What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-11-04 compared with 2021-03-09 · 98 added, 241 removed, 164 unchanged (67% of the section changed)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RECENT DEVELOPMENTS

On July 1, 2020, we provided written notice to Axos Bank (Axos) of the termination of the Program Management Agreement by and between Emerald Financial Services, LLC , a wholly–owned indirect subsidiary of the Company, and Axos, effective July 1, 2020.

On August 5, 2020, we entered into a Program Management Agreement with MetaBank®, N.A.

(Meta), a wholly-owned subsidiary of Meta Financial Group, Inc.

Under the Meta Program Management Agreement and its ancillary agreements and related product schedules, Meta acts as the bank provider of H&R Block-branded financial products, including Emerald Advance SM , Emerald Card®, Emerald Savings, Refund Advance, and Refund Transfer in the United States.

FINANCIAL OVERVIEW

With the economic impact of the pandemic being felt across the U.S., we remain committed to helping people gain access to their refunds while shifting how we operate to help promote the safety and well-being of associates and clients.

We continue to provide in-person appointments where permitted and have instituted guidelines for our tax offices based on Centers for Disease Control and Prevention recommendations.

Clients may also choose to drop-off at our locations nationwide or choose to file with a tax pro virtually.

As a result of the COVID-19 pandemic, on March 21, 2020, the federal tax filing deadline in the U.S.

for individual 2019 tax returns was extended from April 15, 2020 to July 15, 2020, and substantially all U.S.

states with an April 15 individual state income tax filing requirement extended their respective deadlines.

In Canada, the deadline for individuals to file was extended to June 1, 2020.

In addition, governments around the world took a variety of actions to contain the spread of COVID-19.

Jurisdictions in which we operate imposed various restrictions on our business, including capacity and other operational limitations, social distancing requirements, and in limited instances required us to close certain offices.

Consequently, a portion of revenues and expenses that would have normally been recognized in our fourth quarter of fiscal year 2020 shifted to the first two quarters of fiscal year 2021.

We believe that the ongoing pandemic, coupled with the timing of Economic Impact Payments (EIPs) and the Internal Revenue Service’s (IRS) announcement to not accept and process returns until February 12, has resulted in a delayed start to the current tax season.

Historically, the IRS has begun accepting and processing returns during our third fiscal quarter.

These delays have impacted tax return volumes and the timing of recognizing a portion of revenue for the returns that we prepared during the quarter but were not able to electronically file with the IRS.

These events have impacted the typical seasonality of our business and the comparability of our financial results.

Our revenues for the three months ended January 31, 2021 decreased $211.0 million, or 40.6%, when compared to the prior year period, primarily due to a delayed start to the 2021 tax season, and we recorded a pretax loss of $283.5 million compared to $177.0 million in the prior year.

Our revenues for the nine months ended January 31, 2021, increased $255.4 million , or 30.8%, when compared to the prior year p eriod, primarily due to the extension of the 2020 tax season, partially offset by a delayed start to the 2021 tax season, and we recorded pretax loss of $396.5 million compared to $645.5 million in the prior year.

On March 21, 2020, the federal tax filing deadline in the U.S.

for individual 2019 tax returns was extended from April 15, 2020 to July 15, 2020, shifting a portion of revenues and expenses from that tax season into the three months ended September 30, 2020.

This extension impacted the typical seasonality of our business and the comparability of our financial results.

Our revenues for the three months ended September 30, 2021 decreased $224.7 million, or 53.8%, when compared to the prior year period due to the extension of the 2019 tax season to July 15, 2020 in the prior year period.

We recorded a pretax loss of $197.3 million in the current year compared to a pretax loss of $32.9 million in the prior year.

RESULTS OF OPERATIONS

Our subsidiaries provide assisted and 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 financial partners, to the general public primarily in the U.S., Canada and Australia.

Our subsidiaries provide assisted and 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 partner, to the general public primarily in the U.S., Canada and Australia.

