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hrb-20210131

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, 2021
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 26, 2021: 181,431,272 shares.

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Form 10-Q for the Period Ended January 31, 2021

Table of Contents


	PART I
Item 1.	Consolidated Statements of Operations and Comprehensive Loss Three and nine months ended January 31, 2021 and 2020	1
	Consolidated Balance Sheets As of January 31, 2021, January 31, 2020 and April 30, 2020	2
	Consolidated Statements of Cash Flows Nine months ended January 31, 2021 and 2 020	3
	Consolidated Statements of Stockholders' Equity Three and nine months ended January 31, 2021 and 2020	4
	Notes to Consolidated Financial Statements	6
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	31
Item 4.	Controls and Procedures	31
	PART II
Item 1.	Legal Proceedings	31
Item 1A.	Risk Factors	31
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	32
Item 3.	Defaults Upon Senior Securities	32
Item 4.	Mine Safety Disclosures	32
Item 5.	Other Information	32
Item 6.	Exhibits	32
	Signatures	33

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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,
	2021		2020		2021		2020

REVENUES:
Service revenues	$	244,692	$	419,955	$	956,605	$	691,762
Royalty, product and other revenues	63,535		99,250		129,202		138,606
	308,227		519,205		1,085,807		830,368
OPERATING EXPENSES:
Costs of revenues	380,273		462,521		940,364		945,119
Selling, general and administrative	191,488		209,288		461,368		475,758
Total operating expenses	571,761		671,809		1,401,732		1,420,877

Other income (expense), net	2,367		1,879		4,759		13,741
Interest expense on borrowings	(22,333)		(26,305)		(85,319)		(68,682)
Loss from continuing operations before income tax benefit	(283,500)		(177,030)		(396,485)		(645,450)
Income tax benefit	(51,669)		(49,004)		(35,730)		(188,146)
Net loss from continuing operations	(231,831)		(128,026)		(360,755)		(457,304)
Net loss from discontinued operations, net of tax benefits of $1,323, $488, $3,371 and $3,173	(1,163)		(1,657)		(4,706)		(10,625)
NET LOSS	$	(232,994)	$	(129,683)	$	(365,461)	$	(467,929)

BASIC AND DILUTED LOSS PER SHARE:
Continuing operations	$	(1.27)	$	(0.66)	$	(1.92)	$	(2.31)
Discontinued operations	—		(0.01)		(0.02)		(0.05)
Consolidated	$	(1.27)	$	(0.67)	$	(1.94)	$	(2.36)

DIVIDENDS DECLARED PER SHARE	$	0.26	$	0.26	$	0.78	$	0.78

COMPREHENSIVE LOSS:
Net loss	$	(232,994)	$	(129,683)	$	(365,461)	$	(467,929)



Change in foreign currency translation adjustments	20,014		(3,574)		39,883		(4,975)
Other comprehensive income (loss)	20,014		(3,574)		39,883		(4,975)
Comprehensive loss	$	(212,980)	$	(133,257)	$	(325,578)	$	(472,904)

See accompanying notes to consolidated financial statements.


H&R Block, Inc. \| Q3 FY2021 Form 10-Q			1

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CONSOLIDATED BALANCE SHEETS	(unaudited, in 000s, except share and per share amounts)
As of	January 31, 2021		January 31, 2020		April 30, 2020

ASSETS
Cash and cash equivalents	$	280,249	$	192,340	$	2,661,914
Cash and cash equivalents - restricted	181,159		169,447		211,106
Receivables, less allowance for credit losses of $34,493, $45,254 and $64,648	563,089		819,946		133,197
Prepaid expenses and other current assets	196,145		120,229		80,519
Total current assets	1,220,642		1,301,962		3,086,736
Property and equipment, at cost, less accumulated depreciation and amortization of $851,731, $803,272 and $796,192	162,765		197,569		184,367
Operating lease right of use asset	419,245		463,777		494,788
Intangible assets, net	381,264		433,074		414,976
Goodwill	745,616		838,830		712,138
Deferred tax assets and income taxes receivable	179,598		134,901		151,195
Other noncurrent assets	59,233		82,317		67,847
Total assets	$	3,168,363	$	3,452,430	$	5,112,047
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Accounts payable and accrued expenses	$	160,880	$	156,766	$	203,103
Accrued salaries, wages and payroll taxes	118,517		117,459		116,375
Accrued income taxes and reserves for uncertain tax positions	17,088		36,242		209,816
Current portion of long-term debt	—		649,022		649,384
Operating lease liabilities	186,209		187,890		195,537
Deferred revenue and other current liabilities	208,789		190,242		201,401
Total current liabilities	691,483		1,337,621		1,575,616
Long-term debt and line of credit borrowings	2,369,574		1,880,589		2,845,873
Deferred tax liabilities and reserves for uncertain tax positions	302,120		172,954		182,441
Operating lease liabilities	245,383		289,299		312,566
Deferred revenue and other noncurrent liabilities	94,383		90,346		124,510
Total liabilities	3,702,943		3,770,809		5,041,006
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, no par, stated value $0.01 per share, 800,000,000 shares authorized, shares issued of 218,719,439, 228,206,684 and 228,206,684	2,187		2,282		2,282
Additional paid-in capital	778,495		769,990		775,387
Accumulated other comprehensive loss	(11,693)		(25,391)		(51,576)
Retained earnings (deficit)	(616,518)		(367,218)		42,965
Less treasury shares, at cost, of 35,225,825, 35,732,666 and 35,731,376	(687,051)		(698,042)		(698,017)
Total stockholders' equity (deficiency)	(534,580)		(318,379)		71,041
Total liabilities and stockholders' equity	$	3,168,363	$	3,452,430	$	5,112,047

See accompanying notes to consolidated financial statements.


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CONSOLIDATED STATEMENTS OF CASH FLOWS	(unaudited, in 000s)
Nine months ended January 31,	2021		2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(365,461)	$	(467,929)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	117,163		125,409
Provision	25,642		37,517
Deferred taxes	(39,858)		10,795
Stock-based compensation	20,744		22,699

Changes in assets and liabilities, net of acquisitions:

Receivables	(438,307)		(684,323)
Prepaid expenses, other current and noncurrent assets	(68,222)		(1,990)

Accounts payable, accrued expenses, salaries, wages and payroll taxes	(37,601)		(166,204)

Deferred revenue, other current and noncurrent liabilities	(24,951)		(55,064)

Income tax receivables, accrued income taxes and income tax reserves	(94,922)		(282,488)
Other, net	(2,906)		(6,213)
Net cash used in operating activities	(908,679)		(1,467,791)

CASH FLOWS FROM INVESTING ACTIVITIES:



Capital expenditures	(47,996)		(66,510)
Payments made for business acquisitions, net of cash acquired	(15,025)		(450,282)



Franchise loans funded	(24,957)		(32,890)
Payments from franchisees	20,293		14,604

Other, net	(6,427)		45,376
Net cash used in investing activities	(74,112)		(489,702)

CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of line of credit borrowings	(2,320,000)		(285,000)
Proceeds from line of credit borrowings	1,200,000		1,320,000
Repayments of long-term debt	(650,000)		—
Proceeds from issuance of long-term debt	647,965		—


Dividends paid	(147,887)		(154,827)
Repurchase of common stock, including shares surrendered	(153,158)		(256,199)
Proceeds from exercise of stock options	2,139		2,074
Other, net	(21,884)		(14,136)
Net cash provided by (used in) financing activities	(1,442,825)		611,912

Effects of exchange rate changes on cash	14,004		(359)

Net decrease in cash and cash equivalents, including restricted balances	(2,411,612)		(1,345,940)
Cash, cash equivalents and restricted cash, beginning of period	2,873,020		1,707,727
Cash, cash equivalents and restricted cash, end of period	$	461,408	$	361,787

SUPPLEMENTARY CASH FLOW DATA:
Income taxes paid, net of refunds received	$	96,965	$	84,872
Interest paid on borrowings	78,098		65,972



Accrued additions to property and equipment	2,841		1,662
New operating right of use assets and related lease liabilities	93,381		251,284

See accompanying notes to consolidated financial statements.


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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									Shares			Amount
Balances as of May 1, 2020	228,207	$	2,282		$	775,387	$	(51,576)	$	42,965	(35,731)	$	(698,017)		$	71,041
Net income	—	—			—		—		91,259		—	—			91,259

Other comprehensive income	—	—			—		17,539		—		—	—			17,539
Stock-based compensation	—	—			7,422		—		—		—	—			7,422
Stock-based awards exercised or vested	—	—			(10,027)		—		(1,247)		627	12,247			973
Acquisition of treasury shares(1)	—	—			—		—		—		(204)	(2,913)			(2,913)



Cash dividends declared - $0.26 per share	—	—			—		—		(50,044)		—	—			(50,044)
Balances as of July 31, 2020	228,207	$	2,282		$	772,782	$	(34,037)	$	82,933	(35,308)	$	(688,683)		$	135,277
Net loss	—	—			—		—		(223,726)		—	—			(223,726)

