H&R Block Q4 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 15, 2024

Key Takeaways

  • In fiscal 2024, the Company delivered 4% revenue growth to $3.6 billion, EBITDA up 5% to $963 million and double-digit EPS growth driven by DIY market share gains and the launch of AI Tax Assist.
  • Under its capital allocation strategy H&R Block raised its quarterly dividend by 17% to $0.375 per share and authorized a new $1.5 billion share repurchase, building on an 88% dividend increase and over 40% of shares retired since 2016.
  • Progress on the Block Horizons imperatives included mid-single-digit tax revenue growth for small business, Wave platform revenue up 7% with reducing losses, and Spruce mobile banking reaching 476,000 sign-ups and nearly $1 billion in deposits.
  • For fiscal 2025, management expects $3.69–$3.75 billion in revenue, EBITDA of $975–$1,020 million and EPS of $5.15–$5.35—including a one-time ~$0.50 benefit from a lower effective tax rate—while forecasting ~1% industry growth and stable market share.
  • CFO Tony Bowen will retire after 20 years with the company, to be succeeded by Tiffany Mason on September 13, and Scott Manuel has joined as Chief Strategy & Operations Officer to support long-term enterprise execution.
AI Generated. May Contain Errors.
Earnings Conference Call
H&R Block Q4 2024
00:00 / 00:00

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Operator

Thank you for standing by, and welcome to H&R Block's Fourth Quarter Fiscal Year 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one one on your telephone. To remove yourself from the queue, you may press star one one again. I would now like to hand the call over to Michaella Gallina, Vice President, Investor Relations. Please go ahead.

Michaella Gallina
Michaella Gallina
VP of Investor Relations at H&R Block

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.

Michaella Gallina
Michaella Gallina
VP of Investor Relations at H&R Block

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 statement to reflect events or circumstances after the date of this call. With that, I will now turn it over to Jeff.

Jeff Jones
Jeff Jones
President and CEO at H&R Block

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 2025, and then we'll open it up for Q&A. Beginning with our fiscal 2024 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.

Jeff Jones
Jeff Jones
President and CEO at H&R Block

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've increased the dividend 88% and repurchased more than 40% of shares outstanding. Looking to fiscal 2025, we feel well positioned to deliver for our 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 imperatives.

Jeff Jones
Jeff Jones
President and CEO at H&R Block

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's 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 both 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%.

Jeff Jones
Jeff Jones
President and CEO at H&R Block

We continue to improve the losses in the business and expect ongoing positive trends in fiscal 2025. 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 signups, and we're nearing a milestone of $1 billion in customer deposits. We're 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.

Jeff Jones
Jeff Jones
President and CEO at H&R Block

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, in 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.

Jeff Jones
Jeff Jones
President and CEO at H&R Block

We're clear about where we 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 10 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 2025. 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.

Jeff Jones
Jeff Jones
President and CEO at H&R 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've 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.

Jeff Jones
Jeff Jones
President and CEO at H&R Block

As you may have seen in our announcement last week, I'm pleased to share that we've 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 13th.

Jeff Jones
Jeff Jones
President and CEO at H&R Block

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 this 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 he 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'll now turn it over to you.

Tony Bowen
Tony Bowen
CFO at H&R Block

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 2024 results.

Tony Bowen
Tony Bowen
CFO at H&R Block

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 the prior year, due to higher draws on our line of credit and the higher rate environment.

Tony Bowen
Tony Bowen
CFO at H&R Block

Pre-tax 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-$4.14, or 16%, while adjusted earnings per share from continuing operations increased from $3.82-$4.41, or 15%. In FY 2024, we acquired a total of 158 franchise offices.

Tony Bowen
Tony Bowen
CFO at H&R Block

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 FY 2024, we completed $350 million of share repurchases at an average price of $43.66. Today, we are pleased to announce a new share repurchase authorization of $1.5 billion.

Tony Bowen
Tony Bowen
CFO at H&R Block

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 FY 2025 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 to always 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.

Tony Bowen
Tony Bowen
CFO at H&R Block

As a result, our outlook for FY 2025 is for revenue to be in the range of $3.69 billion-$3.75 billion, EBITDA to be in the range of $975 million-$1.02 billion, EPS to be in the range of $5.15-$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 closures 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 2025.

Tony Bowen
Tony Bowen
CFO at H&R Block

As we have shared, we have multiple levers to drive annual revenue growth in our targeted range of 3%-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 year 2025 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
Jeff Jones
President and CEO at H&R Block

Thank you, Tony. As I reflect on all that we've accomplished, I'm 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'm 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.

