H&R Block Reports Fiscal 2023 Second Quarter Results; Reaffirms Full Year Outlook

Feb 7, 2023

KANSAS CITY, Mo., Feb. 07, 2023 (GLOBE NEWSWIRE) -- H&R Block, Inc. (NYSE: HRB) (the "Company") today released its financial results1 for the fiscal 2023 second quarter ended December 31, 2022.

  • Revenue grew 5% and the Company saw a strong ending to the 2022 tax season
  • The Company reiterates its previously provided fiscal year 2023 outlook
  • Repurchased $130.4 million of shares in the quarter, another 2% of shares outstanding
  • SpruceSM, the new mobile banking platform, was launched in the Assisted channel in January

"Our second quarter results demonstrate ongoing momentum across our business, and I am pleased with the path we are on," said Jeff Jones, H&R Block's president and chief executive officer. "We continue to make progress in our Block Horizons journey and feel well positioned for the 2023 tax season. By blending technology with human help, we are empowering clients to choose how they want to be served at tax time — fully virtually, or fully in person, and everything in between."

Fiscal 2023 Second Quarter Results and Key Financial Metrics

"We performed well in the second quarter, managed expenses effectively, and continued to return value to shareholders through our capital allocation," said Tony Bowen, H&R Block's chief financial officer. "We repurchased 3.2 million shares in the quarter. In the first half of the year, we retired a total of 5% of shares outstanding for $350 million. We are also pleased to reiterate our full year outlook for 2023, which calls for topline growth, EBITDA that outpaces revenue, and EPS that grows even faster."

  • Total revenue of $166.4 million, increased by $7.6 million, or 5%, to the prior year. The increase was primarily driven by volumes and net average charge as we had a strong end to the 2022 tax season, partially offset by lower Emerald Card revenues related to the impact of Advanced Child Tax Credit payments in the prior year.
  • Total operating expenses of $449.6 million increased by $13.5 million, or 3%, primarily due to higher corporate and field wages, along with increased bad debt expense, which was partially offset by lower consulting and outsourced services as well as favorable developments in insurance loss reserves.
  • Pretax loss was effectively flat to the prior year at $298.0 million.
  • Loss per share from continuing operations2 increased from $(1.09) to $(1.43) and adjusted loss per share2 from continuing operations increased from $(1.02) to $(1.37), primarily due to the larger net loss from lower income tax benefits in the quarter and fewer shares outstanding.

Capital Structure

The Company reported the following related to its capital structure:

  • Repurchased and retired 3.2 million shares for $130.4 million, or 2% of shares outstanding. The Company has approximately $900.0 million remaining on its latest $1.25 billion authorization available through fiscal year 2025.
  • As previously announced, a quarterly cash dividend of $0.29 per share is payable on April 5, 2023 to shareholders of record as of March 7, 2023. H&R Block has paid quarterly dividends consecutively for over sixty years, since the Company became public in 1962.

Since 2016, the Company has returned over $3 billion to shareholders in the form of share repurchases and dividends, buying back over one third of its shares outstanding3.

Fiscal Year 2023 Outlook Reaffirmed

The Company continues to expect:

  • Revenue to be in the range of $3.535 to $3.585 billion
  • EBITDA4 to be in the range of $915 to $950 million
  • Effective tax rate to be approximately 22%
  • Adjusted diluted earnings per share4 to be in the range of $3.70 to $3.95
  • Double-digit adjusted diluted earnings per share4 growth annually through 2025

Conference Call
A conference call for analysts, institutional investors, and shareholders will be held at 4:30 p.m. Eastern time on Tuesday, February 7, 2023. During the conference call the company will discuss fiscal 2023 second quarter results, outlook, and give a general business update. To join live, participants must register at https://register.vevent.com/register/BId8885f32eac141fe9a86d51d888e5810. Once registered, the participant will receive a dial-in number and unique PIN to access the call. Please join approximately 5 minutes prior to the scheduled start time.

The call, along with a presentation for viewing, will also be webcast in a listen-only format for the media and public. The webcast can be accessed directly at https://edge.media-server.com/mmc/p/o83t7vbn and will be available for replay 2 hours after the call is concluded and continuing for 90 days.

About H&R Block

H&R Block, Inc. (NYSE: HRB) provides help and inspires confidence in its clients and communities everywhere through global tax preparation services, financial products, and small-business solutions. The company blends digital innovation with human expertise and care as it helps people get the best outcome at tax time and also be better with money using its mobile banking app, Spruce. Through Block Advisors and Wave, the company helps small-business owners thrive with innovative products like Wave Money, a mobile-first, small-business bank account and bookkeeping solution that manages bookkeeping automatically. For more information, visit H&R Block News or follow @HRBlockNews on Twitter.

