HRB
$25.96
H&R Block
($.02)
(.08%)
Earnings Details
1st Quarter July 2017
Tuesday, August 29, 2017 4:15:17 PM
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Summary

H&R Block (HRB) Recent Earnings

H&R Block (HRB) reported a 1st Quarter July 2017 loss of $0.62 per share on revenue of $137.8 million. The consensus estimate was a loss of $0.63 per share. Revenue grew 10.1% 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
($0.62)
Earnings Whisper
-
Consensus Estimate
($0.63)
Reported Revenue
$137.8 Mil
Revenue Estimate
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

H&R Block Announces Fiscal 2018 First Quarter Results

H&R Block, Inc. (HRB) today released its financial results for the fiscal 2018 first quarter ended July 31, 2017. 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% of annual revenues and less than 15% of annual expenses.

Fiscal First Quarter Highlights

-- Fiscal first quarter financial results were largely in line with expectations

Revenues increased $13 million, or 10%, to $138 million primarily due to increased U.S. Assisted tax preparation fees and revenues from the Peace of Mind Extended Service Plan product

Year-over-year reduction in average outstanding shares and a lower effective tax rate, both of which negatively impact those quarters with a net loss, resulted in an increase in loss per share

-- Jeff Jones appointed president and CEO effective October 9, 2017

"We are building on our momentum from fiscal 2017 to deliver another successful tax season for both our clients and our shareholders," said Tom Gerke, H&R Block’s interim president and chief executive officer. "The management team has been hard at work to execute against our plans and we’re excited to have Jeff Jones, a strong and experienced leader, join us as our new CEO."

Fiscal 2018 First Quarter Results From Continuing Operations

(in millions, except EPS)
Fiscal Year 2018
Fiscal Year 2017
Revenue
$
138
$
125
Pretax Loss
$
(205
)
$
(204
)
Net Loss
$
(128
)
$
(121
)
Weighted-Avg. Shares - Diluted
207.9
220.5
EPS
$
(0.62 )
$
(0.55 )
EBITDA
$
(140
)
$
(141
)

"Our fiscal first quarter results were in line with expectations and reflect the seasonality of our business," said Tony Bowen, H&R Block’s chief financial officer. "Our preparation for the upcoming tax season is progressing well and we look forward to sharing more detail regarding our financial outlook during our second quarter earnings call."

Key Financial Metrics

Total revenues increased $13 million, or 10%, to $138 million primarily due to increased U.S. Assisted tax preparation fees and revenues from the Peace of Mind Extended Service Plan product.

Total operating expenses increased $13 million, or 4%, to $323 million primarily due to occupancy, amortization, and compensation costs.

Pretax loss increased $2 million to $205 million. Increases in total revenues were offset by increases in total operating expenses, resulting in a pretax loss increase primarily due to a decline in other income related to the sale of the mortgage loan portfolio in fiscal 2017.

Loss per share from continuing operations increased $0.07 to $0.62. Approximately half of the increase was due to the reduction in share count, which will be accretive on a full year basis, but negatively impacts those quarters with a net loss. The remainder of the change in loss per share was due to the decrease in the income tax benefit.

Dividends

As previously announced, a quarterly cash dividend of $0.24 per share is payable on October 2, 2017 to shareholders of record as of September 13, 2017. H&R Block has paid quarterly dividends consecutively since the company went public in 1962.

Discontinued Operations

Sand Canyon Corporation’s accrual for contingent losses related to representation and warranty claims remained unchanged from the prior fiscal quarter at $4.5 million as of July 31, 2017.

Leadership Transition

On August 22, 2017, the company announced that Jeff Jones has been appointed H&R Block’s president and chief executive officer, effective October 9, 2017. Details regarding his appointment were included in a press release on August 22, 2017 and in a Form 8-K filed with the Securities and Exchange Commission on the same day.

Conference Call

Discussion of the fiscal 2018 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 29, 2017. 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: 46876633

The call 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.

A replay of the call will be available beginning at 7:30 p.m. Eastern time on August 29, 2017, and continuing until September 29, 2017, by dialing (855) 859-2056 (U.S./Canada) or (404) 537-3406 (International). The conference ID is 46876633. The webcast will be available for replay August 30, 2017 at http://investors.hrblock.com.

About H&R Block

H&R Block, Inc. (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 2017, H&R Block had annual revenues of over $3 billion with 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," "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, income, earnings per share, cost savings, capital expenditures, dividends, share repurchases, liquidity, capital structure 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, 2017 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. 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.

All amounts in this release are unaudited. Unless otherwise noted, all comparisons refer to the current period compared to the corresponding prior year period.

All per share amounts are based on fully diluted shares at the end of the corresponding period.

