NYSE:HRB H&R Block Q4 2023 Earnings Report $61.67 +0.47 (+0.76%) Closing price 03:59 PM EasternExtended Trading$62.98 +1.31 (+2.13%) As of 07:36 PM Eastern Extended trading is trading that happens on electronic markets outside of regular trading hours. This is a fair market value extended hours price provided by Polygon.io. Learn more. Earnings HistoryForecast H&R Block EPS ResultsActual EPS$2.05Consensus EPS $1.88Beat/MissBeat by +$0.17One Year Ago EPS$1.43H&R Block Revenue ResultsActual Revenue$1.03 billionExpected Revenue$1.01 billionBeat/MissBeat by +$19.37 millionYoY Revenue Growth-1.70%H&R Block Announcement DetailsQuarterQ4 2023Date8/15/2023TimeAfter Market ClosesConference Call DateTuesday, August 15, 2023Conference Call Time4:30PM ETUpcoming EarningsH&R Block's Q4 2025 earnings is scheduled for Wednesday, May 7, 2025Conference Call ResourcesConference Call AudioConference Call TranscriptSlide DeckPress Release (8-K)Annual Report (10-K)Earnings HistoryCompany ProfileSlide DeckFull Screen Slide DeckPowered by H&R Block Q4 2023 Earnings Call TranscriptProvided by QuartrAugust 15, 2023 ShareLink copied to clipboard.There are 7 speakers on the call. Operator00:00:00Thank you for standing by, and welcome to H and R Block's Full Year 2023 Financial Results Conference Call. At this time, all participants are in a listen only mode. After the speaker presentation, there will be a question and answer press star 11 again. I would now like to hand the call over to Michaella Galena, Vice President, Investor Relations. Please go ahead. Speaker 100:00:33Thank you, Latif. Good afternoon, everyone, and welcome to H and R Block's full year fiscal 2023 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, which can be downloaded or viewed live on our website at investors. Hroblock.com. Speaker 100:00:56Our 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 And uncertainties, please see H and R Block's annual 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 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, 2023. Speaker 100:01:50H 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 will now turn it over to Jeff. Speaker 200:02:01Thanks, Michaella. Today, we'll provide an update on our fiscal year 'twenty three results. Then I'll share more on the progress we continue to make within our block horizon strategy, provide initial thoughts on fiscal year 2024, and Tony will discuss our financial performance and outlook in more detail. Starting with 2023 results. We had a good finish to the year and delivered revenue growth, material EBITDA growth and adjusted EPS growth of 9%. Speaker 200:02:33As we discussed at the beginning of the year, we knew we were facing headwinds due to the rollback of the advanced child tax credit payments that were loaded onto the Emerald card. During the year, we also had foreign exchange impacts, stimulus filers that returned to the sidelines and California's deadline extension. Overall, I'm pleased with the results we produced despite these challenges. Our DIY strategy delivered this year, resulting in meaningful share gains. We demonstrated pricing power in the assisted channel and saw positive customer satisfaction metrics. Speaker 200:03:11Small Business Tax continued to be a growth driver, and we also added about 150,000 new sign ups to our Spruce Mobile Banking platform. In addition, our capital allocation story is driving ongoing value for shareholders. We completed another $200,000,000 of share repurchases in Q4 alone and today announced a 10% increase to the dividend. Entering fiscal year 'twenty four, we are well positioned and expect a return to ordinary industry growth, which Tony will discuss in more detail later in the call. Before that, let me share more about our Block Horizon's progress. Speaker 200:03:54Let's start with our small business imperative that includes tax and WAVE. Small Business Assisted Tax continues to be a growth driver. This business delivered 6% revenue growth for the fiscal year on top of strong growth last year, led by net average charge, or NAST, which grew 5%. We also see a nice runway of longer term opportunities in services. While early, bookkeeping and payroll are gaining traction. Speaker 200:04:24In this year, we launched a business formation tool. Our new internal sales team more than doubled appointment to sale conversion rates, accelerating growth in services. All in all, we are pleased with the trends in small business and continue to see significant opportunity ahead. Turning to Wave. Our top priorities are driving revenue growth and improving profitability. Speaker 200:04:51For the full year, revenue increased 12%. In the Q4, we grew average revenue per user, while also becoming more efficient with our customer acquisition spend. We also launched a new feature for receipt processing that scans and imports data in seconds, reducing manual bookkeeping. Its uptake has been faster than anticipated, and we are now working on a robust road map of other new features to roll out in the coming months. Moving on to our financial products imperative. Speaker 200:05:26Regarding Spruce, our mobile banking platform, we've been utilizing learnings from its 1st year in the assisted channel to address and solve the needs of our clients. Since launch through June 30, we have added 300,000 sign ups and $334,000,000 in customer deposits. Spruce is committed to helping customers be good with money, and we're seeing progress toward that impact goal. A higher percentage of users are now saving money, and the balances accumulating in savings accounts continues to grow. These savings accounts allow users to customize goals in order to save for the things they want in their lives, whether it be emergency savings or a new car. Speaker 200:06:10Our newest feature, a budget watch list, utilizes flexible guardrails to help build healthy spending habits. Feedback from users indicate that these tools give them the visibility and control that they've been missing in their financial lives. From here, we are focused on acquiring clients both in and out of the tax season. Now let's turn to block experience, which is all about blending digital tools with human expertise to serve clients however they want to be served, fully virtual to fully in person and everything in between. In DIY, we delivered on what we set out to do and we were especially pleased with the results. Speaker 200:06:55As you recall, our goal was to return to share growth by increasing awareness that we offer a DIY product, by improving the product and by making it easier to switch from TurboTax. This multifaceted strategy worked. And as we reported last quarter, We saw