SEC Filing | H&R Block®

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hrb-20211231

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	December 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 January 31, 2022: 164,538,187 shares.

Table of Contents

Form 10-Q for the Period ended December 31, 2021

Table of Contents


	PART I
Item 1.	Consolidated Statements of Operations and Comprehensive Loss Three and six months ended December 31, 2021 and 2020	1
	Consolidated Balance Sheets As of December 31, 2021 and June 30, 2021	2
	Consolidated Statements of Cash Flows Six months ended December 31, 2021 and 2020	3
	Consolidated Statements of Stockholders' Equity Three and six months ended December 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	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	29
Item 4.	Controls and Procedures	29
	PART II
Item 1.	Legal Proceedings	29
Item 1A.	Risk Factors	29
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	30
Item 3.	Defaults Upon Senior Securities	30
Item 4.	Mine Safety Disclosures	30
Item 5.	Other Information	30
Item 6.	Exhibits	31
	Signatures	32

Table of Contents

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 December 31,				Six months ended December 31,
	2021		2020		2021		2020
REVENUES:
Service revenues	$	133,725	$	116,613	$	310,702	$	498,970
Royalty, product and other revenues	25,091		25,352		40,738		60,341
	158,816		141,965		351,440		559,311
OPERATING EXPENSES:
Costs of revenues	289,323		277,129		530,855		555,236
Selling, general and administrative	146,793		144,384		272,657		284,376
Total operating expenses	436,116		421,513		803,512		839,612

Other income (expense), net	1,467		538		1,751		3,042
Interest expense on borrowings	(23,085)		(21,489)		(45,915)		(56,186)
Loss from continuing operations before income tax benefit	(298,918)		(300,499)		(496,236)		(333,445)
Income tax benefit	(109,845)		(46,510)		(157,218)		(18,546)
Net loss from continuing operations	(189,073)		(253,989)		(339,018)		(314,899)
Net loss from discontinued operations, net of tax benefits of $461, $1,132, $956 and $2,524	(1,532)		(1,762)		(3,188)		(3,108)
NET LOSS	$	(190,605)	$	(255,751)	$	(342,206)	$	(318,007)
BASIC AND DILUTED LOSS PER SHARE:
Continuing operations	$	(1.09)	$	(1.38)	$	(1.93)	$	(1.68)
Discontinued operations	(0.01)		(0.01)		(0.02)		(0.01)
Consolidated	$	(1.10)	$	(1.39)	$	(1.95)	$	(1.69)








DIVIDENDS DECLARED PER SHARE	$	0.27	$	0.26	$	0.54	$	0.52
COMPREHENSIVE LOSS:
Net loss	$	(190,605)	$	(255,751)	$	(342,206)	$	(318,007)



Change in foreign currency translation adjustments	1,656		21,982		(9,521)		30,798
Other comprehensive income (loss)	1,656		21,982		(9,521)		30,798
Comprehensive loss	$	(188,949)	$	(233,769)	$	(351,727)	$	(287,209)

See accompanying notes to consolidated financial statements.


H&R Block, Inc. \|Q2 FY2022 Form 10-Q			1

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CONSOLIDATED BALANCE SHEETS	(unaudited, in 000s, except share and per share amounts)
As of	December 31, 2021		June 30, 2021
ASSETS
Cash and cash equivalents	$	336,250	$	1,434,381
Cash and cash equivalents - restricted	123,686		149,783
Receivables, less allowance for credit losses of $25,377 and $77,518	301,055		88,932
Income taxes receivable	351,829		330,872
Prepaid expenses and other current assets	126,784		76,414
Total current assets	1,239,604		2,080,382
Property and equipment, at cost, less accumulated depreciation and amortization of $865,593 and $842,861	140,459		139,276
Operating lease right of use assets	396,522		445,847
Intangible assets, net	334,557		351,093
Goodwill	759,183		754,521
Deferred tax assets and income taxes receivable	179,626		181,996
Other noncurrent assets	50,104		61,273
Total assets	$	3,100,055	$	4,014,388
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Accounts payable and accrued expenses	$	155,841	$	164,269
Accrued salaries, wages and payroll taxes	62,524		168,989
Accrued income taxes and reserves for uncertain tax positions	78,921		238,863
Current portion of long-term debt	499,395		—
Operating lease liabilities	189,984		214,190
Deferred revenue and other current liabilities	184,775		196,175
Total current liabilities	1,171,440		982,486
Long-term debt	1,760,830		1,983,719
Deferred tax liabilities and reserves for uncertain tax positions	249,751		301,658
Operating lease liabilities	215,826		244,932
Deferred revenue and other noncurrent liabilities	74,863		113,535
Total liabilities	3,472,710		3,626,330
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, no par, stated value $0.01 per share, 800,000,000 shares authorized, shares issued of 203,265,054 and 216,655,616	2,033		2,167
Additional paid-in capital	770,661		779,465
Accumulated other comprehensive income (loss)	(9,433)		88
Retained earnings (deficit)	(466,856)		286,694
Less treasury shares, at cost, of 34,221,633 and 34,842,125	(669,060)		(680,356)
Total stockholders' equity (deficiency)	(372,655)		388,058
Total liabilities and stockholders' equity	$	3,100,055	$	4,014,388

See accompanying notes to consolidated financial statements.


2			Q2 FY2022 Form 10-Q\| H&R Block, Inc.

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CONSOLIDATED STATEMENTS OF CASH FLOWS	(unaudited, in 000s)
Six months ended December 31,	2021		2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(342,206)	$	(318,007)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	71,346		77,937
Provision	14,639		15,977
Deferred taxes	16,685		29,015
Stock-based compensation	13,233		13,359

Changes in assets and liabilities, net of acquisitions:

Receivables	(216,071)		(248,184)
Prepaid expenses, other current and noncurrent assets	(46,928)		(61,070)

Accounts payable, accrued expenses, salaries, wages and payroll taxes	(121,926)		(14,798)

Deferred revenue, other current and noncurrent liabilities	(50,882)		(48,117)

Income tax receivables, accrued income taxes and income tax reserves	(247,088)		(146,215)
Other, net	(4,373)		(2,737)
Net cash used in operating activities	(913,571)		(702,840)
CASH FLOWS FROM INVESTING ACTIVITIES:



Capital expenditures	(39,371)		(34,751)
Payments made for business acquisitions, net of cash acquired	(19,333)		(12,155)



Franchise loans funded	(14,480)		(20,064)
Payments from franchisees	6,213		13,633

Other, net	9,527		(5,383)
Net cash used in investing activities	(57,444)		(58,720)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of line of credit borrowings	(210,000)		(2,050,000)
Proceeds from line of credit borrowings	485,000		1,040,000
Repayments of long-term debt	—		(650,000)
Proceeds from issuance of long-term debt	—		647,965


Dividends paid	(96,938)		(100,198)
Repurchase of common stock, including shares surrendered	(324,589)		(150,782)
Proceeds from exercise of stock options	4,067		1,133
Other, net	(7,423)		(19,705)
Net cash used in financing activities	(149,883)		(1,281,587)
Effects of exchange rate changes on cash	(3,330)		11,030
Net decrease in cash and cash equivalents, including restricted balances	(1,124,228)		(2,032,117)
Cash, cash equivalents and restricted cash, beginning of period	1,584,164		2,769,947
Cash, cash equivalents and restricted cash, end of period	$	459,936	$	737,830
SUPPLEMENTARY CASH FLOW DATA:
Income taxes paid, net of refunds received	$	72,169	$	95,789
Interest paid on borrowings	36,539		50,472


Accrued purchase of common stock	4,845		—
Accrued additions to property and equipment	1,393		1,285
New operating right of use assets and related lease liabilities	73,710		46,954
Accrued dividends payable to common shareholders	46,497		47,689

See accompanying notes to consolidated financial statements.


H&R Block, Inc. \| Q2 FY2022 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 (Deficit)		Treasury Stock			Total Stockholders’ Equity
	Shares	Amount									Shares			Amount
Balances as of July 1, 2021	216,656	$	2,167		$	779,465	$	88	$	286,694	(34,842)	$	(680,356)		$	388,058
Net loss	—	—			—		—		(151,601)		—	—			(151,601)
Other comprehensive loss	—	—			—		(11,177)		—		—	—			(11,177)
Stock-based compensation	—	—			5,627		—		—		—	—			5,627
Stock-based awards exercised or vested	—	—			(10,328)		—		(291)		705	13,765			3,146
Acquisition of treasury shares(2)	—	—			—		—		—		(205)	(4,817)			(4,817)
Repurchase and retirement of common shares	(6,802)	(68)			(4,081)		—		(161,619)		—	—			(165,768)


