Exhibit 99.1
News Release
For Immediate Release: August 28, 2018
H&R Block Announces Fiscal 2019 First Quarter Results
KANSAS CITY, Mo. - H&R Block, Inc. (NYSE: HRB) today released its financial results for the fiscal 2019 first quarter ended July 31, 2018. 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 percent of annual revenues and less than 15 percent of annual expenses.
Fiscal First Quarter Highlights1
▪ | Fiscal first quarter financial results were in line with expectations. |
▪ | Revenues increased $7 million, or 5 percent, to $145 million primarily due to the timing of revenues related to the company's Tax Plus products. |
▪ | Pretax loss improved 3 percent to $199 million; loss per share from continuing operations2 increased $0.10 to $0.72 due to a lower effective tax rate, which negatively impacts those fiscal quarters with a seasonal net loss. |
▪ | The company repurchased and retired approximately 4.2 million shares at an aggregate price of $97 million, or $23.27 per share. |
▪ | The company reiterated its financial outlook for the full fiscal year. |
"We are hard at work on our strategic initiatives for fiscal 2019, which include delivering an improved value proposition for our clients and differentiating H&R Block as the best choice for consumers," said Jeff Jones, H&R Block's president and chief executive officer. "By investing in pricing, technology, and operational excellence, we are positioning the company to accomplish our goal of sustainably growing clients, revenue, and earnings. We look forward to sharing more details on our progress throughout the year."
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 2019 First Quarter Results From Continuing Operations
"Our fiscal first quarter results were in line with expectations and reflect the seasonality of our business, as well as investments related to the strategic initiatives we outlined in June," said Tony Bowen, H&R Block's chief financial officer. "We are on track to achieve our financial outlook for the fiscal year."
(in millions, except EPS) | Q1 FY2019 | Q1 FY2018 | ||||||
Revenue | $ | 145 | $ | 138 | ||||
Pretax Loss | $ | (199 | ) | $ | (205 | ) | ||
Net Loss | $ | (149 | ) | $ | (128 | ) | ||
Weighted-Avg. Shares - Diluted | 207.7 | 207.9 | ||||||
EPS2 | $ | (0.72 | ) | $ | (0.62 | ) | ||
EBITDA3 | $ | (137 | ) | $ | (140 | ) | ||
Key Financial Metrics
▪ | Total revenues increased $7.4 million, or 5.4 percent, to $145.2 million primarily due to the timing of revenues from the Peace of Mind® Extended Service Plan and Tax Identity Shield®, partially offset by lower revenues from Refund Transfer. |
▪ | Total operating expenses increased $4.3 million, or 1.3 percent, to $327.3 million primarily due to increases in compensation and consulting expenses, partially offset by lower depreciation and amortization and bad debt expense. |
▪ | Pretax loss improved $6.5 million, or 3.1 percent, to $198.8 million. |
▪ | Loss per share from continuing operations increased $0.10, from $0.62 to $0.72, due to a lower effective tax rate, which negatively impacts those fiscal quarters with a seasonal net loss. |
Share Repurchases and Dividends
▪ | During the first quarter of fiscal 2019, the company repurchased and retired approximately 4.2 million shares at an aggregate price of $97.1 million, or $23.27 per share. |
▪ | As previously announced, a quarterly cash dividend of $0.25 per share is payable on October 1, 2018 to shareholders of record as of September 12, 2018. 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 first quarter results, future outlook, and a general business update will occur during the company’s previously announced fiscal first quarter earnings conference call for analysts, institutional investors, and shareholders. The call is scheduled for 4:30 p.m. Eastern time on August 28,
3 The company reports non-GAAP financial measures of performance, including earnings before interest, tax, depreciation, and amortization (EBITDA), EBITDA margin, 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).
