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Item 1. Financial Statements

2024-11-07 compared with 2024-05-09 · 100 added, 186 removed, 321 unchanged (47% of the section changed)

FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME:

(unaudited, in 000s, except

per share amounts)

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

2024 2023 2024 2023

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS:

(unaudited, in 000s, except per share amounts)

Three months ended September 30,

Service revenues $ 181,771 $ 171,726

7 unchanged sentences

Interest expense on borrowings ( 15,847 ) ( 15,870 )

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

Loss from continuing operations before income tax benefit ( 232,261 ) ( 212,360 )

Income tax benefit ( 60,840 ) ( 49,487 )

Net loss from continuing operations ( 171,421 ) ( 162,873 )

Net loss from discontinued operations, net of tax benefits of $ 345 and $ 182

( 1,155 ) ( 609 )

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

BASIC EARNINGS PER SHARE:

Continuing operations $ 4.94 $ 4.22 $ 2.37 $ 1.65

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

Consolidated $ 4.93 $ 4.21 $ 2.36 $ 1.61

DILUTED EARNINGS PER SHARE:

NET LOSS $ ( 172,576 ) $ ( 163,482 )

BASIC AND DILUTED LOSS PER SHARE:

Continuing operations $ ( 1.23 ) $ ( 1.11 )

2 unchanged sentences

DIVIDENDS DECLARED PER SHARE $ 0.375 $ 0.32

COMPREHENSIVE INCOME:

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

COMPREHENSIVE LOSS:

Net loss $ ( 172,576 ) $ ( 163,482 )

Change in foreign currency translation adjustments 6,117 ( 10,914 )

Other comprehensive income (loss) 6,117 ( 10,914 )

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

Comprehensive loss $ ( 166,459 ) $ ( 174,396 )

See accompanying notes to consolidated financial statements.

3 unchanged sentences

share and per share amounts)

As of March 31, 2024 June 30, 2023

As of September 30, 2024 June 30, 2024

Cash and cash equivalents $ 415,860 $ 1,053,326

29 unchanged sentences

Accumulated other comprehensive loss ( 42,728 ) ( 48,845 )

Retained deficit ( 200,296 ) ( 48,677 )

Retained earnings (deficit) ( 424,548 ) 12,654

Less treasury shares, at cost, of 30,572,921 and 31,324,609

5 unchanged sentences

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

Nine months ended March 31, 2024 2023

Three months ended September 30, 2024 2023

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income $ 337,500 $ 251,429

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

Net loss $ ( 172,576 ) $ ( 163,482 )

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

Depreciation and amortization 28,831 30,225

9 unchanged sentences

Other, net ( 1,019 ) 160

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

Net cash used in operating activities ( 328,581 ) ( 334,989 )

CASH FLOWS FROM INVESTING ACTIVITIES:

6 unchanged sentences

CASH FLOWS FROM FINANCING ACTIVITIES:

Repayments of line of credit borrowings ( 1,025,000 ) ( 970,000 )

Proceeds from line of credit borrowings 1,025,000 970,000

Dividends paid ( 44,653 ) ( 42,953 )

7 unchanged sentences

SUPPLEMENTARY CASH FLOW DATA:

Income taxes paid (received), net $ 35,888 $ ( 110,028 )

Income taxes paid, net (includes payments for purchased investment tax credits) $ 48,343 $ 58,337

Interest paid on borrowings 19,792 19,792

2 unchanged sentences

Accrued dividends payable to common shareholders 52,307 46,901

Accrued purchase of common stock 7,131 10,003

See accompanying notes to consolidated financial statements.

