10-Q 1 hrb-20220930.htm 10-Q hrb-20220930
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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
September 30, 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)
Missouri44-0607856
(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 classTrading Symbol(s)Name of each exchange on which registered
Common Stock, without par valueHRBNew 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 October 31, 2022: 155,468,155 shares.




Form 10-Q for the Period ended September 30, 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 September 30,
20222021
REVENUES:
Service revenues$167,194 $176,977 
Royalty, product and other revenues12,791 15,647 
179,985 192,624 
OPERATING EXPENSES:
Costs of revenues260,662 241,532 
Selling, general and administrative128,434 125,864 
Total operating expenses389,096 367,396 
Other income (expense), net3,611 284 
Interest expense on borrowings(15,824)(22,830)
Loss from continuing operations before income tax benefit(221,324)(197,318)
Income tax benefit(53,957)(47,373)
Net loss from continuing operations(167,367)(149,945)
Net loss from discontinued operations, net of tax benefits of $316 and $495
(1,054)(1,656)
NET LOSS$(168,421)$(151,601)
BASIC AND DILUTED LOSS PER SHARE:
Continuing operations$(1.05)$(0.84)
Discontinued operations(0.01)(0.01)
Consolidated$(1.06)$(0.85)
DIVIDENDS DECLARED PER SHARE$0.29 $0.27 
COMPREHENSIVE LOSS:
Net loss$(168,421)$(151,601)
Change in foreign currency translation adjustments(32,345)(11,177)
Other comprehensive loss(32,345)(11,177)
Comprehensive loss$(200,766)$(162,778)
See accompanying notes to consolidated financial statements.










H&R Block, Inc. |Q1 FY2023 Form 10-Q
1

CONSOLIDATED BALANCE SHEETS(unaudited, in 000s, except 
share and per share amounts)
As ofSeptember 30, 2022June 30, 2022
ASSETS
Cash and cash equivalents$322,824 $885,015 
Cash and cash equivalents - restricted108,550 165,698 
Receivables, less allowance for credit losses of $65,217 and $65,351
61,035 58,447 
Income taxes receivable154,123 202,838 
Prepaid expenses and other current assets77,906 72,460 
Total current assets724,438 1,384,458 
Property and equipment, at cost, less accumulated depreciation and amortization of $867,402 and $857,468
127,934 123,912 
Operating lease right of use assets412,823 427,783 
Intangible assets, net303,483 309,644 
Goodwill746,711 760,401 
Deferred tax assets and income taxes receivable193,761 208,948 
Other noncurrent assets50,082 54,012 
Total assets$2,559,232 $3,269,158 
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Accounts payable and accrued expenses$168,496 $160,929 
Accrued salaries, wages and payroll taxes56,162 154,764 
Accrued income taxes and reserves for uncertain tax positions188,118 280,115 
Operating lease liabilities197,491 206,898 
Deferred revenue and other current liabilities179,956 196,107 
Total current liabilities790,223 998,813 
Long-term debt1,487,407 1,486,876 
Deferred tax liabilities and reserves for uncertain tax positions229,340 226,362 
Operating lease liabilities222,914 228,820 
Deferred revenue and other noncurrent liabilities94,333 116,656 
Total liabilities2,824,217 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 188,644,066 and 193,571,309
1,887 1,936 
Additional paid-in capital759,629 772,182 
Accumulated other comprehensive loss(53,990)(21,645)
Retained earnings (deficit)(311,671)120,405 
Less treasury shares, at cost, of 33,176,727 and 33,640,988
(660,840)(661,247)
Total stockholders' equity (deficiency)(264,985)211,631 
Total liabilities and stockholders' equity$2,559,232 $3,269,158 
See accompanying notes to consolidated financial statements.
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Q1 FY2023 Form 10-Q| H&R Block, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS(unaudited, in 000s)
Three months ended September 30,20222021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss$(168,421)$(151,601)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization33,624 35,715 
Provision1,077 1,850 
Deferred taxes16,918 (13,547)
Stock-based compensation7,654 6,847 
Changes in assets and liabilities, net of acquisitions:
Receivables3,702 35,913 
Prepaid expenses, other current and noncurrent assets(2,669)8,610 
Accounts payable, accrued expenses, salaries, wages and payroll taxes(129,908)(134,215)
Deferred revenue, other current and noncurrent liabilities(41,549)(27,990)
Income tax receivables, accrued income taxes and income tax reserves(41,659)(72,768)
Other, net(435)(1,438)
Net cash used in operating activities(321,666)(312,624)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures(16,161)(15,620)
Payments made for business acquisitions, net of cash acquired(16,507)(4,265)
Franchise loans funded(6,686)(4,474)
Payments from franchisees2,270 2,839 
Other, net(274)2,067 
Net cash used in investing activities(37,358)(19,453)
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid(43,093)(48,996)
Repurchase of common stock, including shares surrendered(202,845)(165,800)
Proceeds from exercise of stock options 3,385 
Other, net(955)(5,911)
Net cash used in financing activities(246,893)(217,322)
Effects of exchange rate changes on cash(13,422)(3,959)
Net decrease in cash and cash equivalents, including restricted balances(619,339)(553,358)
Cash, cash equivalents and restricted cash, beginning of period1,050,713 1,584,164 
Cash, cash equivalents and restricted cash, end of period$431,374 $1,030,806 
SUPPLEMENTARY CASH FLOW DATA:
Income taxes paid (received), net$(29,811)$38,419 
Interest paid on borrowings19,792 12,594 
Accrued purchase of common stock32,356 4,785 
Accrued additions to property and equipment4,704 6,273 
New operating right of use assets and related lease liabilities52,265 29,371 
Accrued dividends payable to common shareholders46,100 47,940 
See accompanying notes to consolidated financial statements.
H&R Block, Inc. | Q1 FY2023 Form 10-Q
3

