KANSAS CITY, Mo., March 07, 2019 (GLOBE NEWSWIRE) -- H&R Block, Inc. (NYSE: HRB) today released its U.S. tax return volume through February 28, 2019 and financial results for the fiscal 2019 third quarter ended January 31, 2019.  The company normally reports a fiscal third quarter loss due to the seasonality of its tax business.

Tax Season and Fiscal Third Quarter Highlights1

  • Delay in tax returns filed industry wide impacted fiscal third quarter results; company reiterates its financial outlook for the full fiscal year.
  • H&R Block total U.S. returns declined through February 28, as growth in DIY returns was offset by a decline in Assisted returns; the decline in Assisted returns was anticipated due to the discontinuation of the Free Federal 1040EZ promotion.
  • Revenues for the fiscal third quarter ended January 31, 2019 decreased $20 million, or 4 percent, to $468 million primarily due to a delay in overall industry filings.
  • Pretax loss from continuing operations increased 31 percent to $159 million; however, loss per share from continuing operations2 improved from $1.16 to $0.58 due to the impact of corporate tax rate changes in the prior year.

Tax Season Results3

H&R Block total U.S. return volume decreased 1.2% through February 28, as an increase in DIY returns of 6.4% was offset by a 6.5% decrease in Assisted returns.  On a comparable basis with the most recent IRS data for this tax season, the company grew market share in DIY due to product enhancements and improved conversion.  In Assisted, when comparing to the most recent IRS data for this tax season, the business was down modestly in market share, which was expected due to the discontinuation of its Free Federal 1040EZ promotion.

"The significant improvements we've made across our business have resulted in increased client satisfaction scores related to our new upfront and transparent pricing, third party accolades for our DIY products, and growth in our virtual offerings so far this tax season," said Jeff Jones, H&R Block's president and chief executive officer.  "H&R Block is leading the way in the tax industry with offerings that span the full spectrum of tax preparation, whether clients want little to no help, complete in-person assistance, or anything in between."

Fiscal 2019 Third Quarter Results From Continuing Operations

"The slow start to the tax season for the industry impacted the timing of our business, lowering financial results for our fiscal third quarter," said Tony Bowen, H&R Block's chief financial officer.  "We remain on track with our strategic and operational plans and expect to achieve our financial outlook for the fiscal year."

(in millions, except EPS)Q3 FY2019Q3 FY2018
Revenue$468 $488 
Pretax Loss$(159)$(121)
Net Loss$(120)$(243)
Weighted-Avg. Shares - Diluted205.5 209.1 
EPS2$(0.58)$(1.16)
EBITDA4$(92)$(48)

Key Financial Metrics

  • Total revenues decreased $20.0 million, or 4.1 percent, to $468.4 million primarily due to lower Assisted tax preparation revenues and royalties as a result of the delay in overall filings with the IRS.
  • Total operating expenses increased $20.8 million, or 3.5 percent, to $606.5 million primarily due to technology spend related to long-term initiatives and marketing, bad debt, and supplies expense.
  • Pretax loss increased $37.9 million, or 31.3 percent, to $158.7 million.
  • Loss per share from continuing operations improved from $1.16 to $0.58, due to the impact of corporate tax rate changes in the prior year.  These changes resulted in an income tax expense in the third quarter of fiscal 2018, as opposed to an income tax benefit, which is customary in fiscal quarters in which the company has a seasonal pretax loss.

Dividends

As previously announced, a quarterly cash dividend of $0.25 per share is payable on April 1, 2019 to shareholders of record as of March 18, 2019.  H&R Block has paid quarterly dividends consecutively since the company went public in 1962.

Discontinued Operations

For information on Sand Canyon, please refer to disclosures in the company’s reports on Forms 10-K, 10-Q, and other filings with the SEC.

Conference Call

Discussion of the fiscal 2019 third quarter results, 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 8:30 a.m. Eastern time on March 7, 2019. To access the call, please dial the number below approximately 10 minutes prior to the scheduled starting time:

U.S./Canada (855) 702-5257 or International (213) 358-0868
Conference ID: 5364734

The call, along with a presentation for viewing, 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.  The presentation will be posted on the Webcasts and Presentations page at http://investors.hrblock.com following the conclusion of the call.

