Kansas City, MO,
13
June
2017
|
10:17 PM
America/Chicago

H&R Block Reports Significant Earnings and Margin Improvement in Fiscal 2017 and Announces Dividend Increase

Summary
  • Earnings per share from continuing operations increased $0.43, or 28%, to $1.961,2
  • Net income from continuing operations increased 10% to $421 million; EBITDA from continuing operations increased 11% to $904 million, representing a 29.8% EBITDA margin3
  • Repurchased approximately 14 million shares during the fiscal year, or 6% of outstanding shares, for a total of $317 million
  • Announced a 9% dividend increase, resulting in a quarterly dividend of $0.24 per share

H&R Block, Inc. (NYSE: HRB) today released its financial results for the fiscal year ended April 30, 2017, reflecting a 10% improvement in net income from continuing operations to $421 million and an increase in earnings per share from continuing operations of $0.43 to $1.96. This improvement was due largely to cost reduction efforts taken by the company, which also enabled investment in key client-driving initiatives during the year. These initiatives led to improved tax season performance from the previous year, as the company outperformed the overall U.S. market and achieved share gains in the DIY category.

"We came into this year with a very aggressive goal to change the client trajectory. With competitive promotions, impactful marketing and an improved client experience, we achieved this goal and also produced strong financial results, all during a year in which the industry experienced a decline in returns," said Bill Cobb, H&R Block's president and chief executive officer. "I couldn't be more proud of our team who delivered these impressive results."

Total revenues were flat at just over $3.0 billion, as an improvement in the company's net average charge in its U.S. Assisted business was offset by a decline in Assisted returns. Total operating expenses declined $85 million, or 3.5%, driven by cost reduction measures and lower bad debt expense. This led to an increase in EBITDA from continuing operations of 11% to $904 million, reflecting an improvement in EBITDA margin of over 300 basis points to 29.8%.

"We are already hard at work on our plans for the next tax season, and I am confident in our ability to build on the momentum from this season," said Cobb. "As I prepare to depart on July 31st, the company is well-positioned and on the right path to delivering value for shareholders for years to come."

Fiscal 2017 Results From Continuing Operations

"We realized the benefits of the cost reduction measures we outlined last year and utilized those funds to invest in key business initiatives and to improve our bottom line," stated Tony Bowen, H&R Block's chief financial officer. "We were diligent on expense management throughout the fiscal year, especially in the final months of the tax season, leading to a better-than-expected EBITDA margin of 29.8%."

Key Financial Metrics

▪ Revenues were flat to the prior year at just over $3.0 billion, as improvement in the company's Assisted net average charge was partially offset by a decline in return volume. DIY tax preparation revenue declined as the H&R Block More ZeroSM promotion resulted in a lower net average charge which was partially offset by increased return volume.

▪ Total operating expenses decreased $85 million, or 3.5%. The decrease was mainly due to previously outlined cost reduction measures, which led to lower compensation and benefits and marketing costs, along with lower bad debt expense due to more favorable collections on prior year receivables.

▪ Interest expense increased $24 million from the prior year due to the full year interest impact of the $1 billion of long-term debt issued in September 2015.

▪ Net income from continuing operations increased 10% to $421 million and EBITDA from continuing operations improved 11% to $904 million. The company's EBITDA margin was 29.8%, an improvement of over 300 basis points from the prior fiscal year.

▪ Diluted earnings per share from continuing operations increased $0.43, or 28%, to $1.96.

▪ The company ended the fiscal year with $1.0 billion in cash compared to $0.9 billion the prior year.

Share Repurchases

During fiscal 2017, the company repurchased and retired approximately 14 million shares at an aggregate amount of $317 million, or $22.61 per share. As of April 30, 2017, 207.2 million shares were outstanding.

The company completed these share repurchases under a $3.5 billion share repurchase program approved by the company’s board of directors in August 2015 and effective through June 2019. Under this program, the company has repurchased a total of approximately 70.4 million shares of its common stock, or approximately 25% of outstanding shares since the inception of the program, for an aggregate purchase amount of approximately $2.3 billion.

Dividends

The company announced that the Board of Directors approved an increase in its quarterly dividend of 9%, to $0.24 per share. Future actions regarding dividends will be dependent upon the Board's annual review and approval following consideration of operating results, market conditions, and capital needs, among other factors.

A quarterly cash dividend of $0.24 per share is payable on July 3, 2017 to shareholders of record as of June 23, 2017. H&R Block has paid quarterly dividends consecutively since the company went public in 1962.

Discontinued Operations

Sand Canyon Corporation's accrual for contingent losses related to representation and warranty claims remained unchanged from the prior fiscal quarter at $4.5 million as of April 30, 2017.

Leadership Transition

On May 16, 2017, the company announced that Bill Cobb, president and chief executive officer, will retire from the company and the H&R Block Board of Directors effective July 31, 2017. The Board of Directors has appointed Tom Gerke, currently the General Counsel and Chief Administrative Officer, to be the interim president and CEO beginning August 1, 2017. The Board has retained a search firm to assist in the search for a permanent president and CEO. Details regarding this transition were included in a press release on May 16, 2017 and in a Form 8-K filed with the Securities and Exchange Commission on the same day.

Conference Call

Discussion of the fiscal 2017 results, future outlook, the leadership transition, and a general business update will occur during the company’s previously announced fiscal fourth quarter earnings conference call for analysts, institutional investors, and shareholders. The call is scheduled for 4:30 p.m. Eastern time on June 13, 2017. 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: 11588523

The call 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.

A replay of the call will be available beginning at 7:30 p.m. Eastern time on June 13, 2017, and continuing until July 13, 2017, by dialing (855) 859-2056 (U.S./Canada) or (404) 537-3406 (International). The conference ID is 11588523. The webcast will be available for replay June 14, 2017 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 2017, H&R Block had annual revenues of over $3 billion with 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," "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, income, earnings per share, cost savings, capital expenditures, dividends, share repurchases, liquidity, capital structure, market share, industry volume, 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, 2016 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. 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

1 All amounts in this release are unaudited. Unless otherwise noted, all comparisons refer to the current fiscal year compared to the prior fiscal year.

2 All per share amounts are based on fully diluted shares at the end of the corresponding period.

3 The company reports certain non-GAAP financial measures, including earnings before interest, taxes, depreciation and amortization (EBITDA), EBITDA margin, and adjusted EBITDA, which it believes are a better indication of the company's core operations. See “About Non-GAAP Financial Information” below for more information regarding financial measures not prepared in accordance with GAAP.

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