Earnings Call Transcript - HRB Q1 2026

Operator, Operator

Thank you for standing by, and welcome to H&R Block's First Quarter Fiscal Year 2026 Earnings Conference Call. After the speaker presentation, there will be a question-and-answer session. I would now like to hand the call over to Jessica Hazel, Vice President, Investor Relations. Please go ahead.

Jessica Hazel, Vice President of Investor Relations

Thank you. Good afternoon, and welcome to H&R Block's Fiscal 2026 First Quarter Financial Results Conference Call. Joining me today are Jeff Jones, our President and Chief Executive Officer; Tiffany Mason, our Chief Financial Officer; and Curtis Campbell, our CEO-elect; and Current President of Global Consumer Tax and Chief Product Officer. Earlier today, we issued a press release and presentation, which can be downloaded or viewed live on our website at investors.hrblock.com. Our call is being broadcast and webcast live, and a replay of the webcast will be available for 90 days. Before we begin, I'd like to remind listeners that comments made by management may include forward-looking statements within the meaning of Federal Securities Laws. These statements involve material risks and uncertainties and actual results could differ from those projected in any forward-looking statement due to numerous factors. For a description of these risks and uncertainties please see H&R Block's annual report on Form 10-K and quarterly reports on Form 10-Q as updated periodically with our other SEC filings. Please note, some metrics we'll discuss today are presented on a non-GAAP basis. We've reconciled the comparable GAAP and non-GAAP figures in the appendix of our presentation. Finally, the content of this call contains time-sensitive information accurate only as of today, November 6, 2025. H&R Block undertakes no obligation to revise or otherwise update any statements to reflect events or circumstances after the date of this call. I will now turn it over to Jeff.

Jeff Jones, President and CEO

Thank you, Jessica. Good afternoon, everyone, and thank you for joining us. I'm going to kick us off with a few opening comments and highlight some of our plans for the upcoming tax season. Tiffany will then provide details on our Q1 performance and outlook for fiscal year 2026. Curtis will share some observations on the business, and then I'll come back to wrap the call before Q&A. We are off to a strong start to fiscal '26, and I'm pleased to see the early results in several areas of our business: assisted consumer tax, small business tax and Wave. At this time of year, teams are putting finishing touches on our tax season plans, considering the successes and key learnings from last year. At the top of the list continues to be the work of the marketing team to strengthen how we communicate our consumer and small business value propositions, our approach to personalization and management of the funnel. The retail and DIY teams are focused on capturing the demand created by marketing by eliminating customer experience friction and managing more clients through the conversion. Second Look, AI Tax Assist, Tax Pro Review and Spruce are key products that deliver great value to clients and help distinguish H&R Block and will all play important roles in our tax season plans. With this context, I'll turn it over to Tiffany to provide detail on our first quarter performance, capital allocation priorities and our fiscal 2026 outlook.

