Liberty Tax Service Announces Fiscal 2017 Second Quarter Results

VIRGINIA BEACH, VA - (Marketwired) - December 08, 2016 - Liberty Tax, Inc. (NASDAQ: TAX) (the "Company"), the parent company of Liberty Tax Service, today reported results for the second quarter ended October 31, 2016.

The Company typically reports a loss in the first and second quarters when revenues are low and costs are ramping up to drive growth in the following tax season. In the second quarter of fiscal 2017, the Company reported a GAAP net loss of $9.3 million, or $0.72 per share, compared to a loss of $9.1 million, or $0.71 per share in the prior year period. Non-GAAP net loss was also $0.72 per share compared to a net loss of $0.71 per share in the prior year period.

                       
($ in millions except per share data) GAAP   Non - GAAP*
  Q2 2017   Q2 2016   Change   Q2 2017   Q2 2016   Change
Revenue $ 7.2   $ 7.9   -8.1%   $ 7.2   $ 7.9   -8.1%
Operating expenses 22.0   21.9   0.3%   21.8   21.9   -0.5%
Loss before taxes (15.5)   (14.5)   6.7%   (15.3)   (14.5)   5.5%
Net Loss (9.3)   (9.1)   3.0%   (9.2)   (9.1)   1.8%
Basic and Diluted EPS (0.72)   (0.71)   1.4%   (0.72)   (0.71)   1.4%
*See reconciliation of non-GAAP to GAAP measures in Table E  

"Our preparations for the upcoming season are almost complete," said John Hewitt, CEO. "We have the right product offerings in place for our customers and our franchisees. We are managing our expenses, and our Company-store team is prepared to deliver a strong season."

Income Statement

  • Seasonally low revenue for the three months ended October 31, 2016 declined 8.1% to $7.2 million. Fewer new territory sales and transfers among franchisees drove most of the decline.
  • Operating expenses were flat, higher company store costs were offset by expense savings in other areas.
  • GAAP net loss per share of $0.72 was $0.01 greater than the prior year period.

Balance Sheet

The Company had a cash balance of $3.7 million at October 31, 2016. The Company has drawn $66.6 million on its revolving credit facility as of October 31, 2016 compared to $57.3 million at October 31, 2015. The Company typically draws on this facility through the beginning of each tax season to provide for cash used in operations and for operating loans to franchisees. The increase in the usage of our credit facility is primarily due to entering the year with a lower cash balance.

Operational Comments

The Company expects office count to decline this season. There are several factors contributing to this decline, including the previously announced decision not to extend our relationship with Walmart this year. In addition, we have actively pruned back certain underperforming franchise locations as the Company focuses more on developing larger franchisee and Company-owned offices. Lastly, on a year to date basis through November, the number of territories sold has declined from 142 last year to 50 this year.

During the offseason, we acquired many attractive, mature locations from exiting franchisees which will be operated as Company-owned offices this year. As a result, our average Company-owned store will be larger than the Company-owned locations last year, many of which were first year stores. This shift in store population will drive higher tax preparation fees this year.

Dividend

On December 6, 2016, the Board of Directors approved a quarterly dividend to shareholders of $0.16 per share. The dividend will be paid on January 23, 2017 to holders of record of common stock and common stock equivalents on the close of business on January 12, 2017.

Conference Call

At 8:30 a.m. Eastern time on December 8, 2016, the Company will host a conference call for analysts, institutional investors and stockholders. To access the call, please dial the number below approximately 10 minutes prior to the scheduled starting time:

U.S. 855-611-0856
International 518-444-5569
Conference ID Code: 10692202

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, under the "About" tab.

A telephonic replay of the call will be available beginning shortly after the call continuing until Thursday, December 15, 2016, by dialing 855-859-2056 (domestic) or 404-537-3406 (international). The conference ID code is 10692202. 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. (NASDAQ: TAX) is the parent company of Liberty Tax Service. Liberty Tax is one of the fastest-growing tax preparation franchises. Last year, Liberty Tax prepared over two million individual income tax returns in more than 4,400 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 22,000 seasonal tax preparers. Liberty Tax also supports local communities with fundraising endeavors and contributes as a national sponsor to 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 U.S. generally accepted accounting principles, please see the section of the accompanying Tables E & F titled "Reconciliation of Non-GAAP Financial Information to the Most Directly Comparable GAAP Financial Measures."