online client growth of 2.5% through April 30 35 basis points of share growth. We are looking forward to continuing this momentum in fiscal 2024. In assisted through April 30, We successfully increased company NAC by 4% while receiving strong customer satisfaction metrics. Speaker 200:07:35We also attracted higher income clients and saw over 10% growth in those with more than $100,000 of income. And as we shared last quarter, We continue to see progress in the adoption of virtual tools. Although we saw stimulus filers return to the sidelines, The data shows that dynamic is now behind us, and we're focused on bringing more new clients into the assisted channel next year. As you may have seen from our recent announcement, we entered into an industry leading partnership with Microsoft to leverage its Azure OpenAI Services in leading GenAI technology to fuel faster and better experiences for taxpayers. While we have been building in house capabilities for some time, we believe we can further accelerate our progress by leveraging the most advanced AI models in the world, while continuing to keep data security a top priority. Speaker 200:08:35We will initially be focused on 2 areas: 1st, using GenAI to reduce expenses and increase productivity and second, to deliver enhanced customer experiences. We have dedicated teams working on these efforts, and we are excited about the possibilities for H and R Block. Looking back over the last few years, we've made significant strides in our products, services and features within our block horizon strategy, and we're looking forward to what lies ahead. Now let me turn it over to Tony to discuss our financials and outlook. Speaker 300:09:12Thanks, Jeff. Good afternoon, everyone. Today, I'll review results for fiscal year 'twenty three, provide detail on our outlook and share more on our strong capital allocation practice. We delivered nearly $3,500,000,000 of revenue, an increase of $9,000,000 over last year. The increase was due to higher U. Speaker 300:09:31S. Assisted tax preparation revenues, partially offset by a decrease in Emerald Card revenues. As a reminder, the impact from the Emerald card was over $30,000,000 due to the rollback of the advanced child tax credit. We also had a negative foreign exchange impact of $19,000,000 Given these variables, I'm pleased that we're able to grow the top line this year. Total operating expenses were $2,700,000,000 an increase of approximately $5,000,000 primarily driven by higher field wages and partially offset by lower consulting and outsourced services. Speaker 300:10:06We saw about $5,000,000 of savings from our footprint partially offset by higher interest expense on our line of credit due to higher interest rates and higher draws. Other income increased $33,000,000 primarily due to higher interest income. As we've discussed, higher interest rates were a net benefit given Cash position throughout the year. Pretax income was $711,000,000 an increase of $52,000,000 or about 8%. Earnings per share from continuing operations increased from $3.26 to 3 $0.56 and adjusted earnings per share from continuing operations increased from $3.51 to $3.82 or 9%. Speaker 300:11:07This is meaningful growth despite the aforementioned headwinds as well as our effective tax rate increasing from 15% to 21%. Lastly, we acquired just over 200 franchise locations in 2023. We feel great about franchisees' willingness to sell to us and are pleased with how this opportunity supports our longer term revenue growth. As you can clearly see in our results, our capital allocation story remains strong. We completed another $200,000,000 of share repurchases in the 4th quarter at an average price of $30.94 after already completing $350,000,000 repurchases in the first half of the year. Speaker 300:11:47In fiscal year 'twenty three, we retired 9% of shares outstanding at an average price of $37.59 Over the last 5 years, we have reduced shares outstanding from $355,000,000 or approximately 32 percent afloat. We continue to believe share repurchase is a great use of capital. As Jeff mentioned earlier, today we also announced a 10% increase to the dividend. Over the last 5 years, we've increased the dividend by about 30%. What is great about the capital allocation approach is that despite increasing the dividend, the total dollars paid has been decreasing because we have acquired so many shares, which has created a nice flywheel. Speaker 300:12:32As we've consistently shared, we produce significant and stable cash flow, Our goal is to return 100% or more of free cash flow to shareholders annually. This year alone, we generated over $700,000,000 of free cash flow and returned a similar amount to shareholders. For fiscal year 'twenty three, our free cash flow yield calculated as free cash flow divided by market cap was over 16%, which is more than 3x the S and P 500. Now turning to our fiscal year 'twenty four outlook. First, let me share more about the assumptions we've made. Speaker 300:13:12We believe next year will return to typical industry growth of about 1%. This is in line with the historical average, and we do not foresee any industry dynamics that would change this assumption. Data shows that stimulus filers are now behind us. There are no major tax law changes anticipated, and employment has remained strong this year, which is usually correlated to filers in the next year. We are also assuming we maintain overall U. Speaker 300:13:38S. Tax market share, but our goal is always to increase share. We expect to continue to take low single digit pricing as we successfully executed in fiscal year 'twenty three. Our customer satisfaction scores specific to price for value have remained Additionally, we continue to see value in repurchasing franchise locations and remain committed to our capital allocation strategy with ongoing opportunistic share buybacks. As a result, our fiscal year 'twenty four outlook is for revenue to be in the range of $3,530,000,000 to $3,585,000,000 EBITDA to be in the range of $930,000,000 to $965,000,000 Our effective tax rate to be approximately 23% and adjusted earnings per share to be in the range of $4.10 to $4.30 In summary, we feel great about how we are positioned. Speaker 300:14:34With that, I will turn it back over to Jeff for some closing remarks. Speaker 200:14:38Thank you, Tony. As I reflect on the passing of another year, I'd like to thank our tax professionals, franchisees and associates who embody our purpose every day to provide help and inspire confidence in our clients and communities everywhere. I'm looking forward to all we will accomplish in the next year and sharing our results for