H&R Tier and Receipts, We continue to focus on doing what is right for the small business owner. And I feel good about the changes we are implementing to better serve them. Overall, I'm pleased with our small business performance and remain excited about the continued growth opportunities ahead. Turning to Financial H&R, we continue to provide clients with options to help them simplify their financial lives and look for ways to enhance their overall financial health. Last month, we were pleased to raise the maximum amount of our refund advance loan allowing filers to apply for a loan of up to $4,000 making it one of the largest no interest, no fee refund advance loan among national brands.

Spruce, our mobile banking H&R, continues to deliver on its mission to help people be better with money. Users and engagement have both grown at a healthy rate. As of December 31, we had 491,000 total sign ups, a 55% increase compared to the prior year and customer deposits In fact, more than half of the deposits over the past year came from non tax sources demonstrating the year round engagement clients have with Spruce H&R. Recently, we introduced the H&R tax refund feature that allows clients to automatically commit their tax refund to savings at the time of deposit. Clients can choose to set aside a portion of their refund to a specific savings goal or simply as extra savings And as we've done for the past two years, by electing to deposit their federal tax refund into their Spruce account, clients can get access to H&R refund up to five days early. You'll also recall that last year we introduced a high yield savings rate for Spruce clients to earn interest on their savings accounts.

Despite the FDIC national savings H&R, averaging just 42 basis points, Spruce continues to offer 3.5% H&R, with no minimum balance requirements or monthly fees.

We believe this is a very strong competitive advantage compared to others in the Now let's move on to our third strategic imperative, Block H&R. Which is all about blending digital tools with human expertise and care.

There's a reason why millions of taxpayers switched to H and R Block last year. We combine our innovative technology with human help to empower clients to get their maximum refund at tax time our pricing is transparent without the additional or hidden fees others may charge.

Our teams have been hard at work making data driven improvements for this and we're well positioned to serve clients however they want to be served. Fully virtual to fully in person and every way in between.

As we celebrate our seventieth anniversary this year, we remain committed to our purpose of providing help H&R inspiring confidence in our clients and communities everywhere. In the DIY category H&R, we continue to make significant improvements to the user H&R. Ensuring a smoother journey from start to finish.

For new clients, we've further simplified the onboarding process to help them easily select a product that fits their needs giving them confidence in their tax outcome. We've also continued to improve the speed of our import capabilities And switching to H and R Block from other competitors is now easier than ever. Taking less than two minutes. A key focus for us this year has been the enhancement of our GenAI powered AI Tax Assist tool which is a strong competitive differentiator. We have significantly expanded its coverage across a broader range of tax topics to deliver higher confidence and improved outcomes for our clients. Importantly, we've seen greater conversion among new clients who leverage AI Tax Assist.

The tool is designed to understand and respond to complex tax scenarios with greater precision offering personalized guidance throughout the filing process. We have also integrated advanced natural language processing capabilities to better understand and address client queries making the experience more intuitive and user friendly, Once again, AI Tax Assist will be offered free of charge in all DIY paid SKUs, giving consumers unlimited access to the tool as well as our tax professionals H&R our clients receive the DIY clients also have the option for one of our to double check their completed return. Along with source documents and file on their behalf through our Tax Pro review product which has grown double digits annually for nearly a decade. This further demonstrates clients' desire for human help and underscores the product's distinct value.

Our marketing is aggressively promoting the product enhancements we've made this season and we're continuing to emphasize the ease of switching and unlimited access to expert help H&R also introducing testimonials for clients who have switched to H and R Block and are more satisfied than they were with other brands.

Finally, we continue to work closely with the IRS to combat taxpayer identity H&R. This is an industry challenge and we are committed to doing the right thing which is at the core of being a trusted brand.

Overall, I'm excited about the plans we H&R executing in DIY and the progress we're making in this category. In assisted, we continue to provide our clients with transparent pricing the ability to file however they choose and genuine care and personalized advice from our expert tax pros who on average have been with our brand for ten years.

This deep experience and continuity underscore the trust and reliability we offer. And clients can feel confident Our strong local value proposition is amplified by our extensive retail footprint with nearly 9,000 H and R Block H&R offices conveniently located within five miles of most Americans H&R, This accessibility ensures that clients can easily find and visit our office is for in person support or access the same expertise virtually. Furthermore, assisted clients can get their taxes done on the same day most in as little as one hour making our services both accessible and convenient To capitalize on these strengths, we H&R increasing our local marketing to help ensure consumers understand this value. This season, enhancing the experience for new clients is a top priority as we look to improve conversion with those who are coming to H and R Block. We H&R committed to optimizing and elevating the new client experience by reengineering how we introduce clients to our H&R. Our approach is designed to quickly and deeply understand our clients and their tax situations while clearly setting and managing expectations throughout the process. By providing clear guidance and communication from the onset, new clients will feel informed and confident about what to expect at each stage of the H&R.

