H&R Block Announces Fiscal 2020 Second Quarter Results and Reiterates Fiscal Year Outlook

Dec 4, 2019

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 operations^2,3 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 EPS^2,3	$	(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, 2019. H&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.

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.
²	All per share amounts are based on weighted average fully diluted shares over the corresponding period.
³	Adjusted 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).
⁴	Earnings 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)

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.

Source: HRB Tax Group, Inc.

Press Release Details

H&R Block Announces Fiscal 2020 Second Quarter Results and Reiterates Fiscal Year Outlook