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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.
 




Form 10-Q for the Period Ended January 31, 2020
Table of Contents
 
 
 
 
 
Consolidated Statements of Operations and Comprehensive Loss
 
 
Three and nine months ended January 31, 2020 and 2019
 
 
 
 
Consolidated Balance Sheets
 
 
As of January 31, 2020, January 31, 2019 and April 30, 2019
 
 
 
 
Consolidated Statements of Cash Flows
 
 
Nine months ended January 31, 2020 and 2019
 
 
 
 
Consolidated Statements of Stockholders' Equity
 
 
Three and nine months ended January 31, 2020 and the fiscal year ended April 30, 2019
 
 
 
 
Notes to Consolidated Financial Statements
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Legal Proceedings
 
 
 
Risk Factors
 
 
 
Unregistered Sales of Equity Securities and Use of Proceeds
 
 
 
Item 3.
Defaults Upon Senior Securities
 
 
 
Item 4.
Mine Safety Disclosures
 
 
 
 
 
 
Exhibits
 
 
 
 





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


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.


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


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

 
 
 
 
Shares

 
Amount

 
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.


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

 
 
 
 
Shares

 
Amount

 
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


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                  (unaudited)
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATIONThe 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 ESTIMATESThe 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 BUSINESSOur 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 $