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Yahoo Finance’s Alexis Christoforous and Jeff Jones, H&R Block CEO, discuss growth amid COVID-19.
ALEXIS CHRISTOFOROUS: It was a mixed quarter for H&R Block. The tax-preparation company posted a wider-than-expected second-quarter loss, but once again, revenue beat estimates.
Joining me now fresh off the company's investor day is H&R Block's president and CEO Jeff Jones. Jeff, good to have you here on the show.
You know, I Want to get to the future in a moment, but first to that quarter. We saw a familiar theme there, and that is earnings lagging revenue growth. When do you see that dynamic starting to change?
JEFF JONES: Well, that's a great question, and keep in perspective that the second quarter for H&R Block, given our seasonality, only represents about 5% of our business. So we did see revenue grow. We saw our pretax loss improve. And the EPS miss was 100% related to a tax strategy that hurt us in the quarter because we lose money but is really beneficial on an annual basis.
ALEXIS CHRISTOFOROUS: Now H&R Block is going through a transformation. You said that yourself on the earnings call, and part of that includes $150 million in savings over the next five years. That's a lot of money. Where do you expect to find that cost savings?
JEFF JONES: Well, let me take a step back first, Alexis, and just talk about-- what we unveiled yesterday we called Block Horizons. And in many ways, we reintroduce our investors and sell side to H&R Block because over the last two years we have done so much to improve and strengthen the foundation of the company.
What we unveiled yesterday talked about growth in small business, growth in financial products, and growth in what we call Block experience, which is all about consumer tax.
To the $150 million, what we shared with our investors was a really expense-minded program to help fund the future, and we see opportunities in lots of places in the company to get more efficient, to get more productive.
And two big things we talked about were as our digital capabilities continue to improve the opportunity we see with the real-estate footprint and with the utilization of our labor and their tax professionals.
ALEXIS CHRISTOFOROUS: So by that do you mean that there may be fewer physical locations, H&R Block locations, by the end of next year?
JEFF JONES: Well, we haven't put a date on when there will be fewer locations, but one of the things we wanted to make sure our investors understood, we do have a large footprint, and that footprint is a real asset today, but it's also very flexible. We lease all of our real estate. Every single year, a third of the network comes up for renewal. And so as we see consumer behavior continue to change and we believe that we can operate with a smaller footprint, we have a lot of flexibility in how we do that.
ALEXIS CHRISTOFOROUS: I know that our viewers are probably curious to know how you see COVID impacting the upcoming tax-filing season. What do you think we can expect?
JEFF JONES: Well, obviously there's two big things that we're focused on. One is in our retail locations, just like we did last tax season, making sure we have all the right safety precautions in place for our tax pros and for the consumers that choose to come to a location.
Last year we had in place multiple different digital capabilities. So a consumer could upload their documents digitally. They could review their return online. They could pay online. They can collaborate with their tax professional. So this year as the consumers continue to embrace more digital tools, we expect they'll turn to H&R Block for all the expertise and care they love about this brand but continue to do it in more and more digital ways.
ALEXIS CHRISTOFOROUS: You know, Jeff, I saw a recent CPA survey. It found that 45% of taxpayers can't even remember the last time they changed their withholding on their taxes. What are some practical things people can do between now and the end of the year to make that tax-filing season a little easier?
JEFF JONES: It's such an important question, and we see the same thing with our consumers every year. Taxes are a mystery to Main Street America, but they don't always have to be, and changing your withholding is a really important part of that equation. We do tax check-ups for people midyear, and we're constantly asking people, did you have a life change? Did you move? Did you have a job change? Did you have a baby?
All those things can be reasons to change your withholding because at the end of the day, it's about making a choice. Do you want more in your paycheck or do you want to get a bigger refund when that time comes next year? And we really try to teach that advice as much as we can. It's a really important consumer strategy.
ALEXIS CHRISTOFOROUS: Now we saw the federal tax-- the federal government extend that tax deadline this past year. Do you expect that to happen again when we go to file our 2020 taxes?
JEFF JONES: Well, last year that deadline moved for the first time in history, and I don't think Treasury or IRS took that lightly. It was a very big decision because of its impact on state and federal governments but also on the consumer. We're very date driven as consumers. Our busiest day every single year is the last day of filing season. So when that date moves, it is a big deal. At this point, the IRS feels very confident in starting the season on time and ending the season on time as well.
ALEXIS CHRISTOFOROUS: And then just to be clear, you are going to be offering in-person tax filings for those people who want to go to physical locations?
JEFF JONES: So across our network in this country, the consumer is going to have a lot of options. They can make an appointment and go in and sit with their tax professional. They can drop off and then have everything else completed virtually. Or they can have a complete virtual experience, which means they can upload their documents digitally. They can collaborate and video chat with the tax professional. They can review and approve and pay online. So we'll have the full spectrum available for customers really to engage with Block however they choose.
ALEXIS CHRISTOFOROUS: I know that you've made a big commitment to small business. Is small business your biggest growth opportunity in 2021, Jeff?
JEFF JONES: You know, when you go back to Block Horizons, small-business and financial products are very big growth opportunities for the company, and we start from a great position of strength. Today between Block and our software company called Wave, we serve about 2 and 1/2 small-business owners already. They turn to us for tax and bookkeeping and payroll. At Wave, we offer them a fully integrated banking product from spending, invoicing, payments, accounting, payroll, all the way to reconcile back to Block through taxes. And so the small-business landscape, clearly while has been tremendously impacted by COVID, we feel very confident that small-business owners will lead us out of the recovery just like they did in '09.
ALEXIS CHRISTOFOROUS: You know, I've been looking at the stock price, Jeff, and I know as CEO you can't be uber focused on what's happening day to day with the stock, but it is underperforming the market, down about 30% year to date. You're off your investor day. Do you think that investors are starting to get the message and buying into your new digital strategy for the next five years?
JEFF JONES: Yesterday was a really important day in our transformation, and we shared a lot of new information. So, you know, we painted a picture for a company that already is different than many people understand. You know, we're so well known as being a physical place that people go for taxes, but today our digital capabilities are fully deployed. We're growing in small business. We're growing in financial products. And that story is brand new for a lot of our investors. That was a conversation that started yesterday, and it's all about execution now, and that's what we told them.
We have a clear sense of what we have to do, and over the next several years, our intention is to be able to grow the business 3% to 6% on the top line. And because of the fixed cost base we have in place with people and offices and all of our digital capabilities, there's great financial leverage that we think we can grow earnings faster than revenue as well.
ALEXIS CHRISTOFOROUS: All right, we're going to be watching the transformation. Jeff Jones, CEO of H&R Block, thanks so much for your time today.
JEFF JONES: Thank you, Alexis. Bye-bye.