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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 | |
OR |
☑ | | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| | For the transition period from May 1, 2021 to June 30, 2021 |
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 July 30, 2021: 178,055,084 shares.
Form 10-Q for the Transition period ended June 30, 2021
Table of Contents
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
| | | | | | | | | | | | | | | | | | |
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME | | (unaudited, in 000s, except per share amounts) | | |
| | Two months ended June 30, | | |
| | 2021 | | 2020 | | | | |
| | | | | | | | |
REVENUES: | | | | | | | | |
Service revenues | | $ | 427,575 | | | $ | 266,154 | | | | | |
Royalty, product and other revenues | | 38,531 | | | 25,293 | | | | | |
| | 466,106 | | | 291,447 | | | | | |
OPERATING EXPENSES: | | | | | | | | |
Costs of revenues | | 232,763 | | | 197,432 | | | | | |
Selling, general and administrative | | 98,988 | | | 81,671 | | | | | |
Total operating expenses | | 331,751 | | | 279,103 | | | | | |
| | | | | | | | |
Other income (expense), net | | 672 | | | 1,662 | | | | | |
Interest expense on borrowings | | (14,032) | | | (21,409) | | | | | |
Income (loss) from continuing operations before income taxes | | 120,995 | | | (7,403) | | | | | |
Income taxes | | 29,876 | | | 1,726 | | | | | |
Net income (loss) from continuing operations | | 91,119 | | | (9,129) | | | | | |
Net loss from discontinued operations, net of tax benefits of $451 and $424 | | (1,509) | | | (1,421) | | | | | |
NET INCOME (LOSS) | | $ | 89,610 | | | $ | (10,550) | | | | | |
| | | | | | | | |
BASIC EARNINGS (LOSS) PER SHARE: | | | | | | | | |
Continuing operations | | $ | 0.50 | | | $ | (0.05) | | | | | |
Discontinued operations | | (0.01) | | | (0.01) | | | | | |
Consolidated | | $ | 0.49 | | | $ | (0.06) | | | | | |
| | | | | | | | |
DILUTED EARNINGS (LOSS) PER SHARE: | | | | | | | | |
Continuing operations | | $ | 0.49 | | | $ | (0.05) | | | | | |
Discontinued operations | | (0.01) | | | (0.01) | | | | | |
Consolidated | | $ | 0.48 | | | $ | (0.06) | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
DIVIDENDS DECLARED PER SHARE | | $ | 0.27 | | | $ | 0.26 | | | | | |
| | | | | | | | |
COMPREHENSIVE INCOME: | | | | | | | | |
Net income (loss) | | $ | 89,610 | | | $ | (10,550) | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Change in foreign currency translation adjustments | | (4,698) | | | 11,795 | | | | | |
Other comprehensive income (loss) | | (4,698) | | | 11,795 | | | | | |
Comprehensive income | | $ | 84,912 | | | $ | 1,245 | | | | | |
| | | | | | | | |
See accompanying notes to consolidated financial statements.
