H&R Block Announces Fiscal 2019 Second Quarter Results

H&R Block Announces Fiscal 2019 Second Quarter Results

Introducing Upfront, Transparent Pricing and Virtual Tax Innovations for the Upcoming Tax Season

KANSAS CITY, Mo. - Dec. 06, 2018 // GLOBE NEWSWIRE // - H&R Block, Inc. (NYSE: HRB) today released its financial results for the fiscal 2019 second quarter ended October 31, 2018. 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 percent of annual revenues and less than 15 percent of annual expenses.

Fiscal Second Quarter Highlights1

  • Fiscal second quarter financial results were in line with expectations.
  • Revenues increased $8 million, or 6 percent, to $149 million primarily due to increased Assisted tax preparation revenues and the timing of revenues related to the company's Tax Plus products.
  • Pretax loss from continuing operations improved 2 percent to $232 million; loss per share from continuing operations2 increased $0.12 to $0.83 due to a lower effective tax rate, which negatively impacts those fiscal quarters with a seasonal net loss.
  • The company reiterated its financial outlook for the full fiscal year.

"We’re implementing a number of initiatives for the upcoming tax season that will significantly improve the way clients interact with H&R Block, including our industry-leading announcement of upfront, transparent pricing in all of our channels," said Jeff Jones, H&R Block's president and chief executive officer. "This, combined with our innovative virtual tax offerings will help us deliver unique and better experiences to consumers, bring our brand promise to life, and allow us to deliver for the long term."

Fiscal 2019 Second Quarter Results From Continuing Operations

"The fiscal second quarter results reflect planned increases in expenses related to strategic investments being made in the business," said Tony Bowen, H&R Block's chief financial officer. "We are focused on executing the operational elements of our strategy for the upcoming tax season, and remain on track to achieve our financial outlook for the fiscal year."

       
(in millions, except EPS)   Q2 FY2019   Q2 FY2018
Revenue   $ 149     $ 141  
Pretax Loss   $ (232 )   $ (236 )
Net Loss   $ (171 )   $ (148 )
Weighted-Avg. Shares - Diluted   205.5     209.1  
EPS2   $ (0.83 )   $ (0.71 )
EBITDA3   $ (169 )   $ (170 )
 

Key Financial Metrics

  • Total revenues increased $8.0 million, or 5.7 percent, to $148.9 million primarily due to increased Assisted tax preparation revenues and the timing of revenues from Tax Identity Shield®, partially offset by lower international revenues related to fluctuations in exchange rates.
  • Total operating expenses increased $7.3 million, or 2.0 percent, to $364.1 million primarily due to increases in occupancy and compensation expenses, partially offset by lower depreciation and amortization and the timing of marketing expense.
  • Pretax loss improved $4.3 million, or 1.8 percent, to $232.0 million.
  • Loss per share from continuing operations increased $0.12, from $0.71 to $0.83, due to a lower effective tax rate, which negatively impacts those fiscal quarters with a seasonal net loss.

Dividends

As previously announced, a quarterly cash dividend of $0.25 per share is payable on January 2, 2019 to shareholders of record as of December 3, 2018. H&R Block has paid quarterly dividends consecutively since the company went public in 1962.

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 2019 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, 2018. 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: 8661109

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 Webcasts and Presentations page at http://investors.hrblock.com following the conclusion of the call.

A replay of the call will be available beginning at 11:30 a.m. Eastern time on December 6, 2018, and continuing until January 6, 2019, by dialing (855) 859-2056 (U.S./Canada) or (404) 537-3406 (International). The conference ID is 8661109. The webcast will be available for replay beginning on December 7, 2018 and continuing for 90 days 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 2018, H&R Block had annual revenues of over $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, 2018 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, guidance from the Internal Revenue Service, SEC, or the Financial Accounting Standards Board about the Tax Legislation, 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.

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) from continuing operations, EBITDA margin from continuing operations, and free cash flow, 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).

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,
    2018   2017   2018   2017
                 
REVENUES:                
Service revenues   $ 127,267     $ 127,923     $ 254,127     $ 252,618  
Royalty, product and other revenues   21,604     12,931     39,927     26,038  
    148,871     140,854     294,054     278,656  
OPERATING EXPENSES:                
Costs of revenues   250,815     240,019     472,375     467,734  
Selling, general and administrative   113,319     116,846     219,059     212,095  
Total operating expenses   364,134     356,865     691,434     679,829  
                 
Other income (expense), net   4,464     1,011     9,006     2,231  
Interest expense on borrowings   (21,191 )   (21,265 )   (42,381 )   (42,542 )
Loss from continuing operations before income tax benefit   (231,990 )   (236,265 )   (430,755 )   (441,484 )
Income tax benefit   (61,053 )   (87,953 )   (111,021 )   (165,354 )
Net loss from continuing operations   (170,937 )   (148,312 )   (319,734 )   (276,130 )
Net loss from discontinued operations   (5,339 )   (5,254 )   (9,212 )   (8,003 )
NET LOSS   $ (176,276 )   $ (153,566 )   $ (328,946 )   $ (284,133 )
                 
