What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-02-06 compared with 2023-11-07 · 135 added, 52 removed, 180 unchanged (51% of the section changed)

5 unchanged sentences

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

Q2 FY2024 Form 10-Q| H&R Block, Inc.

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

Three months ended December 31, 2023 2022 $ Change % Change

tax preparation and related services:

Assisted tax preparation $ 48,342 $ 41,216 $ 7,126 17.3 %

Royalties 5,454 4,946 508 10.3 %

DIY tax preparation 13,111 12,150 961 7.9 %

Refund Transfers 813 1,542 (729) (47.3) %

Peace of Mind® Extended Service Plan 17,440 17,320 120 0.7 %

Tax Identity Shield® 4,694 5,350 (656) (12.3) %

Other 9,592 8,513 1,079 12.7 %

tax preparation and related services 99,446 91,037 8,409 9.2 %

Financial services:

Emerald Card® and Spruce SM

11,700 12,478 (778) (6.2) %

Interest and fee income on Emerald Advance SM

15,235 12,903 2,332 18.1 %

Total financial services 26,935 25,381 1,554 6.1 %

International 29,569 28,046 1,523 5.4 %

Wave 23,133 21,941 1,192 5.4 %

Total revenues $ 179,083 $ 166,405 $ 12,678 7.6 %

Compensation and benefits:

Field wages 77,795 76,204 (1,591) (2.1) %

Other wages 74,671 70,530 (4,141) (5.9) %

Benefits and other compensation 36,063 34,277 (1,786) (5.2) %

188,529 181,011 (7,518) (4.2) %

Occupancy 101,194 101,173 (21) — %

Marketing and advertising 11,305 15,142 3,837 25.3 %

Depreciation and amortization 30,107 32,723 2,616 8.0 %

Bad debt 21,754 22,416 662 3.0 %

Other 93,626 97,143 3,517 3.6 %

Total operating expenses 446,515 449,608 3,093 0.7 %

Other income (expense), net 5,922 4,185 1,737 41.5 %

Interest expense on borrowings (21,364) (18,985) (2,379) (12.5) %

Pretax loss (282,874) (298,003) 15,129 5.1 %

Income tax benefit (93,758) (77,140) 16,618 21.5 %

Net loss from continuing operations (189,116) (220,863) 31,747 14.4 %

Net loss from discontinued operations (639) (2,716) 2,077 76.5 %

Net loss $ (189,755) $ (223,579) $ 33,824 15.1 %

BASIC AND DILUTED LOSS PER SHARE:

Continuing operations $ (1.33) $ (1.43) $ 0.10 7.0 %

Discontinued operations — (0.02) 0.02 **

Consolidated $ (1.33) $ (1.45) $ 0.12 8.3 %

Adjusted diluted EPS (1)

$ (1.27) $ (1.37) $ 0.10 7.3 %

$ (231,403) $ (246,295) $ 14,892 6.0 %

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

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

H&R Block, Inc.

|Q2 FY2024 Form 10-Q

Three months ended December 31, 2023 compared to December 31, 2022

Revenues increased $12.7 million, or 7.6%, from the prior year.

assisted tax preparation revenues increased $7.1 million, or 17.3%, due to higher volumes and a higher net average charge in the current year.

Other revenues increased $1.1 million, or 12.7%, primarily due to higher extension filing and bookkeeping fees.

Interest and fee income on Emerald Advance SM (EA) increased $2.3 million, or 18.1%, due to an increase in EA Loans and an earlier start to the offering period in the current year.

International revenues increased $1.5 million, or 5.4%, primarily due to higher tax return volumes in Australia.

Wave revenues increased $1.2 million, or 5.4%, due to higher small business payments processing volumes.

Total operating expenses decreased $3.1 million, or 0.7%, from the prior year.

Other wages increased $4.1 million, or 5.9%, primarily due to higher corporate wages from higher headcount in the current year.

Marketing and advertising expense decreased $3.8 million, or 25.3%, primarily due to vendor refunds for expired customer incentives.

Depreciation and amortization expense decreased $2.6 million, or 8.0%, primarily due to lower amortization of capitalized software.

Other operating expenses decreased $3.5 million, or 3.6%.

