H&R Block Reports Revenue Growth in Fiscal 2021 Second Quarter
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H&R Block Reports Revenue Growth in Fiscal 2021 Second Quarter

KANSAS CITY, Mo., Dec. 08, 2020 // GLOBE NEWSWIRE // - H&R Block, Inc. (NYSE: HRB) today released its financial results1 for the fiscal 2021 second quarter ended October 31, 2020.

  • Fiscal second quarter revenue growth of 10% to $177 million resulted from higher tax return volume in the U.S. and Canada, and an increase in small business payments processing and payroll volume at Wave.
  • Pretax loss improved $24 million to $(237) million due to the increase in revenue as well as lower operating expenses. GAAP loss per share from continuing operations2 increased $0.24, to $(1.17), and adjusted non-GAAP loss per share3 increased $0.24, to $(1.09), due solely to a lower effective tax rate resulting from favorable tax planning. The negative impact of this tax rate change is unique to fiscal quarters in which the company reports a loss, as the impact will be favorable on a full fiscal year basis.
  • The company repurchased and retired 9.5 million shares at an aggregate price of $150 million, or $15.83 per share.
  • In a separate release, the company today announced the next phase of its strategic transformation as it continues to innovate to better serve customers in the core areas of small business, financial products, and consumer tax. Details of this strategy will be discussed during a virtual Investor Day hosted by the company today at 10:00 a.m. EST.

"The strong start to this fiscal year puts us on solid footing to execute against the next phase of our strategy during the second half of the year,” said Jeff Jones, H&R Block’s president and chief executive officer. “Through a client-centric and digital-first approach, we're innovating to solve financial problems for consumers and small business owners, as we drive toward long-term sustainable growth for H&R Block."

Fiscal 2021 Second Quarter Results From Continuing Operations

(in millions, except EPS) Q2 FY2021   Q2 FY2020
Revenue $ 177     $ 161  
Pretax Loss $ (237 )   $ (261 )
Net Loss $ (222 )   $ (184 )
Weighted-Avg. Shares - Diluted 189.6     198.1  
EPS2 $ (1.17 )   $ (0.93 )
Adjusted EPS2,3 $ (1.09 )   $ (0.85 )
EBITDA3 $ (168 )   $ (197 )
       

"We executed well for the first half of the fiscal year, delivering improved financial results as we head into the upcoming tax season," said Tony Bowen, H&R Block's chief financial officer. "Our plans for this fiscal year reflect our commitment to the financial principles of maintaining a strong balance sheet, investing in long-term growth opportunities, and returning capital to shareholders through dividends and share repurchases."

Key Financial Metrics

  • Total revenues increased $16 million, or 10%, to $177 million due to higher tax return volume in the U.S. and Canada, and an increase in small business payments processing and payroll volume at Wave.
  • Total operating expenses decreased $22 million, or 5%, to $382 million primarily due to lower travel, consulting, client claims and refunds, and depreciation and amortization.
  • Pretax loss improved $24 million to $237 million.
  • GAAP loss per share from continuing operations increased $0.24, to $(1.17), and adjusted non-GAAP loss per share increased $0.24, to $(1.09), due solely to a lower effective tax rate resulting from favorable tax planning. The negative impact of this tax rate change is unique to fiscal quarters in which the company reports a loss, as the impact will be favorable on a full fiscal year basis.

Capital Structure

The company also reported the following recent developments related to its capital structure:

  • During the second quarter of fiscal 2021, the company repurchased and retired approximately 9.5 million shares at an aggregate price of $150 million, or $15.83 per share.
  • As previously announced, a quarterly cash dividend of $0.26 per share is payable on January 4, 2021 to shareholders of record as of December 7, 2020. H&R Block has paid quarterly dividends consecutively since the company went public in 1962.

Discontinued Operations

On November 9, 2020, the court granted Sand Canyon's ("SCC") motion for summary judgment in both of the previously-disclosed Homeward cases and dismissed Homeward’s claims against SCC in their entirety. Additional information about SCC and the Homeward ruling, which Homeward has appealed, can be found in the company's Form 10-Q for the second quarter of fiscal 2021 expected to be filed with the SEC today, previously filed Forms 10-K and 10-Q, and other filings.