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; costs associated with compliance efforts; 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  
                 
  October 31,     April 30,     October 31,  
  2016     2016     2015  
Current assets: (Unaudited)           (Unaudited)  
  Cash and cash equivalents $ 3,739     $ 9,906     $ 3,963  
  Current receivables, net   78,550       71,722       71,439  
  Assets held for sale   18,083       9,886       9,658  
  Income taxes receivable   15,936       -       17,473  
  Deferred income tax asset   3,192       3,496       3,727  
  Other current assets   3,196       5,838       2,384  
    Total current assets   122,696       100,848       108,644  
                       
  Property, equipment, and software, net   41,487       40,957       39,695  
  Notes receivable, non-current, net   24,758       23,504       23,199  
  Goodwill   4,124       4,228       3,157  
  Other intangible assets, net   16,966       16,270       14,002  
  Other assets   3,274       7,416       3,480  
    Total assets $ 213,305     $ 193,223     $ 192,177  
                       
Current liabilities:                      
  Current installments of long-term obligations $ 3,663     $ 5,947     $ 4,922  
  Accounts payable and accrued expenses   8,505       11,664       9,166  
  Due to ADs   9,210       24,977       8,138  
  Income taxes payable   -       3,581       -  
  Deferred revenue - current   4,455       4,682       6,265  
    Total current liabilities   25,833       50,851       28,491  
                       
  Long-term obligations, excluding current installments, net of debt issuance costs of $80, $108 and $136, respectively   17,068       17,493       17,985  
  Revolving credit facility   66,635       -       57,301  
  Deferred revenue - non-current   5,905       7,056       7,655  
  Deferred income tax liability   9,107       6,322       4,747  
    Total liabilities   124,548       81,722       116,179  
                       
Stockholders' equity:                      
  Special voting preferred stock, $0.01 par value per share   -       -       -  
  Class A common stock, $0.01 par value per share   127       120       119  
  Class B common stock, $0.01 par value per share   2       9       9  
  Exchangeable shares, $0.01 par value per share   10       10       10  
  Additional paid-in capital   7,781       7,153       4,115  
  Accumulated other comprehensive loss, net of taxes   (1,850 )     (1,698 )     (1,572 )
  Retained earnings   82,687       105,907       73,317  
    Total stockholders' equity   88,757       111,501       75,998  
    Total liabilities and stockholders' equity $ 213,305     $ 193,223     $ 192,177  
                       
                       
Note: Effective May 1, 2016, we adopted Accounting Standards Update ("ASU") 2015-03, Simplifying the Presentation of Debt Issuance Costs, and ASU 2015-15, Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements, on a retrospective basis. Accordingly, debt issuance costs associated with our long term debt are now included in the long term obligations line in the consolidated balance sheets. And, amounts for prior periods have been retrospectively adjusted to conform to the current period presentation.  
   
   

 

Table B    
Liberty Tax, Inc.    
Condensed Consolidated Statement of Operations
Unaudited, amounts in thousands, except per share and share data
                         
  Three months ended
October 31,
   
  2016     2015     $ change     % change    
Revenues:                              
    Franchise fees $ 364     $ 906     $ (542 )   -59.8 %  
    AD fees   1,147       1,524       (377 )   -24.7 %  
    Royalties and advertising fees   1,329       1,273       56     4.4 %  
    Financial products   247       207       40     19.3 %  
    Interest income   2,596       2,309       287     12.4 %  
    Tax preparation fees, net of discounts   863       339       524     154.6 %  
    Other revenue   688       1,313       (625 )   -47.6 %  
      Total revenues   7,234       7,871       (637 )   -8.1 %  
                               
