Liberty Tax Service Announces Fiscal 2017 Third Quarter

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News Desk 2018
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Liberty Tax Service Announces Fiscal 2017 Third Quarter Results

VIRGINIA BEACH, Va., March 08, 2017 (GLOBE NEWSWIRE) -- Liberty Tax, Inc. (NASDAQ: TAX ) (the “Company”), the parent company of Liberty Tax Service, today reported results for the third quarter ended January 31, 2017.

“The 2017 tax season marks another period of change for the industry as filing patterns continue to shift later into the season,” stated John Hewitt, CEO.  “The whole industry has been slow, but we are clearly not satisfied with how we have performed in comparison to the market. There is still a lot of season in front of us and we are focused on delivering a strong second half and on implementing the appropriate changes to be successful in an evolving landscape.”

Hewitt continued, “I am pleased with the progress we have made with our compliance efforts and we will continue to ensure that the high standards and integrity of the Liberty brand are upheld at all levels of our organization.”

                         
($ in millions except per share data) GAAP   Non - GAAP*  
  Q3 2017   Q3 2016   Change   Q3 2017   Q3 2016   Change  
Revenue $   48.4   $   53.6   -9.7 %   $   48.4   $   53.6   -9.7 %  
Operating expenses   43.3      44.7    -3.0 %     43.1      44.7    -3.5 %  
Income before taxes   4.1      8.2    -49.8 %     4.4      8.2    -46.8 %  
Net Income   2.5      4.7    -48.2 %     2.6      4.7    -45.1 %  
Diluted EPS     0.18       0.34   -47.1 %       0.19       0.34   -44.1 %  
*See reconciliation of non-GAAP to GAAP financial measures in Table E and additional information under "About Non-GAAP Financial Information".
 

Income Statement

  • For the three months ended January 31, 2017, revenue declined 9.7% to $48.4 million reflecting a slow start to the filing season.
  • Operating expenses were down 3%, or $1.3 million, as a result of the slower start to the tax season, as well as cost saving measures implemented in Fiscal 2017.
  • Diluted net income per share of $0.18 was $0.16 lower than the prior year period as a result of the decline in revenues.

Balance Sheet As of January 31, 2017, the Company had drawn $131.2 million on its revolving credit facility, compared to $150.7 million at January 31, 2016.  The decrease in the usage of our credit facility is primarily due to a shift in seasonal borrowings of our franchisees from the third quarter to the fourth quarter. 

Operational Comments The Company operated 3,823 offices in the U.S. in Fiscal 2017 as compared to 4,225 offices in Fiscal 2016.  The decrease represents a decline of 250 permanent office locations, as well as a reduction of 152 seasonal and processing center locations. 

Through February 28 of the 2017 calendar year, the Company had prepared 915,000 U.S. tax returns, as compared to 1,094,000 U.S. tax returns prepared in the comparable prior year period, representing a decline of 16.4%.

Dividend On March 7, 2017, the Board of Directors approved our ninth consecutive quarterly dividend to stockholders of $0.16 per share. The dividend will be paid on April 24, 2017 to holders of record of common stock and common stock equivalents on the close of business on April 12, 2017.

Conference Call At 8:30 a.m. Eastern time on March 8, 2017, 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: 76616287
   

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 until Wednesday, March 15, 2017, by dialing 855-859-2056 (domestic) or 404-537-3406 (international).  The conference ID code is 76616287.  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 has been one of the fastest-growing tax preparation franchises. Last year, Liberty Tax prepared over two million individual income tax returns and currently operates in more than 4,000 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 Measures 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 impact of the launch of a new franchise brand; uncertainties regarding the Company’s ability to meet its prepared returns targets; competitive factors; regulatory 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
           
  January 31,   April 30,   January 31,
    2017       2016       2016  
Current assets: (Unaudited)       (Unaudited)
Cash and cash equivalents $ 3,459     $ 9,906     $ 1,787  
Current receivables, net   138,807       71,722       149,886  
Assets held for sale   17,549       9,886       11,164  
Income taxes receivable   12,827       -       16,303  
Deferred income tax asset   3,881       3,496       3,354  
Other current assets   23,079       5,838       21,188  
Total current assets   199,602       100,848       203,682  
           
Property, equipment, and software, net   41,734       40,957       41,216  
Notes receivable, non-current, net   25,742       23,504       33,036  
Goodwill   4,811       4,228       4,069  
Other intangible assets, net   22,648       16,270       13,217  
Other assets   3,214       7,416       8,458  
Total assets $ 297,751     $ 193,223     $ 303,678  
           
Current liabilities:          
Current installments of long-term obligations $ 5,688     $ 5,947     $ 5,220  
Accounts payable and accrued expenses   22,259       11,664       15,506  
Due to ADs   13,157       24,977       16,258  
Income taxes payable   -       3,581       -  
Deferred revenue - current   3,436       4,682       4,413  
Total current liabilities   44,540       50,851       41,397  
           
Long-term obligations, excluding current installments, net of debt issuance costs of $70, $108 and $122, respectively   19,238       17,493       18,410  
Revolving credit facility   131,215       -       150,682  
Deferred revenue - non-current   5,307       7,056       7,206  
Deferred income tax liability   8,203       6,322       6,049  
Total liabilities   208,503       81,722       223,744  
           
Stockholders' equity:          
Special voting preferred stock, $0.01 par value per share   -       -       -  
Class A common stock, $0.01 par value per share   127       120       120  
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   7,862       7,153       6,385  
Accumulated other comprehensive loss, net of taxes   (1,673 )     (1,698 )     (2,430 )
Retained earnings   82,920       105,907       75,840  
Total stockholders' equity   89,248       111,501       79,934  
Total liabilities and stockholders' equity $ 297,751     $ 193,223     $ 303,678  
           
           
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 January 31,  
    2017       2016     $ change   % change  
Revenue:                
Franchise fees $ 522     $ 1,011     $ (489 )   -48.4 %  
AD fees   1,001       1,363       (362 )   -26.6 %  
Royalties and advertising fees   19,078       25,571       (6,493 )   -25.4 %  
Financial products   18,745       17,266       1,479     8.6 %  
Interest income   3,246       3,188       58     1.8 %  
Tax preparation fees, net of discounts   3,883       3,843       40     1.0 %  
Other revenue   1,948       1,379       569     41.3 %  
Total revenue   48,423       53,621       (5,198 )   -9.7 %  
                 
Operating expenses:                
Employee compensation and benefits   11,240       11,638       (398 )   -3.4 %  
Selling, general, and administrative expenses   18,193       12,585       5,608     44.6 %  
AD expense   5,958       9,340       (3,382 )   -36.2 %  
Advertising expense   5,424       8,972       (3,548 )   -39.5 %  
Depreciation, amortization, and impairment charges   2,503       2,118       385     18.2 %  
Total operating expenses   43,318       44,653       (1,335 )   -3.0 %  
Income from operations   5,105       8,968       (3,863 )   -43.1 %  
                 
Other income (expense):                
Foreign currency transaction gain (loss)   15       (14 )     29     n/a    
Interest expense   (977 )     (705 )     (272 )   38.6 %  
Income before income taxes   4,143       8,249       (4,106 )   -49.8 %  
Income tax expense   1,688       3,511       (1,823 )   -51.9 %  
Net income $ 2,455     $ 4,738     $ (2,283 )   -48.2 %  
                 
                 
Net income per share of Class A and Class B                
common stock                
Basic $ 0.18     $ 0.34     $ (0.16 )   -47.1 %  
Diluted $ 0.18     $ 0.34     $ (0.16 )   -47.1 %  
                 
Weighted-average shares outstanding basic   12,902,577       12,795,367       107,210     0.8 %  
Weighted-average shares outstanding diluted   13,924,210       14,002,356       (78,146 )   -0.6 %  
                 
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,  
    2017       2016     $ change   % change  
Revenue:                
Franchise fees $ 1,126     $ 2,526     $ (1,400 )   -55.4 %  
AD fees   3,118       4,491       (1,373 )   -30.6 %  
Royalties and advertising fees   21,862       28,589       (6,727 )   -23.5 %  
Financial products   19,528       17,781       1,747     9.8 %  
Interest income   8,500       7,503       997     13.3 %  
Tax preparation fees, net of discounts   5,803       4,805       998     20.8 %  
Other revenue   2,869       3,320       (451 )   -13.6 %  
Total revenue   62,806       69,015       (6,209 )   -9.0 %  
                 
Operating expenses:                
Employee compensation and benefits   29,836       28,454       1,382     4.9 %  
Selling, general, and administrative expenses   35,679       29,097       6,582     22.6 %  
AD expense   6,979       10,722       (3,743 )   -34.9 %  
Advertising expense   8,838       14,072       (5,234 )   -37.2 %  
Depreciation, amortization, and impairment charges   6,330       5,626       704     12.5 %  
Total operating expenses   87,662       87,971       (309 )   -0.4 %  
Loss from operations   (24,856 )     (18,956 )     (5,900 )   31.1 %  
                 
Other income (expense):                
Foreign currency transaction loss   (10 )     (39 )     29     -74.4 %  
Gain on sale of available-for-sale securities   50       -       50     n/a    
Interest expense   (2,053 )     (1,592 )     (461 )   29.0 %  
Loss before income taxes   (26,869 )     (20,587 )     (6,282 )   30.5 %  
Income tax benefit   (10,552 )     (7,717 )     (2,835 )   36.7 %  
Net loss $ (16,317 )   $ (12,870 )   $ (3,447 )   26.8 %  
                 
Net loss per share of Class A and Class B                
common stock                
Basic and diluted $ (1.26 )   $ (1.01 )   $ (0.25 )   24.8 %  
                 
Weighted-average shares outstanding basic and diluted   12,899,757       12,794,185       105,572     0.8 %  
                 
Table D  
Liberty Tax, Inc.  
Condensed Consolidated Statements of Cash Flows  
Unaudited, amounts in thousands  
  Nine months ended January 31,  
    2017       2016    
Cash flows from operating activities:        
Net loss $ (16,317 )   $ (12,870 )  
Adjustments to reconcile net loss to net cash used in operating activities:        
Provision for doubtful accounts   6,482       4,589    
Depreciation, amortization, and impairment charges   6,330       5,626    
Stock-based compensation expense   1,520       1,348    
Gain on sale of available-for-sale securities   (50 )     -    
Gain on bargain purchases and sales of Company-owned offices   (634 )     (470 )  
Deferred tax expense   1,046       7,253    
Changes in accrued income taxes   (16,728 )     (18,283 )  
Changes in other assets and liabilities   (43,694 )     (55,476 )  
Net cash used in operating activities   (62,045 )     (68,283 )  
         
Cash flows from investing activities:        
Issuance of operating loans to franchisees   (63,670 )     (81,364 )  
Payments received on operating loans to franchisees   4,065       3,077    
Purchases of AD rights and Company-owned offices   (8,141 )     (3,713 )  
Proceeds from sale of Company-owned offices and AD rights   1,291       2,851    
Purchase of available-for-sale securities   -       (4,999 )  
Proceeds from sale of available-for-sale securities   5,049       -    
Purchases of property, equipment and software   (4,303 )     (8,685 )  
Net cash used in investing activities   (65,709 )     (92,833 )  
         
Cash flows from financing activities:        
Proceeds from the exercise of stock options   -       1,998    
Repurchase of common stock   (417 )     (1,977 )  
Dividends paid   (6,670 )     (6,629 )  
Repayment of amounts due to former ADs and franchisees   (1,204 )     (2,429 )  
Repayment of long-term obligations   (3,710 )     (726 )  
Borrowings under revolving credit facility   132,531       151,225    
Repayments under revolving credit facility   (1,316 )     (543 )  
Proceeds from mortgage debt   2,200       -    
Payment for debt issue costs   (35 )     -    
Tax benefit of stock option exercises   60       933    
Net cash provided by financing activities   121,439       141,852    
         
Effect of exchange rate changes on cash, net   (132 )     (336 )  
Net decrease in cash and cash equivalents   (6,447 )     (19,600 )  
Cash and cash equivalents at beginning of period   9,906       21,387    
Cash and cash equivalents at end of period $ 3,459     $ 1,787    
         
Table E  
Liberty Tax, Inc.  
Reconciliation of Non-GAAP Financial Measures 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 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 income.  
                   
          Three Months Ended January 31,    
            2017     2016    
          (in thousands)    
Net Income - as reported           $ 2,455   $ 4,738    
                   
Add back:                    
Interest expense           977     705    
Income tax expense           1,688     3,511    
Depreciation, amortization, and impairment charges       2,503     2,118    
Total Adjustments           5,168     6,334    
EBITDA         $ 7,623   $ 11,072    
                   
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 January 31, 2017  
    Operating Income from   Pretax   Net Diluted  
  Revenues Expenses Operations EBITDA Income   Income EPS    
                   
As Reported $ 48,423 $ 43,318   $ 5,105 $ 7,623 $ 4,143   $ 2,455 $ 0.18  
                   
Adjustments: (1)                  
Compliance Task Force and related costs   -   (249 )   249   249   249     148   0.01  
Total Adjustments   -   (249 )   249   249   249     148   0.01  
Non-GAAP $ 48,423 $ 43,069   $ 5,354 $ 7,872 $ 4,392   $ 2,603 $ 0.19  
                   
                   
For the three months ended January 31, 2016  
    Operating Income from   Pretax   Net Diluted  
  Revenues Expenses Operations EBITDA Income   Income EPS    
                   
As Reported $ 53,621 $ 44,653   $ 8,968 $ 11,072 $ 8,249   $ 4,738 $ 0.34  
                   
Adjustments:                  
No adjustments for this period   -   -     -   -   -     -   -  
Total Adjustments   -   -     -   -   -     -   -  
Non-GAAP $ 53,621 $ 44,653   $ 8,968 $ 11,072 $ 8,249   $ 4,738 $ 0.34  
                   
(1)  The net income impact of the adjustments is calculated using the effective tax rate for the period.  
                   
Table F  
Liberty Tax, Inc.  
Reconciliation of Non-GAAP Financial Measures to the Most Directly Comparable GAAP Financial Measures  
Unaudited, amounts in thousands, except per share data  
                   
We report our financial results in accordance with GAAP; however, we believe that EBITDA and non-GAAP results should be evaluated, in addition to, and not as an alternative for, net 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.  
                   
          Nine Months Ended January 31,    
            2017       2016      
          (in thousands)    
Net Loss - as reported           $ (16,317 )   $ (12,870 )    
                   
Add back:                    
Interest expense           2,053       1,592      
Income tax benefit           (10,552 )     (7,717 )    
Depreciation, amortization, and impairment charges       6,330       5,626      
Total Adjustments           (2,169 )     (499 )    
EBITDA         $ (18,486 )   $ (13,369 )    
                   
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 nine months ended January 31, 2017  
    Operating Loss from       Net Basic &  
  Revenues Expenses Operations EBITDA Pretax Loss   Loss Diluted EPS    
                   
As Reported $ 62,806 $ 87,662   $ (24,856 ) $ (18,486 ) $ (26,869 )   $ (16,317 ) $ (1.26 )  
                   
Adjustments: (1)                  
Executive severance, including stock-based compensation   -   (877 )   877     877     877       533     0.04    
Compliance Task Force and related costs   -   (1,063 )   1,063     1,063     1,063       646     0.05    
Gain on available-for-sale securities   -   -     -     (50 )   (50 )     (30 )   -    
Total Adjustments   -   (1,940 )   1,940     1,890     1,890       1,149     0.09    
Non-GAAP $ 62,806 $ 85,722   $ (22,916 ) $ (16,596 ) $ (24,979 )   $ (15,168 ) $ (1.17 )  
                   
                   
For the nine months ended January 31, 2016  
    Operating Loss from       Net Basic &  
  Revenues Expenses Operations EBITDA Pretax Loss   Loss Diluted EPS    
                   
As Reported $ 69,015 $ 87,971   $ (18,956 ) $ (13,369 ) $ (20,587 )   $ (12,870 ) $ (1.01 )  
                   
Adjustments: (1)                  
Executive severance, including stock-based compensation   -   (413 )   413     413     413       258     0.02    
Total Adjustments   -   (413 )   413     413     413       258     0.02    
Non-GAAP $ 69,015 $ 87,558   $ (18,543 ) $ (12,956 ) $ (20,174 )   $ (12,612 ) $ (0.99 )  
                   
(1)  The net loss impact of the adjustments is calculated using the effective tax rate for the period.  
        Table G            
        Liberty Tax, Inc.            
        Operational Data            
        Unaudited            
                     
                     
                  Percent  
Tax returns processed 1   CYTD 1/31/17   CYTD 1/31/16     Change  
  U.S. offices   342,000   438,000     -21.9 %  
  Online   15,000   21,000     -28.6 %  
    Total tax returns processed   357,000   459,000     -22.2 %  
                     
                  Percent  
Tax returns processed 1   CYTD 2/28/17   CYTD 2/28/16     Change  
  U.S. offices   915,000   1,094,000     -16.4 %  
  Online   54,000   65,000     -16.9 %  
    Total tax returns processed   969,000   1,159,000     -16.4 %  
                     
U.S. Offices 2             Change  
  Permanent   3,710   3,960     (250 )  
  Seasonal   67   211     (144 )  
  Processing Centers   46   54     (8 )  
    Total Office Locations   3,823   4,225     (402 )  
                     
Return counts are rounded to the thousands and percentages are calculated on rounded amounts  
We measure our number of offices per fiscal year based on franchised and company-owned offices that are open at any point during the season  
     

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 results 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.

CONTACTS: Investors: Kathy Donovan Liberty Tax, Inc. Vice President, Chief Financial Officer (757) 493-8855 investorrelations@libtax.com Media: Martha O’Gorman Liberty Tax, Inc. Chief Marketing Officer (757) 301-8022 martha@libtax.com

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