H&R Block, Inc. (NYSE: HRB) (the "Company") today released its
financial results1 for the fiscal 2023 first quarter ended
September 30, 2022.
- Q1 performance met
expectations, and extension conversions increased 5% over the prior
year
- The Company reiterates
its previously given fiscal year 2023 outlook
- Repurchased
$219.8 million of shares, retiring another 3% of shares
outstanding
- Block Advisors
launched a new self-serve business formation product for clients
that streamlines the complicated process of registering a business
entity
"In fiscal year 2023 we are focused on building
upon the momentum we have driven over the last couple years, and we
are off to a good start," said Jeff Jones, H&R Block's
president and chief executive officer. "We did well converting
extensions, and we saw ongoing, healthy adoption of virtual tools.
Overall, I am pleased with our results and am looking forward to
the rest of the year."
Fiscal 2023 First Quarter Results and Key
Financial Metrics
"While the first quarter is a relatively small
portion of our fiscal year, results were in line with expectations
and we continued to drive value for shareholders through our
capital allocation practice," said Tony Bowen, H&R Block's
chief financial officer. "We continued to execute share repurchase,
buying back another 3% of shares outstanding in the quarter, and
are reaffirming our outlook that includes topline growth, EBITDA
that outpaces revenue, and EPS that grows even faster."
- Total revenue of
$180.0 million decreased by $12.6 million, or 7%, to the prior
year. The decrease was due to the Advanced Child Tax Credit being
loaded onto Emerald Cards last year, causing a $16.6 million impact
in the quarter. The Company also expects there to be a similar
impact in the second quarter. As a reminder, the Child Tax Credit
was contemplated in the Company's FY23 outlook. Additionally, the
Company had a $4 million negative impact from foreign exchange in
its Australian and Canadian businesses. These declines were
partially offset by growth at Wave, and an increase in net average
charge in the Company's Assisted business.
- Total operating
expenses of $389.1 million increased by $21.7 million, or 6%,
primarily due to higher compensation and technology related
expenses, partially offset by lower consulting and outsourced
services.
- Pretax loss increased
by $24.0 million to $221.3 million.
- Loss per share from
continuing operations2 increased from $(0.84) to $(1.05) and
adjusted loss per share2 from continuing operations increased from
$(0.78) to $(0.99), primarily due to the larger operating loss and
fewer shares outstanding.
Capital Structure
The Company reported the following related to its
capital structure:
- Repurchased and
retired 4.9 million shares at an aggregate price of
$219.8 million in the first quarter. The Company has
approximately $1 billion remaining on its latest $1.25 billion
authorization which is available through fiscal year 2025.
- As previously
announced, a quarterly cash dividend of $0.29 per share was paid on
October 3, 2022 to shareholders of record as of September 8, 2022.
H&R Block has paid quarterly dividends consecutively since the
Company became public in 1962.
Since 2016, the Company has returned nearly $3
billion to shareholders in the form of share repurchases and
dividends, buying back approximately one third of its shares
outstanding.
Fiscal Year 2023 Outlook
Reaffirmed
The Company continues to expect:
- Revenue to be in the
range of $3.535 to $3.585 billion
- EBITDA3 to be in the
range of $915 to $950 million
- Effective tax rate to
be approximately 22%
- Adjusted Diluted
Earnings Per Share3 to be in the range of $3.70 to $3.95
- Double-digit Adjusted
Diluted Earnings Per Share3 growth annually through 2025
Conference Call
A conference call for analysts, institutional
investors, and shareholders will be held at 4:30 p.m. Eastern time
on Tuesday, November 1, 2022. During the conference call the
company will discuss fiscal 2023 first quarter results, outlook,
and give a general business update. To join live, participants must
register at
https://register.vevent.com/register/BId29b06427c0d4f5bbae0dbac2b064807.
Once registered, the participant will receive a dial-in number and
unique PIN to access the call. Please join approximately 5 minutes
prior to the scheduled start time.
The call, along with a presentation for viewing,
will also be webcast in a listen-only format for the media and
public. The webcast can be accessed directly at
https://edge.media-server.com/mmc/p/fa3vwp6h and will be available
for replay 2 hours after the call is concluded and continuing for
90 days.