| | | | | |
H&R Block, Inc. | Transition period from May 1, 2021 to June 30, 2021 Form 10-Q | 1 |
| | | | | | | | | | | | | | | | |
CONSOLIDATED BALANCE SHEETS | | (unaudited, in 000s, except share and per share amounts) |
As of | | June 30, 2021 | | | | April 30, 2021 |
| | | | | | |
ASSETS | | | | | | |
Cash and cash equivalents | | $ | 1,434,381 | | | | | $ | 934,251 | |
Cash and cash equivalents - restricted | | 149,783 | | | | | 128,669 | |
Receivables, less allowance for credit losses of $77,518 and $70,689 | | 88,932 | | | | | 197,876 | |
Income taxes receivable | | 330,872 | | | | | 333,366 | |
Prepaid expenses and other current assets | | 76,414 | | | | | 105,562 | |
Total current assets | | 2,080,382 | | | | | 1,699,724 | |
Property and equipment, at cost, less accumulated depreciation and amortization of $842,861 and $832,885 | | 139,276 | | | | | 148,490 | |
Operating lease right of use assets | | 445,847 | | | | | 437,246 | |
Intangible assets, net | | 351,093 | | | | | 360,148 | |
Goodwill | | 754,521 | | | | | 757,659 | |
Deferred tax assets and income taxes receivable | | 181,996 | | | | | 182,848 | |
Other noncurrent assets | | 61,273 | | | | | 67,531 | |
Total assets | | $ | 4,014,388 | | | | | $ | 3,653,646 | |
LIABILITIES AND STOCKHOLDERS' EQUITY | | | | | | |
LIABILITIES: | | | | | | |
Accounts payable and accrued expenses | | $ | 164,269 | | | | | $ | 198,084 | |
Accrued salaries, wages and payroll taxes | | 168,989 | | | | | 270,982 | |
Accrued income taxes and reserves for uncertain tax positions | | 238,863 | | | | | 287,404 | |
| | | | | | |
Operating lease liabilities | | 214,190 | | | | | 206,393 | |
Deferred revenue and other current liabilities | | 196,175 | | | | | 200,216 | |
Total current liabilities | | 982,486 | | | | | 1,163,079 | |
Long-term debt | | 1,983,719 | | | | | 1,490,039 | |
Deferred tax liabilities and reserves for uncertain tax positions | | 301,658 | | | | | 279,351 | |
Operating lease liabilities | | 244,932 | | | | | 242,626 | |
Deferred revenue and other noncurrent liabilities | | 113,535 | | | | | 126,150 | |
Total liabilities | | 3,626,330 | | | | | 3,301,245 | |
COMMITMENTS AND CONTINGENCIES | | | | | | |
STOCKHOLDERS' EQUITY: | | | | | | |
Common stock, no par, stated value $0.01 per share, 800,000,000 shares authorized, shares issued of 216,655,616 and 216,655,616 | | 2,167 | | | | | 2,167 | |
Additional paid-in capital | | 779,465 | | | | | 783,292 | |
Accumulated other comprehensive income | | 88 | | | | | 4,786 | |
Retained earnings | | 286,694 | | | | | 248,506 | |
Less treasury shares, at cost, of 34,842,125 and 35,189,707 | | (680,356) | | | | | (686,350) | |
Total stockholders' equity | | 388,058 | | | | | 352,401 | |
Total liabilities and stockholders' equity | | $ | 4,014,388 | | | | | $ | 3,653,646 | |
| | | | | | |
See accompanying notes to consolidated financial statements. | | | | | |
2 | Transition period from May 1, 2021 to June 30, 2021 Form 10-Q | H&R Block, Inc. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
CONSOLIDATED STATEMENTS OF CASH FLOWS | | (unaudited, in 000s) | | | | | | | | | | | | | | | | | | | | | | |
Two months ended June 30, | | 2021 | | 2020 | | | | | | | | | | | | | | | | | | | | | | |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income (loss) | | $ | 89,610 | | | $ | (10,550) | | | | | | | | | | | | | | | | | | | | | | | |
Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities: | | | | | | | | | | | | | | | | | | | | | | | | | | |
Depreciation and amortization | | 24,586 | | | 26,621 | | | | | | | | | | | | | | | | | | | | | | | |
Provision | | 4,617 | | | 1,718 | | | | | | | | | | | | | | | | | | | | | | | |
Deferred taxes | | 22,926 | | | 2,004 | | | | | | | | | | | | | | | | | | | | | | | |
Stock-based compensation | | 4,700 | | | 5,162 | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Changes in assets and liabilities, net of acquisitions: | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Receivables | | 108,470 | | | 23,396 | | | | | | | | | | | | | | | | | | | | | | | |
