KANSAS CITY, MO--(Marketwired - December 07, 2016) - H&R Block, Inc. (NYSE: HRB) today released its financial results for the fiscal 2017 second quarter ended October 31, 2016. The company normally reports a second quarter operating loss due to the seasonality of its tax business. The fiscal second quarter typically represents less than 5% of annual revenues and approximately 15% of annual expenses.
Second Quarter Financial Summary
- Total revenues increased $3 million as a result of favorable foreign exchange rates and the recognition of deferred revenues associated with the Peace of Mind product
- Total operating expenses declined $23 million due to one-time costs incurred in the prior year related to the divestiture of H&R Block Bank and capital structure transactions, coupled with savings from cost reduction efforts
- Net loss from continuing operations was flat to prior year; loss per share increased $0.13 due entirely to reduction in share count, which will be accretive on a full year basis, but negatively impacts those quarters with a net loss
- Repurchased approximately 7.6 million shares for an aggregate purchase price of $168 million during the second quarter, bringing total share repurchases for fiscal 2017 to 9.6 million shares
CEO Perspective
"I'm pleased with our second quarter results, as revenues were up and expenses were down. I'm also extremely excited for the upcoming tax season. We have been hard at work developing and implementing a comprehensive and aggressive plan designed to deliver stronger results in tax season 2017," said Bill Cobb, H&R Block's president and chief executive officer. "Our associates and franchisees are excited about our new promotional offerings, including the previously announced interest-free Refund Advance loan and planned changes to our service delivery models. We are ready for the tax season to begin."
Fiscal 2017 Second Quarter Results From Continuing Operations
Actual Adjusted(3)
------------------- -------------------
Fiscal Fiscal Fiscal Fiscal
Year Year Year Year
(in millions, except EPS) 2017 2016 2017 2016
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Revenue $ 131 $ 128 $ 131 $ 128
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Pretax Loss $ (228) $ (238) $ (229) $ (225)
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Net Loss $ (143) $ (143) $ (144) $ (135)
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Weighted-Avg. Shares - Diluted 215.5 266.3 215.5 266.3
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EPS(2) $ (0.67) $ (0.54) $ (0.67) $ (0.51)
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EBITDA(3) $ (160) $ (181) $ (161) $ (169)
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(unaudited, in 000s -
except per share
CONSOLIDATED STATEMENTS OF OPERATIONS amounts)
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Three months ended Six months ended
October 31, October 31,
----------------------- -----------------------
2016 2015 2016 2015
----------- ----------- ----------- -----------
REVENUES:
Service revenues $ 118,940 $ 113,420 $ 231,324 $ 231,854
Royalty, product and other
revenues 12,392 14,995 25,193 34,279
----------- ----------- ----------- -----------
131,332 128,415 256,517 266,133
----------- ----------- ----------- -----------
OPERATING EXPENSES:
Cost of revenues:
Compensation and
benefits 57,728 62,694 110,083 118,483
Occupancy and equipment 99,067 95,051 193,492 184,906
Provision for bad debt (131) 1,182 1,286 3,187
Depreciation and
amortization 29,911 28,358 57,378 55,442
Other 39,127 39,116 74,549 77,891
----------- ----------- ----------- -----------
225,702 226,401 436,788 439,909
----------- ----------- ----------- -----------
Selling, general and
administrative:
Marketing and
advertising 12,001 12,965 19,562 21,496
Compensation and
benefits 58,293 61,593 115,815 116,262
Depreciation and
amortization 15,839 13,991 29,654 27,001
Other selling, general
and administrative 27,519 47,298 47,444 69,280
----------- ----------- ----------- -----------
113,652 135,847 212,475 234,039
----------- ----------- ----------- -----------
Total operating
expenses 339,354 362,248 649,263 673,948
----------- ----------- ----------- -----------
Other income, net 2,180 10,505 5,148 10,938
Interest expense on
borrowings (22,620) (14,181) (44,086) (22,756)
Other expenses, net (7) (210) (334) (5,195)
----------- ----------- ----------- -----------
Loss from continuing
operations before income
tax benefit (228,469) (237,719) (432,018) (424,828)
Income tax benefit (85,054) (95,201) (167,577) (185,805)