BASIC AND DILUTED LOSS PER SHARE:                
Continuing operations   $ (0.83 )   $ (0.71 )   $ (1.55 )   $ (1.33 )
Discontinued operations   (0.03 )   (0.03 )   (0.04 )   (0.03 )
Consolidated   $ (0.86 )   $ (0.74 )   $ (1.59 )   $ (1.36 )
                 
WEIGHTED AVERAGE BASIC AND DILUTED SHARES   205,520     209,065     206,596     208,500  
                 

 

                         
CONSOLIDATED BALANCE SHEETS   (unaudited, in 000s - except per share data)
As of   October 31, 2018   October 31, 2017   April 30, 2018
             
ASSETS            
Cash and cash equivalents   $ 600,799     $ 180,997     $ 1,544,944  
Cash and cash equivalents - restricted   122,507     100,665     118,734  
Receivables, net   61,286     77,750     146,774  
Income taxes receivable   18,745         12,310  
Prepaid expenses and other current assets   87,665     85,204     68,951  
Total current assets   891,002     444,616     1,891,713  
Property and equipment, net   241,772     262,226     231,888  
Intangible assets, net   364,524     406,440     373,981  
Goodwill   507,191     493,059     507,871  
Deferred tax assets and income taxes receivable   130,987     9,205     34,095  
Other noncurrent assets   97,820     101,015     101,401  
Total assets   $ 2,233,296     $ 1,716,561     $ 3,140,949  
LIABILITIES AND STOCKHOLDERS’ EQUITY            
LIABILITIES:            
Accounts payable and accrued expenses   $ 114,393     $ 114,875     $ 251,975  
Accrued salaries, wages and payroll taxes   43,396     42,897     141,499  
Accrued income taxes and reserves for uncertain tax positions   94,257     43,879     263,050  
Current portion of long-term debt       1,004     1,026  
Deferred revenue and other current liabilities   183,675     190,522     186,101  
Total current liabilities   435,721     393,177     843,651  
Long-term debt   1,491,328     1,493,828     1,494,609  
Deferred tax liabilities and reserves for uncertain tax positions   235,799     138,024     229,430  
Deferred revenue and other noncurrent liabilities   101,773     104,305     179,548  
Total liabilities   2,264,621     2,129,334     2,747,238  
COMMITMENTS AND CONTINGENCIES            
STOCKHOLDERS’ EQUITY:            
Common stock, no par, stated value $.01 per share   2,420     2,462     2,462  
Additional paid-in capital   759,235     753,423     760,250  
Accumulated other comprehensive loss   (18,880 )   (14,222 )   (14,303 )
Retained earnings (deficit)   (64,291 )   (433,556 )   362,980  
Less treasury shares, at cost   (709,809 )   (720,880 )   (717,678 )
Total stockholders' equity (deficiency)   (31,325 )   (412,773 )   393,711  
Total liabilities and stockholders' equity   $ 2,233,296     $ 1,716,561     $ 3,140,949  
             

 

     
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS   (unaudited, in 000s)
Six months ended October 31,   2018   2017
CASH FLOWS FROM OPERATING ACTIVITIES:        
Net loss   $ (328,946 )   $ (284,133 )
Adjustments to reconcile net loss to net cash used in operating activities:        
Depreciation and amortization   81,925     88,390  
Provision for bad debt   2,350     4,238  
Deferred taxes   17,913     58,634  
Stock-based compensation   11,839     11,627  
Changes in assets and liabilities, net of acquisitions:        
Receivables   75,324     77,958  
Prepaid expenses and other current assets   (18,933 )   (19,283 )
Other noncurrent assets   9,147     8,984  
Accounts payable and accrued expenses   (120,921 )   (85,846 )
Accrued salaries, wages and payroll taxes   (97,771 )   (141,491 )
Deferred revenue and other current liabilities   (10,408 )   3,775  
Deferred revenue and other noncurrent liabilities   (70,606 )   (60,857 )
Income tax receivables, accrued income taxes and income tax reserves   (179,660 )   (296,023 )
Other, net   1,056     (14,430 )
Net cash used in operating activities   (627,691 )   (648,457 )
         
CASH FLOWS FROM INVESTING ACTIVITIES:        
Capital expenditures   (66,422 )   (56,750 )
Payments made for business acquisitions, net of cash acquired   (24,549 )   (27,522 )
Franchise loans funded   (8,915 )   (10,939 )
Payments received on franchise loans   11,689     10,322  
Other, net   4,993     5,474  
Net cash used in investing activities   (83,204 )   (79,415 )
         
CASH FLOWS FROM FINANCING ACTIVITIES:        
Dividends paid   (103,484 )   (100,082 )
Repurchase of common stock, including shares surrendered   (102,096 )   (7,581 )
Proceeds from exercise of stock options   1,746     27,522  
Other, net   (22,434 )   (26,717 )
Net cash used in financing activities   (226,268 )   (106,858 )
         