The company reports non-GAAP financial measures of performance, including earnings before interest, tax, depreciation, and amortization (EBITDA), 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 July 31,
2017
2016
REVENUES:
Service revenues
$
124,695
$
112,384
Royalty, product and other revenues
13,107
12,801
137,802
125,185
OPERATING EXPENSES:
Cost of revenues:
Compensation and benefits
55,592
52,355
Occupancy and equipment
98,467
94,425
Provision for bad debt
2,459
1,417
Depreciation and amortization
28,616
27,467
Other
42,581
35,422
227,715
211,086
Selling, general and administrative:
Marketing and advertising
7,104
7,561
Compensation and benefits
56,373
57,522
Depreciation and amortization
14,982
13,815
Other selling, general and administrative
16,790
19,925
95,249
98,823
Total operating expenses
322,964
309,909
Other income (expense), net
1,220
2,641
Interest expense on borrowings
(21,277
)
(21,466
)
Loss from continuing operations before income tax benefit
(205,219
)
(203,549
)
Income tax benefit
(77,401
)
(82,523
)
Net loss from continuing operations
(127,818
)
(121,026
)
Net loss from discontinued operations
(2,749
)
(2,647
)
NET LOSS
$
(130,567 )
$
(123,673 )
BASIC AND DILUTED LOSS PER SHARE:
Continuing operations
$
(0.62
)
$
(0.55
)
Discontinued operations
(0.01
)
(0.01
)
Consolidated
$
(0.63
)
$
(0.56
)
WEIGHTED AVERAGE BASIC AND DILUTED SHARES
207,935
220,484
CONSOLIDATED BALANCE SHEETS
(unaudited, in 000s - except per share data)
As of
July 31, 2017
July 31, 2016
April 30, 2017
ASSETS
Cash and cash equivalents
$
551,566
$
306,871
$
1,011,331
Cash and cash equivalents -- restricted
116,594
122,025
106,208
Receivables, net
91,004
103,425
162,775
Prepaid expenses and other current assets
74,776
76,052
65,725
Total current assets
833,940
608,373
1,346,039
Mortgage loans held for investment, net
--
192,375
--
Property and equipment, net
253,255
284,114
263,827
Intangible assets, net
393,972
419,909
409,364
Goodwill
493,991
470,942
491,207
Deferred tax assets and income taxes receivable
54,348
90,498
83,728
Other noncurrent assets
102,742
97,331
99,943
Total assets
$
2,132,248
$
2,163,542
$
2,694,108
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES:
Accounts payable and accrued expenses
$
161,751
$
157,085
$
217,028
Accrued salaries, wages and payroll taxes
35,063
43,516
183,856
Accrued income taxes and reserves for uncertain tax positions
176,909
216,390
348,199
Current portion of long-term debt
992
864
981
Deferred revenue and other current liabilities
187,791
191,304
189,216
Total current liabilities
562,506
609,159
939,280
Long-term debt
1,493,422
1,491,790
1,493,017
Reserves for uncertain tax positions
159,233
116,709
159,085
Deferred revenue and other noncurrent liabilities
131,415
145,691
163,609
Total liabilities
2,346,576
2,363,349
2,754,991
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS’ EQUITY:
Common stock, no par, stated value $.01 per share
2,462
2,582
2,462
Additional paid-in capital
746,761
748,924
754,912
Accumulated other comprehensive loss
(12,837
)
(14,804
)
(15,299
)
Retained deficit
(229,647
)
(180,631
)
(48,206
)
Less treasury shares, at cost
(721,067
)
(755,878
)
(754,752
)
Total stockholders’ equity (deficiency)
(214,328
)
(199,807
)
(60,883
)
Total liabilities and stockholders’ equity
$
2,132,248
$
2,163,542
$
2,694,108
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in 000s)
Three months ended July 31,
2017
2016
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss
$
(130,567 )
$
(123,673 )
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization
43,598
41,282
Provision for bad debt
2,459
1,417
Deferred taxes
20,796
6,274
Stock-based compensation
4,816
5,541
Changes in assets and liabilities, net of acquisitions:
Receivables
64,985
49,220
Prepaid expenses and other current assets
(8,695
)
(9,173
)
Other noncurrent assets
5,499
4,059
Accounts payable and accrued expenses
(66,729
)
(98,785
)
Accrued salaries, wages and payroll taxes
(149,441
)
(118,040
)
Deferred revenue and other current liabilities
464
(38,022
)
Deferred revenue and other noncurrent liabilities
(32,510
)
(28,080
)
Income tax receivables, accrued income taxes and income tax reserves
(149,542
)
(144,249
)
Other, net
(14,248
)
(5,735
)
Net cash used in operating activities
(409,115
)
(457,964
)
CASH FLOWS FROM INVESTING ACTIVITIES:
Principal payments and sales of mortgage loans and real estate owned, net
--
9,573
Capital expenditures
(13,094
)
(6,246
)
Payments made for business acquisitions, net of cash acquired
(1,440
)
(1,635
)
Franchise loans funded
(4,527
)
(2,219
)
Payments received on franchise loans
4,727
6,473
Other, net
1,371
(868
)
Net cash provided by (used in) investing activities
(12,963
)
5,078
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid
(49,905
)
(48,514
)
Repurchase of common stock, including shares surrendered
(7,508
)
(45,312
)
Proceeds from exercise of stock options
27,418
1,639
Other, net
2,545
(24,779
)
Net cash used in financing activities
(27,450
)
(116,966
)
Effects of exchange rate changes on cash
149
(2,163
)
Net decrease in cash, cash equivalents and restricted cash
(449,379
)
(572,015
)
Cash, cash equivalents and restricted cash, beginning of period
1,117,539
1,000,911
Cash, cash equivalents and restricted cash, end of period
$
668,160
$
428,896
SUPPLEMENTARY CASH FLOW DATA:
Income taxes paid, net of refunds received
$
57,901
$
61,289
Interest paid on borrowings
15,519
15,519
Accrued additions to property and equipment
4,757
10,147
Accrued purchase of common stock
--
8,895

