What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-02-06 compared with 2024-11-07 · 139 added, 53 removed, 178 unchanged (52% of the section changed)

5 unchanged sentences

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

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

H&R Block, Inc.

|Q2 FY2025 Form 10-Q

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

Three months ended September 30, 2024 2023 $ Change % Change

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

tax preparation and related services:

42 unchanged sentences

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

Q2 FY2025 Form 10-Q| H&R Block, Inc.

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

Revenues of $179.1 million were flat compared to the prior year.

Interest and fee income on Emerald Advance® revenues decreased $2.9 million, or 19.2%, primarily due to a decrease in EA loans originated in the current year.

International tax preparation revenues increased $2.2 million, or 7.6%, primarily due to higher tax return volumes in Australia combined with favorable foreign currency exchange rates.

Wave revenues increased $3.4 million, or 14.8%, due to higher accounting, invoicing and receipts subscriptions and small business payments processing volumes.

Total operating expenses increased $25.8 million, or 5.8%, from the prior year.

Field wages increased $3.8 million, or 4.8%, due to higher tax professional wages in the current year.

Other wages increased $4.1 million, or 5.4%, due to higher corporate wages primarily due to salary increases.

Occupancy expense increased $3.8 million, or 3.8%, primarily due to higher lease and office-related expenses.

Marketing and advertising expense increased $3.6 million, or 31.5%, primarily due to the timing of advertising and lower vendor refunds for expired customer incentives in the current year.

Other operating expenses increased $11.6 million, or 12.4%.

The components of other expenses are as follows:

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

Consulting and outsourced services $ 18,439 $ 16,267 $ (2,172) (13.4) %

Bank partner fees 1,316 (1,113) (2,429) **

Client claims and refunds 4,332 3,107 (1,225) (39.4) %

Employee and travel expenses 12,495 12,375 (120) (1.0) %

Technology-related expenses 28,062 27,261 (801) (2.9) %

Credit card/bank charges 18,546 17,768 (778) (4.4) %

Insurance 4,256 2,076 (2,180) (105.0) %

Legal fees and settlements 7,192 5,421 (1,771) (32.7) %

Supplies 3,570 4,355 785 18.0 %

Other 6,982 6,109 (873) (14.3) %

$ 105,190 $ 93,626 $ (11,564) (12.4) %

Other income (expense), net decreased $3.2 million, or 53.7%, primarily due to higher foreign currency losses and lower interest income in the current year.

We recorded an income tax benefit of $69.8 million in the current year compared to $93.8 million in the prior year.

The effective tax rate for the three months ended December 31, 2024, and 2023 was 22.4% and 33.1%, respectively.

H&R Block, Inc.

|Q2 FY2025 Form 10-Q

Three months ended September 30, 2024 compared to September 30, 2023

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

Six months ended December 31, 2024 2023 $ Change % Change

tax preparation and related services:

Assisted tax preparation $ 91,343 $ 87,605 $ 3,738 4.3 %

Royalties 9,351 11,155 (1,804) (16.2) %

DIY tax preparation 16,980 16,959 21 0.1 %

Refund Transfers 1,497 1,955 (458) (23.4) %

Peace of Mind® Extended Service Plan 39,242 42,287 (3,045) (7.2) %

Tax Identity Shield® 7,922 9,274 (1,352) (14.6) %

Other 25,633 20,572 5,061 24.6 %

tax preparation and related services 191,968 189,807 2,161 1.1 %

Financial services:

Emerald Card® and Spruce SM

18,974 20,333 (1,359) (6.7) %

Interest and fee income on Emerald Advance® 12,308 15,533 (3,225) (20.8) %

Total financial services 31,282 35,866 (4,584) (12.8) %

International 96,666 90,134 6,532 7.2 %

Wave 52,964 47,076 5,888 12.5 %

Total revenues $ 372,880 $ 362,883 $ 9,997 2.8 %

Compensation and benefits:

