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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



(Mark One)
☑		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the quarterly period ended January 31, 2020
OR
☐		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the transition period from to

Commission file number 1-06089

H&R Block, Inc.

(Exact name of registrant as specified in its charter)



Missouri		44-0607856
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

One H&R Block Way, Kansas City, Missouri 64105

(Address of principal executive offices, including zip code)

(816) 854-3000

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, without par value	HRB	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one)

Large accelerated filer ☑ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☑

The number of shares outstanding of the registrant's Common Stock, without par value, at the close of business on February 28, 2020: 192,475,284 shares.

Table of Contents

Form 10-Q for the Period Ended January 31, 2020

Table of Contents



	PART I

Item 1.	Consolidated Statements of Operations and Comprehensive Loss
	Three and nine months ended January 31, 2020 and 2019	1

	Consolidated Balance Sheets
	As of January 31, 2020, January 31, 2019 and April 30, 2019	2

	Consolidated Statements of Cash Flows
	Nine months ended January 31, 2020 and 2019	3

	Consolidated Statements of Stockholders' Equity
	Three and nine months ended January 31, 2020 and the fiscal year ended April 30, 2019	4

	Notes to Consolidated Financial Statements	6

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	29

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	37

Item 4.	Controls and Procedures	37

	PART II
Item 1.	Legal Proceedings	37

Item 1A.	Risk Factors	37

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	38

Item 3.	Defaults Upon Senior Securities	38

Item 4.	Mine Safety Disclosures	38

Item 5.	Other Information	38

Item 6.	Exhibits	38

	Signatures	39

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PART I FINANCIAL INFORMATION


ITEM 1.	FINANCIAL STATEMENTS



CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS							(unaudited, in 000s, except per share amounts)
	Three months ended January 31,						Nine months ended January 31,
	2020			2019			2020			2019

REVENUES:
Service revenues	$	419,955		$	373,659		$	691,762		$	627,786
Royalty, product and other revenues	99,250			94,725			138,606			134,652
	519,205			468,384			830,368			762,438
OPERATING EXPENSES:
Costs of revenues	462,521			421,026			945,119			893,401
Selling, general and administrative	209,288			185,458			475,758			404,517
Total operating expenses	671,809			606,484			1,420,877			1,297,918

Other income (expense), net	1,879			2,269			13,741			11,275
Interest expense on borrowings	(26,305		)	(22,833		)	(68,682		)	(65,214		)
Loss from continuing operations before income tax benefit	(177,030		)	(158,664		)	(645,450		)	(589,419		)
Income tax benefit	(49,004		)	(38,885		)	(188,146		)	(149,906		)
Net loss from continuing operations	(128,026		)	(119,779		)	(457,304		)	(439,513		)
Net loss from discontinued operations, net of tax benefits of $488 and $1,962, $3,173 and $4,731	(1,657		)	(6,675		)	(10,625		)	(15,887		)
NET LOSS	$	(129,683	)	$	(126,454	)	$	(467,929	)	$	(455,400	)

BASIC AND DILUTED LOSS PER SHARE:
Continuing operations	$	(0.66	)	$	(0.58	)	$	(2.31	)	$	(2.13	)
Discontinued operations	(0.01		)	(0.04		)	(0.05		)	(0.08		)
Consolidated	$	(0.67	)	$	(0.62	)	$	(2.36	)	$	(2.21	)

DIVIDENDS DECLARED PER SHARE	$	0.26		$	0.25		$	0.78		$	0.75

COMPREHENSIVE LOSS:
Net loss	$	(129,683	)	$	(126,454	)	$	(467,929	)	$	(455,400	)
Change in foreign currency translation adjustments and other	(3,574		)	1,238			(4,975		)	(3,339		)
Other comprehensive income (loss)	(3,574		)	1,238			(4,975		)	(3,339		)
Comprehensive loss	$	(133,257	)	$	(125,216	)	$	(472,904	)	$	(458,739	)

See accompanying notes to consolidated financial statements.