Tax returns are either prepared by H&R Block tax professionals (in company-owned or franchise offices, virtually or via an internet review) or prepared and filed by our clients through our DIY tax solutions.

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We report a single segment that includes all of our continuing operations.

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Operating Statistics Three Months Ended January 31,

Operating Statistics

Three months Ended September 30, 2021 2020 (1)

Change % Change

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DIY $ 43.22 $ 46.21 $ (2.99) (6.5) %

As of January 31, 2021 2020 Change % Change

Company-owned offices 6,512 6,552 (40) (0.6) %

Franchise offices 2,759 2,909 (150) (5.2) %

offices 9,271 9,461 (190) (2.0) %

(1) An assisted tax return is defined as a current or prior year individual or business tax return that has been accepted and paid for by the client.

A DIY online return is defined as a current year individual or business tax return that has been accepted and paid for by the client.

(1) Represents a partial 2019 individual tax filing season, which was extended until July 15, 2020.

(2) An assisted tax return is defined as a current or prior year individual or business tax return that has been accepted by the client.

A DIY online return is defined as a current year individual or business tax return that has been accepted by the client.

A DIY desktop return is defined as a current year individual or business tax return that has been electronically submitted to the IRS.

(2) Net average charge is calculated as total tax preparation fees, including any amounts deferred, divided by tax returns prepared.

A portion of tax preparation fees were deferred as of January 31, 2021 due to the delay in the IRS accepting returns.

(3) Net average charge is calculated as total tax preparation fees divided by tax returns prepared.

(4) Net average charge related to H&R Block Franchise operations represents tax preparation fees collected by H&R Block franchisees divided by returns prepared in franchise offices.

H&R Block will recognize a portion of franchise revenues as franchise royalties based on the terms of franchise agreements.

We provide net average charge as a key operating metric because we consider it an important supplemental measure useful to analysts, investors, and other interested parties as it provides insights into pricing and tax return mix relative to our customer base, which are significant drivers of revenue.

Our definition of net average charge may not be comparable to similarly titled measures of other companies.

We provide Net Average Charge as a key operating metric because we consider it an important supplemental measure useful to analysts, investors, and other interested parties as it provides insights into pricing and tax return

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mix relative to our customer base, which are significant drivers of revenue.

Our definition of Net Average Charge may not be comparable to similarly titled measures of other companies.

RESULTS OF OPERATIONS

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

Three months ended January 31, 2021 2020 $ Change % Change

Three months ended September 30, 2021 2020 $ Change % Change

assisted tax preparation $ 33,607 $ 207,167 $ (173,560) (83.8) %

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Pretax loss (197,318) (32,946) (164,372) (498.9) %

Income tax benefit (51,669) (49,004) (2,665) (5.4) %

Income taxes (benefit) (47,373) 27,964 75,337 **

Net loss from continuing operations (149,945) (60,910) (89,035) (146.2) %

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Consolidated $ (0.85) $ (0.32) $ (0.53) (165.6) %

EBITDA from continuing operations (1)

Adjusted diluted EPS (1)

$ (0.78) $ (0.24) $ (0.54) (225.0) %

(138,773) 39,988 (178,761) **

(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 .

Three months ended January 31, 2021 compared to January 31, 2020

Revenues decreased $211.0 million, or 40.6%, from the prior year period.

We believe that the ongoing pandemic, coupled with the timing of EIPs, has resulted in a delayed start to the tax season.

Additionally, the IRS delayed the date that it will begin accepting and processing tax returns.

This resulted in a decrease in the volume of U.S.

tax returns prepared and a deferral of $18.7 million of revenues related to electronic filing causing declines in U.S.

assisted tax preparation, royalties and U.S.

DIY tax preparation revenues.

Three months ended September 30, 2021 compared to September 30, 2020

Revenues decreased $224.7 million, or 53.8%, from the prior year.

The decrease in revenue is due to lower tax return volumes in the current year as the 2019 tax season was extended to July 15, 2020 in the prior year period,

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Refund Transfer revenues decreased $50.5 million as a result of the IRS not accepting electronically filed returns.

