H&R Block, Inc. · NYSE:HRB
H&R Block — Q1 FY2006 Earnings Presentation
22 slides from H&R Block's earnings presentation, Sep 1, 2005
Slide 1: First Quarter FY2006 Earnings Conference Call
First Quarter FY2006 Earnings Conference Call September 1, 2005
Slide 2: Forward-Looking Statement
Forward-Looking Statement 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,”
Slide 3: First Quarter Financial Results
First Quarter Financial Results ($ millions, except per share amount) Revenues Income (loss) Q1 FY06 Q1 FY05 Q1 FY06 Q1 FY05 Restated Restated Tax Services $57.2 $50.5 $(144.5) $(112.7) Mortgage Services 360.4 272.0 134.5 109.0 Business Services 126.9 109.1 (6.8) (10.0) Investment Services 68.0 53.6
Slide 4: First Quarter FY2006 Key Highlights
First Quarter FY2006 Key Highlights Tax Services office 8th consecutive 60 percent year-over- expansion proceeding quarter of double year loan origination at expected pace digit revenue growth Up to 400 additional growth Wider adoption of shared locations for Acquisition of prequalificat
Slide 5: Mortgage Services Loan Production
Mortgage Services Loan Production $12 $10.9 $10 $9.3 $8.4 $8 $6.8 $6.5 $ in billions $6.3 $6.2 $6 $5.3 $5.4 $4 $2 $- Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 2004 2005 2006 5
Slide 6: 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% 2.02% 2.22% 2.43% 2.61% 2.22% 2.47% 2.10% 2.14% 1.94% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 2004 2005 2006 (1) Includes loan sale premium, accretion from beneficial interest in trus
Slide 7: Mortgage Services Operating Statistics
Mortgage Services Operating Statistics Q1 FY06 Q1 FY05 % Change Q4 FY05 % Change Restated Volume of loans originated ($000s): Wholesale (non-prime) $9,537,227 $5,981,104 59% $8,090,274 18% Retail: Non-prime 950,806 620,126 53% 807,269 18% Prime 399,596 215,287 86% 380,946 5% $10,887,629 $6,816,517 6
Slide 8: Mortgage Services Sources of Pretax Income
Mortgage Services ($ millions) Sources of Pretax Income Q1 FY06 FY05 FY04 FY03 Restated Restated Origination - indirect $95 $314 $465 $443 Origination - direct 5 33 51 27 100 347 515 470 Servicing 21 23 (10) 7 Residuals 18 125 175 119 Re-NIM gain on sale - 15 41 93 Other (1) (5) (14) (32) (33) Total
Slide 9: Mortgage Services Loan Sale Strategy and Business Drivers
Mortgage Services ($ millions) Loan Sale Strategy Q1 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 72% 87% 92% 95% Non-cash (1) 28% 13% 8% 5% Loan delivery: Loan sales $10,843 $30,976 $23,235 $17,226
Slide 10: Performance Outlook
Performance Outlook EPS Range of $2.12 to $2.32 Tax expansion on pace for office openings at high end of 500 to 700 range and up to 400 new shared locations Mortgage environment and pricing impacts will affect ultimate earnings for the year Mortgage pricing and origination growth likely shif
Slide 11: Appendix
Appendix HM Consistency MGrowth Mi Leadership 11
Slide 12: Reconciliation of Non-GAAP Financial Information
Reconciliation of Non-GAAP Financial Information ($millions) Q1 FY06 Q1 FY05 Q4 FY05 Restated Total Mortgage Services expenses $226 $163 $218 Add: Costs netted against gain on sale 114 92 103 Less: Cost of services (64) (50) (62) Cost of acquisition (52) (42) (47) Allocated support departments and o
Slide 13: Tax Services FY05 Restated by Quarter
