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HB

H&R BLOCK INC (HRB)·Q2 2025 Earnings Summary

Executive Summary

  • Q2 FY25 revenue was $179.1M, flat year-over-year; operating expenses rose 6% to $472.4M, driving pretax loss of $312.3M and GAAP diluted LPS of $(1.79); adjusted LPS was $(1.73) .
  • Management reaffirmed FY25 guidance: revenue $3.69–$3.75B, EBITDA $975M–$1.02B, adjusted diluted EPS $5.15–$5.35, and ~13% ETR implying ~$0.50 one-time EPS benefit .
  • Capital return remained a focus: HRB repurchased 3.2M shares for $190.5M in Q2 (avg $58.65), bringing H1 repurchases to ~$400M (~5% float) and leaving ~$1.1B under authorization .
  • Segment dynamics: Wave grew revenue ~15% YoY; International grew; financial services declined on lower Emerald Advance originations (tightened underwriting to reduce bad debt) .
  • Estimates context: Wall Street consensus via S&P Global was unavailable at time of analysis due to a rate limit; no beat/miss assessment provided (S&P Global consensus not retrievable).

What Went Well and What Went Wrong

What Went Well

  • Reaffirmed full-year outlook with confidence in tax season execution and capital allocation discipline (“we are well prepared … and reaffirming our fiscal 2025 outlook”) .
  • Small business momentum: Block Advisors bookkeeping and payroll delivered double-digit revenue growth; Wave revenue grew 15% in the quarter (subscription monetization via Pro-Tier and receipts) .
  • Product differentiation: Increased Refund Advance maximum to $4,000 (no interest/fees), enhanced GenAI-powered “AI Tax Assist,” and promoted Tax Pro Review; “AI Tax Assist … higher confidence and improved outcomes” .

What Went Wrong

  • Financial services softness: Interest and fee income on Emerald Advance fell due to decreased loan originations; tightened underwriting to balance approval and repayment after prior-year bad debt issues .
  • Operating costs up as expected: wages, healthcare, occupancy, and earlier marketing lift OpEx 6% YoY in a low-revenue quarter, widening pretax loss vs prior year .
  • DIY/Assisted competitive intensity: Management highlighted Intuit’s assisted push and pain points for consumers (upselling), requiring stronger claims and price-match offers to defend share .

Financial Results

Consolidated P&L vs prior year and prior quarter

Metric (USD)Q2 FY24 (Dec 31, 2023)Q1 FY25 (Sep 30, 2024)Q2 FY25 (Dec 31, 2024)
Total Revenues ($MM)179.08 193.81 179.07
Total Operating Expenses ($MM)446.52 422.14 472.36
Pretax Loss ($MM)(282.87) (232.26) (312.30)
Diluted LPS – Continuing Ops ($)(1.33) (1.23) (1.79)
Adjusted Diluted LPS – Continuing Ops ($)(1.27) (1.17) (1.73)
EBITDA ($MM)(231.40) (187.58) (261.35)

Notes:

  • Q2 is ~5% of annual revenue; seasonal losses typical in H1 .
  • Cost increases were anticipated and embedded in outlook .

Revenue breakdown by category

Revenue ($MM)Q2 FY24Q1 FY25Q2 FY25
U.S. Tax Prep & Related99.45 93.73 98.24
Financial Services26.94 8.83 22.46
International29.57 64.86 31.81
Wave23.13 26.40 26.56
Total179.08 193.81 179.07

Selected subcategories (Q2 FY25 vs Q2 FY24):

  • Emerald Advance interest/fees: $12.31 vs $15.24, down YoY on lower originations .
  • Assisted tax prep: $48.38 vs $48.34, flat .
  • International: $31.81 vs $29.57, up YoY .
  • Wave: $26.56 vs $23.13, up YoY .

KPIs and capital allocation

KPIQ2 FY24Q1 FY25Q2 FY25
Share Repurchases (# shares, $MM)—3.3M; $209.6 3.2M; $190.5
Avg Price per Share ($)—$63.51 $58.65
Weighted Avg Diluted Shares (000s)142,340 139,154 135,563
Spruce Total Sign-ups (000s)——491 (as of Dec 31; +55% YoY)
Refund Advance Max ($)3,500 —4,000