10 unchanged sentences

Net loss — — — — ( 172,576 ) — — ( 172,576 )

Other comprehensive loss — — — ( 10,914 ) — — — ( 10,914 )

Stock-based compensation — — 6,211 — — — — 6,211

Stock-based awards exercised or vested — — ( 34,226 ) — ( 3,220 ) 1,867 37,348 ( 98 )

Acquisition of treasury shares (2)

— — — — — ( 823 ) ( 28,464 ) ( 28,464 )

Repurchase and retirement of common shares ( 3,265 ) ( 32 ) ( 1,927 ) — ( 131,341 ) — — ( 133,300 )

Cash dividends declared - $ 0.32 per share

— — — — ( 46,901 ) — — ( 46,901 )

Balances as of September 30, 2023 175,671 $ 1,757 $ 740,434 $ ( 48,013 ) $ ( 393,621 ) ( 31,742 ) $ ( 645,441 ) $ ( 344,884 )

Net loss — — — — ( 189,755 ) — — ( 189,755 )

Other comprehensive income — — — 6,117 — — — 6,117

6 unchanged sentences

— — — — ( 52,307 ) — — ( 52,307 )

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) Represents shares swapped or surrendered to us in connection with the vesting or exercise of stock-based awards.

See accompanying notes to consolidated financial statements.

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

(amounts in 000s, except per share amounts)

Balances as of September 30, 2024 167,615 $ 1,676 $ 744,076 $ ( 42,728 ) $ ( 424,548 ) ( 30,573 ) $ ( 646,541 ) $ ( 368,065 )

Common Stock Additional

15 unchanged sentences

Balances as of September 30, 2023 175,671 $ 1,757 $ 740,434 $ ( 48,013 ) $ ( 393,621 ) ( 31,742 ) $ ( 645,441 ) $ ( 344,884 )

Net loss — — — — ( 223,579 ) — — ( 223,579 )

Other comprehensive income — — — 9,307 — — — 9,307

Stock-based compensation — — 9,544 — — — — 9,544

Stock-based awards exercised or vested — — 421 — ( 209 ) 52 1,023 1,235

Acquisition of treasury shares (2)

— — — — — ( 2 ) ( 79 ) ( 79 )

Repurchase and retirement of common shares ( 3,241 ) ( 33 ) ( 1,911 ) — ( 128,409 ) — — ( 130,353 )

Cash dividends declared - $ 0.29 per share

— — — — ( 44,569 ) — — ( 44,569 )

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.

1 unchanged sentence

See accompanying notes to consolidated financial statements.

H&R Block, Inc.

|Q3 FY2024 Form 10-Q

Q1 FY2025 Form 10-Q| H&R Block, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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.

BASIS OF PRESENTATION – The consolidated balance sheets as of September 30, 2024 and June 30, 2024, the consolidated statements of operations and comprehensive loss for the three months ended September 30, 2024 and 2023, the consolidated statements of cash flows for the three months ended September 30, 2024 and 2023, and the consolidated statements of stockholders' equity for the three months ended September 30, 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 September 30, 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.

4 unchanged sentences

MANAGEMENT ESTIMATES – The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.

Significant estimates, assumptions and judgments are applied in the evaluation of contingent losses arising from our discontinued mortgage business, contingent losses associated with pending claims and litigation, reserves for uncertain tax positions, fair value of reporting units, and related matters.

Significant estimates, assumptions and judgments are applied in the evaluation of contingent losses associated with pending claims and litigation, reserves for uncertain tax positions, and fair value of reporting units.

Estimates have been prepared based on the best information available as of each balance sheet date.

2 unchanged sentences

Therefore, results for interim periods are not indicative of results to be expected for the full year.

DISCONTINUED OPERATIONS – Our discontinued operations include the results of operations of Sand Canyon Corporation, previously known as Option One Mortgage Corporation (including its subsidiaries, collectively, SCC), which exited its mortgage business in fiscal year 2008.

See note 9 for additional information on loss contingencies related to our discontinued operations.

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

DISCONTINUED OPERATIONS – Our discontinued operations include the results of operations of Sand Canyon Corporation, previously known as Option One Mortgage Corporation, which exited its mortgage business in fiscal year 2008.

H&R Block, Inc.

|Q1 FY2025 Form 10-Q

REVENUE RECOGNITION

2 unchanged sentences

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

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

2024 2023 2024 2023

Three months ended September 30,

assisted tax preparation $ 42,963 $ 39,263

5 unchanged sentences

Emerald Card® and Spruce SM

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

Interest and fee income on Emerald Advance® — 298

5 unchanged sentences

POM Deferred Revenue Deferred Wages

Nine months ended March 31, 2024 2023 2024 2023

Three months ended September 30, 2024 2023 2024 2023

Balance, beginning of the period $ 156,610 $ 167,257 $ 20,212 $ 21,828

2 unchanged sentences

Balance, end of the period $ 130,723 $ 139,935 $ 16,598 $ 18,511

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

As of September 30, 2024, deferred revenue related to POM was $ 130.7 million.

