Exhibit 99.1
News Release
For Immediate Release: August 28, 2019
H&R Block Announces Fiscal 2020 First Quarter Results
KANSAS CITY, Mo. - H&R Block, Inc. (NYSE: HRB) today released its financial results for the fiscal 2020 first quarter ended July 31, 2019. The company normally reports a fiscal first quarter loss due to the seasonality of its tax business. The fiscal first quarter typically represents less than 5% of annual revenues and less than 15% of annual expenses.
Fiscal First Quarter Highlights1
▪ | The company completed its acquisition of Wave, a rapidly growing financial solutions platform focused on changing the way small business owners manage their finances. |
▪ | Fiscal first quarter financial results were in line with expectations, and the company reiterated its revenue and margin outlook for the full fiscal year. |
▪ | Revenues increased 4%, to $150 million due to activity related to Wave, improved tax return volumes in both U.S. Assisted and DIY, and increased international tax preparation fees. |
▪ | Loss per share from continuing operations2 was unchanged at $0.72. |
▪ | The company repurchased and retired approximately 1.6 million shares at an aggregate price of $44 million, or $27.68 per share. |
"I'm delighted that Wave is now officially part of H&R Block as we accelerate our efforts to better serve small businesses," said Jeff Jones, H&R Block's president and chief executive officer. "As we begin the second year of our strategic journey, we're off to a great start with momentum from last year driving improved tax results in the preseason. I'm excited as we build on our strong performance and learnings from fiscal 2019 to deliver our objectives for fiscal 2020."
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 All per share amounts are based on fully diluted shares at the end of the corresponding period.
Fiscal 2020 First Quarter Results From Continuing Operations
(in millions, except EPS) | Q1 FY2020 | Q1 FY2019 | ||||||
Revenue | $ | 150 | $ | 145 | ||||
Pretax Loss | $ | (207 | ) | $ | (199 | ) | ||
Net Loss | $ | (146 | ) | $ | (149 | ) | ||
Weighted-Avg. Shares - Diluted | 202.0 | 207.7 | ||||||
EPS2 | $ | (0.72 | ) | $ | (0.72 | ) | ||
EBITDA3 | $ | (147 | ) | $ | (137 | ) | ||
"Our fiscal first quarter results were consistent with our expectations and reflect the seasonality of our business, as well as investments related to our enterprise strategy," said Tony Bowen, H&R Block's chief financial officer. "I'm pleased with the progress we are making on our strategy, and we remain on track to achieve our revenue and margin outlook for the fiscal year."
Key Financial Metrics
▪ | Fiscal first quarter results were in line with expectations. |
▪ | Total revenues increased $5.2 million, or 3.6%, to $150.4 million due to activity related to Wave, improved tax return volumes in both U.S. Assisted and DIY, and increased international tax preparation fees. These revenues were partially offset by a change in the timing of revenue recognition related to the Peace of Mind® Extended Service Plan. |
▪ | Total operating expenses increased $18.2 million, or 5.6%, to $345.5 million due to planned increases in compensation and other expenses. These increases primarily resulted from investments related to our technology roadmap and Wave, and were partially offset by lower depreciation and amortization expense. |
▪ | Pretax loss increased $8.3 million, or 4.2%, to $207.1 million, while loss per share from continuing operations was unchanged at $0.72. The change in pretax loss, along with lower shares outstanding impacted loss per share. While beneficial on a full-year basis, the lower share count negatively impacts EPS in quarters in which the company reports a loss. These impacts were offset by an increased tax benefit. |
Share Repurchases and Dividends
▪ | During the first quarter of fiscal 2020, the company repurchased and retired approximately 1.6 million shares at an aggregate price of $44.1 million, or $27.68 per share. |
▪ | As previously announced, a quarterly cash dividend of $0.26 per share is payable on October 1, 2019 to shareholders of record as of September 13, 2019. H&R Block has paid quarterly dividends consecutively since the company went public in 1962 and has increased its dividend in each of the past four fiscal years. |
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.
3 The 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).
Conference Call
Discussion of the fiscal 2020 first quarter results, 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 August 28, 2019. To access the call, please dial the number below approximately 10 minutes prior to the scheduled starting time:
U.S./Canada (866) 987-6821 or International (630) 652-5951
Conference ID: 8395479
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 Quarterly Results page at http://investors.hrblock.com following the conclusion of the call.
