OREANDA-NEWS.  Liberty Tax, Inc. (NASDAQ:TAX) (the “Company”), the parent company of Liberty Tax Service, today reported results for the first quarter ended July 31, 2017.

The Company usually reports a loss in the first half of each fiscal year while preparing for the following tax season. In the first quarter of fiscal 2018, the Company reported a GAAP net loss of $9.8 million, or $0.76 per share, compared to a loss of $9.4 million, or $0.73 per share, in the prior year period. Non-GAAP net loss was $0.73 per share compared to a $0.66 per share loss in the prior year period.

($ in millions except per share data) GAAP   Non - GAAP*  
  Q1 2018   Q1 2017   Change   Q1 2018   Q1 2017   Change  
Revenue $   8.2     $   7.1     14.5 %   $   8.2     $   7.1     14.5 %  
Operating expenses   24.1       22.4     8.0 %     23.6       20.8     13.5 %  
Loss before taxes     (16.1)         (15.5)     4.0 %       (15.6)         (14.0)     11.3 %  
Net Loss     (9.8)         (9.4)     3.5 %       (9.5)         (8.5)     10.8 %  
Basic and Diluted EPS     (0.76)         (0.73)     4.1 %       (0.73)         (0.66)     10.6 %  
*See reconciliation of non-GAAP to GAAP financial measures in Table D and additional information under Non-GAAP Financial Information.
  
                         

Income Statement 
Revenues for the three months ended July 31, 2017 increased to $8.2 million, or 14.5%, from $7.1 million in the prior year period. The increase was mainly due to higher assisted tax preparation fees from the year-round accounting offices, which were acquired in the prior fiscal year, as well as an increase in other revenues of $0.5 million.  Reported operating expenses increased $1.7 million, or 8.0%, largely resulting from the increased expenses of operating the acquired year-round accounting offices, while non-GAAP operating expenses increased $2.8 million, or 13.5%.

Balance Sheet
The Company had a cash balance of $6.3 million at July 31, 2017. The Company has drawn $20.6 million on its revolving credit facility as of July 31, 2017 compared to $28.0 million drawn at July 31, 2016.  The Company typically draws on this facility through the beginning of each tax season to provide for cash used in operations and for operating loans to franchisees.  The decrease in the usage of our credit facility is primarily due to a decrease in cash taxes paid in the first quarter compared to the prior year. 

Dividend
On September 5, 2017, the Board of Directors approved a quarterly dividend to stockholders of $0.16 per share. The dividend will be paid on October 23, 2017 to holders of record of common stock and common stock equivalents on the close of business on October 13, 2017.

About Liberty Tax, Inc.
Founded in 1997 by John T. Hewitt, Liberty Tax, Inc. (NASDAQ:TAX) is the parent company of Liberty Tax Service. In the U.S. and Canada, last year, Liberty Tax prepared over two million individual income tax returns in more than 4,000 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 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.” 

 

Table A  
Liberty Tax, Inc.  
Condensed Consolidated Balance Sheets  
Amounts in thousands  
             
  July 31,   April 30,   July 31,  
    2017       2017       2016    
Current assets: (Unaudited)       (Unaudited)  
Cash and cash equivalents $ 6,254     $ 16,427     $ 4,882    
Current receivables, net   70,527       74,483       69,577    
Assets held for sale   14,678       11,989       16,623    
Income taxes receivable   47       55       7,093    
Deferred tax asset   -       6,956       2,847    
Other current assets   4,717       5,757       2,796    
Total current assets   96,223       115,667       103,818    
             
Property, equipment, and software, net   39,744       39,789       41,013    
Notes receivable, non-current, net   16,322       16,245       22,142    
Deferred tax asset   173       -       -    
Goodwill   7,620       8,576       4,183    
Other intangible assets, net   21,902       21,224       15,884    
Other assets   2,814       2,767       3,246    
Total assets $ 184,798     $ 204,268     $ 190,286    
             
Current liabilities:            
Current installments of long-term obligations $ 5,202     $ 7,738     $ 6,754    
Accounts payable and accrued expenses   13,958       12,953       9,590    
Due to Area Developers (ADs)   9,168       23,143       10,449    
Income taxes payable   208       6,442       -    
Deferred revenue - current   2,854       2,892       3,687    
Total current liabilities   31,390       53,168       30,480    
             
