This summary is based on the third quarter fiscal 2009 earnings call conducted by H&R Block Inc. (HRB) on March 6, 2009.
Management:
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Chairman: Richard Breeden
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President and CEO: Russ Smyth
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Group President, Retail Tax Services: Tim Gokey
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CFO, SVP and Treasurer: Becky Shulman
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President, Digital Tax Services: Sabrina Wiewel
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VP, Communications and IR: Scott Dudley
Key Investors Issues
- Revenues rose 11% to $993 million, from $894.8 million a year ago
- Net income was $47.4 million, or 14 cents per share, up from a net loss of $47.4 million, or 14 cents per share in 2008.
Year to Date Highlights:
- Net loss was $221.2 million, or 67 cents per share, compared with a net loss of $852.2 million, or $2.63 per share in 2008.
- Revenues were $1.62 billion, up from $1.55 billion in fiscal 2008.
Third Quarter Highlights
The firm income from continuing operations of $66.8 million, or 20 cents per share, up from income of $7.1 million or 2 cents per share in 2008 as revenues rose 11% to $993 million, from $894.8 million a year ago.
- Revenue increase reflects both growth in the number of tax returns prepared and higher net average tax preparation fees.
- The company experienced a net loss of $19.5 million from discontinued operations compared to a net loss of $54.4 million in the prior-year period.
- Discontinued operations include the results of H&R Block Financial Advisors sold in November, 2008, while the year earlier period included losses, which did not recur in 2009, relating to the shutdown of mortgage lending operations.
Consolidated net income was $47.4 million, or 14 cents per share, up from a consolidated net loss of $47.4 million, or 14 cents per share in 2008.
- Driven by better operating performance, timing of RAL participation repayments and the sale of servicing platforms, the firm has significantly lowered debt levels compared to a year ago.
- Consolidated debt decreased $2.5 billion versus the prior year and the firm had $971 million outstanding under the unsecured committed lines of credit, down from $1.8 billion a year ago.
It ended with equity of $840 million, which is $190 million above the $650 million net worth covenant.
- Expenses of $36 million were substantially lower than last year''s $64 million, with improved results primarily due to $20 million of one-time severance expense reported in the prior year and the continued cost reduction efforts.
- The firm initiated an enterprise-wide review of the procurement and real estate programs in an effort to eliminate redundant and unnecessary expenses and to reduce the overall occupancy cost.
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RSM McGladrey, pretax income improved by about $4 million or 62% over the prior year.
- The core accounting, tax and consulting revenues increased by more than $4 million or 3%.
- This gain, which was primarily driven by an improvement in realized billing rates, was offset by declines in other revenues including the capital markets group, which closed fewer transactions so far this year.
RSM will continue to drive improvement in collected rates and billable hours per employee, as well as carefully managing operating expenses.
- The RSM team doing ground work for future growth by focusing on business segments less impacted by the economic downturn.
- These high growth areas include sectors such as federal government work, risk management, IT consulting, specialty tax services and upper segment tax compliance.
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Tax services revenues were up 15% year-over-year, reflecting an increase of 1.6% in tax returns prepared in US retail offices and an increase of 11% in our net average charge.
- The Southwest franchise acquisition acquired last November drove about 4 percentage points of that revenue growth.
The total number of returns prepared increased by 3% over the prior year, driven by the 1.6% in retail and an almost 7% increase in digital.
- The segment reported pretax income of $130 million, up significantly from just $46 million a year ago, reflecting the increase in revenues and our cost reduction efforts.
- Tax preparation revenues are up 6.5% and total returns are down 1.8% compared to the prior year while retail net average charge increased 8.5% year-on-year.
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Digital tax: clients were up almost 7% with double-digit growth rates in total e-files, driven partially by the free federal software e-files that H&R Block introduced into the market this year.
- Online clients are up significantly with the new free online product driving the growth, increased by nearly 250,000 or over 60%.
- Despite an increase in the mix of free federal online clients, average revenue per online unit increased 8.5% over the prior year, without any material cannibalization.
- Overall the FFA channel is down more than 30%, given the increase in additional free online offers in the marketplace.
Software units at retail are down 2%, driven by lower consumer traffic into retail stores, as well as a reduction in the number of overall retail locations that are still open.
- Consistent with the MPD reported results, the firm is seeing a share gain in retail software, as well as in H&R Block online.
- The firm believes it is capturing more than its fair share of H&R Block clients who would otherwise choose the do-it-yourself alternative as it better integrates the digital and retail channels.
