H&R Block Announces Fiscal 2016 Second Quarter Results
/EINPresswire.com/ -- KANSAS CITY, MO--(Marketwired - December 07, 2015) - H&R Block, Inc. (NYSE: HRB), the world's largest consumer tax services provider, today released its financial results for the fiscal 2016 second quarter ended October 31, 2015. The company typically reports a second quarter operating loss due to the seasonality of its tax business.
Second Quarter 2016 Highlights
-
H&R Block Bank divestiture transaction closed; H&R Block no longer regulated as a savings and loan holding company
2 -
Company completed key elements of its previously announced new capital structure, including the approval of a $3.5 billion share repurchase program effective through June 2019, the repurchase of $1.5 billion of H&R Block stock, the issuance of $1 billion in long-term debt and the completion of a new $2 billion line of credit
2 - Total revenues decreased $6 million, or 4.6%, to $128 million mainly due to the impact of foreign currency exchange rates
-
Loss per share from continuing operations of $0.54
3 due to the seasonality of the tax business
CEO Perspective
"We are excited about the upcoming tax season, with a focus on executing our Tax Plus strategy. Our tax professionals are ready to provide the expert advice expected by our clients and our DIY software offerings are the best they have ever been" said Bill Cobb, H&R Block's president and chief executive officer. "Additionally, with the divestiture of H&R Block Bank, we have completed the final step in a multi-year journey that now allows us to take positive steps towards the capital structure that is appropriate for our business. I'm also pleased that the H&R Block Bank transition to BofI has gone smoothly, positioning us to continue offering our clients the award-winning products they've come to expect."
Fiscal 2016 Second Quarter Results From Continuing Operations
Actual Adjusted(4)
------------------- -------------------
Fiscal Fiscal Fiscal Fiscal
Year Year Year Year
(in millions, except EPS) 2016 2015 2016 2015
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Revenue $ 128 $ 135 $ 128 $ 135
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EBITDA $ (181) $ (148) $ (169) $ (149)
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Pretax Loss $ (238) $ (201) $ (225) $ (202)
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Net Loss $ (143) $ (113) $ (135) $ (114)
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Weighted-Avg. Shares - Diluted 266.3 275.1 266.3 275.1
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EPS $ (0.54) $ (0.41) $ (0.51) $ (0.41)
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CFO Perspective
"Incurring a loss in the second quarter is typical for H&R Block," said Greg Macfarlane, H&R Block's chief financial officer. "This year we saw an elevated level of expenses driven by one time transaction costs related to the bank divestiture and capital structure actions, as well as increased amortization and other expenses related to last year's higher than normal acquisitions of independent tax preparation and franchise businesses."
Business Financial Results and Highlights
- Revenues decreased 4.6% to $128 million, due primarily to the negative impact of foreign currency exchange rates in Australia and Canada.
- Total operating expenses increased $43 million, or 13.5%, the largest contributor of which was $20.8 million in transaction costs related to the bank divestiture and capital structure actions described below. Additionally, occupancy costs and amortization expense increased due to the annualization of expenses related to acquisitions of independent tax preparation and franchise businesses in the prior year.
- Pretax loss increased 18.5% to $238 million.
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 increased $4 million from the prior quarter to $154 million.
Balance Sheet
- Upon divestiture of H&R Block Bank, certain liabilities, including all customer banking deposits were successfully transferred to BofI Federal Bank (BofI). The bank's net cash payment to BofI equaled approximately $419 million, which was approximately equal to the carrying value of the liabilities (including all deposit liabilities) assumed by BofI.
- Available for sale securities, previously held to meet regulatory requirements, were liquidated for approximately $388 million.
- The Company's previous committed line of credit agreement was replaced with a new five-year, $2.0 billion Credit and Guarantee Agreement. There were no outstanding borrowings under this new line of credit at October 31, 2015.
- Long-term debt increased due to the issuance of $650 million of 4.125% Senior Notes and $350 million of 5.250% Senior Notes.
- Stockholder's equity was impacted by the repurchase and subsequent retirement of 40.5 million shares of common stock for $1.5 billion, or a price of $37.00 per share.
- Details regarding the bank divestiture and related agreements, capital structure transactions and share repurchase program can be found in previously filed press releases issued, as well as Forms 8-K filed with the Securities and Exchange Commission in September and October of 2015.
Dividends
As previously announced, a quarterly cash dividend of 20 cents per share is payable on January 4, 2016 to shareholders of record as of December 7, 2015. The January 4 dividend payment will be H&R Block's 213
Investor Conference
At 8:30 a.m. EST on Tuesday, December 8, the company will hold its investor conference in New York City. H&R Block's senior leaders will outline the company's strategies and outlook, and provide a general business update including discussion of fiscal 2016 second quarter results.