Making them more likely to file their return with H and R Block.

We have also made significant enhancements to our tax Pro matching algorithm to better pair clients with the tax professional best suited to their specific needs. This personalized matching process benefits both clients and tax professionals ensuring the clients receive the most relevant expertise and support tailored to their unique circumstances. These strategic improvements focused on personalized interactions clear expectation management, and expert tax pro matching capabilities [indiscernible] designed to enhance client satisfaction and drive higher conversion rates. Ultimately, our goal is to deliver a superior tailored experience that instills confidence in our services improves conversion and importantly provides compelling value for clients to return year after year. For those who believe the cost of we are taking price out of the equation. New clients can take advantage of our price match guarantee which matches the price an individual paid to their previous tax preparer up to 50% off H and R Block's price.

This offer is designed to make our professional tax assistance more accessible ensuring that a greater number of individuals can experience the value and expertise that we H&R. Another way we're demonstrating the value we deliver is through our second look service. In which we review the last three years of a new client's tax returns to ensure they didn't leave any refund dollars on the table. We're proud to offer this service to clients completely free and believe this represents a competitive advantage for us. Second Look along with H&R match guarantee, and the stronger refund advance offer I discussed earlier, are being aggressively marketed across all channels as we look to attract new clients to our brand. In addition to our efforts around new clients, we've also rolled out several enhanced features within Myblock, H and R Block's digital front door to improve nearly every aspect of the user H&R, Beyond uploading and storing tax documents, starting a DIY return, interacting with a tax professional, and reviewing, approving and paying for a tax return returning clients will now have a tailored start screen providing information on their tax professional and upcoming appointments. And all clients will see an outcome reveal screen helping them understand their tax outcome and giving them further confidence in our expertise.

In summary, we H&R well positioned to deliver this tax season and in the second half of the fiscal H&R. With that, I will now pass it over to Tiffany to share more about our financial results. Thank you, Jeff, and good afternoon, everyone. Having been at H and R Block for six months now, I've had time to dig deeper and develop a greater understanding of the business and our financial This has only confirmed what I believe to be true when I joined.

H and R Block is a great company. With an amazing purpose outstanding people, and strong financial profile.

H and R Block's investment thesis which includes a resilient business strong financial fundamentals, consistent cash flow generation a shareholder friendly capital return practice is what initially drew me to the company. This has been reinforced through my experience over the last several months. Let me share with you the key components. First, we operate in a very stable H&R. Our business model is tied to essential tax preparation services. An annual need for millions of consumers and small businesses. The consumer tax industry has grown at a 1% CAGR for many decades. It is steadfast and resilient this is reflected in our performance. Second, we have scale on our side. With nearly 9,000 company and franchise office across the country, 60,000 expert tax H&R, a robust DIY offering as well as strong brand recognition with a name that has been trusted for seventy years H&R. We have made strategic investments in our Block Horizons imperatives which includes financial and small business services. And are leading into our digital transformation and AI advancements. Paving the way for consistent performance and sustainable growth. Third, our financial profile is compelling. We deliver healthy margins have generated over $650,000,000 of free cash flow in each of the last three years.

Our balance sheet is H&R, providing liquidity to meet our seasonal needs. While maintaining an investment grade credit rating. And our disciplined capital allocation priorities have been consistently applied over the years as we balance investments in the business growth in the dividend and returning excess cash to shareholders H&R, through share repurchases. In short, our investment thesis is compelling and I have confidence in our ability to continue driving significant value for our shareholders H&R. Now let's turn to our financial results for the second quarter H&R. As a reminder, Q2 represents For the quarter, we delivered total revenue of $179,000,000 which was flat to the prior year Increases in revenue from WAVE and international tax preparation were offset by lower interest and fee income on Emerald Advance due to a decrease in loan volume. Total operating expenses were $472,000,000 an increase of 6% primarily due to higher tax professional and corporate wages, increased healthcare costs and increase in occupancy costs and the timing of marketing expenses versus the prior year. These increases were expected and have been contemplated in our outlook for the year. Interest expense was $22,000,000 flat to last year.

