H&R BLOCK INC 10-Q

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RECENT DEVELOPMENTS On December 20, 2021, we entered into a First Amendment to our August 2020 Program Management Agreement (PMA) with MetaBank®, N.A. (Meta), which among other things, extends the PMA through June 30, 2025, and adds Spruce℠ accounts to the program. In January 2022, we launched the Spruce℠ mobile banking platform as a part of the Financial Products imperative of our previously-announced Block Horizons 2025 strategic plan. The Spruce℠ solution, built by H&R Block with banking products powered by Meta, includes a spending account with a debit card, along with a connected savings account that allows for budgeting for specific goals. On April 1, 2022, we sent a notice of redemption to the trustee to fully redeem our outstanding $500 million 5.500% Senior Notes originally due in November 2022 (2022 Senior Notes). The redemption price is equal to 100% of the outstanding principal amount of the 2022 Senior Notes, plus accrued and unpaid interest up to, but not including, the redemption date. The 2022 Senior Notes were redeemed on May 2, 2022. FINANCIAL OVERVIEW 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 nine months ended March 31, 2021. This extension impacted the typical seasonality of our business and the comparability of our financial results. 18 Q3 FY2022 Form 10-Q| H&R Block, Inc. Table of Contents 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 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. We also offer small business financial solutions through our company-owned and franchise offices and online through Wave. We report a single segment that includes all of our continuing operations. U.S. Operating Statistics Nine months ended March 31, 2022 2021 (1) Change % Change Tax returns prepared: (in 000s) (2) Company-owned operations 6,209 6,925 (716) (10.3) % Franchise operations 2,300 2,674 (374) (14.0) % Total assisted 8,509 9,599 (1,090) (11.4) % Desktop 1,043 1,405 (362) (25.8) % Online 4,457 5,459 (1,002) (18.4) % Total DIY 5,500 6,864 (1,364) (19.9) % Total U.S. Returns 14,009 16,463 (2,454) (14.9) % Net Average Charge: (3) Company-owned operations $ 234.59 $ 221.25 $ 13.34 6.0 % Franchise operations (4) $ 229.64 $ 210.56 $ 19.08 9.1 % Online $ 32.53 $ 34.36 $ (1.83) (5.3) % (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. (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. H&R Block, Inc. |Q3 FY2022 Form 10-Q 19 Table of Contents RESULTS OF OPERATIONS Consolidated – Financial Results (in 000s, except per share amounts) Three months ended March 31, 2022 2021 $ Change % Change Revenues: U.S. assisted tax preparation $ 1,392,142 $ 1,290,892 $ 101,250 7.8 % U.S. royalties 158,786 150,117 8,669 5.8 % U.S. DIY tax preparation 175,184 181,294 (6,110) (3.4) % International 65,232 62,869 2,363 3.8 % Refund Transfers 132,223 134,799 (2,576) (1.9) % Emerald Card® 50,660 73,647 (22,987) (31.2) % Peace of Mind® Extended Service Plan 17,222 17,668 (446) (2.5) % Tax Identity Shield® 9,078 8,643 435 5.0 % Interest and fee income on Emerald Advance SM 30,535 38,247 (7,712) (20.2) % Wave 20,111 16,082 4,029 25.1 % Other 10,584 9,306 1,278 13.7 % Total revenues 2,061,757 1,983,564 78,193 3.9 % Compensation and benefits: Field wages 435,345 409,741 (25,604) (6.2) % Other wages 78,584 78,181 (403) (0.5) % Benefits and other compensation 91,051 92,825 1,774 1.9 % 604,980 580,747 (24,233) (4.2) % Occupancy 111,405 113,759 2,354 2.1 % Marketing and advertising 196,582 183,109 (13,473) (7.4) % Depreciation and amortization 36,116 39,100 2,984 7.6 % Bad debt 45,051 46,066 1,015 2.2 % Other 182,258 169,546 (12,712) (7.5) % Total operating expenses 1,176,392 1,132,327 (44,065) (3.9) % Other income (expense), net 238 449 (211) (47.0) % Interest expense on borrowings (23,746) (22,471) (1,275) (5.7) % Pretax income 861,857 829,215 32,642 3.9 % Income taxes 186,884 69,543 (117,341) (168.7) % Net income from continuing operations 674,973 759,672 (84,699) (11.1) % Net loss from discontinued operations (1,796) (1,425) (371) (26.0) % Net