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H&R Block Announces Fiscal 2020 Second Quarter Results and Reiterates Fiscal Year Outlook

KANSAS CITY, Mo., Dec. 04, 2019 (GLOBE NEWSWIRE) -- H&R Block, Inc. (HRB) today released its financial results for the fiscal 2020 second quarter ended October 31, 2019.  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% of annual revenues and less than 15% of annual expenses.

Fiscal Second Quarter Highlights1

  • Fiscal second quarter financial results were in line with expectations, and the company reiterated its revenue growth and margin outlook for the full fiscal year.

  • Revenues increased 8%, to $161 million due to Wave and improved tax return volumes.

  • Loss per share from continuing operations2 increased $0.10 to $0.93; adjusted loss per share from continuing operations2,3 increased $0.07 to $0.85.

  • The company repurchased and retired 5.7 million shares at an aggregate price of $137 million, or $23.94 per share.

"We've made significant progress to digitally enable all facets of our business to deliver expertise and care in new and compelling ways," said Jeff Jones, H&R Block's president and chief executive officer.  "These efforts, along with Wave and our momentum from last year, position us well to deliver for this fiscal year and for the long term."

Fiscal 2020 Second Quarter Results From Continuing Operations

(in millions, except EPS)   Q2 FY2020   Q2 FY2019
Revenue   $ 161     $ 149  
Pretax Loss   $ (261 )   $ (232 )
Net Loss   $ (184 )   $ (171 )
Weighted-Avg. Shares - Diluted   198.1     205.5  
EPS2   $ (0.93 )   $ (0.83 )
Adjusted EPS2,3   $ (0.85 )   $ (0.78 )
EBITDA4   $ (197 )   $ (169 )
         

"We were pleased with our strong revenue growth in the fiscal second quarter," said Tony Bowen, H&R Block's chief financial officer.  "We’re well-positioned for success in the upcoming tax season and have reiterated our revenue growth and margin outlook for the fiscal year."

Key Financial Metrics

  • Fiscal second quarter results were in line with expectations.

  • Total revenues increased $11.9 million, or 8.0%, to $160.8 million due to Wave and improved tax return volumes.

  • Total operating expenses increased $39.4 million, or 10.8%, to $403.5 million due to Wave, planned investments in our technology roadmap, and legal expenses, which were partially offset by lower occupancy costs.

  • Pretax loss increased $29.3 million, or 12.6%, to $261.3 million.

  • Loss per share from continuing operations increased $0.10 to $0.93; adjusted loss per share from continuing operations increased $0.07 to $0.85.  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 second quarter of fiscal 2020, the company repurchased and retired approximately 5.7 million shares at an aggregate price of $136.9 million, or $23.94 per share.  Fiscal year-to-date repurchases total 7.3 million shares at an aggregate price of $181.0 million, or $24.75 per share.

  • As previously announced, a quarterly cash dividend of $0.26 per share is payable on January 2, 2020 to shareholders of record as of December 9, 2019.  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 second quarter results, 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 4:30 p.m. Eastern time on December 4, 2019. 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: 9677027

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 December 4, 2019 and continuing for seven days by dialing (855) 859-2056 (U.S./Canada) or (404) 537-3406 (International). The conference ID is 9677027. The webcast will be available for replay beginning on December 5, 2019 and continuing for 90 days at http://investors.hrblock.com.

About H&R Block

H&R Block, Inc. (HRB) is a global consumer tax and small business services provider.  Tax return preparation services are provided by professional tax preparers in approximately 11,000 company-owned and franchise retail tax offices worldwide, as well as through virtual channels and H&R Block tax software products for the DIY consumer.  H&R Block offers small business financial solutions through its retail locations and online through Wave.  In fiscal 2019, H&R Block had revenues of $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, 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).


