H&R Block, Inc. (NYSE:HRB) Q1 2021 Earnings Conference Call - Final Transcript

Sep 01, 2020 • 04:30 pm ET

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H&R Block, Inc. (NYSE:HRB) Q1 2021 Earnings Conference Call - Final Transcript

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Executive
Tony Bowen

loss of $0.66. In discontinued operations, there were no changes to accrued contingent liabilities related to Sand Canyon during the quarter. For additional information on Sand Canyon, please refer to disclosures in the Company's reports on forms 10-K and 10-Q and other SEC filings.

With that recap of the quarter, let me provide some perspective on our expectations for fiscal '21. Before doing so, please note that our expectations assume next tax season is completed by the normal filing deadline of mid-April. Overall, we expect to see a significant increase in revenue and cash flow this fiscal year, not just compared to fiscal '20, but also in comparison to a typical year. This is due to both the carry-over tax season '20 into our first quarter and our expectation for a normal tax season '21. In addition to achieving these increases, we are also focused on driving cost efficiencies in order to fund our growth imperatives. These reductions include a hiring freeze, the elimination of merit increases, examining vendor spend, renegotiating rent across our retail footprint and limiting capital expenditures. So hopefully, that provides helpful context. We will provide more details during our Q2 call in December.

I'll now turn to capital allocation and the balance sheet. Despite the unique circumstances related to pandemic, our capital allocation priorities remain the same. At the top of the list is maintaining adequate liquidity for our operational needs. We then look to make strategic investments back into the business to drive growth. Finally, we will return excess capital to shareholders through dividends and opportunistic share repurchases. Given our priorities are unchanged, there are four specific areas I'd like to provide additional clarity on given recent events. Our line of credit, the recent issuance of long-term debt, our dividend and future share repurchases.

Let's start with our line of credit. At the onset of the pandemic, we drew down the full balance of the line to maximize our liquidity, given the uncertainty. The draw had a six-month interest lock, which matures this month. Given the strong finish to the tax season, we had a cash position of $2.6 billion at the end of the quarter, and as such, intend to pay down the full balance of the draw later this month. We anticipate returning to our normal cycle of seasonal borrowings on our line of credit later this calendar year, as we head into the upcoming tax season. In addition, given the strength of our financial performance in the first quarter, we met our debt covenants and currently expect to be in compliance going forward.

Turning to our recent debt offering. I'm pleased with our successful issuance of $650 million of 10-year notes at a coupon of 3.875%. We intend to use the proceeds of these notes to retire existing debt that matures in October. This was a positive result for us, as we are replacing five-year notes with 10-year notes at a lower interest rate. It's also a sign that investors have confidence