2018. 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: 8159739
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 7:30 p.m. Eastern time on August 28, 2018, and continuing until September 28, 2018, by dialing (855) 859-2056 (U.S./Canada) or (404) 537-3406 (International). The conference ID is 8159739. The webcast will be available for replay beginning on August 29, 2018 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, guidance from the Internal Revenue Service, SEC, or the Financial Accounting Standards Board about the Tax Legislation, 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, | ||||||||
2018 | 2017 | |||||||
REVENUES: | ||||||||
Service revenues | $ | 126,860 | $ | 124,695 | ||||
Royalty, product and other revenues | 18,323 | 13,107 | ||||||
145,183 | 137,802 | |||||||
OPERATING EXPENSES: | ||||||||
Costs of revenues | 221,560 | 227,715 | ||||||
Selling, general and administrative | 105,740 | 95,249 | ||||||
Total operating expenses | 327,300 | 322,964 | ||||||
Other income (expense), net | 4,542 | 1,220 | ||||||
Interest expense on borrowings | (21,190 | ) | (21,277 | ) | ||||
Loss from continuing operations before income tax benefit | (198,765 | ) | (205,219 | ) | ||||
Income tax benefit | (49,968 | ) | (77,401 | ) | ||||
Net loss from continuing operations | (148,797 | ) | (127,818 | ) | ||||
Net loss from discontinued operations | (3,873 | ) | (2,749 | ) | ||||
NET LOSS | $ | (152,670 | ) | $ | (130,567 | ) | ||
BASIC AND DILUTED LOSS PER SHARE: | ||||||||
Continuing operations | $ | (0.72 | ) | $ | (0.62 | ) | ||
Discontinued operations | (0.02 | ) | (0.01 | ) | ||||
Consolidated | $ | (0.74 | ) | $ | (0.63 | ) | ||
WEIGHTED AVERAGE BASIC AND DILUTED SHARES | 207,673 | 207,935 | ||||||
CONSOLIDATED BALANCE SHEETS | (unaudited, in 000s - except per share data) | |||||||||||
As of | July 31, 2018 | July 31, 2017 | April 30, 2018 | |||||||||
ASSETS | ||||||||||||
Cash and cash equivalents | $ | 979,116 | $ | 551,566 | $ | 1,544,944 | ||||||
Cash and cash equivalents - restricted | 131,376 | 116,594 | 118,734 | |||||||||
Receivables, net | 70,576 | 91,004 | 146,774 | |||||||||
Income taxes receivable | 15,776 | — | 12,310 | |||||||||
Prepaid expenses and other current assets | 85,279 | 74,776 | 68,951 | |||||||||
Total current assets | 1,282,123 | 833,940 | 1,891,713 | |||||||||
Property and equipment, net | 227,003 | 253,255 | 231,888 | |||||||||
Intangible assets, net | 354,831 | 393,972 | 373,981 | |||||||||
Goodwill | 507,941 | 493,991 | 507,871 | |||||||||
Deferred tax assets and income taxes receivable | 131,683 | 54,348 | 34,095 | |||||||||
Other noncurrent assets | 101,457 | 102,742 | 101,401 | |||||||||
Total assets | $ | 2,605,038 | $ | 2,132,248 | $ | 3,140,949 | ||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||
LIABILITIES: | ||||||||||||
Accounts payable and accrued expenses | $ | 145,471 | $ | 161,751 | $ | 251,975 | ||||||
Accrued salaries, wages and payroll taxes | 37,468 | 35,063 | 141,499 | |||||||||
Accrued income taxes and reserves for uncertain tax positions | 178,313 | 176,909 | 263,050 | |||||||||
Current portion of long-term debt | 1,038 | 992 | 1,026 | |||||||||
Deferred revenue and other current liabilities | 201,706 | 187,791 | 186,101 | |||||||||
Total current liabilities | 563,996 | 562,506 | 843,651 | |||||||||
Long-term debt | 1,495,006 | 1,493,422 | 1,494,609 | |||||||||
