Liberty Tax Service Reports Fiscal 2015 Third Quarter Results

VIRGINIA BEACH, VA - (Marketwired) - March 05, 2015 - Liberty Tax, Inc. (NASDAQ: TAX) (the "Company"), the parent company of Liberty Tax Service, today reported its results for the third fiscal quarter ended January 31, 2015.

"This has been a challenging season for us and the industry as a whole," said John Hewitt, CEO. "Despite the fact that we have continued to outperform the paid preparer category, our office and return count growth failed to meet the standards that we have come to expect. Going forward, we are focused on driving new sales, working with existing franchisees to expand, and capitalizing on the opportunities presented by the Affordable Care Act and immigration reform." 

                           
($ in Ms except per share data) GAAP     Non - GAAP*  
  Q3 2015   Q3 2014   Change     Q3 2015   Q3 2014   Change  
Revenue $ 47.7   $ 40.7   17 %   $ 47.7   $ 40.7   17 %
Operating expenses   43.4     35.5   22 %     39.3     35.4   11 %
Income before taxes   3.6     6.8   -47 %     7.6     4.9   57 %
Diluted EPS   0.13     0.28   -54 %     0.29     0.20   45 %
*See reconciliation of non-GAAP to GAAP measures in Table E

Income Statement

Revenues for the three months ended January 31, 2015 increased 17% to $47.7 million compared to $40.7 million in the prior year period. The increase in revenue was primarily driven by the earlier start to the tax season, along with our franchisees' ability to generate higher net fees and higher financial product revenue. We processed a higher portion of our financial product volume through our in-house subsidiary, JTH Financial, which increased our revenue and profitability.

Reported operating expenses increased 22% to $43.4 million. Adjusted operating expenses, as reported on Table E, increased 11% to $39.3 million driven primarily by increased variable costs associated with the higher revenue. During the three months ended January 31, 2015, the Company also incurred $4.1 million in costs, including costs related to a potential loss on one of our class action lawsuits, net of recovery from a vendor involved in one of our cases.

The tax rate for the three months ended January 31, 2015 was 46.3% and is significantly higher than our year-to-date rate of 38.9%. We anticipate the full year tax rate to be slightly less than last year.

Balance Sheet

The Company had a balance of $110.8 million on its revolving credit facility as of January 31, 2015, compared to $104.6 million as of January 31, 2014.

Operational Results - Offices

During the calendar year through February 28, 2015, the Company has processed 1,140,000 U.S. returns in its offices, a decrease of 0.7%, when compared to the same period last year. Despite the decline in return count, systemwide revenue has increased 5.7% to $311.9 million.

Dividend

As announced separately, our Board has approved the initiation of a quarterly dividend to shareholders. The first quarterly dividend of $0.16 per share will be paid on April 22, 2015 to holders of record of common stock and common stock equivalents on the close of business April 15, 2015.

Third Quarter Conference Call

At 8:30 a.m. Eastern time on Thursday, March 5, 2015, the Company will host a conference call for analysts, institutional investors and stockholders. To access the call, please dial the number below approximately 5 to 10 minutes prior to the scheduled starting time:

U.S. 855-611-0856
International 518-444-5569
Conference ID Code: 91108801

The call will also be webcast in a listen-only format. The link to the webcast can be accessed on the Company's investor relations website at www.libertytax.com.

A telephonic replay of the call will be available beginning shortly after the call and continue until Thursday, March 12, 2015, by dialing 855-859-2056 (domestic) or 404-537-3406 (international). The conference ID code is 91108801. A replay of the webcast will also be available at the site listed above beginning shortly after its conclusion.

About Liberty Tax, Inc.

Founded in 1997 by CEO John T. Hewitt, Liberty Tax, Inc., is the parent company of Liberty Tax Service. Liberty Tax is the fastest-growing tax preparation franchise and has prepared almost 18 million individual income tax returns in more than 4,300 offices and online. Liberty Tax's online services are available through eSmart Tax, Liberty Online and DIY Tax, and are all backed by the tax professionals at Liberty Tax locations and its nationwide network of approximately 35,000 seasonal tax preparers. Liberty Tax also supports local communities with fundraising endeavors and contributes as a national sponsor for many charitable causes. For a more in-depth look, visit Liberty Tax Service and interact with Liberty Tax on Twitter and Facebook.