Long-term obligations, excluding current installments, net   17,816       18,461       18,298    
Revolving credit facility   20,611       -       27,984    
Deferred revenue and other - non-current   5,466       5,817       6,555    
Deferred income tax liability   3,585       10,367       6,259    
Total liabilities   78,868       87,813       89,576    
             
Stockholders' equity:            
Special voting preferred stock, $0.01 par value per share   -       -       -    
Class A common stock, $0.01 par value per share   127       127       126    
Class B common stock, $0.01 par value per share   2       2       3    
Exchangeable shares, $0.01 par value per share   10       10       10    
Additional paid-in capital   8,925       8,371       7,897    
Accumulated other comprehensive loss, net of taxes   (1,065 )     (2,084 )     (1,580 )  
Retained earnings   97,931       110,029       94,254    
Total stockholders' equity   105,930       116,455       100,710    
Total liabilities and stockholders' equity $ 184,798     $ 204,268     $ 190,286    
             
Table B  
Liberty Tax, Inc.  
Condensed Consolidated Statement of Operations
Unaudited, amounts in thousands, except per share and share data
                 
  Three months ended July 31,  
    2017       2016     $ change   % change  
Revenues:                
Franchise fees $ 71     $ 240     $ (169 )   -70.4 %  
Area Developer fees   1,068       970       98     10.1 %  
Royalties and advertising fees   1,689       1,455       234     16.1 %  
Financial products   582       536       46     8.6 %  
Interest income   2,297       2,658       (361 )   -13.6 %  
Assisted tax preparation fees, net of discounts (1)   1,639       986       653     66.3 %  
Other revenue   842       304       538     177.1 %  
Total revenue   8,188       7,149       1,039     14.5 %  
                 
Operating expenses:                
Employee compensation and benefits   9,991       9,682       309     3.2 %  
Other costs and expenses   9,202       8,279       923     11.1 %  
Area Developer expense   372       460       (88 )   -19.1 %  
Advertising expense   2,376       1,918       458     23.9 %  
Depreciation, amortization, and impairment charges   2,196       2,012       184     9.1 %  
Total operating expenses   24,137       22,351       1,786     8.0 %  
Loss from operations   (15,949 )     (15,202 )     (747 )   4.9 %  
                 
Other income (expense):                
Foreign currency transaction gain (loss)   110       (8 )     118     -1475.0 %  
Gain on sale of available-for-sale securities   -       50       (50 )   n/a  
Interest expense   (281 )     (344 )     63     -18.3 %  
Loss before income taxes   (16,120 )     (15,504 )     (616 )   4.0 %  
Income tax benefit   (6,362 )     (6,074 )     (288 )   4.7 %  
Net loss $ (9,758 )   $ (9,430 )   $ (328 )   3.5 %  
                 
Net loss per share of Class A and Class B                
common stock:                
Basic and diluted $ (0.76 )   $ (0.73 )   $ (0.03 )   4.1 %  
                 
Weighted-average shares outstanding basic and diluted   12,882,550       12,894,740       (12,190 )   -0.1 %  
                 
(1) Assisted tax preparation fees are now being reported separately and represent total revenues earned from
Company-owned offices.  2016 revenue has been adjusted for comparison purposes.
                 
Table C  
Liberty Tax, Inc.  
Condensed Consolidated Statements of Cash Flows  
Unaudited, amounts in thousands  
  Three months ended July 31,  
    2017       2016    
Cash flows from operating activities:        
Net loss $ (9,758 )   $ (9,430 )  
Adjustments to reconcile net loss to net cash used in operating activities:        
Provision for doubtful accounts   1,408       1,380    
Depreciation, amortization, and impairment charges   2,196       2,012    
Stock-based compensation expense   554       683    
Gain on sale of available-for-sale securities   -       (50 )  
Gain on bargain purchases and sales of Company-owned offices   (536 )     (28 )  
Deferred tax expense   (34 )     578    
Changes in accrued income taxes   (6,187 )     (10,997 )  
Changes in other assets and liabilities   (2,167 )     (6,071 )  
Net cash used in operating activities   (14,524 )     (21,923 )  
         
