Thank you for standing by, and welcome to H&R Block's Full Year 2023 Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to hand the call over to Michaella Gallina, Vice President, Investor Relations. Please go ahead.

Thank you, Latif. Good afternoon, everyone, and welcome to H&R Block's full year fiscal 2023 financial results conference call. Joining me today 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've reconciled the comparable GAAP and non-GAAP figures in the appendix of our presentation. Finally, the content of this call contains time-sensitive information accurate only as of today, August 15, 2023. 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.

Thanks, Michaella. Today we'll provide an update on our fiscal year '23 results, then I'll share more on the progress we continue to make within our Block Horizons strategy, provide initial thoughts on fiscal year '24, and Tony will discuss our financial performance and outlook in more detail. Starting with 2023 results. We had a good finish to the year and delivered revenue growth, material EBITDA growth, and adjusted EPS growth of 9%. As we discussed at the beginning of the year, we knew we were facing headwinds due to the rollback of the advanced child tax credit payments that were loaded onto the Emerald card. During the year, we also had foreign exchange impacts, stimulus filers that returned to the sidelines and California's deadline extension. Overall, I'm pleased with the results we produced despite these challenges. Our DIY strategy delivered this year, resulting in meaningful share gains. We demonstrated pricing power in the Assisted channel and saw positive customer satisfaction metrics, small business tax continued to be a growth driver, and we also added about 150,000 new sign-ups to our Spruce mobile banking platform. In addition, our capital allocation story is driving ongoing value for shareholders. We completed another $200 million of share repurchases in Q4 alone, and today announced a 10% increase to the dividend. Entering fiscal year '24, we are well positioned and expect a return to ordinary industry growth, which Tony will discuss in more detail later in the call. Before that, let me share more about our Block Horizons' progress. Let's start with our Small Business imperative that includes tax and Wave. Small Business Assisted Tax continues to be a growth driver. This business delivered 6% revenue growth for the fiscal year on top of strong growth last year, led by net average charge, or…

Thanks, Jeff. Good afternoon, everyone. Today, I'll review results for fiscal year 2023, provide detail on our outlook and share more on our strong capital allocation practice. We delivered nearly $3.5 billion of revenue, an increase of $9 million over last year. The increase was due to higher U.S. Assisted tax preparation revenues, partially offset by a decrease in Emerald card revenue. As a reminder, the impact from the Emerald card was over $30 million due to the rollback of the advanced child tax credit. We also had a negative foreign exchange impact of $19 million. Given these variables, I'm pleased that we were able to grow the top-line this year. Total operating expenses were $2.7 billion, an increase of approximately $5 million, primarily driven by higher field wages and partially offset by lower consulting and outsourced services. We saw about $5 million of savings from our footprint optimization efforts as we continued to eliminate unnecessary square footage. Interest expense was $73 million, a decrease of $15 million, or about 17%, due to lower interest expense on our notes compared to last year, partially offset by higher interest expense on our line of credit due to higher interest rates and higher draws. Other income increased $33 million, primarily due to higher interest income. As we've discussed, higher interest rates were a net benefit given our cash position throughout the year. Pretax income was $711 million, an increase of $52 million, or about 8%. Earnings per share from continuing operations increased from $3.26 to $3.56, and adjusted earnings per share from continuing operations increased from $3.51 to $3.82, or 9%. This is meaningful growth despite the aforementioned headwinds as well as our effective tax rate increasing from 15% to 21%. Lastly, we acquired just over 200 franchise locations in '23. We…

Thank you, Tony. As I reflect on the passing of another year, I'd like to thank our tax professionals, franchisees, and associates, who embody our purpose every day to provide help and inspire confidence in our clients and communities everywhere. I am looking forward to all we will accomplish in the next year and sharing our results for the first quarter in November. Now, operator, we will open the line for questions.

[Operator Instructions] Our first question comes from the line of Kartik Mehta of Northcoast Research.

Hey, Jeff. Hey, Tony. Jeff, I know you and Tony both said that you anticipate next year going back to kind of that normalized 1% total growth for tax returns. I'm wondering what do you anticipate in terms of Assisted and DIY changes or growth?