H&R Block, Inc. \| Q3 FY2020 Form 10-Q	1

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CONSOLIDATED BALANCE SHEETS	(unaudited, in 000s, except share and per share amounts)
As of	January 31, 2020			January 31, 2019			April 30, 2019

ASSETS
Cash and cash equivalents	$	192,340		$	203,226		$	1,572,150
Cash and cash equivalents - restricted	169,447			101,903			135,577
Receivables, less allowance for doubtful accounts of $45,254, $44,033 and $67,228	819,946			758,217			138,965
Prepaid expenses and other current assets	120,229			171,306			146,667
Total current assets	1,301,962			1,234,652			1,993,359
Property and equipment, at cost, less accumulated depreciation and amortization of $803,272, $800,834 and $745,761	197,569			220,505			212,092
Operating lease right of use asset	463,777			—			—
Intangible assets, net	433,074			356,952			342,493
Goodwill	838,830			520,005			519,937
Deferred tax assets and income taxes receivable	134,901			141,366			141,979
Other noncurrent assets	82,317			95,326			90,085
Total assets	$	3,452,430		$	2,568,806		$	3,299,945
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Accounts payable and accrued expenses	$	156,766		$	202,101		$	249,525
Accrued salaries, wages and payroll taxes	117,459			140,902			196,527
Accrued income taxes and reserves for uncertain tax positions	36,242			49,009			271,973
Current portion of long-term debt	649,022			—			—
Operating lease liabilities	187,890			—			—
Deferred revenue and other current liabilities	190,242			195,634			204,976
Total current liabilities	1,337,621			587,646			923,001
Long-term debt and line of credit borrowings	1,880,589			1,876,989			1,492,629
Deferred tax liabilities and reserves for uncertain tax positions	172,954			214,217			197,906
Operating lease liabilities	289,299			—			—
Deferred revenue and other noncurrent liabilities	90,346			103,545			144,882
Total liabilities	3,770,809			2,782,397			2,758,418
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, no par, stated value $.01 per share, 800,000,000 shares authorized, shares issued of 228,206,684, 241,501,278 and 238,336,760	2,282			2,415			2,383
Additional paid-in capital	769,990			764,982			767,636
Accumulated other comprehensive loss	(25,391		)	(17,642		)	(20,416		)
Retained earnings (deficit)	(367,218		)	(254,277		)	499,386
Less treasury shares, at cost, of 35,732,666, 36,460,305 and 36,377,441	(698,042		)	(709,069		)	(707,462		)
Total stockholders' equity (deficiency)	(318,379		)	(213,591		)	541,527
Total liabilities and stockholders' equity	$	3,452,430		$	2,568,806		$	3,299,945

See accompanying notes to consolidated financial statements.



2	Q3 FY2020 Form 10-Q \| H&R Block, Inc.

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CONSOLIDATED STATEMENTS OF CASH FLOWS	(unaudited, in 000s)
Nine months ended January 31,	2020			2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(467,929	)	$	(455,400	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	125,409			126,013
Provision for bad debt	37,517			35,009
Deferred taxes	10,795			20,557
Stock-based compensation	22,699			18,009
Changes in assets and liabilities, net of acquisitions:
Receivables	(684,323		)	(641,157		)
Prepaid expenses, other current and noncurrent assets	(1,990		)	(56,160		)
Accounts payable, accrued expenses, salaries, wages and payroll taxes	(166,204		)	(47,975		)
Deferred revenue, other current and noncurrent liabilities	(55,064		)	(66,804		)
Income tax receivables, accrued income taxes and income tax reserves	(282,488		)	(277,240		)
Other, net	(6,213		)	(2,308		)
Net cash used in operating activities	(1,467,791		)	(1,347,456		)

CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures	(66,510		)	(79,982		)
Payments made for business acquisitions, net of cash acquired	(450,282		)	(42,428		)
Franchise loans funded	(32,890		)	(16,875		)
Payments from franchisees	14,604			15,149
Other, net	45,376			4,877
Net cash used in investing activities	(489,702		)	(119,259		)

CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of line of credit borrowings	(285,000		)	(230,000		)
Proceeds from line of credit borrowings	1,320,000			615,000
Dividends paid	(154,827		)	(154,866		)
Repurchase of common stock, including shares surrendered	(256,199		)	(102,152		)
Proceeds from exercise of stock options	2,074			2,527
Other, net	(14,136		)	(20,126		)
Net cash provided by financing activities	611,912			110,383

Effects of exchange rate changes on cash	(359		)	(2,217		)

Net decrease in cash and cash equivalents, including restricted balances	(1,345,940		)	(1,358,549		)
Cash, cash equivalents and restricted cash, beginning of period	1,707,727			1,663,678
Cash, cash equivalents and restricted cash, end of period	$	361,787		$	305,129

SUPPLEMENTARY CASH FLOW DATA:
Income taxes paid, net of refunds received	$	84,872		$	103,789
Interest paid on borrowings	65,972			55,581
Accrued additions to property and equipment	1,662			2,241
Accrued purchase of common stock	—			12,301

See accompanying notes to consolidated financial statements.



