H&R Block Announces Fiscal 2018 Second Quarter Results In Line with Expectations
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H&R Block Announces Fiscal 2018 Second Quarter Results In Line with Expectations

KANSAS CITY, Mo. - Dec. 06, 2017 // GLOBE NEWSWIRE // - H&R Block, Inc. (NYSE:HRB) today released its financial results for the fiscal 2018 second quarter ended October 31, 2017. 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 approximately 15% of annual expenses.

Highlights1

  • Fiscal second quarter financial results were in line with expectations
  • Revenues increased $10 million, or 7%, to $141 million primarily due to increased international tax preparation fees, positive fluctuations in foreign exchange rates, and favorable preseason results in the U.S.
  • Loss per share from continuing operations increased $0.04, from $0.67 to $0.71, due to both an increase in net loss from continuing operations and a year-over-year reduction in average shares outstanding, which negatively impacts those quarters with a loss
  • The company expects continued improvement in client trajectory in fiscal 2018, leading to modest revenue growth and margins consistent with the prior year

"During my first two months at H&R Block, I have been encouraged by the hard work of our associates and franchisees and their dedication to delivering for our clients and shareholders," said Jeff Jones, H&R Block's president and chief executive officer. "I'm confident in our plans for the upcoming tax season, which are centered on operational excellence, new products and partnerships, and compelling marketing and promotions. We're excited for the tax season to begin."

Fiscal 2018 Second Quarter Results From Continuing Operations

(in millions, except EPS)   Fiscal Year 2018   Fiscal Year 2017
Revenue   $ 141     $ 131  
Pretax Loss   $ (236 )   $ (228 )
Net Loss   $ (148 )   $ (143 )
Weighted-Avg. Shares - Diluted   209.1     215.5  
EPS2   $ (0.71 )   $ (0.67 )
EBITDA3   $ (170 )   $ (160 )

Key Financial Metrics

  • Total revenues increased $10 million, or 7%, to $141 million primarily due to increased international tax preparation fees, fluctuations in foreign exchange rates, and favorable preseason results in both the Assisted and DIY categories in the U.S.
  • Total operating expenses increased $18 million, or 5%, to $357 million primarily due to increases in compensation costs, along with increases in occupancy costs, related to prior year acquisitions of franchisees.
  • Pretax loss increased $8 million to $236 million.
  • Loss per share from continuing operations increased $0.04, from $0.67 to $0.71. Approximately half of the increase was due to the reduction in share count, which will be accretive on a full year basis.

"Seasonal expenses increased in the second quarter, but we expect to continue last year's improved financial performance this fiscal year, targeting modest revenue growth and margins consistent with the prior year," said Tony Bowen, H&R Block's chief financial officer. "We are focused on executing our operational plans for the upcoming tax season to deliver these results."

Dividends

As previously announced, a quarterly cash dividend of $0.24 per share is payable on January 2, 2018 to shareholders of record as of December 4, 2017. H&R Block has paid quarterly dividends consecutively since the company went public in 1962.

Discontinued Operations

During the fiscal quarter, there were no material changes in estimated contingent losses related to Sand Canyon Corporation. For additional information, please refer to disclosures in the company’s reports on Forms 10-K, 10-Q, and other filings with the Securities and Exchange Commission.

Conference Call

Discussion of the fiscal 2018 second quarter results, future 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 8:30 a.m. Eastern time on December 6, 2017. To access the call, please dial the number below approximately 10 minutes prior to the scheduled starting time:

U.S./Canada (855) 702-5257 or International (213) 358-0868
Conference ID: 89668795

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.

A replay of the call will be available beginning at 11:30 a.m. Eastern time on December 6, 2017, and continuing until January 8, 2018, by dialing (855) 859-2056 (U.S./Canada) or (404) 537-3406 (International). The conference ID is 89668795. The webcast will be available for replay beginning on December 7, 2017 at http://investors.hrblock.com.

About H&R Block

H&R Block, Inc. (NYSE:HRB) is a global consumer tax services provider. 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 Blocktax software products for the DIY consumer. H&R Block also offers adjacent Tax Plus products and services. In fiscal 2017, H&R Block had annual revenues of over $3 billion with 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," "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, earnings per share, cost savings, capital expenditures, dividends, share repurchases, 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, that are described in our Annual Report on Form 10-K for the fiscal year ended April 30, 2017 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. 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.
2All per share amounts are based on fully diluted shares at the end of the corresponding period.
3The company reports non-GAAP financial measures of performance, including earnings before interest, tax, depreciation, and amortization (EBITDA), which it considers to be useful metrics for management and investors to evaluate and compare the ongoing operating performance of the company. See "About Non-GAAP Financial Information" below for more information regarding financial measures not prepared in accordance with generally accepted accounting principles (GAAP).

