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Item 1. Financial Statements

2024-05-09 compared with 2024-02-06 · 113 added, 101 removed, 394 unchanged (35% of the section changed)

FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS:

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME:

(unaudited, in 000s, except

per share amounts)

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

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

2024 2023 2024 2023

8 unchanged sentences

Interest expense on borrowings ( 26,070 ) ( 22,298 ) ( 63,304 ) ( 57,107 )

Loss from continuing operations before income tax benefit ( 282,874 ) ( 298,003 ) ( 495,234 ) ( 519,327 )

Income tax benefit ( 93,758 ) ( 77,140 ) ( 143,245 ) ( 131,097 )

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

Income from continuing operations before income taxes 907,358 855,428 412,124 336,101

Income taxes 215,772 209,351 72,527 78,254

Net income from continuing operations 691,586 646,077 339,597 257,847

Net loss from discontinued operations, net of tax benefits of $ 254 , $ 792 , $ 627 and $ 1,920

( 849 ) ( 2,648 ) ( 2,097 ) ( 6,418 )

NET LOSS $ ( 189,755 ) $ ( 223,579 ) $ ( 353,237 ) $ ( 392,000 )

BASIC AND DILUTED LOSS PER SHARE:

NET INCOME $ 690,737 $ 643,429 $ 337,500 $ 251,429

BASIC EARNINGS PER SHARE:

Continuing operations $ 4.94 $ 4.22 $ 2.37 $ 1.65

1 unchanged sentence

Consolidated $ 4.93 $ 4.21 $ 2.36 $ 1.61

DILUTED EARNINGS PER SHARE:

Continuing operations $ 4.87 $ 4.14 $ 2.34 $ 1.62

Discontinued operations ( 0.01 ) ( 0.02 ) ( 0.02 ) ( 0.04 )

Consolidated $ 4.86 $ 4.12 $ 2.32 $ 1.58

DIVIDENDS DECLARED PER SHARE $ 0.32 $ 0.29 $ 0.96 $ 0.87

COMPREHENSIVE LOSS:

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

COMPREHENSIVE INCOME:

Net income $ 690,737 $ 643,429 $ 337,500 $ 251,429

Change in foreign currency translation adjustments ( 9,882 ) 402 ( 9,237 ) ( 22,636 )

Other comprehensive income (loss) ( 9,882 ) 402 ( 9,237 ) ( 22,636 )

Comprehensive loss $ ( 178,196 ) $ ( 214,272 ) $ ( 352,592 ) $ ( 415,038 )

Comprehensive income $ 680,855 $ 643,831 $ 328,263 $ 228,793

See accompanying notes to consolidated financial statements.

3 unchanged sentences

share and per share amounts)

As of December 31, 2023 June 30, 2023

As of March 31, 2024 June 30, 2023

Cash and cash equivalents $ 794,617 $ 986,975

2 unchanged sentences

346,784 59,987

Income taxes receivable 74,415 35,910

Prepaid expenses and other current assets 105,873 112,183

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Total current liabilities 1,243,556 938,782

Long-term debt and line of credit borrowings 2,290,044 1,488,974

Long-term debt 1,490,570 1,488,974

Deferred tax liabilities and reserves for uncertain tax positions 277,957 264,567

15 unchanged sentences

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited, in 000s)

Six months ended December 31, 2023 2022

Nine months ended March 31, 2024 2023

CASH FLOWS FROM OPERATING ACTIVITIES:

Net loss $ ( 353,237 ) $ ( 392,000 )

Adjustments to reconcile net loss to net cash used in operating activities:

Net income $ 337,500 $ 251,429

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 91,004 98,660

9 unchanged sentences

Other, net ( 32 ) ( 3,285 )

Net cash used in operating activities ( 942,166 ) ( 780,458 )

Net cash provided by operating activities 420,264 498,386

CASH FLOWS FROM INVESTING ACTIVITIES:

11 unchanged sentences

Other, net ( 6,358 ) ( 5,973 )