Emerald Card® revenues increased $5.3 million, or 31.8%, due to higher card activity as some EIPs were loaded on to Emerald Cards.

Interest and fees on Emerald Advances decreased $5.2 million, or 15.7%, due to lower Emerald Advance SM volumes.

Wave revenues increased $3.6 million, or 32.0%, due to higher small business payments processing volumes as small business owners shift to online payment options.

whereas the 2020 tax season deadline of May 17, 2021 did not extend into the three month period ended September 30, 2021.

This resulted in a decrease in U.S.

tax preparation, royalty and Refund Transfer revenues.

Emerald Card® revenues increased $15.8 million, or 127.2%, due to higher card activity which is a result of the IRS loading Child Tax Credits monthly to Emerald Cards®.

Wave revenues increased $5.4 million, or 39.3%, due to higher small business payments processing volumes.

Total operating expenses decreased $50.7 million, or 12.1%, from the prior year.

Field wages decreas ed $38.4 million, or 23.2%, due to lower tax preparation volumes resulting from the delayed start to the tax season.

Benefits and other compensation decreased $5.8 million, or 12.7%, due to lower payroll taxes and lower stock-based compensation expense.

Marketing and advertising expense decreased $17.9 million, or 21.2%, due to the timing of television and online advertising.

Depreciation and amortization expense decreased $4.3 million, or 9.7%, due to lower depreciation on leasehold improvements and lower amortization of acquired intangibles.

Bad debt decreased $10.7 million , or 29.4%, due to lower Refund Transfer and Emerald Advance SM volumes.

Other expenses decreased $19.4 million, or 15.0%.

The components of other expenses are as follows:

Three months ended January 31, 2021 2020 $ Change % Change

Consulting and outsourced services $ 30,116 $ 32,124 $ (2,008) (6.3) %

Bank partner fees 11,716 29,448 (17,732) (60.2) %

Client claims and refunds 7,215 6,604 611 9.3 %

Employee travel and related expenses 5,838 10,921 (5,083) (46.5) %

Technology-related expenses 19,725 19,199 526 2.7 %

Credit card/bank charges 13,038 10,627 2,411 22.7 %

Insurance 3,126 3,309 (183) (5.5) %

Legal fees and settlements 2,825 4,838 (2,013) (41.6) %

Supplies 9,266 6,412 2,854 44.5 %

Other 6,709 5,465 1,244 22.8 %

$ 109,574 $ 128,947 $ (19,373) (15.0) %

Bank partner fees decreased $17.7 million, or 60.2%, primarily due to lower Refund Advance and Refund Transfer volumes.

Employee travel and related expenses decreased $5.1 million, or 46.5%, due to travel restrictions as a result of COVID-19.

We recorded an income tax benefit in the current year of $51.7 million compared to $49.0 million in the prior year, primarily due to discrete benefits of $12.6 million in the current quarter versus $2.5 million in the prior year period.

The effective tax rate for the three months ended January 31, 2021, and 2020 was 18.2% and 27.7%, respectively.

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

return volume from January 1, 2021 through February 28, 2021 decreased 15.0% compared to the prior year period due to fewer Assisted and DIY tax returns prepared due to the delayed start to the current tax season.

Our business is highly seasonal and results for the three months ended January 31, as well as results for the period ended February 28, may not be indicative of results for the current tax season.

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Operating Statistics Nine Months Ended January 31,

2021 2020 Change % Change

Tax returns prepared:

(in 000s) (1)

Company-owned operations 2,353 1,476 877 59.4 %

Franchise operations 931 676 255 37.7 %

Total assisted 3,284 2,152 1,132 52.6 %

Desktop 572 142 430 302.8 %

Online 1,977 1,386 591 42.6 %

Total DIY 2,549 1,528 1,021 66.8 %

Returns 5,833 3,680 2,153 58.5 %

Net Average Charge:

Company-owned operations $ 235.30 $ 244.88 $ (9.58) (3.9) %

Franchise operations (3)

$ 226.98 $ 242.76 $ (15.78) (6.5) %

DIY $ 39.41 $ 27.52 $ 11.89 43.2 %

(1) An assisted tax return is defined as a current or prior year individual or business tax return that has been accepted and paid for by the client.

