What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-08-16 compared with 2021-06-15 · 253 added, 144 removed, 252 unchanged (61% of the section changed)

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

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 and have implemented safety protocols in our tax offices pursuant to applicable state and local orders and consistent with Centers for Disease Control and Prevention recommendations.

Clients may also choose to drop-off at one of our locations nationwide, to file with a tax professional virtually, or to utilize one of our DIY or software tax return preparation solutions.

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.

On March 17, 2021, the IRS extended the federal tax filing deadline in the U.S.

for individual 2020 tax returns from April 15, 2021 to May 17, 2021.

Consequently, a portion of revenues and expenses that would have normally been recognized in our fourth quarter of fiscal year 2021 shifted to our next fiscal period.

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

Fiscal Year 2021 Compared to 2020

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 partners, 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 solutions through our company-owned and franchise offices and online through Wave.

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

CHANGE IN FISCAL YEAR END

On June 9, 2021, the Board of Directors approved a change of the Company's fiscal year end from April 30 to June 30.

The Company's 2022 fiscal year began on July 1, 2021 and ended on June 30, 2022.

We have recast the income statement and statement of cash flows for the year ended June 30, 2021 and have provided a comparison to the year ended June 30, 2022.

We have also provided a comparison of the two months ended June 30, 2021 (Transition Period) to the two months ended June 30, 2020.

The recast income statement was derived as follows:

April 30, 2021 Plus:

Two months ended

June 30, 2021

(Transition Period) Less:

Two months ended

June 30, 2020 Year ended

June 30, 2021

Revenues $ 3,413,987 $ 466,106 $ 291,448 $ 3,588,645

Operating expenses 2,644,360 331,751 279,101 2,697,010

Pretax income (loss) 668,736 120,995 (7,402) 797,133

Net income (loss) from continuing operations 590,212 91,119 (9,127) 690,458

FINANCIAL OVERVIEW - YEAR ENDED JUNE 30, 2022 COMPARED TO YEAR ENDED JUNE 30,

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 due to the pandemic.

Therefore, fiscal year 2022 results are not comparable to the prior year period, as 15 days of tax season 2020 were included in the results for the year ended June 30, 2021, resulting in a year-over-year decrease in revenues, net income from continuing operations and EPS as shown in the table below.

Year Ended June 30, 2022 Compared to Year Ended June 30, 2021

Revenues Operating Expenses Net Income from Continuing Operations

Increase is due to the extension of tax season 2020 and higher tax preparation volume in tax season 2021.

Increase is due to compensation expense related to higher tax return volume, partially offset by prior year goodwill impairment.

Increase is due to higher revenues, partially offset by operating expenses and tax expense.

Diluted EPS From Continuing Operations EBITDA (1)

Diluted EPS from Continuing Operations EBITDA (1) from Continuing Operations

Adjusted (1) :

Increase is due to higher net income combined with lower outstanding shares in the current year.

Increase is due to the higher revenues.

Increase in Adjusted EBITDA is partially offset by prior year goodwill impairment.

(1) See " Non-GAAP Financial Information " section within this filing for a reconciliation of non-GAAP measures.

RESULTS OF OPERATIONS

2022 Form 10-K | H&R Block, Inc.

services, including those of our bank partner, to the general public primarily in the U.S., Canada and Australia.

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.

RESULTS OF OPERATIONS - YEAR ENDED JUNE 30, 2022 COMPARED TO YEAR ENDED JUNE 30, 2021

Operating Statistics

Year ended April 30, 2021 2020 % Change

Represents two partial tax seasons (1)

Represents a partial tax season (2)

Year ended June 30, 2022 2021 (1)

TAX RETURNS PREPARED :

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returns 20,483 23,122 (11.4) %

International operations:

International:

Canada 2,449 2,459 (0.4) %

Australia 668 680 (1.8) %

Other — 73 **

Total international operations returns 3,573 2,726 31.1 %

Total international returns 3,117 3,139 (0.7) %

Tax returns prepared worldwide 23,600 26,261 (10.1) %

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$ 230.58 $ 212.32 8.6 %

DIY $ 34.87 $ 27.91 24.9 %

TAX OFFICES (as of January 31) :

Online $ 37.87 $ 39.17 (3.3) %

TAX OFFICES (as of March 31) :

Company-owned offices 6,492 6,512 (0.3) %

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Tax offices worldwide 10,488 10,676 (1.8) %

(1) Represents a partial 2019 individual tax filing season, which was extended until July 15, 2020 and a partial 2020 individual tax filing season, which was extended until May 17, 2021.