The event will be broadcast live in a listen-only format for the media and public on H&R Block's investor relations website at http://investors.hrblock.com. A replay will be available on the company's website.
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 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," "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, 2015 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.
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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,
----------------------- -----------------------
2015 2014 2015 2014
----------- ----------- ----------- -----------
REVENUES:
Service revenues $ 113,420 $ 115,442 $ 231,854 $ 230,915
Royalty, product and other
revenues 14,995 19,186 34,279 37,299
----------- ----------- ----------- -----------
128,415 134,628 266,133 268,214
----------- ----------- ----------- -----------
OPERATING EXPENSES:
Cost of revenues:
Compensation and
benefits 62,694 69,381 118,483 121,236
Occupancy and equipment 95,051 87,626 184,906 170,932
Provision for bad debt
and loan losses 1,182 385 3,187 4,749
Depreciation and
amortization 28,358 28,429 55,442 53,514
Other 39,116 35,876 77,891 68,992
----------- ----------- ----------- -----------
226,401 221,697 439,909 419,423
Selling, general and
administrative:
Marketing and advertising 12,965 12,513 21,496 20,658
Compensation and benefits 61,593 54,353 116,262 115,317
Depreciation and
amortization 13,991 10,500 27,001 19,101
Other selling, general and
administrative 47,298 20,013 69,280 39,503
----------- ----------- ----------- -----------
135,847 97,379 234,039 194,579
----------- ----------- ----------- -----------
Total operating expenses 362,248 319,076 673,948 614,002
----------- ----------- ----------- -----------
Other income, net 10,505 - 10,938 523
Interest expense on
borrowings (14,181) (13,843) (22,756) (27,638)
Other expenses, net (210) (2,282) (5,195) (3,486)
----------- ----------- ----------- -----------
Loss from continuing
operations before income
tax benefit (237,719) (200,573) (424,828) (376,389)
Income tax benefit (95,201) (87,346) (185,805) (154,311)
----------- ----------- ----------- -----------
Net loss from continuing
operations (142,518) (113,227) (239,023) (222,078)
Net income (loss) from
discontinued operations (2,489) 1,229 (5,643) (6,152)
----------- ----------- ----------- -----------
NET LOSS $ (145,007) $ (111,998) $ (244,666) $ (228,230)
----------- ----------- ----------- -----------
BASIC AND DILUTED LOSS PER
SHARE:
Continuing operations $ (0.54) $ (0.41) $ (0.88) $ (0.81)
Discontinued operations (0.01) - (0.02) (0.02)
----------- ----------- ----------- -----------
Consolidated $ (0.55) $ (0.41) $ (0.90) $ (0.83)
----------- ----------- ----------- -----------
WEIGHTED AVERAGE BASIC AND
DILUTED SHARES 266,267 275,106 271,016 274,841
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(unaudited, in 000s - except per share
CONSOLIDATED BALANCE SHEETS data)
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October 31, October 31, April 30,
As of 2015 2014 2015
------------------------------- -------------- -------------- --------------
ASSETS
Cash and cash equivalents $ 360,681 $ 627,490 $ 2,007,190
Cash and cash equivalents -
restricted 42,781 55,543 91,972
Receivables, net 94,760 107,705 167,964
Deferred tax assets and income
taxes receivable 145,912 197,193 174,267
Prepaid expenses and other
current assets 80,458 88,270 70,283
Investments in available-for-
sale securities 2,116 381,180 439,625
-------------- -------------- --------------
Total current assets 726,708 1,457,381 2,951,301
Mortgage loans held for
investment, net 220,671 251,092 239,338
Property and equipment, net 298,602 318,225 311,387
Intangible assets, net 466,224 414,045 432,142
Goodwill 442,068 464,182 441,831
Deferred tax assets and income
taxes receivable 11,264 37,937 13,461
Other noncurrent assets 124,360 148,428 125,960
-------------- -------------- --------------
Total assets $ 2,289,897 $ 3,091,290 $ 4,515,420
-------------- -------------- --------------
LIABILITIES AND STOCKHOLDERS'
EQUITY
LIABILITIES:
Customer banking deposits $ - $ 454,860 $ 744,241
Accounts payable and accrued
expenses 141,070 97,105 231,322
Accrued salaries, wages and
payroll taxes 37,512 36,215 144,744
Accrued income taxes 67,732 147,000 434,684
Current portion of long-term
debt 808 772 790
Deferred revenue and other
current liabilities 319,426 339,725 322,508
-------------- -------------- --------------
Total current liabilities 566,548 1,075,677 1,878,289
Long-term debt 1,501,938 505,588 505,298
Deferred tax liabilities and
