H&R Block Announces Fiscal 2019 Third Quarter Results, Reiterates Financial Outlook for Fiscal Year
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H&R Block Announces Fiscal 2019 Third Quarter Results, Reiterates Financial Outlook for Fiscal Year

KANSAS CITY, Mo. - March 07, 2019 // GLOBE NEWSWIRE // - H&R Block, Inc. (NYSE: HRB) today released its U.S. tax return volume through February 28, 2019 and financial results for the fiscal 2019 third quarter ended January 31, 2019. The company normally reports a fiscal third quarter loss due to the seasonality of its tax business.

Tax Season and Fiscal Third Quarter Highlights1

  • Delay in tax returns filed industry wide impacted fiscal third quarter results; company reiterates its financial outlook for the full fiscal year.
  • H&R Block total U.S. returns declined through February 28, as growth in DIY returns was offset by a decline in Assisted returns; the decline in Assisted returns was anticipated due to the discontinuation of the Free Federal 1040EZ promotion.
  • Revenues for the fiscal third quarter ended January 31, 2019 decreased $20 million, or 4 percent, to $468 million primarily due to a delay in overall industry filings.
  • Pretax loss from continuing operations increased 31 percent to $159 million; however, loss per share from continuing operations2 improved from $1.16 to $0.58 due to the impact of corporate tax rate changes in the prior year.

Tax Season Results3

H&R Block total U.S. return volume decreased 1.2% through February 28, as an increase in DIY returns of 6.4% was offset by a 6.5% decrease in Assisted returns. On a comparable basis with the most recent IRS data for this tax season, the company grew market share in DIY due to product enhancements and improved conversion. In Assisted, when comparing to the most recent IRS data for this tax season, the business was down modestly in market share, which was expected due to the discontinuation of its Free Federal 1040EZ promotion.

"The significant improvements we've made across our business have resulted in increased client satisfaction scores related to our new upfront and transparent pricing, third party accolades for our DIY products, and growth in our virtual offerings so far this tax season," said Jeff Jones, H&R Block's president and chief executive officer. "H&R Block is leading the way in the tax industry with offerings that span the full spectrum of tax preparation, whether clients want little to no help, complete in-person assistance, or anything in between."

Fiscal 2019 Third Quarter Results From Continuing Operations

"The slow start to the tax season for the industry impacted the timing of our business, lowering financial results for our fiscal third quarter," said Tony Bowen, H&R Block's chief financial officer. "We remain on track with our strategic and operational plans and expect to achieve our financial outlook for the fiscal year."

(in millions, except EPS) Q3 FY2019 Q3 FY2018
Revenue $ 468   $ 488  
Pretax Loss $ (159 ) $ (121 )
Net Loss $ (120 ) $ (243 )
Weighted-Avg. Shares - Diluted 205.5   209.1  
EPS2 $ (0.58 ) $ (1.16 )
EBITDA4 $ (92 ) $ (48 )

Key Financial Metrics

  • Total revenues decreased $20.0 million, or 4.1 percent, to $468.4 million primarily due to lower Assisted tax preparation revenues and royalties as a result of the delay in overall filings with the IRS.
  • Total operating expenses increased $20.8 million, or 3.5 percent, to $606.5 million primarily due to technology spend related to long-term initiatives and marketing, bad debt, and supplies expense.
  • Pretax loss increased $37.9 million, or 31.3 percent, to $158.7 million.
  • Loss per share from continuing operations improved from $1.16 to $0.58, due to the impact of corporate tax rate changes in the prior year.  These changes resulted in an income tax expense in the third quarter of fiscal 2018, as opposed to an income tax benefit, which is customary in fiscal quarters in which the company has a seasonal pretax loss.

Dividends

As previously announced, a quarterly cash dividend of $0.25 per share is payable on April 1, 2019 to shareholders of record as of March 18, 2019. H&R Block has paid quarterly dividends consecutively since the company went public in 1962.

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 2019 third quarter results, outlook, and a general business update will occur during the company’s previously announced fiscal third quarter earnings conference call for analysts, institutional investors, and shareholders. The call is scheduled for 8:30 a.m. Eastern time on March 7, 2019. 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: 5364734

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 Webcasts and Presentations page at http://investors.hrblock.com following the conclusion of the call.

A replay of the call will be available beginning at 11:30 a.m. Eastern time on March 7, 2019, and continuing until April 7, 2019, by dialing (855) 859-2056 (U.S./Canada) or (404) 537-3406 (International). The conference ID is 5364734. The webcast will be available for replay beginning on March 8, 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 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 Blocktax software products for the DIY consumer. H&R Block also offers adjacent Tax Plus products and services. In fiscal 2018, H&R Block had annual revenues of over $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, 2018 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 fully diluted shares at the end of the corresponding period.

