What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2024-08-15 compared with 2023-08-17 · 70 added, 86 removed, 254 unchanged (38% of the section changed)

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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.

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 online 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 (including in-person, online and virtual) and online through Wave.

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

This year's tax filing season was expected to return to normal with the pandemic largely behind us, no new federal programs, a large number of stimulus filers having left the industry in the prior year, and strong employment.

Generally, tax return volume was expected to increase compared to the prior year, however, the industry volume declined year over year due to more stimulus filers not returning and the tax deadline being extended in certain states due to natural disasters.

In fiscal year 2023, revenue increased $8.9 million over the prior year, despite the decline in industry volume.

assisted tax preparation revenues were higher $72.5 million primarily due to an increase in net average charge.

Lower Emerald Card® revenues, which is the result of the discontinuance of prior year federal programs, and lower Refund Transfer volume partially offset this increase.

Operating expenses increased $5.1 million primarily due to higher labor costs, which was partially offset by lower consulting and outsourced services expenses.

Higher interest income and lower interest expense on borrowings resulted in an increase in income from continuing operations before income taxes of $52.1 million, or 7.9%.

Income tax expense increased $51.0 million, or 51.8%, due to a higher effective tax rate in the current year.

In fiscal year 2024, revenue increased $138.2 million over the prior year.

assisted tax preparation revenues were higher $107.7 million due to an increase in net average charge and company-owned tax return volumes.

DIY tax preparation revenues increased $35.1 million due to increases in online paid returns and paid net average charge.

Operating expenses increased $81.6 million due to higher labor costs and bad debt expense, which was partially offset by lower consulting and outsourced services expenses.

This resulted in an increase in pretax income of $51.1 million, or 7.2%.

Net income from continuing operations of $598.0 million increased $36.2 million from the prior year.

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

Fiscal Year End

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

The Company's transition period was from May 1, 2021 to June 30, 2021 (Transition Period).

2024 Form 10-K | H&R Block, Inc.

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76,093 84,651 (8,558) (10.1) %

Interest and fee income on Emerald Advance SM

47,554 43,981 3,573 8.1 %

Interest and fee income on Emerald Advance® 40,933 47,554 (6,621) (13.9) %

Total financial services 117,026 132,205 (15,179) (11.5) %

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Revenues increased $138.2 million, or 4.0%, from the prior year.

assisted tax preparation revenues increased $72.5 million, or 3.5%, due to a 4.0% increase in net average charge, partially offset by lower tax return volumes in the current year.

royalties revenue decreased $14.6 million, or 6.5%, due to lower volumes, partially offset by a higher net average charge in the current year.

assisted tax preparation revenues increased $107.7 million, or 5.0%, due to a 4.0% increase in net average charge combined with higher company-owned tax return volumes in the current year.

royalties revenue decreased $5.8 million, or 2.8%, 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 year ended June 30, 2023, our total assisted tax return volume, which includes both company-owned and franchise offices, decreased 3.2% from the prior year.

DIY tax preparation revenues decreased $4.3 million, or 1.4%, due to a decline in online paid returns and lower software sales in the current year.

Refund Transfer revenues decreased $19.6 million, or 12.0%, due to fewer Refund Transfers in the current year.

Emerald Card® and Spruce SM revenues decreased $40.8 million, or 32.5%, primarily due to higher Emerald Card® activity in the prior year, which was the result of the IRS loading Child Tax Credits monthly to Emerald Cards® and lower Refund Transfer volume in the current year.

During the year ended June 30, 2024 our total assisted tax return volume, which includes both company-owned and franchise offices, decreased 1.3% from the prior year.

DIY tax preparation revenues increased $35.1 million, or 11.1%, due to a 5.4% increase in online paid returns combined with a 6.8% increase in paid net average charge compared to the prior year.

Emerald Card® and Spruce SM revenues decreased $8.6 million, or 10.1%, 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® decreased $6.6 million, or 13.9%, due to lower customer fees under the new EA term loans, partially offset by higher interest income due to the increase in EA term loans and a longer loan term in the current year.