income $ 673,177 $ 758,247 $ (85,070) (11.2) % DILUTED EARNINGS PER SHARE: Continuing operations $ 4.06 $ 4.09 $ (0.03) (0.7) % Discontinued operations (0.01) (0.01) — — % Consolidated $ 4.05 $ 4.08 $ (0.03) (0.7) % Adjusted diluted EPS (1) $ 4.11 $ 4.11 $ — — % EBITDA (1) $ 921,719 $ 890,786 $ 30,933 3.5 % (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 March 31, 2022 compared to March 31, 2021 Revenues increased $78.2 million, or 3.9%, from the prior year. Revenues for U.S. assisted tax preparation increased $101.3 million, or 7.8%, largely due to a higher net average charge in the current year combined with higher tax return volumes. U.S. royalties revenues increased $8.7 million, or 5.8%, due to an increase in tax preparation fees. U.S. DIY tax preparation revenues decreased $6.1 million, or 3.4%, due to lower tax return volumes. Emerald Card® revenues decreased $23.0 million, or 31.2%, due to lower card activity in the current 20 Q3 FY2022 Form 10-Q| H&R Block, Inc. Table of Contents quarter as some stimulus payments were loaded on to Emerald Cards in the prior year. Interest and fees on Emerald Advances decreased $7.7 million, or 20.2%, due to a decline in Emerald Advances SM in the current year. Wave revenues increased $4.0 million, or 25.1%, due to higher small business payments processing volumes. Total operating expenses increased $44.1 million, or 3.9%, from the prior year. Field wages increased $25.6 million, or 6.2%, due to higher hourly wage rates. Marketing expense increased $13.5 million, or 7.4%, due to higher online advertising and agency fees . Depreciation and amortization expense decreased $3.0 million, or 7.6%, due to lower amortization on acquired intangibles and depreciation on equipment. Other expenses increased $12.7 million, or 7.5%. The components of other expenses are as follows: (in 000s) Three months ended March 31, 2022 2021 $ Change % Change Consulting and outsourced services $ 46,402 $ 48,845 $ 2,443 5.0 % Bank partner fees 23,686 22,981 (705) (3.1) % Client claims and refunds 10,730 10,057 (673) (6.7) % Employee and travel expenses 9,515 5,523 (3,992) (72.3) % Technology-related expenses 26,373 23,425 (2,948) (12.6) % Credit card/bank charges 30,770 27,906 (2,864) (10.3) % Insurance 4,099 3,135 (964) (30.7) % Legal fees and settlements 7,125 3,311 (3,814) (115.2) % Supplies 14,243 14,551 308 2.1 % Other 9,315 9,812 497 5.1 % $ 182,258 $ 169,546 $ (12,712) (7.5) % Employee and travel expenses increased $4.0 million, or 72.3%, due to less travel in the prior year as a result of COVID-19 restrictions. Technology-related expenses increased $2.9 million, or 12.6%, due to increased investments in information technology. Credit card and bank charges increased $2.9 million, or 10.3%, due to higher Wave small business payment processing fees. Legal fees and settlements increased $3.8 million, or 115.2%, due to higher fees attributable to certain pending litigation matters. We recorded an income tax expense of $186.9 million in the current year compared to $69.5 million in the prior year. The effective tax rate for the three months ended March 31, 2022, and 2021 was 21.7% and 8.4%, respectively. The lower rate in prior year is a result of tax benefits recorded related to our net operating loss carrybacks to 35% tax years. The U.S. federal tax filing deadline for 2021 individual income tax returns was April 18, 2022, the deadline for 2020 tax returns was May 17, 2021 and the deadline for 2019 tax returns was July 15, 2020. Therefore, the year-over-year periods are not directly comparable. Our business is highly seasonal and results for the three months ended March 31 may not be indicative of results for the entire tax season. H&R Block, Inc. |Q3 FY2022 Form 10-Q 21 Table of Contents Consolidated - Financial Results (in 000s, except per share amounts) Nine months ended March 31, 2022 2021 $ Change % Change Revenues: U.S. assisted tax preparation $ 1,456,594 $ 1,532,079 $ (75,485) (4.9) % U.S. royalties 169,548 178,126 (8,578) (4.8) % U.S. DIY tax preparation 188,455 234,871 (46,416) (19.8) % International 