KANSAS CITY, Mo., Dec. 06, 2018 (GLOBE NEWSWIRE) -- H&R Block, Inc. (NYSE: HRB) today released its financial results for the fiscal 2019 second quarter ended October 31, 2018.  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 percent of annual revenues and less than 15 percent of annual expenses.

Fiscal Second Quarter Highlights1

  • Fiscal second quarter financial results were in line with expectations.
  • Revenues increased $8 million, or 6 percent, to $149 million primarily due to increased Assisted tax preparation revenues and the timing of revenues related to the company's Tax Plus products.
  • Pretax loss from continuing operations improved 2 percent to $232 million; loss per share from continuing operations2 increased $0.12 to $0.83 due to a lower effective tax rate, which negatively impacts those fiscal quarters with a seasonal net loss.
  • The company reiterated its financial outlook for the full fiscal year.

"We’re implementing a number of initiatives for the upcoming tax season that will significantly improve the way clients interact with H&R Block, including our industry-leading announcement of upfront, transparent pricing in all of our channels," said Jeff Jones, H&R Block's president and chief executive officer.  "This, combined with our innovative virtual tax offerings will help us deliver unique and better experiences to consumers, bring our brand promise to life, and allow us to deliver for the long term."

Fiscal 2019 Second Quarter Results From Continuing Operations

"The fiscal second quarter results reflect planned increases in expenses related to strategic investments being made in the business," said Tony Bowen, H&R Block's chief financial officer.  "We are focused on executing the operational elements of our strategy for the upcoming tax season, and remain on track to achieve our financial outlook for the fiscal year."

     
(in millions, except EPS) Q2 FY2019 Q2 FY2018
Revenue $149  $141 
Pretax Loss $(232) $(236)
Net Loss $(171) $(148)
Weighted-Avg. Shares - Diluted 205.5  209.1 
EPS2 $(0.83) $(0.71)
EBITDA3 $(169) $(170)
     

Key Financial Metrics

  • Total revenues increased $8.0 million, or 5.7 percent, to $148.9 million primarily due to increased Assisted tax preparation revenues and the timing of revenues from Tax Identity Shield®, partially offset by lower international revenues related to fluctuations in exchange rates.
  • Total operating expenses increased $7.3 million, or 2.0 percent, to $364.1 million primarily due to increases in occupancy and compensation expenses, partially offset by lower depreciation and amortization and the timing of marketing expense.
  • Pretax loss improved $4.3 million, or 1.8 percent, to $232.0 million.
  • Loss per share from continuing operations increased $0.12, from $0.71 to $0.83, due to a lower effective tax rate, which negatively impacts those fiscal quarters with a seasonal net loss.

Dividends

As previously announced, a quarterly cash dividend of $0.25 per share is payable on January 2, 2019 to shareholders of record as of December 3, 2018.  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 second quarter results, future 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 8:30 a.m. Eastern time on December 6, 2018. 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: 8661109

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 December 6, 2018, and continuing until January 6, 2019, by dialing (855) 859-2056 (U.S./Canada) or (404) 537-3406 (International). The conference ID is 8661109. The webcast will be available for replay beginning on December 7, 2018 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 Block tax 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, guidance from the Internal Revenue Service, SEC, or the Financial Accounting Standards Board about the Tax Legislation, 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 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).

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,
  2018 2017 2018 2017
         
REVENUES:        
Service revenues $127,267  $127,923  $254,127  $252,618 
Royalty, product and other revenues 21,604  12,931  39,927  26,038 
  148,871  140,854  294,054  278,656 
OPERATING EXPENSES:        
Costs of revenues 250,815  240,019  472,375  467,734 
Selling, general and administrative 113,319  116,846  219,059  212,095 
Total operating expenses 364,134  356,865  691,434  679,829 
         
Other income (expense), net 4,464  1,011  9,006  2,231 
Interest expense on borrowings (21,191) (21,265) (42,381) (42,542)
Loss from continuing operations before income tax benefit (231,990) (236,265) (430,755) (441,484)
Income tax benefit (61,053) (87,953) (111,021) (165,354)
Net loss from continuing operations (170,937) (148,312) (319,734) (276,130)
Net loss from discontinued operations (5,339) (5,254) (9,212) (8,003)
NET LOSS $(176,276) $(153,566) $(328,946) $(284,133)
         