We expect that $ 87.5 million will be recognized over the next twelve months , while the remaining balance will be recognized over the following five years .

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

As of September 30, 2024 and 2023, Tax Identity Shield® (TIS) deferred revenue was $ 17.7 million and $ 20.8 million, respectively.

Deferred revenue related to TIS was $ 21.4 million and $ 25.2 million as of June 30, 2024 and 2023, respectively.

4 unchanged sentences

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 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

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:

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 2.7 million and 3.5 million shares for the three months ended September 30, 2024 and 2023, respectively, as the effect would be antidilutive due to the net loss from continuing operations during the periods.

Q1 FY2025 Form 10-Q| H&R Block, Inc.

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

(in 000s, except per share amounts)

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

2024 2023 2024 2023

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

Three months ended September 30,

Net loss from continuing operations attributable to shareholders $ ( 171,421 ) $ ( 162,873 )

Amounts allocated to participating securities ( 229 ) ( 177 )

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

Net loss from continuing operations attributable to common shareholders $ ( 171,650 ) $ ( 163,050 )

Basic weighted average common shares 139,154 146,273

1 unchanged sentence

Dilutive weighted average common shares 139,154 146,273

Earnings per share from continuing operations attributable to common shareholders:

Loss per share from continuing operations attributable to common shareholders:

Basic $ ( 1.23 ) $ ( 1.11 )

1 unchanged sentence

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 1.1 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.

STOCK-BASED COMPENSATION – We granted 1.0 million and 1.6 million shares, including adjustments for performance achievement and dividend equivalents, under our stock-based compensation plans during the three months ended September 30, 2024 and 2023, respectively.

Stock-based compensation expense of our continuing operations totaled $ 8.7 million and $ 7.6 million for the three months ended September 30, 2024 and 2023, respectively.

As of September 30, 2024, unrecognized compensation cost for nonvested shares and units totaled $ 67.9 million.

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

As of March 31, 2024 June 30, 2023

As of September 30, 2024 June 30, 2024

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

10 unchanged sentences

Total $ 69,929 $ 48,652 $ 69,075 $ 43,824

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

Balances presented above as short-term are included in receivables, while the long-term portions are included in other noncurrent assets in the consolidated balance sheets.

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 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.

As of September 30, 2024 and June 30, 2024, loans with a principal balance more than 90 days past due or on non-accrual status were $ 2.3 million and $ 1.1 million, respectively.

H&R Block, Inc.

|Q1 FY2025 Form 10-Q

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.

2 unchanged sentences

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 March 31, 2024 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 September 30, 2024 are as foll ows:

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

4 unchanged sentences

Net balance $ 2,015

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.

We review the credit quality of our purchased participation interests in EA receivables based on pools, which are segregated by the fiscal year of origination, with older years being deemed more unlikely to be repaid.

EMERALD ADVANCE ® – We review the credit quality of our purchased participation interests in EA receivables based on pools, which are segregated by the fiscal year of origination, with older years being deemed more unlikely to be repaid.

We establish an allowance for credit losses at an amount that we believe reflects the receivable at net realizable value.

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 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:

Typically, in December of each year, we charge-off the receivables and the related allowance for EAs to an amount we believe represents the 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 September 30, 2024 are as follows:

Fiscal year of origination Balance Non-Accrual

2024 – Term loans $ 77,595 $ —

2023 and prior – Lines of credit and Revolving Loans 8,941 8,941

2024 $ 65,608 $ 65,608

2023 and prior 7,800 7,800

73,408 $ 73,408

Allowance ( 33,536 )

Net balance $ 39,872

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:

Q1 FY2025 Form 10-Q| H&R Block, Inc.

