H&R Block (HRB) 7 Mar 192019 Q3 Earnings call transcript

Good morning. My name is Michele, and I will be your conference operator today. At this time, I would like to welcome everyone to the H&R Block Third 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. now turn would to call I Mr. Instructions] like the to over [Operator President Investor Finance Brown, of Colby Vice and Relations. Please go ahead.

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

presentation On webcast release CEO; CFO. Tony will and our will which and the Investor the a today containing Relations the to today’s hrblock.com. Bowen, find press website after Also are on call posted posted Jones, this President Jeff We've today's on our the website link be at you call.

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

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

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

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

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

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everyone, morning, Good Colby. for us. you, thanks Thank joining and

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Thanks Jeff. everyone. morning Good

in Therefore, to of Before to third quarter This I Starting quarter our due we overall long-term details our we million loss get out delay spend million. into our our primarily expenses the with or a is fourth a to the of as as bad [ph]. and results, third increased fiscal saw $XX or report filings planned $XX industry not quarter. result the into to million revenues, strategic of during year-over-year representative the related the primarily was the well expense, QX third the due to decrease of the reminder, year results Turing seasonality and to marketing, X% expenses business. $XXX initiatives related million of as This a business which quarter debt $XXX typically to performance. shifted full total technology are X% of supply. operating

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

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

capital, to Turning on unchanged. our focus priorities the liquidity remain business. adequate We first to maintaining fund

to we Year-to-date includes to Next provide our offset consistently grants. and This our which for to repurchased fund the look shareholders invest a outlook dilution $XX finally, year. as we for return fiscal quarter. remainder equity for a shares to the drive the through I'd repurchase million opportunistically capital thoughts $X.X shares then and $XXX approximately million XXX,XXX long-term have in total done to plan minimum to growth. shares million. to repurchased now on of of third have dividend like from the during since we repurchases, And business public. share going we We look

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net clients However, for decline the in the consumer assisted the average half we season. in is charge assisted were decreases segments net year for price more result the a decline certain of as back charge. both to anticipate in average a and second weighted net full half The

charge driven first Net client slightly We the average average was half Moving to this to the to growth earlier. continue competitively continue increase conversion and half that net by in saw to Jeff to season DIY, improvements the second growth for we half product and we category. client increasing the the discussed in of due price this in anticipate mix. improved first as charge lower

for we net charge anticipate DIY slightly be So and and year the client taking full flat up. growing to for to share average

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extremely lower of that fiscal X our rate points. expenditures million occur the summary, interest of to $XXX goals amortization our However, unchanged of to on fourth largely In our track I'm of $XX to outlook expense could million, and million fiscal our are and X 'XX with million depreciation pleased making. remainder discrete $XX to the during pending against there executing The year. capital are remained plans will $XXX to the items $XXX quarter with million. that financial we're achieve and million for progress we're $XX

and the a to plan With back steps long-term taken for that, now call in this have turn Jeff. initial over growth great will I sustainable the we've place We season.

franchisees We've from excited we second taking reason To put this are not season, help executing of wrap our the purpose at but us who keenly our the of to we aspects financial focused clients, on of the continue only to the value steps communities and professionals, we'll long-term. the June. executing on improvements clients toward of report growth we are our thank full and Tony. our tax ahead when to made dedication our inspiring in for client place the our Thanks sharing the are we that doing shareholders. And creating for right just numerous have outlook. of our to the and We us a received be up, business half revenue in all and season. ultimately the and feedback now for Their initiatives for remainder our to forward while beginning positioning confidence more we results gives journey, in line want season. for providing I and innovate living across that, our and look deliver and great earnings, long-term We're of are With in job associates, in open Michelle? questions. we the year against

our Morgan Stanley. And comes from first Instructions] from Allen question [Operator Thomas

open. Your line is

Hey, good morning everyone.

