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Liberty Tax Service Announces Fiscal Year 2015 Results

VIRGINIA BEACH, VA -- (Marketwired) -- 06/18/15 -- Liberty Tax, Inc. (NASDAQ: TAX) (the "Company"), the parent company of Liberty Tax Service, today reported its results for fiscal year 2015. The Company reported that the total number of customers served in the U.S. and Canada grew by 2.1% to 2.2 million. Tax returns prepared in offices in the U.S. grew 0.9%, exceeding the national paid preparer category growth rate, while total returns in Canada grew 9.3%.

"Despite one of the most challenging tax seasons in recent memory, we continued our track record of increasing the number of taxpayers we served faster than the overall market," said John Hewitt, CEO. "Unfortunately, the revenue growth we expected from the Affordable Care Act (ACA) did not materialize and delays in implementation of immigration reform also impacted our revenue this year. However, we made significant investments related to the ACA and the launch of the SiempreTax+ brand, and we are uniquely prepared to capitalize on future industry growth."

In response to the growing issue of identity theft fraud in the tax system, Liberty recently joined forces with the IRS, state tax authorities and other companies in the industry to develop a plan to combat identity theft tax fraud beginning in the 2016 tax season. The Company remains committed to protecting its customers and addressing this growing threat, and to further efforts to address other types of tax fraud, as well.

Fiscal 2015 Results

($ in thousands except per share data) GAAP Non - GAAP*
2015 2014 Change 2015 2014 Change
Revenue $ 162,172 $ 159,696 2 % $ 162,172 $ 159,696 2 %
Operating expenses 146,780 124,875 18 % 129,283 124,226 4 %
Income before taxes 13,501 35,636 -62 % 30,998 34,102 -9 %
Diluted EPS 0.61 1.51 -60 % 1.36 1.45 -6 %
*See reconciliation of Non-GAAP to GAAP measures in Table F

Operational Highlights

  • U.S. systemwide revenue grew 4%.
  • SiempreTax+ was successfully launched with 57 stores in operation for the tax season, a record for a first year tax franchise.
  • Canadian systemwide revenue grew 10.5% (on a local currency basis) and returns processed grew 9.3%.
  • Licensed insurance agents were present in over 1,000 offices, ready to help the 23% of Liberty customers impacted by the ACA.

Revenues

  • Reported revenue increased 1.6% to $162.2 million.
  • Financial product revenue increased due to the Company's strategy to originate a larger portion of its financial products in house.
  • Growth in assisted tax preparation volume of 0.9% coupled with an increase in average net fee of 3.1% drove higher royalty and advertising revenue.
  • Franchise fee and other revenue were down as a result of lower cash payments received from franchisees.
  • Foreign exchange rates negatively impacted revenue by $0.8 million.

Operating Expenses

  • Reported operating expenses increased 17.5% to $146.8 million, compared to $124.9 million in the prior year. Adjusted operating expenses, as reported on Table F, increased 4.1% to $129.3 million. Investments in ACA initiatives and in launching the SiempreTax+ brand along with incremental advertising expense caused most of the increase.
  • Due to changes in the competitive landscape in the DIY market, the Company recorded an impairment of its online assets of $8.4 million. Additionally, the Company recorded $7.6 million in costs related to potential losses on two class action lawsuits, net of recovery from a vendor. These cases are now awaiting final approval from the courts. These items are excluded from the Company's adjusted results.

Balance Sheet and Cash Flow Highlights

  • During the year the Company repurchased $24.3 million in stock, net of options exercised, and initiated a quarterly dividend of 16 cents per share in the fourth quarter.
  • Cash and cash equivalents at April 30, 2015 were $21.4 million, down $24.7 million versus prior year, due to the share repurchases and dividend payment.

Dividend

On June 17, 2015, the Board of Directors has approved a quarterly dividend to shareholders of $0.16 per share. The dividend will be paid on July 22, 2015 to holders of record of common stock and common stock equivalents on the close of business on July 15, 2015.

