H&R Block Announces Fiscal 2016 First Quarter Results
KANSAS CITY, MO - (Marketwired) - September 01, 2015 - H&R Block, Inc. (NYSE: HRB), the world's largest consumer tax services provider, today released its financial results for the fiscal 2016 first quarter ended July 31, 2015. The company typically reports a first quarter operating loss due to the seasonality of its U.S. tax business.
First Quarter 2016 Highlights1
Bank divestiture transaction closes, H&R Block no longer regulated as a savings and loan holding company.w
Total revenues increased $4 million, or 3%, to $138 million
Loss per share from continuing operations improved $0.05 to $0.35 per share3due primarily to discrete tax benefits
Revenues increased 3%, to $138 million, due primarily to higher product revenues, partially offset by the negative impact of foreign currency rates. The net loss from continuing operations improved $12 million to $97 million. Loss per share from continuing operations was $0.35.
"We are pleased that we have successfully closed the bank transaction and are committed to ensuring a smooth transition for our clients as we prepare for the upcoming tax season," said Bill Cobb, H&R Block's president and chief executive officer. "Our teams are now fully focused on developing and executing a strategy that ensures an exceptional client service experience. We look forward to delivering another successful tax year for both our clients and our shareholders."
Fiscal 2016 First Quarter Results From Continuing Operations
|(in millions, except EPS)||Fiscal Year 2016||Fiscal Year 2015||Fiscal Year 2016||Fiscal Year 2015|
|Weighted-Avg. Shares - Diluted||275.8||274.6||275.8||274.6|
Business Segment Financial Results and Highlights
- Revenues increased 2.7% to $133 million, due primarily to higher Peace of Mind (POM) revenues and royalties, partially offset by the negative impact of foreign currency rates.
- Total operating expenses increased 6.6% to $297 million, resulting from increased occupancy costs and amortization due to the annualization of expenses related to prior year franchise acquisitions.
- Pretax loss increased 12.5% to $169 million.
- Interest expense on borrowings declined $5 million due to the repayment of senior notes in October, 2014.
- Pretax loss improved by $8 million to $18 million.
- Income tax benefit increased due to favorable discrete tax items.
- Sand Canyon Corporation (SCC), a separate legal entity from H&R Block, Inc., continued to engage in constructive settlement discussions with counterparties that have made a significant majority of previously denied and possible future representation and warranty claims.
- SCC's accrual for contingent losses related to representation and warranty claims was unchanged from the prior quarter at $150 million.
As previously announced, a quarterly cash dividend of 20 cents per share is payable on October 1, 2015 to shareholders of record as of September 9, 2015. The October 1 dividend payment will be H&R Block's 212th consecutive quarterly dividend since the company went public in 1962.
Discussion of the divestiture of H&R Block Bank, the company's capital structure plans, fiscal 2016 first quarter results, future outlook and a general business update, will occur during the company's previously announced fiscal first quarter earnings conference call for analysts, institutional investors, and shareholders. The call is scheduled for 4:30 p.m. Eastern time on Sept. 1, 2015. To access the call, please dial the number below approximately 10 minutes prior to the scheduled starting time:
U.S./Canada (888) 895-5260 or International (443) 842-7595
Conference ID: 73769267
The call 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.
A replay of the call will be available beginning at 7:30 p.m. Eastern time on Sept. 1, 2015, and continuing until Oct. 1, 2015, by dialing (855) 859-2056 (U.S./Canada) or (404) 537-3406 (International). The conference ID is 73769267. The webcast will be available for replay Sept. 2, 2015 at http://investors.hrblock.com.
About H&R Block
H&R Block, Inc. (NYSE: HRB) is the world's largest consumer tax services provider. More than 680 million tax returns have been prepared worldwide by and through H&R Block since 1955. In fiscal 2015, H&R Block had annual revenues of nearly $3.1 billion with 24.2 million tax returns prepared worldwide. Tax return preparation services are provided by professional tax preparers in approximately 12,000 company-owned and franchise retail tax offices worldwide, and through H&R Block tax software products. H&R Block also offers adjacent Tax Plus products and services. For more information, visit the H&R Block Newsroom at http://newsroom.hrblock.com/.
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."
This press release may contain 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," "seeks," "estimates," "projects," "forecasts," "targets," "would," "will," "should," "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, income, earnings per share, capital expenditures, dividends, liquidity, capital structure 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 and which are described in our Annual Report on Form 10-K for the fiscal year ended April 30, 2015 in the section entitled "Risk Factors," as well as additional factors we may describe from time to time in other filings with the Securities and Exchange Commission. 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.
