H&R Block Reports Fiscal 2022 First Quarter Results; Reiterates Fiscal Year Financial Outlook
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H&R Block Reports Fiscal 2022 First Quarter Results; Reiterates Fiscal Year Financial Outlook

KANSAS CITY, Mo., Nov. 02, 2021 // GLOBE NEWSWIRE // - H&R Block, Inc. (NYSE: HRB) (the "Company") today released its financial results1 for the fiscal 2022 first quarter ended September 30, 2021.

  • Q1 results demonstrated continued momentum across the business and the Company reiterates its previously given fiscal year 2022 outlook.
  • The year over year quarterly results are not comparable due to last year’s tax season being extended to July 15, 2020, causing revenue and earnings to occur in the prior year first quarter that did not repeat in the first quarter ending September 30, 2021, as this year's tax season was extended only to May 17, 2021.
  • The Company repurchased $166 million of shares, retiring approximately 4% of the shares outstanding during the fiscal quarter.

"Our first fiscal quarter reflects continued momentum in the businesses, our ongoing commitment to returning capital to shareholders, and progress on our Block Horizons imperatives," said Jeff Jones, H&R Block's president and CEO. "Looking forward, we are well positioned for the 2022 tax season and I am more confident than ever in our ability to execute against our next phase of strategic growth."

Fiscal 2022 First Quarter Results Key Financial Metrics

"We have made significant financial progress over the past several years, and our business continues to be strong," said Tony Bowen, H&R Block's chief financial officer. "We’re off to a great start to our fiscal year and were able to repurchase $166 million of shares during the quarter."

Year over year quarterly results are not comparable due to last year’s tax season being extended to July 15, 2020 causing revenue and earnings to occur in the prior year first quarter that did not repeat in the first quarter ending September 30, 2021, as this year's tax season was extended only to May 17, 2021. Revenue recorded in last year's fiscal Q1 related to the extended tax season is estimated to be $246 million.

  • Total revenue of $193 million decreased by $225 million, or 54%, to the prior year. The decrease in revenue is entirely due to lower return volume because of the previous year's tax season extension. This was partially offset by Emerald Card revenue and strong growth from Wave.
  • Total operating expenses of $367 million decreased by $51 million, or 12%, primarily driven by lower tax pro compensation on lighter return volumes as the quarter took place after the 2021 filing deadline.
  • Pretax loss increased by $164 million to $197 million, entirely due to the decrease in revenue because of the previous year's tax season extension.
  • Loss per share from continuing operations2 increased from $0.32 to $0.84; adjusted loss per share from continuing operations increased from $0.24 to $0.78.

Capital Structure

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

  • Fiscal year first quarter repurchases and retirements of common stock totaled approximately 6.8 million shares at an aggregate price of $166 million, or $24.37 per share. The Company has approximately $400 million remaining on its authorization which runs through June 2022.
  • As previously announced, a quarterly cash dividend of $0.27 per share was paid on October 1, 2021 to shareholders of record as of September 10, 2021. H&R Block has paid quarterly dividends consecutively since the Company became 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 2022 first quarter results, outlook, and a general business update will occur during the Company’s previously announced fiscal first quarter earnings conference call for analysts, institutional investors, and shareholders. The call is scheduled for 4:30 p.m. Eastern time on November 2, 2021.

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. 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).

SOURCE H&R Block

FINANCIAL RESULTS (unaudited, in 000s - except per share amounts)
  Three months ended September 30,
  2021   2020
REVENUES:      
U.S. assisted tax preparation $ 33,607     $ 207,167  
U.S. royalties 7,358     22,652  
U.S. DIY tax preparation 4,061     47,463  
International 58,325     58,776  
Refund Transfers 1,665     6,113  
Emerald Card® 28,258     12,436  
Peace of Mind® Extended Service Plan 24,836     27,192  
Tax Identity Shield® 5,153     8,994  
Interest and fee income on Emerald AdvanceSM 479     526  
Wave 19,137     13,737  
Other 9,745     12,290  
Total revenues 192,624     417,346  
Compensation and benefits:      
Field wages 56,079     92,545  
Other wages 58,064     63,068  
Benefits and other compensation 25,450     33,805  
  139,593     189,418  
Occupancy 95,822     96,850  
Marketing and advertising 10,073     15,492  
Depreciation and amortization 35,715     38,237  
Bad debt 1,043     520  
Other 85,150     77,582  
Total operating expenses 367,396     418,099  
       
Other income (expense), net 284     2,504  
Interest expense on borrowings (22,830 )   (34,697 )
Pretax loss (197,318 )   (32,946 )
Income taxes (benefit) (47,373 )   27,964  
Net loss from continuing operations (149,945 )   (60,910 )
Net loss from discontinued operations (1,656 )   (1,346 )
Net loss $ (151,601 )   $ (62,256 )
       
BASIC AND DILUTED LOSS PER SHARE:      
Continuing operations $ (0.84 )   $ (0.32 )
Discontinued operations (0.01 )    
Consolidated $ (0.85 )   $ (0.32 )
       
WEIGHTED AVERAGE DILUTED SHARES 178,099     192,314  
       
Adjusted diluted EPS (1) $ (0.78 )   $ (0.24 )
EBITDA (1) (138,773 )   39,988  
       

 

(1) All non-GAAP measures are results form continuing operations. See "Non-GAAP Financial Information" for a reconciliation of non-GAAP measures.

 

CONSOLIDATED BALANCE SHEETS   (unaudited, in 000s - except per share data)
As of   September 30, 2021   June 30, 2021
         
ASSETS        
Cash and cash equivalents   $ 891,739     $ 1,434,381  
Cash and cash equivalents - restricted   139,067     149,783  
Receivables, net   56,829     88,932  
Income taxes receivable   338,399     330,872  
Prepaid expenses and other current assets   69,714     76,414  
Total current assets   1,495,748     2,080,382  
Property and equipment, net   141,006     139,276  
Operating lease right of use assets   410,724     445,847  
Intangible assets, net   337,451     351,093  
Goodwill   749,409     754,521  
Deferred tax assets and income taxes receivable   178,946     181,996  
Other noncurrent assets   54,743     61,273  
Total assets   $ 3,368,027     $ 4,014,388  
LIABILITIES AND STOCKHOLDERS’ EQUITY        
LIABILITIES:        
Accounts payable and accrued expenses   $ 156,605     $ 164,269  
Accrued salaries, wages and payroll taxes   54,816     168,989  
Accrued income taxes and reserves for uncertain tax positions   155,137     238,863  
Operating lease liabilities   201,179     214,190  
Deferred revenue and other current liabilities   185,232     196,175  
Total current liabilities   752,969     982,486  
Long-term debt   1,984,512     1,983,719  
Deferred tax liabilities and reserves for uncertain tax positions   303,476     301,658  
Operating lease liabilities   221,184     244,932  
Deferred revenue and other noncurrent liabilities   90,358     113,535  
Total liabilities   3,352,499     3,626,330  
COMMITMENTS AND CONTINGENCIES        
STOCKHOLDERS’ EQUITY:        
Common stock, no par, stated value $.01 per share   2,099     2,167  
Additional paid-in capital   770,683     779,465  
Accumulated other comprehensive income (loss)   (11,089 )   88  
Retained earnings (deficit)   (74,757 )   286,694  
Less treasury shares, at cost   (671,408 )   (680,356 )
Total stockholders' equity   15,528     388,058  
Total liabilities and stockholders' equity   $ 3,368,027     $ 4,014,388  
         

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS   (unaudited, in 000s)
Three months ended September 30,   2021   2020
CASH FLOWS FROM OPERATING ACTIVITIES:        
Net loss   $ (151,601 )   $ (62,256 )
Adjustments to reconcile net loss to net cash used in operating activities:        
Depreciation and amortization   35,715     38,237  
Provision   1,850      
Deferred taxes   (13,547 )   (480 )
Stock-based compensation   6,847     7,781  
Changes in assets and liabilities, net of acquisitions:        
Receivables   35,913     29,016  
Prepaid expenses, other current and noncurrent assets   8,610     1,673  
Accounts payable, accrued expenses, salaries, wages and payroll taxes   (134,215 )   (37,546 )
Deferred revenue, other current and noncurrent liabilities   (27,990 )   (20,783 )
Income tax receivables, accrued income taxes and income tax reserves   (72,768 )   (52,698 )
Other, net   (1,438 )   (1,541 )
Net cash used in operating activities   (312,624 )   (98,597 )
         
