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H&R Block Announces Fiscal 2020 Second Quarter Results and Reiterates Fiscal Year Outlook

By: H&R Block |  0 Shares     77 Reads

KANSAS CITY, Mo., Dec. 04, 2019 // GLOBE NEWSWIRE // - H&R Block, Inc. (NYSE: HRB) today released its financial results for the fiscal 2020 second quarter ended October 31, 2019. The company normally reports a fiscal second quarter loss due to the seasonality of its tax business. The fiscal second quarter typically represents less than 5% of annual revenues and less than 15% of annual expenses.

Fiscal Second Quarter Highlights¹

• Fiscal second quarter financial results were in line with expectations, and the company reiterated its revenue growth and margin outlook for the full fiscal year.
• Revenues increased 8%, to $161 million due to Wave and improved tax return volumes.
• Loss per share from continuing operations² increased $0.10 to $0.93; adjusted loss per share from continuing operations^2,3 increased $0.07 to $0.85.
• The company repurchased and retired 5.7 million shares at an aggregate price of $137 million, or $23.94 per share.

"We've made significant progress to digitally enable all facets of our business to deliver expertise and care in new and compelling ways," said Jeff Jones, H&R Block's president and chief executive officer. "These efforts, along with Wave and our momentum from last year, position us well to deliver for this fiscal year and for the long term."

Fiscal 2020 Second Quarter Results From Continuing Operations

(in millions, except EPS)		Q2 FY2020				Q2 FY2019
Revenue		$	161			$	149
Pretax Loss		$	(261	)		$	(232	)
Net Loss		$	(184	)		$	(171	)
Weighted-Avg. Shares - Diluted		198.1				205.5
EPS2		$	(0.93	)		$	(0.83	)
Adjusted EPS2,3		$	(0.85	)		$	(0.78	)
EBITDA4		$	(197	)		$	(169	)

"We were pleased with our strong revenue growth in the fiscal second quarter," said Tony Bowen, H&R Block's chief financial officer. "We’re well-positioned for success in the upcoming tax season and have reiterated our revenue growth and margin outlook for the fiscal year."

Key Financial Metrics

• Fiscal second quarter results were in line with expectations.
• Total revenues increased $11.9 million, or 8.0%, to $160.8 million due to Wave and improved tax return volumes.
• Total operating expenses increased $39.4 million, or 10.8%, to $403.5 million due to Wave, planned investments in our technology roadmap, and legal expenses, which were partially offset by lower occupancy costs.
• Pretax loss increased $29.3 million, or 12.6%, to $261.3 million.
• Loss per share from continuing operations increased $0.10 to $0.93; adjusted loss per share from continuing operations increased $0.07 to $0.85. The change in pretax loss, along with lower shares outstanding, impacted loss per share. While beneficial on a full-year basis, the lower share count negatively impacts EPS in quarters in which the company reports a loss. These impacts were partially offset by an increased tax benefit.

Share Repurchases and Dividends

• During the second quarter of fiscal 2020, the company repurchased and retired approximately 5.7 million shares at an aggregate price of $136.9 million, or $23.94 per share. Fiscal year-to-date repurchases total 7.3 million shares at an aggregate price of $181.0 million, or $24.75 per share.
• As previously announced, a quarterly cash dividend of $0.26 per share is payable on January 2, 2020 to shareholders of record as of December 9, 2019. H&R Block has paid quarterly dividends consecutively since the company went public in 1962 and has increased its dividend in each of the past four fiscal years.

Discontinued Operations

For information on Sand Canyon, please refer to disclosures in the company’s reports on Forms 10-K, 10-Q, and other filings with the SEC.

Conference Call

Discussion of the fiscal 2020 second quarter results, outlook, and a general business update will occur during the company’s previously announced fiscal second quarter earnings conference call for analysts, institutional investors, and shareholders. The call is scheduled for 4:30 p.m. Eastern time on December 4, 2019. To access the call, please dial the number below approximately 10 minutes prior to the scheduled starting time:

U.S./Canada (866) 987-6821 or International (630) 652-5951
Conference ID: 9677027

The call, along with a presentation for viewing, will also be webcast in a listen-only format for the media and public. The link to the webcast can be accessed directly at http://investors.hrblock.com. The presentation will be posted on the Quarterly Results page at http://investors.hrblock.com following the conclusion of the call.

A replay of the call will be available beginning at 7:30 p.m. Eastern time on December 4, 2019 and continuing for seven days by dialing (855) 859-2056 (U.S./Canada) or (404) 537-3406 (International). The conference ID is 9677027. The webcast will be available for replay beginning on December 5, 2019 and continuing for 90 days at https://investors.hrblock.com.

About H&R Block

H&R Block, Inc. (NYSE: HRB) is a global consumer tax and small business services provider. Tax return preparation services are provided by professional tax preparers in approximately 11,000 company-owned and franchise retail tax offices worldwide, as well as through virtual channels and H&R Blocktax software products for the DIY consumer. H&R Block offers small business financial solutions through its retail locations and online through Wave. In fiscal 2019, H&R Block had revenues of $3.1 billion with over 23 million tax returns prepared worldwide. For more information, visit the H&R Block Newsroom.

About Non-GAAP Financial Information

This press release and the accompanying tables include non-GAAP financial information. For a description of these non-GAAP financial measures, including the reasons management uses each measure, and reconciliations of these non-GAAP financial measures to the most directly comparable financial measures prepared in accordance with generally accepted accounting principles, please see the section of the accompanying tables titled "Non-GAAP Financial Information."

Forward-Looking Statements

This press release 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 variation of words such as "expects," "anticipates," "intends," "plans," "believes," "commits," "seeks," "estimates," "projects," "forecasts," "targets," "would," "will," "should," "goal," "could" or "may" or other similar expressions. Forward-looking statements provide management's current expectations or predictions of future conditions, events or results. All statements that address operating performance, events or developments that we expect or anticipate will occur in the future are forward-looking statements. They may include estimates of revenues, client trajectory, income, effective tax rate, earnings per share, cost savings, capital expenditures, dividends, share repurchases, liquidity, capital structure, market share, industry volumes or other financial items, descriptions of management’s plans or objectives for future operations, products or services, or descriptions of assumptions underlying any of the above. All forward-looking statements speak only as of the date they are made and reflect the company's good faith beliefs, assumptions and expectations, but they are not guarantees of future performance or events. Furthermore, the company disclaims any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions, factors, or expectations, new information, data or methods, future events or other changes, except as required by law. By their nature, forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements. Factors that might cause such differences include, but are not limited to a variety of economic, competitive and regulatory factors, many of which are beyond the company's control, that are described in our Annual Report on Form 10-K for the fiscal year ended April 30, 2019 in the section entitled "Risk Factors" and additional factors we may describe from time to time in other filings with the Securities and Exchange Commission. You may get such filings for free at our website at http://investors.hrblock.com. In addition, factors that may cause the company’s actual estimated effective tax rate to differ from estimates include the company’s actual results from operations compared to current estimates, future discrete items, changes in interpretations and assumptions the company has made, and future actions of the company. You should understand that it is not possible to predict or identify all such factors and, consequently, you should not consider any such list to be a complete set of all potential risks or uncertainties.

¹ All amounts in this release are unaudited. Unless otherwise noted, all comparisons refer to the current period compared to the corresponding prior year period.
² All per share amounts are based on weighted average fully diluted shares over the corresponding period.
³ Adjusted loss per share from continuing operations is a non-GAAP financial measure. See "About Non-GAAP Financial Information" below for more information regarding financial measures not prepared in accordance with generally accepted accounting principles (GAAP).
⁴ Earnings before interest, taxes, depreciation and amortization (EBITDA) from continuing operations is a non-GAAP financial measure. See "About Non-GAAP Financial Information" below for more information regarding financial measures not prepared in accordance with generally accepted accounting principles (GAAP).

For Further Information

Investor Relations: Colby Brown, (816) 854-4559, colby.brown@hrblock.com
Media Relations: Susan Waldron, (816) 854-5522, susan.waldron@hrblock.com

