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Liberty Tax Service Announces Fiscal Year 2016 Results

VIRGINIA BEACH, VA -- (Marketwired) -- 06/14/16 -- Liberty Tax, Inc. (NASDAQ: TAX) (the "Company"), the parent company of Liberty Tax Service, today reported its results for fiscal year 2016. The Company reported that total revenue increased 7% to $173.4 million and GAAP earnings per share of $1.38 up 126% vs prior year. Non-GAAP earnings per share were $1.41 up 4% vs prior year.

The total number of customers served in company-owned and independently-owned and operated franchise offices fell by 3.8% to 2.16 million. Tax returns prepared in U.S. offices fell 3.9%, while total returns in Canada offices fell 2.9%.

The Company is continuing to implement several new initiatives such as SiempreTax+, which is already one of the fastest growing tax preparation franchises in history, even out pacing the initial growth of Liberty Tax Service. The Company will also be focusing on customer retention and enhanced compliance efforts to address an evolving industry environment.

"Our franchisees and leadership team have worked hard to overcome challenges facing Liberty and the entire tax industry," said John Hewitt, CEO. "Liberty was founded on a principle of delivering friendly and accurate tax preparation. Improving our standards and delivering an exceptional customer experience remains our highest priority."

Fiscal 2016 Results
($ in thousands except per share data) GAAP Non - GAAP*
2016 2015 Change 2016 2015 Change
Revenue $ 173,429 $ 162,172 7 % $ 173,429 $ 162,172 7 %
Operating expenses 140,941 146,780 -4 % 140,276 129,283 9 %
Income before taxes 30,478 13,501 126 % 31,143 30,998 0 %
Diluted EPS 1.38 0.61 126 % 1.41 1.36 4 %
*See reconciliation of GAAP to Non-GAAP measures in Table E

Highlights

  • The company reported revenue growth of 7% to $173.4 million.
    • Financial products revenue grew 22% to $45.3 million due to the company's new Refund Advance product as well as favorable pricing.
    • Tax preparation fees increased 39% to $19.3 million due to an increase in the number of company-owned offices.
    • Average net fee for tax preparation services in the U.S. increased 5.1%.
  • GAAP earnings per share increased 126% to $1.38 from $0.61. Non-GAAP earnings per share increased 4% to $1.41 from $1.36.
  • SiempreTax+ has successfully grown to 144 offices, an increase of roughly 150% over last season.

Dividend

On June 10, 2016, the Board of Directors approved a quarterly dividend to shareholders of $0.16 per share. The dividend will be paid on July 22, 2016 to holders of record of common stock and common stock equivalents on the close of business on July 12, 2016.

Conference Call

At 4:30 p.m. Eastern time on June 14, 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: 24717726