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,
    2019   2018   2019   2018
                 
REVENUES:                
Service revenues   $ 139,648     $ 127,267     $ 271,807     $ 254,127  
Royalty, product and other revenues   21,153     21,604     39,356     39,927  
    160,801     148,871     311,163     294,054  
OPERATING EXPENSES:                
Costs of revenues   253,206     250,815     482,598     472,375  
Selling, general and administrative   150,334     113,319     266,470     219,059  
Total operating expenses   403,540     364,134     749,068     691,434  
Other income (expense), net   2,739     4,464     11,862     9,006  
Interest expense on borrowings   (21,306 )   (21,191 )   (42,377 )   (42,381 )
Loss from continuing operations before income tax benefit   (261,306 )   (231,990 )   (468,420 )   (430,755 )
Income tax benefit   (77,752 )   (61,053 )   (139,142 )   (111,021 )
Net loss from continuing operations   (183,554 )   (170,937 )   (329,278 )   (319,734 )
Net loss from discontinued operations   (4,445 )   (5,339 )   (8,968 )   (9,212 )
NET LOSS   $ (187,999 )   $ (176,276 )   $ (338,246 )   $ (328,946 )
                 
BASIC AND DILUTED LOSS PER SHARE:                
Continuing operations   $ (0.93 )   $ (0.83 )   $ (1.65 )   $ (1.55 )
Discontinued operations   (0.02 )   (0.03 )   (0.04 )   (0.04 )
Consolidated   $ (0.95 )   $ (0.86 )   $ (1.69 )   $ (1.59 )
                 
WEIGHTED AVERAGE BASIC AND DILUTED SHARES   198,079     205,520     200,058     206,596  
                 


CONSOLIDATED BALANCE SHEETS   (unaudited, in 000s - except per share data)
As of   October 31, 2019   October 31, 2018   April 30, 2019
             
ASSETS            
Cash and cash equivalents   $ 245,312     $ 600,799     $ 1,572,150  
Cash and cash equivalents - restricted   176,332     122,507     135,577  
Receivables, net   74,710     61,286     138,965  
Prepaid expenses and other current assets   105,058     106,410     146,667  
Total current assets   601,412     891,002     1,993,359  
Property and equipment, net   206,216     241,772     212,092  
Operating lease right of use asset   475,969          
Intangible assets, net   425,377     364,524     342,493  
Goodwill   815,331     507,191     519,937  
Deferred tax assets and income taxes receivable   145,807     130,987     141,979  
Other noncurrent assets   86,629     97,820     90,085  
Total assets   $ 2,756,741     $ 2,233,296     $ 3,299,945  
LIABILITIES AND STOCKHOLDERS’ EQUITY            
LIABILITIES:            
Accounts payable and accrued expenses   $ 111,439     $ 114,393     $ 249,525  
Accrued salaries, wages and payroll taxes   57,602     43,396     196,527  
Accrued income taxes and reserves for uncertain tax positions   106,125     94,257     271,973  
Current portion of long-term debt   648,651          
Operating lease liabilities   162,897          
Deferred revenue and other current liabilities   177,243     183,675     204,976  
Total current liabilities   1,263,957     435,721     923,001  
Long-term debt and line of credit borrowings   980,299     1,491,328     1,492,629  
Deferred tax liabilities and reserves for uncertain tax positions   180,362     235,799     197,906  
Operating lease liabilities   326,691          
Deferred revenue and other noncurrent liabilities   81,179     101,773     144,882  
Total liabilities   2,832,488     2,264,621     2,758,418  
COMMITMENTS AND CONTINGENCIES            
STOCKHOLDERS’ EQUITY:            
Common stock, no par, stated value $.01 per share   2,310     2,420     2,383  
Additional paid-in capital   765,220     759,235     767,636  
Accumulated other comprehensive loss   (21,817 )   (18,880 )   (20,416 )
Retained earnings (deficit)   (122,535 )   (64,291 )   499,386  
Less treasury shares, at cost   (698,925 )   (709,809 )   (707,462 )
Total stockholders' equity (deficiency)   (75,747 )   (31,325 )   541,527  
Total liabilities and stockholders' equity   $ 2,756,741     $ 2,233,296     $ 3,299,945  
             


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS   (unaudited, in 000s)
Six months ended October 31,   2019   2018
CASH FLOWS FROM OPERATING ACTIVITIES:        
Net loss   $ (338,246 )   $ (328,946 )
Adjustments to reconcile net loss to net cash used in operating activities:        
Depreciation and amortization   81,262     81,925  
Provision for bad debt   1,890     2,350  
Deferred taxes   12,595     17,913  
Stock-based compensation   16,094     11,839  
Changes in assets and liabilities, net of acquisitions:        
Receivables   71,859     74,672  
Prepaid expenses, other current and noncurrent assets   13,889     (9,134 )
Accounts payable, accrued expenses, salaries, wages and payroll taxes   (267,257 )   (218,692 )
Deferred revenue, other current and noncurrent liabilities   (74,996 )   (81,014 )
Income tax receivables, accrued income taxes and income tax reserves   (206,278 )   (179,660 )
Other, net   (4,128 )   1,056  
Net cash used in operating activities   (693,316 )   (627,691 )
         
