Q1 2024 H&R Block Inc Earnings Call

November 7, 2023

<unk> 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 Mikael good afternoon, everyone and thanks for joining us.

Today, I will begin with a summary of our Q1 results and provide an update on our block horizon strategic imperatives.

Then Tony will discuss our financials, including the strength of our capital allocation and balance sheet.

While we are early in the year in Q1 is a relatively small portion of our results. We had a good start and are reaffirming our fiscal 'twenty four outlook.

We were pleased given we lapped a very strong extended season last year and our share in both DIY and assisted slightly improved throughout the year.

With favorability and neck, we grew revenue.

<unk> continued to manage our expenses well and demonstrated ongoing progress on our block horizon strategy, which I'll share more about in a moment.

We also continued our share repurchase program by $132 million in the quarter.

Let's go deeper into block horizons, beginning with small business, which includes small business tax and services and wave.

Assisted small business total revenue growth was 6% in the quarter and we're pleased with the early signals, we're seeing in bookkeeping and payroll services, which are growing double digits.

We see a long runway of opportunity and are focused on continuing our momentum which includes growing clients and both tax and services and driving business formations, which we launched last year.

Overall, we feel good about the trajectory of small business.

Turning to wave revenue growth was 6% in Q1, which was in line with our expectations.

As we've shared we underwent a strategic review of the business when the new leader was put in place.

We now have a plan to accelerate revenue growth and put us on a path to profitability.

Before I share those plans I want to recap waves current business model, which provides tremendous value for small business owners by offering free invoicing and accounting.

Wave has monetize its platform primarily through payment processing as well as payroll and advisory services.

We are now beginning a strategic shift to solve customer pain points that will deliver value and monetize more premium features.

In the payment space customers are wanting additional options beyond credit cards, which wave historically has not provided.

Today less than 30% of invoices sent by small businesses through ways.

These platform are enabled for a credit card or bank payments.

There is significant opportunity to unlock value as we enable our customers to be paid via alternative methods and expand our share of wallet.

We also see an opportunity to build other premium features that help our customers run their small business <unk>.

Last quarter, we launched the mobile receipts feature which is a monthly or annual subscription that generates additional recurring revenue.

This product uptake has been better than expected and is a good example of where we're heading.

I am excited about the shifts, we're making and the opportunities we see in this business.

Now I'll move on to financial products.

Regarding spruce recall that tax season 'twenty three was the first time the product was introduced in the assisted channel.

Our learnings have informed our actions for the next tax season, and we are continuing to drive innovation for the customer experience.

We've made the account creation and sign up process more seamless in all our channels.

And deposit trends from customers utilizing spruce to receive their payroll direct deposit continue to improve.

As of September 30, we surpassed 300000 sign ups and had almost $400 million in customer deposits.

In fiscal 'twenty four we're focused on efficiently acquiring clients at tax time, which includes the DIY flow and driving customer engagement within the app.

Now, let's turn to block experience. This imperative is all about blending digital tools with human help to provide better experiences for clients, while empowering them to be served however, they choose.

Fully virtual to fully in person and everything in between.

We have made a number of enhancements to my block this year.

Within the App clients will now have visibility of where they are at each stage of the tax prep process through a status tracker on their homepage.

In addition, we will be delivering a personalized checklist to help clients be better prepared for forms they will need and how to upload them ahead of time.

The App will provide help at each stage with a call to action that recommend clients next step.

Whether uploading new documents getting help from one of our expert tax professionals or notifying them that has time to review their return, which was made easier and faster to approve ensign online.

Clients also have the ability to access their tax documents and return digitally which aligns with our new print less strategy to reduce paper consumption in our offices.

This is a benefit for our clients results in cost savings and is one of the many ways, we live our commitment to environmental sustainability.

Another priority within block experience is leaning into Gen AI.

As we've shared we are initially focused on two areas.

First enhancing the customer experience and second reducing expenses and increasing productivity.

In the DIY channel, we're working on exciting innovation that will support our clients throughout the tax prep experience.

And we are testing and the ability to use AI to field customer calls.

Over time, we believe these initiatives can result in meaningful cost savings, but we are not assuming any this fiscal year as we are in initial testing phases.

All in all we're making tangible progress through our partnership with Microsoft.