Cash dividends declared - $0.27 per share	—	—			—		—		(47,940)		—	—			(47,940)
Balances as of September 30, 2021	209,854	$	2,099		$	770,683	$	(11,089)	$	(74,757)	(34,342)	$	(671,408)		$	15,528
Net loss	—	—			—		—		(190,605)		—	—			(190,605)
Other comprehensive income	—	—			—		1,656		—		—	—			1,656
Stock-based compensation	—	—			5,640		—		—		—	—			5,640
Stock-based awards exercised or vested	—	—			(1,709)		—		(219)		122	2,400			472
Acquisition of treasury shares(2)	—	—			—		—		—		(2)	(52)			(52)
Repurchase and retirement of common shares	(6,589)	(66)			(3,953)		—		(154,778)		—	—			(158,797)


Cash dividends declared - $0.27 per share	—	—			—		—		(46,497)		—	—			(46,497)
Balances as of December 31, 2021	203,265	$	2,033		$	770,661	$	(9,433)	$	(466,856)	(34,222)	$	(669,060)		$	(372,655)

(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.


4			Q2 FY2022 Form 10-Q\| H&R Block, Inc.

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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 July 1, 2020	228,207	$	2,282		$	772,943	$	(39,781)	$	(18,455)	(35,478)	$	(692,187)		$	24,802
Net loss	—	—			—		—		(62,256)		—	—			(62,256)
Other comprehensive income	—	—			—		8,816		—		—	—			8,816
Stock-based compensation	—	—			7,259		—		—		—	—			7,259
Stock-based awards exercised or vested	—	—			(2,613)		—		(636)		215	4,176			927
Acquisition of treasury shares(2)	—	—			—		—		—		(42)	(596)			(596)
Repurchase and retirement of common shares	(5,957)	(60)			(3,514)		—		(84,884)		—	—			(88,458)


Cash dividends declared - $0.26 per share	—	—			—		—		(50,154)		—	—			(50,154)
Balances as of September 30, 2020	222,250	$	2,222		$	774,075	$	(30,965)	$	(216,385)	(35,305)	$	(688,607)		$	(159,660)
Net loss	—	—			—		—		(255,751)		—	—			(255,751)
Other comprehensive income	—	—			—		21,982		—		—	—			21,982
Stock-based compensation	—	—			5,181		—		—		—	—			5,181
Stock-based awards exercised or vested	—	—			(134)		—		(220)		8	144			(210)
Acquisition of treasury shares(2)	—	—			—		—		—		(3)	(44)			(44)
Repurchase and retirement of common shares	(3,531)	(35)			(2,083)		—		(59,566)		—	—			(61,684)


Cash dividends declared - $0.26 per share	—	—			—		—		(47,689)		—	—			(47,689)
Balances as of December 31, 2020	218,719	$	2,187		$	777,039	$	(8,983)	$	(579,611)	(35,300)	$	(688,507)		$	(497,875)

(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.


H&R Block, Inc. \|Q2 FY2022 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 December 31, 2021 and June 30, 2021, the consolidated statements of operations and comprehensive loss for the three and six months ended December 31, 2021 and 2020, the consolidated statements of cash flows for the six months ended December 31, 2021 and 2020, and the consolidated statements of stockholders' equity for the three and six months ended December 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 December 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., to H&R Block, Inc. and its subsidiaries, or to H&R Block, Inc.'s operating subsidiaries, as appropriate to the context.

On June 9, 2021, the Board of Directors approved a change of the Company's fiscal year end from April 30 to June 30. The Company's 2022 fiscal year began on July 1, 2021 and will end on June 30, 2022. As a result of this change, the Company filed a Transition Report on Form 10-Q that included the financial information for the transition period from May 1, 2021 to June 30, 2021 (Transition Period). 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 and our June 30, 2021 Transition Report filed on Form 10-Q.

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 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, shifting a portion of revenues and expenses from that tax season into the six months ended December 31, 2020. This extension 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.


6			Q2 FY2022 Form 10-Q\| H&R Block, Inc.

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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 December 31,				Six months ended December 31,
	2021		2020		2021		2020
Revenues:
U.S. assisted tax preparation	$	30,845	$	34,020	$	64,452	$	241,187
U.S. royalties	3,404		5,357		10,762		28,009
U.S. DIY tax preparation	9,210		6,114		13,271		53,577
International	27,907		26,637		86,232		85,413
Refund Transfers	777		397		2,442		6,510
Emerald Card®	24,830		9,962		53,088		22,398
Peace of Mind® Extended Service Plan	17,315		18,570		42,151		45,762
Tax Identity Shield®	5,200		4,809		10,353		13,803
Interest and fee income on Emerald AdvanceSM	12,424		14,039		12,903		14,565
Wave	19,497		14,837		38,634		28,574
Other	7,407		7,223		17,152		19,513
Total revenues	$	158,816	$	141,965	$	351,440	$	559,311

Changes in the balances of deferred revenue and wages for our Peace of Mind® Extended Service Plan (POM) are as follows:


							(in 000s)
POM	Deferred Revenue				Deferred Wages
Six months ended December 31,	2021		2020		2021		2020
Balances as of July 1,	$	172,759	$	167,827	$	17,867	$	18,707
Amounts deferred	2,961		12,421		10		46
Amounts recognized on previous deferrals	(49,034)		(52,974)		(4,805)		(5,834)
Balances as of December 31,	$	126,686	$	127,274	$	13,072	$	12,919

As of December 31, 2021, deferred revenue related to POM was $126.7 million. We expect that $93.1 million will be recognized over the next twelve months, while the remaining balance will be recognized over the following five years.

As of December 31, 2021 and 2020, Tax Identity Shield® (TIS) deferred revenue was $18.5 million and $17.1 million, respectively. Deferred revenue related to TIS was $28.3 million and $28.8 million as of June 30, 2021 and June 30, 2020, respectively. All deferred revenue related to TIS will be recognized by April 30, 2022.

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 5.1 million shares for the three and six months ended December 31, 2021 and 5.3 million shares for the three and six months ended December 31, 2020, as the effect would be antidilutive due to the net loss from continuing operations during the periods.


H&R Block, Inc. \|Q2 FY2022 Form 10-Q			7

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The computations of basic and diluted earnings (loss) per share from continuing operations are as follows:


(in 000s, except per share amounts)
	Three months ended December 31,				Six months ended December 31,
	2021		2020		2021		2020
Net loss from continuing operations attributable to shareholders	$	(189,073)	$	(253,989)	$	(339,018)	$	(314,899)
Amounts allocated to participating securities	(210)		(210)		(449)		(417)
Net loss from continuing operations attributable to common shareholders	$	(189,283)	$	(254,199)	$	(339,467)	$	(315,316)
Basic weighted average common shares	173,378		183,883		175,739		188,099
Potential dilutive shares	—		—		—		—
Dilutive weighted average common shares	173,378		183,883		175,739		188,099
Loss per share from continuing operations attributable to common shareholders:
Basic	$	(1.09)	$	(1.38)	$	(1.93)	$	(1.68)
Diluted	(1.09)		(1.38)		(1.93)		(1.68)

The decrease in the weighted average shares outstanding is due to share repurchases completed in the current and prior fiscal years.

STOCK-BASED COMPENSATION – During the six months ended December 31, 2021, we granted 1.5 million shares under our stock-based compensation plan. We granted awards of 0.6 million shares under our stock-based compensation plans during the six months ended December 31, 2020. The increase in shares granted compared to the prior year is a result of the change in timing of grants due to the change in our fiscal year. Stock-based compensation expense of our continuing operations totaled $6.4 million and $13.2 million for the three and six months ended December 31, 2021, respectively, and $5.6 million and $13.4 million for the three and six months ended December 31, 2020, respectively. As of December 31, 2021, unrecognized compensation cost for stock options totaled $0.6 million, and for nonvested shares and units totaled $51.8 million.

NOTE 4: RECEIVABLES

Receivables, net of their related allowance, consist of the following:


(in 000s)
As of	December 31, 2021				June 30, 2021
	Short-term		Long-term			Short-term		Long-term
Loans to franchisees	$	19,030	$	28,654		$	9,497	$	28,026
Receivables for U.S. assisted and DIY tax preparation and related fees	6,326		3,681			41,900		3,793
H&R Block Instant RefundTM receivables	324		16			2,357		159
H&R Block Emerald Advance® lines of credit	246,970		1,791			8,248		8,089
Software receivables from retailers	1,886		—			2,910		—
Royalties and other receivables from franchisees	3,377		133			6,167		178

Wave payment processing receivables	3,062