As a reminder, given the seasonality of our business, we typically operate at a loss in the first two quarters of our fiscal year. Our pre tax loss in the second quarter was $312,000,000 compared to $283,000,000 in the prior year.

And our effective tax rate was 22.4% compared to 33.1% last year.

The EBITDA loss was $261,000,000 compared to an EBITDA loss of $231,000,000 last year. And the loss per share from continuing operations was $1.79 compared to $1.33 last year.

While adjusted loss per share from continuing operations was $1.73 compared to $1.27 last year.

Due to a higher net loss and fewer shares outstanding as a result of share repurchases. You'll recall in quarters with the loss, fewer shares outstanding increased the loss per share but are accretive as we generate earnings for the full year. Our performance in the first half of the fiscal year was in line with our expectations.

And we believe we are well positioned to deliver strong results this tax season. As a result, we are reaffirming our fiscal twenty twenty five outlook.

Which was provided in today's earnings release.

For the full fiscal year, we continue to expect revenue to be in the range of $3,690,000,000 to $3,750,000,000 EBITDA to be in the range of $975,000,000 to $1,020,000,000 the effective tax rate to be approximately 13% which is lower than historical levels due to the closure of various matters under examination and the expiration of certain statutes of limitation, and adjusted diluted earnings per share to be in the range of $5.15 to $5.35 The lower effective tax rate is expected to provide a one time benefit of H&R From a capital allocation perspective, our strong practices have yielded meaningful results. In Q2, we repurchased a total of 3,200,000.0 shares for $190,000,000 at an average price of $58.65 This brings our first half total share repurchases to $400,000,000 or about 5% of our float.

This is a great use of capital and I am pleased about what we have accomplished.

As a reminder, given our narrow trading windows during tax season, we have historically executed our share repurchases in the first half of the year. With that, I'll now turn the call back over to Jeff for closing remarks. Thank you, Tiffany.

Before wrapping up the call, I want to acknowledge the devastating wildfires in the State of California H&R. Our thoughts are with everyone who's been affected including our associates, clients and the broader community, We are steadfast in our commitment to providing aid and fostering hope during these difficult times. As the IRS has extended the tax filing deadline for those impacted, we remain well prepared and equipped to serve them this season. In closing, I'm pleased with our performance from the first half of the year and confident in our ability to drive value for shareholders through our business results and capital allocation H&R. I'm grateful to our franchisees tax professionals and associates for the tremendous work they have done in getting us ready for this tax season.

As a reminder, we will provide a full update on the tax season during our Q3 call in early May. Now operator, we will open the line for questions. Our first question comes from the line of Kartik Mehta of Northcoast Research. Hey, Jeff. Hey, Tiffany. Jeff, I know it's early, way early for the tax season, but I'd be interested just get your perspective on total volumes for the industry, how you think they're trending and maybe how block is faring so far?

Hey, Kartik, thanks for the question.

Yes, obviously, we're just getting started with e File opening last week and we still are anticipating a normal year, which as we know is back to 1% volume H&R. That's in line with the historical trends. And we still see DIY growing slightly faster than assisted in the industry.

The one big news this year in the industry is [indiscernible] We don't have any incremental volume contemplated in our outlook, but our teams have developed the plans and are ready to execute I think it will be a year of good learning. Millions of people are going to receive these documents H&R [indiscernible] And we know in the coming H&R, those thresholds are going to continue to lower. So that remains on the horizon But right now, I feel very good to see our H&R start to come to life in the market both the changes we've made to product experience and our marketing campaign. So So all the business is still ahead of us. And Jeff, just as a follow-up, are you seeing any difference in competition this year either on the assistant side or DIY side?

Well, I think we've all seen what Intuit has done and has tried to do in the assisted business in particular. And I think we understand pretty well what drives dissatisfaction with their consumers and that's largely been the basis for our plans in both assisted and DIY But I would say that's probably the biggest news that has been news now for a couple of years is they recognize the value in the assisted business and are taking steps to make moves there.

And just one final one, H&R are you changing any of your marketing strategies as a result of the competition?

Well, we obviously always pay attention to competition, but as we're developing our marketing plans we don't know what competition is going to do obviously. So we're really focused on what do we know the consumer needs, what do we think our strengths are, And this year, the moves we have made in terms of things like our price match guarantee for new clients, increasing our refund advance, second look, which is an incredibly valuable product for consumers. We've made that very easy for our tax pros to execute. Those are three new things this year that are really designed to demonstrate the value that we deliver.

