MISSOURI | 1-06089 | 44-0607856 |
(State or other jurisdiction of | (Commission File Number) | (I.R.S. Employer |
incorporation or organization) | Identification No.) |
¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
H&R BLOCK, INC. | |||
Date: | December 6, 2017 | By: | /s/ Scott W. Andreasen |
Scott W. Andreasen | |||
Vice President and Secretary |
▪ | Fiscal second quarter financial results were in line with expectations |
▪ | Revenues increased $10 million, or 7%, to $141 million primarily due to increased international tax preparation fees, positive fluctuations in foreign exchange rates, and favorable preseason results in the U.S. |
▪ | Loss per share from continuing operations increased $0.04, from $0.67 to $0.71, due to both an increase in net loss from continuing operations and a year-over-year reduction in average shares outstanding, which negatively impacts those quarters with a loss |
▪ | The company expects continued improvement in client trajectory in fiscal 2018, leading to modest revenue growth and margins consistent with the prior year |
(in millions, except EPS) | Fiscal Year 2018 | Fiscal Year 2017 | ||||||
Revenue | $ | 141 | $ | 131 | ||||
Pretax Loss | $ | (236 | ) | $ | (228 | ) | ||
Net Loss | $ | (148 | ) | $ | (143 | ) | ||
Weighted-Avg. Shares - Diluted | 209.1 | 215.5 | ||||||
EPS2 | $ | (0.71 | ) | $ | (0.67 | ) | ||
EBITDA3 | $ | (170 | ) | $ | (160 | ) | ||
▪ | Total revenues increased $10 million, or 7%, to $141 million primarily due to increased international tax preparation fees, fluctuations in foreign exchange rates, and favorable preseason results in both the Assisted and DIY categories in the U.S. |
1 | All amounts in this release are unaudited. Unless otherwise noted, all comparisons refer to the current period compared to the corresponding prior year period. |
▪ | Total operating expenses increased $18 million, or 5%, to $357 million primarily due to increases in compensation costs, along with increases in occupancy costs related to prior year acquisitions of franchisees. |
▪ | Pretax loss increased $8 million to $236 million. |
▪ | Loss per share from continuing operations increased $0.04, from $0.67 to $0.71. Approximately half of the increase was due to the reduction in share count, which will be accretive on a full year basis. |
CONSOLIDATED STATEMENTS OF OPERATIONS | (unaudited, in 000s - except per share amounts) | |||||||||||||||
Three months ended October 31, | Six months ended October 31, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
REVENUES: | ||||||||||||||||
Service revenues | $ | 127,923 | $ | 118,940 | $ | 252,618 | $ | 231,324 | ||||||||
Royalty, product and other revenues | 12,931 | 12,392 | 26,038 | 25,193 | ||||||||||||
140,854 | 131,332 | 278,656 | 256,517 | |||||||||||||
OPERATING EXPENSES: | ||||||||||||||||
Cost of revenues: | ||||||||||||||||
Compensation and benefits | 65,884 | 57,728 | 121,476 | 110,083 | ||||||||||||
Occupancy and equipment | 105,304 | 99,067 | 203,771 | 193,492 | ||||||||||||
Provision for bad debt | 1,779 | (131 | ) | 4,238 | 1,286 | |||||||||||
Depreciation and amortization | 29,729 | 29,911 | 58,345 | 57,378 | ||||||||||||
Other | 37,323 | 39,127 | 79,904 | 74,549 | ||||||||||||
240,019 | 225,702 | 467,734 | 436,788 | |||||||||||||
Selling, general and administrative: | ||||||||||||||||
Marketing and advertising | 11,562 | 12,001 | 18,666 | 19,562 | ||||||||||||
Compensation and benefits | 62,138 | 58,293 | 118,511 | 115,815 | ||||||||||||
Depreciation and amortization | 15,063 | 15,839 | 30,045 | 29,654 | ||||||||||||
Other selling, general and administrative | 28,083 | 27,519 | 44,873 | 47,444 | ||||||||||||
116,846 | 113,652 | 212,095 | 212,475 | |||||||||||||
Total operating expenses | 356,865 | 339,354 | 679,829 | 649,263 | ||||||||||||
Other income (expense), net | 1,011 | 2,173 | 2,231 | 4,814 | ||||||||||||
Interest expense on borrowings | (21,265 | ) | (22,620 | ) | (42,542 | ) | (44,086 | ) | ||||||||
Loss from continuing operations before income tax benefit | (236,265 | ) | (228,469 | ) | (441,484 | ) | (432,018 | ) | ||||||||
Income tax benefit | (87,953 | ) | (85,054 | ) | (165,354 | ) | (167,577 | ) | ||||||||
Net loss from continuing operations | (148,312 | ) | (143,415 | ) | (276,130 | ) | (264,441 | ) | ||||||||
Net loss from discontinued operations | (5,254 | ) | (2,805 | ) | (8,003 | ) | (5,452 | ) | ||||||||
NET LOSS | $ | (153,566 | ) | $ | (146,220 | ) | $ | (284,133 | ) | $ | (269,893 | ) | ||||
BASIC AND DILUTED LOSS PER SHARE: | ||||||||||||||||
Continuing operations | $ | (0.71 | ) | $ | (0.67 | ) | $ | (1.33 | ) | $ | (1.21 | ) | ||||
Discontinued operations | (0.03 | ) | (0.01 | ) | (0.03 | ) | (0.03 | ) | ||||||||
Consolidated | $ | (0.74 | ) | $ | (0.68 | ) | $ | (1.36 | ) | $ | (1.24 | ) | ||||
WEIGHTED AVERAGE BASIC AND DILUTED SHARES | 209,065 | 215,535 | 208,500 | 218,009 | ||||||||||||
CONSOLIDATED BALANCE SHEETS | (unaudited, in 000s - except per share data) | |||||||||||
As of | October 31, 2017 | October 31, 2016 | April 30, 2017 | |||||||||
ASSETS | ||||||||||||
Cash and cash equivalents | $ | 180,997 | $ | 232,510 | $ | 1,011,331 | ||||||
Cash and cash equivalents - restricted | 100,665 | 109,538 | 106,208 | |||||||||
Receivables, net | 77,750 | 104,764 | 162,775 | |||||||||
Prepaid expenses and other current assets | 85,204 | 73,555 | 65,725 | |||||||||
Mortgage loans held for sale, net | — | 183,107 | — | |||||||||
Total current assets | 444,616 | 703,474 | 1,346,039 | |||||||||
Property and equipment, net | 262,226 | 293,060 | 263,827 | |||||||||
Intangible assets, net | 406,440 | 433,135 | 409,364 | |||||||||
Goodwill | 493,059 | 477,360 | 491,207 | |||||||||
Deferred tax assets and income taxes receivable | 9,205 | 81,755 | 83,728 | |||||||||
Other noncurrent assets | 101,015 | 93,394 | 99,943 | |||||||||
Total assets | $ | 1,716,561 | $ | 2,082,178 | $ | 2,694,108 | ||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||
LIABILITIES: | ||||||||||||
Accounts payable and accrued expenses | $ | 114,875 | $ | 139,808 | $ | 217,028 | ||||||
Accrued salaries, wages and payroll taxes | 42,897 | 40,754 | 183,856 | |||||||||
Accrued income taxes and reserves for uncertain tax positions | 43,879 | 68,832 | 348,199 | |||||||||
Current portion of long-term debt | 1,004 | 903 | 981 | |||||||||
Deferred revenue and other current liabilities | 190,522 | 184,560 | 189,216 | |||||||||
Total current liabilities | 393,177 | 434,857 | 939,280 | |||||||||
Long-term debt and line of credit borrowings | 1,493,828 | 1,967,206 | 1,493,017 | |||||||||
Reserves for uncertain tax positions | 138,024 | 117,553 | 159,085 | |||||||||
Deferred revenue and other noncurrent liabilities | 104,305 | 120,033 | 163,609 | |||||||||
Total liabilities | 2,129,334 | 2,639,649 | 2,754,991 | |||||||||
COMMITMENTS AND CONTINGENCIES | ||||||||||||
STOCKHOLDERS’ EQUITY: | ||||||||||||
Common stock, no par, stated value $.01 per share | 2,462 | 2,506 | 2,462 | |||||||||
Additional paid-in capital | 753,423 | 751,229 | 754,912 | |||||||||
Accumulated other comprehensive loss | (14,222 | ) | (17,122 | ) | (15,299 | ) | ||||||
Retained deficit | (433,556 | ) | (538,242 | ) | (48,206 | ) | ||||||
Less treasury shares, at cost | (720,880 | ) | (755,842 | ) | (754,752 | ) | ||||||
Total stockholders' equity (deficiency) | (412,773 | ) | (557,471 | ) | (60,883 | ) | ||||||
Total liabilities and stockholders' equity | $ | 1,716,561 | $ | 2,082,178 | $ | 2,694,108 | ||||||
