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.

CEO Perspective

"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

    Actual     Adjusted  
(in millions, except EPS)   Fiscal Year 2016        Fiscal Year 2015        Fiscal Year 2016        Fiscal Year 2015  
Revenue   $ 138     $ 134     $ 138     $ 134  
EBITDA   $ (138 )   $ (128 )   $ (137 )   $ (126 )
Pretax Loss   $ (187 )   $ (176 )   $ (186 )   $ (174 )
Net Loss   $ (97 )   $ (109 )   $ (96 )   $ (108 )
Weighted-Avg. Shares - Diluted     275.8       274.6       275.8       274.6  
EPS   $ (0.35 )   $ (0.40 )   $ (0.35 )   $ (0.40 )
 

Business Segment Financial Results and Highlights

Tax Services

  • 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.

Corporate

  • 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.

Discontinued Operations

  • 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.

Dividends

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.

Conference Call

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."

Forward-Looking Statements

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,  
  Revenues   Income (loss)  
  2015      2014      2015        2014  
                           
Tax Services $ 132,574   $ 129,080   $ (169,438 )   $ (150,560 )
Corporate and Eliminations   5,144     4,506     (17,671 )     (25,256 )
  $ 137,718   $ 133,586     (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 )
  Consolidated             $ (0.36 )   $ (0.42 )
                           
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  
                         
ASSETS                        
Cash and cash equivalents   $ 1,299,382     $ 1,429,489     $ 2,007,190  
Cash and cash equivalents - restricted     61,040       71,917       91,972  
Receivables, net     103,194       122,315       167,964  
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  
Goodwill     454,394       478,845       441,831  
Deferred tax assets and income taxes receivable     11,377       46,953       13,461  
Other noncurrent assets     111,101       150,707       125,960  
    Total assets   $ 3,632,691     $ 3,890,819     $ 4,515,420  
LIABILITIES AND STOCKHOLDERS' EQUITY                        
LIABILITIES:                        
  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  
  Long-term debt     505,197       505,714       505,298  
  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  
    Total liabilities     1,963,264       2,493,619       2,682,471  
COMMITMENTS AND CONTINGENCIES                        
STOCKHOLDERS' EQUITY:                        
  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  
  Retained earnings     1,679,234       1,418,124       1,836,442  
  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,
    2015   2014
             
REVENUES:            
  Service revenues   $ 118,434   $ 115,473
  Royalty, product and other revenues     10,906     8,814
  Interest income     8,378     9,299
      137,718     133,586
OPERATING EXPENSES:            
  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
    Other     38,775     33,116
        213,508     197,726
  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
          98,192     97,200
      Total operating expenses     311,700     294,926
Other income     433     523
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)
  Consolidated   $ (0.36 )   $ (0.42)
             

 

(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  
  Capital expenditures     (8,689 )     (25,841 )
  Payments made for business acquisitions, net of cash acquired     (12,271 )     (40,533 )
  Franchise loans:                
    Loans funded     (2,582 )     (7,398 )
    Payments received     11,434       18,674  
  Other, net     3,562       4,030  
      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 )
  Dividends paid     (55,063 )     (54,852 )
  Repurchase of common stock, including shares surrendered     (17,756 )     (9,397 )
  Proceeds from exercise of stock options     13,015       13,368  
  Other, net     (22,413 )     (9,919 )
      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,  
    2015        2014  
Tax preparation fees:                
  U.S. assisted   $ 27,285     $ 25,489  
  International     35,718       41,456  
  U.S. digital     3,179       2,932  
      66,182       69,877  
Royalties     9,695       7,642  
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  
Other     9,576       9,237  
    Total revenues     132,574       129,080  
Compensation and benefits:                
  Field wages     45,938       45,997  
  Other wages     37,202       38,717  
  Benefits and other compensation     18,738       18,822  
      101,878       103,536  
Occupancy and equipment     89,379       83,098  
Marketing and advertising     7,789       7,387  
Depreciation and amortization     40,076       33,683  
Bad debt     2,033       3,639  
Supplies     2,389       3,057  
Other     53,176       43,858  
    Total operating expenses     296,720       278,258  
Other income     253       350  
Interest expense on borrowings     (532 )     (528 )
Other expenses     (5,013 )     (1,204 )
Pretax loss   $ (169,438 )   $ (150,560 )
                 
                 
                 

 

NON-GAAP FINANCIAL MEASURES  
Three months ended July 31,   2015     2014  
    EBITDA        Loss        EBITDA        Loss  
                                 
As reported - from continuing operations   $ (138,304 )   $ (96,505 )   $ (128,190 )   $ (108,851 )
                                 
Adjustments (pretax):                                
  Loss contingencies - litigation     618       618       228       228  
  Severance     -       -       813       813  
  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 )
      958       600       2,007       1,243  
                                 
  As adjusted - from continuing operations   $ (137,346 )   $ (95,905 )   $ (126,183 )   $ (107,608 )
                         
Adjusted EPS           $ (0.35 )           $ (0.40 )
                             
                    Three months ended July 31,  
EBITDA                   2015     2014  
                                 
Net loss - as reported                   $ (99,659 )   $ (116,232 )
                                 
Add back :                                
  Discontinued operations                     3,154       7,381  
  Income taxes                     (90,604 )     (66,965 )
  Interest expense                     8,711       13,940  
  Depreciation and amortization                     40,094       33,686  
                      (38,645 )     (11,958 )
                                 
EBITDA from continuing operations                   $ (138,304 )   $ (128,190 )
                                 
                    Three months ended July 31,  
Supplemental Information                   2015     2014  
                                 
Stock-based compensation expense:                                
  Pretax                   $ 6,018     $ 7,459  
  After-tax                     3,767       4,620  
Amortization of intangible assets:                                
  Pretax                   $ 16,614     $ 11,244  
  After-tax                     10,399       6,965  
                                 

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

Contacts:

Colby Brown
Investor Relations
(816) 854-4559

Gene King
Media Relations
(816) 854-4672

###

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