CONSOLIDATED STATEMENTS OF OPERATIONS										(unaudited, in 000s - except per share amounts)
		Three months ended October 31,								Six months ended October 31,
		2019				2018				2019				2018
REVENUES:
Service revenues		$	139,648			$	127,267			$	271,807			$	254,127
Royalty, product and other revenues		21,153				21,604				39,356				39,927
		160,801				148,871				311,163				294,054
OPERATING EXPENSES:
Costs of revenues		253,206				250,815				482,598				472,375
Selling, general and administrative		150,334				113,319				266,470				219,059
Total operating expenses		403,540				364,134				749,068				691,434
Other income (expense), net		2,739				4,464				11,862				9,006
Interest expense on borrowings		(21,306		)		(21,191		)		(42,377		)		(42,381		)
Loss from continuing operations before income tax benefit		(261,306		)		(231,990		)		(468,420		)		(430,755		)
Income tax benefit		(77,752		)		(61,053		)		(139,142		)		(111,021		)
Net loss from continuing operations		(183,554		)		(170,937		)		(329,278		)		(319,734		)
Net loss from discontinued operations		(4,445		)		(5,339		)		(8,968		)		(9,212		)
NET LOSS		$	(187,999	)		$	(176,276	)		$	(338,246	)		$	(328,946	)
BASIC AND DILUTED LOSS PER SHARE:
Continuing operations		$	(0.93	)		$	(0.83	)		$	(1.65	)		$	(1.55	)
Discontinued operations		(0.02		)		(0.03		)		(0.04		)		(0.04		)
Consolidated		$	(0.95	)		$	(0.86	)		$	(1.69	)		$	(1.59	)
WEIGHTED AVERAGE BASIC AND DILUTED SHARES		198,079				205,520				200,058				206,596

 

CONSOLIDATED BALANCE SHEETS		(unaudited, in 000s - except per share data)
As of		October 31, 2019				October 31, 2018				April 30, 2019
ASSETS
Cash and cash equivalents		$	245,312			$	600,799			$	1,572,150
Cash and cash equivalents - restricted		176,332				122,507				135,577
Receivables, net		74,710				61,286				138,965
Prepaid expenses and other current assets		105,058				106,410				146,667
Total current assets		601,412				891,002				1,993,359
Property and equipment, net		206,216				241,772				212,092
Operating lease right of use asset		475,969				—				—
Intangible assets, net		425,377				364,524				342,493
Goodwill		815,331				507,191				519,937
Deferred tax assets and income taxes receivable		145,807				130,987				141,979
Other noncurrent assets		86,629				97,820				90,085
Total assets		$	2,756,741			$	2,233,296			$	3,299,945
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES:
Accounts payable and accrued expenses		$	111,439			$	114,393			$	249,525
Accrued salaries, wages and payroll taxes		57,602				43,396				196,527
Accrued income taxes and reserves for uncertain tax positions		106,125				94,257				271,973
Current portion of long-term debt		648,651				—				—
Operating lease liabilities		162,897				—				—
Deferred revenue and other current liabilities		177,243				183,675				204,976
Total current liabilities		1,263,957				435,721				923,001
Long-term debt and line of credit borrowings		980,299				1,491,328				1,492,629
Deferred tax liabilities and reserves for uncertain tax positions		180,362				235,799				197,906
Operating lease liabilities		326,691				—				—
Deferred revenue and other noncurrent liabilities		81,179				101,773				144,882
Total liabilities		2,832,488				2,264,621				2,758,418
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS’ EQUITY:
Common stock, no par, stated value $.01 per share		2,310				2,420				2,383
Additional paid-in capital		765,220				759,235				767,636
Accumulated other comprehensive loss		(21,817		)		(18,880		)		(20,416		)
Retained earnings (deficit)		(122,535		)		(64,291		)		499,386
Less treasury shares, at cost		(698,925		)		(709,809		)		(707,462		)
Total stockholders' equity (deficiency)		(75,747		)		(31,325		)		541,527
Total liabilities and stockholders' equity		$	2,756,741			$	2,233,296			$	3,299,945

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS		(unaudited, in 000s)
Six months ended October 31,		2019				2018
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss		$	(338,246	)		$	(328,946	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		81,262				81,925
Provision for bad debt		1,890				2,350
Deferred taxes		12,595				17,913
Stock-based compensation		16,094				11,839
Changes in assets and liabilities, net of acquisitions:
Receivables		71,859				74,672
Prepaid expenses, other current and noncurrent assets		13,889				(9,134		)
Accounts payable, accrued expenses, salaries, wages and payroll taxes		(267,257		)		(218,692		)
Deferred revenue, other current and noncurrent liabilities		(74,996		)		(81,014		)
Income tax receivables, accrued income taxes and income tax reserves		(206,278		)		(179,660		)
Other, net		(4,128		)		1,056
Net cash used in operating activities		(693,316		)		(627,691		)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures		(42,854		)		(66,422		)
Payments made for business acquisitions, net of cash acquired		(416,925		)		(24,549		)
Franchise loans funded		(16,021		)		(8,915		)
Payments from franchisees		7,902				11,689
Other, net		50,839				4,993
Net cash used in investing activities		(417,059		)		(83,204		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from line of credit borrowings		135,000				—
Dividends paid		(104,063		)		(103,484		)
Repurchase of common stock, including shares surrendered		(190,369		)		(102,096		)
Proceeds from exercise of stock options		1,215				1,746
Other, net		(18,544		)		(22,434		)
Net cash used in financing activities		(176,761		)		(226,268		)
Effects of exchange rate changes on cash		1,053				(3,209		)
Net decrease in cash and cash equivalents, including restricted balances		(1,286,083		)		(940,372		)
Cash, cash equivalents and restricted cash, beginning of period		1,707,727				1,663,678
Cash, cash equivalents and restricted cash, end of period		$	421,644			$	723,306
SUPPLEMENTARY CASH FLOW DATA:
Income taxes paid, net of refunds received		$	54,109			$	50,197
Interest paid on borrowings		39,952				39,902
Accrued additions to property and equipment		3,409				4,765

