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CST: 23/09/2019 12:35:19   

Liberty Tax Service Announces Fiscal Year 2019 Results

95 Days ago

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
         
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 (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

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