In fact, they recently highlighted our work to thought leaders and industry experts during the envision toward in New York.

As you can see our team continues to make progress and we are well positioned to deliver our results this year.

Before turning it to Tony I want to mention that we recently published our fourth annual environmental social and governance report for fiscal year, 'twenty, three reflecting our ongoing commitment to transparency sustainability and responsible business practices.

I encourage you to visit our Investor relations website to read it in full.

With that I will now pass things over to Tony to share more about our financial results.

Thanks, Jeff and good afternoon, everyone.

In Q1, we delivered $183 $8 million of revenue, an increase of 2% or $3 $8 million over the prior year.

The increase was primarily due to higher U S assisted tax preparation revenues driven by an increase in net average charge, partially offset by lower Emerald card revenues.

Total operating expenses were approximately $390 million, an increase of about 30 basis points or $1 million.

Corporate wages and bad debt were higher and marketing advertising as well as consulting expenses were lower than last year.

EBITDA was a loss of approximately $166 million, an improvement of 3% or $6 million from the prior year.

Interest expense was about $16 million, which is essentially unchanged to last year.

Pre tax loss decreased by $9 million to $212 $4 million, primarily due to higher revenues and interest income in the current year.

Our effective tax rate was 23, 3% compared to 24, 4% last year.

Loss per share from continuing operations was $1 11 compared to $1 five last year, while adjusted loss per share from continuing operations was $1 five compared to 99 last year due to fewer shares outstanding.

As a reminder, in quarters with a loss fewer shares outstanding increases loss per share, but as accretive as we generate earnings for the full year.

As Jeff shared we had a good start to the year and are reaffirming our full year 2020 for outlook and longer term total shareholder return algorithm that calls for top line growth.

EBITDA that outpaces revenue and EPS it grows even faster.

Turning to capital allocation, our practice remains robust in.

In Q1, we repurchased a total of $3 3 million shares for $132 million at an average price of $40 and 43.

This recharged another 2% of our float.

Since 2016, we have reduced shares outstanding by over 38%.

Additionally, last week the board of directors declared a quarterly cash dividend since 2016, we have grown the dividend 60% yet the total dollars paid out continue to decrease because of how quickly we are buying back shares.

Given the macro environment and the expectation of high interest rates for the foreseeable future I'd also like to share more about the strength of our balance sheet.

We continue to feel great about our relatively low leverage with $1 5 billion of long term debt against our over $900 million of EBITDA in the most recent year.

Our next debt maturity of $350 million as in until October of 2025, which is our smallest tranche and we don't have another tranche maturing after that until 2028.

As we've shared before as interest rates rise it benefits our P&L on a short term basis as our interest income from our cash position will exceed our short term borrowing interest expense for the full year.

Overall, we feel very good about our balance sheet and how we are positioned in the current environment.

In summary, our financial story is positive we drive top line growth EBITDA that outpaces revenue and EPS that grows even faster we.

We have strong capital allocation practices to reliably returned value to shareholders and our balance sheet positions us well for the macro trends with that I will now hand, it back over to Jeff for some closing remarks.

Thanks, Tony I'm looking forward to all that we will accomplish this year.

In closing I'd like to extend a sincere. Thank you to our associates franchisees and tax professionals for all they do year round to deliver on our purpose of providing help and inspiring confidence in our clients and communities everywhere now operator, we will open the line for questions.

Thank you as a reminder to ask a question you will need to press star one on your telephone to remove yourself from the question queue. You May Press Star one again please.

Please standby, while we compile the Q&A roster.

Our first question.

Comes from the line of Kartik Mehta of Northcoast research.

Hey, Jeff and Tony Jeff just your thoughts on marketing as we go into next tax season, I know last tax season.

As Youre focused on DIY at least from the marketing I saw and I'm wondering as we go into this tax season, we will follow those same strategy or does that change.

Yes, kartik, so theres a few things that I would share I mean, the first is remembering that we're very audience driven in our approach to marketing so it.

It is very likely you don't see everything that we're doing for a particular audience.

So that's number one we obviously have several different jobs to do.

We had a winning formula in DIY last year.

We want to do all we can to replicate that kind of performance.

We also know when we evaluated our client loss in assisted.

We broke that down into the three buckets at the end of the year really winning with the ITC client is the top of the priority list and so that means several different things for marketing this year.

