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H&R Block Reports Fiscal 2022 First Quarter Results; Reiterates Fiscal Year Financial Outlook

KANSAS CITY, Mo., Nov. 02, 2021 // FranchiseMarketingSolutions // – H&R Block, Inc. (NYSE: HRB) (the “Company”) today released its financial results¹ for the fiscal 2022 first quarter ended September 30, 2021.

Q1 results demonstrated continued momentum across the business and the Company reiterates its previously given fiscal year 2022 outlook.
The year over year quarterly results are not comparable due to last year’s tax season being extended to July 15, 2020, causing revenue and earnings to occur in the prior year first quarter that did not repeat in the first quarter ending September 30, 2021, as this year’s tax season was extended only to May 17, 2021.
The Company repurchased $166 million of shares, retiring approximately 4% of the shares outstanding during the fiscal quarter.

“Our first fiscal quarter reflects continued momentum in the businesses, our ongoing commitment to returning capital to shareholders, and progress on our Block Horizons imperatives,” said Jeff Jones, H&R Block’s president and CEO. “Looking forward, we are well positioned for the 2022 tax season and I am more confident than ever in our ability to execute against our next phase of strategic growth.”

Fiscal 2022 First Quarter Results Key Financial Metrics

“We have made significant financial progress over the past several years, and our business continues to be strong,” said Tony Bowen, H&R Block’s chief financial officer. “We’re off to a great start to our fiscal year and were able to repurchase $166 million of shares during the quarter.”

Year over year quarterly results are not comparable due to last year’s tax season being extended to July 15, 2020 causing revenue and earnings to occur in the prior year first quarter that did not repeat in the first quarter ending September 30, 2021, as this year’s tax season was extended only to May 17, 2021. Revenue recorded in last year’s fiscal Q1 related to the extended tax season is estimated to be $246 million.

Total revenue of $193 million decreased by $225 million, or 54%, to the prior year. The decrease in revenue is entirely due to lower return volume because of the previous year’s tax season extension. This was partially offset by Emerald Card revenue and strong growth from Wave.
Total operating expenses of $367 million decreased by $51 million, or 12%, primarily driven by lower tax pro compensation on lighter return volumes as the quarter took place after the 2021 filing deadline.
Pretax loss increased by $164 million to $197 million, entirely due to the decrease in revenue because of the previous year’s tax season extension.
Loss per share from continuing operations2 increased from $0.32 to $0.84; adjusted loss per share from continuing operations increased from $0.24 to $0.78.

Capital Structure

The Company also reported the following related to its capital structure:

Fiscal year first quarter repurchases and retirements of common stock totaled approximately 6.8 million shares at an aggregate price of $166 million, or $24.37 per share. The Company has approximately $400 million remaining on its authorization which runs through June 2022.
As previously announced, a quarterly cash dividend of $0.27 per share was paid on October 1, 2021 to shareholders of record as of September 10, 2021. H&R Block has paid quarterly dividends consecutively since the Company became 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 2022 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 November 2, 2021.

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

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).

SOURCE H&R Block

FINANCIAL RESULTS	(unaudited, in 000s – except per share amounts)
	Three months ended September 30,
	2021			2020
REVENUES:
U.S. assisted tax preparation	$	33,607		$	207,167
U.S. royalties	7,358			22,652
U.S. DIY tax preparation	4,061			47,463
International	58,325			58,776
Refund Transfers	1,665			6,113
Emerald Card^®	28,258			12,436
Peace of Mind^® Extended Service Plan	24,836			27,192
Tax Identity Shield^®	5,153			8,994
Interest and fee income on Emerald Advance^SM	479			526
Wave	19,137			13,737
Other	9,745			12,290
Total revenues	192,624			417,346
Compensation and benefits:
Field wages	56,079			92,545
Other wages	58,064			63,068
Benefits and other compensation	25,450			33,805
	139,593			189,418
Occupancy	95,822			96,850
Marketing and advertising	10,073			15,492
Depreciation and amortization	35,715			38,237
Bad debt	1,043			520
Other	85,150			77,582
Total operating expenses	367,396			418,099

Other income (expense), net	284			2,504
Interest expense on borrowings	(22,830		)	(34,697		)
Pretax loss	(197,318		)	(32,946		)
Income taxes (benefit)	(47,373		)	27,964
Net loss from continuing operations	(149,945		)	(60,910		)
Net loss from discontinued operations	(1,656		)	(1,346		)
Net loss	$	(151,601	)	$	(62,256	)

BASIC AND DILUTED LOSS PER SHARE:
Continuing operations	$	(0.84	)	$	(0.32	)
Discontinued operations	(0.01		)	—
Consolidated	$	(0.85	)	$	(0.32	)

WEIGHTED AVERAGE DILUTED SHARES	178,099			192,314

Adjusted diluted EPS ⁽¹⁾	$	(0.78	)	$	(0.24	)
EBITDA ⁽¹⁾	(138,773		)	39,988

⁽¹⁾	All non-GAAP measures are results form 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, 2021			June 30, 2021

ASSETS
Cash and cash equivalents	$	891,739		$	1,434,381
Cash and cash equivalents – restricted	139,067			149,783
Receivables, net	56,829			88,932
Income taxes receivable	338,399			330,872
Prepaid expenses and other current assets	69,714			76,414
Total current assets	1,495,748			2,080,382
Property and equipment, net	141,006			139,276
Operating lease right of use assets	410,724			445,847
Intangible assets, net	337,451			351,093
Goodwill	749,409			754,521
Deferred tax assets and income taxes receivable	178,946			181,996
Other noncurrent assets	54,743			61,273
Total assets	$	3,368,027		$	4,014,388
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES:
Accounts payable and accrued expenses	$	156,605		$	164,269
Accrued salaries, wages and payroll taxes	54,816			168,989
Accrued income taxes and reserves for uncertain tax positions	155,137			238,863
Operating lease liabilities	201,179			214,190
Deferred revenue and other current liabilities	185,232			196,175
Total current liabilities	752,969			982,486
Long-term debt	1,984,512			1,983,719
Deferred tax liabilities and reserves for uncertain tax positions	303,476			301,658
Operating lease liabilities	221,184			244,932
Deferred revenue and other noncurrent liabilities	90,358			113,535
Total liabilities	3,352,499			3,626,330
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS’ EQUITY:
Common stock, no par, stated value $.01 per share	2,099			2,167
Additional paid-in capital	770,683			779,465
Accumulated other comprehensive income (loss)	(11,089		)	88
Retained earnings (deficit)	(74,757		)	286,694
Less treasury shares, at cost	(671,408		)	(680,356		)
Total stockholders’ equity	15,528			388,058
Total liabilities and stockholders’ equity	$	3,368,027		$	4,014,388

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS	(unaudited, in 000s)
Three months ended September 30,	2021			2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(151,601	)	$	(62,256	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	35,715			38,237
Provision	1,850			—
Deferred taxes	(13,547		)	(480		)
Stock-based compensation	6,847			7,781
Changes in assets and liabilities, net of acquisitions:
Receivables	35,913			29,016
Prepaid expenses, other current and noncurrent assets	8,610			1,673
Accounts payable, accrued expenses, salaries, wages and payroll taxes	(134,215		)	(37,546		)
Deferred revenue, other current and noncurrent liabilities	(27,990		)	(20,783		)
Income tax receivables, accrued income taxes and income tax reserves	(72,768		)	(52,698		)
Other, net	(1,438		)	(1,541		)
Net cash used in operating activities	(312,624		)	(98,597		)

CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures	(15,620		)	(13,386		)
Payments made for business acquisitions, net of cash acquired	(4,265		)	(2,538		)
Franchise loans funded	(4,474		)	(7,913		)
Payments from franchisees	2,839			10,744
Other, net	2,067			1,100
Net cash used in investing activities	(19,453		)	(11,993		)

CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of line of credit borrowings	—			(2,000,000		)
Repayments of long-term debt	—			(650,000		)
Proceeds from issuance of long-term debt	—			647,965
Dividends paid	(48,996		)	(50,044		)
Repurchase of common stock, including shares surrendered	(165,800		)	(76,731		)
Proceeds from exercise of stock options	3,385			1,134
Other, net	(5,911		)	(19,131		)
Net cash used in financing activities	(217,322		)	(2,146,807		)

Effects of exchange rate changes on cash	(3,959		)	2,975

Net decrease in cash and cash equivalents, including restricted balances	(553,358		)	(2,254,422		)
Cash, cash equivalents and restricted cash, beginning of period	1,584,164			2,769,947
Cash, cash equivalents and restricted cash, end of period	$	1,030,806		$	515,525

SUPPLEMENTARY CASH FLOW DATA:
Income taxes paid, net of refunds received	$	38,419		$	79,343
Interest paid on borrowings	12,594			34,726
Accrued purchase of common stock	4,785			12,323
Accrued additions to property and equipment	6,273			1,816
New operating right of use assets and related lease liabilities	29,371			21,590
Accrued dividends payable to common shareholders	47,940			50,154

U.S. Operating Statistics
	Three months ended September 30
	2021		2020⁽¹⁾		Change			% Change

Tax Returns Prepared: (in 000s) ⁽²⁾
Company-owned operations	140		858		(718		)	(83.7	)%
Franchise operations	75		335		(260		)	(77.6	)%
Total Assisted	215		1,193		(978		)	(82.0	)%

Desktop	17		326		(309		)	(94.8	)%
Online	53		701		(648		)	(92.4	)%
Total DIY	70		1,027		(957		)	(93.2	)%

Total U.S. Returns	285		2,220		(1,935		)	(87.2	)%

Net Average Charge: ⁽³⁾
Company-owned operations	$	239.31	$	241.41	$	(2.10	)	(0.9	)%
Franchise operations ⁽⁴⁾	$	244.23	$	227.42	$	16.81		7.4%
DIY	$	43.22	$	46.21	$	(2.99	)	(6.5	)%

⁽¹⁾	Represents a partial 2019 individual tax filing season, which was extended until July 15, 2020.
⁽²⁾	An assisted tax return is defined as a current or prior year individual or business tax return that has been accepted by the client. A DIY online return is defined as a current year individual or business tax return that has been accepted by the client. A DIY desktop return is defined as a current year individual or business tax return that has been electronically submitted to the IRS.
⁽³⁾	Net average charge is calculated as total tax preparation fees divided by tax returns prepared.
⁽⁴⁾	Net average charge related to H&R Block Franchise operations represents tax preparation fees collected by H&R Block franchisees divided by returns prepared in franchise offices. H&R Block will recognize a portion of franchise revenues as franchise royalties based on the terms of franchise agreements.

(in 000s)
	Three months ended September 30,
NON-GAAP FINANCIAL MEASURE – EBITDA	2021			2020

Net loss – as reported	$	(151,601	)	$	(62,256	)
Discontinued operations, net	1,656			1,346
Net loss from continuing operations – as reported	(149,945		)	(60,910		)
Add back:
Income taxes (benefit)	(47,373		)	27,964
Interest expense	22,830			34,697
Depreciation and amortization	35,715			38,237
	11,172			100,898
EBITDA from continuing operations	$	(138,773	)	$	39,988

(in 000s, except per share amounts)
	Three months ended September 30,
NON-GAAP FINANCIAL MEASURE – ADJUSTED EPS	2021			2020

Net loss from continuing operations – as reported	$	(149,945	)	$	(60,910	)

Adjustments:
Amortization of intangibles related to acquisitions (pretax)	14,870			17,638
Tax effect of adjustments⁽¹⁾	(3,635		)	(1,854		)
Adjusted net loss from continuing operations	$	(138,710	)	$	(45,126	)
Diluted loss per share from continuing operations – as reported	$	(0.84	)	$	(0.32	)
Adjustments, net of tax	0.06			0.08
Adjusted diluted loss per share from continuing operations	$	(0.78	)	$	(0.24	)

⁽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, EBITDA margin from continuing operations, adjusted diluted earnings per share 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.

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