About H&R Block
H&R Block, Inc. (NYSE: HRB) provides help and
inspires confidence in its clients and communities everywhere
through global tax preparation services, financial products, and
small-business solutions. The company blends digital innovation
with human expertise and care as it helps people get the best
outcome at tax time and also be better with money using its mobile
banking app, Spruce. Through Block Advisors and Wave, the company
helps small-business owners thrive with innovative products like
Wave Money, a mobile-first, small-business bank account and
bookkeeping solution that manages bookkeeping automatically. For
more information, visit H&R Block News or follow @HRBlockNews
on Twitter.
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. They also include the expected impact of the coronavirus
(COVID-19) pandemic, including, without limitation, the impact on
economic and financial markets, the Company’s capital resources and
financial condition, the expected use of proceeds under the
Company’s revolving credit facility, future expenditures, potential
regulatory actions, such as extensions of tax filing deadlines or
other related relief, changes in consumer behaviors and
modifications to the Company’s operations related thereto. 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 June 30, 2022 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
https://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, future
actions of the Company, or increases in applicable tax rates in
jurisdictions where the Company operates. 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.
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. The company reports
non-GAAP financial measures of performance, including adjusted
earnings per share (EPS), earnings before interest, tax,
depreciation, and amortization (EBITDA) 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).3 Adjusted Diluted Earnings Per
Share (EPS) and earnings before interest, tax, depreciation, and
amortization (EBITDA) from continuing operations are non-GAAP
financial measures. Future period non-GAAP outlook includes
adjustments for items not indicative of our core operations, which
may include, without limitation, items described in the below
section titled “Non-GAAP Financial Information” and in the
accompanying tables. Such adjustments may be affected by changes in
ongoing assumptions and judgments, as well as nonrecurring,
unusual, or unanticipated charges, expenses or gains, or other
items that may not directly correlate to the underlying performance
of our business operations. The exact amounts of these adjustments
are not currently determinable but may be significant. It is
therefore not practicable to provide the comparable GAAP measures
or reconcile this non-GAAP outlook to the most comparable GAAP
measures.
For Further Information |
|
|
|
Investor Relations: |
|
Michaella Gallina, (816) 854-3022,
michaella.gallina@hrblock.com |
|
|
Jordyn Eskijian, (816) 854-5674, jordyn.eskijian@hrblock.com |
Media Relations: |
|
Angela Davied, (816) 854-5798, angela.davied@hrblock.com |
FINANCIAL RESULTS |
|
(unaudited, in 000s - except per share amounts) |
|
|
Three months ended September 30, |
|
|
|
2022 |
|
|
|
2021 |
|
REVENUES: |
|
|
|
|