Operator

As a reminder, to ask a question, you will need to press star one, one on your telephone. To remove yourself from the queue, you may press star one, one again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Kartik Mehta of North Coast Research.

Kartik Mehta
Executive Managing Director and Director of Research at Northcoast Research Partners

Hey, good afternoon. First of all, Tony, it was a pleasure working with you. The best of luck in your retirement.

Jeff Jones
Jeff Jones
President and CEO at H&R Block

Thanks, Kartik.

Kartik Mehta
Executive Managing Director and Director of Research at Northcoast Research Partners

Hey, Jeff, welcome. Hey, Jeff, if you look at FY 2025 and, you know, or next tax season and kind of compare it to this tax season, what changes do you think that Block needs to make to make sure that you maintain your market share on the Assisted side?

Jeff Jones
Jeff Jones
President and CEO at H&R Block

Kartik, thank you. I mean, there's no question, and I, 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 and 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, you know, didn't deliver well enough. And so that's, that's really the focus of the entire team as we go into 2025, 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?

Jeff Jones
Jeff Jones
President and CEO at H&R Block

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, you know, 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
Executive Managing Director and Director of Research at Northcoast Research Partners

Tony, just on free cash flow. Obviously, your free cash flow this year 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
Tony Bowen
CFO at H&R Block

... No, I mean, you're right. The depreciation amortization continues to exceed CapEx, which is why we're generating more than 100% of free cash flow relative to net income. So that, that trend should continue. As you know, FY 2023, 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, you know, free cash flow is defined by cash flow from operations, less CapEx is north of $650 million. I think that's a pretty good run rate number for us going forward.

Kartik Mehta
Executive Managing Director and Director of Research at Northcoast Research Partners

Great. Thank you. Appreciate it.

Jeff Jones
Jeff Jones
President and CEO at H&R Block

Thanks, Kartik.

Tony Bowen
Tony Bowen
CFO at H&R Block

Thanks, Kartik.

Operator

Thank you. Our next question comes from the line of Scott Schneeberger of Oppenheimer & Co.

Scott Schneeberger
Scott Schneeberger
Managing Director and Senior Analyst of Industrial and Business Services at Oppenheimer & Co.

Thanks very much. Good afternoon, and Tony, gonna miss you as well. All the best. I'll get a question to you, I promise. But starting out, Jeff, just at a high level, looking out to next year, you know, giving a little bit of color on what you're expecting, probably the next earnings call is gonna 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 candidates 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. Thanks.

Jeff Jones
Jeff Jones
President and CEO at H&R Block

All right. Yeah, I'll leave the compare and contrast candidates for the political pundits. I mean, we absolutely have been in this business long enough to be through many election cycles and just have never really seen an election itself impact the tax filing season. And so, you know, it'll happen, and then, you know, as we get into whatever happens in terms of who wins, whatever policy changes they may make and how that trickles 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, you know, 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.

Jeff Jones
Jeff Jones
President and CEO at H&R Block

I think we've proven a great ability to respond to whatever those things are. You know, 1099-Ks 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, you know, so that does hang out there, you know, 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, you know, to win more people to the brand.

Scott Schneeberger
Scott Schneeberger
Managing Director and Senior Analyst of Industrial and Business Services at Oppenheimer & Co.

Thanks. I appreciate that, Jeff. Just one more follow-up for you, and then I'll get to Tony. But Kartik asked about, you know, market share opportunity in Assisted and what you can do there. You've done a nice job the last couple of years in do-it-yourself on the market share front. Is that sustainable, and what are some of the levers you're pulling to try and keep that position? Thanks.

Jeff Jones
Jeff Jones
President and CEO at H&R Block

Yeah, well, you know, it's been a couple of years of really nice performance, as you said, and, you know, the key always starts with having an excellent product, you know, an 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.

Jeff Jones
Jeff Jones
President and CEO at H&R Block

We have been very aggressive in how we market against them, and, you know, you should expect us to follow that recipe, but not take anything for granted.

Scott Schneeberger
Scott Schneeberger
Managing Director and Senior Analyst of Industrial and Business Services at Oppenheimer & Co.

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, you know, the ranges imply kind of in line. What is the opportunity as you kind of pass the baton to Tiffany of, you know, what type of margin expansion can be achieved, in years to come, and where might the levers be there? Thanks.

Tony Bowen
Tony Bowen
CFO at H&R Block

Thanks, Scott, and I really appreciated working with you over the years, so, you know, 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%+ revenue number, EBITDA can grow over the long term, one and a half times that rate. I think that just takes advantage of the cost structure, takes advantage of us managing expenses, trying to drive productivity, figuring out ways to invest in the business by taking out costs in other places. As you said, margin has expanded, you know, several years in a row, and I think it will continue. We guided to, obviously, top-line growth again in 2025. We guided to EBITDA growing faster than the revenue and EPS growing even faster. So the model is working.

