Thank you for standing by, and welcome to H&R Block's First Quarter 2022 Earnings Conference Call. [Operator Instructions] Please be advised that today’s conference maybe recorded. [Operator Instructions] I would now like to hand the conference over to your host, Michaella Gallina, Vice President, Investor Relations. Please go ahead.

Thank you, operator. Good afternoon, everyone, and welcome to H&R Block's first quarter fiscal '22 financial results conference call. Joining me are Jeff Jones, our President and Chief Executive Officer; and Tony Bowen, our Chief Financial Officer. Earlier today we issued a press release and presentation, which can be downloaded or viewed live on our website at hrblock.com. Our call is being broadcast and webcast live and a reply will be available on our website for 14 days. Before we begin, I would like to remind listeners that comments made by management may include forward-looking statements within the meaning of Federal Securities Laws. These statements involve material risks and uncertainties and actual results could differ from those projected in any forward-looking statement due to numerous factors. For a description of these risks and uncertainties, please see H&R Block's annual report on Form 10-K and quarterly reports on Form 10-Q as updated periodically with the company's other SEC filings. Please note some metrics we'll discuss today are presented on a non-GAAP basis. We reconcile the comparable GAAP and non-GAAP figures in the schedules attached to our press release and in the presentation. Furthermore, the content of this call contains time sensitive information accurate only as of today, November 2, 2021. H&R Block undertakes no obligation to revise or otherwise update any statements to reflect events or circumstances after the date of this call. With that, I will now turn it over to Jeff.

Thank you, Michaella. Good afternoon, everyone and thanks for joining us. We're really happy to be with you today and excited to talk about our first quarter, and we have a lot to share. Over the past several months, we've met with many investors and analysts, and today beyond our thoughts on the quarter, we will address many of the themes that have emerged. I'll begin by summarizing our results and providing thoughts on tax season '22. Then, I'll share perspective on the value we have created over the last several years and the levers we have to achieve our long-term revenue growth target of 3% to 6%. Finally, Tony will review our financials, fiscal '22 outlook and provide his thoughts on the value of Block today. Turning to our first quarter results, we continue to see momentum in the business. As a reminder, given that the tax season extended through July 15 last year versus only May 17 this year, our quarter ending September 30 is not comparable, and does not clearly depict our performance and progress as we're off to a great start. We saw strong revenue growth from the Emerald Card and Wave and effectively manage costs while appropriately investing in our growth initiatives. On the capital allocation front, which we'll dig into in a minute, we reduced shares outstanding by another 4% this quarter. As we look to tax season '22, we're well-positioned for a number of reasons. Over the past several years, we've invested meaningfully in technology and digital capabilities and have made significant product and experience improvements via our Block experience imperative. We pivoted quickly and learned to operate more efficiently during the pandemic. And our customers have taken note as we've gained market share, and just completed our best tax season in over…

Thanks, Jeff. Good afternoon, everyone. Today I'll review our results from the first fiscal quarter, recap our outlook and then provide thoughts on the value we have created in the business. As you recall, this summer we adjusted our fiscal year-end from April to June. In August, we released a QT for the stub period of May and June 2021 to bridge the fiscal year. And today we are reporting our first fiscal quarter of 2022, which ends September 30. As Jeff shared, given that tax season extended through July 15 last year versus only May 17 this year, Q1 is not comparable to the prior year and does not clearly depict our performance and the progress we are making. We delivered $193 million of revenue, down 54% or $225 million. This decline was entirely due to the estimated $246 million related to the tax season extension in the first quarter of last year. We saw incremental Emerald Card revenue due to child tax payments, and continued strong growth from Wave. Regarding expenses, we were disciplined in achieving our cost savings, while appropriately investing in our Block Horizons imperatives. The ongoing rigor to drive our Fund the Future initiative allows us to invest with the savings we generate versus spending incremental capital. Total operating expenses in the quarter were $367 million, a decrease of 12%, primarily driven by lower tax pro compensation as a result of the prior year extension I just discussed. Interest expense was $23 million, a decrease of 34% due to lower draws on our line of credit. We feel great about the changes we have made in our debt position to reduce interest expense by refinancing our line of credit initially and long-term debt at very attractive rates, which will positively impact our P&L and cash…

Thanks, Tony. In summary, we are proud of the progress that we've made. The momentum in the business and the opportunities to come. We're confident in our ability to drive shareholder value with both our capital allocation approach and our future with Block Horizons. As we end our prepared remarks, I want to thank our hard working associates, franchisees and tax pros who have driven our progress and inspire confidence in our clients and communities worldwide. Now we'll open the line for questions. Operator.