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. They also include the expected impact of the coronavirus (COVID-19) pandemic, including, without limitation, the impact on economic and financial markets, the Company’s capital resources and financial condition, the expected use of proceeds under the Company’s revolving credit facility, future expenditures, potential regulatory actions, such as extensions of tax filing deadlines or other related relief, changes in consumer behaviors and modifications to the Company’s operations related thereto. 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, 2020 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. 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 fully diluted shares at the end of the corresponding period.
3 The company reports non-GAAP financial measures of performance, including adjusted earnings per share (EPS), earnings before interest, tax, depreciation, and amortization (EBITDA) 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).

CONSOLIDATED STATEMENTS OF OPERATIONS   (unaudited, in 000s - except per share amounts)
  Three months ended October 31,   Six months ended October 31,
  2020   2019   2020   2019
               
REVENUES:              
Service revenues $ 160,962     $ 139,648     $ 711,913     $ 271,807  
Royalty, product and other revenues 15,588     21,153     65,667     39,356  
  176,550     160,801     777,580     311,163  
OPERATING EXPENSES:              
Costs of revenues 245,055     253,206     560,091     482,598  
Selling, general and administrative 136,842     150,334     269,880     266,470  
Total operating expenses 381,897     403,540     829,971     749,068  
               
Other income (expense), net (819 )   2,739     2,392     11,862  
Interest expense on borrowings (30,861 )   (21,306 )   (62,986 )   (42,377 )
Loss from continuing operations before income taxes (benefit) (237,027 )   (261,306 )   (112,985 )   (468,420 )
Income taxes (benefit) (14,547 )   (77,752 )   15,939      (139,142 )
Net loss from continuing operations (222,480 )   (183,554 )   (128,924 )   (329,278 )
Net loss from discontinued operations (1,246 )   (4,445 )   (3,543 )   (8,968 )
NET LOSS $ (223,726 )   $ (187,999 )   $ (132,467 )   $ (338,246 )
               
BASIC AND DILUTED LOSS PER SHARE:              
Continuing operations $ (1.17 )   $ (0.93 )   $ (0.68 )   $ (1.65 )
Discontinued operations (0.01 )   (0.02 )   (0.02 )   (0.04 )
Consolidated $ (1.18 )   $ (0.95 )   $ (0.70 )   $ (1.69 )
               
WEIGHTED AVERAGE DILUTED SHARES 189,607     198,079     191,103     200,058  
               

 

CONSOLIDATED BALANCE SHEETS (unaudited, in 000s - except per share data)
As of October 31, 2020   October 31, 2019   April 30, 2020
           
ASSETS          
Cash and cash equivalents $ 208,956     $ 245,312     $ 2,661,914  
Cash and cash equivalents - restricted 178,368     176,332     211,106  
Receivables, net 71,253     74,710     133,197  
Prepaid expenses and other current assets 134,336     105,058     80,519  
Total current assets 592,913     601,412     3,086,736  
Property and equipment, net 164,742     206,216     184,367  
Operating lease right of use asset 445,727     475,969     494,788  
Intangible assets, net 390,371     425,377     414,976  
Goodwill 727,483     815,331     712,138  
Deferred tax assets and income taxes receivable 172,842     145,807     151,195  
Other noncurrent assets 62,351     86,629     67,847  
Total assets $ 2,556,429     $ 2,756,741     $ 5,112,047  
LIABILITIES AND STOCKHOLDERS’ EQUITY          
LIABILITIES:          
Accounts payable and accrued expenses $ 108,805     $ 111,439     $ 203,103  
Accrued salaries, wages and payroll taxes 62,122     57,602     116,375  
Accrued income taxes and reserves for uncertain tax positions 8,662     106,125     209,816  
Current portion of long-term debt     648,651     649,384  
Operating lease liabilities 191,114     162,897     195,537  
Deferred revenue and other current liabilities 181,900     177,243     201,401  
Total current liabilities 552,603     1,263,957     1,575,616  
Long-term debt and line of credit borrowings 1,559,093     980,299     2,845,873  
Deferred tax liabilities and reserves for uncertain tax positions 353,751     180,362     182,441  
Operating lease liabilities 268,312     326,691     312,566  
Deferred revenue and other noncurrent liabilities 102,636     81,179     124,510  
Total liabilities 2,836,395     2,832,488     5,041,006  
COMMITMENTS AND CONTINGENCIES          
STOCKHOLDERS’ EQUITY:          
Common stock, no par, stated value $.01 per share 2,187     2,310     2,282  
Additional paid-in capital 773,691     765,220     775,387  
Accumulated other comprehensive loss (31,707 )   (21,817 )   (51,576 )
Retained earnings (deficit) (335,617 )   (122,535 )   42,965  
Less treasury shares, at cost (688,520 )   (698,925 )   (698,017 )
Total stockholders' equity (deficiency) (279,966 )   (75,747 )   71,041  
Total liabilities and stockholders' equity $ 2,556,429     $ 2,756,741     $ 5,112,047  
           