the Q1 in November. Now, operator, we will open the line for questions. Operator00:15:29Our first question comes from the line of Kartik Mehta of Northcoast Research. Speaker 400:15:39Hey, Jeff. Hey, Tony. Jeff, I know you and Tony both said that you anticipate next year going back to kind of that normalized 1% Total growth for tax returns, I'm wondering, what do you anticipate in terms of assisted and DIY changes for growth. Speaker 200:16:00Hey, Kartik. Yes, I mean, when we work through our assumptions for the year, we always go through the normal What do we think about employment? What do we think about potential changes from the IRS? What do we see in trends by channel? And obviously, it hasn't been a normal year for a while, but as we look on the horizon and anticipate Employment has been strong. Speaker 200:16:25We've seen some general trends in the industry. We are not aware of any potential changes coming from the IRS. And really those are the things that we put together about what we see the industry doing next year. Do you want to add anything, Tony? Speaker 300:16:40Yes. I mean, your question about assisted versus DIY cardiac, I think we believe assisted is going to be fairly flat. Even though we had an unusual year in DIY this year, we think over the long term, DIY continues to grow a couple percent. So probably a slight migration from assisted to DIY. Speaker 400:17:02And then, Jeff or Tony, saying that, would it be sustainable? Speaker 300:17:21Yes, I can take it. I think it's Definitely sustainable. I mean, we talked about our adjusted EPS growing 9%. We raised the dividend 10%, so essentially in line. Obviously, it's a bigger dividend increase than we've been doing over the last few years, even though we've been increasing the dividend. Speaker 300:17:37I think All else being equal, we prefer to do share buybacks given the flexibility and advantage we can take when we see volatility in the stock price. But the fact that we can buy back shares, which is obviously reducing shares outstanding, and as I mentioned in my opening comments, we've actually been reducing Dividends paid in total amount. So even though we've been increasing the dividend and even this amount going up 10% this year, I think you'll see dividend dollars Being flat to even slightly down, which as I mentioned is creating that nice flywheel effect, which we think is very beneficial for shareholders. Perfect. Speaker 400:18:13Thank you. I appreciate it. Speaker 200:18:16Thanks, Kartik. Operator00:18:19Thank you. Please stand by for our next question. Our next question comes from the line of George Tong of Goldman Sachs. Speaker 500:18:29Hi, thanks. Good afternoon. I wanted to dive into some of your market share assumptions for next year. Can you talk a little bit about what you're assuming for share performance The assisted and DIY categories, and with the particular focus on the assisted side, this past year, you had lost Some share in the lower income category, what are some internal initiatives to help improve that performance? Thank you. Speaker 200:18:56George, great questions. Thank you. This is Jeff. I'll kick us off. Yes, I think the starting point is The clarity about what happened this year, we talked on the last call about the three reasons why we lost business in assisted this year. Speaker 200:19:13The low income filers, EITC in particular, being a real focus for the teams as we prepare for next year. In simple terms, we think we have to do a better job of communicating our value proposition earlier in the year when those consumers are Most in the market looking for their refunds. And I feel good as we sit here in August that the teams are very clear about what has to happen. In terms of looking to next year and our share expectations, as we said in our opening comments, We expect assisted share to be flat, but we're always trying to grow share in assisted. So it doesn't change our plans. Speaker 200:19:55It's And in DIY, we feel very good about the 3 pronged strategy that we took this year, And we anticipate being able to continue to improve our performance and take share again in DIY next year. Speaker 500:20:11Got it. That's helpful. And then, there are a number of moving parts in the broader tax prep industry, 2 of which are The IRS's Free File program and generative AI, can you talk about how internally if you're doing anything strategically to in response to these to the changing landscape and how you would assess the potential impact of these two developments in this space? Speaker 200:20:42Yes, yes, excellent again. So I mean, first of all, We're very excited about the opportunity with GenAI, and I want to start there. We talked a little bit in our prepared remarks about this, but We have dedicated teams who are absolutely leaning in, in building integrations. Given our partnership with Microsoft and OpenAI, those initial two use cases, 1 on the expense side, 1 on the customer experience side, Obviously, a lot more detail to share as we're ready to make those public specifically. The technology is generally well understood. Speaker 200:21:22The customer adoption is not. And so we're very excited To begin that learning journey by deploying 2 very specific use cases, we've identified a number of use cases. And so based on that learning, we see real opportunity for the business in various parts. More to come in detail, but I think the punch line is we're very excited about what it could mean both in cost savings and customer experience and teams are leaning in and moving fast to get ready for the year. On the IRS Free File option, in simple terms, We do not see it as a material threat to the business. Speaker 200:22:04We know that there's a real concern about the IRS's ability To ultimately market and support a product like this, the ultimate cost to taxpayers of what that would entail, And we've seen consumers make it clear that there really isn't a problem here. There are over 30 organizations, Tax prep companies and not for profits that are already offering free tax prep. And so we stand by those remarks and are very focused on building great experiences to continue to do what we do. And with respect to GenAI, Like I said, we're very excited about that opportunity. Speaker 500:22:45Got it. Thank you very much. Speaker 200:22:47Thanks, George. Operator00:22:50Thank you. Stand by for our next question. Our next question comes from the line of Scott Schneeberger of Oppenheimer and Company. Speaker 600:23:04Thank you. Good afternoon. For my first question, I want to touch upon the revenue guide for next year. Looks like it implies about 2% to 3% growth, which I think is a little bit