International revenues increased $12.0 million, or 5.1%, due to higher tax returns prepared by our Canadian and Australian operations, partially offset by unfavorable foreign currency exchange rates.

Wave revenues increased $6.2 million, or 6.8%, due to higher small business payments processing volumes.

Total operating expenses increased $81.6 million, or 3.0%, from the prior year.

Field wages increased $32.8 million, or 4.1%, primarily due to higher wages in the current year.

Other wages decreased $10.8 million, or 3.8%, due to lower corporate bonuses in the current year.

Benefits and other compensation increased $13.6 million, or 6.6%, due to higher payroll taxes and employee insurance.

Occupancy expense increased $15.0 million or 3.6%, primarily due to higher rent and office repairs.

Depreciation and amortization expense decreased $11.7 million, or 8.2%, due primarily to lower amortization of acquired intangibles.

Bad debt expense decreased $11.4 million, or 15.9%, primarily due to fewer Refund Transfers and lower bad debt rates compared to the prior year.

Other operating expenses decreased $24.5 million, or 4.8%.

Field wages increased $27.3 million, or 3.2%, due to higher wages in the current year primarily resulting from an increase in company-owned volumes.

Other wages increased $25.0 million, or 9.1%, due to higher corporate bonuses and wages in the current year.

Benefits and other compensation increased $8.2 million, or 3.7%, due to higher payroll taxes.

Marketing and advertising expense decreased $8.5 million, or 3.0%, due to vendor refunds for expired customer incentives and lower agency fees.

Depreciation and amortization decreased $8.7 million, or 6.7%, due to lower amortization of capitalized software.

Bad debt expense increased $31.1 million, or 51.5%, due to higher EA bad debt rates coupled with an increase in EAs and RTs compared to the prior year.

Other operating expenses increased $3.0 million, or 0.6%.

The components of other expenses are as follows:

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$ 485,011 $ 482,041 $ (2,970) (0.6) %

Consulting and outsourced services expense decreased $27.3 million, or 20.0%, due to higher spend in the prior year related to our strategic imperatives, and lower call center volumes and Emerald Card® data processing in the current year.

Employee and travel expenses increased $7.5 million, or 23.8%, due to more travel in the current year.

Insurance expense decreased $6.4 million, or 42.2%, due to due to favorable developments in insurance loss reserves.

Legal fees and settlements expense decreased $7.6 million, or 38.6%, due to lower fees in the current year.

Other income (expense), net increased $33.0 million primarily due to higher interest income and income from a legal settlement in the current year.

Interest expense on borrowings decreased $15.3 million, or 17.3%, due to the repayment of our $500 million 5.500% Senior Notes in May 2022, partially offset by higher interest expense on our CLOC borrowings in the current year.

2023 Form 10-K | H&R Block, Inc.

Consulting and outsourced services expense decreased $16.4 million, or 15.0%, due to lower contract labor, Emerald Card® data processing and call center expenses in the current year.

Legal fees and settlements expense increased $16.5 million in the current year.

We recorded income tax expense of $164.4 million in the current year compared to $149.4 million in the prior year.

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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.

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

The comparison of the year ended April 30, 2021 to April 30, 2020 has been omitted from this Form 10-K, but can be found in our Form 10-K for the fiscal year ended June 30, 2022, filed on August 16, 2022.

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

The comparison of the two months ended June 30, 2021 to the two months ended June 30, 2020 has been omitted from this Form 10-K, but can be found in our Form 10-K for the fiscal year ended June 30, 2022, filed on August 16, 2022.

2024 Form 10-K | H&R Block, Inc.

FISCAL YEAR 2023 COMPARED TO FISCAL YEAR 2022

The comparison of fiscal year 2023 to 2022 has been omitted from this Form 10-K, but can be found in our Form 10-K for the fiscal year ended June 30, 2023, filed on August 17, 2023.

