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Liberty Tax Service Announces Fiscal Year 2018 Results

Company Starts Implementation of Cost Savings Initiatives

Total Revenues Increased 0.5% to $174.9 Million and Cash Flows Remain Strong

VIRGINIA BEACH, Va., Sept. 07, 2018 (GLOBE NEWSWIRE) -- Liberty Tax, Inc. (OTC PINK: TAXA) (the “Company”), the parent company of Liberty Tax Service, today reported its unaudited results for fiscal year 2018. The Company reported total revenue of $174.9 million and GAAP earnings per share of $0.01. Non-GAAP earnings per share were $0.64. The Company delivered adjusted EBITDA of $35.2 million and net cash from operating activities of $27.6 million.

The average returns processed per U.S. office increased 2.8% to 445 returns compared to 433 in the prior year. Total U.S. returns of 1.49 million were lower than the 1.66 million U.S. returns in the prior year, primarily due to reductions in locations and store closings. Total returns processed in Canada increased to 0.38 million from 0.36 million.

“The Company delivered strong free cash flows and EBITDA, despite significant one-time expenses, an anticipated reduction in U.S. franchised locations, and lower performing company-owned stores,” said Chief Executive Officer, Nicole Ossenfort. “We now begin a new future direction after completion of management changes and installing new Board members. We are evaluating and implementing additional cost savings designed to drive further profitability and working with our Board to power new strategic initiatives directed towards bottom line performance. Our initiatives are focused around attracting and retaining customers as well as improving overall performance of our company-owned locations.”

 
Fiscal 2018 Results (unaudited)
($ in millions except per share data) GAAP   Non - GAAP*
   2018      2017     Change        2018      2017     Change  
Revenue $   174.9   $   174.0   0.5 %   $   174.9   $   174.0   0.5 %
Operating expenses   167.3     150.7   11 %     154.1     145.9   6 %
Income before taxes   4.5     20.8   -78 %     17.6     25.5   -31 %
Net Income   0.1     13.0   -99 %     9.0     16.0   -43 %
Diluted EPS $   0.01   $   0.94   -99 %   $   0.64   $   1.15   -44 %
*See reconciliation of non-GAAP to GAAP financial measures in Table D and additional information under Non-GAAP Financial Information. 
                       

Financial Highlights

  • Adjusted EBITDA of $35.2 million compared to $42.4 million for fiscal year 2017 (see Table D).
  • Net cash provided by operating activities was $27.6 million compared to $32.4 million for fiscal year 2017.
  • The Company remains in full compliance with the terms and covenants of its Credit Facility Agreement and has full availability under the facility.
  • The Company ended the fiscal year with $18.5 million of cash on hand compared to $16.4 million at the end of the prior fiscal year.
  • The Company reported revenue growth of 0.5% to $174.9 million.
    • Tax preparation fees in company-owned stores increased 23.4% to $26.6 million due to an increase in the number of tax returns prepared.  This increase was offset by increased operating expenses and impairment charges.
    • A new optional electronic filing fee charge for U.S. federal returns generated $10.8 million of revenue.  $8.6 million of the related rebate expense to franchisees is included in SG&A.
    • Average net fees for tax preparation services in the U.S. increased 6.0%.
    • Revenue from franchise and company-owned Canadian offices increased 12.7% in Canadian dollars.
  • The Company incurred $5.0 million in restructuring expenses primarily related to company-owned store exit costs and the termination of a service provider contract.
  • As a result of the underperformance in our company-owned stores, the Company recorded non-cash impairment charges totaling $3.0 million.

Effective Tax Rate
For the fiscal year ended April 30, 2018, the Company’s effective tax rate was materially impacted by the following items:

  • A one-time Transition Tax on cumulative earnings related to our Canadian subsidiary and the re-measurement of deferred taxes mandated by the Tax Cuts and Jobs Act (the “Tax Act”).
  • Changes to the statutory federal rates mandated by the Tax Act on taxable income from 35% to 21% which became effective as of January 1, 2018.  The Company’s statutory federal rate for the year ended April 30, 2018 was 30.4% due to a blended tax rate provision in the Tax Act for non-calendar year tax filers.
  • Certain stock-based compensation expenses recorded in our financial statements that were not ultimately deductible for tax purposes. 

