H&R Block, Inc. (NYSE:HRB) today released U.S. tax return
volume through February 28 and its financial results for the fiscal
2017 third quarter ended January 31, 2017. The company
typically reports a fiscal third quarter operating loss due to the
seasonality of its tax business.
Fiscal Third Quarter and Tax Season
Highlights1
- H&R Block Assisted and do-it-yourself (DIY) tax preparation
businesses achieve market share gains in the first half of the tax
season.
- Revenues and earnings for the fiscal 2017 third quarter
impacted by delayed tax season; company reiterates financial
outlook for full year.
- Revenues declined $23 million due to the delayed tax season,
while total operating expenses declined $18 million primarily due
to cost reduction efforts, which led to lower compensation and
benefits and marketing costs.
- Loss per share increased $0.15 due entirely to reductions in
the company's effective tax rate and shares outstanding. The
reduction in shares outstanding will be accretive on a full year
basis, but negatively impacts those quarters with a seasonal net
loss.
- Repurchased approximately 4.4 million shares for an aggregate
purchase price of $100 million during the third quarter, bringing
total share repurchases for fiscal 2017 to approximately 14.0
million shares for $317 million.
Tax Season Results2
H&R Block return volume outperformed industry results when
compared to IRS data reported through February 24. In total, the
IRS reported a decline in e-files of 10% compared to the company's
decline of 7%. Market share gains were realized in both the
Assisted and DIY categories. In the Assisted category,
H&R Block outperformed the industry with a decline of 8%
compared to the IRS reported decline of 13%. In the DIY
category, H&R Block outperformed the industry with a decline of
5% compared to the IRS reported decline of 8%. While overall
industry and company volume is expected to improve during the
second half of the tax season, company performance relative to the
industry is expected to moderate given the conclusion of its Free
Federal 1040EZ and Refund Advance promotions on February 28.
CEO Perspective
"We are delivering what we promised in December. Through
aggressive Assisted and DIY offers, we are achieving our goal of
new client growth and I'm pleased that we gained market share in
both the Assisted and DIY tax preparation categories in the first
half of the tax season," said Bill Cobb, H&R Block's president
and chief executive officer. "I'm proud of what we have
accomplished so far. These results are in line with our
expectations for the first half of the season. And with our new
partner, IBM Watson, we are focused on continued execution of our
reinvented client experience over the remainder of the tax
season."
The growth in market share is attributable to solid execution of
an aggressive plan designed to change the trajectory of prior year
client losses. In the Assisted tax preparation business, this
included the launch of the no-interest, no-fee Refund Advance loan
product and the Free Federal 1040EZ promotion. The company
also introduced a new, exclusive client experience that
incorporates IBM Watson, bringing the power of cognitive computing
technology and the expertise of over 60 years of tax preparation
experience together for the first time in the industry. In the
company's DIY business, it expanded its free filing option with the
launch of H&R Block More ZeroSM and introduced significant
product enhancements.
For the fiscal year, H&R Block expects to deliver results in
line with its annual financial outlook previously provided in
December 2016.
Fiscal 2017 Third Quarter Results From Continuing
Operations |
|
|
Actual |
|
Adjusted4 |
(in
millions, except EPS) |
|
Fiscal Year 2017 |
|
Fiscal Year 2016 |
|
Fiscal Year 2017 |
|
Fiscal Year 2016 |
Revenue |
|
$ |
452 |
|
|
$ |
475 |
|
|
$ |
452 |
|
|
$ |
475 |
|
Pretax Loss |
|
$ |
(151 |
) |
|
$ |
(147 |
) |
|
$ |
(151 |
) |
|
$ |
(146 |
) |
Net Loss |
|
$ |
(101 |
) |
|
$ |
(79 |
) |
|
$ |
(101 |
) |
|
$ |
(79 |
) |
Weighted-Avg. Shares - Diluted |
|
207.9 |
|
|
231.9 |
|
|
207.9 |
|
|
231.9 |
|
EPS3 |
|
$ |
(0.49 |
) |
|
$ |
(0.34 |
) |
|
$ |
(0.49 |
) |
|
$ |
(0.34 |
) |
EBITDA4 |
|
$ |
(79 |
) |
|
$ |
(78 |
) |
|
$ |
(80 |
) |
|
$ |
(77 |
) |
Income Statement
- Total revenues decreased $22.7 million to $451.9 million,
primarily due to lower client volumes in the Assisted and DIY tax
preparation businesses resulting from the delay in the overall tax
season, coupled with the pricing impact of the early season
promotions such as Free Federal 1040EZ and H&R Block More
Zero.
- Total operating expenses decreased $17.7 million to $576.7
million. Compensation and benefits and marketing expenses
declined as a result of prior year cost reduction efforts.
The reductions were partially offset by third-party fees associated
with the Refund Advance product.
- Pretax loss increased $4.1 million to $150.6 million.
- Loss per share from continuing operations increased $0.15 to
$0.49, due entirely to reductions in the company's effective tax
rate and shares outstanding. The reduction in shares outstanding
will be accretive on a full year basis, but negatively impacts
those quarters with a seasonal net loss.
CFO Perspective
"We are starting to fully realize the benefits of last year's
cost reduction efforts," said Tony Bowen, H&R Block's chief
financial officer. "These savings have enabled us to invest in
other areas of the business, including our early season promotions
and our new DIY pricing structure, which have been instrumental in
achieving new client growth and taking market share in the first
half of this season."
Balance Sheet
- Mortgage loans and real estate owned were liquidated during the
third fiscal quarter for cash proceeds of $188.2 million, which
approximated book value.
- Seasonal line of credit borrowings, which are included in
long-term debt, were $1.1 billion as of January 31, 2017.
Discontinued Operations
- Sand Canyon Corporation's accrual for contingent losses related
to representation and warranty claims decreased $21 million from
the prior quarter to $5 million as a result of settlement payments
to counterparties. The settlement payments were fully covered
by prior accruals.
Share Repurchases and Dividends
- During the third quarter of fiscal 2017, the company
repurchased and retired approximately 4.4 million shares at an
aggregate price of $100.0 million, or $22.83 per share bringing the
total share repurchases for fiscal 2017 to approximately 14.0
million shares for $317.0 million. As of January 31,
2017, 207.2 million shares were outstanding.
- The company completed these share repurchases under a $3.5
billion share repurchase program approved by the company’s board of
directors in August 2015, which runs through June 2019. Under this
program, the company has repurchased approximately 70 million
shares of its common stock, or 25.5% of shares outstanding at the
beginning of the program, for an aggregate purchase price of
approximately $2.3 billion.
- As previously announced, a quarterly cash dividend of $0.22 per
share is payable on April 3, 2017 to shareholders of record as of
March 14, 2017. H&R Block has paid quarterly dividends
consecutively since the company went public in 1962.
Conference Call
Discussion of the fiscal 2017 third quarter results, future
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 4:30 p.m. Eastern time on
March 7, 2017. 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)
842-7595Conference ID: 46102763
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 March 7, 2017, and continuing until April 7, 2017,
by dialing (855) 859-2056 (U.S./Canada) or (404) 537-3406
(International). The conference ID is 46102763. The webcast will be
available for replay March 8, 2017 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
2016, H&R Block had annual revenues of over $3 billion with
23.2 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," "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, income, earnings per share,
cost savings, capital expenditures, dividends, share repurchases,
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, that are described in our Annual
Report on Form 10-K for the fiscal year ended April 30, 2016 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. 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 Volume changes to prior year noted in this paragraph are
based on accepted e-files on a day-to-day basis, which is
consistent with IRS reported results. Volume changes noted in the
table attached to this release are based on a date-to-date
basis.
3 All per share amounts are based on fully diluted shares
at the end of the corresponding period.
4 The company reports non-GAAP financial measures, including
earnings before interest, tax, depreciation, and amortization
(EBITDA) and adjusted financial performance, which it believes are
a better indication of the company's core operations. See
"About Non-GAAP Financial Information" below for more information
regarding financial measures not prepared in accordance with
generally accepted accounting principles (GAAP).
CONSOLIDATED STATEMENTS OF
OPERATIONS |
|
|
|
(unaudited, in 000s
- except per share amounts) |
|
|
Three months ended January 31, |
|
Nine months ended January 31, |
|
|
2017 |
|
2016 |
|
2017 |
|
2016 |
|
|
|
|
|
|
|
|
|
REVENUES: |
|
|
|
|
|
|
|
|
Service
revenues |
|
$ |
361,397 |
|
|
$ |
389,502 |
|
|
$ |
592,721 |
|
|
$ |
621,356 |
|
Royalty,
product and other revenues |
|
90,485 |
|
|
85,041 |
|
|
115,678 |
|
|
119,320 |
|
|
|
451,882 |
|
|
474,543 |
|
|
708,399 |
|
|
740,676 |
|
OPERATING
EXPENSES: |
|
|
|
|
|
|
|
|
Cost of
revenues: |
|
|
|
|
|
|
|
|
Compensation and benefits |
|
165,015 |
|
|
181,915 |
|
|
275,098 |
|
|
300,398 |
|
Occupancy
and equipment |
|
104,094 |
|
|
96,201 |
|
|
297,586 |
|
|
281,107 |
|
Provision
for bad debt |
|
28,348 |
|
|
35,734 |
|
|
29,634 |
|
|
38,921 |
|
Depreciation and amortization |
|
29,828 |
|
|
28,795 |
|
|
87,206 |
|
|
84,237 |
|
Other |
|
61,492 |
|
|
49,868 |
|
|
136,041 |
|
|
127,759 |
|
|
|
388,777 |
|
|
392,513 |
|
|
825,565 |
|
|
832,422 |
|
Selling,
general and administrative: |
|
|
|
|
|
|
|
|
Marketing
and advertising |
|
84,101 |
|
|
93,708 |
|
|
103,663 |
|
|
115,204 |
|
Compensation and benefits |
|
58,408 |
|
|
63,653 |
|
|
174,223 |
|
|
179,915 |
|
Depreciation and amortization |
|
15,332 |
|
|
16,508 |
|
|
44,986 |
|
|
43,509 |
|
Other
selling, general and administrative |
|
30,056 |
|
|
28,003 |
|
|
77,500 |
|
|
97,283 |
|
|
|
187,897 |
|
|
201,872 |
|
|
400,372 |
|
|
435,911 |
|
Total
operating expenses |
|
576,674 |
|
|
594,385 |
|
|
1,225,937 |
|
|
1,268,333 |
|
|
|
|
|
|
|
|
|
|
Other income, net |
|
(170 |
) |
|
3,055 |
|
|
4,978 |
|
|
13,993 |
|
Interest expense on
borrowings |
|
(25,940 |
) |
|
(23,573 |
) |
|
(70,026 |
) |
|
(46,329 |
) |
Other expenses,
net |
|
304 |
|
|
(6,140 |
) |
|
(30 |
) |
|
(11,335 |
) |
Loss from continuing
operations before income tax benefit |
|
(150,598 |
) |
|
(146,500 |
) |
|
(582,616 |
) |
|
(571,328 |
) |
Income tax benefit |
|
(49,386 |
) |
|
(67,851 |
) |
|
(216,963 |
) |
|
(253,656 |
) |
Net loss from
continuing operations |
|
(101,212 |
) |
|
(78,649 |
) |
|
(365,653 |
) |
|
(317,672 |
) |
Net loss from
discontinued operations |
|
(3,302 |
) |
|
(3,080 |
) |
|
(8,754 |
) |
|
(8,723 |
) |
NET
LOSS |
|
$ |
(104,514 |
) |
|
$ |
(81,729 |
) |
|
$ |
(374,407 |
) |
|
$ |
(326,395 |
) |
|
|
|
|
|
|
|
|
|
BASIC AND
DILUTED LOSS PER SHARE: |
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
(0.49 |
) |
|
$ |
(0.34 |
) |
|
$ |
(1.71 |
) |
|
$ |
(1.23 |
) |
Discontinued operations |
|
(0.01 |
) |
|
(0.01 |
) |
|
(0.04 |
) |
|
(0.04 |
) |
Consolidated |
|
$ |
(0.50 |
) |
|
$ |
(0.35 |
) |
|
$ |
(1.75 |
) |
|
$ |
(1.27 |
) |
|
|
|
|
|
|
|
|
|
WEIGHTED
AVERAGE BASIC AND DILUTED SHARES |
|
207,862 |
|
|
231,904 |
|
|
214,627 |
|
|
257,979 |
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED BALANCE SHEETS |
|
(unaudited, in 000s - except per share data) |
As of |
|
January 31, 2017 |
|
January 31, 2016 |
|
April 30, 2016 |
|
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
Cash and
cash equivalents |
|
$ |
221,172 |
|
|
$ |
189,511 |
|
|
$ |
896,801 |
|
Cash and
cash equivalents — restricted |
|
70,166 |
|
|
69,649 |
|
|
104,110 |
|
Receivables, net |
|
787,865 |
|
|
829,774 |
|
|
153,116 |
|
Income
taxes receivable |
|
38,032 |
|
|
29,411 |
|
|
— |
|
Prepaid
expenses and other current assets |
|
85,599 |
|
|
100,504 |
|
|
66,574 |
|
Total
current assets |
|
1,202,834 |
|
|
1,218,849 |
|
|
1,220,601 |
|
Mortgage
loans held for investment, net |
|
— |
|
|
212,106 |
|
|
202,385 |
|
Property
and equipment, net |
|
282,358 |
|
|
290,202 |
|
|
293,565 |
|
Intangible assets, net |
|
434,720 |
|
|
473,732 |
|
|
433,885 |
|
Goodwill |
|
483,320 |
|
|
443,418 |
|
|
470,757 |
|
Deferred
tax assets and income taxes receivable |
|
71,639 |
|
|
113,887 |
|
|
120,123 |
|
Other
noncurrent assets |
|
102,760 |
|
|
110,742 |
|
|
105,909 |
|
Total
assets |
|
$ |
2,577,631 |
|
|
$ |
2,862,936 |
|
|
$ |
2,847,225 |
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
LIABILITIES: |
|
|
|
|
|
|
Accounts
payable and accrued expenses |
|
$ |
239,085 |
|
|
$ |
205,981 |
|
|
$ |
259,586 |
|
Accrued
salaries, wages and payroll taxes |
|
123,457 |
|
|
123,289 |
|
|
161,786 |
|
Accrued
income taxes and reserves for uncertain tax positions |
|
7,537 |
|
|
8,099 |
|
|
373,754 |
|
Current
portion of long-term debt |
|
942 |
|
|
817 |
|
|
826 |
|
Deferred
revenue and other current liabilities |
|
183,616 |
|
|
250,846 |
|
|
243,653 |
|
Total
current liabilities |
|
554,637 |
|
|
589,032 |
|
|
1,039,605 |
|
Long-term
debt and line of credit borrowings |
|
2,592,622 |
|
|
2,615,823 |
|
|
1,491,375 |
|
Deferred
tax liabilities and reserves for uncertain tax positions |
|
109,557 |
|
|
88,377 |
|
|
132,960 |
|
Deferred
revenue and other noncurrent liabilities |
|
121,631 |
|
|
106,438 |
|
|
160,182 |
|
Total
liabilities |
|
3,378,447 |
|
|
3,399,670 |
|
|
2,824,122 |
|
COMMITMENTS AND
CONTINGENCIES |
|
|
|
|
|
|
STOCKHOLDERS’
EQUITY: |
|
|
|
|
|
|
Common
stock, no par, stated value $.01 per share |
|
2,462 |
|
|
2,641 |
|
|
2,602 |
|
Additional paid-in capital |
|
752,748 |
|
|
758,491 |
|
|
758,230 |
|
Accumulated other comprehensive loss |
|
(15,363 |
) |
|
(20,849 |
) |
|
(11,233 |
) |
Retained
earnings (deficit) |
|
(785,823 |
) |
|
(510,000 |
) |
|
40,347 |
|
Less
treasury shares, at cost |
|
(754,840 |
) |
|
(767,017 |
) |
|
(766,843 |
) |
Total
stockholders’ equity (deficiency) |
|
(800,816 |
) |
|
(536,734 |
) |
|
23,103 |
|
Total liabilities and stockholders’ equity |
|
$ |
2,577,631 |
|
|
$ |
2,862,936 |
|
|
$ |
2,847,225 |
|
|
|
|
|
|
|
|
Note: Effective May 1, 2016, we adopted the
provisions of Accounting Standards Update No. 2015-3, "Interest -
Imputation of Interest," (ASU 2015-3) on a retrospective basis.
Accordingly, debt issuance costs related to our Senior Notes are
included in long-term debt in the consolidated balance sheets.
Amounts for prior periods have been retrospectively adjusted to
conform to the current period presentation.
CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS |
|
(unaudited, in 000s) |
Nine months ended January 31, |
|
2017 |
|
2016 |
CASH FLOWS FROM
OPERATING ACTIVITIES: |
|
|
|
|
Net
loss |
|
$ |
(374,407 |
) |
|
$ |
(326,395 |
) |
Adjustments to reconcile net loss to net cash used in operating
activities: |
|
|
|
|
Depreciation and amortization |
|
132,192 |
|
|
127,746 |
|
Provision
for bad debt |
|
29,634 |
|
|
38,921 |
|
Deferred
taxes |
|
6,128 |
|
|
52,032 |
|
Stock-based compensation |
|
16,945 |
|
|
21,106 |
|
Changes
in assets and liabilities, net of acquisitions: |
|
|
|
|
Cash and
cash equivalents — restricted |
|
33,942 |
|
|
22,264 |
|
Receivables |
|
(646,290 |
) |
|
(685,961 |
) |
Prepaid
expenses and other current assets |
|
(23,208 |
) |
|
(30,281 |
) |
Other
noncurrent assets |
|
7,575 |
|
|
13,008 |
|
Accounts
payable and accrued expenses |
|
(33,560 |
) |
|
(32,238 |
) |
Accrued
salaries, wages and payroll taxes |
|
(37,978 |
) |
|
(20,544 |
) |
Deferred
revenue and other current liabilities |
|
(44,243 |
) |
|
(72,363 |
) |
Income
tax receivables, accrued income taxes and income tax reserves |
|
(378,987 |
) |
|
(461,288 |
) |
Deferred
revenue and other noncurrent liabilities |
|
(57,216 |
) |
|
(51,734 |
) |
Other,
net |
|
(6,444 |
) |
|
(21,222 |
) |
Net cash
used in operating activities |
|
(1,375,917 |
) |
|
(1,426,949 |
) |
|
|
|
|
|
CASH FLOWS FROM