A DIY online return is defined as a current year individual or business tax return that has been accepted and paid for by the client.

A DIY desktop return is defined as a current year individual or business tax return that has been electronically submitted to the IRS.

(2) Net average charge is calculated as total tax preparation fees, including any amounts deferred, divided by tax returns prepared.

A portion of tax preparation fees were deferred as of January 31, 2021 due to the delay in the IRS accepting returns.

(3) Net average charge related to H&R Block Franchise operations represents tax preparation fees collected by H&R Block franchisees divided by returns prepared in franchise offices.

H&R Block will recognize a portion of franchise revenues as franchise royalties based on the terms of franchise agreements.

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

Nine months ended January 31, 2021 2020 $ Change % Change

assisted tax preparation $ 541,139 $ 358,174 $ 182,965 51.1 %

royalties 67,427 59,644 7,783 13.0 %

DIY tax preparation 94,331 42,040 52,291 124.4 %

International 132,347 97,311 35,036 36.0 %

Refund Transfers 11,752 52,794 (41,042) (77.7) %

Emerald Card® 48,801 39,128 9,673 24.7 %

Peace of Mind® Extended Service Plan 72,871 75,451 (2,580) (3.4) %

Tax Identity Shield® 19,129 17,308 1,821 10.5 %

Interest and fee income on Emerald Advance SM

28,754 33,780 (5,026) (14.9) %

Wave 41,197 25,740 15,457 60.1 %

Other 28,059 28,998 (939) (3.2) %

Total revenues 1,085,807 830,368 255,439 30.8 %

Compensation and benefits:

Field wages 306,551 280,231 26,320 9.4 %

Other wages 182,010 178,389 3,621 2.0 %

Benefits and other compensation 105,581 100,579 5,002 5.0 %

594,142 559,199 34,943 6.2 %

Occupancy 297,881 292,470 5,411 1.9 %

Marketing and advertising 94,953 101,190 (6,237) (6.2) %

Depreciation and amortization 117,163 125,409 (8,246) (6.6) %

Bad debt 28,759 37,594 (8,835) (23.5) %

Other 268,834 305,015 (36,181) (11.9) %

Total operating expenses 1,401,732 1,420,877 (19,145) (1.3) %

Other income (expense), net 4,759 13,741 (8,982) (65.4) %

Interest expense on borrowings (85,319) (68,682) (16,637) (24.2) %

Pretax loss (396,485) (645,450) 248,965 38.6 %

Income tax benefit (35,730) (188,146) 152,416 81.0 %

Net loss from continuing operations (360,755) (457,304) 96,549 21.1 %

Net loss from discontinued operations (4,706) (10,625) 5,919 55.7 %

Net loss $ (365,461) $ (467,929) $ 102,468 21.9 %

BASIC AND DILUTED LOSS PER SHARE:

Continuing operations $ (1.92) $ (2.31) $ 0.39 16.9 %

Discontinued operations (0.02) (0.05) 0.03 60.0 %

Consolidated $ (1.94) $ (2.36) $ 0.42 17.8 %

EBITDA from continuing operations (1)

$ (194,003) $ (451,359) $ 257,356 57.0 %

(1) See "Non-GAAP Financial Information" at the end of this item for a reconciliation of non-GAAP measures.

Nine months ended January 31, 2021 compared to January 31, 2020

Due to the extension of the 2020 tax season related to the COVID-19 pandemic, we had significant increases in the number of tax returns and revenues in all categories during the first half of fiscal year 2021.

These increases were partially offset by the delayed start to the 2021 tax season.

As a result, total revenues increased $255.4 million, or 30.8%, compared to the prior year period.

International revenues increased $35.0 million, or 36.0%, primarily due to the 2020 tax season extension in Canada.

