SOURCE: H & R Block

H & R Block

December 08, 2014 16:05 ET

H&R Block Announces Fiscal 2015 Second Quarter Results

KANSAS CITY, MO--(Marketwired - December 08, 2014) - H&R Block, Inc. (NYSE: HRB), the world's largest consumer tax services provider, today announced its financial results for the fiscal 2015 second quarter ended October 31, 2014. The company typically reports a second quarter operating loss due to the seasonality of its core U.S. tax business.

Second Quarter 2015 Highlights1
 Total revenues increased to $135 million
 Seasonal net loss from continuing operations increased 10 percent to $113 million, or $0.41 per share2
 Non-GAAP adjusted loss per share3 from continuing operations of $0.45
 Declared 209th consecutive quarterly dividend

CEO Perspective
"I am pleased with the progress we've made this offseason in preparation for tax season 2015. We've made important investments in our business this year, which will enable us to improve the customer experience and operate more productively in the coming years," said Bill Cobb, H&R Block's president and chief executive officer. "Our Tax Plus strategy is yielding results, and we look forward to continuing our strong momentum this tax season."

Second Quarter Results From Continuing Operations

    Actual   Adjusted
(in millions, except EPS)   Fiscal Year 2015   Fiscal Year 2014   Fiscal Year 2015   Fiscal Year 2014
Revenue   $ 135     $ 134     $ 135     $ 134  
EBITDA   $ (148 )   $ (138 )   $ (149 )   $ (142 )
Pretax Loss   $ (201 )   $ (179 )   $ (202 )   $ (183 )
Net Loss   $ (113 )   $ (103 )   $ (126 )   $ (112 )
Weighted-Avg. Shares - Diluted    275.1      273.9      275.1      273.9  
EPS   $ (0.41 )   $ (0.38 )   $ (0.45 )   $ (0.42 )
                             

Business Segment Results and Highlights
Tax Services

  • Revenues increased 1 percent to $129 million, driven by higher tax prep fees in the U.S. and Australia, and improved off season usage of the H&R Block Prepaid MasterCard, the Emerald Card®
  • Total operating expenses increased 6 percent to $302 million, driven by higher depreciation and amortization from planned office and technology upgrades and increased wages
  • Adjusted non-GAAP pretax loss increased 13 percent to $178 million

Corporate

  • Total expenses increased $1 million to $30 million, primarily due to higher wages, partially offset by lower provisions for losses on mortgage loans held for investment
  • Pretax loss increased by $4 million to $24 million

Discontinued Operations

  • Net income of $1 million compared to net loss of $2 million in the prior year
  • Sand Canyon Corporation (SCC), a separate legal entity from H&R Block, Inc., continued to engage in constructive settlement discussions with counterparties that have made and are expected to assert a significant majority of previously denied and possible future representation and warranty claims
  • On December 5, SCC entered into a settlement agreement to resolve certain of these claims. The amount to be paid under the settlement agreement is fully covered by prior accruals
  • SCC's accrual for contingent losses related to representation and warranty claims remained unchanged at $194 million at October 31

Dividends
A previously announced quarterly cash dividend of 20 cents per share is payable on Jan. 2, 2015 to shareholders of record as of Dec. 8, 2014. The January 2 dividend payment will be H&R Block's 209th consecutive quarterly dividend since the company went public in 1962.

Investor Conference
At 8:30 a.m. EST on Tuesday, December 9, the company will hold its investor conference in New York City. H&R Block's senior leaders will outline the company's strategies and outlook, and provide a general business update including discussion of fiscal 2015 second quarter results.

The event will be broadcast live in a listen-only format for the media and public on H&R Block's investor relations website at http://investors.hrblock.com. A replay will be available on the company's website two hours after the conference ends and continuing until February 28, 2015.

About H&R Block
H&R Block, Inc. (NYSE: HRB) is the world's largest consumer tax services provider. More than 650 million tax returns have been prepared worldwide by and through H&R Block since 1955. In fiscal 2014, H&R Block had annual revenues over $3.0 billion with 24.2 million tax returns prepared worldwide. Tax return preparation services are provided in approximately 12,000 company-owned and franchise retail tax offices worldwide by professional tax preparers, and through H&R Block Tax Software products. H&R Block Bank provides affordable banking products and services. For more information, visit the H&R Block Newsroom at http://newsroom.hrblock.com/.

