SEC Filing | H&R Block®

View:

hrb-20230331

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	March 31, 2023
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 April 28, 2023: 152,284,238 shares.

Table of Contents

Form 10-Q for the Period ended March 31, 2023

Table of Contents


	PART I
Item 1.	Consolidated Statements of Operations and Comprehensive Income Three and nine months ended March 31, 2023 and 2022	1
	Consolidated Balance Sheets As of M a rch 31, 202 3 and June 30, 2022	2
	Consolidated Statements of Cash Flows Nine months ended March 31, 2023 and 2022	3
	Consolidated Statements of Stockholders' Equity Three and nine months ended March 31, 2023 and 2022	4
	Notes to Consolidated Financial Statements	6
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	16
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	26
Item 4.	Controls and Procedures	26
	PART II
Item 1.	Legal Proceedings	27
Item 1A.	Risk Factors	27
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	27
Item 3.	Defaults Upon Senior Securities	27
Item 4.	Mine Safety Disclosures	27
Item 5.	Other Information	27
Item 6.	Exhibits	28
	Signatures	29

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)
	Three months ended March 31,				Nine months ended March 31,
	2023		2022		2023		2022
REVENUES:
Service revenues	$	1,885,035	$	1,841,122	$	2,191,794	$	2,151,824
Royalty, product and other revenues	208,614		220,635		248,245		261,373
	2,093,649		2,061,757		2,440,039		2,413,197
OPERATING EXPENSES:
Costs of revenues	883,686		831,455		1,442,693		1,362,310
Selling, general and administrative	345,461		344,937		625,158		617,594
Total operating expenses	1,229,147		1,176,392		2,067,851		1,979,904

Other income (expense), net	13,224		238		21,020		1,989
Interest expense on borrowings	(22,298)		(23,746)		(57,107)		(69,661)
Income from continuing operations before income taxes	855,428		861,857		336,101		365,621
Income taxes	209,351		186,884		78,254		29,666
Net income from continuing operations	646,077		674,973		257,847		335,955
Net loss from discontinued operations, net of tax benefits of $792, $539, $1,920 and $1,495	(2,648)		(1,796)		(6,418)		(4,984)
NET INCOME	$	643,429	$	673,177	$	251,429	$	330,971
BASIC EARNINGS PER SHARE:
Continuing operations	$	4.22	$	4.13	$	1.65	$	1.95
Discontinued operations	(0.01)		(0.01)		(0.04)		(0.03)
Consolidated	$	4.21	$	4.12	$	1.61	$	1.92
DILUTED EARNINGS PER SHARE:
Continuing operations	$	4.14	$	4.06	$	1.62	$	1.92
Discontinued operations	(0.02)		(0.01)		(0.04)		(0.03)
Consolidated	$	4.12	$	4.05	$	1.58	$	1.89




DIVIDENDS DECLARED PER SHARE	$	0.29	$	0.27	$	0.87	$	0.81
COMPREHENSIVE INCOME:
Net income	$	643,429	$	673,177	$	251,429	$	330,971



Change in foreign currency translation adjustments	402		5,595		(22,636)		(3,926)
Other comprehensive income (loss)	402		5,595		(22,636)		(3,926)
Comprehensive income	$	643,831	$	678,772	$	228,793	$	327,045

See accompanying notes to consolidated financial statements.


H&R Block, Inc. \|Q3 FY2023 Form 10-Q			1

Table of Contents


CONSOLIDATED BALANCE SHEETS	(unaudited, in 000s, except share and per share amounts)
As of	March 31, 2023		June 30, 2022
ASSETS
Cash and cash equivalents	$	909,075	$	885,015
Cash and cash equivalents - restricted	25,270		165,698
Receivables, less allowance for credit losses of $56,003 and $65,351	249,150		58,447
Income taxes receivable	32,584		202,838
Prepaid expenses and other current assets	86,736		72,460
Total current assets	1,302,815		1,384,458
Property and equipment, at cost, less accumulated depreciation and amortization of $892,820 and $857,468	136,132		123,912
Operating lease right of use assets	372,175		427,783
Intangible assets, net	293,447		309,644
Goodwill	769,557		760,401
Deferred tax assets and income taxes receivable	226,527		208,948
Other noncurrent assets	57,254		54,012
Total assets	$	3,157,907	$	3,269,158
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Accounts payable and accrued expenses	$	236,388	$	160,929
Accrued salaries, wages and payroll taxes	208,560		154,764
Accrued income taxes and reserves for uncertain tax positions	284,124		280,115

Operating lease liabilities	179,415		206,898
Deferred revenue and other current liabilities	207,095		196,107
Total current liabilities	1,115,582		998,813
Long-term debt	1,488,457		1,486,876
Deferred tax liabilities and reserves for uncertain tax positions	256,119		226,362
Operating lease liabilities	199,086		228,820
Deferred revenue and other noncurrent liabilities	135,055		116,656
Total liabilities	3,194,299		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	775,269		772,182
Accumulated other comprehensive loss	(44,281)		(21,645)
Retained earnings (deficit)	(109,384)		120,405
Less treasury shares, at cost, of 33,119,705 and 33,640,988	(659,850)		(661,247)
Total stockholders' equity (deficiency)	(36,392)		211,631
Total liabilities and stockholders' equity	$	3,157,907	$	3,269,158

See accompanying notes to consolidated financial statements.


2			Q3 FY2023 Form 10-Q\| H&R Block, Inc.

Table of Contents


CONSOLIDATED STATEMENTS OF CASH FLOWS	(unaudited, in 000s)
Nine months ended March 31,	2023		2022
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	251,429	$	330,971
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	98,660		107,462
Provision	49,174		59,778
Deferred taxes	6,685		(85,122)
Stock-based compensation	26,785		19,988

Changes in assets and liabilities, net of acquisitions:

Receivables	(237,395)		(233,362)
Prepaid expenses, other current and noncurrent assets	(17,438)		(16,525)

Accounts payable, accrued expenses, salaries, wages and payroll taxes	122,025		122,112

Deferred revenue, other current and noncurrent liabilities	22,054		36,960

Income tax receivables, accrued income taxes and income tax reserves	179,692		36,244
Other, net	(3,285)		(5,378)
Net cash provided by operating activities	498,386		373,128
CASH FLOWS FROM INVESTING ACTIVITIES:



Capital expenditures	(56,661)		(52,718)
Payments made for business acquisitions, net of cash acquired	(47,740)		(25,465)



Franchise loans funded	(21,566)		(18,468)
Payments from franchisees	14,963		17,714

Other, net	9,717		7,831
Net cash used in investing activities	(101,287)		(71,106)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of line of credit borrowings	(970,000)		(705,000)
Proceeds from line of credit borrowings	970,000		705,000




Dividends paid	(133,762)		(143,435)
Repurchase of common stock, including shares surrendered	(365,852)		(555,247)
Proceeds from exercise of stock options	1,427		4,605
Other, net	(7,400)		(13,389)
Net cash used in financing activities	(505,587)		(707,466)
Effects of exchange rate changes on cash	(7,880)		(1,666)
Net decrease in cash and cash equivalents, including restricted balances	(116,368)		(407,110)
Cash, cash equivalents and restricted cash, beginning of period	1,050,713		1,584,164
Cash, cash equivalents and restricted cash, end of period	$	934,345	$	1,177,054
SUPPLEMENTARY CASH FLOW DATA:
Income taxes paid (received), net	$	(110,028)	$	76,894
Interest paid on borrowings	59,429		58,009


Accrued additions to property and equipment	4,378		1,336
New operating right of use assets and related lease liabilities	131,949		126,726
Accrued dividends payable to common shareholders	44,163		43,041

See accompanying notes to consolidated financial statements.


H&R Block, Inc. \| Q3 FY2023 Form 10-Q			3

Table of Contents


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)

Net income	—	—			—		—		643,429		—	—			643,429

Other comprehensive income	—	—			—		402		—		—	—			402
Stock-based compensation	—	—			7,830		—		—		—	—			7,830
Stock-based awards exercised or vested	—	—			(244)		—		(213)		13	265			(192)
Acquisition of treasury shares(2)	—	—			—		—		—		(6)	(219)			(219)



Cash dividends declared - $0.29 per share	—	—			—		—		(44,163)		—	—			(44,163)
Balances as of March 31, 2023	185,403	$	1,854		$	775,269	$	(44,281)	$	(109,384)	(33,120)	$	(659,850)		$	(36,392)

(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			Q3 FY2023 Form 10-Q\| H&R Block, Inc.

Table of Contents



					(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)
Net income	—	—			—		—		673,177		—	—			673,177
Other comprehensive income	—	—			—		5,595		—		—	—			5,595
Stock-based compensation	—	—			5,619		—		—		—	—			5,619
Stock-based awards exercised or vested	—	—			(2,595)		—		(201)		244	4,771			1,975
Acquisition of treasury shares(2)	—	—			—		—		—		(1)	(32)			(32)
Repurchase and retirement of common shares	(9,694)	(97)			(5,816)		—		(219,868)		—	—			(225,781)


Cash dividends declared - $0.27 per share	—	—			—		—		(43,042)		—	—			(43,042)
Balances as of March 31, 2022	193,571	$	1,936		$	767,869	$	(3,838)	$	(56,790)	(33,979)	$	(664,321)		$	44,856

(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. \|Q3 FY2023 Form 10-Q			5

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION – The consolidated balance sheets as of March 31, 2023 and June 30, 2022, the consolidated statements of operations and comprehensive income for the three and nine months ended March 31, 2023 and 2022, the consolidated statements of cash flows for the nine months ended March 31, 2023 and 2022, and the consolidated statements of stockholders' equity for the three and nine months ended March 31, 2023 and 2022 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 March 31, 2023 and 2022 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			Q3 FY2023 Form 10-Q\| H&R Block, Inc.

Table of Contents

NOTE 2: REVENUE RECOGNITION

The majority of our revenues are from our U.S. tax services business. The following table disaggregates our U.S. 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 March 31,				Nine months ended March 31,
	2023		2022		2023		2022
Revenues:
U.S. assisted tax preparation	$	1,453,049	$	1,392,142	$	1,530,577	$	1,456,594
U.S. royalties	150,163		158,786		161,337		169,548
U.S. DIY tax preparation	167,022		175,184		182,330		188,455
Refund Transfers	117,384		132,223		120,210		134,665
Peace of Mind® Extended Service Plan	16,750		17,222		58,840		59,373
Tax Identity Shield®	8,720		9,078		19,237		19,431
Emerald Card® and SpruceSM	44,358		50,660		68,448		103,748
Interest and fee income on Emerald AdvanceSM	33,750		30,535		47,267		43,438
International	69,417		65,232		156,297		151,464
Wave	22,064		20,111		66,651		58,745
Other	10,972		10,584		28,845		27,736
Total revenues	$	2,093,649	$	2,061,757	$	2,440,039	$	2,413,197

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
Nine months ended March 31,	2023		2022		2023		2022
Balance, beginning of the period	$	173,486	$	172,759	$	19,495	$	17,867
Amounts deferred	76,231		80,801		8,451		9,006
Amounts recognized on previous deferrals	(67,276)		(69,075)		(7,084)		(6,786)
Balance, end of the period	$	182,441	$	184,485	$	20,862