Liberty Tax Service Announces Fiscal 2017 First Quarter

VIRGINIA BEACH, VA--(Marketwired - Sep 2, 2016) - Liberty Tax, Inc. ( NASDAQ : TAX ) (the "Company"), the parent company of Liberty Tax Service, today reported results for the first quarter ended July 31, 2016.

"We are working hard to ensure success in the coming tax season," stated John Hewitt, CEO. "We have developed and implemented many new best practices throughout the system to focus on increased franchisee training and compliance to ensure we create value for our shareholders in this tax season and beyond."

The Company typically reports a loss in the first quarter when revenues are low and costs are ramping up to drive growth in the following tax season. In the first quarter of fiscal 2017, the Company reported a GAAP net loss of $9.4 million, or $0.73 per share, compared to a loss of $8.5 million, or $0.67 per share in the prior year period. Non-GAAP net loss was $0.66 per share compared to a $0.65 per share loss in the prior year period.

($ in millions except per share data)		GAAP											Non - GAAP*
		Q1 2017				Q1 2016				Change			Q1 2017				Q1 2016				Change
Revenue		$	7.1			$	7.5			-5.0	%		$	7.1			$	7.5			-5.0	%
Operating expenses			22.4				21.4			4.5	%			20.8				21.0			-0.7	%
Loss before taxes			(15.5	)			(14.3	)		8.4	%			(14.0	)			(13.9	)		1.1	%
Net Loss			(9.4	)			(8.5	)		10.5	%			(8.5	)			(8.3	)		3.0	%
Basic and Diluted EPS			(0.73	)			(0.67	)		9.0	%			(0.66	)			(0.65	)		1.5	%
*See reconciliation of non-GAAP to GAAP measures in Table D

Income Statement Revenues for the three months ended July 31, 2016 decreased to $7.1 million, or 5.0%, from $7.5 million in the prior year period. Revenue from Area Developer ("AD") fees declined $0.6 million as a result of revenue from prior year sales now being fully recognized over the life of their agreements. In addition, Franchise fees declined $0.4 million, which were offset by an increase in interest income of $0.7 million.

Balance Sheet The Company had a cash balance of $4.9 million at July 31, 2016. The Company has drawn $28.0 million on its revolving credit facility as of July 31, 2016 compared to $16.6 million at July 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, timing of cash tax payments, and higher expenses associated with operating more company-owned locations. 

As previously disclosed, on August 18, 2016 the Company amended its Revolving Credit and Term Loan Agreement. The amendment makes available additional funds in the event the newly enacted PATH Act contributes to a seasonality change in the behavior of tax customers.

Operational Comments During the first quarter of fiscal 2017, the Company acquired assets from existing and former franchisees with a value totaling $7.6 million. In addition to a focus on selling new undeveloped territories, the Company intends to actively seek qualified buyers to purchase and operate these reacquired territories along with all of our other turnkey-ready company stores.

Dividend On September 1, 2016, the Board of Directors approved a quarterly dividend to shareholders of $0.16 per share. The dividend will be paid on October 24, 2016 to holders of record of common stock and common stock equivalents on the close of business on October 14, 2016.

Conference Call At 8:30 a.m. Eastern time on September 2, 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: 66126480