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 may contain 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," "seeks," "estimates," "projects," "forecasts," "targets," "would," "will," "should," "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, income, earnings per share, capital expenditures, dividends, liquidity, capital structure 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 and which are described in our Annual Report on Form 10-K for the fiscal year ended April 30, 2014 in the section entitled "Risk Factors," as well as additional factors we may describe from time to time in other filings with the Securities and Exchange Commission. 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.
3 The company reports adjusted financial performance, which it believes is a better indication of the company's recurring operations.  The company also reports EBITDA (earnings before interest, taxes, depreciation and amortization), a non-GAAP financial measure, which the company finds relevant when measuring its performance. See "About Non-GAAP Financial Information" below for more information regarding financial measures not prepared in accordance with generally accepted accounting principles (GAAP).

   
KEY OPERATING RESULTS   (unaudited, in 000s - except per share data)
    Three months ended October 31,
    Revenues   Income (loss)
    2014     2013     2014     2013  
                             
Tax Services   $ 128,683     $ 128,040     $ (176,642 )   $ (159,314 )
Corporate and Eliminations    5,945      6,300      (23,931 )    (20,048 )
    $ 134,628     $ 134,340      (200,573 )    (179,362 )
Income tax benefit                  (87,346 )    (76,347 )
Net loss from continuing operations                  (113,227 )    (103,015 )
Net income (loss) from discontinued operations                  1,229      (1,928 )
Net loss                 $ (111,998 )   $ (104,943 )
                             
Basic and diluted loss per share:                          
 Continuing operations                 $ (0.41 )   $ (0.38 )
 Discontinued operations                  -      (0.01 )
 Consolidated                 $ (0.41 )   $ (0.39 )
                             
Basic and diluted shares                  275,106      273,907  
                             
     Six months ended October 31,
     Revenues    Income (loss)
     2014      2013      2014      2013  
                             
Tax Services   $ 257,763     $ 249,731     $ (327,202 )   $ (303,708 )
Corporate and Eliminations    10,451      11,804      (49,187 )    (60,148 )
    $ 268,214     $ 261,535      (376,389 )    (363,856 )
Income tax benefit                  (154,311 )    (147,571 )
Net loss from continuing operations                  (222,078 )    (216,285 )
Net loss from discontinued operations                  (6,152 )    (3,845 )
Net loss                 $ (228,230 )   $ (220,130 )
                             
Basic and diluted loss per share:                          
 Continuing operations                 $ (0.81 )   $ (0.79 )
 Discontinued operations                  (0.02 )    (0.01 )
 Consolidated                 $ (0.83 )   $ (0.80 )
                             
Basic and diluted shares                  274,841      273,494  
                 
                 
CONSOLIDATED BALANCE SHEETS   (unaudited, in 000s - except per share data)
As of   October 31, 2014   October 31, 2013   April 30, 2014
                      
ASSETS                     
 Cash and cash equivalents   $ 627,490     $ 790,772     $ 2,185,307  
 Cash and cash equivalents - restricted    55,543      47,521      115,319  
 Receivables, net    107,705      131,701      191,618  
 Prepaid expenses and other current assets    285,463      225,660      198,267  
 Investments in available-for-sale securities    381,180      -      423,495  
  Total current assets    1,457,381      1,195,654      3,114,006  
 Mortgage loans held for investment, net    251,092      295,907      268,428  
 Investments in available-for-sale securities    9,774      465,344      4,329  
 Property and equipment, net    318,225      311,157      304,911  
 Intangible assets, net    414,045      296,213      355,622  
 Goodwill    464,182      442,812      436,117  
 Other assets    176,591      267,426      210,116  
  Total assets   $ 3,091,290     $ 3,274,513     $ 4,693,529  
LIABILITIES AND STOCKHOLDERS' EQUITY                     
LIABILITIES:                     
 Customer banking deposits   $ 454,860     $655,129     $ 769,785  
 Accounts payable, accrued expenses and other current liabilities    436,830      426,994      569,007  
 Accrued salaries, wages and payroll taxes    36,215      41,584      167,032  
 Accrued income taxes    147,000      22,475      406,655  
 Current portion of long-term debt    772      400,503      400,637  
  Total current liabilities    1,075,677      1,546,685      2,313,116  
 Long-term debt    505,588      506,078      505,837  
 Other noncurrent liabilities    271,349      266,775      318,027  
  Total liabilities    1,852,614      2,319,538      3,136,980  
COMMITMENTS AND CONTINGENCIES                     
STOCKHOLDERS' EQUITY:                     
 Common stock, no par, stated value $.01 per share    3,166      3,166      3,166  
 Convertible preferred stock, no par, stated value $0.01 per share    -      -      -  
 Additional paid-in capital    772,662      757,828      766,654  
 Accumulated other comprehensive income    6,577      1,463      5,177  
 Retained earnings    1,250,465      1,003,842      1,589,297  
 Less treasury shares, at cost    (794,194 )    (811,324 )    (807,745 )
  Total stockholders' equity    1,238,676      954,975      1,556,549  
   Total liabilities and stockholders' equity   $ 3,091,290     $ 3,274,513     $ 4,693,529  
                      
