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H&R Block Announces Fiscal 2019 First Quarter Results

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KANSAS CITY, Mo., Aug. 28, 2018 (GLOBE NEWSWIRE) -- H&R Block, Inc. (NYSE:HRB) today released its financial results for the fiscal 2019 first quarter ended July 31, 2018.  The company normally reports a fiscal first quarter loss due to the seasonality of its tax business.  The fiscal first quarter typically represents less than 5 percent of annual revenues and less than 15 percent of annual expenses.

Fiscal First Quarter Highlights1

  • Fiscal first quarter financial results were in line with expectations.
  • Revenues increased $7 million, or 5 percent, to $145 million primarily due to the timing of revenues related to the company's Tax Plus products.
  • Pretax loss improved 3 percent to $199 million; loss per share from continuing operations2 increased $0.10 to $0.72 due to a lower effective tax rate, which negatively impacts those fiscal quarters with a seasonal net loss.
  • The company repurchased and retired approximately 4.2 million shares at an aggregate price of $97 million, or $23.27 per share.
  • The company reiterated its financial outlook for the full fiscal year.

"We are hard at work on our strategic initiatives for fiscal 2019, which include delivering an improved value proposition for our clients and differentiating H&R Block as the best choice for consumers," said Jeff Jones, H&R Block's president and chief executive officer.  "By investing in pricing, technology, and operational excellence, we are positioning the company to accomplish our goal of sustainably growing clients, revenue, and earnings.  We look forward to sharing more details on our progress throughout the year."

Fiscal 2019 First Quarter Results From Continuing Operations

"Our fiscal first quarter results were in line with expectations and reflect the seasonality of our business, as well as investments related to the strategic initiatives we outlined in June," said Tony Bowen, H&R Block's chief financial officer.  "We are on track to achieve our financial outlook for the fiscal year."

(in millions, except EPS)   Q1 FY2019   Q1 FY2018
Revenue   $ 145     $ 138  
Pretax Loss   $ (199 )   $ (205 )
Net Loss   $ (149 )   $ (128 )
Weighted-Avg. Shares - Diluted   207.7     207.9  
EPS2   $ (0.72 )   $ (0.62 )
EBITDA3   $ (137 )   $ (140 )
         

Key Financial Metrics

  • Total revenues increased $7.4 million, or 5.4 percent, to $145.2 million primarily due to the timing of revenues from the Peace of Mind® Extended Service Plan and Tax Identity Shield®, partially offset by lower revenues from Refund Transfer.
  • Total operating expenses increased $4.3 million, or 1.3 percent, to $327.3 million primarily due to increases in compensation and consulting expenses, partially offset by lower depreciation and amortization and bad debt expense.
  • Pretax loss improved $6.5 million, or 3.1 percent, to $198.8 million.
  • Loss per share from continuing operations increased $0.10, from $0.62 to $0.72, due to a lower effective tax rate, which negatively impacts those fiscal quarters with a seasonal net loss.

Share Repurchases and Dividends

  • During the first quarter of fiscal 2019, the company repurchased and retired approximately 4.2 million shares at an aggregate price of $97.1 million, or $23.27 per share.
  • As previously announced, a quarterly cash dividend of $0.25 per share is payable on October 1, 2018 to shareholders of record as of September 12, 2018.  H&R Block has paid quarterly dividends consecutively since the company went 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 2019 first quarter results, future 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 August 28, 2018. To access the call, please dial the number below approximately 10 minutes prior to the scheduled starting time:

U.S./Canada (855) 702-5257 or International (213) 358-0868
Conference ID: 8159739

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 Webcasts and Presentations 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 August 28, 2018, and continuing until September 28, 2018, by dialing (855) 859-2056 (U.S./Canada) or (404) 537-3406 (International). The conference ID is 8159739. The webcast will be available for replay beginning on August 29, 2018 and continuing for 90 days at http://investors.hrblock.com.

About H&R Block

H&R Block, Inc. (NYSE:HRB) is a global consumer tax services provider. Tax return preparation services are provided by professional tax preparers in approximately 12,000 company-owned and franchise retail tax offices worldwide, and through H&R Block tax software products for the DIY consumer. H&R Block also offers adjacent Tax Plus products and services. In fiscal 2018, H&R Block had annual revenues of over $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, 2018 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, guidance from the Internal Revenue Service, SEC, or the Financial Accounting Standards Board about the Tax Legislation, 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 earnings before interest, tax, depreciation, and amortization (EBITDA), EBITDA margin, 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).

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 July 31,
    2018   2017
         
REVENUES:        
Service revenues   $ 126,860     $ 124,695  
Royalty, product and other revenues   18,323     13,107  
    145,183     137,802  
OPERATING EXPENSES:        
Costs of revenues   221,560     227,715  
Selling, general and administrative   105,740     95,249  
Total operating expenses   327,300     322,964  
         
Other income (expense), net   4,542     1,220  
Interest expense on borrowings   (21,190 )   (21,277 )
Loss from continuing operations before income tax benefit   (198,765 )   (205,219 )
Income tax benefit   (49,968 )   (77,401 )
Net loss from continuing operations   (148,797 )   (127,818 )
Net loss from discontinued operations   (3,873 )   (2,749 )
NET LOSS   $ (152,670 )   $ (130,567 )
         
BASIC AND DILUTED LOSS PER SHARE:        
Continuing operations   $ (0.72 )   $ (0.62 )
Discontinued operations   (0.02 )   (0.01 )
Consolidated   $ (0.74 )   $ (0.63 )
         
WEIGHTED AVERAGE BASIC AND DILUTED SHARES   207,673     207,935  
         
         


     
CONSOLIDATED BALANCE SHEETS   (unaudited, in 000s - except per share data)
As of   July 31, 2018   July 31, 2017   April 30, 2018
             
ASSETS            
Cash and cash equivalents   $ 979,116     $ 551,566     $ 1,544,944  
Cash and cash equivalents - restricted   131,376     116,594     118,734  
Receivables, net   70,576     91,004     146,774  
Income taxes receivable   15,776         12,310  
Prepaid expenses and other current assets   85,279     74,776     68,951  
Total current assets   1,282,123     833,940     1,891,713  
Property and equipment, net   227,003     253,255     231,888  
Intangible assets, net   354,831     393,972     373,981  
Goodwill   507,941     493,991     507,871  
Deferred tax assets and income taxes receivable   131,683     54,348     34,095  
Other noncurrent assets   101,457     102,742     101,401  
Total assets   $ 2,605,038     $ 2,132,248     $ 3,140,949  
LIABILITIES AND STOCKHOLDERS' EQUITY            
LIABILITIES:            
Accounts payable and accrued expenses   $ 145,471     $ 161,751     $ 251,975  
Accrued salaries, wages and payroll taxes   37,468     35,063     141,499  
Accrued income taxes and reserves for uncertain tax positions   178,313     176,909     263,050  
Current portion of long-term debt   1,038     992     1,026  
Deferred revenue and other current liabilities   201,706     187,791     186,101  
Total current liabilities   563,996     562,506     843,651  
Long-term debt   1,495,006     1,493,422     1,494,609  
Deferred tax liabilities and reserves for uncertain tax positions   231,292     159,233     229,430  
Deferred revenue and other noncurrent liabilities   122,735     131,415     179,548  
Total liabilities   2,413,029     2,346,576     2,747,238  
COMMITMENTS AND CONTINGENCIES            
STOCKHOLDERS' EQUITY:            
Common stock, no par, stated value $.01 per share   2,420     2,462     2,462  
Additional paid-in capital   752,109     746,761     760,250  
Accumulated other comprehensive loss   (16,034 )   (12,837 )   (14,303 )
Retained earnings (deficit)   163,567     (229,647 )   362,980  
Less treasury shares, at cost   (710,053 )   (721,067 )   (717,678 )
Total stockholders' equity (deficiency)   192,009     (214,328 )   393,711  
Total liabilities and stockholders' equity   $ 2,605,038     $ 2,132,248     $ 3,140,949  
             
             


     
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS   (unaudited, in 000s)
Three months ended July 31,   2018   2017
CASH FLOWS FROM OPERATING ACTIVITIES:        
Net loss   $ (152,670 )   $ (130,567 )
Adjustments to reconcile net loss to net cash used in operating activities:        
Depreciation and amortization   40,432     43,598  
Provision for bad debt   1,617     2,459  
Deferred taxes   9,595     20,796  
Stock-based compensation   4,359     4,816  
Changes in assets and liabilities, net of acquisitions:        
Receivables   66,960     64,985  
Prepaid expenses and other current assets   (16,191 )   (8,695 )
Other noncurrent assets   3,272     5,499  
Accounts payable and accrued expenses   (99,658 )   (66,729 )
Accrued salaries, wages and payroll taxes   (103,824 )   (149,441 )
Deferred revenue and other current liabilities   (782 )   464  
Deferred revenue and other noncurrent liabilities   (39,978 )   (32,510 )
Income tax receivables, accrued income taxes and income tax reserves   (89,661 )   (149,542 )
Other, net   966     (14,248 )
Net cash used in operating activities   (375,563 )   (409,115 )
         