A replay of the call will be available beginning at 7:30 p.m. Eastern time on August 28, 2019 and continuing for seven days by dialing (855) 859-2056 (U.S./Canada) or (404) 537-3406 (International). The conference ID is 8395479. The webcast will be available for replay beginning on August 29, 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 and small business services provider. Tax return preparation services are provided by professional tax preparers in approximately 11,000 company-owned and franchise retail tax offices worldwide, as well as through virtual channels and H&R Block tax software products for the DIY consumer. H&R Block offers small business financial solutions through its retail locations and online through Wave (waveapps.com). In fiscal 2019, H&R Block had revenues of $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, 2019 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.
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
TABLES FOLLOW
CONSOLIDATED STATEMENTS OF OPERATIONS | (unaudited, in 000s - except per share amounts) | |||||||
Three months ended July 31, | ||||||||
2019 | 2018 | |||||||
REVENUES: | ||||||||
Service revenues | $ | 132,159 | $ | 126,860 | ||||
Royalty, product and other revenues | 18,203 | 18,323 | ||||||
150,362 | 145,183 | |||||||
OPERATING EXPENSES: | ||||||||
Costs of revenues | 229,392 | 221,560 | ||||||
Selling, general and administrative | 116,136 | 105,740 | ||||||
Total operating expenses | 345,528 | 327,300 | ||||||
Other income (expense), net | 9,123 | 4,542 | ||||||
Interest expense on borrowings | (21,071 | ) | (21,190 | ) | ||||
Loss from continuing operations before income tax benefit | (207,114 | ) | (198,765 | ) | ||||
Income tax benefit | (61,390 | ) | (49,968 | ) | ||||
Net loss from continuing operations | (145,724 | ) | (148,797 | ) | ||||
Net loss from discontinued operations | (4,523 | ) | (3,873 | ) | ||||
NET LOSS | $ | (150,247 | ) | $ | (152,670 | ) | ||
BASIC AND DILUTED LOSS PER SHARE: | ||||||||
Continuing operations | $ | (0.72 | ) | $ | (0.72 | ) | ||
Discontinued operations | (0.02 | ) | (0.02 | ) | ||||
Consolidated | $ | (0.74 | ) | $ | (0.74 | ) | ||
WEIGHTED AVERAGE BASIC AND DILUTED SHARES | 202,037 | 207,673 | ||||||
CONSOLIDATED BALANCE SHEETS | (unaudited, in 000s - except per share data) | |||||||||||
As of | July 31, 2019 | July 31, 2018 | April 30, 2019 | |||||||||
ASSETS | ||||||||||||
Cash and cash equivalents | $ | 607,668 | $ | 979,116 | $ | 1,572,150 | ||||||
Cash and cash equivalents - restricted | 157,786 | 131,376 | 135,577 | |||||||||
Receivables, net | 76,128 | 70,576 | 138,965 | |||||||||
Prepaid expenses and other current assets | 105,123 | 101,055 | 146,667 | |||||||||
Total current assets | 946,705 | 1,282,123 | 1,993,359 | |||||||||
Property and equipment, net | 199,679 | 227,003 | 212,092 | |||||||||
Operating lease right of use asset | 486,147 | — | — | |||||||||
Intangible assets, net | 419,391 | 354,831 | 342,493 | |||||||||
Goodwill | 821,278 | 507,941 | 519,937 | |||||||||
Deferred tax assets and income taxes receivable | 142,416 | 131,683 | 141,979 | |||||||||
Other noncurrent assets | 94,384 | 101,457 | 90,085 | |||||||||
Total assets | $ | 3,110,000 | $ | 2,605,038 | $ | 3,299,945 | ||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||
LIABILITIES: | ||||||||||||
Accounts payable and accrued expenses | $ | 122,156 | $ | 145,471 | $ | 249,525 | ||||||
Accrued salaries, wages and payroll taxes | 48,166 | 37,468 | 196,527 | |||||||||
Accrued income taxes and reserves for uncertain tax positions | 182,928 | 178,313 | 271,973 | |||||||||
Operating lease liabilities | 186,355 | — | — | |||||||||
