H&R Block Announces Fiscal 2020 Third Quarter Results; Reiterates Fiscal Year Financial Outlook
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H&R Block Announces Fiscal 2020 Third Quarter Results; Reiterates Fiscal Year Financial Outlook

KANSAS CITY, Mo., March 05, 2020 // GLOBE NEWSWIRE // - H&R Block, Inc. (NYSE: HRB) today released its U.S. tax return volume through February 28, 2020 and financial results for the fiscal 2020 third quarter ended January 31, 2020. The company normally reports a fiscal third quarter loss due to the seasonality of its tax business.

Fiscal Third Quarter Highlights1

  • Revenues for the fiscal third quarter ended January 31, 2020 increased 11%, to $519 million due to improved tax return volumes in both Assisted and DIY, as well as revenues from acquired franchises and Wave.
  • Loss per share from continuing operations2 increased $0.08 to $0.66 and adjusted loss per share from continuing operations2,3 increased $0.07 to $0.59.
  • The company reiterated its revenue growth and margin outlook for the full fiscal year.
  • The company repurchased 2.8 million shares at an aggregate price of $66 million, bringing total repurchases for the year to 10.1 million shares at an aggregate price of $247 million.

"We're making progress on our strategy to transform our business by connecting human expertise with technology to drive transparency and value for consumers and small business owners," said Jeff Jones, H&R Block's president and chief executive officer. "We're seeing the positive results of these efforts in our Assisted business and will apply learnings from the first half to deliver on our outlook for the fiscal year."

Fiscal 2020 Third Quarter Results From Continuing Operations

(in millions, except EPS)   Q3 FY2020   Q3 FY2019
Revenue   $ 519     $ 468  
Pretax Loss   $ (177 )   $ (159 )
Net Loss   $ (128 )   $ (120 )
Weighted-Avg. Shares - Diluted   194.1     205.5  
EPS2   $ (0.66 )   $ (0.58 )
Adjusted EPS2,3   $ (0.59 )   $ (0.52 )
EBITDA4   $ (107 )   $ (92 )
         


"We're pleased with our strong revenue growth in the fiscal third quarter," said Tony Bowen, H&R Block's chief financial officer. "While we have realized some one-time expense increases, we still expect to deliver on our revenue growth and margin outlook for the fiscal year."

Key Financial Metrics

  • Total revenues increased $50.8 million, or 10.9%, to $519.2 million due to improved tax return volumes in both Assisted and DIY, as well as revenues from acquired franchises and Wave.
  • Total operating expenses increased $65.3 million, or 10.8%, to $671.8 million, due to Wave, the timing of marketing expense recognition, increased compensation related to higher Assisted tax return volumes, and planned investments in our technology roadmap.
  • Pretax loss increased $18.4 million, or 11.6%, to $177.0 million.
  • Loss per share from continuing operations increased $0.08 to $0.66; adjusted loss per share from continuing operations increased $0.07 to $0.59. 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 third quarter of fiscal 2020, the company repurchased and retired 2.8 million shares at an aggregate price of $65.8 million, or $23.35 per share. Fiscal year-to-date repurchases total 10.1 million shares at an aggregate price of $246.8 million, or $24.36 per share.
  • As previously announced, a quarterly cash dividend of $0.26 per share is payable on April 1, 2020 to shareholders of record as of March 17, 2020. 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 third quarter results, outlook, and a general business update will occur during the company’s previously announced fiscal third quarter earnings conference call for analysts, institutional investors, and shareholders. The call is scheduled for 4:30 p.m. Eastern time on March 5, 2020. 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: 7830599

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 March 5, 2020 and continuing for seven days by dialing (855) 859-2056 (U.S./Canada) or (404) 537-3406 (International). The conference ID is 7830599. The webcast will be available for replay beginning on March 6, 2020 and continuing for 90 days at http://investors.hrblock.com.

About H&R Block

H&R Block, Inc. (NYSE: HRB) provides help and inspires confidence in its clients and communities everywhere through global tax preparation, financial services and small business solutions. The company is disrupting the tax industry by providing consumers price transparency and with digital platforms such as Tax Pro GoSM. H&R Block believes the best solutions blend digital capabilities with human expertise and care. For more information visit hrblock.com/news and follow @HRBlockNews.

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).