H&R Block, Inc. \| Q3 FY2020 Form 10-Q	3

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CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY												(amounts in 000s, except per share amounts)
	Common Stock					Additional Paid-in Capital			Accumulated Other Comprehensive Income (Loss)			Retained Earnings (Deficit)			Treasury Stock					Total Stockholders’ Equity (Deficiency)
	Shares		Amount			Additional Paid-in Capital			Accumulated Other Comprehensive Income (Loss)			Retained Earnings (Deficit)			Shares		Amount			Total Stockholders’ Equity (Deficiency)
Balances as of May 1, 2019	238,337		$	2,383		$	767,636		$	(20,416	)	$	499,386		(36,377	)	$	(707,462	)	$	541,527
Net loss	—		—			—			—			(150,247		)	—		—			(150,247		)
Other comprehensive loss	—		—			—			(2,320		)	—			—		—			(2,320		)
Stock-based compensation	—		—			6,557			—			—			—		—			6,557
Stock-based awards exercised or vested	—		—			(13,789		)	—			(2,786		)	906		17,631			1,056
Acquisition of treasury shares	—		—			—			—			—			(314	)	(9,185		)	(9,185		)
Repurchase and retirement of common shares	(1,593	)	(16		)	(955		)	—			(43,101		)	—		—			(44,072		)
Cash dividends declared - $0.26 per share	—		—			—			—			(52,512		)	—		—			(52,512		)
Balances as of July 31, 2019	236,744		$	2,367		$	759,449		$	(22,736	)	$	250,740		(35,785	)	$	(699,016	)	$	290,804
Net loss	—		—			—			—			(187,999		)	—		—			(187,999		)
Other comprehensive income	—		—			—			919			—			—		—			919
Stock-based compensation	—		—			9,331			—			—			—		—			9,331
Stock-based awards exercised or vested	—		—			(127		)	—			(276		)	13		264			(139		)
Acquisition of treasury shares	—		—			—			—			—			(6	)	(173		)	(173		)
Repurchase and retirement of common shares	(5,720	)	(57		)	(3,433		)	—			(133,449		)	—		—			(136,939		)
Cash dividends declared - $0.26 per share	—		—			—			—			(51,551		)	—		—			(51,551		)
Balances as of October 31, 2019	231,024		$	2,310		$	765,220		$	(21,817	)	$	(122,535	)	(35,778	)	$	(698,925	)	$	(75,747	)
Net loss	—		—			—			—			(129,683		)	—		—			(129,683		)
Other comprehensive loss	—		—			—			(3,574		)	—			—		—			(3,574		)
Stock-based compensation	—		—			6,529			—			—			—		—			6,529
Stock-based awards exercised or vested	—		—			(69		)	—			(180		)	47		939			690
Acquisition of treasury shares	—		—			—			—			—			(2	)	(56		)	(56		)
Repurchase and retirement of common shares	(2,817	)	(28		)	(1,690		)	—			(64,056		)	—		—			(65,774		)
Cash dividends declared - $0.26 per share	—		—			—			—			(50,764		)	—		—			(50,764		)
Balances as of January 31, 2020	228,207		$	2,282		$	769,990		$	(25,391	)	$	(367,218	)	(35,733	)	$	(698,042	)	$	(318,379	)

See accompanying notes to consolidated financial statements.



