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Liberty Tax Service Reports Fiscal 2016 Third Quarter Results

VIRGINIA BEACH, VA -- (Marketwired) -- 03/04/16 -- 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, 2016.

"Despite a slow start to the tax season industry wide, we are pleased that the Company delivered double digit growth in the quarter in both revenue and earnings per share," said John Hewitt, CEO. "We are now focused on executing in the second half of the season to drive return counts and bottom line performance through cost control and pricing discipline."

($ in millions except per share data) GAAP Non - GAAP*
Q3 2016 Q3 2015 Change Q3 2016 Q3 2015 Change
Revenue $ 53.6 $ 47.7 12.5 % $ 53.6 $ 47.7 12.5 %
Operating expenses 44.7 43.4 2.9 % 44.7 39.3 13.6 %
Income before taxes 8.2 3.6 130.7 % 8.2 7.6 7.9 %
Net Income 4.7 1.9 146.9 % 4.7 4.1 15.5 %
Diluted EPS 0.34 0.13 161.5 % 0.34 0.29 17.2 %
*See reconciliation of non-GAAP to GAAP measures in Table E

Income Statement
Revenues for the three months ended January 31, 2016 increased 12.5% to $53.6 million compared to $47.7 million in the prior year period. The increase in revenue was primarily driven by strong performance in our financial products group and from growth in tax preparation fees driven by the launch of our new company store cluster program.

Reported operating expenses increased 2.9% to $44.7 million while adjusted operating expenses increased 13.6%. The increased operating expenses reflect the impact of our new refund advance product and the higher costs associated with operating more company stores.

Balance Sheet
The Company had a balance of $150.7 million on its revolving credit facility as of January 31, 2016, compared to $110.8 million as of January 31, 2015. A shift in IRS funding from Q3 to Q4 caused $25 million of the increase, along with higher offseason lending to franchisees.

Operational Results - Offices and Return Count
The Company reported an increase in permanent store locations of 196 stores and a decline in seasonal locations of 51. Increases in the number of permanent office locations is an important driver of future return count growth.

During the calendar year, through February 28, 2016 the Company and its franchisees served approximately 4% fewer customers in its offices than for the same period in the 2015 tax season. Liberty Tax Service offices have prepared 1,094,000 U.S. tax returns during the 2016 tax season through February 28.

Dividend
The Board of Directors has approved our fifth consecutive quarterly dividend.

The quarterly dividend of $0.16 per share will be paid on April 22, 2016 to holders of record of common stock and common stock equivalents on the close of business on April 12, 2016.

Third Quarter Conference Call
At 8:30 a.m. Eastern time on Friday, March 4, 2016, 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: 57683085

