H&R Block (HRB) 6 Dec 172018 Q2 Earnings call transcript

Good morning. My name is Tanya and I will be your conference operator today. At this time, I would like to welcome everyone to the H&R Block Second Quarter Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session [Operator Instructions]. you. Thank turn to now call the will Mr. over I and Brown, Vice Relations. Finance President, Colby Investor begin. may you Sir,

Thank morning, second Tanya. to you, Good discuss joining you our us for fiscal XXXX quarter everyone, results. and thank

Tony Investor today are today’s our CEO We On the at Bowen, on hrblock.com. Jeff CFO. the call our release website President Jones, and and Relations press posted

Investor Additionally, also be will the webcast Relations after a website and presentation for viewing is this call. to available the via posted

on we’ll in that basis. discuss to figures a the presented GAAP figures non-GAAP reconciled are non-GAAP our of the comparable the Some We’ve today attached press and release. schedules

on Before call information as expectations this remarks, will prepared under and I date this statements of not guarantees and forward-looking everyone based as performance. defined that Such we of current begin include Laws. future the management’s will our Securities are remind are statements

statements risks, to Forward-looking certain involve predict. and assumptions difficult are that uncertainties

and actual materially. results our differ result, a outcomes As could

for our a more learn no publicly can You factors have H&R update our Block At conclusion prepared these will SEC or obligation of XX-K about and we remarks, undertakes to the risk session. risks in our other statements. filings. forward-looking Q&A Form fiscal these XXXX

call participants that to Q&A, we the one choose a question Jeff. with after themselves During ask which jump into over limit I’ll the turn that, now to back follow-up to may they queue. With

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early Let’s start our Advance, Refund loan. interest-free season with

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what of Before the the will to for over ultimate XXXX. would about attention. handling calendar been to I Tony, for the a difficult impacting but season predict legislation, It’s year, the something be a be, XXXX to lot call tax like call – getting something few talk outcome that’s handing obviously tax passed likely minutes will

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for to provide trying those what new understand them XX,XXX of law tax means tremendous fact, or we’ll continue taxpayers in-person nearly value. the tax pros, network In to for

higher increase standard change for components the taxpayers worksheets for proposed deduction. multiple in income majority are going deduction, the of attention and increase And while the standard the various of This away. that number XX% credits One as is of not of the required the impact the in legislation that sources H&R key does still standard and and approximately filers, even Block currently will the is has to be the to file been many given deduction, forms clients. not much change

proposed require which such they’re all postcard Credit help and to want with several return includes EITC, to Millions the will Child of credit of example, eligibility taxpayers to due. something we XX-line forms getting which to know pages Tax they’re entitled. For refundable all filers who credits determine and tax of amount credits, ensure claim as the the

which these expenses tax their need federal of assistance changes and can all we’ve determining, millions discussed liability. finally, required a the deployed Many the various directly not additional taxes of or to business a deduct their tax report own to minimize Americans will file the And self-employed laws. as they still filers income. in did change be who forms Additionally, to small state

impact to corporate We’ll I’ve domestic our The and rate historical range. individual cash proposed always tax have on tax mid-XX% enacted. lower primarily this Of a positive bottom rate line, business point, the in read with is list. tax we’re flow course, a effective given

client H&R and So code I’m exactly the We to deserve, excited that, partnerships And of continue no continue upcoming to and matter tax all XXXX. excellence, to all In promotions. our want marketing ability to changes clients about to ultimately Block trajectory made. over new Tony adjust quarter do. we’re operational through are our changing financial interact results we’ll with the the remains value what to and for It’s fiscal ways they compelling know products the the we’ll and tax who help. I’ll call our summary, our they that’s and and credits to season. believe second get improve what the the discuss help job With all the hand convinced to the us. outlook deductions

Thank you, everyone. morning, Good Jeff.

