H&R Block (HRB) 28 Aug 182019 Q1 Earnings call transcript

Good day. Ladies and gentlemen, my name is Ian, and I will be your conference operator today. At this time, I would like to welcome everyone to the H&R Block First Quarter Earnings Conference Call. [Operator Instructions] Thank you. I’d now like to turn the call over to Mr. of Investor President Vice Brown, Finance Relations. and Colby you may begin. Sir,

and Ian. fiscal for results. Good you, thank XXXX afternoon, quarter our Thank discuss everyone, you to joining first us

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

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

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

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

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

As could differ such, materially. outcomes results our and actual

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

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we the innovate clients and to about start ways. future to more how serve excited in this will of more We’re virtual

discussed season. more our agility key as are fiscal can excellence. reset. consumer enable we fiscal As of get platform where in we will tax to in our the over assisted for XXXX The are win. to price, and There pricing impact With more three With revenue price, closer June investments reduce believe innovation operational segments to is outlined share modernize four investment. we one-time to investing targeted about on making and time. pricing respect technology, to technology, we these in reflected we We’ll as we’ve and are a reductions call, our plans areas areas outlook reductions we greater spend XXXX, our to specific be of the

which multiple a engine and building will new redundant we’re and work. systems, eliminating efficiencies tax creating unnecessary First, consolidate

in experience we're capabilities be to innovate client enable something key in will cross-channel a seamless as we across Second, investing platforms, virtual. that

spend the from elevated and and to for which service on focused trend to With agile in of the and our and and insight operating our improving be cost. is our require business. architecture fourth, work investments respect more our data migrating Third, in ranges new quality are to over long offices. key to seasonality more to excellence, centers allow physical experience. in to And and we’re consistency the standard for delivery we deeper the us we're analytics client procedures the cloud This differentiating ensuring reduce faster objectives strategic our of optimizing we're and allow appropriate execution data enhancing operational platform years. term These model will the our better several next will of achieve operating

experience the are for to For our clients overall growing achieve is is revenue, retention future new over retention term, This for to declines for in the expect in our the rate successful overall of future in all lower. order are These new continued which operating crucial be do our to earnings improve is growth objectives long growth. as we offset client to investments necessary top steps XX%, retention and efficiency. of Taking foundation them significantly improve work clients, H&R not the years margin intend of and and by critical, to result a them line Block. we

XXXX. position expectation summary, client we're time. and includes an earnings for assisted our including over and In revenue in DIY industry-leading growth gain, steps virtual, for market we're the long continued increased share taking excited Specifically, retention, client sustainable term growth growth new in

We will to that, and quarter our I’ll and continue financial approach progress. share over the hand will as With our call season the more you results Tony to update discuss first on outlook. details we to tax

Thanks Jeff. Good everyone. afternoon,

revenues, That Shield of $X partially Identity revenues year-over-year increase products, and X% a $XXX of as the representative full-year due of our first during Peace of Tax results, into QX are transfer. the lower performance. with we result our first Mind or is not report related by refund offset results saw to loss to and details seasonality our get we timing our million. quarter primarily fiscal million business. of Starting I to a quarter Before of our typically reminder, the Therefore, of revenues

which or our to tax optimization. The $X.XX improvement in share to expenses impacts and expense. million, $XXX an footprint included amortization increase primarily our $X.XX to expenses, X%. operations operating by to effective negatively to show quarter loss however $X related due million debt million rate partially pretax $X Turning consulting continuing operating repayments and or in expense, expenses increased a loss. $X per offset which due Also revenue lower total of with a Loss to at seasonal lower depreciation million bad increased X$ increased and were compensation and

rate at our was prior the Our quarter compared with first outlook year. XX% in effective in XX% to line tax for the

to related the no liabilities were during Turning accrued Sand contingent discontinued changes quarter. Canyon there operations, to to

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

Moving capital grants. returning would minimum and are dilution on we shares we announced share equity from to to call, repurchase on repurchase allocation, our to June offset enough at opportunistic a

first we at a price The total quarter, million cost $XX of purchase During the shares repurchased average is X.X $XX.XX. million.