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 and continue until Friday, March 11, 2016, by dialing 855-859-2056 (domestic) or 404-537-3406 (international). The conference ID code is 57683085. 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 more than 19 million individual income tax returns in more than 4,400 U.S. and Canadian 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
Amounts in thousands
January 31, April 30, January 31,
2016 2015 2015
Current assets: (Unaudited) (Unaudited)
Cash and cash equivalents $ 1,787 $ 21,387 $ 3,150
Current receivables, net 149,886 65,927 124,482
Assets held for sale 11,164 5,160 5,613
Income taxes receivable 16,303 - 17,434
Deferred income tax asset 3,354 6,921 7,574
Other current assets 21,188 6,470 18,371
Total current assets 203,682 105,865 176,624
Property, equipment, and software, net 41,216 36,232 42,615
Notes receivable, non-current, net 33,036 20,753 28,050
Goodwill 4,069 3,377 3,185
Other intangible assets, net 13,217 14,672 17,358
Other assets 8,580 3,247 3,973
Total assets $ 303,800 $ 184,146 $ 271,805
Current liabilities:
Current installments of long-term debt $ 5,220 $ 3,934 $ 4,107
Accounts payable and accrued expenses 15,506 17,321 27,787
Due to ADs 16,258 24,340 14,980
Income taxes payable - 2,147 -
Deferred revenue - current 4,413 6,076 6,094
Total current liabilities 41,397 53,818 52,968
Long-term debt, excluding current installments 18,532 21,463 21,778
Revolving credit facility 150,682 - 110,762
Deferred revenue - non-current 7,206 7,640 7,777
Deferred income tax liability 6,049 2,363 6,705
Total liabilities 223,866 85,284 199,990
Stockholders' equity:
Special voting preferred stock, $0.01 par value per share - - -
Class A common stock, $0.01 par value per share 120 119 118
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 6,385 4,082 2,049
Accumulated other comprehensive loss, net of taxes (2,430 ) (697 ) (1,171 )
Retained earnings 75,840 95,339 70,800
Total stockholders' equity 79,934 98,862 71,815
Total liabilities and stockholders' equity $ 303,800 $ 184,146 $ 271,805
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,
2016 2015 $ change % change
Revenues:
Franchise fees $ 1,011 $ 968 $ 43 4.4 %
AD fees 1,363 1,592 (229 ) -14.4 %
Royalties and advertising fees 25,571 25,457 114 0.4 %
Financial products 17,266 13,370 3,896 29.1 %
Interest income 3,188 3,222 (34 ) -1.1 %
Tax preparation fees, net of discounts 3,843 1,942 1,901 97.9 %
Other revenue 1,379 1,129 250 22.1 %
Total revenues 53,621 47,680 5,941 12.5 %
Operating expenses:
Employee compensation and benefits 11,638 10,686 952 8.9 %
Selling, general, and administrative expenses 12,585 12,834 (249 ) -1.9 %
AD expense 9,340 9,178 162 1.8 %
Advertising expense 8,972 8,161 811 9.9 %
Depreciation, amortization, and impairment charges 2,118 2,527 (409 ) -16.2 %
Total operating expenses 44,653 43,386 1,267 2.9 %
Income from operations 8,968 4,294 4,674 108.8 %
Other expense:
Foreign currency transaction loss (14 ) (35 ) 21 -60.0 %
Interest expense (705 ) (683 ) (22 ) 3.2 %
Income before income taxes 8,249 3,576 4,673 130.7 %
Income tax expense 3,511 1,657 1,854 111.9 %
Net Income 4,738 1,919 2,819 146.9 %
Less: Net income attributable to participating securities (343 ) (140 ) (203 ) 145.0 %
Net income attributible to Class A and Class B common stockholders $ 4,395 $ 1,779 $ 2,616 147.0 %
Earnings per share of Class A and Class B common stock:
Basic $ 0.34 $ 0.14 $ 0.20 142.9 %
Diluted 0.34 0.13 0.21 161.5 %
Weighted-average shares outstanding basic 12,795,367 12,679,286 116,081 0.9 %
Weighted-average shares outstanding diluted 14,002,356 14,227,163 (224,807 ) -1.6 %
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,
2016 2015 $ change % change
Revenues:
Franchise fees $ 2,526 $ 2,996 $ (470 ) -15.7 %
AD fees 4,491 5,066 (575 ) -11.4 %
Royalties and advertising fees 28,589 28,350 239 0.8 %
Financial products 17,781 14,027 3,754 26.8 %
Interest income 7,503 7,200 303 4.2 %
Tax preparation fees, net of discounts 4,805 2,848 1,957 68.7 %
Other revenue 3,320 2,766 554 20.0 %
Total revenues 69,015 63,253 5,762 9.1 %
Operating expenses:
Employee compensation and benefits 28,454 28,736 (282 ) -1.0 %
Selling, general, and administrative expenses 29,097 30,809 (1,712 ) -5.6 %
AD expense 10,722 10,776 (54 ) -0.5 %
Advertising expense 14,072 14,022 50 0.4 %
Depreciation, amortization, and impairment charges 5,626 6,855 (1,229 ) -17.9 %
Total operating expenses 87,971 91,198 (3,227 ) -3.5 %
Loss from operations (18,956 ) (27,945 ) 8,989 -32.2 %
Other expense:
Foreign currency transaction loss (39 ) (45 ) 6 -13.3 %
Interest expense (1,592 ) (1,550 ) (42 ) 2.7 %
Loss before income taxes (20,587 ) (29,540 ) 8,953 -30.3 %
Income tax benefit (7,717 ) (11,487 ) 3,770 -32.8 %
Net loss $ (12,870 ) $ (18,053 ) $ 5,183 -28.7 %
Net loss attributible to Class A and Class B common stockholders $ (12,870 ) $ (18,053 ) $ 5,183 -28.7 %
Net loss per share of Class A and Class B common stock:
Basic and Diluted $ (1.01 ) $ (1.42 ) $ 0.41 -28.9 %
Weighted-average shares outstanding 12,794,185 12,742,288 51,897 0.4 %
Table D
Liberty Tax, Inc.
Condensed Consolidated Statements of Cash Flows
Unaudited, amounts in thousands
Nine months ended January 31,
2016 2015
Cash flows from operating activities:
Net loss $ (12,870 ) $ (18,053 )
Adjustments to reconcile net loss to net cash used in operating activities:
Provision for doubtful accounts 4,589 4,453
Depreciation, amortization, and impairment charges 5,626 6,855
Stock-based compensation expense 1,348 2,002
Gain on bargain purchases and sales of Company-owned offices (470 ) (310 )
Deferred tax expense 7,253 144
Changes in accrued income taxes (18,283 ) (27,110 )
Changes in other assets and liabilities (55,476 ) (22,202 )
Net cash used in operating activities (68,283 ) (54,221 )
Cash flows from investing activities:
Issuance of operating loans to franchisees (81,364 ) (74,298 )
Payments received on operating loans to franchisees 3,077 16,410
Purchases of AD rights and Company-owned offices (3,713 ) (8,218 )
Proceeds from sale of Company-owned offices and AD rights 2,851 3,690
Purchase of available-for-sale securities (4,999 ) -
Purchase of property, equipment, and software (8,685 ) (9,532 )
Net cash used in investing activities (92,833 ) (71,948 )
Cash flows from financing activities:
Proceeds from the exercise of stock options 1,998 10,053
Repurchase of common stock (1,977 ) (35,910 )
Dividends paid (6,629 ) -
Repayment of amounts due to former ADs (2,429 ) (4,211 )
Repayment of other long-term debt (726 ) (949 )
Borrowings under revolving credit facility 151,225 136,565
Repayments under revolving credit facility (543 ) (25,803 )
Payment for debt issue costs - (917 )
Tax benefit of stock option exercises 933 4,776
Net cash provided by financing activities 141,852 83,604
Effect of exchange rate changes on cash, net (336 ) (365 )
Net decrease in cash and cash equivalents (19,600 ) (42,930 )
Cash and cash equivalents at beginning of period 21,387 46,080
Cash and cash equivalents at end of period $ 1,787 $ 3,150
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 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.

