H&R Block, Inc. · NYSE:HRB
H&R Block — Q2 FY2006 Earnings Presentation
18 slides from H&R Block's earnings presentation, Nov 17, 2005
Slide 1: Second Quarter FY2006 Earnings Conference Call
Second Quarter FY2006 Earnings Conference Call November 17, 2005
Slide 2: Forward-Looking Statements
Forward-Looking Statements This presentation and various comments made in connection with this conference call include certain estimates, projections and other forward-looking statements. The words “will,” “plan,” “estimate,” “approximate,” “project,” “intend,” “remain,” “expect,” “believe,” and var
Slide 3: Second Quarter Financial Results
Second Quarter Financial Results ($ millions, except per share amounts) Second Quarter Year-to-Date Revenues Income (loss) Revenues Income (loss) FY06 FY05 FY06 FY05 FY06 FY05 FY06 FY05 Restated Restated Restated Restated Tax Services $80.8 $74.1 $(142.9) $(133.9) $138.0 $124.6 $(287.4) $(246.6) Mor
Slide 4: Second Quarter FY2006 Key Highlights
Second Quarter FY2006 Key Highlights Adding 1,000 new Completed acquisition Our service advantage is points of presence to of American ExpressÊ contributing to sustained office network and Tax and Business origination volumes improving client service Services division Recent rate increase
Slide 5: Tax Services
Tax Services ($ millions ) Q2 F Y06 Q2 F Y05 YT D F Y06 YT D F Y05 S ervice revenues : T ax preparation and related fees $40 $34 $64 $53 Online tax s ervices 1 - 1 1 Other s ervice 32 29 60 53 73 63 125 107 S oftware s ales 1 1 2 3 R oyalties 4 4 7 5 Other 3 6 4 10 T otal rev enues $81 $74 $138 $125
Slide 6: Mortgage Services
Mortgage Services ($ millions) Q2 FY06 Q2 FY05 Q1 FY06 YTD FY06 YTD FY05 Components of gains on sales, net: Gain on mortgage loans $83 $187 $223 $306 $372 Gain (loss) on derivatives 61 (3) 26 87 (2) Gain on sales of residual interests 29 - - 29 - Impairment of residual interests (10) - (13) (23) (3)
Slide 7: Rate Change Summary
Rate Change Summary Rate Changes Implemented Change in Funding Cost (2-yr swap) 120 110 100 90 80 70 Basis Points 60 50 40 30 20 10 0 -10 4/28/05 5/5/05 5/12/05 5/19/05 5/26/05 6/2/05 6/9/05 6/16/05 6/23/05 6/30/05 7/7/05 7/14/05 7/21/05 7/28/05 8/4/05 8/11/05 8/18/05 8/25/05 9/1/05 9/8/05 9/15/05 9
Slide 8: Option One Non-Prime Funded WAC
Non-Prime Funded WAC * Option One 11/10/05 11/3/05 10/27/05 10/20/05 10/13/05 10/6/05 9/29/05 9/22/05 9/15/05 9/8/05 * Non-Prime Weighted Average Coupon (WAC) not including Bulk Acquisitions unit or Alt-A product 9/1/05 8/25/05 8/18/05 8/11/05 8/4/05 7/28/05 7/21/05 7/14/05 7/7/05 6/30/05 6/23/05 6/
Slide 9: Mortgage Services: Loan Production
Mortgage Services $ billions Loan Production $12.6 $10.9 $9.3 $8.4 $6.8 $6.5 $6.3 $6.2 $5.3 $5.4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2004 2005 2006 9
Slide 10: Mortgage Services: Margin Trends
Mortgage Services (1) Margin Trends Gain-on-Sale Margin Cost of Origination 4.75% 4.58% 4.57% 4.30% 3.58% 3.48% 3.25% 3.05% 2.86% 1.79% 2.02% 2.22% 2.43% 2.61% 2.22% 2.47% 2.10% 2.14% 1.94% 1.70% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2004 2005 2006 (1) Includes loan sale premium, accretion from beneficial i
Slide 11: Mortgage Services: Operating Statistics
Mortgage Services Operating S tatis tic s Q2 F Y06 Q2 F Y05 % Change Q1 F Y06 % Change R es tated Volume of loans originated ($000s ): Wholes ale (non-prime) $11,078,960 $5,528,361 100% $9,537,227 16% R etail: Non-prime 1,111,924 800,975 39% 950,806 17% P rime 429,924 183,647 134% 399,596 8% $12,620
Slide 12: Mortgage Services: Pretax Income by Component
Mortgage Services ($ millions) YTD FY06 FY05 FY04 FY03 Restated Restated Origination - indirect $83 $314 $465 $443 Origination - direct 4 33 51 27 87 347 515 470 Servicing 45 23 (10) 7 Residuals 42 125 175 119 Re-NIM gain on sale 29 15 41 93 Other (1) (8) (14) (32) (33) Total pretax income $195 $496
Slide 13: Mortgage Services: Sales Mix and Key Business Drivers
Mortgage Services ($ millions) YTD FY06 FY05 FY04 FY03 Sales mix: Whole loan sale 77% 92% 76% 41% Securitization 23% 8% 24% 59% Cash proceeds from capital market transactions: Cash 69% 87% 92% 95% (1) Non-cash 31% 13% 8% 5% Loan delivery: Loan sales $23,341 $30,976 $23,235 $17,226 (2) Execution pric
Slide 14: Business Services
Business Services ($ millions) Q2 FY06 Q2 FY05 YTD FY06 YTD FY05 Service revenues: Accounting, tax and consulting $122 $93 $206 $168 Capital markets 15 15 31 31 Payroll, benefits and retirement services 9 4 17 8 Other services 11 8 21 14 157 120 275 221 Other 10 9 19 17 Total revenues $167 $129 $294
Slide 15: Investment Services
Investment Services ($ millions) Q2 FY06 Q2 FY05 Q1 FY06 YTD FY06 YTD FY05 Service revenues: Transactional revenue $23 $20 $23 $46 $40 Annuitized revenue 23 17 22 45 36 Total production revenue 46 37 45 91 76 Other service revenue 8 7 8 17 13 54 44 53 108 89 Margin interest revenue 15 10 14 29 19 Le
Slide 16: FY2006 Performance Outlook
FY2006 Performance Outlook EPS range of $1.90 to $2.15 given continued mortgage industry market rate activity and flat yield curve Tax office expansion on pace for opening 1,000 additional points of presence Business Services and Investment Services on pace for solid full-year results 16
Slide 17: Appendix
Appendix a HM Consistency HM Growth Mi Leadership
Slide 18: Reconciliation of Non-GAAP Financial Information
Reconciliation of Non-GAAP Financial Information ($ millions) Q2 FY06 Q2 FY05 Q1 FY06 Restated Total Mortgage Services expenses $241 $176 $226 Add: Costs netted against gain on sale 121 79 114 Less: Cost of services (68) (53) (64) Cost of acquisition (51) (30) (52) Allocated support departments and