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

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

(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.

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

Year ended April 30, 2021 2020 $ Change

Better/(Worse) % Change

Better/(Worse)

Year ended June 30, 2022 2021 $ Change % Change

assisted tax preparation $ 2,094,612 $ 2,140,410 $ (45,798) (2.1) %

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Bad debt 71,778 82,353 10,575 12.8 %

Other 506,517 477,785 (28,732) (6.0) %

Total operating expenses 2,718,373 2,697,010 (21,363) (0.8) %

Other income (expense), net 2,454 4,989 (2,535) (50.8) %

Interest expense on borrowings (88,282) (99,491) 11,209 11.3 %

Income from continuing operations before income taxes 659,069 797,133 (138,064) (17.3) %

Income taxes 98,423 106,675 8,252 7.7 %

Net income from continuing operations 560,646 690,458 (129,812) (18.8) %

Net loss from discontinued operations (6,972) (6,509) (463) (7.1) %

Net income $ 553,674 $ 683,949 $ (130,275) (19.0) %

DILUTED EARNINGS PER SHARE:

Continuing operations $ 3.26 $ 3.67 $ (0.41) (11.2) %

Discontinued operations (0.04) (0.03) (0.01) (33.3) %

Consolidated $ 3.22 $ 3.64 $ (0.42) (11.5) %

Adjusted diluted EPS (1)

$ 3.51 $ 3.94 $ (0.43) (10.9) %

$ 889,529 $ 1,051,442 $ (161,913) (15.4) %

(1) All non-GAAP measures are results from continuing operations.

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

YEAR ENDED JUNE 30, 2022 COMPARED TO YEAR ENDED JUNE 30, 2021

Revenues decreased $125.4 million, or 3.5%, from the prior year.

The decrease in revenue is due to lower tax return volumes in the current year as the prior year includes an additional tax season deadline due to the 2020 tax season being extended to July 15, 2020.

This resulted in a decrease in U.S.

tax preparation, royalty and Refund Transfer revenues.

Emerald Card® revenues decreased $18.7 million, or 12.9%, due to some stimulus payments being loaded on to Emerald Cards in the prior year, which was partially offset by additional activity in the current year related to the IRS loading Child Tax Credits monthly to Emerald Cards during July through December 2021.

Interest and fees on

2022 Form 10-K | H&R Block, Inc.

Emerald Advances decreased $9.3 million, or 17.4%, due to a decline in Emerald Advances.

Wave revenues increased $17.8 million, or 28.2%, due to higher small business payments processing volumes.

Total operating expenses increased $21.4 million, or 0.8%, from the prior year.

Marketing and advertising expense increased $19.5 million, or 7.4%, due to higher online advertising and agency fees in the current year.

Depreciation and amortization expense decreased $12.6 million, or 8.2%, due primarily to lower amortization of acquired intangibles.

Bad debt expense decreased $10.6 million, or 12.8%, due to lower Refund Transfer volume and lower bad debt rates.

Other operating expenses increased $28.7 million, or 6.0%.

The components of other expenses are as follows:

Year ended June 30, 2022 2021 $ Change % Change

Consulting and outsourced services $ 136,397 $ 136,288 $ (109) (0.1) %

Bank partner fees 26,648 22,616 (4,032) (17.8) %

Client claims and refunds 31,814 29,857 (1,957) (6.6) %

Employee and travel expenses 31,714 23,959 (7,755) (32.4) %

Technology-related expenses 97,934 85,499 (12,435) (14.5) %

Credit card/bank charges 90,209 86,203 (4,006) (4.6) %

Insurance 15,224 11,528 (3,696) (32.1) %

Legal fees and settlements 19,625 21,993 2,368 10.8 %

Supplies 28,846 31,927 3,081 9.7 %

Other 28,106 27,915 (191) (0.7) %

$ 506,517 $ 477,785 $ (28,732) (6.0) %

Employee and travel expenses increased $7.8 million, or 32.4%, due to less travel in the prior year as a result of COVID-19 travel restrictions.