While there may be some future impact of stock-based compensation on the Company’s effective tax rate, the Company expects the annual effective tax rate going forward to normalize between 26% and 29%.

Other Items

  • The Company continues to work diligently with its auditors to complete and file its required filings with the Securities and Exchange Commission (the “SEC”) and currently expects to file its delinquent Forms 10-Q for the quarters ended October 31, 2017 and January 31, 2018 and its Form 10-K for the year ended April 30, 2018 on or before October 15, 2018.  Additionally, the Company currently expects to file its Form 10-Q for the quarter ended July 31, 2018 on or before October 31, 2018.
  • The Company has submitted its appeal of the Nasdaq Hearing Panel’s determination to delist the Company’s Class A common stock to the Nasdaq Listing and Review Council.  Pending the outcome of the appeal, the Company’s Class A common stock will continue to be quoted on the OTC Market under the symbol “TAXA”.

 

About Liberty Tax, Inc.
Founded in 1997, Liberty Tax, Inc. (OTC PINK: TAXA) is the parent company of Liberty Tax Service. In the U.S. and Canada, last year, Liberty Tax prepared approximately two million individual income tax returns in more than 3,600 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 seasonal tax preparers. Liberty Tax also supports local communities with fundraising endeavors and contributes as a national sponsor to 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 “Reconciliation of Non-GAAP Financial Information to the Most Directly Comparable GAAP Financial Measures.” 

Forward Looking Statements
In addition to historical information, this press release may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including implied and express statements regarding the Company’s strategic initiatives and the Company’s anticipated timing with respect to the filing of its delinquent periodic reports.  These forward-looking statements 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: the risk that the Company’s appeal to Nasdaq will not be successful; uncertainties relating to the ability of the Company to file its delinquent periodic filings with the SEC; uncertainties regarding the Company's ability to attract and retain clients; uncertainties regarding the Company’s strategic plans related to company-owned stores; uncertainties regarding the Company’s ability to meet its prepared returns targets; competitive factors; regulatory factors; the Company's effective income tax rate; litigation defense expenses and costs of judgments or settlements; costs associated with compliance efforts; and changes in market, economic, political or regulatory conditions. Additional information concerning these risks and uncertainties is contained in the Company’s filings 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 except as may be required by law.

  Table A
  Liberty Tax, Inc.
  Consolidated Statement of Operations
  Unaudited, amounts in thousands, except per share and share data
                 
    Twelve months ended
April 30,
      2018       2017     $ change   % change
  Revenues:              
  Franchise fees $ 1,793     $ 2,659       (866)     -32.6 %
  Area Developer fees   2,751       4,177       (1,426)     -34.1 %
  Royalties and advertising fees   68,559       74,291       (5,732)     -7.7 %
  Financial products   47,225       51,829       (4,604)     -8.9 %
  Interest income   9,895       12,955       (3,060)     -23.6 %
  Assisted tax preparation fees, net of discounts   26,645       21,600       5,045     23.4 %
  Electronic Filing Fee   10,772       -       10,772     100.0 %
  Other revenue   7,232       6,474       758     11.7 %
  Total revenue   174,872       173,985       887     0.5 %
                 
  Operating expenses:              
  Employee compensation and benefits   50,003       44,615       5,388     12.1 %
  Selling, general, and administrative expenses   69,012       58,159       10,853     18.7 %
  Area Developer expense   16,564       22,461       (5,897)     -26.3 %
  Advertising expense   12,326       11,073       1,253     11.3 %
  Depreciation, amortization, and impairment charges   14,416       14,356       60     0.4 %
  Restructuring expense   4,952       -       4,952     100.0 %
  Total operating expenses   167,273       150,664       16,609     11.0 %
  Income from operations   7,599       23,321       (15,722)     -67.4 %
                 