reserves for uncertain tax
positions 140,539 151,951 142,586
Deferred revenue and other
noncurrent liabilities 108,115 119,398 156,298
-------------- -------------- --------------
Total liabilities 2,317,140 1,852,614 2,682,471
-------------- -------------- --------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, no par, stated
value $.01 per share 2,761 3,166 3,166
Additional paid-in capital 757,816 772,662 783,793
Accumulated other
comprehensive income (loss) (16,208) 6,577 1,740
Retained earnings 3,573 1,250,465 1,836,442
Less treasury shares, at cost (775,185) (794,194) (792,192)
-------------- -------------- --------------
Total stockholders' equity
(deficiency) (27,243) 1,238,676 1,832,949
-------------- -------------- --------------
Total liabilities and
stockholders' equity $ 2,289,897 $ 3,091,290 $ 4,515,420
-------------- -------------- --------------
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited, in 000s)
----------------------------------------------------------------------------
Six months ended October 31, 2015 2014
------------------------------------------------ ------------ ------------
NET CASH USED IN OPERATING ACTIVITIES $ (602,713) $ (627,577)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sales, maturities of and payments received on
available-for-sale securities 434,261 49,013
Principal payments on mortgage loans held for
investment, net 17,006 13,451
Capital expenditures (38,779) (70,927)
Payments made for business acquisitions, net
of cash acquired (61,846) (94,230)
Franchise loans:
Loans funded (10,281) (18,251)
Payments received 17,473 29,637
Other, net 7,246 10,585
------------ ------------
Net cash provided by (used in) investing
activities 365,080 (80,722)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt - (400,000)
Proceeds from issuance of long-term debt 996,831 -
Customer banking deposits, net (326,705) (316,269)
Transfer of HRB Bank deposits (419,028) -
Dividends paid (110,338) (109,871)
Repurchase of common stock, including shares
surrendered (1,517,786) (10,247)
Proceeds from exercise of stock options 16,875 14,477
Other, net (37,820) (23,392)
------------ ------------
Net cash used in financing activities (1,397,971) (845,302)
------------ ------------
Effects of exchange rate changes on cash (10,905) (4,216)
Net decrease in cash and cash equivalents (1,646,509) (1,557,817)
Cash and cash equivalents at beginning of the
period 2,007,190 2,185,307
------------ ------------
Cash and cash equivalents at end of the period $ 360,681 $ 627,490
------------ ------------
SUPPLEMENTARY CASH FLOW DATA:
Income taxes paid, net of refunds received $ 132,096 $ 157,680
Interest paid on borrowings 15,606 27,379
Transfers of foreclosed loans to other assets 1,450 3,155
Accrued additions to property and equipment 4,573 3,243
Conversion of investment in preferred stock to
available-for-sale common stock - 5,000
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(unaudited, in 000s - except per
FINANCIAL RESULTS share amounts)
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Three months ended Six months ended
October 31, October 31,
---------------------- ------------------------
2015 2014 2015 2014
---------- ----------- ----------- ------------
Tax preparation fees:
U.S. assisted $ 36,403 $ 31,926 $ 63,688 $ 57,415
International 35,340 42,831 71,058 84,287
U.S. digital 3,469 2,892 6,648 5,824
----------- ----------- ----------- -----------
75,212 77,649 141,394 147,526
Royalties 9,163 8,582 18,858 16,224
Revenues from Refund
Transfers 1,948 2,154 5,363 5,573
Revenues from Emerald Card® 9,808 11,524 25,497 25,569
Revenues from Peace of Mind®
Extended Service Plan 19,325 16,563 47,028 40,816
Other 12,959 18,156 27,993 32,506
----------- ----------- ----------- -----------
Total revenues 128,415 134,628 266,133 268,214
----------- ----------- ----------- -----------
Compensation and benefits:
Field wages 53,525 56,904 99,463 102,901
Other wages 46,127 42,368 87,996 85,561
Benefits and other
compensation 24,635 24,462 47,286 48,091
----------- ----------- ----------- -----------
124,287 123,734 234,745 236,553
Occupancy and equipment 94,997 84,267 184,796 167,376
Marketing and advertising 12,965 12,513 21,496 20,658
Depreciation and
amortization 42,349 38,929 82,443 72,615
Bad debt 1,182 385 3,187 4,749
Supplies 4,728 7,528 7,127 10,601
Other 81,740 51,720 140,154 101,450
----------- ----------- ----------- -----------
Total operating expenses 362,248 319,076 673,948 614,002
----------- ----------- ----------- -----------
Other income, net 10,505 - 10,938 523
Interest expense on