Technology-related expenses increased $12.4 million, or 14.5%, due to increased investments in information technology.

Interest expense on borrowings decreased $11.2 million , or 11.3% , primarily due to lower borrowings on our CLOC in the current year.

We recorded income tax expense of $98.4 million in the current year compared to $106.7 million in the prior year.

The decrease is primarily related to lower pretax income in the current year.

See Item 8, note 9 to the consolidated financial statements for additional discussion.

See the discussion of loss contingencies related to our discontinued operations in Item 1A, Risk Factors and in Item 8, note 12 to the consolidated financial statements.

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| 2022 Form 10-K

RESULTS OF OPERATIONS - YEAR ENDED APRIL 30, 2021 COMPARED TO YEAR ENDED APRIL 30, 2020

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

Year ended April 30, 2021 2020 $ Change % Change

assisted tax preparation $ 2,035,107 $ 1,533,303 $ 501,804 32.7 %

royalties 226,253 193,411 32,842 17.0 %

DIY tax preparation 313,055 208,901 104,154 49.9 %

International 249,868 180,065 69,803 38.8 %

Refund Transfers 163,329 154,687 8,642 5.6 %

Emerald Card® 136,717 92,737 43,980 47.4 %

Peace of Mind® Extended Service Plan 98,882 105,185 (6,303) (6.0) %

Tax Identity Shield® 40,624 31,797 8,827 27.8 %

Interest and fee income on Emerald Advance SM

53,430 60,867 (7,437) (12.2) %

Wave 58,277 36,711 21,566 58.7 %

Other 38,445 42,056 (3,611) (8.6) %

Total revenues 3,413,987 2,639,720 774,267 29.3 %

Compensation and benefits:

Field wages 797,262 678,813 (118,449) (17.4) %

Other wages 272,664 218,548 (54,116) (24.8) %

Benefits and other compensation 208,147 175,535 (32,612) (18.6) %

1,278,073 1,072,896 (205,177) (19.1) %

Occupancy 414,389 410,402 (3,987) (1.0) %

Marketing and advertising 261,960 255,094 (6,866) (2.7) %

Depreciation and amortization 156,852 169,536 12,684 7.5 %

Bad debt 78,763 77,470 (1,293) (1.7) %

Impairment of goodwill — 106,000 106,000 100.0 %

8 unchanged sentences

Net income (loss) $ 583,791 $ (7,526) $ 591,317 **

Basic earnings (loss) per share:

Continuing operations $ 3.15 $ 0.03 $ 3.12 10,400.0 %

Discontinued operations (0.04) (0.07) 0.03 42.9 %

Consolidated $ 3.11 $ (0.04) $ 3.15 **

DILUTED EARNINGS (LOSS) PER SHARE:

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$ 932,458 $ 368,256 $ 564,202 153.2 %

Adjusted EBITDA margin (1)

27.3 % 14.0 % 13.3 % 95.0 %

(1) All non-GAAP measures are results from continuing operations.

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2022 Form 10-K | H&R Block, Inc.

FISCAL 2021 COMPARED TO FISCAL 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 prepared in all categories during the first half of fiscal year 2021.

Additionally, while the 2021 tax season filing deadline was also extended, we prepared more tax returns through April 30 than we did in the prior fiscal year.

As a result of these increases in volume during the fiscal year, U.S.

YEAR ENDED APRIL 30, 2021 COMPARED TO YEAR ENDED APRIL 30, 2020

Due to the extension of the 2019 individual tax deadline to July 2020 related to the COVID-19 pandemic, we had significant increases in the number of tax returns prepared in all categories during the first half of the year ended April 30, 2021.

Additionally, while the 2020 individual tax deadline was also extended to May 17, 2021, we prepared more tax returns through April 30, 2021 than we did in the prior year.

As a result of these increases in volume during the year ended April 30, 2021, U.S.

assisted and DIY tax preparation revenues and royalties increased compared to the prior year.

International revenues increased $69.8 million, or 38.8%, due to higher tax returns prepared by our Canadian operations primarily due to the extension of the 2020 tax season and favorable foreign currency exchange rates.

