Categories: Wire Stories

H&R Block Reports Fiscal 2023 Third Quarter Results; Provides Update on FY23

KANSAS CITY, Mo., May 09, 2023 (GLOBE NEWSWIRE) — H&R Block, Inc. (NYSE: HRB) (the “Company”) today released its financial results1 for the fiscal 2023 third quarter ended March 31, 2023.

  • For the third quarter, the Company delivered revenue of $2.1 billion, an increase of 2%; earnings per share from continuing operations2of $4.14, an increase of 2%; and adjusted earnings per share from continuing operations2of $4.20, an increase of 2%
  • Tax season ended with strong performance in DIY; Assisted realized 4% growth in net average charge alongside positive customer satisfaction metrics
  • The Company is updating its fiscal year 2023 outlook due to softer than expected industry volume, its own Assisted volume, and the expected impact of foreign exchange rates

“Tax season 2023 was not the return to normal as anticipated post-pandemic. Consumers adjusted to smaller refunds, and many shifted to balance due. The industry contracted as those not required to file didn’t, and there was an impact from the IRS’ extending the filing deadline in certain states,” said Jeff Jones, H&R Block’s president and chief executive officer. “Despite these unusual dynamics, we were pleased to see our strategy work in DIY, continued strong growth in our virtual Assisted offering, and the benefit from pricing power and positive customer sentiment in our Assisted business as we grew penetration with higher income filers.”

Fiscal 2023 Third Quarter Results and Key Financial Metrics

  • Total revenue of $2.1 billion, increased by $31.9 million, or 2%, to the prior year. The increase was primarily driven by a higher net average charge in the Assisted category, partially offset by lower software sales and a decline in online paid returns during the quarter compared to the prior year.
  • Total operating expenses of $1.2 billion increased by $52.8 million, primarily due to higher field wages and the timing of advertising, partially offset by lower bad debt, legal fees, and consulting and outsourced services.
  • Pretax income decreased by $6.4 million to $855.4 million.
  • Earnings per share from continuing operations2 increased from $4.06 to $4.14 and adjusted earnings per share from continuing operations2 increased from $4.11 to $4.20, due to fewer shares outstanding from share repurchases.

Capital Allocation

  • The Company has approximately $900.0 million remaining on its latest $1.25 billion share repurchase authorization available through fiscal year 2025.
  • As previously announced, a quarterly cash dividend of $0.29 per share will be paid on July 6, 2023 to shareholders of record as of June 7, 2023. H&R Block has paid quarterly dividends consecutively since the Company became public in 1962.

Since 2016, the Company has returned more than $3 billion to shareholders in the form of share repurchases and dividends, buying back over one third of its shares outstanding3.

Fiscal Year 2023 Outlook

“Due to lighter than expected Assisted client volumes this season, as well as an expected foreign exchange impact of about $20 million, we are updating our full year outlook. Despite this change, I’m pleased that we still expect EBITDA and EPS to grow,” said Tony Bowen, H&R Block’s chief financial officer. “As we have shared, regardless of nuances year to year, we produce significant cash flow, pay a growing dividend, and buy back a meaningful amount of shares. We are confident in our ability to drive ongoing value for shareholders with these practices.”

Due to softer industry volumes, the Company now expects:

  • Revenue to be in the range of $3.440 to $3.465 billion, from $3.535 to $3.585 billion
  • EBITDA4 to be in the range of $895 to $910 million, from $915 to $950 million
  • Adjusted diluted earnings per share4 to be in the range of $3.65 to $3.80, from $3.70 to $3.95

The Company continues to expect:

  • Effective tax rate to be approximately 22%
  • Double-digit adjusted earnings per share4 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, May 9, 2023. During the conference call the company will discuss fiscal 2023 third quarter results, tax season results, outlook, and give a general business update. To join live, participants must register at https://register.vevent.com/register/BI68ce638aa0fa4494a9cbc71e80cc3880. 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/rmcscxmc 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 year-round bookkeeping, payroll, advisory, and payment processing solutions. 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,” “calls for,” “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.

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

2All 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, free cash flow, and free cash flow yield, 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).

3Shares outstanding calculated as of April 30, 2016.

4Adjusted 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
  Â
Investor Relations:Â Michaella Gallina, (816) 854-3022, michaella.gallina@hrblock.com
  Jordyn Eskijian, (816) 854-5674, jordyn.eskijian@hrblock.com
Media Relations:Â Angela Davied, (816) 854-5798, angela.davied@hrblock.com
  Heather Woodard, (660) 864-3836, heather.woodard@hrblock.com