Refund Transfer revenues decreased $41.0 million, or 77.7%, as a result of the IRS not accepting electronically filed returns.

Emerald Card® revenues increased $9.7 million, or 24.7%, due to due to higher card activity as some EIPs were loaded on to Emerald Cards.

Wave revenues increased $15.5 million, or 60.1% due to

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higher small business payments processing volumes over the prior year as small business owners shift to online payment options and an additional two months of revenue in the current year, as we acquired Wave on June 28, 2019.

Total operating expenses decreased $19.1 million, or 1.3%, from the prior year period.

Field wages increased $26.3 million, or 9.4%, due to the extended 2020 tax season, partially offset by Canadian wage subsidies and lower 2021 tax season volumes.

Depreciation and amortization expense decreased $8.2 million, or 6.6%, due to lower depreciation on leasehold improvements and lower amortization of acquired intangibles.

Bad debt expense decreased $8.8 million, or 23.5%, due to lower Refund Transfer and Emerald Advance SM volumes.

Other expenses decreased $36.2 million, or 11.9%.

Field wages decreased $36.5 million, or 39.4%, due to lower tax preparation volumes in the current year as a result of the tax season extension in the prior year.

Other wages decreased $5.0 million, or 7.9%, due to an adjustment to prior year bonus accruals in the current year.

Benefits and other compensation decreased $8.4 million, or 24.7%, primarily due to lower payroll taxes as a result of lower wages.

Marketing and advertising decreased $5.4 million, or 35.0%, due to advertising in the prior year related to the extension of the tax season.

Other expenses increased $7.6 million, or 9.8%.

The components of other expenses are as follows:

Nine months ended January 31, 2021 2020 $ Change % Change

Three months ended September 30, 2021 2020 $ Change % Change

Consulting and outsourced services $ 25,857 $ 18,764 $ (7,093) (37.8) %

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Client claims and refunds 6,015 4,526 (1,489) (32.9) %

Employee travel and related expenses 15,298 33,159 (17,861) (53.9) %

Employee and travel expenses 4,290 3,471 (819) (23.6) %

Technology-related expenses 20,325 18,725 (1,600) (8.5) %

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$ 85,150 $ 77,582 $ (7,568) (9.8) %

Bank partner fees decreased $21.2 million, or 65.7%, primarily due to lower Refund Advance and Refund Transfer volumes.

Employee travel and related expenses decreased $17.9 million, or 53.9%, due to travel restrictions as a result of COVID-19.

Credit card and bank charges increased $15.3 million, or 62.4%, as a result of higher transaction volumes for assisted and DIY tax preparation and higher Wave payments processing fees.

Other income (expense), net decreased $9.0 million primarily due to lower interest income as a result of lower interest rates.

Interest expense on borrowings increased $16.6 million primarily due to higher CLOC borrowings and our 2030 Senior Notes.

Income tax benefits decreased $152.4 million, 81.0% due to lower losses in the current year and a lower effective tax rate of 9.0% compared to 29.2% in the prior year.

Consulting and outsourced services expense increased $7.1 million, or 37.8%, due to our strategic imperatives and data processing fees related to higher activity on Emerald Cards.

We recorded an income tax benefit of $47.4 million in the current year compared to an expense of $28.0 million in the prior year, due to discrete tax items in the prior year.

The effective tax rate for the three months ended September 30, 2021, and 2020 was 24.0% and (84.9)%, respectively.

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

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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, from May through January.

We typically have relied on available cash balances from the prior tax season and borrowings to meet liquidity needs in our first three quarters.

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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 January 31, 2021 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 January 31, 2021 and 2020.

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 January.

We typically have relied on available cash balances from the prior tax season and borrowings to meet liquidity needs.

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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, 2021 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, 2021 and 2020.

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

Nine months ended January 31, 2021 2020

Three months ended September 30, 2021 2020

Net cash provided by (used in):

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Effects of exchange rates on cash (3,959) 2,975

Net change in cash, cash equivalents and restricted cash $ (2,411,612) $ (1,345,940)

Net decrease in cash, cash equivalents and restricted cash $ (553,358) $ (2,254,422)

Operating Activities.

