H&R Block(HRB) - 2025 Q3 - Quarterly Report

PART I - FINANCIAL INFORMATION Financial Statements Financial statements show revenue growth from tax services, a decline in nine-month net income due to higher expenses and tax rates, and a shift to stockholders' deficiency Consolidated Statements of Operations and Comprehensive Income Third-quarter results show increased revenues and net income, while nine-month revenues grew but net income and diluted EPS declined Consolidated Statements of Operations Highlights (in thousands, except per share data) | Metric | Three Months Ended Mar 31, 2025 | Three Months Ended Mar 31, 2024 | Nine Months Ended Mar 31, 2025 | Nine Months Ended Mar 31, 2124 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $2,277,104 | $2,184,834 | $2,649,984 | $2,547,717 | | Net Income | $722,330 | $690,737 | $306,334 | $337,500 | | Diluted EPS | $5.31 | $4.86 | $2.21 | $2.32 | | Dividends Declared Per Share | $0.375 | $0.32 | $1.125 | $0.96 | Consolidated Balance Sheets The balance sheet indicates a slight asset increase, rising liabilities, and a significant shift to a total stockholders' deficiency driven by share repurchases and net losses Consolidated Balance Sheet Highlights (in thousands) | Metric | March 31, 2025 | June 30, 2024 | | :--- | :--- | :--- | | Total Current Assets | $1,246,538 | $1,239,476 | | Total Assets | $3,245,011 | $3,218,810 | | Total Current Liabilities | $1,589,803 | $977,328 | | Total Liabilities | $3,437,849 | $3,128,216 | | Total Stockholders' Equity (Deficiency) | ($192,838) | $90,594 | Consolidated Statements of Cash Flows Operating cash flow slightly increased for the nine-month period, while increased investing and financing activities led to a net decrease in cash Consolidated Cash Flow Summary (in thousands) | Activity | Nine Months Ended Mar 31, 2025 | Nine Months Ended Mar 31, 2024 | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $429,322 | $420,264 | | Net Cash Used in Investing Activities | ($110,890) | ($99,643) | | Net Cash Used in Financing Activities | ($595,506) | ($520,503) | | Net Decrease in Cash | ($285,503) | ($202,621) | Notes to Consolidated Financial Statements Notes detail revenue recognition, debt, and contingencies, highlighting growth in tax services, an increased effective tax rate, and ongoing legal matters - U.S. assisted tax preparation revenue for the nine months ended March 31, 2025, increased to $1.73 billion from $1.62 billion in the prior year. U.S. DIY tax preparation revenue also grew to $231.6 million from $215.5 million[25] - The effective tax rate for continuing operations for the nine months ended March 31, 2025, was 25.3%, compared to 17.6% for the same period in 2024. The increase is primarily due to lower discrete tax benefits in the current period compared to the prior period[47] - The company has a remaining commitment to purchase approximately $75.1 million in federal investment tax credits (ITCs) by June 30, 2025[51] - The company is responding to governmental inquiries, class actions, and mass arbitrations related to the IRS Free File Program and the use of pixels in its DIY tax services. An accrual for these matters is included in the loss contingency accrual of $5.5 million as of March 31, 2025[59][65] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes revenue growth to tax services, offset by lower royalty and financial services income, while increased operating expenses led to a net income decline, with liquidity maintained through cash and CLOC Results of Operations Nine-month revenues increased due to U.S. assisted and DIY tax preparation, but rising operating expenses, including legal fees, led to a decline in net income from continuing operations Revenue Changes (Nine Months Ended March 31, 2025 vs 2024) | Revenue Stream | 2025 (in 000s) | 2024 (in 000s) | % Change | | :--- | :--- | :--- | :--- | | U.S. Assisted Tax Prep | $1,727,220 | $1,622,430 | +6.5% | | U.S. DIY Tax Prep | $231,646 | $215,529 | +7.5% | | Royalties | $143,312 | $153,070 | -6.4% | | Financial Services | $85,763 | $98,195 | -12.7% | | Total Revenues | $2,649,984 | $2,547,717 | +4.0% | - The increase in U.S. assisted tax preparation revenue was driven by a 5.0% increase in net average charge and a 1.4% increase in company-owned tax return volumes[77] - Operating expenses increased by 4.8%, primarily due to higher field wages (+$32.0 million), benefits (+$17.8 million), marketing (+$10.4 million), and legal fees (+$9.9 million)[80][81] Financial Condition and Liquidity Liquidity is maintained through seasonal operations and a committed line of credit, with capital allocation prioritizing shareholder returns via dividends and share repurchases, alongside active debt management - The company had no outstanding balance under its $1.5 billion CLOC as of March 31, 2025, and was in compliance with all debt covenants[43][99] - During the nine months ended March 31, 2025, the company returned significant capital to shareholders, paying $147.1 million in dividends and repurchasing $400.1 million of its common stock[94][96] - Capital expenditures for the nine-month period totaled $71.8 million, and payments for business acquisitions (primarily franchisees) were $35.3 million[98] Quantitative and Qualitative Disclosures About Market Risk No material changes in market risks have occurred since the last annual report - There have been no material changes in market risks since the last annual report[118] Controls and Procedures Disclosure controls and procedures were effective as of March 31, 2025, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that disclosure controls and procedures were effective as of the end of the reporting period[119] - No material changes were identified in the company's internal control over financial reporting during the third quarter[120] PART II - OTHER INFORMATION Legal Proceedings Material pending legal proceedings, including governmental inquiries and class actions, are detailed in the consolidated financial statements - For details on material legal proceedings, the report directs readers to Note 9 in Part I, Item 1[121] Risk Factors No material changes in risk factors have occurred since the last annual report - There have been no material changes in risk factors since the last annual report[122] Unregistered Sales of Equity Securities and Use of Proceeds The company made no public share repurchases in Q3 but bought shares for employee tax obligations, with significant board-authorized funds remaining for future repurchases Share Purchases (Q3 FY2025) | Month (2025) | Total Shares Purchased | Average Price Paid per Share | Purchased as Part of Publicly Announced Program | | :--- | :--- | :--- | :--- | | January | 4,000 | $55.23 | $0 | | February | 2,000 | $54.43 | $0 | | March | 0 | N/A | $0 | - On August 15, 2024, the Board of Directors approved a $1.5 billion share repurchase program. As of March 31, 2025, $1.1 billion remained authorized for future repurchases[96][124] Other Information No director or Section 16 officer adopted or terminated a Rule 10b5-1 trading arrangement during the quarter - No director or Section 16 officer adopted or terminated a Rule 10b5-1 trading arrangement during the quarter[127] Exhibits The exhibits include CEO and CFO certifications pursuant to the Sarbanes-Oxley Act and Inline XBRL data files - The exhibits include certifications by the CEO and CFO under Sections 302 and 906 of the Sarbanes-Oxley Act[129]