  Other income (expense):              
  Foreign currency transaction gain (loss)   63       (47)       110     -234.0 %
  Gain on sale of available-for-sale securities   -       50       (50)     -100.0 %
  Interest expense   (3,181)       (2,557)       (624)     24.4 %
  Income before income taxes   4,481       20,767       (16,286)     -78.4 %
  Income tax expense   4,346       7,754       (3,408)     -44.0 %
  Net Income $ 135     $ 13,013     $ (12,878)     -99.0 %
                 
                 
  Net Income per share of Class A and Class B              
  common stock:              
  Basic $ 0.01     $ 0.94     $ (0.93)     -98.9 %
  Diluted $ 0.01     $ 0.94     $ (0.93)     -98.9 %
                 
  Weighted-average shares outstanding basic   12,928,762       12,895,561       33,201     0.3 %
  Weighted-average shares outstanding diluted   13,977,748       13,916,908       60,840     0.4 %
                 


  Table B
  Liberty Tax, Inc.
  Consolidated Balance Sheets
  Unaudited, amounts in thousands
           
    April 30,   April 30,  
      2018       2017    
  Current assets:        
  Cash and cash equivalents $ 18,522     $ 16,427    
  Current receivables, net   66,816       74,483    
  Assets held for sale   8,941       11,989    
  Deferred income tax asset   -       6,956    
  Other current assets   5,429       5,812    
  Total current assets   99,708       115,667    
           
  Property, equipment, and software, net   38,636       39,789    
  Notes receivable, non-current, net   5,589       16,245    
  Deferred tax asset   343       -    
  Goodwill   8,640       8,576    
  Other intangible assets, net   22,837       21,224    
  Other assets   2,250       2,767    
  Total assets $ 178,003     $ 204,268    
           
  Current liabilities:        
  Current installments of long-term obligations $ 18,113     $ 7,738    
  Accounts payable and accrued expenses   14,521       12,953    
  Due to Area Developers   17,906       23,143    
  Income taxes payable   4,511       6,442    
  Deferred revenue - current   2,021       2,892    
  Total current liabilities   57,072       53,168    
           
  Long-term obligations, excluding current installments, net   2,270       18,461    
  Deferred revenue and other - non-current   4,692       5,817    
  Deferred income tax liability   1,397       10,367    
  Long-term income taxes payable   1,070       -    
  Total liabilities   66,501       87,813    
           
  Stockholders' equity:        
  Special voting preferred stock, $0.01 par value per share   -       -    
  Class A common stock, $0.01 par value per share   128       127    
  Class B common stock, $0.01 par value per share   2       2    
  Exchangeable shares, $0.01 par value per share   10       10    
  Additional paid-in capital   11,570       8,371    
  Accumulated other comprehensive loss, net of taxes   (1,347)       (2,084)    
  Retained earnings   101,139       110,029    
  Total stockholders' equity   111,502       116,455    
  Total liabilities and stockholders' equity $ 178,003     $ 204,268    
           


Table C
Liberty Tax, Inc.
Consolidated Statements of Cash Flows
Unaudited, amounts in thousands
  Twelve months ended April 30,
    2018       2017  
Cash flows from operating activities:      
Net Income $ 135     $ 13,013  
Adjustments to reconcile net loss to net cash used in operating activities:      
Provision for doubtful accounts   12,396       10,378  
Depreciation and amortization   11,454       8,325  
Impairment of goodwill and other assets   2,962       6,031  
Other loss (gain) including sale of property, equipment and software   5,261       (387)  
Stock-based compensation expense   3,680       2,016  
Deferred tax expense (benefit)   (2,369)       129  
Gain on bargain purchase and sales of company-owned offices   (2,401)       (1,100)  
Change in income taxes payable (receivable)   (798)       2,487  
Gain on sale of available-for-sale securities   -       (50)  
Changes in other assets and liabilities   (2,675)       (8,396)  
Net cash provided by operating activities   27,645       32,446  
       
Cash flows from investing activities:      
Issuance of operating loans to franchisees and Area Developers (ADs)   (73,796)       (94,133)  
Payments received on operation loans to franchises and ADs   72,647       89,562  
Purchases of AD rights, company-owned offices, and other intangible assets   (2,926)       (10,049)  
Proceeds from sale of AD rights and company-owned offices   451       1,339  
Proceeds from sale of available-for-sale securities   -       5,049  
Purchases of property, equipment and software   (5,388)       (5,022)  
Net cash used in investing activities   (9,012)       (13,254)  
       