It means a strong reevaluation of the message how we think about refund advance the media channels, we use and the timing of those messages. So all of those things and reevaluated as we prepare for the upcoming season.

And you have to as a <unk>.

I know you've said in the last tax season that you wanted to win with the ITT. The tax season is that require you to make changes to the refund transfer product make the amount available bigger or any other changes you feel you need to compete better.

Yes, it's a great question and one I signaled on the last call.

We know that last year, we didn't do a good enough job of being in the market with the refund advance message at the right time.

And that's really the starting point for how we communicate the value proposition to the customer.

We have done even more research with that audience since last year to understand pricing and other matters that we continue to feel good about.

We looked at and decided not to participate in the refund advance business, where people are promising a much higher rate, but coming with fees and interest and so we've eliminated that is something that we think is the right business to be in for us. So it's really about that message.

Earlier in the season communicating our total value proposition.

Thank you very much appreciate it.

Thanks Kartik.

Thank you.

Our next question.

Comes from the line of.

Schneeberger of Oppenheimer <unk> company.

Your line is open Scott.

Can you hear me.

Again as Scott, we got Ya.

All good thanks, Jeff Good afternoon, everyone.

Yes.

Just ask something on a quarter to get us started.

The mild.

The outperformance in revenue nice to see.

And it wasn't a a grand magnitude obviously just curious.

If all.

The OE to California.

I will miss from last fiscal year had any impact it looks like it's not going to affect this back half of the year very much as <unk> had.

Wondered and so just a comment on that and then also on just the current quarter.

The operating expense increase was was relatively modest inflationary environment.

So it looks like you did a nice job of managing.

Wages marketing advertising and then <unk> question, obviously thats going to be heavier later in the year, but you also cited consulting so just the second part of the question is just kind of curious how you manage expenses.

In the quarter and what should we expect.

Sorry on the tax season, and then in tax season to keep up.

But good momentum there.

Yeah, So I'll take the revenue piece and Tony can can comment on opex, but yeah. So first of all I would say remembering we lapped a strong an extension season last year and.

And in light of that we feel good about our volume performance against our expectations.

As we mentioned we saw some slight share gain in both the assisted and DIY business. In this first quarter and then we saw continuation of the price increases we took last year.

And some favorable mix, which helped drive revenue.

And then when we saw the extension happened in California, Obviously, we we talked about keeping more offices open more tax pros staffed and we think we did a nice job of winning our fair share in California, leading up to October 15th So when you put all those things together.

It is a relatively small part of the business as we always say, but we feel good about the start to the year.

Yes, and on the expense side.

We are happy with the very modest increase we saw in Q1, we're continuing to see inflationary pressure. So it's not that it's completely dissipated obviously, we did an annual merit cycle. This summer that's flown in the P&L in Q1.

We're continuing to see rent prices go up as well as utilities, but we're doing what we can to offset that you mentioned a few things in marketing and be a little bit lower consulting expenses being a little bit lower in Q1. So.

We're reaffirming our full year guidance, we think we're off to a good start expense management, obviously, a key focus for us and we think that will continue in Q2.

Alright, thanks, guys and as a follow up I think ill just wanted to ask the industry level.

What are you seeing hearing with regard to the IRS on whats pilot program associated with being a tax preparation organization itself and then also just that.

<unk>.

299, K any developments there is a fair hearing and could that be something that is.

Is it a new and different angle finish here. Thank you.

Yes, I'll pick up 10, 99 first actually.

We believe it will be in place.

There is a possibility as always some yearend legislation could change is that like happened last year.

Contemplated in our outlook.

But we do have some real thoughtful plans in place should it proceed that were ready to capture that opportunity when the season kicks off so that's on 10 99 K.

And with respect to the IRS.

Even in there in their latest briefing Scott.

Really dialed back the size and magnitude of what they think they will pilot this year.

We expect that to be much smaller than they originally had planned.

But if we just take a step back from that we know that consumers spoken loud and clear.

They don't think the IRS should be in the business.

We've been very clear on our position about that there are over 30 organizations, including us that already offer free tax preparation. So our view on it really hasnt changed it does sound like their plans have changed.

And I just.

We find it hard to believe over time that there'll be able to.

Use of taxpayer dollars to be in the business of building a product marketing our product and supporting our product yearend in euro.