Hey, Jeff and Tony. Hey, Jeff, I want to get your perspective on the upcoming tax season and if your thoughts have changed at all with the recent IRS release of numbers.

Hey, Kartik, thanks for the question. So the newest data through October 15, changes the numbers a bit but I think the direction is still accurate in terms of our share growth in assisted and overall and the slight share loss in DIY. But I think if I look forward to the coming year, we know that based on the industry growth that occurred, some number of those filers were new last year they were first time filers. We also know that you some number of them are going to return this year because they saw the benefit of filing, given unemployment stimulus, child tax credits, et cetera. We also believe that there could be programs again like RRC that would make it beneficial to file. But I think, what's really important to say is that we don't have the perfect crystal ball on consumer behavior and how many will return or not. So we're doing two really important things. The first thing we're doing, and we've talked about this a bit over the last several months is developing those marketing programs to reach those clients that were new last year to help educate them again, on the benefits of filing. And then I think, finally, just building into our operations, the flexibility that we learned during COVID, and that we executed so well, so that no matter what happens with demand, we're prepared to flex and serve our clients. And then just as a follow-up, Tony, obviously, there's been inflationary pressures, almost every business I'm wondering, for H&R Block, what is Labor going to be the largest inflationary pressure, what to anticipate on that front in FY '22?

Yes, thanks, Kartik. I mean, obviously, it's contemplating our outlook that we provided and reiterated today. We are monitoring, a couple of different buckets. Obviously, Labor as well as rent are two of our largest line items. As you recall, our largest line item, which is tax Pro compensation is tied to the revenue they generate. And it's essentially a percentage of that revenue that ends up being their compensation. So it kind of flexes with the revenue base already. There are some positions that are paid on more of an hourly rate. And we've done things like adjust those over time to stay competitive. We'll continue to monitor where it's going long-term, but we feel good that we've been able to in some cases renegotiate with certain landlords take advantage of some of the real estate softness in certain parts of the country. So well, that's constantly in our guidance, continue to monitor it over the long-term.

Thank you very much. Appreciate it.

Thanks, Jeff

Thank you. Our next question comes from Scott Schneeberger of Oppenheimer. Your line is open.

Thanks very much. Good afternoon. I guess I'll start with Jeff. You mentioned now, I think a couple quarters in a row that you anticipate doing some moderate price increasing after not having done it in the assistant category, three upcoming season. Just curious will it be early season, late season? Just thoughts on how it will be applied? I'm assuming not broad based and that's why I'm asking. And then the follow-up to that question is, what type of volume implications are you expecting as a result of the pricing increases mixed in with your overall volume results for the upcoming year? Thanks.

Yes, let me make sure I get all those. So you're absolutely right after not moving on price. Since the reset in 2018. We have earned the confidence we believe to take modest increase this year. And for us, modest means, kind of couple points. And so given what we've seen in volume, given what we've seen in client satisfaction, given what we've seen in retention gains, we feel good about taking that kind of price increase and something we want to look at each year in the assisted business as we move forward. Keep in mind, that's just price. And there's still opportunity with mix as well in the assisted business. And then in the DIY business real quickly, we maintain still a price advantage to our largest competitor, we do everything we can to exploit that price advantage. But, we grew Knack about 20% last year in DIY related to mix. And so between pricing mix and additional features like online assist, for example, we continue to see more opportunity to grow revenue through pricing. So that's how we're thinking about it in both of our businesses. And we're ready to take that step this upcoming season.

And then specific Scott to the volume implications. Obviously, that's all contemplated in our outlook as well. But I think to Jeff's point earlier, the feedback we've heard has been really positive, clients feel really good about the price they're paying for the value they're receiving. So we're not expecting a volume impact necessarily obviously on the margin. There's always a few clients plus or minus, but we're not expecting a volume decline as a result of the pricing changes.

Thanks. Appreciate the color. And then, Jeff, I guess it would be a good time to ask on your technology investment that's been multiyear and just kind of would love to get an update on what innings that is in now and there's overall progress report. I know you broke it out, you broken down into a few buckets in the past. If you could just kind of address it in that format, or if you have a new way of thinking about it, just an overall update there. Thanks.