increase a you all little I all about why positive, of year, we net what's with comments positive kind find mean the I the on guidance things great. bit for guess, So keeping are kind as your going you think cautious? wouldn’t Jeff, of these guidance improvements very your I your promoter score

on seen the pleased the we very the very, you we more score we can it, part time I competitive seen clients, promoter consistent there's enter lots hope finish We real fact industry. the very we consumers puzzle of on we've in been think really assisted kind when responding we're don’t remove down the here continuing Thanks see so where for for we a shift offices, quickly, in years. still we're to we've are historically mean as the ever of a about in favorably. comment are sure in we in we're clients with understand There to your few But these of a EZ look how think we've We back about net slightly value of dependency very much. season. pieces improve free experience amount improvements as DIY, we've done execute just our continuing to across lot of that promotions trajectory the more do to past. making reduce still improve in which in proposition on the of

we're momentum reaffirming because we're improvement. yes, for this that we also a and we the doing we So things that of time see lot our still but room know seeing, first year outlook we're there like new for are the brand

thank there question, that problem my is industry specifically? was earlier this that seeing a Thanks. followup week you an wait article and out virtual That's you. times for helpful, Is then just And long products. about the

tax fast labor of doing it that can to layer to of and network which we is, how love a sharing half, we're Tax have this So to of more do that room in tax our co-browsing and one call for screen the know pro things them a that the Ask improve what is really to is we the and a we our experience one of about. ability We in live good things activating Pro works, about have the because XXX,XXX connect technology we're space one better but do product, minute. we so connect consistently a tax to pros pro to is enables and something really within feel second us optimize we of so seeing we a with able

Thank Helpful. you.

Thanks, Thomas.

next Your Northcoast Research. from Mehta question Kartik from comes

open. is line Your

for anticipating Jeff, you I you indicated had as a last little the what because morning. year. good I'm you Hey, about year? bit the you just of this a were the point from losing wondering know reference and pricing loss percentage some dynamics talked XXXXEZ of XXXXEZ have

morning. good Kartik, Hey

by we the client so see the the the other we we but industry or that's would. feel isolate free about promotion, that break It's feel we've keeping look into type EZ we're playing what that EZ type if that's losing we form we expected good place industry at really this out it's early where is most when that So to we strategies rate free are seen in obviously easy the but But at decline season right clients good everybody, put don't losing really things. say with we've late decline exactly, on the we and we the we why that we're pace now. the focused for

XXXXEZ rest than season So March for probably reports for, better would you because the I the the just results Jeff expect so through be understand, internally of for April your what that the would and season? we're IRS

Yes, XXth the promotion year and so ended the so XX, sorry. XXXXEZ last on

past we're period. that So

So that's that we prepared price as the our kick a remarks, clients comparable industry into I move of more we're we in in on will when investment with my to half. in. mentioned back expect focused be the for things There's lot as

to So price anything? Tony, things comparable that the we're feeling we'll all add the upfront to good in think investment declines, finish the do operational combination of you we of pricing, in want the as about assisted. momentum, industry

just on I'll that. Yes, add Kartik to

you is assisted think category X(XX) almost showing fairly (e) the As IRS down in know X% delayed, is I specifically the assisted.

up slightly the as still in I as expect recent category. think we're on do going you up your essentially flat write well end we that to at assisted So to

carry So second that momentum half. us into going with obviously the we'll

Jeff, one just last then question. And

is perform away you to could and be could I'm both company operations, take they from usually why that the at performing company that the you've or similar? implement results in are wondering case. look looked that's anything the that franchise at than franchisees so operations you better the as what, As of do and you there the better the results think

I a just I opportunity So, with execute I've broad for a of our learn they time comment from to first, sure. believe spent lot there's always mean, and how franchisees

think EZ not them free now, though even did. in all last I particular in franchisees of right year, participated

impact And the this so so less of performance of had franchise the far year. on impact elimination free EZ

part of then that's it. So pricing. And their to able they're own set

So when actual you you look know varied adoption very at we of which differences the discretion. pricing had points but map a country across is their our structure, bit price wide have

So I think the so combination of those two that things have year. in difference really this been what's performance driving far

Thank I much. appreciate you it. very

Kartik. Thanks

next You Scott comes Oppenheimer. question from from Schneeberger

open. is line Your

you And in Good would in at H&R discuss play the year. of dynamic to Thanks. kind how morning. just their Block Could guys expectations? please broader this industry? a relative of the the assess performance Thanks. view RAL you then your How

