HRB Q1 Earnings Call: Client Mix Shift and Assisted Growth Drive Outperformance

Tax preparation company H&R Block (NYSE:HRB) reported Q1 CY2025 results exceeding the market’s revenue expectations, with sales up 4.2% year on year to $2.28 billion. The company expects the full year’s revenue to be around $3.72 billion, close to analysts’ estimates. Its non-GAAP profit of $5.38 per share was 4.1% above analysts’ consensus estimates.

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StockStory’s Take

H&R Block’s Q1 results were shaped by a pronounced shift in client behavior during the tax season, with more customers opting for in-person Assisted services over digital do-it-yourself (DIY) options. CEO Jeffrey Jones highlighted the company’s focus on redesigning the Assisted client experience, improving retention, and leveraging advanced matching algorithms to boost conversion rates, especially among higher-income and more complex filers. The company also benefited from disciplined labor management and continued enhancements to its Second Look review service, which uncovered additional value for clients.

Looking ahead, management reconfirmed guidance for the full year, citing ongoing momentum in Assisted tax preparation and growth in small business and financial products. CFO Tiffany Mason pointed to the company’s stable industry positioning and strong cash flow generation, while acknowledging that higher legal expenses may weigh slightly on EBITDA for the year. H&R Block remains focused on investing in its core business, while capital allocation priorities include continued share repurchases and maintaining its dividend policy.

Key Insights from Management’s Remarks

The quarter’s performance was influenced by evolving client preferences and targeted operational improvements, with management highlighting shifting demand and new service initiatives as key factors.

• Assisted Channel Momentum: The company reported an uptick in Assisted client volumes, driven by a shift in consumer preference toward expert help amid uncertain tax policy discussions and complex filing situations.
• Enhanced Client Retention Efforts: H&R Block rolled out new features in its Assisted segment, such as improved tax pro matching and increased focus on setting appointments for the next tax season, resulting in better client conversion and retention metrics.
• Second Look Service Expansion: The automated Second Look review, which assesses prior-year returns for missed credits or deductions, saw a tenfold increase in new client participation, uncovering additional value for nearly a quarter of those reviewed.
• DIY Revenue Growth in Complex Filers: DIY revenues rose as the company successfully attracted higher-complexity filers and maintained discipline in customer acquisition, prioritizing clients with higher lifetime value over free filers.
• Small Business and Financial Product Progress: The small business segment delivered high single-digit revenue growth, while the Spruce mobile banking platform continued to expand, with effective cross-selling strategies bringing in new clients and higher engagement.

Drivers of Future Performance

Management’s outlook for the remainder of the year centers on sustained momentum in the Assisted channel, digital engagement, and disciplined capital allocation, with a focus on market share gains among higher-value clients.

• Assisted Category Leadership: The company aims to capitalize on ongoing consumer preference for expert guidance, especially among clients with greater filing complexity and higher incomes.
• Digital and Hybrid Service Expansion: Continued investment in digital tools like AI Tax Assist and the MyBlock app supports growth in both fully virtual and hybrid tax preparation, catering to changing customer preferences.
• Capital Allocation and Franchise Buybacks: Ongoing share repurchases and opportunistic franchise buybacks are expected to support earnings growth, while management notes potential legal expense headwinds for EBITDA.

Top Analyst Questions

• Kartik Mehta (Northcoast Research): Asked about the industry shift toward Assisted tax preparation; management attributed it to increased consumer uncertainty and a preference for expert help during complex or ambiguous tax seasons.
• Scott Schneeberger (Oppenheimer & Co.): Inquired about the decline in franchise operations versus company-owned growth; CFO Mason clarified that buybacks of franchise locations were the main driver, not underlying franchise weakness.
• Scott Schneeberger (Oppenheimer & Co.): Probed the flat paid online DIY volume and competitive dynamics; CEO Jones said the focus remained on complex paid filers and disciplined marketing spend rather than competing for free filers.
• George Tong (Goldman Sachs): Noted that Assisted volumes lagged industry growth; Jones acknowledged improved conversion and retention but admitted that market share gains remain a priority.
• Alexander Paris (Barrington Research): Asked about the impact of filing deadline extensions in certain states; Mason explained this would shift some volume to next quarter but was not material to the full-year outlook.

Catalysts in Upcoming Quarters

In the coming quarters, the StockStory team will be monitoring (1) whether H&R Block can further increase market share among higher-income and complex filers, (2) progress in digital engagement through AI-driven tools and virtual services, and (3) the impact of franchise location buybacks on overall profitability and client mix. Execution in the small business and financial products segments will also be signposts for sustained top-line growth.

H&R Block currently trades at a forward EV-to-EBITDA ratio of 17.2×. At this valuation, is it a buy or sell post earnings? The answer lies in our free research report.

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