H&r Block, Inc. · NYSE:HRB
H&r Block — Investor Presentation (July 2018)
35 slides from H&r Block's investor presentation, Jul 20, 2018
Slide 1: Investor Meetings: Providing the Best Solutions
I N V E S TO R M E E T I N G S PROVIDING THE BEST SOLUTIONS J U LY 2 0 , 2 0 1 8
Slide 2: Safe Harbor Statement
Safe Harbor Statement Forward-Looking Statements This presentation contains forward-looking statements within the meaning of the securities laws. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. They often include words or vari
Slide 3: H&R Block: Strong foundation providing path to sustainable growth
H&R Block: Strong foundation providing path to sustainable growth HRB operates in a growing industry and is Trust Scale Innovation Well-known brand #1 Assisted provider; Growing DIY share innovating to provide help to consumers in the synonymous with #2 DIY provider and virtual ways they want it mos
Slide 4: The Tax Industry
THE TAX INDUSTRY
Slide 5: U.S. tax industry is resilient; both Assisted & DIY tax prep methods remain strong
U.S. tax industry is resilient; both Assisted & DIY tax prep methods remain strong Misperceptions about the tax industry: Industry is no longer growing Recent tax law changes will radically change the industry Digital disruption impacting tax business like traditional retail 4
Slide 6: Market is stable, growing, and resilient
Market is stable, growing, and resilient On average, U.S. market grows 1-2% annually and is highly correlated to non-farm employment Market is resilient, even through recessions Taxpayers are motivated to file, as historically approximately 75% receive a refund U.S. tax filings: 1954-Present (
Slide 7: Taxpayers choose help based on their confidence with taxes
Taxpayers choose help based on their confidence with taxes Assisted Do-It-Yourself (DIY) LOW Taxpayer’s Confidence with Taxes HIGH “I want someone to do it for me” “I can do it” Assisted category remains resilient as a large DIY filers prefer convenience, cost, and are portion of the population
Slide 8: Assisted tax preparation methods remain the choice of over half of U.S. taxpayers
Assisted tax preparation methods remain the choice of over half of U.S. taxpayers Split between Assisted and DIY tax prep is ~56% Assisted and ~44% DIY Over the past few years, DIY has been outpacing the Assisted category causing a slight mix shift The long-term growth in DIY tax software has
Slide 9: Assisted category generates vast majority of revenue in the industry
Assisted category generates vast majority of revenue in the industry H&R Block generates nearly as much revenue as all Assisted and DIY branded competitors combined DIY Other DIY 13% 2% Independents Intuit Turbo Tax 10% 44% $20B H&R $20B Block 14% market market 4% Branded 87% Assisted 26% Assisted
Slide 10: Foundational Strengths
FOUNDATIONAL STRENGTHS
Slide 11: HRB has significant scale, expertise and resources in the U.S. Assisted category
HRB has significant scale, expertise and resources in the U.S. Assisted category H&R Block FOUNDED the tax industry and just Branded completed its 64th tax season Competitors CPAs Largest Assisted preparer in the U.S., with 15% H&R Block 4% market share 27% 15% Unmatched scale ~78M • Vast majo
Slide 12: Our tax pros' experience and expertise is unmatched
Our tax pros’ experience and expertise is unmatched Approximately 80,000 highly trained U.S. tax professionals 1: 15% 15+: 25% HRB tax professionals complete at least 39 2: 8% hours of training annually Average tenure: 10.5 years Over 7,500 Enrolled Agents and CPAs 3-4: 11% 10-15: Average ta
Slide 13: Current clients continue to see value from the H&R Block brand and our tax pros
Current clients continue to see value from the H&R Block brand and our tax pros H&R Block’s Assisted retention is estimated to be ~13 points higher than branded competitors 72% 73% 70% 69% 70% 66% FY16 FY17 FY18 FY16 FY17 FY18 Assisted client retention DIY client retention Source: H&R Block estima
Slide 14: H&R Block focused on growing DIY business
H&R Block focused on growing DIY business Continued enhancements to the user experience through customization and 14.5% simplification 14.0% 13.7% • Clients can import or upload 98% of their tax documents • Prior year return import using drag-and-drop feature makes it simple for tax filers to swit
Slide 15: New technology layer enables tax pros to serve clients virtually
New technology layer enables tax pros to serve clients virtually Remote tax preparation with just a few Have a Tax Pro review your return easy steps Get matched with the best Tax Pro Choose any online product Upfront pricing Tax Pro provides an expert evaluation Secure digital document upl
Slide 16: More than tax preparation: diverse portfolio of products and services
More than tax preparation…H&R Block offers a diverse portfolio of products and services Year-round assistance Tax Plus suite of Bookkeeping and resolving tax issues products business services Strong businesses in Emerging Expat Canada & Australia opportunity 15
Slide 17: Tax Plus products provide added value to clients, both within and beyond tax season