Cash flows from financing activities:      
Proceeds from the exercise of stock options   95       -  
Tax inpact of stock compensation and repurchase of common stock   1       (420)  
Dividends paid   (8,922)       (8,891)  
Repayment of long-term obligations   (7,432)       (5,281)  
Borrowings under revolving credit facility   178,251       151,400  
Repayments under revolving credit facility   (178,251)       (151,400)  
Proceeds from mortgage debt   -       2,200  
Payment for debt issue costs   -       (35)  
Cash paid for taxes on exercises/vesting of stock-based compensation   (576)       -  
Tax benefit of stock option exercises   -       60  
Net cash used in financing activities   (16,834)       (12,367)  
       
Effect of exchange rate changes on cash, net   296       (304)  
Net increase in cash and cash equivalents   2,095       6,521  
Cash and cash equivalents at beginning of period   16,427       9,906  
Cash and cash equivalents at end of period $ 18,522     $ 16,427  
       
       
Cash paid for taxes, net of refunds $ 7,393     $ 5,058  
       


Table D
Liberty Tax, Inc.
Reconciliation of Non-GAAP Financial Information to the Most Directly Comparable 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 that earnings before interest, taxes, depreciation, amortization and impairment ("EBITDA") and non-GAAP results should be evaluated, in addition to, and not as an alternative for, net Income as determined in accordance with GAAP.  We consider our non-GAAP financial results to be a useful metric for management and investors to evaluate and compare current year results with prior periods.  Because not all companies use the same calculations, our definition of EBITDA may not be comparable to similarly titled figures from other companies.  In addition, when evaluating non-GAAP results, we exclude certain items that are not considered to be part of future operating results.
 
The following is a reconciliation of GAAP Net Income as shown in Table A to EBITDA.
                   
          Twelve months ended April 30,    
          2018     2017      
          (in thousands)    
Net Income - as reported         135     13,013      
Add back:                  
Interest expense         3,181     2,557      
Income tax expense         4,346     7,754      
Depreciation, amortization, and impairment charges:                
As Reported         14,416     14,356      
Included in restructuring expense*         2,415     -      
Total Adjustments         24,358     24,667      
EBITDA         24,493     37,680      
                       
*Impairments related to contract termination costs and property and intangibles included in Restructuring expense        
 
The following is a reconciliation of our non-GAAP financial measures to the most comparable GAAP financial measures.
Amounts may not add or recalculate due to rounding.  See page 9 for a description of the items excluded which we believe
to not be considered part of future operating results.                
                   
                   
For the twelve months ended April 30, 2018
      Income from   Pre-tax   Net   Diluted
  Revenues Expenses Operations EBITDA Income   Income   EPS
                   
As Reported 174,872 167,273   7,599 24,493   4,481     135     $ 0.01
                   
Adjustments: (1)                  
Executive severance and related costs including stock-based compensation   (6,468)   6,468 6,468   6,468     4,114       0.29
Executive recruitment costs   (325)   325 325   325     207       0.01
Compliance Task Force and related costs   (881)   881 881   881     560       0.04
Shareholder Litigation Costs   (529)   529 529   529     337       0.02
Tax Cuts and Jobs Act Adjustments   -   - -   -     528       0.04
Restructuring expense   (4,952)   4,952 2,537   4,952     3,149       0.23
Total Adjustments - (13,155)   13,155 10,740   13,155     8,895       0.63
Non-GAAP 174,872 154,118   20,754 35,233   17,636     9,030     $ 0.64
                   
For the twelve months ended April 30, 2017
      Income from   Pre-tax   Net   Diluted
  Revenues Expenses Operations EBITDA Income   Income   EPS
                   
As Reported 173,985 150,664   23,321 37,680   20,767     13,013     $ 0.94
                   
Adjustments: (1)                  
Executive severance, including stock-based compensation - (877)   877 877   877     550       0.04
Compliance Task Force and related costs - (1,197)   1,197 1,197   1,197     750       0.05
Gain on available-for-sale securities - -   - (50)   (50)     (31)       -
Accrued judgment - (2,700)   2,700 2,700   2,700     1,692       0.12
Total Adjustments - (4,774)   4,774 4,724   4,724     2,961       0.21
Non-GAAP 173,985 145,890   28,095 42,404   25,491     15,974     $ 1.15
                   
(1) The net income impact of the adjustments is calculated using the incremental tax rate for the period.
                   


