Liberty Tax Service Reports Fiscal 2016 Third Quarter Results

VIRGINIA BEACH, VA - (Marketwired - Mar 4, 2016) - 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, 2016.

"Despite a slow start to the tax season industry wide, we are pleased that the Company delivered double digit growth in the quarter in both revenue and earnings per share," said John Hewitt, CEO. "We are now focused on executing in the second half of the season to drive return counts and bottom line performance through cost control and pricing discipline."

                             
($ in millions except per share data)   GAAP     Non - GAAP*  
    Q3 2016   Q3 2015   Change     Q3 2016   Q3 2015   Change  
Revenue   $ 53.6   $ 47.7   12.5 %   $ 53.6   $ 47.7   12.5 %
Operating expenses     44.7     43.4   2.9 %     44.7     39.3   13.6 %
Income before taxes     8.2     3.6   130.7 %     8.2     7.6   7.9 %
Net Income     4.7     1.9   146.9 %     4.7     4.1   15.5 %
Diluted EPS     0.34     0.13   161.5 %     0.34     0.29   17.2 %
                                     
*See reconciliation of non-GAAP to GAAP measures in Table E               

Income Statement

Revenues for the three months ended January 31, 2016 increased 12.5% to $53.6 million compared to $47.7 million in the prior year period. The increase in revenue was primarily driven by strong performance in our financial products group and from growth in tax preparation fees driven by the launch of our new company store cluster program. 

Reported operating expenses increased 2.9% to $44.7 million while adjusted operating expenses increased 13.6%. The increased operating expenses reflect the impact of our new refund advance product and the higher costs associated with operating more company stores.

Balance Sheet

The Company had a balance of $150.7 million on its revolving credit facility as of January 31, 2016, compared to $110.8 million as of January 31, 2015. A shift in IRS funding from Q3 to Q4 caused $25 million of the increase, along with higher offseason lending to franchisees.

Operational Results - Offices and Return Count

The Company reported an increase in permanent store locations of 196 stores and a decline in seasonal locations of 51. Increases in the number of permanent office locations is an important driver of future return count growth.

During the calendar year, through February 28, 2016 the Company and its franchisees served approximately 4% fewer customers in its offices than for the same period in the 2015 tax season. Liberty Tax Service offices have prepared 1,094,000 U.S. tax returns during the 2016 tax season through February 28. 

Dividend

The Board of Directors has approved our fifth consecutive quarterly dividend.

The quarterly dividend of $0.16 per share will be paid on April 22, 2016 to holders of record of common stock and common stock equivalents on the close of business on April 12, 2016. 

Third Quarter Conference Call

At 8:30 a.m. Eastern time on Friday, March 4, 2016, 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: 57683085

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 atwww.libertytax.com, under the "About" tab.

A telephonic replay of the call will be available beginning shortly after the call and continue until Friday, March 11, 2016, by dialing 855-859-2056 (domestic) or 404-537-3406 (international). The conference ID code is 57683085. 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 more than 19 million individual income tax returns in more than 4,400 U.S. and Canadian 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 Serviceand 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  
Amounts in thousands  
                   
    January 31,     April 30,     January 31,  
    2016     2015     2015  
Current assets:   (Unaudited)           (Unaudited)  
  Cash and cash equivalents   $ 1,787     $ 21,387     $ 3,150  
  Current receivables, net     149,886       65,927       124,482  
  Assets held for sale     11,164       5,160       5,613  
  Income taxes receivable     16,303       -       17,434  
  Deferred income tax asset     3,354       6,921       7,574  
  Other current assets     21,188       6,470       18,371  
    Total current assets     203,682       105,865       176,624  
                           
  Property, equipment, and software, net     41,216       36,232       42,615  
  Notes receivable, non-current, net     33,036       20,753       28,050  
  Goodwill     4,069       3,377       3,185  
  Other intangible assets, net     13,217       14,672       17,358  
  Other assets     8,580       3,247       3,973  
    Total assets   $ 303,800     $ 184,146     $ 271,805  
                         