the we We fiscal objectives. to XXXX results fiscal XXXX to our enable outlook our we to reflected like will be June. in which last in to to forward. we now the some continue discussed additional opportunistic going in approach with be provide investments provided expect outlook strategic context continue I’d from quarter Overall, line the

expect EBITDA of we XX%. reminder, and effective tax to XX% XX% a of XX% $X.XX to $X.X revenues billion to margin to rate billion, total an As

revenue of mentioned in by from the All of to optimization partially $XX one-time franchise technology represents the and by expenses. international The due XXXX. our footprint and well attributable impacted million. in investments related EBITDA of the approximately fiscal recognized as further change the is price to also this quarter. million in amount was costs the buybacks Jeff the will be is The second increases reduction in outlook investment to as in majority to half reduction our EBITDA remainder by inflationary EBITDA $XX of DIY, of offset

margin, around intent position grow investing time. make benefit With much our XXXX sheet the with at of lower per to been generation and to in results robust business the that, to comparable and and strategic corporate I a in back Essentially earnings us now share investments revenue earnings has into XXXX. of will fiscal midpoint outlook revenue our our to have will grow focus earnings the over in balance the and back we call While to fiscal the beyond. taxes In over levels us clients, healthy business are enabled cash summary, turn these which Jeff. sustainably of

as information to and hope questions. now line the year headed our to look context focused our forward get sharing I Ian? Tony. industry the plans outlook. more we’ll where now for shared with provides we season. we regarding and on With Thanks initial financial the we're for closer tax today the We're you more that, open

comes the from from of Sachs. [Operator Goldman Tong line Instructions] question Our first George

midpoint. You've enhancements? to discuss recurring in spending tracking attributable in that guided to to operational you’ve of A a $XXX is you million investments. and on decline with technology branch respect portion is decline EBITDA touched investments other time in XXXX year-over-year earlier, one Can at the that closures, how

but think, tracking. obviously so only obviously one I the end we’re overall, year, far, quarter we’re of

the I But little definitely $XX our million a majority onto will had outlook. think QX bit of optimization, to full the year, with hit The that million reported $XX in hit results we were track in in lingering in the the footprint possibly we QX meet about QX. for million line our we’re on of that to expectations. $X QX. Specific to

a you as provide some to margins thoughts relative the then old long-term can preliminary target be around And what EBITDA of to may XX%? XX% follow-up,

Sure.

XXXX. So, provided we to obviously, XX% outlook of is to specific the XX%

to have improve. a to expect specific was back business growth. point XX% we believe do necessary in trying clients, We As this to get that of grow show a investment didn’t grow at don’t margin facilitate level to EBITDA that We we that revenue, goal the XX%.

improve but that margin it's expect term, we do to and in we grow clients. the we as So revenue EBITDA goal have a not short

Allen line of Stanley. Thomas next from Morgan question our is the And from

number billion of that don't code, clarified terms market to the any that's to flat guidance be you. you obviously the about and why you of you sensitivity you assisted the declines conservatism of kind XXXX. revenue the billion, some $X.X you assumption if but the Obviously, $X.XX that the there’s and reflects gives to that fiscal guidance on a that specifically gave in your So to is that of will on of think Thank you on X% talk kind in to call in? grow Can kind update the helpful what see concern and and baked to confidence? understand happen, to with going some tax it’d color sensitivity more could there that, that

Yes.

and to up. Overall up the Just think up one clarify, flat X to was X category the X to I point, X. for to slightly our guidance about assisted DIY category

know So don’t question. consistent, to saw most second add to Thomas, tax during recent with you I the season. if what Jeff, want we this

that, only between the years way is we thing the seen assisted couple over operational thinking business, we to value add improving have The of on improved with we're improve Obviously, our over the in momentum beyond. I been the make of building price, about to and proposition it combination we're in need about adjustments how growth performance positioning, thinking the the clients, last would we and assisted that's ultimately and we've excellence and get XXXX and assisted, and in quality. to continue

the And you, of help that think of overall quarter. that can generated in new for press one impressive cost in obviously, product it there? about how Tax then, you about we Shield us the other profitability That's was business? -- obviously $X.X release, outlook the of think million the a revenue the And that, Identity also should

season, our during obviously tax that's overall us most a during to this recent product evenly of during recognized attributable new largely good the specific over product and versus recognize The We it period, The tax years the sales versus features driving we XX-month Thomas. majority season, the that and revenue months really been profitability others, the X- sales. you changes a occurring happened we margin a We see to pretty obviously but in a of we to the those allowed most XX which like it the during product ago, the increasing that so the to season. So, don't over margin. some added Tax good P&L, that product recognized lot breakout tax really was the Plus few the is a attributable we that business. of have the launched margin of quarter

next our line Mehta from And is Research. question a Kartik from of Northcoast

the the need business with at as You've wondering to marketing your changes consistent in will look the changes marketing two Jeff, change change? And with that? had years have to that the was to code, this I digital method year seems methods and you you tax of need happening happening, do worked.