Deferred tax liabilities and reserves for uncertain tax positions | 231,292 | 159,233 | 229,430 | |||||||||
Deferred revenue and other noncurrent liabilities | 122,735 | 131,415 | 179,548 | |||||||||
Total liabilities | 2,413,029 | 2,346,576 | 2,747,238 | |||||||||
COMMITMENTS AND CONTINGENCIES | ||||||||||||
STOCKHOLDERS’ EQUITY: | ||||||||||||
Common stock, no par, stated value $.01 per share | 2,420 | 2,462 | 2,462 | |||||||||
Additional paid-in capital | 752,109 | 746,761 | 760,250 | |||||||||
Accumulated other comprehensive loss | (16,034 | ) | (12,837 | ) | (14,303 | ) | ||||||
Retained earnings (deficit) | 163,567 | (229,647 | ) | 362,980 | ||||||||
Less treasury shares, at cost | (710,053 | ) | (721,067 | ) | (717,678 | ) | ||||||
Total stockholders' equity (deficiency) | 192,009 | (214,328 | ) | 393,711 | ||||||||
Total liabilities and stockholders' equity | $ | 2,605,038 | $ | 2,132,248 | $ | 3,140,949 | ||||||
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | (unaudited, in 000s) | |||||||
Three months ended July 31, | 2018 | 2017 | ||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net loss | $ | (152,670 | ) | $ | (130,567 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation and amortization | 40,432 | 43,598 | ||||||
Provision for bad debt | 1,617 | 2,459 | ||||||
Deferred taxes | 9,595 | 20,796 | ||||||
Stock-based compensation | 4,359 | 4,816 | ||||||
Changes in assets and liabilities, net of acquisitions: | ||||||||
Receivables | 66,960 | 64,985 | ||||||
Prepaid expenses and other current assets | (16,191 | ) | (8,695 | ) | ||||
Other noncurrent assets | 3,272 | 5,499 | ||||||
Accounts payable and accrued expenses | (99,658 | ) | (66,729 | ) | ||||
Accrued salaries, wages and payroll taxes | (103,824 | ) | (149,441 | ) | ||||
Deferred revenue and other current liabilities | (782 | ) | 464 | |||||
Deferred revenue and other noncurrent liabilities | (39,978 | ) | (32,510 | ) | ||||
Income tax receivables, accrued income taxes and income tax reserves | (89,661 | ) | (149,542 | ) | ||||
Other, net | 966 | (14,248 | ) | |||||
Net cash used in operating activities | (375,563 | ) | (409,115 | ) | ||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Capital expenditures | (12,057 | ) | (13,094 | ) | ||||
Payments made for business acquisitions, net of cash acquired | (1,449 | ) | (1,440 | ) | ||||
Franchise loans funded | (1,805 | ) | (4,527 | ) | ||||
Payments received on franchise loans | 5,104 | 4,727 | ||||||
Other, net | 3,645 | 1,371 | ||||||
Net cash used in investing activities | (6,562 | ) | (12,963 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Dividends paid | (52,104 | ) | (49,905 | ) | ||||
Repurchase of common stock, including shares surrendered | (101,665 | ) | (7,508 | ) | ||||
Proceeds from exercise of stock options | 1,355 | 27,418 | ||||||
Other, net | (17,494 | ) | 2,545 | |||||
Net cash used in financing activities | (169,908 | ) | (27,450 | ) | ||||
Effects of exchange rate changes on cash | (1,153 | ) | 149 | |||||
Net decrease in cash, cash equivalents and restricted cash | (553,186 | ) | (449,379 | ) | ||||
Cash, cash equivalents and restricted cash, beginning of period | 1,663,678 | 1,117,539 | ||||||
Cash, cash equivalents and restricted cash, end of period | $ | 1,110,492 | $ | 668,160 | ||||
SUPPLEMENTARY CASH FLOW DATA: | ||||||||
