SEC Filing | H&R Block®

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hrb-20221231

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, 2022
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, 2023: 152,277,089 shares.

Table of Contents

Form 10-Q for the Period ended December 31, 2022

Table of Contents


	PART I
Item 1.	Consolidated Statements of Operations and Comprehensive Loss Three and six months ended December 3 1 , 2022 and 2021	1
	Consolidated Balance Sheets As of December 3 1 , 2022 and June 30, 2022	2
	Consolidated Statements of Cash Flows Six months ended December 3 1 , 2022 and 2021	3
	Consolidated Statements of Stockholders' Equity Three and six months ended December 3 1 , 2022 and 2021	4
	Notes to Consolidated Financial Statements	6
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	15
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	24
Item 4.	Controls and Procedures	24
	PART II
Item 1.	Legal Proceedings	24
Item 1A.	Risk Factors	24
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	25
Item 3.	Defaults Upon Senior Securities	25
Item 4.	Mine Safety Disclosures	25
Item 5.	Other Information	25
Item 6.	Exhibits	25
	Signatures	26

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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 December 31,				Six months ended December 31,
	2022		2021		2022		2021
REVENUES:
Service revenues	$	139,565	$	133,725	$	306,759	$	310,702
Royalty, product and other revenues	26,840		25,091		39,631		40,738
	166,405		158,816		346,390		351,440
OPERATING EXPENSES:
Costs of revenues	298,345		289,323		559,007		530,855
Selling, general and administrative	151,263		146,793		279,697		272,657
Total operating expenses	449,608		436,116		838,704		803,512

Other income (expense), net	4,185		1,467		7,796		1,751
Interest expense on borrowings	(18,985)		(23,085)		(34,809)		(45,915)
Loss from continuing operations before income tax benefit	(298,003)		(298,918)		(519,327)		(496,236)
Income tax benefit	(77,140)		(109,845)		(131,097)		(157,218)
Net loss from continuing operations	(220,863)		(189,073)		(388,230)		(339,018)
Net loss from discontinued operations, net of tax benefits of $812, $461, $1,128 and $956	(2,716)		(1,532)		(3,770)		(3,188)
NET LOSS	$	(223,579)	$	(190,605)	$	(392,000)	$	(342,206)
BASIC AND DILUTED LOSS PER SHARE:
Continuing operations	$	(1.43)	$	(1.09)	$	(2.48)	$	(1.93)
Discontinued operations	(0.02)		(0.01)		(0.02)		(0.02)
Consolidated	$	(1.45)	$	(1.10)	$	(2.50)	$	(1.95)








DIVIDENDS DECLARED PER SHARE	$	0.29	$	0.27	$	0.58	$	0.54
COMPREHENSIVE LOSS:
Net loss	$	(223,579)	$	(190,605)	$	(392,000)	$	(342,206)



Change in foreign currency translation adjustments	9,307		1,656		(23,038)		(9,521)
Other comprehensive income (loss)	9,307		1,656		(23,038)		(9,521)
Comprehensive loss	$	(214,272)	$	(188,949)	$	(415,038)	$	(351,727)

See accompanying notes to consolidated financial statements.


H&R Block, Inc. \|Q2 FY2023 Form 10-Q			1

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CONSOLIDATED BALANCE SHEETS	(unaudited, in 000s, except share and per share amounts)
As of	December 31, 2022		June 30, 2022
ASSETS
Cash and cash equivalents	$	264,455	$	885,015
Cash and cash equivalents - restricted	27,733		165,698
Receivables, less allowance for credit losses of $27,323 and $65,351	328,616		58,447
Income taxes receivable	46,646		202,838
Prepaid expenses and other current assets	108,405		72,460
Total current assets	775,855		1,384,458
Property and equipment, at cost, less accumulated depreciation and amortization of $881,230 and $857,468	136,824		123,912
Operating lease right of use assets	382,723		427,783
Intangible assets, net	304,539		309,644
Goodwill	764,802		760,401
Deferred tax assets and income taxes receivable	181,721		208,948
Other noncurrent assets	46,760		54,012
Total assets	$	2,593,224	$	3,269,158
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Accounts payable and accrued expenses	$	137,118	$	160,929
Accrued salaries, wages and payroll taxes	68,089		154,764
Accrued income taxes and reserves for uncertain tax positions	73,572		280,115

Operating lease liabilities	184,343		206,898
Deferred revenue and other current liabilities	182,711		196,107
Total current liabilities	645,833		998,813
Long-term debt and line of credit borrowings	2,067,937		1,486,876
Deferred tax liabilities and reserves for uncertain tax positions	231,041		226,362
Operating lease liabilities	205,409		228,820
Deferred revenue and other noncurrent liabilities	86,483		116,656
Total liabilities	3,236,703		3,057,527
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, no par, stated value $0.01 per share, 800,000,000 shares authorized, shares issued of 185,403,081 and 193,571,309	1,854		1,936
Additional paid-in capital	767,683		772,182
Accumulated other comprehensive loss	(44,683)		(21,645)
Retained earnings (deficit)	(708,437)		120,405
Less treasury shares, at cost, of 33,127,313 and 33,640,988	(659,896)		(661,247)
Total stockholders' equity (deficiency)	(643,479)		211,631
Total liabilities and stockholders' equity	$	2,593,224	$	3,269,158

See accompanying notes to consolidated financial statements.


2			Q2 FY2023 Form 10-Q\| H&R Block, Inc.

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CONSOLIDATED STATEMENTS OF CASH FLOWS	(unaudited, in 000s)
Six months ended December 31,	2022		2021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(392,000)	$	(342,206)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	66,347		71,346
Provision	16,581		14,639
Deferred taxes	41,534		16,685
Stock-based compensation	17,893		13,233

Changes in assets and liabilities, net of acquisitions:

Receivables	(262,293)		(216,071)
Prepaid expenses, other current and noncurrent assets	(32,983)		(46,928)

Accounts payable, accrued expenses, salaries, wages and payroll taxes	(121,156)		(121,926)

Deferred revenue, other current and noncurrent liabilities	(52,703)		(50,882)

Income tax receivables, accrued income taxes and income tax reserves	(60,163)		(247,088)
Other, net	(1,515)		(4,373)
Net cash used in operating activities	(780,458)		(913,571)
CASH FLOWS FROM INVESTING ACTIVITIES:



Capital expenditures	(41,495)		(39,371)
Payments made for business acquisitions, net of cash acquired	(39,757)		(19,333)



Franchise loans funded	(17,491)		(14,480)
Payments from franchisees	3,861		6,213

Other, net	(4,208)		9,527
Net cash used in investing activities	(99,090)		(57,444)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of line of credit borrowings	(170,000)		(210,000)
Proceeds from line of credit borrowings	750,000		485,000




Dividends paid	(89,193)		(96,938)
Repurchase of common stock, including shares surrendered	(365,633)		(324,589)
Proceeds from exercise of stock options	1,427		4,067
Other, net	2,212		(7,423)
Net cash provided by (used in) financing activities	128,813		(149,883)
Effects of exchange rate changes on cash	(7,790)		(3,330)
Net decrease in cash and cash equivalents, including restricted balances	(758,525)		(1,124,228)
Cash, cash equivalents and restricted cash, beginning of period	1,050,713		1,584,164
Cash, cash equivalents and restricted cash, end of period	$	292,188	$	459,936
SUPPLEMENTARY CASH FLOW DATA:
Income taxes paid (received), net	$	(114,385)	$	72,169
Interest paid on borrowings	31,812		36,539


Accrued additions to property and equipment	2,499		1,393
New operating right of use assets and related lease liabilities	79,917		73,710
Accrued dividends payable to common shareholders	44,569		46,497
Accrued purchase of common stock	—		4,845

See accompanying notes to consolidated financial statements.


H&R Block, Inc. \| Q2 FY2023 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, 2022	193,571	$	1,936		$	772,182	$	(21,645)	$	120,405	(33,641)	$	(661,247)		$	211,631
Net loss	—	—			—		—		(168,421)		—	—			(168,421)
Other comprehensive loss	—	—			—		(32,345)		—		—	—			(32,345)
Stock-based compensation	—	—			5,630		—		—		—	—			5,630
Stock-based awards exercised or vested	—	—			(15,276)		—		(742)		805	15,839			(179)
Acquisition of treasury shares(2)	—	—			—		—		—		(341)	(15,432)			(15,432)
Repurchase and retirement of common shares	(4,927)	(49)			(2,907)		—		(216,813)		—	—			(219,769)


Cash dividends declared - $0.29 per share	—	—			—		—		(46,100)		—	—			(46,100)
Balances as of September 30, 2022	188,644	$	1,887		$	759,629	$	(53,990)	$	(311,671)	(33,177)	$	(660,840)		$	(264,985)
Net loss	—	—			—		—		(223,579)		—	—			(223,579)
Other comprehensive income	—	—			—		9,307		—		—	—			9,307
Stock-based compensation	—	—			9,544		—		—		—	—			9,544
Stock-based awards exercised or vested	—	—			421		—		(209)		52	1,023			1,235
Acquisition of treasury shares(2)	—	—			—		—		—		(2)	(79)			(79)
Repurchase and retirement of common shares	(3,241)	(33)			(1,911)		—		(128,409)		—	—			(130,353)


Cash dividends declared - $0.29 per share	—	—			—		—		(44,569)		—	—			(44,569)
Balances as of December 31, 2022	185,403	$	1,854		$	767,683	$	(44,683)	$	(708,437)	(33,127)	$	(659,896)		$	(643,479)

(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 FY2023 Form 10-Q\| H&R Block, Inc.

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					(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.


H&R Block, Inc. \|Q2 FY2023 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, 2022 and June 30, 2022, the consolidated statements of operations and comprehensive loss for the three and six months ended December 31, 2022 and 2021, the consolidated statements of cash flows for the six months ended December 31, 2022 and 2021, and the consolidated statements of stockholders' equity for the three and six months ended December 31, 2022 and 2021 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, 2022 and 2021 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 June 30, 2022 Annual Report to Shareholders on Form 10-K. All amounts presented herein as of June 30, 2022 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.

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 loss contingencies related to our discontinued operations.


6			Q2 FY2023 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,
	2022		2021		2022		2021
Revenues:
U.S. assisted tax preparation	$	41,216	$	30,845	$	77,528	$	64,452
U.S. royalties	4,946		3,404		11,174		10,762
U.S. DIY tax preparation	12,150		9,210		15,308		13,271
Refund Transfers	1,542		777		2,826		2,442
Peace of Mind® Extended Service Plan	17,320		17,315		42,090		42,151
Tax Identity Shield®	5,350		5,200		10,517		10,353
Emerald Card® and SpruceSM	12,478		24,830		24,090		53,088
Interest and fee income on Emerald AdvanceSM	12,903		12,424		13,517		12,903
International	28,046		27,907		86,880		86,232
Wave	21,941		19,497		44,587		38,634
Other	8,513		7,407		17,873		17,152
Total revenues	$	166,405	$	158,816	$	346,390	$	351,440

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,	2022		2021		2022		2021
Balance, beginning of the period	$	173,486	$	172,759	$	19,495	$	17,867
Amounts deferred	3,262		2,961		10		10
Amounts recognized on previous deferrals	(47,811)		(49,034)		(5,012)		(4,805)
Balance, end of the period	$	128,937	$	126,686	$	14,493	$	13,072

As of December 31, 2022, deferred revenue related to POM was $128.9 million. We expect that $94.8 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, 2022 and 2021, Tax Identity Shield® (TIS) deferred revenue was $16.8 million and $18.5 million, respectively. Deferred revenue related to TIS was $25.8 million and $28.3 million as of June 30, 2022 and June 30, 2021, respectively. All deferred revenue related to TIS will be recognized by April 2023.

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 4.5 million shares for the three and six months ended December 31, 2022 and 5.1 million shares for the three and six months ended December 31, 2021, as the effect would be antidilutive due to the net loss from continuing operations during the periods.


H&R Block, Inc. \|Q2 FY2023 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,
	2022		2021		2022		2021
Net loss from continuing operations attributable to shareholders	$	(220,863)	$	(189,073)	$	(388,230)	$	(339,018)
Amounts allocated to participating securities	(192)		(210)		(371)		(449)
Net loss from continuing operations attributable to common shareholders	$	(221,055)	$	(189,283)	$	(388,601)	$	(339,467)
Basic weighted average common shares	154,119		173,378		156,701		175,739
Potential dilutive shares	—		—		—		—
Dilutive weighted average common shares	154,119		173,378		156,701		175,739
Loss per share from continuing operations attributable to common shareholders:
Basic	$	(1.43)	$	(1.09)	$	(2.48)	$	(1.93)
Diluted	(1.43)		(1.09)		(2.48)		(1.93)

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, 2022, we granted 1.0 million shares under our stock-based compensation plan. We granted awards of 1.5 million shares under our stock-based compensation plans during the six months ended December 31, 2021. Stock-based compensation expense of our continuing operations totaled $10.2 million and $17.9 million for the three and six months ended December 31, 2022, respectively, and $6.4 million and $13.2 million for the three and six months ended December 31, 2021, respectively. As of December 31, 2022, unrecognized compensation cost for stock options totaled $0.3 million, and for nonvested shares and units totaled $66.9 million.

NOTE 4: RECEIVABLES

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


(in 000s)
As of	December 31, 2022				June 30, 2022
	Short-term		Long-term			Short-term		Long-term
Loans to franchisees	$	16,304	$	26,587		$	6,194	$	22,036
Receivables for U.S. assisted and DIY tax preparation and related fees	10,427		2,182			18,893		2,560
H&R Block's Instant RefundSM receivables	1,193		103			3,491		198
H&R Block Emerald Advance® lines of credit	268,623		2,923			6,691		8,825
Software receivables from retailers	2,165		—			3,992		—
Royalties and other receivables from franchisees	6,380		—			3,682