Obviously, able messages, is and Block differentiation. of don't this after A around tax as last our have about more into for we plans help category year QX the question. consumers share clear I very a the is more that much simple think that But about the that's exactly on season for we're we'll message we've marketing thinking call. Thanks our and to close we the to that lot our how get I H&R helping example marketing say what our realized them we and Block. over the now of few get had is differentiate over. one when had largely We not the messages would understand available of work, H&R consumers to was rethink did been value we understand strategic things been brand to proposition been help when our points that marketing is the months,

those our know provide. ultimate value helps the that kind specific to really are we we what that understand of as the be simple part consumers message will proof because points sounds, that marketing of As

season, share a closer and to to messaging thinking details broadly. we're will we’ll more more positioning about As how change how our we have get the about lot

place the season, you too that kind season? this is anticipate for changes the of the any do different tax this start And you year season all of maybe are of - early is tax or - being would tax being any terms to the this in a normal put part anticipate in but the

working IRS think I amount of detail sure all working software material changes Obviously, through with expecting them that this training. into flipped is point our make significant at closely changes. change, those any to we're of the the and not are We're now. our given

is them to is given would as goes I think the to much we a everything start delay Assuming possible. expecting tax how there work start will season do but planned obviously

buying than And dilution more would then shares. happen. question, just that about about back X Is that million a you the talked

that And that I capital so, and intention manner? continue in have above gone guess to you’ve the returning with to shareholders

It's a good question.

we is the about yes, above shared we million the June, that. buyback but shares, to million is that amount in X X So, leasing at off which the expect

opportunistic I going the plan and think it forward our show well. repurchases we quarter does during made the as that’s

Schneeberger our next the of question And line from Scott is from Oppenheimer.

to tier in a you this I'd the did how guys in with think I asking specifically, bit. would itemized you about views your like and it. address code level but start would affect standard, on specifically, Do-It-Yourself curious Do-It-Yourself tax the that think just changes I'm

individual, have to industry may don’t then? how your be the to will DIY affected offerings the else but your reveal want this how tiers far as you in as You anything strategy elaborate might impact

well. assisted with price some you're to have for It’s your occur which into the obviously building of space. but I thing of essentially and more to DIY you're I tax go us us, year, good to change, thinking Block a question. you was deduction year, when in the well in of that’s seasons, as historically, almost to board our a big taking headwind unique were products. do that it’s plans. really quite our that definitely deductions see the the number the majority But drawing take take got a do a as But isn't changes H&R is so itemizing for that of selected tax a to through the headwind the in how zero you out so to going fact triggers and last And big standard business one upcoming few little bit for a other think to for code in you account for back pre-itemized that us, as that account did come change something different into of cause it competitors think Because not because you had a you a providers we account. maybe for this items into including Obviously, as

four second, which then you in anticipate I’ll and technology fiscal in are provider, which cloud, But of specifically? writer perpetuate? from upfront. X to to a number is to efficiency there AWS, you switching data And that the questions you when XXXX two and you expect them? was One, spend item catch, centers then to to the you did not fourth. recap the them going sole you them, which an so in there’s recap categories are I on – I’m these nature a me. My I all That’s item going savings be did expect for X, slow I could just if you have, ask and And one-time catch specific which could you specify Thanks.

I make optimizing decisions all - point, architecture insight assess analytics the words our the robust to the remarks, were build if and meaning in So, cut more fourth and capabilities to in Jeff. The business our essentially data from faster. platform, prepared Scott, it’s

we have over four forgetting But the we think and have believe several of invest I’m XXXX. work business fourth. in to benefits happening are four run get So what several things in rate of All each time years. that’s And we next we spend, one years, obviously, next not the over the benefits. the… Coming also that out of the that these

on The the other specifically. question about cloud side was

will into of So all multiyear over a will once total which complete we we Microsoft migration to years moving be are savings lower to expect The IT few to get that a these spend is deliver of which period. do on that product. take able we that provide Azure spend place. And roadmap,

So, XXXX the we map, four to example. three in for it once overall to FY out, years the road was lower than be expect get technology to is we do going end of

our And from from Hamzah line question the Mazari next the is of Macquarie.