Operating expenses:                              
    Employee compensation and benefits   8,914       8,183       731     8.9 %  
    Selling, general, and administrative expenses   9,207       8,752       455     5.2 %  
    AD expense   561       656       (95 )   -14.5 %  
    Advertising expense   1,496       2,490       (994 )   -39.9 %  
    Depreciation, amortization, and impairment charges   1,815       1,838       (23 )   -1.3 %  
      Total operating expenses   21,993       21,919       74     0.3 %  
      Loss from operations   (14,759 )     (14,048 )     (711 )   5.1 %  
                               
Other income (expense):                              
    Foreign currency transaction loss   (17 )     -       (17 )   n/a    
    Interest expense   (732 )     (486 )     (246 )   50.6 %  
      Loss before income taxes   (15,508 )     (14,534 )     (974 )   6.7 %  
    Income tax benefit   (6,166 )     (5,464 )     (702 )   12.8 %  
      Net loss $ (9,342 )   $ (9,070 )   $ (272 )   3.0 %  
                               
                               
  Net loss per share of Class A and Class B common stock                              
    Basic and diluted $ (0.72 )   $ (0.71 )   $ (0.01 )   1.4 %  
                               
Weighted-average shares outstanding basic and diluted   12,901,955       12,775,565       126,390     1.0 %  
                               
                               

 

Table C    
Liberty Tax, Inc.    
Condensed Consolidated Statement of Operations
Unaudited, amounts in thousands, except per share and share data
                         
  Six months ended
October 31,
   
  2016     2015     $ change     % change    
Revenues:                        
    Franchise fees $ 604     $ 1,514     $ (910 )   -60.1 %  
    AD fees   2,117       3,128       (1,011 )   -32.3 %  
    Royalties and advertising fees   2,784       3,018       (234 )   -7.8 %  
    Financial products   783       515       268     52.0 %  
    Interest income   5,254       4,315       939     21.8 %  
    Tax preparation fees, net of discounts   1,920       962       958     99.6 %  
    Other revenue   921       1,942       (1,021 )   -52.6 %  
      Total revenues   14,383       15,394       (1,011 )   -6.6 %  
                               
Operating expenses:                              
    Employee compensation and benefits   18,596       16,816       1,780     10.6 %  
    Selling, general, and administrative expenses   17,486       16,512       974     5.9 %  
    AD expense   1,021       1,381       (360 )   -26.1 %  
    Advertising expense   3,414       5,100       (1,686 )   -33.1 %  
    Depreciation, amortization, and impairment charges   3,827       3,507       320     9.1 %  
      Total operating expenses   44,344       43,316       1,028     2.4 %  
      Loss from operations   (29,961 )     (27,922 )     (2,039 )   7.3 %  
                               
Other income (expense):                              
    Foreign currency transaction loss   (25 )     (25 )     -     0.0 %  
    Gain on sale of available-for-sale securities   50       -       50     n/a    
    Interest expense   (1,076 )     (887 )     (189 )   21.3 %  
      Loss before income taxes   (31,012 )     (28,834 )     (2,178 )   7.6 %  
    Income tax benefit   (12,240 )     (11,228 )     (1,012 )   9.0 %  
      Net loss $ (18,772 )   $ (17,606 )   $ (1,166 )   6.6 %  
                               
                               
Net loss per share of Class A and Class B common stock                              
    Basic and diluted $ (1.46 )   $ (1.38 )   $ (0.08 )   5.8 %  
                               
Weighted-average shares outstanding basic and diluted   12,898,347       12,793,593       104,754     0.8 %  
                               
                               

 

Table D  
Liberty Tax, Inc.  
Condensed Consolidated Statements of Cash Flows  
Unaudited, amounts in thousands  
   
  Six months ended October 31,  
  2016     2015  
Cash flows from operating activities:              
  Net loss $ (18,772 )   $ (17,606 )
  Adjustments to reconcile net loss to net cash used in operating activities:              
    Provision for doubtful accounts   3,287       3,396  
    Depreciation, amortization, and impairment charges   3,827       3,507  
    Stock-based compensation expense   1,061       866  
    Gain on sale of available-for-sale securities   (50 )     -  
    Loss (Gain) on bargain purchases and sales of Company-owned offices   59       (388 )
    Deferred tax expense   2,635       5,578  
    Changes in accrued income taxes   (19,858 )     (19,620 )
    Changes in other assets and liabilities   (11,198 )     (13,052 )
      Net cash used in operating activities   (39,009 )     (37,319 )
               