Cash used in operations decreased, primarily due to the extension of the 2020 tax season into this fiscal year due to COVID-19 and the delayed start to the 2021 tax season.

Cash used in operations totaled $312.6 million for the three months ended September 30, 2021 compared to $98.6 million in the prior year period.

The change is primarily due to higher payments on accrued liabilities and an increase in our net loss in the current year as a result of the timing of the extended tax season in the prior year.

Investing Activities.

Cash used in investing activities totaled $74.1 million for the nine months ended January 31, 2021 compared to $489.7 million in the prior year period.

This change is due to the prior year acquisition of Wave.

Cash used in investing activities totaled $19.5 million for the three months ended September 30, 2021 compared to $12.0 million in the prior year period.

The change is primarily due to a decrease in payments from franchisees as a result of the timing of the extended tax season in the prior year.

Financing Activities.

Cash used in financing activities totaled $1.4 billion for the nine months ended January 31, 2021 compared to cash provided by financing activities of $611.9 million in the prior year period.

This change resulted primarily from the repayment of the $2.0 billion draw outstanding on our CLOC during the current year.

Cash used in financing activities totaled $217.3 million for the three months ended September 30, 2021 compared to $2.1 billion in the prior year period.

The change is primarily due to the repayment of the $2.0 billion draw on our CLOC in the prior year.

CASH REQUIREMENTS –

Dividends and Share Repurchases.

Returning capital to shareholders in the form of dividends and the repurchase of outstanding shares has historically been a significant component of our capital allocation plan.

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 $147.9 million and $154.8 million for the nine months ended January 31, 2021 and 2020, respectively.

Dividends paid totaled $49.0 million and $50.0 million for the three months ended September 30, 2021 and 2020, 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.

Our current share repurchase program has remaining authorization of $398.1 million which is effective through June 2022.

During the nine months ended January 31, 2021, we repurchased $150.1 million of our common stock at an average price of $15.83 per share.

During the three months ended September 30, 2021, we repurchased $165.8 million of our common stock at an average price of $24.37 per share.

In the prior year period, we repurchased $88.5 million of our common stock at an average price of $14.85 per share.

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Capital Investment.

Capital expenditures totaled $48.0 million and $66.5 million for the nine months ended January 31, 2021 and 2020, respectively.

Capital expenditures totaled $15.6 million and $13.4 million for the three months ended September 30, 2021 and 2020, 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 $15.0 million in the current year compared to Wave and franchisee and competitor businesses totaling $450.3 million in the prior year.

We acquired franchisee and competitor businesses totaling $4.3 million and $2.5 million during the three months ended September 30, 2021 and 2020, respectively.

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

FINANCING RESOURCES – In the fourth quarter of fiscal year 2020, we drew down the full $2.0 billion available under our CLOC to increase our cash position and maximize flexibility in light of the uncertainty surrounding the impact of the COVID-19 pandemic, which we repaid in full in September 2020.

We had an outstanding balance of $880.0 million under the CLOC as of January 31, 2021.

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On August 7, 2020, we issued the 2030 Senior Notes.

We used the net proceeds from the 2030 Senior Notes to repay our $650 million Senior Notes that matured on October 1, 2020.

The following table provides ratings for debt issued by Block Financial as of January 31, 2021 and April 30, 2020:

As of January 31, 2021 April 30, 2020

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FINANCING RESOURCES – The CLOC has cap acity up to $1.5 billion and is scheduled to expire in June 2026.

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

We ha d no outstanding balance under the CLOC as of September 30, 2021 and amounts available to borrow were limited by the debt-to-EBITDA covenant to approximately $1.2 billion as of September 30, 2021.

The following table provides ratings for debt issued by Block Financial LLC (Block Financial) as of September 30, 2021 and June 30, 2021:

As of September 30, 2021 June 30, 2021

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

Moody's P-3 Baa3 Stable P-3 Baa3 Negative

S&P A-2 BBB Negative A-2 BBB Negative

Other than described above, there have been no material changes in our borrowings from those reported as of April 30, 2020 in our Annual Report on Form 10-K.

CASH AND OTHER ASSETS – As of January 31, 2021, we held cash and cash equivalents, excluding restricted amounts, of $280.2 million, including $71.1 million held by our foreign subsidiaries.

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 in our April 30, 2021 Annual Report to Shareholders on Form 10-K or our June 30, 2021 Transition Report filed on Form 10-Q.

CASH AND OTHER ASSETS – As of September 30, 2021, we held cash and cash equivalents, excluding restricted amounts, of $891.7 million, including $178.5 million held by our foreign subsidiaries.

Foreign Operations.

When necessary, our international businesses are funded by our U.S.

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

There was one forward contract outstanding as of January 31, 2021, which had a recorded amount of $2.0 million.

We do not currently intend to repatriate any non-borrowed funds held by our foreign subsidiaries.

The impact of changes in foreign exchange rates during the period on our international cash balances resulted in an increase of $14.0 million during the nine months ended January 31, 2021 compared to an decrease of $0.4 million in the prior year.

CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS – Except as described in Item 1, note 9 related to the Emerald Advance SM purchased participation interests and Refund Advance guarantees under the Program Management Agreement with Meta, and in I tem 1, note 6 related to the 2030 Senior Notes issuance, there have been no material changes in our contractual obligations and commercial commitments from those reported as of April 30, 2020 in our Annual Report on Form 10-K.

Seasonal borrowing needs of our Canadian operations are typically funded by our U.S.

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

There were no forward contracts outstanding as of September 30, 2021.

We do not currently intend to repatriate non-borrowed funds held by our foreign subsidiaries in a manner that would trigger a material tax liability.

The impact of changes in foreign exchange rates during the period on our international cash balances resulted in an decrease of $4.0 million during the three months ended September 30, 2021 and in an increase of $3.0 million during the three months ended September 30, 2020.

CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS – There have been no material changes in our contractual obligations and commercial commitments from those reported in our April 30, 2021 Annual Report to Shareholders on Form 10-K or our June 30, 2021 Transition Report filed on 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 January 31, 2021 April 30, 2020

As of September 30, 2021 June 30, 2021

Current assets $ 44,137 $ 50,737

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Noncurrent liabilities 1,995,389 1,994,582

H&R Block, Inc.

|Q1 FY2022 Form 10-Q

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

Nine months ended January 31, 2021 Twelve months ended April 30, 2020

Three months ended September 30, 2021 Two months ended June 30, 2021

Total revenues $ 29,841 $ 22,978

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Net income (loss) (2,976) 1,444

The table above reflects $2.1 billion and $3.6 billion of non-current intercompany receivables due to the Issuer from non-guarantor subsidiaries as of January 31, 2021 and April 30, 2020, respectively.

Q3 FY2021 Form 10-Q | H&R Block, Inc.

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The table above reflects $2.1 billion of non-current intercompany receivables due to the Issuer from non-guarantor subsidiaries as of September 30, 2021 and June 30, 2021.

REGULATORY ENVIRONMENT

On November 17, 2017, the Consumer Financial Protection Bureau (CFPB) published its final rule changing the regulation of certain consumer credit products, including payday loans, vehicle title loans, and high-cost installment loans (Payday Rule).

Certain limited provisions of the Payday Rule became effective on January 16, 2018, but most provisions were scheduled to go into effect on August 19, 2019.

On November 6, 2018, a judge from the U.S.

District Court for the Western District of Texas issued a stay of the Payday Rule's August 19, 2019 compliance date, which stay remains in effect until further notice from the Court.

On July 7, 2020, the CFPB issued a final rule revoking the mandatory underwriting provisions of the Payday Rule.

Given these developments and the recent change in administration, we are unsure whether, when, or in what form the Payday Rule will go into effect.

The timing to resolve the litigation is unclear.