Prepaid expenses, other current and noncurrent assets | | 26,753 | | | (12,372) | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Accounts payable, accrued expenses, salaries, wages and payroll taxes | | (186,754) | | | (118,368) | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Deferred revenue, other current and noncurrent liabilities | | (15,809) | | | (15,106) | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Income tax receivables, accrued income taxes and income tax reserves | | (43,476) | | | (2,185) | | | | | | | | | | | | | | | | | | | | | | | |
Other, net | | (797) | | | (51) | | | | | | | | | | | | | | | | | | | | | | | |
Net cash provided by (used in) operating activities | | 34,826 | | | (99,731) | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | | | | | | | | | | | | | | | | | | | | |
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| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Capital expenditures | | (5,188) | | | (5,526) | | | | | | | | | | | | | | | | | | | | | | | |
Payments made for business acquisitions, net of cash acquired | | (846) | | | — | | | | | | | | | | | | | | | | | | | | | | | |
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Franchise loans funded | | (135) | | | (128) | | | | | | | | | | | | | | | | | | | | | | | |
Payments from franchisees | | 8,634 | | | 6,191 | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Other, net | | 1,227 | | | (1,185) | | | | | | | | | | | | | | | | | | | | | | | |
Net cash provided by (used in) investing activities | | 3,692 | | | (648) | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Proceeds from issuance of long-term debt | | 494,435 | | | — | | | | | | | | | | | | | | | | | | | | | | | |
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Repurchase of common stock, including shares surrendered | | (4,633) | | | (2,376) | | | | | | | | | | | | | | | | | | | | | | | |
Proceeds from exercise of stock options | | 308 | | | — | | | | | | | | | | | | | | | | | | | | | | | |
Other, net | | (5,584) | | | (4,183) | | | | | | | | | | | | | | | | | | | | | | | |
Net cash provided by (used in) financing activities | | 484,526 | | | (6,559) | | | | | | | | | | | | | | | | | | | | | | | |
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Effects of exchange rate changes on cash | | (1,800) | | | 3,865 | | | | | | | | | | | | | | | | | | | | | | | |
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Net increase (decrease) in cash and cash equivalents, including restricted balances | | 521,244 | | | (103,073) | | | | | | | | | | | | | | | | | | | | | | | |
Cash, cash equivalents and restricted cash, beginning of period | | 1,062,920 | | | 2,873,020 | | | | | | | | | | | | | | | | | | | | | | | |
Cash, cash equivalents and restricted cash, end of period | | $ | 1,584,164 | | | $ | 2,769,947 | | | | | | | | | | | | | | | | | | | | | | | |
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SUPPLEMENTARY CASH FLOW DATA: | | | | | | | | | | | | | | | | | | | | | | | | | | |
Income taxes paid, net of refunds received | | $ | 52,149 | | | $ | 2,568 | | | | | | | | | | | | | | | | | | | | | | | |
Interest paid on borrowings | | 14,317 | | | 26,457 | | | | | | | | | | | | | | | | | | | | | | | |
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Accrued additions to property and equipment | | 2,085 | | | 1,022 | | | | | | | | | | | | | | | | | | | | | | | |
New operating right of use assets and related lease liabilities | | 48,307 | | | 37,461 | | | | | | | | | | | | | | | | | | | | | | | |
Accrued dividends payable to common shareholders | | 48,998 | | | 50,044 | | | | | | | | | | | | | | | | | | | | | | | |
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See accompanying notes to consolidated financial statements.
