Release Date: August 15, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- H&R Block Inc (HRB, Financial) delivered another year of revenue growth, with a 4% increase to $3.6 billion.
- EBITDA grew faster than revenue, increasing by more than 5% to $963 million.
- Earnings per share from continuing operations increased by 16%, from $3.56 to $4.14.
- The company announced a 17% increase in its quarterly dividend and a new $1.5 billion share repurchase authorization.
- The DIY business continued its momentum with market share gains for the second consecutive year.
Negative Points
- Total operating expenses increased by 3% to $2.8 billion, primarily due to higher labor costs and bad debt expense.
- Interest expense rose by 8% to $79 million due to higher draws on the line of credit and the higher rate environment.
- Lower Emerald Card activity partially offset revenue gains.
- The company faces challenges in improving the client experience in the Assisted category, particularly with new clients.
- The effective tax rate increased slightly from 21% to 21.6%.
Q & A Highlights
Q: Jeff, if you look at FY25 and over next tax season and kind of compare to this tax season, what changes do you think that Block needs to make to maintain your market share on the assisted side?
A: (Tony Bowen, CFO) We need to improve the client experience, better manage expectations, and help clients understand the value we provide. We are focusing on new clients who may not fully understand our process. This has everyone's attention for next year.
Q: Any other changes on the operating cash flow line that might impact free cash flow next year?
A: (Tony Bowen, CFO) Depreciation and amortization continue to exceed CapEx, generating more than 100% of free cash flow relative to net income. This trend should continue, and a run rate of north of $650 million for free cash flow is expected going forward.
Q: How are you thinking about the political outlook and developments in that 1% growth for the industry?
A: (Jeff Jones, CEO) We aren't trying to predict political outcomes, but we are prepared to respond to any policy changes that may impact consumers. We expect a more normal tax season and are focused on serving our customers and improving our products and experiences.
Q: Is the market share gain in DIY sustainable, and what are some of the levers you're pulling to maintain that position?
A: (Jeff Jones, CEO) It starts with having an excellent product and experience. We are aggressive in marketing against dissatisfied TurboTax clients and making it easy for them to switch to us. We will continue to follow this strategy.
Q: What type of margin expansion can be achieved in the years to come, and where might the levers be?
A: (Tony Bowen, CFO) We have consistently grown EBITDA faster than revenue by managing expenses and driving productivity. Margins have expanded several years in a row, and we expect this trend to continue. Inflation has moderated, which is also helpful.
Q: Can you break down expectations for the Assisted and DIY categories for the 2025 tax season?
A: (Tony Bowen, CFO) We expect DIY to grow a little faster than Assisted, consistent with long-term trends. Overall industry growth of 1% likely means DIY growing a couple of percent and Assisted slightly up.
Q: How much of the goal to maintain market share is a reflection of overall tax volumes versus individually on Assisted and DIY?
A: (Tony Bowen, CFO) We aim to maintain overall share, serving as many customers as the category grows. Given recent trends, DIY has tailwinds, and Assisted has headwinds. We are focusing on improving the Assisted channel to get back to flat share.
Q: How will the approach to maintaining market share in Assisted be different this year compared to last year?
A: (Tony Bowen, CFO) We are focusing on converting more clients who choose us and start with us. We need to improve communication and execution, especially for new clients who may not fully understand our process.
Q: What sort of assumption do you have for share repurchases in fiscal 2025?
A: (Tony Bowen, CFO) We don't share specific targets, but you can expect a trend similar to recent years. We aim to be opportunistic and take advantage of stock price volatility.
Q: How much did the California extension contribute to revenue, and what's the grow-over for fiscal 2025?
A: (Tony Bowen, CFO) The California extension drove about a point of industry volume, translating to roughly three-quarters of a point of revenue. This will be a factor in the grow-over for fiscal 2025.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