About Non-GAAP Financial Information

This press release and the accompanying tables include non-GAAP financial information. For a description of these non-GAAP financial measures, including the reasons management uses each measure, and reconciliations of these non-GAAP financial measures to the most directly comparable financial measures prepared in accordance with generally accepted accounting principles, please see the section of the accompanying tables titled "Non-GAAP Financial Information."

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the securities laws. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. They often include words or variation of words such as "expects," "anticipates," "intends," "plans," "believes," "commits," "seeks," "estimates," "projects," "forecasts," "targets," "calls for," "would," "will," "should," "goal," "could" or "may" or other similar expressions. Forward-looking statements provide management's current expectations or predictions of future conditions, events or results. All statements that address operating performance, events or developments that we expect or anticipate will occur in the future are forward-looking statements. They may include estimates of revenues, client trajectory, income, effective tax rate, earnings per share, cost savings, capital expenditures, dividends, share repurchases, liquidity, capital structure, market share, industry volumes or other financial items, descriptions of management’s plans or objectives for future operations, products or services, or descriptions of assumptions underlying any of the above. They also include the expected impact of the coronavirus (COVID-19) pandemic, including, without limitation, the impact on economic and financial markets, the Company’s capital resources and financial condition, the expected use of proceeds under the Company’s revolving credit facility, future expenditures, potential regulatory actions, such as extensions of tax filing deadlines or other related relief, changes in consumer behaviors and modifications to the Company’s operations related thereto. All forward-looking statements speak only as of the date they are made and reflect the Company's good faith beliefs, assumptions and expectations, but they are not guarantees of future performance or events. Furthermore, the Company disclaims any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions, factors, or expectations, new information, data or methods, future events or other changes, except as required by law. By their nature, forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements. Factors that might cause such differences include, but are not limited to a variety of economic, competitive and regulatory factors, many of which are beyond the Company's control, that are described in our Annual Report on Form 10-K for the fiscal year ended June 30, 2022 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 https://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, future actions of the Company, or increases in applicable tax rates in jurisdictions where the Company operates. 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 fully diluted shares at the end of the corresponding period. The company reports non-GAAP financial measures of performance, including adjusted earnings per share (EPS), earnings before interest, tax, depreciation, and amortization (EBITDA) from continuing operations, free cash flow, and free cash flow yield, 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).
3Shares outstanding calculated as of April 30, 2016.
4Adjusted Diluted Earnings Per Share (EPS) and earnings before interest, tax, depreciation, and amortization (EBITDA) from continuing operations are non-GAAP financial measures. Future period non-GAAP outlook includes adjustments for items not indicative of our core operations, which may include, without limitation, items described in the below section titled “Non-GAAP Financial Information” and in the accompanying tables. Such adjustments may be affected by changes in ongoing assumptions and judgments, as well as nonrecurring, unusual, or unanticipated charges, expenses or gains, or other items that may not directly correlate to the underlying performance of our business operations. The exact amounts of these adjustments are not currently determinable but may be significant. It is therefore not practicable to provide the comparable GAAP measures or reconcile this non-GAAP outlook to the most comparable GAAP measures.

For Further Information
Investor Relations: Michaella Gallina, (816) 854-3022, michaella.gallina@hrblock.com
  Jordyn Eskijian, (816) 854-5674, jordyn.eskijian@hrblock.com
Media Relations: Angela Davied, (816) 854-5798, angela.davied@hrblock.com