151,464 148,282 3,182 2.1 % Refund Transfers 134,665 141,309 (6,644) (4.7) % Emerald Card® 103,748 96,045 7,703 8.0 % Peace of Mind® Extended Service Plan 59,373 63,430 (4,057) (6.4) % Tax Identity Shield® 19,431 22,446 (3,015) (13.4) % Interest and fee income on Emerald Advance SM 43,438 52,812 (9,374) (17.7) % Wave 58,745 44,656 14,089 31.6 % Other 27,736 28,819 (1,083) (3.8) % Total revenues 2,413,197 2,542,875 (129,678) (5.1) % Compensation and benefits: Field wages 561,482 568,593 7,111 1.3 % Other wages 200,715 204,817 4,102 2.0 % Benefits and other compensation 146,708 154,280 7,572 4.9 % 908,905 927,690 18,785 2.0 % Occupancy 306,523 309,638 3,115 1.0 % Marketing and advertising 223,796 214,091 (9,705) (4.5) % Depreciation and amortization 107,462 117,036 9,574 8.2 % Bad debt 59,760 63,156 3,396 5.4 % Other 373,458 340,328 (33,130) (9.7) % Total operating expenses 1,979,904 1,971,939 (7,965) (0.4) % Other income (expense), net 1,989 3,491 (1,502) (43.0) % Interest expense on borrowings (69,661) (78,657) 8,996 11.4 % Pretax income 365,621 495,770 (130,149) (26.3) % Income taxes 29,666 50,997 21,331 41.8 % Net income from continuing operations 335,955 444,773 (108,818) (24.5) % Net loss from discontinued operations (4,984) (4,533) (451) (9.9) % Net income $ 330,971 $ 440,240 $ (109,269) (24.8) % DILUTED EARNINGS PER SHARE: Continuing operations $ 1.92 $ 2.35 $ (0.43) (18.3) % Discontinued operations (0.03) (0.02) (0.01) (50.0) % Consolidated $ 1.89 $ 2.33 $ (0.44) (18.9) % Adjusted diluted EPS (1) $ 2.11 $ 2.56 $ (0.45) (17.6) % EBITDA (1) $ 542,744 $ 691,463 $ (148,719) (21.5) % (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. Nine months ended March 31, 2022 compared to March 31, 2021 Revenues decreased $129.7 million, or 5.1%, 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, whereas the 2020 tax season deadline of May 17, 2021 did not extend into the nine month period ended March 31, 2022. This resulted in a decrease in U.S. tax preparation, royalty and Refund Transfer revenues. 22 Q3 FY2022 Form 10-Q| H&R Block, Inc. Table of Contents Emerald Card® revenues increased $7.7 million, or 8.0%, due to higher card activity which is a result of the IRS loading Child Tax Credits monthly to Emerald Cards® in July through December 2021. Interest and fees on Emerald Advances decreased $9.4 million, or 17.7%, due to a decline in Emerald Advances. Wave revenues increased $14.1 million, or 31.6%, due to higher small business payments processing volumes. Total operating expenses increased $8.0 million, or 0.4%, from the prior year period. Field wages decreased $7.1 million, or 1.3%, due to lower tax preparation volumes in the current year as a result of the tax season extension in the prior year. Benefits and other compensation decreased $7.6 million, or 4.9%, due to lower payroll taxes as a result of lower wages. Marketing and advertising expense increased $9.7 million, or 4.5%, due to higher online advertising and agency fees in the current year. Depreciation and amortization expense decreased $9.6 million, or 8.2%, due primarily to lower amortization of acquired intangibles. Other expenses increased $33.1 million, or 9.7%. The components of other expenses are as follows: (in 000s) Nine months ended March 31, 2022 2021 $ Change % Change Consulting and outsourced services $ 99,870 $ 91,888 $ (7,982) (8.7) % Bank partner fees 26,344 21,916 (4,428) (20.2) % Client claims and refunds 22,945 20,930 (2,015) (9.6) % Employee and travel expenses 23,222 17,504 (5,718) (32.7) % Technology-related expenses 69,998 61,596 (8,402) (13.6) % Credit card/bank charges 63,441 53,788 (9,653) (17.9) % Insurance 11,780 9,359 (2,421) (25.9) % Legal fees and settlements 14,227 15,653 1,426 9.1 % Supplies 22,161 26,463 4,302 16.3 % Other 19,470 21,231 1,761 8.3 % $ 373,458 $ 340,328 $ (33,130) (9.7) % Consulting and outsourced services expense increased $8.0 million, or 8.7%, due to higher call center expenses and data processing fees related to higher activity on Emerald Cards®. Technology-related expenses increased $8.4 million, or 