H&R Block Reports Fiscal 2021 Third Quarter Results; Reiterates Fiscal Year Financial Outlook
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H&R Block Reports Fiscal 2021 Third Quarter Results; Reiterates Fiscal Year Financial Outlook

KANSAS CITY, Mo., March 09, 2021 // GLOBE NEWSWIRE // - H&R Block, Inc. (NYSE: HRB) today released its financial results1 for the fiscal 2021 third quarter ended January 31, 2021.

Company reiterates its revenue growth and earnings outlook for the fiscal year.

Fiscal third quarter revenue was impacted by a delayed start to the U.S. tax season and a later-than-usual opening of IRS e-file resulting in a 41% decline to $308 million. These impacts were partially offset by an increase in small business payments processing and payroll volume at Wave, increased fees from Emerald Card transactions, and improved international results.

GAAP loss per share from continuing operations2 increased from $(0.66) to $(1.27), and adjusted non-GAAP loss per share3 increased from $(0.59) to $(1.17), due to the decline in revenue, partially offset by a decline in operating expenses. Loss per share was also impacted by a lower effective tax rate and lower shares outstanding resulting from repurchases earlier in the year. As a reminder, the lower tax rate and share count negatively impact EPS in quarters in which the company reports a loss, but will be favorable on a full fiscal year basis.

"We're taking steps to build the capabilities necessary to execute on our Block Horizons strategy, as we continue to innovate in consumer tax, grow awareness of our small business offerings, and build out our financial products platform," said Jeff Jones, H&R Block’s president and chief executive officer. “Despite seeing a delay to the start of the tax season, we’re well positioned to finish the fiscal year strong and to continue on our path toward long-term sustainable growth."

Fiscal 2021 Third Quarter Results From Continuing Operations

(in millions, except EPS)   Q3 FY2021   Q3 FY2020
Revenue   $ 308     $ 519  
Pretax Loss   $ (284 )   $ (177 )
Net Loss   $ (232 )   $ (128 )
Weighted-Avg. Shares - Diluted   183.4     194.1  
EPS2   $ (1.27 )   $ (0.66 )
Adjusted EPS2,3   $ (1.17 )   $ (0.59 )
EBITDA3   $ (221 )   $ (107 )
         

"We're on target to deliver our financial outlook for the year," said Tony Bowen, H&R Block's chief financial officer. "This will drive strong free cash flow and significant return of capital to our shareholders through dividends and share repurchases."

Key Financial Metrics

  • Fiscal third quarter revenue was impacted by a delayed start to the U.S. tax season and a later than usual opening of IRS e-file resulting in a decline of $211 million, or 41%, to $308 million. These impacts were partially offset by an increase in small business payments processing and payroll volume at Wave, increased fees from Emerald Card transactions, and improved international results.

  • Total operating expenses decreased $100 million, or 15%, to $572 million primarily due to lower variable expenses related to the delayed start to the U.S. tax season, and reductions in travel, occupancy, and legal costs.

  • Pretax loss increased $106 million to $284 million.

  • GAAP loss per share from continuing operations increased from $(0.66) to $(1.27), and adjusted non-GAAP loss per share3 increased from $(0.59) to $(1.17), due to the decline in revenue, partially offset by the decline in operating expenses. Loss per share was also impacted by a lower effective tax rate and lower shares outstanding resulting from repurchases earlier in the year. As a reminder, the lower tax rate and share count negatively impact EPS in quarters in which the company reports a loss, but will be favorable on a full fiscal year basis.

Capital Structure

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

  • As previously announced, a quarterly cash dividend of $0.26 per share is payable on April 1, 2021 to shareholders of record as of March 16, 2021. H&R Block has paid quarterly dividends consecutively since the company went public in 1962.

  • Fiscal year to date repurchases and retirements of common stock total approximately 9.5 million shares at an aggregate price of $150 million, or $15.83 per share. These repurchases were made in the second fiscal quarter. The company has approximately $600 million remaining on its authorization which runs through June 2022.

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 2021 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 9, 2021.