3 Volume changes to prior year noted in this paragraph and in the table attached to this release are based on a date-to-date basis. Comparisons to IRS data are on a day-to-day basis as of February 22, 2019.

4 The company reports non-GAAP financial measures of performance, including earnings before interest, tax, depreciation, and amortization (EBITDA) from continuing operations, EBITDA margin from continuing operations, and free cash flow 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).

Contacts:

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 January 31,   Nine months ended January 31,
  2019   2018   2019   2018
               
REVENUES:              
Service revenues $ 373,659     $ 388,771     $ 627,786     $ 641,389  
Royalty, product and other revenues 94,725     99,655     134,652     125,693  
  468,384     488,426     762,438     767,082  
OPERATING EXPENSES:              
Costs of revenues 421,026     416,601     893,401     884,335  
Selling, general and administrative 185,458     169,098     404,517     381,193  
Total operating expenses 606,484     585,699     1,297,918     1,265,528  
               
Other income (expense), net 2,269     1,028     11,275     3,259  
Interest expense on borrowings (22,833 )   (24,560 )   (65,214 )   (67,102 )
Loss from continuing operations before income taxes (benefit) (158,664 )   (120,805 )   (589,419 )   (562,289 )
Income taxes (benefit) (38,885 )   122,120     (149,906 )   (43,234 )
Net loss from continuing operations (119,779 )   (242,925 )   (439,513 )   (519,055 )
Net loss from discontinued operations (6,675 )   (2,720 )   (15,887 )   (10,723 )
NET LOSS $ (126,454 )   $ (245,645 )   $ (455,400 )   $ (529,778 )
               
BASIC AND DILUTED LOSS PER SHARE:              
Continuing operations $ (0.58 )   $ (1.16 )   $ (2.13 )   $ (2.49 )
Discontinued operations (0.04 )   (0.02 )   (0.08 )   (0.05 )
Consolidated $ (0.62 )   $ (1.18 )   $ (2.21 )   $ (2.54 )
               
WEIGHTED AVERAGE BASIC AND DILUTED SHARES 205,532     209,080     206,242     208,693  
               

 

CONSOLIDATED BALANCE SHEETS   (unaudited, in 000s - except per share data)
As of   January 31, 2019   January 31, 2018   April 30, 2018
             
ASSETS            
Cash and cash equivalents   $ 203,226     $ 187,366     $ 1,544,944  
Cash and cash equivalents - restricted   101,903     83,033     118,734  
Receivables, net   758,217     791,618     146,774  
Income taxes receivable   36,486     72,775     12,310  
Prepaid expenses and other current assets   134,820     149,349     68,951  
Total current assets   1,234,652     1,284,141     1,891,713  
Property and equipment, net   220,505     249,911     231,888  
Intangible assets, net   356,952     390,993     373,981  
Goodwill   520,005     504,789     507,871  
Deferred tax assets and income taxes receivable   141,366     25,305     34,095  
Other noncurrent assets   95,326     106,161     101,401  
Total assets   $ 2,568,806     $ 2,561,300     $ 3,140,949  
LIABILITIES AND STOCKHOLDERS’ EQUITY            
LIABILITIES:            
Accounts payable and accrued expenses   $ 202,101     $ 163,653     $ 251,975  
Accrued salaries, wages and payroll taxes   140,902     135,626     141,499  
Accrued income taxes and reserves for uncertain tax positions   49,009     164,246     263,050  
Current portion of long-term debt       1,015     1,026  
Deferred revenue and other current liabilities   195,634     201,988     186,101  
Total current liabilities   587,646     666,528     843,651  
Long-term debt and line of credit borrowings   1,876,989     2,284,231     1,494,609  
Deferred tax liabilities and reserves for uncertain tax positions   214,217     201,384     229,430  
Deferred revenue and other noncurrent liabilities   103,545     107,226     179,548  
Total liabilities   2,782,397     3,259,369     2,747,238  
COMMITMENTS AND CONTINGENCIES            
STOCKHOLDERS’ EQUITY:            
Common stock, no par, stated value $.01 per share   2,415     2,462     2,462  
Additional paid-in capital   764,982     758,361     760,250  
Accumulated other comprehensive loss   (17,642 )   (9,374 )   (14,303 )
Retained earnings (deficit)   (254,277 )   (729,578 )   362,980  
Less treasury shares, at cost   (709,069 )   (719,940 )   (717,678 )
Total stockholders' equity (deficiency)   (213,591 )   (698,069 )   393,711  
Total liabilities and stockholders' equity   $ 2,568,806     $ 2,561,300     $ 3,140,949  
             

