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Liberty Tax Service Announces Fiscal Year 2017 Results

VIRGINIA BEACH, Va., June 14, 2017 (GLOBE NEWSWIRE) -- Liberty Tax, Inc. (NASDAQ:TAX) (the “Company”), the parent company of Liberty Tax Service, today reported its results for fiscal year 2017. The Company reported total revenue of $174.0 million and GAAP earnings per share of $0.94. Non-GAAP earnings per share were $1.15.

The Company prepared 1.66 million tax returns in its U.S. offices compared to 1.83 million in the prior year. Total returns processed in Canada were up 8.8% to 0.36 million from 0.33 million.

“This season’s results were clearly disappointing,” said John Hewitt, CEO. “In addition to the reduction in overall store and return counts, we saw significant underperformance in our company-owned locations. We are carefully evaluating changes to our operations to enable us to return to our past pattern of growth in market share, revenue and earnings.”

“As we plan for this fiscal year, I am extremely pleased to welcome Edward Brunot as our new Chief Operating Officer,” said Hewitt. “Ed’s background in growing retail service businesses through a disciplined, processed approach is an asset that will be leveraged throughout the franchisee base and the entire organization.”

Added Brunot, “It’s great to be joining the Liberty Tax family. I look forward to partnering with John, the management team and franchisees to continue to strengthen the brand and build upon their commitments to accurate, reliable tax preparation.”


Fiscal 2017 Results
($ in millions except per share data)GAAP Non - GAAP*
2017 2016 Change 2017 2016 Change
Revenue$174.0 $173.4 0.3% $174.0 $173.4 0.3%
Operating expenses 150.7 140.9 6.9% 145.9 140.3 4.0%
Income before taxes 20.8 30.5 -31.9% 25.5 31.1 -18.0%
Net Income 13.0 19.4 -33.0% 16.0 19.8 -19.2%
Diluted EPS 0.94 1.38 -31.9% 1.15 1.41 -18.4%
*See reconciliation of non-GAAP to GAAP financial measures in Table E and additional information under "Non-GAAP Financial Information".

Operational Update

  • The Company reported revenue growth of 0.3% to $174.0 million.
    • Financial products revenue grew 14% to $51.8 million.
    • Tax preparation fees in company-owned stores increased 37% to $21.6 million due to an increase in the number of stores operated.
    • Average net fee for tax preparation services in the U.S. increased 2.2%.
    • Average returns processed per U.S. office remained relatively flat at 433 returns compared to 434 returns in the prior year.
    • Revenue from franchise and company-owned Canadian offices increased 4.7% in local currency.
  • As a result of the underperformance in our company-owned stores this tax season, the Company either impaired or closed multiple company-owned store locations and recorded a non-cash charge of $4.9 million.
  • GAAP diluted earnings per share decreased 32% to $0.94 from $1.38. Non-GAAP earnings per share decreased 18% to $1.15 from $1.41.
  • The Company ended the year with $16.4 million of cash on hand compared to $9.9 million at the end of the prior fiscal year.

Dividend
On June 12, 2017, the Board of Directors approved a quarterly dividend to shareholders of $0.16 per share. The dividend will be paid on July 28, 2017 to holders of record of common stock and common stock equivalents on the close of business on July 14, 2017.

Conference Call
At 8:30 a.m. Eastern time on June 14, 2017, 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: 35412793

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 Wednesday, June 21, 2017, by dialing 855-859-2056 (domestic) or 404-537-3406 (international). The conference ID code is 35412793. 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. 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 approximately 22,000 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 Tables E & F titled “Reconciliation of Non-GAAP Financial Measures to the Most Directly Comparable GAAP Financial Measures.”