lower than what to which you aspire longer term more in the mid single digits. So I guess the way I'll ask the question is, what do you see as the puts and takes, the headwinds, the tailwinds in this upcoming year, that have you a little lower. Speaker 600:23:35And the second part of this, and I probably, Tony, this is for you is On your Slide 17, you talk about the assumptions that go with the first 4 bullet points are all revenue related, industry growth, market share, low single digit pricing, ongoing franchise acquisition. Could you rank order those, so we get a sense of what are the bigger drivers of the revenue growth for next year? Thank you. Speaker 300:24:06Yes. Thanks, Scott. There's a lot in there, so I'll try to unpack it as I go through it. I mean, looking at 2024, You're right. I mean, our guidance is getting in the range that we've set from a long term perspective of 3% to 6%, But I think it's a little bit more moderated. Speaker 300:24:25There's not a specific headwind that we're looking at, Which is contrary to what we saw in 2023. As we talked about going into 2023, we expected the impact of the Emerald card related to the rollback of the child tax Credit and a number of other things, essentially being a headwind that we had to offset. Obviously, we had a very unusual tax season In 2023, we're overlapping that. We think it will return to normal, but obviously, we don't have a crystal ball either. So I feel like we've set the revenue outlook at a place that's achievable. Speaker 300:24:57We've also set EBITDA outlook at a place that's growing faster than revenue and essentially set EPS outlook at growing 10%. And I think all three of those combined, I feel really great about the outlook. And as we've talked about, to get to more the mid to higher end of the 3% to 6% revenue range, We have to have the imperatives delivering growth that we're still in the early innings of, whether that be from spruce, growing in services and small business, Doing things in block experience. But even without those, we have a business that's growing top line at a healthy level. We've got EBITDA growing faster and EPS growing, like I said, double digits, which is incredible on top of 9 And the one thing I said in the opening comments is, we're overlapping a pretty incredible tax rate change. Speaker 300:25:50I mean, we were about a 15% ETR in 'twenty And then in 2023, we went up to 21%, but to still show EPS growth of 9%, I feel really, really good about. As far as how do we stack rank these things, I don't think in my head, I have that completely clear. I think all of them are additive. I mean, it starts with having healthy client volume in both assisted and DIY. I mean, that's kind of the foundation. Speaker 300:26:18We then layer on pricing of low single digits as we've talked about. The franchise buybacks can drive a point of revenue growth. And then that's essentially the key drivers of revenue. There are some other smaller puts and takes, but those are the big ones. But then we're obviously managing our expenses in a way that we can grow EBITDA faster than revenue. Speaker 300:26:39And then obviously, the last driver getting to EPS Is executing the share repurchase that obviously we've been doing consistently. So that's how I think about it. I think there's a lot of moving parts. But like I said, at the end of the day, growing EPS double digits is a pretty incredible feat, and I feel good about it. Speaker 600:26:58Thanks, Tony. Good answer. You covered what I was looking for. As a follow on to that, What are you expecting for expense inflation? You're obviously guiding EBITDA growth faster than revenue growth. Speaker 600:27:16Just technology, labor, rent, overhead, marketing, Anything changing dramatically year over year there? And how are you thinking about the inflation year over year? And you mentioned pricing of low single digits. So just curious what the inflation assumption is on the cost side? Speaker 300:27:39Yes. We're definitely assuming inflation. I think it's a little more moderated versus what we had last year. As you know, Scott, our largest expense line item, which is tax pro labor, is essentially variable with revenues, so no direct inflation impact. But when you look at things Like full time wages of the broader team, we're seeing those moderate in costs relative to what they were running in a year ago. Speaker 300:28:04We're also seeing Less turnover and less people leaving, a little bit less competition in the broader labor market. I think in some buckets like Supplies and utilities, we'll continue to see costs go up, but I'm hopeful and we built into our plan at a more moderated rate and what we were running at last year. So I think you'll see inflation. I think it will be a little bit more moderated from what we saw last year. Obviously, we have to do things like think about what our bonus accrual is and other items as well. Speaker 300:28:34But overall, being able to grow Earnings faster than revenue is the ultimate goal and obviously we've guided to that this year. Speaker 600:28:44Thanks. And one more if I may, maybe getting Jeff involved here too. Really curious what you saw in the extension season, The impact of California, I know that we're not even up to that deadline yet, but just since we last heard from you on a public call, What have been the trends? I assume a little bit better than expected. You did a little bit better than your guide, but just want to Curious on your comments on this extension season versus last. Speaker 600:29:12Thank you. Speaker 200:29:13Yes. Thank you. I was feeling lonely, Scott. I appreciate that. Yes, I mean, we specifically to California in extension seasons, I mean, we know that extensions were down generally October 15. Speaker 200:29:36We are keeping additional offices open, to capture volume. But as Tony always reminds me, we're not Fully open everywhere. So we're doing what we can to balance the expense side and the revenue side, trying to capture our fair share and grow. But most importantly, I think the teams are focused on just preparing based on the learning for this year to get ready to compete for tax season 2024. Speaker 600:30:06Thanks very much. Speaker 200:30:08Thank you. Operator00:30:11Thank you. I would now like to turn the conference back to Michaella Galena for closing remarks. Madam? Speaker 100:30:19Thanks, Latif, and thanks, everyone, for joining us today. We look forward to speaking with you again next quarter.