What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2025-05-07 compared with 2025-02-06 · 93 added, 87 removed, 230 unchanged (44% of the section changed)

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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 either prepared by H&R Block tax professionals in one of our company-owned or franchise offices, virtually or via an online review or prepared and filed by our clients through our DIY tax solutions.

Tax returns are either prepared by H&R Block tax professionals in one of our 6,701 company-owned or 2,013 franchise offices (as of March 31, 2025), virtually or via an online review or 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.

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Consolidated – Financial Results (in 000s, except per share amounts)

Three months ended December 31, 2024 2023 $ Change % Change

Three months ended March 31, 2025 2024 $ Change % Change

tax preparation and related services:

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Interest expense on borrowings (24,686) (26,070) 1,384 5.3 %

Pretax loss (312,299) (282,874) (29,425) (10.4) %

Income tax benefit (69,833) (93,758) (23,925) (25.5) %

Net loss from continuing operations (242,466) (189,116) (53,350) (28.2) %

Pretax income 958,181 907,358 50,823 5.6 %

Income taxes 235,253 215,772 (19,481) (9.0) %

Net income from continuing operations 722,928 691,586 31,342 4.5 %

Net loss from discontinued operations (598) (849) 251 29.6 %

Net loss $ (243,420) $ (189,755) $ (53,665) (28.3) %

BASIC AND DILUTED LOSS PER SHARE:

Net income $ 722,330 $ 690,737 $ 31,593 4.6 %

DILUTED EARNINGS PER SHARE

Continuing operations $ 5.32 $ 4.87 $ 0.45 9.2 %

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Q3 FY2025 Form 10-Q| H&R Block, Inc.

Three months ended December 31, 2024 compared to December 31, 2023

Revenues of $179.1 million were flat compared to the prior year.

Three months ended March 31, 2025 compared to March 31, 2024

Revenues increased $92.3 million, or 4.2%, from the prior ye ar.

assisted tax preparation revenues increased $101.1 million , or 6.6%, due to a 5.0% increase in net average charge combined with a 1.5% increase in company-owned tax return volumes in the current year.

royalty revenue decreased $8.0 million, or 5.6%, due to lower franchise tax return volumes which was primarily driven by franchise acquisitions.

During the year we purchased franchise offices which results in increasing tax preparation revenues and decreasing royalties as the revenues and returns become company-owned after the acquisition.

For the three months ended March 31, 2025 our total assisted tax return volume, which includes both company-owned and franchise offices, decreased 0.6% from the prior year.

DIY tax preparation revenues increased $16.1 million, or 8.1%, primarily due to an 8.9% increase in online paid net average charge and higher desktop software sales, offset by slightly lower online paid volumes.

Interest and fee income on Emerald Advance® revenues decreased $6.9 million, or 32.5%, primarily due to a decrease in EA loans originated in the current year.

International tax preparation revenues increased $2.2 million, or 7.6%, primarily due to higher tax return volumes in Australia combined with favorable foreign currency exchange rates.

Wave revenues increased $3.4 million, or 14.8%, due to higher accounting, invoicing and receipts subscriptions and small business payments processing volumes.

International tax preparation revenues decreased $7.8 million, or 11.5%, primarily due to lower tax return volumes in Canada combined with unfavorable foreign currency exchange rates.

Total operating expenses increased $42.2 million, or 3.4%, from the prior year.

Field wages increased $3.8 million, or 4.8%, due to higher tax professional wages in the current year.

Other wages increased $4.1 million, or 5.4%, due to higher corporate wages primarily due to salary increases.

Occupancy expense increased $3.8 million, or 3.8%, primarily due to higher lease and office-related expenses.

Marketing and advertising expense increased $3.6 million, or 31.5%, primarily due to the timing of advertising and lower vendor refunds for expired customer incentives in the current year.

Field wages increased $22.6 million, or 4.4%, due to higher tax professional wages in the current year primarily due to the increase in company-owned volumes.

Benefits and other compensation increased $11.9 million, or 12.0%, due to higher payroll taxes and 401K match in the current year.

Other operating expenses increased $7.7 million, or 4.1%.