Hey, Kartik. Yes. I mean, when we work through our assumptions for the year, we always go through the normal, what do we think about employment, what do we think about potential changes from the IRS, what do we see in trends, by channel. And obviously, it hasn't been a normal year for a while. But as we look on the horizon and anticipate, employment has been strong, we've seen some general trends in the industry, we are not aware of any potential changes coming from the IRS. And really, those are the things that we put together about what we see the industry doing next year. Do you want to add anything, Tony?

Yes. I mean your question about Assisted versus DIY, Kartik, I think we believe Assisted is going to be fairly flat. Even though we had an unusual year in DIY this year, we think over the long term, DIY continues to grow a couple percent. So probably a slight migration from Assisted to DIY.

And then, Jeff or Tony, obviously, you've been returning a lot of capital to shareholders. You had a 10% dividend growth this year. Was the dividend increase this year unusual? Is that something that -- would it be sustainable?

Yes, I can take it. I think it's definitely sustainable. I mean we talked about our adjusted EPS growing 9%. We raised the dividend 10%, so essentially in line. Obviously, it's a bigger dividend increase than we've been doing over the last few years, even though we've been increasing the dividend. I think all else being equal, we prefer to do share buybacks, given the flexibility and the advantage we can take when we see volatility in the stock price. But the fact that we can buy back shares, which is obviously reducing shares outstanding, and as I mentioned in my opening comments, we've actually been reducing dividends paid in total amount. So, even though we've been increasing the dividend and even this amount going up 10% this year, I think you'll see dividend dollars being flat to even slightly down, which, as I mentioned, is creating that nice flywheel effect, which we think is very beneficial for shareholders.

Perfect. Thank you. I appreciate it.

Thanks, Kartik.

Thank you. Please standby for our next question. Our next question comes from the line of George Tong of Goldman Sachs.

Hi. Thanks. Good afternoon. I wanted to dive into some of your market share assumptions for next year. Can you talk a little bit about what you're assuming for share performance in the Assisted and DIY categories? And with a particular focus on the Assisted side, this past year, you had lost some share in the lower income category. What are some internal initiatives to help improve that performance? Thank you.

George, great question. Thank you. This is Jeff. I'll kick us off. Yes, I think the starting point is the clarity about what happened this year. We talked on the last call about the three reasons why we lost business in Assisted this year. The low income filers, EITC in particular, being a real focus for the teams as we prepare for next year. In simple terms, we think we have to do a better job of communicating our value proposition earlier in the year when those consumers are most in the market looking for their refunds. And I feel good as we sit here in August that the teams are very clear about what has to happen. In terms of looking to next year and our share expectations, as we said in our opening comments, we expect Assisted share to be flat, but we're always trying to grow share in Assisted. So, it doesn't change our plans, it's just tempering our expectations. And in DIY, we feel very good about the three-pronged strategy that we took this year, and we anticipate being able to continue to improve our performance and take share again in DIY next year.

Got it. That's helpful. And then, there are a number of moving parts in the broader tax prep industry, two of which are the IRS' Free File program and generative AI. Can you talk about how internally if you're doing anything strategically to -- in response to the changing landscape? And how you would assess the potential impact of these two developments in the space?

Yes. Excellent again. So, I mean, first of all, we're very excited about the opportunity with Gen AI, and I want to start at there. We talked a little bit in our prepared remarks about this, but we have dedicated teams who are absolutely leaning in in building integrations. Given our partnership with Microsoft and OpenAI, those initial two use cases, one on the expense side, one on the customer experience side. Obviously, a lot more detail to share as we're ready to make those public specifically. The technology is generally well understood, the customer adoption is not. And so, we're very excited to begin that learning journey by deploying two very specific use cases. We've identified a number of use cases. And so, based on that learning, we see real opportunity for the business in various parts. More to come in detail, but I think the punchline is we're very excited about what it could mean both in cost savings and customer experience, and teams are leaning in and moving fast to get ready for the year. On the IRS Free File option, in simple terms, we do not see it as a material threat to the business. We know that there is a real concern about the IRS' ability to ultimately market and support a product like this, the ultimate cost to taxpayers of what that would entail, and we've seen consumers make it clearer that there really isn't a problem here. There are over 30 organizations, tax prep companies and not for profits that are already offering free tax prep. And so, we stand by those remarks and are very focused on building great experiences to continue to do what we do. And with respect to Gen AI, like I said, we're very excited about that opportunity.

Got it. Thank you very much.

Thanks, George.

