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H&R Block Reports Significant Earnings and Margin Improvement in Fiscal 2017 and Announces Dividend Increase
  • Earnings per share from continuing operations increased $0.43, or 28%, to $1.961,2
  • Net income from continuing operations increased 10% to $421 million; EBITDA from continuing operations increased 11% to $904 million, representing a 29.8% EBITDA margin3
  • Repurchased approximately 14 million shares during the fiscal year, or 6% of outstanding shares, for a total of $317 million
  • Announced a 9% dividend increase, resulting in a quarterly dividend of $0.24 per share

KANSAS CITY, Mo., June 13, 2017 (GLOBE NEWSWIRE) -- H&R Block, Inc. (NYSE:HRB) today released its financial results for the fiscal year ended April 30, 2017, reflecting a 10% improvement in net income from continuing operations to $421 million and an increase in earnings per share from continuing operations of $0.43 to $1.96.  This improvement was due largely to cost reduction efforts taken by the company, which also enabled investment in key client-driving initiatives during the year.  These initiatives led to improved tax season performance from the previous year, as the company outperformed the overall U.S. market and achieved share gains in the DIY category.

"We came into this year with a very aggressive goal to change the client trajectory.  With competitive promotions, impactful marketing and an improved client experience, we achieved this goal and also produced strong financial results, all during a year in which the industry experienced a decline in returns," said Bill Cobb, H&R Block's president and chief executive officer.  "I couldn't be more proud of our team who delivered these impressive results."

Total revenues were flat at just over $3.0 billion, as an improvement in the company's net average charge in its U.S. Assisted business was offset by a decline in Assisted returns.  Total operating expenses declined $85 million, or 3.5%, driven by cost reduction measures and lower bad debt expense.  This led to an increase in EBITDA from continuing operations of 11% to $904 million, reflecting an improvement in EBITDA margin of over 300 basis points to 29.8%.

"We are already hard at work on our plans for the next tax season, and I am confident in our ability to build on the momentum from this season," said Cobb.  "As I prepare to depart on July 31st, the company is well-positioned and on the right path to delivering value for shareholders for years to come."

Fiscal 2017 Results From Continuing Operations
"We realized the benefits of the cost reduction measures we outlined last year and utilized those funds to invest in key business initiatives and to improve our bottom line," stated Tony Bowen, H&R Block's chief financial officer.  "We were diligent on expense management throughout the fiscal year, especially in the final months of the tax season, leading to a better-than-expected EBITDA margin of 29.8%."

    Actual   Non-GAAP Adjusted3
(in millions, except EPS)   Fiscal Year
2017
  Fiscal Year
2016
  Fiscal Year
2017
  Fiscal Year
2016
Revenue   $ 3,036     $ 3,038       N/A       N/A  
Pretax Income   $ 629     $ 569     $ 630     $ 596  
Net Income   $ 421     $ 384     $ 421     $ 400  
Weighted-Avg. Shares - Diluted   214.1     250.8       N/A       N/A  
EPS2   $ 1.96     $ 1.53     $ 1.96     $ 1.59  
EBITDA3   $ 904     $ 812     $ 905     $ 839  
                 

Key Financial Metrics

  • Revenues were flat to the prior year at just over $3.0 billion, as improvement in the company's Assisted net average charge was partially offset by a decline in return volume.  DIY tax preparation revenue declined as the H&R Block More ZeroSM promotion resulted in a lower net average charge which was partially offset by increased return volume.
  • Total operating expenses decreased $85 million, or 3.5%.  The decrease was mainly due to previously outlined cost reduction measures, which led to lower compensation and benefits and marketing costs, along with lower bad debt expense due to more favorable collections on prior year receivables.
  • Interest expense increased $24 million from the prior year due to the full year interest impact of the $1 billion of long-term debt issued in September 2015.
  • Net income from continuing operations increased 10% to $421 million and EBITDA from continuing operations improved 11% to $904 million.  The company's EBITDA margin was 29.8%, an improvement of over 300 basis points from the prior fiscal year. 
  • Diluted earnings per share from continuing operations increased $0.43, or 28%, to $1.96.
  • The company ended the fiscal year with $1.0 billion in unrestricted cash compared to $0.9 billion the prior year.