International revenues increased $69.8 million, or 38.8%, due to higher tax returns prepared by our Canadian operations primarily due to the extension of the 2019 individual tax deadline and favorable foreign currency exchange rates.

Emerald Card® revenues increased $44.0 million, or 47.4%, due to higher card activity from an increase in tax refunds loaded on to cards, as well as some Economic Impact Payments loaded on to cards.

Wave revenues increased $21.6 million, or 58.7%, due to higher small business payment 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.

Wave revenues increased $21.6 million, or 58.7%, due to higher small business payment processing volumes over the prior year as small business owners shift to online payment options and an additional two months of revenue in the year ended April 30, 2021, as we acquired Wave on June 28, 2019.

Total operating expenses increased $81.7 million or 3.2% from the prior year.

6 unchanged sentences

The components of other expenses are as follows:

Year ended April 30, 2021 2020 $ Change

Better/(Worse) % Change

Better/(Worse)

Year ended April 30, 2021 2020 $ Change % Change

Consulting and outsourced services $ 127,262 $ 118,267 $ (8,995) (7.6) %

1 unchanged sentence

Client claims and refunds 28,756 35,498 6,742 19.0 %

Employee travel and related expenses 21,704 40,892 19,188 46.9 %

Employee and travel expenses 21,704 40,892 19,188 46.9 %

Technology-related expenses 80,766 68,907 (11,859) (17.2) %

6 unchanged sentences

Bank partner fees decreased $32.0 million, or 57.4%, due to lower RA and RT volumes, lower fees paid to our bank partner, and lower accruals for our RA credit loss guarantees.

Employee travel and related expenses decreased $19.2 million, or 46.9%, due to COVID-19 travel restrictions.

Employee and travel expenses decreased $19.2 million, or 46.9%, due to COVID-19 travel restrictions.

Technology-related expenses increased $11.9 million, or 17.2%, due to increased investments in information technology.

Credit card and bank charges increased $32.3 million, or 66.2%, as a result of higher transaction volumes for assisted and DIY tax preparation, higher Wave payment processing fees and fees related to the Emerald Card ® .

We prepared 2.9 million U.S.

assisted and DIY returns from May 1, 2021 to May 18, 2021 due to the extension of the current tax season.

Losses of our discontinued mortgage operations are primarily related to legal expenses which are lower in the current year.

See the discussion of the risk of contingent losses related to our discontinued operations in Item 1A, Risk Factors and in Item 8, note 12 to the consolidated financial statements.

FISCAL 2020 COMPARED TO FISCAL 2019

The comparison of fiscal year 2020 to 2019 has been omitted from this Form 10-K, but can be found in our Form 10–K for the fiscal year ended April 30, 2020, filed on June 16, 2020.

Losses of our discontinued mortgage operations are primarily related to legal expenses which are lower in the year ended April 30, 2021.

See the discussion of loss contingencies related to our discontinued operations in Item 1A, Risk Factors and in Item 8, note 12 to the consolidated financial statements.

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| 2022 Form 10-K

RESULTS OF OPERATIONS - TRANSITION PERIOD COMPARISON

Consolidated – Financial Results (in 000s)

Two months ended June 30, (Transition Period)

2021 2020 $ Change % Change

Total revenues $ 466,106 $ 291,448 $ 174,658 59.9 %

Compensation and benefits 148,817 123,081 (25,736) (20.9) %

Occupancy 65,429 66,318 889 1.3 %

Marketing and advertising 11,873 9,088 (2,785) (30.6) %

Depreciation and amortization 24,586 26,621 2,035 7.6 %

Bad debt 6,458 2,869 (3,589) (125.1) %

Other 74,588 51,124 (23,464) (45.9) %

Total operating expenses 331,751 279,101 (52,650) (18.9) %

Other income (expense), net 672 1,661 (989) (59.5) %

Interest expense on borrowings (14,032) (21,410) 7,378 34.5 %

Income (loss) from continuing operations before income taxes 120,995 (7,402) 128,397 **

Income taxes 29,876 1,725 (28,151) (1,631.9) %

Net income (loss) from continuing operations 91,119 (9,127) 100,246 **

Net loss from discontinued operations (1,509) (1,423) (86) (6.0) %

Net income (loss) $ 89,610 $ (10,550) $ 100,160 **

TWO MONTHS ENDED JUNE 30, 2021 COMPARED TO TWO MONTHS ENDED JUNE 30, 2020

Revenues increased $174.7 million, or 59.9%, from the prior year comparative period.

The increase in revenue is primarily a result of higher tax return volumes during the Transition Period as the 2020 individual tax deadline in the U.S.

was extended to May 17, 2021, whereas in the prior year comparative period, the 2019 individual tax deadline in the U.S.

was extended to July 15, 2020 resulting in increases in tax preparation, royalties and Refund Transfer revenues.

Total operating expenses increased $52.6 million, or 18.9%, from the prior year comparative period.

Compensation and benefits increased $25.7 million, or 20.9%, due to higher tax preparation volumes, higher information technology wages, higher bonus accruals and Canadian wage subsidies received in the prior year comparative period.

Bad debt increased $3.6 million, or 125.1%, due to higher Refund Transfer volumes as a result of the extended tax season.

Other expenses increased $23.5 million, or 45.9% due to higher consulting and outsourced services, higher technology-related expenses and higher credit card and bank charges.

We recorded income tax expense of $29.9 million during the Transition Period compared to $1.7 million in the prior year comparative period.

The effective tax rate for the two months ended June 30, 2021, and 2020 was 24.7% and (23.3)%, respectively.

For more discussion regarding the two months ended June 30, 2021 compared to the two months ended June 30, 2020, s ee our June 30, 2021 Transition Report filed on Form 10-Q.

FINANCIAL CONDITION

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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.

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 April 30, 2021 are sufficient to meet our future operating and financing needs.

DISCUSSION OF CONSOLIDATED STATEMENTS OF CASH FLOWS – The following table summarizes our statements of cash flows for fiscal years 2021 and 2020.

See Item 8 for the complete consolidated statements of cash flows for these periods.

Year ended April 30, 2021 2020

Net cash provided by (used in):

Operating activities $ 625,928 $ 108,961

Investing activities (45,523) (470,231)

Financing activities (2,408,823) 1,531,848

Therefore, we normally require the use of cash to fund losses

2022 Form 10-K | H&R Block, Inc.

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.

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 June 30, 2022 are sufficient to meet our future operating and financing needs.

DISCUSSION OF CONSOLIDATED STATEMENTS OF CASH FLOWS – The following table summarizes our statements of cash flows for the years ended June 30, 2022 and June 30, 2021.

See Item 8 for the complete consolidated statements of cash flows for the years ended June 30, 2022, April 30, 2021, April 30, 2020 and the two months ended June 30, 2021.

Year ended June 30, 2022 2021

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income $ 553,674 $ 683,949

Other operating cash flows 254,863 77,287

Net cash provided by operating activities 808,537 761,236

CASH FLOWS FROM INVESTING ACTIVITIES:

Capital expenditures (61,955) (53,053)

Payments made for business acquisitions, net of cash acquired (35,920) (17,024)

Other investing cash flows 21,334 27,430

Net cash used in investing activities (76,541) (42,647)

CASH FLOWS FROM FINANCING ACTIVITIES:

Line of credit borrowings, net — (2,000,000)

Repayments of long-term debt (500,000) (650,000)

Proceeds from issuance of long-term debt — 1,142,400

Dividends paid (186,476) (195,068)

Repurchase of common stock, including shares surrendered (563,174) (193,551)

Other financing cash flows (7,696) (21,610)

Net cash used in financing activities (1,257,346) (1,917,829)

Effects of exchange rate changes on cash (8,101) 13,457

1 unchanged sentence

Operating Activities.

Cash provided by operating activities increased $517.0 million from fiscal year 2020.

The increase is primarily due to net income in the current year compared to a net loss in the prior year.

Cash provided by operating activities totaled $808.5 million for the year ended June 30, 2022 compared to $761.2 million in the prior year period.

The increase is primarily due to higher income tax payments in the prior year and the receipt of income tax receivables in the current year, partially offset by lower net income in the current year.

Investing Activities.

Cash used in investing activities totaled $45.5 million compared to $470.2 million in the prior year.