Net cash provided by financing activities 335,448 128,813

Net cash used in financing activities ( 520,503 ) ( 505,587 )

Effects of exchange rate changes on cash ( 2,739 ) ( 7,880 )

39 unchanged sentences

Balances as of December 31, 2023 170,916 $ 1,709 $ 746,734 $ ( 36,454 ) $ ( 846,162 ) ( 31,397 ) $ ( 638,479 ) $ ( 772,652 )

Net income — — — — 690,737 — — 690,737

Other comprehensive loss — — — ( 9,882 ) — — — ( 9,882 )

Stock-based compensation — — 7,140 — — — — 7,140

Stock-based awards exercised or vested — — ( 269 ) — ( 223 ) 16 300 ( 192 )

Acquisition of treasury shares (2)

— — — — — ( 7 ) ( 309 ) ( 309 )

Cash dividends declared - $ 0.32 per share

— — — — ( 44,648 ) — — ( 44,648 )

Balances as of March 31, 2024 170,916 $ 1,709 $ 753,605 $ ( 46,336 ) $ ( 200,296 ) ( 31,388 ) $ ( 638,488 ) $ ( 129,806 )

(1) The balance of our accumulated other comprehensive loss consists of foreign currency translation adjustments.

2 unchanged sentences

Q3 FY2024 Form 10-Q| H&R Block, Inc.

(amounts in 000s, except per share amounts)

Common Stock Additional

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Balances as of December 31, 2022 185,403 $ 1,854 $ 767,683 $ ( 44,683 ) $ ( 708,437 ) ( 33,127 ) $ ( 659,896 ) $ ( 643,479 )

Net income — — — — 643,429 — — 643,429

Other comprehensive income — — — 402 — — — 402

Stock-based compensation — — 7,830 — — — — 7,830

Stock-based awards exercised or vested — — ( 244 ) — ( 213 ) 13 265 ( 192 )

Acquisition of treasury shares (2)

— — — — — ( 6 ) ( 219 ) ( 219 )

Cash dividends declared - $ 0.29 per share

— — — — ( 44,163 ) — — ( 44,163 )

Balances as of March 31, 2023 185,403 $ 1,854 $ 775,269 $ ( 44,281 ) $ ( 109,384 ) ( 33,120 ) $ ( 659,850 ) $ ( 36,392 )

(1) The balance of our accumulated other comprehensive loss consists of foreign currency translation adjustments.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION – The consolidated balance sheets as of December 31, 2023 and June 30, 2023, the consolidated statements of operations and comprehensive loss for the three and six months ended December 31, 2023 and 2022, the consolidated statements of cash flows for the six months ended December 31, 2023 and 2022, and the consolidated statements of stockholders' equity for the three and six months ended December 31, 2023 and 2022 have been prepared by the Company, without audit.

In the opinion of management, all adjustments, which include only normal recurring adjustments, necessary to present fairly the financial position, results of operations, and cash flows as of December 31, 2023 and 2022 and for all periods presented, have been made.

BASIS OF PRESENTATION – The consolidated balance sheets as of March 31, 2024 and June 30, 2023, the consolidated statements of operations and comprehensive income for the three and nine months ended March 31, 2024 and 2023, the consolidated statements of cash flows for the nine months ended March 31, 2024 and 2023, and the consolidated statements of stockholders' equity for the three and nine months ended March 31, 2024 and 2023 have been prepared by the Company, without audit.

In the opinion of management, all adjustments, which include only normal recurring adjustments, necessary to present fairly the financial position, results of operations, and cash flows as of March 31, 2024 and 2023 and for all periods presented, have been made.

"H&R Block," "the Company," "we," "our," and "us" are used interchangeably to refer to H&R Block, Inc., to H&R Block, Inc.

