SOURCE: Liberty Tax, Inc.

Liberty Tax, Inc.

December 08, 2014 06:00 ET

Liberty Tax Service Reports Fiscal 2015 Second Quarter Results

VIRGINIA BEACH, VA--(Marketwired - Dec 8, 2014) - Liberty Tax, Inc. (NASDAQ: TAX)

  • Revenue increased 5.7%, to $7.7 million
  • Seasonal pretax loss increased to $18.8 million
  • Adjusted Non-GAAP pretax loss increased to $15.6 million
  • Adjusted Non-GAAP net loss per share increased to $0.74
  • Non-recurring costs in the quarter of $3.3 million

Liberty Tax, Inc. (NASDAQ: TAX) (the "Company"), the parent company of Liberty Tax Service, today reported a net loss for the second fiscal quarter ended October 31, 2014 of $11.3 million, or $0.89 per share, compared to a net loss of $8.5 million, or $0.66 per share, in the prior year period. On an adjusted basis, the Company reported an adjusted non-GAAP net loss of $0.74 per share compared to an adjusted non-GAAP net loss of $0.60 per share in the prior period. Due to the seasonality of its business, the Company typically reports a loss in the second quarter.

"This is an exciting time for the tax industry and we expect to continue taking market share in a market that is growing faster than ever. We had a successful off season and believe we will deliver strong full year-over-year growth," said John Hewitt, CEO. "We believe our ACA and SiempreTax+ initiatives position us well to take advantage of the multi-year tailwinds of the ACA and immigration reform." 

Income Statement
Revenues for the three months ended October 31, 2014 increased 5.7% to $7.7 million compared to $7.3 million in the prior year period. The increase in revenue was primarily due to increases in franchise fees and transfer fees which were driven by the Company's ability to sell during the entire quarter, without the interruption of the sales blackout period which affected the prior year period. 

Operating expenses for the three months ended October 31, 2014 increased 24.2% to $26.0 million compared to $20.9 million in the prior year period. During the three months ended October 31, 2014, the Company incurred $3.3 million in non-recurring, one-time costs. These costs included approximately $2.1 million in costs related to a tentative litigation settlement, and approximately $1.2 million in one-time severance costs. These items, along with investments in new initiatives, accounted for the bulk of the increase in operating expenses. Excluding non-recurring items, adjusted operating expenses increased 16.2% to $22.7 million.

Balance Sheet
The Company has drawn $51.7 million on its revolving credit facility as of October 31, 2014, compared to $38.5 million as of October 31, 2013. This increase was due to the Company's decision to repurchase a larger amount of common stock and higher cash tax payments on prior year results.

Operational Results
During the first half of fiscal 2015, the Company sold approximately 105 new territories, compared to approximately 65 during the prior year period and 190 during the same period of 2013. The 2013 number of new territories includes 81 territories purchased under the now discontinued $0 franchise fee program. The 2013 number, net of these $0 franchise fee purchases, was approximately 109. New territories include territories sold to new franchisees and additional territories sold to existing franchisees. 

This information gives insight into a portion of the Company's sales season; however, in order to predict total office count, other factors, including terminations and the opening of previously sold territories must be considered as well. The Company expects the total office count to increase over last year, adding more year-round offices and decreasing the number of seasonal offices. 

Second Quarter Conference Call
At 8:30 a.m. Eastern time on Monday, December 8, 2014, 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: 38821048

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.

A telephonic replay of the call will be available beginning shortly after the call and continuing until Monday, December 15, 2014, by dialing 855-859-2056 (domestic) or 404-537-406 (international). The conference ID code is 38821048. 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 18 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 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 generally accepted accounting principles, please see the section of the accompanying tables 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 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; 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 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
Unaudited, amounts in thousands
               
    October 31,     October 31,   April 30,
    2014     2013   2014
Current assets:                    
  Cash and cash equivalents   $ 4,605     $ 2,607   $ 46,080
  Receivables, net     66,577       71,055     65,656
  Available-for-sale securities     -       4,606     -
  Assets held for sale     5,398       -     4,413
  Income taxes receivable     20,647       11,759     -
  Deferred income tax asset     4,013       2,875     4,058
  Other current assets     3,789       2,926     5,325
    Total current assets     105,029       95,828     125,532
                     
  Property, equipment, and software, net     41,635       36,470     38,343
  Notes receivable, excluding current portion, net     22,294       16,793     15,824
  Goodwill     2,978       7,194     2,997
  Other intangible assets, net     12,134       16,316     14,295
  Other assets     2,553       2,160     1,772
    Total assets   $ 186,623     $ 174,761   $ 198,763
                     
Current liabilities:                    
  Current installments of long-term debt   $ 1,965     $ 6,485   $ 6,797
  Accounts payable and accrued expenses     11,798       7,851     15,023
  Due to area developers     8,010       8,315     18,236
  Income taxes payable     -       -     9,676
  Deferred revenue - short-term portion     7,224       6,693     6,051
    Total current liabilities     28,997       29,344     55,783
                     
  Long-term debt, excluding current installments     22,119       22,987     21,691
  Revolving credit facility     51,711       38,459     -
  Deferred revenue - long-term portion     8,368       8,092     8,059
  Deferred income tax liability     5,158       2,106     3,045
    Total liabilities     116,353       100,988     88,578
                     
Stockholders' equity:                    
  Special voting preferred stock, $0.01 par value per share     -       -     -
  Class A common stock, $0.01 par value per share     117       120     124
  Class B common stock, $0.01 par value per share     9       9     9
  Exchangeable shares, $0.01 par value     1       1     1
  Additional paid-in capital     1,365       7,818     9,411
  Accumulated other comprehensive income (loss), net of taxes     (103 )     1,639     66
  Retained earnings     68,881       64,186     100,574
    Total stockholders' equity     70,270       73,773     110,185
    Total liabilities and stockholders' equity   $ 186,623     $ 174,761   $ 198,763
                     
   
Table B  
Liberty Tax, Inc.  
Condensed Consolidated Statements of Operations  
Unaudited, amounts in thousands, except per share and share data  
                   
    Three months ended
October 31,
       
    2014     2013     % change  
Revenues:                      
  Franchise fees   $ 1,324     $ 886     49.4 %
  Area developer fees     1,649       1,880     -12.3 %
  Royalties and advertising fees     1,199       1,180     1.6 %
  Financial products     200       169     18.3 %
  Interest income     1,784       2,200     -18.9 %
  Tax preparation fees, net of discounts     391       242     61.6 %
  Other revenue     1,187       760     56.2 %
    Total revenues     7,734       7,317     5.7 %
                       
Operating expenses:                      
  Employee compensation and benefits     9,665       8,196     17.9 %
  Selling, general, and administrative expenses     10,353       7,744     33.7 %
  Area developer expense     924       705     31.1 %
  Advertising expense     2,979       2,507     18.8 %
  Depreciation, amortization, and impairment charges     2,029       1,745     16.3 %
    Total operating expenses     25,950       20,897     24.2 %
    Loss from operations     (18,216 )     (13,580 )   34.1 %
                       
Other income (expense):                      
  Foreign currency transaction loss     (9 )     (5 )   80.0 %
  Gain on sale of available-for-sale securities     -       188     -100.0 %
  Interest expense     (566 )     (357 )   58.5 %
    Loss before income taxes     (18,791 )     (13,754 )   36.6 %
  Income tax benefit     (7,463 )     (5,276 )   41.5 %
    Net loss   $ (11,328 )   $ (8,478 )   33.6 %
                       
                       
Net loss per share of Class A and Class B common stock                      
  Basic and diluted   $ (0.89 )   $ (0.66 )   34.8 %
                       
Weighted-average shares outstanding     12,680,306       12,926,060     -1.9 %
                       
   
Table C  
Liberty Tax, Inc.  
Condensed Consolidated Statements of Operations  
Unaudited, amounts in thousands, except per share and share data  
                   
    Six months ended
October 31,
       
    2014     2013     % change  
Revenues:                      
  Franchise fees   $ 2,028     $ 1,925     5.4 %
  Area developer fees     3,474       3,683     -5.7 %
  Royalties and advertising fees     2,893       2,629     10.0 %
  Financial products     657       618     6.3 %
  Interest income     3,978       4,434     -10.3 %
  Tax preparation fees, net of discounts     906       628     44.3 %
  Other revenue     1,637       1,465     11.7 %
    Total revenues     15,573       15,382     1.2 %
                       
Operating expenses:                      
  Employee compensation and benefits     18,080       14,285     26.6 %
  Selling, general, and administrative expenses     17,878       14,010     27.6 %
  Area developer expense     1,665       1,533     8.6 %
  Advertising expense     5,861       5,191     12.9 %
  Depreciation, amortization, and impairment charges     4,328       3,323     30.2 %
    Total operating expenses     47,812       38,342     24.7 %
    Loss from operations     (32,239 )     (22,960 )   40.4 %
                       
Other income (expense):                      
  Foreign currency transaction loss     (10 )     (12 )   -16.7 %
  Gain on sale of available-for-sale securities     -       188     -100.0 %
  Interest expense     (867 )     (602 )   44.0 %
    Loss before income taxes     (33,116 )     (23,386 )   41.6 %
  Income tax benefit     (13,144 )     (8,981 )   46.4 %
    Net loss   $ (19,972 )   $ (14,405 )   38.6 %
                       
Net loss per share of Class A and Class B common stock                      
  Basic and diluted   $ (1.56 )   $ (1.12 )   39.3 %
                       
                       
Weighted-average shares outstanding     12,773,789       12,910,673     -1.1 %
                       
   
Table D  
Liberty Tax, Inc.  
Condensed Consolidated Statements of Cash Flows  
Unaudited, amounts in thousands  
    Six months ended October 31,  
    2014     2013  
Cash flows from operating activities:                
  Net loss   $ (19,972 )   $ (14,405 )
  Adjustments to reconcile net loss to net cash used in operating activities:                
    Provision for doubtful accounts     3,208       3,430  
    Depreciation, amortization, and impairment charges     4,328       3,323  
    Stock-based compensation expense related to equity classified awards     1,508       741  
    Stock-based compensation income related to liability classified awards     -       (872 )
    Gain on bargain purchases and sales of Company-owned offices     (287 )     (518 )
    Deferred tax expense     2,158       2,598  
    Gain on sale of available-for-sale securities     -       (188 )
    Changes in accrued income taxes     (30,322 )     (17,654 )
    Changes in other assets and liabilities     (1,051 )     (4,336 )
      Net cash used in operating activities     (40,430 )     (27,881 )
                 
Cash flows from investing activities:                
  Issuance of operating loans to franchisees     (20,577 )     (17,420 )
  Payments received on operating loans to franchisees     1,770       1,230  
  Purchases of Company-owned offices and area developer rights     (2,701 )     (4,436 )
  Proceeds from sale of Company-owned offices and area developer rights     3,300       205  
  Proceeds from sale of available-for-sale securities     -       456  
  Purchases of property, equipment, and software     (7,129 )     (5,463 )
      Net cash used in investing activities     (25,337 )     (25,428 )
                 
Cash flows from financing activities:                
  Proceeds from the exercise of stock options     8,145       2,998  
  Repurchase of common stock     (33,699 )     (2,495 )
  Repayment of amounts due to former area developers     (4,211 )     (1,439 )
  Repayment of other long-term debt     (928 )     (979 )
  Borrowings under revolving credit facility     52,874       43,104  
  Repayments under revolving credit facility     (1,163 )     (4,645 )
  Payment for debt issue costs     (917 )     -  
  Tax benefit of stock option exercises     4,273       416  
      Net cash provided by financing activities     24,374       36,960  
                 
Effect of exchange rate changes on cash, net     (82 )     (57 )
      Net decrease in cash and cash equivalents     (41,475 )     (16,406 )
Cash and cash equivalents at beginning of period     46,080       19,013  
Cash and cash equivalents at end of period   $ 4,605     $ 2,607  
                 
Supplemental cash flow data:                
  Cash paid for interest, net of capitalized interest   $ 578     $ 455  
  Cash paid for taxes, net of refunds     10,748       6,143  
                 
   
Three Months Ended October 31, 2014  
    Revenues   Expenses   Loss from Operations     EBITDA     Pretax Loss     Net Loss     EPS  
As Reported   $ 7,734   $ 25,950   $ (18,216 )   $ (16,196 )   $ (18,791 )   $ (11,328 )   $ (0.89 )
                                                     
Adjustments:                                                    
                                                     
Gain on available-for-sale securities     -     -     -       -       -       -       -  
Executive severance(1)     -     (1,134 )   1,134       1,134       1,134       684       0.05  
Restatement costs     -     -     -       -       -       -       -  
Litigation settlements     (37 )   (2,130 )   2,093       2,093       2,093       1,262       0.10  
  Subtotal of adjustments     (37 )   (3,264 )   3,227       3,227       3,227       1,946       0.15  
                                                     
As Adjusted     7,697     22,686     (14,989 )     (12,969 )     (15,564 )     (9,382 )     (0.74 )
                                                     
Stock-based compensation expense     -     (420 )   420       420                          
                                                     
As Adjusted   $ 7,697   $ 22,266   $ (14,569 )   $ (12,549 )                        
                                                     
                                       
Three Months Ended October 31, 2013  
    Revenues   Expenses   Loss from Operations     EBITDA     Pretax Loss     Net Loss     EPS  
As Reported   $ 7,317   $ 20,897   $ (13,580 )   $ (11,652 )   $ (13,754 )   $ (8,478 )   $ (0.66 )
                                                     
Adjustments:                                                    
                                                     
Gain on available-for-sale securities     -     -     -       (188 )     (188 )     (116 )     (0.01 )
Executive severance(1)     -     (614 )   614       614       614       378       0.03  
Restatement costs     -     (693 )   693       693       693       427       0.04  
Litigation settlements     (44 )   (60 )   16       16       16       10       -  
  Subtotal of adjustments     (44 )   (1,367 )   1,323       1,135       1,135       699       0.06  
                                                     
As Adjusted     7,273     19,530     (12,257 )     (10,517 )     (12,619 )     (7,779 )     (0.60 )
                                                     
Stock-based compensation expense     -     (466 )   466       466                          
                                                     
As Adjusted   $ 7,273   $ 19,064   $ (11,791 )   $ (10,051 )                        
                                                     
                                                     
(1) Includes stock based compensation expense                           
                                                     
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 generall 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.  
                                       
Six Months Ended October 31, 2014  
    Revenues   Expenses   Loss from Operations     EBITDA     Pretax Loss     Net Loss     EPS  
As Reported   $ 15,573   $ 47,812   $ (32,239 )   $ (27,921 )   $ (33,116 )   $ (19,972 )   $ (1.56 )
                                                     
Adjustments:                                                    
                                                     
Gain on available-for-sale securities     -     -     -       -       -       -       -  
Executive severance(1)     -     (1,617 )   1,617       1,617       1,617       975       0.08  
Restatement costs     -     -     -       -       -       -       -  
Litigation settlements     (41 )   (2,130 )   2,089       2,089       2,089       1,260       0.09  
  Subtotal of adjustments     (41 )   (3,747 )   3,706       3,706       3,706       2,235       0.17  
                                                     
As Adjusted     15,532     44,065     (28,533 )     (24,215 )     (29,410 )     (17,737 )     (1.39 )
                                                     
Stock-based compensation expense     -     (914 )   914       914                          
                                                     
As Adjusted   $ 15,532   $ 43,151   $ (27,619 )   $ (23,301 )                        
                                                     
                                       
Six Months Ended October 31, 2013  
    Revenues   Expenses   Loss from Operations     EBITDA     Pretax Loss     Net Loss     EPS  
As Reported   $ 15,382   $ 38,342   $ (22,960 )   $ (19,461 )   $ (23,386 )   $ (14,405 )   $ (1.12 )
                                                     
Adjustments:                                                    
                                                     
Gain on available-for-sale securities     -     -     -       (188 )     (188 )     (116 )     (0.01 )
Executive severance(1)     -     (614 )   614       614       614       378       0.03  
Reclassification of stock-based compensation expense(2)     -     872     (872 )     (872 )     (872 )     (537 )     (0.04 )
Restatement costs     -     (792 )   792       792       792       488       0.04  
Litigation settlements     (46 )   (60 )   14       14       14       9       -  
  Subtotal of adjustments     (46 )   (594 )   548       360       360       222       0.02  
                                                     
As Adjusted     15,336     37,748     (22,412 )     (19,101 )     (23,026 )     (14,183 )     (1.10 )
                                                     
Stock-based compensation expense     -     (641 )   641       641                          
                                                     
As Adjusted   $ 15,336   $ 37,107   $ (21,771 )   $ (18,460 )                        
                                                     
                                                     
(1) Includes stock based compensation expense  
(2) Related to conversion from liability to equity instruments  
                                                     

Contact Information

  • CONTACTS:
    Investors:
    Kathy Donovan
    Liberty Tax, Inc.
    Vice President, Chief Financial Officer
    (757) 493-8855
    Email Contact

    Media:
    Martha O'Gorman
    Liberty Tax, Inc.
    Chief Marketing Officer
    (757) 301-8022
    Email Contact