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 Tuesday, June 21, 2016, by dialing 855-859-2056 (domestic) or 404-537-3406 (international). The conference ID code is 24717726. 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 and has prepared nearly 22 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 21,000 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 Statements of Operations
Unaudited, amounts in thousands, except per share and share data
Fiscal Years ended April 30,
2016 2015 $ change % change
Revenues:
Franchise fees $ 5,038 $ 6,246 (1,208 ) (19.3 %)
Area developer fees 6,008 6,901 (893 ) (12.9 %)
Royalties and advertising fees 80,274 80,469 (195 ) (0.2 %)
Financial products 45,327 37,058 8,269 22.3 %
Interest income 13,578 14,707 (1,129 ) (7.7 %)
Tax preparation fees, net of discounts 19,292 13,877 5,415 39.0 %
Other revenue 3,912 2,914 998 34.2 %
Total revenues 173,429 162,172 11,257 6.9 %
Operating expenses:
Employee compensation and benefits 42,882 41,079 1,803 4.4 %
Selling, general, and administrative expenses 43,927 40,604 3,323 8.2 %
Area developer expense 27,686 28,497 (811 ) (2.8 %)
Advertising expense 16,420 18,308 (1,888 ) (10.3 %)
Depreciation, amortization and impairment charges 10,026 9,900 126 1.3 %
Impairment of online software and assets - 8,392 (8,392 ) 100.0 %
Total operating expenses 140,941 146,780 (5,839 ) (4.0 %)
Income from operations 32,488 15,392 17,096 111.1 %
Other income (expense):
Foreign currency transaction income (loss) 29 (2 ) 31 1,550.0 %
Interest expense (2,039 ) (1,889 ) (150 ) (7.9 %)
Income before income taxes 30,478 13,501 16,977 125.7 %
Income tax expense 11,058 4,811 6,247 129.8 %
Net income $ 19,420 $ 8,690 10,730 123.5 %
Net income attributable to Class A and Class B common stockholders $ 18,014 $ 8,057 9,957 123.6 %
Net income per share of Class A and Class B common stock
Basic $ 1.41 $ 0.63 0.78 123.8 %
Diluted 1.38 0.61 0.77 126.2 %
Weighted-average shares outstanding
Basic 12,814,775 12,738,887 75,888 0.6 %
Diluted 14,024,761 14,294,773 (270,012 ) (1.9 %)
Table B
Liberty Tax, Inc.
Condensed Consolidated Statements of Operations
Unaudited, amounts in thousands, except per share and share data
Three months ended April 30,
2016 2015 $ change % change
Revenues:
Franchise fees $ 2,513 $ 3,250 (737 ) (22.7 %)
Area developer fees 1,517 1,835 (318 ) (17.3 %)
Royalties and advertising fees 51,685 52,119 (434 ) (0.8 %)
Financial products 27,545 23,031 4,514 19.6 %
Interest income 6,075 7,507 (1,432 ) (19.1 %)
Tax preparation fees, net of discounts 14,487 11,029 3,458 31.4 %
Other revenue 592 148 444 300.0 %
Total revenues 104,414 98,919 5,495 5.6 %
Operating expenses:
Employee compensation and benefits 14,429 12,453 1,976 15.9 %
Selling, general, and administrative expenses 14,831 9,685 5,146 53.1 %
Area developer expense 16,964 17,721 (757 ) (4.3 %)
Advertising expense 2,348 4,286 (1,938 ) (45.2 %)
Depreciation, amortization and impairment charges 4,400 3,045 1,355 44.5 %
Impairment of online software and assets - 8,392 (8,392 ) 100.0 %
Total operating expenses 52,972 55,582 (2,610 ) (4.7 %)
Income from operations 51,442 43,337 8,105 18.7 %
Other income (expense):
Foreign currency transaction income 68 43 25 58.1 %
Interest expense (447 ) (339 ) (108 ) (31.9 %)
Income before income taxes 51,063 43,041 8,022 18.6 %
Income tax expense 18,775 16,298 2,477 15.2 %
Net Income $ 32,288 $ 26,743 5,545 20.7 %
Net income attributable to Class A and Class B common stockholders $ 29,961 $ 24,795 5,166 20.8 %
Net income per share of Class A and Class B common stock
Basic $ 2.33 $ 1.95 0.38 19.5 %
Diluted 2.31 1.89 0.42 22.2 %
Weighted-average shares outstanding
Basic 12,877,919 12,728,341 149,578 1.2 %
Diluted 13,967,568 14,155,818 (188,250 ) (1.3 %)
Table C
Liberty Tax, Inc.
Condensed Consolidated Balance Sheets
Unaudited, amounts in thousands
April 30, April 30,
2016 2015
Current assets:
Cash and cash equivalents $ 9,906 $ 21,387
Current receivables, net 74,122 65,927
Assets held for sale 9,886 5,160
Deferred income tax asset 3,496 6,921
Other current assets 5,838 6,470
Total current assets 103,248 105,865
Property, equipment, and software, net 40,957 36,232
Notes receivable - non-current, net 23,504 20,753
Goodwill 4,228 3,377
Other intangible assets, net 16,270 14,672
Other assets 7,524 3,247
Total assets $ 195,731 $ 184,146
Current liabilities:
Current installments of long-term debt $ 5,947 $ 3,934
Accounts payable and accrued expenses 14,064 17,321
Due to area developers 24,977 24,340
Income taxes payable 3,581 2,147
Deferred revenue - current 4,682 6,076
Total current liabilities 53,251 53,818
Long-term debt, excluding current installments 17,601 21,463
Revolving credit facility - -
Deferred revenue - non-current 7,056 7,640
Deferred income tax liability 6,322 2,363
Total liabilities 84,230 85,284
Stockholders' equity:
Special voting preferred stock, $0.01 par value per share - -
Class A common stock, $0.01 par value per share 120 119
Class B common stock, $0.01 par value per share 9 9
