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

·18 min read

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.

Virtual Investor Day

As previously announced, the company will host a virtual Investor Day event today to discuss the next phase of its strategic transformation, fiscal 2021 outlook, and a general business update. The meeting will be streamed live via the company’s events page on its investor relations website, located at https://investors.hrblock.com/financial-information/events-calendar, beginning at 10:00 a.m. EST.

Investor Day and earnings materials will be posted on the company’s investor relations website at https://investors.hrblock.com, with a webcast replay available at the same location.

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 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.