Liberty Tax Service Announces Fiscal 2016 First Quarter Results

By: Liberty Tax Service | 6 Shares 256 Reads

VIRGINIA BEACH, VA - (Marketwired) - August 28, 2015 - Liberty Tax, Inc. (NASDAQ: TAX) (the "Company"), the parent company of Liberty Tax Service, today reported results for the first quarter ended July 31, 2015.

"I am pleased with our sales efforts thus far, the progress we are making to expand our office count, and our ability to engage closely with our franchisees and area developers to improve return counts in existing offices," said John Hewitt, CEO. "We have developed several new pilot programs and continue to see progress and expansion with our SiempreTax brand."

As a seasonal business, 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. The Company reported a net loss for the fiscal first quarter ended July 31, 2015, of $8.5 million, or $0.67 per share, which was unchanged from prior year. The Company reported an adjusted non-GAAP net loss of $0.65 per share, also in line with the prior year.


($ in millions except per share data)	GAAP								Non - GAAP*
	Q1 2016			Q1 2015			Change		Q1 2016			Q1 2015			Change
Revenue	$	7.5		$	7.8		-4.0	%	$	7.5		$	7.8		-4.0	%
Operating expenses		21.4			21.9		-2.1	%		21.0			21.4		-1.8	%
Loss before taxes		(14.3	)		(14.3	)	-0.2	%		(13.9	)		(13.8	)	0.3	%
Net Loss		(8.5	)		(8.6	)	-1.2	%		(8.3	)		(8.4	)	-0.8	%
Basic and Diluted EPS		(0.67	)		(0.67	)	0.0	%		(0.65	)		(0.65	)	0.0	%

*See reconciliation of non-GAAP to GAAP measures in Table D

Income Statement

Revenues for the three months ended July 31, 2015 decreased to $7.5 million from $7.8 million in the prior year period. Revenue from Area Developer ("AD") fees declined $0.2 million because revenue from some prior year sales has now been fully recognized over the ten year life of the related agreements.

Balance Sheet

The Company had a cash balance of $4.4 million at July 31, 2015. The Company has drawn $16.6 million on its revolving credit facility as of July 31, 2015 compared to $13.8 million at the prior year's quarter end. During the first quarter we typically draw on this facility to provide for cash used in operations and for operating loans to franchisees.

Operational Results

During the first quarter of fiscal 2016, the Company sold 37 new U.S. and Canadian territories, compared to 30 new territories during the prior year period. In order to project total office count, other factors, including the opening of previously sold territories and terminations, must be considered as well. The Company expects the total office count to increase over last year.

Dividend

On August 27, 2015, the Board of Directors approved a quarterly dividend to shareholders of $0.16 per share. The dividend will be paid on October 22, 2015 to holders of record of common stock and common stock equivalents on the close of business on October 15, 2015.

Conference Call

At 8:30 a.m. Eastern time on August 28, 2015, 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:	4280497

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 4, 2015, by dialing 855-859-2056 (domestic) or 404-537-3406 (international). The conference ID code is 4280497. 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 Table D 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

			July 31,			April 30,			July 31,
			2015			2015			2014
Current assets:			(Unaudited)						(Unaudited)
	Cash and cash equivalents		$	4,418		$	21,387		$	8,649
	Current receivables, net			64,400			65,927			59,308
	Assets held for sale			6,357			5,160			5,425
	Income taxes receivable			7,901			-			10,946
	Deferred income tax asset			6,773			6,921			3,636
	Other current assets			2,552			6,470			3,058
		Total current assets		92,401			105,865			91,022

	Property, equipment, and software, net			37,937			36,232			38,866
	Notes receivable, non-current, net			21,146			20,753			15,575
	Goodwill			3,283			3,377			3,009
	Other intangible assets, net			13,339			14,672			12,786
	Other assets			3,220			3,247			2,207
		Total assets	$	171,326		$	184,146		$	163,465

Current liabilities:
	Current installments of long-term debt		$	1,958		$	3,934		$	3,042
	Accounts payable and accrued expenses			16,819			17,321			8,963
	Due to ADs			9,403			24,340			9,207
	Income taxes payable			187			2,147			-
	Deferred revenue - current			5,585			6,076			6,796
		Total current liabilities		33,952			53,818			28,008

	Long-term debt, excluding current installments			20,858			21,463			21,103
	Revolving credit facility			16,556			-			13,822
	Deferred revenue - non-current			8,964			7,640			8,097
	Deferred income tax liability			3,673			2,363			4,657
		Total liabilities		84,003			85,284			75,687

Stockholders' equity:
	Special voting preferred stock, $0.01 par value per share			-			-			-
	Class A common stock, $0.01 par value per share			119			119			118
	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			4,049			4,082			6,590
	Accumulated other comprehensive income (loss), net of taxes			(1,455	)		(697	)		184
	Retained earnings			84,591			95,339			80,867
		Total stockholders' equity		87,323			98,862			87,778
		Total liabilities and stockholders' equity	$	171,326		$	184,146		$	163,465

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,
			2015			2014			$ change			% change
Revenues:
	Franchise fees		$	608		$	704		$	(96	)	-13.6	%
	AD fees			1,604			1,825			(221	)	-12.1	%
	Royalties and advertising fees			1,745			1,694			51		3.0	%
	Financial products			308			457			(149	)	-32.6	%
	Interest income			2,006			2,194			(188	)	-8.6	%
	Tax preparation fees, net of discounts			623			515			108		21.0	%
	Other revenue			629			450			179		39.8	%
		Total revenues		7,523			7,839			(316	)	-4.0	%