Cash flows from investing activities:              
  Issuance of operating loans to franchisees   (23,865 )     (26,326 )
  Payments received on operating loans to franchisees   1,766       1,316  
  Purchases of AD rights and Company-owned offices   (5,672 )     (1,341 )
  Proceeds from sale of Company-owned offices and AD rights   983       2,569  
  Proceeds from sale of available-for-sale securities   5,049       -  
  Purchase of property, equipment, and software   (3,092 )     (5,464 )
      Net cash used in investing activities   (24,831 )     (29,246 )
               
Cash flows from financing activities:              
  Proceeds from the exercise of stock options   -       344  
  Repurchase of common stock   (39 )     (1,711 )
  Dividends paid   (4,448 )     (4,415 )
  Repayment of amounts due to former ADs and franchisees   (1,158 )     (2,318 )
  Repayment of long-term obligations   (3,169 )     (308 )
  Borrowings under revolving credit facility   66,809       57,668  
  Repayments under revolving credit facility   (174 )     (367 )
  Tax benefit of stock option exercises   60       532  
      Net cash provided by financing activities   57,881       49,425  
               
Effect of exchange rate changes on cash, net   (208 )     (284 )
      Net decrease in cash and cash equivalents   (6,167 )     (17,424 )
Cash and cash equivalents at beginning of period   9,906       21,387  
Cash and cash equivalents at end of period $ 3,739     $ 3,963  
               
               

 

Table E  
Liberty Tax, Inc.  
Reconciliation of Non-GAAP Financial Information to the Most Directly Comparable GAAP Financial Measures  
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 that earnings before interest, taxes, depreciation, amortization and impairment ("EBITDA") and non-GAAP results should be evaluated, in addition to, and not as an alternative for, net income (loss) as determined in accordance with GAAP. We consider our non-GAAP financial results to be a useful metric for management and investors to evaluate and compare current year results with prior periods. Because not all companies use the same calculations, our definition of EBITDA may not be comparable to similarly titled figures from other companies. In addition, when evaluating non-GAAP results, we exclude certain items that are not considered to be part of future operating results.  
   
The following is a reconciliation of EBITDA to GAAP Net loss.  
           
  Three Months Ended October 31,  
  2016     2015  
  (in thousands)  
Net loss - as reported $ (9,342 )   $ (9,070 )
Add back:              
Interest expense   732       486  
Income tax benefit   (6,166 )     (5,464 )
Depreciation, amortization, and impairment charges   1,815       1,838  
Total Adjustments   (3,619 )     (3,140 )
EBITDA $ (12,961 )   $ (12,210 )
               
The following is a reconciliation of our non-GAAP financial measures to the most comparable GAAP financial measures.  
Amounts may not add or recalculate due to rounding.  

 

                             
For the three months ended October 31, 2016
    Revenues   Expenses   Loss from Operations   EBITDA   Pretax Loss   Net Loss   EPS
                                           
As Reported   $ 7,234   $ 21,993   $ (14,759)   $ (12,961)   $ (15,508)   $ (9,342)   $ (0.72)
                                           
Adjustments: (1)                                          
Compliance Task Force and related costs     -     (174)     174     174     174     105     0.01
Total Adjustments     -     (174)     174     174     174     105     0.01
Non-GAAP   $ 7,234   $ 21,819   $ (14,585)   $ (12,787)   $ (15,334)   $ (9,237)   $ (0.72)
                                           
                                           
For the three months ended October 31, 2015
    Revenues   Expenses   Loss from Operations   EBITDA   Pretax Loss   Net Loss   EPS
                                           
As Reported   $ 7,871   $ 21,919   $ (14,048)   $ (12,210)   $ (14,534)   $ (9,070)   $ (0.71)
                                           
Adjustments: (1)                                          
No adjustments for this period     -     -     -     -     -     -     -
Total Adjustments     -     -     -     -     -     -     -
Non-GAAP   $ 7,871   $ 21,919   $ (14,048)   $ (12,210)   $ (14,534)   $ (9,070)   $ (0.71)
                                           
(1) The net loss impact of the adjustments is calculated using the effective tax rate for the period.
 