Tony Bowen
Tony Bowen
CFO at H&R Block

There's always your specific nuances one year over, over another. This year we have some, ERC credits, that we, we got the benefit of in 2024 that aren't continuing in 2025, so that, that 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's still working. You know, inflation is 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 rates. So, you know, the model's working, and I think it will continue to work for the, foreseeable future. Great, thanks, Scott.

Jeff Jones
Jeff Jones
President and CEO at H&R Block

Thanks, Scott.

Operator

Thank you. Our next question comes from the line of George Tong of Goldman Sachs.

George Tong
George Tong
Senior Research Analyst of Equity Research and Business Services at Goldman Sachs Group

Hi, thanks. Good morning or good afternoon. I'd also like to extend a thanks and congrats to Tony. Best wishes ahead.

Tony Bowen
Tony Bowen
CFO at H&R Block

Thank you, George. I appreciate it.

George Tong
George Tong
Senior Research Analyst of Equity Research and Business Services at Goldman Sachs Group

Yeah. So you mentioned, 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 do you expect both of those to grow, in the 2025 tax season?

Tony Bowen
Tony Bowen
CFO at H&R Block

Yeah, I mean, I don't think our expectations for this upcoming season are different than what we would have thought over, you know, 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. You know, overall industry growth of 1% probably means DIY growing a couple%, Assisted slightly up. I think that's been our mantra for a long time, and I think over the, you know, year-to-year, you might have slight nuances, but over the longer term, that's been the trend.

George Tong
George Tong
Senior Research Analyst of Equity Research and Business Services at Goldman Sachs Group

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 Assisted and DIY? In other words, would you expect to be gaining share in DIY? Is that the base case assumed in guidance? And does the guidance also assume Assisted market share is stable?

Tony Bowen
Tony Bowen
CFO at H&R Block

Yeah, I think we start with, we wanna make sure we maintain overall share. We wanna make sure that we're serving as many customers as the category is growing, and obviously, we did that in this most recent year. So that's a starting place. I mean, 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 tailwind, so you know, that wouldn't be surprising. But as Jeff said, we're making a lot of changes and focus in the Assisted Channel to try to get back to flat share. So that's definitely the goal, but it's not a current expectation. Overall share being flat across the tax category is the base expectation.

George Tong
George Tong
Senior Research Analyst of Equity Research and Business Services at Goldman Sachs Group

Got it. That's helpful. And just one more quick follow-up on initiatives to drive higher or 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 and Assisted as well?

Jeff Jones
Jeff Jones
President and CEO at H&R Block

Yeah, 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, 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.

Jeff Jones
Jeff Jones
President and CEO at H&R Block

We didn't do a good enough job communicating and welcoming them to the brand, and that's a breakdown in execution. 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 with an emphasis on new clients, which we know is an extra area of emphasis.

George Tong
George Tong
Senior Research Analyst of Equity Research and Business Services at Goldman Sachs Group

Very helpful. Thank you very much.

Jeff Jones
Jeff Jones
President and CEO at H&R Block

Thanks, George.

Tony Bowen
Tony Bowen
CFO at H&R Block

Thank you, George.

Operator

Thank you. Our next question comes from the line of Alex Paris of Barrington Research.

Alex Paris
Alex Paris
President and Senior Managing Director at Barrington Research

Hi, guys. Can you hear me?

Tony Bowen
Tony Bowen
CFO at H&R Block

We got you.

Alex Paris
Alex Paris
President and Senior Managing Director at Barrington Research

Good. Thank you. I'd like to add my congratulations to Tony. We'll definitely miss you, and just wanted to say to Tiffany, who I'm sure is listening, we look forward to working with you.

Tony Bowen
Tony Bowen
CFO at H&R Block

Thank you, Alex. It's been a pleasure, so you've been great over the years.

Alex Paris
Alex Paris
President and Senior Managing Director at Barrington Research

Yep, same here. Thank 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
Tony Bowen
CFO at H&R Block

Yeah, I mean, obviously, we don't share the specific number that we're targeting, but obviously, we've assumed some share repurchase, which is obviously driving the EPS benefit. Obviously, some of the share repurchase we did even in 2024 gives a benefit going into 2025 as well. But I think you should expect us to be on a trend that's similar to what we've done in the last several years. Obviously, we try 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
Alex Paris
President and Senior Managing Director at Barrington Research

Great. And then, seasonally, refresh my memory, you do more of your share repurchasing in the first half of the fiscal year?