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS   (unaudited, in 000s)
Nine months ended January 31,   2019   2018
CASH FLOWS FROM OPERATING ACTIVITIES:        
Net loss   $ (455,400 )   $ (529,778 )
Adjustments to reconcile net loss to net cash used in operating activities:        
Depreciation and amortization   126,013     136,878  
Provision for bad debt   35,009     33,429  
Deferred taxes   20,557     113,345  
Stock-based compensation   18,009     17,065  
Changes in assets and liabilities, net of acquisitions:        
Receivables   (640,482 )   (651,200 )
Prepaid expenses and other current assets   (66,497 )   (83,201 )
Other noncurrent assets   9,662     8,310  
Accounts payable and accrued expenses   (47,510 )   (36,608 )
Accrued salaries, wages and payroll taxes   (465 )   (49,255 )
Deferred revenue and other current liabilities   3,990     10,113  
Deferred revenue and other noncurrent liabilities   (70,794 )   (58,695 )
Income tax receivables, accrued income taxes and income tax reserves   (277,240 )   (255,650 )
Other, net   (2,308 )   (12,454 )
Net cash used in operating activities   (1,347,456 )   (1,357,701 )
         
CASH FLOWS FROM INVESTING ACTIVITIES:        
Capital expenditures   (79,982 )   (77,865 )
Payments made for business acquisitions, net of cash acquired   (42,428 )   (39,397 )
Franchise loans funded   (16,875 )   (20,226 )
Payments received on franchise loans   15,149     13,391  
Other, net   4,877     1,524  
Net cash used in investing activities   (119,259 )   (122,573 )
         
CASH FLOWS FROM FINANCING ACTIVITIES:        
Repayments of line of credit borrowings   (230,000 )   (40,000 )
Proceeds from line of credit borrowings   615,000     830,000  
Dividends paid   (154,866 )   (150,258 )
Repurchase of common stock, including shares surrendered   (102,152 )   (7,746 )
Proceeds from exercise of stock options   2,527     28,268  
Other, net   (20,126 )   (28,922 )
Net cash provided by financing activities   110,383     631,342  
         
Effects of exchange rate changes on cash   (2,217 )   1,792  
         
Net decrease in cash, cash equivalents and restricted cash   (1,358,549 )   (847,140 )
Cash, cash equivalents and restricted cash, beginning of period   1,663,678     1,117,539  
Cash, cash equivalents and restricted cash, end of period   $ 305,129     $ 270,399  
         
SUPPLEMENTARY CASH FLOW DATA:        
Income taxes paid, net of refunds received   $ 103,789     $ 102,755  
Interest paid on borrowings   55,581     57,834  
Accrued additions to property and equipment   2,241     1,078  
Accrued purchase of common stock   12,301      
         

 

FINANCIAL RESULTS (unaudited, in 000s - except per share amounts)
  Three months ended January 31,   Nine months ended January 31,
  2019   2018   2019   2018
REVENUES:              
U.S. assisted tax preparation $ 256,813     $ 267,328     $ 329,569     $ 333,956  
U.S. royalties 42,265     45,420     57,898     59,395  
U.S. DIY tax preparation 31,885     31,322     37,660     38,811  
International revenues 12,304     12,308     96,980     100,659  
Revenues from Refund Transfers 47,482     50,770     49,466     54,721  
Revenues from Emerald Card® 14,980     16,125     38,704     40,292  
Revenues from Peace of Mind® Extended Service Plan 16,596     19,967     77,491     76,495  
Revenues from Tax Identity Shield® 7,655     6,818     17,639     7,329  
Interest and fee income on Emerald AdvanceTM 30,924     31,075     31,768     32,333  
Other 7,480     7,293     25,263     23,091  
  468,384     488,426     762,438     767,082  
Compensation and benefits:              
Field wages 153,764     156,027     262,792     261,866  
Other wages 54,243     50,717     152,111     140,637  
Benefits and other compensation 42,778     42,156     89,887     86,384  
  250,785     248,900     504,790     488,887  
Occupancy (1) 94,407     97,557     290,013     282,755  
Marketing and advertising 72,876     64,209     88,356     82,875  
Depreciation and amortization 44,088     48,488     126,013     136,878  
Bad debt 33,861     29,191     33,191     33,429  
Supplies 9,950     4,950     15,343     12,052  
Other (1) 100,517     92,404     240,212     228,652  
Total operating expenses 606,484     585,699     1,297,918     1,265,528  
               