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 Friday, September 9, 2016, by dialing 855-859-2056 (domestic) or 404-537-3406 (international). The conference ID code is 66126480. 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 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 Table D 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
				July 31,				April 30,				July 31,
				2016				2016				2015
Current assets:				(Unaudited)								(Unaudited)
	Cash and cash equivalents			$	4,882			$	9,906			$	4,418
	Current receivables, net				69,577				71,722				64,400
	Assets held for sale				16,623				9,886				6,357
	Income taxes receivable				7,093				-				7,901
	Deferred income tax asset				2,847				3,496				6,773
	Other current assets				2,796				5,838				2,552
		Total current assets			103,818				100,848				92,401
	Property, equipment, and software, net				41,013				40,957				37,937
	Notes receivable, non-current, net				22,142				23,504				21,146
	Goodwill				4,183				4,228				3,283
	Other intangible assets, net				15,884				16,270				13,339
	Other assets				3,246				7,416				3,070
		Total assets		$	190,286			$	193,223			$	171,176
Current liabilities:
	Current installments of long-term obligations			$	6,754			$	5,947			$	1,958
	Accounts payable and accrued expenses				9,590				11,664				16,819
	Due to ADs				10,449				24,977				9,403
	Income taxes payable				-				3,581				187
	Deferred revenue - current				3,687				4,682				5,585
		Total current liabilities			30,480				50,851				33,952
	Long-term obligations, excluding current installments, net of debt issuance costs of $94, $108 and $150, respectively				18,298				17,493				20,708
	Revolving credit facility				27,984				-				16,556
	Deferred revenue - non-current				6,555				7,056				8,964
	Deferred income tax liability				6,259				6,322				3,673
		Total liabilities			89,576				81,722				83,853
Stockholders' equity:
	Special voting preferred stock, $0.01 par value per share				-				-				-
	Class A common stock, $0.01 par value per share				126				120				119
	Class B common stock, $0.01 par value per share				3				9				9
	Exchangeable shares, $0.01 par value per share				10				10				10
	Additional paid-in capital				7,897				7,153				4,049
	Accumulated other comprehensive loss, net of taxes				(1,580	)			(1,698	)			(1,455	)
	Retained earnings				94,254				105,907				84,591
		Total stockholders' equity			100,710				111,501				87,323
		Total liabilities and stockholders' equity		$	190,286			$	193,223			$	171,176

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 July 31,
				2016				2015				$ change				% change
Revenues:
	Franchise fees			$	240			$	608			$	(368	)		-60.5	%
	AD fees				970				1,604				(634	)		-39.5	%
	Royalties and advertising fees				1,455				1,745				(290	)		-16.6	%
	Financial products				536				308				228			74.0	%
	Interest income				2,658				2,006				652			32.5	%
	Tax preparation fees, net of discounts				1,057				623				434			69.7	%
	Other revenue				233				629				(396	)		-63.0	%
		Total revenues			7,149				7,523				(374	)		-5.0	%
Operating expenses:
	Employee compensation and benefits				9,682				8,633				1,049			12.2	%
	Selling, general, and administrative expenses				8,279				7,759				520			6.7	%
	AD expense				460				726				(266	)		-36.6	%
	Advertising expense				1,918				2,609				(691	)		-26.5	%
	Depreciation, amortization, and impairment charges				2,012				1,670				342			20.5	%
		Total operating expenses			22,351				21,397				954			4.5	%
		Loss from operations			(15,202	)			(13,874	)			(1,328	)		9.6	%
Other income (expense):
	Foreign currency transaction loss				(8	)			(25	)			17			-68.0	%
	Gain on sale of available-for-sale securities				50				-				50			n/a
	Interest expense				(344	)			(401	)			57			-14.2	%
		Loss before income taxes			(15,504	)			(14,300	)			(1,204	)		8.4	%
	Income tax benefit				(6,074	)			(5,764	)			(310	)		5.4	%
		Net loss		$	(9,430	)		$	(8,536	)		$	(894	)		10.5	%
Net loss per share of Class A and Class B common stock
	Basic and diluted			$	(0.73	)		$	(0.67	)		$	(0.06	)		9.0	%
Weighted-average shares outstanding basic and diluted					12,894,740				12,811,621				83,119			0.6	%

Table C
Liberty Tax, Inc.
Condensed Consolidated Statements of Cash Flows
Unaudited, amounts in thousands
					Three months ended July 31,
					2016				2015
Cash flows from operating activities:
	Net loss				$	(9,430	)		$	(8,536	)
	Adjustments to reconcile net loss to net cash used in operating activities:
		Provision for doubtful accounts				1,380				1,701
		Depreciation, amortization, and impairment charges				2,012				1,670
		Stock-based compensation expense				683				465
		Gain on sale of available-for-sale securities				(50	)			-
		Gain on bargain purchases and sales of Company-owned offices				(28	)			(117	)
		Deferred tax expense				578				1,458
		Changes in accrued income taxes				(10,997	)			(9,860	)
		Changes in other assets and liabilities				(6,071	)			(2,241	)
			Net cash used in operating activities			(21,923	)			(15,460	)
Cash flows from investing activities:
	Issuance of operating loans to franchisees					(10,828	)			(12,333	)
	Payments received on operating loans to franchisees					1,096				654
	Purchases of AD rights and Company-owned offices					(1,802	)			(336	)
	Proceeds from sale of Company-owned offices and AD rights					46				2,239
	Proceeds from sale of available-for-sale securities					5,049				-
	Purchase of property, equipment, and software					(1,556	)			(2,686	)
		Net cash used in investing activities				(7,995	)			(12,462	)
Cash flows from financing activities:
	Proceeds from the exercise of stock options					-				279
	Repurchase of common stock					-				(1,272	)
	Dividends paid					(2,223	)			(2,212	)
	Repayment of amounts due to former ADs and franchisees					(423	)			(2,318	)
	Repayment of long-term obligations					(416	)			(282	)
	Borrowings under revolving credit facility					28,002				16,556
	Repayments under revolving credit facility					(18	)			-
	Tax benefit of stock option exercises					60				495
			Net cash provided by financing activities			24,982				11,246
Effect of exchange rate changes on cash, net						(88	)			(293	)
		Net decrease in cash and cash equivalents				(5,024	)			(16,969	)
Cash and cash equivalents at beginning of period						9,906				21,387
Cash and cash equivalents at end of period					$	4,882			$	4,418

Table D

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 certain non-GAAP performance measures and ratios used in managing the business may provide additional meaningful comparisons between current year results and prior periods. The tables below provide reconciliations of our net loss as reported to certain non-GAAP financial measures. These non-GAAP financial measures should be viewed in addition to, not as an alternative for, our reported GAAP results.

The following is a reconciliation of net loss, as reported to earnings before interest, taxes, depreciation, amortization and impairment charges ("EBITDA").

		Three Months Ended July 31,
		2016				2015
		(in thousands)
Net loss - as reported		$	(9,430	)		$	(8,536	)
Add back:
Interest expense			344				401
Income tax benefit			(6,074	)			(5,764	)
Depreciation, amortization, and impairment charges			2,012				1,670
			(3,718	)			(3,693	)
EBITDA		$	(13,148	)		$	(12,229	)

The following is a reconciliation of our reported net loss to our non-GAAP financial measures.
For the three months ended July 31, 2016
										Loss from
			Revenues			Expenses				Operations				EBITDA				Pretax Loss				Net Loss				EPS
As Reported			$	7,149		$	22,351			$	(15,202	)		$	(13,148	)		$	(15,504	)		$	(9,430	)		$	(0.73	)
Adjustments:
Executive severance including stock-based compensation				-			(877	)			877				877				877				533				0.04
Compliance Task Force and related costs				-			(640	)			640				640				640				389				0.03
Gain on available-for-sale securities				-			-				-				(50	)			(50	)			(30	)			-
Total Adjustments				-			(1,517	)			1,517				1,467				1,467				892				0.07
Non-GAAP			$	7,149		$	20,834			$	(13,685	)		$	(11,681	)		$	(14,037	)		$	(8,538	)		$	(0.66	)
Stock-based compensation expense excluding severance related expense			$	-		$	(393	)		$	393			$	393
For the three months ended July 31, 2015
										Loss from
			Revenues			Expenses				Operations				EBITDA				Pretax Loss				Net Loss				EPS
As Reported			$	7,523		$	21,397			$	(13,874	)		$	(12,229	)		$	(14,300	)		$	(8,536	)		$	(0.67	)
Adjustments:
Executive severance including stock-based compensation				-			(413	)			413				413				413				248				0.02
Total Adjustments				-			(413	)			413				413				413				248				0.02
Non-GAAP			$	7,523		$	20,984			$	(13,461	)		$	(11,816	)		$	(13,887	)		$	(8,288	)		$	(0.65	)
	Stock-based compensation expense excluding severance related expense		$	-		$	(373	)		$	373			$	373

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. 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.