The components of other expenses are as follows:

Three months ended December 31, 2023 2022 $ Change % Change

Consulting and outsourced services $ 16,267 $ 22,452 $ 6,185 27.5 %

Bank partner fees (1,113) (778) 335 43.1 %

Client claims and refunds 3,107 5,445 2,338 42.9 %

Employee and travel expenses 12,375 14,701 2,326 15.8 %

Technology-related expenses 27,261 24,489 (2,772) (11.3) %

Credit card/bank charges 17,768 17,322 (446) (2.6) %

Insurance 2,076 (349) (2,425) **

Legal fees and settlements 5,421 2,184 (3,237) (148.2) %

Supplies 4,355 3,940 (415) (10.5) %

Other 6,109 7,737 1,628 21.0 %

$ 93,626 $ 97,143 $ 3,517 3.6 %

Consulting and outsourced services expense decreased $6.2 million, or 27.5%, primarily due to lower contract labor in the current year.

Technology-related expenses increased $2.8 million, or 11.3%, due to higher costs of technology in the current year.

Legal fees and settlements expense increased $3.2 million, or 148.2%, primarily due to higher legal settlements in the current year.

We recorded an income tax benefit of $93.8 million in the current year compared to $77.1 million in the prior year.

The effective tax rate for the three months ended December 31, 2023, and 2022 was 33.1% and 25.9%, respectively.

Q2 FY2024 Form 10-Q| H&R Block, Inc.

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

Three months ended September 30, 2023 2022 $ Change % Change

Six months ended December 31, 2023 2022 $ Change % Change

tax preparation and related services:

43 unchanged sentences

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

Q1 FY2024 Form 10-Q| H&R Block, Inc.

Three months ended September 30, 2023 compared to September 30, 2022

H&R Block, Inc.

|Q2 FY2024 Form 10-Q

Six months ended December 31, 2023 compared to December 31, 2022

Revenues increased $16.5 million, or 4.8%, from the prior year.

assisted tax preparation revenues increased $3.0 million, or 8.1%, primarily due to a higher net average charge in the current year.

Other revenues increased $1.6 million, or 17.3%, primarily due to higher extension filing fees and accounting and bookkeeping fees.

Emerald Card® and Spruce SM revenues decreased $3.0 million, or 25.7%, primarily due to lower Emerald Card® activity in the current year as a result of less funds being loaded in the current year.

International tax preparation revenues increased $1.7 million, or 2.9%, due to higher volumes in Australia, which was partially offset by the impacts of foreign currency exchange rates.

assisted tax preparation revenues increased $10.1 million, or 13.0%, due to a higher net average charge and higher volumes in the current year.

Other revenues increased $2.7 million, or 15.1%, primarily due to higher extension filing and bookkeeping fees.

Emerald Card® and Spruce SM revenues decreased $3.8 million, or 15.6%, due to lower Emerald Card® activity in the current year as a result of less funds being loaded on the cards.

Interest and fee income on Emerald Advance SM increased $2.0 million, or 14.9%, due to an increase in EA Loans and an earlier start to the offering period in the current year.

International revenues increased $3.3 million, or 3.7%, primarily due to higher tax return volumes in Australia.

Wave revenues increased $2.5 million, or 5.6%, due to higher small business payments processing volumes.

Total operating expenses increased $1.0 million, or 0.3%, from the prior year.

Other wages increased $8.3 million, or 13.1%, primarily due to higher corporate wages and a bonus accrual adjustment in the prior year.

Marketing and advertising expense decreased $5.2 million, or 48.5%, primarily due to a vendor refund for expired customer incentives and lower online advertising.

Depreciation and amortization expense decreased $3.4 million, or 10.1%, primarily due to lower amortization of acquired intangibles.

Bad debt expense increased $4.5 million due to higher Emerald Card® losses in the current year.

Total operating expenses decreased $2.1 million, or 0.2%, from the prior year period.

Other wages increased $12.5 million, or 9.3%, primarily due to higher corporate wages from higher headcount in the current year.

Marketing and advertising expense decreased $9.0 million, or 34.9%, primarily due to vendor refunds for expired customer incentives.

Depreciation and amortization expense decreased $6.0 million, or 9.1%, primarily due to lower amortization of capitalized software.

Bad debt expense increased $3.8 million, or 16.7%, due to an increase in EA loans compared to the prior year.

Other operating expenses decreased $9.6 million, or 5.2%.

The components of other expenses are as follows:

Three months ended September 30, 2023 2022 $ Change % Change

Six months ended December 31, 2023 2022 $ Change % Change

Consulting and outsourced services $ 29,401 $ 40,505 $ 11,104 27.4 %

9 unchanged sentences

$ 174,182 $ 183,789 $ 9,607 5.2 %

Consulting and outsourced services expense decreased $4.9 million, or 27.2%, primarily due to lower contract labor in the current year.

Technology-related expenses decreased $2.8 million, or 10.9%, due to lower costs of technology in the current year.

Other income (expense), net increased $6.2 million, or 172.4%, primarily due to higher interest income in the current year.

Consulting and outsourced services expense decreased $11.1 million, or 27.4%, due to lower contract labor and call center expenses in the current year.

Legal fees and settlements expense increased $4.0 million, or 88.6%, primarily due to higher legal settlements in the current year.

Other income (expense), net increased $8.0 million, or 102.1%, due to higher interest income in the current year.

We recorded an income tax benefit of $143.2 million in the current year compared to $131.1 million in the prior year.

The effective tax rate for the three months ended September 30, 2023, and 2022 was 23.3% and 24.4%, respectively.

Diluted loss per share from continuing operations increased 5.7% from the prior year due to fewer shares outstanding from share repurchases, partially offset by a lower net loss compared to the prior year.

The effective tax rate for the six months ended December 31, 2023, and 2022 was 28.9% and 25.2%, 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 .

H&R Block, Inc.

|Q1 FY2024 Form 10-Q

Q2 FY2024 Form 10-Q| H&R Block, Inc.

CAPITAL RESOURCES AND LIQUIDITY –

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

Given the likely availability of a number of liquidity options discussed herein, we believe that, in the absence of any unexpected developments, our existing sources of capital as of September 30, 2023 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, 2023 and 2022.

Given the likely availability of a number of liquidity options discussed herein, we believe that, in the absence of any unexpected developments, our existing sources of capital as of December 31, 2023 are sufficient to meet our operating, investing and financing needs.

DISCUSSION OF CONSOLIDATED STATEMENTS OF CASH FLOWS – The following table summarizes our statements of cash flows for the six months ended December 31, 2023 and 2022.

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

Three months ended September 30, 2023 2022

Net cash used in:

Six months ended December 31, 2023 2022

Net cash provided by (used in):

Operating activities $ (942,166) $ (780,458)

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Operating Activities.

Cash used in operations totaled $335.0 million for the three months ended September 30, 2023 compared to $321.7 million in the prior year period.

The change is primarily due to the receipt of income tax receivables in the prior year and changes in deferred tax assets in the current year, partially offset by lower bonus and payroll tax payments in the current year.

Cash used in operations totaled $942.2 million for the six months ended December 31, 2023 compared to $780.5 million in the prior year period.

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

Investing Activities.

Cash used in investing activities totaled $23.9 million for the three months ended September 30, 2023 compared to $37.4 million in the prior year period.

The change is primarily due to lower payments to acquire businesses in the current year.

Cash used in investing activities totaled $71.0 million for the six months ended December 31, 2023 compared to $99.1 million in the prior year period.

The change is primarily due to lower payments to acquire businesses and capital expenditures in the current year.

Financing Activities.

Cash used in financing activities totaled $195.2 million for the three months ended September 30, 2023 compared to $246.9 million in the prior year period.

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

Cash provided by financing activities totaled $335.4 million for the six months ended December 31, 2023 compared to $128.8 million in the prior year period.

The change is primarily due to borrowings on our CLOC in the current year.

CASH REQUIREMENTS –

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We have consistently paid quarterly dividends.

Dividends paid totaled $43.0 million and $43.1 million for the three months ended September 30, 2023 and 2022, respectively.

Dividends paid totaled $89.9 million and $89.2 million for the six months ended December 31, 2023 and 2022, respectively.

Although we have historically paid dividends and plan to continue to do so, there can be no assurances that circumstances will not change in the future that could affect our ability or decisions to pay dividends.

During the three months ended September 30, 2023, we repurchased $132.0 million of our common stock at an average price of $40.43 per share, excluding excise taxes in connection with such repurchases.

During the six months ended December 31, 2023, we repurchased $350.1 million of our common stock at an average price of $43.66 per share, excluding excise taxes in connection with such repurchases.

In the prior year period, we repurchased $350.1 million of our common stock at an average price of $42.86 per share.

Our current share repurchase program has remaining authorization of $350.0 million, which is effective through June 2025.

Q1 FY2024 Form 10-Q| H&R Block, Inc.

H&R Block, Inc.

|Q2 FY2024 Form 10-Q

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

3 unchanged sentences

Capital Investment.

Capital expenditures totaled $12.9 million and $16.2 million for the three months ended September 30, 2023 and 2022, respectively.