Absolutely, Scott. So you're exactly right. I mean, this has been multiple years, and really touching every single facet of our technology stack, data in architecture, moving to a single tax engine, data security, cloud migration. So it is really holistic. As you may recall, it has been a while, we did that for two big reasons. One is the start enabling an entirely different kind of customer experience. And the second is cost. And on the first part, we are seeing the benefits of that today. Had we not been making these investments, it would been far more difficult to deliver the digital capabilities, we are enabling tax pros to work from anywhere, et cetera. So we are seeing those benefits now. And we're -- most of our data is largely in the cloud. The single biggest lift that remains is finalizing the move from three tax engines to one tax engine. This is something that company has tried multiple times in history and hasn't been successful. And we are absolutely on track to do that now. And we're in the transition periods now from operating 3 to now 3 plus of the new one and then transitioning over the next year and a half to two years to the final single engine. So that's when we see the cost benefits really starting to materialize is a couple years out. I don't know what anything that makes us in, but it makes us in the homestretch.

Right.

Thank you. Our next question comes from George Tong of Goldman Sachs. Your question please.

Hi, this is Zach Lopez on for George Tong. I was just kind of wondering if you can give a little bit more color on the progress with Black Horizons and the initiatives?

Absolutely. Thanks for the question. So three initiatives, what we call strategic imperatives, small business, financial products and block experience. Starting with the last one, our progress has been very, very good. That's essentially digitizing all facets of the business. We are now fully deployed to work with our assisted clients virtually in whatever way they choose, and offering human help to DIY clients. That work will always be about improving the experience, learning from customers. But that imperative is, is well underway. Going back to the top and small business, there's two things I would highlight number one last year, which was our first year, we grew assisted small business clients by about 4%. We trained and certified 25,000 of our tax professionals. And we launched our first customer acquisition campaign for Block Advisors in small business. On the wave side of small business, that business continues to grow 30% plus, serving a unique segment of small business owners that are comfortable doing this bookkeeping, payroll payments themselves. And the real focus there is on continuing to grow and scale Wave money. Moving into this tax season, we've learned from last year, we've improved our plans, our customer acquisition efforts, certification of pros, etcetera. So with small business, that's a quick little update. And then finally, with our financial products. The real progress since we made the announcement has been the build of what we refer to currently as Block money. We've now done two beta releases internally, we're shipping code regularly and we're on track to launch Block Money in the upcoming tax season. And we feel very good that that will be a differentiated product when we launch and we're on track to do what we said we would do. Now, thank you very helpful. I know earlier on in the discussion you mentioned about, assisted volume. I was just wondering if you can perhaps elaborate on the outlook of assisted volume growth at the industry level and HRP?

Well, absolutely. I think at the industry level, as I mentioned early on, there, we know that this year's growth was really driven by a lot of first time filers. And we know that there will be dynamics in the macro environment that will cause many of them to file again. But we don't have a crystal ball to know exactly how many of them will go back to the sidelines versus not, which is why we're doing what we can do at block, which is about marketing to our clients, to educate them on the value of returning, and then building that operational flexibility into our business. So we can execute, no matter what demand may be. When you put all that together, we have anticipated that the industry will be flat to slightly down for next year.

Thank you. Our next question comes from Hamzah Mazari of Jefferies. Your line is open.

Hey, good afternoon. It's actually Ryan Gunning filling in for Hamzah. But my first question is, could you just give us a flavor of how client retention is tracking across the portfolio and whether this is an opportunity there and how you measure that either by customer count or on a revenue dollar basis?

Absolutely. We measured it on customer account, we've seen great improvement in retention or blended retention last year jumped from 72% to 75%. Our new client retention jumped from 50% to 54%. And so we definitely see that the work we're doing is driving an improvement in retention. And yes, there's opportunity. So we continue to think about what we can do for new and prior clients to get more coming back every single year.

Great, thanks. Super helpful. My follow-up is, could you just talk about any M&A you can do similar to Wave or how you're thinking about the pipeline there specifically in terms of scaling either financial products and/or small business growth initiatives?

Yes, Ryan, absolutely. When we announced our Block Horizon strategy, we talked about M&A and the fact that we don't believe that M&A is required to achieve our strategy. Obviously, we feel very good about the Wave acquisition and their continued performance. And we'll continue to look in the market if we see a capability. That might make sense, but our strategy is not M&A dependent. And there is not an eminent deal on the Horizon, that you should expect us to announce.

Thank you. As there are no further questions in queue at this time, I'd like to turn the call back over to Michaella Gallina for closing remarks.

Thank you, Latif and thank you everyone for joining us today. This concludes our first quarter 2022 financial results conference call.

This concludes today's call. Thank you for participating You may now disconnect.