TAXA - Liberty Tax Service Announces Fiscal Year 2019 Results

June, 20 2019 06:30 AM Liberty Tax Inc.

Average Returns for U.S. and Canadian Offices Show Growth
U.S. Average Net Fee per Return Increased by 3.6%

VIRGINIA BEACH, Va., June 20, 2019 (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 2019. The Company reported total revenue of $132.5 million. The Company’s revenue in fiscal 2019 was impacted by the Company’s adoption of ASC 606, “Revenues from Contracts with Customers” effective May 1, 2018. The Company experienced a net loss of $2.2 million, in fiscal 2019 resulting in a GAAP loss per share of $0.16. Non-GAAP earnings per share for fiscal 2019 (as defined in Table D) were $0.63. The Company delivered adjusted EBITDA (as defined in Table D) of $28.0 million in fiscal 2019 and net cash provided by operating activities of $17.1 million.

The average returns processed per U.S. office increased 5.62% to 470 returns compared to 445 in the prior year. Total U.S. federal assisted tax returns of 1.33 million were lower than the 1.49 million U.S. federal assisted tax returns in the prior year, due to reductions in the number of U.S. locations. Total returns processed in Canada increased to 0.39 million from 0.38 million.

“Despite incurring a significant amount of one-time expenses, the Company continues to deliver solid cash flows from operating activities,” commented Chief Executive Officer, Brent Turner. “As I begin work in the role of CEO, we are sharply focused on delivering results through meaningful initiatives that position our brand for growth. We have recognized the need for change and are well underway toward making those changes.”

Fiscal 2019 Results (unaudited)

*($ in millions except per share data)*
GAAP

Non - GAAP*


2019


2018

Change


2019


2018

Change
Revenue
$
132.5

$
174.9

-24%

$
134.2

$
174.9

-23%
Operating expenses

133.4


167.3

-20%


120.1


154.1

-22%
Income (loss) before taxes

(4.0)


4.5

-189%


10.9


17.6

-38%
Net Income (loss)

(2.2)


0.1

-1697%


8.7


8.5

2%
Diluted EPS

(0.16)


0.01

-1700%


0.63


0.60

5%
*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 $28.0 million compared to $35.2 million for fiscal year 2018 (see Table D).
Net cash provided by operating activities was $17.13 million compared to $27.65 million for fiscal year 2018.
Average net fees for tax preparation services in the U.S. increased 3.6%.
The Company entered into a new $135 million Credit Facility last month and has full availability under the facility.
The Company ended the fiscal year with $23.0 million of cash on hand and repaid the balance of its term debt of $12.0 million on May 1, 2019.
The optional electronic filing fee charge for U.S. federal returns generated $2.68 million of revenue compared to $2.15 million in fiscal 2018 (gross versus net accounting adjusted for ASC 606).
Average net fees for tax preparation services in U.S. Company-owned offices increased 14.1%.
Revenue from franchise and Company-owned Canadian offices increased 1% in Canadian dollars.

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 3,100 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 statements regarding future growth. 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: 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,


2019



2018


$ change

% change
Revenues:







Franchise fees
$
2,766


$
1,793



973


54.3
%
Area Developer fees

3,146



2,751



395


14.4
%
Royalties and advertising fees

63,716



68,559



(4,843)


-7.1
%
Financial products

33,478



47,225



(13,747)


-29.1
%
Interest income

8,189



9,895



(1,706)


-17.2
%
Assisted tax preparation fees, net of discounts

14,611



26,645



(12,034)


-45.2
%
Electronic Filing Fee

2,675



10,772



(8,097)


-75.2
%
Other revenue

3,965



7,232



(3,267)


-45.2
%
Total revenue

132,546



174,872



(42,326)


-24.2
%








Operating expenses:







Employee compensation and benefits

39,822



50,003



(10,181)


-20.4
%
Selling, general, and administrative expenses

42,038



69,012



(26,974)


-39.1
%
Area Developer expense

15,584



16,564



(980)


-5.9
%
Advertising expense

12,532



12,326



206


1.7
%
Depreciation, amortization, and impairment charges

14,084



14,416



(332)


-2.3
%
Restructuring expense

9,345



4,952



4,393


88.7
%
Total operating expenses

133,405



167,273



(33,868)


-20.2
%
Income (loss) from operations

(859)



7,599



(8,458)


-111.3
%








Other income (expense):







Foreign currency transaction gain (loss)

(113)



63



(176)


-279.4
%
Gain on sale of available-for-sale securities

-



-



-


100.0
%
Interest expense

(3,023)



