Liberty Tax Service Reports Fiscal 2015 Third Quarter Results

VIRGINIA BEACH, VA--(Marketwired - Mar 5, 2015) - Liberty Tax, Inc. (NASDAQ: TAX) (the "Company"), the parent company of Liberty Tax Service, today reported its results for the third fiscal quarter ended January 31, 2015.

"This has been a challenging season for us and the industry as a whole," said John Hewitt, CEO. "Despite the fact that we have continued to outperform the paid preparer category, our office and return count growth failed to meet the standards that we have come to expect. Going forward, we are focused on driving new sales, working with existing franchisees to expand, and capitalizing on the opportunities presented by the Affordable Care Act and immigration reform." 

($ in Ms except per share data)	GAAP									Non - GAAP*
	Q3 2015			Q3 2014			Change			Q3 2015			Q3 2014			Change
Revenue	$	47.7		$	40.7		17	%		$	47.7		$	40.7		17	%
Operating expenses		43.4			35.5		22	%			39.3			35.4		11	%
Income before taxes		3.6			6.8		-47	%			7.6			4.9		57	%
Diluted EPS		0.13			0.28		-54	%			0.29			0.20		45	%
*See reconciliation of non-GAAP to GAAP measures in Table E

Income Statement
Revenues for the three months ended January 31, 2015 increased 17% to $47.7 million compared to $40.7 million in the prior year period. The increase in revenue was primarily driven by the earlier start to the tax season, along with our franchisees' ability to generate higher net fees and higher financial product revenue. We processed a higher portion of our financial product volume through our in-house subsidiary, JTH Financial, which increased our revenue and profitability. 

Reported operating expenses increased 22% to $43.4 million. Adjusted operating expenses, as reported on Table E, increased 11% to $39.3 million driven primarily by increased variable costs associated with the higher revenue. During the three months ended January 31, 2015, the Company also incurred $4.1 million in costs, including costs related to a potential loss on one of our class action lawsuits, net of recovery from a vendor involved in one of our cases.

The tax rate for the three months ended January 31, 2015 was 46.3% and is significantly higher than our year-to-date rate of 38.9%. We anticipate the full year tax rate to be slightly less than last year. 

Balance Sheet
The Company had a balance of $110.8 million on its revolving credit facility as of January 31, 2015, compared to $104.6 million as of January 31, 2014.

Operational Results - Offices
During the calendar year through February 28, 2015, the Company has processed 1,140,000 U.S. returns in its offices, a decrease of 0.7%, when compared to the same period last year. Despite the decline in return count, systemwide revenue has increased 5.7% to $311.9 million. 

Dividend
As announced separately, our Board has approved the initiation of a quarterly dividend to shareholders. The first quarterly dividend of $0.16 per share will be paid on April 22, 2015 to holders of record of common stock and common stock equivalents on the close of business April 15, 2015.

Third Quarter Conference Call
At 8:30 a.m. Eastern time on Thursday, March 5, 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: 91108801

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 continue until Thursday, March 12, 2015, by dialing 855-859-2056 (domestic) or 404-537-3406 (international). The conference ID code is 91108801. 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 4,300 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 generally accepted accounting principles, please see the section of the accompanying Tables E&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 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
Unaudited, amounts in thousands
				January 31,				January 31,				April 30,
				2015				2014				2014
Current assets:
	Cash and cash equivalents			$	3,150			$	3,742			$	46,080
	Current receivables, net				124,482				133,566				65,656
	Assets held for sale				5,613				-				4,413
	Income taxes receivable				17,434				8,449				-
	Deferred income tax asset				7,574				4,442				4,058
	Other current assets				18,371				18,527				5,325
		Total current assets			176,624				168,726				125,532
Property, equipment, and software, net					42,615				37,553				38,343
Notes receivable - non-current, net					28,050				23,645				15,824
Goodwill					3,185				6,279				2,997
Other intangible assets, net					17,358				17,645				14,295
Other assets					3,973				2,124				1,772
		Total assets		$	271,805			$	255,972			$	198,763
Current liabilities:
	Current installments of long-term debt			$	4,107			$	6,649			$	6,797
	Accounts payable and accrued expenses				27,787				12,804				15,023
	Due to area developers				14,980				15,390				18,236
	Income taxes payable				-				-				9,676
	Deferred revenue - current				6,094				6,362				6,051
		Total current liabilities			52,968				41,205				55,783
	Long-term debt, excluding current installments				21,778				22,337				21,691
	Revolving credit facility				110,762				104,592				-
	Deferred revenue - non-current				7,777				8,510				8,059
	Deferred income tax liability				6,705				2,030				3,045
		Total liabilities			199,990				178,674				88,578
Stockholders' equity:
	Special voting preferred stock, $0.01 par value per share				-				-				-
	Class A common stock, $0.01 par value per share				118				122				124
	Class B common stock, $0.01 par value per share				9				9				9
	Exchangeable shares, $0.01 par value				10				10				10
	Additional paid-in capital				2,049				9,044				9,402
	Accumulated other comprehensive income (loss), net of taxes				(1,171	)			(129	)			66
	Retained earnings				70,800				68,242				100,574
		Total stockholders' equity			71,815				77,298				110,185
		Total liabilities and stockholders' equity		$	271,805			$	255,972			$	198,763

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,
				2015				2014				% change
Revenues:
	Franchise fees			$	968			$	1,247			-22.4	%
	Area developer fees				1,592				1,311			21.4	%
	Royalties and advertising fees				25,457				22,081			15.3	%
	Financial products				13,370				9,864			35.5	%
	Interest income				3,222				3,001			7.4	%
	Tax preparation fees, net of discounts				1,942				2,054			-5.5	%
	Other revenue				1,129				1,182			-4.5	%
		Total revenues			47,680				40,740			17.0	%
Operating expenses:
	Employee compensation and benefits				10,546				10,318			2.2	%
	Selling, general, and administrative expenses				13,041				9,121			43.0	%
	Area developer expense				9,111				7,909			15.2	%
	Advertising expense				8,161				5,860			39.3	%
	Depreciation, amortization, and impairment charges				2,527				2,267			11.5	%
		Total operating expenses			43,386				35,475			22.3	%
		Income from operations			4,294				5,265			-18.4	%
Other income (expense):
	Foreign currency transaction loss				(35	)			(3	)		NM
	Gain on sale of available-for-sale securities				-				1,995			-100.0	%
	Interest expense				(683	)			(464	)		-47.2	%
		Income before income taxes			3,576				6,793			-47.4	%
	Income tax expense				1,657				2,737			-39.5	%
		Net Income		$	1,919			$	4,056			-52.7	%
	Net income attributable to common stockholders Class A and Class B			$	1,779			$	3,766			-52.8	%
Net income per share of Class A and Class B common stock
	Basic			$	0.14			$	0.29			-51.7	%
	Diluted				0.13				0.28			-53.6	%
Weighted-average basic shares outstanding					12,679,286				12,991,857			-2.4	%
Weighted-average diluted shares outstanding					14,227,163				14,654,666			-2.9	%

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,
				2015				2014				% change
Revenues:
	Franchise fees			$	2,996			$	3,172			-5.5	%
	Area developer fees				5,066				4,994			1.4	%
	Royalties and advertising fees				28,350				24,710			14.7	%
	Financial products				14,027				10,482			33.8	%
	Interest income				7,200				7,435			-3.2	%
	Tax preparation fees, net of discounts				2,848				2,682			6.2	%
	Other revenue				2,766				2,647			4.5	%
		Total revenues			63,253				56,122			12.7	%
Operating expenses:
	Employee compensation and benefits				28,626				24,603			16.4	%
	Selling, general, and administrative expenses				30,919				23,131			33.7	%
	Area developer expense				10,776				9,442			14.1	%
	Advertising expense				14,022				11,051			26.9	%
	Depreciation, amortization, and impairment charges				6,855				5,590			22.6	%
		Total operating expenses			91,198				73,817			23.5	%
		Loss from operations			(27,945	)			(17,695	)		57.9	%
Other income (expense):
	Foreign currency transaction loss				(45	)			(15	)		-200.0	%
	Gain on sale of available-for-sale securities				-				2,183			-100.0	%
	Interest expense				(1,550	)			(1,066	)		-45.4	%
		Loss before income taxes			(29,540	)			(16,593	)		78.0	%
	Income tax benefit				(11,487	)			(6,244	)		84.0	%
		Net loss		$	(18,053	)		$	(10,349	)		74.4	%
Net loss per share of Class A and Class B common stock
	Basic and diluted			$	(1.42	)		$	(0.80	)		77.5	%
Weighted-average shares outstanding					12,742,288				12,937,734			-1.5	%

Table D
Liberty Tax, Inc.
Condensed Consolidated Statements of Cash Flows
Unaudited, amounts in thousands
					Nine months ended January 31,
					2015				2014
Cash flows from operating activities:
	Net loss				$	(18,053	)		$	(10,349	)
	Adjustments to reconcile net loss to net cash used in operating activities:
		Provision for doubtful accounts				4,453				5,886
		Depreciation, amortization and impairment charges				6,855				5,590
		Stock-based compensation expense related to equity classified awards				2,002				1,394
		Stock-based compensation income related to liability classified awards				-				(872	)
		Gain on bargain purchases and sales of Company-owned offices				(310	)			(629	)
		Deferred tax expense				144				955
		Gain on sale of available-for-sale securities				-				(2,183	)
		Changes in other assets and liabilities				(49,312	)			(50,642	)
			Net cash used in operating activities			(54,221	)			(50,850	)
Cash flows from investing activities:
	Issuance of operating loans to franchisees					(74,298	)			(62,218	)
	Payments received on operating loans to franchisees					16,410				1,532
	Purchases of Company-owned offices, area developer rights, and acquired customer lists					(8,218	)			(6,585	)
	Proceeds from sale of Company-owned offices and area developer rights					3,690				2,368
	Proceeds from sale of available-for-sale securities					-				5,163
	Purchases of property, equipment, and software					(9,532	)			(7,652	)
			Net cash used in investing activities			(71,948	)			(67,392	)
Cash flows from financing activities:
	Proceeds from the exercise of stock options					10,053				6,122
	Repurchase of common stock					(35,910	)			(5,174	)
	Repayment of amounts due to former area developers					(4,211	)			(1,439	)
	Repayment of other long-term debt					(949	)			(1,458	)
	Borrowings under revolving credit facility					136,565				110,694
	Repayments under revolving credit facility					(25,803	)			(6,102	)
	Payment for debt issue costs					(917	)			-
	Tax benefit of stock option exercises					4,776				554
			Net cash provided by financing activities			83,604				103,197
Effect of exchange rate changes on cash, net						(365	)			(226	)
			Net decrease in cash and cash equivalents			(42,930	)			(15,271	)
Cash and cash equivalents at beginning of period						46,080				19,013
Cash and cash equivalents at end of period					$	3,150			$	3,742
Supplementary cash flow data:
	Cash paid for interest, net of capitalized interest				$	948			$	851
	Cash paid for taxes, net of refunds					10,849				6,388

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 measures 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.
Three Months Ended January 31, 2015
		Revenues			Expenses			Income from Operations			EBITDA			Income before Taxes			Net Income			Diluted EPS
As Reported		$	47,680		$	43,386		$	4,294		$	6,786		$	3,576		$	1,919		$	0.13
Adjustments:
Litigation costs			(6)			(4,066)			4,060			4,060			4,060			2,179			0.16
	Subtotal of adjustments		(6)			(4,066)			4,060			4,060			4,060			2,179			0.16
As Adjusted			47,674			39,320			8,354			10,846			7,636			4,098			0.29
Stock-based compensation expense			-			(494)			494			494
Three Months Ended January 31, 2014
		Revenues			Expenses			Income from Operations			EBITDA			Income before Taxes			Net Income			Diluted EPS
As Reported		$	40,740		$	35,475		$	5,265		$	9,524		$	6,793		$	4,056		$	0.28
Adjustments:
Gain on available-for-sale securities			-			-			-			(1,995)			(1,995)			(1,191)			(0.08)
Restatement costs			-			(63)			63			63			63			38			-
Litigation costs			(3)			-			(3)			(3)			(3)			(2)			-
	Subtotal of adjustments		(3)			(63)			60			(1,935)			(1,935)			(1,155)			(0.08)
As Adjusted			40,737			35,412			5,325			7,589			4,858			2,901			0.20
Stock-based compensation expense			-			(653)			653			653

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 measures 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.
Nine Months Ended January 31, 2015
		Revenues			Expenses			Loss from Operations			EBITDA			Loss before Taxes			Net Loss			Basic and Diluted EPS
As Reported		$	63,253		$	91,198		$	(27,945)		$	(21,135)		$	(29,540)		$	(18,053)		$	(1.42)
Adjustments:
Executive severance(1)			-			(1,617)			1,617			1,617			1,617			988			0.08
Litigation costs			(47)			(6,196)			6,149			6,149			6,149			3,758			0.30
	Subtotal of adjustments		(47)			(7,813)			7,766			7,766			7,766			4,746			0.38
As Adjusted			63,206			83,385			(20,179)			(13,369)			(21,774)			(13,307)			(1.04)
Stock-based compensation expense(3)			-			(1,408)			1,408			1,408
Nine Months Ended January 31, 2014
		Revenues			Expenses			Loss from Operations			EBITDA			Loss before Taxes			Net Loss			Basic and Diluted EPS
As Reported		$	56,122		$	73,817		$	(17,695)		$	(9,937)		$	(16,593)		$	(10,349)		$	(0.80)
Adjustments:
Gain on available-for-sale securities			-			-			-			(2,183)			(2,183)			(1,362)			(0.11)
Executive severance(1)			-			(614)			614			614			614			383			0.03
Reclassification of stock-based compensation expense(2)			-			872			(872)			(872)			(872)			(544)			(0.04)
Restatement costs			-			(855)			855			855			855			533			0.04
Litigation costs			(49)			(60)			11			11			11			7			-
	Subtotal of adjustments		(49)			(657)			608			(1,575)			(1,575)			(983)			(0.08)
As Adjusted			56,073			73,160			(17,087)			(11,512)			(18,168)			(11,332)			(0.88)
Stock-based compensation expense(3)			-			(1,294)			1,294			1,294
(1) Includes stock-based compensation expense
(2) Related to conversion from equity to liability instruments
(3) Excludes costs related to executive severance

Table G
Liberty Tax, Inc.
Operational Data
Unaudited
Tax returns processed1				CYTD 1/31/15		CYTD 1/31/14		Percent Change
	U.S. offices			456,000		410,000		11.2	%
	Online			29,000		27,000		7.4	%
		Total tax returns processed		485,000		437,000		11.0	%
Tax returns processed1				CYTD 2/28/15		CYTD 2/28/14		Percent Change
	U.S. offices			1,140,000		1,148,000		-0.7	%
	Online			86,000		102,000		-15.7	%
		Total tax returns processed		1,226,000		1,250,000		-1.9	%
1Return counts are rounded to the thousands and percentages are calculated on rounded amounts

The Company will provide an update of operational results through season end shortly after the tax season ends.