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H&R Block (HRB) capped off the 2024 tax season with a bang, delivering a strong beat-and-raise Q4 earnings report while also announcing a new $1.5 bln share repurchase authorization and a 17% increase to its quarterly dividend. The company, which is best known for its assisted tax preparation services, continued to gain momentum on the DIY side, reporting that it gained market share in that business for the second consecutive year. Additionally, HRB's diversification efforts are paying off as its non-tax related businesses performed well and provided a boost to its top-line growth.

• Starting with the bread and butter Assisted Tax Preparation business, revenue increased by 2.5%f to $652.4 mln. During the earnings call, HRB noted that its brand is resonating well with higher value clients, enabling it to grow net average charge (NAC). Small business was another area of strength with revenue up by mid-single digits.
• Turning to DIY tax prep, revenue edged higher by 1.4% to $134.3 mln. Although main competitor Intuit (INTU) generated stronger 9% revenue growth in its Consumer segment (TurboTax, both DIY and Assisted) last quarter, INTU also said that it expects total TurboTax units to decline by 1% in FY24, due to market share losses with lower average revenue per return customers. It seems likely that HRB is picking up many of those lost customers.
• While HRB is best known for its tax prep services, the company has also been expanding into adjacent areas, such as mobile banking and small business services, such as bookkeeping, payroll, and advisory. In June of 2022, HRB launched Spruce, a mobile banking app that includes a debit card and connected savings account. Since the launch, Spruce has accumulated 476,000 sign ups and it's approaching a milestone of $1.0 bln in customer deposits. Encouragingly, nearly half of the deposits came from non-tax sources this year.
  • HRB's Financial Services segment, which includes Spruce, achieved revenue growth of 14% to $18.8 mln, mainly driven by interest and fee income.
  • Meanwhile, Wave, HRB's small business services segment, posted revenue growth of 9% to $25.8 mln, boosted by the recent launch of a new paid subscription product called Pro-Tier. Importantly, the company also stated that losses continue to shrink for Wave and that it expects these positive trends to continue in FY25.
• On the topic of FY25, HRB provided a rather muted outlook for the tax prep industry overall, forecasting growth of about 1%, in line with historical trends. One disappointment was that the company didn't forecast addition market share gains, stating instead that it assumes that it will maintain market share in the overall tax category. However, HRB does expect to benefit from additional pricing actions, and it expects the Wave and Small Business segment to continue to drive revenue growth.

The main takeaway is that HRB ended the 2024 tax season on a very positive note and the company's shareholder-friendly capital allocation strategy is resonating quite well with investors.