HRB Q1 Deep Dive: Assisted Tax and Small Business Segments Drive Stable Outlook

Tax preparation company H&R Block (NYSE:HRB) beat Wall Street’s revenue expectations in Q3 CY2025, with sales up 5% year on year to $203.6 million. The company expects the full year’s revenue to be around $3.89 billion, close to analysts’ estimates. Its non-GAAP loss of $1.20 per share was 11.3% above analysts’ consensus estimates.

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StockStory’s Take

H&R Block’s third quarter results were shaped by continued momentum in its assisted tax and small business segments, with management highlighting the company’s focus on higher-value clients and expanding digital offerings. CEO Jeff Jones pointed to the success of products like Second Look and Wave’s Pro-Tier subscription as key contributors. Management also noted disciplined expense control, with lower legal costs supporting improved margins. Despite the company’s seasonally loss-making quarter, leadership emphasized robust execution across its core businesses, stating, "We are off to a strong start this fiscal year."

Looking ahead, H&R Block’s guidance is underpinned by a stable industry backdrop and strategic investments in technology and client experience. Incoming CEO Curtis Campbell noted plans to further leverage AI, enhance omnichannel offerings, and expand small business services. Management expects industry growth to remain consistent while prioritizing a balanced approach to volume, pricing, and mix. CFO Tiffany Mason emphasized, “We remain committed to acquiring franchise locations when opportunities arise at attractive EBITDA multiples,” reflecting confidence in both organic and inorganic growth drivers.

Key Insights from Management’s Remarks

Management attributed third quarter performance to stronger client engagement in assisted tax, continued growth in small business services, and enhanced digital product offerings.

• Assisted tax momentum: The assisted segment benefited from increased demand for services like Second Look, which reviews prior tax returns for missed opportunities, helping attract new clients and drive higher value engagements.
• Small business strength: H&R Block saw further traction in its small business segment, particularly through Wave’s high-margin Pro-Tier subscriptions and growing payment volumes, supporting revenue diversification beyond core consumer tax services.
• Expense discipline: Operating expenses declined year-over-year, primarily due to normalized legal costs compared to last year’s elevated settlements, which contributed to margin improvement.
• Marketing and client acquisition: The marketing team focused on targeting higher-value, more complex filers—both consumers and small businesses—while investing in personalized funnel management to optimize client conversion rates.
• Product innovation in AI and digital: Management highlighted ongoing investments in AI-powered solutions, such as AI Tax Assist and Spruce, to improve both customer experience and operational efficiency, differentiating H&R Block from competitors in a fragmented market.

Drivers of Future Performance

Management expects future performance to be driven by investments in technology, a focus on higher-value customer segments, and continued expansion in small business services.

• Technology and AI integration: The company plans to accelerate product design and engineering, with a focus on leveraging AI to enhance client experience, improve tax professional efficiency, and streamline internal processes. Management believes these initiatives will support both revenue growth and productivity gains.
• Market share in assisted segment: H&R Block aims to capture additional market share in assisted tax preparation, banking on increased tax code complexity and legislative changes as tailwinds. Management cited the potential for a further shift from do-it-yourself to assisted channels, similar to last season’s trends.
• Small business and franchise M&A: Continued investment in small business services, including integrating Wave’s digital capabilities, is expected to drive growth. Management also remains open to acquiring franchise locations at attractive valuations to increase scale and long-term profitability.

Catalysts in Upcoming Quarters

In the coming quarters, our analysts will be closely tracking (1) the pace of adoption and monetization of new AI-powered and digital tax products, (2) execution on capturing market share in the assisted tax segment as tax law complexity increases, and (3) growth in small business services, particularly through Wave’s platform and strategic franchise acquisitions. We will also monitor how effectively H&R Block balances investments in technology with disciplined expense management.

H&R Block currently trades at $52, up from $51.46 just before the earnings. Is there an opportunity in the stock?Find out in our full research report (it’s free for active Edge members).

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