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | (unaudited, in 000s) | |||||||
Six months ended October 31, | 2017 | 2016 | ||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net loss | $ | (284,133 | ) | $ | (269,893 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation and amortization | 88,390 | 87,032 | ||||||
Provision for bad debt | 4,238 | 1,286 | ||||||
Deferred taxes | 58,634 | 6,489 | ||||||
Stock-based compensation | 11,627 | 12,472 | ||||||
Changes in assets and liabilities, net of acquisitions: | ||||||||
Receivables | 77,958 | 48,653 | ||||||
Prepaid expenses and other current assets | (19,283 | ) | (7,386 | ) | ||||
Other noncurrent assets | 8,984 | 7,713 | ||||||
Accounts payable and accrued expenses | (85,846 | ) | (99,378 | ) | ||||
Accrued salaries, wages and payroll taxes | (141,491 | ) | (120,672 | ) | ||||
Deferred revenue and other current liabilities | 3,775 | (46,531 | ) | |||||
Deferred revenue and other noncurrent liabilities | (60,857 | ) | (52,548 | ) | ||||
Income tax receivables, accrued income taxes and income tax reserves | (296,023 | ) | (282,234 | ) | ||||
Other, net | (14,430 | ) | (5,379 | ) | ||||
Net cash used in operating activities | (648,457 | ) | (720,376 | ) | ||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Principal payments and sales of mortgage loans and real estate owned, net | — | 19,009 | ||||||
Capital expenditures | (56,750 | ) | (44,918 | ) | ||||
Payments made for business acquisitions, net of cash acquired | (27,522 | ) | (36,151 | ) | ||||
Franchise loans funded | (10,939 | ) | (10,171 | ) | ||||
Payments received on franchise loans | 10,322 | 14,263 | ||||||
Other, net | 5,474 | 2,177 | ||||||
Net cash used in investing activities | (79,415 | ) | (55,791 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Repayments of line of credit borrowings | — | (50,000 | ) | |||||
Proceeds from line of credit borrowings | — | 525,000 | ||||||
Dividends paid | (100,082 | ) | (95,971 | ) | ||||
Repurchase of common stock, including shares surrendered | (7,581 | ) | (215,511 | ) | ||||
Proceeds from exercise of stock options | 27,522 | 1,630 | ||||||
Other, net | (26,717 | ) | (43,734 | ) | ||||
Net cash provided by (used in) financing activities | (106,858 | ) | 121,414 | |||||
Effects of exchange rate changes on cash | (1,147 | ) | (4,110 | ) | ||||
Net decrease in cash, cash equivalents and restricted cash | (835,877 | ) | (658,863 | ) | ||||
Cash, cash equivalents and restricted cash, beginning of period | 1,117,539 | 1,000,911 | ||||||
Cash, cash equivalents and restricted cash, end of period | $ | 281,662 | $ | 342,048 | ||||
SUPPLEMENTARY CASH FLOW DATA: | ||||||||
Income taxes paid, net of refunds received | $ | 76,451 | $ | 112,339 | ||||
Interest paid on borrowings | 39,902 | 40,670 | ||||||
Accrued additions to property and equipment | 3,874 | 12,920 | ||||||
Accrued purchase of common stock | — | 7,143 | ||||||
FINANCIAL RESULTS | (unaudited, in 000s - except per share amounts) | |||||||||||||||
Three months ended October 31, | Six months ended October 31, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
REVENUES: | ||||||||||||||||
U.S. assisted tax preparation fees | $ | 36,665 | $ | 35,339 | $ | 66,628 | $ | 60,768 | ||||||||
U.S. royalties | 7,008 | 6,828 | 13,975 | 13,353 | ||||||||||||
U.S. DIY tax preparation fees | 4,263 | 3,089 | 7,489 | 6,003 | ||||||||||||
International revenues | 47,934 | 43,539 | 88,351 | 82,414 | ||||||||||||
Revenues from Refund Transfers | 1,135 | 757 | 3,951 | 3,991 | ||||||||||||
Revenues from Emerald Card® | 9,180 | 8,644 | 24,167 | 21,709 | ||||||||||||
Revenues from Peace of Mind® Extended Service Plan | 24,585 | 22,689 | 56,528 | 49,720 | ||||||||||||