Contacts:

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

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

CONSOLIDATED STATEMENTS OF OPERATIONS       (unaudited, in 000s - except per share amounts)
    Three months ended January 31,   Nine months ended January 31,
    2020   2019   2020   2019
                 
REVENUES:                
Service revenues   $ 419,955     $ 373,659     $ 691,762     $ 627,786  
Royalty, product and other revenues   99,250     94,725     138,606     134,652  
    519,205     468,384     830,368     762,438  
OPERATING EXPENSES:                
Costs of revenues   462,521     421,026     945,119     893,401  
Selling, general and administrative   209,288     185,458     475,758     404,517  
Total operating expenses   671,809     606,484     1,420,877     1,297,918  
                 
Other income (expense), net   1,879     2,269     13,741     11,275  
Interest expense on borrowings   (26,305 )   (22,833 )   (68,682 )   (65,214 )
Loss from continuing operations before income tax benefit   (177,030 )   (158,664 )   (645,450 )   (589,419 )
Income tax benefit   (49,004 )   (38,885 )   (188,146 )   (149,906 )
Net loss from continuing operations   (128,026 )   (119,779 )   (457,304 )   (439,513 )
Net loss from discontinued operations   (1,657 )   (6,675 )   (10,625 )   (15,887 )
NET LOSS   $ (129,683 )   $ (126,454 )   $ (467,929 )   $ (455,400 )
                 
BASIC AND DILUTED LOSS PER SHARE:                
Continuing operations   $ (0.66 )   $ (0.58 )   $ (2.31 )   $ (2.13 )
Discontinued operations   (0.01 )   (0.04 )   (0.05 )   (0.08 )
Consolidated   $ (0.67 )   $ (0.62 )   $ (2.36 )   $ (2.21 )
                 
WEIGHTED AVERAGE BASIC AND DILUTED SHARES   194,077     205,532     198,064     206,242  
                 

 

CONSOLIDATED BALANCE SHEETS   (unaudited, in 000s - except per share data)
As of   January 31, 2020   January 31, 2019   April 30, 2019
             
ASSETS            
Cash and cash equivalents   $ 192,340     $ 203,226     $ 1,572,150  
Cash and cash equivalents - restricted   169,447     101,903     135,577  
Receivables, net   819,946     758,217     138,965  
Prepaid expenses and other current assets   120,229     171,306     146,667  
Total current assets   1,301,962     1,234,652     1,993,359  
Property and equipment, net   197,569     220,505     212,092  
Operating lease right of use asset   463,777          
Intangible assets, net   433,074     356,952     342,493  
Goodwill   838,830     520,005     519,937  
Deferred tax assets and income taxes receivable   134,901     141,366     141,979  
Other noncurrent assets   82,317     95,326     90,085  
Total assets   $ 3,452,430     $ 2,568,806     $ 3,299,945  
LIABILITIES AND STOCKHOLDERS’ EQUITY            
LIABILITIES:            
Accounts payable and accrued expenses   $ 156,766     $ 202,101     $ 249,525  
Accrued salaries, wages and payroll taxes   117,459     140,902     196,527  
Accrued income taxes and reserves for uncertain tax positions   36,242     49,009     271,973  
Current portion of long-term debt   649,022          
Operating lease liabilities   187,890          
Deferred revenue and other current liabilities   190,242     195,634     204,976  
Total current liabilities   1,337,621     587,646     923,001  
Long-term debt and line of credit borrowings   1,880,589     1,876,989     1,492,629  
Deferred tax liabilities and reserves for uncertain tax positions   172,954     214,217     197,906  
Operating lease liabilities   289,299          
Deferred revenue and other noncurrent liabilities   90,346     103,545     144,882  
Total liabilities   3,770,809     2,782,397     2,758,418  
COMMITMENTS AND CONTINGENCIES            
STOCKHOLDERS’ EQUITY:            
Common stock, no par, stated value $.01 per share   2,282     2,415     2,383  
Additional paid-in capital   769,990     764,982     767,636  
Accumulated other comprehensive loss   (25,391 )   (17,642 )   (20,416 )
Retained earnings (deficit)   (367,218 )   (254,277 )   499,386  
Less treasury shares, at cost   (698,042 )   (709,069 )   (707,462 )
Total stockholders' equity (deficiency)   (318,379 )   (213,591 )   541,527  
  Total liabilities and stockholders' equity   $ 3,452,430     $ 2,568,806     $ 3,299,945  
             

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS   (unaudited, in 000s)
Nine months ended January 31,   2020   2019
CASH FLOWS FROM OPERATING ACTIVITIES:        
Net loss   $ (467,929 )   $ (455,400 )
Adjustments to reconcile net loss to net cash used in operating activities:        
Depreciation and amortization   125,409     126,013  
Provision for bad debt   37,517     35,009  
Deferred taxes   10,795     20,557  
Stock-based compensation   22,699     18,009  
Changes in assets and liabilities, net of acquisitions:        
Receivables   (684,323 )   (641,157 )
Prepaid expenses, other current and noncurrent assets   (1,990 )   (56,160 )
Accounts payable, accrued expenses, salaries, wages and payroll taxes   (166,204 )   (47,975 )
Deferred revenue, other current and noncurrent liabilities   (55,064 )   (66,804 )
Income tax receivables, accrued income taxes and income tax reserves   (282,488 )   (277,240 )
Other, net   (6,213 )   (2,308 )
  Net cash used in operating activities   (1,467,791 )   (1,347,456 )
         