      
      
CONSOLIDATED STATEMENTS OF OPERATIONS         (unaudited, in 000s - except per share amounts)
    Three months ended October 31,   Six months ended October 31,
    2014     2013     2014     2013  
                             
REVENUES:                            
 Service revenues   $ 115,442     $ 112,432     $ 230,915     $ 220,232  
 Royalty, product and other revenues    9,756      11,282      18,570      19,480  
 Interest income    9,430      10,626      18,729      21,823  
     134,628      134,340      268,214      261,535  
OPERATING EXPENSES:                            
 Cost of revenues:                            
  Compensation and benefits    69,381      60,526      121,236      106,838  
  Occupancy and equipment    87,626      82,358      170,932      161,094  
  Provision for bad debt and loan losses    385      2,849      4,749      14,340  
  Depreciation and amortization    28,429      22,095      53,514      40,715  
  Other    35,876      39,235      68,992      80,326  
     221,697      207,063      419,423      403,313  
 Selling, general and administrative:                            
  Marketing and advertising    12,513      13,601      20,658      20,724  
  Compensation and benefits    54,353      54,818      115,317      107,865  
  Depreciation and amortization    10,500      4,573      19,101      8,827  
  Other selling, general and administrative    20,013      21,100      39,503      53,373  
     97,379      94,092      194,579      190,789  
   Total operating expenses    319,076      301,155      614,002      594,102  
Other income (expense), net    (2,282 )    1,254      (2,963 )    (3,685 )
Interest expense on borrowings (1)    13,843      13,801      27,638      27,604  
Loss from continuing operations before income tax benefit    (200,573 )    (179,362 )    (376,389 )    (363,856 )
Income tax benefit    (87,346 )    (76,347 )    (154,311 )    (147,571 )
Net loss from continuing operations    (113,227 )    (103,015 )    (222,078 )    (216,285 )
Net income (loss) from discontinued operations    1,229      (1,928 )    (6,152 )    (3,845 )
NET LOSS   $ (111,998 )   $ (104,943 )   $ (228,230 )   $ (220,130 )
                             
BASIC AND DILUTED LOSS PER SHARE:                            
 Continuing operations   $ (0.41 )   $ (0.38 )   $ (0.81 )   $ (0.79 )
 Discontinued operations    -      (0.01 )    (0.02 )    (0.01 )
 Consolidated   $ (0.41 )   $ (0.39 )   $ (0.83 )   $ (0.80 )
                             

(1) The presentation of interest expense from borrowings has been restated to correct errors in presentation, whereby we reclassified such interest expense from cost of revenues to a separate caption.

   
   
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS   (unaudited, in 000s)
Six months ended October 31,   2014     2013  
               
NET CASH USED IN OPERATING ACTIVITIES   $ (627,577 )   $ (492,373 )
               
CASH FLOWS FROM INVESTING ACTIVITIES:              
 Purchases of available-for-sale securities    (100 )    (45,158 )
 Maturities of and payments received on available-for-sale securities    49,013      55,615  
 Principal payments on mortgage loans held for investment, net    13,451      24,340  
 Capital expenditures    (70,927 )    (86,926 )
 Payments made for business acquisitions, net of cash acquired    (94,230 )    (20,927 )
 Franchise loans:              
  Loans funded    (18,251 )    (22,114 )
  Payments received    29,637      15,883  
 Other, net    10,685      15,255  
   Net cash used in investing activities    (80,722 )    (64,032 )
               
CASH FLOWS FROM FINANCING ACTIVITIES:              
 Repayments of long-term debt    (400,000 )    -  
 Customer banking deposits, net    (316,269 )    (275,800 )
 Dividends paid    (109,871 )    (109,324 )
 Proceeds from exercise of stock options    14,477      24,536  
 Other, net    (33,639 )    (31,948 )
  Net cash used in financing activities    (845,302 )    (392,536 )
               