Greg also sharing I hopeful that Jeff has hit it.

Thanks Scott.

Thank you.

Our next question.

It comes from the line of George Tong of Goldman Sachs.

Hi, Thanks, good afternoon.

As you think about your strategy with ITC tax filers in the prior tax season.

Marketing the value proposition of refund advance for example is definitely an important part but also a decrease in the average refund size and an increase in balance due returns had an impact on.

That demographic can you talk about how those other factors, which H&R block has less control over might materialize over the upcoming tax season.

Yes, George Thank you for that question I mean, obviously those are things that are out of our control except to the degree weakened educate and communicate to clients.

And Thats really where we focus in what we call. This off season of how we deploy training to tax professionals to help them understand in that moment of truth. If someone's outcome has changed why that is and what they can do about it for the next year.

So we definitely have taken those steps to get ready for this tax season. In addition to the marketing comments that I made earlier with <unk> question.

Yes, the one thing I would add you were just last year, we saw a pretty big change and as you said the amount of refunds and who is getting refunds and we've essentially I believe we've got a new baseline going into this year. So we arent expecting another drop in the amount of refunds Theres no major tax law changes that would drive that saw any customers kind of understand now kind of what to expect.

Based on last year's results and adjust point ITC customers, while their refund maybe went down a little bit they're all still getting refunds, obviously and it's just really about the education side Thats really important briefly.

Got it that's helpful. And then can you provide your latest thoughts on your pricing strategy with normalization of inflation trends and how.

Pricing in assisted and DIY, what evolve heading into next year.

Absolutely.

As you asked we kind of split it into two parts on the assisted side.

We believe that we are able to take low single digit price increases, which is what's contemplated in our plan for this year as you've heard me say many times every year, we reevaluate that based on customer satisfaction and value for price paid metrics. So we feel good about that continued movement, which we'll do this.

This year.

In the DIY business, obviously, it's more dynamic there are more factors to consider between core skus early season late season and attached products.

In general, we still see opportunity to maintain a price advantage to intuit.

And we will do that again this year and actively market against what we believe our advantages and how easy it is to switched H&R block.

Got it that's helpful. Thank you.

Thanks George.

Thank you.

Our next question excuse me. Our next question comes from Alex Paris Barrington Research.

Your line is open Alex.

And Alex Please make sure your line is muted and a speaker phone lift your handset.

Alex are you there.

Alex if you can hear US you may need to rejoin using your common feature.

Yes.

Yeah.

Okay.

It doesn't seem to be anyone on Alex's slide.

And I'm a cautious <unk> backup.

And he has not I would now like to turn the conference.

Back to Mackellar Galena for closing remarks Madam.

Thank you Keith and thanks, everyone for joining US today. This concludes our first quarter 2024 financial results Conference call.

And this concludes today's conference call. Thank you for participating you may now disconnect.

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Thank you for standing by and welcome to H&R Block's first quarter fiscal year 2024 earnings 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.

Ask a question during the session you will need to press star one on your telephone to remove yourself from the queue. Please press star one again.

I'd now like to hand, the call over to <unk>, Vice President Investor Relations Mcelligott Lena. Please go ahead.

Thank you Latif and good afternoon, everyone and welcome to H&R Block's first quarter fiscal year 2024 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 Dot HR block Dot 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 will 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 November seven 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.

Thank you Mikael good afternoon, everyone and thanks for joining us.

Today, I will begin with a summary of our Q1 results and provide an update on our block horizon strategic imperatives.

Then Tony will discuss our financials, including the strength of our capital allocation and balance sheet.

While we are early in the year in Q1 is a relatively small portion of our results. We had a good start and are reaffirming our fiscal 'twenty four outlook.

We were pleased given we lapped a very strong extended season last year and our share in both DIY and assisted slightly improved throughout the year.

With favorability and neck, we grew revenue <unk>.

<unk> continued to manage our expenses well and demonstrated ongoing progress on our block horizon strategy, which I'll share more about in a moment.

We also continued our share repurchase program buying $132 million in the quarter.

Let's go deeper into block horizons, beginning with small business, which includes small business tax and services and wave.

Assisted small business total revenue growth was 6% in the quarter and we're pleased with the early signals, we're seeing in bookkeeping and payroll services, which are growing double digits.