Conference Call

At 8:30 a.m. Eastern time on June 18, 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: 48303673

The call will also be webcast in a listen-only format. The link to the webcast may 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 Thursday, June 25, 2015, by dialing 855-859-2056 (domestic) or 404-537-3406 (international). The conference ID code is 48303673. 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 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 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
Unaudited, amounts in thousands
April 30, April 30,
2015 2014
Current assets:
Cash and cash equivalents $ 21,387 $ 46,080
Current receivables, net 65,927 65,656
Assets held for sale 5,160 4,413
Deferred income tax asset 6,921 4,058
Other current assets 6,470 5,325
Total current assets 105,865 125,532
Property, equipment, and software, net 36,232 38,343
Notes receivable - non-current, net 20,753 15,824
Goodwill 3,377 2,997
Other intangible assets, net 14,672 14,295
Other assets 3,247 1,772
Total assets $ 184,146 $ 198,763
Current liabilities:
Current installments of long-term debt $ 3,934 $ 6,797
Accounts payable and accrued expenses 17,321 15,023
Due to area developers 24,340 18,236
Income taxes payable 2,147 9,676
Deferred revenue - current 6,076 6,051
Total current liabilities 53,818 55,783
Long-term debt, excluding current installments 21,463 21,691
Revolving credit facility - -
Deferred revenue - non-current 7,640 8,059
Deferred income tax liability 2,363 3,045
Total liabilities 85,284 88,578
Stockholders' equity:
Special voting preferred stock, $0.01 par value per share - -
Class A common stock, $0.01 par value per share 119 124
Class B common stock, $0.01 par value per share 9 9
Exchangeable shares, $0.01 par value 10 10
Additional paid-in capital 4,082 9,402
Accumulated other comprehensive income (loss), net of taxes (697 ) 66
Retained earnings 95,339 100,574
Total stockholders' equity 98,862 110,185
Total liabilities and stockholders' equity $ 184,146 $ 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
April 30,
2015 2014 % change
Revenues:
Franchise fees $ 3,250 $ 4,671 -30.4 %
Area developer fees 1,835 1,686 8.8 %
Royalties and advertising fees 52,119 53,716 -3.0 %
Financial products 23,031 24,030 -4.2 %
Interest income 7,507 6,795 10.5 %
Tax preparation fees, net of discounts 11,029 11,613 -5.0 %
Other revenue 148 1,062 -86.1 %
Total revenues 98,919 103,573 -4.5 %
Operating expenses:
Employee compensation and benefits 12,453 13,796 -9.7 %
Selling, general, and administrative expenses 9,685 11,625 -16.7 %
Area developer expense 17,721 17,876 -0.9 %
Advertising expense 4,286 4,074 5.2 %
Depreciation, amortization and impairment charges 3,045 3,687 -17.4 %
Impairment of online software and assets 8,392 - 100.0 %
Total operating expenses 55,582 51,058 8.9 %
Income from operations 43,337 52,515 -17.5 %
Other income (expense):
Foreign currency transaction loss 43 2 NM
Interest expense (339 ) (288 ) -17.7 %
Income before income taxes 43,041 52,229 -17.6 %
Income tax expense 16,298 19,898 -18.1 %
Net Income $ 26,743 $ 32,331 -17.3 %
Net income attributable to common stockholders Class A and Class B $ 24,795 $ 30,047 -17.5 %
Net income per share of Class A and Class B common stock
Basic $ 1.95 $ 2.28 -14.5 %
Diluted 1.89 2.18 -13.3 %
Weighted-average shares outstanding
Basic 12,728,000 13,154,000 -3.2 %
Diluted 14,156,000 14,853,000 -4.7 %
Table C
Liberty Tax, Inc.
Condensed Consolidated Statement of Operations
Unaudited, amounts in thousands, except per share and share data
Fiscal Years ended
April 30,
2015 2014 % change
Revenues:
Franchise fees $ 6,246 $ 7,844 -20.4 %
Area developer fees 6,901 6,680 3.3 %
Royalties and advertising fees 80,469 78,426 2.6 %
Financial products 37,058 34,512 7.4 %
Interest income 14,707 14,231 3.3 %
Tax preparation fees, net of discounts 13,877 14,295 -2.9 %
Other revenue 2,914 3,708 -21.4 %
