I would now like to hand the call over to Jessica Hazel, Vice President, Investor Relations. Please go ahead.
Thank you. Good afternoon, and welcome to H&R Block's fiscal 2027 first quarter financial results conference call. Joining me today are Curtis Campbell, our President and Chief Executive Officer, and Tiffany Mason, our Chief Financial Officer. Earlier today, we issued a press release and presentation, which can be downloaded or viewed live on our website at investors.hrblock.com. Our call is being broadcast and webcast live, and a replay of the webcast will be available for 90 days. Before we begin, I'd like to remind listeners that comments made by management may include forward-looking statements within the meaning of federal securities laws. These statements involve material risks and uncertainties, and actual results could differ from those projected in any forward-looking statement due to numerous factors.
For a description of these risks and uncertainties, please see H&R Block's annual report on Form 10-K and quarterly reports on Form 10-Q, as updated periodically with our other SEC filings. Please note, some metrics we'll discuss today are presented on a non-GAAP basis. We've reconciled the comparable GAAP and non-GAAP figures in the appendix of our presentation. Finally, the content of this call contains time-sensitive information accurate only as of today, November 9, 2026. H&R Block undertakes no obligation to revise or otherwise update any statements to reflect events or circumstances after the date of this call. I will now turn the call over to Curtis.
Good afternoon, everyone, and thank you for joining us. Because of the seasonality of our business, the first quarter represents a relatively small portion of our annual financial performance, but it remains an active period across H&R Block, including Australia's tax season, our year-round small business services, and the U.S. extension season. It is an important period for staying connected with clients, advancing targeted experimentation, and preparing to deliver a strong tax season 2027. Tiffany will discuss our quarterly financial performance in more detail. I want to focus my remarks on how we used the first quarter to strengthen new client relationships, prepare promising concepts for broader testing, and advance the work required for the upcoming tax season. Taxes are inherently personal and consequential, and navigating them can be complex. Clients want more than an accurate return.
They want to feel confident that they've made the right decisions, received the tax outcome they deserve, and have someone they trust who will be there when they need help. That is where H&R Block is differentiated. We combine deep tax expertise, trusted human guidance, technology, and an omnichannel experience with a broad physical and digital presence. That combination allows us to meet clients where they are while giving them the flexibility to access human expertise at any point in the experience. Since I became CEO, I've emphasized that H&R Block is in the business of trust and confidence, and that our expert-led, technology-enabled strategy helps us strengthen both in clients' tax outcomes over time. The first quarter provides several examples of how we're putting that strategy into action. One example is Second Look. Historically, Second Look was a highly manual process.
Tax pros had to offer the service to new clients and complete the multi-year reviews themselves during tax season on top of an already heavy load, limiting adoption and our ability to scale. Over the past 15 months, we've significantly evolved the model by combining AI and automation with a dedicated Second Look team. Now we use AI to review up to three years of a new client's prior tax transcripts to identify potential missed opportunities or risk, and our dedicated Second Look team reviews those findings and connects with clients during and outside of tax season, allowing us to deliver Second Look more consistently and at greater scale. We have seen that translate into stronger retention, with new clients who received Second Look in tax season 2025 returning at a rate more than 600 basis points higher this year than new clients who did not.
As a result, in tax season 2026, we expanded Second Look nationally, reaching nearly three times the prior season's volume. During the first quarter, our teams have been reviewing those clients' prior year tax returns and reaching out to discuss their findings. These conversations create additional engagement opportunities between filing events and give us much larger opportunities to demonstrate our expertise, build trust, and strengthen new client relationships heading into tax season 2027. We're also using experimentation to make our strategy more tangible and build evidence before we scale nationally. Rather than making large commitments based on assumptions, we're testing specific ideas at smaller scale, measuring the benefit to our clients and tax pros, and using those learnings to determine where to invest, refine, expand, or pause. Over time, we can apply what works more broadly across the enterprise.
One example is our work to create a more consultative client tax experience, which I've discussed over the past few quarters. During the first quarter, we continued preparing to expand testing of the experience in tax season 2027. Last season, we tested a new client experience in five offices. By completing the information gathering and data entry before the client conversation, we created more time for tax pros to apply their expertise where it matters most to clients. The initial pilot produced promising results. Clients reported higher satisfaction and stronger perceptions of our expertise and value. Just as importantly, we learned more about what it takes to execute the experience consistently, including how we engage with clients, train and coach tax pros, and support them with the right processes and tools. Based on that evidence, we are meaningfully expanding the test for tax season 2027.
