SOURCE: H & R Block

H & R Block

September 01, 2015 16:05 ET

H&R Block Announces Fiscal 2016 First Quarter Results

KANSAS CITY, MO--(Marketwired - September 01, 2015) - H&R Block, Inc. (NYSE: HRB), the world's largest consumer tax services provider, today released its financial results for the fiscal 2016 first quarter ended July 31, 2015. The company typically reports a first quarter operating loss due to the seasonality of its U.S. tax business.

First Quarter 2016 Highlights1

  • Bank divestiture transaction closes, H&R Block no longer regulated as a savings and loan holding company.2
  • Total revenues increased $4 million, or 3%, to $138 million
  • Loss per share from continuing operations improved $0.05 to $0.35 per share3 due primarily to discrete tax benefits

Revenues increased 3%, to $138 million, due primarily to higher product revenues, partially offset by the negative impact of foreign currency rates. The net loss from continuing operations improved $12 million to $97 million. Loss per share from continuing operations was $0.35.

CEO Perspective

"We are pleased that we have successfully closed the bank transaction and are committed to ensuring a smooth transition for our clients as we prepare for the upcoming tax season," said Bill Cobb, H&R Block's president and chief executive officer. "Our teams are now fully focused on developing and executing a strategy that ensures an exceptional client service experience. We look forward to delivering another successful tax year for both our clients and our shareholders."

Fiscal 2016 First Quarter Results From Continuing Operations

   Actual   Adjusted  
(in millions, except EPS)  Fiscal Year 2016   Fiscal Year 2015   Fiscal Year 2016   Fiscal Year 2015  
Revenue  $138   $134   $138   $134  
EBITDA  $(138 ) $(128 ) $(137 ) $(126 )
Pretax Loss  $(187 ) $(176 ) $(186 ) $(174 )
Net Loss  $(97 ) $(109 ) $(96 ) $(108 )
Weighted-Avg. Shares - Diluted   275.8    274.6    275.8    274.6  
EPS  $(0.35 ) $(0.40 ) $(0.35 ) $(0.40 )
                      

Business Segment Financial Results and Highlights

Tax Services

  • Revenues increased 2.7% to $133 million, due primarily to higher Peace of Mind (POM) revenues and royalties, partially offset by the negative impact of foreign currency rates.
  • Total operating expenses increased 6.6% to $297 million, resulting from increased occupancy costs and amortization due to the annualization of expenses related to prior year franchise acquisitions.
  • Pretax loss increased 12.5% to $169 million.

Corporate

  • Interest expense on borrowings declined $5 million due to the repayment of senior notes in October, 2014.
  • Pretax loss improved by $8 million to $18 million.
  • Income tax benefit increased due to favorable discrete tax items.

Discontinued Operations

  • 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 a significant majority of previously denied and possible future representation and warranty claims.
  • SCC's accrual for contingent losses related to representation and warranty claims was unchanged from the prior quarter at $150 million.

Dividends
As previously announced, a quarterly cash dividend of 20 cents per share is payable on October 1, 2015 to shareholders of record as of September 9, 2015. The October 1 dividend payment will be H&R Block's 212th consecutive quarterly dividend since the company went public in 1962.

Conference Call
Discussion of the divestiture of H&R Block Bank, the company's capital structure plans, fiscal 2016 first quarter results, future outlook and a general business update, will occur during the company's previously announced fiscal first quarter earnings conference call for analysts, institutional investors, and shareholders. The call is scheduled for 4:30 p.m. Eastern time on Sept. 1, 2015. To access the call, please dial the number below approximately 10 minutes prior to the scheduled starting time:

U.S./Canada (888) 895-5260 or International (443) 842-7595
Conference ID: 73769267

The call 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.

A replay of the call will be available beginning at 7:30 p.m. Eastern time on Sept. 1, 2015, and continuing until Oct. 1, 2015, by dialing (855) 859-2056 (U.S./Canada) or (404) 537-3406 (International). The conference ID is 73769267. The webcast will be available for replay Sept. 2, 2015 at http://investors.hrblock.com.

About H&R Block
H&R Block, Inc. (NYSE: HRB) is the world's largest consumer tax services provider. More than 680 million tax returns have been prepared worldwide by and through H&R Block since 1955. In fiscal 2015, H&R Block had annual revenues of nearly $3.1 billion with 24.2 million tax returns prepared worldwide. 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. H&R Block also offers adjacent Tax Plus 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, 2015 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 See separate press release dated September, 1, 2015 for further details regarding the bank divestiture.
3 All per share amounts are based on fully diluted shares at the end of the corresponding period.