U.S. tax preparation and related services: |
|
|
|
|
Assisted tax preparation |
|
$ |
36,312 |
|
|
$ |
33,607 |
|
Royalties |
|
|
6,228 |
|
|
|
7,358 |
|
DIY tax preparation |
|
|
3,158 |
|
|
|
4,061 |
|
Refund Transfers |
|
|
1,284 |
|
|
|
1,665 |
|
Peace of Mind® Extended Service Plan |
|
|
24,770 |
|
|
|
24,836 |
|
Tax Identity Shield® |
|
|
5,167 |
|
|
|
5,153 |
|
Other |
|
|
9,360 |
|
|
|
9,745 |
|
Total U.S. tax preparation and related services: |
|
|
86,279 |
|
|
|
86,425 |
|
Financial services: |
|
|
|
|
Emerald Card® and SpruceSM |
|
|
11,612 |
|
|
|
28,258 |
|
Interest and fee income on Emerald AdvanceSM |
|
|
614 |
|
|
|
479 |
|
Total financial services |
|
|
12,226 |
|
|
|
28,737 |
|
International |
|
|
58,834 |
|
|
|
58,325 |
|
Wave |
|
|
22,646 |
|
|
|
19,137 |
|
Total revenues |
|
$ |
179,985 |
|
|
$ |
192,624 |
|
Compensation and benefits: |
|
|
|
|
Field wages |
|
|
61,673 |
|
|
|
56,079 |
|
Other wages |
|
|
63,753 |
|
|
|
58,064 |
|
Benefits and other compensation |
|
|
34,832 |
|
|
|
25,450 |
|
|
|
|
160,258 |
|
|
|
139,593 |
|
Occupancy |
|
|
97,590 |
|
|
|
95,822 |
|
Marketing and advertising |
|
|
10,649 |
|
|
|
10,073 |
|
Depreciation and amortization |
|
|
33,624 |
|
|
|
35,715 |
|
Bad debt |
|
|
329 |
|
|
|
1,043 |
|
Other |
|
|
86,646 |
|
|
|
85,150 |
|
Total operating expenses |
|
|
389,096 |
|
|
|
367,396 |
|
|
|
|
|
|
Other income (expense), net |
|
|
3,611 |
|
|
|
284 |
|
Interest expense on borrowings |
|
|
(15,824 |
) |
|
|
(22,830 |
) |
Pretax loss |
|
|
(221,324 |
) |
|
|
(197,318 |
) |
Income tax benefit |
|
|
(53,957 |
) |
|
|
(47,373 |
) |
Net loss from continuing operations |
|
|
(167,367 |
) |
|
|
(149,945 |
) |
Net loss from discontinued operations |
|
|
(1,054 |
) |
|
|
(1,656 |
) |
Net loss |
|
$ |
(168,421 |
) |
|
$ |
(151,601 |
) |
|
|
|
|
|
BASIC AND DILUTED LOSS PER SHARE: |
|
|
|
|
Continuing operations |
|
$ |
(1.05 |
) |
|
$ |
(0.84 |
) |
Discontinued operations |
|
|
(0.01 |
) |
|
|
(0.01 |
) |
Consolidated |
|
$ |
(1.06 |
) |
|
$ |
(0.85 |
) |
|
|
|
|
|
WEIGHTED AVERAGE DILUTED SHARES |
|
|
159,284 |
|
|
|
178,099 |
|
|
|
|
|
|
Adjusted diluted EPS(1) |
|
$ |
(0.99 |
) |
|
$ |
(0.78 |
) |
EBITDA(1) |
|
|
(171,876 |
) |
|
|
(138,773 |
) |
|
|
|
|
|
(1) All non-GAAP measures are results from
continuing operations. See "Non-GAAP Financial Information" for a
reconciliation of non-GAAP measures.
CONSOLIDATED BALANCE SHEETS |
|
(unaudited, in 000s - except per share data) |
As of |
|
September 30, 2022 |
|
June 30, 2022 |
|
|
|
|
|
ASSETS |
|
|
|
|
Cash and cash equivalents |
|
$ |
322,824 |
|
|
$ |
885,015 |
|
Cash and cash equivalents - restricted |
|
|
108,550 |
|
|
|
165,698 |
|
Receivables, net |
|
|
61,035 |
|
|
|
58,447 |
|
Income taxes receivable |
|
|
154,123 |
|
|
|
202,838 |
|
Prepaid expenses and other current assets |
|
|
77,906 |
|
|
|
72,460 |
|
Total current assets |
|
|
724,438 |
|
|
|
1,384,458 |
|
Property and equipment, net |
|
|
127,934 |
|
|
|
123,912 |
|
Operating lease right of use assets |
|
|
412,823 |
|
|
|
427,783 |
|
Intangible assets, net |
|
|
303,483 |
|
|
|
309,644 |
|
Goodwill |
|
|
746,711 |
|
|
|
760,401 |
|
Deferred tax assets and income taxes receivable |
|
|
193,761 |
|
|
|
208,948 |
|
Other noncurrent assets |
|
|
50,082 |
|
|
|
54,012 |
|
Total assets |
|
$ |
2,559,232 |
|
|
$ |
3,269,158 |
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
LIABILITIES: |
|
|
|
|
Accounts payable and accrued expenses |
|
$ |
168,496 |
|
|
$ |
160,929 |
|
Accrued salaries, wages and payroll taxes |
|
|
56,162 |
|
|
|
154,764 |
|
Accrued income taxes and reserves for uncertain tax positions |
|
|
188,118 |
|
|
|
280,115 |
|
Operating lease liabilities |
|
|
197,491 |
|
|
|
206,898 |
|
Deferred revenue and other current liabilities |
|
|
179,956 |
|
|
|
196,107 |
|
Total current liabilities |
|
|
790,223 |
|
|
|
998,813 |
|
Long-term debt |
|
|
1,487,407 |
|
|
|
1,486,876 |
|
Deferred tax liabilities and reserves for uncertain tax
positions |
|
|
229,340 |
|
|
|
226,362 |
|
Operating lease liabilities |
|
|
222,914 |
|
|
|
228,820 |
|
Deferred revenue and other noncurrent liabilities |
|
|
94,333 |
|
|
|
116,656 |
|
Total liabilities |
|
|
2,824,217 |
|
|
|
3,057,527 |
|
COMMITMENTS AND CONTINGENCIES |
|
|
|
|
STOCKHOLDERS’ EQUITY: |
|
|
|
|
Common stock, no par, stated value $.01 per share |
|
|
1,887 |
|
|
|
1,936 |
|
Additional paid-in capital |
|
|
759,629 |
|
|
|
772,182 |
|
Accumulated other comprehensive loss |
|
|
(53,990 |
) |
|
|
(21,645 |
) |
Retained earnings (deficit) |
|
|
(311,671 |
) |
|
|
120,405 |
|
Less treasury shares, at cost |
|
|
(660,840 |
) |
|
|
(661,247 |
) |
Total stockholders' equity (deficiency) |
|
|
(264,985 |
) |
|
|
211,631 |
|
Total liabilities and stockholders' equity |
|
$ |
2,559,232 |
|
|
$ |
3,269,158 |
|
|
|
|
|
|
CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS |
|
(unaudited, in 000s) |
Three months ended September 30, |
|
|
2022 |
|
|
|
2021 |
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
Net loss |
|
$ |
(168,421 |
) |
|
$ |
(151,601 |
) |
Adjustments to reconcile net loss to net cash used in operating
activities: |
|
|
|
|
Depreciation and amortization |
|
|
33,624 |
|
|
|
35,715 |
|
Provision |
|
|
1,077 |
|
|
|
1,850 |
|
Deferred taxes |
|
|
16,918 |
|
|
|
(13,547 |
) |
Stock-based compensation |
|
|
7,654 |
|
|
|
6,847 |
|
Changes in assets and liabilities, net of acquisitions: |
|
|
|
|
Receivables |
|
|
3,702 |
|
|
|
35,913 |
|
Prepaid expenses, other current and noncurrent assets |
|
|
(2,669 |
) |
|
|
8,610 |
|
Accounts payable, accrued expenses, salaries, wages and payroll
taxes |
|
|
(129,908 |
) |
|
|
(134,215 |
) |
Deferred revenue, other current and noncurrent liabilities |
|
|
(41,549 |
) |
|
|
(27,990 |
) |
Income tax receivables, accrued income taxes and income tax
reserves |
|
|
(41,659 |
) |
|
|
(72,768 |
) |
Other, net |
|
|
(435 |
) |
|
|
(1,438 |
) |
Net cash used in operating activities |
|
|
(321,666 |
) |
|
|
(312,624 |
) |
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
Capital expenditures |
|
|
(16,161 |
) |
|
|
(15,620 |
) |
Payments made for business acquisitions, net of cash acquired |
|
|
(16,507 |
) |
|
|
(4,265 |
) |
Franchise loans funded |
|
|
(6,686 |
) |
|
|
(4,474 |
) |
Payments from franchisees |
|
|
2,270 |
|
|
|
2,839 |
|
Other, net |
|
|
(274 |
) |
|
|
2,067 |
|
Net cash used in investing activities |
|
|
(37,358 |
) |
|
|
(19,453 |
) |
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
Dividends paid |
|
|
(43,093 |
) |
|
|
(48,996 |
) |