excited We’re here. you have to

expectations. revenues our results to into approximately of and I like as additional $XX international context quarter. line provide backdrop, would million, that U.S. favorable increased results primarily with million, increased the seasonality X% to quarter less perspective, in it That performance. second due our our With not our $XXX due are reminder, second were positive a or fluctuations our annual in foreign annual Revenues than said, results To fees, of expenses. tax put a the preparation represent in preseason of to and typically As of business, representative rates results on quarter full-year exchange X% to XX% our

X% conversion labor U.S. as Total revenue compensation to costs. to in and high cost Turning associates. $XXX $XX well variable related and million, cost increased expenses increases to the expenses. full-time as labor to and of contract Compensation cost million, lower occupancy to operating Australia, increased due the planned or due to

and by by franchisees year in in increase increase note the both prior compensation influenced It’s Additionally, of base. relatively inflationary a acquisitions portion the low total expenses cost operating driven was and important occupancy to increases. of that the percentage is

lower can year, As increase outlook later, I our I’ll Compared we this not typically reflect annual the provide year to approximately prior X% represents this XX% year, that quarter’s expense as shared, decreased perspective. tax rate a are expense second higher fiscal from of rate, which offset were our benefits lower full-year $X the effective our but million the due for the of relatively quarter was unchanged tax both quarter’s base beneficial a full-year. operating discrete does interest by on of our income year, credit. on The line saw to draws of expectation thoughts from prior expenses. say

share. loss. share the negatively impact in Approximately, was half the full-year increase per loss Finally, to those $X.XX basis, due per a $X.XX $X.XX from on to be count, share which quarters reduction but with increased accretive will a of

material related no losses to operations, Canyon Sand were there Turning Corporation. in contingent changes discontinued estimated to

please Forms filings. and other disclosures in information, XX-K to SEC and on additional refer reports the For company’s XX-Q

reminder, a and As from entity Sand been Block. legal H&R separate operates has a Canyon is always

position in industry potential that to industry the the in tax growing with to we volumes quarter, growth and the outlook season tax season around unique our XXXX, slightly is With continue believe volumes after of upcoming most levels, Starting up, a We anticipate tax returns the for strong overall I’d our year. flat be fiscal to to with XXXX. any on tax season We coming to legal veil-piercing to with arguments. DIY. now anticipate growth summary provide more like X% return historical of industry-assisted

by after as our this business, in improvement offerings, Turning a last our improved will our EZ Advance free Refund and to significant improvement our taking experience season. enhancements. This year, driven well forward trajectory our client client we assisted promotion tax step continued expect be as

client the the our the strength Jeff enhanced same client continue that be offers In in at of partnerships inflationary on to product expect our too trajectory that we improvements, compelling and marketplace growth discussed. aggressive the increases, improve cannot to we and DIY, expect understand we product, time. expect on price Regarding price moderate the

Our of given of to modestly average revenue H&R More increase in that, XXXX, introduction expected Block DIY Zero represented result changes fiscal us, charge XXXX. which be the a overall to with fiscal for expect these net is we net consistent in the reset The promotion. is

range. impact financial margin. thoughts XXXX Last XX% and range. of also year, revenue we I’ll XX% productivity at cost XX% be at areas and of now EBITDA expect to upper-end XX% projection, provide in we inflationary Turning to fiscal the Considering the to our the initiatives continued statements. came EBITDA the our investments, of high-end the other on to the of

to million independent approximately levels We to we XXX below locations will anticipate XXXX. capital likely total capital million purchases a with repurchases levels. locations Both revenues, as consistent be accretive As are trading our such and the prior and $XXX of With investment for are spend approximate for our of locations network completed closing multiple continue XX independent and out expect franchise expenditures, at X% in will of repurchase having acquisitions, typically or acquisitions while fiscal $XX activity adding our repurchased to moderate, $XX respect to franchise earnings. million. to year to independent current approximately year our franchise approximately

and amortization, and with the be given last expenditures consistent deprecation level will years, to Moving in of D&A prior franchise repurchases capital year.