Tax Services FY05 Restated by Quarter ($ millions) Q1 Q2 Q3 Q4 FY05 Service revenues: Tax preparation and related fees $19 $34 $375 $1,291 $1,719 Online tax services 1 - 11 37 49 Other service 24 29 24 67 144 44 63 410 1,395 1,912 Software sales 1 1 18 24 44 Royalties 1 4 51 141 197 RAL participatio
Slide 14: Tax Services FY04 Restated by Quarter
Tax Services FY04 Restated by Quarter ($ millions) Q1 Q2 Q3 Q4 FY04 Service revenues: Tax preparation and related fees $16 $29 $339 $1,205 $1,589 Online tax services 1 - 8 36 45 Other service 22 27 16 63 128 39 56 363 1,304 1,762 Software sales - 1 19 24 44 Royalties 2 3 44 136 185 RAL participation
Slide 15: Mortgage Services FY05 Restated by Quarter
Mortgage Services FY05 Restated by Quarter ($ millions) Q1 Q2 Q3 Q4 FY05 Components of gains on sales, net: Gain on mortgage loans $185 $187 $172 $228 $772 Gain (loss) on derivatives 1 (3) 31 18 47 Gain on sales of residual interests - - - 15 15 Impairment of residual interests (2) (1) (4) (5) (12)
Slide 16: Mortgage Services FY04 Restated by Quarter
Mortgage Services FY04 Restated by Quarter ($ millions) Q1 Q2 Q3 Q4 FY04 Components of gains on sales, net: Gain on mortgage loans $221 $246 $218 $230 $915 Gain (loss) on derivatives (1) 5 (8) (8) (12) Gain on sales of residual interests - - 17 24 41 Impairment of residual interests (11) - (14) (1)
Slide 17: Business Services FY05 Restated by Quarter
Business Services FY05 Restated by Quarter ($ millions) Q1 Q2 Q3 Q4 FY05 Service revenues: Accounting, tax and consulting $ 74 $ 94 $ 92 $ 153 $413 Capital markets 16 15 17 20 68 Payroll, benefits and retirement services 5 4 5 13 27 Other services 6 8 9 8 31 101 121 123 194 539 Other 8 8 10 8 34 Tot
Slide 18: Business Services FY04 Restated by Quarter
Business Services FY04 Restated by Quarter ($ millions) Q1 Q2 Q3 Q4 FY04 Service revenues: Accounting, tax and consulting $ 66 $ 73 $ 74 $ 141 $354 Capital markets 17 18 19 20 74 Payroll, benefits and retirement services 5 5 5 6 21 Other services 4 5 5 5 19 92 101 103 172 468 Other 7 8 9 7 31 Total
Slide 19: Investment Services FY05 Restated by Quarter
Investment Services FY05 Restated by Quarter ($ millions) Q1 Q2 Q3 Q4 FY05 Service revenues: Transactional revenue $20 $20 $25 $24 $89 Annuitized revenue 19 17 18 23 77 Total production revenue 39 37 43 47 166 Other service revenue 6 7 7 9 29 45 44 50 56 195 Margin interest revenue 9 10 12 13 44 Les
Slide 20: Investment Services FY04 Restated by Quarter
Investment Services FY04 Restated by Quarter ($ millions) Q1 Q2 Q3 Q4 FY04 Service revenues: Transactional revenue $25 $23 $27 $25 $100 Annuitized revenue 13 14 15 19 61 Total production revenue 38 37 42 44 161 Other service revenue 8 10 8 9 35 46 47 50 53 196 Margin interest revenue 9 8 8 8 33 Less
Slide 21: Corporate FY05 Restated by Quarter
Corporate FY05 Restated by Quarter ($ millions) Q1 Q2 Q3 Q4 FY05 Operating revenues $4 $3 $3 $3 $13 Eliminations (3) (2) (2) (3) (10) Total revenues $ 1 $ 1 $ 1 $ - $ 3 Corporate expenses: Interest expense $16 $19 $21 $17 $73 Other 11 12 12 16 51 27 31 33 33 124 Support departments: Information Tech
Slide 22: Corporate FY04 Restated by Quarter
Corporate FY04 Restated by Quarter ($ millions) Q1 Q2 Q3 Q4 FY04 Operating revenues $3 $2 $3 $4 $12 Eliminations (2) (2) (2) (2) (8) Total revenues $1 $0 $1 $2 $4 Corporate expenses: Interest expense $17 $16 $19 $17 $69 Other 11 3 13 24 51 28 19 32 41 120 Support departments: Information Technology