H&R Block, Inc. Q4 FY2026 earnings call

• Overall Financial Results

  • Fiscal 2026 was the strongest full-year financial performance for H&R Block in the past five years, with 4.9% total revenue growth, 8.3% EBITDA growth, and 13.9% adjusted EPS growth.
  • The company generated $756 million in free cash flow, and returned $714 million to shareholders via dividends and share repurchases, including 10.5 million shares repurchased for $500 million.
  • EBITDA margin expanded 80 basis points year over year, supported by disciplined cost management.

• Strategic Execution: Expert-Led, Technology-Enabled Model

  • Maintained share in the large assisted tax segment after two years of improving trends, with a record 200 basis point annual improvement in client conversion and a 190 basis point increase in client retention.
  • The Second Look client retention program, which reviews prior-year returns for new clients, now has much higher utilization after AI-powered automation; new clients that use Second Look have a 600 basis point higher retention rate than non-users.
  • AI tools were widely deployed across the business: the Sidekick AI tax pro assistant saw strong adoption, and AI TaxAssist for DIY filers supported 4.2 million client interactions, with nearly double the engagement of the prior year. AI is used to automate manual tasks, allowing tax pros to focus on advisory and client support.
  • The company's integrated omnichannel model, which lets clients move between DIY, virtual, and in-person assisted services as their needs change, drove a 550 basis point increase in product attachment.

• Client Mix Improvement

  • The company intentionally focused on attracting higher lifetime value, more complex clients rather than chasing low-value transactional volume. The share of clients in the target $50,000-$200,000 household AGI range increased from 38% to 50% over the past several years, with growth in clients with investment income and small business/sole proprietor tax needs.

• Agile Operating Model Transformation

  • The company ran over 150 experiments during fiscal 2026, exponentially more than in prior years, to test initiatives and scale only what delivers positive results, increasing innovation velocity.
  • A pilot of a new consultative, less transactional client experience in 5 offices delivered higher client satisfaction and greater off-season engagement; based on positive results, the model will be expanded to a full designated market area for fiscal 2027.
  • The company is transitioning from a seasonal office leadership model to a full-year, year-round field leadership model to support consistent, high-quality client experiences and talent development, paired with streamlined supporting functions.

1. U.S. Assisted Tax Preparation: This is H&R Block's largest segment. It delivered 2% volume growth, with a 4.1% increase in net average charge (NAC) consisting of 3% price growth and 1% mix growth from a shift to more complex, higher-value clients. The segment maintained market share in fiscal 2026, and contributed the majority of total company revenue.

2. DIY Tax Preparation: The segment improved its paid-to-free mix by 140 basis points, and delivered growth in filers with an AGI of $100,000 or more, aligning with the company's focus on more complex, higher lifetime value clients. DIY serves primarily as an entry point to the company's omnichannel model, with favorable client migration from DIY to assisted as client needs become more complex.

3. Wave (Small Business Services): This segment delivered its second consecutive year of double-digit revenue growth, driven by growth in paid pro tier subscriptions and higher payments volume. It is a core component of H&R Block's small business growth strategy.

4. International: International revenue contributed to overall top-line growth in fiscal 2026. Canada delivered a solid tax season relative to internal expectations, while Australia saw a strong close to its most recent tax season. A large portion of the segment's year-over-year improvement came from favorable foreign exchange rates.

• Industry outlook: H&R Block expects overall U.S. tax industry growth to moderate to below the historical 1% norm in fiscal 2027, due to slowing job growth paired with stable unemployment. The company still expects net industry growth, not a decline.
• Financial guidance for fiscal 2027: Total revenue is projected to be in the range of $4.11 billion to $4.16 billion, adjusted EBITDA is projected at $1.11 billion to $1.14 billion, and adjusted diluted EPS is projected between $6.04 and $6.24. The effective tax rate is expected to be approximately 23%. An $8.3 million severance charge for the leadership model transition is excluded from the guidance.
• The company's long-term financial algorithm remains unchanged: 3% to 6% annual revenue growth, EBITDA growth at 1.5x the rate of revenue growth, and double-digit annual EPS growth, which remains consistent with fiscal 2027 guidance.
• Capital allocation guidance: The Board approved a 10% increase in the quarterly dividend to 46 cents per share. Fiscal 2027 contemplates $400 million in share repurchases, with approximately $600 million remaining under the current $1.5 billion repurchase authorization. The company expects continued strong free cash flow generation to support business investment, dividend growth, and share repurchases.
• Assisted segment outlook guidance: The low end of the guidance assumes maintained assisted segment market share, while the high end assumes assisted market share growth. The company continues to target a healthy balance of volume, price, and mix, with low single-digit price increases baked into guidance.

The call notes that forward-looking statements are subject to material risks and uncertainties that could cause actual results to differ from projections, and refers listeners to H&R Block's SEC filings (10-K, 10-Q) for a full description of risk factors. No additional specific operational or financial risks were discussed in the prepared remarks or Q&A section of the call.

Q: After record conversion and retention improvement in fiscal 2026, can this pace of driver improvement persist, and what is the long-term upside opportunity for these metrics? / A: Campbell explains that fiscal 2026 results are just the first phase of H&R Block's multi-year Block Next transformation, which is shifting the business from transactional tax preparation to a consultative model focused on delivering client trust and confidence. Key foundational changes include automating manual work to free tax pros for advisory engagement, and shifting to full-time year-round field leadership to ensure consistent experience delivery. Management expects ongoing progress through the transformation journey, with more details to be shared at the December Investor Day.

Q: What impact did recent U.S. tax law changes have on fiscal 2026, and what is the expected impact in fiscal 2027? / A: Campbell notes that the tax law changes increased the number of taxpayers receiving refunds by 6% and lifted average refund sizes by nearly 12%, while reducing the number of balance due payments to the IRS. These changes gave taxpayers more confidence to file DIY, creating a short-term tailwind for the DIY segment. However, the assisted segment still represents over 55% of the total market and has maintained that size for many years, so H&R Block remains confident in the long-term strength of the assisted category.

Q: What is H&R Block's outlook for the DIY segment in fiscal 2027, and how does it fit into the company's strategy? / A: Campbell emphasizes that not all DIY market share is equal, and H&R Block does not prioritize low-value transactional DIY volume. The company focuses on higher AGI, more complex DIY clients, improving the paid mix, and using DIY as an entry point to its omnichannel model, where clients can move to assisted services as their needs grow. Low-end, price-sensitive DIY clients are highly transient with low lifetime value, so the company does not target this segment.

Q: How does AI disruption in tax preparation impact H&R Block's competitive position? / A: Campbell argues that H&R Block is uniquely positioned to win in an AI-driven industry, because tax preparation is high-stakes for most Americans, and AI alone cannot deliver the confidence, human judgment, and accountability that clients (especially more complex clients) demand. Over 55% of taxpayers still seek assisted preparation, driven by the high stakes of tax filing. At H&R Block, AI is used to amplify and scale human expertise by automating manual tasks, not to replace tax pros, which aligns with client demand and the company's core strategic strengths.

Q: What are the key buckets for increased fiscal 2027 investment, and can you quantify spending per area? / A: Mason confirms that key investment areas include: 1) expansion of the new consultative client experience, which is primarily investment in labor and training; 2) technology investment to further automate tax preparation and internal workflows; 3) product and technology investment to integrate the Wave platform into a unified small business offering. The company does not quantify individual buckets at this time, and notes that disciplined cost reduction in other areas of the business allows for these strategic investments while still maintaining the company's long-term financial algorithm.