Effects of exchange rate changes on cash    (4,216 )    (7,871 )
               
Net decrease in cash and cash equivalents    (1,557,817 )    (956,812 )
Cash and cash equivalents at beginning of the period    2,185,307      1,747,584  
Cash and cash equivalents at end of the period   $ 627,490     $ 790,772  
               
SUPPLEMENTARY CASH FLOW DATA:              
 Income taxes paid, net of refunds received   $ 157,680     $ 116,099  
 Interest paid on borrowings    27,379      27,804  
 Interest paid on deposits    341      1,180  
 Transfers of foreclosed loans to other assets    3,155      3,889  
 Accrued additions to property and equipment    3,243      6,729  
 Conversion of investment in preferred stock to available-for-sale common stock    5,000      -  
 Transfer of mortgage loans held for investment to held for sale    -      7,608  
               
         
TAX SERVICES - FINANCIAL RESULTS               (unaudited, amounts in 000s)
    Three months ended October 31,   Six months ended October 31,
    2014     2013     2014     2013  
Tax preparation fees:                            
 U.S.   $ 31,926     $ 29,011     $ 57,415     $ 51,037  
 International    42,831      41,568      84,287      73,662  
     74,757      70,579      141,702      124,699  
Royalties    8,582      9,527      16,224      16,089  
Revenues from Emerald Card(R)    11,524      9,999      25,569      24,610  
Revenues from Peace of Mind(R) guarantees    16,563      19,151      40,816      46,977  
Other    17,257      18,784      33,452      37,356  
 Total revenues    128,683      128,040      257,763      249,731  
                             
Compensation and benefits:                            
 Field wages    56,904      49,531      102,901      89,435  
 Other wages    37,724      35,665      76,441      70,400  
 Benefits and other compensation    19,902      22,178      38,724      38,115  
     114,530      107,374      218,066      197,950  
Occupancy and equipment    84,218      83,634      167,316      162,184  
Marketing and advertising    11,521      12,566      18,908      19,583  
Depreciation and amortization    38,926      26,632      72,609      49,434  
Other    53,223      54,958      103,777      115,606  
 Total operating expenses    302,418      285,164      580,676      544,757  
Other income (expense), net    (2,381 )    (1,655 )    (3,235 )    (7,610 )
Interest expense on borrowings    526      535      1,054      1,072  
Pretax loss   $ (176,642 )   $ (159,314 )   $ (327,202 )   $ (303,708 )
                             
   
   
NON-GAAP FINANCIAL MEASURES   (unaudited, in 000s - except per share amounts)
    Three months ended October 31, 2014
    EBITDA   Pretax loss   Net loss   EPS
                             
As reported - from continuing operations   $ (147,661 )   $ (200,573 )   $ (113,227 )   $ (0.41 )
                             
Adjustments:                            
 Loss contingencies - litigation    44      44      28      -  
 Severance    238      238      150      -  
 Professional fees related to HRB Bank transaction    89      89      56      -  
 Asset impairments    433      433      272      -  
 Gain on sales of AFS securities    (1,398 )    (1,398 )    (870 )    -  
 Gain on sales of tax offices/businesses    (899 )    (899 )    (559 )    -  
 Discrete tax items    -      -      (12,100 )    (0.04 )
     (1,493 )    (1,493 )    (13,023 )    (0.04 )
                             
As adjusted - from continuing operations   $ (149,154 )   $ (202,066 )   $ (126,250 )   $ (0.45 )
                             
     Three months ended October 31, 2013
     EBITDA    Pretax loss    Net loss    EPS
                             
As reported - from continuing operations   $ (138,380 )   $ (179,362 )   $ (103,015 )   $ (0.38 )
                             
Adjustments:                            
 Loss contingencies - litigation    350      350      214      -  
 Severance    1,828      1,828      1,122      -  
 Professional fees related to HRB Bank transaction    (5,217 )    (5,217 )    (3,198 )    (0.01 )
 Gain on sales of tax offices/businesses    (599 )    (599 )    (367 )    -  
 Discrete tax items    -      -      (7,061 )    (0.03 )
     (3,638 )    (3,638 )    (9,290 )    (0.04 )
                             
As adjusted - from continuing operations   $ (142,018 )   $ (183,000 )   $ (112,305 )   $ (0.42 )
                             
     Six months ended October 31, 2014
     EBITDA    Pretax loss    Net loss    EPS
                             
As reported - from continuing operations   $ (275,851 )   $ (376,389 )   $ (222,078 )   $ (0.81 )
                             
Adjustments:                            
 Loss contingencies - litigation    272      272      169      -  
 Severance    1,051      1,051      654      -  
 Professional fees related to HRB Bank transaction    114      114      71      -  
 Asset impairments    1,374      1,374      855      -  
 Gain on sales of AFS securities    (1,398 )    (1,398 )    (870 )    -  
 Gain on sales of tax offices/businesses    (899 )    (899 )    (559 )    -  
 Discrete tax items    -      -      (12,149 )    (0.04 )
     514      514      (11,829 )    (0.04 )
As adjusted - from continuing operations   $ (275,337 )   $ (375,875 )   $ (233,907 )   $ (0.85 )
                             
     Six months ended October 31, 2013
     EBITDA    Pretax loss    Net loss    EPS
                             
As reported - from continuing operations   $ (285,554 )   $ (363,856 )   $ (216,285 )   $ (0.79 )
                             
Adjustments:                            
 Loss contingencies - litigation    723      723      443      -  
 Severance    2,933      2,933      1,799      0.01  
 Professional fees related to HRB Bank transaction    1,807      1,807      1,108      -  
 Gain on sales of tax offices/businesses    (599 )    (599 )    (367 )    -  
 Discrete tax items    -      -      (6,904 )    (0.03 )
     4,864      4,864      (3,921 )    (0.02 )
As adjusted - from continuing operations   $ (280,690 )   $ (358,992 )   $ (220,206 )   $ (0.81 )
                             
                    
     Three months ended October 31,    Six months ended October 31,
EBITDA    2014      2013      2014      2013  
                             
Net loss - as reported $ (111,998 )   $ (104,943 )   $ (228,230 )   $ (220,130 )
                             
Add back:                            
 Discontinued operations    (1,229 )    1,928      6,152      3,845  
 Income taxes    (87,346 )    (76,347 )    (154,311 )    (147,571 )
 Interest expense    13,983      14,314      27,923      28,760  
 Depreciation and amortization    38,929      26,668      72,615      49,542  
     (35,663 )    (33,437 )    (47,621 )    (65,424 )
                             
EBITDA from continuing operations   $ (147,661 )   $ (138,380 )   $ (275,851 )   $ (285,554 )
                             
     Three months ended October 31,    Six months ended October 31,
Supplemental Information    2014      2013      2014      2013  
                             
Stock-based compensation expense:                            
 Pretax   $ 7,140     $ 6,210     $ 14,599     $ 10,762  
 After-tax    4,465      3,810      9,085      6,601  
Amortization of intangible assets:                            
 Pretax   $ 13,219     $ 6,523     $ 24,463     $ 12,594  
 After-tax    8,258      4,003      15,223      7,725  
                             

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 non-GAAP financial measures to be a useful metric for management and investors to evaluate and compare the ongoing operating performance of our business on a consistent basis across reporting periods, as it eliminates the effect of items that are not indicative of our core operating performance.
The following are descriptions of adjustments we make for our non-GAAP financial measures:

  • We exclude losses from settlements and estimated contingent losses from litigation and favorable reserve adjustments. This does not include legal defense costs.
  • We exclude non-cash charges to adjust the carrying values of goodwill, intangible assets, other long-lived assets and investments to their estimated fair values.
  • We exclude severance and other restructuring charges in connection with the termination of personnel, closure of offices and related costs.
  • We exclude the gains and losses on business dispositions, including investment banking, legal and accounting fees from both business dispositions and acquisitions.
  • We exclude the gains and losses on extinguishment of debt.
  • We exclude the effects of discrete income tax reserve and related adjustments recorded in a specific quarter.

We may consider whether other significant items that arise in the future should also be excluded from our non-GAAP financial measures.

We measure the performance of our business using a variety of metrics, including EBITDA, adjusted EBITDA and adjusted pretax income of continuing operations. Adjusted EBITDA and adjusted pretax income eliminate the impact of items that we do not consider indicative of our core operating performance and, we believe, provide meaningful information to assist in understanding our financial results, analyzing trends in our underlying business, and assessing our prospects for future performance. We also use EBITDA and pretax income of continuing operations, each subject to permitted adjustments, as performance metrics in incentive compensation calculations for our employees.

Contact Information

  • For Further Information
    Investor Relations: 
    Colby Brown
    (816) 854-4559
    Email contact


    Media Relations: 
    Gene King 
    (816) 854-4672  
    Email contact