Field wages 149,659 140,230 (9,429) (6.7) %

Other wages 156,066 146,769 (9,297) (6.3) %

Benefits and other compensation 77,156 71,311 (5,845) (8.2) %

382,881 358,310 (24,571) (6.9) %

Occupancy 206,317 200,479 (5,838) (2.9) %

Marketing and advertising 24,835 16,786 (8,049) (48.0) %

Depreciation and amortization 58,026 60,332 2,306 3.8 %

Bad debt 22,146 26,552 4,406 16.6 %

Other 200,297 174,182 (26,115) (15.0) %

Total operating expenses 894,502 836,641 (57,861) (6.9) %

Other income (expense), net 14,661 15,758 (1,097) (7.0) %

Interest expense on borrowings (37,599) (37,234) (365) (1.0) %

Pretax loss (544,560) (495,234) (49,326) (10.0) %

Income tax benefit (130,673) (143,245) (12,572) (8.8) %

Net loss from continuing operations (413,887) (351,989) (61,898) (17.6) %

Net loss from discontinued operations (2,109) (1,248) (861) (69.0) %

Net loss $ (415,996) $ (353,237) $ (62,759) (17.8) %

BASIC AND DILUTED LOSS PER SHARE:

Continuing operations $ (3.02) $ (2.44) $ (0.58) (23.8) %

Discontinued operations (0.01) (0.01) — — %

Consolidated $ (3.03) $ (2.45) $ (0.58) (23.7) %

Adjusted diluted EPS (1)

$ (2.89) $ (2.31) $ (0.58) (25.1) %

$ (448,935) $ (397,668) $ (51,267) (12.9) %

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

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

Q2 FY2025 Form 10-Q| H&R Block, Inc.

Six months ended December 31, 2024 compared to December 31, 2023

Revenues increased $10.0 million, or 2.8%, from the prior year.

assisted tax preparation revenues increased $3.7 million, or 9.4%, due to higher company-owned tax return volumes combined with an increase in net average charge in the current year.

assisted tax preparation revenues increased $3.7 million, or 4.3%, primarily due to an increase in net average charge.

Peace of Mind® revenue decreased $3.0 million, or 7.2%, due to lower prior year sales of Peace of Mind®.

Peace of Mind® revenues are initially deferred and recognized over the term of the plan.

Other revenues increased $5.1 million, or 24.6%, primarily due to higher bookkeeping fees.

International tax preparation revenues increased $4.3 million, or 7.1%, primarily due to higher tax return volumes in Australia combined with favorable foreign currency exchange rates.

Interest and fee income on Emerald Advance® revenues decreased $3.2 million, or 20.8%, primarily due to a decrease in EA loans originated in the current year.

International revenues increased $6.5 million, or 7.2%, primarily due to higher tax return volumes in Australia combined with favorable foreign currency exchange rates.

Wave revenues increased $5.9 million, or 12.5%, due to higher accounting, invoicing and receipts subscriptions and small business payments processing volumes.

Total operating expenses increased $32.0 million, or 8.2%, from the prior year.

Field wages increased $5.7 million, or 9.1%, due to higher U.S.

and Australian tax professional wages due to higher volumes in the current year.

Other wages increased $5.2 million, or 7.3%, due to higher corporate wages primarily due to higher headcount.

Benefits and other compensation increased $3.5 million, or 9.9%, primarily due to higher stock-based compensation and severance pay in the current year.

Marketing and advertising expense increased $4.5 million, or 81.9%, primarily due to lower vendor refunds for expired customer incentives and higher online advertising in the current year.

Total operating expenses increased $57.9 million, or 6.9%, from the prior year period.

Field wages increased $9.4 million, or 6.7%, due to higher tax professional wages in the current year.

Other wages increased $9.3 million, or 6.3%, primarily due to higher corporate wages due to salary increases in the current year.

Benefits and other compensation increased $5.8 million, or 8.2%, due to higher employee insurance and severance pay in the current year.

Occupancy expense increased $5.8 million, or 2.9%, primarily due to higher lease and office-related expenses.

Marketing and advertising expense increased $8.0 million, or 48.0%, due to the timing of advertising and lower vendor refunds for expired customer incentives in the current year.

Other operating expenses increased $26.1 million, or 15.0%.

The components of other expenses are as follows:

Three months ended September 30, 2024 2023 $ Change % Change

Six months ended December 31, 2024 2023 $ Change % Change

Consulting and outsourced services $ 33,883 $ 29,401 $ (4,482) (15.2) %

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$ 200,297 $ 174,182 $ (26,115) (15.0) %

Legal expenses increased $11.5 million primarily due to higher outside legal counsel spend.