Scott. pleased over with a applications amount approval X%. loan we little morning up we're number Good average rates. Tony. of This have, the is RAL Overall was overall The the

for right benefit the really a our good in clients. trending obviously direction, So,

which for several that this and how a there you we see We'll that plays this year. is years. no As in ago fee. out fact higher consistent space were this good stayed with years execution the We product were for really next loan interest of we the this that over how offering our know customers really feel few launched about were number free, a fees competitors we a amounts

for amounts We'll year. we it of executed advertised to this have be being loan at look Some individuals are credible to we to feel but good a every to continue qualify are that able the in refund for largest have year. out But definitely do the looking some you marketplace. amount, really single how the about loan

with this the based you Jeff the to and offering half year, versus tax type then or has are, reaction for second question in the at Thanks from seasons third you transparency customer And the for of different expect future it been Tony. Thank competitive you. meet? primarily half, the be do on in Similar see half what fronts? do and kind first the H&R second you, part industry in whom of what how differently second just store you the the Block the question and of received

try to Thanks right Scott. All I'll those. through pick

compelling we to half, doing in Actual versus one implementation it. lot in cetera. many consumers we're hear know brand the a It's I traffic message of that we brand when of even into things website seeing we're lowering prices the lifestyles new et of we'll involved pricing, So Right? mean market opportunity deliver we're are had and this. second very more families, interest we the It investments which actively as half translate much more individuals We for really made market is with where working does how creates thought just close get of for attention a into paying first from more just and an second half know situations the value It's clients, industry. to more we them. the a the to second idea. new our half. research to it's We're it continue actively it marketing that

offices the the thing is feedback and I'm in And of target lower which have. to in as on so so get of more road with of sure continuing They prices first. it the our tax more from combination are on we make learn in will the so, difference the value not it all don't think I part that with prop with and it expect is marketplace to lot the dealing then consumers about. for pros good the pros see think love prices really just more and is the knows like we we just our this help price reflected and just in big that continuing I the will be about field consumers, a that a feel have on to the talked comfortable on hard tax three pros serving half second tax lower narrative removes versus to focus things conversation half about, second to the clients

the industry future for did first just covered how and do the part in does feel in then part, we, kind of you the yes three seasons? Thanks. see what it well, tax others That how sorry vis-à-vis

Yes.

important is, So I low the not thing trying to to are want reiterate provider. we be an price

a really enable total about talked realized. year, and value price we've our my over As to resetting this year half is to proposition be

lower And it's what versus looks H&R say it's just hard that so, was pricing because to price, variety competitive competitive but believe set their our Block. of the price in already general our we like, than

competitive And haven't actually that hasn't a there difference so with point network to and been any field standpoint response. this from seen really we our

we switch, We but have structure. and I'm in get We'll assisted, next through we was assess cash and to DIY, seen the And how it more not third those to the have about we're executing pricing until debrief, in things, both with performed year in for types a overall well of the in decisions just virtual, make going and think future. promotions to future hold season. fundamental branded you how and to of shifts lot ask I competitors, the your

a Fair Thanks enough. lot.

Thanks.

Your next question Tong comes Goldman from from George Sachs.

open. is line Your

Hi, thanks. morning. Good

the versus much the volumes of you discuss same HRB's other internally HRB industry you February you and period declined elimination volumes shutdown decline Assisted how Can promotion would factors? government X.X% attribute XX. by estimate to at the tax of declined XXXX versus EZ over much through how

good Yes, take that. I'll George. morning

it date the is think about released. data our the think to easiest same the compare I way to IRS through that

like. walk Let what through just those numbers me you look

down Block (e) have X.X%, X.X%. file down assisted would was their X(XX) data IRS been in So H&R

So said to free a as comments think X EZ the we point due elimination entirely the opening is we difference that of it's promotion. about our in And difference.