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H&R Block, Inc. | Transition period from May 1, 2021 to June 30, 2021 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)(1) | | Retained Earnings | | Treasury Stock | | Total Stockholders’ Equity |
| | Shares | | Amount | | | | | | | | | Shares | | Amount | |
Balances as of May 1, 2021 | | 216,656 | | | $ | 2,167 | | | | | | | $ | 783,292 | | | $ | 4,786 | | | $ | 248,506 | | | (35,190) | | | $ | (686,350) | | | $ | 352,401 | |
Net income | | — | | | — | | | | | | | — | | | — | | | 89,610 | | | — | | | — | | | 89,610 | |
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Other comprehensive loss | | — | | | — | | | | | | | — | | | (4,698) | | | — | | | — | | | — | | | (4,698) | |
Stock-based compensation | | — | | | — | | | | | | | 4,285 | | | — | | | — | | | — | | | — | | | 4,285 | |
Stock-based awards exercised or vested | | — | | | — | | | | | | | (8,112) | | | — | | | (2,424) | | | 545 | | | 10,627 | | | 91 | |
Acquisition of treasury shares(2) | | — | | | — | | | | | | | — | | | — | | | — | | | (197) | | | (4,633) | | | (4,633) | |
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Cash dividends declared - $0.27 per share | | — | | | — | | | | | | | — | | | — | | | (48,998) | | | — | | | — | | | (48,998) | |
Balances as of June 30, 2021 | | 216,656 | | | $ | 2,167 | | | | | | | $ | 779,465 | | | $ | 88 | | | $ | 286,694 | | | (34,842) | | | $ | (680,356) | | | $ | 388,058 | |
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| | Common Stock | | | | Additional Paid-in Capital | | Accumulated Other Comprehensive Income (Loss)(1) | | Retained Earnings (Deficit) | | Treasury Stock | | Total Stockholders’ Equity |
| | 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 loss | | — | | | — | | | | | | | — | | | — | | | (10,550) | | | — | | | — | | | (10,550) | |
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Other comprehensive income | | — | | | — | | | | | | | — | | | 11,795 | | | — | | | — | | | — | | | 11,795 | |
Stock-based compensation | | — | | | — | | | | | | | 5,110 | | | — | | | — | | | — | | | — | | | 5,110 | |
Stock-based awards exercised or vested | | — | | | — | | | | | | | (7,554) | | | — | | | (826) | | | 419 | | | 8,206 | | | (174) | |
Acquisition of treasury shares(2) | | — | | | — | | | | | | | — | | | — | | | — | | | (166) | | | (2,376) | | | (2,376) | |
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Cash dividends declared - $0.26 per share | | — | | | — | | | | | | | — | | | — | | | (50,044) | | | — | | | — | | | (50,044) | |
Balances as of June 30, 2020 | | 228,207 | | | $ | 2,282 | | | | | | | $ | 772,943 | | | $ | (39,781) | | | $ | (18,455) | | | (35,478) | | | $ | (692,187) | | | $ | 24,802 | |
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(1) The balance of our accumulated other comprehensive income (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.
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4 | Transition period from May 1, 2021 to June 30, 2021 Form 10-Q | H&R Block, Inc. |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION – The consolidated balance sheets as of June 30, 2021 and April 30, 2021, the consolidated statements of operations and comprehensive income for the two months ended June 30, 2021 and 2020, the consolidated statements of cash flows for the two months ended June 30, 2021 and 2020, and the consolidated statements of stockholders' equity for the two months ended June 30, 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 June 30, 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., to H&R Block, Inc. and its subsidiaries, or to H&R Block, Inc.'s operating 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, 2021 Annual Report to Shareholders on Form 10-K. All amounts presented herein as of April 30, 2021 or for the year then ended are derived from our Annual Report on Form 10-K.
On June 9, 2021, the Board of Directors approved a change of the Company's fiscal year end from April 30 to June 30. This is our transition report for the period from May 1, 2021 to June 30, 2021. The Company's 2022 fiscal year began on July 1, 2021 and will end on June 30, 2022.
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.
On March 17, 2021, the IRS extended the federal tax filing deadline in the United States (U.S.) for individual 2020 tax returns from April 15, 2021 to May 17, 2021. Consequently, a portion of revenues and expenses that would have normally been recognized in the period ending April 30, 2021 shifted to May and June 2021.
On March 21, 2020, the federal tax filing deadline in the U.S. for individual 2019 tax returns was extended from April 15, 2020 to July 15, 2020. In Canada, the deadline for individuals to file was extended to June 1, 2020. Consequently, a portion of revenues and expenses that would have normally been recognized in the period ending April 30, 2020 shifted into May through October 2020.
These extensions impacted the typical seasonality of our business and the comparability of our financial results.
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 litigation, claims, and other loss contingencies related to our discontinued operations. | | | | | |
H&R Block, Inc. |Transition period from May 1, 2021 to June 30, 2021 Form 10-Q | 5 |
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:
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| | | | (in 000s) | | | | |
| | Two months ended June 30, | | |
| | 2021 | | 2020 | | | | |
Revenues: | | | | | | | | |
U.S. assisted tax preparation | | $ | 259,527 | | | $ | 154,224 | | | | | |
U.S. royalties | | 29,659 | | | 17,283 | | | | | |
U.S. DIY tax preparation | | 76,106 | | | 21,872 | | | | | |
International | | 22,071 | | | 42,533 | | | | | |
Refund Transfers | | 14,269 | | | 5,242 | | | | | |
Emerald Card® | | 19,193 | | | 11,814 | | | | | |
Peace of Mind® Extended Service Plan | | 20,231 | | | 21,261 | | | | | |
Tax Identity Shield® | | 3,928 | | | 3,554 | | | | | |
Interest and fee income on Emerald AdvanceSM | | 299 | | | 488 | | | | | |
Wave | | 12,481 | | | 7,624 | | | | | |
Other | | 8,342 | | | 5,552 | | | | | |
Total revenues | | $ | 466,106 | | | $ | 291,447 | | | | | |
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Changes in the balances of deferred revenue and wages for our Peace of Mind® Extended Service Plan (POM) are as follows:
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| | | | | | | | (in 000s) |
POM | | Deferred Revenue | | Deferred Wages |
Two months ended June 30, | | 2021 | | 2020 | | 2021 | | 2020 |
Balances as of May 1, | | $ | 183,871 | | | $ | 183,685 | | | $ | 20,169 | | | $ | 21,618 | |
Amounts deferred | | 12,464 | | | 8,743 | | | 8 | | | 117 | |
Amounts recognized on previous deferrals | | (23,576) | | | (24,601) | | | (2,310) | | | (3,028) | |
Balances as of June 30, | | $ | 172,759 | | | $ | 167,827 | | | $ | 17,867 | | | $ | 18,707 | |
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As of June 30, 2021, deferred revenue related to POM was $172.8 million. We expect that $101.6 million will be recognized over the next twelve months, while the remaining balance will be recognized within the next five years.
As of June 30, 2021 and 2020, Tax Identity Shield® (TIS) deferred revenue was $28.3 million and $28.8 million, respectively. Deferred revenue related to TIS was $28.9 million and $30.8 million as of April 30, 2021 and April 30, 2020, respectively. All deferred revenue related to TIS will be recognized within the next ten months.
NOTE 3: EARNINGS PER SHARE AND STOCKHOLDERS' EQUITY
EARNINGS PER SHARE – Basic and diluted earnings (loss) per share is computed using the two-class method. The two-class method is an earnings allocation formula that determines net income per share for each class of common stock and participating security according to dividends declared and participation rights in undistributed earnings. 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 0.3 million shares for the two months ended June 30, 2021 as the effect would be antidilutive, and 5.0 million shares for the two months ended June 30, 2020, as the effect would be antidilutive due to the net loss from continuing operations during the period.
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6 | Transition period from May 1, 2021 to June 30, 2021 Form 10-Q | H&R Block, Inc. |
The computations of basic and diluted earnings (loss) per share from continuing operations are as follows:
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(in 000s, except per share amounts) | | | | |
| | Two months ended June 30, | | |
| | 2021 | | 2020 | | | | |
Net income (loss) from continuing operations attributable to shareholders | | $ | 91,119 | | | $ | (9,129) | | | | | |
Amounts allocated to participating securities | | (402) | | | (174) | | | | | |
Net income (loss) from continuing operations attributable to common shareholders | | $ | 90,717 | | | $ | (9,303) | | | | | |
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Basic weighted average common shares | | 181,473 | | | 192,480 | | | | | |
Potential dilutive shares | | 3,389 | | | — | | | | | |
Dilutive weighted average common shares | | 184,862 | | | 192,480 | | | | | |
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Earnings (loss) per share from continuing operations attributable to common shareholders: |
Basic | | $ | 0.50 | | | $ | (0.05) | | | | | |
Diluted | | 0.49 | | | (0.05) | | | | | |
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The decrease in the weighted average shares outstanding is due to share repurchases completed in prior fiscal years.