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallH&R Block Q4 202300:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsSlide DeckPress Release(8-K)Annual report(10-K) H&R Block Earnings HeadlinesH&R Block, Inc. (HRB) Q3 2025 Earnings Call TranscriptMay 7 at 11:31 PM | seekingalpha.comH&R Block (HRB) Sees Strong Q3 with Revenue and EPS GrowthMay 7 at 11:17 PM | gurufocus.comGold Hits New Highs as Global Markets SpiralWhen Trump took office in 2017, gold was just $1,100 an ounce. By the time he left, it had soared to $1,839. Now… as new tariffs take effect, gold is breaking records again. You've hopefully already seen this in action… but gold is surpassing $3,000 per ounce for the first time EVER.May 7, 2025 | Premier Gold Co (Ad)H&R Block shares rise as earnings top estimatesMay 7 at 8:44 PM | investing.comH&R Block’s (NYSE:HRB) Q1 Sales Beat EstimatesMay 7 at 8:44 PM | msn.comH&R Block Reports Fiscal 2025 Third Quarter ResultsMay 7 at 4:05 PM | globenewswire.comSee More H&R Block Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like H&R Block? Sign up for Earnings360's daily newsletter to receive timely earnings updates on H&R Block and other key companies, straight to your email. Email Address About H&R BlockH&R Block (NYSE:HRB) engages in the provision of tax return preparation solutions, financial products and small business solutions. The company was founded by Henry W. Bloch and Richard A. 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There are 7 speakers on the call. Operator00:00:00Thank you for standing by, and welcome to H and R Block's Full Year 2023 Financial Results Conference Call. At this time, all participants are in a listen only mode. After the speaker presentation, there will be a question and answer press star 11 again. I would now like to hand the call over to Michaella Galena, Vice President, Investor Relations. Please go ahead. Speaker 100:00:33Thank you, Latif. Good afternoon, everyone, and welcome to H and R Block's full year fiscal 2023 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, which can be downloaded or viewed live on our website at investors. Hroblock.com. Speaker 100:00:56Our 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 And uncertainties, please see H and R Block's annual 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 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, 2023. Speaker 100:01:50H 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 will now turn it over to Jeff. Speaker 200:02:01Thanks, Michaella. Today, we'll provide an update on our fiscal year 'twenty three results. Then I'll share more on the progress we continue to make within our block horizon strategy, provide initial thoughts on fiscal year 2024, and Tony will discuss our financial performance and outlook in more detail. Starting with 2023 results. We had a good finish to the year and delivered revenue growth, material EBITDA growth and adjusted EPS growth of 9%. Speaker 200:02:33As we discussed at the beginning of the year, we knew we were facing headwinds due to the rollback of the advanced child tax credit payments that were loaded onto the Emerald card. During the year, we also had foreign exchange impacts, stimulus filers that returned to the sidelines and California's deadline extension. Overall, I'm pleased with the results we produced despite these challenges. Our DIY strategy delivered this year, resulting in meaningful share gains. We demonstrated pricing power in the assisted channel and saw positive customer satisfaction metrics. Speaker 200:03:11Small Business Tax continued to be a growth driver, and we also added about 150,000 new sign ups to our Spruce Mobile Banking platform. In addition, our capital allocation story is driving ongoing value for shareholders. We completed another $200,000,000 of share repurchases in Q4 alone and today announced a 10% increase to the dividend. Entering fiscal year 'twenty four, we are well positioned and expect a return to ordinary industry growth, which Tony will discuss in more detail later in the call. Before that, let me share more about our Block Horizon's progress. Speaker 200:03:54Let's start with our small business imperative that includes tax and WAVE. Small Business Assisted Tax continues to be a growth driver. This business delivered 6% revenue growth for the fiscal year on top of strong growth last year, led by net average charge, or NAST, which grew 5%. We also see a nice runway of longer term opportunities in services. While early, bookkeeping and payroll are gaining traction. Speaker 200:04:24In this year, we launched a business formation tool. Our new internal sales team more than doubled appointment to sale conversion rates, accelerating growth in services. All in all, we are pleased with the trends in small business and continue to see significant opportunity ahead. Turning to Wave. Our top priorities are driving revenue growth and improving profitability. Speaker 200:04:51For the full year, revenue increased 12%. In the Q4, we grew average revenue per user, while also becoming more efficient with our customer acquisition spend. We also launched a new feature for receipt processing that scans and imports data in seconds, reducing manual bookkeeping. Its uptake has been faster than anticipated, and we are now working on a robust road map of other new features to roll out in the coming months. Moving on to our financial products imperative. Speaker 200:05:26Regarding Spruce, our mobile banking platform, we've been utilizing learnings from its 1st year in the assisted channel to address and solve the needs of our clients. Since launch through June 30, we have added 300,000 sign ups and $334,000,000 in customer deposits. Spruce is committed to helping customers be good with money, and we're seeing progress toward that impact goal. A higher percentage of users are now saving money, and the balances accumulating in savings accounts continues to grow. These savings accounts allow users to customize goals in order to save for the things they want in their lives, whether it be emergency savings or a new car. Speaker 200:06:10Our newest feature, a budget watch list, utilizes flexible guardrails to help build healthy spending habits. Feedback from users indicate that these tools give them the visibility and control that they've been missing in their financial lives. From here, we are focused on acquiring clients both in and out of the tax season. Now let's turn to block experience, which is all about blending digital tools with human expertise to serve clients however they want to be served, fully virtual to fully in person and everything in between. In DIY, we delivered on what we set out to do and we were especially pleased with the results. Speaker 200:06:55As you recall, our goal was to return to share growth by increasing awareness that we offer