----------- ----------- ----------- -----------
Net loss from continuing
operations (143,415) (142,518) (264,441) (239,023)
Net loss from discontinued
operations (2,805) (2,489) (5,452) (5,643)
----------- ----------- ----------- -----------
NET LOSS $ (146,220) $ (145,007) $ (269,893) $ (244,666)
----------- ----------- ----------- -----------
BASIC AND DILUTED LOSS PER
SHARE:
Continuing operations $ (0.67) $ (0.54) $ (1.21) $ (0.88)
Discontinued operations (0.01) (0.01) (0.03) (0.02)
----------- ----------- ----------- -----------
Consolidated $ (0.68) $ (0.55) $ (1.24) $ (0.90)
----------- ----------- ----------- -----------
WEIGHTED AVERAGE BASIC AND
DILUTED SHARES 215,535 266,267 218,009 271,016
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(unaudited, in 000s - except per
CONSOLIDATED BALANCE SHEETS share data)
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October 31, October 31, April 30,
As of 2016 2015 2016
---------------------------------------- ----------- ----------- -----------
ASSETS
Cash and cash equivalents $ 232,510 $ 360,681 $ 896,801
Cash and cash equivalents - restricted 109,538 42,781 104,110
Receivables, net 104,764 94,760 153,116
Deferred tax assets and income taxes
receivable - 145,912 -
Prepaid expenses and other current
assets 73,555 80,764 66,574
Mortgage loans held for sale, net 183,107 - -
----------- ----------- -----------
Total current assets 703,474 724,898 1,220,601
Mortgage loans held for investment,
net - 220,671 202,385
Property and equipment, net 293,060 298,602 293,565
Intangible assets, net 433,135 466,224 433,885
Goodwill 477,360 442,068 470,757
Deferred tax assets and income taxes
receivable 81,755 11,264 120,123
Other noncurrent assets 93,394 114,746 105,909
----------- ----------- -----------
Total assets $2,082,178 $2,278,473 $2,847,225
----------- ----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Accounts payable and accrued expenses $ 139,808 $ 141,070 $ 259,586
Accrued salaries, wages and payroll
taxes 40,754 37,512 161,786
Accrued income taxes and reserves for
uncertain tax positions 68,832 67,732 373,754
Current portion of long-term debt 903 808 826
Deferred revenue and other current
liabilities 184,560 319,426 243,653
----------- ----------- -----------
Total current liabilities 434,857 566,548 1,039,605
Long-term debt and line of credit
borrowings 1,967,206 1,490,514 1,491,375
Deferred tax liabilities and reserves
for uncertain tax positions 117,553 140,539 132,960
Deferred revenue and other noncurrent
liabilities 120,033 108,115 160,182
----------- ----------- -----------
Total liabilities 2,639,649 2,305,716 2,824,122
----------- ----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, no par, stated value
$.01 per share 2,506 2,761 2,602
Additional paid-in capital 751,229 757,816 758,230
Accumulated other comprehensive loss (17,122) (16,208) (11,233)
Retained earnings (deficit) (538,242) 3,573 40,347
Less treasury shares, at cost (755,842) (775,185) (766,843)
----------- ----------- -----------
Total stockholders' equity
(deficiency) (557,471) (27,243) 23,103
----------- ----------- -----------
Total liabilities and
stockholders' equity $2,082,178 $2,278,473 $2,847,225
----------- ----------- -----------
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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.
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited, in 000s)
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Six months ended October 31, 2016 2015
-------------------------------------------------- ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (269,893) $ (244,666)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 87,032 82,443
Provision for bad debt 1,286 3,187
Deferred taxes 6,489 20,282
Stock-based compensation 12,472 13,876
Changes in assets and liabilities, net of
acquisitions:
Cash and cash equivalents - restricted (5,421) 49,113
Receivables 48,653 67,373
Prepaid expenses and other current assets (7,386) (6,173)
Other noncurrent assets 7,713 7,518
Accounts payable and accrued expenses (99,378) (79,918)
Accrued salaries, wages and payroll taxes (120,672) (106,504)
Deferred revenue and other current
liabilities (46,531) (3,188)
Income tax receivables, accrued income taxes
and income tax reserves (282,234) (334,245)
Deferred revenue and other noncurrent
liabilities (52,548) (49,669)
Other, net (5,379) (22,142)
------------ ------------
Net cash used in operating activities (725,797) (602,713)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sales, maturities of and payments received on
available-for-sale securities 144 434,261