A replay of the call will be available beginning at 11:30 a.m. Eastern time on March 7, 2019, and continuing until April 7, 2019, by dialing (855) 859-2056 (U.S./Canada) or (404) 537-3406 (International). The conference ID is 5364734. The webcast will be available for replay beginning on March 8, 2019 and continuing for 90 days 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 2018, H&R Block had annual revenues of over $3.1 billion with over 23 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," "commits," "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, client trajectory, income, effective tax rate, earnings per share, cost savings, capital expenditures, dividends, share repurchases, liquidity, capital structure, market share, industry volumes 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, 2018 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. In addition, factors that may cause the company’s actual estimated effective tax rate to differ from estimates include the company’s actual results from operations compared to current estimates, future discrete items, changes in interpretations and assumptions the company has made, and future actions of the company. 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.

1All amounts in this release are unaudited.  Unless otherwise noted, all comparisons refer to the current period compared to the corresponding prior year period.
2All per share amounts are based on fully diluted shares at the end of the corresponding period.
3Volume changes to prior year noted in this paragraph and in the table attached to this release are based on a date-to-date basis.  Comparisons to IRS data are on a day-to-day basis as of February 22, 2019.
4The company reports non-GAAP financial measures of performance, including earnings before interest, tax, depreciation, and amortization (EBITDA) from continuing operations, EBITDA margin from continuing operations, and free cash flow which it considers to be useful metrics for management and investors to evaluate and compare the ongoing operating performance of the company.  See "About Non-GAAP Financial Information" below for more information regarding financial measures not prepared in accordance with generally accepted accounting principles (GAAP).

For Further Information

Investor Relations: Colby Brown, (816) 854-4559, colby.brown@hrblock.com
Media Relations: Susan Waldron, (816) 854-5522, susan.waldron@hrblock.com

CONSOLIDATED STATEMENTS OF OPERATIONS   (unaudited, in 000s - except per share amounts)
 Three months ended January 31, Nine months ended January 31,
 2019 2018 2019 2018
        
REVENUES:       
Service revenues$373,659  $388,771  $627,786  $641,389 
Royalty, product and other revenues94,725  99,655  134,652  125,693 
 468,384  488,426  762,438  767,082 
OPERATING EXPENSES:       
Costs of revenues421,026  416,601  893,401  884,335 
Selling, general and administrative185,458  169,098  404,517  381,193 
Total operating expenses606,484  585,699  1,297,918  1,265,528 
        
Other income (expense), net2,269  1,028  11,275  3,259 
Interest expense on borrowings(22,833) (24,560) (65,214) (67,102)
Loss from continuing operations before income taxes (benefit)(158,664) (120,805) (589,419) (562,289)
Income taxes (benefit)(38,885) 122,120  (149,906) (43,234)
Net loss from continuing operations(119,779) (242,925) (439,513) (519,055)
Net loss from discontinued operations(6,675) (2,720) (15,887) (10,723)
NET LOSS$(126,454) $(245,645) $(455,400) $(529,778)
        
BASIC AND DILUTED LOSS PER SHARE:       
Continuing operations$(0.58) $(1.16) $(2.13) $(2.49)
Discontinued operations(0.04) (0.02) (0.08) (0.05)
Consolidated$(0.62) $(1.18) $(2.21) $(2.54)
        
WEIGHTED AVERAGE BASIC AND DILUTED SHARES205,532  209,080  206,242  208,693 
        


CONSOLIDATED BALANCE SHEETS (unaudited, in 000s - except per share data)
As of January 31, 2019 January 31, 2018 April 30, 2018
       
ASSETS      
Cash and cash equivalents $203,226  $187,366  $1,544,944 
Cash and cash equivalents - restricted 101,903  83,033  118,734 
Receivables, net 758,217  791,618  146,774 
Income taxes receivable 36,486  72,775  12,310 
Prepaid expenses and other current assets 134,820  149,349  68,951 
Total current assets 1,234,652  1,284,141  1,891,713 
Property and equipment, net 220,505  249,911  231,888 
Intangible assets, net 356,952  390,993  373,981 
Goodwill 520,005  504,789  507,871 
Deferred tax assets and income taxes receivable 141,366  25,305  34,095 
Other noncurrent assets 95,326  106,161  101,401 
Total assets $2,568,806  $2,561,300  $3,140,949 
LIABILITIES AND STOCKHOLDERS’ EQUITY      
LIABILITIES:      
Accounts payable and accrued expenses $202,101  $163,653  $251,975 
Accrued salaries, wages and payroll taxes 140,902  135,626  141,499 
Accrued income taxes and reserves for uncertain tax positions 49,009  164,246  263,050 
Current portion of long-term debt   1,015  1,026 
Deferred revenue and other current liabilities 195,634  201,988  186,101 
Total current liabilities 587,646  666,528  843,651 
Long-term debt and line of credit borrowings 1,876,989  2,284,231  1,494,609 
Deferred tax liabilities and reserves for uncertain tax positions 214,217  201,384  229,430 
Deferred revenue and other noncurrent liabilities 103,545  107,226  179,548 
Total liabilities 2,782,397  3,259,369  2,747,238 
COMMITMENTS AND CONTINGENCIES      
STOCKHOLDERS’ EQUITY:      
Common stock, no par, stated value $.01 per share 2,415  2,462  2,462 
Additional paid-in capital 764,982  758,361  760,250 
Accumulated other comprehensive loss (17,642) (9,374) (14,303)
Retained earnings (deficit) (254,277) (729,578) 362,980 
Less treasury shares, at cost (709,069) (719,940) (717,678)
Total stockholders' equity (deficiency) (213,591) (698,069) 393,711 
Total liabilities and stockholders' equity $2,568,806  $2,561,300  $3,140,949 
       