Other income (expense), net 2,269     1,028     11,275     3,259  
Interest expense on borrowings (22,833 )   (24,560 )   (65,214 )   (67,102 )
Pretax loss (158,664 )   (120,805 )   (589,419 )   (562,289 )
Income taxes (benefit) (38,885 )   122,120     (149,906 )   (43,234 )
Net loss from continuing operations (119,779 )   (242,925 )   (439,513 )   (519,055 )
Net loss from discontinued operations (6,675 )   (2,720 )   (15,887 )   (10,723 )
NET LOSS $ (126,454 )   $ (245,645 )   $ (455,400 )   $ (529,778 )
               
BASIC AND DILUTED LOSS PER SHARE:              
Continuing operations $ (0.58 )   $ (1.16 )   $ (2.13 )   $ (2.49 )
Discontinued operations (0.04 )   (0.02 )   (0.08 )   (0.05 )
Consolidated $ (0.62 )   $ (1.18 )   $ (2.21 )   $ (2.54 )
               
Weighted average basic and diluted shares 205,532     209,080     206,242     208,693  
               
EBITDA from continuing operations (2) $ (91,743 )   $ (47,757 )   $ (398,192 )   $ (358,309 )
               

 

(1) We reclassified $10.2 million and $28.6 million of software and information technology (IT) maintenance expense from occupancy to other expenses for the three and nine months ended January 31, 2018, respectively, to conform to the current period presentation.
(2) See "Non-GAAP Financial Information" for a reconciliation of non-GAAP measures.

 

U.S. TAX OPERATING DATA                      
  Fiscal Year-to-Date       Fiscal Year-to-Date    
  January 31,       February 28,    
  2019   2018   % Change   2019   2018   % Change
                       
Tax Returns Prepared: (in 000s) (1) (2)                      
Company-Owned Operations 1,310     1,453     (9.8 ) %   4,101     4,429     (7.4 ) %
Franchise Operations 657     707     (7.1 ) %   1,938     2,028     (4.4 ) %
  Total H&R Block Assisted 1,967     2,160     (8.9 ) %   6,039     6,457     (6.5 ) %
                       
Desktop 128     151     (15.2 ) %   706     764     (7.6 ) %
Online 1,164     1,126     3.4   %   3,480     3,170     9.8   %
Total H&R Block DIY 1,292     1,277     1.2   %   4,186     3,934     6.4   %
                       
IRS Free File 101     94     7.4   %   340     306     11.1   %
Total H&R Block Returns 3,360     3,531     (4.8 ) %   10,565     10,697     (1.2 ) %
                       
Net Average Charge: (3)                      
Company-Owned Operations $ 252.60     $ 236.38     6.9   %   $ 231.64     $ 223.03     3.9   %
Franchise Operations (4) 244.08     224.00     9.0   %   218.78     205.21     6.6   %
DIY 29.15     30.39     (4.1 ) %   27.29     27.71     (1.5 ) %
                       

 

(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 less than 1% of assisted tax returns. A DIY 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) Net average charge is calculated as tax preparation fees divided by tax returns prepared. For DIY, net average charge excludes IRS Free File.
(4) Net average charge related to H&R Block Franchise Operations represents tax preparation fees collected by H&R Block franchisees divided by returns prepared in franchise offices.  H&R Block will recognize a portion of franchise revenues as franchise royalties based on the terms of franchise agreements.

 

    Three months ended January 31,   Nine months ended January 31,
NON-GAAP FINANCIAL MEASURE - EBITDA   2019   2018   2019   2018
                 
Net loss - as reported   $ (126,454 )   $ (245,645 )   $ (455,400 )   $ (529,778 )
Discontinued operations, net   6,675     2,720     15,887     10,723  
Net loss from continuing operations - as reported   (119,779 )   (242,925 )   (439,513 )   (519,055 )
Add back:                
Income taxes of continuing operations   (38,885 )   122,120     (149,906 )   (43,234 )
Interest expense of continuing operations   22,833     24,560     65,214     67,102  
Depreciation and amortization of continuing operations   44,088     48,488     126,013     136,878  
    28,036     195,168     41,321     160,746  
                 
EBITDA from continuing operations   $ (91,743 )   $ (47,757 )   $ (398,192 )   $ (358,309 )
                 
    Three months ended January 31,   Nine months ended January 31,
Supplemental Information   2019   2018   2019   2018
                 
Stock-based compensation expense:                
Pretax   $ 6,170     $ 5,438     $ 18,009     $ 17,065  
After-tax   4,440     8,228     13,429     15,753  
Amortization of intangible assets:                
Pretax   $ 18,737     $ 20,792     $ 54,461     $ 59,465  
After-tax   13,487     29,863     40,612     54,892  
                 

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, EBITDA margin from continuing operations, and free cash flow. We also use EBITDA from continuing operations and pretax income from continuing operations, each subject to permitted adjustments, as performance metrics in incentive compensation calculations for our employees.

Source: HRB Tax Group, Inc.

###

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