The decrease is primarily due to the acquisition of Wave in the prior year.

Cash used in investing activities totaled $76.5 million for the year ended June 30, 2022 compared to $42.6 million for the prior year period.

The increase is primarily due to higher payments to acquire businesses.

Financing Activities.

Cash used in financing activities totaled $2.4 billion compared to cash provided of $1.5 billion in the prior year, the change is primarily due to a $2.0 billion draw on our CLOC in the prior year which was paid off in the current year.

Cash used in financing activities totaled $1.3 billion for the year ended June 30, 2022 compared to $1.9 billion for the prior year period.

The decrease is primarily due to the repayment of the $2.0 billion draw on our CLOC in the prior year, partially offset by proceeds from the issuance of long-term debt in the prior year.

CASH REQUIREMENTS –

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We have consistently paid quarterly dividends.

Dividends paid totaled $195.1 million and $204.9 million in fiscal years 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 $563.8 million which is effective through June 2022.

Dividends paid totaled $186.5 million and $195.1 million in the years ended June 30, 2022 and June 30, 2021, respectively.

Although we have historically paid dividends and plan

H&R Block, Inc.

| 2022 Form 10-K

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 ended in June 2022.

As a part of the repurchase program, in the current year, we purchased $550.3 million of our common stock at an average price of $23.84 per share.

2021 Form 10-K | H&R Block, Inc.

In August 2022, the Board of Directors approved a $1.25 billion share repurchase program, effective through fiscal year 2025.

Share repurchases may be effectuated through open market transactions, some of which may be effectuated under SEC Rule 10b5-1.

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(in 000s, except per share amounts)

As of April 30, 2021 2020 2019 2018 2017

June 30, 2022 Two months ended

June 30, 2021

(Transition Period) Year ended

April 30, 2021 Year ended

April 30, 2020 Year ended

April 30, 2019

Shares outstanding 159,930 181,813 181,466 192,475 201,959

Shares Repurchased 23,085 — 11,551 10,130 7,862

Dividends per share $ 1.04 $ 1.04 $ 1.00 $ 0.96 $ 0.88

Dividends declared per share $ 1.08 $ 0.27 $ 1.04 $ 1.04 $ 1.00

Capital Investment.

Capital expenditures totaled $52.8 million and $81.7 million in fiscal years 2021 and 2020, respectively.

Capital expenditures totaled $62.0 million and $53.1 million for the years ended June 30, 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 franchise and competitor businesses totaling $15.6 million during the year ended April 30, 2021, compared to $450.2 million for the year ended April 30, 2020, which also includes the acquisition of Wave.

We acquired franchise and competitor businesses totaling $35.9 million and $17.0 million during the years ended Ju ne 30, 2022 and 2021, respectively.

See Item 8, note 6 for additional information on our acquisitions.

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See Item 8, note 7 , 10 , and 11 to the consolidated financial statements for additional information.

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 no outstanding balance under the CLOC as of April 30, 2021.

On August 7, 2020, we issued $650.0 million of 3.875% Senior Notes due August 15, 2030 (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.

See Item 8, note 7 to the consolidated financial statements for discussion of our CLOC and Senior Notes and note 13 for discussion of an amendment to our CLOC effective June 11, 2021.

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

As of April 30, 2021 April 30, 2020

FINANCING RESOURCES – Our CLOC has capacity 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 were in compliance with our CLOC covenants as of June 30, 2022.

As of June 30, 2022, amounts available to borrow under the CLOC were not limited by the debt-to-EBITDA covenant.

We had no balance outstanding under our CLOC as of June 30, 2022.

In May 2022, we redeemed our outstanding $500 million 5.500% Senior Notes originally due in November 2022.

The redemption price was 100% of the outstanding principal amount, plus accrued and unpaid interest up to, but not including, the redemption date.

See Item 8, note 7 to the consolidated financial statements for discussion of our CLOC and Senior Notes.