The components of other expenses are as follows:

Three months ended December 31, 2024 2023 $ Change % Change

Three months ended March 31, 2025 2024 $ Change % Change

Consulting and outsourced services $ 38,887 $ 37,896 $ (991) (2.6) %

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$ 193,603 $ 185,929 $ (7,674) (4.1) %

Other income (expense), net decreased $3.2 million, or 53.7%, primarily due to higher foreign currency losses and lower interest income in the current year.

We recorded an income tax benefit of $69.8 million in the current year compared to $93.8 million in the prior year.

The effective tax rate for the three months ended December 31, 2024, and 2023 was 22.4% and 33.1%, respectively.

We recorded an income tax expense of $235.3 million in the current year compared to $215.8 million in the prior year.

The effective tax rate for the three months ended March 31, 2025, and 2024 was 24.6% and 23.8%, respectively.

H&R Block, Inc.

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Consolidated - Financial Results (in 000s, except per share amounts)

Six months ended December 31, 2024 2023 $ Change % Change

Nine months ended March 31, 2025 2024 $ Change % Change

tax preparation and related services:

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Interest expense on borrowings (62,285) (63,304) 1,019 1.6 %

Pretax loss (544,560) (495,234) (49,326) (10.0) %

Income tax benefit (130,673) (143,245) (12,572) (8.8) %

Net loss from continuing operations (413,887) (351,989) (61,898) (17.6) %

Pretax income 413,621 412,124 1,497 0.4 %

Income taxes 104,580 72,527 (32,053) (44.2) %

Net income from continuing operations 309,041 339,597 (30,556) (9.0) %

Net loss from discontinued operations (2,707) (2,097) (610) (29.1) %

Net loss $ (415,996) $ (353,237) $ (62,759) (17.8) %

BASIC AND DILUTED LOSS PER SHARE:

Net income $ 306,334 $ 337,500 $ (31,166) (9.2) %

DILUTED EARNINGS PER SHARE

Continuing operations $ 2.23 $ 2.34 $ (0.11) (4.7) %

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Q3 FY2025 Form 10-Q| H&R Block, Inc.

Six months ended December 31, 2024 compared to December 31, 2023

Nine months ended March 31, 2025 compared to March 31, 2024

Revenues increased $102.3 million, or 4.0%, from the prior year.

assisted tax preparation revenues increased $3.7 million, or 4.3%, primarily due to an increase in net average charge.

Peace of Mind® revenue decreased $3.0 million, or 7.2%, due to lower prior year sales of Peace of Mind®.

Peace of Mind® revenues are initially deferred and recognized over the term of the plan.

Other revenues increased $5.1 million, or 24.6%, primarily due to higher bookkeeping fees.

assisted tax preparation revenues increased $104.8 million, or 6.5%, primarily due to a 5.0% increase in net average charge combined with a 1.4% increase in company-owned tax return volumes in the current year.

royalty revenue decreased $9.8 million, or 6.4%, primarily due to lower franchise tax return volumes which was primarily driven by franchise acquisitions.

During the year we purchased franchise offices which results in increasing tax preparation revenues and decreasing royalties as the revenues and returns become company-owned after the acquisition.

Through the nine months ended March 31, 2025 our total assisted tax return volume, which includes both company-owned and franchise offices, decreased 0.6% from the prior year.

DIY tax preparation revenues increased $16.1 million, or 7.5%, primarily due to a 8.4% increase in online paid net average charge and higher desktop software sales, partially offset by lower online paid volumes.

Interest and fee income on Emerald Advance® revenues decreased $10.1 million, or 27.5%, primarily due to a decrease in EA loans originated in the current year.

International revenues increased $6.5 million, or 7.2%, primarily due to higher tax return volumes in Australia combined with favorable foreign currency exchange rates.

Wave revenues increased $9.0 million, or 12.8%, due to higher accounting, invoicing and receipts subscriptions and small business payments processing volumes.

Total operating expenses increased $100.0 million, or 4.8%, from the prior year period.

Field wages increased $9.4 million, or 6.7%, due to higher tax professional wages in the current year.

Field wages increased $32.0 million, or 4.9%, due to higher tax professional wages in the current year primarily due to the increase in company-owned volumes.

Other wages increased $8.6 million, or 3.9%, primarily due to higher corporate wages due to salary increases in the current year.

Benefits and other compensation increased $5.8 million, or 8.2%, due to higher employee insurance and severance pay in the current year.