a DIY product, by improving the product and by making it easier to switch from TurboTax. This multifaceted strategy worked. And as we reported last quarter, We saw online client growth of 2.5% through April 30 35 basis points of share growth. We are looking forward to continuing this momentum in fiscal 2024. In assisted through April 30, We successfully increased company NAC by 4% while receiving strong customer satisfaction metrics. Speaker 200:07:35We also attracted higher income clients and saw over 10% growth in those with more than $100,000 of income. And as we shared last quarter, We continue to see progress in the adoption of virtual tools. Although we saw stimulus filers return to the sidelines, The data shows that dynamic is now behind us, and we're focused on bringing more new clients into the assisted channel next year. As you may have seen from our recent announcement, we entered into an industry leading partnership with Microsoft to leverage its Azure OpenAI Services in leading GenAI technology to fuel faster and better experiences for taxpayers. While we have been building in house capabilities for some time, we believe we can further accelerate our progress by leveraging the most advanced AI models in the world, while continuing to keep data security a top priority. Speaker 200:08:35We will initially be focused on 2 areas: 1st, using GenAI to reduce expenses and increase productivity and second, to deliver enhanced customer experiences. We have dedicated teams working on these efforts, and we are excited about the possibilities for H and R Block. Looking back over the last few years, we've made significant strides in our products, services and features within our block horizon strategy, and we're looking forward to what lies ahead. Now let me turn it over to Tony to discuss our financials and outlook. Speaker 300:09:12Thanks, Jeff. Good afternoon, everyone. Today, I'll review results for fiscal year 'twenty three, provide detail on our outlook and share more on our strong capital allocation practice. We delivered nearly $3,500,000,000 of revenue, an increase of $9,000,000 over last year. The increase was due to higher U. Speaker 300:09:31S. Assisted tax preparation revenues, partially offset by a decrease in Emerald Card revenues. As a reminder, the impact from the Emerald card was over $30,000,000 due to the rollback of the advanced child tax credit. We also had a negative foreign exchange impact of $19,000,000 Given these variables, I'm pleased that we're able to grow the top line this year. Total operating expenses were $2,700,000,000 an increase of approximately $5,000,000 primarily driven by higher field wages and partially offset by lower consulting and outsourced services. Speaker 300:10:06We saw about $5,000,000 of savings from our footprint partially offset by higher interest expense on our line of credit due to higher interest rates and higher draws. Other income increased $33,000,000 primarily due to higher interest income. As we've discussed, higher interest rates were a net benefit given Cash position throughout the year. Pretax income was $711,000,000 an increase of $52,000,000 or about 8%. Earnings per share from continuing operations increased from $3.26 to 3 $0.56 and adjusted earnings per share from continuing operations increased from $3.51 to $3.82 or 9%. Speaker 300:11:07This is meaningful growth despite the aforementioned headwinds as well as our effective tax rate increasing from 15% to 21%. Lastly, we acquired just over 200 franchise locations in 2023. We feel great about franchisees' willingness to sell to us and are pleased with how this opportunity supports our longer term revenue growth. As you can clearly see in our results, our capital allocation story remains strong. We completed another $200,000,000 of share repurchases in the 4th quarter at an average price of $30.94 after already completing $350,000,000 repurchases in the first half of the year. Speaker 300:11:47In fiscal year 'twenty three, we retired 9% of shares outstanding at an average price of $37.59 Over the last 5 years, we have reduced shares outstanding from $355,000,000 or approximately 32 percent afloat. We continue to believe share repurchase is a great use of capital. As Jeff mentioned earlier, today we also announced a 10% increase to the dividend. Over the last 5 years, we've increased the dividend by about 30%. What is great about the capital allocation approach is that despite increasing the dividend, the total dollars paid has been decreasing because we have acquired so many shares, which has created a nice flywheel. Speaker 300:12:32As we've consistently shared, we produce significant and stable cash flow, Our goal is to return 100% or more of free cash flow to shareholders annually. This year alone, we generated over $700,000,000 of free cash flow and returned a similar amount to shareholders. For fiscal year 'twenty three, our free cash flow yield calculated as free cash flow divided by market cap was over 16%, which is more than 3x the S and P 500. Now turning to our fiscal year 'twenty four outlook. First, let me share more about the assumptions we've made. Speaker 300:13:12We believe next year will return to typical industry growth of about 1%. This is in line with the historical average, and we do not foresee any industry dynamics that would change this assumption. Data shows that stimulus filers are now behind us. There are no major tax law changes anticipated, and employment has remained strong this year, which is usually correlated to filers in the next year. We are also assuming we maintain overall U. Speaker 300:13:38S. Tax market share, but our goal is always to increase share. We expect to continue to take low single digit pricing as we successfully executed in fiscal year 'twenty three. Our customer satisfaction scores specific to price for value have remained Additionally, we continue to see value in repurchasing franchise locations and remain committed to our capital allocation strategy with ongoing opportunistic share buybacks. As a result, our fiscal year 'twenty four outlook is for revenue to be in the range of $3,530,000,000 to $3,585,000,000 EBITDA to be in the range of $930,000,000 to $965,000,000 Our effective tax rate to be approximately 23% and adjusted earnings per share to be in the range of $4.10 to $4.30 In summary, we feel great about how we are positioned. Speaker 300:14:34With that, I will turn it back over to Jeff for some closing remarks. Speaker 200:14:38Thank you, Tony. As I reflect on the passing of another year, I'd like to thank our tax professionals, franchisees and associates who embody our purpose every day to provide help and inspire confidence in our clients and communities everywhere. I'm looking forward to all we will accomplish in the next year and sharing our results for the Q1 in November. Now, operator, we will open the line for questions. Operator00:15:29Our first question comes from the line of Kartik Mehta of Northcoast Research. Speaker 400:15:39Hey, Jeff. Hey, Tony. Jeff, I know you and Tony both said that you anticipate next year going back to kind of that normalized 1% Total growth for tax returns, I'm wondering, what do you anticipate in terms of assisted and DIY changes for growth. Speaker 200:16:00Hey, Kartik. Yes, I mean, when we work through our assumptions for the year, we always go through the normal What do we think about employment? What do we think about potential changes from the IRS? What do we see in trends by channel? And obviously, it hasn't been a normal year for a while, but as we look on the horizon and anticipate Employment has been strong. Speaker 200:16:25We've seen some general trends in the industry. We are not aware of any potential changes coming from the IRS. And really those are the things that we put together about what we see the industry doing next year. Do you want to add anything, Tony? Speaker 300:16:40Yes. I mean, your question about assisted versus DIY cardiac, I think we believe assisted is going to be fairly flat. Even though we had an unusual year in DIY this year, we think over the long term, DIY continues to grow a couple percent. So probably a slight migration from assisted to DIY. Speaker 400:17:02And then, Jeff or Tony, saying that, would it be sustainable? Speaker 300:17:21Yes, I can take it. I think it's Definitely sustainable. I mean, we talked about our adjusted EPS growing 9%. We raised the dividend 10%, so essentially in line. Obviously, it's a bigger dividend increase than we've been doing over the last few years, even though we've been increasing the dividend. Speaker 300:17:37I think All else being equal, we prefer to do share buybacks given the flexibility and advantage we can take when we see volatility in the stock price. But the fact that we can buy back shares, which is obviously reducing shares outstanding, and as I mentioned in my opening comments, we've actually been reducing Dividends paid in total amount. So even though we've been increasing the dividend and even this amount going up 10% this year, I think you'll see dividend dollars Being flat to even slightly down, which as I mentioned is creating that nice flywheel effect, which we think is very beneficial for shareholders. Perfect. Speaker 400:18:13Thank you. I appreciate it. Speaker 200:18:16Thanks, Kartik. Operator00:18:19Thank you. Please stand by for our next question. Our next question comes from the line of George Tong of Goldman Sachs. Speaker 500:18:29Hi, thanks. Good afternoon. I wanted to dive into some of your market share assumptions for next year. Can you talk a little bit about what you're assuming for share performance The assisted and DIY categories, and with the particular focus on the assisted side, this past year, you had lost Some share in the lower income category, what are some internal initiatives to help improve that performance? Thank you. Speaker 200:18:56George, great questions. Thank you. This is Jeff. I'll kick us off. Yes, I think the starting point is The clarity about what happened this year, we talked on the last call about the three reasons why we lost business in assisted this year. Speaker 200:19:13The low income filers, EITC in particular, being a real focus for the teams as we prepare for next year. In simple terms, we think we have to do a better job of communicating our value proposition earlier in the year when those consumers are Most in the market looking for their refunds. And I feel good as we sit here in August that the teams are very clear about what has to happen. In terms of looking to next year and our share expectations, as we said in our opening comments, We expect assisted share to be flat, but we're always trying to grow share in assisted. So it doesn't change our plans. Speaker 200:19:55It's And in DIY, we feel very good about the 3 pronged strategy that we took this year, And we anticipate being able to continue to improve our performance and take share again in DIY next year. Speaker 500:20:11Got it. That's helpful. And then, there are a number of moving parts in the broader tax prep industry, 2 of which are The IRS's Free File program and generative AI, can you talk about how internally if you're doing anything strategically to in response to these to the changing landscape and how you would assess the potential impact of these two developments in this space? Speaker 200:20:42Yes, yes, excellent again. So I mean, first of all, We're very excited about the opportunity with GenAI, and I want to start there. We talked a little bit in our prepared remarks about this, but We have dedicated teams who are absolutely leaning in, in building integrations. Given our partnership with Microsoft and OpenAI, those initial two use cases, 1 on the expense side, 1 on the customer experience side, Obviously, a lot more detail to share as we're ready to make those public specifically. The technology is generally well understood. Speaker 200:21:22The customer adoption is not. And so we're very excited To begin that learning journey by deploying 2 very specific use cases, we've identified a number of use cases. And so based on that learning, we see real opportunity for the business in various parts. More to come in detail, but I think the punch line is we're very excited about what it could mean both in cost savings and customer experience and teams are leaning in and moving fast to get ready for the year. On the IRS Free File option, in simple terms, We do not see it as a material threat to the business. Speaker 200:22:04We know that there's a real concern about the IRS's ability To ultimately market and support a product like this, the ultimate cost to taxpayers of what that would entail, And we've seen consumers make it clear that there really isn't a problem here. There are over 30 organizations, Tax prep companies and not for profits that are already offering free tax prep. And so we stand by those remarks and are very focused on building great experiences to continue to do what we do. And with respect to GenAI, Like I said, we're very excited about that opportunity. Speaker 500:22:45Got it. Thank you very much. Speaker 200:22:47Thanks, George. Operator00:22:50Thank you. Stand by for our next question. Our next question comes from the line of Scott Schneeberger of Oppenheimer and Company. Speaker 600:23:04Thank you. Good