Repurchase of common stock, including shares surrendered |
|
|
(202,845 |
) |
|
|
(165,800 |
) |
Proceeds from exercise of stock options |
|
|
— |
|
|
|
3,385 |
|
Other, net |
|
|
(955 |
) |
|
|
(5,911 |
) |
Net cash used in financing activities |
|
|
(246,893 |
) |
|
|
(217,322 |
) |
|
|
|
|
|
Effects of exchange rate changes on cash |
|
|
(13,422 |
) |
|
|
(3,959 |
) |
|
|
|
|
|
Net decrease in cash and cash equivalents, including restricted
balances |
|
|
(619,339 |
) |
|
|
(553,358 |
) |
Cash, cash equivalents and restricted cash, beginning of
period |
|
|
1,050,713 |
|
|
|
1,584,164 |
|
Cash, cash equivalents and restricted cash, end of period |
|
$ |
431,374 |
|
|
$ |
1,030,806 |
|
|
|
|
|
|
SUPPLEMENTARY CASH FLOW DATA: |
|
|
|
|
Income taxes paid (received), net |
|
$ |
(29,811 |
) |
|
$ |
38,419 |
|
Interest paid on borrowings |
|
|
19,792 |
|
|
|
12,594 |
|
Accrued purchase of common stock |
|
|
32,356 |
|
|
|
4,785 |
|
Accrued additions to property and equipment |
|
|
4,704 |
|
|
|
6,273 |
|
New operating right of use assets and related lease
liabilities |
|
|
52,265 |
|
|
|
29,371 |
|
Accrued dividends payable to common shareholders |
|
|
46,100 |
|
|
|
47,940 |
|
|
|
|
|
|
(in 000s) |
|
|
Three months ended September 30, |
NON-GAAP FINANCIAL MEASURE - EBITDA |
|
|
2022 |
|
|
|
2021 |
|
Net loss - as reported |
|
$ |
(168,421 |
) |
|
$ |
(151,601 |
) |
Discontinued operations, net |
|
|
1,054 |
|
|
|
1,656 |
|
|
|
|
|
|
|
|
|
|
Net loss from continuing
operations - as reported |
|
|
(167,367 |
) |
|
|
(149,945 |
) |
Add back: |
|
|
|
|
Income tax benefit |
|
|
(53,957 |
) |
|
|
(47,373 |
) |
Interest expense |
|
|
15,824 |
|
|
|
22,830 |
|
Depreciation and amortization |
|
|
33,624 |
|
|
|
35,715 |
|
|
|
|
(4,509 |
) |
|
|
11,172 |
|
EBITDA from continuing operations |
|
$ |
(171,876 |
) |
|
$ |
(138,773 |
) |
|
|
|
|
|
(in 000s, except per share amounts) |
|
|
Three months ended September 30, |
NON-GAAP FINANCIAL MEASURE - ADJUSTED EPS |
|
|
2022 |
|
|
|
2021 |
|
Net loss from continuing operations - as reported |
|
$ |
(167,367 |
) |
|
$ |
(149,945 |
) |
Adjustments: |
|
|
|
|
Amortization of intangibles related to acquisitions (pretax) |
|
|
12,696 |
|
|
|
14,870 |
|
Tax effect of adjustments(1) |
|
|
(3,221 |
) |
|
|
(3,635 |
) |
Adjusted net loss from continuing operations |
|
$ |
(157,892 |
) |
|
$ |
(138,710 |
) |
Diluted loss per share from
continuing operations - as reported |
|
$ |
(1.05 |
) |
|
$ |
(0.84 |
) |
Adjustments, net of tax |
|
|
0.06 |
|
|
|
0.06 |
|
Adjusted diluted loss per
share from continuing operations |
|
$ |
(0.99 |
) |
|
$ |
(0.78 |
) |
|
|
|
|
|
(1) Tax effect of adjustments is the
difference between the tax provision calculated on a GAAP basis and
on an adjusted non-GAAP basis.
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 make adjustments for certain non-GAAP financial
measures related to amortization of intangibles from acquisitions
and goodwill impairments. 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,
adjusted EBITDA from continuing operations, adjusted diluted
earnings per share from continuing operations, free cash flow and
free cash flow yield. 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.
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