About Non-GAAP Financial Information

This press release and the accompanying tables include non-GAAP financial information. For a description of these non-GAAP financial measures, including the reasons management uses each measure, and reconciliations of these non-GAAP financial measures to the most directly comparable financial measures prepared in accordance with generally accepted accounting principles, please see the section of the accompanying Tables E&F titled "Non-GAAP Financial Information."

Forward Looking Statements

In addition to historical information, this release may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including implied and express statements regarding future growth. These forward-looking statements, as well as Company guidance, are based upon the Company's current expectations and there can be no assurance that such expectations will prove to be correct. Because forward-looking statements involve risks and uncertainties and speak only as of the date on which they are made, the Company's actual results could differ materially from these statements. These risks and uncertainties relate to, among other things; uncertainties regarding the Company's ability to attract and retain clients; the ability to continue to pay a quarterly dividend; the effect of health care reform on tax preparation-related revenue; the impact of the launch of a new franchise brand; uncertainties regarding the Company's ability to meet its prepared returns targets; competitive factors; the Company's effective income tax rate; litigation defense expenses and costs of judgments or settlements; and changes in market, economic, political or regulatory conditions. Information concerning these risks and uncertainties is contained in the Company's annual report on Form 10-K and in other filings by the Company with the U.S. Securities and Exchange Commission. The Company does not undertake any duty to update any forward-looking statements, whether as a result of new information, future events, or otherwise.

 


Table A
Liberty Tax, Inc.
Condensed Consolidated Balance Sheets
Unaudited, amounts in thousands
                 
    January 31,     January 31,     April 30,
    2015     2014     2014
Current assets:                      
  Cash and cash equivalents   $ 3,150     $ 3,742     $ 46,080
  Current receivables, net     124,482       133,566       65,656
  Assets held for sale     5,613       -       4,413
  Income taxes receivable     17,434       8,449       -
  Deferred income tax asset     7,574       4,442       4,058
  Other current assets     18,371       18,527       5,325
    Total current assets     176,624       168,726       125,532
                       
Property, equipment, and software, net     42,615       37,553       38,343
Notes receivable - non-current, net     28,050       23,645       15,824
Goodwill     3,185       6,279       2,997
Other intangible assets, net     17,358       17,645       14,295
Other assets     3,973       2,124       1,772
    Total assets   $ 271,805     $ 255,972     $ 198,763
                       
Current liabilities:                      
  Current installments of long-term debt   $ 4,107     $ 6,649     $ 6,797
  Accounts payable and accrued expenses     27,787       12,804       15,023
  Due to area developers     14,980       15,390       18,236
  Income taxes payable     -       -       9,676
  Deferred revenue - current     6,094       6,362       6,051
    Total current liabilities     52,968       41,205       55,783
                       
  Long-term debt, excluding current installments     21,778       22,337       21,691
  Revolving credit facility     110,762       104,592       -
  Deferred revenue - non-current     7,777       8,510       8,059
  Deferred income tax liability     6,705       2,030       3,045
    Total liabilities     199,990       178,674       88,578
                       
Stockholders' equity:                      
  Special voting preferred stock, $0.01 par value per share     -       -       -
  Class A common stock, $0.01 par value per share     118       122       124
  Class B common stock, $0.01 par value per share     9       9       9
  Exchangeable shares, $0.01 par value     10       10       10
  Additional paid-in capital     2,049       9,044       9,402
  Accumulated other comprehensive income (loss), net of taxes     (1,171 )     (129 )     66
  Retained earnings     70,800       68,242       100,574
    Total stockholders' equity     71,815       77,298       110,185
    Total liabilities and stockholders' equity   $ 271,805     $ 255,972     $ 198,763
                           
                           
                           

 

Table B  
Liberty Tax, Inc.  
Condensed Consolidated Statement of Operations  
Unaudited, amounts in thousands, except per share and share data  
                   