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 three months ended September 30, 2024 and 2023 is as follows:

EAs All Other Total

2 unchanged sentences

Charge-offs, recoveries and other — ( 1,462 ) ( 1,462 )

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

Balances as of September 30, 2024 $ 33,536 $ 44,889 $ 78,425

Balances as of July 1, 2023 $ 27,386 $ 35,108 $ 62,494

1 unchanged sentence

Charge-offs, recoveries and other ( 27,714 ) ( 409 ) ( 28,123 )

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.

Balances as of September 30, 2023 $ — $ 35,469 $ 35,469

There were no gross charge-offs of EAs for the three months ended September 30, 2024.

GOODWILL AND INTANGIBLE ASSETS

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

Changes in the carrying amount of goodwill for the three months ended September 30, 2024 are as follows:

Goodwill Accumulated Impairment Losses Net

4 unchanged sentences

Impairments — — —

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

Balances as of September 30, 2024 $ 930,492 $ ( 138,297 ) $ 792,195

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

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.

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.

H&R Block, Inc.

|Q1 FY2025 Form 10-Q

Components of intangible assets are as follows:

1 unchanged sentence

Amortization Net

As of March 31, 2024:

As of September 30, 2024:

Reacquired franchise rights $ 406,195 $ ( 232,023 ) $ 174,172

2 unchanged sentences

Noncompete agreements 22,070 ( 19,705 ) 2,365

Franchise agreements 19,201 ( 19,201 ) —

Purchased technology 70,100 ( 52,988 ) 17,112

6 unchanged sentences

Noncompete agreements 21,977 ( 19,494 ) 2,483

Franchise agreements 19,201 ( 18,668 ) 533

Purchased technology 70,100 ( 51,432 ) 18,668

1 unchanged sentence

$ 955,940 $ ( 691,838 ) $ 264,102

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:

We made payments to acquire businesses totaling $ 5.9 million and $ 6.9 million during the three months ended September 30, 2024 and 2023, respectively.

The amounts and weighted-average lives of intangible assets acquired during the three months e nded September 30, 2024 a re as follows:

(dollars in 000s)

4 unchanged sentences

Total $ 4,775 5

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.

Amortization of intangible assets for the three months ended September 30, 2024 was $ 12.9 million compared to $ 15.8 million for the three months ended September 30, 2023.

Estimated amortization of intangible assets for fiscal years ending June 30, 2025, 2026, 2027, 2028, and 2029 is $ 44.1 million, $ 34.6 million, $ 27.9 million, $ 20.1 million and $ 12.0 million, respectively.

H&R Block, Inc.

|Q3 FY2024 Form 10-Q

Q1 FY2025 Form 10-Q| H&R Block, Inc.

LONG-TERM DEBT

The components of long-term debt are as follows:

As of March 31, 2024 June 30, 2023

As of September 30, 2024 June 30, 2024

Senior Notes, 5.250 %, due October 2025

19 unchanged sentences

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 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 were in compliance with these requirements as of September 30, 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 September 30, 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 $ 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 had gross unrecognized tax benefits of $ 251.4 million and $ 251.8 million as of September 30, 2024 and June 30, 2024, respectively.

The gross unrecognized tax benefits decreased by $ 0.4 million during the three months ended September 30, 2024.

We believe it is reasonably possible that the balance of unrecognized tax benefits could decrease by approximately $ 144.4 million within the next twelve months.

The anticipated decrease is due to the expiration of statutes of limitations and anticipated closure of various matters currently under examination or in appeals.

The anticipated decrease is due to the expiration of statutes of limitations, anticipated closure of various tax matters currently under examination, and settlements with tax authorities.

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.

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.

Our effective tax rate for continuing operations, including the effects of discrete tax items, was 26.2 % and 23.3 % for the three months ended September 30, 2024 and 2023, respectively.

H&R Block, Inc.

|Q1 FY2025 Form 10-Q

Consistent with prior years, our pretax loss for the three months ended September 30, 2024 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 three months ended September 30, 2024 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.

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 $ 13.6 million and $ 15.8 million as of March 31, 2024 and June 30, 2023, respectively.

Our liability related to estimated losses under the 100% accuracy guarantee was $ 12.0 million and $ 14.1 million as of September 30, 2024 and June 30, 2024, 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 $ 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.