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revenues by major service line, with revenues from our international tax services businesses and from Wave included as separate lines:

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

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

2024 2023 2024 2023

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41,160 44,358 61,493 68,448

Interest and fee income on Emerald Advance SM

15,235 12,903 15,533 13,517

Interest and fee income on Emerald Advance® 21,169 33,750 36,702 47,267

International 68,264 69,417 158,398 156,297

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POM Deferred Revenue Deferred Wages

Six months ended December 31, 2023 2022 2023 2022

Nine months ended March 31, 2024 2023 2024 2023

Balance, beginning of the period $ 167,257 $ 173,486 $ 21,828 $ 19,495

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Balance, end of the period $ 171,181 $ 182,441 $ 21,828 $ 20,862

As of December 31, 2023, deferred revenue related to POM was $ 121.9 million.

As of March 31, 2024, deferred revenue related to POM was $ 171.2 million.

We expect that $ 96.4 million will be recognized over the next twelve months , while the remaining balance will be recognized over the following five years .

As of December 31, 2023 and 2022, Tax Identity Shield® (TIS) deferred revenue was $ 16.5 million and $ 16.8 million, respectively.

As of March 31, 2024 and 2023, Tax Identity Shield® (TIS) deferred revenue was $ 31.6 million and $ 33.3 million, respectively.

Deferred revenue related to TIS was $ 25.2 million and $ 25.8 million as of June 30, 2023 and 2022, respectively.

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Per share amounts are computed by dividing net income (loss) from continuing operations attributable to common shareholders by the weighted average shares outstanding during each period.

Diluted earnings per share excludes the impact of shares of common stock issuable upon the lapse of certain restrictions or the exercise of options to purchase 3.2 million shares for the three and six months ended December 31, 2023 and 4.5 million

Diluted earnings per share excludes the impact of shares of common stock issuable upon the lapse of certain restrictions or the exercise of options to purchase one thousand and 0.2 million shares for the three and nine months ended March 31, 2024,

H&R Block, Inc.

|Q3 FY2024 Form 10-Q

shares for the three and six months ended December 31, 2022 , as the effect would be antidilutive due to the net loss from continuing operations during the periods.

The computations of basic and diluted earnings (loss) per share from continuing operations are as follows:

respectively, and 0.7 million and 0.6 million shares for the three and nine months ended March 31, 2023, respectively , as the effect would be antidilutive.

The computations of basic and diluted earnings per share from continuing operations are as follows:

(in 000s, except per share amounts)

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

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

2024 2023 2024 2023

Net loss from continuing operations attributable to shareholders $ ( 189,116 ) $ ( 220,863 ) $ ( 351,989 ) $ ( 388,230 )

Net income from continuing operations attributable to shareholders $ 691,586 $ 646,077 $ 339,597 $ 257,847

Amounts allocated to participating securities ( 2,788 ) ( 2,822 ) ( 1,350 ) ( 1,064 )

Net loss from continuing operations attributable to common shareholders $ ( 189,308 ) $ ( 221,055 ) $ ( 352,358 ) $ ( 388,601 )

Net income from continuing operations attributable to common shareholders $ 688,798 $ 643,255 $ 338,247 $ 256,783

Basic weighted average common shares 139,525 152,281 142,724 155,249

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Dilutive weighted average common shares 141,540 155,561 144,594 158,488

Loss per share from continuing operations attributable to common shareholders:

Earnings per share from continuing operations attributable to common shareholders:

Basic $ 4.94 $ 4.22 $ 2.37 $ 1.65

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The decrease in the weighted average shares outstanding is due to share repurchases completed in the current and prior fiscal years.

STOCK-BASED COMPENSATION – We granted 1.7 million and 1.0 million shares, including adjustments for performance achievement and dividend equivalents, under our stock-based compensation plans during the six months ended December 31, 2023 and 2022, respectively.

Stock-based compensation expense of our continuing operations totaled $ 9.9 million and $ 17.5 million for the three and six months ended December 31, 2023, respectively, and $ 10.2 million and $ 17.9 million for the three and six months ended December 31, 2022, respectively.

As of December 31, 2023, unrecognized compensation cost for nonvested shares and units totaled $ 59.2 million.

STOCK-BASED COMPENSATION – We granted 1.7 million and 1.1 million shares, including adjustments for performance achievement and dividend equivalents, under our stock-based compensation plans during the nine months ended March 31, 2024 and 2023, respectively.

Stock-based compensation expense of our continuing operations totaled $ 7.8 million and $ 25.3 million for the three and nine months ended March 31, 2024, respectively, and $ 8.9 million and $ 26.8 million for the three and nine months ended March 31, 2023, respectively.

As of March 31, 2024, unrecognized compensation cost for nonvested shares and units totaled $ 49.5 million.

Receivables, net of their related allowance, consist of the following:

As of December 31, 2023 June 30, 2023

As of March 31, 2024 June 30, 2023

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

4 unchanged sentences

24,184 1,048 8,499 414

Emerald Advance SM

347,025 9,410 10,834 7,089

Emerald Advance® 53,978 11,875 10,834 7,089

Software receivables from retailers 9,957 — 1,650 —

6 unchanged sentences

LOANS TO FRANCHISEES – Franchisee loan balances consist of term loans made primarily to finance the purchase of franchises and revolving lines of credit primarily for the purpose of funding working capital needs.

As of December 31, 2023 and June 30, 2023, loans with a principal balance more than 90 days past due, or on non-accrual status, are not material.

As of March 31, 2024 and June 30, 2023, loans with a principal balance more than 90 days past due, or on non-accrual status, are not material.

H&R BLOCK'S INSTANT REFUND ® – H&R Block's Instant Refund® amounts are generally received from the Canada Revenue Agency within 60 days of filing the client's return, with the remaining balance collectible from the client.

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In December of each year, we charge-off the receivables and the related allowance to an amount we believe represents the net realizable value.

B alances and amounts on non-accrual status, classified as impaired, or more than 60 days past due, by tax return year of origination, as of December 31, 2023 are as foll ows:

B alances and amounts on non-accrual status, classified as impaired, or more than 60 days past due, by tax return year of origination, as of March 31, 2024 are as foll ows:

Tax return year of origination Balance More Than 60 Days Past Due

2 unchanged sentences

26,162 $ 2,426

Allowance ( 930 )

Net balance $ 25,232

EMERALD ADVANCE SM – Historically, Emerald Advance SM lines of credit (EA LOCs) have been offered to clients in our offices from mid-November through mid-January.

EMERALD ADVANCE ® – Historically, Emerald Advance® lines of credit (EA LOCs) have been offered to clients in our offices from mid-November through mid-January.

If the borrower met certain criteria as agreed in the loan terms, the line of credit could be utilized year-round (Revolving Loan).

In fiscal year 2024, EAs are being offered as term loans (EA TLs), and we discontinued EA LOCs, including the Revolving Loans.

EA TLs are due on March 31, whereas, EA LOCs were required to be paid down to zero by February 15 in the prior year.

See note 8 for discussion of the new EA TL.

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Typically, in December of each year, we charge-off the receivables and the related allowance for EA LOCs, excluding Revolving Loans, to an amount we believe represents the net realizable value.

However, due to the discontinuation of EA LOCs, we charged-off the receivables and the related allowance of EA LOCs and Revolving Loans during the quarter ended September 30, 2023 to an amount that we believe represents net realizable value.

Balances and amounts on non-accrual status, classified as impaired, or more than 60 days past due, by fiscal year of origination, as of December 31, 2023 are as follows:

However, due to the discontinuation of EA LOCs, we charged-off the receivables and the related allowance of 2023 EA LOCs and

H&R Block, Inc.

|Q3 FY2024 Form 10-Q

Revolving Loans during the quarter ended September 30, 2023 to an amount that we believe represents net realizable value.