2022 Form 10-K | H&R Block, Inc.

The following table provides ratings for debt issued by Block Financial LLC (Block Financial) as of June 30, 2022 and 2021:

As of June 30, 2022 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

CASH AND OTHER ASSETS – As of April 30, 2021, we held cash and cash equivalents, excluding restricted amounts, of $934.3 million, including $157.8 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

CASH AND OTHER ASSETS – As of June 30, 2022, we held cash and cash equivalents, excluding restricted amounts, of $885.0 million, including $201.0 million held by our foreign subsidiaries.

We received $52.2 million of our federal income tax receivable subsequent to June 30, 2022.

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 April 30, 2021.

There were no forward contracts outstanding as of June 30, 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 increase of $18.3 million during fiscal year 2021 compared to a decrease of $5.3 million in fiscal year 2020.

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| 2021 Form 10-K

The impact of changes in foreign exchange rates during the period on our international cash balances resulted in a decrease of $8.1 million during the year end ed June 30, 2022 and an increase of $13.5 million during the year ended June 30, 2021.

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

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SUMMARIZED BALANCE SHEET (in 000s)

As of April 30, 2021 GUARANTOR AND ISSUER

As of June 30, 2022 GUARANTOR AND ISSUER

Current assets $ 38,922

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SUMMARIZED STATEMENTS OF OPERATIONS (in 000s)

Year ended April 30, 2021 GUARANTOR AND ISSUER

Year ended June 30, 2022 GUARANTOR AND ISSUER

Total revenues $ 199,683

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The table above reflects $1.6 billion of non-current intercompany receivables due to the Issuer from non-guarantor subsidiaries.

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| 2022 Form 10-K

CRITICAL ACCOUNTING ESTIMATES

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We accrue liabilities related to certain legal matters for which we believe it is probable that a loss has been incurred and the amount of such loss can be reasonably estimated.

Assessing the likely outcome of pending or threatened litigation, indemnification and contribution claims, and other related loss contingencies, including the amount of potential loss, if any, is highly subjective.

Assessing the likely outcome of pending or threatened litigation or other related loss contingencies, including the amount of potential loss, if any, is highly subjective.

Assumptions and Approach Used.

We are subject to pending or threatened litigation claims and claims for indemnification and contribution, and other related loss contingencies, which are described in Item 8, note 12 to the consolidated financial statements.

We are subject to pending or threatened litigation and other related loss contingencies, which are described in Item 8, note 12 to the consolidated financial statements.

It is our policy to routinely assess the likelihood of any adverse judgments or outcomes related to legal matters, as well as ranges of probable losses.

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Sensitivity of Estimate to Change.

It is reasonably possible that future litigation and other related loss contingencies may vary from the amounts accrued.

It is reasonably possible that pending or future litigation and other related loss contingencies may vary from the amounts accrued.

Our estimate of the aggregate range of reasonably possible losses includes (1) matters where a liability has been accrued and there is a reasonably possible loss in excess of the amount accrued for that liability, and (2) matters where a liability has not been accrued but we believe a loss is reasonably possible.

This aggregate range represents only those losses as to which we are currently able to

2021 Form 10-K | H&R Block, Inc.

estimate a reasonably possible loss or range of loss.

This aggregate range represents only those losses as to which we are currently able to estimate a reasonably possible loss or range of loss.

It does not represent our maximum loss exposure.

As of April 30, 2021, we believe the estimate of the aggregate range of reasonably possible losses in excess of amounts accrued, where the range of loss can be estimated, was not material.

However, our judgments on whether a loss is probable, reasonably possible, or remote, and our estimates of probable loss amounts may differ from actual results due to difficulties in predicting changes in, or interpretations of, laws, predicting the outcome of jury trials, arbitration hearings, settlement discussions and related activity, predicting the outcome of class certification actions, and numerous other uncertainties.

As of June 30, 2022, we believe the estimate of the aggregate range of reasonably possible losses in excess of amounts accrued, where the range of loss can be estimated, was not material.

However, our judgments on whether a loss is probable, reasonably possible, or remote, and our estimates of probable loss amounts may differ from actual results due to difficulties in predicting changes in or interpretations of, laws, predicting the outcome of court trials, arbitration hearings, settlement discussions and related activity, predicting the outcome of class certification actions, and numerous other uncertainties.

Due to the number of claims which are periodically asserted against us, and the magnitude of damages sought in those claims, actual losses in the future may significantly differ from our current estimates.