CASH FLOWS FROM INVESTING ACTIVITIES:        
Capital expenditures   (42,854 )   (66,422 )
Payments made for business acquisitions, net of cash acquired   (416,925 )   (24,549 )
Franchise loans funded   (16,021 )   (8,915 )
Payments from franchisees   7,902     11,689  
Other, net   50,839     4,993  
Net cash used in investing activities   (417,059 )   (83,204 )
         
CASH FLOWS FROM FINANCING ACTIVITIES:        
Proceeds from line of credit borrowings   135,000      
Dividends paid   (104,063 )   (103,484 )
Repurchase of common stock, including shares surrendered   (190,369 )   (102,096 )
Proceeds from exercise of stock options   1,215     1,746  
Other, net   (18,544 )   (22,434 )
Net cash used in financing activities   (176,761 )   (226,268 )
         
Effects of exchange rate changes on cash   1,053     (3,209 )
         
Net decrease in cash and cash equivalents, including restricted balances   (1,286,083 )   (940,372 )
Cash, cash equivalents and restricted cash, beginning of period   1,707,727     1,663,678  
Cash, cash equivalents and restricted cash, end of period   $ 421,644     $ 723,306  
         
SUPPLEMENTARY CASH FLOW DATA:        
Income taxes paid, net of refunds received   $ 54,109     $ 50,197  
Interest paid on borrowings   39,952     39,902  
Accrued additions to property and equipment   3,409     4,765  
         


FINANCIAL RESULTS   (unaudited, in 000s - except per share amounts)
    Three months ended October 31,   Six months ended October 31,
    2019   2018   2019   2018
REVENUES:                
U.S. assisted tax preparation   $ 41,226     $ 41,652     $ 74,218     $ 72,756  
U.S. royalties   7,820     8,062     14,679     15,633  
U.S. DIY tax preparation   4,541     2,994     7,951     5,775  
International   44,926     45,497     85,507     84,676  
Refund Transfers   791     560     2,300     1,984  
Emerald Card®   8,616     9,478     22,471     23,724  
Peace of Mind® Extended Service Plan   25,660     24,318     58,497     60,895  
Tax Identity Shield®   4,648     5,243     9,170     9,984  
Interest and fee income on Emerald Advance   485     397     1,039     844  
Wave   10,902         14,527      
Other   11,186     10,670     20,804     17,783  
    160,801     148,871     311,163     294,054  
Compensation and benefits:                
Field wages   60,993     59,096     114,796     109,028  
Other wages   60,744     50,046     114,581     97,868  
Benefits and other compensation   28,708     24,178     55,182     47,109  
    150,445     133,320     284,559     254,005  
Occupancy   97,530     104,880     189,682     195,606  
Marketing and advertising   9,651     8,586     16,430     15,480  
Depreciation and amortization   42,657     41,493     81,262     81,925  
Bad debt   2,035     188     1,067     (670 )
Other (1)   101,222     75,667     176,068     145,088  
Total operating expenses   403,540     364,134     749,068     691,434  
                 
Other income (expense), net   2,739     4,464     11,862     9,006  
Interest expense on borrowings   (21,306 )   (21,191 )   (42,377 )   (42,381 )
Pretax loss   (261,306 )   (231,990 )   (468,420 )   (430,755 )
Income tax benefit   (77,752 )   (61,053 )   (139,142 )   (111,021 )
Net loss from continuing operations   (183,554 )   (170,937 )   (329,278 )   (319,734 )
Net loss from discontinued operations   (4,445 )   (5,339 )   (8,968 )   (9,212 )
NET LOSS   $ (187,999 )   $ (176,276 )   $ (338,246 )   $ (328,946 )
                 
BASIC AND DILUTED LOSS PER SHARE:                
Continuing operations   $ (0.93 )   $ (0.83 )   $ (1.65 )   $ (1.55 )
Discontinued operations   (0.02 )   (0.03 )   (0.04 )   (0.04 )
Consolidated   $ (0.95 )   $ (0.86 )   $ (1.69 )   $ (1.59 )
                 
Weighted average basic and diluted shares   198,079     205,520     200,058     206,596  
                 