Operating expenses:
	Employee compensation and benefits			8,633			8,415			218		2.6	%
	Selling, general, and administrative expenses			7,759			7,525			234		3.1	%
	AD expense			726			741			(15	)	-2.0	%
	Advertising expense			2,609			2,882			(273	)	-9.5	%
	Depreciation, amortization, and impairment charges			1,670			2,299			(629	)	-27.4	%
		Total operating expenses		21,397			21,862			(465	)	-2.1	%
		Loss from operations		(13,874	)		(14,023	)		149		-1.1	%

Other expense:
	Foreign currency transaction loss			(25	)		(1	)		(24	)	2400.0	%
	Interest expense			(401	)		(301	)		(100	)	33.2	%
		Loss before income taxes		(14,300	)		(14,325	)		25		-0.2	%
	Income tax benefit			(5,764	)		(5,681	)		(83	)	1.5	%
		Net loss	$	(8,536	)	$	(8,644	)	$	108		-1.2	%

Net loss per share of Class A and Class B common stock
	Basic and diluted		$	(0.67	)	$	(0.67	)	$	-		0.0	%

Weighted-average shares outstanding basic and diluted				12,811,621			12,867,273			(55,652	)	-0.4	%




Table C
Liberty Tax, Inc.
Condensed Consolidated Statements of Cash Flows
Unaudited, amounts in thousands
				Three months ended July 31,
				2015			2014
Cash flows from operating activities:
	Net loss			$	(8,536	)	$	(8,644	)
	Adjustments to reconcile net loss to net cash used in operating activities:
		Provision for doubtful accounts			1,701			1,456
		Depreciation, amortization, and impairment charges			1,670			2,299
		Stock-based compensation expense			465			687
		Gain on bargain purchases and sales of Company-owned offices			(117	)		(95	)
		Deferred tax expense			1,458			2,034
		Changes in accrued income taxes			(9,860	)		(20,622	)
		Changes in other assets and liabilities			(2,241	)		142
			Net cash used in operating activities		(15,460	)		(22,743	)

Cash flows from investing activities:
	Issuance of operating loans to franchisees				(12,333	)		(8,505	)
	Payments received on operating loans to franchisees				654			1,325
	Purchases of AD rights and Company-owned offices				(336	)		(128	)
	Proceeds from sale of Company-owned offices and AD rights				2,239			643
	Purchase of property, equipment, and software				(2,686	)		(2,814	)
			Net cash used in investing activities		(12,462	)		(9,479	)

Cash flows from financing activities:
	Proceeds from the exercise of stock options				279			4,543
	Repurchase of common stock				(1,272	)		(22,620	)
	Dividends paid				(2,212	)		-
	Repayment of amounts due to former ADs				(2,318	)		(3,840	)
	Repayment of other long-term debt				(282	)		(641	)
	Borrowings under revolving credit facility				16,556			13,849
	Repayments under revolving credit facility				-			(27	)
	Tax benefit of stock option exercises				495			3,509
			Net cash provided by (used in) financing activities		11,246			(5,227	)

Effect of exchange rate changes on cash, net					(293	)		18
		Net decrease in cash and cash equivalents			(16,969	)		(37,431	)
Cash and cash equivalents at beginning of period					21,387			46,080
Cash and cash equivalents at end of period				$	4,418		$	8,649

Table D
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 July 31, 2015
							Loss from
		Revenues		Expenses			Operations			EBITDA			Pretax Loss			Net Loss (1)			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			254			0.02
As Adjusted		$	7,523	$	20,984		$	(13,461	)	$	(11,816	)	$	(13,887	)	$	(8,282	)	$	(0.65	)

	Stock-based compensation expense excluding severance related expense	$	-	$	(373	)	$	373		$	373

For the three months ended July 31, 2014
							Loss from
		Revenues		Expenses			Operations			EBITDA			Pretax Loss			Net Loss			EPS

As Reported		$	7,839	$	21,862		$	(14,023	)	$	(11,725	)	$	(14,325	)	$	(8,644	)	$	(0.67	)

Adjustments:
Executive severance including stock-based compensation			-		(483	)		483			483			483			291			0.02
As Adjusted		$	7,839	$	21,379		$	(13,540	)	$	(11,242	)	$	(13,842	)	$	(8,353	)	$	(0.65	)

	Stock-based compensation expense excluding severance related expense	$	-	$	(494	)	$	494		$	494


Three months ended July 31, 2015 compared to three months ended July 31, 2014
	As reported year over year:
		$ change	$	(316	)	$	(465	)	$	149		$	(504	)	$	25		$	108		$	-
		% change		-4.0	%		-2.1	%		-1.1	%		4.3	%		-0.2	%		-1.2	%		0	%
		As adjusted year over year:
		$ change	$	(316	)	$	(395	)	$	79		$	(574	)	$	(45	)	$	71		$	-
		% change		-4.0	%		-1.8	%		-0.6	%		5.1	%		0.3	%		-0.8	%		0	%
(1) The non-GAAP tax rate of 38.5% used above excludes the income tax effects of the non-GAAP income before tax adjustments described above and is consistent with our average and forecasted rate.