Occupancy expense increased $5.8 million, or 2.9%, primarily due to higher lease and office-related expenses.

Marketing and advertising expense increased $8.0 million, or 48.0%, due to the timing of advertising and lower vendor refunds for expired customer incentives in the current year.

Benefits and other compensation increased $17.8 million, or 10.4%, due to higher payroll taxes, 401K match and higher employee insurance in the current year.

Marketing and advertising expense increased $10.4 million, or 4.9%, due to the higher spend and lower vendor refunds for expired customer incentives in the current year.

Other operating expenses increased $33.8 million, or 9.4%.

The components of other expenses are as follows:

Six months ended December 31, 2024 2023 $ Change % Change

Nine months ended March 31, 2025 2024 $ Change % Change

Consulting and outsourced services $ 72,770 $ 67,297 $ (5,473) (8.1) %

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$ 393,900 $ 360,111 $ (33,789) (9.4) %

Legal expense increased $13.2 million primarily due to higher outside legal counsel spend.

Legal expense increased $9.9 million, or 50.3%, primarily due to higher outside legal counsel spend.

We recorded income tax expense of $104.6 million in the current year compared to $72.5 million in the prior year.

The effective tax rate for the six months ended December 31, 2024, and 2023 was 24.0% and 28.9%, respectively.

The effective tax rate for the nine months ended March 31, 2025, and 2024 was 25.3% and 17.6%, respectively.

See Item 1, note 7 to the consolidated financial statements for additional discussion.

Assisted tax return volume, which includes our company-owned and franchise operations, decreased 0.8% from July 1, 2024 through April 30, 2025 compared to the prior year period.

DIY online paid tax return volume from July 1, 2024 through April 30, 2025, decreased 0.3% compared to the prior year period.

Our business is highly seasonal and results for the nine months ended March 31, as well as results for the period ended April 30, may not be indicative of results for the fiscal year ended June 30, 2025.

H&R Block, Inc.

|Q3 FY2025 Form 10-Q

FINANCIAL CONDITION

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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.

H&R Block, Inc.

|Q2 FY2025 Form 10-Q

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.

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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 December 31, 2024 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 six months ended December 31, 2024 and 2023.

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 March 31, 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 nine months ended March 31, 2025 and 2024.

See Item 1 for the complete consolidated statements of cash flows for these periods.

Six months ended December 31, 2024 2023

Nine months ended March 31, 2025 2024

Net cash provided by (used in):

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Operating Activities.

Cash used in operations totaled $895.6 million for the six months ended December 31, 2024 compared to $942.2 million in the prior year period.

The change is primarily due to lower EA loans originated in the current year and changes in deferred taxes, partially offset by a higher net loss in the current year.

Cash provided by operations totaled $429.3 million for the nine months ended March 31, 2025 compared to $420.3 million in the prior year period.

The increase is primarily due to changes in accounts payable and accounts receivable, partially offset by a lower net income in the current year.

Investing Activities.

Cash used in investing activities totaled $87.5 million for the six months ended December 31, 2024 compared to $71.0 million in the prior year period.

The change is primarily due to higher capital expenditures in the current year.

Cash used in investing activities totaled $110.9 million for the nine months ended March 31, 2025 compared to $99.6 million in the prior year period.

The change is primarily due to higher capital expenditures, partially offset by lower payments made for business acquisitions in the current year.

Financing Activities.

Cash provided by financing activities totaled $258.6 million for the six months ended December 31, 2024 compared to $335.4 million in the prior year period.

The change is primarily due to higher repurchases of common stock in the current year.

Cash used in financing activities totaled $595.5 million for the nine months ended March 31, 2025 compared to $520.5 million in the prior year period.

The change is primarily due to higher repurchases of common stock and dividends in the current year.

CASH REQUIREMENTS –

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We have consistently paid quarterly dividends.

Dividends paid totaled $97.0 million and $89.9 million for the six months ended December 31, 2024 and 2023, respectively.

Dividends paid totaled $147.1 million and $135.1 million for the nine months ended March 31, 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.

Q3 FY2025 Form 10-Q| H&R Block, Inc.

On August 15, 2024, the Board of Directors approved a $1.5 billion share repurchase program.

The repurchase program does not have an expiration date and replaced the previously existing share repurchase program.