Deferred revenue and other current liabilities | 193,364 | 202,744 | 204,976 | |||||||||
Total current liabilities | 732,969 | 563,996 | 923,001 | |||||||||
Long-term debt | 1,493,289 | 1,495,006 | 1,492,629 | |||||||||
Deferred tax liabilities and reserves for uncertain tax positions | 199,714 | 231,292 | 197,906 | |||||||||
Operating lease liabilities | 292,818 | — | — | |||||||||
Deferred revenue and other noncurrent liabilities | 100,406 | 122,735 | 144,882 | |||||||||
Total liabilities | 2,819,196 | 2,413,029 | 2,758,418 | |||||||||
COMMITMENTS AND CONTINGENCIES | ||||||||||||
STOCKHOLDERS’ EQUITY: | ||||||||||||
Common stock, no par, stated value $.01 per share | 2,367 | 2,420 | 2,383 | |||||||||
Additional paid-in capital | 759,449 | 752,109 | 767,636 | |||||||||
Accumulated other comprehensive loss | (22,736 | ) | (16,034 | ) | (20,416 | ) | ||||||
Retained earnings | 250,740 | 163,567 | 499,386 | |||||||||
Less treasury shares, at cost | (699,016 | ) | (710,053 | ) | (707,462 | ) | ||||||
Total stockholders' equity | 290,804 | 192,009 | 541,527 | |||||||||
Total liabilities and stockholders' equity | $ | 3,110,000 | $ | 2,605,038 | $ | 3,299,945 | ||||||
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | (unaudited, in 000s) | |||||||
Three months ended July 31, | 2019 | 2018 | ||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net loss | $ | (150,247 | ) | $ | (152,670 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation and amortization | 38,605 | 40,432 | ||||||
Provision for bad debt | 552 | 1,617 | ||||||
Deferred taxes | 6,825 | 9,595 | ||||||
Stock-based compensation | 6,674 | 4,359 | ||||||
Changes in assets and liabilities, net of acquisitions: | ||||||||
Receivables | 60,519 | 66,202 | ||||||
Prepaid expenses, other current and noncurrent assets | (9,917 | ) | (12,161 | ) | ||||
Accounts payable, accrued expenses, salaries, wages and payroll taxes | (284,643 | ) | (203,482 | ) | ||||
Deferred revenue, other current and noncurrent liabilities | (45,769 | ) | (40,760 | ) | ||||
Income tax receivables, accrued income taxes and income tax reserves | (99,929 | ) | (89,661 | ) | ||||
Other, net | (6,499 | ) | 966 | |||||
Net cash used in operating activities | (483,829 | ) | (375,563 | ) | ||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Capital expenditures | (15,181 | ) | (12,057 | ) | ||||
Payments made for business acquisitions, net of cash acquired | (394,411 | ) | (1,449 | ) | ||||
Franchise loans funded | (2,806 | ) | (1,805 | ) | ||||
Payments from franchisees | 2,647 | 5,104 | ||||||
Other, net | 50,944 | 3,645 | ||||||
Net cash used in investing activities | (358,807 | ) | (6,562 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Dividends paid | (52,512 | ) | (52,104 | ) | ||||
Repurchase of common stock, including shares surrendered | (36,456 | ) | (101,665 | ) | ||||
Proceeds from exercise of stock options | 1,206 | 1,355 | ||||||
Other, net | (12,431 | ) | (17,494 | ) | ||||
Net cash used in financing activities | (100,193 | ) | (169,908 | ) | ||||
Effects of exchange rate changes on cash | 556 | (1,153 | ) | |||||
Net decrease in cash and cash equivalents, including restricted balances | (942,273 | ) | (553,186 | ) | ||||
Cash, cash equivalents and restricted cash, beginning of period | 1,707,727 | 1,663,678 | ||||||
Cash, cash equivalents and restricted cash, end of period | $ | 765,454 | $ | 1,110,492 | ||||
SUPPLEMENTARY CASH FLOW DATA: | ||||||||
Income taxes paid, net of refunds received | $ | 36,138 | $ | 31,969 | ||||
Interest paid on borrowings | 15,519 | 15,519 | ||||||
Accrued additions to property and equipment | 127 | 9,974 | ||||||