Current liabilities:                        
  Current installments of long-term debt   $ 5,220     $ 3,934     $ 4,107  
  Accounts payable and accrued expenses     15,506       17,321       27,787  
  Due to ADs     16,258       24,340       14,980  
  Income taxes payable     -       2,147       -  
  Deferred revenue - current     4,413       6,076       6,094  
    Total current liabilities     41,397       53,818       52,968  
                           
  Long-term debt, excluding current installments     18,532       21,463       21,778  
  Revolving credit facility     150,682       -       110,762  
  Deferred revenue - non-current     7,206       7,640       7,777  
  Deferred income tax liability     6,049       2,363       6,705  
    Total liabilities     223,866       85,284       199,990  
                         
Stockholders' equity:                        
  Special voting preferred stock, $0.01 par value per share     -       -       -  
  Class A common stock, $0.01 par value per share     120       119       118  
  Class B common stock, $0.01 par value per share     9       9       9  
  Exchangeable shares, $0.01 par value per share     10       10       10  
  Additional paid-in capital     6,385       4,082       2,049  
  Accumulated other comprehensive loss, net of taxes     (2,430 )     (697 )     (1,171 )
  Retained earnings     75,840       95,339       70,800  
    Total stockholders' equity     79,934       98,862       71,815  
    Total liabilities and stockholders' equity   $ 303,800     $ 184,146     $ 271,805  
                         
                         

 

   
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,  
    2016     2015     $ change     % change  
Revenues:                        
  Franchise fees   $ 1,011     $ 968     $ 43     4.4 %
  AD fees     1,363       1,592       (229 )   -14.4 %
  Royalties and advertising fees     25,571       25,457       114     0.4 %
  Financial products     17,266       13,370       3,896     29.1 %
  Interest income     3,188       3,222       (34 )   -1.1 %
  Tax preparation fees, net of discounts     3,843       1,942       1,901     97.9 %
  Other revenue     1,379       1,129       250     22.1 %
    Total revenues     53,621       47,680       5,941     12.5 %
                               
Operating expenses:                              
  Employee compensation and benefits     11,638       10,686       952     8.9 %
  Selling, general, and administrative expenses     12,585       12,834       (249 )   -1.9 %
  AD expense     9,340       9,178       162     1.8 %
  Advertising expense     8,972       8,161       811     9.9 %
  Depreciation, amortization, and impairment charges     2,118       2,527       (409 )   -16.2 %
    Total operating expenses     44,653       43,386       1,267     2.9 %
    Income from operations     8,968       4,294       4,674     108.8 %
                               
Other expense:                              
  Foreign currency transaction loss     (14 )     (35 )     21     -60.0 %
  Interest expense     (705 )     (683 )     (22 )   3.2 %
    Income before income taxes     8,249       3,576       4,673     130.7 %
  Income tax expense     3,511       1,657       1,854     111.9 %
    Net Income     4,738       1,919       2,819     146.9 %
Less: Net income attributable to participating securities     (343 )     (140 )     (203 )   145.0 %
Net income attributible to Class A and Class B common stockholders   $ 4,395     $ 1,779     $ 2,616     147.0 %
                               
Earnings per share of Class A and Class B common stock:                              
  Basic   $ 0.34     $ 0.14     $ 0.20     142.9 %
  Diluted     0.34       0.13       0.21     161.5 %
                               
Weighted-average shares outstanding basic     12,795,367       12,679,286       116,081     0.9 %
Weighted-average shares outstanding diluted     14,002,356       14,227,163       (224,807 )   -1.6 %
                               
                               

 

   
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,  
    2016     2015     $ change     % change  
Revenues:                              
  Franchise fees   $ 2,526     $ 2,996     $ (470 )   -15.7 %
  AD fees     4,491       5,066       (575 )   -11.4 %
  Royalties and advertising fees     28,589       28,350       239     0.8 %
  Financial products     17,781       14,027       3,754     26.8 %
  Interest income     7,503       7,200       303     4.2 %
  Tax preparation fees, net of discounts     4,805       2,848       1,957     68.7 %
  Other revenue     3,320       2,766       554     20.0 %
    Total revenues     69,015       63,253       5,762     9.1 %
                               