FINANCIAL CONDITION

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Effects of exchange rates on cash (2,814) (4,857)

Net decrease in cash and cash equivalents, including restricted balances $ (35,397) $ (533,451)

Net increase (decrease) in cash and cash equivalents, including restricted balances $ 59,877 $ (35,397)

Operating Activities.

Cash provided by operating activities totaled $720.9 million for the year ended June 30, 2024 compared to $821.8 million in the prior year period.

The change is primarily due to the receipt of income tax receivables in the current year, partially offset by lower bonus accruals in the current year.

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

Investing Activities.

Cash used in investing activities totaled $93.9 million for the year ended June 30, 2024 compared to $101.4 million for the prior year period.

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

H&R Block, Inc.

| 2023 Form 10-K

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

Financing Activities.

Cash us ed in financing activities totaled $751.0 million for the year ended June 30, 2023 compared to $1.3 billion for the prior year period.

The change is primarily due to repayment of our $500 million 5.500% Senior Notes in the prior year.

Cash used in financing activities totaled $564.3 million for the year ended June 30, 2024 compared to $751.0 million for the prior year period.

The change is primarily due to lower share repurchases in the current year.

CASH REQUIREMENTS –

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Dividends paid totaled $179.8 million and $177.9 million in the years ended June 30, 2024 and 2023, 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.

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

During the year ended June 30, 2023, we repurchased $550.2 million of our common stock at an average price of $37.59 per share.

Although we have historically paid dividends and plan to

H&R Block, Inc.

| 2024 Form 10-K

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.

On August 15, 2024, our Board of Directors authorized a new share repurchase program under which we may repurchase up to $1.5 billion of our outstanding common stock.

This repurchase program does not have an expiration date and replaced the previously existing share repurchase program.

During the year ended June 30, 2024, we repurchased $350.1 million of our common stock at an average price of $43.66 per share under the previously existing share repurchase authorization.

In the prior year, we repurchased $550.2 million of our common stock at an average price of $37.59 per share.

Our share repurchase program has remaining authorization of $700.0 million which is 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.

The Company may cancel, suspend, or extend the time period for the purchase of shares at any time.

Share repurchases are subject to prevailing market prices, may be made in open market transactions (some of which may be effectuated under SEC Rule 10b5-1) and remain subject to the discretion of our Board of Directors.

The Company may cancel or suspend the repurchase of shares at any time.

Any repurchases will be funded primarily through available cash and cash from operations.

Although we may continue to repurchase shares, there is no assurance that we will purchase up to the full Board authorization.

There can be no assurance that we will repurchase any shares.

The following table summarizes our shares outstanding, shares repurchased, and annual dividends per share:

(in 000s, except per share amounts)

June 30, 2023 Year ended

June 30, 2022 Two months ended

June 30, 2021

(Transition Period) Year ended

April 30, 2021 Year ended

April 30, 2020

Year ended June 30, 2024 2023 2022

Shares outstanding 139,591 146,150 159,930

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

Contractual Obligations.

Contractual Obligations and Commercial Commitments.

Effective October 20, 2023, we amended the Program Management Agreement (PMA) with Pathward and entered into a new participation agreement related to EAs.

Additionally, on April 1, 2024, we further amended the PMA to facilitate an interest-bearing feature for Spruce savings accounts.

We are party to many contractual obligations involving commitments to make payments to third parties, which impact our short-term and long-term liquidity and capital resource needs.

Our contractual obligations primarily consist of operating leases, contingent acquisition payments, and long-term debt and related interest payments.

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

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

FINANCING RESOURCES – Our CLOC has capacity up to $1.5 billion and is scheduled to expire in June 2026.

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

2023 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, 2024 and 2023:

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

Moody's P-3 Baa3 Positive P-3 Baa3 Stable

Moody's P-3 Baa3 Stable P-3 Baa3 Positive

S&P A-2 BBB Stable A-2 BBB Stable

CASH AND OTHER ASSETS – As of June 30, 2023, we held cash and cash equivalents, excluding restricted amounts, of $987.0 million, including $293.4 million held by our foreign subsidiaries.

