H&R Block, Inc. — Q2 FY2022 Form 10-Q
Reporting period: Three and six months ended December 31, 2021. Fiscal 2022 runs July 1, 2021–June 30, 2022, following a change in fiscal year-end. Unless noted, dollar amounts below are in millions; financial statements are unaudited.
Business context and reporting period
H&R Block provides assisted and DIY tax preparation, financial products, international tax services, and small-business solutions through Wave. Results are highly seasonal, with peak revenue and cash generation generally occurring February–April; interim losses are therefore not indicative of full-year results.
Prior-period comparisons are affected by the extension of the 2019 U.S. individual tax filing deadline to July 15, 2020, which shifted tax-season revenue and expenses into the six months ended December 31, 2020. Management cautions that the comparison is not representative of typical seasonality.
Financial results and liquidity
| Metric | Three months ended Dec. 31, 2021 | Six months ended Dec. 31, 2021 |
|---|---|---|
| Revenue | $158.8 million; up 11.9% year over year | $351.4 million; down 37.2% |
| Net loss | $190.6 million, versus $255.8 million | $342.2 million, versus $318.0 million |
| Loss per share | $1.10, versus $1.39 | $1.95, versus $1.69 |
| EBITDA from continuing operations (non-GAAP) | $(240.2) million, versus $(239.3) million | $(379.0) million, versus $(199.3) million |
| Cash used in operating activities | Not provided for the quarter | $913.6 million, versus $702.8 million |
Quarterly revenue growth mainly reflected Emerald Card activity, including monthly Child Tax Credit payments loaded to cards, and higher Wave payment-processing volumes. Six-month revenue fell principally because the prior-year period included tax-season activity shifted by the 2020 deadline extension. GAAP operating margin is not separately presented; the company reported substantial seasonal losses before tax: $298.9 million for the quarter and $496.2 million for the six months.
For the six months, investing cash use was $57.4 million and financing cash use was $149.9 million. Dividends paid were $96.9 million; share repurchases were $324.6 million. Cash, cash equivalents and restricted cash ended at $459.9 million, including $336.3 million unrestricted cash and $123.7 million restricted cash.
At December 31, 2021, debt was $2.260 billion gross carrying value, including $499.4 million classified as current and $1.761 billion long-term. The balance included $275.0 million drawn on the $1.5 billion revolving credit facility. The company reported compliance with facility covenants and said availability was not limited by its debt-to-EBITDA covenant. Stockholders’ equity was a deficit of $372.7 million.
Material changes, outlook, and risks
- Revenue mix: Quarterly Emerald Card revenue rose 149.2% to $24.8 million; Wave revenue rose 31.4% to $19.5 million. Over six months, Emerald Card revenue increased 137.0% and Wave revenue increased 35.2%. These gains partly offset lower U.S. tax-preparation and related revenue.
- Expenses and taxes: Six-month operating expenses decreased 4.3% to $803.5 million, but pretax loss widened to $496.2 million. Income tax benefit was $157.2 million, including a discrete benefit associated primarily with expiring federal and state tax statutes; the prior-year period included a discrete tax expense.
- Capital allocation and debt: The company repurchased shares for an average $24.24 per share during the six months; $239.4 million remained authorized through June 2022. Management said it intended to redeem the $500 million of 5.5% notes due November 2022 by fiscal year-end. Dividends have historically been paid quarterly, but future payments are not assured.
- Product development: The amended MetaBank program-management agreement extends through June 30, 2025 and adds Spruce accounts. H&R Block launched the Spruce mobile banking platform in January 2022.
- Outlook and liquidity: The filing provides no specific full-year revenue or earnings guidance. Management said, absent unexpected developments, existing capital sources were sufficient for operating, investing, and financing needs. Management expects the first-half pretax loss to be offset by income in the third and fourth quarters due to seasonality.
- Contingencies and regulation: Free File-related litigation and governmental inquiries remain ongoing; the company had not concluded that losses in the described cases were probable and had not accrued liabilities for specified matters. Legacy discontinued mortgage-business claims remain, with some potential exposures difficult to estimate. The Payday Rule’s timing and form remained uncertain; management did not then expect a material adverse impact. The company also noted uncertainty in employee-retention tax-credit benefits.
Most important facts for investors to verify
- How much of future tax-season performance reflects underlying demand versus the unusually difficult prior-period comparison and seasonal timing.
- Whether operating cash flow and liquidity recover during the peak tax season, and the company’s ability to redeem the November 2022 notes while maintaining dividends and repurchases.
- Whether Emerald Card and Wave growth persists and how much associated partner, processing, technology, and other costs affect profitability.
- Updates on tax examinations and unrecognized tax benefits, Free File matters, legacy mortgage litigation, and any employee-retention credit claims.
- Any subsequent changes to share repurchases, dividend policy, credit-facility covenant headroom, or management’s outlook.