Perfect. Thank you so much. Thanks. Thank you. Our next question comes from the line of George Tong of Goldman Sachs.

Please go ahead, George.

As you start to enter this tax season, can you talk about what you're seeing from the government specifically from the IRS, both positive and negative that could impact the industry Hey, George. H&R listen, obviously, there's change underway as the administration comes in. We're waiting for final appointment of an IRS Commissioner We've been through that many times with administrations They appoint an interim, they announce a new H&R of the IRS. We expect that to come. Incoming Treasury Secretary Besson has committed to direct file remaining operational this tax season So we're not aware of any changes coming H&R. And as we've said all along, we've not seen any impact from direct file given how many companies including us already offer free tax H&R. But we've been through many, many, many And I think we have learned that you don't try to predict what will happen and you are ready for any changes that come because changes come every single year then we operationalize those to serve our clients and that's obviously what we're doing this season as well. Got it.

That makes sense. And then with respect to competition, if you look at independents, can you talk about what you're seeing from independents competitively and how H and R H&R price point for this year compares with what you're seeing from independents.

Yes, great question. And obviously, the label independents covers a wide swath of very, very different kinds of organizations. From the mom and pop to the regionals and the sophisticated CPA shops. So from a pricing standpoint, we have never tried to be the lowest price provider. That remains true. We know if someone only cares about price, they will find an independent somewhere who will who will do that for them. I think one of the big moves we've made this year is just to continue to demonstrate our local expertise the ease of use, completely reimagined the assisted tax experience in the office H&R the size of our refund advance, added second look And we know that combination of offering, H&R simply not things that independents offer. And so I feel good about our value H&R. But again recognizing there are many types of independents in the market.

Very helpful. Thank you. Thanks, George H&R. Thank you. Our next question comes from the line of Alex Paris of Barrington Research. Your line is open, Alex.

Hi, guys. Thanks for taking my questions. I have a few cats and dogs here. First off, on October, you had said that you have no incremental volume contemplated in your outlook.

Is it a potential H&R to results this year? It could be significant. I think they've reduced the threshold from $20,000 to $5,000 for the gig economy. Is that right?

Yes, that's exactly right. Both we haven't contemplated it.

It could represent upside and that is the threshold this year and that threshold is going to go down to $600 if things remain true over the next two years. That's all right.

All H&R. Great. And then your comments with regard to direct file. You said H&R of Treasury Besson has committed to it for this tax filing season. But I I saw I think we all saw Elon Musk yesterday say that they have deleted the 18F agency. What does he what is the 18F agency?

Well, I certainly can't speak for how the IRS builds H&R products other than to know that they had a third party organization who was responsible for building direct file That's all I can say about them. I don't don't know them personally. And listen, there are many things that are under a foot in changes [indiscernible] counter headlines that direct file is still up and running this year, right? So I think what's most important for us is we just stay focused on doing what we do in serving our clients and I can assure you that's the focus of the company.

And again, this is free. You have a free offering. There's 30 other preparers that have free offerings. And sort of worst case scenario, I think you lose some some free volume to direct file. Is that the right way to think about it? Yes. I mean, I think as we've assessed it over time, there is H&R is volume that counts as market share. That delivers no financial value to the company. And so it is possible although we compete for those three clients obviously, it is possible that we could lose a client that counts in H&R share, but doesn't deliver any financial value. That is conceptually true. But again, we feel very good about the millions of H&R fires we served last year and continuing to offer that product. Great. And then just a couple of last little ones. What are the pricing plans for assisted and DIY this year? In general, you can speak to them together or separately. Yes. I will break them apart. I mean, in the assisted business, our pricing strategy has really remained consistent and that's low single digit price increase remembering that delivering transparent pricing is incredibly important and now layering in for new clients the price match guarantee So that's a value prop in the assisted business In DIY, it's a more dynamic business.

Our pricing is more dynamic. There's both base SKU pricing and attach H&R. We have been increasing our prices there as you know. But we also are still maintaining a price advantage relative to TurboTax and that's still consistent for our strategy for this year. Okay.

And [indiscernible] you increased its size to 4,000 or up to 4,000. What was it last year? 3,500 H&R. We had not increased that maxed H&R in a while. And you've kept it H&R, no interest rate or no fees? That's H&R, which is quite differentiated, but particularly among independents.

Okay.