Balances and amounts on non-accrual status, classified as impaired, or more than 60 days past due, by fiscal year of origination, as of March 31, 2024 are as follows:

Fiscal year of origination Balance Non-Accrual

4 unchanged sentences

Net balance $ 65,853

H&R Block, Inc.

|Q2 FY2024 Form 10-Q

ALLOWANCE FOR CREDIT LOSSES – Activity in the allowance for credit losses for our EA and all other short-term and long-term receivables for the six months ended December 31, 2023 and 2022 is as follows:

ALLOWANCE FOR CREDIT LOSSES – Activity in the allowance for credit losses for our EA and all other short-term and long-term receivables for the nine months ended March 31, 2024 and 2023 is as follows:

EAs All Other Total

2 unchanged sentences

Charge-offs, recoveries and other ( 27,714 ) ( 37,455 ) ( 65,169 )

Balances as of December 31, 2023 $ 17,557 $ 1,146 $ 18,703

Balances as of March 31, 2024 $ 20,683 $ 38,001 $ 58,684

Balances as of July 1, 2022 $ 26,141 $ 51,126 $ 77,267

1 unchanged sentence

Charge-offs, recoveries and other ( 14,814 ) ( 51,081 ) ( 65,895 )

Balances as of December 31, 2022 $ 26,408 $ 1,197 $ 27,605

Gross charge-offs of EAs were $ 27.7 million for the six months ended December 31, 2023, of which $ 15.4 million related to EA LOCs originated in fiscal year 2023 and $ 12.3 million related to Revolving Loans.

Balances as of March 31, 2023 $ 28,029 $ 32,517 $ 60,546

Gross charge-offs of EAs were $ 27.7 million for the nine months ended March 31, 2024, of which $ 15.4 million related to EA LOCs originated in fiscal year 2023 and $ 12.3 million related to Revolving Loans.

GOODWILL AND INTANGIBLE ASSETS

Changes in the carrying amount of goodwill for the six months ended December 31, 2023 are as follows:

Changes in the carrying amount of goodwill for the nine months ended March 31, 2024 are as follows:

Goodwill Accumulated Impairment Losses Net

4 unchanged sentences

Impairments — — —

Balances as of December 31, 2023 $ 927,365 $ ( 138,297 ) $ 789,068

Balances as of March 31, 2024 $ 925,931 $ ( 138,297 ) $ 787,634

(1) All goodwill added during the period is expected to be tax-deductible for federal income tax reporting.

We test goodwill for impairment annually as of February 1, 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.

In conjunction with our annual impairment test, we tested goodwill for impairment during the quarter and did not identify any impairment.

Q3 FY2024 Form 10-Q| H&R Block, Inc.

2 unchanged sentences

Amortization Net

As of December 31, 2023:

As of March 31, 2024:

Reacquired franchise rights $ 403,242 $ ( 224,204 ) $ 179,038

15 unchanged sentences

$ 1,067,824 $ ( 790,781 ) $ 277,043

We made payments to acquire businesses totaling $ 27.2 million and $ 39.8 million during the six months ended December 31, 2023 and 2022, respectively.

The amounts and weighted-average lives of intangible assets acquired during the six months e nded December 31, 2023 a re as follows:

We made payments to acquire businesses totaling $ 43.2 million and $ 47.7 million during the nine months ended March 31, 2024 and 2023, respectively.

The amounts and weighted-average lives of intangible assets acquired during the nine months e nded March 31, 2024 a re as follows:

(dollars in 000s)

4 unchanged sentences

Total $ 46,521 5

Amortization of intangible assets for the three and six months ended December 31, 2023 was $ 15.4 million and $ 31.2 million, respectively, compared to $ 18.5 million and $ 36.9 million for the three and six months ended December 31, 2022, respectively.

Amortization of intangible assets for the three and nine months ended March 31, 2024 was $ 15.0 million and $ 46.2 million, respectively, compared to $ 17.8 million and $ 54.7 million for the three and nine months ended March 31, 2023, respectively.

Estimated amortization of intangible assets for fiscal years ending June 30, 2024, 2025, 2026, 2027, and 2028 is $ 61.1 million, $ 42.8 million, $ 33.1 million, $ 26.5 million and $ 18.7 million, respectively.

3 unchanged sentences

The components of long-term debt are as follows:

As of December 31, 2023 June 30, 2023

As of March 31, 2024 June 30, 2023

Senior Notes, 5.250 %, due October 2025

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650,000 650,000

Committed line of credit borrowings 800,000 —

Debt issuance costs and discounts ( 9,430 ) ( 11,025 )

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

We were in compliance with these requirements as of December 31, 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.

