H&R Block, Inc.

Thank you for standing by, and welcome to H&R Block's third quarter fiscal 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. To ask a question during the session, you will need to press star 1-1 on your telephone. I would now like to hand the call over to Vice President, Investor Relations, Michele Galena. Please go ahead.

Thank you, Lateef. Good afternoon, everyone, and welcome to H&R Block's third quarter 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 that 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, May 9th, 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, Michaela. Good afternoon, everyone, and thanks for joining us. Today I will share highlights from the third quarter and discuss our tax season performance in context of the unusual market dynamics this year. Tony will share our financials in more detail later in the call. Then we'll open it up for Q&A. As you'll recall, we and others expected this to be a normal tax filing year with the pandemic largely behind us, no new federal programs, a large number of stimulus filers having left the industry, and strong employment. Generally, tax return volume was expected to grow about 1%, which is in line with its historical average. But after an initial peak, the industry volume in fact declined about 1% year over year, which was about 200 basis points below our expectations. While we are still analyzing results, we believe a number of factors contributed to this outcome, including more stimulus filers rolling off than anticipated, a decrease in average refund size, and an increase in balance due returns, which may have driven low-income filers to the sidelines, and the IRS filing delay in several states, including California, which we estimate to be about 100 basis points of the impact. As a result of industry volume declines and our own assisted performance and the impact of foreign exchange, we have updated our full year outlook. Tony will share more detail later in the call, but I'm pleased that we still expect to deliver EBITDA and EPS growth this year despite these headwinds. Let's dig deeper into our performance starting with DIY. As you recall, our goal was to return to share growth by increasing awareness that we offer a DIY product, by improving quality, and making it easier to switch from TurboTax by creating a customized experience in the product user flow. We also introduced new innovations, like our industry-first use of artificial intelligence that finds tax refunds that may have been missed on TurboTax returns. This multifaceted strategy worked. Through April 30, we grew DIY online clients by 2.5%, with many of them switching from TurboTax. We also improved unaided awareness by 200 basis points, which is a significant move year over year. Our online net average charge was about flat. Our largest segment of new clients was Gen Z, between the ages of 18 to 25. And finally, our service quality scores were strong. These metrics are historically a good forward-looking indicator and confirm our progress and the prospects of our DIY business. We also continue to see clients that begin in DIY choosing to upgrade by adding expert help with one of our two products, Online Assist and TaxPro Review. OnlineAssist offers on-demand access to an H&R Block tax expert. Clients can access this help before starting their return or while completing it. And AI is helping us get smarter about anticipating when the client may be struggling and needs this help. TaxPro review provides the benefit of having our tax experts check the entire return for accuracy, ensuring clients get their maximum refund and then we file the return on their behalf. TaxPro Review continues to grow double digits, which it has done nearly every year since we launched this capability more than a decade ago. Of course, both online assist and TaxPro Review enable the client to access one of our tax experts without needing to visit an office. Now let's discuss our assisted business. Since I joined H&R Block, we've made numerous changes with the goal of improving relevance and driving growth among clients with greater lifetime value. For example, we introduced upfront transparent pricing, eliminated free assisted tax prep, and eliminated nationwide 50% off promotions, to name a few. These efforts are paying off, and this year we experienced client growth among each segment above $50,000 in income, with our fastest growing segment being clients over $100,000 in income. However, this year, the growth in higher value clients wasn't enough to offset the volume decline in the lower income segments. While we'll continue to learn more in the coming months, three factors are clear. First, as I shared earlier, we were impacted by the overall industry decline. Specifically, as a result of very low-income filers, likely stimulus filers who had less than $5,000 in income going back to the sidelines. This group likely made up a little more than one-third of our client loss this year. And as we look to the data, it appears they have returned to pre-pandemic levels, and we believe this headwind is now behind us. Second, we saw a decline in earned income tax credit filers. We simply did not do a good enough job attracting them with the right message at the right time. And I know that we can better focus marketing messages on relevant value propositions such as refund advance in the early part of the season. This group likely made up almost half of our client loss this season. And third, the IRS filing deadline extension in multiple states impacted the industry and our volumes. We estimate that the California delay likely made up about 15 to 20% of our volume declines. All of these factors led to about a 3% decline in our assisted volume. When the fiscal year ends, we'll conduct a full review and make decisions about changes and improvements for next year. But we believe we have a strong grasp on what drove the declines. Assisted net average charge across the company and franchise offices increased 4% year-over-year as we successfully offset the two-point headwind due to the rollback of the child tax and earned income tax credits. We feel great about our pricing approach as client satisfaction scores improved, including notable moves in price for value, intent to return, and other service quality scores. Considering refund sizes declined and more clients were balance due, these are especially strong results. Not only did we see this significant growth I already mentioned in TaxPro review, but we also saw continued improvement in virtual tool adoption, which enabled clients to exchange documents with their tax expert, check the status of their return, and approve and pay online. More than 30% of assisted clients leveraged a virtual tool during their tax prep experience within our company-owned footprint. Overall, the transformation of our assisted tax preparation business has made more progress this year. Turning to small business assisted tax, volumes were down slightly with the broader industry, but we demonstrated pricing power that drove incremental revenue. NAC increased 5%. alongside positive client satisfaction metrics, demonstrating our value proposition versus local CPAs. We're also focused on serving entity clients, which grew 6%, and company entity revenue increased by double digits. We recently launched an entity formation tool to allow small business customers to take advantage of benefits that may come from incorporating. We're also pleased with the trends in our bookkeeping and payroll services in the early stages of its strategic focus. Our new dedicated internal sales team has meaningfully increased conversion rates, and we feel good about the value we're creating for clients through year-round services. These are strong signals about how we are helping small businesses beyond tax. At Wave, revenue growth was 10% in the quarter. Wave's new CEO has made a lot of progress in his strategic review of the business to accelerate revenue growth and drive long-term profitability. We have already taken initial steps by restructuring the organization, and we look forward to sharing additional detail in the coming months. In January, we introduced Spruce, our mobile banking platform, to our assisted clients for the first time. Since launch through April 30, we had 291,000 signups and $288 million in customer deposits. When I view the performance of Spruce relative to the initial launch of today's leading challenger banks, we have outperformed in account signups. However, given our client base, we had higher expectations. Some tax pros were successful in introducing Spruce to their clients, which provides great insight about our value proposition and selling model. But on balance, our TaxPro community focused on serving the tax needs of our clients. That being said, Spruce clients are utilizing it to help them be better with money. This season, tens of thousands of users deposited over $100 million of refunds to their Spruce account up to five days early. which is a meaningful benefit, especially at a time when every dollar matters. We are also seeing clients make their first purchase at a much faster rate than earlier customers. Recently, we launched a new feature enabling clients to easily set up direct deposit within the app with just a few clicks. Thousands of clients have engaged with this new tool, and of those, more than 80% have chosen to direct their entire paycheck. All in all, SPRUCE demonstrated that it has value to clients, and we had important learnings which are already informing some shifts we'll make moving forward. Before I turn it over to Tony to discuss our financials, let me just say that overall, while this was not the industry context we expected, and we didn't land where we wanted and assisted, our DIY strategy was very successful. Tax Pro review, again, grew double digits. We attracted higher value assisted clients. Small business continues to progress. And Spruce demonstrated signals of its potential. These important wins are a reflection of our block horizon strategy and are evidence of the progress we continue to make in transforming H&R Block. Now, we are focused on finishing out the year and integrating these key learnings into plans for our next fiscal year. Tony, I'll turn it over to you.