CASH AND OTHER ASSETS – As of June 30, 2024, we held cash and cash equivalents, excluding restricted amounts, of $1.1 billion, including $170.8 million held by our foreign subsidiaries.

2024 Form 10-K | H&R Block, Inc.

Foreign Operations.

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Assumptions and Approach Used.

Differences between a tax position taken or expected to be taken in our tax returns and the amount of benefit recorded in our financial statements result in unrecognized tax benefits.

Unrecognized tax benefits are recorded in the balance sheet as either a liability or reductions to recorded tax assets as applicable.

Differences between a tax position taken or expected to be taken in our tax returns and the amount of benefit recorded in our financial statements result in uncertain tax positions.

Uncertain tax positions are recorded in the balance sheet as either a liability or reductions to recorded tax assets as applicable.

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

We evaluate each uncertain tax

We evaluate each uncertain tax position based

2024 Form 10-K | H&R Block, Inc.

position based on its technical merits.

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 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.

We test goodwill for impairment annually as of February 1 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.

We first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value.

If, based on a review of qualitative factors, it is more likely than not that the fair value of a reporting unit is less than its carrying value, we perform a quantitative analysis.

Our goodwill impairment analysis utilizes both 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.

Our goodwill impairment analysis utilizes both income and market approaches, which includes revenue and expense forecasts, selection of market multiples of comparable publicly traded companies and selection of a discount rate, all of which are highly subjective.

Assumptions and Approach Used.

Our goodwill impairment analysis is performed at the reporting unit level.

Our valuation methods include a discounted cash flow model for the income approach and the guideline public company and market capitalization methods for the market approach.

The income approach requires significant management judgment with respect to revenue and expense forecasts, anticipated changes in working capital and selection of an appropriate discount rate.

Our valuation methods include a discounted cash flow model for the income approach and the guideline public company method for the market approach.

The income approach requires significant management judgment with respect to revenue and expense forecasts and selection of an appropriate discount rate.

The market approach requires significant assumptions related to the selection of comparable publicly traded companies and the market multiples.

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

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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 many aspects of our business.

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.

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 and RAs, 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 "Legal and Regulatory Risks" of this Form 10-K.

H&R Block, Inc.

| 2024 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.

On October 19, 2022, the appellate court found that the funding mechanism for the CFPB was unconstitutional and vacated the Payday Rule.

On November 14, 2022, the CFPB filed a petition for review with the United States Supreme Court, which the Supreme Court granted on February 27, 2023.

We are unsure whether, when, or in what form the Payday Rule will go into effect.

Though we do not currently expect the Payday Rule to have a material adverse impact on Emerald Advance SM , our business, or our consolidated financial position, results of operations, and cash flows, we will continue to monitor and analyze the potential impact of any further developments on the Company.

There has been recent increased regulatory focus in the area of financial services and products, which has impacted or may in the future impact our program, our contractual arrangements with our bank partner or other partners, or the offering of financial products and services to our clients.

For example, as previously disclosed, in 2017 the CFPB published a final rule regulating certain consumer credit products (Payday Rule).

The Payday Rule was challenged through litigation, which stayed the compliance deadline.

On May 16, 2024, the U.S.

Supreme Court upheld the constitutionality of the CFPB, and the new effective date of the Payday Rule is currently set for March 30, 2025, though further developments are possible.

Though we do not expect the Payday Rule to have a material adverse impact on us, we will continue to monitor and analyze the potential impact of this and other current and future regulatory developments related to financial services and products.

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

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

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 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.

2023 Form 10-K | H&R Block, Inc.

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

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EBITDA from continuing operations $ 963,186 $ 914,691

The following is a reconciliation of our results from continuing operations to our adjusted results from continuing operations, which are non-GAAP financial measures:

2024 Form 10-K | H&R Block, Inc.

The following is a reconciliation of our results from continuing operations to our adjusted results from continuing operations, which is a non-GAAP financial measure:

(in 000s, except per share amounts)

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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-K

Item 7. Management’s Discussion and Analysis