SOURCE: Liberty Tax, Inc.

Liberty Tax, Inc.

December 09, 2015 06:30 ET

Liberty Tax Service Announces Fiscal 2016 Second Quarter Results

VIRGINIA BEACH, VA--(Marketwired - Dec 9, 2015) -  Liberty Tax, Inc. (NASDAQ: TAX) (the "Company"), the parent company of Liberty Tax Service, today reported results for the second quarter ended October 31, 2015.

"We are looking forward to the coming tax season," said John Hewitt, CEO. "We expect to see expansion in our store count and strong growth in existing store return counts reflecting a good market environment for paid tax preparation and new product offerings."

Due to the highly seasonal nature of the tax industry, the Company typically reports a loss in the first and second quarters of the fiscal year when revenues are low and costs are ramping up to drive growth in the following tax season. The Company had a reported and adjusted net loss for the fiscal second quarter ended October 31, 2015, of $9.1 million, or $0.71 per share, compared to a reported loss of $0.89 per share and an adjusted loss of $0.74 per share, in the prior period.

             
($ in millions except per share data)   GAAP     Non - GAAP*  
    Q2 2016     Q2 2015     Change     Q2 2016     Q2 2015     Change  
Revenue   $ 7.9     $ 7.7     1.8 %   $ 7.9     $ 7.7     1.8 %
Operating expenses     21.9       26.0     -15.5 %     21.9       22.7     -3.4 %
Loss before taxes     (14.5 )     (18.8 )   -22.7 %     (14.5 )     (15.5 )   -6.4 %
Net Loss     (9.1 )     (11.3 )   -19.9 %     (9.1 )     (9.4 )   -3.1 %
Basic and Diluted EPS     (0.71 )     (0.89 )   -20.2 %     (0.71 )     (0.74 )   -4.1 %
                                             
*See reconciliation of non-GAAP to GAAP measures in Table E                        
 

Income Statement
Revenue for the three months ended October 31, 2015 remained essentially flat, increasing to $7.9 million compared to $7.7 million in the prior year period.

Operating expenses for the three months ended October 31, 2015 decreased to $21.9 million driven by lower commission and Area Developer ("AD") expense along with lower depreciation and amortization. In addition, during the prior year we incurred severance and legal settlement costs which were adjusted out in the non-GAAP results, and did not recur this period.

Balance Sheet
The Company has drawn $57.3 million on its revolving credit facility as of October 31, 2015, compared to $51.7 million as of October 31, 2014. This increase was the result of the Company's payment of previously accrued legal settlements as well as an increase in franchisee lending.

Operational Results
On a year to date basis through November, the Company has sold 141 new U.S. and Canadian territories, compared to 127 new territories during the prior year period. In addition, 11 franchisees have sold their SiempreTax+ rights to other operators who plan to open new SiempreTax+ locations. In order to project total office count, other factors, including the opening of previously sold territories and terminations, must be considered. The Company expects the total office count to increase over last year.

Dividend
This week the Board of Directors approved our fourth consecutive quarterly dividend to shareholders of $0.16 per share. The dividend will be paid on January 22, 2016 to holders of record of common stock and common stock equivalents on the close of business on January 15, 2016.

Second Quarter Conference Call
At 8:30 a.m. Eastern time on Wednesday, December 9, 2015, the Company will host a conference call for analysts, institutional investors and stockholders. To access the call, please dial the number below approximately 5 to 10 minutes prior to the scheduled starting time:

U.S. 855-611-0856
International 518-444-5569
Conference ID Code: 81697221

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 Wednesday, December 16, 2015, by dialing 855-859-2056 (domestic) or 404-537-3406 (international). The conference ID code is 81697221. A replay of the webcast will also be available at the site listed above beginning shortly after its conclusion. 

About Liberty Tax, Inc.
Founded in 1997 by CEO John T. Hewitt, Liberty Tax, Inc., is the parent company of Liberty Tax Service. Liberty Tax is the fastest-growing tax preparation franchise and has prepared almost 20 million individual income tax returns in more than 4,300 offices and online. Liberty Tax's online services are available through eSmart Tax, Liberty Online and DIY Tax, and are all backed by the tax professionals at Liberty Tax locations and its nationwide network of approximately 35,000 seasonal tax preparers. Liberty Tax also supports local communities with fundraising endeavors and contributes as a national sponsor for many charitable causes. For a more in-depth look, visit Liberty Tax Service and interact with Liberty Tax on Twitter and Facebook.

About Non-GAAP Financial Information
This press release and the accompanying tables include non-GAAP financial information. For a description of these non-GAAP financial measures, including the reasons management uses each measure, and reconciliations of these non-GAAP financial measures to the most directly comparable financial measures prepared in accordance with U.S. generally accepted accounting principles, please see the section of the accompanying Tables E and 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 and immigration 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  
                   
    October 31,     April 30,     October 31,  
    2015     2015     2014  
Current assets:   (Unaudited)           (Unaudited)  
  Cash and cash equivalents   $ 3,963     $ 21,387     $ 4,605  
  Current receivables, net     71,439       65,927       66,577  
  Assets held for sale     9,658       5,160       5,398  
  Income taxes receivable     17,473       -       20,647  
  Deferred income tax asset     3,727       6,921       4,013  
  Other current assets     2,384       6,470       3,789  
    Total current assets     108,644       105,865       105,029  
                         
  Property, equipment, and software, net     39,695       36,232       41,635  
  Notes receivable, non-current, net     23,199       20,753       22,294  
  Goodwill     3,157       3,377       2,978  
  Other intangible assets, net     14,002       14,672       12,134  
  Other assets     3,616       3,247       2,553  
    Total assets   $ 192,313     $ 184,146     $ 186,623  
                         
Current liabilities:                        
  Current installments of long-term debt   $ 4,922     $ 3,934     $ 1,965  
  Accounts payable and accrued expenses     9,166       17,321       11,798  
  Due to ADs     8,138       24,340       8,010  
  Income taxes payable     -       2,147       -  
  Deferred revenue - current     6,265       6,076       7,224  
    Total current liabilities     28,491       53,818       28,997  
                         
  Long-term debt, excluding current installments     18,121       21,463       22,119  
  Revolving credit facility     57,301       -       51,711  
  Deferred revenue - non-current     7,655       7,640       8,368  
  Deferred income tax liability     4,747       2,363       5,158  
    Total liabilities     116,315       85,284       116,353  
                         
Stockholders' equity:                        
  Special voting preferred stock, $0.01 par value per share     -       -       -  
  Class A common stock, $0.01 par value per share     119       119       117  
  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     4,115       4,082       1,365  
  Accumulated other comprehensive income (loss), net of taxes     (1,572 )     (697 )     (112 )
  Retained earnings     73,317       95,339       68,881  
    Total stockholders' equity     75,998       98,862       70,270  
    Total liabilities and stockholders' equity   $ 192,313     $ 184,146     $ 186,623  
                         
                         
                         
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,  
    2015     2014     $ change     % change  
Revenues:                              
  Franchise fees   $ 906     $ 1,324     $ (418 )   -31.6 %
  AD fees     1,524       1,649       (125 )   -7.6 %
  Royalties and advertising fees     1,273       1,199       74     6.2 %
  Financial products     207       200       7     3.5 %
  Interest income     2,309       1,784       525     29.4 %
  Tax preparation fees, net of discounts     339       391       (52 )   -13.3 %
  Other revenue     1,313       1,187       126     10.6 %
    Total revenues     7,871       7,734       137     1.8 %
                               
Operating expenses:                              
  Employee compensation and benefits     8,183       9,679       (1,496 )   -15.5 %
  Selling, general, and administrative expenses     8,752       10,339       (1,587 )   -15.3 %
  AD expense     656       924       (268 )   -29.0 %
  Advertising expense     2,490       2,979       (489 )   -16.4 %
  Depreciation, amortization, and impairment charges     1,838       2,029       (191 )   -9.4 %
    Total operating expenses     21,919       25,950       (4,031 )   -15.5 %
    Loss from operations     (14,048 )     (18,216 )     4,168     -22.9 %
                               
Other expense:                              
  Foreign currency transaction loss     -       (9 )     9     -100.0 %
  Interest expense     (486 )     (566 )     80     -14.1 %
    Loss before income taxes     (14,534 )     (18,791 )     4,257     -22.7 %
  Income tax benefit     (5,464 )     (7,463 )     1,999     -26.8 %
    Net loss   $ (9,070 )   $ (11,328 )   $ 2,258     -19.9 %
                               
                               
Net loss per share of Class A and Class B common stock                              
  Basic and diluted   $ (0.71 )   $ (0.89 )   $ 0.18     -20.2 %
                               
Weighted-average shares outstanding basic and diluted     12,775,565       12,680,306       95,259     0.8 %
                               
   
   
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,  
    2015     2014     $ change     % change  
Revenues:                              
  Franchise fees   $ 1,514     $ 2,028     $ (514 )   -25.3 %
  AD fees     3,128       3,474       (346 )   -10.0 %
  Royalties and advertising fees     3,018       2,893       125     4.3 %
  Financial products     515       657       (142 )   -21.6 %
  Interest income     4,315       3,978       337     8.5 %
  Tax preparation fees, net of discounts     962       906       56     6.2 %
  Other revenue     1,942       1,637       305     18.6 %
    Total revenues     15,394       15,573       (179 )   -1.1 %
                               
Operating expenses:                              
  Employee compensation and benefits     16,816       18,120       (1,304 )   -7.2 %
  Selling, general, and administrative expenses     16,512       17,838       (1,326 )   -7.4 %
  AD expense     1,381       1,665       (284 )   -17.1 %
  Advertising expense     5,100       5,861       (761 )   -13.0 %
  Depreciation, amortization, and impairment charges     3,507       4,328       (821 )   -19.0 %
    Total operating expenses     43,316       47,812       (4,496 )   -9.4 %
    Loss from operations     (27,922 )     (32,239 )     4,317     -13.4 %
                               
Other expense:                              
  Foreign currency transaction loss     (25 )     (10 )     (15 )   150.0 %
  Interest expense     (887 )     (867 )     (20 )   2.3 %
    Loss before income taxes     (28,834 )     (33,116 )     4,282     -12.9 %
  Income tax benefit     (11,228 )     (13,144 )     1,916     -14.6 %
    Net loss   $ (17,606 )   $ (19,972 )   $ 2,366     -11.8 %
                               
                               
Net loss per share of Class A and Class B common stock                              
  Basic and diluted   $ (1.38 )   $ (1.56 )   $ 0.18     -11.5 %
                               
Weighted-average shares outstanding basic and diluted     12,793,593       12,773,789       19,804     0.2 %
                               
   
   
Table D  
Liberty Tax, Inc.  
Condensed Consolidated Statements of Cash Flows  
Unaudited, amounts in thousands  
       
    Six months ended October 31,  
    2015     2014  
Cash flows from operating activities:                
  Net loss   $ (17,606 )   $ (19,972 )
  Adjustments to reconcile net loss to net cash used in operating activities:                
    Provision for doubtful accounts     3,396       3,208  
    Depreciation, amortization, and impairment charges     3,507       4,328  
    Stock-based compensation expense     866       1,508  
    Gain on bargain purchases and sales of Company-owned offices     (388 )     (287 )
    Deferred tax expense     5,578       2,158  
    Changes in accrued income taxes     (19,620 )     (30,322 )
    Changes in other assets and liabilities     (13,052 )     (1,051 )
      Net cash used in operating activities     (37,319 )     (40,430 )
                 
Cash flows from investing activities:                
  Issuance of operating loans to franchisees     (26,326 )     (20,577 )
  Payments received on operating loans to franchisees     1,316       1,770  
  Purchases of AD rights and Company-owned offices     (1,341 )     (2,701 )
  Proceeds from sale of Company-owned offices and AD rights     2,569       3,300  
  Purchase of property, equipment, and software     (5,464 )     (7,129 )
      Net cash used in investing activities     (29,246 )     (25,337 )
                 
Cash flows from financing activities:                
  Proceeds from the exercise of stock options     344       8,145  
  Repurchase of common stock     (1,711 )     (33,699 )
  Dividends paid     (4,415 )     -  
  Repayment of amounts due to former ADs     (2,318 )     (4,211 )
  Repayment of other long-term debt     (308 )     (928 )
  Borrowings under revolving credit facility     57,668       52,874  
  Repayments under revolving credit facility     (367 )     (1,163 )
  Payment for debt issue costs     -       (917 )
  Tax benefit of stock option exercises     532       4,273  
      Net cash provided by financing activities     49,425       24,374  
                 
Effect of exchange rate changes on cash, net     (284 )     (82 )
      Net decrease in cash and cash equivalents     (17,424 )     (41,475 )
Cash and cash equivalents at beginning of period     21,387       46,080  
Cash and cash equivalents at end of period   $ 3,963     $ 4,605  
                 
 
 
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.
 
For the three months ended October 31, 2015
        Loss from                
  Revenues Expenses   Operations   EBITDA   Pretax Loss   Net Loss   EPS
                                                     
As Reported $ 7,871   $ 21,919     $ (14,048 )   $ (12,210 )   $ (14,534 )   $ (9,070 )   $ (0.71 )
                                                     
Adjustments:                                                    
Executive severance including stock-based compensation   -     -       -       -       -       -       -  
Litigation settlements   -     -       -       -       -       -       -  
Total adjustments   -     -       -       -       -       -       -  
As Adjusted $ 7,871   $ 21,919     $ (14,048 )   $ (12,210 )   $ (14,534 )   $ (9,070 )   $ (0.71 )
                                                     
  Stock-based compensation expense excluding severance related expense $ -   $ (401 )   $ 401     $ 401                          
                                                     
For the three months ended October 31, 2014  
        Loss from                
  Revenues Expenses   Operations   EBITDA   Pretax Loss   Net Loss   EPS
                                                     
As Reported $ 7,734   $ 25,950     $ (18,216 )   $ (16,196 )   $ (18,791 )   $ (11,328 )   $ (0.89 )
                                                     
Adjustments:                                                    
Executive severance including stock-based compensation   -     (1,134 )     1,134       1,134       1,134       684       0.05  
Litigation settlements   -     (2,130 )     2,130       2,130       2,130       1,284       0.10  
Total adjustments   -     (3,264 )     3,264       3,264       3,264       1,968       0.15  
As Adjusted $ 7,734   $ 22,686     $ (14,952 )   $ (12,932 )   $ (15,527 )   $ (9,360 )   $ (0.74 )
                                                     
  Stock-based compensation expense excluding severance related expense $ -   $ (420 )   $ 420     $ 420                          
                                                     
Three months ended October 31, 2015 compared to three months ended October 31, 2014  
  As reported year over year:                                                    
    $ change $ 137   $ (4,031 )   $ 4,168     $ 3,986     $ 4,257     $ 2,258     $ 0.18  
    % change   1.8 %   -15.5 %     -22.9 %     -24.6 %     -22.7 %     -19.9 %     -20.2 %
As adjusted year over year:                                                    
    $ change $ 137   $ (767 )   $ 904     $ 722     $ 993     $ 290     $ 0.03  
    % change   1.8 %   -3.4 %     -6.0 %     -5.6 %     -6.4 %     -3.1 %     -4.1 %
   
 
 
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.
 
For the six months ended October 31, 2015
            Loss from                
    Revenues   Expenses   Operations   EBITDA   Pretax Loss   Net Loss   EPS
                                                         
As Reported   $ 15,394     $ 43,316     $ (27,922 )   $ (24,440 )   $ (28,834 )   $ (17,606 )   $ (1.38 )
                                                         
Adjustments:                                                        
Executive severance including stock-based compensation     -       (413 )     413       413       413       252       0.02  
Litigation settlements     -       -       -       -       -       -       -  
Total adjustments     -       (413 )     413       413       413       252       0.02  
As Adjusted   $ 15,394     $ 42,903     $ (27,509 )   $ (24,027 )   $ (28,421 )   $ (17,354 )   $ (1.36 )
                                                         
  Stock-based compensation expense excluding severance related expense   $ -     $ (774 )   $ 774     $ 774                          
                                                         
For the six months ended October 31, 2014  
            Loss from                
    Revenues   Expenses   Operations   EBITDA   Pretax Loss   Net Loss   EPS
                                                         
As Reported   $ 15,573     $ 47,812     $ (32,239 )   $ (27,921 )   $ (33,116 )   $ (19,972 )   $ (1.56 )
                                                         
Adjustments:                                                        
Executive severance including stock-based compensation     -       (1,617 )     1,617       1,617       1,617       975       0.08  
Litigation settlements     -       (2,130 )     2,130       2,130       2,130       1,285       0.09  
Total adjustments     -       (3,747 )     3,747       3,747       3,747       2,260       0.17  
As Adjusted   $ 15,573     $ 44,065     $ (28,492 )   $ (24,174 )   $ (29,369 )   $ (17,712 )   $ (1.39 )
                                                         
  Stock-based compensation expense excluding severance related expense   $ -     $ (914 )   $ 914     $ 914                          
                                                         
Six months ended October 31, 2015 compared to six months ended October 31, 2014  
  As reported year over year:                                                        
    $ change   $ (179 )   $ (4,496 )   $ 4,317     $ 3,481     $ 4,282     $ 2,366     $ 0.18  
    % change     -1.1 %     -9.4 %     -13.4 %     -12.5 %     -12.9 %     -11.8 %     -11.5 %
  As adjusted year over year:                                                        
    $ change   $ (179 )   $ (1,162 )   $ 983     $ 147     $ 948     $ 358     $ 0.03  
    % change     -1.1 %     -2.6 %     -3.5 %     -0.6 %     -3.2 %     -2.0 %     -2.2 %
   

Contact Information

  • 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