    Three months ended 
January 31,
 
    2015     2014     % change  
Revenues:                      
  Franchise fees   $ 968     $ 1,247     -22.4 %
  Area developer fees     1,592       1,311     21.4 %
  Royalties and advertising fees     25,457       22,081     15.3 %
  Financial products     13,370       9,864     35.5 %
  Interest income     3,222       3,001     7.4 %
  Tax preparation fees, net of discounts     1,942       2,054     -5.5 %
  Other revenue     1,129       1,182     -4.5 %
    Total revenues     47,680       40,740     17.0 %
                       
Operating expenses:                      
  Employee compensation and benefits     10,546       10,318     2.2 %
  Selling, general, and administrative expenses     13,041       9,121     43.0 %
  Area developer expense     9,111       7,909     15.2 %
  Advertising expense     8,161       5,860     39.3 %
  Depreciation, amortization, and impairment charges     2,527       2,267     11.5 %
    Total operating expenses     43,386       35,475     22.3 %
    Income from operations     4,294       5,265     -18.4 %
                       
Other income (expense):                      
  Foreign currency transaction loss     (35 )     (3 )   NM  
  Gain on sale of available-for-sale securities     -       1,995     -100.0 %
  Interest expense     (683 )     (464 )   -47.2 %
    Income before income taxes     3,576       6,793     -47.4 %
  Income tax expense     1,657       2,737     -39.5 %
    Net Income   $ 1,919     $ 4,056     -52.7 %
                       
  Net income attributable to common stockholders Class A and Class B   $ 1,779     $ 3,766     -52.8 %
                       
Net income per share of Class A and Class B common stock                      
  Basic   $ 0.14     $ 0.29     -51.7 %
  Diluted     0.13       0.28     -53.6 %
                       
Weighted-average basic shares outstanding     12,679,286       12,991,857     -2.4 %
Weighted-average diluted shares outstanding     14,227,163       14,654,666     -2.9 %
                       
                       
                       

 

Table C  
Liberty Tax, Inc.  
Condensed Consolidated Statement of Operations  
Unaudited, amounts in thousands, except per share and share data  
                   
    Nine months ended 
January 31,
 
    2015     2014     % change  
Revenues:                      
  Franchise fees   $ 2,996     $ 3,172     -5.5 %
  Area developer fees     5,066       4,994     1.4 %
  Royalties and advertising fees     28,350       24,710     14.7 %
  Financial products     14,027       10,482     33.8 %
  Interest income     7,200       7,435     -3.2 %
  Tax preparation fees, net of discounts     2,848       2,682     6.2 %
  Other revenue     2,766       2,647     4.5 %
    Total revenues     63,253       56,122     12.7 %
                       
Operating expenses:                      
  Employee compensation and benefits     28,626       24,603     16.4 %
  Selling, general, and administrative expenses     30,919       23,131     33.7 %
  Area developer expense     10,776       9,442     14.1 %
  Advertising expense     14,022       11,051     26.9 %
  Depreciation, amortization, and impairment charges     6,855       5,590     22.6 %
    Total operating expenses     91,198       73,817     23.5 %
    Loss from operations     (27,945 )     (17,695 )   57.9 %
                       
Other income (expense):                      
  Foreign currency transaction loss     (45 )     (15 )   -200.0 %
  Gain on sale of available-for-sale securities     -       2,183     -100.0 %
  Interest expense     (1,550 )     (1,066 )   -45.4 %
    Loss before income taxes     (29,540 )     (16,593 )   78.0 %
  Income tax benefit     (11,487 )     (6,244 )   84.0 %
    Net loss   $ (18,053 )   $ (10,349 )   74.4 %
                       
Net loss per share of Class A and Class B common stock                      
  Basic and diluted   $ (1.42 )   $ (0.80 )   77.5 %
                       
Weighted-average shares outstanding     12,742,288       12,937,734     -1.5 %
                       
                       
                       

 

Table D  
Liberty Tax, Inc.  
Condensed Consolidated Statements of Cash Flows  
Unaudited, amounts in thousands  
   
    Nine months ended January 31,  
    2015     2014  
Cash flows from operating activities:                
  Net loss   $ (18,053 )   $ (10,349 )
  Adjustments to reconcile net loss to net cash used in operating activities:                
    Provision for doubtful accounts     4,453       5,886  
    Depreciation, amortization and impairment charges     6,855       5,590  
    Stock-based compensation expense related to equity classified awards     2,002       1,394  
    Stock-based compensation income related to liability classified awards     -       (872 )
    Gain on bargain purchases and sales of Company-owned offices     (310 )     (629 )
    Deferred tax expense     144       955  
    Gain on sale of available-for-sale securities     -       (2,183 )
    Changes in other assets and liabilities     (49,312 )     (50,642 )
      Net cash used in operating activities     (54,221 )     (50,850 )
                 
Cash flows from investing activities:                
  Issuance of operating loans to franchisees     (74,298 )     (62,218 )
  Payments received on operating loans to franchisees     16,410       1,532  
  Purchases of Company-owned offices, area developer rights, and acquired customer lists     (8,218 )     (6,585 )
  Proceeds from sale of Company-owned offices and area developer rights     3,690       2,368  
  Proceeds from sale of available-for-sale securities     -       5,163  
  Purchases of property, equipment, and software     (9,532 )     (7,652 )
      Net cash used in investing activities     (71,948 )     (67,392 )
                 
Cash flows from financing activities:                
  Proceeds from the exercise of stock options     10,053       6,122  
  Repurchase of common stock     (35,910 )     (5,174 )
  Repayment of amounts due to former area developers     (4,211 )     (1,439 )
  Repayment of other long-term debt     (949 )     (1,458 )
  Borrowings under revolving credit facility     136,565       110,694  
  Repayments under revolving credit facility     (25,803 )     (6,102 )
  Payment for debt issue costs     (917 )     -  
  Tax benefit of stock option exercises     4,776       554  
      Net cash provided by financing activities     83,604       103,197  
                 
Effect of exchange rate changes on cash, net     (365 )     (226 )
      Net decrease in cash and cash equivalents     (42,930 )     (15,271 )
Cash and cash equivalents at beginning of period     46,080       19,013  
Cash and cash equivalents at end of period   $ 3,150     $ 3,742  
                 
Supplementary cash flow data:                
  Cash paid for interest, net of capitalized interest   $ 948     $ 851  
  Cash paid for taxes, net of refunds     10,849       6,388  
                   
                   
                   

 

Table E
Liberty Tax, Inc.
Non-GAAP Financial Information
Unaudited, amounts in thousands, except per share data
                           
We report our financial results in accordance with U.S. generally accepted accounting principles (GAAP). However, we believe certain non-GAAP performance measures and ratios used in managing the business may provide additional meaningful comparisons between current year results and prior periods. Reconciliations to GAAP financial measures are provided below. These non-GAAP financial measures should be viewed in addition to, not as an alternative for, our reported GAAP results.
                           
Three Months Ended January 31, 2015
  Revenues   Expenses   Income from Operations   EBITDA   Income before Taxes   Net Income   Diluted EPS
                                         
As Reported $ 47,680   $ 43,386   $ 4,294   $ 6,786   $ 3,576   $ 1,919   $ 0.13
                                         
Adjustments:                                        
Litigation costs   (6)     (4,066)     4,060     4,060     4,060     2,179     0.16
  Subtotal of adjustments   (6)     (4,066)     4,060     4,060     4,060     2,179     0.16
                                         
As Adjusted   47,674     39,320     8,354     10,846     7,636     4,098     0.29
                                         
Stock-based compensation expense   -     (494)     494     494                  
                                         
                                         
Three Months Ended January 31, 2014
  Revenues   Expenses   Income from Operations   EBITDA   Income before Taxes   Net Income   Diluted EPS
                                         
As Reported $ 40,740   $ 35,475   $ 5,265   $ 9,524   $ 6,793   $ 4,056   $ 0.28
                                         
Adjustments:                                        
Gain on available-for-sale securities   -     -     -     (1,995)     (1,995)     (1,191)     (0.08)
Restatement costs   -     (63)     63     63     63     38     -
Litigation costs   (3)     -     (3)     (3)     (3)     (2)     -
  Subtotal of adjustments   (3)     (63)     60     (1,935)     (1,935)     (1,155)     (0.08)
                                         
As Adjusted   40,737     35,412     5,325     7,589     4,858     2,901     0.20
                                         
Stock-based compensation expense   -     (653)     653     653                  
                                         
                                         
                                         

 

Table F
Liberty Tax, Inc.
Non-GAAP Financial Information
Unaudited, amounts in thousands, except per share data
                           
We report our financial results in accordance with U.S. generally accepted accounting principles (GAAP). However, we believe certain non-GAAP performance measures and ratios used in managing the business may provide additional meaningful comparisons between current year results and prior periods. Reconciliations to GAAP financial measures are provided below. These non-GAAP financial measures should be viewed in addition to, not as an alternative for, our reported GAAP results.
                           
Nine Months Ended January 31, 2015
  Revenues   Expenses   Loss from Operations   EBITDA   Loss before Taxes   Net Loss   Basic and Diluted EPS
                                         
As Reported $ 63,253   $ 91,198   $ (27,945)   $ (21,135)   $ (29,540)   $ (18,053)   $ (1.42)
                                         
Adjustments:                                        
Executive severance(1)   -     (1,617)     1,617     1,617     1,617     988     0.08
Litigation costs   (47)     (6,196)     6,149     6,149     6,149     3,758     0.30
  Subtotal of adjustments   (47)     (7,813)     7,766     7,766     7,766     4,746     0.38
                                         
As Adjusted   63,206     83,385     (20,179)     (13,369)     (21,774)     (13,307)     (1.04)
                                         
Stock-based compensation expense(3)   -     (1,408)     1,408     1,408                  
                                         
                                         
Nine Months Ended January 31, 2014
  Revenues   Expenses   Loss from Operations   EBITDA   Loss before Taxes   Net Loss   Basic and Diluted EPS
                                         
As Reported $ 56,122   $ 73,817   $ (17,695)   $ (9,937)   $ (16,593)   $ (10,349)   $ (0.80)
                                         
Adjustments:                                        
Gain on available-for-sale securities   -     -     -     (2,183)     (2,183)     (1,362)     (0.11)
Executive severance(1)   -     (614)     614     614     614     383     0.03
Reclassification of stock-based compensation expense(2)   -     872     (872)     (872)     (872)     (544)     (0.04)
Restatement costs   -     (855)     855     855     855     533     0.04
Litigation costs   (49)     (60)     11     11     11     7     -
  Subtotal of adjustments   (49)     (657)     608     (1,575)     (1,575)     (983)     (0.08)
                                         
As Adjusted   56,073     73,160     (17,087)     (11,512)     (18,168)     (11,332)     (0.88)
                                         
Stock-based compensation expense(3)   -     (1,294)     1,294     1,294                  
                                         
(1) Includes stock-based compensation expense
(2) Related to conversion from equity to liability instruments
(3) Excludes costs related to executive severance
 
 
 

 

Table G  
Liberty Tax, Inc.  
Operational Data  
Unaudited  
           
Tax returns processed1   CYTD 1/31/15   CYTD 1/31/14   Percent Change  
  U.S. offices   456,000   410,000   11.2 %
  Online   29,000   27,000   7.4 %
    Total tax returns processed   485,000   437,000   11.0 %
               
Tax returns processed1   CYTD 2/28/15   CYTD 2/28/14   Percent Change  
  U.S. offices   1,140,000   1,148,000   -0.7 %
  Online   86,000   102,000   -15.7 %
    Total tax returns processed   1,226,000   1,250,000   -1.9 %
               
1Return counts are rounded to the thousands and percentages are calculated on rounded amounts  

The Company will provide an update of operational results through season end shortly after the tax season ends.

SOURCE Liberty Tax, Inc.

Contacts:

Kathy Donovan
Investor Relations
Liberty Tax, Inc.
Vice President, Chief Financial Officer
(757) 493-8855
investorrelations@libtax.com

Martha O'Gorman
Media Relations
Liberty Tax, Inc.
Chief Marketing Officer
(757) 301-8022
martha@libtax.com

###

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