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited, in 000s)
Nine months ended January 31, 2019 2018
CASH FLOWS FROM OPERATING ACTIVITIES:    
Net loss $(455,400) $(529,778)
Adjustments to reconcile net loss to net cash used in operating activities:    
Depreciation and amortization 126,013  136,878 
Provision for bad debt 35,009  33,429 
Deferred taxes 20,557  113,345 
Stock-based compensation 18,009  17,065 
Changes in assets and liabilities, net of acquisitions:    
Receivables (640,482) (651,200)
Prepaid expenses and other current assets (66,497) (83,201)
Other noncurrent assets 9,662  8,310 
Accounts payable and accrued expenses (47,510) (36,608)
Accrued salaries, wages and payroll taxes (465) (49,255)
Deferred revenue and other current liabilities 3,990  10,113 
Deferred revenue and other noncurrent liabilities (70,794) (58,695)
Income tax receivables, accrued income taxes and income tax reserves (277,240) (255,650)
Other, net (2,308) (12,454)
Net cash used in operating activities (1,347,456) (1,357,701)
     
CASH FLOWS FROM INVESTING ACTIVITIES:    
Capital expenditures (79,982) (77,865)
Payments made for business acquisitions, net of cash acquired (42,428) (39,397)
Franchise loans funded (16,875) (20,226)
Payments received on franchise loans 15,149  13,391 
Other, net 4,877  1,524 
Net cash used in investing activities (119,259) (122,573)
     
CASH FLOWS FROM FINANCING ACTIVITIES:    
Repayments of line of credit borrowings (230,000) (40,000)
Proceeds from line of credit borrowings 615,000  830,000 
Dividends paid (154,866) (150,258)
Repurchase of common stock, including shares surrendered (102,152) (7,746)
Proceeds from exercise of stock options 2,527  28,268 
Other, net (20,126) (28,922)
Net cash provided by financing activities 110,383  631,342 
     
Effects of exchange rate changes on cash (2,217) 1,792 
     
Net decrease in cash, cash equivalents and restricted cash (1,358,549) (847,140)
Cash, cash equivalents and restricted cash, beginning of period 1,663,678  1,117,539 
Cash, cash equivalents and restricted cash, end of period $305,129  $270,399 
     
SUPPLEMENTARY CASH FLOW DATA:    
Income taxes paid, net of refunds received $103,789  $102,755 
Interest paid on borrowings 55,581  57,834 
Accrued additions to property and equipment 2,241  1,078 
Accrued purchase of common stock 12,301   
     


FINANCIAL RESULTS(unaudited, in 000s - except per share amounts)
 Three months ended January 31, Nine months ended January 31,
 2019 2018 2019 2018
REVENUES:       
U.S. assisted tax preparation$256,813  $267,328  $329,569  $333,956 
U.S. royalties42,265  45,420  57,898  59,395 
U.S. DIY tax preparation31,885  31,322  37,660  38,811 
International revenues12,304  12,308  96,980  100,659 
Revenues from Refund Transfers47,482  50,770  49,466  54,721 
Revenues from Emerald Card®14,980  16,125  38,704  40,292 
Revenues from Peace of Mind® Extended Service Plan16,596  19,967  77,491  76,495 
Revenues from Tax Identity Shield®7,655  6,818  17,639  7,329 
Interest and fee income on Emerald AdvanceTM30,924  31,075  31,768  32,333 
Other7,480  7,293  25,263  23,091 
 468,384  488,426  762,438  767,082 
Compensation and benefits:       
Field wages153,764  156,027  262,792  261,866 
Other wages54,243  50,717  152,111  140,637 
Benefits and other compensation42,778  42,156  89,887  86,384 
 250,785  248,900  504,790  488,887 
Occupancy (1)94,407  97,557  290,013  282,755 
Marketing and advertising72,876  64,209  88,356  82,875 
Depreciation and amortization44,088  48,488  126,013  136,878 
Bad debt33,861  29,191  33,191  33,429 
Supplies9,950  4,950  15,343  12,052 
Other (1)100,517  92,404  240,212  228,652 
Total operating expenses606,484  585,699  1,297,918  1,265,528 
        