Interest and fee income on Emerald Advance | 594 | 655 | 1,258 | 1,459 | ||||||||||||
Other | 9,490 | 9,792 | 16,309 | 17,100 | ||||||||||||
140,854 | 131,332 | 278,656 | 256,517 | |||||||||||||
Compensation and benefits: | ||||||||||||||||
Field wages | 57,716 | 50,096 | 105,839 | 95,139 | ||||||||||||
Other wages | 46,723 | 42,207 | 89,920 | 84,307 | ||||||||||||
Benefits and other compensation | 23,583 | 23,718 | 44,228 | 46,452 | ||||||||||||
128,022 | 116,021 | 239,987 | 225,898 | |||||||||||||
Occupancy and equipment | 105,405 | 99,037 | 203,604 | 193,408 | ||||||||||||
Marketing and advertising | 11,562 | 12,001 | 18,666 | 19,562 | ||||||||||||
Depreciation and amortization | 44,792 | 45,750 | 88,390 | 87,032 | ||||||||||||
Provision for bad debt | 1,779 | (131 | ) | 4,238 | 1,286 | |||||||||||
Supplies | 4,368 | 4,937 | 7,102 | 7,014 | ||||||||||||
Other | 60,937 | 61,739 | 117,842 | 115,063 | ||||||||||||
Total operating expenses | 356,865 | 339,354 | 679,829 | 649,263 | ||||||||||||
Other income (expense), net | 1,011 | 2,173 | 2,231 | 4,814 | ||||||||||||
Interest expense on borrowings | (21,265 | ) | (22,620 | ) | (42,542 | ) | (44,086 | ) | ||||||||
Pretax loss | (236,265 | ) | (228,469 | ) | (441,484 | ) | (432,018 | ) | ||||||||
Income tax benefit | (87,953 | ) | (85,054 | ) | (165,354 | ) | (167,577 | ) | ||||||||
Net loss from continuing operations | (148,312 | ) | (143,415 | ) | (276,130 | ) | (264,441 | ) | ||||||||
Net loss from discontinued operations | (5,254 | ) | (2,805 | ) | (8,003 | ) | (5,452 | ) | ||||||||
NET LOSS | $ | (153,566 | ) | $ | (146,220 | ) | $ | (284,133 | ) | $ | (269,893 | ) | ||||
BASIC AND DILUTED LOSS PER SHARE: | ||||||||||||||||
Continuing operations | $ | (0.71 | ) | $ | (0.67 | ) | $ | (1.33 | ) | $ | (1.21 | ) | ||||
Discontinued operations | (0.03 | ) | (0.01 | ) | (0.03 | ) | (0.03 | ) | ||||||||
Consolidated | $ | (0.74 | ) | $ | (0.68 | ) | $ | (1.36 | ) | $ | (1.24 | ) | ||||
Weighted average basic and diluted shares | 209,065 | 215,535 | 208,500 | 218,009 | ||||||||||||
EBITDA from continuing operations (1) | $ | (170,208 | ) | $ | (160,099 | ) | $ | (310,552 | ) | $ | (300,900 | ) | ||||
(1) | See "Non-GAAP Financial Information" for a reconciliation of non-GAAP measures. |
Three months ended October 31, | Six months ended October 31, | |||||||||||||||
NON-GAAP FINANCIAL MEASURE - EBITDA | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Net loss - as reported | $ | (153,566 | ) | $ | (146,220 | ) | $ | (284,133 | ) | $ | (269,893 | ) | ||||
Discontinued operations, net | 5,254 | 2,805 | 8,003 | 5,452 | ||||||||||||
Net loss from continuing operations - as reported | (148,312 | ) | (143,415 | ) | (276,130 | ) | (264,441 | ) | ||||||||
Add back: | ||||||||||||||||
Income taxes of continuing operations | (87,953 | ) | (85,054 | ) | (165,354 | ) | (167,577 | ) | ||||||||
Interest expense of continuing operations | 21,265 | 22,620 | 42,542 | 44,086 | ||||||||||||
Depreciation and amortization of continuing operations | 44,792 | 45,750 | 88,390 | 87,032 | ||||||||||||
(21,896 | ) | (16,684 | ) | (34,422 | ) | (36,459 | ) | |||||||||
EBITDA from continuing operations | $ | (170,208 | ) | $ | (160,099 | ) | $ | (310,552 | ) | $ | (300,900 | ) | ||||
Three months ended October 31, | Six months ended October 31, | |||||||||||||||
Supplemental Information | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Stock-based compensation expense: | ||||||||||||||||
Pretax | $ | 6,811 | $ | 6,931 | $ | 11,627 | $ | 12,472 | ||||||||
After-tax | 4,402 | 4,467 | 7,525 | 7,946 | ||||||||||||
Amortization of intangible assets: | ||||||||||||||||
Pretax | $ | 19,438 | $ | 20,051 | $ | 38,673 | $ | 38,037 | ||||||||
After-tax | 12,557 | 12,940 | 25,029 | 24,233 | ||||||||||||