Table E
Liberty Tax, Inc.
Operational Data
Unaudited
         
    Twelve months ended April 30,
      2018     2017
Franchisees        
U.S.     1,582     1,753
Canada     138     133
Total Franchisees     1,720     1,886
         
Offices        
U.S.        
Franchised     3,047     3,505
Company-Owned     296     318
Total U.S.     3,343     3,823
         
Canada        
Franchised     219     210
Company-Owned     48     44
Total Canada     267     254
         
Total        
Franchised     3,266     3,715
Company-Owned     344     362
Total Offices     3,610     4,077
         
Tax Returns Processed        
U.S.     1,487,000     1,657,000
Canada     377,000     359,000
Total Returns Processed in Offices     1,864,000     2,016,000
         
Online     125,000     138,000
Total Tax Returns Processed     1,989,000     2,154,000
         
Systemwide Revenue1        
U.S.   $366,900,000   $386,000,000
         
Canada (CDN $)     31,000,000     28,700,000
Canada (USD $)     24,100,000     21,500,000
         
U.S. Average Net Fee Per Return2   $247   $233
         
1 Our systemwide revenue represents the total tax preparation revenue generated by our franchised and company-owned offices.  It does not represent our revenue. Because franchise royalties are derived from the operations of our franchisees, and because we maintain an infrastructure to support systemwide operations, we consider systemwide revenue to be an important measurement.
 
2 The average net fee per tax return prepared reflects amounts for our franchised and company-owned offices.

Non-GAAP Financial Information
The Company believes that EBITDA and non-GAAP net income should be evaluated, in addition to, and not as an alternative for, net income as determined in accordance with GAAP.  Both metrics are used by management when evaluating the performance of the Company.  Because not all companies use the same calculations, our definition of EBITDA may not be comparable to similarly titled figures from other companies.  In addition, when evaluating non-GAAP financial information, we exclude certain items that are not considered to be part of future operating results and which management excludes when evaluating the performance of the Company.  Descriptions of the items which are excluded are as follows:

Executive severance and related costs, including stock-based compensation:  We exclude from our non-GAAP financial measures cash and non-cash stock-based compensation, related third-party expenses and perquisites associated with the separation of employment with executives of the Company.

Executive recruitment costs:  We exclude from our non-GAAP financial measures one-time costs incurred to recruit and hire new executives.

Compliance Task Force and related costs:  We exclude from our non-GAAP financial measures third-party expenses we incur related to our Compliance Task Force.  These expenses include professional and legal
fees.

Shareholder litigation costs:  We exclude from our non-GAAP financial measures one-time costs incurred related to shareholder litigation.

Tax Cuts and Jobs Act adjustments:  We exclude from our non-GAAP financial measures one-time tax adjustments for Transition Taxes related to our Canadian subsidiary and the re-measurement of deferred taxes.

Restructuring:  We exclude from our non-GAAP financial measures cash and non-cash expenses of restructuring activities.  These expenses include contract termination costs related to licensing, support and impairment, property and intangible impairments and exit costs as well as employee termination costs.

Gain on available-for-sale securities:  We exclude from our non-GAAP financial measures gains and losses we record when we sell equity securities and other investments.

Accrued judgment:  We exclude from our non-GAAP financial measures an accrued judgment recorded in the period ended April 30, 2017. 

CONTACT:
Michael S. Piper
Liberty Tax, Inc.
Vice President and Chief Financial Officer
(757) 493-8855
investorrelations@libtax.com

Liberty-Tax_LOGO.jpg

Source: Liberty Tax, Inc.