Total revenues 162,172 159,696 1.6 %
Operating expenses:
Employee compensation and benefits 41,079 38,399 7.0 %
Selling, general, and administrative expenses 40,604 34,756 16.8 %
Area developer expense 28,497 27,319 4.3 %
Advertising expense 18,308 15,124 21.1 %
Depreciation, amortization and impairment charges 9,900 9,277 6.7 %
Impairment of online software and assets 8,392 - 100.0 %
Total operating expenses 146,780 124,875 17.5 %
Income from operations 15,392 34,821 -55.8 %
Other income (expense):
Foreign currency transaction loss (2 ) (13 ) 84.6 %
Gain on sale of available-for-sale securities - 2,183 -100.0 %
Interest expense (1,889 ) (1,355 ) -39.4 %
Income before income taxes 13,501 35,636 -62.1 %
Income tax expense 4,811 13,654 -64.8 %
Net income $ 8,690 $ 21,982 -60.5 %
Net income attributable to common stockholders Class A and Class B $ 8,057 $ 20,411 -60.5 %
Net income per share of Class A and Class B common stock
Basic $ 0.63 $ 1.57 -59.9 %
Diluted 0.61 1.51 -59.6 %
Weighted-average shares outstanding
Basic 12,738,000 12,991,000 -1.9 %
Diluted 14,295,000 14,537,000 -1.7 %
Table D
Liberty Tax, Inc.
Condensed Consolidated Statements of Cash Flows
Unaudited, amounts in thousands
Fiscal Years ended April 30,
2015 2014
Cash flows from operating activities:
Net Income $ 8,690 $ 21,982
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for doubtful accounts 5,726 8,692
Depreciation, amortization and impairment charges 18,292 9,277
Stock-based compensation expense related to equity classified awards 2,477 2,074
Stock-based compensation income related to liability classified awards - (872 )
Gains on bargain purchases and sales of Company-owned offices (414 ) (1,143 )
Deferred tax expense (3,545 ) 2,605
Gain on sale of available-for-sale securities - (2,183 )
Changes in other assets and liabilities (6,709 ) 3,050
Net cash provided by operating activities 24,517 43,482
Cash flows from investing activities:
Issuance of operating loans to franchisees (93,365 ) (76,013 )
Payments received on operating loans to franchisees 88,776 71,722
Purchases of Company-owned offices, area developer rights, and acquired customer lists (8,246 ) (8,706 )
Proceeds from sale of Company-owned offices and area developer rights 3,687 2,879
Proceeds from sale of available-for-sale securities - 5,163
Purchases of property, equipment, and software (11,463 ) (9,149 )
Proceeds from sale of property, equipment and software - 59
Net cash used in investing activities (20,611 ) (14,045 )
Cash flows from financing activities:
Proceeds from the exercise of stock options 11,983 13,979
Repurchase of common stock (36,308 ) (13,079 )
Payment of dividends (2,205 ) -
Repayment of long-term debt (5,850 ) (3,398 )
Borrowings under revolving credit facility 154,633 137,391
Repayments under revolving credit facility (154,633 ) (137,391 )
Payment for debt issuance costs (917 ) -
Tax benefit of stock option exercises 4,803 283
Net cash used in financing activities (28,494 ) (2,215 )
Effect of exchange rate changes on cash and cash equivalents, net (105 ) (155 )
Net increase (decrease) in cash and cash equivalents (24,693 ) 27,067
Cash and cash equivalents at beginning of period 46,080 19,013
Cash and cash equivalents at end of period $ 21,387 $ 46,080
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 April 30, 2015
Revenues Expenses Income from Operations EBITDA Income before Taxes Net Income (1) Diluted EPS
As Reported $ 98,919 $ 55,582 $ 43,337 $ 54,817 $ 43,041 $ 26,743 $ 1.89
Adjustments:
Executive severance - 129 (129 ) (129 ) (129 ) (79 ) (0.01 )
Litigation costs - (1,421 ) 1,421 1,421 1,421 874 0.06
Impairment of online software and assets - (8,392 ) 8,392 - 8,392 5,161 0.37
Subtotal of adjustments - (9,684 ) 9,684 1,292 9,684 5,956 0.42
As Adjusted 98,919 45,898 53,021 56,109 52,725 32,699 2.31
Stock-based compensation expense - (475 ) 475 475
Three Months Ended April 30, 2014
