H&R BLOCK INC (HRB)

ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RECENT DEVELOPMENTS

On July 11, 2025, we entered into a Fifth Amended and Restated Credit and Guarantee Agreement (2025 CLOC), which amended and restated our Fourth Amended and Restated Credit and Guarantee Agreement, extended the scheduled maturity date to July 11, 2030, maintained the aggregate principal amount of $1.5 billion, and revised the interest rate table. All other material terms remain substantially unchanged from the Fourth Amended and Restated Credit and Guarantee Agreement. See our Current Report on Form 8-K filed on July 15, 2025 for additional information.

On August 7, 2025, Jeffrey J. Jones II notified the Board of Directors of the Company of his intention to retire as President and Chief Executive Officer of the Company, effective as of December 31, 2025. Mr. Jones retired from the Board of Directors, effective on December 31, 2025. On August 8, 2025, the Board appointed Curtis A. Campbell, the Company's President, Global Consumer Tax and Chief Product Officer, to succeed Mr. Jones as President and Chief Executive Officer, effective immediately upon Mr. Jones’ retirement. See our Current Report on Form 8-K filed on August 11, 2025 for more information.

On August 13, 2025, Kellie J. Logerwell notified the Company of her intention to retire as the Company’s Vice President and Chief Accounting Officer, effective as of October 24, 2025. Ms. Logerwell was succeeded as principal accounting officer by April M. Wasleski, who most-recently served as the Company’s Director of Accounting and whose appointment as Vice President and Chief Accounting Officer became effective October 24, 2025. See our Current Report on Form 8-K filed on August 15, 2025 for more information.

On August 26, 2025, we issued $350.0 million of 5.375% Senior Notes due September 15, 2032 (2032 Senior Notes). The 2032 Senior Notes are not redeemable by the bondholders prior to maturity, although we have the right to redeem some or all of these notes at any time, at specified redemption prices. The net proceeds from the 2032 Senior Notes were used for general corporate purposes, which includes, among other uses, the redemption of the $350.0 million in principal outstanding of our 5.250% notes due October 2025 (2025 Senior Notes). We redeemed our 2025 Senior Notes at 100% of the principal amount, plus accrued and unpaid interest, on September 19, 2025.

RESULTS OF OPERATIONS

Our subsidiaries provide assisted and do-it-yourself (DIY) tax preparation solutions through multiple channels (including in-person, online and mobile applications, virtual, and desktop software) and distribute H&R Block-branded products and services, including those of our bank partners, to the general public primarily in the United States (U.S.), Canada and Australia. Tax returns are either prepared by H&R Block tax professionals in one of our 6,802 company-owned or 1,814 franchise offices (as of March 31, 2026), virtually or via an online review or prepared and filed by our clients through our DIY tax solutions. We also offer small business solutions through our company-owned and franchise offices (including in-person, online and virtual) and online through Wave. We report a single segment that includes all of our continuing operations.

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(1)    All non-GAAP measures are results from continuing operations. See "Non-GAAP Financial Information" at the end of this item for a reconciliation of non-GAAP measures.

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Three months ended March 31, 2026 compared to March 31, 2025

Revenues increased $121.0 million, or 5.3%, from the prior year. U.S. assisted tax preparation revenues increased $106.3 million, or 6.5%, primarily due to a 3.8% increase in net average charge combined with a 2.6% increase in company-owned tax return volumes in the current year. U.S. royalties revenue decreased $5.8 million, or 4.3%, due to lower franchise tax return volumes, which was primarily driven by franchise acquisitions. During the year we purchased franchise offices which results in increasing tax preparation revenues and decreasing royalties as the revenues and returns become company-owned after the acquisition. For the three months ended March 31, 2026 our total assisted tax return volume, which includes both company-owned and franchise offices, increased 0.4% from the prior year.

U.S. DIY tax preparation revenues increased $0.6 million, or 0.3%, largely due to a 3.5% increase in online paid net average charge, offset by a 3.0% decrease in online paid volume.

Refund Transfer revenues increased $6.2 million, or 5.5%, primarily due to an increase in Refund Transfer volume.

International tax preparation revenues increased $9.7 million, or 16.0%, primarily due to favorable foreign currency exchange rates in Canada and Australia.

Total operating expenses increased $62.5 million, or 4.8%, from the prior year. Field wages increased $44.6 million, or 8.4%, due to increased tax professional wages resulting from an increase in U.S. assisted tax preparation revenues. Certain wage‑related expenses are now being reported in field wages rather than other wages to better align with how costs are managed and evaluated internally. This change had no impact on total operating expenses, and prior period amounts have not been reclassified. Benefits and other compensation increased $6.6 million or 5.9% due primarily to higher payroll taxes, stock-based compensation and severance pay in the current year. Occupancy expense increased $7.6 million, or 6.4%, primarily due to higher lease expenses and facility repairs. Marketing and advertising expenses decreased $11.3 million, or 5.7%, due to lower online and TV advertising as well as lower customer incentive expenses.

Other operating expenses increased $9.3 million, or 4.8%. The components of other expenses are as follows:

We recorded income tax expense of $167.7 million in the current year compared to $235.3 million in the prior year. The effective tax rate for the three months ended March 31, 2026, and 2025 was 16.5% and 24.6%, respectively. The decrease in the effective tax rate was primarily attributable to the settlement of an IRS examination of our 2020 U.S. federal income tax return and related carryback claims to the 2015 through 2018 tax years. The closure of the IRS examination resulted in a discrete income tax benefit of $84.1 million, which was recorded in income tax expense. See Item 1, note 7 to the consolidated financial statements for additional discussion.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

Our subsidiaries provide assisted and DIY tax preparation solutions through multiple channels (including in-person, online and mobile applications, virtual, and desktop software) and distribute H&R Block-branded services and products, including those of our bank partners, to the general public primarily in the U.S., Canada and Australia. Tax returns are either prepared by H&R Block tax professionals in one of our 6,802 company-owned or 1,814 franchise offices (as of March 31, 2026), virtually or via an online review or prepared and filed by our clients through our DIY tax solutions. We also offer small business solutions through our company-owned and franchise offices (including in-person, online and virtual) and online through Wave®. We report a single segment that includes all of our continuing operations.

A summary of our fiscal year 2026 results is as follows:

•Revenue increased $184.4 million, or 4.9%, largely due to increases in U.S. company-owned net average charge and tax return volume. International revenues increased due to favorable foreign currency exchange rates in Canada and Australia, and Wave® revenues increased as a result of higher subscription revenue and payments volume. These increases were partially offset by lower U.S. royalties revenue due to lower franchise tax return volumes, which was primarily driven by franchise acquisitions. During the year we purchased franchise offices which resulted in increasing tax preparation revenues and decreasing royalties as the revenues and returns become company-owned after the acquisition.

•Operating expenses increased $104.7 million, or 3.6%, due to higher compensation and benefits, occupancy, and technology costs.

•Pretax income increased $72.5 million, or 9.3%.

•Income tax expense decreased $54.4 million, or 31.6%, primarily due to the settlement of an IRS examination of our 2020 U.S. federal income tax return and related carryback claims to the 2015 through 2018 tax years.

•Net income from continuing operations of $736.3 million increased 20.8% from the prior year.

•EBITDA(1) of $1,056.9 million increased $80.6 million, or 8.3%.

•Diluted earnings per share from continuing operations increased $1.27, or 28.7%, and adjusted diluted earnings per share from continuing operations(1) increased $0.65, or 13.9%.

(1)    All non-GAAP measures are results from continuing operations. See "Non-GAAP Financial Information" at the end of this item for a reconciliation of non-GAAP measures.

(1)    All non-GAAP measures are results from continuing operations. See "Non-GAAP Financial Information" at the end of this item for a reconciliation of non-GAAP measures.

FISCAL YEAR 2026 COMPARED TO FISCAL YEAR 2025

Revenues increased $184.4 million, or 4.9%, from the prior year. U.S. assisted tax preparation revenues increased $147.7 million, or 6.1%, due to a 4.0% increase in net average charge combined with a 2.0% increase in company-owned tax return volumes in the current year. U.S. royalties revenue decreased $7.4 million, or 3.9%, due to lower franchise tax return volumes, which was primarily driven by franchise acquisitions. During the year we purchased franchise offices, which resulted in increasing tax preparation revenues and decreasing royalties as the revenues and returns become company-owned after the acquisition. During the year ended June 30, 2026 our total assisted tax return volume, which includes both company-owned and franchise offices, decreased 0.1% from the prior year due to a decrease in franchise tax return volumes, partially offset by an increase in company-owned tax return volumes.

U.S. DIY tax preparation revenues increased $0.9 million, or 0.2%, due to a 4.2% increase in paid net average charge.

International revenues increased $18.4 million, or 7.4%, due to favorable foreign currency exchange rates in Canada and Australia. Wave® revenues increased $13.5 million, or 12.3%, as a result of higher subscription revenue and payments volume.

Total operating expenses increased $104.7 million, or 3.6%, from the prior year. Field wages increased $69.3 million, or 7.5%, due to increased tax professional wages as a result of higher U.S. assisted tax preparation revenues. Certain wage-related expenses are now being reported in field wages rather than other wages to better align with how costs are managed and evaluated internally. This change had no impact on total operating expenses, and prior period amounts have not been reclassified.

Occupancy expense increased $18.3 million, or 4.2%, due to an increase in number of leased offices, higher rent, and office-related expenses.

Marketing and advertising expense decreased $8.0 million, or 2.8%, primarily due to lower customer incentive expenses and lower online and television advertising, partially offset by higher advertising production expenses.

Other operating expenses increased $8.5 million, or 1.6%. The components of other expenses are as follows:

Technology-related expenses increased by $10.0 million, or 8.4%, due to higher cloud-related technology spend. Credit card and bank charges increased by $6.4 million, or 5.8% primarily due to higher small business payments transaction fees and credit card fees associated with higher tax preparation revenues.

We recorded income tax expense of $117.6 million in the current year compared to $172.0 million in the prior year. The effective tax rate for the year ended June 30, 2026, and 2025 was 13.8% and 22.0%, respectively. The decrease in the effective tax rate was primarily attributable to the settlement of an IRS examination of our 2020 U.S. federal income tax return and related carryback claims to the 2015 through 2018 tax years. The closure of the IRS examination resulted in a discrete income tax benefit of $84.1 million, which was recorded in income tax expense. See Item 8, note 9 to the consolidated financial statements for additional discussion.

FISCAL YEAR 2025 COMPARED TO FISCAL YEAR 2024

The comparison of fiscal year 2025 to 2024 has been omitted from this Form 10-K, but can be found in our Form 10-K for the fiscal year ended June 30, 2025, filed on August 15, 2024.

FINANCIAL CONDITION

These comments should be read in conjunction with the consolidated balance sheets and consolidated statements of cash flows included in Item 8.

CAPITAL RESOURCES AND LIQUIDITY –

OVERVIEW – Our primary sources of capital and liquidity include cash from operations (including changes in working capital), draws on our CLOC, and issuances of debt. We use our sources of liquidity primarily to fund working capital, service and repay debt, pay dividends, repurchase shares of our common stock, and acquire businesses.

Our operations are highly seasonal and substantially all of our revenues and cash flow are generated during the period from February through April in a typical year. Therefore, we normally require the use of cash to fund losses and working capital ne

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