BASIC AND DILUTED LOSS PER SHARE:        
Continuing operations $(0.83) $(0.71) $(1.55) $(1.33)
Discontinued operations (0.03) (0.03) (0.04) (0.03)
Consolidated $(0.86) $(0.74) $(1.59) $(1.36)
         
WEIGHTED AVERAGE BASIC AND DILUTED SHARES 205,520  209,065  206,596  208,500 
         


             
CONSOLIDATED BALANCE SHEETS (unaudited, in 000s - except per share data)
As of October 31, 2018 October 31, 2017 April 30, 2018
       
ASSETS      
Cash and cash equivalents $600,799  $180,997  $1,544,944 
Cash and cash equivalents - restricted 122,507  100,665  118,734 
Receivables, net 61,286  77,750  146,774 
Income taxes receivable 18,745    12,310 
Prepaid expenses and other current assets 87,665  85,204  68,951 
Total current assets 891,002  444,616  1,891,713 
Property and equipment, net 241,772  262,226  231,888 
Intangible assets, net 364,524  406,440  373,981 
Goodwill 507,191  493,059  507,871 
Deferred tax assets and income taxes receivable 130,987  9,205  34,095 
Other noncurrent assets 97,820  101,015  101,401 
Total assets $2,233,296  $1,716,561  $3,140,949 
LIABILITIES AND STOCKHOLDERS’ EQUITY      
LIABILITIES:      
Accounts payable and accrued expenses $114,393  $114,875  $251,975 
Accrued salaries, wages and payroll taxes 43,396  42,897  141,499 
Accrued income taxes and reserves for uncertain tax positions 94,257  43,879  263,050 
Current portion of long-term debt   1,004  1,026 
Deferred revenue and other current liabilities 183,675  190,522  186,101 
Total current liabilities 435,721  393,177  843,651 
Long-term debt 1,491,328  1,493,828  1,494,609 
Deferred tax liabilities and reserves for uncertain tax positions 235,799  138,024  229,430 
Deferred revenue and other noncurrent liabilities 101,773  104,305  179,548 
Total liabilities 2,264,621  2,129,334  2,747,238 
COMMITMENTS AND CONTINGENCIES      
STOCKHOLDERS’ EQUITY:      
Common stock, no par, stated value $.01 per share 2,420  2,462  2,462 
Additional paid-in capital 759,235  753,423  760,250 
Accumulated other comprehensive loss (18,880) (14,222) (14,303)
Retained earnings (deficit) (64,291) (433,556) 362,980 
Less treasury shares, at cost (709,809) (720,880) (717,678)
Total stockholders' equity (deficiency) (31,325) (412,773) 393,711 
Total liabilities and stockholders' equity $2,233,296  $1,716,561  $3,140,949 
       


   
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited, in 000s)
Six months ended October 31, 2018 2017
CASH FLOWS FROM OPERATING ACTIVITIES:    
Net loss $(328,946) $(284,133)
Adjustments to reconcile net loss to net cash used in operating activities:    
Depreciation and amortization 81,925  88,390 
Provision for bad debt 2,350  4,238 
Deferred taxes 17,913  58,634 
Stock-based compensation 11,839  11,627 
Changes in assets and liabilities, net of acquisitions:    
Receivables 75,324  77,958 
Prepaid expenses and other current assets (18,933) (19,283)
Other noncurrent assets 9,147  8,984 
Accounts payable and accrued expenses (120,921) (85,846)
Accrued salaries, wages and payroll taxes (97,771) (141,491)
Deferred revenue and other current liabilities (10,408) 3,775 
Deferred revenue and other noncurrent liabilities (70,606) (60,857)
Income tax receivables, accrued income taxes and income tax reserves (179,660) (296,023)
Other, net 1,056  (14,430)
Net cash used in operating activities (627,691) (648,457)
     
CASH FLOWS FROM INVESTING ACTIVITIES:    
Capital expenditures (66,422) (56,750)
Payments made for business acquisitions, net of cash acquired (24,549) (27,522)
Franchise loans funded (8,915) (10,939)
Payments received on franchise loans 11,689  10,322 
Other, net 4,993  5,474 
Net cash used in investing activities (83,204) (79,415)
     
CASH FLOWS FROM FINANCING ACTIVITIES:    
Dividends paid (103,484) (100,082)
Repurchase of common stock, including shares surrendered (102,096) (7,581)
Proceeds from exercise of stock options 1,746  27,522 
Other, net (22,434) (26,717)
Net cash used in financing activities (226,268) (106,858)
     