(3,181)



158


-5.0
%
Income (loss) before income taxes

(3,995)



4,481



(8,476)


-189.2
%
Income tax expense (benefit)

(1,839)



4,346



(6,185)


-142.3
%
Net Income (loss)
$
(2,156)


$
135


$
(2,291)


-1697.0
%
















Net Income (loss) per share of Class A and Class B







common stock:







Basic and diluted
$
(0.16)


$
0.01


$
(0.17)


-1700.0
%








Weighted-average shares outstanding basic

13,800,884



12,928,762



872,122


6.7
%
Weighted-average shares outstanding diluted

13,800,884



13,977,748



(176,864)


-1.3
%

Table B
Liberty Tax, Inc.
Consolidated Balance Sheets
Amounts in thousands





Apr 30,

Apr 30,


2019



2018

Current assets:
(Unaudited)


Cash and cash equivalents
$
22,983


$
18,522

Current receivables, net

58,643



66,816

Bank Products receivable

7,277



4,025

Assets held for sale

-



8,941

Income taxes receivable

1,784



-

Other current assets

2,405



1,404

Total current assets

93,092



99,708





Property, equipment, and software, net

32,676



38,636

Notes receivable, non-current, net

6,812



5,589

Deferred income taxes

315



343

Goodwill

6,566



8,640

Other intangible assets, net

19,161



22,837

Other assets

1,379



2,250

Total assets
$
160,001


$
178,003





Current liabilities:



Current installments of long-term obligations
$
13,108


$
18,113

Accounts payable and accrued expenses

13,672



14,521

Due to Area Developers

17,282



17,906

Income taxes payable

447



4,511

Deferred revenue - current

3,679



2,021

Total current liabilities

48,188



57,072





Long-term obligations, excluding current installments, net

1,940



2,270

Deferred revenue and other - non-current

5,622



4,692

Deferred income tax liability

537



1,397

Long-term income taxes payable

-



1,070

Total liabilities

56,287



66,501





Stockholders' equity:



Special voting preferred stock, $0.01 par value per share

-



-

Class A common stock, $0.01 par value per share

140



128

Class B common stock, $0.01 par value per share

-



2

Exchangeable shares, $0.01 par value per share

-



10

Additional paid-in capital

12,552



11,570

Accumulated other comprehensive loss, net of taxes

(1,910)



(1,347)

Retained earnings

92,932



101,139

Total stockholders' equity

103,714



111,502

Total liabilities and stockholders' equity
$
160,001


$
178,003

Table C
Liberty Tax, Inc.
Consolidated Statements of Cash Flows
Unaudited, amounts in thousands

Twelve months ended April 30,


2019



2018

Cash flows from operating activities:



Net (loss) income
$
(2,156)


$
135

Adjustments to reconcile net income (loss) to net cash provided by operating activities:



Provision for doubtful accounts

8,738



12,396

Depreciation and amortization

13,631



11,454

Amortization of deferred financing costs

38



155

Impairment of goodwill and other assets

453



2,962

Other loss including sale of property, equipment and software

5,833



5,261

Stock-based compensation expense related to equity classified awards

999



3,680

Loss (gain) on bargain purchase and sales of Company-owned offices

694



(2,401)

Equity in gain of affiliate

(63)



(71)

Deferred tax expense (benefit)

586



(2,369)

Change in income taxes receivable

(6,886)



(798)

Changes in other assets and liabilities

(4,738)



(2,759)

Net cash provided by operating activities

17,129



27,645





Cash flows from investing activities:



Issuance of operating loans to franchisees and Area Developers (ADs)

(68,283)



(73,796)

Payments received on operating loans to franchisees and ADs

67,556



72,647

Purchases of Company-owned offices, AD rights, and acquired customers lists

(229)



(2,926)

Proceeds from sale of Company-owned offices and AD rights

1,229



451

Purchases of property, equipment and software

(2,939)



(5,388)

Net cash used in investing activities

(2,666)



(9,012)





Cash flows from financing activities:



Proceeds from the exercise of stock options

153



95

Repurchase of common stock and tax impact of stock compensation

(88)



1

Dividends paid

(2,244)



(8,922)

Repayment of other long-term obligations

(7,502)



(7,432)

Borrowings under revolving credit facility

123,615



178,251

Repayments under revolving credit facility

(123,615)



(178,251)

Cash paid for taxes on exercises/vesting of stock-based compensation

(83)



(576)

Net cash used in financing activities

(9,764)



(16,834)





Effect of exchange rate changes on cash, net

(238)



296

Net increase in cash and cash equivalents

4,461



2,095

Cash and cash equivalents at beginning of year

18,522



16,427

Cash and cash equivalents at end of year
$
22,983


$
18,522

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 (loss) 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 (loss) as shown in Table A to EBITDA.



