Share Repurchases
During fiscal 2017, the company repurchased and retired approximately 14 million shares at an aggregate amount of $317 million, or $22.61 per share.  As of April 30, 2017, 207.2 million shares were outstanding.

The company completed these share repurchases under a $3.5 billion share repurchase program approved by the company’s board of directors in August 2015 and effective through June 2019.  Under this program, the company has repurchased a total of approximately 70.4 million shares of its common stock, or approximately 25% of outstanding shares since the inception of the program, for an aggregate purchase amount of approximately $2.3 billion.

Dividends
The company announced that the Board of Directors approved an increase in its quarterly dividend of 9%, to $0.24 per share.  Future actions regarding dividends will be dependent upon the Board's annual review and approval following consideration of operating results, market conditions, and capital needs, among other factors.

A quarterly cash dividend of $0.24 per share is payable on July 3, 2017 to shareholders of record as of June 23, 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 April 30, 2017.

Leadership Transition
On May 16, 2017, the company announced that Bill Cobb, president and chief executive officer, will retire from the company and the H&R Block Board of Directors effective July 31, 2017.  The Board of Directors has appointed Tom Gerke, currently the General Counsel and Chief Administrative Officer, to be the interim president and CEO beginning August 1, 2017.  The Board has retained a search firm to assist in the search for a permanent president and CEO.  Details regarding this transition were included in a press release on May 16, 2017 and in a Form 8-K filed with the Securities and Exchange Commission on the same day.

Conference Call
Discussion of the fiscal 2017 results, future outlook, the leadership transition, and a general business update will occur during the company’s previously announced fiscal fourth quarter earnings conference call for analysts, institutional investors, and shareholders. The call is scheduled for 4:30 p.m. Eastern time on June 13, 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: 11588523

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 June 13, 2017, and continuing until July 13, 2017, by dialing (855) 859-2056 (U.S./Canada) or (404) 537-3406 (International). The conference ID is 11588523. The webcast will be available for replay June 14, 2017 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 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, market share, industry volume, 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, 2016 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 fiscal year compared to the prior fiscal year.
All per share amounts are based on fully diluted shares at the end of the corresponding period.
The company reports certain non-GAAP financial measures, including earnings before interest, taxes, depreciation and amortization (EBITDA), EBITDA margin, and adjusted EBITDA, which it believes are a better indication of the company's core operations.  See “About Non-GAAP Financial Information” below for more information regarding financial measures not prepared in accordance with GAAP.

TABLES FOLLOW

         
CONSOLIDATED STATEMENTS OF OPERATIONS       (unaudited, in 000s -
except per share amounts)
    Three months ended April 30,   Year ended April 30,
    2017   2016   2017   2016
                 
REVENUES:                
Service revenues   $ 2,055,628     $ 2,032,580     $ 2,648,349     $ 2,653,936  
Royalty, product and other revenues   272,287     264,897     387,965     384,217  
    2,327,915     2,297,477     3,036,314     3,038,153  
OPERATING EXPENSES:                
Cost of revenues:                
Compensation and benefits   533,142     544,799     808,240     845,197  
Occupancy and equipment   117,472     124,016     415,058     405,123  
Provision for bad debt   23,142     36,474     52,776     75,395  
Depreciation and amortization   32,583     31,670     119,789     115,907  
Other   112,473     116,171     248,514     243,930  
    818,812     853,130     1,644,377     1,685,552  
Selling, general and administrative:                
Marketing and advertising   157,618     182,558     261,281     297,762  
Compensation and benefits   65,158     48,863     239,381     228,778  
Depreciation and amortization   17,393     14,182     62,379     57,691  
Other selling, general and administrative   35,412     37,895     112,912     135,178  
    275,581     283,498     675,953     719,409  
Total operating expenses   1,094,393     1,136,628     2,320,330     2,404,961  
                 