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 January 31,   Nine months ended January 31,
    2021   2020   2021   2020
                 
REVENUES:                
Service revenues   $ 244,692     $ 419,955     $ 956,605     $ 691,762  
Royalty, product and other revenues   63,535     99,250     129,202     138,606  
    308,227     519,205     1,085,807     830,368  
OPERATING EXPENSES:                
Costs of revenues   380,273     462,521     940,364     945,119  
Selling, general and administrative   191,488     209,288     461,368     475,758  
Total operating expenses   571,761     671,809     1,401,732     1,420,877  
                 
Other income (expense), net   2,367     1,879     4,759     13,741  
Interest expense on borrowings   (22,333 )   (26,305 )   (85,319 )   (68,682 )
Loss from continuing operations before income tax benefit   (283,500 )   (177,030 )   (396,485 )   (645,450 )
Income tax benefit   (51,669 )   (49,004 )   (35,730 )   (188,146 )
Net loss from continuing operations   (231,831 )   (128,026 )   (360,755 )   (457,304 )
Net loss from discontinued operations   (1,163 )   (1,657 )   (4,706 )   (10,625 )
NET LOSS   $ (232,994 )   $ (129,683 )   $ (365,461 )   $ (467,929 )
                 
BASIC AND DILUTED LOSS PER SHARE:                
Continuing operations   $ (1.27 )   $ (0.66 )   $ (1.92 )   $ (2.31 )
Discontinued operations   —      (0.01 )   (0.02 )   (0.05 )
Consolidated   $ (1.27 )   $ (0.67 )   $ (1.94 )   $ (2.36 )
                 
WEIGHTED AVERAGE DILUTED SHARES   183,438     194,077     188,548     198,064  
                         

 

     
CONSOLIDATED BALANCE SHEETS   (unaudited, in 000s - except per share data)
As of   January 31, 2021   January 31, 2020   April 30, 2020
             
ASSETS            
Cash and cash equivalents   $ 280,249     $ 192,340     $ 2,661,914  
Cash and cash equivalents - restricted   181,159     169,447     211,106  
Receivables, net   563,089     819,946     133,197  
Prepaid expenses and other current assets   196,145     120,229     80,519  
Total current assets   1,220,642     1,301,962     3,086,736  
Property and equipment, net   162,765     197,569     184,367  
Operating lease right of use asset   419,245     463,777     494,788  
Intangible assets, net   381,264     433,074     414,976  
Goodwill   745,616     838,830     712,138  
Deferred tax assets and income taxes receivable   179,598     134,901     151,195  
Other noncurrent assets   59,233     82,317     67,847  
Total assets   $ 3,168,363     $ 3,452,430     $ 5,112,047  
LIABILITIES AND STOCKHOLDERS’ EQUITY            
LIABILITIES:            
Accounts payable and accrued expenses   $ 160,880     $ 156,766     $ 203,103  
Accrued salaries, wages and payroll taxes   118,517     117,459     116,375  
Accrued income taxes and reserves for uncertain tax positions   17,088     36,242     209,816  
Current portion of long-term debt       649,022     649,384  
Operating lease liabilities   186,209     187,890     195,537  
Deferred revenue and other current liabilities   208,789     190,242     201,401  
Total current liabilities   691,483     1,337,621     1,575,616  
Long-term debt and line of credit borrowings   2,369,574     1,880,589     2,845,873  
Deferred tax liabilities and reserves for uncertain tax positions   302,120     172,954     182,441  
Operating lease liabilities   245,383     289,299     312,566  
Deferred revenue and other noncurrent liabilities   94,383     90,346     124,510  
Total liabilities   3,702,943     3,770,809     5,041,006  
COMMITMENTS AND CONTINGENCIES            
STOCKHOLDERS’ EQUITY:            
Common stock, no par, stated value $.01 per share   2,187     2,282     2,282  
Additional paid-in capital   778,495     769,990     775,387  
Accumulated other comprehensive loss   (11,693 )   (25,391 )   (51,576 )
Retained earnings (deficit)   (616,518 )   (367,218 )   42,965  
Less treasury shares, at cost   (687,051 )   (698,042 )   (698,017 )
Total stockholders' equity (deficiency)   (534,580 )   (318,379 )   71,041  
Total liabilities and stockholders' equity   $ 3,168,363     $ 3,452,430     $ 5,112,047  
             
             

 

     
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS   (unaudited, in 000s)
Nine months ended January 31,   2021   2020
CASH FLOWS FROM OPERATING ACTIVITIES:        
Net loss   $ (365,461 )   $ (467,929 )
Adjustments to reconcile net loss to net cash used in operating activities:        
Depreciation and amortization   117,163     125,409  
Provision   25,642     37,517  
Deferred taxes   (39,858 )   10,795  
Stock-based compensation   20,744     22,699  
Changes in assets and liabilities, net of acquisitions:        
Receivables   (438,307 )   (684,323 )
Prepaid expenses, other current and noncurrent assets   (68,222 )   (1,990 )
Accounts payable, accrued expenses, salaries, wages and payroll taxes   (37,601 )   (166,204 )
Deferred revenue, other current and noncurrent liabilities   (24,951 )   (55,064 )
Income tax receivables, accrued income taxes and income tax reserves   (94,922 )   (282,488 )
Other, net   (2,906 )   (6,213 )
Net cash used in operating activities   (908,679 )   (1,467,791 )
         
CASH FLOWS FROM INVESTING ACTIVITIES:        
Capital expenditures   (47,996 )   (66,510 )
Payments made for business acquisitions, net of cash acquired   (15,025 )   (450,282 )
Franchise loans funded   (24,957 )   (32,890 )
Payments from franchisees   20,293     14,604  
Other, net   (6,427 )   45,376  
Net cash used in investing activities   (74,112 )   (489,702 )
         
CASH FLOWS FROM FINANCING ACTIVITIES:        
Repayments of line of credit borrowings   (2,320,000 )   (285,000 )
Proceeds from line of credit borrowings   1,200,000     1,320,000  
Repayments of long-term debt   (650,000 )    
Proceeds from issuance of long-term debt   647,965      
Dividends paid   (147,887 )   (154,827 )
Repurchase of common stock, including shares surrendered   (153,158 )   (256,199 )
Proceeds from exercise of stock options   2,139     2,074  
Other, net   (21,884 )   (14,136 )
Net cash provided by (used in) financing activities   (1,442,825 )   611,912  
         
Effects of exchange rate changes on cash   14,004     (359 )
         
Net decrease in cash and cash equivalents, including restricted balances   (2,411,612 )   (1,345,940 )
Cash, cash equivalents and restricted cash, beginning of period   2,873,020     1,707,727  
Cash, cash equivalents and restricted cash, end of period   $ 461,408     $ 361,787  
         
SUPPLEMENTARY CASH FLOW DATA:        
Income taxes paid, net of refunds received   $ 96,965     $ 84,872  
Interest paid on borrowings   78,098     65,972  
Accrued additions to property and equipment   2,841     1,662  
New operating right of use assets and related lease liabilities   93,381     251,284  
         
         

 

     
FINANCIAL RESULTS   (unaudited, in 000s - except per share amounts)
    Three months ended January 31,   Nine months ended January 31,
    2021   2020   2021   2020
REVENUES:                
U.S. assisted tax preparation   $ 154,489     $ 283,956     $ 541,139     $ 358,174  
U.S. royalties   23,902     44,965     67,427     59,644  
U.S. DIY tax preparation   21,681     34,089     94,331     42,040  
International   15,671     11,804     132,347     97,311  
Refund Transfers   7     50,494     11,752     52,794  
Emerald Card®   21,951     16,657     48,801     39,128  
Peace of Mind® Extended Service Plan   16,101     16,954     72,871     75,451  
Tax Identity Shield®   4,927     8,138     19,129     17,308  
Interest and fee income on Emerald AdvanceSM   27,590     32,741     28,754     33,780  
Wave   14,803     11,213     41,197     25,740  
Other   7,105     8,194     28,059     28,998  
Total revenues   308,227     519,205     1,085,807     830,368  
Compensation and benefits:                
Field wages   127,002     165,435     306,551     280,231  
Other wages   62,254     63,808     182,010     178,389  
Benefits and other compensation   39,637     45,397     105,581     100,579  
    228,893     274,640     594,142     559,199  
Occupancy   100,823     102,788     297,881     292,470  
Marketing and advertising   66,825     84,760     94,953     101,190  
Depreciation and amortization   39,856     44,147     117,163     125,409  
Bad debt   25,790     36,527     28,759     37,594  
Other   109,574     128,947     268,834     305,015  
Total operating expenses   571,761     671,809     1,401,732     1,420,877  
                 