 

FINANCIAL RESULTS		(unaudited, in 000s - except per share amounts)
		Three months ended October 31,								Six months ended October 31,
		2019				2018				2019				2018
REVENUES:
U.S. assisted tax preparation		$	41,226			$	41,652			$	74,218			$	72,756
U.S. royalties		7,820				8,062				14,679				15,633
U.S. DIY tax preparation		4,541				2,994				7,951				5,775
International		44,926				45,497				85,507				84,676
Refund Transfers		791				560				2,300				1,984
Emerald Card®		8,616				9,478				22,471				23,724
Peace of Mind® Extended Service Plan		25,660				24,318				58,497				60,895
Tax Identity Shield®		4,648				5,243				9,170				9,984
Interest and fee income on Emerald Advance™		485				397				1,039				844
Wave		10,902				—				14,527				—
Other		11,186				10,670				20,804				17,783
		160,801				148,871				311,163				294,054
Compensation and benefits:
Field wages		60,993				59,096				114,796				109,028
Other wages		60,744				50,046				114,581				97,868
Benefits and other compensation		28,708				24,178				55,182				47,109
		150,445				133,320				284,559				254,005
Occupancy		97,530				104,880				189,682				195,606
Marketing and advertising		9,651				8,586				16,430				15,480
Depreciation and amortization		42,657				41,493				81,262				81,925
Bad debt		2,035				188				1,067				(670		)
Other (1)		101,222				75,667				176,068				145,088
Total operating expenses		403,540				364,134				749,068				691,434
Other income (expense), net		2,739				4,464				11,862				9,006
Interest expense on borrowings		(21,306		)		(21,191		)		(42,377		)		(42,381		)
Pretax loss		(261,306		)		(231,990		)		(468,420		)		(430,755		)
Income tax benefit		(77,752		)		(61,053		)		(139,142		)		(111,021		)
Net loss from continuing operations		(183,554		)		(170,937		)		(329,278		)		(319,734		)
Net loss from discontinued operations		(4,445		)		(5,339		)		(8,968		)		(9,212		)
NET LOSS		$	(187,999	)		$	(176,276	)		$	(338,246	)		$	(328,946	)
BASIC AND DILUTED LOSS PER SHARE:
Continuing operations		$	(0.93	)		$	(0.83	)		$	(1.65	)		$	(1.55	)
Discontinued operations		(0.02		)		(0.03		)		(0.04		)		(0.04		)
Consolidated		$	(0.95	)		$	(0.86	)		$	(1.69	)		$	(1.59	)
Weighted average basic and diluted shares		198,079				205,520				200,058				206,596
EBITDA from continuing operations (2)		$	(197,343	)		$	(169,306	)		$	(344,781	)		$	(306,449	)

 

(1)	We reclassified $3.2 million and $5.4 million of supplies expense from its own financial statement line to other expenses for the three and six months ended October 31, 2018, respectively, to conform to the current year presentation.
(2)	See "Non-GAAP Financial Information" for a reconciliation of non-GAAP measures.