Note: Effective May 1, 2017, we adopted the provisions of Accounting Standards Update No. 2016-18,"Restricted Cash (a consensus of the FASB Emerging Issues Task Force)," (ASU 2016-18) on a retrospective basis. Accordingly, the statements of cash flows explain the change in the total of cash, cash equivalents and amounts generally described as restricted cash and restricted cash equivalents per ASU 2016-18. Amounts for prior periods have been retrospectively adjusted to conform to the current period presentation.

FINANCIAL RESULTS
(unaudited, in 000s - except per share amounts)
Three months ended July 31,
2017
2016
REVENUES:
U.S. assisted tax preparation fees
$
29,963
$
25,429
U.S. royalties
6,967
6,525
U.S. DIY tax preparation fees
3,226
2,914
International revenues
40,417
38,875
Revenues from Refund Transfers
2,816
3,234
Revenues from Emerald Card(R)
14,987
13,065
Revenues from Peace of Mind(R) Extended Service Plan
31,943
27,031
Interest and fee income on Emerald Advance
664
804
Other
6,819
7,308
137,802
125,185
Compensation and benefits:
Field wages
48,123
45,043
Other wages
43,197
42,100
Benefits and other compensation
20,645
22,734
111,965
109,877
Occupancy and equipment
98,199
94,371
Marketing and advertising
7,104
7,561
Depreciation and amortization
43,598
41,282
Bad debt
2,459
1,417
Supplies
2,734
2,077
Other
56,905
53,324
Total operating expenses
322,964
309,909
Other income (expense), net
1,220
2,641
Interest expense on borrowings
(21,277
)
(21,466
)
Pretax loss
(205,219
)
(203,549
)
Income tax benefit
(77,401
)
(82,523
)
Net loss from continuing operations
(127,818
)
(121,026
)
Net loss from discontinued operations
(2,749
)
(2,647
)
NET LOSS
$
(130,567 )
$
(123,673 )
BASIC AND DILUTED LOSS PER SHARE:
Continuing operations
$
(0.62
)
$
(0.55
)
Discontinued operations
(0.01
)
(0.01
)
Consolidated
$
(0.63
)
$
(0.56
)
Weighted average basic and diluted shares
207,935
220,484
EBITDA from continuing operations
$
(140,344 )
$
(140,801 )

See "Non-GAAP Financial Information" for a reconciliation of non-GAAP measures.

Three months ended July 31,
NON-GAAP FINANCIAL MEASURE - EBITDA
2017
2016
Net loss - as reported
$
(130,567 )
$
(123,673 )
Discontinued operations, net
2,749
2,647
Net loss from continuing operations - as reported
(127,818
)
(121,026
)
Add back :
Income taxes of continuing operations
(77,401
)
(82,523
)
Interest expense of continuing operations
21,277
21,466
Depreciation and amortization of continuing operations
43,598
41,282
(12,526
)
(19,775
)
EBITDA from continuing operations
$
(140,344 )
$
(140,801 )
Three months ended July 31,
Supplemental Information
2017
2016
Stock-based compensation expense:
Pretax
$
4,816
$
5,541
After-tax
3,123
3,479
Amortization of intangible assets:
Pretax
$
19,235
$
17,986
After-tax
12,472
11,293

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. 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.

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

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