Tony Bowen
Tony Bowen
CFO at H&R Block

That's right. We typically come out of, you know, this call and, and have a focus on it, so in Q1 and into Q2, and we do that for a couple reasons. One is we get a better EPS benefit the earlier we buy it in the year.... Secondly, we're typically in blackout a lot of time during tax season. So for that reason, we try to do most of it in the first half of the year. That 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 try to do it in the first half of the year.

Alex Paris
Alex Paris
President and Senior Managing Director at Barrington Research

Great, thank you. And then, regarding the long-term growth algorithm, you know, for fiscal 2025, you're kind of at the low end of that revenue range. I assume there's some conservatism built into that. Adjusted EBITDA is definitely growing, or EBITDA is growing faster than revenue. But I think you said it earlier, and perhaps in response to a question, you have some ERC numbers that are not gonna 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 wanna be clear, I realize your guidance is above consensus, so-

Tony Bowen
Tony Bowen
CFO at H&R Block

Yeah.

Alex Paris
Alex Paris
President and Senior Managing Director at Barrington Research

Just-

Tony Bowen
Tony Bowen
CFO at H&R Block

Yeah, the-

Alex Paris
Alex Paris
President and Senior Managing Director at Barrington Research

A little more.

Tony Bowen
Tony Bowen
CFO at H&R Block

The Employee Retention Credit, yeah, the Employee Retention Credit is about a $15 million impact, so it definitely pushed EBITDA quite a bit higher if it wasn't for that, that roll-off that we received in 2024. But regardless, as you said, we, we try to set these numbers in a, in a level where we can achieve. And the fact that, you know, the top line is in the, even if it's the lower end of the range, it's 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.

Tony Bowen
Tony Bowen
CFO at H&R Block

I mean, the fact that we exceeded $4, even on an adjusted or a regular GAAP basis in EPS in 2024, and now guiding to a number that's over $5, even if it's benefited from tax rate, is, is an incredible feat. So feel good about the progress. There's always year-over-year kind of P&L nuances, if you will, but the trajectory remains the same, which is up and to the right.

Alex Paris
Alex Paris
President and Senior Managing Director at Barrington Research

Even with that expected one-time $0.50 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 that tax benefit. Is there a particular quarter that you expect that to hit, or is that gonna hit evenly over the four quarters?

Tony Bowen
Tony Bowen
CFO at H&R Block

Hmm. No, it'll, 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'll definitely happen, we believe, in, in the fiscal year, which is why we include it in the guidance range.

Alex Paris
Alex Paris
President and Senior Managing Director at Barrington Research

Gotcha. So the way you answered that question, it's unlikely in Q1. It's gonna be Q2 or later in the year?

Tony Bowen
Tony Bowen
CFO at H&R Block

Yeah, it's possible. We just 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
Alex Paris
President and Senior Managing Director at Barrington Research

Then I think my last question for you is California. You got a little benefit in fiscal 2024 because of the extension, the extended deadline from April 15 to October 15, as I recall. How much did that contribute to... That, that, that extra bolus of revenue from California? Because I'm assuming you got two boluses of revenue from California, last fall and then this spring. What's the growth over for fiscal 2025 because of that?

Tony Bowen
Tony Bowen
CFO at H&R Block

Yeah. 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, you know, 75% of that from a revenue perspective. So three-quarters of a point of revenue, about a point of industry tax prep volume.

Alex Paris
Alex Paris
President and Senior Managing Director at Barrington Research

Great. Super helpful, guys. Thanks again.

Tony Bowen
Tony Bowen
CFO at H&R Block

Thank you. Thank you, Alex.

Operator

Thank you. I would now like to turn the conference back to Michaella Gallina for closing remarks. Madam?

Michaella Gallina
Michaella Gallina
VP of Investor Relations at H&R Block

Thanks. Thanks, Latif, and thanks, everyone, for joining us. We'll look forward to speaking with you next quarter.

Executives
    • Jeff Jones
      Jeff Jones
      President and CEO
    • Michaella Gallina
      Michaella Gallina
      VP of Investor Relations
    • Tony Bowen
      Tony Bowen
      CFO
Analysts
    • Alex Paris
      President and Senior Managing Director at Barrington Research
    • George Tong
      Senior Research Analyst of Equity Research and Business Services at Goldman Sachs Group
    • Kartik Mehta
      Executive Managing Director and Director of Research at Northcoast Research Partners
    • Scott Schneeberger
      Managing Director and Senior Analyst of Industrial and Business Services at Oppenheimer & Co.
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