watermark $XXX fiscal at to two-thirds is the be expect is general, million. the approximately CapEx-related, XXXX million our one-third remaining related while $XXX for of D&A We In to acquisitions. to D&A high

through to range Note long-term that this positive be consider legislation, to be rate disciplined the the million. we which grade to into I’m we to $X didn’t now credit, to to account and fiscal expect expect any remain date believe are business. our not seasonal implication priorities liquidity, pay the intent talk were allocation, for tax excess our of XXXX, operational I’ll elements XXXX. a regards sustainable XX% repurchases. capital back returned fiscal interest XXXX, We of of about and that adequate With our company. for $XX maintain that an to does These $XX billion share will in corporate for moment the business deliver that year range. make maintaining investments list some tax will would specific clients the our our priorities base million be In we the rating effective in rate, the of extend Specific liquidity to additional credit then expense for the total capital – take have September As pleased to our investment rate capital needs we unchanged. the to growth. We line drive maturity to able to expect metrics. dividends our both to top At structure. to value is we to we tax regard XX% grounded of and

have fiscal allocation expect capital we far the and As we begun the will this effort. have so share do important on Jeff remainder significant of share Because repurchases made this an mentioned long-term year. repurchases earlier, our not in of consideration and just work be any not strategy fiscal for the any year this,

we XXXX. expect million result, XXX year average full fiscal a As XXX fully the of diluted million approximately shares for to

outstanding As XX% our over years. fiscal two a shares, shares reminder, past representing of $X.X of we the repurchased worth billion approximately

key consecutively capital we’ve dividend closing, allocation nearly fiscal two and the repurchases have levers to we to of increased returning strategy. shareholders $XXX returning want and that past In are dividend history emphasize continue in capital that strong share a I our Additionally, to believe million. years, the

ready to that, Jeff. year. I’ll now over this look strong turn forward back We’re delivering to for tax the and call fiscal results upcoming With the season

are here Tony. for I to the reiterate to to want Thanks, tax I’m we how be begin. and how ready season excited

And products operational have for the backed be quarter third a that, place clients, partnerships forward to report all. results. we and compelling and line with the more aggressive the value that resonate consumers all we’ll in promotions when We beneath it to in strong We this integrated open through sharing deliver Tanya? excellence foundation to will plans look to marketing and we’ll campaigns. And questions. market for compelling our by deliver we with as continue new our

of Anjeneya Suisse. Singh the our first So [Operator with question line comes from Credit Instructions]

Block. Thanks excited having H&R and about helm taking Jeff, my morning. Good the you at at for welcome, questions, Hi.

Is So hear Tax driven store need? is how a reactive your about going were I was end you’re proactive targeting your thinking in or footprint offering. Go. question scale, unmet feedback, thoughts interested if And by on gain on on forward? this your as client to Pro more more that this on to this Thanks. any and you’re end

Anj, great to well. meet you as

So Tony add I but within a to comments let I’ll detail consumer done and absolutely it visit need. discrete that really as to a And me more national a office. my development and more great was was because lot couple segment, some then This they let can’t a give wants a in on that and I some of product consumer think arrival. prior help was based see completely development, thrilled to consumer was for we they don’t or a have more is understand reason, opportunity for want really of this to

on consumer as time more clear more launch by will in and was understanding And segment iterate driven happen but product, over that so on we need getting this segmentation. absolutely and it our

add just reduce that, not Yes, initial footprint, to is product. we’re obviously, store short-term, the in given looking this the a is Anj, launch to of our way just at to this the

to talk about that that utilizing on and tax from our our delivered having that footprint. a any essentially locations too impact early nearly have But discussion. still way We’re capacity excess pros professionals. tax It with our long across sit XX,XXX be will way in the we it’s retail

Okay.

you don’t as got margin one the want to to realize I get on crack a the anyway. Okay, too probably but for question, Tony, guidance, question second at And I want a granular take it.

