H&R BLOCK INC Q1 FY2025 earnings call

• Block Horizons imperatives: Small Business with double-digit revenue growth in assisted tax and positive trends in bookkeeping/payroll; Wave with 10% Q1 revenue growth and positive monetization of higher-margin products; Financial Products with Spruce surpassing $1 billion in customer deposits; Block Experience focusing on blending digital tools with human expertise, AI Tax Assist offered free in DIY paid SKUs, market share in Assisted channel strong, MyBlock as digital front door with various features.
• Capital allocation: Paid regular quarterly dividend with 17% increase, repurchased $210 million of shares in Q1.
• Client experience improvements: Enhancements in matching algorithms for tax professionals, rollout of new features in MyBlock, AI Tax Assist improvements for accuracy and coverage.

Small Business: Assisted small business tax delivered double-digit revenue growth. Wave: Revenue growth was 10% in Q1, with higher-margin subscription products showing positive monetization trends. Financial Products: Spruce mobile banking platform saw sign-ups increase and surpassed $1 billion in customer deposits, with nearly 50% of deposits from non-tax sources. Block Experience: Market share in Assisted channel is 4x the next 2 largest combined; MyBlock serves as a digital front door with various client management features.

• Reaffirmed fiscal '25 outlook. Expected full-year effective tax rate of ~13%, including a one-time ~$0.50 benefit to EPS. Dividend increased by 17% in August, with dividend increased by 88% since 2016. Repurchased 3.3 million shares for $210 million in Q1.
• Expect effective tax rate to return to low 20s beyond fiscal '25.

• Legal fees and settlements related to FTC matter, with settlement amount reflected in loss contingency accrual. - Potential competitive maneuvers from Intuit and other players. - Impact of Direct File program changes on business, though no material impact seen to date.

Q: Any thoughts on competition for upcoming tax season?

A: No major tax law changes, expecting normal season; Intuit's move into assisted category has had no material impact, focus on improving own value proposition.

Q: Thoughts on DIY product strategy and pricing?

A: AI Tax Assist included for free in paid SKUs this year, product helps position competitively; will aggressively market value proposition and pay attention to pricing as product improves.

Q: Elaboration on OpEx elevation?

A: Elevated due to higher field labor with volume increase, corporate wages, marketing spend, and legal fees/settlements; excluding legal costs, OpEx would have grown with revenue. - Q: Technology spend and marketing strategy?

A: Technology spend included in outlook, focused on modernizing and reinvesting; marketing: Intuit started earlier but strategy may change timing, H&R Block's marketing begins now with Emerald Advance season and will ramp up in January.

Q: Tax rate and legal expense?

A: Full-year effective tax rate expected 13% with ~$0.50 one-time benefit, hit in single quarter; legal expense includes FTC proposed settlement, amount reflected in loss contingency accrual. - Q: Direct File program?

A: No material impact seen to date, not anticipating material impact this year, will monitor as administration changes.