Thank you for standing by, and welcome to H&R Block's Year-End Fiscal 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation there will be question and answer session. [Operator Instructions] I would now like to hand the call over to Vice President, Investor Relations, Michaella Gallina. Please go ahead.

Thank you, Operator. Good afternoon everyone and welcome to H&R Block's full year fiscal 2022 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 investors.hrblock.com. Our call is being broadcast and Webcast live and a replay of the Webcast will be available for 90 days. Before we begin, I'd 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 our 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 appendix of our press release and presentation. The content of this call contains time-sensitive information accurate only as of today, August 9th, 2022. 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. Fiscal 2022 marked another year of strong performance, continuing the multiyear trend of improved results. We delivered another great tax season and achieved meaningful milestones in our Block Horizons journey, including a record year in small business, launching our new mobile banking platform Spruce and more than tripling the use of virtual tools among tax clients. As a result of the strength in our business we are pleased to also announce another increase to our dividend and new share repurchase authorization. I'll begin as usual by discussing the progress we've made across our strategic imperatives, share more on the tax season and then Tony will provide details on our results and discuss our fiscal 2023 outlook. In Small Business tax, we are delivering exceptional results. We saw strong growth in both, Assisted and DIY clients as well as improved mix which led to a double-digit revenue increase this tax season versus last year. Our various client acquisition and retention efforts are working including enhanced marketing efforts and the introduction of an advanced certification for tax professionals. In addition, we're building out our bookkeeping and payroll offerings and testing new services. Overall it was a record year and we're focused on building upon the momentum, we saw in fiscal 2022. Turning to Wave, we had another solid year of performance. Revenue grew 28% over last year and Average Revenue per User or ARPU continue to accelerate on both a sequential and year-over-year basis. I'm excited about the ongoing innovation, including the development of a unified mobile experience that will strengthen Wave's product ecosystem. We acquired Wave three years ago and it has since achieved important financial and operational milestones. As such, Founder and CEO, Kirk Simpson believed it was the…

Thanks, Jeff and good afternoon everyone. Our results continue to be strong and I'm happy to be here today to share more detail. I'll begin with a review of our fiscal year '22 results, provide an update on the ongoing strength of our capital allocation practice, discuss our outlook for fiscal year '23, and our thoughts on how we delivered total shareholder return over time. As a reminder, the prior year included the end of tax season '20, which was extended to July 15 of that year. That causes our results to decline when you compare fiscal year '22 to the prior year. In fiscal '22, we delivered $3.46 billion of revenue, which decreased 3.5% or $125 million over the prior year. When normalizing prior year results for the tax season impacts recognized in July of 2020, and the impacts of Emerald Card stimulus, total revenue increased by $165 million or 5%. Total operating expenses were approximately $2.7 billion, an increase of approximately 1% or about $21 million, primarily due to higher marketing and technology costs, partially offset by lower depreciation and amortization and bad debt. We continued our efforts of identifying savings to fund our investments and our expense management remains strong. EBITDA was approximately $890 million, a decrease of 15% or about $162 million. Compared to the normalized prior year, EBITDA increased by 9% or about $75 million. Interest expense was approximately $88 million, a decrease of about $11 million or 11% driven by lower draws this year on our line of credit, partially offset by the $500 million of notes we issued last June. As planned in the fourth quarter we paid off the $500 million 5.5% maturing notes that were originally due in November, which will result in material savings given the new notes we issued…

Thanks, Tony. Before closing, I want to reiterate just how pleased I am with our performance in fiscal 2022 and the path we are on. We had another great tax season, achieved significant Block Horizons milestones and continue to return value to shareholders through our capital allocation practice. Our success is made possible by the collaborative efforts of our entire organization. Thank you to our steadfast tax professionals, franchisees and associates who embody our purpose every day, to provide help and inspire confidence in our clients and communities as well as the team at Wave, who continue to execute and drive innovation. My sincere thanks go out to the team for another great year, and I look forward to all that lies ahead of us as we continue to build on this momentum in fiscal 2023. Now operator, we will open the line for questions.

[Operator Instructions] Our first question comes from the line of Scott Schneeberger of Oppenheimer & Co. Scott Schneeberger, your line is open.

Thanks very much. Good afternoon, everyone. Great job and excellent that you add to this long-term evergreen guidance. Very much appreciated. I think, I'll start out Tony or Jeff, just asking what is implicit in the 2023 guidance? Tony, I appreciate the breakdown of kind of the long-term revenue growth and then taking it down the P&L, but what are fundamentally the areas where you think you're really going to grow in this coming year specific to the year? Thanks

Yes, Scott, thanks for the question. I mean it really starts with strength in the tax business as the start. I mean we've talked about, it's a healthy industry. It grows about 1% over time and we expect that going into 2023. We also expect to continue to take moderate price. Obviously, we're in a high inflationary environment, but we've talked about we think that we can take low single-digit price increases. We've earned that right based on customer feedback, over the last several years. Franchise buybacks will continue to be a driver of revenue. We executed about 125 locations this year. We think we'll be in that ballpark going into next year. Obviously, Wave growth will be additive as well. We're planning to launch Spruce in the Assisted side of the business, which will be additive to revenue. So, all those pieces working together continued performance in small business tax, which we've seen over the last several years, all those pieces working together obviously driving the revenue side, and then leveraging our fixed cost structure, as we've talked about obviously, variable costs will go up. We are offsetting inflation that's hitting us from a comp perspective, from a wage perspective, but overall doing a really good job of managing expenses, which is allowing us to grow EBITDA faster than revenue. And then, EPS has obviously has the leverage as well as additional share repurchases. So, all of those pieces together are the core components of our outlook.

Great. Thanks. Appreciate that. And then curious, you had good visibility back in May, the last time hosting a public conference call and providing a financial update. But it looks like there's going to be some activity after the tax season deadline this year. That was pretty elevated. I imagine we get it in your 10-K when that comes out, but could you speak a little bit to what you saw after the tax season deadline with regard to volumes and pricing across the Assisted and the DIY channel? Thanks.

Yes, Scott this is Jeff. You're absolutely right. And we did what we could to position ourselves given that business that remained. In the Assisted business, we kept more offices open. We had more tax professionals working. Obviously, that's a strength to be able to be open obviously to capture that volume. And we saw continued strength in our NAC trends. We met last time. NAC was up about 8% and that continued in that period following the tax season closing. In DIY we saw some improved performance in the DIY business. We also saw a benefit from late season pricing in NAC. I think that moved from about 3% to 6%. So just really across the board, the team continued to execute well given the business that remained in the market and that shows up in the strength of our results.

Great, thanks. I’ll turn it over.

Thank you.

Thank you. Our next question comes from the line of George Tong of Goldman Sachs. George Tong, your line is open.

Hi. Thanks. Good afternoon. In the 2022 tax season, net average charge in Assisted, as you mentioned, increased 8% and two-thirds of that was driven by complexity mix. Can you outline your NAC assumptions embedded in next year's guidance and? And the likelihood that complexity reverses next year given some of the factors that lifted 2022 complexity should taper, such as crypto and retail trading?

Yes George, absolutely. So we -- first of all, I would say we feel very good about our value proposition in the Assisted business. We're seeing that in multiple ways as we've spoken about. And you're exactly right the NAC increases, was about a third price and two-thirds mix from complexity. That's -- think about that headwind as a couple of points of revenue and that's real. The rest of our plans have been built around offsetting that. Again, we think we can offset some in price again with this low-single-digit price increases and then the growth in the other parts of the business that Tony just outlined. But that is the headwind, but we feel really good about the momentum in the business and the strength of our plans to be able to offset that.

Got it. And you touched a little bit on this earlier but can you explain in more detail your assumptions around industry growth for next year in Assisted and DIY? And how you expect market share to perform at H&R Block in both of those categories, Assisted and DIY?

Yes. Obviously, we're coming out of just some really crazy years in terms of industry performance and the ups and downs, and all the things that we've been speaking about. Sitting here today, we're not aware of any major changes in the tax code, that's going to create some new piece of noise. And so, when we look at the macro factors, we see the industry kind of going back to its historical CAGR of 1% to 1.5%. And for us, there are two things that we expect. One is, continued strong performance in the Assisted Business, and that means continuing to hold or grow market share. Again, over the since 2019, we've grown market share in Assisted about 40 basis points and feel really good about that performance. You may remember DIY on our last call was one area where we weren't pleased. Despite the fact that we've done a really nice job with pricing meaningful revenue growth, we feel really good about the way we're driving more DIY clients to human health, but returning DIY to share growth is a top priority.

Very helpful. Thank you.

Thanks, George.

Thank you. [Operator Instructions] Our next question comes from Kartik Mehta of Northcoast Research. Kartik Mehta, your line is open.

Hi Jeff and Tony. Jeff, maybe just a little bit on Wave, I know that's been growing relatively well. And I know you had talked about at some point getting to profitability. As you look at FY 2023 kind of what's, your expectations as far as Wave maybe revenue growth goes and what that could mean from an EBITDA standpoint?

Yeah. So, number of things in there, Kartik. So first of all obviously we feel good about Wave's growth. Since we bought the company, it's continued to perform very well every year. So, on the top line, as we've said, that's contributing about one point of growth to Block. But it is still losing money, despite improving its operating losses which is hurting us on the EBITDA margin line. So the transition from Kirk to Zahir this is at the top of his list is coming into the company really understanding how we can accelerate growth and how we can accelerate our path to profitability. We still have not put a target date for him, when that has to happen, because we want to really continue to push growth. And that's what he's coming into the job focused on. So we'll have more to update as we continue to watch the business, but that's where we stand.

And Jeff, I know you commented a little bit on real estate at least in terms of shrinking some of the footprint -- at least square footage in an office. But I'm wondering if virtual grows, what's your outlook for the next 2 three years in terms of what could happen to office and if there's an opportunity there?

Yeah. So I would connect three dots here. One is the consumer adoption of virtual tools, the second is the changes to operating model to be able to complete returns from any location and the third is the reduction in real estate. And so the -- what you've heard of us talk about real estate has been about locations. But because we're now testing operating models, where there are drop-off only locations or there are locations serving people outside of that location, the focus on square footage we think is really important. And so the first steps we've started to take are to reduce the square footage, where we know it's just simply not being utilized anymore, especially given our training model. For years, we've had large training rooms in offices. And now that we're delivering our training virtually, that's a low-hanging fruit and square footage, which obviously helps us on the rent line. So those three things really have to work together. And we're making great progress. But the thing I'd remind the team about all the time is this is a once-a-year purchase frequency. So we're increasing the adoption of the virtual tools, but we have to continue to make that habit for the consumer, while we perfect the operating model changes and we start tackling the low-hanging fruit in real estate. So we do see opportunity but it will be over many years.

Yeah. And Jeff said it but just the opportunity is really on reducing square footage versus reducing points of presence. We think the points of presence are helpful. It allows for walk-in traffic. It allows for new client acquisition. But if we can reduce the number or the size of each of those offices that's really where the savings will come to play.

Okay. Thank you both. I really appreciate it.

Thanks.

Thanks Kart.

Thank you. At this time, I'd like to turn the call back over to Michaella Gallina for any closing remarks.

Thanks Latif, and thanks everyone for joining us today. We look forward to speaking with you again next quarter.

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