Tiffany Mason, Chief Financial Officer

Thank you, Jeff, and good afternoon, everyone. We have begun this fiscal year on a strong note. In the first quarter, our revenue grew by 5%, and we achieved a 9.4% improvement in EBITDA compared to the previous year. We also returned about $455 million in capital to our shareholders during the quarter. As I go over the specifics of our first quarter results, I want to remind everyone that our business is highly seasonal, and this quarter typically reflects that trend. Traditionally, Q1 accounts for just over 5% of our total annual revenue and usually results in a net loss. In this first quarter, we reported $204 million in total revenue, which is $10 million more than the prior year. This 5% growth was fueled by an increase in net average charge and higher volumes in the U.S. assisted category, along with continued double-digit growth at Wave. In our U.S. assisted business, we assisted individuals in filing prior year and amended returns, often related to our Second Look offering, and helped them complete their current year returns before the extension deadlines. Second Look offers new clients a review of their past three years' tax returns to discover any missed refund opportunities. We also aided our small business clients in filing their entity returns before the September 15 extension deadline. At Wave, we are observing ongoing momentum in our high-margin subscription product, Pro-Tier, along with robust payments volume. Total operating expenses for the quarter were $411 million, down by $12 million from the previous year, mainly due to reduced legal fees and settlements. Last year, we faced significantly heightened legal expenses in the first quarter, whereas the expenses this quarter aligned with our historical trends for this time. We are committed to managing expenses effectively, as demonstrated by our strong first quarter results and our outlook for the full year. Our EBITDA loss for the first quarter was $170 million, showing an improvement of $18 million or 9.4% from last year. The effective tax rate was 23.6%, compared to 26.2% in the prior year. Last year, we gained a larger excess tax benefit from stock-based compensation, which contributed to the higher effective tax rate at that time. Our net loss from continuing operations was $165 million, which reflects a 3.5% improvement over the prior year. Loss per share from continuing operations was $1.26, whereas adjusted loss per share was $1.20 compared to $1.17 last year. I want to note that in quarters with a loss, having fewer shares outstanding raises the loss per share, but this is beneficial as we generate earnings over the full year. This dynamic explains the $0.03 year-over-year increase in adjusted loss per share, even as our net loss improved by $6 million. Our long-term capital allocation priorities remain the same, continuing to yield meaningful outcomes as we invest in the business, increase the dividend, and execute opportunistic share repurchases to return excess capital to shareholders. Last month, we paid our regular quarterly dividend, which included the 12% increase we announced in August. On Tuesday, we also announced our next quarterly dividend payment. During the quarter, we repurchased a total of 7.9 million shares for $400 million at an average price of $50.90 per share, completing our share repurchase plan for fiscal 2026 and effectively retiring about 6% of our shares outstanding. In total, we returned approximately $455 million to shareholders in the first quarter through dividends and share repurchases, accumulating nearly $5 billion in capital returned to H&R Block shareholders since 2016. We take pride in this track record and remain dedicated to our disciplined approach to capital allocation. Our first quarter results and full-year plans position us well to affirm the outlook we provided in August. We anticipate revenue between $3.875 billion and $3.895 billion, EBITDA between $1.015 billion and $1.035 billion, an effective tax rate of roughly 25%, and adjusted EPS between $4.85 and $5. I would like to briefly revisit some of the key assumptions underlying our full-year outlook. Firstly, we expect industry growth to remain consistent with historical trends, around 1%. Secondly, we are focused on achieving a better balance of volume, price, and mix, backed by ongoing enhancements to client experiences and conversions. Thirdly, we foresee that small businesses will continue to be a significant source of revenue. Lastly, we are committed to acquiring franchise locations when favorable opportunities present themselves at attractive EBITDA multiples. In conclusion, our investment thesis is strong, even amid evolving industry and macroeconomic conditions. We operate in a stable sector, have a strong national presence, and possess a solid financial profile with healthy margins and disciplined capital allocation. This reinforces our confidence in delivering substantial long-term value for shareholders. With that, I am pleased to welcome Curtis, with whom I've had the privilege to work alongside for the past 15 months, to his first earnings call.

Curtis Campbell, CEO-elect, President of Global Consumer Tax and Chief Product Officer