Principal payments on mortgage loans, net 16,706 17,006
Capital expenditures (44,918) (38,779)
Payments made for business acquisitions, net of
cash acquired (36,151) (61,846)
Franchise loans funded (10,171) (10,281)
Payments received on franchise loans 14,263 17,473
Other, net 4,336 7,246
------------ ------------
Net cash provided by (used in) investing
activities (55,791) 365,080
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of line of credit borrowings (50,000) -
Proceeds from line of credit borrowings 525,000 -
Proceeds from issuance of long-term debt - 996,831
Customer banking deposits, net - (326,705)
Transfer of HRB Bank deposits - (419,028)
Dividends paid (95,971) (110,338)
Repurchase of common stock, including shares
surrendered (215,511) (1,517,786)
Proceeds from exercise of stock options 1,630 16,875
Other, net (43,734) (37,820)
------------ ------------
Net cash provided by (used in) financing
activities 121,414 (1,397,971)
------------ ------------
Effects of exchange rate changes on cash (4,117) (10,905)
Net decrease in cash and cash equivalents (664,291) (1,646,509)
Cash and cash equivalents at beginning of the
period 896,801 2,007,190
------------ ------------
Cash and cash equivalents at end of the period $ 232,510 $ 360,681
------------ ------------
SUPPLEMENTARY CASH FLOW DATA:
Income taxes paid, net of refunds received $ 112,339 $ 132,096
Interest paid on borrowings 40,670 15,606
Accrued additions to property and equipment 12,920 4,573
Accrued purchase of common stock 7,143 -
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(unaudited, in 000s - except per share
FINANCIAL RESULTS amounts)
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Three months ended Six months ended
October 31, October 31,
--------------------- ---------------------
2016 2015 2016 2015
---------- ---------- ---------- ----------
Revenues:
U.S. assisted tax
preparation fees $ 35,339 $ 36,403 $ 60,768 $ 63,688
U.S. royalties 6,828 6,680 13,353 13,406
U.S. DIY tax preparation
fees 3,089 3,469 6,003 6,648
International revenues 43,539 40,071 82,414 80,665
Revenues from Refund
Transfers 757 821 3,991 2,992
Revenues from Emerald Card® 8,644 9,808 21,709 25,497
Revenues from Peace of Mind®
Extended Service Plan 22,689 19,325 49,720 47,028
Interest and fee income on
Emerald Advance 655 417 1,459 731
Other 9,792 11,421 17,100 25,478
---------- ---------- ---------- ----------
131,332 128,415 256,517 266,133
---------- ---------- ---------- ----------
Compensation and benefits:
Field wages 50,096 53,525 95,139 99,463
Other wages 42,207 46,127 84,307 87,996
Benefits and other
compensation 23,718 24,635 46,452 47,286
---------- ---------- ---------- ----------
116,021 124,287 225,898 234,745
Occupancy and equipment 99,037 94,997 193,408 184,796
Marketing and advertising 12,001 12,965 19,562 21,496
Depreciation and amortization 45,750 42,349 87,032 82,443
Bad debt (131) 1,182 1,286 3,187
Supplies 4,937 4,728 7,014 7,127
Other 61,739 81,740 115,063 140,154
---------- ---------- ---------- ----------
Total operating expenses 339,354 362,248 649,263 673,948
---------- ---------- ---------- ----------
Other income, net 2,180 10,505 5,148 10,938
Interest expense on borrowings (22,620) (14,181) (44,086) (22,756)
Other expenses, net (7) (210) (334) (5,195)
---------- ---------- ---------- ----------
Pretax loss (228,469) (237,719) (432,018) (424,828)
Income tax benefit (85,054) (95,201) (167,577) (185,805)
---------- ---------- ---------- ----------
Net loss from continuing
operations (143,415) (142,518) (264,441) (239,023)
Net loss from discontinued
operations (2,805) (2,489) (5,452) (5,643)
---------- ---------- ---------- ----------
Net loss $(146,220) $(145,007) $(269,893) $(244,666)
---------- ---------- ---------- ----------
Basic and diluted loss per
share:
Continuing operations $ (0.67) $ (0.54) $ (1.21) $ (0.88)
Discontinued operations (0.01) (0.01) (0.03) (0.02)
---------- ---------- ---------- ----------
Consolidated $ (0.68) $ (0.55) $ (1.24) $ (0.90)
---------- ---------- ---------- ----------
Weighted average basic and
diluted shares 215,535 266,267 218,009 271,016
EBITDA from continuing
operations (1) $(160,099) $(181,145) $(300,900) $(319,449)
EBITDA from continuing
operations - adjusted (1) (160,676) (168,760) (300,665) (306,106)
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NON-GAAP FINANCIAL MEASURES
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--------------------- ---------------------
Three months ended Six months ended
October 31, October 31,