have And it compressing drag million the seems when would base of imply scenario, it basis think, benefits a one-time XXXX, like, $XX folks year-over-year. talked margins XX-ish So case XX consensus year-over-year. modeling about bps as in is your you I a point

that about, So initiatives, could elaborate those can look your you the at talk productivity give you year-over-year? we what you are comparable if confidence on guidance, on margins as

Yes.

mentioned Anj, benefit in goes million did in So you there’s a $XX obviously have it. lot XXXX, recur into that the won’t that XXXX. We

going the expect of just is year. various have that increases are revenue some – fact we in be try also to honest, well. which It’s done. going I’m We’ve to we’ve there’s to on the grow no to thing as our normal We well. one closely some continuing additional We that benefited not we’ve the To this drive also inflationary I got due growth buybacks. that. roll comment margin But specifically margin added modest some obviously monitor locations highlighted that do it’s to franchise initiatives. productivity that expenses relief and as by revenue, expect to the that to provide

feel it’s good at So overall, where of year. we and about up, the rolling obviously expecting this range high-end the

so Thanks much. Okay.

Anj. Thanks,

Kartik Your Northcoast comes question Research. of next from the line with Mehta

number to this that think or ask talked you of get a morning. get you flat last good to year, I little about count, imply wanted Hey, core to be grow? improvement and year a while you do will client flat to just Jeff, and that just you it about from modest improvement. will can kind does take then And

assisted Tony the he year. wants will grow, think, for kind client in to. more to I I if comments Again, some and ultimately, but and we this turn is on on seeing want and not the improve goal I’m But what that our business let tee to comment of trajectory up see continue

goal become and strategy work our it ultimately relates from to expect When long-term to that talked relevance ultimately value in relevant we come I a proposition to of has DIY having sustainable earlier business. think, will the about clients. growth continue we think, about clients expect growth I to and as when observations, I some talked my the the that be in I to

add. Kartik, by other DIY, will to better I the have but to not specifically where had more last be the on performance it’s lot trajectory land and going we a I should don’t grow driven year. think, clients, think assisted really we’re we commenting do than than overall,

for And Block? still – from of type that do there what then, reform on right proposals least, Tony, on out tax standpoint, are and anticipate would benefit a now, you you at corporate the

Yes.

federal you as today, mid-XX% know that both in So, the state. includes range Kartik, and we’re

down the So really XX%. side, proposal it the on is reducing federal to

a now working It’s the impact. in through the conference still We’re obviously between being And it’s reality There’s right Senate complexity. is, exact lot House. still the of debated. and

So, numbers. I’ve cracking regardless, And it’s to change if think, will. still we’re before I at work, you it law, but going hard got the probably comes to team final the

time, But be impact against going XX%. open appropriate lot determined. it more to to XX% at a definitely rate et federal are to that questions your So taxes there’s exactly, at whether closer deduct the share state able be still benefit, to given get you’re what a of than the not to our federal, still will is but cetera, or is is,

Thanks, appreciate Tony, it. I

Thanks, Kartik.

question next comes Stanley. Thomas Allen Morgan Your of from with line the

Jeff. and morning, good Hey, welcome,

So us were assisted between assisted retention new do could if client is volumes going you off you and think you volumes. How just this additions how year on remind to split first to go? last went?

Thomas. Thanks,

retention So year we by about increase did in get last points. an X

probably a we would going love possible come an We This more the improvements, to good not improvement we I but expectation. client last on increase it’s an were expectation. retention. also mean, up, to new it last able year We to It’s side. year. it’s be in not as that going could see pretty going well. year, new a clients grow go the it’s we think to as got Again, think base

new to in clients in XXXX. the from XXXX versus had of in what come we more to bring improvement most is going So continuing

a have And obviously, this not thinking capital should thing cash year. efficient cash lot sheet you about be return, most it’s sit the just then balance Helpful, and on your to just of generating thanks.