Exchangeable shares, $0.01 par value 10 10
Additional paid-in capital 7,153 4,082
Accumulated other comprehensive loss, net of taxes (1,698 ) (697 )
Retained earnings 105,907 95,339
Total stockholders' equity 111,501 98,862
Total liabilities and stockholders' equity $ 195,731 $ 184,146
Table D
Liberty Tax, Inc.
Condensed Consolidated Statements of Cash Flows
Unaudited, amounts in thousands
Fiscal Years ended April 30,
2016 2015
Cash flows from operating activities:
Net Income $ 19,420 $ 8,690
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for doubtful accounts 7,282 5,726
Depreciation, amortization and impairment charges 10,026 18,292
Stock-based compensation expense related to equity classified awards 1,863 2,477
Gains on bargain purchases and sales of Company-owned offices (855 ) (414 )
Deferred tax expense 7,384 (3,545 )
Changes in accrued income taxes 1,758 (7,491 )
Changes in other assets and liabilities (17,061 ) 782
Net cash provided by operating activities 29,817 24,517
Cash flows from investing activities:
Issuance of operating loans to franchisees (101,552 ) (93,365 )
Payments received on operating loans to franchisees 89,786 88,776
Purchases of Company-owned offices and area developer rights (4,787 ) (8,246 )
Proceeds from sale of Company-owned offices and area developer rights 2,934 3,687
Purchase of available-for-sale securities (4,999 ) -
Purchases of property, equipment, and software (10,692 ) (11,463 )
Net cash used in investing activities (29,310 ) (20,611 )
Cash flows from financing activities:
Proceeds from the exercise of stock options 2,286 11,983
Repurchase of common stock (1,977 ) (36,308 )
Payment of dividends (8,852 ) (2,205 )
Repayment of long-term debt (4,170 ) (5,850 )
Borrowings under revolving credit facility 166,232 154,633
Repayments under revolving credit facility (166,232 ) (154,633 )
Payment for debt issuance costs - (917 )
Tax benefit of stock option exercises 899 4,803
Net cash used by financing activities (11,814 ) (28,494 )
Effect of exchange rate changes on cash and cash equivalents, net (174 ) (105 )
Net decrease in cash and cash equivalents (11,481 ) (24,693 )
Cash and cash equivalents at beginning of period 21,387 46,080
Cash and cash equivalents at end of period $ 9,906 $ 21,387
Table E
Liberty Tax, Inc.
Non-GAAP Financial Information
Reconciliation of Other Non-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. 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, 2016
Revenues Expenses Income from Operations EBITDA Income before Taxes Net Income Diluted EPS
As Reported $ 173,429 $ 140,941 $ 32,488 $ 42,543 $ 30,478 $ 19,420 $ 1.38
Adjustments:
Executive severance(1) - (413 ) 413 413 413 263 0.02
Executive Task Force and compliance related costs - (252 ) 252 252 252 161 0.01
Subtotal of adjustments - (665 ) 665 665 665 424 0.03
As Adjusted $ 173,429 $ 140,276 $ 33,153 $ 43,208 $ 31,143 $ 19,844 $ 1.41
Stock-based compensation expense(2) $ - $ (1,771 ) $ 1,771 $ 1,771
Fiscal Year Ended April 30, 2015
Revenues Expenses Income from Operations EBITDA Income before Taxes Net Income(3) 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(2) $ - $ (1,883 ) $ 1,883 $ 1,883
(1) Includes stock-based compensation expense
(2) Excludes costs related to executive severance
(3) 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
Reconciliation of Other Non-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. 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, 2016
Revenues Expenses Income from Operations EBITDA Income before Taxes Net Income Diluted EPS
As Reported $ 104,414 $ 52,972 $ 51,442 $ 55,910 $ 51,063 $ 32,288 $ 2.31
Adjustments:
Executive Task Force and compliance related costs - (252 ) 252 252 252 159 0.01
Subtotal of adjustments - (252 ) 252 252 252 159 0.01
As Adjusted $ 104,414 $ 52,720 $ 51,694 $ 56,162 $ 51,315 $ 32,447 $ 2.32
Stock-based compensation expense $ - $ (515 ) $ 515 $ 515
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
(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 G
Liberty Tax, Inc.
Operational Data
Unaudited
Fiscal years ended April 30,
2016 2015
Franchisees
U.S. 1,856 1,907
Canada 130 125
Total Franchisees 1,986 2,032
Offices
U.S.
Franchised 3,967 3,944
Company-Owned 258 125
Total U.S. 4,225 4,069
Canada
Franchised 210 202
Company-Owned 52 57
Total Canada 262 259
Total
Franchised 4,177 4,146
Company-Owned 310 182
Total Offices 4,487 4,328
Tax Returns Processed
U.S. 1,832,000 1,907,000
Canada 330,000 340,000
Total Returns Processed in Offices 2,162,000 2,247,000
Online 145,000 167,000
Total Tax Returns Processed 2,307,000 2,414,000
Systemwide Revenue1
U.S. $ 417,600,000 $ 413,200,000
Canada (CDN $) 27,400,000 26,400,000
Canada (USD $) 21,200,000 21,800,000
US Average Net Fee Per Return2 $ 228 $ 217
1 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.
2 The net average fee per tax return prepared reflects amounts for our franchised and company-owned offices.

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