4	Q3 FY2020 Form 10-Q \| H&R Block, Inc.

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CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY												(amounts in 000s, except per share amounts)
	Common Stock					Additional Paid-in Capital			Accumulated Other Comprehensive Income (Loss)			Retained Earnings (Deficit)			Treasury Stock					Total Stockholders’ Equity (Deficiency)
	Shares		Amount			Additional Paid-in Capital			Accumulated Other Comprehensive Income (Loss)			Retained Earnings (Deficit)			Shares		Amount			Total Stockholders’ Equity (Deficiency)
Balances as of May 1, 2018	246,199		$	2,462		$	760,250		$	(14,303	)	$	362,980		(36,945	)	$	(717,678	)	$	393,711
Net loss	—		—			—			—			(152,670		)	—		—			(152,670		)
Cumulative effect of ASU 2016-16 ⁽¹⁾	—		—			—			—			100,950			—		—			100,950
Other comprehensive loss	—		—			—			(1,731		)	—			—		—			(1,731		)
Stock-based compensation	—		—			4,307			—			—			—		—			4,307
Stock-based awards exercised or vested	—		—			(9,945		)	—			(1,029		)	627		12,185			1,211
Acquisition of treasury shares	—		—			—			—			—			(200	)	(4,560		)	(4,560		)
Repurchase and retirement of common shares	(4,173	)	(42		)	(2,503		)	—			(94,560		)	—		—			(97,105		)
Cash dividends declared - $0.25 per share	—		—			—			—			(52,104		)	—		—			(52,104		)
Balances as of July 31, 2018	242,026		$	2,420		$	752,109		$	(16,034	)	$	163,567		(36,518	)	$	(710,053	)	$	192,009
Net loss	—		—			—			—			(176,276		)	—		—			(176,276		)
Other comprehensive loss	—		—			—			(2,846		)	—			—		—			(2,846		)
Stock-based compensation	—		—			7,352			—			—			—		—			7,352
Stock-based awards exercised or vested	—		—			(226		)	—			(202		)	35		675			247
Acquisition of treasury shares	—		—			—			—			—			(16	)	(431		)	(431		)
Cash dividends declared - $0.25 per share	—		—			—			—			(51,380		)	—		—			(51,380		)
Balances as of October 31, 2018	242,026		$	2,420		$	759,235		$	(18,880	)	$	(64,291	)	(36,499	)	$	(709,809	)	$	(31,325	)
Net loss	—		—			—			—			(126,454		)	—		—			(126,454		)
Other comprehensive income	—		—			—			1,238			—			—		—			1,238
Stock-based compensation	—		—			6,067			—			—			—		—			6,067
Stock-based awards exercised or vested	—		—			(5		)	—			(169		)	41		796			622
Acquisition of treasury shares	—		—			—			—			—			(2	)	(56		)	(56		)
Repurchase and retirement of common shares	(525	)	(5		)	(315		)	—			(11,981		)	—		—			(12,301		)
Cash dividends declared - $0.25 per share	—		—			—			—			(51,382		)	—		—			(51,382		)
Balances as of January 31, 2019	241,501		$	2,415		$	764,982		$	(17,642	)	$	(254,277	)	(36,460	)	$	(709,069	)	$	(213,591	)
Net income	—		—			—			—			877,909			—		—			877,909
Other comprehensive loss	—		—			—			(2,774		)	—			—		—			(2,774		)
Stock-based compensation	—		—			5,784			—			—			—		—			5,784
Stock-based awards exercised or vested	—		—			(1,231		)	—			(150		)	84		1,634			253
Acquisition of treasury shares	—		—			—			—			—			(1	)	(27		)	(27		)
Repurchase and retirement of common shares	(3,164	)	(32		)	(1,899		)	—			(73,501		)	—		—			(75,432		)
Cash dividends declared - $0.25 per share	—		—			—			—			(50,595		)	—		—			(50,595		)
Balances as of April 30, 2019	238,337		$	2,383		$	767,636		$	(20,416	)	$	499,386		(36,377	)	$	(707,462	)	$	541,527


⁽¹⁾	ASU 2016-16 was effective on May 1, 2018 and we adopted using the modified retrospective transition method. We recognized a $101.0 million cumulative effect adjustment to increase the opening balance of retained earnings and increase deferred tax assets resulting from intra-entity transfers of intellectual property in fiscal year 2018.



H&R Block, Inc. \| Q3 FY2020 Form 10-Q	5

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION – The consolidated balance sheets as of January 31, 2020 and 2019, the consolidated statements of operations and comprehensive loss for the three and nine months ended January 31, 2020 and 2019, the consolidated statements of cash flows for the nine months ended January 31, 2020 and 2019, and the consolidated statements of stockholders' equity for the three and nine months ended January 31, 2020 and the quarterly periods within the fiscal year ended April 30, 2019 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 January 31, 2020 and 2019 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. or to H&R Block, Inc. and its subsidiaries, as appropriate to the context.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (GAAP) have been condensed or omitted. These consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in our April 30, 2019 Annual Report to Shareholders on Form 10-K. All amounts presented herein as of April 30, 2019 or for the year then ended are derived from our Annual Report on Form 10-K.

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, and related matters. Estimates have been prepared based on the best information available as of each balance sheet date. As such, actual results could differ materially from those estimates.

SEASONALITY OF BUSINESS – Our operating revenues are seasonal in nature with peak revenues typically occurring in the months of February through April. 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 notes 9 and 11 for additional information on litigation, claims, and other loss contingencies related to our discontinued operations.

WAVE ACQUISITION – On June 28, 2019, we acquired Wave HQ Inc. (formerly known as Wave Financial Inc.) and its subsidiaries (collectively, Wave) and during the quarter ended October 31, 2019 we finalized the post-closing working capital adjustment and made an additional payment of $1.4 million, resulting in a total payment of $