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited, in 000s)
Six months ended October 31, 2020   2019
CASH FLOWS FROM OPERATING ACTIVITIES:      
Net loss $ (132,467 )   $ (338,246 )
Adjustments to reconcile net loss to net cash used in operating activities:      
Depreciation and amortization 77,307     81,262  
Provision 4,578     1,890  
Deferred taxes 7,855     12,595  
Stock-based compensation 14,935     16,094  
Changes in assets and liabilities, net of acquisitions:      
Receivables 51,584     71,859  
Prepaid expenses, other current and noncurrent assets (16,271 )   13,889  
Accounts payable, accrued expenses, salaries, wages and payroll taxes (141,905 )   (267,257 )
Deferred revenue, other current and noncurrent liabilities (41,855 )   (74,996 )
Income tax receivables, accrued income taxes and income tax reserves (87,333 )   (206,278 )
Other, net 833     (4,128 )
Net cash used in operating activities (262,739 )   (693,316 )
       
CASH FLOWS FROM INVESTING ACTIVITIES:      
Capital expenditures (26,584 )   (42,854 )
Payments made for business acquisitions, net of cash acquired (3,674 )   (416,925 )
Franchise loans funded (11,922 )   (16,021 )
Payments from franchisees 18,321     7,902  
Other, net 427     50,839  
Net cash used in investing activities (23,432 )   (417,059 )
       
CASH FLOWS FROM FINANCING ACTIVITIES:      
Repayments of line of credit borrowings (2,000,000 )    
Proceeds from line of credit borrowings 70,000     135,000  
Repayments of long-term debt (650,000 )    
Proceeds from issuance of long-term debt 647,965      
Dividends paid (100,198 )   (104,063 )
Repurchase of common stock, including shares surrendered (153,154 )   (190,369 )
Proceeds from exercise of stock options 1,133     1,215  
Other, net (21,691 )   (18,544 )
Net cash used in financing activities (2,205,945 )   (176,761 )
       
Effects of exchange rate changes on cash 6,420     1,053  
       
Net decrease in cash and cash equivalents, including restricted balances (2,485,696 )   (1,286,083 )
Cash, cash equivalents and restricted cash, beginning of period 2,873,020     1,707,727  
Cash, cash equivalents and restricted cash, end of period $ 387,324     $ 421,644  
       
SUPPLEMENTARY CASH FLOW DATA:      
Income taxes paid, net of refunds received $ 94,066     $ 54,109  
Interest paid on borrowings 61,183     39,952  
Accrued additions to property and equipment 3,092     3,409  
New operating right of use assets and related lease liabilities 71,537     204,962  
       

 