Thank you, Tiffany. I'm pleased to be here. As I transition with Jeff and prepare to step into the CEO role on January 1, we wanted to leverage today's call to share some of the key themes that reflect the alignment between the two of us, the Board and the entire leadership team. I hope that this will serve as a backdrop for our conversations in the coming quarters. Hearing Jeff speak about our business over time, you know that we serve two distinct audiences, consumers and small businesses. There are three points about these audiences and our priorities that I'd like to share. First, the total addressable market for tax preparation and related small business services is very large, with over 130 million returns filed annually, the U.S. consumer tax preparation TAM is estimated between $20 billion to $25 billion. Additionally, there are roughly 35 million self-employed individuals and small businesses nationwide representing a significant segment of the economy. The U.S. small business TAM, including entity formation, tax preparation, bookkeeping, payroll, invoicing and payments is estimated at more than $100 billion. Given that, we have ample opportunity for continued growth with both audiences. Second, we'll continue to focus our investments on more complex paid filers who have greater needs, demonstrate stronger loyalty, and intend to value additional services. This is true for consumers and small business owners alike. We've spoken about our success in attracting these types of customers over the last couple of years and this remains important. Unlike many industries, market share in the tax prep industry does not directly equate to revenue. To focus on client growth that delivers the greatest long-term economic benefit to our business, we'll continue to evolve how we attract those clients who are free today but have the propensity to become paying clients over time. We're committed to making investments in acquiring customers that deliver the strongest lifetime value. Third, we continue to invest in improving the experience and innovating on products and services for both audiences. For example, in the Consumer business, our Second Look offering helps new clients recover missed savings from prior returns, sometimes thousands of dollars, and Spruce supports year-round financial wellness while also playing a key role in elevating the client experience. In small business, integrating Wave's digital first product capabilities into our Block Advisors offering creates a more unified experience and expands the value we deliver to small business clients. And without a doubt, I'm excited about the potential it brings. With my background in technology and product, you should expect me to accelerate the evolution of our product design and engineering capabilities with a focus on ensuring that we're leveraging technology and AI to improve the customer experience, increase the efficiency and effectiveness of our tax professionals, and drive productivity improvements throughout the organization. Jeff and I, the Board and the entire leadership team are aligned on these three things. It's also important to remember that delivering assistance to our clients in whatever way they desire remains critically important. Our omnichannel experience allows clients to seek assistance on their terms, whether that's face-to-face, virtual or fully digital with support from solutions like MyBlock, AI Tax Assist and Tax Pro Review. For additional industry context, the IRS classified filings that are either signed by a tax professional or self-prepared, and the industry refers to this classification as assisted and DIY. Based on industry reporting, the market has split roughly 55% assisted and 45% DIY. However, what's easy to forget is that assisted continues to show strength and has gained share in three of the last four years and is projected to gain further share in 2026. This reflects the importance customers place on the expertise, confidence and trust that comes from working with a tax professional, especially in light of the numerous tax law changes and complexity in the tax code at a state and federal level. Capturing market share in assisted requires us to demonstrate our value versus independence, a highly fragmented and largest segment of the market, which remains our primary competitive focus. Having worked in the industry for approximately a decade and spending the last 1.5 years leading our Global Consumer Tax business, I know firsthand that H&R Block's edge lies in our ability to meet customers where they are digitally and in person. It's this unique combination of trusted human expertise and forward-thinking innovation that will set us apart. To wrap, I look forward to sharing more and getting to know you in the coming years. Now let me hand it back to Jeff for closing comments before moving to Q&A.

Jeff Jones, President and CEO

Thanks, Curtis. I hope you can see why we're all excited about Curtis. He brings both leadership and strategic continuity and a fresh perspective on all that lies ahead. This is my final call as CEO of H&R Block. Over the last 1.5 years, Curtis and I have worked closely alongside the entire senior leadership team and with input from the Board not only to deliver on our business objectives but also to develop a shared perspective for our next chapter. I want to acknowledge how fortunate we are to be able to make such a smooth transition between Curtis and me. H&R Block plays an important role in enabling financial freedom for our clients by maximizing tax outcomes, providing actionable advice and value-added services for small businesses, and offering a platform for financial wellness through Spruce. Reflecting on our performance, progress, and lessons learned over multiple years, we have even greater conviction in what the company can achieve when we execute at our best. I've appreciated your engagement over these last eight years, and as I move into my advisory role for Curtis in January, I do so with great belief in all that remains possible for H&R Block. Now operator, we will open the line for questions.

Operator, Operator

Our first question comes from George Tong of Goldman Sachs.

Keen Fai Tong, Analyst

I'd like to extend my congrats and thanks to Jeff. So as you head into next year's tax season, can you talk a bit more about changes you're planning to make to marketing and operations assisted to stem some of the share losses from prior years?

Jeff Jones, President and CEO

George, let me just say thank you for that compliment. It's been great working with you since I've been here. I'm going to turn it over to Curtis to answer your question. I appreciate it.

Curtis Campbell, CEO-elect, President of Global Consumer Tax and Chief Product Officer

George, good to meet you, and I look forward to future conversations with you. When I think about our assisted business, we're excited about the work that the teams have done to elevate the quality and scalability of our offerings. And as you know, we continue to focus on learnings every year to ensure that we're optimized every season. We're excited about the outlook this go around. A couple of unique things that I do want to call out for assisted specifically will be the investments that we're making in Second Look. And as a reminder to folks here, Second Look is a service that we offer to new clients in which we're able to take a 3-year look back on prior returns to potentially uncover missed opportunities. Oftentimes, that turns into significant savings for our customers, and it's very unique to H&R Block. We're excited about that. The other thing that we're really excited about is our investment in AI moving forward and our ability to actually improve the productivity of our tax pros, that along with the fact that the improvements that we've made, leaning into the one big beautiful bill and ensuring that we're optimizing the tax outcomes for our clients are things that we're pretty bullish on moving into the season.

Keen Fai Tong, Analyst

Helpful. And then can you elaborate on your pricing strategy in DIY and how you expect that to impact both margins and market share performance?