This Cortellacci Hamzah. Mario filling is in for

how are Assisted? DIY on Where color maybe environment left of to give you made you technology? completely just tax And - your the shifting you that? us maybe the investments to already can see not towards side in mix think You've with me that the competitive the us given - but some you you walk to more how DIY but much on ask, indifferent change versus through could kind covered side I

better is third-party product This is of the team we it And marketplace. in over we're this years. in believe understanding that a off competitive in and the improving in simplifying we've to kick I better and reviews how building H&R get all, doing DIY and I here couple coming Jeff. focusing Tony easy to have the our already keep Block of and import very I’ll think great switch user that to the and the is first But to on with it people was last in observations of can And the one evidence we join that. continue me for space of me. had the on path was that been experience,

have the we growing value that know price XX% awareness a proposition is working We also share. we competitive DIY because we're we're that about and have We space. very even understand in

is And so competitive starting DIY a business have in build a one you’ll ecosystem really what we'll right really continue challenger aggressively But that. us we we help. we're are to take of step to market but that be to back, we and believe there brand see an and do like the very

And our the to continuum then clients But method. don't current to Pro that were we're from expertise we for the products that live virtual great solution obviously, want. And our consumers be complete end. feedback chat, And using products. another the the really in our so, for let it's want that Review, while that the should seeing virtual getting have of three them; DIY consumers best middle available office Pro consumers we Tax have early what on they help, in new the H&R terms who those confidence. represent choosing our our We that to Tax think products belief weren't previously Go come from other on Block that space were in still

about why so, ecosystem excited so that's the of And entire to deliver we're being for able client.

on we're to were margin then, charge able mix the specific I mean, and shift. we segments. And and in to deliver your across overall focused obviously

focused than of day, obviously than choose we're we client is charge for but works that we're them the Assisted on going assisted them, lot thinking clients clients. the how letting have the about at a best the and DIY we can any a building that's best higher forward. end method some experience and actually for But that and higher that of higher have margin really DIY

could going kind to looks can be us are to an And the you We maybe of I what vest walk pricing know how lowering prices close us in discussions can idea keeping so you year? know assisted competitive far? for going this Or guys purposes, pricing be? give of are through the maybe DIY and you what versus strategy but you're your that competitors like

of assisted, more mean, obviously this summer, progress made come. lot I in we've a details to

Jeff some key competitively to sure be of H&R that obviously, to price opening growing for but be wait doing. definitely that awareness, business. the use comments, we're we priced to going Making attribute in be want Block. great product, targeted product. the that and building DIY, In what be our of as we a helps a goal to clients price competitors consumer his is in side that see will But, definitely lowering have on We’re said

our the And is from Jeff question Silber BMO line Capital. of next from

of - business. question investment following some the Just the earlier up about in with the question

any in just of season? tax I curious, out the the to I'm longer impact with think are making going investments the be you helping current the that’s term, you're question

is making there answer. Well, the is - didn't improving potential improvements have make investments natural We the business big with price. change highlight we’ll sharing year-over-year The things terms really list. the We And yes, impact think simple probably of important the the for be this being would are we communicate in the most year. delivery, year feel, in of top product later, those in DIY. quality that investment believe the we things the is to how we that, this exactly year. of - in this and believe we obviously, we’ll the several price, price And at way but I we're revenue

some in about the had the cost the small cost, mentioned onetime that of the Where mentioned footprint. quarter incurred earlier timing there know besides terms I you the had cost footprint? then, on of of the And the you any onetime first one in you

the overall I Obviously, Obviously, how we material mean that’s pleased would that’s always out. expenses but small write-offs would or material Nothing the that something out. overall X%. a fact the grew impact results. else only asset we’re came that call nothing that quarter with

the to And the ordinary expectation out? again from seasonal you expect out a called million million of $XX nothing else $XX that

season, the rest as As far the no. of

the our line And question next comes from from Millman of Millman Research. Michael

you're can comment sit instead work of missed on leave some I I think be spending so home people to just I with this people EPS that $XX? EZ? XXXX? a home And product? their of with cover and say, what yourself, $XXX, taxes then free - and things, still you at - sort flat flat year home to at do that is sit longer you could that if expect Geez, Is question, did of could do lot a going doing sitting the ask And term spend question all you're last with you it I doing of those and myself at say