And then the last one is, and I don't want to beat it at horse over, but Emerald Advanced, it's a small percentage of full year revenue. But what would you attribute the weakness interest and fee revenue in that line. And why? Yes, yes. And I'll start and if Tiffany wants that in, she can. But obviously, this is a partnership with Pathword and this H&R Advanced season didn't end that long ago. So we're still really evaluating our H&R. And I would say two things that we're digging into. One is as we continually try to balance approval rates with repayment rates getting that mix right So we're approving client supply, but we don't have the bad debt situation we had last year. And we tightened the underwriting guidelines for this year. So got to evaluate that decision and anything to learn from it. And then second, is we also are looking at we want to attract people top of funnel. But we want to attract well qualified prospects to the top of the funnel. And so we'll continue to dig into could we have done anything different and how do we apply that for next year This is a good product for its customers.

And so we feel good about that core offering, but balancing prospects with underwriting and repayment We're just trying to get that as right as we can as we go forward. That's great. Thank you so much. I'll get back into the queue.

All right. Thank you.

Thank you. Our next question comes from the line of Scott Schneeberger of Oppenheimer and Company. Thanks. Good afternoon. Just following up on that last one, Jeff.

In your evaluation of VETMOLVEDVANCE, is it something that you feel competitively differentiates H&R perhaps not and maybe it's something that you may not discontinue in future seasons? Yes. I mean, listen, Scott, we don't H&R not evaluating discontinuing the product. We see value in the product for the clients serves You may recall last H&R, we relaunched a wholesale new H&R. And in year one of that new product, we saw great loan volume growth but we also saw bad debt growth. And so this year, we have managed that better. So H&R definitely evaluating how do we improve it both in terms of attracting prospects and delivering the right approval rates with our bank H&R, but we have no plans that we're evaluating to discontinue it. [indiscernible] Switching gears on DIY, it was pretty well telegraphed that your larger competitor was going to add a tier this year and they in fact did you all did not But could you just kind of speak to the difference of kind of the tier levels what a customer of H and R Block versus what a customer of TurboTax gets on each of these basic H&R? Do you essentially offer that in a different shape or fashion?

I guess is what I'm getting at. Just how you differentiate the new standard versus your offerings? Thanks. Yes. Scott, obviously, that's an enormously detailed question of what's covered by SKU, us versus competition, I guess I would just summarize it by saying, we have to look at our base SKU lineup form H&R, pricing and attach of things like [indiscernible] And when you put all that together, we feel good about our core lineup of how we deliver value at the price point And we continue to maintain a price advantage And as you've seen us do, we'll continue to exploit things like transparency H&R pricing and not being constantly upsold once you're in the experience things that we know are real pain points for their customers and things that we don't do. [indiscernible] A couple more from me, Jeff. On your marketing campaign this year, summarize it for us and if you want to differentiate it on category that's fine. But just a summary of your approach to market this H&R, in that campaign and timing and H&R or decrease we can see what it is in the first quarter, but for the full year, what we should expect out of the marketing spend?

Thanks. Okay. See if I can hit all those. Spend no real meaningful change, all contemplated in our outlook. Timing earlier than last H&R, but not as early as we saw competition do obviously starting last fall.

And if I summarize the campaign, I would say a few things. I mean, we H&R leaning in to the promise that it's better with block. We are increasingly skewing into digital channels with more personalized experiences We have vetted really specific competitive claims and have received great consumer feedback and testing about those claims. And we're leaning into being really direct. What second look delivers, what a bigger refund advance offers, Those kind of things that we know our competition is trying to lean into and we've got really strong claims instead. And so you'll see us in television in e mail, in all digital channels, lean into those claims very strongly. H&R. Thanks. And lastly, I don't think there's much magnitude, but you highlighted H and R Block did and its did in a release in early January things to know for the tax season in 2025.

The maximum additional child tax credit increasing to $1,700 per qualifying child. That shouldn't have any magnitude.

Do you anticipate that change? That seems pretty standard year to year. But just curious if you think that that could have an impact Scott, you cut off at the beginning of your question, but at the end, I think I heard you. And yes, I would consider that to be a customary year over year kind of change in the tax code that we don't expect to have any material impact on performance.

Thanks. Perfect. Jeff, that was the question. Thanks so much.

Okay.

Thank you. I would now like to turn the conference back to Kobe Brown for closing remarks. [indiscernible] Thank you, Latif, and thanks H&R for joining us today. This concludes our second quarter fiscal twenty twenty five financial results conference call H&R.