   
   
KEY OPERATING RESULTS (unaudited, in 000s - except per share data)  
  Three months ended July 31,  
  Revenues  Income (loss)  
  2015  2014  2015   2014  
                   
Tax Services $132,574  $129,080  $(169,438 ) $(150,560 )
Corporate and Eliminations  5,144   4,506   (17,671 )  (25,256 )
  $137,718  $133,586   (187,109 )  (175,816 )
Income tax benefit          (90,604 )  (66,965 )
Net loss from continuing operations          (96,505 )  (108,851 )
Net loss from discontinued operations          (3,154 )  (7,381 )
Net loss         $(99,659 ) $(116,232 )
                   
Basic and diluted loss per share:                  
 Continuing operations         $(0.35 ) $(0.40 )
 Discontinued operations          (0.01 )  (0.02 )
 Consolidated         $(0.36 ) $(0.42 )
                   
Basic and diluted shares          275,765    274,575  
              
              
CONSOLIDATED BALANCE SHEETS  (unaudited, in 000s - except per share data)  
As of  July 31, 2015   July 31, 2014   April 30, 2015  
                 
ASSETS                
Cash and cash equivalents  $1,299,382   $1,429,489   $2,007,190  
Cash and cash equivalents - restricted   61,040    71,917    91,972  
Receivables, net   103,194    122,315    167,964  
Deferred tax assets and income taxes receivable   160,390    190,323    174,267  
Prepaid expenses and other current assets   80,993    74,343    70,283  
Investments in available-for-sale securities   406,360    403,774    439,625  
  Total current assets   2,111,359    2,292,161    2,951,301  
Mortgage loans held for investment, net   230,130    259,732    239,338  
Property and equipment, net   297,321    314,531    311,387  
Intangible assets, net   417,009    347,890    432,142  
Goodwill   454,394    478,845    441,831  
Deferred tax assets and income taxes receivable   11,377    46,953    13,461  
Other noncurrent assets   111,101    150,707    125,960  
  Total assets  $3,632,691   $3,890,819   $4,515,420  
LIABILITIES AND STOCKHOLDERS' EQUITY                
LIABILITIES:                
 Customer banking deposits  $476,732   $482,975   $744,241  
 Accounts payable and accrued expenses   116,855    127,912    231,322  
 Accrued salaries, wages and payroll taxes   33,447    30,996    144,744  
 Accrued income taxes   245,541    284,038    434,684  
 Current portion of long-term debt   799    400,705    790  
 Deferred revenue and other current liabilities   316,880    357,293    322,508  
  Total current liabilities   1,190,254    1,683,919    1,878,289  
 Long-term debt   505,197    505,714    505,298  
 Deferred tax liabilities and reserves for uncertain tax positions   137,603    167,914    142,586  
 Deferred revenue and other noncurrent liabilities   130,210    136,072    156,298  
  Total liabilities   1,963,264    2,493,619    2,682,471  
COMMITMENTS AND CONTINGENCIES                
STOCKHOLDERS' EQUITY:                
 Common stock, no par, stated value $.01 per share   3,166    3,166    3,166  
 Additional paid-in capital   773,783    766,014    783,793  
 Accumulated other comprehensive income (loss)   (8,234 )  5,483    1,740  
 Retained earnings   1,679,234    1,418,124    1,836,442  
 Less treasury shares, at cost   (778,522 )  (795,587 )  (792,192 )
  Total stockholders' equity   1,669,427    1,397,200    1,832,949  
   Total liabilities and stockholders' equity  $3,632,691   $3,890,819   $4,515,420  
                 
             
             

CONSOLIDATED STATEMENTS OF OPERATIONS  (unaudited, in 000s - except per share amounts)
   Three months ended July 31,
   2015  2014
         
REVENUES:        
 Service revenues  $118,434  $115,473
 Royalty, product and other revenues   10,906   8,814
 Interest income   8,378   9,299
    137,718   133,586
OPERATING EXPENSES:        
 Cost of revenues:        
  Compensation and benefits   55,789   51,855
  Occupancy and equipment   89,855   83,306
  Provision for bad debt and loan losses   2,005   4,364
  Depreciation and amortization   27,084   25,085
  Other   38,775   33,116
     213,508   197,726
 Selling, general and administrative:        
  Marketing and advertising   8,531   8,145
  Compensation and benefits   54,669   60,964
  Depreciation and amortization   13,010   8,601
  Other selling, general and administrative   21,982   19,490
      98,192   97,200
   Total operating expenses   311,700   294,926
Other income   433   523
Interest expense on borrowings (1)   (8,575)   (13,795)
Other expenses   (4,985)   (1,204)
Loss from continuing operations before income tax benefit   (187,109)   (175,816)
Income tax benefit   (90,604)   (66,965)
Net loss from continuing operations   (96,505)   (108,851)
Net loss from discontinued operations   (3,154)   (7,381)
NET LOSS  $(99,659)  $(116,232)
         
BASIC AND DILUTED LOSS PER SHARE:        
 Continuing operations  $(0.35)  $(0.40)
 Discontinued operations   (0.01)   (0.02)
 Consolidated  $(0.36)  $(0.42)
         
(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)  
Three months ended July 31,  2015   2014  
            
NET CASH USED IN OPERATING ACTIVITIES  $(378,246 ) $(381,585 )
            
CASH FLOWS FROM INVESTING ACTIVITIES:           
 Maturities of and payments received on available-for-sale securities   32,103    18,484  
 Principal payments on mortgage loans held for investment, net   8,537    6,250  
 Capital expenditures   (8,689 )  (25,841 )
 Payments made for business acquisitions, net of cash acquired   (12,271 )  (40,533 )
 Franchise loans:           
  Loans funded   (2,582 )  (7,398 )
  Payments received   11,434    18,674  
 Other, net   3,562    4,030  
   Net cash provided by (used in) investing activities   32,094    (26,334 )
            
CASH FLOWS FROM FINANCING ACTIVITIES:           
 Customer banking deposits, net   (268,532 )  (287,609 )
 Dividends paid   (55,063 )  (54,852 )
 Repurchase of common stock, including shares surrendered   (17,756 )  (9,397 )
 Proceeds from exercise of stock options   13,015    13,368  
 Other, net   (22,413 )  (9,919 )
   Net cash used in financing activities   (350,749 )  (348,409 )
            
Effects of exchange rate changes on cash   (10,907 )  510  
            
Net decrease in cash and cash equivalents   (707,808 )  (755,818 )
Cash and cash equivalents at beginning of the period   2,007,190    2,185,307  
Cash and cash equivalents at end of the period  $1,299,382   $1,429,489  
            
SUPPLEMENTARY CASH FLOW DATA:           
 Income taxes paid, net of refunds received  $75,358   $88,924  
 Interest paid on borrowings   15,381    15,415  
 Interest paid on deposits   136    201  
 Transfers of foreclosed loans to other assets   624    1,818  
 Accrued additions to property and equipment   5,977    11,988  
            
         
         
TAX SERVICES - FINANCIAL RESULTS  (unaudited, amounts in 000s)  
   Three months ended July 31,  
   2015   2014  
Tax preparation fees:           
 U.S. assisted  $27,285   $25,489  
 International   35,718    41,456  
 U.S. digital   3,179    2,932  
    66,182    69,877  
Royalties   9,695    7,642  
Revenues from Refund Transfers   3,415    3,419  
Revenues from Emerald Card®   15,689    14,045  
Revenues from Peace of Mind® Extended Service Plan   27,703    24,253  
Interest and fee income on Emerald Advance   314    607  
Other   9,576    9,237  
  Total revenues   132,574    129,080  
Compensation and benefits:           
 Field wages   45,938    45,997  
 Other wages   37,202    38,717  
 Benefits and other compensation   18,738    18,822  
    101,878    103,536  
Occupancy and equipment   89,379    83,098  
Marketing and advertising   7,789    7,387  
Depreciation and amortization   40,076    33,683  
Bad debt   2,033    3,639  
Supplies   2,389    3,057  
Other   53,176    43,858  
  Total operating expenses   296,720    278,258  
Other income   253    350  
Interest expense on borrowings   (532 )  (528 )
Other expenses   (5,013 )  (1,204 )
Pretax loss  $(169,438 ) $(150,560 )
            
         
         
NON-GAAP FINANCIAL MEASURES  
Three months ended July 31,  2015   2014  
   EBITDA   Loss   EBITDA   Loss  
                      
As reported - from continuing operations  $(138,304 ) $(96,505 ) $(128,190 ) $(108,851 )
                      
Adjustments (pretax):                     
 Loss contingencies - litigation   618    618    228    228  
 Severance   -    -    813    813  
 Professional fees related to HRB Bank transaction   52    52    25    25  
 Impairment of AFS securities   288    288    941    941  
 Tax effect of adjustments   -    (358 )  -    (764 )
    958    600    2,007    1,243  
                      
 As adjusted - from continuing operations  $(137,346 ) $(95,905 ) $(126,183 ) $(107,608 )
                 
Adjusted EPS       $(0.35 )      $(0.40 )
                    
             Three months ended July 31,  
EBITDA            2015   2014  
                      
Net loss - as reported            $(99,659 ) $(116,232 )
                      
Add back :                     
 Discontinued operations             3,154    7,381  
 Income taxes             (90,604 )  (66,965 )
 Interest expense             8,711    13,940  
 Depreciation and amortization             40,094    33,686  
              (38,645 )  (11,958 )
                      
EBITDA from continuing operations            $(138,304 ) $(128,190 )
                      
             Three months ended July 31,  
Supplemental Information            2015   2014  
                      
Stock-based compensation expense:                     
 Pretax            $6,018   $7,459  
 After-tax             3,767    4,620  
Amortization of intangible assets:                     
 Pretax            $16,614   $11,244  
 After-tax             10,399    6,965  
                      

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 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