We recorded an income tax benefit of $60.8 million in the current year compared to $49.5 million in the prior year.

The effective tax rate for the three months ended September 30, 2024, and 2023 was 26.2% and 23.3%, respectively.

Legal expense increased $13.2 million primarily due to higher outside legal counsel spend.

We recorded income tax expense of $130.7 million in the current year compared to $143.2 million in the prior year.

The effective tax rate for the six months ended December 31, 2024, and 2023 was 24.0% and 28.9%, respectively.

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

FINANCIAL CONDITION

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We use our sources of liquidity primarily to fund working capital, service and repay debt, pay dividends, repurchase shares of our common stock, and acquire businesses.

H&R Block, Inc.

|Q2 FY2025 Form 10-Q

Our operations are highly seasonal and substantially all of our revenues and cash flow are generated during the period from February through April in a typical year.

Therefore, we normally require the use of cash to fund losses and working capital needs, periodically resulting in a working capital deficit, during the months of May through

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

Therefore, we normally require the use of cash to fund losses and working capital needs, periodically resulting in a working capital deficit, during the months of May through January.

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

Given the likely availability of a number of liquidity options discussed herein, we believe that, in the absence of any unexpected developments, our existing sources of capital as of September 30, 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 three months ended September 30, 2024 and 2023.

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, 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 six months ended December 31, 2024 and 2023.

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

Three months ended September 30, 2024 2023

Six months ended December 31, 2024 2023

Net cash provided by (used in):

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Operating Activities.

Cash used in operations totaled $328.6 million for the three months ended September 30, 2024 compared to $335.0 million in the prior year period.

The change is primarily due to changes in accrued liabilities compared to the prior year period.

Cash used in operations totaled $895.6 million for the six months ended December 31, 2024 compared to $942.2 million in the prior year period.

The change is primarily due to lower EA loans originated in the current year and changes in deferred taxes, partially offset by a higher net loss in the current year.

Investing Activities.

Cash used in investing activities totaled $26.4 million for the three months ended September 30, 2024 compared to $23.9 million in the prior year period.

Cash used in investing activities totaled $87.5 million for the six months ended December 31, 2024 compared to $71.0 million in the prior year period.

The change is primarily due to higher capital expenditures in the current year.

Financing Activities.

Cash used in financing activities totaled $284.5 million for the three months ended September 30, 2024 compared to $195.2 million in the prior year period.

Cash provided by financing activities totaled $258.6 million for the six months ended December 31, 2024 compared to $335.4 million in the prior year period.

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

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We have consistently paid quarterly dividends.

Dividends paid totaled $44.7 million and $43.0 million for the three months ended September 30, 2024 and 2023, respectively.

Dividends paid totaled $97.0 million and $89.9 million for the six months ended December 31, 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.

1 unchanged sentence

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

During the three months ended September 30, 2024, we repurchased $209.6 million of our common stock at an average price of $63.51 per share, excluding excise taxes in connection with such repurchases.

During the six months ended December 31, 2024, we repurchased $400.1 million of our common stock at an average price of $61.10 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 $43.66 per share, excluding excise taxes in connection with such repurchases.

1 unchanged sentence

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 period for the purchase of shares at any time.

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

Q2 FY2025 Form 10-Q| H&R Block, Inc.

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

1 unchanged sentence

Capital Investment.

Capital expenditures totaled $18.7 million and $12.9 million for the three months ended September 30, 2024 and 2023, respectively.

Our capital expenditures relate primarily to recurring improvements to

H&R Block, Inc.

|Q1 FY2025 Form 10-Q

retail offices, as well as investments in computers, software and related assets.

Capital expenditures totaled $49.1 million and $32.7 million for the six months ended December 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 $5.9 million and $6.9 million during the three months ended September 30, 2024 and 2023, respectively.

We acquired franchisee and competitor businesses totaling $28.0 million and $27.2 million during the six months ended December 31, 2024 and 2023, respectively.

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

1 unchanged sentence

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

We had no outst anding balance under our CLOC and amounts available to borrow were not limited by the debt-to-EBITDA covenant as of September 30, 2024.