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 impact of the launch of a new franchise brand; 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. 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 Income
Unaudited, amounts in thousands, except per share and share data
Fiscal Years ended April 30,
2017 2016 $ change % change
Revenue:
Franchise fees$2,659 $5,038 $(2,379) -47.2%
AD fees 4,177 6,008 (1,831) -30.5%
Royalties and advertising fees 74,291 80,274 (5,983) -7.5%
Financial products 51,829 45,327 6,502 14.3%
Interest income 12,955 13,578 (623) -4.6%
Assisted tax preparation fees, net of discounts (1) 21,600 15,775 5,825 36.9%
Other revenue 6,474 7,429 (955) -12.9%
Total revenue 173,985 173,429 556 0.3%
Operating expenses:
Employee compensation and benefits 44,615 42,882 1,733 4.0%
Other costs and expenses 58,159 43,927 14,232 32.4%
AD expense 22,461 27,686 (5,225) -18.9%
Advertising expense 11,073 16,420 (5,347) -32.6%
Depreciation, amortization, and impairment charges 14,356 10,026 4,330 43.2%
Total operating expenses 150,664 140,941 9,723 6.9%
Income from operations 23,321 32,488 (9,167) -28.2%
Other income (expense):
Foreign currency transaction gain (loss) (47) 29 (76) -262.1%
Gain on sale of available-for-sale securities 50 - 50 n/a
Interest expense (2,557) (2,039) (518) 25.4%
Income before income taxes 20,767 30,478 (9,711) -31.9%
Income tax expense 7,754 11,058 (3,304) -29.9%
Net Income$13,013 $19,420 $(6,407) -33.0%
Net income per share of Class A and Class B
common stock
Basic$0.94 $1.41 $(0.47) -33.3%
Diluted$0.94 $1.38 $(0.44) -31.9%
Weighted-average shares outstanding basic 12,895,561 12,814,775 80,786 0.6%
Weighted-average shares outstanding diluted 13,916,908 14,024,671 (107,763) -0.8%
(1) Assisted tax preparation fees are now being reported separately and represent total revenues earned from
company-owned stores. 2016 revenue has been adjusted for comparison purposes.

Table B
Liberty Tax, Inc.
Condensed Consolidated Statements of Income
Unaudited, amounts in thousands, except per share and share data
Three months ended
April 30,
2017 2016 $ change % change
Revenue:
Franchise fees$1,533 $2,513 $(980) -39.0%
AD fees 1,059 1,517 (458) -30.2%
Royalties and advertising fees 52,431 51,685 746 1.4%
Financial products 32,301 27,545 4,756 17.3%
Interest income 4,456 6,075 (1,619) -26.7%
Assisted tax preparation fees, net of discounts (1) 16,276 11,567 4,709 40.7%
Other revenue 3,123 3,512 (389) -11.1%
Total revenue 111,179 104,414 6,765 6.5%
Operating expenses:
Employee compensation and benefits 14,778 14,429 349 2.4%
Other costs and expenses 22,480 14,831 7,649 51.6%
AD expense 15,482 16,964 (1,482) -8.7%
Advertising expense 2,236 2,348 (112) -4.8%
Depreciation, amortization, and impairment charges 8,026 4,400 3,626 82.4%
Total operating expenses 63,002 52,972 10,030 18.9%
Income from operations 48,177 51,442 (3,265) -6.3%
Other income (expense):
Foreign currency transaction gain (loss) (37) 68 (105) n/a
Interest expense (505) (447) (58) 13.1%
Income before income taxes 47,635 51,063 (3,428) -6.7%
Income tax expense 18,306 18,775 (469) -2.5%
Net income$29,329 $32,288 $(2,959) -9.2%
Net income per share of Class A and Class B
common stock
Basic$2.11 $2.33 $(0.22) -9.4%
Diluted$2.10 $2.31 $(0.21) -9.1%
Weighted-average shares outstanding basic 12,882,550 12,877,919 4,631 0.0%
Weighted-average shares outstanding diluted 13,934,941 13,967,568 (32,627) -0.2%
(1) Assisted tax preparation fees are now being reported separately and represent total revenues earned from
company-owned stores. 2016 revenue has been adjusted for comparison purposes.

