What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-05-09 compared with 2024-02-06 · 96 added, 89 removed, 226 unchanged (45% of the section changed)

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Our subsidiaries provide assisted and do-it-yourself (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 United States (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.

Tax returns are either prepared by H&R Block tax professionals in one of our 6,643 company-owned or 2,168 franchise offices (as of March 31, 2024), 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.

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

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

Three months ended March 31, 2024 2023 $ Change % Change

tax preparation and related services:

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41,160 44,358 (3,198) (7.2) %

Interest and fee income on Emerald Advance SM

15,235 12,903 2,332 18.1 %

Interest and fee income on Emerald Advance® 21,169 33,750 (12,581) (37.3) %

Total financial services 62,329 78,108 (15,779) (20.2) %

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Interest expense on borrowings (26,070) (22,298) (3,772) (16.9) %

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 %

Pretax income 907,358 855,428 51,930 6.1 %

Income taxes 215,772 209,351 (6,421) (3.1) %

Net income from continuing operations 691,586 646,077 45,509 7.0 %

Net loss from discontinued operations (849) (2,648) 1,799 67.9 %

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

BASIC AND DILUTED LOSS PER SHARE:

Net income $ 690,737 $ 643,429 $ 47,308 7.4 %

DILUTED EARNINGS PER SHARE

Continuing operations $ 4.87 $ 4.14 $ 0.73 17.6 %

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|Q3 FY2024 Form 10-Q

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

Three months ended March 31, 2024 compared to March 31, 2023

Revenues increased $91.2 million, or 4.4%, 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%.

assisted tax preparation revenues increased $81.8 million, or 5.6%, due to a 4.4% increase in net average charge combined with higher company-owned tax return volumes in the current year.

royalty revenue decreased $8.2 million, or 5.5%, due to lower franchise tax return volumes.

During the year we purchased franchise offices which results in increasing tax preparation revenues and decreasing royalties as the revenues and returns become company-owned after the acquisition.

For the three months ended March 31, 2024 our total assisted tax return volume, which includes both company-owned and franchise offices, decreased 1.1% from the prior year.

DIY tax preparation revenues increased $31.5 million, or 18.9%, primarily due to an 8.9% increase in online paid returns combined with a 10.3% increase in paid net average charge compared to the prior year.

Interest and fee income on Emerald Advance® (EA) decreased $12.6 million, or 37.3%, due to lower customer fees under the new EA term loan, partially offset by higher interest income in the current year due to the increase in EA loans and a later due date for the loans than the prior year.

Total operating expenses increased $27.5 million, or 2.2%, from the prior year.

Field wages increased $29.5 million, or 6.1%, due to higher wages in the current year primarily due to the increase in company-owned volumes.

Marketing and advertising expense decreased $16.2 million, or 7.7%, primarily due to the timing of television advertising in the current year compared to the prior year.

Bad debt expense increased $6.7 million, or 19.7%, primarily due to an increase in Refund Transfers and higher bad debt rates in the current year.

Other operating expenses increased $6.6 million, or 3.7%.

The components of other expenses are as follows:

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

Three months ended March 31, 2024 2023 $ Change % Change

Consulting and outsourced services $ 37,896 $ 42,130 $ 4,234 10.0 %

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$ 185,929 $ 179,292 $ (6,637) (3.7) %

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.

Bank partner fees increased $4.9 million, or 19.8%, due to the increase in Refund Advance loans in the current year.

Legal fees and settlements expense increased $8.6 million in the current year.

Supplies expense decreased $4.7 million, or 29.6%, primarily due to lower office supplies purchased in the current year.

Other income (expense), net decreased $8.0 million, or 60.5%, primarily due to income from a legal settlement in the prior year.

We recorded income tax expense of $215.8 million in the current year compared to $209.4 million in the prior year.

The effective tax rate for the three months ended March 31, 2024, and 2023 was 23.8% and 24.5%, respectively.

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

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

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

Nine months ended March 31, 2024 2023 $ Change % Change

tax preparation and related services:

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61,493 68,448 (6,955) (10.2) %

Interest and fee income on Emerald Advance SM

15,533 13,517 2,016 14.9 %

Interest and fee income on Emerald Advance® 36,702 47,267 (10,565) (22.4) %

Total financial services 98,195 115,715 (17,520) (15.1) %

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Interest expense on borrowings (63,304) (57,107) (6,197) (10.9) %