During the six months ended December 31, 2024, we repurchased $400.1 million of our common stock at an average price of $61.10 per share, excluding excise taxes in connection with such repurchases.

During the nine months ended March 31, 2025, we repurchased $400.1 million of our common stock at an average price of $61.10 per share, excluding excise taxes in connection with such repurchases.

In the prior year period, we repurchased $350.1 million of our common stock at an average price of $43.66 per share, excluding excise taxes in connection with such repurchases.

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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

Q2 FY2025 Form 10-Q| H&R Block, Inc.

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.

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Capital Investment.

Capital expenditures totaled $49.1 million and $32.7 million for the six months ended December 31, 2024 and 2023, respectively.

Capital expenditures totaled $71.8 million and $53.8 million for the nine months ended March 31, 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 totaling $28.0 million and $27.2 million during the six months ended December 31, 2024 and 2023, respectively.

We acquired franchisee and competitor businesses totaling $35.3 million and $43.2 million during the nine months ended March 31, 2025 and 2024, respectively.

See Item 1, note 5 for additional information on our acquisitions.

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Proceeds under the CLOC may be used for working capital needs or for other general corporate purposes.

We had an outst anding balance of $790.0 million under our CLOC and amounts available to borrow were not limited by the debt-to-EBITDA covenant as of December 31, 2024.

Our Senior Notes due in October 2025 (2025 Senior Notes) are classified as a current liability as of December 31, 2024.

We had n o outstanding balance under our CLOC and amounts available to borrow were not limited by the debt-to-EBITDA covenant as of March 31, 2025.

Our Senior Notes due in October 2025 (2025 Senior Notes) are classified as a current liability as of March 31, 2025.

We are considering various financing options in regard to the maturing 2025 Senior Notes and anticipate these options will provide adequate liquidity to fund the cash requirements at or prior to maturity.

The following table provides ratings for debt issued by Block Financial LLC (Block Financial) as of December 31, 2024 and June 30, 2024:

As of December 31, 2024 June 30, 2024

The following table provides ratings for debt issued by Block Financial LLC (Block Financial) as of March 31, 2025 and June 30, 2024:

As of March 31, 2025 June 30, 2024

Short-term Long-term Outlook Short-term Long-term Outlook

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Other than described above, there have been no material changes in our borrowings from those reported as of June 30, 2024 in our Annual Report on Form 10-K.

CASH AND OTHER ASSETS – As of December 31, 2024, we held cash and cash equivalents, excluding restricted amounts, of $320.1 million, including $158.6 million held by our foreign subsidiaries.

CASH AND OTHER ASSETS – As of March 31, 2025, we held cash and cash equivalents, excluding restricted amounts, of $772.9 million, including $153.0 million held by our foreign subsidiaries.

Foreign Operations.

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To mitigate foreign currency risk, we sometimes enter into foreign exchange forward contracts.

There were no forward contracts outstanding as of December 31, 2024.

There were no forward contracts outstanding as of March 31, 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 $9.1 million during the six months ended December 31, 2024 and in an increase of $0.7 million during the six months ended December 31, 2023.

The impact of changes in foreign exchange rates during the period on our international cash balances resulted in a decrease of $8.4 million during the nine months ended March 31, 2025 and in a decrease of $2.7 million during the nine months ended March 31, 2024.

CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS – The Company entered into an agreement to purchase federal Investment tax credits (ITC).

During the six months ended December 31, 2024, we paid $22.9 million for ITCs.

As of December 31, 2024, the Company has a remaining commitment to purchase additional ITCs, for approximately $80.0 million if certain conditions set forth in the agreement are satisfied, with the final closing payment anticipated to occur by June 30, 2025.

During the nine months ended March 31, 2025, we paid $22.9 million for ITCs.

As of March 31, 2025, the Company has a remaining commitment to purchase additional ITCs, for

H&R Block, Inc.

|Q3 FY2025 Form 10-Q

approximately $75.1 million if certain conditions set forth in the agreement are satisfied, with the final closing payment anticipated to occur by June 30, 2025.

Effective October 18, 2024, we amended our Program Management Agreement (PMA) with Pathward®, N.A to extend the term of the PMA for two years until June 30, 2027.

We purchased participation interests in EAs of $257.9 million during the six months ended December 31, 2024.

We purchased participation interests in EAs of $260.6 million during the nine months ended March 31, 2025.

See Item 1, note 8 for additional information on our commitments.

There have been no other material changes in our contractual obligations and commercial commitments from those reported in our June 30, 2024 Annual Report on Form 10-K.

H&R Block, Inc.

|Q2 FY2025 Form 10-Q

SUMMARIZED GUARANTOR FINANCIAL STATEMENTS – Block Financial is a 100% owned subsidiary of H&R Block, Inc.

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SUMMARIZED BALANCE SHEET - GUARANTOR AND ISSUER (in 000s)

As of December 31, 2024 June 30, 2024

As of March 31, 2025 June 30, 2024

Current assets $ 74,093 $ 44,423

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SUMMARIZED STATEMENTS OF OPERATIONS - GUARANTOR AND ISSUER (in 000s)

Six months ended December 31, 2024 Twelve months ended June 30, 2024

Nine months ended March 31, 2025 Twelve months ended June 30, 2024

Total revenues $ 104,642 $ 144,206

Income (loss) from continuing operations before income taxes (3,363) 75,819

Net income (loss) from continuing operations (2,592) 57,441

Net income (loss) (4,702) 54,795

The table above reflects $2.3 billion and $1.7 billion of non-current intercompany receivables due to the Issuer from non-guarantor subsidiaries as of December 31, 2024 and June 30, 2024, respectively.

Income from continuing operations before income taxes 45,242 75,819

Net income from continuing operations 34,837 57,441

Net income 32,129 54,795

The table above reflects $1.7 billion of non-current intercompany receivables due to the Issuer from non-guarantor subsidiaries as of March 31, 2025 and June 30, 2024.

REGULATORY ENVIRONMENT

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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.

Q3 FY2025 Form 10-Q| H&R Block, Inc.

The following is a reconciliation of net loss to EBITDA from continuing operations, which is a non-GAAP financial measure:

Three months ended December 31, Six months ended December 31,

operations, adjusted diluted earnings per share from continuing operations, free cash flow and free cash flow yield.

The following is a reconciliation of net income to EBITDA from continuing operations, which is a non-GAAP financial measure:

Three months ended March 31, Nine months ended March 31,

2025 2024 2025 2024

Net loss - as reported $ (243,420) $ (189,755) $ (415,996) $ (353,237)

Net income - as reported $ 722,330 $ 690,737 $ 306,334 $ 337,500

Discontinued operations, net 598 849 2,707 2,097

Net loss from continuing operations - as reported (242,466) (189,116) (413,887) (351,989)

Income tax benefit (69,833) (93,758) (130,673) (143,245)

Net income from continuing operations - as reported 722,928 691,586 309,041 339,597

Income taxes 235,253 215,772 104,580 72,527

Interest expense 24,686 26,070 62,285 63,304

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(in 000s, except per share amounts)

Three months ended December 31, Six months ended December 31,

Three months ended March 31, Nine months ended March 31,

2025 2024 2025 2024

Net loss from continuing operations - as reported $ (242,466) $ (189,116) $ (413,887) $ (351,989)

Net income from continuing operations - as reported $ 722,928 $ 691,586 $ 309,041 $ 339,597

Amortization of intangibles related to acquisitions (pretax) 11,278 12,869 33,316 37,693

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(2,927) (2,793) (8,111) (8,815)

Adjusted net loss from continuing operations $ (234,095) $ (179,934) $ (397,033) $ (333,187)

Diluted loss per share from continuing operations - as reported $ (1.79) $ (1.33) $ (3.02) $ (2.44)

Adjusted net income from continuing operations $ 731,279 $ 701,622 $ 334,246 $ 368,475

Diluted earnings per share from continuing operations - as reported $ 5.32 $ 4.87 $ 2.23 $ 2.34

Adjustments, net of tax 0.06 0.07 0.18 0.20

Adjusted diluted loss per share from continuing operations $ (1.73) $ (1.27) $ (2.89) $ (2.31)

Adjusted diluted earnings per share from continuing operations $ 5.38 $ 4.94 $ 2.41 $ 2.54

(1) Tax effect of adjustments is the difference between the tax provision calculated on a GAAP basis and on an adjusted non-GAAP basis.

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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.

H&R Block, Inc.

|Q3 FY2025 Form 10-Q

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.

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.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis