Executive Summary / Key Takeaways

• H&R Block is capturing a structural shift back to assisted tax preparation as rising complexity drives clients toward human expertise, gaining market share in three of the last four years while DIY competitors engage in destructive promotional pricing.
• The company's small business platform—combining Wave's digital-first tools with Block Advisors' assisted services—is emerging as a meaningful growth engine, addressing a $100+ billion TAM that diversifies revenue beyond seasonal tax prep.
• Technology investments in AI Tax Assist, virtual services, and Spruce mobile banking enhance client conversion and retention rather than disrupting the core human-assisted model, supporting pricing power and margin expansion.
• Disciplined capital allocation has returned nearly $5 billion to shareholders since 2016 through growing dividends and opportunistic buybacks, while franchise acquisitions consolidate the market and support long-term earnings growth.
• Fiscal 2026 guidance reaffirms mid-single-digit revenue growth and EBITDA of $1.015-1.035 billion despite FY2025 cost headwinds, suggesting management has annualized elevated expenses while maintaining operational leverage.

Setting the Scene: The Assisted Tax Revival

H&R Block, incorporated in 1955 and headquartered in Kansas City, Missouri, has spent 70 years building what is now the largest assisted tax preparation network in the United States. The company operates through a hybrid model that combines physical retail offices, virtual tax professional services, and DIY digital platforms—a structure that positions it uniquely as the industry undergoes a subtle but significant transformation.

The U.S. tax preparation market splits roughly 55% assisted and 45% DIY, representing a $20-25 billion consumer opportunity. For years, conventional wisdom held that digital DIY solutions would steadily erode assisted market share. Yet the opposite has occurred. Assisted tax preparation has gained share in three of the last four years, and management projects further gains in fiscal 2026. This reversal stems from a simple reality: tax complexity is increasing, not decreasing. The introduction of 1099-K forms for gig economy workers, potential changes to tax policy, and the sheer volume of new regulations are driving filers—particularly those earning over $80,000—toward professional expertise.

This dynamic creates a powerful tailwind for H&R Block's core business. While DIY competitors like Intuit (INTU)'s TurboTax and low-cost providers such as TaxAct compete aggressively on price, H&R Block's value proposition rests on expertise, accuracy, and trust. The company's 10,000-office retail footprint provides a physical presence that pure-play digital competitors cannot replicate, particularly for the 70% of Americans identified as financially coping or vulnerable who benefit from face-to-face guidance.

The competitive landscape is fragmented. In assisted services, H&R Block's primary competition comes not from national chains like Jackson Hewitt or Liberty Tax, but from independent preparers who represent the largest segment of the market. In DIY, Intuit dominates with technological superiority and massive marketing spend, while TaxAct targets price-sensitive filers. This bifurcation allows H&R Block to occupy the middle ground: a trusted national brand with both digital capabilities and human expertise.

Technology, Products, and Strategic Differentiation

H&R Block's technology strategy is not to disrupt its own business model, but to enhance the productivity of its tax professionals and improve client conversion across all channels. This distinction is critical. While competitors view AI as a replacement for human expertise, H&R Block treats it as a force multiplier.

AI Tax Assist, a GenAI-powered tool embedded in the DIY product, provides real-time guidance during the filing process. In fiscal 2025, improvements to this tool supported a 13-point increase in conversion rates among new DIY clients. The tool is offered free in all paid DIY SKUs, creating a powerful value proposition against TurboTax, which charges premium prices for expert help. This allows H&R Block to compete on value rather than price, maintaining its price advantage while improving the client experience.

The Second Look service exemplifies how technology enables a unique human-led offering. This service reviews clients' past three years of tax returns for missed refund opportunities, identifying discrepancies in nearly a quarter of reviews. In fiscal 2025, new client participation increased tenfold. No other national competitor offers this service, and it serves as a powerful client acquisition tool that demonstrates immediate value. The technology behind Second Look automates the review process, but the value proposition is purely human: recovering money clients didn't know they were owed.

Spruce, the mobile banking platform launched as part of Block Horizons, supports year-round financial wellness and deepens client relationships. With over 700,000 sign-ups and $1.75 billion in deposits since inception, Spruce transforms a seasonal tax client into a year-round banking customer. Nearly half of all deposits come from non-tax sources, and the platform's 3.5% APY high-yield savings rate—significantly above the FDIC national average of 42 basis points—provides a competitive moat that pure tax prep competitors cannot match. The Smart Tax Refund feature, which allows clients to automatically commit refunds to savings, saw users save an average of 26% of their refund in fiscal 2025.

Wave, the digital-first small business platform, delivered 13% revenue growth in fiscal 2025 through its high-margin Pro-Tier subscription product and strong payment processing volumes. Integrating Wave's capabilities into Block Advisors creates a unified experience for small business owners who need tax, bookkeeping, payroll, and invoicing services. This integration transforms H&R Block from a seasonal consumer tax company into a year-round small business solutions provider, addressing a TAM exceeding $100 billion.

Virtual services have also expanded significantly. The MyBlock mobile app increased fully virtual clients by 24% in fiscal 2025, while improvements to tax pro matching algorithms and client expectation management drove higher conversion in retail offices for the second consecutive year. These enhancements demonstrate that technology can improve the human-assisted experience rather than replace it.

Financial Performance & Segment Dynamics

H&R Block's financial results provide clear evidence that its strategy is working, despite temporary cost headwinds. For the three months ended September 30, 2025, total revenues increased 5% year-over-year to $203.55 million. While this appears modest, the segment composition reveals the underlying strength of the thesis.

U.S. assisted tax preparation revenue grew 13.2% to $48.64 million, driven by higher net average charge (NAC) and company-owned tax return volumes. This outpaced DIY revenue growth of 15.7% to $3.75 million, but the absolute dollar contribution from assisted services is far more significant. The assisted segment's ability to grow both price and volume demonstrates pricing power and market share gains in the highest-value segment of the market.

Wave revenue increased 13.1% to $29.85 million, marking its third consecutive year of double-digit growth. This performance is particularly important because it diversifies revenue away from the seasonal tax business and into year-round small business services. The integration of Wave with Block Advisors is still in early stages, suggesting this growth can accelerate as cross-selling opportunities mature.

Financial services revenue declined 11% to $7.85 million, primarily due to lower Emerald Advance volume. Management is not discontinuing this program but is refining underwriting guidelines to balance approval rates with repayment rates. This disciplined approach protects profitability, even if it temporarily reduces revenue.

International revenue grew 1.2% to $65.66 million, providing stable but modest contribution. The seasonal borrowing needs of Canadian operations are funded by U.S. operations, and the company uses foreign exchange forward contracts to mitigate currency risk, demonstrating prudent financial management.

Operating expenses decreased 2.7% overall, with marketing and advertising expense falling 16.3% due to higher vendor refunds and reduced online advertising. This cost discipline is crucial because it shows management can maintain growth while controlling spending, a key factor in achieving EBITDA growth that outpaces revenue growth. Field wages increased 2.4% and other wages rose 2.5%, reflecting investments in talent, while benefits and compensation decreased 5.4% due to lower stock-based compensation.

EBITDA from continuing operations improved 9.4% in Q1 FY26, despite the seasonal nature of the business that typically results in losses during this period. This improvement suggests that the cost realignment activities undertaken in fiscal 2025 are beginning to generate savings.

For the full fiscal 2025 year, H&R Block generated $3.8 billion in revenue, with assisted revenue growing 6.1% and DIY revenue growing 9.7%. EBITDA improved 1.4% to $976 million, while net income from continuing operations increased 6.8% to $609 million. Adjusted EPS grew 5.7% to $4.66. Free cash flow reached approximately $600 million, providing ample liquidity for capital returns and investments.

The company returned approximately $600 million to shareholders in fiscal 2025 through dividends and share repurchases, bringing the cumulative total since 2016 to over $4.5 billion. In Q1 FY26 alone, H&R Block repurchased $400 million of common stock at an average price of $50.90, retiring 5% of outstanding shares. The quarterly dividend increased 12% to $0.42 per share in August 2025, reflecting confidence in consistent cash generation.

Outlook, Guidance, and Execution Risk

Management's fiscal 2026 guidance, reaffirmed in the first quarter earnings call, embeds several key assumptions that investors must evaluate. Revenue is expected between $3.875 billion and $3.895 billion, representing growth consistent with historical industry trends of approximately 1%. This conservative top-line assumption suggests management is not banking on a massive market expansion, but rather on share gains and mix improvement.

The company expects EBITDA between $1.015 billion and $1.035 billion, implying growth that outpaces revenue and demonstrating confidence in operational leverage. The effective tax rate is projected at approximately 25%, with adjusted EPS between $4.85 and $5.00. This EPS growth will be amplified by share repurchases, with management anticipating approximately $400 million of buybacks in the first half of fiscal 2026.

A critical assumption is the impact of the "One Big Beautiful Bill"—the tax legislation that increased complexity and drove a 20 basis point shift from DIY to assisted in the prior tax season. Management uses this shift as a proxy for fiscal 2026, suggesting they expect tax complexity to continue driving clients toward professional assistance. This underpins the assisted growth thesis and provides a tailwind that DIY competitors cannot easily counter.

Small business is expected to become a more meaningful revenue contributor, with Wave and Block Advisors delivering double-digit growth. The total addressable market for small business services exceeds $100 billion, and H&R Block's integrated offering of tax, bookkeeping, payroll, and payments positions it to capture share from fragmented independent providers.

The company remains committed to acquiring franchise locations when opportunities arise at attractive EBITDA multiples. In fiscal 2025, H&R Block acquired 124 franchise locations, a strategy that supports long-term revenue and earnings growth by consolidating the network and capturing franchise royalties.

Execution risks are evident in management's commentary. The DIY market faced an "unprecedented promotional environment" in fiscal 2025, with one competitor spending heavily on advertising and free offerings. H&R Block maintained discipline, focusing on paying clients rather than chasing market share at the expense of profitability. This approach preserves margins but could result in continued share losses if competitors sustain their promotional intensity.

The company also observed an industry trend of clients filing later in the season, resulting in record-high volumes in offices on the final two days of the 2025 tax season. This concentration increases execution risk and requires precise staffing and operational management.

Risks and Asymmetries

The most material risk to the thesis is the potential for tax code simplification. If policymakers reduce complexity through streamlined rules or pre-filled returns, the value proposition of assisted tax preparation diminishes materially. This would reverse the structural shift that currently benefits H&R Block and could lead to significant market share losses, particularly among the high-income clients who demonstrate stronger loyalty and value additional services.

Competitive dynamics in DIY present another threat. While H&R Block maintained pricing discipline in fiscal 2025, sustained promotional spending by Intuit could erode the company's DIY market share and create pressure to match discounts, compressing margins. The company's price advantage relative to TurboTax provides some cushion, but a prolonged price war would test management's resolve.

Execution risk in the small business segment is significant. While Wave's 13% growth is impressive, the small business market is highly competitive and requires different capabilities than consumer tax. Integration challenges between Wave's digital-first approach and Block Advisors' assisted model could limit cross-selling synergies. Failure to scale this segment as projected would leave the company overly dependent on seasonal tax revenue.

Legal and regulatory risks persist, though management believes they are not material. The company is responding to governmental inquiries, class actions, and mass arbitrations related to the IRS Free File Program and DIY services. While the estimated range of reasonably possible losses is not material as of September 30, 2025, unfavorable outcomes could require substantial payments or operational modifications.

The seasonal nature of the business creates inherent risk. Approximately 80% of revenue is concentrated in the February through April period, requiring significant cash outflows from May through January to fund losses and working capital needs. While the company has $376 million in cash and a $1.5 billion credit facility, any disruption to the tax season—whether from delayed legislation, natural disasters, or pandemic-related closures—would have a disproportionate impact on full-year results.

On the positive side, an asymmetry exists in the small business segment. If Wave's integration with Block Advisors accelerates faster than expected, revenue growth could exceed the high single-digit to double-digit rates management projects. The $100 billion TAM provides ample runway, and success in capturing even a small percentage would materially impact overall growth and valuation.

Valuation Context

Trading at $42.11 per share, H&R Block presents a valuation profile that differs markedly from its primary competitor. The company's P/E ratio of 9.59 and EV/EBITDA of 7.51 stand in sharp contrast to Intuit's P/E of 46.17 and EV/EBITDA of 28.93. This valuation gap reflects the market's perception of H&R Block as a mature, slow-growth business versus Intuit's positioning as a high-growth technology platform.

However, the numbers suggest a different interpretation. H&R Block's dividend yield of 3.99% provides immediate cash returns to shareholders, while Intuit offers just 0.68%. The company's free cash flow generation of approximately $600 million in fiscal 2025 translates to a price-to-free-cash-flow ratio of 9.35, indicating that the market is pricing in minimal growth. Yet management's guidance for EBITDA growth that outpaces revenue suggests operational leverage that is not fully reflected in the valuation.

The balance sheet provides strategic flexibility. With $376 million in cash and cash equivalents, $1.5 billion in available credit, and manageable debt levels, the company can fund operations through seasonal cash needs while returning capital to shareholders. The debt-to-EBITDA covenant of 3.50 to 1 for most quarters provides ample headroom, and the company was in compliance with all covenants as of September 30, 2025.

Comparing margins reveals H&R Block's operational efficiency. While Intuit boasts an 80.73% gross margin versus H&R Block's 44.56%, this reflects different business models—Intuit's software-centric approach versus H&R Block's hybrid physical-digital model. More relevant is H&R Block's 16.24% profit margin, which compares favorably to Intuit's 21.19% when considering the capital intensity of maintaining a retail footprint. The company's return on assets of 20.53% demonstrates effective deployment of capital despite the seasonal nature of the business.

The valuation multiple contraction appears overdone relative to the company's strategic progress. If H&R Block successfully executes its small business expansion and continues gaining assisted market share, the current multiple could re-rate toward a premium that reflects the durability of its revenue streams and the expanding TAM.

Conclusion

H&R Block stands at an inflection point where structural industry trends align with strategic execution. The resurgence of assisted tax preparation, driven by increasing complexity and clients' desire for expertise, plays directly into the company's core competency. This is not a cyclical rebound but a durable shift that has seen the assisted category gain share in three of the last four years.

Simultaneously, the small business platform—anchored by Wave's digital capabilities and Block Advisors' assisted services—creates a year-round revenue stream that diversifies the company away from seasonal tax dependence. The 13% growth in Wave and the expansion of custom experiences from 5 to 20 occupations demonstrate early but compelling progress in capturing a $100 billion TAM.

Technology investments in AI Tax Assist, Second Look, and Spruce enhance client conversion and retention without disrupting the human-assisted model that differentiates H&R Block from pure-play digital competitors. This approach preserves pricing power while improving the client experience, as evidenced by the 13-point conversion increase from AI Tax Assist and the tenfold increase in Second Look participation.

The company's disciplined capital allocation—returning nearly $5 billion since 2016 while opportunistically acquiring franchise locations—provides downside support and demonstrates management's commitment to shareholder value. The 12% dividend increase in August 2025 signals confidence in consistent cash generation.

The investment thesis hinges on two variables: whether tax complexity continues driving clients to assisted services, and whether the small business segment can scale to become a meaningful contributor to revenue and earnings. If both trends persist, H&R Block's current valuation represents an attractive entry point for a business with durable competitive advantages and expanding growth opportunities.