Tax Plus products provide added value to clients, both within and beyond tax season Tax Plus product revenues of over $450M in fiscal 2018 H&R BLOCK H&R BLOCK EMERALD REFUND ADVANCE EMERALD ADVANCE® PREPAID MASTERCARD® Pre-season line of credit up Interest-free, no-fee loan, up to 3rd larges
Slide 18: Delivering Results
DELIVERING RESULTS
Slide 19: Foundational strengths translate to results; total U.S. return volume growth of 2.5% in FY18
Foundational strengths translate to results; total U.S. return volume growth of 2.5% in FY18 ASSISTED DIY RETURN VOLUME ↓ 0.6% ↑ 7.8% vs. ↓ 2.5% in FY2017 vs. ↑ 3.5% in FY2017 NET AVERAGE ↑ 1.9% ↑ 3.0% CHARGE Note: Reflects U.S. returns; references are in comparison to the prior fiscal year. 18
Slide 20: Fiscal 2018 financial results
Fiscal 2018 financial results REVENUES EBITDA1 EPS2 ↑ 4.1% ↑ 4.1% ↑ $1.02 to $3.2B to $941M to $2.98 $0.85 of the increase due to lower corporate tax rate Note: References are in comparison to the prior fiscal year. 1 Please refer to the “Safe Harbor Statement” at the beginning of this presentation
Slide 21: Significant recurring cash flow
Significant recurring cash flow 751 Cash-based, capital-light operating model with strong margins 627 445 463 Consistent generation of significant cash 421 387 flow Model allows for capital returns through dividends and share repurchases FY16 FY17 FY18 Net income Free cash flow Net income and
Slide 22: Results also translate to return for shareholders
Results also translate to return for shareholders DIVIDENDS SHARE REPURCHASES 4% increase in FY19 to annual rate of $1.00, or Repurchased ~25% of shares outstanding since $0.25 per quarter FY15 Third consecutive year of dividend increases Recently changed policy to repurchase shares to, Co
Slide 23: The Path to Sustainable Growth
THE PATH TO SUSTAINABLE GROWTH
Slide 24: Foundational strengths with opportunities for growth
Solid foundation Foundational with opportunities for growth Strengths Foundational strengths Opportunities Well-known and trusted brand Increase brand relevance Large client base and improved Improve new client growth and results strengthen value proposition Seamless & consistent client Strong clien
Slide 25: Strategic framework that will guide us
Strategic framework that will guide us Elevate our Own a Win on Build Invest for talent and sustainable customer operational the long culture brand position experience excellence term 24
Slide 26: Expectations remain strong for FY19, while making investments for the long-term
Expectations remain strong for FY19, while making investments for the long-term REVENUES EBITDA MARGIN1 EFFECTIVE TAX RATE $3,050M - $3,100M 24% - 26% 23% - 25% 1 EBITDA Margin from continuing operations is a non-GAAP financial measure. Specific quantifications of the amounts that would be required
Slide 27: Investment Thesis
INVESTMENT THESIS
Slide 28: Investment thesis
Investment thesis Uniquely positioned as the leader in the tax industry to serve clients in Assisted, DIY, and anything in between Stable, growing, and resilient market Solid foundational assets with opportunities for growth Innovation in serving consumers, bringing our tax expertise to clie
Slide 29: Appendix
APPENDIX
Slide 30: Capital structure priorities aligned with strategy
Capital structure priorities aligned with strategy Significant seasonal cash needs; cash flow positive primarily in fiscal Q4 Short-term funding provided through $2.0B committed line of credit maturing in 1. Ensure adequate liquidity September 2022 Debt/EBITDA covenant of 3.5x, increases to 4.
Slide 31: Executive pay aligns with shareholder value
Executive pay aligns with shareholder value Our executive compensation decisions are influenced by a variety of factors, with the primary goals being to align management’s and shareholders’ interests and to link pay with performance A significant portion of our executives’ compensation is “at-ri
Slide 32: Operating statistics
Operating statistics Year ended April 30, 2018 2017 % Change Year ended April 30, 2018 2017 % Change U.S. Tax Returns Prepared: (in 000s) (1) (2) Tax Offices (at the peak of the tax season): Company-Owned Operations 8,050 8,140 (1.1)% U.S. offices: Franchise Operations Total Company-Ow ned Offices 6
Slide 33: Consolidated financial results
Consolidated financial results Consolidated – Financial Results (dollars in 000s) Year ended April 30, 2018 2017 % Change Revenues: U.S. assisted tax preparation fees $ 1,947,160 $ 1,902,212 2.4 % U.S. royalties 245,444 250,270 (1.9)% U.S. DIY tax preparation fees 243,159 219,123 11.0 % Internationa
Slide 34: Consolidated balance sheets
Consolidated balance sheets (dollars in 000s) As of April 30, 2018 2017 ASSETS Cash and cash equivalents $ 1,544,944 $ 1,011,331 Cash and cash equivalents - restricted 118,734 106,208 Receivables, less allow ance for doubtful accounts of $81,813 and $55,296 146,774 162,775 Income taxes receivable 12
Slide 35: Non-GAAP financial measures
Non-GAAP financial measures (dollars in 000s) Year ended April 30, 2018 2017 % Change EBITDA Net income – as reported $ 613,149 $ 408,945 Discontinued operations, net 13,760 11,972 Net income from continuing operations – as reported 626,909 420,917 Add back: Income taxes of continuing operations 41,