HRB
$23.49
H&R Block
($.02)
(.09%)
Earnings Details
2nd Quarter October 2019
Wednesday, December 4, 2019 4:17:00 PM
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Summary

H&R Block Beats

H&R Block (HRB) reported a 2nd Quarter October 2019 loss of $0.85 per share on revenue of $160.8 million. The consensus estimate was a loss of $0.91 per share on revenue of $163.4 million. The Earnings Whisper number was for a loss of $0.89 per share. Revenue grew 8.0% on a year-over-year basis.

H&R Block Inc provides tax return preparation and related services and products to the general public in the U.S. and its territories, Canada, and Australia. It also offers financial products to support its tax business through the H&R Block Bank.

Results
Reported Earnings
($0.85)
Earnings Whisper
($0.89)
Consensus Estimate
($0.91)
Reported Revenue
$160.8 Mil
Revenue Estimate
$163.4 Mil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

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. (NYSE: 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, 2019H&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. (NYSE: 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.

1All amounts in this release are unaudited.  Unless otherwise noted, all comparisons refer to the current period compared to the corresponding prior year period.
2All per share amounts are based on weighted average fully diluted shares over the corresponding period.
3Adjusted 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).
4Earnings 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.

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Source: HRB Tax Group, Inc.