on chime Jeff definitely margin at consensus as I'll tax it were look the FY number our So, effect, EBITDA question. as EPS Michael earnings well XXXX EPS. if your you was our is, outlook the take of let to and you approximates and we What share essentially the question midpoint this per alluding first in

promotions the have been basis So, and calls changes we're But P&L. just - working to how all going we're on a broader come hear the the margin business and for point that take. - zone on for the it of to investing to our quarter specific and trying is need taking And point our a share guidance obviously that or that received to definitely working individual changes a that highlight into more trying we single it's not we’re obviously there. with it to EBITDA highlight preparers details home on then sorry, announced because changes, we IRS back rate that season. And eliminated, bottom XXXX-EZ the is little Jeff's know and upcoming story you from the some the to third of then about way than how key portfolio EZ, additional about Specific has question being XXXX bit. just providing and drive go to a benefit second Form the the be corporate XXXX we one, just thinking the doing a it's in the which to But traffic. FY We'll tax we're say we tax will run we the clients. promotions more of that part essentially so, the that reference our

individuals question to come to they don't on do questions and it guess themselves year next and I this the questions My is, have on. answered so, of to - have training the able year more to you be are it some do less and office. more they because There's

it’s Jeff. Michael,

how consumer shifts home off. So about to already. is mean, has behavior talking consumers' start time. do at what I And obviously, for taxes options we're themselves over I’ll years had just

I method wants growth share we'll insuring fair served which to products investing, relates we're when it capturing consumer the or have have also As however in to why And believe of to But business. type, we take DIY. get or competitive invest deduction. of our majority use be we in Assisted debate that already complexity, help. recent one the happens history assisted of you that that majority taxpayers the know just about to taxpayers think things of standard over vast the the And the those we the simplicity vast is about

everything research own year. are consumers shift party time, So account, about time, you and know the confused from over history third research, tax consumer changes into we we of that the our research method over consumer when see take taxes going into

serve So see to and the belief to focused on that's type. want they why from to we shifts method over served. don't positioned continuum And be that we're big near And between. of clients we help longer we this our Assisted in in the think however is products term, be DIY have term, to in

comes the question Chris our Research. And line Barrington from Howe next from of

questions Most tax been this of or a had around learning I Paris. would last some the question that just my had season. have taken, Maybe sitting Alex and in box, outside for there findings, desktop Were the takeaways you upcoming of through just the as this tax of far surprises, filled lost opportunities offerings. improved as at be of season? And could any mobile perhaps kind that be functionality

our maybe start some I’ll This to eyes first just is season my off with and here this through do seeing side, product a and could and performance in good value grow we to need actively a was we share, that. the of mean, again, see positive the on tax Jeff. fresh so things more DIY good space proposition realizing and obviously I marketed,

has clearly over and so our retention to year On moved we know in the few our focusing example know opportunities able to know second retention for one It’s to other really they I it lower can is on get a so years, to retention. several plans the much this us we that this just and come and it. that But that have just in time. can overall area I thought the become I third year is We first client we're so lot of improve. of how where basis to biggest we points to client hundred last an we improve be new year attack think side, those something at stickier clients that's an back new

guidance provide probably but television wanted you sharing leverage highlighted as what and your you forward But Thank far as sure. how plans You how my will marketing the versus and mix your maybe just this further place with your and in mix assess response. answered to are more you that you I make guessing into when are spend? - optimize questions that some two to of that marketing digital for moving already would I'm be that. can future. for you And

CRM. new that arrived business. I and opportunity the for I we of So granular more brought terms just and us when a put for those on more been channel mix, would shared far have per clients, role more of ready as Television will of we to working a in first plays how acquisition saw it of in of clients, you broadly we've cost when and some season engagement retention get what role focused category still of capabilities. relates clients for marketing I about the the think CMO acquisition the to the business. It But for continue to thought I of kind play to those kind a metrics, about ensure who’s getting more and in of performance getting hard performance

level So, get on again we're in get now very overall customer I but we messaging, how marketing. performance what really into and on think focused a QX a and first lot positioning call as out the is terms more we acquisition of

have I'll the it now back time, this questions. to at presenters. we further no And turn

us. concludes joining today's for everyone This Thanks call.

Block's this your for conference gentlemen, earnings call. H&R and conclude participation. does first Ladies quarter Thank you

disconnect. now may You