STOCK-BASED COMPENSATION – During the two months ended June 30, 2021, we granted 14.6 thousand shares under our stock-based compensation plan. We granted awards of 1.8 million shares under our stock-based compensation plans during the two months ended June 30, 2020. The change in shares granted compared to the prior year is due to the change in timing of grants due to the change in our fiscal year. Stock-based compensation expense of our continuing operations totaled $4.7 million for the two months ended June 30, 2021 and $5.2 million for the two months ended June 30, 2020. As of June 30, 2021, unrecognized compensation cost for stock options totaled $0.7 million, and for nonvested shares and units totaled $33.2 million.
NOTE 4: RECEIVABLES
Receivables, net of their related allowance, consist of the following:
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(in 000s) |
As of | | June 30, 2021 | | | | April 30, 2021 |
| | Short-term | | Long-term | | | | | | Short-term | | Long-term |
Loans to franchisees | | $ | 9,497 | | | $ | 28,026 | | | | | | | $ | 16,666 | | | $ | 28,909 | |
Receivables for U.S. assisted and DIY tax preparation and related fees | | 41,900 | | | 3,793 | | | | | | | 92,531 | | | 3,793 | |
H&R Block Instant RefundTM receivables | | 2,357 | | | 159 | | | | | | | 35,665 | | | 1,463 | |
H&R Block Emerald Advance® lines of credit | | 8,248 | | | 8,089 | | | | | | | 9,210 | | | 17,095 | |
Software receivables from retailers | | 2,910 | | | — | | | | | | | 4,823 | | | — | |
Royalties and other receivables from franchisees | | 6,167 | | | 178 | | | | | | | 16,136 | | | 196 | |
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Wave payment processing receivables | | 2,187 | | | — | | | | | | | 1,569 | | | — | |
Other | | 15,666 | | | 1,350 | | | | | | | 21,276 | | | 1,233 | |
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Total | | $ | 88,932 | | | $ | 41,595 | | | | | | | $ | 197,876 | | | $ | 52,689 | |
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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 June 30, 2021 and April 30, 2021 loans with a principal balance of $0.2 million and $0.1 million, respectively, were more than 90 days past due. We had no loans to franchisees on non-accrual status.
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H&R Block, Inc. | Transition period from May 1, 2021 to June 30, 2021 Form 10-Q | 7 |
H&R BLOCK INSTANT REFUNDTM PROGRAM – H&R Block Instant RefundTM 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.
We review the credit quality of our Instant Refund receivables based on pools, which are segregated by the tax return year of origination, with older years being deemed more unlikely to be repaid. Current balances and amounts on non-accrual status and classified as impaired, or more than 60 days past due, by tax return year of origination, as of June 30, 2021 are as follows:
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Tax return year of origination: | | Balance | | Non-Accrual |
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2020 | | $ | 3,599 | | | $ | 1,551 | |
2019 and prior | | 500 | | | 500 | |
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| | 4,099 | | | $ | 2,051 | |
Allowance | | (1,583) | | | |
Net balance | | $ | 2,516 | | | |
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H&R BLOCK EMERALD ADVANCE® LINES OF CREDIT – We review the credit quality of our purchased participation interests in Emerald AdvanceSM (EA) receivables based on pools, which are segregated by the fiscal year of origination, with older years being deemed more unlikely to be repaid. Balances and amounts on non-accrual status and classified as impaired, or more than 60 days past due, as of June 30, 2021, by fiscal year of origination, are as follows:
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(in 000s) |
Fiscal year of origination: | | Balance | | Non-Accrual |
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2021 | | $ | 28,192 | | | $ | 28,192 | |
2020 and prior | | 2,017 | | | 2,017 | |