We were in compliance with these requirements as of March 31, 2024.

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 March 31, 2024.

We file a consolidated federal income tax return in the U.S.

with the Internal Revenue Service (IRS) and file tax returns in various state, local, and foreign jurisdictions.

We had gross unrecognized tax benefits of $ 208.4 million and $ 240.1 million as of December 31, 2023 and June 30, 2023, respectively.

The gross unrecognized tax benefits decreased by $ 31.7 million during the six months ended December 31, 2023 due to expiration of statutes of limitations and settlements with state tax authorities.

We had gross unrecognized tax benefits of $ 245.8 million and $ 240.1 million as of March 31, 2024 and June 30, 2023, respectively.

The gross unrecognized tax benefits increased by $ 5.7 million during the nine months ended March 31, 2024.

We believe it is reasonably possible that the balance of unrecognized tax benefits could decrease by approximately $ 121.8 million within the next twelve months.

1 unchanged sentence

For such matters where a change in the balance of unrecognized tax benefits is not yet deemed reasonably possible, no estimate has been included.

Our effective tax rate for continuing operations, including the effects of discrete tax items, was 17.6 % and 23.3 % for the nine months ended March 31, 2024 and 2023, respectively.

Discrete items decreased the effective tax rate

Q3 FY2024 Form 10-Q| H&R Block, Inc.

Our effective tax rate for continuing operations, including the effects of discrete tax items, was 28.9 % and 25.2 % for the six months ended December 31, 2023 and 2022, respectively.

Discrete items increased the effective tax rate by 5.4% and 1.4% for the six months ended December 31, 2023, and 2022, respectively.

A discrete income tax benefit of $26.6 million and $7.2 million were recorded in the six months ended December 31, 2023 and 2022, respectively.

The discrete tax benefit recorded in the current period primarily resulted from settlements with tax authorities and state statute of limitations expirations.

The discrete tax benefit recorded in the prior period primarily resulted from state statute of limitations expirations and refund interest.

The impact of discrete tax items combined with the seasonal nature of our business can cause the effective tax rate in our second quarter to be significantly different than the rate for our full fiscal year.

Consistent with prior years, our pretax loss for the six months ended December 31, 2023 is expected to be offset by income in our third and fourth quarters due to the established pattern of seasonality in our primary business operations.

As such, management has determined that it is more-likely-than-not that realization of tax benefits recorded in our financial statements will occur within our fiscal year.

The amount of tax benefit recorded for the six months ended December 31, 2023 reflects management’s estimate of the annual effective tax rate applied to year-to-date loss from continuing operations adjusted for the tax impact of discrete items for the periods presented.

by 6.3 % and 1.3 % for the nine months ended March 31, 2024, and 2023, respectively.

Discrete income tax benefits of $ 26.0 million and $ 4.2 million were recorded in the nine months ended March 31, 2024 and 2023, respectively.

The discrete tax benefit recorded in the current period primarily resulted from settlements with tax authorities and statute of limitations expirations.

The discrete tax benefit recorded in the prior period primarily resulted from state statute of limitations expirations.

The impact discrete tax items have on our tax rate through the third quarter are slightly exaggerated versus the impact discrete tax items have on the full fiscal year tax rate.

COMMITMENTS AND CONTINGENCIES

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DIY tax returns are covered by our 100% accuracy guarantee, whereby we will reimburse a client up to a maximum of $ 10,000 if our software makes an arithmetic error that results in payment of penalties and/or interest to the respective taxing authority that a client would otherwise not have been required to pay.

Our liability related to estimated losses under the 100% accuracy guarantee was $ 11.9 million and $ 15.8 million as of December 31, 2023 and June 30, 2023, respectively.

Our liability related to estimated losses under the 100% accuracy guarantee was $ 13.6 million and $ 15.8 million as of March 31, 2024 and June 30, 2023, respectively.

