H&R Block, Inc. (HRB)

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H&R Block (HRB)

Q1 2012 Earnings Call

September 01, 2011 4:30 pm ET


Philip Mazzini - President of Retail Tax Services - HRB Tax Group Inc

Jason Houseworth -

James Ash - Interim General Counsel

William Cobb - Chief Executive Officer, President and Director

Derek Drysdale - Director of Investor Relations

Jeff Brown - Chief Financial Officer and Senior Vice President


Vishnu Lekraj - Morningstar Inc.

Michael Millman - Millman Research Associates

Michael Turner - Compass Point Research & Trading, LLC

Michael Chapman - Enrossi Capital

Grant Keeney

Scott Schneeberger - Oppenheimer & Co. Inc.



Good afternoon. My name is Kristen, and I will be your conference operator today. At this time, I would like to welcome everyone to the H&R Block First Quarter Conference Call. [Operator Instructions] Thank you. At this time, I would like to turn the call over to our host, Mr. Derek Drysdale, Director of Investor Relations. Please go ahead.

Derek Drysdale

Thank you, Kristen. Good afternoon, everyone, and thank you for joining us. Today, Bill Cobb, our President and CEO; and Jeff Brown, our CFO, will review our first quarter results. Other members of our senior management team will participate during the Q&A.

In conjunction with today's call, you'll find the press release on our Investor Relations website at hrblock.com, and we plan to file our 10-Q later this afternoon.

I'd like to remind everyone that today's remarks may include forward-looking statements as defined under the Securities Exchange Act of 1934. Such statements are those relating to relating to matters that are not historical facts, and such facts, or such statements are based on current information and management's expectations as of this date and are not guarantees of future performance.

Forward-looking statements involve certain risks, uncertainties and assumptions that are difficult to predict. And as a result, actual outcomes and results could differ materially. Please see the risks factors included at our most recent periodic reports and other SEC filings. H&R Block undertakes no obligation to publicly update such risk factors or forward-looking statements.

After our prepared remarks, we'll take your questions. And with that, I'll now turn the call over to Bill.

William Cobb

Thank you, Derek, and thanks to all of you for joining us. I know many of you are anxious to begin the long weekend, so our prepared remarks before we take your questions will be rather brief. Earlier today, we reported first quarter results that were in line with our expectations. Our adjusted net loss from continuing operations of $111 million was essentially flat to the prior year. On a per-share basis, the adjusted loss of $0.37 was $0.02 below the prior year due to fewer shares outstanding.

Given the seasonality of our businesses and the fact that nearly all of our revenue and earnings come in the fourth quarter, our first quarter results generally don't provide a lot of color on our performance. That said, I am pleased with the initial progress we've shown in Q1. Following the sale of RSM, we will enter next tax season squarely focused on continuing to drive client and market share growth in each of our 4 key areas: Retail, digital, international and financial services. I'll have much more to say about our plans at our Investor Conference in New York City on December 8.

Now I'd like to provide a brief update on both TaxACT and RSM. First, the TaxACT preliminary injunction hearing is scheduled to begin next week on September 6. We anticipate the hearing will last several weeks, and we are hopeful that a decision will be made soon after. We continue to believe this merger is the right strategy, and that our legal position is strong. Combining H&R Block and TaxACT will do exactly what the Justice Department wants: Bring competition to a digital market that's currently dominated by one player, Intuit. Most importantly, we believe consumers will be the primary beneficiaries of the merger through innovation, enhanced functionality, and low prices.

Turning to RSM McGladrey, last week, we signed a non-binding letter of intent to sell substantially all of RSM's assets to the partners at McGladrey & Pullen. After a thorough review of the alternatives, we believe this sale is in the best interest of H&R Block and our shareholders. Most importantly, we see this transaction as an important step in refocusing the company on growing clients and market share in our core Tax business and improving our margins.

Total consideration is estimated at $610 million. Approximately 90% of that consideration will be in the form of cash at closing, with the remainder being financed by H&R Block over a term of 5 to 7 years. M&P will also assume substantially all liabilities. We anticipate this transaction will close by calendar year end.

I would like to wish our friends at McGladrey the very best. For 12 years, they have been our partners and shared in the journey with H&R Block. I'm confident that the outstanding professionals at McGladrey will prosper in the years ahead.

I'd like to conclude with a few words on capital allocation. Clearly, capital allocation remains very important to us. First, I'd like to point out that we were restricted from buying shares in the most recent quarter due to the ongoing negotiations with M&P. Second, we have an authorization from the board to repurchase shares in fiscal 2012 that we fully intend to utilize.

Following last week's announcement, a recurring question was, "what will you do with the cash from the sale of RSM?" We must be mindful not to get ahead of ourselves by discussing the potential uses of cash until we have definitive resolution on both the pending acquisition of TaxACT and closing on the sale of RSM. We will have more to say about our capital allocation plans on December 8. With that, I'll now turn the call over to Jeff.

Read the rest of this transcript for free on seekingalpha.com