H&R Block, Inc. — Form 10-K summary
Reporting period: Fiscal year ended April 30, 2021. Although the request labels the period “2020 Q4,” this filing reports the full fiscal year 2021, with fiscal 2020 as the principal comparator. The business provides assisted and do-it-yourself tax preparation, related financial products, and small-business services, including Wave. It reported one continuing-operations segment.
Financial and operating results
| Metric | FY2021 | FY2020 |
|---|---|---|
| Revenue | $3.414 billion | $2.640 billion |
| Operating expenses | $2.644 billion | $2.563 billion |
| Income from continuing operations | $590.2 million | $6.2 million |
| Net income (loss), including discontinued operations | $583.8 million | $(7.5) million |
| Diluted EPS from continuing operations | $3.11 | $0.03 |
| Adjusted diluted EPS from continuing operations (non-GAAP) | $3.39 | $0.84 |
| EBITDA from continuing operations (non-GAAP) | $932.5 million | $262.3 million |
| Adjusted EBITDA margin (non-GAAP) | 27.3% | 14.0% |
| Cash provided by operating activities | $625.9 million | $109.0 million |
Revenue increased 29.3%. The filing attributes the increase chiefly to higher tax-return volumes, including revenue and expense timing shifted from FY2020 by the prior-year filing-deadline extension. Revenue also benefited from growth in Emerald Card activity and Wave. FY2021 operating expenses included higher compensation and transaction-related charges; the comparison also benefited from the absence of FY2020’s $106.0 million Wave goodwill impairment. The FY2021 effective tax rate was 11.7%; FY2020’s 282.4% rate reflected a near-break-even pretax loss and related tax items.
Cash, liquidity and debt: Cash and cash equivalents, excluding restricted cash, were $934.3 million at April 30, 2021, down from $2.662 billion a year earlier. Current assets were $1.700 billion and current liabilities $1.163 billion. Financing activities used $2.409 billion, primarily reflecting repayment of the $2.0 billion prior-year credit-line draw. Long-term debt was $1.490 billion; there were no borrowings outstanding under the committed line of credit (CLOC) at year-end, with borrowing availability limited by covenants to approximately $1.7 billion. The company issued $650 million of 3.875% notes due 2030 and used the proceeds to refinance notes that matured in October 2020. Dividends paid were $195.1 million; the company repurchased $188.2 million of shares during the year.
Tax-return volume rose 26.9% in the U.S. to 21.6 million returns and 27.5% worldwide to 25.2 million. U.S. assisted returns increased 32.3%, U.S. DIY returns 19.9%, and Wave revenue increased 58.7%. U.S. DIY average charge rose 24.9%, while average charge declined 2.1% for company-owned operations and 2.7% for franchise operations.
Material changes, outlook and risks
- COVID-19-related extensions moved part of the 2019 tax season into FY2021 and part of the 2020 season beyond FY2021. This disrupted normal seasonality and limits year-over-year comparability; H&R Block reported preparing 2.9 million U.S. returns from May 1 through May 18, 2021.
- The company changed its bank partner from Axos Bank to MetaBank during FY2021. Its new Block Horizons strategy emphasizes small businesses, financial products, and improving the digital-first customer experience. The filing provides no specific financial guidance for a future period.
- Effective June 9, 2021, the company changed its fiscal year-end from April 30 to June 30. On June 11, it amended the CLOC, reducing its aggregate commitment to $1.5 billion and extending maturity to June 2026.
- Key risks include seasonal concentration of revenue and cash flow; future tax-deadline changes; competition, including free tax-preparation offerings and potential government simplification; cybersecurity, privacy and system outages; reliance on key vendors and the bank partner; and changing financial-services regulation.
- H&R Block faces litigation and governmental inquiries related to the IRS Free File program; it had not accrued liabilities for the described Free File matters because it had not concluded a loss was probable. Discontinued mortgage subsidiary Sand Canyon remains exposed to legacy claims and indemnification risks. The company reported approximately $5.5 million in accrued litigation liabilities and said its estimable aggregate reasonably possible losses above accruals were not material; some exposures could not be estimated.
- Unrecognized tax benefits were $264.8 million. Management said approximately $69.8 million could decrease within the next 12 months. Deloitte identified uncertain tax positions involving transfer pricing and Sand Canyon indemnification claims as critical audit matters; the auditor issued unqualified opinions on the financial statements and internal controls.
Investor verification points
- Separate underlying operating growth from the unusual timing effects of the delayed tax deadlines when assessing revenue, volumes and earnings.
- Check subsequent results for the revenue and expense shifted beyond April 30, 2021, and for the effect of the fiscal year-end change on comparability.
- Monitor liquidity, seasonal CLOC covenant headroom, debt maturities and the sustainability of dividends and repurchases.
- Track outcomes and potential financial exposure from Free File proceedings, Sand Canyon claims, and uncertain tax positions.
- Review the performance and economics of the MetaBank financial-product relationship and the company’s execution of its Block Horizons strategy.