H&R Block, Inc. — Q2 FY2024 Form 10-Q
Reporting period: Quarter and six months ended December 31, 2023. H&R Block provides assisted and DIY tax preparation, financial services, international tax services, and small-business solutions. Its business is highly seasonal, with peak revenue typically in February–April; interim losses are not indicative of full-year results. Unless stated otherwise, figures below are in millions.
Financial results
| Metric | Three months | Six months |
|---|---|---|
| Revenue | $179.1, up 7.6% year over year | $362.9, up 4.8% |
| Net loss | $189.8, versus $223.6 | $353.2, versus $392.0 |
| Diluted loss per share | $1.33, versus $1.45 | $2.45, versus $2.50 |
| Adjusted diluted loss per share (non-GAAP) | $1.27, versus $1.37 | $2.31, versus $2.36 |
| EBITDA (non-GAAP) | $(231.4), versus $(246.3) | $(397.7), versus $(418.2) |
| Cash from operating activities | Not presented for quarter | $(942.2), versus $(780.5) |
For the six months, operating expenses were $836.6, approximately flat year over year, while revenue increased. Assisted tax preparation growth was a major contributor; Emerald Card and Spruce revenue declined 15.6% for the six-month period. No operating margin is stated in the filing; reported results reflect the seasonal off-peak period. Non-GAAP measures are company-defined and should not be viewed as substitutes for GAAP results.
Liquidity, debt, and capital allocation
- At December 31, cash and cash equivalents were $321.0, with restricted cash of $17.2. Current assets were $898.9 and current liabilities $745.6.
- Total long-term debt and line-of-credit borrowings were $2,290.0, up from $1,489.0 at June 30, 2023, primarily reflecting $800.0 outstanding on the revolving credit facility. The facility has $1.5 billion capacity and matures in June 2026; the company reported covenant compliance and said borrowing availability was not limited by its debt-to-EBITDA covenant.
- Six-month investing cash use was $71.0; financing provided $335.4, including $825.0 of revolver proceeds. Cash, including restricted balances, declined $677.1.
- Dividends paid were $89.9 for the six months. Dividends declared were $0.64 per share, versus $0.58 a year earlier. The company repurchased $350.1 of stock at an average $43.66 per share and had $350.0 remaining under its authorization through June 2025.
Changes, outlook, and risks
- Management attributed revenue growth to higher assisted-return volumes and average charges, increased DIY revenue, Emerald Advance interest and fee income, international tax volumes, and Wave payment-processing volumes. Expense reductions included lower marketing costs, partly from vendor refunds, and lower consulting and outsourced-service costs. Interest expense rose with borrowings.
- Emerald Advance offerings shifted from lines of credit to term loans in FY2024. H&R Block purchases a 90% participation interest in loans originated by Pathward; it purchased $341.8 of interests during the six months. The associated receivable balance increased substantially, and management cited higher EA receivables as a factor in operating cash use.
- The filing gives no specific full-year revenue or earnings guidance. Management said existing capital sources were expected to meet operating, investing, and financing needs absent unexpected developments, and expects the first-half pretax loss to be offset by income in the seasonal third and fourth quarters.
- Tax benefits include discrete items from settlements and statute-of-limitations expirations; management noted that seasonality and discrete tax items can cause interim effective tax rates to differ from the full-year rate. Unrecognized tax benefits were $208.4, with an approximately $117.4 decrease considered reasonably possible within 12 months.
- Legal matters include an agreed settlement in a California IRS Free File case and a revised FTC demand and draft complaint received in January 2024 concerning aspects of DIY tax preparation. H&R Block has not accrued a loss for the FTC matter or identified a probable loss for potential indemnification claims related to its discontinued mortgage business. The filing says aggregate reasonably possible losses above accruals that can be estimated are not material, while noting that outcomes and exposures may be uncertain.
- Management reported effective disclosure controls and no material changes in internal control over financial reporting during the quarter. The filing reports no material changes in risk factors or market risks from the prior annual report.
Important facts for investors to verify
- Whether peak tax-season volumes, pricing, and margins deliver the expected second-half earnings recovery.
- How Emerald Advance term-loan receivables, credit losses, and collections affect cash flow and liquidity.
- Revolver usage, debt covenants, interest costs, and available liquidity as the company enters peak season.
- Progress and potential financial effects of the FTC matter, California settlement, and discontinued-mortgage contingencies.
- Whether share repurchases and dividends remain consistent with seasonal cash needs and the company’s debt position.