Twelve months ended April 30,









2019


2018




















(in thousands)


Net Income (loss) - as reported






(2,156)


135



Add back:











Interest expense






3,023


3,181



Income tax expense (benefit)






(1,839)


4,346



Depreciation, amortization, and impairment charges









As Reported






14,084


14,416



Included in restructuring expense*






5,559


2,415



Total Adjustments






20,827


24,358



EBITDA






18,671


24,493



*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, 2019




Loss from



Pre-tax


Net


Basic & Diluted


Revenues

Expenses

Operations

EBITDA

Loss


Loss


EPS













As Reported
132,546

133,405

(859)

18,671

(3,995)


(2,156)


$
(0.16)













Adjustments: (1)











Executive severance and related costs including stock-based compensation


(933)

933

933

933


677



0.05

Executive recruitment costs


(725)

725

725

725


526



0.04

Shareholder litigation costs


(472)

472

472

472


343



0.02

Settlements, net of estimated recoveries (2)


(972)

972

972

972


706



0.05

Unsolicited offer costs (2)


(311)

311

311

311


226



0.02

Corporate governance costs


(303)

303

303

303


220



0.02

Divestiture of year-round accounting offices
1,643

(203)

1,846

1,846

1,846


1,340



0.10

Restructuring expense


(9,345)

9,345

3,785

9,345


6,784



0.49

Total Adjustments
1,643

(13,264)

14,907

9,347

14,907


10,822



0.79

Non-GAAP
134,189

120,141

14,048

28,019

10,912


8,666


$
0.63













For the twelve months ended April 30, 2018




Income from



Pre-tax


Net


Basic & 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)











CEO Separation and related costs


(3,503)

3,503

3,503

3,503


2,228



0.16

Executive severance and related costs including stock-based compensation


(2,965)

2,965

2,965

2,965


1,886



0.13

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

Restructuring expense


(4,952)

4,952

2,537

4,952


3,149



0.23

Total Adjustments
-

(13,155)

13,155

10,741

13,155


8,367



0.59

Non-GAAP
174,872

154,118

20,754

35,233

17,636


8,502


$
0.60













(1) The net income (loss) impact of the adjustments is calculated using the incremental tax rate for the period.
(2) Adjustment included for prior period amounts.

Table E
Liberty Tax, Inc.
Operational Data
Unaudited







Twelve months ended April 30,



2019


2018
Franchisees




U.S.


1,445


1,582
Canada


144


138
Total Franchisees


1,589


1,720





Offices




U.S.




Franchised


2,737


3,047
Company-owned


99


296
Total U.S.


2,836


3,343





Canada




Franchised


231


219
Company-owned


41


48
Total Canada


272


267





Total




Franchised


2,968


3,266
Company-owned


140


344
Total Offices


3,108


3,610





Tax Returns Processed




U.S.


1,334,000


1,487,000
Canada


392,000


377,000
Total Returns Processed in Offices


1,726,000


1,864,000





Online


121,000


125,000
Total Tax Returns Processed


1,847,000


1,989,000





Systemwide Revenue¹




U.S.


$341,900,000


$366,900,000





Canada (CDN $)


32,700,000


31,000,000
Canada (USD $)


24,600,000


24,100,000





U.S. Average Net Fee Per Return²


$256


$247





¹Our 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 (loss) 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.

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

Accrued judgment: We exclude from our non-GAAP financial measures recoveries of and accruals recorded in the period ending April 30, 2019.

Unsolicited offer costs: We exclude from our non-GAAP financial measures costs incurred related to the unsolicited offer received by the Company in November 2018.

Corporate governance costs: We exclude from our non-GAAP financial measures third-party consulting expenses related to corporate governance costs.

Divestiture of year-round accounting offices: We exclude from our non-GAAP financial measures loss on the disposal of assets, lost revenues and brokerage and lease expenses associated with the divestiture of our year-round accounting offices.

Restructuring: We exclude from our non-GAAP financial measures cash and non-cash expenses of restructuring activities. These costs include property and intangible impairments and exit costs.

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

Company Name:	Liberty Tax Inc.
Stock Symbol:	TAXA
Market:	OTC
Website:	libertytax.com