Tiffany Mason, Chief Financial Officer

Sure, George. Nice to hear from you. Our pricing strategy for the upcoming season is consistent with prior years and that we expect to be able to continue to take low single-digit price increases, and that's true across both channels, assisted and DIY. Our customer satisfaction metrics remain strong, and we are leaning into the value that we provide consumers in both channels, making sure that we amplify the benefits that we provide to consumers and as Curtis suggested, elevating client experience when we can. So we continue to be confident in that strategy.

Operator, Operator

Our next question comes from Scott Schneeberger of Oppenheimer & Company.

Scott Schneeberger, Analyst

Curtis, welcome again, and Jeff, best wishes in the future; I have enjoyed it. I guess to start off here, this is for anyone who wants to take it. With the — and you guys alluded to it during the prepared remarks, that it's anticipated that next year is probably going to have complexity from the new tax bill, and that's probably going to drive to assisted. Can you speak about the kind of magnitude you're expecting there and the things you're doing to prepare as such? And part B to this question is with the government shutdown, should we anticipate a slow start to the year? What is H&R Block considering on that front as far as preparation for the open?

Jeff Jones, President and CEO

Scott, let me take your second part first. I mean as you know very well, we're in constant contact with Treasury and IRS and we've had no indication whatsoever that the season will start late. Obviously, we've been through a lot of things in the last number of years, the pandemic included. And so we've built a really nice playbook on how to think about being nimble and flexible if something were to happen, but sitting here today, we have no indication that the season is going to get off to a late start. And then I'll hand it over to Tiffany.

Tiffany Mason, Chief Financial Officer

And Scott, on the first part of your question around the uncertainty with the new tax bill, what we built into our outlook and the way that we're thinking about the impact of that is that we certainly expect it to be a tailwind. We are cautiously optimistic, and the proxy that we used to represent that opportunity is the share shift that we saw between the DIY business to the assisted business last tax season. That was about a 20 basis point shift, and again, we use that as a proxy for this upcoming season.

Curtis Campbell, CEO-elect, President of Global Consumer Tax and Chief Product Officer

Scott, I'll jump in on the new tax bill comment as well. As you know, for 70 years, H&R Block has worked really closely with the Federal government and the individual states. We think that we're well positioned to ensure that our clients receive the best outcomes possible. This year is a great year for people to lean into their tax professionals and engage with us to have great outcomes.

Scott Schneeberger, Analyst

Excellent. Just two more. I'll ask them together, but Curtis, mostly for you, feel free to ask me to repeat if needed. First one is if you can address now that you've been there a bit and really dug in. AI differentiation, I mean, there is certainly a persistent outside threat to the H&R Block business model, but H&R Block has done a really good job innovating on that front. So I'd love your take on what you see there as far as opportunity and what you can advance and also addressing the threat as well? And then the second question is just as you addressed in the prepared remarks, the free customers, kind of marketing to the free forever versus the free temporarily. What might we see that's new and different this upcoming season?

Curtis Campbell, CEO-elect, President of Global Consumer Tax and Chief Product Officer

Scott, let me tackle the AI one, and you know this from my background; I'm a deep technologist. We see AI as an opportunity without a doubt to ensure that we're delivering the best experience possible, and we can optimize both our operations and the experience for our clients. A great example that you're familiar with would be the work that we're doing with AI Tax Assist, which provides clients with real-time help in our DIY product. So AI is absolutely going to be a part of our toolkit moving forward. Do you want to take the marketing piece or?

Jeff Jones, President and CEO

Yes. Regarding the second part of your question about free clients, we are improving our understanding of the different groups of consumers, particularly those who are likely to remain free and those who may transition to paying over time. This means we need to enhance our ability to reach them on an individual basis. I'm not sure if you'll notice a significant change this year because our focus is really on how we engage with these specific client groups to ensure we are delivering the right messages. However, this remains an essential area of focus as we consider the paying clients in the DIY sector and how to provide them with substantial value.

Operator, Operator

Thank you. I would now like to turn the conference back to Jessica Hazel for closing remarks. Jessica?

Jessica Hazel, Vice President of Investor Relations

Thank you, Latif, and thanks to everyone for joining us today. We look forward to speaking with you again soon.

Operator, Operator

This concludes today's conference call. Thank you for participating. You may now disconnect.