Other income (expense), net   1,306     2,591     6,254     5,249  
Interest expense on borrowings   (22,925 )   (22,633 )   (92,951 )   (68,962 )
Income from continuing operations before income taxes   1,211,903     1,140,807     629,287     569,479  
Income taxes   425,333     439,582     208,370     185,926  
Net income from continuing operations   786,570     701,225     420,917     383,553  
Net loss from discontinued operations   (3,218 )   (563 )   (11,972 )   (9,286 )
NET INCOME   $ 783,352     $ 700,662     $ 408,945     $ 374,267  
                 
BASIC EARNINGS (LOSS) PER SHARE:                
Continuing operations   $ 3.79     $ 3.15     $ 1.97     $ 1.54  
Discontinued operations   (0.02 )       (0.05 )   (0.04 )
Consolidated   $ 3.77     $ 3.15     $ 1.92     $ 1.50  
                 
WEIGHTED AVERAGE BASIC SHARES   207,170     222,098     212,809     249,009  
                 
DILUTED EARNINGS (LOSS) PER SHARE:                
Continuing operations   $ 3.76     $ 3.13     $ 1.96     $ 1.53  
Discontinued operations   (0.01 )       (0.05 )   (0.04 )
Consolidated   $ 3.75     $ 3.13     $ 1.91     $ 1.49  
                 
WEIGHTED AVERAGE DILUTED SHARES   208,605     223,622     214,095     250,818  
                 
                 


CONSOLIDATED BALANCE SHEETS (unaudited, in 000s - except per share amounts)
As of April 30,   2017   2016
         
ASSETS        
Cash and cash equivalents   $ 1,011,331     $ 896,801  
Cash and cash equivalents — restricted   106,208     104,110  
Receivables, net   162,775     153,116  
Prepaid expenses and other current assets   65,725     66,574  
Total current assets   1,346,039     1,220,601  
Mortgage loans held for investment, net       202,385  
Property and equipment, net   263,827     293,565  
Intangible assets, net   409,364     433,885  
Goodwill   491,207     470,757  
Deferred tax assets and income taxes receivable   83,728     120,123  
Other noncurrent assets   99,943     105,909  
Total assets   $ 2,694,108     $ 2,847,225  
LIABILITIES AND STOCKHOLDERS’ EQUITY        
LIABILITIES:        
Accounts payable and accrued expenses   $ 217,028     $ 259,586  
Accrued salaries, wages and payroll taxes   183,856     161,786  
Accrued income taxes and reserves for uncertain tax positions   348,199     373,754  
Current portion of long-term debt   981     826  
Deferred revenue and other current liabilities   189,216     243,653  
Total current liabilities   939,280     1,039,605  
Long-term debt   1,493,017     1,491,375  
Reserves for uncertain tax positions   159,085     132,960  
Deferred revenue and other noncurrent liabilities   163,609     160,182  
Total liabilities   2,754,991     2,824,122  
COMMITMENTS AND CONTINGENCIES        
STOCKHOLDERS’ EQUITY:        
Common stock, no par, stated value $.01 per share   2,462     2,602  
Additional paid-in capital   754,912     758,230  
Accumulated other comprehensive loss   (15,299 )   (11,233 )
Retained earnings (deficit)   (48,206 )   40,347  
Less treasury shares, at cost   (754,752 )   (766,843 )
Total stockholders’ equity (deficiency)   (60,883 )   23,103  
Total liabilities and stockholders’ equity   $ 2,694,108     $ 2,847,225  
         
         


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS   (unaudited, in 000s)
Year ended April 30,   2017   2016
CASH FLOWS FROM OPERATING ACTIVITIES:        
Net income   $ 408,945     $ 374,267  
Adjustments to reconcile net income to net cash provided by operating activities:        
Depreciation and amortization   182,168     173,598  
Provision for bad debt   52,776     75,395  
Deferred taxes   46,455     36,276  
Stock-based compensation   19,285     23,540  
Changes in assets and liabilities, net of acquisitions:        
Cash and cash equivalents - restricted   (2,104 )   (12,159 )
Receivables   (77,873 )   (70,721 )
Prepaid expenses and other current assets   (4,542 )   4,321  
Other noncurrent assets   (6,364 )   4,197  
Accounts payable and accrued expenses   (30,472 )   16,723  
Accrued salaries, wages and payroll taxes   22,789     17,388  
Deferred revenue and other current liabilities   (59,998 )   (77,510 )
Deferred revenue and other noncurrent liabilities   4,314     3,055  
Income tax receivables, accrued income taxes and income tax reserves   129     (12,499 )
Other, net   (5,415 )   (23,477 )
Net cash provided by operating activities   550,093     532,394  
         
CASH FLOWS FROM INVESTING ACTIVITIES:        
Sales, maturities of and payments received on available-for-sale securities   1,144     436,471  
Principal payments and sales of mortgage loans and real estate owned, net   207,174     38,481  
Capital expenditures   (89,255 )   (99,923 )
Payments made for business acquisitions, net of cash acquired   (54,816 )   (88,776 )
Franchise loans funded   (34,473 )   (22,820 )
Payments received on franchise loans   61,437     55,007  
Other, net   8,108     11,075  
Net cash provided by investing activities   99,319     329,515  
         
CASH FLOWS FROM FINANCING ACTIVITIES:        
Repayments of line of credit borrowings   (1,700,000 )   (1,465,000 )
Proceeds from line of credit borrowings   1,700,000     1,465,000  
Proceeds from issuance of long-term debt       996,831  
Transfer of HRB Bank deposits       (419,028 )
Customer banking deposits, net       (326,705 )
Dividends paid   (187,115 )   (201,688 )
Repurchase of common stock, including shares surrendered   (322,850 )   (2,018,338 )
Proceeds from exercise of stock options   2,371     25,775  
Other, net   (22,830 )   (18,576 )
Net cash used in financing activities   (530,424 )   (1,961,729 )
         
Effects of exchange rate changes on cash   (4,458 )   (10,569 )
         
Net increase (decrease) in cash and cash equivalents   114,530     (1,110,389 )
Cash and cash equivalents at beginning of the year   896,801     2,007,190  
Cash and cash equivalents at end of the year   $ 1,011,331     $ 896,801  
         
SUPPLEMENTARY CASH FLOW DATA:        
Income taxes paid, net of refunds received   $ 163,539     $ 165,154  
Interest paid on borrowings   87,185     59,058  
Accrued additions to property and equipment   2,433     2,822  
         
         


FINANCIAL RESULTS       (unaudited, in 000s - except per share amounts)
    Three months ended April 30,   Year ended April 30,
    2017   2016   2017   2016
Tax preparation fees:                
U.S. assisted tax preparation fees   $ 1,596,182     $ 1,557,712     $ 1,902,212     $ 1,890,175  
U.S. royalties   193,663     190,188     250,270     249,433  
U.S. DIY tax preparation fees   182,375     188,442     219,123     234,341  
International revenues   116,992     130,174     210,320     213,400  
Revenues from Refund Transfers   96,898     107,778     148,212     162,560  
Revenues from Emerald Card®   59,412     53,755     95,221     92,608  
Revenues from Peace of Mind® Extended Service Plan   24,965     24,066     92,820     86,830  
Interest and fee income on Emerald Advance   25,503     24,934     57,022     57,268  
Other   31,925     20,428     61,114     51,538  
Total revenues   2,327,915     2,297,477     3,036,314     3,038,153  
                 
Compensation and benefits:                
Field wages   465,295     470,458     702,518     724,019  
Other wages   52,256     29,663     181,735     166,445  
Benefits and other compensation   80,750     93,542     163,368     183,512  
    598,301     593,663     1,047,621     1,073,976  
Occupancy and equipment   117,727     124,540     415,002     405,493  
Marketing and advertising   157,618     182,558     261,281     297,762  
Depreciation and amortization   49,976     45,852     182,168     173,598  
Bad debt   23,142     36,474     52,776     75,395  
Supplies   22,380     22,994     33,847     36,340  
Other   125,249     130,547     327,635     342,397  
Total operating expenses   1,094,393     1,136,628     2,320,330     2,404,961  
Other income (expense), net   1,306     2,591     6,254     5,249  
Interest expense on borrowings   (22,925 )   (22,633 )   (92,951 )   (68,962 )
Income from continuing operations before income taxes   1,211,903     1,140,807     629,287     569,479  
Income taxes   425,333     439,582     208,370     185,926  
Net income from continuing operations   786,570     701,225     420,917     383,553  
Net loss from discontinued operations   (3,218 )   (563 )   (11,972 )   (9,286 )
Net income   $ 783,352     $ 700,662     $ 408,945     $ 374,267  
                 
                 


U.S. TAX OPERATING DATA       (unaudited)
Year ended April 30,   2017   2016   % Change
U.S. tax returns prepared (in 000s): (1) (2)            
Company-owned operations   7,999     8,286     (3.5 )%
Franchise operations   3,908     3,932     (0.6 )%
Total H&R Block assisted   11,907     12,218     (2.5 )%
             
Desktop   2,003     2,085     (3.9 )%
Online   4,988     4,670     6.8 %
Total H&R Block DIY tax software   6,991     6,755     3.5 %
             
Free File   588     678     (13.3 )%
Total H&R Block U.S. returns   19,486     19,651     (0.8 )%
             
International tax returns prepared:            
Canada (3)   2,460     2,551     (3.6 )%
Australia   750     769     (2.5 )%
Other   293     153     91.5 %
Total international returns   3,503     3,473     0.9 %
Tax returns prepared worldwide   22,989     23,124     (0.6 )%
             
Net average charge (U.S. only): (4)            
Company-owned operations   $ 237.29     $ 233.46     1.6 %
Franchise operations (5)   $ 207.43     $ 200.60     3.4 %
DIY tax software   $ 31.34     $ 34.69     (9.7 )%
             
             

(1) An assisted tax return is defined as a current or prior year individual tax return that has been accepted and paid for by the client.  Also included are business returns, which account for approximately 1% of assisted returns. The count methodology for assisted returns has been adjusted in the current and prior year periods to exclude extensions and to recognize the corresponding individual tax returns when filed. A DIY tax software return is defined as a return that has been electronically filed and accepted by the IRS.  Also included are online returns paid and printed.
(2) Amounts have been reclassified between company-owned and franchise for offices which were refranchised or repurchased by the company during the year.
(3) In fiscal years 2017 and 2016, the end of the Canadian tax season was extended from April 30 into May. Tax returns prepared in Canada in fiscal years 2017 and 2016 includes approximately 59 thousand and 93 thousand returns, respectively, in both company-owned and franchise offices which were accepted by the client after April 30. The revenues related to these returns were recognized in fiscal years 2018 and 2017, respectively.
(4) Net average charge is calculated as total revenue divided by total returns. For DIY tax software, net average charge excludes Free File.
(5) Net average charge related to H&R Block franchise operations represents tax preparation fee revenues collected by H&R Block franchisees divided by returns filed in franchise offices.  H&R Block will recognize a portion of franchise revenues as franchise royalties based on the terms of franchise agreements.

     
NON-GAAP FINANCIAL MEASURES   (unaudited, in 000s - except per share amounts)
Reconciliation of EBITDA from Continuing Operations   Three months ended April 30,   Year ended April 30,
  2017   2016   2017   2016
                 
Net income - as reported $ 783,352     $ 700,662     $ 408,945     $ 374,267  
Discontinued operations, net   3,218     563     11,972     9,286  
Net income from continuing operations - as reported   786,570     701,225     420,917     383,553  
Add back :                
Income taxes of continuing operations   425,333     439,582     208,370     185,926  
Interest expense of continuing operations   22,925     22,633     92,951     69,141  
Depreciation and amortization of continuing operations   49,976     45,852     182,168     173,598  
    498,234     508,067     483,489     428,665  
                 
EBITDA from continuing operations   $ 1,284,804     $ 1,209,292     $ 904,406     $ 812,218  
                 
                 


NON-GAAP FINANCIAL MEASURES       (unaudited, $ in 000s - except per share amounts)
Reconciliation of Other Non-GAAP Financial Measures   Three months ended April 30,
  2017   2016
    Pretax
income
  Net income   EBITDA   Pretax
income
  Net income   EBITDA
                         