Contacts:

Colby Brown
Investor Relations
(816) 854-4559
colby.brown@hrblock.com

Susan Waldron
Media Relations
(816) 854-5522
susan.waldron@hrblock.com

TABLES FOLLOW



CONSOLIDATED STATEMENTS OF OPERATIONS       (unaudited, in 000s - except per share amounts)
    Three months ended October 31,   Six months ended October 31,
    2017   2016   2017   2016
                 
REVENUES:                
Service revenues   $ 127,923     $ 118,940     $ 252,618     $ 231,324  
Royalty, product and other revenues   12,931     12,392     26,038     25,193  
    140,854     131,332     278,656     256,517  
OPERATING EXPENSES:                
Cost of revenues:                
Compensation and benefits   65,884     57,728     121,476     110,083  
Occupancy and equipment   105,304     99,067     203,771     193,492  
Provision for bad debt   1,779     (131 )   4,238     1,286  
Depreciation and amortization   29,729     29,911     58,345     57,378  
Other   37,323     39,127     79,904     74,549  
    240,019     225,702     467,734     436,788  
Selling, general and administrative:                
Marketing and advertising   11,562     12,001     18,666     19,562  
Compensation and benefits   62,138     58,293     118,511     115,815  
Depreciation and amortization   15,063     15,839     30,045     29,654  
Other selling, general and administrative   28,083     27,519     44,873     47,444  
    116,846     113,652     212,095     212,475  
Total operating expenses   356,865     339,354     679,829     649,263  
                 
Other income (expense), net   1,011     2,173     2,231     4,814  
Interest expense on borrowings   (21,265 )   (22,620 )   (42,542 )   (44,086 )
Loss from continuing operations before income tax benefit   (236,265 )   (228,469 )   (441,484 )   (432,018 )
Income tax benefit   (87,953 )   (85,054 )   (165,354 )   (167,577 )
Net loss from continuing operations   (148,312 )   (143,415 )   (276,130 )   (264,441 )
Net loss from discontinued operations   (5,254 )   (2,805 )   (8,003 )   (5,452 )
NET LOSS   $ (153,566 )   $ (146,220 )   $ (284,133 )   $ (269,893 )
                 
BASIC AND DILUTED LOSS PER SHARE:                
Continuing operations   $ (0.71 )   $ (0.67 )   $ (1.33 )   $ (1.21 )
Discontinued operations   (0.03 )   (0.01 )   (0.03 )   (0.03 )
Consolidated   $ (0.74 )   $ (0.68 )   $ (1.36 )   $ (1.24 )
                 
WEIGHTED AVERAGE BASIC AND DILUTED SHARES   209,065     215,535     208,500     218,009  
                 



CONSOLIDATED BALANCE SHEETS   (unaudited, in 000s - except per share data)
As of   October 31, 2017   October 31, 2016   April 30, 2017
             
ASSETS            
Cash and cash equivalents   $ 180,997     $ 232,510     $ 1,011,331  
Cash and cash equivalents - restricted   100,665     109,538     106,208  
Receivables, net   77,750     104,764     162,775  
Prepaid expenses and other current assets   85,204     73,555     65,725  
Mortgage loans held for sale, net       183,107      
Total current assets   444,616     703,474     1,346,039  
Property and equipment, net   262,226     293,060     263,827  
Intangible assets, net   406,440     433,135     409,364  
Goodwill   493,059     477,360     491,207  
Deferred tax assets and income taxes receivable   9,205     81,755     83,728  
Other noncurrent assets   101,015     93,394     99,943  
Total assets   $ 1,716,561     $ 2,082,178     $ 2,694,108  
LIABILITIES AND STOCKHOLDERS’ EQUITY            
LIABILITIES:            
Accounts payable and accrued expenses   $ 114,875     $ 139,808     $ 217,028  
Accrued salaries, wages and payroll taxes   42,897     40,754     183,856  
Accrued income taxes and reserves for uncertain tax positions   43,879     68,832     348,199  
Current portion of long-term debt   1,004     903     981  
Deferred revenue and other current liabilities   190,522     184,560     189,216  
Total current liabilities   393,177     434,857     939,280  
Long-term debt and line of credit borrowings   1,493,828     1,967,206     1,493,017  
Reserves for uncertain tax positions   138,024     117,553     159,085  
Deferred revenue and other noncurrent liabilities   104,305     120,033     163,609  
Total liabilities   2,129,334     2,639,649     2,754,991  
COMMITMENTS AND CONTINGENCIES            
STOCKHOLDERS’ EQUITY:            
Common stock, no par, stated value $.01 per share   2,462     2,506     2,462  
Additional paid-in capital   753,423     751,229     754,912  
Accumulated other comprehensive loss   (14,222 )   (17,122 )   (15,299 )
Retained deficit   (433,556 )   (538,242 )   (48,206 )
Less treasury shares, at cost   (720,880 )   (755,842 )   (754,752 )
Total stockholders' equity (deficiency)   (412,773 )   (557,471 )   (60,883 )
Total liabilities and stockholders' equity   $ 1,716,561     $ 2,082,178     $ 2,694,108  
             



CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS   (unaudited, in 000s)
Six months ended October 31,   2017   2016
CASH FLOWS FROM OPERATING ACTIVITIES:        
Net loss   $ (284,133 )   $ (269,893 )
Adjustments to reconcile net loss to net cash used in operating activities:        
Depreciation and amortization   88,390     87,032  
Provision for bad debt   4,238     1,286  
Deferred taxes   58,634     6,489  
Stock-based compensation   11,627     12,472  
Changes in assets and liabilities, net of acquisitions:        
Receivables   77,958     48,653  
Prepaid expenses and other current assets   (19,283 )   (7,386 )
Other noncurrent assets   8,984     7,713  
Accounts payable and accrued expenses   (85,846 )   (99,378 )
Accrued salaries, wages and payroll taxes   (141,491 )   (120,672 )
Deferred revenue and other current liabilities   3,775     (46,531 )
Deferred revenue and other noncurrent liabilities   (60,857 )   (52,548 )
Income tax receivables, accrued income taxes and income tax reserves   (296,023 )   (282,234 )
Other, net   (14,430 )   (5,379 )
Net cash used in operating activities   (648,457 )   (720,376 )
         
CASH FLOWS FROM INVESTING ACTIVITIES:        
Principal payments and sales of mortgage loans and real estate owned, net       19,009  
Capital expenditures   (56,750 )   (44,918 )
Payments made for business acquisitions, net of cash acquired   (27,522 )   (36,151 )
Franchise loans funded   (10,939 )   (10,171 )
Payments received on franchise loans   10,322     14,263  
Other, net   5,474     2,177  
Net cash used in investing activities   (79,415 )   (55,791 )
         
CASH FLOWS FROM FINANCING ACTIVITIES:        
Repayments of line of credit borrowings       (50,000 )
Proceeds from line of credit borrowings       525,000  
Dividends paid   (100,082 )   (95,971 )
Repurchase of common stock, including shares surrendered   (7,581 )   (215,511 )
Proceeds from exercise of stock options   27,522     1,630  
Other, net   (26,717 )   (43,734 )
Net cash provided by (used in) financing activities   (106,858 )   121,414  
         
Effects of exchange rate changes on cash   (1,147 )   (4,110 )
         
Net decrease in cash, cash equivalents and restricted cash   (835,877 )   (658,863 )
Cash, cash equivalents and restricted cash, beginning of period   1,117,539     1,000,911  
Cash, cash equivalents and restricted cash, end of period   $ 281,662     $ 342,048  
         
SUPPLEMENTARY CASH FLOW DATA:        
Income taxes paid, net of refunds received   $ 76,451     $ 112,339  
Interest paid on borrowings   39,902     40,670  
Accrued additions to property and equipment   3,874     12,920  
Accrued purchase of common stock       7,143  
         

Note: Effective May 1, 2017, we adopted the provisions of Accounting Standards Update No. 2016-18,"Restricted Cash (a consensus of the FASB Emerging Issues Task Force)," (ASU 2016-18) on a retrospective basis. Accordingly, the statements of cash flows explain the change in the total of cash, cash equivalents and amounts generally described as restricted cash and restricted cash equivalents per ASU 2016-18. Amounts for prior periods have been retrospectively adjusted to conform to the current period presentation.