year So buyback catch year, mean, are up how on expect about like you may next thinking of lack that? and or this I be the could we to

is this Jeff. Thomas,

real comment a we’re Tony long-term it. And strategy. considering Let allocation important and prudent quick up during and about I the Tony that fresh how we look about to to But quarter. was on we’re honestly, thinking just felt did it like very our we in more just me more at in. And repurchases embark any the CEO is of transition my just strategy. tee Capital arrival, not long-term share with let I’ll obviously make jump our part

mean, else do cash. we with it. I Thomas, We Yes, didn’t anything have obviously, still the

just But obviously make really to need could the our us we as it we’re catch until prudent we options So what And felt to was x Jeff’s some this to business open. amount into I point, to required to keep know investments give going, we to that going be strategic where we back point, a of exactly think, flexibility, there your up. we’re work. want new approach

you. Great. Thank

Thanks, Thomas.

the with line question next Capital Markets. from Your Jeff of BMO comes Silber

for plans have giving about going much. I I’m DIY you Are so than this just you’re you the your in marketing product past? to curious to the Thank be that to more going of year. the wanted in out. focusing talk on message some be you

product Good Jeff have year this will past. be morning. more DIY aggressively we than It’s we marketing Jones. Yes, in the

fact DIY the Okay. aware less mean, Any product. a the that? in color is not of that criticism or had lot aware people maybe I past guess, a that the on even I you of were of part

So great? any would color be that on

Yes, it I hit When the their the that well think options see I to compelling the were developing proud sure we it. on join people a you to team and reaction, underway in to arrived, assessed only but they of use and as were for And I knew company. own I had as we business, well. mass make my really not product understanding people to the I was just we same thrilled it. advertising have have were of

more and present more be DIY us products see our will general. you about in So communicate

great. I then have – Okay, sorry. And I’m

was Tax view Pro you option for the need as help it. going the DIY obviously Review, you’ve the I add But we offering, only obviously, is, if where to Jeff, got thing

well would of be our a that year, marketing this as plan it’s part key relaunching that as So essentially product.

Great. to actually follow-up. And that’s segmented my

In you Go bit a Tax can little Pro strategy terms Pro those? pricing a of about both for Review of talk Tax and product, the

Sure.

pricing it Given consumer will a we a testing to as basis. between that points general, DIY-assisted. the demand specifically But various they’re assess be try price virtually, prices. us various But to will delivered go-forward try on gives be of we in lot flexibility

Okay, Thanks great. so much.

Jeff. Thanks,

question comes Schneeberger with line of next from Scott Your Oppenheimer. the

morning. Good Thanks.

be basis? what on as flattish for year-over-year you the absolute or to relatively spend? on question. we marketing, go an do up see With going something as side following-up a regard view that’s that last might to Just far Is that of

It’s Jeff. morning. Good

on investment both comment been. we’ve to of as way going and directed, plans the of not that levels I in assessed, and exact I the about our level But spending. We’re came being the was investment very since feel good

outlook the earlier. discussed that marketing one EBITDA the Scott, has thing in And Yes. investment the add it I margin would contemplated obviously, I

Advance be, will products, you as did then of Tony, with around you will some the Okay, market thanks. regard And – hear competition elaborate might to you $X,XXX that year. a on how I and correct, Refund the think loan differentiator? Thank up you. Could – go on to this where the the

we’ve things in loans, loans. the Yes, We’ve $X,XXX few seen a different Scott. seen marketplace, $X,XXX

was are $X,XXX additional was adding our tier, one similar that we think, an tier. I to loan loans there and

Obviously, and essentially went So be year. we X,XXX the XXX, we’re big message X then with tiers, X,XXX. pretty XXX, last out

year. expect do to there’s the again this us. in a an that campaign of think, still lot left We It We was gas effective tank. for

did we offer. know there’s a a clients – I potential who message of still the getting out, about of think, do job don’t the lot While good

a amount So in a tax becoming this the loan second-year for year skeptical. professionals having continuing comfortable, a to more larger row, getting clients pound drum less

we and true. experience. said was do actually up before last good of their going client they with be the too really – year what to a some did card, fact little that office were car a was in think, the last good in to of got clients were $X,XXX we bit cases we I year on to out up But walking loaded their to