Effects of exchange rate changes on cash   (3,209 )   (1,147 )
         
Net decrease in cash, cash equivalents and restricted cash   (940,372 )   (835,877 )
Cash, cash equivalents and restricted cash, beginning of period   1,663,678     1,117,539  
Cash, cash equivalents and restricted cash, end of period   $ 723,306     $ 281,662  
         
SUPPLEMENTARY CASH FLOW DATA:        
Income taxes paid, net of refunds received   $ 50,197     $ 76,451  
Interest paid on borrowings   39,902     39,902  
Accrued additions to property and equipment   4,765     3,874  
         

 

     
FINANCIAL RESULTS   (unaudited, in 000s - except per share amounts)
    Three months ended October 31,   Six months ended October 31,
    2018   2017   2018   2017
REVENUES:                
U.S. assisted tax preparation   $ 41,652     $ 36,665     $ 72,756     $ 66,628  
U.S. royalties   8,062     7,008     15,633     13,975  
U.S. DIY tax preparation   2,994     4,263     5,775     7,489  
International revenues   45,497     47,934     84,676     88,351  
Revenues from Refund Transfers   560     1,135     1,984     3,951  
Revenues from Emerald Card®   9,478     9,180     23,724     24,167  
Revenues from Peace of Mind® Extended Service Plan   24,318     24,585     60,895     56,528  
Revenues from Tax Identity Shield®   5,243     257     9,984     511  
Interest and fee income on Emerald Advance   397     594     844     1,258  
Other   10,670     9,233     17,783     15,798  
    148,871     140,854     294,054     278,656  
Compensation and benefits:                
Field wages   59,096     57,716     109,028     105,839  
Other wages   50,046     46,723     97,868     89,920  
Benefits and other compensation   24,178     23,583     47,109     44,228  
    133,320     128,022     254,005     239,987  
Occupancy   104,880     94,907     195,606     185,198  
Marketing and advertising   8,586     11,562     15,480     18,666  
Depreciation and amortization   41,493     44,792     81,925     88,390  
Bad debt   188     1,779     (670 )   4,238  
Supplies   3,189     4,368     5,393     7,102  
Other   72,478     71,435     139,695     136,248  
Total operating expenses   364,134     356,865     691,434     679,829  
                 
Other income (expense), net   4,464     1,011     9,006     2,231  
Interest expense on borrowings   (21,191 )   (21,265 )   (42,381 )   (42,542 )
Pretax loss   (231,990 )   (236,265 )   (430,755 )   (441,484 )
Income tax benefit   (61,053 )   (87,953 )   (111,021 )   (165,354 )
Net loss from continuing operations   (170,937 )   (148,312 )   (319,734 )   (276,130 )
Net loss from discontinued operations   (5,339 )   (5,254 )   (9,212 )   (8,003 )
NET LOSS   $ (176,276 )   $ (153,566 )   $ (328,946 )   $ (284,133 )
                 
BASIC AND DILUTED LOSS PER SHARE:                
Continuing operations   $ (0.83 )   $ (0.71 )   $ (1.55 )   $ (1.33 )
Discontinued operations   (0.03 )   (0.03 )   (0.04 )   (0.03 )
Consolidated   $ (0.86 )   $ (0.74 )   $ (1.59 )   $ (1.36 )
                 
Weighted average basic and diluted shares   205,520     209,065     206,596     208,500  
                 
EBITDA from continuing operations (1)   $ (169,306 )   $ (170,208 )   $ (306,449 )   $ (310,552 )
                 

(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   2018   2017   2018   2017
                 
Net loss - as reported   $ (176,276 )   $ (153,566 )   $ (328,946 )   $ (284,133 )
Discontinued operations, net   5,339     5,254     9,212     8,003  
Net loss from continuing operations - as reported   (170,937 )   (148,312 )   (319,734 )   (276,130 )
Add back:                
Income taxes of continuing operations   (61,053 )   (87,953 )   (111,021 )   (165,354 )
Interest expense of continuing operations   21,191     21,265     42,381     42,542  
Depreciation and amortization of continuing operations   41,493     44,792     81,925     88,390  
    1,631     (21,896 )   13,285     (34,422 )
                 
EBITDA from continuing operations   $ (169,306 )   $ (170,208 )   $ (306,449 )   $ (310,552 )
                 
                 
                 
    Three months ended October 31,   Six months ended October 31,
Supplemental Information   2018   2017   2018   2017
                 
Stock-based compensation expense:                
Pretax   $ 7,480     $ 6,811     $ 11,839     $ 11,627  
After-tax   5,715     4,402     8,989     7,525  
Amortization of intangible assets:                
Pretax   $ 17,585     $ 19,438     $ 35,724     $ 38,673  
After-tax   13,503     12,557     27,125     25,029  
           

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, EBITDA margin from continuing operations, and free cash flow. We also use EBITDA from continuing operations and pretax income from continuing operations, each subject to permitted adjustments, as performance metrics in incentive compensation calculations for our employees.

Source: HRB Tax Group, Inc.

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