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

As of September 30, 2024 June 30, 2024

We had an outst anding balance of $790.0 million under our CLOC and amounts available to borrow were not limited by the debt-to-EBITDA covenant as of December 31, 2024.

Our Senior Notes due in October 2025 (2025 Senior Notes) are classified as a current liability as of December 31, 2024.

We are considering various financing options in regard to the maturing 2025 Senior Notes and anticipate these options will provide adequate liquidity to fund the cash requirements at or prior to maturity.

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

As of December 31, 2024 June 30, 2024

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, 2024 in our Annual Report on Form 10-K.

CASH AND OTHER ASSETS – As of September 30, 2024, we held cash and cash equivalents, excluding restricted amounts, of $415.9 million, including $183.5 million held by our foreign subsidiaries.

CASH AND OTHER ASSETS – As of December 31, 2024, we held cash and cash equivalents, excluding restricted amounts, of $320.1 million, including $158.6 million held by our foreign subsidiaries.

Foreign Operations.

1 unchanged sentence

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

There were no forward contracts outstanding as of September 30, 2024.

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

We do not currently intend to repatriate non-borrowed funds held by our foreign subsidiaries in a manner that would trigger a tax liability.

The impact of changes in foreign exchange rates during the period on our international cash balances resulted in an increase of $3.2 million during the three months ended September 30, 2024 and in a decrease of $3.7 million during the three months ended September 30, 2023.

The impact of changes in foreign exchange rates during the period on our international cash balances resulted in a decrease of $9.1 million during the six months ended December 31, 2024 and in an increase of $0.7 million during the six months ended December 31, 2023.

CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS – The Company entered into an agreement to purchase federal Investment tax credits (“ITC”).

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, with the final closing payment anticipated to occur by June 30, 2025.

During the six months ended December 31, 2024, we paid $22.9 million for ITCs.

As of December 31, 2024, the Company has a remaining commitment to purchase additional ITCs, for approximately $80.0 million if certain conditions set forth in the agreement are satisfied, with the final closing payment anticipated to occur by June 30, 2025.

Effective October 18, 2024, we amended our Program Management Agreement (PMA) with Pathward®, N.A to extend the term of the PMA for two years until June 30, 2027.

We purchased participation interests in EAs of $257.9 million during the six months ended December 31, 2024.

See Item 1 , note 8 for additional information on our commitments.

There have been no other material changes in our contractual obligations and commercial commitments from those reported in our June 30, 2024 Annual Report on Form 10-K.

H&R Block, Inc.

|Q2 FY2025 Form 10-Q

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

1 unchanged sentence

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

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

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

1 unchanged sentence

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

As of September 30, 2024 June 30, 2024

As of December 31, 2024 June 30, 2024

Current assets $ 304,264 $ 44,423

3 unchanged sentences

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

Three months ended September 30, 2024 Twelve months ended June 30, 2024

Six months ended December 31, 2024 Twelve months ended June 30, 2024

Total revenues $ 33,436 $ 144,206

Income from continuing operations before income taxes 11,588 75,819

Net income from continuing operations 8,906 57,441

Net income 7,750 54,795

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

Income (loss) from continuing operations before income taxes (3,363) 75,819

Net income (loss) from continuing operations (2,592) 57,441

Net income (loss) (4,702) 54,795

The table above reflects $2.3 billion and $1.7 billion of non-current intercompany receivables due to the Issuer from non-guarantor subsidiaries as of December 31, 2024 and June 30, 2024, respectively.

REGULATORY ENVIRONMENT

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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.

H&R Block, Inc.

|Q1 FY2025 Form 10-Q

Q2 FY2025 Form 10-Q| H&R Block, Inc.

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

Three months ended September 30,

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

2024 2023 2024 2023

Net loss - as reported $ (243,420) $ (189,755) $ (415,996) $ (353,237)

8 unchanged sentences

(in 000s, except per share amounts)

Three months ended September 30,

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

2024 2023 2024 2023

Net loss from continuing operations - as reported $ (242,466) $ (189,116) $ (413,887) $ (351,989)

16 unchanged sentences

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

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

H&R Block, Inc.

|Q2 FY2025 Form 10-Q

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.

9 unchanged sentences

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis