H&R Block, Inc. — Q1 FY2024 Form 10-Q
Business context and period. The filing covers the three months ended September 30, 2023. H&R Block provides assisted and DIY tax preparation, financial products, international tax services, and small-business solutions through Wave. The company reports one segment. Results are highly seasonal, with peak revenue typically from February through April; this quarter’s results are not indicative of full-year performance.
Financial results
Amounts below are in millions, except per-share amounts.
| Metric | Q1 FY2024 | Q1 FY2023 |
|---|---|---|
| Revenue | $183.8 | $180.0 |
| Operating expenses | $390.1 | $389.1 |
| Operating loss before other income and interest | $(206.3) | $(209.1) |
| Net loss from continuing operations | $(162.9) | $(167.4) |
| Consolidated net loss | $(163.5) | $(168.4) |
| GAAP diluted loss per share | $(1.12) | $(1.06) |
| Adjusted diluted loss per share (non-GAAP, continuing operations) | $(1.05) | $(0.99) |
| Cash used in operating activities | $(335.0) | $(321.7) |
- Revenue and expense trends: Revenue increased 2.1%. U.S. tax preparation and related services rose 4.7%; international revenue rose 2.9% and Wave rose 5.7%. Financial services revenue fell 27.0%, primarily reflecting lower Emerald Card activity. Operating expenses increased 0.3%; higher wages and bad-debt expense were partly offset by lower marketing, depreciation and amortization, and other costs.
- Cash flow and liquidity: Investing activities used $23.9 million and financing activities used $195.2 million. Cash, cash equivalents, and restricted cash decreased $557.8 million to $457.6 million, including $427.0 million of unrestricted cash at quarter-end. Management said existing capital sources were sufficient for operating, investing, and financing needs absent unexpected developments, while noting the business typically uses cash during May–January.
- Debt and balance sheet: Long-term debt was $1.490 billion, with no current portion. The $1.5 billion committed revolving credit facility had no borrowings outstanding and matures in June 2026; the company reported compliance with its covenants. Current assets were $631.8 million versus current liabilities of $792.8 million. Stockholders’ equity was a deficit of $344.9 million.
- Shareholder returns: The company paid $43.0 million in dividends and repurchased $132.0 million of shares at an average price of $40.43 during the quarter. The repurchase program had $568.1 million of authorization remaining through June 2025. Quarterly dividends declared were $0.32 per share, up from $0.29.
Material changes and unusual items
- Net loss improved by $4.9 million, but GAAP loss per share widened from $1.06 to $1.12, partly because repurchases reduced weighted-average shares. Continuing-operations loss per share was $1.11 versus $1.05.
- Other income increased $6.2 million, primarily due to higher interest income. The effective tax rate was 23.3%, compared with 24.4%.
- Bad-debt expense rose $4.5 million, primarily due to higher Emerald Card losses. The company also recorded $27.7 million of gross Emerald Advance charge-offs after discontinuing its lines of credit and revolving loans; it is offering these products as term loans in FY2024.
- Management attributed the operating cash-use increase mainly to prior-year receipt of income tax receivables and current-year deferred-tax-asset changes, partly offset by lower bonus and payroll-tax payments.
Outlook, risks, and contingencies
- The filing provides no specific numerical full-year revenue or earnings guidance. Management expects the seasonal pattern to continue, with the quarter’s pretax loss expected to be offset by income in the third and fourth quarters.
- H&R Block faces litigation and inquiries related to its IRS Free File and DIY tax services. A California case has a trial date of February 20, 2024; the company also received an FTC demand and draft complaint in February 2023. It has not concluded that losses are probable and has not accrued liabilities for these matters.
- Contingencies also include claims associated with discontinued mortgage operations. The company said reasonably possible losses in excess of accrued amounts were not material where estimable, but some exposures cannot currently be estimated; an unfavorable outcome could be material. SCC’s principal assets were approximately $265 million, consisting of an intercompany note receivable.
- Gross unrecognized tax benefits were $237.9 million; the company said approximately $136.1 million could decrease within 12 months due to statutes of limitations and anticipated resolution of tax matters.
- Management cited economic, competitive, operational, regulatory, tax, and other uncertainties as risks to forward-looking statements. The filing reported no material changes in risk factors or market risks from the prior annual report.
Important facts for investors to verify
- Whether seasonal tax-season performance and cash generation support management’s liquidity expectations, given the quarter’s operating cash outflow and working-capital deficit.
- Drivers of financial-services revenue declines and Emerald Card losses, and the performance and credit risk of the replacement Emerald Advance term-loan program.
- Progress and potential financial impact of the California litigation, FTC matter, other DIY-service inquiries, and discontinued-mortgage contingencies.
- Capital allocation plans, including the pace of repurchases, dividend sustainability, and compliance with debt covenants as seasonal borrowing needs change.
- Whether non-GAAP adjusted results provide a useful view alongside GAAP losses; adjusted diluted loss per share excludes acquisition-related intangible amortization.