From continuing operations   $ 1,211,903     $ 786,570     $ 1,284,804     $ 1,140,807     $ 701,225     $ 1,209,292  
                         
Adjustments (pretax):                        
Loss contingencies - litigation   636     636     636     961     961     961  
Severance               12,001     12,001     12,001  
Tax effect of adjustments (1)       (229 )           (5,047 )    
    636     407     636     12,962     7,915     12,962  
                         
As adjusted - from continuing operations   $ 1,212,539     $ 786,977     $ 1,285,440     $ 1,153,769     $ 709,140     $ 1,222,254  
                         
EPS - as reported       $ 3.76             $ 3.13      
Impact of adjustments                   0.03      
EPS - adjusted       $ 3.76             $ 3.16      
                         
Reconciliation of Other Non-GAAP Financial Measures   Year ended April 30,
  2017   2016
    Pretax
income
  Net income   EBITDA   Pretax
income
  Net income   EBITDA
                         
From continuing operations   $ 629,287     $ 420,917     $ 904,406     $ 569,479     $ 383,553     $ 812,218  
                         
Adjustments (pretax):                        
Loss contingencies - litigation   516     516     516     1,978     1,978     1,978  
Severance               12,001     12,001     12,001  
Costs related to HRB Bank and recapitalization transactions               20,722     20,722     20,722  
Losses (gains) on AFS securities               (8,138 )   (8,138 )   (8,138 )
Gain on sales of tax offices/businesses               (127 )   (127 )   (127 )
Tax effect of adjustments (1)       (186 )           (10,176 )    
    516     330     516     26,436     16,260     26,436  
                         
As adjusted - from continuing operations   $ 629,803     $ 421,247     $ 904,922     $ 595,915     $ 399,813     $ 838,654  
                         
        EPS   EBITDA
Margin (2)
      EPS   EBITDA
Margin (2)
                         
From continuing operations       $ 1.96     29.8 %       $ 1.53     26.7 %
Impact of adjustments           %       0.06     0.9 %
Adjusted       $ 1.96     29.8 %       $ 1.59     27.6 %
                         
                         

1 Tax effect of adjustments is computed as the pretax effect of the adjustments multiplied by our effective tax rate before discrete items.
2 EBITDA margin from continuing operations is computed as EBITDA from continuing operations divided by revenues from continuing operations.

     
NON-GAAP FINANCIAL MEASURES   (unaudited, in 000s - except per share amounts)
    Three months ended April 30,   Year ended April 30,
Supplemental Information   2017   2016   2017   2016
                 
Stock-based compensation expense:                
Pretax   $ 2,340     $ 2,434     $ 19,285     $ 23,540  
After-tax   1,448     1,405     12,342     14,478  
Amortization of intangible assets:                
Pretax   $ 21,611     $ 18,130     $ 78,935     $ 72,762  
After-tax   13,664     10,913     50,518     44,752  
                 
                 

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 on a consistent basis across reporting periods, as it eliminates the effect of items that are not indicative of our core operating performance.

The following are descriptions of adjustments we make for our non-GAAP financial measures:

  • We exclude losses from settlements and estimated contingent losses from litigation and favorable reserve adjustments. This does not include legal defense costs.
  • We exclude material non-cash charges to adjust the carrying values of goodwill, intangible assets, other long-lived assets and investments to their estimated fair values.
  • We exclude material severance and other restructuring charges in connection with the termination of personnel, closure of offices and related costs.
  • We exclude the material gains and losses on business dispositions, including investment banking, legal and accounting fees from both business dispositions and acquisitions.
  • We exclude the gains and losses on extinguishment of debt.

We may consider whether other significant items that arise in the future should also 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 and adjusted EBITDA and EBITDA margin from continuing operations, adjusted pretax and net income of continuing operations, and adjusted diluted earnings per share from continuing operations. Adjusted EBITDA and EBITDA margin from continuing operations, adjusted pretax and net income from continuing operations, and adjusted diluted earnings per share from continuing operations eliminate the impact of items that we do not consider indicative of our core operating performance and, we believe, provide meaningful information to assist in understanding our financial results, analyzing trends in our underlying business, and assessing our prospects for future performance. 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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