Across approximately 650 offices, we will evaluate this new consultative client experience under a broader range of operating conditions. We will measure client readiness, engagement, and satisfaction, as well as perceptions of our expertise and value. We will also measure the experience of our tax pros, consistency across offices, and the potential operating and financial outcomes. During the first quarter, we advanced the preparation required for that broader test, including client onboarding protocols, training and coaching plans, and the processes and tools needed to support more consistent execution across a larger office footprint. The objective of the expanded test is to apply what worked, improve what did not, and determine whether we can deliver the experience consistently and sustainably at greater scale. This same discipline applies across our broader pipeline of opportunities. Some concepts have produced enough evidence to support expansion, while others remain proof of concepts.
Another example of early-stage experimentation is workflow management, where we are testing whether new tools can improve consistency, execution, and team effectiveness before determining whether further investment is warranted. Not every experiment will move forward, nor should it. The value of this methodical approach is that it allows us to learn faster while matching investment to evidence. When a concept works, we can scale it with greater confidence. When it does not, we can take the learning, redirect resources, and focus on the opportunities with the greatest potential to advance our strategy and create value for clients and shareholders. This work was an important part of our first-quarter progress, alongside the broader preparation underway for tax season 2027. Across H&R Block, we are preparing our people, technology, marketing, and operations with the same focus and discipline that supported our strong performance in tax season 2026.
We will enter this season with a stronger base of new client relationships through Second Look, an expanded consultative experience test, and a pipeline of experiments focused on improving how we serve clients and operate the business. Just as importantly, we remain disciplined in executing the core business consistently and effectively. The goal is clear: to be ready to serve clients well from day one, make every interaction reinforce trust and confidence in their tax situation, and continue building the capabilities that differentiate H&R Block over the long term. As we move through the remainder of the fiscal year, we will continue to balance urgency with discipline. We will invest where the evidence is strongest, keep learning where more proof is required, and stay focused on delivering value for clients and shareholders. With that, I will turn the call over to Tiffany.
Thank you, Curtis, and good afternoon, everyone. Before I dive in, I want to briefly highlight a change in how we are presenting our financial results. Beginning this quarter, we are reporting revenue by service line and splitting expenses between cost of revenue and SG&A. We have recast our prior year first quarter results to align with the new structure. Our goal is straightforward: to provide greater transparency for investors and better align our external reporting with the way we view and manage the business internally. We have also included a supplemental schedule in the earnings release that provides additional details on the tax preparation business, including the breakdown between assisted and DIY categories. We recognize that changes in presentation can make comparisons more difficult initially, so we have included the legacy presentation in the appendix of today's webcast materials to help bridge the transition.
We believe the new structure ultimately provides a clearer view of our business and its underlying performance. Turning to our first quarter results. Let me begin by reminding everyone that our business is highly seasonal. Historically, Q1 contributes approximately 5% of our annual total revenue and typically results in a net loss. This quarter consistently reflects that pattern. We generated $224.3 million in total revenue in the first quarter, an increase of $20.8 million over the prior year. This 10.2% growth reflected a strong start to fiscal 2027 and was driven by four factors. The first was international services. As a reminder, the first quarter covers much of the Australia tax season, which runs from July 1st through October 31st. International services revenue increased $8.3 million, or 12.5%, compared to the prior year, driven in large part by favorable foreign exchange rates.
However, higher filing volumes and NAC also contributed to our strong revenue growth. Tax protection and identity services revenue increased $5.1 million, or 17.6%, driven by volume growth in both Peace of Mind and Tax Identity Shield, which extend the support we provide clients beyond tax preparation and filing. The increase was also driven by changes in amortization rates. Small business services revenue increased $3.8 million, or 12.4%, primarily driven by continued growth in our Wave product offerings, particularly our Pro Tier subscription product. Finally, U.S. tax preparation revenue increased $2.6 million, or 5%, compared to the prior year, driven primarily by favorable NAC. Turning to expenses, total operating expenses were $456.2 million in the first quarter, an increase of $45.6 million, or 11.1%, over the prior year.
The increase was primarily due to higher field compensation and benefits, increased general corporate expenses, and higher occupancy and equipment costs. Field compensation and benefits increased $19.3 million, or 23.3%, compared to the prior year, and included $8 million of severance and related costs associated with the previously announced seasonal office leadership transition. We also invested in a dedicated Second Look team that Curtis discussed to drive deeper engagement with new clients. General corporate expenses increased $9.1 million, or 35.8%, compared to the prior year. The increase was primarily driven by higher legal fees and settlements, as well as consulting costs that support our strategic priorities. Occupancy and equipment expense increased $7.8 million, or 6.3%, in part due to the 164 franchise offices we acquired in fiscal 2026. We continue to view these acquisitions as a good use of capital, given the attractive EBITDA multiples.
In total, during the first quarter, we invested approximately $6 million to support our strategy and accelerate areas where we just see the strongest opportunities. Excluding the severance charge, revenue growth of 10.2% outpaced expense growth of 9.2%, even as we continue to invest behind our strategic priorities. That balance between disciplined expense management and sustained investment in future growth remains central to our financial model. First quarter adjusted EBITDA loss was $185.2 million, compared to an EBITDA loss of $170 million last year. Our effective tax rate was 21.9%, compared to 23.6% in the prior year. Net loss from continuing operations was $188.1 million, and loss per share from continuing operations was $1.53. Adjusted net loss was $172.1 million. Adjusted loss per share was $1.40, compared to $1.20 last year.
As a reminder, in quarters with a loss, having fewer shares outstanding increases the loss per share. However, this is accretive as we generate earnings for the full year. Our financial position remains strong, and we expect meaningful free cash flow generation in fiscal 2027. That strength provides us the flexibility to execute against our long-term capital allocation priorities, invest in the business, grow the dividend, and return excess capital to shareholders. As I shared earlier, we continue to invest in strategic initiatives that support long-term growth and value creation. These investments remain our first and highest capital allocation priority. Last month, we paid our regular quarterly dividend, which you will recall reflected the 10% increase we announced in August. Today, our board of directors declared our next quarterly cash dividend of $0.46 per share.
We are proud that H&R Block has paid quarterly dividends consecutively for more than 60 years, since becoming a public company in 1962. During the first quarter, we also repurchased 2.2 million shares for $100 million at an average price of $45.68 per share, retiring approximately 2% of our shares outstanding. As a reminder, our fiscal 2027 outlook contemplates approximately $400 million of share repurchases, with a plan to execute throughout the fiscal year, subject to market conditions. As of quarter end, we had approximately $500 million remaining under our $1.5 billion share repurchase authorization. Following our strong first quarter results, we continue to believe the assumptions underlying our outlook remain appropriate. As a result, we are reaffirming the fiscal 2027 outlook we provided in August.
We continue to expect revenue between $4.11 billion and $4.16 billion, adjusted EBITDA between $1.11 billion and $1.14 billion, an effective tax rate of approximately 23%, and adjusted diluted earnings per share in the range of $6.04 and $6.24. As a reminder, the $8 million severance charge incurred in the first quarter is excluded from our non-GAAP outlook metrics. As you think about our second quarter in the context of this outlook, I want to provide some additional color. We expect year-over-year operating expense growth to be consistent with the first quarter, excluding the severance charge. The increase year-over-year will include an approximately $12 million investment in our strategic growth priorities. We expect these initiatives to begin generating benefits in the upcoming tax season, with even greater returns over time. Let me close with a broader perspective.
We remain confident in the underlying strengths of our business. We operate in a stable industry and resilient markets, with an expert-led, technology-enabled model, omnichannel capabilities, and national scale that we believe provide a meaningful competitive advantage. Together with our strong free cash flow generation and disciplined capital allocation, these strengths position us well to continue creating long-term value for our shareholders. With that, I will hand the call back over to Curtis for closing remarks.
Thanks, Tiffany. We're encouraged by the progress we are making and remain focused on the disciplined execution as we prepare for tax season 2027. We're strengthening client relationships, learning faster through experimentation, and investing behind the opportunities where the evidence is strongest. At the center of that work is our expert-led, technology-enabled strategy and our focus on delivering the experience our clients value. I'm confident in our team, our strategy, and the opportunities ahead. Now, operator, we'll open up the line for questions.
As a reminder, to ask a question, you will need to press star one one on your telephone. To remove yourself from the queue, you may press star 11 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of George Tong of Goldman Sachs. Your line is open, George.
Hi, thanks. Good afternoon. Your new consultative model moves info gathering and data entry ahead of the client conversation, which helps create more time for tax pros to apply their knowledge and expertise. Over time, do you expect that to increase returns completed per tax pro, or do you plan to reinvest that capacity into a higher value client experience?
Hey, George. Thanks for joining us. We're excited about the transformation as we shift from a transactional engagement with clients to a relational one, and I'll just give a little bit of a talking point for the folks that may not have the context. So last season, we ran a five-office proof of concept, and with that five-office proof of concept, we tested shifting from transactional engagements to relational. Now, in order for us to make that shift from transactional to relational, we had to deeply understand the work that our tax pros did, and we had to determine how we can eliminate the data entry that our tax pros did so they can focus more on the relational engagement and understanding of how to help those clients get to a better place financially based on their goals.
We leveraged capabilities to do that in our five-office test, which gave us confidence that as we scale this season, we can expand from five offices to 650 offices. It is our intent, just based on our learning, George, that a couple things get impacted as we leverage a transactional experience towards a relational experience. We see a couple things. We see conversion increase. We've got indications that retention will also improve. We have indications that client satisfaction also goes up significantly. What we're also doing is we're leveraging the time saved to lean more into that relational experience to add more value to the experience with clients.
Got it. That's helpful.
George, if I could just add a couple of things. Obviously, we have an Investor Day coming up in a few weeks. That's really going to be key to the question that you asked. We're going to get into this in a lot more detail. I think just to punctuate the answer to the question that you asked, we see an opportunity to do two things. One is increase the productivity of our tax pros, for sure, but we want to balance investing the savings that we see from the productivity of the technology that we're deploying with also getting better flow-through in the model. More to come at the Investor Day, but you're going to see that as we share our plans over the next three years.
Got it. That's helpful. With respect to Second Look, new clients who received a Second Look returned at a 600 basis point higher rate, and your program was basically triple, produced three times as many clients as the prior season. How are you determining how much of that retention benefit is incremental to Second Look, and what do the unit economics look like as you scale the program?
Yeah, a couple things that I will talk about. As I mentioned in prepared remarks with Second Look, we did scale Second Look significantly from prior year to this past tax season. Now, keep in mind, the work that we are doing right now is to continue to mine those Second Looks, to reach out to clients, have discussions with those clients, and what those outcomes would be from Second Look to get those clients to come back. It is too early for us to talk about the impact from that expanded Second Look from last season until we get to the end of this tax season. I would expect for us to see continued retention increases and an opportunity for us to have further conversations and deeper relationships with our clients.
Very helpful. Thank you.
Thank you. Once again, to ask a question, please press star one one on your telephone. Again, that is star one one to ask a question. Our next question comes from the line of Thomas Wendler of Stephens. Your line is open, Thomas.
Hey. Good afternoon, everyone. I wanted to-
Hey, Tom.
I wanted to touch on the increase in expenses this quarter. I know you said 2Q expense growth is going to be consistent. Can you give us an idea if any of those costs are implementation-related, and what is more permanent? Also with that, is this fully reflect the cost of the year-round leadership and the new Second Look teams?
Yeah, Tom, great questions. A couple things. We talked about, in prepared remarks, $6 million of incremental investment in Q1. I also shared in my guidance commentary an expectation for $12 million of investment in Q2. I think the most important takeaway in talking about both of those incremental investments across the first half of the year is that we are able to grow revenue in excess of expense growth overall, which is really important because that shows the productivity of our model and our ability to be able to drive cost discipline elsewhere to be able to overcome that expense, that incremental expense pressure from those investments.
If you think about the first quarter in particular, we grew revenue 10%, and if you look through the severance charge, we only had expense growth of 9% despite the fact that we made that $6 million of incremental investment. Outlook for the full year takes into account any incremental strategic investments we need to make. It takes into account the investment we are making in the AELs, which is the Area Experience Leader, so the seasonal leadership transition that we are making. Obviously reaffirming our guidance today suggests that we feel really good about the year as a whole.
