NOTE 2: REVENUE RECOGNITION

On May 1, 2018, we adopted ASU 2014-09 using the full retrospective approach for all contracts as of the adoption date. As the adoption of this guidance did not have a significant impact on our consolidated financial statements, no adjustments were made to the prior year periods to be in compliance with ASU 2014-09.

Revenue is recognized upon satisfaction of performance obligations by the transfer of a product or service to the customer. Revenue is the amount of consideration we expect to receive for our services and products, and excludes sales taxes. When providing the majority of our tax preparation services, we generally have multiple performance obligations that are provided simultaneously at a point in time and revenue is recognized at that time. Our Peace of Mind® Extended Service Plan (POM) and Tax Identity Shield® (TIS) products have multiple performance obligations that are provided over time. The transaction price for POM and TIS, which is due at the time of purchase, is allocated to the various performance obligations based on relative standalone selling prices. Revenues for POM and TIS are deferred until the respective performance obligations have been satisfied. We have determined that these contracts do not contain a significant financing component.

The majority of our revenues are from our U.S. business. The following table disaggregates our U.S. revenues by major service line, with all international businesses included in a single line, which consists primarily of tax preparation revenues:



							(in 000s)
	Three months ended January 31,				Nine months ended January 31,
	2019		2018		2019		2018
Revenues:
U.S. assisted tax preparation	$	256,813	$	267,328	$	329,569	$	333,956
U.S. royalties	42,265		45,420		57,898		59,395
U.S. DIY tax preparation	31,885		31,322		37,660		38,811
International revenues	12,304		12,308		96,980		100,659
Revenues from Refund Transfers	47,482		50,770		49,466		54,721
Revenues from Emerald Card®	14,980		16,125		38,704		40,292
Revenues from Peace of Mind® Extended Service Plan	16,596		19,967		77,491		76,495
Revenues from Tax Identity Shield®	7,655		6,818		17,639		7,329
Interest and fee income on Emerald Advance^TM	30,924		31,075		31,768		32,333
Other	7,480		7,293		25,263		23,091
Total revenues	$	468,384	$	488,426	$	762,438	$	767,082

Service revenues are recognized when performance obligations are satisfied as follows:


▪	Assisted and DIY online tax preparation revenues are recorded when a completed return is electronically filed or accepted by the customer. The value of point-of-sale discounts and coupons are recorded as a reduction of revenue.


▪	Fees for electronic filing of tax returns prepared using our DIY desktop software are recorded when the return is electronically filed.


▪	Revenues from Refund Transfers (RTs) are recognized when the Internal Revenue Service (IRS) acknowledgment is received and the bank account is established at Axos Bank, formerly known as BofI Federal Bank, a federal savings bank (Axos).

▪

Revenues from our Emerald Card® program consist of interchange income from the use of debit cards and fees from the use of ATM networks, net of volume-based amounts retained by Axos in connection with our agreement. Interchange income is a fee paid by a merchant bank to Axos through the interchange network. Net revenue associated with our Emerald Card® is recognized based on cardholder transactions.

▪

Under POM we (1) represent our clients if they are audited by a taxing authority, and (2) assume the cost, subject to certain limits, of additional taxes owed by a client resulting from errors attributable to H&R Block. POM revenues and incremental wages are deferred and recognized over the term of the plan, based on the historical pattern of actual claims paid, as claims paid represent the transfer of POM services to the customer. The plan is effective for the life of the tax return, which can be up to six years; however, the majority of claims are incurred in years two and three after the sale of POM.

▪

Our TIS program offers clients assistance in helping protect their tax identity and access to services to help restore their tax identity, if necessary. Protection services include a daily scan of the dark web for personal information, a monthly scan for social security number in credit header data (new in fiscal year 2019), a pre-tax season identity theft risk assessment (only available to Assisted tax preparation clients), notifying clients if their information is detected on a tax return filed through H&R Block, and obtaining additional IRS identity protections when eligible. TIS revenues are deferred and are recognized as the various services are provided to the client, either by us or a third party, throughout the term of the contract, which ends on April 30th of the following year.

Royalty, product and other revenues are recognized when performance obligations are satisfied as follows:


▪	Royalties, which are based on contractual percentages of franchise gross receipts, are generally recorded in the period in which the services are provided by the franchisee to the customer.


▪	Revenue from the sale of DIY desktop software is recognized when the product is sold to the end user. Rebates and other incentives paid in connection with these sales are recorded as a reduction of revenue.


▪	Interest and fee income on Emerald Advance^TM lines of credit (EAs) is recorded over the life of the underlying loan.

Changes in the balances of deferred revenue and wages for POM are as follows:



										(in 000s)
POM	Deferred Revenue						Deferred Wages
Nine months ended January 31,	2019			2018			2019			2018
Balance, beginning of the period	$	218,274		$	211,223		$	32,683		$	31,344
Amounts deferred	27,711			29,023			1,773			2,649
Amounts recognized on previous deferrals	(90,439		)	(86,347		)	(13,569		)	(12,496		)
Balance, end of the period	$	155,546		$	153,899		$	20,887		$	21,497

As of January 31, 2019, deferred revenue related to POM was $155.5 million. We expect that $105.3 million will be recognized over the next twelve months, while the remaining balance will be recognized over the following sixty months.

Deferred revenue related to TIS was $36.4 million and $20.6 million at April 30, 2018 and 2017, respectively. As of January 31, 2019 and 2018, TIS deferred revenue was $21.3 million and $27.0 million, respectively. All deferred revenue related to TIS will be recognized within the next fifteen months.

A significant portion of our accounts receivable balances arise from services and products that we provide to our customers, with the exception of those related to EAs, which arise from purchased participations with Axos. The majority of our services and products must be paid for at the time of service, and therefore no receivable is recorded unless an RT is purchased. Generally the prices of our services and products are fixed and determinable at the time of sale. For our RT product, we record a receivable for our fees which is then collected at the time the IRS issues the client’s refund. Our receivables from customers are generally collected on a periodic basis during and subsequent to the tax season. See note 4 for our accounts receivable balances.