FINANCIAL RESULTS   (unaudited, in 000s - except per share amounts)
    Three months ended October 31,   Six months ended October 31,
    2017   2016   2017   2016
REVENUES:                
U.S. assisted tax preparation fees   $ 36,665     $ 35,339     $ 66,628     $ 60,768  
U.S. royalties   7,008     6,828     13,975     13,353  
U.S. DIY tax preparation fees   4,263     3,089     7,489     6,003  
International revenues   47,934     43,539     88,351     82,414  
Revenues from Refund Transfers   1,135     757     3,951     3,991  
Revenues from Emerald Card®   9,180     8,644     24,167     21,709  
Revenues from Peace of Mind® Extended Service Plan   24,585     22,689     56,528     49,720  
Interest and fee income on Emerald Advance   594     655     1,258     1,459  
Other   9,490     9,792     16,309     17,100  
    140,854     131,332     278,656     256,517  
Compensation and benefits:                
Field wages   57,716     50,096     105,839     95,139  
Other wages   46,723     42,207     89,920     84,307  
Benefits and other compensation   23,583     23,718     44,228     46,452  
    128,022     116,021     239,987     225,898  
Occupancy and equipment   105,405     99,037     203,604     193,408  
Marketing and advertising   11,562     12,001     18,666     19,562  
Depreciation and amortization   44,792     45,750     88,390     87,032  
Provision for bad debt   1,779     (131 )   4,238     1,286  
Supplies   4,368     4,937     7,102     7,014  
Other   60,937     61,739     117,842     115,063  
Total operating expenses   356,865     339,354     679,829     649,263  
                 
Other income (expense), net   1,011     2,173     2,231     4,814  
Interest expense on borrowings   (21,265 )   (22,620 )   (42,542 )   (44,086 )
Pretax loss   (236,265 )   (228,469 )   (441,484 )   (432,018 )
Income tax benefit   (87,953 )   (85,054 )   (165,354 )   (167,577 )
Net loss from continuing operations   (148,312 )   (143,415 )   (276,130 )   (264,441 )
Net loss from discontinued operations   (5,254 )   (2,805 )   (8,003 )   (5,452 )
NET LOSS   $ (153,566 )   $ (146,220 )   $ (284,133 )   $ (269,893 )
                 
BASIC AND DILUTED LOSS PER SHARE:                
Continuing operations   $ (0.71 )   $ (0.67 )   $ (1.33 )   $ (1.21 )
Discontinued operations   (0.03 )   (0.01 )   (0.03 )   (0.03 )
Consolidated   $ (0.74 )   $ (0.68 )   $ (1.36 )   $ (1.24 )
                 
Weighted average basic and diluted shares   209,065     215,535     208,500     218,009  
                 
EBITDA from continuing operations (1)   $ (170,208 )   $ (160,099 )   $ (310,552 )   $ (300,900 )
                 

(1) See "Non-GAAP Financial Information" for a reconciliation of non-GAAP measures.



    Three months ended October 31,   Six months ended October 31,
NON-GAAP FINANCIAL MEASURE - EBITDA   2017   2016   2017   2016
                 
Net loss - as reported   $ (153,566 )   $ (146,220 )   $ (284,133 )   $ (269,893 )
Discontinued operations, net   5,254     2,805     8,003     5,452  
Net loss from continuing operations - as reported   (148,312 )   (143,415 )   (276,130 )   (264,441 )
Add back:                
Income taxes of continuing operations   (87,953 )   (85,054 )   (165,354 )   (167,577 )
Interest expense of continuing operations   21,265     22,620     42,542     44,086  
Depreciation and amortization of continuing operations   44,792     45,750     88,390     87,032  
    (21,896 )   (16,684 )   (34,422 )   (36,459 )
                 
EBITDA from continuing operations   $ (170,208 )   $ (160,099 )   $ (310,552 )   $ (300,900 )
                 
    Three months ended October 31,   Six months ended October 31,
Supplemental Information   2017   2016   2017   2016
                 
Stock-based compensation expense:                
Pretax   $ 6,811     $ 6,931     $ 11,627     $ 12,472  
After-tax   4,402     4,467     7,525     7,946  
Amortization of intangible assets:                
Pretax   $ 19,438     $ 20,051     $ 38,673     $ 38,037  
After-tax   12,557     12,940     25,029     24,233  
                 

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

We measure the performance of our business using a variety of metrics, including EBITDA from continuing operations. 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.

SOURCE H&R Block

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