The line by to headwind So hadn't of we through basis, end to the the is free in overall if (e) had we essentially would again day have day flat a with industry the IRS. we up. expect X(XX) to end assisted on the EZ X.X slightly the essentially been year

So pretty level we've big you're impact half into is day-to-day adjust days to that's talking calendar then when pretty of a and have the we for got tailwind of a obviously thing, things going slower. causing bit just reform big just some a obviously tax two the happen, one few - other delay we things a it to day-to-day look we on second a is there as And results. at can which file people but not delay/uncertainty little weeks

again, getting is think just margin more the a end through The just So will industry it's It of matter of matter timing. up. to we season. catch the

And helpful. for the mix February impact affected how about increased tax reflects by and declined reform net XX, of how I said assisted talk think which the followup, for charge That's much through it. you your Can a excluding Got you EZ. average has elimination this X.X% pricing from pricing XXXX my perspective? assisted the

the we and our be changes obviously to exact which as but pricing Yes, I were entire – from up deduction this in won't increase offices, revenue year. decreases out contemplated reform tax that the for in guiding tied but we're is in we all filers in increase EZ specific the more number, average don't want later getting in we new be well larger standard of share to the the the average down net for have price free which model on as charge, drove our included overall who outlook. the down expect benefit we on They the essentially second overall Again, were that will in revenue come also where with charge the track the the amount. guidance expectations to into NAC be. were not year said contemplated the our season elimination will net as the NAC and half we are the It's year rolled

Thank you. it. Got

Thanks, George.

Alex Research. line comes Next the question from of from Barrington Paris

open. is line Your

I Howe mentioned we Chris data, How seeing the growth changes screens should had is in consumer? acquisition, for is and sitting follow improvements to in here one you're these you're client your that one room improvements in far as Have and Alex. leveraging the much then about had earlier for questions. as the This you retention? Yes, or how reactive to client you regard in product or grow the say that reduction here there more proactive? just And morning. assess been Good would seeing up. topic simplifying

I'll it wants add This is Jeff, anything. to if and kick see off Tony

product make in management friction feedback experience constantly the the always trying and great I product The client to around our get I in really surveys experience, pricing, just help. in year specifically clear last is it steps team saw constantly steps in our the you easier. to around think know around DIY improving think and removing ability

three that's And consumer And and the continue the so, those of it tackled things. way feedback, volume very it I way to think all we is. the directly why is the they see improve improved

want If gets third we're very by the parties. is very that in to recognized to have we We to price people product you We just business, aggressively. actively product, DIY want want great take a market continue and step to back, know broadly so our strategy a in the simple.

It's And three as to continue half do. do things is driving it's move those you'll to we the so we as see us the results what continue great well. into second and of combination what

for Sorry, you But guys. I'll Tony let cold want. pilot my if

you've virtual of should or then has assisted that from material product seen had it journey, a think these Regardless to a as your just you, H&R suited or any different I follow migration Ask product for a in shift here. up the of some are you at? And the towards Tax quick or product you moving Okay. where look segment one I move have new as Review you seems Block products customers of with introduced, tax Pro on-premise

the about well. I introduction to Obviously to different ends each and so yourself. it forced Our I has lot is or improve when that the arrived summarized do way range of of an extreme we help to of you industry, of ones. you products we're assisted work I have really a to two of people use confidence in the And you've think at different been going the look industry it each with case how was When market of under side. lot a the had spectrum. that the basically a wanted Either

insight For space access and fully weren't two to but we in have the long someone questions now so doing themselves in there we pure options, recognize all it review they as people we or are time have DIY, that that the really an trust have weren't a with the but and Pro office work. industry have tax Go that didn't or the in and their they pro. consumers on product ability is they time new the know brand the H&R now product based confident a conceived DIY that Block, then and live their are aggressive Tax to as sit to is either come get didn't

this that's them young in attractive Nearly we're so brand are at new excited of half are being of they most the so them clients to of new many market very the of represent for and franchise. stage the And being so and to audience company. why the see new a future

helpful. Thank very That's you questions. my for taking

Thank you.

Thanks, Chris.

Silber from comes Markets. Jeff Capital The from BMO next question

open. is line Your

Thank you so much.

issues needing to products. going either of indication more needing As tax people leading client Have uncertainty any this one new we season? season up DIY more your from you be to might was your perspective there virtual that the filing file used this maybe to some seen advice, were assisted of laws, products the that so some your might or you that tax handling, see of with far

if Tony and wants I'll kick see it off add. to

are very there I that tax might reform. questions much be from this think gives know range given of offering lots full some choices, questions, there we people

to lot had wanted questions. Pro they especially, that that's I pure before I example a filed. we're review the rate seeing in a they Review who growth to great people what Tax in think were than think being in but higher They DIY DIY see recognized work of DIY, someone their they

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point fairly only think the with thing last opening the line we've at add in we included average several would the chart I we mix years the that I this it's of at the in when Yes, industry is, in Jeff seen look the slides. year

doesn't taxes So shift an file as We second that for is in mix in more filing their later reform more to moderate tax on assisted people how the having feel the know like point. it's filers is this on season towards industry. the impact complex half the are it will at going

overall our So some and choosing our along we're the in in of showing the own that I several seeing the perspective there's years. But an are trajectory industry definitely some from help not within we've that a change data products seeking seen points last help data way. people think

to know did of question, the because timing you And the but quarter, my great. fourth shift of products some on be might both Okay mentioned the reform. shutdown se tax have your that per quarter around maybe see way and some to and disappeared this there also government fact uncertainty difficult impact? about followup lost may revenues where third the of I as do, Plus Is impact you've from of more to this filing Thanks. And quantify Tax the any an you fiscal season? that maybe

was to year-to-date delayed January And the think think about probably the way net to is happen is, guidance is then free Jeff think it your as the even assisted an were well. head part relative I probably about out to easiest mean, But I the charge year-to-date just through Yes, what forgetting...? way is quarter. though average I the we to question, year around get tax idea in your think look get by we XX, going essentially of full in then back it the returns on to through easiest take talked partially QX in our our and fourth overall offset elimination the QX I'm EZ as second of improvement the to at guidance. way the

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really so timing Thanks, just pretty across a board? the much issue

right. That's it. I think Yes, exactly that’s

for you clarifying Thank that. Thanks.

Hamzah Mazari Your from next Macquarie. question comes from

open. is Your line

Hey you. on investment. return is around good My just question morning. Thank first

should do in about made lot on a judge investors initiatives? went We've talk Margins your just when one you investments. growth in judge that. pricing. couple on it, talked you I of a basis Jeff, so curious investment know points. these return of about show Is presume, a these investors to hundred how technology. just we've in but give investment? I has money up organic make sense all So on quarter, down return we How us came it

is This to from Jeff. Great you. hear

EBITDA did what and margin important we dropped this reaffirming in on investments to business the investments that would XX The year for we're yes the are we're do. from make ranges lower to So to we path XX guidance making really we said obviously our our XX We we're the for business. position deliver investments XX to to to growth.

think roadmap. multi-year about only And we IT know so coming very make one the money fourth for so, all are the our what H&R do you beginning not investments, still especially at quarter, like Block. value seeing, things will lot These over These are you we're quarter, I that's unlock time. of there's in when the a that

track. Single the our migration, engine, serve ability is the Tax roadmap to consumers on cloud Our differently,

We feel When do EBITDA goal margins. expand we're time on about not back IT we is most the back over that's business margin step from of progress quickly growing to can the team the think making. have that we now. right focused by a we how what stated I good a XX% and take can I get So

where are get more under get is more more belt XX we business grow to we XX IT serve our the So the we and and reps clients. as efficient, under can we roadmap,

can we that margin ways are those over think I expand time.

of we Pricing pricing. is competitive. a talk benefit just H&R question, any follow about is there public I very And mean, up Great. Block? for being

the industry. leader You're in the

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you all great. so Okay have. That's I much. Thank

you. Thank

comes from Millman Research. Michael from question next Millman Your

open. is line Your

Thank you.

have So new and and have tax on following as to law this so the been who year of concerned previous up tax a there from preparer. help been want some questions, taxpayers you've suggested are because probably some people get visit

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this again Michael, is Jeff. off. I'll it Thanks kick

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business. goal Our assisted value improve proposition, and quality, clients the is improve ultimately the the to grow in

down. So settling we're not being for

to to you invest core is I think business. framework pillar, to a strategic year, long in is for your last the things. our we Number third point term to do was related acquisitions. about introduced And fifth by - pillar all trying way that if that this and refer where the and everything we've in the is the back strategic in about is work there addition couple one talked we're of

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Great. very much. Thank you

Thank you.

call I'll over I have turn to no further for questions in closing the back remarks. the queue. presenters

call. everyone today. Thanks will again for us This joining conclude today's

today's Thank concludes you This conference call. everyone.

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