 

 

Table F  
Liberty Tax, Inc.  
Reconciliation of Non-GAAP Financial Information to the Most Directly Comparable GAAP Financial Measures  
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 that earnings before interest, taxes, depreciation, amortization and impairment ("EBITDA") and non-GAAP results should be evaluated, in addition to, and not as an alternative for, net income (loss) as determined in accordance with GAAP. We consider our non-GAAP financial results to be a useful metric for management and investors to evaluate and compare current year results with prior periods. Because not all companies use the same calculations, our definition of EBITDA may not be comparable to similarly titled figures from other companies. In addition, when evaluating non-GAAP results, we exclude certain items that are not considered to be part of future operating results.  
   
The following is a reconciliation of EBITDA to GAAP Net Loss.  
           
  Six Months Ended October 31,  
  2016     2015  
  (in thousands)  
Net loss - as reported $ (18,772 )   $ (17,606 )
Add back:              
Interest expense   1,076       887  
Income tax benefit   (12,240 )     (11,228 )
Depreciation, amortization, and impairment charges   3,827       3,507  
Total Adjustments   (7,337 )     (6,834 )
EBITDA $ (26,109 )   $ (24,440 )
               
The following is a reconciliation of our non-GAAP financial measures to the most comparable GAAP financial measures.  
Amounts may not add or recalculate due to rounding.  

 

                           
For the six months ended October 31, 2016
  Revenues   Expenses   Loss from Operations   EBITDA   Pretax Loss   Net Loss   EPS
                                         
As Reported $ 14,383   $ 44,344   $ (29,961)   $ (26,109)   $ (31,012)   $ (18,772)   $ (1.46)
                                         
Adjustments: (1)                                        
Executive severance, including stock-based compensation   -     (877)     877     877     877     531     0.04
Compliance Task Force and related costs   -     (814)     814     814     814     492     0.04
Gain on available-for-sale securities   -     -     -     (50)     (50)     (30)     -
Total Adjustments   -     (1,691)     1,691     1,641     1,641     993     0.08
Non-GAAP $ 14,383   $ 42,653   $ (28,270)   $ (24,468)   $ (29,371)   $ (17,779)   $ (1.38)
                                         
                                         
For the six months ended October 31, 2015
  Revenues   Expenses   Loss from Operations   EBITDA   Pretax Loss   Net Loss   EPS
                                         
As Reported $ 15,394   $ 43,316   $ (27,922)   $ (24,440)   $ (28,834)   $ (17,606)   $ (1.38)
                                         
Adjustments: (1)                                        
Executive severance, including stock-based compensation   -     (413)     413     413     413     252     0.02
Total Adjustments   -     (413)     413     413     413     252     0.02
Non-GAAP $ 15,394   $ 42,903   $ (27,509)   $ (24,027)   $ (28,421)   $ (17,354)   $ (1.36)
                                         
(1) The net loss impact of the adjustments is calculated using the effective tax rate for the period.

About Non-GAAP Financial Information

The Company believes that EBITDA and non-GAAP net income (loss) should be evaluated, in addition to, and not as an alternative for, net income (loss) as determined in accordance with GAAP. Both metrics are used by management when evaluating the performance of the Company. Because not all companies use the same calculations, our definition of EBITDA may not be comparable to similarly titled figures from other companies. In addition, when evaluating non-GAAP financial information, we exclude certain items that are not considered to be part of future operating performance and which management excludes when evaluating the performance of the Company. Descriptions of the items which are excluded are as follows:

Executive severance, including stock-based compensation: We exclude from our non-GAAP financial measures cash and non-cash stock-based compensation and perquisites associated with the separation of employment with executives of the Company.

Compliance Task Force and related costs: We exclude from our non-GAAP financial measures third-party expenses we incur related to our Compliance Task Force, which we established in fiscal 2016 to examine and prevent non-compliance, fraud and other misconduct among our franchisees and employees. These expenses include professional and legal fees.

Gain on available-for-sale securities: We exclude from our non-GAAP financial measures gains and losses we record when we sell equity securities and other investments.

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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