FINANCIAL RESULTS(unaudited, in 000s – except per share amounts)
 Three months ended March 31, Nine months ended March 31,
 2023 2022 2023 2022
REVENUES:Â Â Â Â Â Â Â
U.S. tax preparation and related services:Â Â Â Â Â Â Â
Assisted tax preparation$1,453,049Â Â $1,392,142Â Â $1,530,577Â Â $1,456,594Â
Royalties 150,163   158,786   161,337   169,548Â
DIY tax preparation 167,022   175,184   182,330   188,455Â
Refund Transfers 117,384   132,223   120,210   134,665Â
Peace of Mind® Extended Service Plan 16,750   17,222   58,840   59,373Â
Tax Identity Shield® 8,720   9,078   19,237   19,431Â
Other 10,972   10,584   28,845   27,736Â
Total U.S. tax preparation and related services 1,924,060   1,895,219   2,101,376   2,055,802Â
Financial services:Â Â Â Â Â Â Â
Emerald Card® and SpruceSM 44,358   50,660   68,448   103,748Â
Interest and fee income on Emerald AdvanceSMÂ 33,750Â Â Â 30,535Â Â Â 47,267Â Â Â 43,438Â
Total financial services 78,108   81,195   115,715   147,186Â
International 69,417   65,232   156,297   151,464Â
Wave 22,064   20,111   66,651   58,745Â
Total revenues$2,093,649Â Â $2,061,757Â Â $2,440,039Â Â $2,413,197Â
Compensation and benefits:Â Â Â Â Â Â Â
Field wages 480,779   435,345   618,656   561,482Â
Other wages 73,503   78,584   207,786   200,715Â
Benefits and other compensation 100,368   91,051   169,477   146,708Â
  654,650   604,980   995,919   908,905Â
Occupancy 118,111   111,405   316,874   306,523Â
Marketing and advertising 210,508   196,582   236,299   223,796Â
Depreciation and amortization 32,313   36,116   98,660   107,462Â
Bad debt 34,273   45,051   57,018   59,760Â
Other 179,292   182,258   363,081   373,458Â
Total operating expenses 1,229,147   1,176,392   2,067,851   1,979,904Â
       Â
Other income (expense), net 13,224   238   21,020   1,989Â
Interest expense on borrowings (22,298)  (23,746)  (57,107)  (69,661)
Pretax income 855,428   861,857   336,101   365,621Â
Income taxes 209,351   186,884   78,254   29,666Â
Net income from continuing operations 646,077   674,973   257,847   335,955Â
Net loss from discontinued operations (2,648)  (1,796)  (6,418)  (4,984)
Net income$643,429Â Â $673,177Â Â $251,429Â Â $330,971Â
       Â
DILUTED EARNINGS PER SHAREÂ Â Â Â Â Â Â
Continuing operations$4.14Â Â $4.06Â Â $1.62Â Â $1.92Â
Discontinued operations (0.02)  (0.01)  (0.04)  (0.03)
Consolidated$4.12Â Â $4.05Â Â $1.58Â Â $1.89Â
       Â
WEIGHTED AVERAGE DILUTED SHARESÂ 155,561Â Â Â 165,612Â Â Â 158,488Â Â Â 174,142Â
       Â
Adjusted diluted EPS(1)$4.20Â Â $4.11Â Â $1.80Â Â $2.11Â
EBITDA(1)$910,039Â Â $921,719Â Â $491,868Â Â $542,744Â
       Â

(1) All non-GAAP measures are results from continuing operations. See “Non-GAAP Financial Information” for a reconciliation of non-GAAP measures.

CONSOLIDATED BALANCE SHEETSÂ (unaudited, in 000s – except per share data)
As of March 31, 2023 June 30, 2022
    Â
ASSETSÂ Â Â Â
Cash and cash equivalents $909,075  $885,015Â
Cash and cash equivalents – restricted  25,270   165,698Â
Receivables, net  249,150   58,447Â
Income taxes receivable  32,584   202,838Â
Prepaid expenses and other current assets  86,736   72,460Â
Total current assets  1,302,815   1,384,458Â
Property and equipment, net  136,132   123,912Â
Operating lease right of use assets  372,175   427,783Â
Intangible assets, net  293,447   309,644Â
Goodwill  769,557   760,401Â
Deferred tax assets and income taxes receivable  226,527   208,948Â
Other noncurrent assets  57,254   54,012Â
Total assets $3,157,907  $3,269,158Â
LIABILITIES AND STOCKHOLDERS’ EQUITY   Â
LIABILITIES:Â Â Â Â
Accounts payable and accrued expenses $236,388  $160,929Â
Accrued salaries, wages and payroll taxes  208,560   154,764Â
Accrued income taxes and reserves for uncertain tax positions  284,124   280,115Â
Operating lease liabilities  179,415   206,898Â
Deferred revenue and other current liabilities  207,095   196,107Â
Total current liabilities  1,115,582   998,813Â
Long-term debt  1,488,457   1,486,876Â
Deferred tax liabilities and reserves for uncertain tax positions  256,119   226,362Â
Operating lease liabilities  199,086   228,820Â
Deferred revenue and other noncurrent liabilities  135,055   116,656Â
Total liabilities  3,194,299   3,057,527Â
COMMITMENTS AND CONTINGENCIESÂ Â Â Â
STOCKHOLDERS’ EQUITY:   Â
Common stock, no par, stated value $.01 per share  1,854   1,936Â
Additional paid-in capital  775,269   772,182Â
Accumulated other comprehensive loss  (44,281)  (21,645)
Retained earnings (deficit)Â Â (109,384)Â Â 120,405Â
Less treasury shares, at cost  (659,850)  (661,247)
Total stockholders’ equity (deficiency)Â Â (36,392)Â Â 211,631Â
Total liabilities and stockholders’ equity $3,157,907  $3,269,158Â
    Â

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSÂ (unaudited, in 000s)
Nine months ended March 31, 2023 2022
    Â
CASH FLOWS FROM OPERATING ACTIVITIES:Â Â Â Â
Net income $251,429  $330,971Â
Adjustments to reconcile net income to net cash provided by operating activities:Â Â Â Â
Depreciation and amortization  98,660   107,462Â
Provision  49,174   59,778Â
Deferred taxes  6,685   (85,122)
Stock-based compensation  26,785   19,988Â
Changes in assets and liabilities, net of acquisitions:Â Â Â Â
Receivables  (237,395)  (233,362)
Prepaid expenses, other current and noncurrent assets  (17,438)  (16,525)
Accounts payable, accrued expenses, salaries, wages and payroll taxes  122,025   122,112Â
Deferred revenue, other current and noncurrent liabilities  22,054   36,960Â
Income tax receivables, accrued income taxes and income tax reserves  179,692   36,244Â
Other, net  (3,285)  (5,378)
Net cash provided by operating activities  498,386   373,128Â
    Â
CASH FLOWS FROM INVESTING ACTIVITIES:Â Â Â Â
Capital expenditures  (56,661)  (52,718)
Payments made for business acquisitions, net of cash acquired  (47,740)  (25,465)
Franchise loans funded  (21,566)  (18,468)
Payments from franchisees  14,963   17,714Â
Other, net  9,717   7,831Â
Net cash used in investing activities  (101,287)  (71,106)
    Â
CASH FLOWS FROM FINANCING ACTIVITIES:Â Â Â Â
Repayments of line of credit borrowings  (970,000)  (705,000)
Proceeds from line of credit borrowings  970,000   705,000Â
Dividends paid  (133,762)  (143,435)
Repurchase of common stock, including shares surrendered  (365,852)  (555,247)
Proceeds from exercise of stock options  1,427   4,605Â
Other, net  (7,400)  (13,389)
Net cash used in financing activities  (505,587)  (707,466)
    Â
Effects of exchange rate changes on cash  (7,880)  (1,666)
    Â
Net decrease in cash and cash equivalents, including restricted balances  (116,368)  (407,110)
Cash, cash equivalents and restricted cash, beginning of period  1,050,713   1,584,164Â
Cash, cash equivalents and restricted cash, end of period $934,345  $1,177,054Â
    Â
SUPPLEMENTARY CASH FLOW DATA:Â Â Â Â
Income taxes paid (received), net $(110,028) $76,894Â
Interest paid on borrowings  59,429   58,009Â
Accrued additions to property and equipment  4,378   1,336Â
New operating right of use assets and related lease liabilities  131,949   126,726Â
Accrued dividends payable to common shareholders  44,163   43,041Â
    Â

(in 000s)
  Three months ended March 31, Nine months ended March 31,
NON-GAAP FINANCIAL MEASURE – EBITDAÂ 2023Â 2022Â 2023Â 2022
        Â
Net income – as reported $643,429 $673,177 $251,429 $330,971
Discontinued operations, net  2,648  1,796  6,418  4,984
Net income from continuing operations – as reported  646,077  674,973  257,847  335,955
Add back:Â Â Â Â Â Â Â Â
Income taxes  209,351  186,884  78,254  29,666
Interest expense  22,298  23,746  57,107  69,661
Depreciation and amortization  32,313  36,116  98,660  107,462
   263,962  246,746  234,021  206,789
EBITDA from continuing operations $910,039 $921,719 $491,868 $542,744
        Â

(in 000s, except per share amounts)
  Three months ended March 31, Nine months ended March 31,
NON-GAAP FINANCIAL MEASURE – ADJUSTED EPSÂ 2023Â 2022 Â 2023Â 2022
        Â
Net income from continuing operations – as reported $646,077  $674,973  $257,847  $335,955Â
Adjustments:Â Â Â Â Â Â Â Â
Amortization of intangibles related to acquisitions (pretax)Â Â 13,011Â Â Â 13,979Â Â Â 38,546Â Â Â 43,141Â
Tax effect of adjustments(1)Â Â (3,190)Â Â (4,545)Â Â (9,198)Â Â (10,102)
Adjusted net income from continuing operations $655,898  $684,407  $287,195  $368,994Â
Diluted earnings per share from continuing operations – as reported $4.14  $4.06  $1.62  $1.92Â
Adjustments, net of tax  0.06   0.05   0.18   0.19Â
Adjusted diluted earnings per share from continuing operations $4.20  $4.11  $1.80  $2.11Â
        Â

(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.

Alex

Alex is a writer and digital content enthusiast who enjoys covering technology, current trends, useful tips, and topics that matter to everyday readers. With a focus on clear, informative, and easy-to-understand content, Alex aims to provide readers with practical insights and interesting perspectives across a wide range of subjects.

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