We see a long runway of opportunity and are focused on continuing our momentum which includes growing clients in both tax and services and driving business formations, which we launched last year.

Overall, we feel good about the trajectory of small business.

Turning to wave revenue growth was 6% in Q1, which was in line with our expectations.

As we've shared we underwent a strategic review of the business when the new leader was put in place.

We now have a plan to accelerate revenue growth and put us on a path to profitability.

Before I share those plans I want to recap waves current business model, which provides tremendous value for small business owners by offering free invoicing and accounting.

Wave is monetize its platform primarily through payment processing as well as payroll and advisory services.

We are now beginning a strategic shift to solve customer pain points that will deliver value and monetize more premium features.

In the payment space customers are wanting additional options beyond credit cards, which wave historically has not provided.

Today less than 30% of invoices sent by small businesses through ways platform are enabled for a credit card or bank payments. Thus.

Thus there is significant opportunity to unlock value as we enable our customers to be paid via alternative methods and expand our share of wallet.

We also see an opportunity to build other premium features that help our customers run their small business.

Last quarter, we launched the mobile receipts feature which is a monthly or annual subscription that generates additional recurring revenue.

This product uptake has been better than expected and is a good example of where we're heading.

I am excited about the shifts, we're making and the opportunities we see in this business.

Now I'll move on to financial products.

Regarding spruce recall that tax season 23 was the first time the product was introduced in the assisted channel.

Our learnings have informed our actions for the next tax season, and we are continuing to drive innovation for the customer experience.

We've made the account creation and sign up process more seamless in all our channels.

And deposit trends from customers utilizing spruce to receive their payroll direct deposit continue to improve.

As of September 30, we surpassed 300000 sign ups and had almost $400 million in customer deposits.

In fiscal 'twenty four we're focused on efficiently acquiring clients at tax time, which includes the DIY flow and driving customer engagement within the app.

Fully virtual to fully in person and everything in between.

We have made a number of enhancements to <unk> block this year.

Within the App clients will now have visibility of where they are at each stage of the tax prep process through a status tracker on their homepage.

In addition, we will be delivering a personalized checklist to help clients be better prepared for forms they will need and how to upload them ahead of time.

The App will provide help at each stage with a call to action that recommend clients next step.

Clients also have the ability to access their tax documents and return digitally which aligns with our new print less strategy to reduce paper consumption in our offices.

This is a benefit for our clients results in cost savings and is one of the many ways, we live our commitment to environmental sustainability.

Another priority within block experience is leaning into Gen AI.

As we've shared we are initially focused on two areas.

First enhancing the customer experience and second reducing expenses and increasing productivity.

In the DIY channel, we're working on exciting innovation that will support our clients throughout the tax prep experience.

And we are testing and the ability to use AI to field customer calls.

Overtime. We believe these initiatives can result in meaningful cost savings, but we are not assuming any this fiscal year as we are in initial testing phases.

All in all we're making tangible progress through our partnership with Microsoft.

In fact, they recently highlighted our work to thought leaders and industry experts during the envision toward in New York.

As you can see our team continues to make progress and we are well positioned to deliver our results this year.

I encourage you to visit our Investor relations website to read it in full.

With that I will now pass things over to Tony to share more about our financial results.

Thanks, Jeff and good afternoon, everyone.

In Q1, we delivered $183 $8 million of revenue, an increase of 2% or $3 $8 million over the prior year.

The increase was primarily due to higher U S assisted tax preparation revenues driven by an increase in net average charge, partially offset by lower Emerald card revenues.

Total operating expenses were approximately $390 million, an increase of about 30 basis points or $1 million.

Corporate wages and bad debt were higher and marketing advertising as well as consulting expenses were lower than last year.

EBITDA was a loss of approximately $166 million an.

An improvement of 3% or $6 million from the prior year.

Interest expense was about $16 million, which is essentially unchanged to last year.

Pre tax loss decreased by $9 million to $212 $4 million.

Primarily due to higher revenues and interest income in the current year.

Our effective tax rate was 23, 3% compared to 24, 4% last year.

As a reminder, in quarters with a loss fewer shares outstanding increases loss per share, but as accretive as we generate earnings for the full year.

As Jeff shared we had a good start to the year and are reaffirming our full year 2020 for outlook and longer term total shareholder return algorithm that calls for topline growth.

<unk> that outpaces revenue and EPS it grows even faster.

Turning to capital allocation, our practice remains robust in.

In Q1, we repurchased a total of $3 3 million shares for $132 million at an average price of $40 and 43.

This retired another 2% of our float.

Since 2016, we have reduced shares outstanding by over 38%.

Given the macro environment and the expectation of high interest rates for the foreseeable future I would also like to share more about the strength of our balance sheet.

We continue to feel great about our relatively low leverage with $1 5 billion of long term debt against our over $900 million of EBITDA in the most recent year.

Our next debt maturity of $350 million isn't until October of 2025, which is our smallest tranche and we don't have another tranche maturing after that until 2028.

Overall, we feel very good about our balance sheet and how we are positioned in the current environment.

In summary, our financial story is positive we drive top line growth EBITDA that outpaces revenue and EPS that grows even faster.

Thanks, Tony I am looking forward to all that we will accomplish this year.

Thank you as a reminder to ask a question you will need to press star one on your telephone to remove yourself from the question queue. You May Press Star one again please.

Please standby, while we compile the Q&A roster.

Our first question.

Comes from the line of Kartik Mehta.

Northcoast research.

Hey, Jeff and Tony.

Just your thoughts on marketing as we go into next tax season, I know last tax season.

Okay.

Just on DIY at least from the marketing I saw and I'm wondering as we go into this tax season, we will follow those same strategy or does that change.

Yes, kartik, so theres a few things that I would share I mean, the first is remembering that we're very audience driven in our approach to marketing so it's.

It's very likely you don't see everything that we're doing for a particular audience.

So that's number one we obviously have several different jobs to do.

We had a winning formula in DIY last year.

We want to do all we can to replicate that kind of performance.

We also know when we evaluated our client loss in assisted.

We broke that down into the three buckets at the end of the year really winning with the ITC client is the top of the priority list and so that means several different things for marketing this year.

It means a strong reevaluation of the message how we think about refund advance the media channels, we use and the timing of those messages. So all those things have been reevaluated as we prepare for the upcoming season.

Yes.

I know you've said in the last tax season that you wanted to win with the ITT the tax season.

That would require you to make changes to the refund transfer product make the amount available bigger or any other changes do you feel you need to compete better.

Yes, it's a great question and one I signaled on the last call.

We know that last year, we didn't do a good enough job of being in the market with the refund advance message at the right time.

And that's really the starting point for how we communicate the value proposition to the customer.

We have done even more research with that audience since last year to understand pricing and other matters that we continue to feel good about.

Earlier in the season communicating our total value proposition.

Thank you very much appreciate it.

Thanks Kartik.

Thank you.

Our next question.

Comes from the line of.

Got schneeberger of Oppenheimer <unk> company.

Your line is open Scott.

Can you hear me.

Yes, Scott we got Ya.

All good thanks, Jeff Good afternoon, everyone.

Yes.

Just ask something on a quarter to get us started.

Yes Myles.

The outperformance in revenue nice to see.

And it wasn't a grand magnitude I was just curious.

Okay.

The later, California filings from last fiscal year had any impact it looks like it's not going to affect this back half of the year very much as Tom had.

Yes.

Wondered so just comments on that and then also on just the current quarter.

The operating expense increase was was relatively modest inflationary environment.

It looks like you did a nice job of managing.

Wages marketing advertising and then pericardial question, obviously, that's going to be heavier later in the year, but you also cited consulting so just the second part of the question is just kind of curious how you manage expenses.

In the quarter and what should we expect.

Prior to the tax season, and then in taxes and to keep up.

But good momentum there.

Yes, so I'll take the revenue piece and Tony can can comment on opex, but yeah. So first of all I'd say remembering we lapped a strong an extension season last year.

And in light of that we feel good about our volume performance against our expectations.

As we mentioned we saw some slight share gain in both the assisted and DIY business. In this first quarter and then we saw continuation of the price increases we took last year.

And some favorable mix, which helped drive revenue.

And then.

We saw the extension happened in California, obviously, we we talked about keeping more offices open more tax pros staffed and we think we did a nice job of winning our fair share in California, leading up to October 15th So when you put all those things together.

It is a relatively small part of the business as we always say, but we feel good about the start to the year.

Yes, and on the expense side.

We're continuing to see rent prices go up as well as utilities, but we're doing what we can to offset that you mentioned a few things in marketing to be a little bit lower consulting expenses being a little bit lower in Q1. So.

We are reaffirming our full year guidance, we think we're off to a good start expense management, obviously, a key focus for us and we think that will continue in Q2.

Alright, thanks, guys and as a follow up I think I'll just try to ask the industry level.

<unk>.

What are you seeing hearing with regard to the IRS estimates pilot program associated with being a tax preparation the organization itself and then also just mathematically.

299, K any developments there that we're hearing and could that be something that.

Is new and different angle for the share. Thanks.

Yes, I'll pick up the 10 99 first actually.

We believe it will be in place.

There is a possibility as always some year end legislation could change that happened last year.

Contemplated in our outlook.

But we do have some real thoughtful plans in place should it proceed that were ready to capture that opportunity when the season kicks off so that's on 10 99 K.

And with respect to the IRS.

Even in there in their latest briefing Scott.

Really dialed back the size and magnitude of what they think they will pilot this year.

We expect that to be much smaller than they originally had planned.

But if we just take a step back from that we know the consumers spoken loud and clear.

Don't think the IRS should be in the business.

And I just.

We find it hard to believe over time that there'll be able to.

Use of taxpayer dollars to be in the business of building, our product marketing, our product and supporting our product year end and year out.

Okay. Thanks for sharing that Jeff appreciate it.

Thanks Scott.

Thank you.

Our next question.

Comes from the line of George Tong of Goldman Sachs.

Hi, Thanks, good afternoon.

As you think about your strategy with ITC tax filers in the prior tax season.

Marketing the value proposition of refund advance for example is definitely an important part but also a decrease in the average refund size and an increase in balance due returns had an impact on.

That demographic can you talk about how those other factors, which H&R block has less control over might materialize over the upcoming tax season.

Sure.

Yes, George Thank you for that question I mean, obviously those are things that are out of our control except to the degree weakened educate and communicate to clients.

And Thats really where we focus in what we call. This off season of how we deploy training to tax professionals to help them understand in that moment of truth, if someone's outcome has changed.

Why that is and what they can do about it for the next year.

So we definitely have taken those steps to get ready for this tax season. In addition to the marketing comments that I made earlier with <unk> question.

Yes, the only thing I would add George is last year, we saw a pretty big change and as you said the amount of refunds and who is getting refunds and we've essentially believe we've got a new baseline going into this year. So we arent expecting another drop in the amount of refunds. There's no major tax law changes that would drive that so I think customers kind of understand now kind of what to expect.

Based on last year's results and to Jeff's point, the ITC customers, while their refund maybe went down a little bit they're all still getting refunds, obviously and it's just really about the education side Thats really important yes gratefully.

Got it that's helpful. And then can you provide your latest thoughts on your pricing strategy.

Normalization of inflation trends and how.

Pricing in assisted and DIY, what evolve heading into next year.

Absolutely Ben.

You ask what kind of split it into two parts on the assisted side.

We believe that we're able to take low single digit price increases, which is what's contemplated in our plan for this year.

As you've heard me say many times every year, we reevaluate that based on customer satisfaction and value for price paid metrics. So we feel good about that continued movement, which we'll do this year.

In the DIY business, obviously, it's more dynamic there are more factors to consider between core skus early season late season and attach products.

In general, we still see opportunity to maintain a price advantage to intuit.

And we will do that again this year and actively market against what we believe our advantages and how easy it is to switched H&R block.

Got it that's helpful. Thank you.

Thanks George.

Thank you.

Our next question excuse me. Our next question comes from Alex Paris Barrington Research.

Your line is open Alex.

And Alex Please make sure your line is muted finish speaker phone lift your handset.

Alex are you there.

Alex if you can hear US you may need to rejoin using your karmic feature.

Yes.

Okay.

Doesn't seem to be anyone on Alex slide.

And I'm a cautious <unk> backup.

Amy has not.

I would now like to turn the conference.

Back to Mackellar Galena for closing remarks Madam.

Thank you Keith and thanks, everyone for joining US today. This concludes our first quarter 2024 financial results Conference call.

And this concludes today's conference call. Thank you for participating you may now disconnect.

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