1All amounts in this release are unaudited. Unless otherwise noted, all comparisons refer to the current period compared to the corresponding prior year period.
2 See separate press release dated September, 1, 2015 for further details regarding the bank divestiture.
3All per share amounts are based on fully diluted shares at the end of the corresponding period.
|KEY OPERATING RESULTS||(unaudited, in 000s - except per share data)|
|Three months ended July 31,|
|Corporate and Eliminations||5,144||4,506||(17,671||)||(25,256||)|
|Income tax benefit||(90,604||)||(66,965||)|
|Net loss from continuing operations||(96,505||)||(108,851||)|
|Net loss from discontinued operations||(3,154||)||(7,381||)|
|Basic and diluted loss per share:|
|Basic and diluted shares||275,765||274,575|
|CONSOLIDATED BALANCE SHEETS||(unaudited, in 000s - except per share data)|
|As of||July 31, 2015||July 31, 2014||April 30, 2015|
|Cash and cash equivalents||$||1,299,382||$||1,429,489||$||2,007,190|
|Cash and cash equivalents - restricted||61,040||71,917||91,972|
|Deferred tax assets and income taxes receivable||160,390||190,323||174,267|
|Prepaid expenses and other current assets||80,993||74,343||70,283|
|Investments in available-for-sale securities||406,360||403,774||439,625|
|Total current assets||2,111,359||2,292,161||2,951,301|
|Mortgage loans held for investment, net||230,130||259,732||239,338|
|Property and equipment, net||297,321||314,531||311,387|
|Intangible assets, net||417,009||347,890||432,142|
|Deferred tax assets and income taxes receivable||11,377||46,953||13,461|
|Other noncurrent assets||111,101||150,707||125,960|
|LIABILITIES AND STOCKHOLDERS' EQUITY|
|Customer banking deposits||$||476,732||$||482,975||$||744,241|
|Accounts payable and accrued expenses||116,855||127,912||231,322|
|Accrued salaries, wages and payroll taxes||33,447||30,996||144,744|
|Accrued income taxes||245,541||284,038||434,684|
|Current portion of long-term debt||799||400,705||790|
|Deferred revenue and other current liabilities||316,880||357,293||322,508|
|Total current liabilities||1,190,254||1,683,919||1,878,289|
|Deferred tax liabilities and reserves for uncertain tax positions||137,603||167,914||142,586|
|Deferred revenue and other noncurrent liabilities||130,210||136,072||156,298|
|COMMITMENTS AND CONTINGENCIES|
|Common stock, no par, stated value $.01 per share||3,166||3,166||3,166|
|Additional paid-in capital||773,783||766,014||783,793|
|Accumulated other comprehensive income (loss)||(8,234||)||5,483||1,740|
|Less treasury shares, at cost||(778,522||)||(795,587||)||(792,192||)|
|Total stockholders' equity||1,669,427||1,397,200||1,832,949|
|Total liabilities and stockholders' equity||$||3,632,691||$||3,890,819||$||4,515,420|
|CONSOLIDATED STATEMENTS OF OPERATIONS||(unaudited, in 000s - except per share amounts)|
|Three months ended July 31,|
|Royalty, product and other revenues||10,906||8,814|
|Cost of revenues:|
|Compensation and benefits||55,789||51,855|
|Occupancy and equipment||89,855||83,306|
|Provision for bad debt and loan losses||2,005||4,364|
|Depreciation and amortization||27,084||25,085|
|Selling, general and administrative:|
|Marketing and advertising||8,531||8,145|
|Compensation and benefits||54,669||60,964|
|Depreciation and amortization||13,010||8,601|
|Other selling, general and administrative||21,982||19,490|
|Total operating expenses||311,700||294,926|
|Interest expense on borrowings (1)||(8,575 )||(13,795)|
|Other expenses||(4,985 )||(1,204)|
|Loss from continuing operations before income tax benefit||(187,109 )||(175,816)|
|Income tax benefit||(90,604 )||(66,965)|
|Net loss from continuing operations||(96,505 )||(108,851)|
|Net loss from discontinued operations||(3,154 )||(7,381)|
|NET LOSS||$||(99,659 )||$||(116,232)|
|BASIC AND DILUTED LOSS PER SHARE:|
|Continuing operations||$||(0.35 )||$||(0.40)|
|Discontinued operations||(0.01 )||(0.02)|
|(1)||The presentation of interest expense from borrowings has been restated to correct errors in presentation, whereby we reclassified such interest expense from cost of revenues to a separate caption.|
|CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS||(unaudited, in 000s)|
|Three months ended July 31,||2015||2014|
|NET CASH USED IN OPERATING ACTIVITIES||$||(378,246||)||$||(381,585||)|
|CASH FLOWS FROM INVESTING ACTIVITIES:|
|Maturities of and payments received on available-for-sale securities||32,103||18,484|
|Principal payments on mortgage loans held for investment, net||8,537||6,250|
|Payments made for business acquisitions, net of cash acquired||(12,271||)||(40,533||)|
|Net cash provided by (used in) investing activities||32,094||(26,334||)|
|CASH FLOWS FROM FINANCING ACTIVITIES:|
|Customer banking deposits, net||(268,532||)||(287,609||)|
|Repurchase of common stock, including shares surrendered||(17,756||)||(9,397||)|
|Proceeds from exercise of stock options||13,015||13,368|
|Net cash used in financing activities||(350,749||)||(348,409||)|
|Effects of exchange rate changes on cash||(10,907||)||510|
|Net decrease in cash and cash equivalents||(707,808||)||(755,818||)|
|Cash and cash equivalents at beginning of the period||2,007,190||2,185,307|
|Cash and cash equivalents at end of the period||$||1,299,382||$||1,429,489|
|SUPPLEMENTARY CASH FLOW DATA:|
|Income taxes paid, net of refunds received||$||75,358||$||88,924|
|Interest paid on borrowings||15,381||15,415|
|Interest paid on deposits||136||201|
|Transfers of foreclosed loans to other assets||624||1,818|
|Accrued additions to property and equipment||5,977||11,988|
|TAX SERVICES - FINANCIAL RESULTS||(unaudited, amounts in 000s)|
|Three months ended July 31,|
|Tax preparation fees:|
|Revenues from Refund Transfers||3,415||3,419|
|Revenues from Emerald Card®||15,689||14,045|
|Revenues from Peace of Mind® Extended Service Plan||27,703||24,253|
|Interest and fee income on Emerald Advance||314||607|
|Compensation and benefits:|
|Benefits and other compensation||18,738||18,822|
|Occupancy and equipment||89,379||83,098|
|Marketing and advertising||7,789||7,387|
|Depreciation and amortization||40,076||33,683|
|Total operating expenses||296,720||278,258|
|Interest expense on borrowings||(532||)||(528||)|
|NON-GAAP FINANCIAL MEASURES|
|Three months ended July 31,||2015||2014|
|As reported - from continuing operations||$||(138,304||)||$||(96,505||)||$||(128,190||)||$||(108,851||)|
|Loss contingencies - litigation||618||618||228||228|
|Professional fees related to HRB Bank transaction||52||52||25||25|
|Impairment of AFS securities||288||288||941||941|
|Tax effect of adjustments||-||(358||)||-||(764||)|
|As adjusted - from continuing operations||$||(137,346||)||$||(95,905||)||$||(126,183||)||$||(107,608||)|
|Three months ended July 31,|
|Net loss - as reported||$||(99,659||)||$||(116,232||)|
|Add back :|
|Depreciation and amortization||40,094||33,686|
|EBITDA from continuing operations||$||(138,304||)||$||(128,190||)|
|Three months ended July 31,|
|Stock-based compensation expense:|
|Amortization of intangible assets:|
Non-GAAP Financial Information
The accompanying press release contains non-GAAP financial measures. 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 non-GAAP financial measures to be a useful metric for management and investors to evaluate and compare the ongoing operating performance of our business on a consistent basis across reporting periods, as it eliminates the effect of items that are not indicative of our core operating performance.
The following are descriptions of adjustments we make for our non-GAAP financial measures:
- We exclude losses from settlements and estimated contingent losses from litigation and favorable reserve adjustments. This does not include legal defense costs.
- We exclude non-cash charges to adjust the carrying values of goodwill, intangible assets, other long-lived assets and investments to their estimated fair values.
- We exclude severance and other restructuring charges in connection with the termination of personnel, closure of offices and related costs.
- We exclude the gains and losses on business dispositions, including investment banking, legal and accounting fees from both business dispositions and acquisitions.
- We exclude the gains and losses on extinguishment of debt.
- We may consider whether other significant items that arise in the future should also be excluded from our non-GAAP financial measures.
We measure the performance of our business using a variety of metrics, including EBITDA, adjusted EBITDA and adjusted pretax income of continuing operations. Adjusted EBITDA and adjusted pretax income eliminate the impact of items that we do not consider indicative of our core operating performance and, we believe, provide meaningful information to assist in understanding our financial results, analyzing trends in our underlying business, and assessing our prospects for future performance. We also use EBITDA and pretax income of continuing operations, each subject to permitted adjustments, as performance metrics in incentive compensation calculations for our employees.
SOURCE H & R Block