Operating expenses:                              
  Employee compensation and benefits     28,454       28,736       (282 )   -1.0 %
  Selling, general, and administrative expenses     29,097       30,809       (1,712 )   -5.6 %
  AD expense     10,722       10,776       (54 )   -0.5 %
  Advertising expense     14,072       14,022       50     0.4 %
  Depreciation, amortization, and impairment charges     5,626       6,855       (1,229 )   -17.9 %
    Total operating expenses     87,971       91,198       (3,227 )   -3.5 %
    Loss from operations     (18,956 )     (27,945 )     8,989     -32.2 %
                               
Other expense:                              
  Foreign currency transaction loss     (39 )     (45 )     6     -13.3 %
  Interest expense     (1,592 )     (1,550 )     (42 )   2.7 %
    Loss before income taxes     (20,587 )     (29,540 )     8,953     -30.3 %
  Income tax benefit     (7,717 )     (11,487 )     3,770     -32.8 %
    Net loss   $ (12,870 )   $ (18,053 )   $ 5,183     -28.7 %
Net loss attributible to Class A and Class B common stockholders   $ (12,870 )   $ (18,053 )   $ 5,183     -28.7 %
                               
Net loss per share of Class A and Class B common stock:                              
  Basic and Diluted   $ (1.01 )   $ (1.42 )   $ 0.41     -28.9 %
                               
Weighted-average shares outstanding     12,794,185       12,742,288       51,897     0.4 %
                               
                               

 

   
Table D  
Liberty Tax, Inc.  
Condensed Consolidated Statements of Cash Flows  
Unaudited, amounts in thousands  
    Nine months ended January 31,  
    2016     2015  
Cash flows from operating activities:                
  Net loss   $ (12,870 )   $ (18,053 )
  Adjustments to reconcile net loss to net cash used in operating activities:                
    Provision for doubtful accounts     4,589       4,453  
    Depreciation, amortization, and impairment charges     5,626       6,855  
    Stock-based compensation expense     1,348       2,002  
    Gain on bargain purchases and sales of Company-owned offices     (470 )     (310 )
    Deferred tax expense     7,253       144  
    Changes in accrued income taxes     (18,283 )     (27,110 )
    Changes in other assets and liabilities     (55,476 )     (22,202 )
      Net cash used in operating activities     (68,283 )     (54,221 )
                 
Cash flows from investing activities:                
  Issuance of operating loans to franchisees     (81,364 )     (74,298 )
  Payments received on operating loans to franchisees     3,077       16,410  
  Purchases of AD rights and Company-owned offices     (3,713 )     (8,218 )
  Proceeds from sale of Company-owned offices and AD rights     2,851       3,690  
  Purchase of available-for-sale securities     (4,999 )     -  
  Purchase of property, equipment, and software     (8,685 )     (9,532 )
      Net cash used in investing activities     (92,833 )     (71,948 )
                 
Cash flows from financing activities:                
  Proceeds from the exercise of stock options     1,998       10,053  
  Repurchase of common stock     (1,977 )     (35,910 )
  Dividends paid     (6,629 )     -  
  Repayment of amounts due to former ADs     (2,429 )     (4,211 )
  Repayment of other long-term debt     (726 )     (949 )
  Borrowings under revolving credit facility     151,225       136,565  
  Repayments under revolving credit facility     (543 )     (25,803 )
  Payment for debt issue costs     -       (917 )
  Tax benefit of stock option exercises     933       4,776  
      Net cash provided by financing activities     141,852       83,604  
                 
Effect of exchange rate changes on cash, net     (336 )     (365 )
      Net decrease in cash and cash equivalents     (19,600 )     (42,930 )
Cash and cash equivalents at beginning of period     21,387       46,080  
Cash and cash equivalents at end of period   $ 1,787     $ 3,150  
                 
                 

 

 
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 measure 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, 2016
 
Revenues
 
Expenses
  Income from
Operations
 
EBITDA
 
Pretax Income
 
Net Income
  Diluted
EPS
                                         
As Reported $ 53,621   $ 44,653   $ 8,968   $ 11,072   $ 8,249   $ 4,738   $ 0.34
                                         