Other comprehensive income	—	—			—		2,330		—		—	—			2,330
Stock-based compensation	—	—			6,768		—		—		—	—			6,768
Stock-based awards exercised or vested	—	—			(262)		—		(220)		13	262			(220)
Acquisition of treasury shares(1)	—	—			—		—		—		(6)	(99)			(99)
Repurchase and retirement of common shares	(9,488)	(95)			(5,597)		—		(144,450)		—	—			(150,142)


Cash dividends declared - $0.26 per share	—	—			—		—		(50,154)		—	—			(50,154)
Balances as of October 31, 2020	218,719	$	2,187		$	773,691	$	(31,707)	$	(335,617)	(35,301)	$	(688,520)		$	(279,966)

Net loss	—	—			—		—		(232,994)		—	—			(232,994)

Other comprehensive income	—	—			—		20,014		—		—	—			20,014
Stock-based compensation	—	—			5,265		—		—		—	—			5,265
Stock-based awards exercised or vested	—	—			(461)		—		(218)		76	1,473			794
Acquisition of treasury shares(1)	—	—			—		—		—		(1)	(4)			(4)



Cash dividends declared - $0.26 per share	—	—			—		—		(47,689)		—	—			(47,689)
Balances as of January 31, 2021	218,719	$	2,187		$	778,495	$	(11,693)	$	(616,518)	(35,226)	$	(687,051)		$	(534,580)

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


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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									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(1)	—	—			—		—		—		(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(1)	—	—			—		—		—		(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(1)	—	—			—		—		—		(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)

(1) 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.


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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, 2021 and 2020, the consolidated statements of operations and comprehensive loss for the three and nine months ended January 31, 2021 and 2020, the consolidated statements of cash flows for the nine months ended January 31, 2021 and 2020, and the consolidated statements of stockholders' equity for the three and nine months ended January 31, 2021 and 2020 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, 2021 and 2020 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, 2020 Annual Report to Shareholders on Form 10-K. All amounts presented herein as of April 30, 2020 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, fair value of reporting units, 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.

IMPACTS OF THE COVID-19 PANDEMIC - During March 2020, the World Health Organization declared the coronavirus (COVID-19) outbreak to be a global pandemic. As a result of the COVID-19 pandemic, on March 21, 2020, the federal tax filing deadline in the United States (U.S.) for individual 2019 tax returns was extended from April 15, 2020 to July 15, 2020. Substantially all U.S. states with an April 15 individual state income tax filing requirement extended their respective deadlines. In Canada, the deadline for individuals to file was extended to June 1, 2020. These extensions impacted the typical seasonality of our business and the comparability of our financial results. Consequently, a portion of revenues and expenses that would have normally been recognized in our fourth quarter of fiscal year 2020 shifted to the first two quarters of fiscal year 2021.

On January 15, 2021, the Internal Revenue Service (IRS) announced that it would begin accepting and processing 2020 individual income tax returns on February 12, 2021. Historically, the IRS has begun accepting and processing returns during our third fiscal quarter. This delay has impacted the timing of recognizing a portion of revenue for the returns that we prepared during the quarter but were not able to electronically file with the IRS. See n ote 2 for additional information.

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 10 for additional information on litigation, claims, and other loss contingencies related to our discontinued operations.

NEW ACCOUNTING PRONOUNCEMENTS –

Current Expected Credit Losses. In June 2016, the Financial Accounting Standards Board issued Accounting Standards Update No. 2016-13 (ASU 2016-13), "Measurement of Credit Losses on Financial Instruments," which


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replaces the existing incurred credit loss model for an expected credit loss model. We adopted ASU 2016-13 as of May 1, 2020, which did not have a material impact on our consolidated financial statements.

NOTE 2: REVENUE RECOGNITION

The majority of our revenues are from our U.S. Tax Services business. The following table disaggregates our U.S. Tax Services revenues by major service line, with revenues from our international tax services businesses and from Wave included as separate lines:


							(in 000s)
	Three months ended January 31,				Nine months ended January 31,
	2021		2020		2021		2020
Revenues:
U.S. assisted tax preparation	$	154,489	$	283,956	$	541,139	$	358,174
U.S. royalties	23,902		44,965		67,427		59,644
U.S. DIY tax preparation	21,681		34,089		94,331		42,040
International	15,671		11,804		132,347		97,311
Refund Transfers	7		50,494		11,752		52,794
Emerald Card®	21,951		16,657		48,801		39,128
Peace of Mind® Extended Service Plan	16,101		16,954		72,871		75,451
Tax Identity Shield®	4,927		8,138		19,129		17,308
Interest and fee income on Emerald AdvanceSM