borrowings (14,181) (13,843) (22,756) (27,638)
Other expenses, net (210) (2,282) (5,195) (3,486)
----------- ----------- ----------- -----------
Pretax loss (237,719) (200,573) (424,828) (376,389)
Income tax benefit (95,201) (87,346) (185,805) (154,311)
----------- ----------- ----------- -----------
Net loss from continuing
operations (142,518) (113,227) (239,023) (222,078)
Net income (loss) from
discontinued operations (2,489) 1,229 (5,643) (6,152)
----------- ----------- ----------- -----------
Net loss $ (145,007) $ (111,998) $ (244,666) $ (228,230)
----------- ----------- ----------- -----------
Basic and diluted loss per
share:
Continuing operations $ (0.54) $ (0.41) $ (0.88) $ (0.81)
Discontinued operations (0.01) - (0.02) (0.02)
----------- ----------- ----------- -----------
Consolidated $ (0.55) $ (0.41) $ (0.90) $ (0.83)
----------- ----------- ----------- -----------
Weighted average basic and
diluted shares 266,267 275,106 271,016 274,841
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NON-GAAP FINANCIAL MEASURES
----------------------------------------------------------------------------
Three months ended October 31, 2015 2014
-------------------------------- -------------------------------------------
EBITDA Loss EBITDA Loss
---------- ---------- ---------- ----------
As reported - from continuing
operations $(181,145) $(142,518) $(147,661) $(113,227)
Adjustments (pretax):
Loss contingencies -
litigation 71 71 44 44
Severance - - 238 238
Professional fees related to
HRB Bank and recapitalization
transactions 20,766 20,766 89 89
Gains on AFS securities, net (8,426) (8,426) (965) (965)
Gain on sales of tax
offices/businesses (26) (26) (899) (899)
Tax effect of adjustments - (4,642) - 570
---------- ---------- ---------- ----------
12,385 7,743 (1,493) (923)
---------- ---------- ---------- ----------
As adjusted - from continuing
operations $(168,760) $(134,775) $(149,154) $(114,150)
---------- ---------- ---------- ----------
Adjusted EPS $ (0.51) $ (0.41)
-------------------------------- -------------------------------------------
Six months ended October 31, 2015 2014
-------------------------------- -------------------------------------------
EBITDA Loss EBITDA Loss
---------- ---------- ---------- ----------
As reported - from continuing
operations $(319,449) $(239,023) $(275,851) $(222,078)
Adjustments (pretax):
Loss contingencies -
litigation 689 689 272 272
Severance - - 1,051 1,051
Professional fees related to
HRB Bank and recapitalization
transactions 20,818 20,818 114 114
Gains on AFS securities, net (8,138) (8,138) (24) (24)
Gain on sales of tax
offices/businesses (26) (26) (899) (899)
Tax effect of adjustments - (5,000) - (194)
---------- ---------- ---------- ----------
13,343 8,343 514 320
---------- ---------- ---------- ----------
As adjusted - from continuing
operations $(306,106) $(230,680) $(275,337) $(221,758)
---------- ---------- ---------- ----------
Adjusted EPS $ (0.85) $ (0.81)
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--------------------- ---------------------
Three months ended Six months ended
October 31, October 31,
-------------------------------- --------------------- ---------------------
EBITDA 2015 2014 2015 2014
-------------------------------- ---------- ---------- ---------- ----------
Net loss - as reported $(145,007) $(111,998) $(244,666) $(228,230)
Add back :
Discontinued operations 2,489 (1,229) 5,643 6,152
Income taxes (95,201) (87,346) (185,805) (154,311)
Interest expense 14,225 13,983 22,936 27,923
Depreciation and amortization 42,349 38,929 82,443 72,615
---------- ---------- ---------- ----------
(36,138) (35,663) (74,783) (47,621)
---------- ---------- ---------- ----------
EBITDA from continuing
operations $(181,145) $(147,661) $(319,449) $(275,851)
---------- ---------- ---------- ----------
--------------------- ---------------------
Three months ended Six months ended
October 31, October 31,
-------------------------------- --------------------- ---------------------
Supplemental Information 2015 2014 2015 2014
-------------------------------- ---------- ---------- ---------- ----------
Stock-based compensation
expense:
Pretax $ 7,858 $ 7,140 $ 13,876 $ 14,599
After-tax 4,910 4,465 8,677 9,085
Amortization of intangible
assets:
Pretax $ 17,865 $ 13,219 $ 34,479 $ 24,463
After-tax 11,161 8,258 21,560 15,223
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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 Information
Investor Relations:
Colby Brown
(816) 854-4559
Email contact
Media Relations:
Gene King
(816) 854-4672
Email contact
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