The short-term and long-term portions of this liability are included in deferred revenue and other liabilities in the consolidated balance sheets.

Liabilities related to acquisitions for (1) estimated contingent consideration based on expected financial performance of the acquired business and economic conditions at the time of acquisition and (2) estimated accrued compensation related to continued employment of key employees were $ 31.7 million and $ 18.3 million as of December 31, 2023 and June 30, 2023 respectively, with amounts recorded in deferred revenue and other liabilities.

Liabilities related to acquisitions for (1) estimated contingent consideration based on expected financial performance of the acquired business and economic conditions at the time of acquisition and (2) estimated accrued compensation related to continued employment of key employees were $ 27.9 million and $ 18.3 million as of March 31, 2024 and June 30, 2023 respectively, with amounts recorded in deferred revenue and other liabilities.

Should actual results differ from our estimates, future payments made will differ from the above estimate and any differences will be recorded in results from continuing operations.

We have contractual commitments to fund certain franchises with approved short-term lines of credit for the purpose of meeting their seasonal working capital needs.

Our total obligation under these lines of credit was $ 20.8 million at December 31, 2023, and net of amounts drawn and outstanding, our remaining commitment to fund totaled $ 6.2 million.

Our total obligation under these lines of credit was $ 21.3 million at March 31, 2024, and net of amounts drawn and outstanding, our remaining commitment to fund totaled $ 9.9 million.

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

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We continue to purchase a 90% participation interest in each loan made by Pathward in accordance with the participation agreement.

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

We purchased participation interests of $ 346.3 million during the nine months ended March 31, 2024.

Refund Advance loans are originated by Pathward and offered to certain assisted U.S.

tax preparation clients, based on client eligibility as determined by Pathward.

We pay fees primarily based on loan size and customer type.

We have provided a guarantee up to $ 18.0 million related to certain loans to clients prior to the IRS accepting electronic filing.

At March 31, 2024, we accrued an estimated liability of $ 1.4 million related to this guarantee, compared to $ 0.8 million at March 31, 2023.

LITIGATION AND OTHER RELATED CONTINGENCIES

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Jurisdictions may permit claimants not to specify the monetary damages sought or may permit claimants to state only that the amount sought is sufficient to invoke the jurisdiction.

In addition, jurisdictions may permit plaintiffs to allege monetary damages in amounts well exceeding reasonably possible

In addition, jurisdictions may permit plaintiffs to allege monetary damages in amounts well exceeding reasonably possible verdicts in the jurisdiction for similar matters.

We believe that the monetary relief which may be specified in a lawsuit or claim bears little relevance to its merits or disposition value due to this variability in pleadings and our experience in handling and resolving numerous claims over an extended period of time.

H&R Block, Inc.

|Q3 FY2024 Form 10-Q

verdicts in the jurisdiction for similar matters.

The outcome of a matter and the amount or range of potential loss at particular points in time may be difficult to ascertain.

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For such matters where a loss is believed to be reasonably possible, but not probable, or the loss cannot be reasonably estimated, no accrual has been made.

It is possible that such matters could require us to pay damages or make other expenditures or accrue liabilities in amounts that could not be reasonably estimated as of December 31, 2023.

It is possible that such matters could require us to pay damages or make other expenditures or accrue liabilities in amounts that could not be reasonably estimated as of March 31, 2024.

While the potential future liabilities could be material in the particular quarterly or annual periods in which they are recorded, based on information currently known, we do not believe any such liabilities are likely to have a material adverse effect on our business and our consolidated financial position, results of operations, and cash flows.

Our accrued liabilities were $ 1.8 million and $ 0.2 million as of December 31, 2023 and June 30, 2023, respectively.

Our accrued liabilities were $ 5.2 million and $ 0.2 million as of March 31, 2024 and June 30, 2023, respectively.

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.

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The matters underlying the estimated range will change from time to time, and actual results may vary significantly from the current estimate.

As of December 31, 2023, 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, is not material.

As of March 31, 2024, 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, is not material.