CASH FLOWS FROM INVESTING ACTIVITIES:        
Capital expenditures   (12,057 )   (13,094 )
Payments made for business acquisitions, net of cash acquired   (1,449 )   (1,440 )
Franchise loans funded   (1,805 )   (4,527 )
Payments received on franchise loans   5,104     4,727  
Other, net   3,645     1,371  
Net cash used in investing activities   (6,562 )   (12,963 )
         
CASH FLOWS FROM FINANCING ACTIVITIES:        
Dividends paid   (52,104 )   (49,905 )
Repurchase of common stock, including shares surrendered   (101,665 )   (7,508 )
Proceeds from exercise of stock options   1,355     27,418  
Other, net   (17,494 )   2,545  
Net cash used in financing activities   (169,908 )   (27,450 )
         
Effects of exchange rate changes on cash   (1,153 )   149  
         
Net decrease in cash, cash equivalents and restricted cash   (553,186 )   (449,379 )
Cash, cash equivalents and restricted cash, beginning of period   1,663,678     1,117,539  
Cash, cash equivalents and restricted cash, end of period   $ 1,110,492     $ 668,160  
         
SUPPLEMENTARY CASH FLOW DATA:        
Income taxes paid, net of refunds received   $ 31,969     $ 57,901  
Interest paid on borrowings   15,519     15,519  
Accrued additions to property and equipment   9,974     4,757  
         
         


     
FINANCIAL RESULTS   (unaudited, in 000s - except per share amounts)
    Three months ended July 31,
    2018   2017
REVENUES:        
U.S. assisted tax preparation fees   $ 31,104     $ 29,963  
U.S. royalties   7,571     6,967  
U.S. DIY tax preparation fees   2,781     3,226  
International revenues   39,179     40,417  
Revenues from Refund Transfers   1,424     2,816  
Revenues from Emerald Card®   14,246     14,987  
Revenues from Peace of Mind® Extended Service Plan   36,577     31,943  
Revenues from Tax Identity Shield®   4,741     254  
Interest and fee income on Emerald Advance   447     664  
Other   7,113     6,565  
    145,183     137,802  
Compensation and benefits:        
Field wages   49,932     48,123  
Other wages   47,822     43,197  
Benefits and other compensation   22,931     20,645  
    120,685     111,965  
Occupancy and equipment   90,726     90,291  
Marketing and advertising   6,894     7,104  
Depreciation and amortization   40,432     43,598  
Bad debt   (858 )   2,459  
Supplies   2,204     2,734  
Other   67,217     64,813  
Total operating expenses   327,300     322,964  
         
Other income (expense), net   4,542     1,220  
Interest expense on borrowings   (21,190 )   (21,277 )
Pretax loss   (198,765 )   (205,219 )
Income tax benefit   (49,968 )   (77,401 )
Net loss from continuing operations   (148,797 )   (127,818 )
Net loss from discontinued operations   (3,873 )   (2,749 )
NET LOSS   $ (152,670 )   $ (130,567 )
         
BASIC AND DILUTED LOSS PER SHARE:        
Continuing operations   $ (0.72 )   $ (0.62 )
Discontinued operations   (0.02 )   (0.01 )
Consolidated   $ (0.74 )   $ (0.63 )
         
Weighted average basic and diluted shares   207,673     207,935  
         
EBITDA from continuing operations (1)   $ (137,143 )   $ (140,344 )
         
(1) See "Non-GAAP Financial Information" for a reconciliation of non-GAAP measures.
         


     
    Three months ended July 31,
NON-GAAP FINANCIAL MEASURE - EBITDA   2018   2017
         
Net loss - as reported   $ (152,670 )   $ (130,567 )
Discontinued operations, net   3,873     2,749  
Net loss from continuing operations - as reported   (148,797 )   (127,818 )
Add back:        
Income taxes of continuing operations   (49,968 )   (77,401 )
Interest expense of continuing operations   21,190     21,277  
Depreciation and amortization of continuing operations   40,432     43,598  
    11,654     (12,526 )
         
EBITDA from continuing operations   $ (137,143 )   $ (140,344 )
         
         
         
    Three months ended July 31,
Supplemental Information   2018   2017
         
Stock-based compensation expense:        
Pretax   $ 4,359     $ 4,816  
After-tax   3,274     3,123  
Amortization of intangible assets:        
Pretax   $ 18,139     $ 19,235  
After-tax   13,622     12,472  
         
 

NON-GAAP FINANCIAL INFORMATION

The accompanying press release contains non-GAAP financial measures.  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 may consider whether 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 EBITDA from continuing operations, EBITDA margin, and free cash flow. We also use EBITDA from continuing operations and pretax income from continuing operations, each subject to permitted adjustments, as performance metrics in incentive compensation calculations for our employees.

 

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