Accrued purchase of common stock | 16,801 | — | ||||||
FINANCIAL RESULTS | (unaudited, in 000s - except per share amounts) | |||||||
Three months ended July 31, | ||||||||
2019 | 2018 | |||||||
REVENUES: | ||||||||
U.S. assisted tax preparation | $ | 32,992 | $ | 31,104 | ||||
U.S. royalties | 6,859 | 7,571 | ||||||
U.S. DIY tax preparation | 3,410 | 2,781 | ||||||
International | 40,581 | 39,179 | ||||||
Refund Transfers | 1,509 | 1,424 | ||||||
Emerald Card® | 13,855 | 14,246 | ||||||
Peace of Mind® Extended Service Plan | 32,837 | 36,577 | ||||||
Tax Identity Shield® | 4,522 | 4,741 | ||||||
Interest and fee income on Emerald AdvanceTM | 554 | 447 | ||||||
Wave | 3,625 | — | ||||||
Other | 9,618 | 7,113 | ||||||
150,362 | 145,183 | |||||||
Compensation and benefits: | ||||||||
Field wages | 53,803 | 49,932 | ||||||
Other wages | 53,837 | 47,822 | ||||||
Benefits and other compensation | 26,474 | 22,931 | ||||||
134,114 | 120,685 | |||||||
Occupancy | 92,152 | 90,726 | ||||||
Marketing and advertising | 6,779 | 6,894 | ||||||
Depreciation and amortization | 38,605 | 40,432 | ||||||
Bad debt | (968 | ) | (858 | ) | ||||
Other (1) | 74,846 | 69,421 | ||||||
Total operating expenses | 345,528 | 327,300 | ||||||
Other income (expense), net | 9,123 | 4,542 | ||||||
Interest expense on borrowings | (21,071 | ) | (21,190 | ) | ||||
Pretax loss | (207,114 | ) | (198,765 | ) | ||||
Income tax benefit | (61,390 | ) | (49,968 | ) | ||||
Net loss from continuing operations | (145,724 | ) | (148,797 | ) | ||||
Net loss from discontinued operations | (4,523 | ) | (3,873 | ) | ||||
NET LOSS | $ | (150,247 | ) | $ | (152,670 | ) | ||
BASIC AND DILUTED LOSS PER SHARE: | ||||||||
Continuing operations | $ | (0.72 | ) | $ | (0.72 | ) | ||
Discontinued operations | (0.02 | ) | (0.02 | ) | ||||
Consolidated | $ | (0.74 | ) | $ | (0.74 | ) | ||
Weighted average basic and diluted shares | 202,037 | 207,673 | ||||||
EBITDA from continuing operations (2) | $ | (147,438 | ) | $ | (137,143 | ) | ||
(1) | We reclassified $2.2 million of supplies expense from its own financial statement line to other expenses for fiscal year 2019 to conform to the current year presentation. |
(2) See "Non-GAAP Financial Information" for a reconciliation of non-GAAP measures.
Three months ended July 31, | |||||||||
NON-GAAP FINANCIAL MEASURE - EBITDA | 2019 | 2018 | |||||||
Net loss - as reported | $ | (150,247 | ) | $ | (152,670 | ) | |||
Discontinued operations, net | 4,523 | 3,873 | |||||||
Net loss from continuing operations - as reported | (145,724 | ) | (148,797 | ) | |||||
Add back: | |||||||||
Income taxes of continuing operations | (61,390 | ) | (49,968 | ) | |||||
Interest expense of continuing operations | 21,071 | 21,190 | |||||||
Depreciation and amortization of continuing operations | 38,605 | 40,432 | |||||||
(1,714 | ) | 11,654 | |||||||
EBITDA from continuing operations | $ | (147,438 | ) | $ | (137,143 | ) | |||
Three months ended July 31, | |||||||||
Supplemental Information | 2019 | 2018 | |||||||
Stock-based compensation expense: | |||||||||
Pretax | $ | 6,674 | $ | 4,359 | |||||
After-tax | 4,963 | 3,274 | |||||||
Amortization of intangible assets: | |||||||||
Pretax | $ | 18,194 | $ | 18,139 | |||||
After-tax | 13,531 | 13,622 | |||||||
NON-GAAP FINANCIAL INFORMATION
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 other 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 earnings before interest, taxes, depreciation and amortization (EBITDA) from continuing operations, EBITDA margin from continuing operations, and free cash flow. 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.