SOURCE: Liberty Tax, Inc.

Liberty Tax, Inc.

September 02, 2016 06:30 ET

Liberty Tax Service Announces Fiscal 2017 First Quarter Results

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.

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