Three Months Ended January 31, 2016

Revenues
Expenses		 Income from
Operations
EBITDA
Pretax Income
Net Income		 Diluted
EPS
As Reported $ 53,621 $ 44,653 $ 8,968 $ 11,072 $ 8,249 $ 4,738 $ 0.34
Adjustments:
Executive severance including stock-based compensation - - - - - - -
Litigation settlements - - - - - - -
Total adjustments - - - - - - -
As Adjusted $ 53,621 $ 44,653 $ 8,968 $ 11,072 $ 8,249 $ 4,738 $ 0.34
Stock-based compensation expense excluding severance related expense $ - $ (482 ) $ 482 $ 482
Three Months Ended January 31, 2015

Revenues
Expenses		 Income from
Operations
EBITDA
Pretax Income
Net Income		 Diluted
EPS
As Reported $ 47,680 $ 43,386 $ 4,294 $ 6,786 $ 3,576 $ 1,919 $ 0.13
Adjustments:
Litigation settlements - (4,066 ) 4,066 4,066 4,066 2,182 0.16
Total adjustments - (4,066 ) 4,066 4,066 4,066 2,182 0.16
As Adjusted $ 47,680 $ 39,320 $ 8,360 $ 10,852 $ 7,642 $ 4,101 $ 0.29
Stock-based compensation expense excluding severance related expense $ - $ (494 ) $ 494 $ 494
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 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.

Nine Months Ended January 31, 2016

Revenues
Expenses		 Loss from
Operations
EBITDA
Pretax Loss
Net Loss		 Basic and
Diluted EPS
As Reported $ 69,015 $ 87,971 $ (18,956 ) $ (13,369 ) $ (20,587 ) $ (12,870 ) $ (1.01 )
Adjustments:
Executive severance including stock-based compensation - (413 ) 413 413 413 258 0.02
Litigation settlements - - - - - - -
Total adjustments - (413 ) 413 413 413 258 0.02
As Adjusted $ 69,015 $ 87,558 $ (18,543 ) $ (12,956 ) $ (20,174 ) $ (12,612 ) $ (0.99 )
Stock-based compensation expense excluding severance related expense $ - $ (1,256 ) $ 1,256 $ 1,256
Nine Months Ended January 31, 2015

Revenues
Expenses		 Loss from
Operations
EBITDA
Pretax Loss
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 including stock-based compensation - (1,617 ) 1,617 1,617 1,617 988 0.08
Litigation settlements - (6,196 ) 6,196 6,196 6,196 3,787 0.30
Total adjustments - (7,813 ) 7,813 7,813 7,813 4,775 0.38
As Adjusted $ 63,253 $ 83,385 $ (20,132 ) $ (13,322 ) $ (21,727 ) $ (13,278 ) $ (1.04 )
Stock-based compensation expense excluding severance related expense $ - $ (1,408 ) $ 1,408 $ 1,408
Table G
Liberty Tax, Inc.
Operational Data
Unaudited
Tax returns processed1 CYTD 1/31/16 CYTD 1/31/15 Percent Change
U.S. offices 438,000 456,000 -3.9 %
Online2 21,000 23,000 -8.7 %
Total tax returns processed 459,000 479,000 -4.2 %
Tax returns processed1 CYTD 2/28/16 CYTD 2/28/15 Percent Change
U.S. offices 1,094,000 1,140,000 -4.0 %
Online2 65,000 72,000 -9.7 %
Total tax returns processed 1,159,000 1,212,000 -4.4 %
U.S. Offices3 Change
Permanent 3,960 3,764 196
Seasonal 211 262 (51 )
Processing Centers 54 43 11
Total office locations 4,225 4,069 156
1 Return counts are rounded to the thousands and percentages are calculated on rounded amounts
2 Previously reported online return counts for calendar years prior to 2016 have been restated to reflect accepted e-files only. No changes were made to previously reported returns for office counts.
3 We measure our number of offices per fiscal year based on franchised and company-owned offices open at any point during the tax season

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.