Capital expenditures totaled $32.7 million and $41.5 million for the six months ended December 31, 2023 and 2022, 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 $6.9 million and $16.5 million during the three months ended September 30, 2023 and 2022, respectively.

We acquired franchisee and competitor businesses totaling $27.2 million and $39.8 million during the six months ended December 31, 2023 and 2022, respectively.

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

1 unchanged sentence

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

We had no outst anding balance under our CLOC and amounts available to borrow were not limited by the debt-to-EBITDA covenant as of September 30, 2023.

The following table provides ratings for debt issued by Block Financial LLC (Block Financial) as of September 30, 2023 and June 30, 2023:

As of September 30, 2023 June 30, 2023

We had an outst anding balance of $800.0 million under our CLOC and amounts available to borrow were not limited by the debt-to-EBITDA covenant as of December 31, 2023.

The following table provides ratings for debt issued by Block Financial LLC (Block Financial) as of December 31, 2023 and June 30, 2023:

As of December 31, 2023 June 30, 2023

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

2 unchanged sentences

Other than described above, there have been no material changes in our borrowings from those reported as of June 30, 2023 in our Annual Report on Form 10-K.

CASH AND OTHER ASSETS – As of September 30, 2023, we held cash and cash equivalents, excluding restricted amounts, of $427.0 million, including $146.1 million held by our foreign subsidiaries.

CASH AND OTHER ASSETS – As of December 31, 2023, we held cash and cash equivalents, excluding restricted amounts, of $321.0 million, including $140.0 million held by our foreign subsidiaries.

Foreign Operations.

1 unchanged sentence

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

There were no forward contracts outstanding as of September 30, 2023.

There were no forward contracts outstanding as of December 31, 2023.

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 $3.7 million and $13.4 million during the three months ended September 30, 2023 and 2022, respectively.

The impact of changes in foreign exchange rates during the period on our international cash balances resulted in an increase of $0.7 million during the six months ended December 31, 2023 and a decrease of $7.8 million during the six months ended December 31, 2022.

CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS – EAs are originated by Pathward.

1 unchanged sentence

Effective October 20, 2023, we amended the Program Management Agreement and entered into a new participation agreement related to EAs originated by Pathward.

We purchased participation interests of $341.8 million during the six months ended December 31, 2023.

There have been no other material changes in our contractual obligations and commercial commitments from those reported in our June 30, 2023 Annual Report on Form 10-K.

2 unchanged sentences

is the full and unconditional Guarantor of our Senior Notes, CLOC and other indebtedness issued from time to time.

H&R Block, Inc.

|Q1 FY2024 Form 10-Q

Q2 FY2024 Form 10-Q| H&R Block, Inc.

The following table presents summarized financial information for H&R Block, Inc.

1 unchanged sentence

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

As of September 30, 2023 June 30, 2023

As of December 31, 2023 June 30, 2023

Current assets $ 380,296 $ 37,407

3 unchanged sentences

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

Three months ended September 30, 2023 Twelve months ended June 30, 2023

Six months ended December 31, 2023 Twelve months ended June 30, 2023

Total revenues $ 38,176 $ 160,236

2 unchanged sentences

Net income 2,994 23,613

The table above reflects $1.7 billion of non-current intercompany receivables due to the Issuer from non-guarantor subsidiaries as of September 30, 2023 and June 30, 2023.

The table above reflects $2.1 billion and $1.7 billion of non-current intercompany receivables due to the Issuer from non-guarantor subsidiaries as of December 31, 2023 and June 30, 2023, respectively.

REGULATORY ENVIRONMENT

9 unchanged sentences

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.

Q1 FY2024 Form 10-Q| H&R Block, Inc.

H&R Block, Inc.

|Q2 FY2024 Form 10-Q

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

Three months ended September 30,

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

2023 2022 2023 2022

Net loss - as reported $ (189,755) $ (223,579) $ (353,237) $ (392,000)

8 unchanged sentences

(in 000s, except per share amounts)

Three months ended September 30,

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

2023 2022 2023 2022

Net loss from continuing operations - as reported $ (189,116) $ (220,863) $ (351,989) $ (388,230)

16 unchanged sentences

They may also include the expected impact of external events beyond the Company's control, such as outbreaks of infectious disease (including the coronavirus (COVID-19) pandemic), severe weather events, natural or manmade disasters, or changes in the regulatory environment in which we operate.

Q2 FY2024 Form 10-Q| H&R Block, Inc.

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.

H&R Block, Inc.

|Q1 FY2024 Form 10-Q

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.

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.

7 unchanged sentences

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