FINANCIAL RESULTS (unaudited, in 000s - except per share amounts)
  Three months ended October 31,   Six months ended October 31,
  2020   2019   2020   2019
REVENUES:              
U.S. assisted tax preparation $ 48,922     $ 41,226     $ 386,650     $ 74,218  
U.S. royalties 7,576     7,820     43,525     14,679  
U.S. DIY tax preparation 5,055     4,541     72,650     7,951  
International 48,858     44,926     116,676     85,507  
Refund Transfers 1,192     791     11,745     2,300  
Emerald Card® 9,795     8,616     26,850     22,471  
Peace of Mind® Extended Service Plan 24,775     25,660     56,770     58,497  
Tax Identity Shield® 4,835     4,648     14,202     9,170  
Interest and fee income on Emerald AdvanceTM 501     485     1,164     1,039  
Wave 14,327     10,902     26,394     14,527  
Other 10,714     11,186     20,954     20,804  
Total revenues 176,550     160,801     777,580     311,163  
Compensation and benefits:              
Field wages 61,007     60,993     179,549     114,796  
Other wages 59,062     60,744     119,756     114,581  
Benefits and other compensation 32,146     28,708     65,944     55,182  
  152,215     150,445     365,249     284,559  
Occupancy 97,758     97,530     197,058     189,682  
Marketing and advertising 9,317     9,651     28,128     16,430  
Depreciation and amortization 37,799     42,657     77,307     81,262  
Bad debt 1,113     2,035     2,969     1,067  
Other 83,695     101,222     159,260     176,068  
Total operating expenses 381,897     403,540     829,971     749,068  
               
Other income (expense), net (819 )   2,739      2,392      11,862   
Interest expense on borrowings (30,861 )   (21,306 )   (62,986 )   (42,377 )
Pretax loss (237,027 )   (261,306 )   (112,985 )   (468,420 )
Income taxes (benefit) (14,547 )   (77,752 )   15,939      (139,142 )
Net loss from continuing operations (222,480 )   (183,554 )   (128,924 )   (329,278 )
Net loss from discontinued operations (1,246 )   (4,445 )   (3,543 )   (8,968 )
NET LOSS $ (223,726 )   $ (187,999 )   $ (132,467 )   $ (338,246 )
               
BASIC AND DILUTED LOSS PER SHARE:              
Continuing operations $ (1.17 )   $ (0.93 )   $ (0.68 )   $ (1.65 )
Discontinued operations (0.01 )   (0.02 )   (0.02 )   (0.04 )
Consolidated $ (1.18 )   $ (0.95 )   $ (0.70 )   $ (1.69 )
               
Weighted average diluted shares 189,607     198,079     191,103     200,058  
               
EBITDA from continuing operations (1) $ (168,367 )   $ (197,343 )   $ 27,308     $ (344,781 )
               

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

(in 000s)
  Three months ended October 31,   Six months ended October 31,
NON-GAAP FINANCIAL MEASURE - EBITDA 2020   2019   2020   2019
               
Net loss - as reported $ (223,726 )   $ (187,999 )   $ (132,467 )   $ (338,246 )
Discontinued operations, net 1,246     4,445     3,543     8,968  
Net loss from continuing operations - as reported (222,480 )   (183,554 )   (128,924 )   (329,278 )
Add back:              
Income taxes (benefit) of continuing operations (14,547 )   (77,752 )   15,939     (139,142 )
Interest expense of continuing operations 30,861     21,306     62,986     42,377  
Depreciation and amortization of continuing operations 37,799     42,657     77,307     81,262  
  54,113     (13,789 )   156,232     (15,503 )
EBITDA from continuing operations $ (168,367 )   $ (197,343 )   $ 27,308     $ (344,781 )
               

 

(in 000s, except per share amounts)
  Three months ended October 31,   Six months ended October 31,
NON-GAAP FINANCIAL MEASURE - ADJUSTED EPS 2020   2019   2020   2019
               
Net loss from continuing operations - as reported $ (222,480 )   $ (183,554 )   $ (128,924 )   $ (329,278 )
               
Adjustments:              
Amortization of intangibles related to acquisitions (pretax) 17,306     19,579     35,883     35,818  
Tax effect of adjustments (1) (755 )   (4,549 )   (5,155 )   (8,711 )
Adjusted net loss from continuing operations $ (205,929 )   $ (168,524 )   $ (98,196 )   $ (302,171 )
               
Diluted loss per share - as reported $ (1.17 )   $ (0.93 )   $ (0.68 )   $ (1.65 )
Adjustments, net of tax 0.08     0.08     0.16     0.14  
Adjusted loss per share $ (1.09 )   $ (0.85 )   $ (0.52 )   $ (1.51 )
               

(1) Tax effect of adjustments is the difference between the tax provision calculated on a GAAP basis and on an adjusted non-GAAP basis.

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 and goodwill impairments. 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, adjusted 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 H&R Block

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