Adjustments:                                        
Executive severance including stock-based compensation   -     -     -     -     -     -     -
Litigation settlements   -     -     -     -     -     -     -
Total adjustments   -     -     -     -     -     -     -
As Adjusted $ 53,621   $ 44,653   $ 8,968   $ 11,072   $ 8,249   $ 4,738   $ 0.34
                                         
  Stock-based compensation expense excluding severance related expense $ -   $ (482 ) $ 482   $ 482                  
                           
                           
Three Months Ended January 31, 2015
 
Revenues
 
Expenses
  Income from
Operations
 
EBITDA
 
Pretax Income
 
Net Income
  Diluted
EPS
                                         
As Reported $ 47,680   $ 43,386   $ 4,294   $ 6,786   $ 3,576   $ 1,919   $ 0.13
                                         
Adjustments:                                        
Litigation settlements   -     (4,066 )   4,066     4,066     4,066     2,182     0.16
Total adjustments   -     (4,066 )   4,066     4,066     4,066     2,182     0.16
As Adjusted $ 47,680   $ 39,320   $ 8,360   $ 10,852   $ 7,642   $ 4,101   $ 0.29
                                         
  Stock-based compensation expense excluding severance related expense $ -   $ (494 ) $ 494   $ 494                  
                                         
 

 

>

 
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 measure 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, 2016  
   
Revenues
 
Expenses
    Loss from
Operations
   
EBITDA
   
Pretax Loss
   
Net Loss
    Basic and
Diluted EPS
 
                                                       
As Reported   $ 69,015   $ 87,971     $ (18,956 )   $ (13,369 )   $ (20,587 )   $ (12,870 )   $ (1.01 )
                                                       
Adjustments:                                                      
Executive severance including stock-based compensation     -     (413 )     413       413       413       258       0.02  
Litigation settlements     -     -       -       -       -       -       -  
Total adjustments     -     (413 )     413       413       413       258       0.02  
As Adjusted   $ 69,015   $ 87,558     $ (18,543 )   $ (12,956 )   $ (20,174 )   $ (12,612 )   $ (0.99 )
                                                       
  Stock-based compensation expense excluding severance related expense   $ -   $ (1,256 )   $ 1,256     $ 1,256                          
                                                       
                                                       
Nine Months Ended January 31, 2015  
   
Revenues
 
Expenses
    Loss from
Operations
   
EBITDA
   
Pretax Loss
   
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 including stock-based compensation     -     (1,617 )     1,617       1,617       1,617       988       0.08  
Litigation settlements     -     (6,196 )     6,196       6,196       6,196       3,787       0.30  
Total adjustments     -     (7,813 )     7,813       7,813       7,813       4,775       0.38  
As Adjusted   $ 63,253   $ 83,385     $ (20,132 )   $ (13,322 )   $ (21,727 )   $ (13,278 )   $ (1.04 )
                                                       
  Stock-based compensation expense excluding severance related expense   $ -   $ (1,408 )   $ 1,408     $ 1,408                          
                                                       
   

 

   
Table G  
Liberty Tax, Inc.  
Operational Data  
Unaudited  
         
Tax returns processed1 CYTD 1/31/16   CYTD 1/31/15   Percent Change  
  U.S. offices 438,000   456,000   -3.9 %
  Online2 21,000   23,000   -8.7 %
    Total tax returns processed 459,000   479,000   -4.2 %
             
Tax returns processed1 CYTD 2/28/16   CYTD 2/28/15   Percent Change  
  U.S. offices 1,094,000   1,140,000   -4.0 %
  Online2 65,000   72,000   -9.7 %
    Total tax returns processed 1,159,000   1,212,000   -4.4 %
             
U.S. Offices3         Change  
  Permanent 3,960   3,764   196  
  Seasonal 211   262   (51 )
  Processing Centers 54   43   11  
    Total office locations 4,225   4,069   156  
             

 

1   Return counts are rounded to the thousands and percentages are calculated on rounded amounts
2   Previously reported online return counts for calendar years prior to 2016 have been restated to reflect accepted e-files only. No changes were made to previously reported returns for office counts.
3   We measure our number of offices per fiscal year based on franchised and company-owned offices open at any point during the tax season
     

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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