CASH FLOWS FROM INVESTING ACTIVITIES:        
Capital expenditures   (66,510 )   (79,982 )
Payments made for business acquisitions, net of cash acquired   (450,282 )   (42,428 )
Franchise loans funded   (32,890 )   (16,875 )
Payments from franchisees   14,604     15,149  
Other, net   45,376     4,877  
Net cash used in investing activities   (489,702 )   (119,259 )
         
CASH FLOWS FROM FINANCING ACTIVITIES:        
Repayments of line of credit borrowings   (285,000 )   (230,000 )
Proceeds from line of credit borrowings   1,320,000     615,000  
Dividends paid   (154,827 )   (154,866 )
Repurchase of common stock, including shares surrendered   (256,199 )   (102,152 )
Proceeds from exercise of stock options   2,074     2,527  
Other, net   (14,136 )   (20,126 )
Net cash provided by financing activities   611,912     110,383  
         
Effects of exchange rate changes on cash   (359 )   (2,217 )
         
Net decrease in cash and cash equivalents, including restricted balances   (1,345,940 )   (1,358,549 )
Cash, cash equivalents and restricted cash, beginning of period   1,707,727     1,663,678  
Cash, cash equivalents and restricted cash, end of period   $ 361,787     $ 305,129  
         
SUPPLEMENTARY CASH FLOW DATA:        
Income taxes paid, net of refunds received   $ 84,872     $ 103,789  
Interest paid on borrowings   65,972     55,581  
Accrued additions to property and equipment   1,662     2,241  
Accrued purchase of common stock       12,301  
         

 

FINANCIAL RESULTS   (unaudited, in 000s - except per share amounts)
    Three months ended January 31,   Nine months ended January 31,
    2020   2019   2020   2019
REVENUES:                
U.S. assisted tax preparation   $ 283,956     $ 256,813     $ 358,174     $ 329,569  
U.S. royalties   44,965     42,265     59,644     57,898  
U.S. DIY tax preparation   34,089     31,996     42,040     37,771  
International   11,804     12,304     97,311     96,980  
Refund Transfers   50,494     47,482     52,794     49,466  
Emerald Card®   16,657     14,980     39,128     38,704  
Peace of Mind® Extended Service Plan   16,954     16,596     75,451     77,491  
Tax Identity Shield®   8,138     7,655     17,308     17,639  
Interest and fee income on Emerald AdvanceTM   32,741     30,924     33,780     31,768  
Wave   11,213         25,740      
Other   8,194     7,369     28,998     25,152  
Total revenues   519,205     468,384     830,368     762,438  
Compensation and benefits:                
Field wages   165,435     153,764     280,231     262,792  
Other wages   63,808     54,243     178,389     152,111  
Benefits and other compensation   45,397     42,778     100,579     89,887  
    274,640     250,785     559,199     504,790  
Occupancy   102,788     94,407     292,470     290,013  
Marketing and advertising   84,760     72,876     101,190     88,356  
Depreciation and amortization   44,147     44,088     125,409     126,013  
Bad debt   36,527     33,861     37,594     33,191  
Other (1)   128,947     110,467     305,015     255,555  
Total operating expenses   671,809     606,484     1,420,877     1,297,918  
                 
Other income (expense), net   1,879     2,269     13,741     11,275  
Interest expense on borrowings   (26,305 )   (22,833 )   (68,682 )   (65,214 )
Pretax loss   (177,030 )   (158,664 )   (645,450 )   (589,419 )
Income tax benefit   (49,004 )   (38,885 )   (188,146 )   (149,906 )
Net loss from continuing operations   (128,026 )   (119,779 )   (457,304 )   (439,513 )
Net loss from discontinued operations   (1,657 )   (6,675 )   (10,625 )   (15,887 )
NET LOSS   $ (129,683 )   $ (126,454 )   $ (467,929 )   $ (455,400 )
                 
BASIC AND DILUTED LOSS PER SHARE:                
Continuing operations   $ (0.66 )   $ (0.58 )   $ (2.31 )   $ (2.13 )
Discontinued operations   (0.01 )   (0.04 )   (0.05 )   (0.08 )
Consolidated   $ (0.67 )   $ (0.62 )   $ (2.36 )   $ (2.21 )
                 
Weighted average basic and diluted shares   194,077     205,532     198,064     206,242  
                 
EBITDA from continuing operations (2)   $ (106,578 )   $ (91,743 )   $ (451,359 )   $ (398,192 )
                 

(1) We reclassified $10.0 million and $15.3 million of supplies expense from its own financial statement line to other expenses for the three and nine months ended January 31, 2019, respectively, to conform to the current year presentation.
(2) See "Non-GAAP Financial Information" for a reconciliation of non-GAAP measures.

