H&R BLOCK INC 10-Q

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RECENT DEVELOPMENTS On July 11, 2025, we entered into a Fifth Amended and Restated Credit and Guarantee Agreement (2025 CLOC), which amended and restated our Fourth Amended and Restated Credit and Guarantee Agreement, extended the scheduled maturity date to July 11, 2030, maintained the aggregate principal amount of $1.5 billion, and revised the interest rate table. All other material terms remain substantially unchanged from the Fourth Amended and Restated Credit and Guarantee Agreement. See our Current Report on Form 8-K filed on July 15, 2025 for additional information. On August 7, 2025, Jeffrey J. Jones II notified the Board of Directors of the Company of his intention to retire as President and Chief Executive Officer of the Company, effective as of December 31, 2025. Mr. Jones will also retire from the Board of Directors, effective on December 31, 2025. On August 8, 2025, the Board appointed Curtis A. Campbell, currently the Company's President, Global Consumer Tax and Chief Product Officer, to succeed Mr. Jones as President and Chief Executive Officer, effective immediately upon Mr. Jones’ retirement. See our Current Report on Form 8-K filed on August 11, 2025 for more information. On August 13, 2025, Kellie J. Logerwell notified H&R Block, Inc. (the “Company”) of her intention to retire as the Company’s Vice President and Chief Accounting Officer, effective as of October 24, 2025. Ms. Logerwell was succeeded as principal accounting officer by April M. Wasleski, who most-recently served as the Company’s Director of Accounting and whose appointment as Vice President and Chief Accounting Officer became effective October 24, 2025. See our Current Report on Form 8-K filed on August 15, 2025 for more information. On August 26, 2025, we issued $350.0 million of 5.375% Senior Notes due September 15, 2032 (2032 Senior Notes). The 2032 Senior Notes are not redeemable by the bondholders prior to maturity, although we have the right to redeem some or all of these notes at any time, at specified redemption prices. The net proceeds from the 2032 Senior Notes will be used for general corporate purposes, which includes, among other uses, the redemption of the $350.0 million in principal outstanding of our 5.250% notes due October 2025 (2025 Senior Notes). We redeemed our 2025 Senior Notes at 100% of the principal amount, plus accrued and unpaid interest, on September 19, 2025. RESULTS OF OPERATIONS Our subsidiaries provide assisted and do-it-yourself (DIY) tax preparation solutions through multiple channels (including in-person, online and mobile applications, virtual, and desktop software) and distribute H&R Block-branded products and services, including those of our bank partners, to the general public primarily in the United States (U.S.), Canada and Australia. Tax returns are prepared by H&R Block tax professionals in one of our company-owned or franchise offices, virtually or via an online review, or they are prepared and filed by our clients through our DIY tax solutions. We also offer small business solutions through our company-owned and franchise offices (including in-person, online and virtual) and online through Wave. We report a single segment that includes all of our continuing operations. 16 Q1 FY2026 Form 10-Q| H&R Block, Inc. Table of Contents Consolidated – Financial Results (in 000s, except per share amounts) Three months ended September 30, 2025 2024 $ Change % Change Revenues: U.S. tax preparation and related services: Assisted tax preparation $ 48,644 $ 42,963 $ 5,681 13.2 % Royalties 5,849 5,852 (3) (0.1) % DIY tax preparation 3,745 3,236 509 15.7 % Refund Transfers 843 860 (17) (2.0) % Peace of Mind® Extended Service Plan 23,509 23,097 412 1.8 % Tax Identity Shield® 4,122 3,909 213 5.4 % Other 13,476 13,809 (333) (2.4) % Total U.S. tax preparation and related services 100,188 93,726 6,462 6.9 % Financial services: Emerald Card® and Spruce SM 7,852 8,826 (974) (11.0) % Interest and fee income on Emerald Advance® — — — ** Total financial services 7,852 8,826 (974) (11.0) % International 65,661 64,855 806 1.2 % Wave 29,850 26,403 3,447 13.1 % Total revenues $ 203,551 $ 193,810 $ 9,741 5.0 % Compensation and benefits: Field wages 69,715 68,094 (1,621) (2.4) % Other wages 79,279 77,335 (1,944) (2.5) % Benefits and other compensation 36,662 38,754 2,092 5.4 % 185,656 184,183 (1,473) (0.8) % Occupancy 102,796 101,318 (1,478) (1.5) % Marketing and advertising 8,342 9,972 1,630 16.3 % Depreciation and amortization 28,922 28,831 (91) (0.3) % Bad debt 2,205 2,730 525 19.2 % Other 82,661 95,107 12,446 13.1 % Total operating expenses 410,582 422,141 11,559 2.7 % Other income (expense), net 8,102 11,917 (3,815) (32.0) % Interest expense on borrowings (17,402) (15,847) (1,555) (9.8) % Pretax loss (216,331) (232,261) 15,930 6.9 % Income tax benefit (50,963) (60,840) (9,877) (16.2) % Net loss from continuing operations (165,368) (171,421) 6,053 3.5 % Net loss from discontinued operations (451) (1,155) 704 61.0 % Net loss $ (165,819) $ (172,576) $ 6,757 3.9 % BASIC AND DILUTED LOSS PER SHARE: Continuing operations $ (1.26) $ (1.23) $ (0.03) (2.4) % Discontinued operations — (0.01) 0.01 100.0 % Consolidated $ (1.26) $ (1.24) $ (0.02) (1.6) % Adjusted diluted EPS (1) $ (1.20) $ (1.17) $ (0.03) (2.6) % EBITDA (1) $ (170,007) $ (187,583) $ 17,576 9.4 % (1) All non-GAAP measures are results from continuing operations. See " Non-GAAP Financial Information " at the end of this item for a reconciliation of non-GAAP measures. H&R Block, Inc. |Q1 FY2026 Form 10-Q 17 Table of Contents Three months ended September 30, 2025 compared to September 30, 2024 Revenues increased $9.7 million, or 5.0%, from the prior ye ar. U.S. assisted tax preparation revenues increased $5.7 million , or 13.2%, due to an increase in net average charge and company-owned tax return volumes in the current year. Wave revenues increased $3.4 million, or 13.1%, due to higher accounting, invoicing, and receipts subscriptions and small business payment processing volumes. Total operating expenses decreased $11.6 million, or 2.7%, from the prior year. Field wages increased $1.6 million, or 2.4%, due to higher preseason and tax professional wages in the current year. Other wages increased $1.9 million, or 2.5% due to higher corporate wages due to salary increases. Benefits and other compensation decreased $2.1 million, or 5.4% primarily due to lower stock-based compensation expense. Occupancy expense increased $1.5 million, or 1.5%, primarily due to higher lease expenses. Marketing and advertising expense decreased $1.6 million, or 16.3%, due to higher vendor refunds for expired customer incentives and lower online advertising. Other operating expenses decreased $12.4 million, or 13.1%. The components of other expenses are as follows: (in 000s) Three months ended September 30, 2025 2024 $ Change % Change Consulting and outsourced services $ 13,157 $ 15,444 $ 2,287 14.8 % Bank partner fees (334) 47 381 ** Client claims and refunds 5,445 5,944 499 8.4 % Employee and travel expenses 5,673 6,117 444 7.3 % Technology-related expenses 26,349 24,501 (1,848) (7.5) % Credit card/bank charges 19,377 18,149 (1,228) (6.8) % Insurance 2,680 3,544 864 24.4 % Legal fees and settlements 3,462 14,462 11,000 76.1 % Supplies 3,099 2,907 (192) (6.6) % Other 3,753 3,992 239 6.0 % $ 82,661 $ 95,107 $ 12,446 13.1 % Consulting and outsourced services expense decreased $2.3 million, or 14.8%, due to lower call center expenses. Technology-related expenses increased by $1.8 million, or 7.5%, due to higher cloud-related technology spend. Legal expenses decreased $11.0 million primarily due to lower outside legal counsel spend in the current year. We recorded an income tax benefit of $51.0 million in the current year compared to $60.8 million in the prior year. The effective tax rate for the three months ended September 30, 2025, and 2024 was 23.6% and 26.2%, respectively. FINANCIAL CONDITION These comments should be read in conjunction with the consolidated balance sheets and consolidated statements of cash flows included in Part 1, Item 1 . CAPITAL RESOURCES AND LIQUIDITY – OVERVIEW – Our primary sources of capital and liquidity include cash from operations (including changes in working capital), draws on our unsecured committed line of credit (CLOC), and issuances of debt. We use our sources of liquidity primarily to fund working capital, service and repay debt, pay dividends, repurchase shares of our common stock, and acquire businesses. Our operations are highly seasonal and substantially all of our revenues and cash flow are generated during the period from February through April in a typical year. Therefore, we normally require the use of cash to fund losses and working capital needs, periodically resulting in a working capital deficit, during the months of May through 18 Q1 FY2026 Form 10-Q| H&R Block, Inc. Table of Contents January. We typically have relied on available cash balances from the prior tax season and borrowings to meet liquidity needs. Given the likely availability of a number of liquidity options discussed herein, we believe that, in the absence of any unexpected developments, our existing sources of capital as of September 30, 2025 are sufficient to meet our operating, investing and financing needs. DISCUSSION OF CONSOLIDATED STATEMENTS OF CASH FLOWS – The following table summarizes our statements of cash flows for the three months ended September 30, 2025 and 2024. See Item 1 for the complete consolidated statements of cash flows for these periods. (in 000s) Three months ended September 30, 2025 2024 Net cash provided by (used in): Operating activities $ (356,838) $ (328,581) Investing activities (20,926) (26,394) Financing activities (225,025) (284,450) Effects of exchange rates on cash (2,949) 3,249 Net decrease in cash and cash equivalents, including restricted balances $ (605,738) $ (636,176) Operating Activities. Cash used in operations totaled $356.8 million for the three months ended September 30, 2025 compared to $328.6 million in the prior year period. The increase is primarily due to changes in accrued income taxes and other current liabilities, partially offset by a lower net loss. Investing Activities. Cash used in investing activities totaled $20.9 million for the three months ended September 30, 2025 compared to $26.4 million in the prior year period. The decrease is primarily due to lower capital expenditures. Financing Activities. Cash used in financing activities totaled $225.0 million for the three months ended September 30, 2025 compared to $284.5 million in the prior year period. The change is primarily due to proceeds from line of credit borrowings partially offset by higher repurchases of common stock. CASH REQUIREMENTS – Dividends and Share Repurchases. Returning capital to shareholders in the form of dividends and the repurchase of outstanding shares is, and has historically been, a significant component of our capital allocation plan. We have consistently paid quarterly dividends. Dividends paid totaled $50.2 million and $44.7 million for the three months ended September 30, 2025 and 2024, respectively. Although we have historically paid dividends and plan to continue to do so, there can be no assurances that circumstances will not change in the future that could affect our ability or decisions to pay dividends. During the three months ended September 30, 2025, we repurchased $400.1 million of our common stock at an average price of $50.90 per share, excluding excise taxes in connection with such repurchases. In the prior year period, we repurchased $209.6 million of our common stock at an average price of $63.51 per share, excluding excise taxes in connection with such repurchases. Our current share repurchase program has remaining authorization of $700.0 million and does not have an expiration date. Share repurchases may be effectuated through open market transactions, some of which may be effectuated under SEC Rule 10b5-1. The Company may cancel, suspend, or extend the period for the purchase of shares at any time. Any repurchases will be funded primarily through available cash and cash from operations. Although we may continue to repurchase shares, there is no assurance that we will purchase up to the full Board authorization. Capital Investment. Capital expenditures totaled $13.2 million and $18.7 million for the three months ended September 30, 2025 and 2024, respectively. Our capital expenditures relate primarily to recurring improvements to retail offices, as well as investments in computers, software and related assets. In addition to our capital expenditures, we also made payments to acquire businesses. We acquired franchisee and competitor businesses H&R Block, Inc. |Q1 FY2026 Form 10-Q 19 Table of Contents totaling $5.1 million and $5.9 million during the three months ended September 30, 2025 and 2024, respectively. See Item 1, note 5 for additional information on our acquisitions. FINANCING RESOURCES – The 2025 CLOC has capacity up to $1.5 billion and is scheduled to expire in July 2030. Proceeds under the 2025 CLOC may be used for working capital needs or for other general corporate purposes. We had an outstanding balance of $245.0 million under our 2025 CLOC and amounts available to borrow were not limited by the debt-to-EBITDA covenant as of September 30, 2025. On August 26, 2025, we issued the 2032 Senior Notes. We intend to use the net proceeds from the 2032 Senior Notes for general corporate purposes, which may include, among other uses, redeeming the 2025 Senior Notes. We redeemed our 2025 Senior Notes at 100% of the principal amount, plus accrued and unpaid interest, on September 19, 2025. The following table provides ratings for debt issued by Block Financial LLC (Block Financial) as of September 30, 2025 and June 30, 2025: As of September 30, 2025 June 30, 2025 Short-term Long-term Outlook Short-term Long-term Outlook Moody's P-3 