At the end of each reporting period, we review relevant information with respect to litigation, arbitration and other related loss contingencies and update our accruals, disclosures, and estimates of reasonably possible loss or range of loss based on such reviews.

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In the event of unfavorable outcomes, it could require modifications to our operations;

in addition, the amounts that may be required to be paid to discharge or settle the matters could

in addition, the amounts that may be required to be paid to discharge or settle the matters could be substantial and could have a material adverse impact on our business and our consolidated financial position, results of operations, and cash flows.

Q3 FY2024 Form 10-Q| H&R Block, Inc.

be substantial and could have a material adverse impact on our business and our consolidated financial position, results of operations, and cash flows.

LITIGATION, CLAIMS OR OTHER LOSS CONTINGENCIES PERTAINING TO CONTINUING OPERATIONS –

On May 6, 2019, the Los Angeles City Attorney filed a lawsuit on behalf of the People of the State of California in the Superior Court of California, County of Los Angeles (Case No.

19STCV15742).

The case is styled The People of the State of California v.

HRB Digital LLC, et al.

The complaint alleges that H&R Block, Inc.

and HRB Digital LLC engaged in unfair, fraudulent and deceptive business practices and acts in connection with the IRS Free File Program in violation of the California Unfair Competition Law, California Business and Professions Code §§17200 et seq.

The complaint seeks injunctive relief, restitution of monies paid to H&R Block by persons in the State of California who were eligible to file under the IRS Free File Program for the time period starting 4 years prior to the date of the filing of the complaint, pre-judgment interest, civil penalties and costs.

The City Attorney subsequently dismissed H&R Block, Inc.

from the case and amended its complaint to add HRB Tax Group, Inc.

We filed a motion for summary judgment, which was denied.

The parties have reached an agreement to settle this matter.

An accrual related to this matter is included in our loss contingency accrual.

In January 2024, we received a revised demand and draft complaint from the Federal Trade Commission (FTC) relating to certain aspects of our DIY tax preparation services.

If the parties are not able to reach amicable resolution, the FTC may seek resolution through litigation.

On February 23, 2024, the Federal Trade Commission (FTC) filed an administrative complaint before the FTC alleging unfair or deceptive business acts or practices in connection with certain aspects of our DIY tax preparation services.

A hearing before an administrative law judge (ALJ) of the FTC is scheduled for October 23, 2024.

We filed a complaint in federal court in the Western District of Missouri challenging the constitutionality of the ALJ’s removal protections and seeking to enjoin the ALJ’s participation in the adjudication of the matter, which remains pending.

We have also received and are responding to certain governmental inquiries and other matters relating to the IRS Free File Program and other aspects of our DIY tax preparation services, including the use of pixels.

We have not concluded that a loss related to these matters is probable, nor have we accrued a liability related to these matters.

An accrual related to these matters is included in our loss contingency accrual.

DISCONTINUED MORTGAGE OPERATIONS – Although SCC ceased its mortgage loan origination activities in December 2007 and sold its loan servicing business in April 2008, SCC or the Company has been and may in the future be, subject to litigation and other loss contingencies, including indemnification and contribution claims, pertaining to SCC's mortgage business activities that occurred prior to such termination and sale.

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Claimants also may attempt to assert claims against or seek payment directly from the Company even if SCC's assets exceed its liabilities.

SCC's principal assets, as of December 31, 2023, total approximately $ 268 million and consist of an intercompany note receivable.

SCC's principal assets, as of March 31, 2024, total approximately $ 271 million and consist of an intercompany note receivable.

We believe our legal position is strong on any potential corporate veil-piercing arguments;

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These matters may include actions by state attorneys general, other state regulators, federal regulators, individual plaintiffs, and cases in which plaintiffs seek to represent others who may be similarly situated.

While we cannot provide assurance that we will ultimately prevail in each instance, we believe the amount, if any, we are required to pay to discharge or settle these other matters will not have a material adverse impact on our business and our consolidated financial position, results of operations, and cash flows.

H&R Block, Inc.

|Q3 FY2024 Form 10-Q

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

What changed 10-Q

Item 1. Financial Statements