▪ | 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. |
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. |
(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 | ) | ||
▪ | 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. |
▪ | 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. |
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. |
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 | |||||||