Table C
Liberty Tax, Inc.
Condensed Consolidated Balance Sheets
Amounts in thousands
April 30, April 30,
2017 2016
(Unaudited)
Current assets:
Cash and cash equivalents$16,427 $9,906
Current receivables, net 75,145 71,722
Assets held for sale 11,989 9,886
Deferred income tax asset 1,063 3,496
Other current assets 5,813 5,838
Total current assets 110,437 100,848
Property, equipment, and software, net 39,789 40,957
Notes receivable, non-current, net 15,583 23,504
Goodwill 8,576 4,228
Other intangible assets, net 21,224 16,270
Other assets 2,767 7,416
Total assets$198,376 $193,223
Current liabilities:
Current installments of long-term obligations$7,738 $5,947
Accounts payable and accrued expenses 12,953 11,664
Due to ADs 23,143 24,977
Income taxes payable 6,392 3,581
Deferred revenue - current 2,892 4,682
Total current liabilities 53,118 50,851
Long-term obligations, excluding current installments 18,461 17,493
Deferred revenue and other - non-current 5,817 7,056
Deferred income tax liability 4,525 6,322
Total liabilities 81,921 81,722
Stockholders' equity:
Special voting preferred stock, $0.01 par value per share - -
Class A common stock, $0.01 par value per share 127 120
Class B common stock, $0.01 par value per share 2 9
Exchangeable shares, $0.01 par value per share 10 10
Additional paid-in capital 8,371 7,153
Accumulated other comprehensive loss, net of taxes (2,084) (1,698)
Retained earnings 110,029 105,907
Total stockholders' equity 116,455 111,501
Total liabilities and stockholders' equity$198,376 $193,223
Note: Effective May 1, 2016, we adopted Accounting Standards Update (“ASU”) 2015-03, Simplifying the Presentation of Debt Issuance Costs, and ASU 2015-15, Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements, on a retrospective basis. Accordingly, debt issuance costs associated with our long term debt are now included in the long term obligations line in the consolidated balance sheets. And, amounts for prior periods have been retrospectively adjusted to conform to the current period presentation.

Table D
Liberty Tax, Inc.
Condensed Consolidated Statements of Cash Flows
Unaudited, amounts in thousands
Fiscal Years ended April 30,
2017 2016
Cash flows from operating activities:
Net Income$13,013 $19,420
Adjustments to reconcile net income to net cash used in operating activities:
Provision for doubtful accounts 10,378 7,282
Depreciation, amortization, and impairment charges 14,356 10,026
Stock-based compensation expense related to equity classified awards 2,016 1,863
Gain on sale of available-for-sale securities (50) -
Gain on bargain purchases and sales of Company-owned offices (1,100) (855)
Deferred tax expense 179 7,384
Changes in accrued income taxes 2,437 1,758
Changes in other assets and liabilities (8,783) (17,061)
Net cash provided by operating activities 32,446 29,817
Cash flows from investing activities:
Issuance of operating loans to franchisees and ADs (94,133) (101,552)
Payments received on operating loans to franchisees and ADs 89,562 89,786
Purchases of Company-owned offices, AD rights, and acquired customer lists (10,049) (4,787)
Proceeds from sale of Company-owned offices and AD rights 1,339 2,934
Purchase of available-for-sale securities - (4,999)
Proceeds from sale of available-for-sale securities 5,049 -
Purchases of property, equipment and software (5,022) (10,692)
Net cash used in investing activities (13,254) (29,310)
Cash flows from financing activities:
Proceeds from the exercise of stock options - 2,286
Repurchase of common stock (420) (1,977)
Dividends paid (8,891) (8,852)
Repayment of amounts due to former ADs and franchisees (1,303) (2,429)
Repayment of long-term obligations (3,978) (1,742)
Borrowings under revolving credit facility 151,400 166,232
Repayments under revolving credit facility (151,400) (166,232)
Proceeds from mortgage debt 2,200 -
Payment for debt issue costs (35) -
Tax benefit of stock option exercises 60 900
Net cash used in financing activities (12,367) (11,814)
Effect of exchange rate changes on cash, net (304) (174)
Net increase (decrease) in cash and cash equivalents 6,521 (11,481)
Cash and cash equivalents at beginning of year 9,906 21,387
Cash and cash equivalents at end of year$16,427 $9,906