Other income (expense), net   2,367     1,879     4,759     13,741  
Interest expense on borrowings   (22,333 )   (26,305 )   (85,319 )   (68,682 )
Pretax loss   (283,500 )   (177,030 )   (396,485 )   (645,450 )
Income tax benefit   (51,669 )   (49,004 )   (35,730 )   (188,146 )
Net loss from continuing operations   (231,831 )   (128,026 )   (360,755 )   (457,304 )
Net loss from discontinued operations   (1,163 )   (1,657 )   (4,706 )   (10,625 )
Net loss   $ (232,994 )   $ (129,683 )   $ (365,461 )   $ (467,929 )
                 
BASIC AND DILUTED LOSS PER SHARE:                
Continuing operations   $ (1.27 )   $ (0.66 )   $ (1.92 )   $ (2.31 )
Discontinued operations   —      (0.01 )   (0.02 )   (0.05 )
Consolidated   $ (1.27 )   $ (0.67 )   $ (1.94 )   $ (2.36 )
                 
Weighted average diluted shares   183,438     194,077     188,548     198,064  
                 
EBITDA from continuing operations (1)   $ (221,311 )   $ (106,578 )   $ (194,003 )   $ (451,359 )
                 

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

                 
U.S. Operating Statistics                
    January 1 through February 28        
    2021   2020   Change   % Change
                 
Tax Returns Prepared: (in 000s) (1)                
Company-owned operations   3,273     3,910     (637 )   (16.3 ) %
Franchise operations   1,297     1,624     (327 )   (20.1 ) %
Total Assisted   4,570     5,534     (964 )   (17.4 ) %
                 
Desktop   515     629     (114 )   (18.1 ) %
Online   3,205     3,595     (390 )   (10.8 ) %
Total DIY   3,720     4,224     (504 )   (11.9 ) %
                 
Total U.S. Returns   8,290     9,758     (1,468 )   (15.0 ) %
                 
Net Average Charge: (2)                
Company-owned operations   $ 219.43     $ 223.83     $ (4.40 )   (2.0 ) %
Franchise operations (3)   $ 211.01     $ 215.62     $ (4.61 )   (2.1 ) %
DIY   $ 27.70     $ 24.09     $ 3.61     15.0   %
                 

(1) An assisted tax return is defined as a current or prior year individual or business tax return that has been accepted and paid for by the client.  A DIY online return is defined as a current year individual or business tax return that has been accepted and paid for by the client.  A DIY desktop return is defined as a current year individual or business tax return that has been electronically submitted to the IRS.
(2) Net average charge is calculated as total tax preparation fees divided by tax returns prepared.
(3) 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   2021   2020   2021   2020
                 
Net loss - as reported   $ (232,994 )   $ (129,683 )   $ (365,461 )   $ (467,929 )
Discontinued operations, net   1,163     1,657     4,706     10,625  
Net loss from continuing operations - as reported   (231,831 )   (128,026 )   (360,755 )   (457,304 )
Add back:                
Income tax benefit of continuing operations   (51,669 )   (49,004 )   (35,730 )   (188,146 )
Interest expense of continuing operations   22,333     26,305     85,319     68,682  
Depreciation and amortization of continuing operations   39,856     44,147     117,163     125,409  
    10,520     21,448     166,752     5,945  
EBITDA from continuing operations   $ (221,311 )   $ (106,578 )   $ (194,003 )   $ (451,359 )
                 

 

(in 000s, except per share amounts)
    Three months ended January 31,   Nine months ended January 31,
NON-GAAP FINANCIAL MEASURE - ADJUSTED EPS   2021   2020   2021   2020
                 
Net loss from continuing operations - as reported   $ (231,831 )   $ (128,026 )   $ (360,755 )   $ (457,304 )
                 
Adjustments:                
Amortization of intangibles related to acquisitions (pretax)   16,293     19,179     52,176     54,997  
Tax effect of adjustments (1)   1,012     (4,956 )   (4,143 )   (13,667 )
Adjusted net loss from continuing operations   $ (214,526 )   $ (113,803 )   $ (312,722 )   $ (415,974 )
                 
Diluted loss per share - as reported   $ (1.27 )   $ (0.66 )   $ (1.92 )   $ (2.31 )
Adjustments, net of tax   0.10     0.07     0.26     0.21  
Adjusted loss per share   $ (1.17 )   $ (0.59 )   $ (1.66 )   $ (2.10 )
                 

(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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