Perfect. Thanks for the color. Maybe one more from me and shifting gears a bit to international. International services grew 12.5% this quarter. What was the growth in constant currency? And how much of that was volume versus pricing as well?
Yeah. We don't give the constant currency amounts, but I'll tell you, the lion's share of it was foreign exchange, but we are pleased to say that we saw growth both in volume and in NAC on a constant currency basis for the Australian business. Canada's season obviously is the same as the U.S., so the lion's share of the international driver was Australia. That business continues to perform well. In fact, they took share in the Australia tax season for their season. So, nice performance on a local currency basis, and then obviously we got the tailwind from FX.
Perfect. I appreciate the color.
Thank you.
Thank you. Our next question comes from the line of Clayton Lovell of Northcoast Research. Your line is open, Clayton.
Hey, all. Thank you for the call and for taking the question. Last season, your assisted volume grew about 2% and share stabilized. I'm just wondering as you head into the 2027 season, what are you changing in marketing, the service model, or client acquisition at large versus last year, and which of those factors do you expect to matter most for volume? Thank you.
Hey, Clayton. Thanks for joining us. Tell Kartik we said hello. I'll talk about a couple points there.
Will do.
First, I'll start off with marketing. From a marketing perspective, we continue to lean into our targeted approach. As you guys know, we've got a relationship with OpenAI, and we built in a capability with ChatGPT that allows consumers to schedule appointments, find nearby H&R Block offices, estimate their tax returns, which has helped us from a discovery perspective as folks continue to change the way that they search for products. Another big thing for us on the marketing side is our local engagement. As you guys know, we have over 8,500 offices across every congressional district in America, and being able to show up locally with the tax professionals who are embedded in those communities and have deep relationships is a key part of our program this tax season. The other thing from a marketing standpoint I do want to call out is our virtual offering.
Now, of course, most people recognize H&R Block because of our physical presence. We do have an expanding virtual offering, and that allows folks that want to engage with us but not officially come into an office to connect with a tax pro from the comfort of their own home and get their taxes done. Those are three things that I think will help us break through this year from a marketing perspective that we're really excited about. Along with that, as I mentioned in the prepared remarks, within marketing, we also have a test and learn focus so that we can leverage the results and insights so that we can continually refine our audiences, refine the channels, and messaging. If I were to take a step back and talk about our assisted business, as you mentioned, we held share last year, we're excited about that.
A couple key components coming out of last season that we'll leverage going into this tax season. Number one is going to be conversion and retention. We saw strong growth in both areas last year, with a focus on optimizing the client journey, with a particular concentration on new clients and ensuring that we can remove friction throughout the entirety of the experience. As I mentioned in the last call, we retain our focus on complex clients. Complex clients or households that have an AGI over $100,000 are our fastest growing segment. We continue to lean into that space. All that is held together with our focus on an expert-led, technology-enabled experience.
In order for us to deliver that, we focus on technology that frees up our tax pros to spend more time with clients and truly understand Clayton, their unique situation, so that we can amplify that relational experience. That gave us confidence to expand from five, sorry, from five proof of concept offices to over 650 proof of concept offices. So we're excited about our learning journey, and we're excited about what this season is going to have in front of us.
All right. I appreciate the response, and I'll pass along your hi to Kartik.
Thanks, Clayton.
Thank you. We have a follow-up question from Thomas Wendler of Stephens. Your line is open, Thomas.
Hey, guys. Just one more from me. I wanted to touch on small business growth, up 12.4% this quarter. Can you just give us an idea of how much of that was organic, how much was pricing, acquisitions? Just any color there.
Yeah. We saw nice growth in small businesses. The lion's share of that came from Wave. Wave continues to be a great set of products for us, and primarily that growth came from our Pro Tier subscription product, which continues to perform really well. It's something we introduced a couple of years ago, and we continue to see new signups and increased usage of active paying customers. So, nice healthy business and continues to be a year-round service we provide our clients.
Perfect. Thank you.
Thank you.
Thank you. I would now like to turn the conference back to Jessica Hazel for closing remarks. Madam.
Thank you, everyone, for joining us today. We look forward to continuing the conversation at our Investor Day on December 3rd and reconnecting with you again soon.
This concludes today's conference call. Thank you for participating. You may now disconnect.