CASH FLOWS FROM INVESTING ACTIVITIES:        
Capital expenditures   (15,620 )   (13,386 )
Payments made for business acquisitions, net of cash acquired   (4,265 )   (2,538 )
Franchise loans funded   (4,474 )   (7,913 )
Payments from franchisees   2,839     10,744  
Other, net   2,067     1,100  
Net cash used in investing activities   (19,453 )   (11,993 )
         
CASH FLOWS FROM FINANCING ACTIVITIES:        
Repayments of line of credit borrowings       (2,000,000 )
Repayments of long-term debt       (650,000 )
Proceeds from issuance of long-term debt       647,965  
Dividends paid   (48,996 )   (50,044 )
Repurchase of common stock, including shares surrendered   (165,800 )   (76,731 )
Proceeds from exercise of stock options   3,385     1,134  
Other, net   (5,911 )   (19,131 )
Net cash used in financing activities   (217,322 )   (2,146,807 )
         
Effects of exchange rate changes on cash   (3,959 )   2,975  
         
Net decrease in cash and cash equivalents, including restricted balances   (553,358 )   (2,254,422 )
Cash, cash equivalents and restricted cash, beginning of period   1,584,164     2,769,947  
Cash, cash equivalents and restricted cash, end of period   $ 1,030,806     $ 515,525  
         
SUPPLEMENTARY CASH FLOW DATA:        
Income taxes paid, net of refunds received   $ 38,419     $ 79,343  
Interest paid on borrowings   12,594     34,726  
Accrued purchase of common stock   4,785     12,323  
Accrued additions to property and equipment   6,273     1,816  
New operating right of use assets and related lease liabilities   29,371     21,590  
Accrued dividends payable to common shareholders   47,940     50,154  
         

 

U.S. Operating Statistics              
  Three months ended September 30        
  2021   2020(1)   Change   % Change
               
Tax Returns Prepared: (in 000s) (2)              
Company-owned operations 140     858     (718 )   (83.7 )%
Franchise operations 75     335     (260 )   (77.6 )%
Total Assisted 215     1,193     (978 )   (82.0 )%
               
Desktop 17     326     (309 )   (94.8 )%
Online 53     701     (648 )   (92.4 )%
Total DIY 70     1,027     (957 )   (93.2 )%
               
Total U.S. Returns 285     2,220     (1,935 )   (87.2 )%
               
Net Average Charge: (3)              
Company-owned operations $ 239.31     $ 241.41     $ (2.10 )   (0.9 )%
Franchise operations (4) $ 244.23     $ 227.42     $ 16.81     7.4%  
DIY $ 43.22     $ 46.21     $ (2.99 )   (6.5 )%
               

 

(1) Represents a partial 2019 individual tax filing season, which was extended until July 15, 2020.
(2) An assisted tax return is defined as a current or prior year individual or business tax return that has been accepted by the client. A DIY online return is defined as a current year individual or business tax return that has been accepted 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.
(3) Net average charge is calculated as total tax preparation fees divided by tax returns prepared.
(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 September 30,
NON-GAAP FINANCIAL MEASURE - EBITDA   2021   2020
         
Net loss - as reported   $ (151,601 )   $ (62,256 )
Discontinued operations, net   1,656     1,346  
Net loss from continuing operations - as reported   (149,945 )   (60,910 )
Add back:        
Income taxes (benefit)   (47,373 )   27,964  
Interest expense   22,830     34,697  
Depreciation and amortization   35,715     38,237  
    11,172     100,898  
EBITDA from continuing operations   $ (138,773 )   $ 39,988  
         

 

(in 000s, except per share amounts)
    Three months ended September 30,
NON-GAAP FINANCIAL MEASURE - ADJUSTED EPS   2021   2020
         
Net loss from continuing operations - as reported   $ (149,945 )   $ (60,910 )
         
Adjustments:        
Amortization of intangibles related to acquisitions (pretax)   14,870     17,638  
Tax effect of adjustments (1)   (3,635 )   (1,854 )
Adjusted net loss from continuing operations   $ (138,710 )   $ (45,126 )
Diluted loss per share from continuing operations - as reported   $ (0.84 )   $ (0.32 )
Adjustments, net of tax   0.06     0.08  
Adjusted diluted loss per share from continuing operations   $ (0.78 )   $ (0.24 )
         

 

(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.

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