INVESTING ACTIVITIES: |
|
|
|
|
Sales,
maturities of and payments received on available-for-sale
securities |
|
144 |
|
|
436,380 |
|
Principal
payments and sales of mortgage loans and real estate owned,
net |
|
207,174 |
|
|
28,004 |
|
Capital
expenditures |
|
(73,924 |
) |
|
(66,418 |
) |
Payments
made for business acquisitions, net of cash acquired |
|
(52,825 |
) |
|
(85,329 |
) |
Franchise
loans funded |
|
(31,788 |
) |
|
(21,377 |
) |
Payments
received on franchise loans |
|
20,816 |
|
|
22,234 |
|
Other,
net |
|
(4,855 |
) |
|
547 |
|
Net cash
provided by investing activities |
|
64,742 |
|
|
314,041 |
|
|
|
|
|
|
CASH FLOWS FROM
FINANCING ACTIVITIES: |
|
|
|
|
Repayments of line of credit borrowings |
|
(445,000 |
) |
|
(225,000 |
) |
Proceeds
from line of credit borrowings |
|
1,545,000 |
|
|
1,350,000 |
|
Proceeds
from issuance of long-term debt |
|
— |
|
|
996,831 |
|
Customer
banking deposits, net |
|
— |
|
|
(326,705 |
) |
Transfer
of HRB Bank deposits |
|
— |
|
|
(419,028 |
) |
Dividends
paid |
|
(141,537 |
) |
|
(157,530 |
) |
Repurchase of common stock, including shares surrendered |
|
(322,782 |
) |
|
(1,888,595 |
) |
Proceeds
from exercise of stock options |
|
2,403 |
|
|
25,803 |
|
Other,
net |
|
373 |
|
|
(43,972 |
) |
Net cash
provided by (used in) financing activities |
|
638,457 |
|
|
(688,196 |
) |
|
|
|
|
|
Effects of exchange
rate changes on cash |
|
(2,911 |
) |
|
(16,575 |
) |
|
|
|
|
|
Net decrease in cash
and cash equivalents |
|
(675,629 |
) |
|
(1,817,679 |
) |
Cash and cash
equivalents at beginning of the period |
|
896,801 |
|
|
2,007,190 |
|
Cash and cash
equivalents at end of the period |
|
$ |
221,172 |
|
|
$ |
189,511 |
|
|
|
|
|
|
SUPPLEMENTARY
CASH FLOW DATA: |
|
|
|
|
Income
taxes paid, net of refunds received |
|
$ |
158,656 |
|
|
$ |
157,691 |
|
Interest
paid on borrowings |
|
59,809 |
|
|
32,772 |
|
Accrued
additions to property and equipment |
|
5,959 |
|
|
4,385 |
|
Accrued
purchase of common stock |
|
— |
|
|
21,167 |
|
|
|
|
|
|
FINANCIAL RESULTS |
|
(unaudited, in 000s - except per share amounts) |
|
|
Three months ended January 31, |
|
Nine months ended January 31, |
|
|
2017 |
|
2016 |
|
2017 |
|
2016 |
Revenues: |
|
|
|
|
|
|
|
|
U.S.
assisted tax preparation fees |
|
$ |
245,262 |
|
|
$ |
268,775 |
|
|
$ |
306,030 |
|
|
$ |
332,463 |
|
U.S.
royalties |
|
43,254 |
|
|
39,543 |
|
|
56,607 |
|
|
52,949 |
|
U.S. DIY
tax preparation fees |
|
30,745 |
|
|
39,251 |
|
|
36,748 |
|
|
45,899 |
|
International revenues |
|
10,914 |
|
|
9,819 |
|
|
93,328 |
|
|
90,484 |
|
Revenues
from Refund Transfers |
|
47,323 |
|
|
49,289 |
|
|
51,314 |
|
|
52,281 |
|
Revenues
from Emerald Card® |
|
14,100 |
|
|
13,356 |
|
|
35,809 |
|
|
38,853 |
|
Revenues
from Peace of Mind® Extended Service Plan |
|
18,135 |
|
|
15,736 |
|
|
67,855 |
|
|
62,764 |
|
Interest
and fee income on Emerald Advance |
|
30,060 |
|
|
31,603 |
|
|
31,519 |
|
|
32,334 |
|
Other |
|
12,089 |
|
|
7,171 |
|
|
29,189 |
|
|
32,649 |
|
|
|
451,882 |
|
|
474,543 |
|
|
708,399 |
|
|
740,676 |
|
Compensation and
benefits: |
|
|
|
|
|
|
|
|
Field
wages |
|
142,084 |
|
|
154,098 |
|
|
237,223 |
|
|
253,561 |
|
Other
wages |
|
45,172 |
|
|
48,786 |
|
|
129,479 |
|
|
136,782 |
|
Benefits
and other compensation |
|
36,167 |
|
|
42,684 |
|
|
82,619 |
|
|
89,970 |
|
|
|
223,423 |
|
|
245,568 |
|
|
449,321 |
|
|
480,313 |
|
Occupancy and
equipment |
|
103,867 |
|
|
96,157 |
|
|
297,275 |
|
|
280,953 |
|
Marketing and
advertising |
|
84,101 |
|
|
93,708 |
|
|
103,663 |
|
|
115,204 |
|
Depreciation and
amortization |
|
45,160 |
|
|
45,303 |
|
|
132,192 |
|
|
127,746 |
|
Bad debt |
|
28,348 |
|
|
35,734 |
|
|
29,634 |
|
|
38,921 |
|
Supplies |
|
4,453 |
|
|
6,219 |
|
|
11,467 |
|
|
13,346 |
|
Other |
|
87,322 |
|
|
71,696 |
|
|
202,385 |
|
|
211,850 |
|
Total
operating expenses |
|
576,674 |
|
|
594,385 |
|
|
1,225,937 |
|
|
1,268,333 |
|
|
|
|
|
|
|
|
|
|
Other income, net |
|
(170 |
) |
|
3,055 |
|
|
4,978 |
|
|
13,993 |
|
Interest expense on
borrowings |
|
(25,940 |
) |
|
(23,573 |
) |
|
(70,026 |
) |
|
(46,329 |
) |
Other expenses,
net |
|
304 |
|
|
(6,140 |
) |
|
(30 |
) |
|
(11,335 |
) |
Pretax loss |
|
(150,598 |
) |
|
(146,500 |
) |
|
(582,616 |
) |
|
(571,328 |
) |
Income tax benefit |
|
(49,386 |
) |
|
(67,851 |
) |
|
(216,963 |
) |
|
(253,656 |
) |
Net loss from
continuing operations |
|
(101,212 |
) |
|
(78,649 |
) |
|
(365,653 |
) |
|
(317,672 |
) |
Net loss from
discontinued operations |
|
(3,302 |
) |
|
(3,080 |
) |
|
(8,754 |
) |
|
(8,723 |
) |
Net loss |
|
$ |
(104,514 |
) |
|
$ |
(81,729 |
) |
|
$ |
(374,407 |
) |
|
$ |
(326,395 |
) |
|
|
|
|
|
|
|
|
|
Basic and diluted loss
per share: |
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
(0.49 |
) |
|
$ |
(0.34 |
) |
|
$ |
(1.71 |
) |
|
$ |
(1.23 |
) |
Discontinued operations |
|
(0.01 |
) |
|
(0.01 |
) |
|
(0.04 |
) |
|
(0.04 |
) |
Consolidated |
|
$ |
(0.50 |
) |
|
$ |
(0.35 |
) |
|
$ |
(1.75 |
) |
|
$ |
(1.27 |
) |
|
|
|
|
|
|
|
|
|
Weighted average basic
and diluted shares |
|
207,862 |
|
|
231,904 |
|
|
214,627 |
|
|
257,979 |
|
|
|
|
|
|
|
|
|
|
EBITDA from continuing
operations (1) |
|
$ |
(79,498 |
) |
|
$ |
(77,626 |
) |
|
$ |
(380,398 |
) |
|
$ |
(397,075 |
) |
EBITDA from continuing
operations - adjusted (1) |
|
(79,853 |
) |
|
(77,495 |
) |
|
(380,518 |
) |
|
(383,601 |
) |
|
|
|
|
|
|
|
|
|
(1) 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, |
|
|
|
|
2017 |
|
2016 |
|
% Change |
|
2017 |
|
2016 |
|
% Change |
Tax Returns Prepared:
(in 000s) (1) (2) |
|
|
|
|
|
|
|
|
|
|
|
|
Company-Owned Operations |
|
1,349 |
|
|
1,473 |
|
|
(8.4 |
)% |
|
4,245 |
|
|
4,401 |
|
|
(3.5 |
)% |
Franchise
Operations |
|
731 |
|
|
756 |
|
|
(3.3 |
)% |
|
2,165 |
|
|
2,231 |
|
|
(3.0 |
)% |
Total H&R Block Assisted |
|
2,080 |
|
|
2,229 |
|
|
(6.7 |
)% |
|
6,410 |
|
|
6,632 |
|
|
(3.3 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Desktop |
|
155 |
|
|
189 |
|
|
(18.0 |
)% |
|
750 |
|
|
825 |
|
|
(9.1 |
)% |
Online |
|
1,056 |
|
|
1,075 |
|
|
(1.8 |
)% |
|
2,887 |
|
|
2,801 |
|
|
3.1 |
% |
Total
H&R Block DIY Tax Software |
|
1,211 |
|
|
1,264 |
|
|
(4.2 |
)% |
|
3,637 |
|
|
3,626 |
|
|
0.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Free File
Alliance |
|
96 |
|
|
127 |
|
|
(24.4 |
)% |
|
298 |
|
|
377 |
|
|
(21.0 |
)% |
Total
H&R Block U.S. Returns |
|
3,387 |
|
|
3,620 |
|
|
(6.4 |
)% |
|
10,345 |
|
|
10,635 |
|
|
(2.7 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Average Charge:
(3) |
|
|
|
|
|
|
|
|
|
|
|
|
Company-Owned Operations |
|
$ |
226.96 |
|
|
$ |
233.14 |
|
|
(2.7 |
)% |
|
$ |
217.68 |
|
|
$ |
225.29 |
|
|
(3.4 |
)% |
Franchise
Operations (4) |
|
219.26 |
|
|
213.24 |
|
|
2.8 |
% |
|
202.39 |
|
|
198.82 |
|
|
1.8 |
% |
DIY Tax
Software |
|
30.35 |
|
|
36.31 |
|
|
(16.4 |
)% |
|
26.79 |
|
|
32.45 |
|
|
(17.4 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
(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
through February 28. The count methodology has been adjusted in the
current and prior year periods to exclude extensions and to
recognize the corresponding individual tax returns when filed. A
software return is defined as a return that has been electronically
filed and accepted by the IRS. Also included are online
returns purchased with a credit card and printed for mailing.(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 total
revenue divided by total returns. For DIY Tax Software, net average
charge excludes Free File Alliance.(4) Net average charge
related to H&R Block Franchise Operations represents tax
preparation fee revenues collected by H&R Block franchisees
divided by returns filed in franchise offices. H&R Block
will recognize a portion of franchise revenues as franchise
royalties based on the terms of franchise agreements.
NON-GAAP FINANCIAL MEASURES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended January 31, |
|
Nine months ended January 31, |
EBITDA |
|
2017 |
|
2016 |
|
2017 |
|
2016 |
|
|
|
|
|
|
|
|
|
Net loss - as
reported |
|
$ |
(104,514 |
) |
|
$ |
(81,729 |
) |
|
$ |
(374,407 |
) |
|
$ |
(326,395 |
) |
Discontinued
operations, net |
|
3,302 |
|
|
3,080 |
|
|
8,754 |
|
|
8,723 |
|
Net loss from
continuing operations - as reported |
|
(101,212 |
) |
|
(78,649 |
) |
|
(365,653 |
) |
|
(317,672 |
) |
Add back : |
|
|
|
|
|
|
|
|
Income
taxes of continuing operations |
|
(49,386 |
) |
|
(67,851 |
) |
|
(216,963 |
) |
|
(253,656 |
) |
Interest
expense of continuing operations |
|
25,940 |
|
|
23,571 |
|
|
70,026 |
|
|
46,507 |
|
Depreciation and amortization of continuing operations |
|
45,160 |
|
|
45,303 |
|
|
132,192 |
|
|
127,746 |
|
|
|
21,714 |
|
|
1,023 |
|
|
(14,745 |
) |
|
(79,403 |
) |
|
|
|
|
|
|
|
|
|
EBITDA from continuing
operations |
|
$ |
(79,498 |
) |
|
$ |
(77,626 |
) |
|
$ |
(380,398 |
) |
|
$ |
(397,075 |
) |
|
|
|
|
|
|
|
|
|
Three months ended January 31, |
|
2017 |
|
|
|
|
Pretax loss |
|
Net loss |
|
EBITDA |
|
|
|
|
|
|
|
|
|
|
|
From continuing
operations |
|
$ |
(150,598 |
) |
|
$ |
(101,212 |
) |
|
$ |
(79,498 |
) |
|
|
|
|
|
|
|
|
|
|
|
Adjustments
(pretax): |
|
|
|
|
|
|
|
|
Loss
contingencies - litigation |
|
(355 |
) |
|
(355 |
) |
|
(355 |
) |
|
|
Tax
effect of adjustments |
|
— |
|
|
128 |
|
|
— |
|
|
|
|
|
(355 |
) |
|
(227 |
) |
|
(355 |
) |
|
|
|
|
|
|
|
|
|
|
|
As
adjusted - from continuing operations |
|
$ |
(150,953 |
) |
|
$ |
(101,439 |
) |
|
$ |
(79,853 |
) |
|
|
|
|
|
|
|
|
|
|
|
EPS - as reported |
|
|
|
$ |
(0.49 |
) |
|
|
|
|
Impact of
adjustments |
|
|
|
— |
|
|
|
|
|
EPS - adjusted |
|
|
|
$ |
(0.49 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended January 31, |
|
2016 |
|
|
|
|
Pretax loss |
|
Net loss |
|
EBITDA |
|
|
|
|
|
|
|
|
|
|
|
From continuing
operations |
|
$ |
(146,500 |
) |
|
$ |
(78,649 |
) |
|
$ |
(77,626 |
) |
|
|
|
|
|
|
|
|
|
|
|
Adjustments
(pretax): |
|
|
|
|
|
|
|
|
Loss
contingencies - litigation |
|
328 |
|
|
328 |
|
|
328 |
|
|
|
Costs
related to HRB Bank and recapitalization transactions |
|
(96 |
) |
|
(96 |
) |
|
(96 |
) |
|
|
Gain on
sales of tax offices/businesses |
|
(101 |
) |
|
(101 |
) |
|
(101 |
) |
|
|
Tax
effect of adjustments |
|
— |
|
|
(129 |
) |
|
— |
|
|
|
|
|
131 |
|
|
2 |
|
|
131 |
|
|
|
|
|
|
|
|
|
|
|
|
As
adjusted - from continuing operations |
|
$ |
(146,369 |
) |
|
$ |
(78,647 |
) |
|
$ |
(77,495 |
) |
|
|
|
|
|
|
|
|
|
|
|
EPS - as reported |
|
|
|
$ |
(0.34 |
) |
|
|
|
|
Impact of
adjustments |
|
|
|
— |
|
|
|
|
|
EPS - adjusted |
|
|
|
$ |
(0.34 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended January 31, |
|
2017 |
|
|
|
|
Pretax loss |
|
Net loss |
|
EBITDA |
|
|
|
|
|
|
|
|
|
|
|
From continuing
operations |
|
$ |
(582,616 |
) |
|
$ |
(365,653 |
) |
|
$ |
(380,398 |
) |
|
|
|
|
|
|
|
|
|
|
|
Adjustments
(pretax): |
|
|
|
|
|
|
|
|
Loss
contingencies - litigation |
|
(120 |
) |
|
(120 |
) |
|
(120 |
) |
|
|
Tax
effect of adjustments |
|
— |
|
|
43 |
|
|
— |
|
|
|
|
|
(120 |
) |
|
(77 |
) |
|
(120 |
) |
|
|
|
|
|
|
|
|
|
|
|
As
adjusted - from continuing operations |
|
$ |
(582,736 |
) |
|
$ |
(365,730 |
) |
|
$ |
(380,518 |
) |
|
|
|
|
|
|
|
|
|
|
|
EPS - as reported |
|
|
|
$ |
(1.71 |
) |
|
|
|
|
Impact of
adjustments |
|
|
|
— |
|
|
|
|
|
EPS - adjusted |
|
|
|
$ |
(1.71 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended January 31, |
|
2016 |
|
|
|
|
Pretax loss |
|
Net loss |
|
EBITDA |
|
|
|
|
|
|
|
|
|
|
|
From continuing
operations |
|
$ |
(571,328 |
) |
|
$ |
(317,672 |
) |
|
$ |
(397,075 |
) |
|
|
|
|
|
|
|
|
|
|
|
Adjustments
(pretax): |
|
|
|
|
|
|
|
|
Loss
contingencies - litigation |
|
1,017 |
|
|
1,017 |
|
|
1,017 |
|
|
|
Costs
related to HRB Bank and recapitalization transactions |
|
20,722 |
|
|
20,722 |
|
|
20,722 |
|
|
|
Gains on
AFS securities |
|
(8,138 |
) |
|
(8,138 |
) |
|
(8,138 |
) |
|
|
Gain on
sales of tax offices/businesses |
|
(127 |
) |
|
(127 |
) |
|
(127 |
) |
|
|
Tax
effect of adjustments |
|
— |
|
|
(5,129 |
) |
|
— |
|
|
|
|
|
13,474 |
|
|
8,345 |
|
|
13,474 |
|
|
|
|
|
|
|
|
|
|
|
|
As
adjusted - from continuing operations |
|
$ |
(557,854 |
) |
|
$ |
(309,327 |
) |
|
$ |
(383,601 |
) |
|
|
|
|
|
|
|
|
|
|
|
EPS - as reported |
|
|
|
$ |
(1.23 |
) |
|
|
|
|
Impact of
adjustments |
|
|
|
0.03 |
|
|
|
|
|
EPS - adjusted |
|
|
|
$ |
(1.20 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended January 31, |
|
Nine months ended January 31, |
Supplemental Information |
|
2017 |
|
2016 |
|
2017 |
|
2016 |
|
|
|
|
|
|
|
|
|
Stock-based
compensation expense: |
|
|
|
|
|
|
|
|
Pretax |
|
$ |
4,473 |
|
|
$ |
7,230 |
|
|
$ |
16,945 |
|
|
$ |
21,106 |
|
After-tax |
|
2,948 |
|
|
4,396 |
|
|
10,894 |
|
|
13,073 |
|
Amortization of
intangible assets: |
|
|
|
|
|
|
|
|
Pretax |
|
$ |
19,287 |
|
|
$ |
20,153 |
|
|
$ |
57,324 |
|
|
$ |
54,632 |
|
After-tax |
|
12,621 |
|
|
12,279 |
|
|
36,854 |
|
|
33,839 |
|
|
|
|
|
|
|
|
|
|
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 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 material 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 material severance and other restructuring charges
in connection with the termination of personnel, closure of offices
and related costs.
- We exclude the material 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 from continuing operations
and adjusted EBITDA from continuing operations, adjusted pretax and
net income of continuing operations, and adjusted diluted earnings
per share from continuing operations. Adjusted EBITDA from
continuing operations, adjusted pretax and net income from
continuing operations, and adjusted diluted earnings per share from
continuing operations 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 from continuing operations and pretax income of continuing
operations, each subject to permitted adjustments, as performance
metrics in incentive compensation calculations for our
employees.
For Further Information
Investor Relations: Colby Brown, (816) 854-4559, colby.brown@hrblock.com
Media Relations: Gene King, (816) 854-4672, gene.king@hrblock.com
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