afternoon. For my first question, I want to touch upon the revenue guide for next year. Looks like it implies about 2% to 3% growth, which I think is a little bit lower than what to which you aspire longer term more in the mid single digits. So I guess the way I'll ask the question is, what do you see as the puts and takes, the headwinds, the tailwinds in this upcoming year, that have you a little lower. Speaker 600:23:35And the second part of this, and I probably, Tony, this is for you is On your Slide 17, you talk about the assumptions that go with the first 4 bullet points are all revenue related, industry growth, market share, low single digit pricing, ongoing franchise acquisition. Could you rank order those, so we get a sense of what are the bigger drivers of the revenue growth for next year? Thank you. Speaker 300:24:06Yes. Thanks, Scott. There's a lot in there, so I'll try to unpack it as I go through it. I mean, looking at 2024, You're right. I mean, our guidance is getting in the range that we've set from a long term perspective of 3% to 6%, But I think it's a little bit more moderated. Speaker 300:24:25There's not a specific headwind that we're looking at, Which is contrary to what we saw in 2023. As we talked about going into 2023, we expected the impact of the Emerald card related to the rollback of the child tax Credit and a number of other things, essentially being a headwind that we had to offset. Obviously, we had a very unusual tax season In 2023, we're overlapping that. We think it will return to normal, but obviously, we don't have a crystal ball either. So I feel like we've set the revenue outlook at a place that's achievable. Speaker 300:24:57We've also set EBITDA outlook at a place that's growing faster than revenue and essentially set EPS outlook at growing 10%. And I think all three of those combined, I feel really great about the outlook. And as we've talked about, to get to more the mid to higher end of the 3% to 6% revenue range, We have to have the imperatives delivering growth that we're still in the early innings of, whether that be from spruce, growing in services and small business, Doing things in block experience. But even without those, we have a business that's growing top line at a healthy level. We've got EBITDA growing faster and EPS growing, like I said, double digits, which is incredible on top of 9 And the one thing I said in the opening comments is, we're overlapping a pretty incredible tax rate change. Speaker 300:25:50I mean, we were about a 15% ETR in 'twenty And then in 2023, we went up to 21%, but to still show EPS growth of 9%, I feel really, really good about. As far as how do we stack rank these things, I don't think in my head, I have that completely clear. I think all of them are additive. I mean, it starts with having healthy client volume in both assisted and DIY. I mean, that's kind of the foundation. Speaker 300:26:18We then layer on pricing of low single digits as we've talked about. The franchise buybacks can drive a point of revenue growth. And then that's essentially the key drivers of revenue. There are some other smaller puts and takes, but those are the big ones. But then we're obviously managing our expenses in a way that we can grow EBITDA faster than revenue. Speaker 300:26:39And then obviously, the last driver getting to EPS Is executing the share repurchase that obviously we've been doing consistently. So that's how I think about it. I think there's a lot of moving parts. But like I said, at the end of the day, growing EPS double digits is a pretty incredible feat, and I feel good about it. Speaker 600:26:58Thanks, Tony. Good answer. You covered what I was looking for. As a follow on to that, What are you expecting for expense inflation? You're obviously guiding EBITDA growth faster than revenue growth. Speaker 600:27:16Just technology, labor, rent, overhead, marketing, Anything changing dramatically year over year there? And how are you thinking about the inflation year over year? And you mentioned pricing of low single digits. So just curious what the inflation assumption is on the cost side? Speaker 300:27:39Yes. We're definitely assuming inflation. I think it's a little more moderated versus what we had last year. As you know, Scott, our largest expense line item, which is tax pro labor, is essentially variable with revenues, so no direct inflation impact. But when you look at things Like full time wages of the broader team, we're seeing those moderate in costs relative to what they were running in a year ago. Speaker 300:28:04We're also seeing Less turnover and less people leaving, a little bit less competition in the broader labor market. I think in some buckets like Supplies and utilities, we'll continue to see costs go up, but I'm hopeful and we built into our plan at a more moderated rate and what we were running at last year. So I think you'll see inflation. I think it will be a little bit more moderated from what we saw last year. Obviously, we have to do things like think about what our bonus accrual is and other items as well. Speaker 300:28:34But overall, being able to grow Earnings faster than revenue is the ultimate goal and obviously we've guided to that this year. Speaker 600:28:44Thanks. And one more if I may, maybe getting Jeff involved here too. Really curious what you saw in the extension season, The impact of California, I know that we're not even up to that deadline yet, but just since we last heard from you on a public call, What have been the trends? I assume a little bit better than expected. You did a little bit better than your guide, but just want to Curious on your comments on this extension season versus last. Speaker 600:29:12Thank you. Speaker 200:29:13Yes. Thank you. I was feeling lonely, Scott. I appreciate that. Yes, I mean, we specifically to California in extension seasons, I mean, we know that extensions were down generally October 15. Speaker 200:29:36We are keeping additional offices open, to capture volume. But as Tony always reminds me, we're not Fully open everywhere. So we're doing what we can to balance the expense side and the revenue side, trying to capture our fair share and grow. But most importantly, I think the teams are focused on just preparing based on the learning for this year to get ready to compete for tax season 2024. Speaker 600:30:06Thanks very much. Speaker 200:30:08Thank you. Operator00:30:11Thank you. I would now like to turn the conference back to Michaella Galena for closing remarks. Madam? Speaker 100:30:19Thanks, Latif, and thanks, everyone, for joining us today. We look forward to speaking with you again next quarter.Read morePowered by