Cash flows from investing activities:        
Issuance of operating loans to franchisees and ADs   (11,275 )     (10,828 )  
Payments received on operating loans to franchisees and ADs   1,545       1,096    
Purchases of AD rights, Company-owned offices, and acquired customer lists   (352 )     (1,802 )  
Proceeds from sale of Company-owned offices and AD rights   76       46    
Proceeds from sale of available-for-sale securities   -       5,049    
Purchase of property, equipment, and software   (1,110 )     (1,556 )  
Net cash used in investing activities   (11,116 )     (7,995 )  
         
Cash flows from financing activities:        
Dividends paid   (2,339 )     (2,223 )  
Repayment of amounts due to former ADs and franchisees   -       (423 )  
Repayment of long-term obligations   (3,283 )     (416 )  
Borrowings under revolving credit facility   20,706       28,002    
Repayments under revolving credit facility   (95 )     (18 )  
Tax benefit of stock option exercises   -       60    
Net cash provided by financing activities   14,989       24,982    
         
Effect of exchange rate changes on cash, net   478       (88 )  
Net decrease in cash and cash equivalents   (10,173 )     (5,024 )  
Cash and cash equivalents at beginning of period   16,427       9,906    
Cash and cash equivalents at end of period $ 6,254     $ 4,882    
         
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 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 loss to EBITDA.    
                       
          Three Months Ended July 31,        
            2017       2016          
                               
          (in thousands)        
Net loss - as reported         $ (9,758 )   $ (9,430 )        
Add back:                       
Interest expense           281       344          
Income tax benefit           (6,362 )     (6,074 )        
Depreciation, amortization, and impairment charges       2,196       2,012          
Total Adjustments           (3,885 )     (3,718 )        
EBITDA         $ (13,643 )   $ (13,148 )        
                       
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.    
                       
For the three months ended July 31, 2017    
        Operating     Loss from           Pre-tax       Net       Basic & Diluted      
    Revenues   Expenses     Operations     EBITDA     Loss       Loss       EPS      
                       
As Reported $ 8,188 $ 24,137   $ (15,949 ) $ (13,643 ) $ (16,120 )   $ (9,758 )   $ (0.76 )    
                       
Adjustments: (1)                      
Executive recruitment costs     (325 )   325     325     325       197     $ 0.02      
Compliance Task Force and related costs     (172 )   172     172     172       104     $ 0.01      
Total Adjustments   -   (497 )   497     497     497       301       0.03      
Non-GAAP $ 8,188 $ 23,640   $ (15,452 ) $ (13,146 ) $ (15,623 )   $ (9,457 )   $ (0.73 )    
                       
For the three months ended July 31, 2016    
        Operating     Loss from           Pre-tax       Net       Basic & Diluted      
    Revenues   Expenses     Operations     EBITDA     Loss       Loss       EPS      
                       
As Reported $ 7,149 $ 22,351   $ (15,202 ) $ (13,148 ) $ (15,504 )   $ (9,430 )   $ (0.73 )    
                       
Adjustments: (1)                      
Executive severance including stock-based compensation   -   (877 )   877     877     877       533       0.04      
Compliance Task Force and related costs   -   (640 )   640     640     640       389       0.03      
Gain on available-for-sale securities   -   -     -     (50 )   (50 )     (30 )     -      
Total Adjustments   -   (1,517 )   1,517     1,467     1,467       892       0.07      
Non-GAAP $ 7,149 $ 20,834   $ (13,685 ) $ (11,681 ) $ (14,037 )   $ (8,538 )   $ (0.66 )    
                       
(1)  The net loss impact of the adjustments is calculated using the effective tax rate for the period.    

Non-GAAP Financial Information
The Company believes that EBITDA and non-GAAP net loss should be evaluated, in addition to, and not as an alternative for, net loss 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 including stock-based compensation:  We exclude from our non-GAAP financial measures cash and non-cash stock-based compensation 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 attract 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.

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.