Other income (expense), net2,269  1,028  11,275  3,259 
Interest expense on borrowings(22,833) (24,560) (65,214) (67,102)
Pretax loss(158,664) (120,805) (589,419) (562,289)
Income taxes (benefit)(38,885) 122,120  (149,906) (43,234)
Net loss from continuing operations(119,779) (242,925) (439,513) (519,055)
Net loss from discontinued operations(6,675) (2,720) (15,887) (10,723)
NET LOSS$(126,454) $(245,645) $(455,400) $(529,778)
        
BASIC AND DILUTED LOSS PER SHARE:       
Continuing operations$(0.58) $(1.16) $(2.13) $(2.49)
Discontinued operations(0.04) (0.02) (0.08) (0.05)
Consolidated$(0.62) $(1.18) $(2.21) $(2.54)
        
Weighted average basic and diluted shares205,532  209,080  206,242  208,693 
        
EBITDA from continuing operations (2)$(91,743) $(47,757) $(398,192) $(358,309)
        


(1)We reclassified $10.2 million and $28.6 million of software and information technology (IT) maintenance expense from occupancy to other expenses for the three and nine months ended January 31, 2018, respectively, to conform to the current period presentation.
(2)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,  
 2019 2018 % Change 2019 2018 % Change
            
Tax Returns Prepared: (in 000s) (1) (2)           
Company-Owned Operations1,310  1,453  (9.8)% 4,101  4,429  (7.4)%
Franchise Operations657  707  (7.1)% 1,938  2,028  (4.4)%
  Total H&R Block Assisted1,967  2,160  (8.9)% 6,039  6,457  (6.5)%
            
Desktop128  151  (15.2)% 706  764  (7.6)%
Online1,164  1,126  3.4 % 3,480  3,170  9.8 %
Total H&R Block DIY1,292  1,277  1.2 % 4,186  3,934  6.4 %
            
IRS Free File101  94  7.4 % 340  306  11.1 %
Total H&R Block Returns3,360  3,531  (4.8)% 10,565  10,697  (1.2)%
            
Net Average Charge: (3)           
Company-Owned Operations$252.60  $236.38  6.9 % $231.64  $223.03  3.9 %
Franchise Operations (4)244.08  224.00  9.0 % 218.78  205.21  6.6 %
DIY29.15  30.39  (4.1)% 27.29  27.71  (1.5)%
            

 

(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. A DIY return is defined as a return that has been electronically filed and accepted by the IRS.  Also included are online returns paid and printed.
(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 tax preparation fees divided by tax returns prepared. For DIY, net average charge excludes IRS Free File.
(4)Net average charge related to H&R Block Franchise Operations represents tax preparation fees collected by H&R Block franchisees divided by returns prepared in franchise offices.  H&R Block will recognize a portion of franchise revenues as franchise royalties based on the terms of franchise agreements.


  Three months ended January 31, Nine months ended January 31,
NON-GAAP FINANCIAL MEASURE - EBITDA 2019 2018 2019 2018
         
Net loss - as reported $(126,454) $(245,645) $(455,400) $(529,778)
Discontinued operations, net 6,675  2,720  15,887  10,723 
Net loss from continuing operations - as reported (119,779) (242,925) (439,513) (519,055)
Add back:        
Income taxes of continuing operations (38,885) 122,120  (149,906) (43,234)
Interest expense of continuing operations 22,833  24,560  65,214  67,102 
Depreciation and amortization of continuing operations 44,088  48,488  126,013  136,878 
  28,036  195,168  41,321  160,746 
         
EBITDA from continuing operations $(91,743) $(47,757) $(398,192) $(358,309)
         
  Three months ended January 31, Nine months ended January 31,
Supplemental Information 2019 2018 2019 2018
         
Stock-based compensation expense:        
Pretax $6,170  $5,438  $18,009  $17,065 
After-tax 4,440  8,228  13,429  15,753 
Amortization of intangible assets:        
Pretax $18,737  $20,792  $54,461  $59,465 
After-tax 13,487  29,863  40,612  54,892 
         

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.

We may consider whether significant items that arise in the future should 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, EBITDA margin from continuing operations, and free cash flow. We also use EBITDA from continuing operations and pretax income from continuing operations, each subject to permitted adjustments, as performance metrics in incentive compensation calculations for our employees.