about us So definitely drive we the increase is year think this going pretty help and to into we’re something offices. our excited clients new

one prior respond that question. that throughout you is something see be press XX.XX] had of you to something Thank said last – it and question. might [ph] between how we and fluid range, the in Thanks. Is in And the just [XX.XX that you. the just new outside or Review, And range? The Tax going going on year? follow-up you be release, said more your for quick that Pro on to to

points think, DIY we price but the more attach will essentially are DIY be viewed there as with. to prices think, that that those the to almost base just can going flow, market is price demand testing I I within we’re is various Yes, the understand at to product. I But different levels

much. very Thanks Okay.

Scott. Thanks,

Macquarie. line Your with the Hamzah of next from question comes Mazari

Mario there your Any wanted This in store season? had tax to filling thought Hi, you updates any a initiative, see there? if is are Hamzah. process morning. you’re on when good know around monetizing Block updates your for in Cortellacci not base I so Advisors

Good morning, it’s Mario, Jeff.

as we and growth. out take step path a back figure I ultimate to to think, trying So, sustainable our big

things and One of we committed very a do, I methodical monetization. possibility is granted very objective, the the for that to approach, taking in which any at of have looking asset nothing

getting We’re obviously just started on that.

it’s possible that at what too and I I option to look owe think, those to something But be. every And early so, we’ll that’s us do. may say ideas now to

what more follow-up. buy Could how returns your room system? franchises you there far? like in for are Okay. also a those to And of just quick your sense give looks is us for so And much you a

repurchase franchise opportunities. additional definitely There’s Yes.

As three to been to my offices XXX decline. continue volume on years repurchased over a decline. about We I in ago the we said opening comments, it’s expect and

this about year. expect XXX offices We

and level our what in expect to a number for moderate XX-plus to to the we’re a system operators them, we years we’ll So I repurchased and been do of who have XX, retire of larger continue looking that essentially continue would exit. to lot but

to at repurchased those basis it’s have more in point, our on been just make opportunistic sense areas who continue to will not that for But up. locations goal repurchase it, to this that opportunities So it’s operate. but already an come us all franchise

rough As level in But the company. we’re at below are far ROI. these that’s well that the tell a we’re I as at you repurchasing about EBITDA will as we’re what trading public the specific return, that multiples,

normal to store. return, accretive like it’s to earning. integrate, So they’re a given and fairly It’s essentially they’re seamless company positive a operating

much, you Thank and so Jeff. good luck,

Mario. Thanks,

Associates. comes from question next Michael Millman line of Research Your Millman the with

compares to heading to your how And tax the be of talk Could Thank focusing sort with live, do you no for pro with collision? go RAs, about that you additional be taxpayer? expect TurboTax’s sort cost offered on your continue to a you. to of secondly, to

Yes.

our it, DIY then offer go So can more at a tax tax pro believe the live view different I you first live pro that one, than pro we if Michael, is so understand pro which upgrade, as, we tax least, of that more Tax we’ve you is Review, of is of marketplace what assistance, is previously comparable Both view go experience. the a was in full-assisted Tax we is to number which need more had a of Best years. Pro for

You documents. upload the

and a back forth pro then pay, get tax communicate and and office upfront, You pricing completed and et essentially in cetera. has virtually you approve

that clients continue on a Obviously, catch the question. it upgrade Tax as free didn’t actually So end have We’ll I change we advance, Pro the didn’t Oh, year, sorry. the we taxpayer. to it’s Review those more experience to of versus last is that a DIY Yes, of refund the the either. be no, there pricing product. product, no well. cost more When full-assisted that definitely

tool into – as drive to marketing really clients we’re it’s our a So offices. it viewing new

you. Thank Excellent.

Michael. Thanks,

further no at Do this are remarks? closing questions have time. you There any

us, Thanks, and Tanya. conclude Thanks again will this call. today’s everyone joining for

today’s concludes call. This conference

You now disconnect. may