------------------------------ --------------------- ---------------------
EBITDA 2016 2015 2016 2015
------------------------------ ---------- ---------- ---------- ----------
Net loss - as reported $(146,220) $(145,007) $(269,893) $(244,666)
Add back:
Discontinued operations, net 2,805 2,489 5,452 5,643
Income taxes of continuing
operations (85,054) (95,201) (167,577) (185,805)
Interest expense of
continuing operations 22,620 14,225 44,086 22,936
Depreciation and
amortization of continuing
operations 45,750 42,349 87,032 82,443
---------- ---------- ---------- ----------
(13,879) (36,138) (31,007) (74,783)
---------- ---------- ---------- ----------
EBITDA from continuing
operations $(160,099) $(181,145) $(300,900) $(319,449)
---------- ---------- ---------- ----------
------------------------------ --------------------------------
Three months ended October 31, 2016
------------------------------ --------------------------------
Pretax
loss Net loss EBITDA
---------- ---------- ----------
From continuing operations $(228,469) $(143,415) $(160,099)
Adjustments (pretax):
Loss contingencies -
litigation (577) (577) (577)
Tax effect of adjustments - 217 -
---------- ---------- ----------
(577) (360) (577)
---------- ---------- ----------
As adjusted - from
continuing operations $(229,046) $(143,775) $(160,676)
---------- ---------- ----------
EPS - as reported $ (0.67)
Impact of adjustments -
----------
EPS - adjusted $ (0.67)
----------
------------------------------ --------------------------------
Three months ended October 31, 2015
------------------------------ --------------------------------
Pretax
loss Net loss EBITDA
---------- ---------- ----------
From continuing operations $(237,719) $(142,518) $(181,145)
Adjustments (pretax):
Loss contingencies -
litigation 71 71 71
Costs related to HRB Bank
and recapitalization
transactions 20,766 20,766 20,766
Gains on AFS securities (8,426) (8,426) (8,426)
Gain on sales of tax
offices/businesses (26) (26) (26)
Tax effect of adjustments - (4,642) -
---------- ---------- ----------
12,385 7,743 12,385
---------- ---------- ----------
As adjusted - from
continuing operations $(225,334) $(134,775) $(168,760)
---------- ---------- ----------
EPS - as reported $ (0.54)
Impact of adjustments 0.03
----------
EPS - adjusted $ (0.51)
----------
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Six months ended October 31, 2016
------------------------------ --------------------------------
------------------------------ --------------------------------
Pretax
loss Net loss EBITDA
---------- ---------- ----------
From continuing operations $(432,018) $(264,441) $(300,900)
Adjustments (pretax):
Loss contingencies -
litigation 235 235 235
Tax effect of adjustments - (85) -
---------- ---------- ----------
235 150 235
---------- ---------- ----------
As adjusted - from
continuing operations $(431,783) $(264,291) $(300,665)
---------- ---------- ----------
EPS - as reported $ (1.21)
Impact of adjustments -
----------
EPS - adjusted $ (1.21)
----------
------------------------------ --------------------------------
Six months ended October 31, 2015
------------------------------ --------------------------------
Pretax
loss Net loss EBITDA
---------- ---------- ----------
From continuing operations $(424,828) $(239,023) $(319,449)
Adjustments (pretax):
Loss contingencies -
litigation 689 689 689
Costs related to HRB Bank
and recapitalization
transactions 20,818 20,818 20,818
Gains on AFS securities (8,138) (8,138) (8,138)
Gain on sales of tax
offices/businesses (26) (26) (26)
Tax effect of adjustments - (5,000) -
---------- ---------- ----------
13,343 8,343 13,343
---------- ---------- ----------
As adjusted - from
continuing operations $(411,485) $(230,680) $(306,106)
---------- ---------- ----------
$ (0.88)
0.03
----------
Adjusted EPS $ (0.85)
----------
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Three months ended Six months ended
October 31, October 31,
------------------------------ --------------------- ---------------------
Supplemental Information 2016 2015 2016 2015
------------------------------ ---------- ---------- ---------- ----------
Stock-based compensation
expense:
Pretax $ 6,931 $ 7,858 $ 12,472 $ 13,876
After-tax 4,467 4,910 7,946 8,677
Amortization of intangible
assets:
Pretax $ 20,051 $ 17,865 $ 38,037 $ 34,479
After-tax 12,940 11,161 24,233 21,560
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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 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
Email contact
Media Relations:
Gene King
(816) 854-4672
Email contact