We do not currently expect the Payday Rule to have a material adverse impact on the Emerald Advance SM product, our business, or our consolidated financial position, results of operations, and cash flows.

We will continue to monitor and analyze the potential impact of any further Payday Rule developments on the Company.

There have been no other material changes in our regulatory environment from what was reported as of April 30, 2020 in our Annual Report on Form 10-K.

As previously disclosed, in 2017 the Consumer Financial Protection Bureau (CFPB) published its final rule regulating certain consumer credit products (Payday Rule), which the CFPB later limited by removing the mandatory underwriting provisions.

Certain limited provisions of the Payday Rule became effective in 2018, but most provisions were scheduled to go into effect in 2019.

Litigation in a federal district court in Texas had stayed that effective date, but on August 31, 2021 the judge in that litigation ruled in favor of the CFPB.

The plaintiffs appealed, and, on October 14, 2021, the United States Court of Appeals for the Fifth Circuit extended the compliance deadline until after the appeal is resolved.

We are unsure whether, when, or in what form the Payday Rule will go into effect.

Though we do not currently expect the Payday Rule to have a material adverse impact on Emerald Advance SM , our business, or our consolidated financial position, results of operations, and cash flows, we will continue to monitor and analyze the potential impact of any further developments on the Company.

There have been no other material changes in our regulatory environment from what was reported in our April 30, 2021 Annual Report to Shareholders on Form 10-K or our June 30, 2021 Transition Report filed on Form 10-Q.

NON-GAAP FINANCIAL INFORMATION

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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:

Three months ended January 31, Nine months ended January 31,

2021 2020 2021 2020

Q1 FY2022 Form 10-Q| H&R Block, Inc.

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

Three months ended September 30,

Net loss - as reported $ (151,601) $ (62,256)

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Net loss from continuing operations - as reported (149,945) (60,910)

Income tax benefit of continuing operations (51,669) (49,004) (35,730) (188,146)

Interest expense of continuing operations 22,333 26,305 85,319 68,682

Depreciation and amortization of continuing operations

39,856 44,147 117,163 125,409

Income taxes (benefit) (47,373) 27,964

Interest expense 22,830 34,697

Depreciation and amortization 35,715 38,237

11,172 100,898

EBITDA from continuing operations $ (138,773) $ 39,988

H&R Block, Inc.

| Q2 FY2021 Form 10-Q

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The following is a reconciliation of our results from continuing operations to our adjusted results from continuing operations, which are non-GAAP financial measures:

(in 000s, except per share amounts)

Three months ended January 31, Nine months ended January 31,

2021 2020 2021 2020

Three months ended September 30,

Net loss from continuing operations - as reported $ (149,945) $ (60,910)

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Adjusted net loss from continuing operations $ (138,710) $ (45,126)

Diluted loss per share - as reported $ (1.27) $ (0.66) $ (1.92) $ (2.31)

Diluted loss per share from continuing operations - as reported $ (0.84) $ (0.32)

Adjustments, net of tax 0.06 0.08

Adjusted loss per share $ (1.17) $ (0.59) $ (1.66) $ (2.10)

Adjusted diluted loss per share from continuing operations $ (0.78) $ (0.24)

(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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They may also include the expected impact of the coronavirus (COVID–19) pandemic, including, without limitation, the impact on economic and financial markets, the Company's capital resources and financial condition, future expenditures, potential regulatory actions, such as extensions of tax filing deadlines or other related relief, changes in consumer behaviors and modifications to the Company's operations relating thereto.

H&R Block, Inc.

|Q1 FY2022 Form 10-Q

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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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, and future actions of the Company.

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.

Q3 FY2021 Form 10-Q | H&R Block, Inc.

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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 April 30, 2021 and are also described from time to time in other filings with the SEC.

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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes in our market risks from those reported at April 30, 2020 in our Annual Report on Form 10-K.

There have been no material changes in our market risks from those reported in our April 30, 2021 Annual Report to Shareholders on Form 10-K or our June 30, 2021 Transition Report filed on Form 10-Q.

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