Baa3 Stable P-3 Baa3 Stable S&P A-2 BBB Stable A-2 BBB Stable Other than described above, there have been no material changes in our borrowings from those reported as of June 30, 2025 in our Annual Report on Form 10-K. CASH AND OTHER ASSETS – As of September 30, 2025, we held cash and cash equivalents, excluding restricted amounts, of $376.4 million, including $213.1 million held by our foreign subsidiaries. Foreign Operations. Seasonal borrowing needs of our Canadian operations are typically funded by our U.S. operations. To mitigate foreign currency risk, we sometimes enter into foreign exchange forward contracts. There were no forward contracts outstanding as of September 30, 2025. We do not currently intend to repatriate non-borrowed funds held by our foreign subsidiaries in a manner that would trigger a tax liability. The impact of changes in foreign exchange rates during the period on our international cash balances resulted in a decrease of $2.9 million during the three months ended September 30, 2025 and in an increase of $3.2 million during the three months ended September 30, 2024. CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS – Except as described in Recent Developments related to the 2025 CLOC, the 2032 Senior Notes issuance and the 2025 Senior Notes redemption, there have been no other material changes in our contractual obligations and commercial commitments from those reported in our June 30, 2025 Annual Report on Form 10-K. SUMMARIZED GUARANTOR FINANCIAL STATEMENTS – Block Financial is a 100% owned subsidiary of H&R Block, Inc. Block Financial is the Issuer and H&R Block, Inc. is the full and unconditional Guarantor of our Senior Notes, CLOC and other indebtedness issued from time to time. The following table presents summarized financial information for H&R Block, Inc. (Guarantor) and Block Financial (Issuer) on a combined basis after intercompany eliminations and excludes investments in and equity earnings in non-guarantor subsidiaries. SUMMARIZED BALANCE SHEET - GUARANTOR AND ISSUER (in 000s) As of September 30, 2025 June 30, 2025 Current assets $ 40,457 $ 38,254 Noncurrent assets 2,066,122 1,836,847 Current liabilities 75,409 432,139 Noncurrent liabilities 1,741,597 1,148,806 20 Q1 FY2026 Form 10-Q| H&R Block, Inc. Table of Contents SUMMARIZED STATEMENTS OF OPERATIONS - GUARANTOR AND ISSUER (in 000s) Three months ended September 30, 2025 Twelve months ended June 30, 2025 Total revenues $ 8,766 $ 126,240 Income from continuing operations before income taxes 8,687 58,596 Net income from continuing operations 6,672 45,120 Net income 6,221 41,443 The table above reflects $2.0 billion and $1.8 billion of non-current intercompany receivables due to the Issuer from non-guarantor subsidiaries as of September 30, 2025 and June 30, 2025, respectively. REGULATORY ENVIRONMENT There have been no material changes in our regulatory environment from what was reported in our June 30, 2025 Annual Report on Form 10-K. NON-GAAP FINANCIAL INFORMATION Non-GAAP financial measures should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with U.S. generally accepted accounting principles (GAAP). Because these measures are not measures of financial performance under GAAP and are susceptible to varying calculations, they may not be comparable to similarly titled measures for other companies. We consider our non-GAAP financial measures to be performance measures and a useful metric for management and investors to evaluate and compare the ongoing operating performance of our business. We make adjustments for certain non-GAAP financial measures related to amortization of intangibles from acquisitions and goodwill impairments. We may consider whether other significant items that arise in the future should be excluded from our non-GAAP financial measures. We measure the performance of our business using a variety of metrics, including earnings before interest, taxes, depreciation and amortization (EBITDA) from continuing operations, adjusted EBITDA from continuing operations, adjusted diluted earnings per share from continuing operations, free cash flow and free cash flow yield. We also use EBITDA from continuing operations and pretax income of continuing operations, each subject to permitted adjustments, as performance metrics in incentive compensation calculations for our employees. The following is a reconciliation of net loss to EBITDA from continuing operations, which is a non-GAAP financial measure: (in 000s) Three months ended September 30, 2025 2024 Net loss - as reported $ (165,819) $ (172,576) Discontinued operations, net 451 1,155 Net loss from continuing operations - as reported (165,368) (171,421) Add back: Income tax benefit (50,963) (60,840) Interest expense 17,402 15,847 Depreciation and amortization 28,922 28,831 (4,639) (16,162) EBITDA from continuing operations $ (170,007) $ (187,583) H&R Block, Inc. |Q1 FY2026 Form 10-Q 21 Table of Contents The following is a reconciliation of our results from continuing operations to our adjusted results from continuing operations, which is a non-GAAP financial measure: (in 000s, except per share amounts) Three months ended September 30, 2025 2024 Net loss from continuing operations - as reported $ (165,368) $ (171,421) Adjustments: Amortization of intangibles related to acquisitions (pretax) 10,979 11,128 Tax effect of adjustments (1) (2,792) (2,645) Adjusted net loss from continuing operations $ (157,181) $ (162,938) Diluted loss per share from continuing operations - as reported $ (1.26) $ (1.23) Adjustments, net of tax 0.06 0.06 Adjusted diluted loss per share from continuing operations $ (1.20) $ (1.17) (1) Tax effect of adjustments is the difference between the tax provision calculated on a GAAP basis and on an adjusted non-GAAP basis. FORWARD-LOOKING INFORMATION This report and other documents filed with the Securities and Exchange Commission (SEC) may contain forward-looking statements. In addition, our senior management may make forward-looking statements orally to analysts, investors, the media and others. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. They often include words or variation of words such as "expects," "anticipates," "intends," "plans," "believes," "commits," "seeks," "estimates," "projects," "forecasts," "targets," "would," "will," "should," "could," "may" or other similar expressions. Forward-looking statements provide management's current expectations or predictions of future conditions, events or results. All statements that address operating performance, events or developments that we expect or anticipate will occur in the future are forward-looking statements. They may include estimates of revenues, client trajectory, income, effective tax rate, earnings per share, cost savings, capital expenditures, dividends, share repurchases, liquidity, capital structure, market share, industry volumes or other financial items, descriptions of management's plans or objectives for future operations, services or products, or descriptions of assumptions underlying any of the above. They may also include the expected impact of external events beyond the Company's control, such as outbreaks of infectious disease, severe weather events, natural or manmade disasters, or changes in the regulatory environment in which we operate. All forward-looking statements speak only as of the date they are made and reflect the Company's good faith beliefs, assumptions and expectations, but they are not guarantees of future performance or events. Furthermore, the Company disclaims any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions, factors, or expectations, new information, data or methods, future events or other changes, except as required by law. By their nature, forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements. Factors that might cause such differences include, but are not limited to, a variety of economic, competitive, operational and regulatory factors, many of which are beyond the Company's control. In addition, factors that may cause the Company’s actual effective tax rate to differ from estimates include the Company’s actual results from operations compared to current estimates, future discrete items, changes in interpretations and assumptions the Company has made, future actions of the Company, and increases in applicable tax rates in jurisdictions where the Company operates. Investors should understand that it is not possible to predict or identify all such factors and, consequently, should not consider any such list to be a complete set of all potential risks or uncertainties. Details about risks, uncertainties and assumptions that could affect various aspects of our business are included throughout our Annual Report on Form 10-K for the fiscal year ended June 30, 2025 and are also described from time to time in other filings with the SEC. Investors should carefully consider all of these risks, and should pay 22 Q1 FY2026 Form 10-Q| H&R Block, Inc. Table of Contents particular attention to Item 1A, "Risk Factors," and Item 7 under "Critical Accounting Estimates" of our Annual Report on Form 10-K for the fiscal year ended June 30, 2025. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There have been no material changes in our market risks from those reported in our June 30, 2025 Annual Report on Form 10-K.