Income taxes paid, net of refunds received | $ | 31,969 | $ | 57,901 | ||||
Interest paid on borrowings | 15,519 | 15,519 | ||||||
Accrued additions to property and equipment | 9,974 | 4,757 | ||||||
FINANCIAL RESULTS | (unaudited, in 000s - except per share amounts) | |||||||
Three months ended July 31, | ||||||||
2018 | 2017 | |||||||
REVENUES: | ||||||||
U.S. assisted tax preparation fees | $ | 31,104 | $ | 29,963 | ||||
U.S. royalties | 7,571 | 6,967 | ||||||
U.S. DIY tax preparation fees | 2,781 | 3,226 | ||||||
International revenues | 39,179 | 40,417 | ||||||
Revenues from Refund Transfers | 1,424 | 2,816 | ||||||
Revenues from Emerald Card® | 14,246 | 14,987 | ||||||
Revenues from Peace of Mind® Extended Service Plan | 36,577 | 31,943 | ||||||
Revenues from Tax Identity Shield® | 4,741 | 254 | ||||||
Interest and fee income on Emerald Advance | 447 | 664 | ||||||
Other | 7,113 | 6,565 | ||||||
145,183 | 137,802 | |||||||
Compensation and benefits: | ||||||||
Field wages | 49,932 | 48,123 | ||||||
Other wages | 47,822 | 43,197 | ||||||
Benefits and other compensation | 22,931 | 20,645 | ||||||
120,685 | 111,965 | |||||||
Occupancy and equipment | 90,726 | 90,291 | ||||||
Marketing and advertising | 6,894 | 7,104 | ||||||
Depreciation and amortization | 40,432 | 43,598 | ||||||
Bad debt | (858 | ) | 2,459 | |||||
Supplies | 2,204 | 2,734 | ||||||
Other | 67,217 | 64,813 | ||||||
Total operating expenses | 327,300 | 322,964 | ||||||
Other income (expense), net | 4,542 | 1,220 | ||||||
Interest expense on borrowings | (21,190 | ) | (21,277 | ) | ||||
Pretax loss | (198,765 | ) | (205,219 | ) | ||||
Income tax benefit | (49,968 | ) | (77,401 | ) | ||||
Net loss from continuing operations | (148,797 | ) | (127,818 | ) | ||||
Net loss from discontinued operations | (3,873 | ) | (2,749 | ) | ||||
NET LOSS | $ | (152,670 | ) | $ | (130,567 | ) | ||
BASIC AND DILUTED LOSS PER SHARE: | ||||||||
Continuing operations | $ | (0.72 | ) | $ | (0.62 | ) | ||
Discontinued operations | (0.02 | ) | (0.01 | ) | ||||
Consolidated | $ | (0.74 | ) | $ | (0.63 | ) | ||
Weighted average basic and diluted shares | 207,673 | 207,935 | ||||||
EBITDA from continuing operations (1) | $ | (137,143 | ) | $ | (140,344 | ) | ||
(1) | See "Non-GAAP Financial Information" for a reconciliation of non-GAAP measures. |
Three months ended July 31, | ||||||||
NON-GAAP FINANCIAL MEASURE - EBITDA | 2018 | 2017 | ||||||
Net loss - as reported | $ | (152,670 | ) | $ | (130,567 | ) | ||
Discontinued operations, net | 3,873 | 2,749 | ||||||
Net loss from continuing operations - as reported | (148,797 | ) | (127,818 | ) | ||||
Add back: | ||||||||
Income taxes of continuing operations | (49,968 | ) | (77,401 | ) | ||||
Interest expense of continuing operations | 21,190 | 21,277 | ||||||
Depreciation and amortization of continuing operations | 40,432 | 43,598 | ||||||
11,654 | (12,526 | ) | ||||||
EBITDA from continuing operations | $ | (137,143 | ) | $ | (140,344 | ) | ||
Three months ended July 31, | ||||||||
Supplemental Information | 2018 | 2017 | ||||||
Stock-based compensation expense: | ||||||||
Pretax | $ | 4,359 | $ | 4,816 | ||||
After-tax | 3,274 | 3,123 | ||||||
Amortization of intangible assets: | ||||||||
Pretax | $ | 18,139 | $ | 19,235 | ||||
After-tax | 13,622 | 12,472 | ||||||
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, 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.