FINANCIAL RESULTS (unaudited, in 000s - except per share amounts) 
  Three months ended December 31, Six months ended December 31,
   2022   2021   2022   2021 
U.S. tax preparation and related services:                
Assisted tax preparation $41,216  $30,845  $77,528  $64,452 
Royalties  4,946   3,404   11,174   10,762 
DIY tax preparation  12,150   9,210   15,308   13,271 
Refund Transfers  1,542   777   2,826   2,442 
Peace of Mind® Extended Service Plan  17,320   17,315   42,090   42,151 
Tax Identity Shield®  5,350   5,200   10,517   10,353 
Other  8,513   7,407   17,873   17,152 
Total U.S. tax preparation and related services  91,037   74,158   177,316   160,583 
Financial services:                
Emerald Card® and SpruceSM  12,478   24,830   24,090   53,088 
Interest and fee income on Emerald AdvanceSM  12,903   12,424   13,517   12,903 
Total financial services  25,381   37,254   37,607   65,991 
International  28,046   27,907   86,880   86,232 
Wave  21,941   19,497   44,587   38,634 
Total revenues $166,405  $158,816  $346,390  $351,440 
Compensation and benefits:                
Field wages  76,204   70,058   137,877   126,137 
Other wages  70,530   64,067   134,283   122,131 
Benefits and other compensation  34,277   30,207   69,109   55,657 
   181,011   164,332   341,269   303,925 
Occupancy  101,173   99,296   198,763   195,118 
Marketing and advertising  15,142   17,141   25,791   27,214 
Depreciation and amortization  32,723   35,631   66,347   71,346 
Bad debt  22,416   13,666   22,745   14,709 
Other  97,143   106,050   183,789   191,200 
Total operating expenses  449,608   436,116   838,704   803,512 
Other income (expense), net  4,185   1,467   7,796   1,751 
Interest expense on borrowings  (18,985)  (23,085)  (34,809)  (45,915)
Pretax loss  (298,003)  (298,918)  (519,327)  (496,236)
Income tax benefit  (77,140)  (109,845)  (131,097)  (157,218)
Net loss from continuing operations  (220,863)  (189,073)  (388,230)  (339,018)
Net loss from discontinued operations  (2,716)  (1,532)  (3,770)  (3,188)
Net loss $(223,579) $(190,605) $(392,000) $(342,206)
Continuing operations $(1.43) $(1.09) $(2.48) $(1.93)
Discontinued operations  (0.02)  (0.01)  (0.02)  (0.02)
Consolidated $(1.45) $(1.10) $(2.50) $(1.95)
WEIGHTED AVERAGE DILUTED SHARES  154,119   173,378   156,701   175,739 
Adjusted diluted EPS (1) $(1.37) $(1.02) $(2.36) $(1.80)
EBITDA (1) $(246,295) $(240,202) $(418,171) $(378,975)

(1) All non-GAAP measures are results from continuing operations. See "Non-GAAP Financial Information" for a reconciliation of non-GAAP measures.

CONSOLIDATED BALANCE SHEETS (unaudited, in 000s - except per share data) 
As of December 31, 2022 June 30, 2022
Cash and cash equivalents $264,455  $885,015 
Cash and cash equivalents - restricted  27,733   165,698 
Receivables, net  328,616   58,447 
Income taxes receivable  46,646   202,838 
Prepaid expenses and other current assets  108,405   72,460 
Total current assets  775,855   1,384,458 
Property and equipment, net  136,824   123,912 
Operating lease right of use assets  382,723   427,783 
Intangible assets, net  304,539   309,644 
Goodwill  764,802   760,401 
Deferred tax assets and income taxes receivable  181,721   208,948 
Other noncurrent assets  46,760   54,012 
Total assets $2,593,224  $3,269,158 
Accounts payable and accrued expenses $137,118  $160,929 
Accrued salaries, wages and payroll taxes  68,089   154,764 
Accrued income taxes and reserves for uncertain tax positions  73,572   280,115 
Operating lease liabilities  184,343   206,898 
Deferred revenue and other current liabilities  182,711   196,107 
Total current liabilities  645,833   998,813 
Long-term debt and line of credit borrowings  2,067,937   1,486,876 
Deferred tax liabilities and reserves for uncertain tax positions  231,041   226,362 
Operating lease liabilities  205,409   228,820 
Deferred revenue and other noncurrent liabilities  86,483   116,656 
Total liabilities  3,236,703   3,057,527 
Common stock, no par, stated value $.01 per share  1,854   1,936 
Additional paid-in capital  767,683   772,182 
Accumulated other comprehensive loss  (44,683)  (21,645)
Retained earnings (deficit)  (708,437)  120,405 
Less treasury shares, at cost  (659,896)  (661,247)
Total stockholders' equity (deficiency)  (643,479)  211,631 
Total liabilities and stockholders' equity $2,593,224  $3,269,158 

Six months ended December 31,  2022   2021 
Net loss $(392,000) $(342,206)
Adjustments to reconcile net loss to net cash used in operating activities:    
Depreciation and amortization  66,347   71,346 
Provision  16,581   14,639 
Deferred taxes  41,534   16,685 
Stock-based compensation  17,893   13,233 
Changes in assets and liabilities, net of acquisitions:    
Receivables  (262,293)  (216,071)
Prepaid expenses, other current and noncurrent assets  (32,983)  (46,928)
Accounts payable, accrued expenses, salaries, wages and payroll taxes  (121,156)  (121,926)
Deferred revenue, other current and noncurrent liabilities  (52,703)  (50,882)
Income tax receivables, accrued income taxes and income tax reserves  (60,163)  (247,088)
Other, net  (1,515)  (4,373)
Net cash used in operating activities  (780,458)  (913,571)
Capital expenditures  (41,495)  (39,371)
Payments made for business acquisitions, net of cash acquired  (39,757)  (19,333)
Franchise loans funded  (17,491)  (14,480)
Payments from franchisees  3,861   6,213 
Other, net  (4,208)  9,527 
Net cash used in investing activities  (99,090)  (57,444)
Repayments of line of credit borrowings  (170,000)  (210,000)
Proceeds from line of credit borrowings  750,000   485,000 
Dividends paid  (89,193)  (96,938)
Repurchase of common stock, including shares surrendered  (365,633)  (324,589)
Proceeds from exercise of stock options  1,427   4,067 
Other, net  2,212   (7,423)
Net cash provided by (used in) financing activities  128,813   (149,883)
Effects of exchange rate changes on cash  (7,790)  (3,330)
Net decrease in cash and cash equivalents, including restricted balances  (758,525)  (1,124,228)
Cash, cash equivalents and restricted cash, beginning of period  1,050,713   1,584,164 
Cash, cash equivalents and restricted cash, end of period $292,188  $459,936 
Income taxes paid (received), net $(114,385) $72,169 
Interest paid on borrowings  31,812   36,539 
Accrued additions to property and equipment  2,499   1,393 
New operating right of use assets and related lease liabilities  79,917   73,710 
Accrued dividends payable to common shareholders  44,569   46,497 
Accrued purchase of common stock     4,845 

(in 000s) 
  Three months ended December 31, Six months ended December 31,
NON-GAAP FINANCIAL MEASURE - EBITDA  2022   2021   2022   2021 
Net loss - as reported $(223,579) $(190,605) $(392,000) $(342,206)
Discontinued operations, net  2,716   1,532   3,770   3,188 
Net loss from continuing operations - as reported  (220,863)  (189,073)  (388,230)  (339,018)
Add back:        
Income tax benefit  (77,140)  (109,845)  (131,097)  (157,218)
Interest expense  18,985   23,085   34,809   45,915 
Depreciation and amortization  32,723   35,631   66,347   71,346 
   (25,432)  (51,129)  (29,941)  (39,957)
EBITDA from continuing operations $(246,295) $(240,202) $(418,171) $(378,975)

(in 000s, except per share amounts) 
  Three months ended December 31, Six months ended December 31,
NON-GAAP FINANCIAL MEASURE - ADJUSTED EPS  2022   2021   2022   2021 
Net loss from continuing operations - as reported $(220,863) $(189,073) $(388,230) $(339,018)
Amortization of intangibles related to acquisitions (pretax)  12,839   14,292   25,535   29,162 
Tax effect of adjustments (1)  (2,787)  (1,922)  (6,008)  (5,557)
Adjusted net loss from continuing operations $(210,811) $(176,703) $(368,703) $(315,413)
Diluted loss per share from continuing operations - as reported $(1.43) $(1.09) $(2.48) $(1.93)
Adjustments, net of tax  0.06   0.07   0.12   0.13 
Adjusted diluted loss per share from continuing operations $(1.37) $(1.02) $(2.36) $(1.80)

(1)Tax effect of adjustments is the difference between the tax provision calculated on a GAAP basis and on an adjusted non-GAAP basis.

Non-GAAP Financial Information

Non-GAAP financial measures should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. Because these measures are not measures of financial performance under GAAP and are susceptible to varying calculations, they may not be comparable to similarly titled measures for other companies.

We consider our non-GAAP financial measures to be performance measures and a useful metric for management and investors to evaluate and compare the ongoing operating performance of our business. We make adjustments for certain non-GAAP financial measures related to amortization of intangibles from acquisitions and goodwill impairments. We may consider whether other significant items that arise in the future should be excluded from our non-GAAP financial measures.

We measure the performance of our business using a variety of metrics, including earnings before interest, taxes, depreciation and amortization (EBITDA) from continuing operations, adjusted EBITDA from continuing operations, adjusted diluted earnings per share from continuing operations, free cash flow and free cash flow yield. 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.