 

(in 000s)
		Three months ended October 31,								Six months ended October 31,
NON-GAAP FINANCIAL MEASURE - EBITDA		2019				2018				2019				2018
Net loss - as reported		$	(187,999	)		$	(176,276	)		$	(338,246	)		$	(328,946	)
Discontinued operations, net		4,445				5,339				8,968				9,212
Net loss from continuing operations - as reported		(183,554		)		(170,937		)		(329,278		)		(319,734		)
Add back:
Income taxes of continuing operations		(77,752		)		(61,053		)		(139,142		)		(111,021		)
Interest expense of continuing operations		21,306				21,191				42,377				42,381
Depreciation and amortization of continuing operations		42,657				41,493				81,262				81,925
		(13,789		)		1,631				(15,503		)		13,285
EBITDA from continuing operations		$	(197,343	)		$	(169,306	)		$	(344,781	)		$	(306,449	)

 

(in 000s, except per share amounts)
		Q1				Q2
NON-GAAP FINANCIAL MEASURE - ADJUSTED EPS		Three months ended July 31, 2019				Three months ended October 31, 2019				Six months ended October 31, 2019
Net loss from continuing operations		$	(145,724	)		$	(183,554	)		$	(329,278	)
Adjustments (pretax):
Amortization of intangibles related to acquisitions		16,239				19,579				35,818
Adjusted pretax loss from continuing operations		(129,485		)		(163,975		)		(293,460		)
Tax effect of adjustments (1)		(4,162		)		(4,549		)		(8,711		)
Adjusted net loss from continuing operations		$	(133,647	)		$	(168,524	)		$	(302,171	)
Diluted loss per share (GAAP)		$	(0.72	)		$	(0.93	)		$	(1.65	)
Adjustments, net of tax		0.06				0.08				0.14
Adjusted loss per share (Non-GAAP)		$	(0.66	)		$	(0.85	)		$	(1.51	)

 

(1)	Tax effect of adjustments is computed as the pretax effect of the adjustments multiplied by our effective tax rate before discrete items.

 

(in 000s, except per share amounts)
		Q1				Q2								Q3								Q4
NON-GAAP FINANCIAL MEASURE - PRIOR YEAR ADJUSTED EPS		Three months  ended July 31, 2018				Three months ended October 31, 2018				Six months ended October 31, 2018				Three months ended January 31, 2019				Nine months ended January 31, 2019				Three months ended April 30, 2019				Twelve months ended April 30, 2019
Net income (loss) from continuing operations		$	(148,797	)		$	(170,937	)		$	(319,734	)		$	(119,779	)		$	(439,513	)		$	884,769			$	445,256
Adjustments (pretax):
Amortization of intangibles related to acquisitions		15,204				15,107				30,311				16,142				46,453				16,298				62,751
Adjusted pretax income (loss) from continuing operations		(133,593		)		(155,830		)		(289,423		)		(103,637		)		(393,060		)		901,067				508,007
Tax effect of adjustments (1)		(3,786		)		(3,510		)		(7,296		)		(3,820		)		(11,116		)		(3,775		)		(14,891		)
Adjusted net income (loss) from continuing operations		$	(137,379	)		$	(159,340	)		$	(296,719	)		$	(107,457	)		$	(404,176	)		$	897,292			$	493,116
Diluted earnings (loss) per share (GAAP)		$	(0.72	)		$	(0.83	)		$	(1.55	)		$	(0.58	)		$	(2.13	)		$	4.32			$	2.15
Adjustments, net of tax		0.06				0.05				0.11				0.06				0.17				0.07				0.24
Adjusted earnings (loss) per share (Non-GAAP)		$	(0.66	)		$	(0.78	)		$	(1.44	)		$	(0.52	)		$	(1.96	)		$	4.39			$	2.39

 

(1)	Tax effect of adjustments is computed as the pretax effect of the adjustments multiplied by our effective tax rate before discrete items.

Non-GAAP Financial Information

Non-GAAP financial measures should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. Because these measures are not measures of financial performance under GAAP and are susceptible to varying calculations, they may not be comparable to similarly titled measures for other companies.

We consider our non-GAAP financial measures to be performance measures and a useful metric for management and investors to evaluate and compare the ongoing operating performance of our business.

We measure the performance of our business using a variety of metrics, including earnings before interest, taxes, depreciation and amortization (EBITDA) from continuing operations, EBITDA margin from continuing operations, adjusted diluted earnings per share from continuing operations and free cash flow. We also use EBITDA from continuing operations and pretax income of continuing operations, each subject to permitted adjustments, as performance metrics in incentive compensation calculations for our employees.

During the quarter we added adjusted diluted earnings per share from continuing operations as a non-GAAP measure, which excludes amortization of intangibles related to our acquisition of Wave and tax franchisee and competitor businesses. Due to the recent acquisition of Wave, we believe removing the impacts of amortization of acquired intangibles provides a more meaningful indicator of performance and will assist in understanding our financial results.

We may consider whether other significant items that arise in the future should be excluded from our non-GAAP financial measures.

Source: HRB Tax Group, Inc.

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