Pretax loss (495,234) (519,327) 24,093 4.6 %

Income tax benefit (143,245) (131,097) 12,148 9.3 %

Net loss from continuing operations (351,989) (388,230) 36,241 9.3 %

Pretax income 412,124 336,101 76,023 22.6 %

Income taxes 72,527 78,254 5,727 7.3 %

Net income from continuing operations 339,597 257,847 81,750 31.7 %

Net loss from discontinued operations (2,097) (6,418) 4,321 67.3 %

Net loss $ (353,237) $ (392,000) $ 38,763 9.9 %

BASIC AND DILUTED LOSS PER SHARE:

Net income $ 337,500 $ 251,429 $ 86,071 34.2 %

DILUTED EARNINGS PER SHARE

Continuing operations $ 2.34 $ 1.62 $ 0.72 44.4 %

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|Q3 FY2024 Form 10-Q

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

Nine months ended March 31, 2024 compared to March 31, 2023

Revenues increased $107.7 million, or 4.4%, from the prior year.

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.

assisted tax preparation revenues increased $91.9 million, or 6.0%, due to a 4.6% increase in net average charge combined with higher company-owned tax return volumes in the current year.

royalties revenue decreased $8.3 million, or 5.1%, due to lower franchise tax return volumes.

During the year we purchased franchise offices which results in increasing tax preparation revenues and decreasing royalties as the revenues and returns become company-owned after the acquisition.

Through the nine months ended March 31, 2024 our total assisted tax return volume, which includes both company-owned and franchise offices, decreased 1.1% from the prior year.

DIY tax preparation revenues increased $33.2 million, or 18.2%, primarily due to a 9.1% increase in online paid returns combined with a 9.4% increase in paid net average charge compared to the prior year.

Emerald Card® and Spruce SM revenues decreased $7.0 million, or 10.2%, 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 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.

Interest and fee income on Emerald Advance® decreased $10.6 million, or 22.4%, due to lower customer fees under the new EA term loan, partially offset by higher interest income due to the increase in EA loans and a longer loan term in the current year.

Total operating expenses increased $25.4 million, or 1.2%, from the prior year period.

Field wages increased $31.9 million, or 5.2%, due to higher wages in the current year primarily resulting from an increase in company-owned volumes.

Other wages increased $14.3 million, or 6.9%, primarily due to higher corporate wages in the current year.

Marketing and advertising expense decreased $25.2 million, or 10.6%, primarily due to the timing of television advertising in the current year compared to the prior year.

Depreciation and amortization expense decreased $7.7 million, or 7.8%, 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.

Bad debt expense increased $10.5 million, or 18.5%, due to an increase in Refund Transfers and EA loans coupled with higher bad debt rates compared to the prior year.

Other operating expenses decreased $3.0 million, or 0.8%.

The components of other expenses are as follows:

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

Nine months ended March 31, 2024 2023 $ Change % Change

Consulting and outsourced services $ 67,297 $ 82,635 $ 15,338 18.6 %

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$ 360,111 $ 363,081 $ 2,970 0.8 %

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 six months ended December 31, 2023, and 2022 was 28.9% and 25.2%, respectively.

Consulting and outsourced services expense decreased $15.3 million, or 18.6%, due to lower contract labor, Emerald Card® data processing and call center expenses in the current year.

Legal fees and settlements expense increased $12.6 million, or 175.5%, in the current year.

We recorded income tax expense of $72.5 million in the current year compared to $78.3 million in the prior year.

The effective tax rate for the nine months ended March 31, 2024, and 2023 was 17.6% and 23.3%, respectively.

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

Assisted tax return volume, which includes our company-owned and franchise operations, decreased 1.2% from July 1, 2023 through April 30, 2024 compared to the prior year period.

DIY online paid tax return volume from July 1, 2023 through April 30, 2024, increased 5.9% compared to the prior year period.

Our business is highly

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

seasonal and results for the nine months ended March 31, as well as results for the period ended April 30, may not be indicative of results for the fiscal year ended June 30, 2024.

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 .

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 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.

Given the likely availability of a number of liquidity options discussed herein, we believe that, in the absence of any unexpected developments, our existing sources of capital as of March 31, 2024 are sufficient to meet our operating, investing and financing needs.

DISCUSSION OF CONSOLIDATED STATEMENTS OF CASH FLOWS – The following table summarizes our statements of cash flows for the nine months ended March 31, 2024 and 2023.

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

Six months ended December 31, 2023 2022

Nine months ended March 31, 2024 2023

Net cash provided by (used in):

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Operating Activities.

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.

Cash provided by operations totaled $420.3 million for the nine months ended March 31, 2024 compared to $498.4 million in the prior year period.

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

Investing Activities.

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.

Cash used in investing activities totaled $99.6 million for the nine months ended March 31, 2024 compared to $101.3 million in the prior year period.

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

Financing Activities.

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 used in financing activities totaled $520.5 million for the nine months ended March 31, 2024 compared to $505.6 million in the prior year period.

The change is primarily due to higher shares surrendered related to the vesting of stock-based compensation awards in the current year.

CASH REQUIREMENTS –

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We have consistently paid quarterly dividends.

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 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.

Dividends paid totaled $135.1 million and $133.8 million for the nine months ended March 31, 2024 and 2023, respectively.

Although we have historically paid dividends and plan

H&R Block, Inc.

|Q3 FY2024 Form 10-Q

to continue to do so, there can be no assurances that circumstances will not change in the future that could affect our ability or decisions to pay dividends.

During the nine months ended March 31, 2024, 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.

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

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Capital Investment.

Capital expenditures totaled $32.7 million and $41.5 million for the six months ended December 31, 2023 and 2022, respectively.

Capital expenditures totaled $53.8 million and $56.7 million for the nine months ended March 31, 2024 and 2023, 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 $27.2 million and $39.8 million during the six months ended December 31, 2023 and 2022, respectively.

We acquired franchisee and competitor businesses totaling $43.2 million and $47.7 million during the nine months ended March 31, 2024 and 2023, respectively.

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

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

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

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.

The following table provides ratings for debt issued by Block Financial LLC (Block Financial) as of March 31, 2024 and June 30, 2023:

As of March 31, 2024 June 30, 2023

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

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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 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.

CASH AND OTHER ASSETS – As of March 31, 2024, we held cash and cash equivalents, excluding restricted amounts, of $794.6 million, including $130.8 million held by our foreign subsidiaries.

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 December 31, 2023.

There were no forward contracts outstanding as of March 31, 2024.

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 $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.

The impact of changes in foreign exchange rates during the period on our international cash balances resulted in an decrease of $2.7 million and $7.9 million during the nine months ended March 31, 2024 and 2023, respectively.

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

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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.

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

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.

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

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

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

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

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

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

As of December 31, 2023 June 30, 2023

As of March 31, 2024 June 30, 2023

Current assets $ 90,867 $ 37,407

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

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

Nine months ended March 31, 2024 Twelve months ended June 30, 2023

Total revenues $ 119,650 $ 160,236

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Net income 52,029 23,613

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.

The table above reflects $1.7 billion of non-current intercompany receivables due to the Issuer from non-guarantor subsidiaries as of March 31, 2024 and June 30, 2023, respectively.

REGULATORY ENVIRONMENT

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|Q3 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 December 31, Six months ended December 31,

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

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

2024 2023 2024 2023

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

Net income - as reported $ 690,737 $ 643,429 $ 337,500 $ 251,429

Discontinued operations, net 849 2,648 2,097 6,418

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

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

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

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

Interest expense 26,070 22,298 63,304 57,107

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(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 - as reported $ (189,116) $ (220,863) $ (351,989) $ (388,230)

Net income from continuing operations - as reported $ 691,586 $ 646,077 $ 339,597 $ 257,847

Amortization of intangibles related to acquisitions (pretax) 12,869 13,011 37,693 38,546

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(2,793) (3,190) (8,815) (9,198)

Adjusted net loss from continuing operations $ (179,934) $ (210,811) $ (333,187) $ (368,703)

Diluted loss per share from continuing operations - as reported $ (1.33) $ (1.43) $ (2.44) $ (2.48)

Adjusted net income from continuing operations $ 701,622 $ 655,898 $ 368,475 $ 287,195

Diluted earnings per share from continuing operations - as reported $ 4.87 $ 4.14 $ 2.34 $ 1.62

Adjustments, net of tax 0.07 0.06 0.20 0.18

Adjusted diluted loss per share from continuing operations $ (1.27) $ (1.37) $ (2.31) $ (2.36)

Adjusted diluted earnings per share from continuing operations $ 4.94 $ 4.20 $ 2.54 $ 1.80

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

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They may include estimates of revenues, client trajectory, income, effective tax rate, earnings per share, cost savings, capital expenditures, dividends, share repurchases, liquidity, capital structure, market share, industry volumes or other financial items, descriptions of management's plans or objectives for future operations, services or products, or descriptions of assumptions underlying any of the above.

They may also include the expected impact of 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.

They may also include the expected impact of external events beyond the Company's control, such as outbreaks of infectious

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

disease (including the coronavirus (COVID-19) pandemic), severe weather events, natural or manmade disasters, or changes in the regulatory environment in which we operate.

All forward-looking statements speak only as of the date they are made and reflect the Company's good faith beliefs, assumptions and expectations, but they are not guarantees of future performance or events.

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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