13.6%, due to increased investments in information technology. Credit card and bank charges increased $9.7 million, or 17.9%, due to higher Wave small business payment processing fees and fees related to Emerald Cards ® . Interest expense on borrowings decreased $9.0 million, or 11.4%, primarily due to higher CLOC borrowings in the prior year. We recorded an income tax expense of $29.7 million in the current year compared to $51.0 million in the prior year, the decrease is primarily related to lower pretax income in the current year. The effective tax rate for the nine months ended March 31, 2022, and 2021 was 8.1% and 10.3% , respectively. See Item 1, note 7 to the consolidated financial statements for additional discussion. 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 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 H&R Block, Inc. |Q3 FY2022 Form 10-Q 23 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 March 31, 2022 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, 2022 and 2021. See Item 1 for the complete consolidated statements of cash flows for these periods. (in 000s) Nine months ended March 31, 2022 2021 Net cash provided by (used in): Operating activities $ 373,128 $ 501,356 Investing activities (71,106) (50,014) Financing activities (707,466) (2,356,266) Effects of exchange rates on cash (1,666) 10,370 Net decrease in cash, cash equivalents and restricted cash $ (407,110) $ (1,894,554) Operating Activities. Cash provided by operations totaled $373.1 million for the nine months ended March 31, 2022 compared to $501.4 million in the prior year period. The change is primarily due to higher bonus and payroll tax payments and a decrease in net income in the current year, partially offset by the timing of receivables collections in the current year. Investing Activities. Cash used in investing activities totaled $71.1 million for the nine months ended March 31, 2022 compared to $50.0 million in the prior year period. The change is primarily due to an increase in capital expenditures and payments to acquire businesses in the current year. Financing Activities. Cash used in financing activities totaled $707.5 million for the nine months ended March 31, 2022 compared to $2.4 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, partially offset by higher share repurchases in the current year. 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 $143.4 million and $147.9 million for the nine months ended March 31, 2022 and 2021, 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 nine months ended March 31, 2022, we repurchased $550.3 million of our common stock at an average price of $23.84 per share. In the prior year period, we repurchased $188.2 million of our common stock at an average price of $16.29 per share. Our current share repurchase program has remaining authorization of $13.8 million which is effective through June 2022. 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 $52.7 million and $44.2 million for the nine months ended March 31, 2022 and 2021, 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 24 Q3 FY2022 Form 10-Q| H&R Block, Inc. Table of Contents totaling $25.5 million and $15.5 million during the nine months ended March 31, 2022 and 2021, respectively. See Item 1, note 5 for additional information on our acquisitions. 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 our CLOC and amounts available to borrow were limited by the debt-to-EBITDA covenant to approximately $427.5 million as of March 31, 2022. On April 1, 2022, we sent a notice of redemption to the trustee to fully redeem our outstanding 2022 Senior Notes originally due in November 2022. The redemption price is equal to 100% of the outstanding principal amount of the 2022 Senior Notes, plus accrued and unpaid interest up to, but not including, the redemption date. The 2022 Senior Notes were redeemed on May 2, 2022. The following table provides ratings for debt issued by Block Financial LLC (Block Financial) as of March 31, 2022 and June 30, 2021: As of March 31, 2022 June 30, 2021 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 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 March 31, 2022, we held cash and cash equivalents, excluding restricted amounts, of $1.0 billion, including $131.8 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 March 31, 2022. 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 $1.7 million during the nine months ended March 31, 2022 and in an increase of $10.4 million during the nine months ended March 31, 2021. CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS – Except as described in Recent Developments related to our amended PMA agreement with Meta, 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. 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 March 31, 2022 June 30, 2021 Current assets $ 60,543 $ 50,737 Noncurrent assets 2,182,280 2,155,650 Current liabilities 583,051 81,388 Noncurrent liabilities 1,496,156 1,994,582 H&R Block, Inc. |Q3 FY2022 Form 10-Q 25 Table of Contents SUMMARIZED STATEMENTS OF OPERATIONS - GUARANTOR AND ISSUER (in 000s) Nine months ended March 31, 2022 Two months ended June 30, 2021 Total revenues $ 169,944 $ 22,978 Income from continuing operations before income taxes 39,127 2,504 Net income from continuing operations 34,745 2,953 Net income 29,760 1,444 The table above reflects $2.1 billion of non-current intercompany receivables due to the Issuer from non-guarantor subsidiaries as of March 31, 2022 and June 30, 2021. REGULATORY ENVIRONMENT 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 Non-GAAP financial measures should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with 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, EBITDA margin from continuing operations, adjusted EBITDA margin from continuing operations, adjusted diluted earnings per share from continuing operations and free cash flow. 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. 26 Q3 FY2022 Form 10-Q| H&R Block, Inc. Table of Contents The following is a reconciliation of net income to EBITDA from continuing operations, which is a non-GAAP financial measure: (in 000s) Three months ended March 31, Nine months ended March 31, 2022 2021 2022 2021 Net income - as reported $ 673,177 $ 758,247 $ 330,971 $ 440,240 Discontinued operations, net 1,796 1,425 4,984 4,533 Net income from continuing operations - as reported 674,973 759,672 335,955 444,773 Add back: Income taxes 186,884 69,543 29,666 50,997 Interest expense 23,746 22,471 69,661 78,657 Depreciation and amortization 36,116 39,100 107,462 117,036 246,746 131,114 206,789 246,690 EBITDA from continuing operations $ 921,719 $ 890,786 $ 542,744 $ 691,463 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 March 31, Nine months ended March 31, 2022 2021 2022 2021 Net income from continuing operations - as reported $ 674,973 $ 759,672 $ 335,955 $ 444,773 Adjustments: Amortization of intangibles related to acquisitions (pretax) 13,979 16,229 43,141 50,398 Tax effect of adjustments (1) (4,545) (11,699) (10,102) (11,467) Adjusted net income from continuing operations $ 684,407 $ 764,202 $ 368,994 $ 483,704 Diluted earnings per share from continuing operations - as reported $ 4.06 $ 4.09 $ 1.92 $ 2.35 Adjustments, net of tax 0.05 0.02 0.19 0.21 Adjusted diluted earnings per share from continuing operations $ 4.11 $ 4.11 $ 2.11 $ 2.56 (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 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," "goal," "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 the coronavirus (COVID–19) pandemic, including, without limitation, the impact on economic H&R Block, Inc. |Q3 FY2022 Form 10-Q 27 Table of Contents 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. 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 April 30, 2021 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 particular attention to Item 1A, "Risk Factors," and Item 7 under "Critical Accounting Policies" of our Annual Report on Form 10-K for the fiscal year ended April 30, 2021. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 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.