EBITDA from continuing operations (2)   $ (197,343 )   $ (169,306 )   $ (344,781 )   $ (306,449 )
                 


(1) We reclassified $3.2 million and $5.4 million of supplies expense from its own financial statement line to other expenses for the three and six months ended October 31, 2018, respectively, to conform to the current year presentation.
(2) 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   2019   2018   2019   2018
                 
Net loss - as reported   $ (187,999 )   $ (176,276 )   $ (338,246 )   $ (328,946 )
Discontinued operations, net   4,445     5,339     8,968     9,212  
Net loss from continuing operations - as reported   (183,554 )   (170,937 )   (329,278 )   (319,734 )
Add back:                
Income taxes of continuing operations   (77,752 )   (61,053 )   (139,142 )   (111,021 )
Interest expense of continuing operations   21,306     21,191     42,377     42,381  
Depreciation and amortization of continuing operations   42,657     41,493     81,262     81,925  
    (13,789 )   1,631     (15,503 )   13,285  
EBITDA from continuing operations   $ (197,343 )   $ (169,306 )   $ (344,781 )   $ (306,449 )
                 


(in 000s, except per share amounts)
    Q1   Q2
NON-GAAP FINANCIAL MEASURE - ADJUSTED EPS   Three months
ended July 31,
2019
  Three months
ended October 31,
2019
  Six months ended
October 31, 2019
             
Net loss from continuing operations   $ (145,724 )   $ (183,554 )   $ (329,278 )
             
Adjustments (pretax):            
  Amortization of intangibles related to acquisitions   16,239     19,579     35,818  
Adjusted pretax loss from continuing operations   (129,485 )   (163,975 )   (293,460 )
Tax effect of adjustments (1)   (4,162 )   (4,549 )   (8,711 )
Adjusted net loss from continuing operations   $ (133,647 )   $ (168,524 )   $ (302,171 )
             
Diluted loss per share (GAAP)   $ (0.72 )   $ (0.93 )   $ (1.65 )
Adjustments, net of tax   0.06     0.08     0.14  
Adjusted loss per share (Non-GAAP)   $ (0.66 )   $ (0.85 )   $ (1.51 )
             


(1) Tax effect of adjustments is computed as the pretax effect of the adjustments multiplied by our effective tax rate before discrete items.


(in 000s, except per share amounts)
    Q1   Q2   Q3   Q4
NON-GAAP FINANCIAL
MEASURE - PRIOR YEAR
ADJUSTED EPS
  Three
months 
ended July
31, 2018
  Three
months
ended
October 31, 2018
  Six
months
ended
October 31, 2018
  Three
months
ended
January 31, 2019
  Nine
months
ended
January 31, 2019
  Three
months
ended
April 30, 2019
  Twelve
months
ended
April 30, 2019
                             
Net income (loss) from continuing operations   $ (148,797 )   $ (170,937 )   $ (319,734 )   $ (119,779 )   $ (439,513 )   $ 884,769     $ 445,256  
                             
Adjustments (pretax):                            
Amortization of intangibles related to acquisitions   15,204     15,107     30,311     16,142     46,453     16,298     62,751  
Adjusted pretax income (loss) from continuing operations   (133,593 )   (155,830 )   (289,423 )   (103,637 )   (393,060 )   901,067     508,007  
Tax effect of adjustments (1)   (3,786 )   (3,510 )   (7,296 )   (3,820 )   (11,116 )   (3,775 )   (14,891 )
Adjusted net income (loss) from continuing operations   $ (137,379 )   $ (159,340 )   $ (296,719 )   $ (107,457 )   $ (404,176 )   $ 897,292     $ 493,116  
                             
Diluted earnings (loss) per share (GAAP)   $ (0.72 )   $ (0.83 )   $ (1.55 )   $ (0.58 )   $ (2.13 )   $ 4.32     $ 2.15  
Adjustments, net of tax   0.06     0.05     0.11     0.06     0.17     0.07     0.24  
Adjusted earnings (loss) per share (Non-GAAP)   $ (0.66 )   $ (0.78 )   $ (1.44 )   $ (0.52 )   $ (1.96 )   $ 4.39     $ 2.39  
                             


(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 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.

During the quarter we added adjusted diluted earnings per share from continuing operations as a non-GAAP measure, which excludes amortization of intangibles related to our acquisition of Wave and tax franchisee and competitor businesses. Due to the recent acquisition of Wave, 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.