Guidance Changes

MetricPeriodPrevious Guidance (Nov 7, 2024)Current Guidance (Feb 4, 2025)Change
Revenue ($B)FY2025$3.69–$3.75 $3.69–$3.75 Maintained
EBITDA ($MM)FY2025$975–$1,020 $975–$1,020 Maintained
Adjusted Diluted EPS ($)FY2025$5.15–$5.35 $5.15–$5.35 Maintained
Effective Tax Rate (%)FY202513% ($0.50 EPS benefit) 13% ($0.50 EPS benefit) Maintained
DividendFY2025$0.375 declared for Jan 6, 2025 payment $0.375 declared, payable Apr 3, 2025 Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 FY25; Q2 FY24)Current Period (Q2 FY25)Trend
AI/Technology (AI Tax Assist)Q1: focus on “operational and technical enhancements” in office and online ; AI not explicitly highlightedExpanded AI Tax Assist coverage, improved outcomes, higher conversion among new clients; free in all DIY paid SKUs Improving/Strategic
IRS Direct File/PolicyLimited prior mentionNo expected impact from Direct File; many providers already offer free prep; monitoring administration changes Stable/Monitored
1099-K Threshold ChangeNot discussedNew IRS reporting threshold at $5,000 for 2024; potential future decrease to $600; management not contemplating incremental volume in outlook; upside possible Potential Tailwind in future
Wave (SMB platform)Q1 revenue $26.40M (+YoY) Revenue +15% YoY; strong subscription monetization (Pro-Tier, receipts) Positive
Spruce (fintech)Not discussed in Q1491k sign-ups (+55% YoY); deposits more than doubled; >50% deposits from non-tax sources; 3.5% APY offered Positive engagement
Emerald Advance (lending)—Lower originations; tightened underwriting to improve repayment and bad debt vs last year; evaluating approval/repayment balance Headwind; improving credit discipline
Marketing and Pricing StrategyQ1: earlier marketing timing vs prior year Leaning into direct claims (Second Look, larger Refund Advance), price-match guarantee for new assisted clients; DIY pricing remains below TurboTax Competitive positioning

Management Commentary

  • “We are reaffirming our fiscal 2025 outlook, and are well prepared to deliver this tax season and in the second half of the fiscal year.” — CEO Jeff Jones .
  • “We repurchased 3.2 million shares for $190 million…reflecting our confidence in the long-term value of our stock and our commitment to delivering shareholder returns.” — CFO Tiffany Mason .
  • “Wave…achieved revenue growth of 15% in the quarter…strong adoption of our high-margin subscription products.” — CEO Jeff Jones .
  • “Spruce…491,000 total sign-ups, a 55% increase…customer deposits have more than doubled…more than half…from nontax sources.” — CEO Jeff Jones .
  • “AI Tax Assist…expanded coverage…higher confidence and improved outcomes…greater conversion among new clients.” — CEO Jeff Jones .
  • “In quarters with a loss, fewer shares outstanding increased the loss per share but are accretive as we generate earnings for the full year.” — CFO Tiffany Mason .

Q&A Highlights

  • Industry volumes: Management expects “normal” ~1% growth; DIY growing slightly faster than assisted; 1099-K ($5,000 threshold) could be a learning opportunity with possible upside; not in outlook .
  • Competition: Intuit’s assisted push noted; HRB focusing on transparent pricing, price-match guarantee, Second Look, higher Refund Advance to demonstrate value .
  • Direct File: No material impact expected; many free offerings already in market; staying focused on client service .
  • Pricing: Assisted low single-digit increases; DIY dynamic pricing with attach; still priced below TurboTax .
  • Emerald Advance: Lower originations due to tightened underwriting; aiming to balance approval rates with repayment to reduce bad debt; product not being discontinued .
  • Marketing: Earlier timing than last year; leaning into strong, vetted competitive claims across TV and digital .

Estimates Context

  • S&P Global Wall Street consensus for Q2 FY25 (EPS, revenue, EBITDA) was unavailable at time of analysis due to an SPGI rate limit (no data returned). As a result, no beat/miss assessment vs consensus is provided.
  • Implication: In absence of consensus comparison, the key investor focal points are reaffirmed FY25 guidance, segment trends (Wave, International), and Emerald Advance underwriting discipline .

Key Takeaways for Investors

  • Seasonal quarter delivered as expected: flat revenue with higher OpEx; losses typical in H1; full-year outlook reaffirmed, underpinned by tax season execution and disciplined capital returns .
  • SMB ecosystem momentum (Wave + Block Advisors) and Spruce engagement support diversification beyond core tax prep; continued traction in subscriptions and deposits is strategically positive .
  • Competitive positioning: Transparent pricing, price-match for new assisted clients, stronger Refund Advance (no fees/interest), and AI-enabled DIY differentiation should help defend share vs Intuit .
  • Credit tightening in Emerald Advance reduces bad debt risk but weighs near-term financial services revenue; watch for recovery as underwriting calibrates .
  • Capital allocation remains a catalyst: ~$400M H1 repurchases (~5% float) and dividend continuity; ~$1.1B buyback authorization remaining supports EPS accretion and downside protection .
  • Macro/regulatory watch: 1099-K threshold changes may add complexity for filers and potentially drive assisted demand over time; direct file impact continues to appear immaterial near term .
  • Near-term trading lens: Narrative likely driven by Q3 tax season update in May; investors should monitor DIY conversion, assisted volume/mix, Wave growth durability, and Emerald Advance underwriting outcomes .