Effects of exchange rate changes on cash (3,209) (1,147)
     
Net decrease in cash, cash equivalents and restricted cash (940,372) (835,877)
Cash, cash equivalents and restricted cash, beginning of period 1,663,678  1,117,539 
Cash, cash equivalents and restricted cash, end of period $723,306  $281,662 
     
SUPPLEMENTARY CASH FLOW DATA:    
Income taxes paid, net of refunds received $50,197  $76,451 
Interest paid on borrowings 39,902  39,902 
Accrued additions to property and equipment 4,765  3,874 
     


   
FINANCIAL RESULTS (unaudited, in 000s - except per share amounts)
  Three months ended October 31, Six months ended October 31,
  2018 2017 2018 2017
REVENUES:        
U.S. assisted tax preparation $41,652  $36,665  $72,756  $66,628 
U.S. royalties 8,062  7,008  15,633  13,975 
U.S. DIY tax preparation 2,994  4,263  5,775  7,489 
International revenues 45,497  47,934  84,676  88,351 
Revenues from Refund Transfers 560  1,135  1,984  3,951 
Revenues from Emerald Card® 9,478  9,180  23,724  24,167 
Revenues from Peace of Mind® Extended Service Plan 24,318  24,585  60,895  56,528 
Revenues from Tax Identity Shield® 5,243  257  9,984  511 
Interest and fee income on Emerald Advance 397  594  844  1,258 
Other 10,670  9,233  17,783  15,798 
  148,871  140,854  294,054  278,656 
Compensation and benefits:        
Field wages 59,096  57,716  109,028  105,839 
Other wages 50,046  46,723  97,868  89,920 
Benefits and other compensation 24,178  23,583  47,109  44,228 
  133,320  128,022  254,005  239,987 
Occupancy 104,880  94,907  195,606  185,198 
Marketing and advertising 8,586  11,562  15,480  18,666 
Depreciation and amortization 41,493  44,792  81,925  88,390 
Bad debt 188  1,779  (670) 4,238 
Supplies 3,189  4,368  5,393  7,102 
Other 72,478  71,435  139,695  136,248 
Total operating expenses 364,134  356,865  691,434  679,829 
         
Other income (expense), net 4,464  1,011  9,006  2,231 
Interest expense on borrowings (21,191) (21,265) (42,381) (42,542)
Pretax loss (231,990) (236,265) (430,755) (441,484)
Income tax benefit (61,053) (87,953) (111,021) (165,354)
Net loss from continuing operations (170,937) (148,312) (319,734) (276,130)
Net loss from discontinued operations (5,339) (5,254) (9,212) (8,003)
NET LOSS $(176,276) $(153,566) $(328,946) $(284,133)
         
BASIC AND DILUTED LOSS PER SHARE:        
Continuing operations $(0.83) $(0.71) $(1.55) $(1.33)
Discontinued operations (0.03) (0.03) (0.04) (0.03)
Consolidated $(0.86) $(0.74) $(1.59) $(1.36)
         
Weighted average basic and diluted shares 205,520  209,065  206,596  208,500 
         
EBITDA from continuing operations (1) $(169,306) $(170,208) $(306,449) $(310,552)
         

(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 2018 2017 2018 2017
         
Net loss - as reported $(176,276) $(153,566) $(328,946) $(284,133)
Discontinued operations, net 5,339  5,254  9,212  8,003 
Net loss from continuing operations - as reported (170,937) (148,312) (319,734) (276,130)
Add back:        
Income taxes of continuing operations (61,053) (87,953) (111,021) (165,354)
Interest expense of continuing operations 21,191  21,265  42,381  42,542 
Depreciation and amortization of continuing operations 41,493  44,792  81,925  88,390 
  1,631  (21,896) 13,285  (34,422)
         
EBITDA from continuing operations $(169,306) $(170,208) $(306,449) $(310,552)
         
         
         
  Three months ended October 31, Six months ended October 31,
Supplemental Information 2018 2017 2018 2017
         
Stock-based compensation expense:        
Pretax $7,480  $6,811  $11,839  $11,627 
After-tax 5,715  4,402  8,989  7,525 
Amortization of intangible assets:        
Pretax $17,585  $19,438  $35,724  $38,673 
After-tax 13,503  12,557  27,125  25,029 
         

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.