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY(amounts in 000s, except per share amounts)
Common StockAdditional
Paid-in
Capital
Accumulated Other
Comprehensive
Income (Loss)(1)
Retained
Earnings
(Deficit)
Treasury StockTotal
Stockholders’
Equity
SharesAmountSharesAmount
Balances as of July 1, 2022193,571 $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, 2022188,644 $1,887 $759,629 $(53,990)$(311,671)(33,177)$(660,840)$(264,985)

Common StockAdditional
Paid-in
Capital
Accumulated Other
Comprehensive
Income (Loss)(1)
Retained
Earnings
(Deficit)
Treasury StockTotal
Stockholders’
Equity
SharesAmountSharesAmount
Balances as of July 1, 2021216,656 $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, 2021209,854 $2,099 $770,683 $(11,089)$(74,757)(34,342)$(671,408)$15,528 
(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
Q1 FY2023 Form 10-Q| H&R Block, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS             (unaudited)
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATIONThe consolidated balance sheets as of September 30, 2022 and June 30, 2022, the consolidated statements of operations and comprehensive loss for the three months ended September 30, 2022 and 2021, the consolidated statements of cash flows for the three months ended September 30, 2022 and 2021, and the consolidated statements of stockholders' equity for the three months ended September 30, 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 September 30, 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 ESTIMATESThe 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.
H&R Block, Inc. |Q1 FY2023 Form 10-Q
5

NOTE 2: REVENUE RECOGNITION
The majority of our revenues are from our U.S. tax services business. The following table disaggregates our U.S. tax services revenues by major service line, with revenues from our international tax services businesses and from Wave included as separate lines:
(in 000s)
Three months ended September 30,
20222021
Revenues:
U.S. assisted tax preparation$36,312 $33,607 
U.S. royalties6,228 7,358 
U.S. DIY tax preparation3,158 4,061 
Refund Transfers1,284 1,665 
Peace of Mind® Extended Service Plan24,770 24,836 
Tax Identity Shield®5,167 5,153 
Emerald Card® and SpruceSM
11,612 28,258 
Interest and fee income on Emerald AdvanceSM
614 479 
International58,834 58,325 
Wave22,646 19,137 
Other9,360 9,745 
Total revenues$179,985 $192,624 
Changes in the balances of deferred revenue and wages for our Peace of Mind® Extended Service Plan (POM) are as follows:
(in 000s)
POMDeferred RevenueDeferred Wages
Three months ended September 30,2022202120222021
Balance, beginning of the period$173,486 $172,759 $19,495 $17,867 
Amounts deferred1,360 1,492 5 7 
Amounts recognized on previous deferrals(28,703)(28,948)(2,988)(2,847)
Balance, end of the period$146,143 $145,303 $16,512 $15,027 
As of September 30, 2022, deferred revenue related to POM was $146.1 million. We expect that $97.0 million will be recognized over the next twelve months, while the remaining balance will be recognized over the following five years.
As of September 30, 2022 and 2021, Tax Identity Shield® (TIS) deferred revenue was $21.2 million and $23.5 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 4.4 million shares and 5.3 million shares for the three months ended September 30, 2022 and 2021, respectively, as the effect would be antidilutive due to the net loss from continuing operations during the periods.
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Q1 FY2023 Form 10-Q| H&R Block, Inc.

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 September 30,
20222021
Net loss from continuing operations attributable to shareholders$(167,367)$(149,945)
Amounts allocated to participating securities(179)(239)
Net loss from continuing operations attributable to common shareholders$(167,546)$(150,184)
Basic weighted average common shares159,284 178,099 
Potential dilutive shares  
Dilutive weighted average common shares159,284 178,099 
Loss per share from continuing operations attributable to common shareholders:
Basic$(1.05)$(0.84)
Diluted(1.05)(0.84)
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 three months ended September 30, 2022, we granted 0.9 million shares under our stock-based compensation plan. We granted awards of 1.4 million shares under our stock-based compensation plans during the three months ended September 30, 2021. Stock-based compensation expense of our continuing operations totaled $7.7 million for the three months ended September 30, 2022 and $6.8 million for the three months ended September 30, 2021. As of September 30, 2022, unrecognized compensation cost for stock options totaled $0.4 million, and for nonvested shares and units totaled $76.9 million.
NOTE 4: RECEIVABLES
Receivables, net of their related allowance, consist of the following:
(in 000s)
As ofSeptember 30, 2022June 30, 2022
Short-termLong-termShort-termLong-term
Loans to franchisees$9,628 $23,054 $6,194 $22,036 
Receivables for U.S. assisted and DIY tax preparation and related fees14,104 2,337 18,893 2,560 
H&R Block's Instant RefundSM receivables
1,412 112 3,491 198 
H&R Block Emerald Advance® lines of credit
6,800 7,098 6,691 8,825 
Software receivables from retailers607  3,992  
Royalties and other receivables from franchisees6,208 55 3,682 73 
Wave payment processing receivables1,306  1,393  
Other20,970 1,679 14,111 1,172 
Total$61,035 $34,335 $58,447 $34,864 
Balances presented above as short-term are included in receivables, while the long-term portions are included in other noncurrent assets in the consolidated balance sheets.
LOANS TO FRANCHISEES Franchisee loan balances consist of term loans made primarily to finance the purchase of franchises and revolving lines of credit primarily for the purpose of funding working capital needs. As of September 30, 2022 and June 30, 2022, loans with a principal balance more than 90 days past due, or on non-accrual status, are not material.
H&R Block, Inc. |Q1 FY2023 Form 10-Q
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H&R BLOCK'S INSTANT REFUNDSM H&R Block's Instant RefundSM amounts are generally received from the Canada Revenue Agency within 60 days of filing the client's return, with the remaining balance collectible from the client.
We review the credit quality of our Instant Refund receivables based on pools, which are segregated by the tax return year of origination, with older years being deemed more unlikely to be repaid. We establish an allowance for credit losses at an amount that we believe reflects the receivable at net realizable value. In December of each year we charge-off the receivables to an amount we believe represents the net realizable value.
Balances and amounts on non-accrual status and classified as impaired, or more than 60 days past due, by tax return year of origination, as of September 30, 2022 are as follows:
(in 000s)
Tax return year of originationCurrent BalanceMore Than 60 Days Past Due
2021$2,781 $2,261 
2020 and prior111 111 
2,892 $2,372 
Allowance(1,368)
Net balance$1,524 
H&R BLOCK EMERALD ADVANCE® LINES OF CREDIT We review the credit quality of our purchased participation interests in Emerald AdvanceSM (EA) receivables based on pools, which are segregated by the fiscal year of origination, with older years being deemed more unlikely to be repaid. We establish an allowance for credit losses at an amount that we believe reflects the receivable at net realizable value. In December of each year we charge-off the receivables to an amount we believe represents the net realizable value.
Balances and amounts on non-accrual status and classified as impaired, or more than 60 days past due, by fiscal year of origination, as of September 30, 2022 are as follows:
(in 000s)
Fiscal year of originationCurrent BalanceNon-Accrual
2022$23,865 $23,865 
2021 and prior429 429 
Revolving loans15,745 14,369 
40,039 $38,663 
Allowance(26,141)
Net balance$13,898 
ALLOWANCE FOR CREDIT LOSSES Activity in the allowance for credit losses for our EA and all other short-term and long-term receivables for the three months ended September 30, 2022 and 2021 is as follows:
(in 000s)
EAsAll OtherTotal
Balances as of July 1, 2022$26,141 $51,126 $77,267 
Provision 1,077 1,077 
Charge-offs, recoveries and other (1,281)(1,281)
Balances as of September 30, 2022$26,141 $50,922 $77,063 
Balances as of July 1, 2021$27,704 $60,272 $87,976 
Provision 1,850 1,850 
Charge-offs, recoveries and other (3,583)(3,583)
Balances as of September 30, 2021$27,704 $58,539 $86,243 
    
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Q1 FY2023 Form 10-Q| H&R Block, Inc.

NOTE 5: GOODWILL AND INTANGIBLE ASSETS
Changes in the carrying amount of goodwill for the three months ended September 30, 2022 are as follows:
(in 000s)
GoodwillAccumulated Impairment LossesNet
Balances as of July 1, 2022$898,698 $(138,297)$760,401 
Acquisitions7,879  7,879 
Disposals and foreign currency changes, net(21,569) (21,569)
Impairments   
Balances as of September 30, 2022$885,008 $(138,297)$746,711 
We test goodwill for impairment annually as of February 1, or more frequently if events occur or circumstances change which would, more likely than not, reduce the fair value of a reporting unit below its carrying value.
Components of intangible assets are as follows:
(in 000s)
Gross
Carrying
Amount
Accumulated
Amortization
Net
As of September 30, 2022:
Reacquired franchise rights$383,809 $(200,442)$183,367 
Customer relationships335,766 (283,515)52,251 
Internally-developed software138,600 (112,561)26,039 
Noncompete agreements41,949 (38,106)3,843 
Franchise agreements19,201 (17,708)1,493 
Purchased technology122,700 (90,125)32,575 
Trade name5,800 (1,885)3,915 
$1,047,825 $(744,342)$303,483 
As of June 30, 2022:
Reacquired franchise rights$379,114 $(197,068)$182,046 
Customer relationships331,020 (278,717)52,303 
Internally-developed software137,638 (107,111)30,527 
Noncompete agreements41,789 (37,684)4,105 
Franchise agreements19,201 (17,388)1,813 
Purchased technology122,700 (87,910)34,790 
Trade name5,800 (1,740)4,060 
$1,037,262 $(727,618)$309,644 
We made payments to acquire businesses totaling $16.5 million and $4.3 million during the three months ended September 30, 2022 and 2021, respectively. The amounts and weighted-average lives of intangible assets acquired
H&R Block, Inc. |Q1 FY2023 Form 10-Q
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during the three months ended September 30, 2022, including amounts capitalized related to internally-developed software, are as follows:
(dollars in 000s)
AmountWeighted-Average Life (in years)
Internally-developed software$1,254 2
Customer relationships6,331 5
Reacquired franchise rights4,897 4
Noncompete agreements220 5
Total$12,702 4
Amortization of intangible assets for the three months ended September 30, 2022 was $18.4 million compared to $19.8 million for the three months ended September 30, 2021. Estimated amortization of intangible assets for fiscal years ending June 30, 2023, 2024, 2025, 2026, and 2027 is $68.8 million, $49.1 million, $27.5 million, $19.3 million and $13.8 million, respectively.
NOTE 6: LONG-TERM DEBT
The components of long-term debt are as follows:
(in 000s)
As ofSeptember 30, 2022June 30, 2022
Senior Notes, 5.250%, due October 2025
$350,000 $350,000 
Senior Notes, 2.500%, due July 2028
500,000 500,000 
Senior Notes, 3.875%, due August 2030
650,000 650,000 
Debt issuance costs and discounts(12,593)(13,124)
Total long-term debt1,487,407 1,486,876 
Less: Current portion