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Our uncertain tax positions arise from items such as apportionment of income for state purposes, transfer pricing, and the deductibility of related party transactions.

We evaluate each uncertain tax position based on its technical merits.

We evaluate each uncertain tax

2022 Form 10-K | H&R Block, Inc.

position based on its technical merits.

For each position, we consider all applicable information including relevant tax laws, the taxing authorities' potential position, our tax return position, and the possible settlement outcomes to determine the amount of liability to record.

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Nature of Estimates Required.

We test goodwill for impairment annually in the fourth quarter or more frequently if events occur or circumstances change which would, more likely than not, reduce the fair value of a reporting unit below its carrying value.

We test goodwill for impairment annually in the third quarter or more frequ ently if events occur or circumstances change which would, more likely than not, reduce the fair value of a reporting unit below its carrying value.

Our goodwill impairment analysis utilizes both the income and market approaches, which includes revenue and expense forecasts, changes in working capital and selection of a discount rate, all of which are highly subjective.

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Changes in projections or assumptions could materially affect our estimate of reporting unit fair values.

The use of different assumptions could increase or decrease estimated

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| 2021 Form 10-K

discounted future operating cash flows and could affect our conclusion regarding the existence or amount of potential impairment.

The use of different assumptions could increase or decrease estimated discounted future operating cash flows and could affect our conclusion regarding the existence or amount of potential impairment.

Sensitivity of Estimate to Change.

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REGULATORY ENVIRONMENT

The federal government, various state, local, provincial and foreign governments, and some self-regulatory organizations have enacted statutes and ordinances, or adopted rules and regulations, regulating aspects of our business.

These aspects include, but are not limited to, commercial income tax return preparers, income tax courses, the electronic filing of income tax returns, the offering of RTs, privacy and data security, consumer protection, marketing and advertising, franchising, antitrust and competition, sales methods and banking.

These aspects include, but are not limited to, commercial income tax return preparation, income tax courses, the electronic filing of income tax returns, the offering of RTs, privacy and data security, consumer protection, marketing and advertising, franchising, antitrust and competition, sales methods, and financial services and products.

We work to comply with those laws that are applicable to us or our services or products, and we continue to monitor developments in the regulatory environment in which we operate.

See further discussion of these items in our Item 1A.

Risk Factors under "Lega l and Regulatory Risks" of this Form 10-K.

On November 17, 2017, the 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 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.

Risk Factors under "Legal and Regulatory Risks" of this Form 10-K.

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| 2022 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.

From time to time, we receive inquiries from governmental authorities regarding the applicability of laws to our services and products and other matters relating to our business.

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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

2021 Form 10-K | H&R Block, Inc.

and goodwill impairments.

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 measure the performance of our business using a variety of metrics, including earnings before interest, taxes, depreciation and amortization (EBITDA) from continuing operations, adjusted EBITDA from continuing operations, adjusted diluted earnings per share from continuing operations, free cash flow and free cash flow yield.

We also use EBITDA from continuing operations and pretax income of continuing operations, each subject to permitted adjustments, as performance metrics in incentive compensation calculations for our employees.

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

Year ended April 30, 2021 2020

2022 Form 10-K | H&R Block, Inc.

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

Year ended June 30, 2022 June 30, 2021 April 30, 2021 April 30, 2020

Net income (loss) - as reported $ 553,674 $ 683,949 $ 583,791 $ (7,526)

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Adjusted EBITDA from continuing operations $ 889,529 $ 1,051,442 $ 932,458 $ 368,256

EBITDA margin from continuing operations (1)

Adjusted EBITDA margin from continuing operations (2)

27.3 % 14.0 %

(1) EBITDA margin from continuing operations is computed as EBITDA from continuing operations divided by revenues from continuing operations.

(2) Adjusted EBITDA margin from continuing operations is computed as adjusted EBITDA from continuing operations divided by revenues from continuing operations.

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)

Year ended April 30, 2021 2020

Year ended June 30, 2022 June 30, 2021 April 30, 2021 April 30, 2020

Net income from continuing operations - as reported $ 560,646 $ 690,458 $ 590,212 $ 6,156

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

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| 2021 Form 10-K

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-K

Item 7. Management’s Discussion and Analysis