Thank you. Please standby for our next question. Our next question comes from the line of Scott Schneeberger of Oppenheimer & Company.

Thank you. Good afternoon. For my first question, I want to touch upon the revenue guide for next year. Looks like it implies about 2% to 3% growth, which I think is a little bit lower than what -- to which you aspire longer term, more in the mid-single digits. So I guess the way I'll ask the question is, what do you see as the puts and takes, the headwinds, the tailwinds in this upcoming year that have you a little lower? And the second part of this, probably, Tony, this is for you is, on your Slide 17, you talked about the assumptions that go with the first -- five bullet -- four bullet points are all revenue-related: industry growth, market share, low single-digit pricing, ongoing franchise acquisition. Could you rank order those so we get a sense of what's -- what are the bigger drivers of the revenue growth for next year? Thank you.

Yes, thanks, Scott. There's a lot in there. I'll try to unpack it as I go through it. I mean looking at '24, you're right. I mean our guidance is getting in the range that we've set from a long-term perspective of 3% to 6%. But I think it's a little bit more moderated. There's not a specific headwind that we're looking at, which is contrary to what we saw in '23. As we talked about going into '23, we expected the impact of the Emerald Card related to the rollback of the Child Tax Credit and a number of other things essentially being a headwind that we had to offset. Obviously, we had a very unusual tax season in '23, and we're overlapping that. We think it will return to normal. But obviously, we don't have a crystal ball either. So, I feel like we've set the revenue outlook at a place that's achievable. We've also set EBITDA outlook at a place that's growing faster than revenue, and essentially set EPS outlook at growing 10%. And I think all three of those combined, I feel really great about the outlook. And as we've talked about, to get to more the mid to higher end of the 3% to 6% revenue range, we have to have the imperatives delivering growth that we're still in the early innings of, whether that be from Spruce, growing in services in Small Business, doing things in Block experience. But even without those, we have a business that's growing top-line at a healthy level. We've got EBITDA growing faster and EPS growing, like I said, double digits, which is incredible on top of 9% growth this year. And the one thing I said in the opening comments is we're overlapping a pretty incredible tax rate…

Thanks, Tony. Good answer. You covered what I was looking for. As a follow-on to that, what are you expecting for expense inflation? You're obviously guiding EBITDA growth faster than revenue growth. Just technology, labor, rent, overhead, marketing, anything changing dramatically year-over-year there? And how are you thinking about the inflation year-over-year? And you mentioned pricing of low-single digits. So just curious what the inflation assumption is on the cost side?

Yes. We're definitely assuming inflation. I think it's a little more moderate versus what we had last year. As you know, Scott, our largest expense line item, which is [tax pro labor] (ph), is essentially variable with revenues, so no direct inflation impact. But when you look at things like full-time wages of the broader team, we're seeing those moderate in cost relative to what they were running from a year ago. We're also seeing less turnover and less people leaving -- a little bit less competition in the broader labor market. I think in some buckets like supplies and utilities, we'll continue to see costs go up, but I'm hopeful and we built into our plan at a more moderated rate than what we were running at last year. So, I think you'll see inflation. I think it will be a little bit more moderated from what we saw last year. Obviously, we have to do things like I think about what our bonus accrual is and other items as well. But overall, being able to grow earnings faster than revenue is the ultimate goal. And obviously, we've guided to that this year.

Thanks. And one more, if I may, maybe getting Jeff involved here, too. Really curious what you saw in the extension season. The impact of California, I know that we're not even up to that deadline yet. But just -- since we last heard from you on a public call, what have been the trends -- I assume a little bit better than expected. You did a little bit better than your guide. But just want to -- curious on your comments on this extension season versus last. Thank you.

Yes. Thank you. I was feeling lonely, Scott. I appreciate that. Yes, I mean, we -- specifically to California in extension seasons, I mean we know that extensions were down generally this year, and we experienced our share of that. In California, we still expect that most volume will come in closer to the deadline of October 15. We are keeping additional offices open to capture volume. But as Tony always reminds me, we're not fully open everywhere. So, we're doing what we can to balance the expense side and the revenue side, trying to capture our fair share and grow. But most importantly, I think the teams are focused on just preparing based on the learning for this year to get ready to compete for tax season '24.

Thanks very much.

Thank you.

Thank you. I would now like to turn the conference back to Michaella Gallina for closing remarks. Madam?

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.