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

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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. To access the call, please dial the number below approximately 5 minutes prior to the scheduled starting time:

U.S./Canada (866) 987-6821 or International (630) 652-5951
Conference ID: 1036306

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 https://investors.hrblock.com. The presentation will be posted on the Quarterly Results page at https:/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 9, 2021 and continuing for seven days by dialing (855) 859-2056 (U.S./Canada) or (404) 537-3406 (International). The conference ID is 1036306. The webcast will be available for replay beginning on March 10, 2021 and continuing for 90 days at https://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 products and small business solutions. The company blends digital innovation with the human expertise and care of its associates and franchisees as it helps people get the best outcome at tax time, and better manage and access their money year-round. Through Block Advisors and Wave, the company helps small business owners thrive with disruptive products like Wave Money, a small business banking and bookkeeping solution, and the only business bank account to manage bookkeeping automatically. For more information, visit H&R Block News or follow @HRBlockNews on Twitter.

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 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.

For Further Information

Investor Relations:

Colby Brown, (816) 854-4559, colby.brown@hrblock.com

Media Relations:

Angela Davied, (816) 854-5798, angela.davied@hrblock.com

__________________
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.