Table E
Liberty Tax, Inc.
Fiscal Year Reconciliation of Non-GAAP Financial Measures 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 to EBITDA.
Fiscal Year Ended April 30,
2017 2016
(in thousands)
Net Income - as reported $13,013 $19,420
Add back:
Interest expense 2,557 2,039
Income tax expense 7,754 11,058
Depreciation, amortization, and impairment charges 14,356 10,026
Total Adjustments 24,667 23,123
EBITDA $37,680 $42,543
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 Fiscal Year ended April 30, 2017
OperatingIncome from Pretax NetDiluted
RevenuesExpensesOperationsEBITDAIncome IncomeEPS
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
For the Fiscal Year ended April 30, 2016
OperatingIncome from Pretax NetDiluted
RevenuesExpensesOperationsEBITDAIncome IncomeEPS
As Reported$173,429$140,941 $32,488$42,543 $30,478 $19,420 $1.38
Adjustments: (1)
Executive severance, including stock-based compensation - (413) 413 413 413 263 0.02
Compliance Task Force and related costs - (252) 252 252 252 161 0.01
Total Adjustments - (665) 665 665 665 424 0.03
Non-GAAP$173,429$140,276 $33,153$43,208 $31,143 $19,844 $1.41
(1) The net income impact of the adjustments is calculated using the effective tax rate for the period.

Table F
Liberty Tax, Inc.
Fourth Quarter Reconciliation of Non-GAAP Financial Measures to the Most Directly Comparable GAAP Financial Measures
Unaudited, amounts in thousands, except per share data
We report our financial results in accordance with GAAP; however, we believe that 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 to EBITDA.
Three Months Ended April 30,
2017 2016
(in thousands)
Net Income - as reported $29,329 $32,288
Add back:
Interest expense 505 447
Income tax expense 18,306 18,775
Depreciation, amortization, and impairment charges 8,026 4,400
Total Adjustments 26,837 23,622
EBITDA $56,166 $55,910
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 April 30, 2017
OperatingIncome from Pretax NetDiluted
RevenuesExpensesOperationsEBITDAIncome IncomeEPS
As Reported$111,179$63,002 $48,177$56,166$47,635 $29,329$2.11
Adjustments: (1)
Compliance Task Force and related costs - (134) 134 134 134 83 0.01
Accrued judgment - (2,700) 2,700 2,700 2,700 1,662 0.12
Total Adjustments - (2,834) 2,834 2,834 2,834 1,745 0.13
Non-GAAP$111,179$60,168 $51,011$59,000$50,469 $31,074$2.23
For the three months ended April 30, 2016
OperatingIncome from Pretax NetDiluted
RevenuesExpensesOperationsEBITDAIncome IncomeEPS
As Reported$104,414$52,972 $51,442$55,910$51,063 $32,288$2.31
Adjustments: (1)
Compliance Task Force and related costs - (252) 252 252 252 159 0.01
Total Adjustments - (252) 252 252 252 159 0.01
Non-GAAP$104,414$52,720 $51,694$56,162$51,315 $32,447$2.32
(1) The net income impact of the adjustments is calculated using the effective tax rate for the period.

Table G
Liberty Tax, Inc.
Operational Data
Unaudited
Fiscal years ended April 30,
2017 2016
Franchisees
U.S. 1,753 1,856
Canada 133 130
Total Franchisees 1,886 1,986
Offices
U.S.
Franchised 3,505 3,967
Company-Owned 318 258
Total U.S. 3,823 4,225
Canada
Franchised 210 210
Company-Owned 44 52
Total Canada 254 262
Total
Franchised 3,715 4,177
Company-Owned 362 310
Total Offices 4,077 4,487
Tax Returns Processed
U.S. 1,657,000 1,832,000
Canada 359,000 330,000
Total Returns Processed in Offices 2,016,000 2,162,000
Online 138,000 145,000
Total Tax Returns Processed 2,154,000 2,307,000
Systemwide Revenue1
U.S. $386,000,000 $417,600,000
Canada (CDN $) 28,700,000 27,400,000
Canada (USD $) 21,500,000 21,200,000
U.S. Average Net Fee Per Return2 $233 $228
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 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, 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.

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, which we established in fiscal 2016 to examine and prevent non-compliance, fraud and other misconduct among our franchisees and employees. 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.

Accrued judgment: We exclude from our non-GAAP financial measures an accrued judgment recorded in the period ended April 30, 2017. We intend to vigorously defend our position and pursue an appeal.

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.