Revolving loans | | 13,832 | | | 12,182 | |
| | 44,041 | | | $ | 42,391 | |
Allowance | | (27,704) | | | |
Net balance | | $ | 16,337 | | | |
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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 two months ended June 30, 2021 and 2020 is as follows:
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(in 000s) |
| | EAs | | | | | | | | All Other | | Total |
Balances as of May 1, 2021 | | $ | 27,704 | | | | | | | | | $ | 55,804 | | | $ | 83,508 | |
Provision | | — | | | | | | | | | 4,617 | | | 4,617 | |
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Charge-offs, recoveries and other | | — | | | | | | | | | (149) | | | (149) | |
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Balances as of June 30, 2021 | | $ | 27,704 | | | | | | | | | $ | 60,272 | | | $ | 87,976 | |
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Balances as of May 1, 2020 | | $ | 32,034 | | | | | | | | | $ | 50,446 | | | $ | 82,480 | |
Provision | | — | | | | | | | | | 1,718 | | | 1,718 | |
Charge-offs, recoveries and other | | — | | | | | | | | | 2 | | | 2 | |
Balances as of June 30, 2020 | | $ | 32,034 | | | | | | | | | $ | 52,166 | | | $ | 84,200 | |
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8 | Transition period from May 1, 2021 to June 30, 2021 Form 10-Q | H&R Block, Inc. |
NOTE 5: GOODWILL AND INTANGIBLE ASSETS
Changes in the carrying amount of goodwill for the two months ended June 30, 2021 are as follows:
| | | | | | | | | | | | | | | | | | | | | |
(in 000s) | |
| | Goodwill | | Accumulated Impairment Losses | | Net | |
Balances as of May 1, 2021 | | $ | 895,956 | | | $ | (138,297) | | | $ | 757,659 | | |
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Acquisitions | | 166 | | | — | | | 166 | | |
Disposals and foreign currency changes, net | | (3,304) | | | — | | | (3,304) | | |
Impairments | | — | | | — | | | — | | |
Balances as of June 30, 2021 | | $ | 892,818 | | | $ | (138,297) | | | $ | 754,521 | | |
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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.
Components of intangible assets are as follows:
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(in 000s) |
| | Gross Carrying Amount | | Accumulated Amortization | | Net |
As of June 30, 2021: | | | | | | |
Reacquired franchise rights | | $ | 370,405 | | | $ | (182,366) | | | $ | 188,039 | |
Customer relationships | | 316,547 | | | (255,294) | | | 61,253 | |
Internally-developed software | | 160,315 | | | (119,460) | | | 40,855 | |
Noncompete agreements | | 41,228 | | | (35,802) | | | 5,426 | |
Franchise agreements | | 19,201 | | | (16,108) | | | 3,093 | |
Purchased technology | | 122,700 | | | (74,913) | | | 47,787 | |
Trade name | | 5,800 | | | (1,160) | | | 4,640 | |
| | $ | 1,036,196 | | | $ | (685,103) | | | $ | 351,093 | |
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As of April 30, 2021: | | | | | | |
Reacquired franchise rights | | $ | 370,112 | | | $ | (179,356) | | | $ | 190,756 | |
Customer relationships | | 316,508 | | | (251,160) | | | 65,348 | |
Internally-developed software | | 156,308 | | | (116,126) | | | 40,182 | |
Noncompete agreements | | 41,212 | | | (35,484) | | | 5,728 | |
Franchise agreements | | 19,201 | | | (15,894) | | | 3,307 | |
Purchased technology | | 122,700 | | | (72,609) | | | 50,091 | |
Trade name | | 5,800 | | | (1,064) | | | 4,736 | |
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| | $ | 1,031,841 | | | $ | (671,693) | | | $ | 360,148 | |
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We made payments to acquire businesses totaling $0.8 million during the two months ended June 30, 2021. We made no payments to acquire business in the two months ended June 30, 2020. The amounts and weighted-
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H&R Block, Inc. | Transition period from May 1, 2021 to June 30, 2021 Form 10-Q | 9 |
average lives of intangible assets acquired during the two months ended June 30, 2021, including amounts capitalized related to internally-developed software, are as follows: