H&R Block Announces Fiscal 2016 First Quarter Results
KANSAS CITY, MO -- (Marketwired) -- 09/01/15 -- 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 Fiscal Year Fiscal Year Fiscal Year Fiscal Year
EPS) 2016 2015 2016 2015
------------------------------------ ----------- ------------------------
Revenue $ 138 $ 134 $ 138 $ 134
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EBITDA $ (138) $ (128) $ (137) $ (126)
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Pretax Loss $ (187) $ (176) $ (186) $ (174)
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Net Loss $ (97) $ (109) $ (96) $ (108)
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Weighted-Avg. Shares -
Diluted 275.8 274.6 275.8 274.6
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EPS $ (0.35) $ (0.40) $ (0.35) $ (0.40)
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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.
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KEY OPERATING RESULTS (unaudited, in 000s - except per share data)
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Three months ended July 31,
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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)
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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
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(unaudited, in 000s - except per
CONSOLIDATED BALANCE SHEETS share data)
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July 31, July 31, April 30,
As of 2015 2014 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
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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
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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)
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Total stockholders' equity 1,669,427 1,397,200 1,832,949
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Total liabilities and
stockholders' equity $ 3,632,691 $ 3,890,819 $ 4,515,420
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(unaudited, in 000s -
CONSOLIDATED STATEMENTS OF OPERATIONS except per share amounts)
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Three months ended July 31,
---------------------------
2015 2014
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REVENUES:
Service revenues $ 118,434 $ 115,473
Royalty, product and other revenues 10,906 8,814
Interest income 8,378 9,299
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137,718 133,586
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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
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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
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98,192 97,200
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Total operating expenses 311,700 294,926
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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)
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Net loss from continuing operations (96,505) (108,851)
Net loss from discontinued operations (3,154) (7,381)
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NET LOSS $ (99,659) $ (116,232)
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BASIC AND DILUTED LOSS PER SHARE:
Continuing operations $ (0.35) $ (0.40)
Discontinued operations (0.01) (0.02)
------------- -------------
Consolidated $ (0.36) $ (0.42)
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(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.
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited, in 000s)
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Three months ended July 31, 2015 2014
------------------------------------------------ ------------ ------------
NET CASH USED IN OPERATING ACTIVITIES $ (378,246) $ (381,585)
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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)
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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
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Cash and cash equivalents at end of the period $ 1,299,382 $ 1,429,489
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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
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(unaudited, amounts in
TAX SERVICES - FINANCIAL RESULTS 000s)
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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)
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NON-GAAP FINANCIAL MEASURES
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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)
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Three months ended
July 31,
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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
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(38,645) (11,958)
--------- ---------
EBITDA from continuing
operations $(138,304) $(128,190)
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Three months ended
July 31,
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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
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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.
For Further InformationInvestor Relations: Colby Brown(816) 854-4559Email contact Media Relations:Gene King(816) 854-4672Email contact
Source: H & R Block