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 $ 28.0 million and $ 26.9 million as of September 30, 2024 and June 30, 2024 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 $ 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.

In fiscal year 2024, EAs are being offered as term loans and we discontinued EA LOCs.

EA TLs are interest bearing with principal and interest due in full on March 31, and there are no annual fees or required monthly payments.

EA TLs are offered to clients in our offices, in November and December, in amounts of $350 to $1,300.

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 $ 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.

Our total obligation under these lines of credit was $ 15.7 million at September 30, 2024, and net of amounts drawn and outstanding, our remaining commitment to fund totaled $ 10.0 million.

During the three months ended September 30, 2024, the Company entered into an agreement to purchase federal investment tax credits (“ITC”), if certain conditions are met.

During the three months ended September 30, 2024, we paid $ 22.9 million for ITCs.

As of September 30, 2024, the Company has a remaining commitment to purchase additional ITCs, estimated to be $ 74.0 million if certain conditions set forth in the agreement are satisfied, with the final payment anticipated to occur by June 30, 2025.

LITIGATION AND OTHER RELATED CONTINGENCIES

6 unchanged sentences

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

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

1 unchanged sentence

Disposition valuations are also subject to the uncertainty of how opposing parties and their counsel will view the relevant evidence and applicable law.

Q1 FY2025 Form 10-Q| H&R Block, Inc.

In addition to litigation and arbitration matters, we are also subject to other loss contingencies arising out of our business activities, including as described below.

3 unchanged sentences

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 March 31, 2024.

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 September 30, 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 $ 5.2 million and $ 0.2 million as of March 31, 2024 and June 30, 2023, respectively.

Our accrued liabilities were $ 11.1 million and $ 7.2 million as of September 30, 2024 and June 30, 2024, 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.

5 unchanged sentences

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

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.

As of September 30, 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.

5 unchanged sentences

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.

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

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.

H&R Block, Inc.

|Q1 FY2025 Form 10-Q

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

Related to one of these matters, 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 was scheduled to begin on October 23, 2024.

The federal court denied our motion for a preliminary injunction on August 1, 2024.

We filed an appeal with the Eighth Circuit Court of Appeals.

On October 21, 2024, we entered into a proposed Consent Agreement to resolve the allegations of the complaint through a proposed Decision and Order, which is subject to final approval by the Commission.

If approved, the proposed Decision and Order will fully resolve the claims.

Proceedings before the ALJ are stayed pending a determination by the Commission.

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.

Parties, including underwriters, depositors, and securitization trustees, have been, remain, or may in the future be, involved in lawsuits, threatened lawsuits, or settlements related to securitization transactions in which SCC participated.

A variety of claims are alleged in these matters, including violations of federal and state securities laws and common law fraud, breaches of representations and warranties, or violations of statutory requirements.

SCC has received notices of potential indemnification or contribution obligations relating to such matters.

Additional lawsuits against the parties to the securitization transactions may be filed in the future, and SCC may receive additional notices of potential indemnification, contribution or similar obligations with respect to existing or new lawsuits or settlements of such lawsuits or other claims.

We have not concluded that a loss related to any of these potential indemnification or contribution claims is probable, nor have we accrued a liability related to any of these claims.

It is difficult to predict either the likelihood of new matters being initiated or the outcome of existing matters.

In many of these matters it is not possible to estimate a reasonably possible loss or range of loss due to, among other things, the inherent uncertainties involved in these matters and the indeterminate damages sought.

If the amount that SCC is ultimately required to pay with respect to loss contingencies, together with payment of SCC's related administration and legal expense, exceeds SCC's net assets, the creditors of SCC, other potential claimants, or a bankruptcy trustee if SCC were to file or be forced into bankruptcy, may attempt to assert claims against us for payment of SCC's obligations.

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 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;

however, if this position is challenged and not upheld, it could have a material adverse effect on our business and our consolidated financial position, results of operations, and cash flows.

OTHER – We are from time to time a party to litigation, arbitration and other loss contingencies not discussed herein arising out of our business operations.

We are from time to time a party to litigation, arbitration and other loss contingencies not discussed herein arising out of our business operations.

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