U.S. TAX OPERATING DATA                        
    Fiscal Year-to-Date       Fiscal Year-to-Date    
    January 31,       February 28,    
    2020   2019   % Change   2020   2019   % Change
                         
Tax Returns Prepared: (in 000s) (1) (2)                        
Company-owned operations   1,476     1,357     8.8 %   4,230     4,237     (0.2 )%
Franchise operations   676     610     10.8 %   1,801     1,802     (0.1 )%
  Total H&R Block Assisted   2,152     1,967     9.4 %   6,031     6,039     (0.1 )%
                         
Desktop   133     128     3.9 %   659     706     (6.7 )%
Online   1,308     1,164     12.4 %   3,580     3,480     2.9 %
Total H&R Block DIY   1,441     1,292     11.5 %   4,239     4,186     1.3 %
                         
IRS Free File   142     101     40.6 %   446     340     31.2 %
Total H&R Block Returns   3,735     3,360     11.2 %   10,716     10,565     1.4 %
                         
Net Average Charge: (3)                        
Company-owned operations   $ 244.87     $ 253.11     (3.3 )%   $ 227.22     $ 231.59     (1.9 )%
Franchise operations (4)   242.76     242.29     0.2 %   220.37     217.94     1.1 %
DIY   29.17     29.15     0.1 %   26.82     27.29     (1.7 )%
                         

(1) An assisted tax return is defined as a current or prior year individual tax return that has been accepted and paid for by the client.  Also included are Tax Pro GoSM, Tax Pro ReviewSM, and business returns. A DIY return is defined as a return that has been electronically filed and accepted by the IRS.  Also included are online returns paid and printed.
(2) Amounts have been reclassified between company-owned and franchise for offices which were refranchised or repurchased by the company during the year.
(3) Net average charge is calculated as tax preparation fees divided by tax returns prepared. For DIY, net average charge excludes IRS Free File.
(4) Net average charge related to H&R Block Franchise operations represents tax preparation fees collected by H&R Block franchisees divided by returns prepared in franchise offices.  H&R Block will recognize a portion of franchise revenues as franchise royalties based on the terms of franchise agreements.

(in 000s)
    Three months ended January 31,   Nine months ended January 31,
NON-GAAP FINANCIAL MEASURE - EBITDA   2020   2019   2020   2019
                 
Net loss - as reported   $ (129,683 )   $ (126,454 )   $ (467,929 )   $ (455,400 )
Discontinued operations, net   1,657     6,675     10,625     15,887  
Net loss from continuing operations - as reported   (128,026 )   (119,779 )   (457,304 )   (439,513 )
Add back:                
Income taxes of continuing operations   (49,004 )   (38,885 )   (188,146 )   (149,906 )
Interest expense of continuing operations   26,305     22,833     68,682     65,214  
Depreciation and amortization of continuing operations   44,147     44,088     125,409     126,013  
    21,448     28,036     5,945     41,321  
EBITDA from continuing operations   $ (106,578 )   $ (91,743 )   $ (451,359 )   $ (398,192 )
                 

 

(in 000s, except per share amounts)
    Three months ended January 31,   Nine months ended January 31,
NON-GAAP FINANCIAL MEASURE - ADJUSTED EPS   2020   2019   2020   2019
                 
Net loss from continuing operations   $ (128,026 )   $ (119,779 )   $ (457,304 )   $ (439,513 )
                 
Adjustments:                
Amortization of intangibles related to acquisitions (pretax)   19,179     16,142     54,997     46,453  
Tax effect of adjustments (1)   (4,956 )   (3,820 )   (13,667 )   (11,116 )
Adjusted net loss from continuing operations   $ (113,803 )   $ (107,457 )   $ (415,974 )   $ (404,176 )
                 
Diluted loss per share (GAAP)   $ (0.66 )   $ (0.58 )   $ (2.31 )   $ (2.13 )
Adjustments, net of tax   0.07     0.06     0.21     0.17  
Adjusted loss per share (Non-GAAP)   $ (0.59 )   $ (0.52 )   $ (2.10 )   $ (1.96 )
                 

(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 make adjustments for certain non-GAAP financial measures related to amortization of intangibles from acquisitions. 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.

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.

Source: HRB Tax Group, Inc.

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