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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 | 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.
Form 10-Q for the Period ended December 31, 2022
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, |
| | 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 |
| | | | | | | | | | | | | | | | |
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. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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: | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Receivables | | (262,293) | | | (216,071) | | | | | | | | | | | | | | | | | | | | | | | |
Prepaid expenses, other current and noncurrent assets | | (32,983) | | | (46,928) | | | | | | | | | | | | | | | | | | | | | | | |
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Accounts payable, accrued expenses, salaries, wages and payroll taxes | | (121,156) | | | (121,926) | | | | | | | | | | | | | | | | | | | | | | | |
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Deferred revenue, other current and noncurrent liabilities | | (52,703) | | | (50,882) | | | | | | | | | | | | | | | | | | | | | | | |
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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: | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Capital expenditures | | (41,495) | | | (39,371) | | | | | | | | | | | | | | | | | | | | | | | |
Payments made for business acquisitions, net of cash acquired | | (39,757) | | | (19,333) | | | | | | | | | | | | | | | | | | | | | | | |
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Franchise loans funded | | (17,491) | | | (14,480) | | | | | | | | | | | | | | | | | | | | | | | |
Payments from franchisees | | 3,861 | | | 6,213 | | | | | | | | | | | | | | | | | | | | | | | |
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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 | | | | | | | | | | | | | | | | | | | | | | | |
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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 | | | | | | | | | | | | | | | | | | | | | | | |
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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 | | | | | | | | | | | | | | | | | | | | | | | |
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See accompanying notes to consolidated financial statements.
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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) | |
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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) | |
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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) | |
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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 | 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) | |
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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) | |
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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) | |
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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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H&R Block, Inc. |Q2 FY2023 Form 10-Q | 5 |
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. |
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) |
| | 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 | |
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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 |
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 | |
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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.
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H&R Block, Inc. |Q2 FY2023 Form 10-Q | 7 |
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) |
| | 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 | | | 73 | |
| | | | | | | | | | | | |
Wave payment processing receivables | | 1,024 | | | |