Revenues Expenses Income from Operations EBITDA Income before Taxes Net Income Diluted EPS
As Reported $ 103,573 $ 51,058 $ 52,515 $ 56,204 $ 52,229 $ 32,331 $ 2.18
Adjustments:
Restatement costs - (52 ) 52 52 52 32 -
As Adjusted 103,573 51,006 52,567 56,256 52,281 32,363 2.18
Stock-based compensation expense - (680 ) 680 680
(1) The non-GAAP tax rate of 38.5% used above excludes the income tax effects of the non-GAAP income before taxes adjustments described above and is consistent with our average and forecasted tax rate.
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.
Fiscal Year Ended April 30, 2015
Revenues Expenses Income from Operations EBITDA Income before Taxes Net Income
(4)
Diluted EPS
As Reported $ 162,172 $ 146,780 $ 15,392 $ 33,682 $ 13,501 $ 8,690 $ 0.61
Adjustments:
Executive severance(1) - (1,488 ) 1,488 1,488 1,488 915 0.06
Litigation costs - (7,617 ) 7,617 7,617 7,617 4,685 0.33
Impairment of online software and assets - (8,392 ) 8,392 - 8,392 5,161 0.36
Subtotal of adjustments - (17,497 ) 17,497 9,105 17,497 10,761 0.75
As Adjusted 162,172 129,283 32,889 42,787 30,998 19,451 1.36
Stock-based compensation expense(3) - (1,883 ) 1,883 1,883
Fiscal Year Ended April 30, 2014
Revenues Expenses Income from Operations EBITDA Income before Taxes Net Income Diluted EPS
As Reported $ 159,696 $ 124,875 $ 34,821 $ 44,085 $ 35,636 $ 21,982 $ 1.51
Adjustments:
Gain on available-for-sale securities - - - (2,183 ) (2,183 ) (1,347 ) (0.09 )
Executive severance(1) - (614 ) 614 614 614 379 0.03
Reclassification of stock-based compensation expense(2) - 872 (872 ) (872 ) (872 ) (538 ) (0.04 )
Restatement costs - (907 ) 907 907 907 559 0.04
Subtotal of adjustments - (649 ) 649 (1,534 ) (1,534 ) (947 ) (0.06 )
As Adjusted 159,696 124,226 35,470 42,551 34,102 21,035 1.45
Stock-based compensation expense(3) - (1,974 ) 1,974 1,974
(1) Includes stock-based compensation expense
(2) Related to conversion from equity to liability instruments
(3) Excludes costs related to executive severance
(4) The non-GAAP tax rate of 38.5% used above excludes the income tax effects of the non-GAAP income before taxes adjustments described above and is consistent with our average and forecasted tax rate.
Table G
Liberty Tax, Inc.
Operational Data
Unaudited
Fiscal years ended April 30,
2015 2014
Franchisees
U.S. 1,907 1,959
Canada 125 145
Total Franchisees 2,032 2,104
Offices(1)
U.S.
Franchised 3,944 3,995
Company-Owned 125 180
Total U.S. 4,069 4,175
Canada
Franchised 202 227
Company-Owned 57 36
Total Canada 259 263
Total
Franchised 4,146 4,222
Company-Owned 182 216
Total Offices 4,328 4,438
Tax Returns Processed
U.S. 1,907,000 1,890,000
Canada 340,000 311,000
Total Returns Processed in Offices 2,247,000 2,201,000
Online(4) 167,000 187,000
Total Tax Returns Processed 2,414,000 2,388,000
Systemwide Revenue ($ in thousands)(2)
U.S. $ 413,200,000 $ 397,300,000
Canada (CDN $) 26,400,000 23,900,000
Canada (USD $) 21,761,483 21,789,091
US Average Net Fee Per Return(3) $ 217 $ 210
(1) We measure our number of offices per fiscal year based on franchised and company-owned offices open at any point
during the tax season.
(2) Our systemwide revenue represents the total tax preparation revenue generated by our franchised and company-
owned offices. It does not represent our revenue. But because franchise royalties are derived from the operations
of our franchisees, and because we maintain an infrastructure to support systemwide operations, we consider growth
in systemwide revenue to be an important measurement.
(3) The net average fee per tax return prepared reflects amounts for our franchised and company-owned offices.
(4) Previously reported online return counts for 2014 have been restated to reflect accepted e-files only. No changes were made to previously reported returns for office counts

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

Source: Liberty Tax, Inc.