Liberty Tax Service Announces Fiscal Year 2018 Results

Company Starts Implementation of Cost Savings Initiatives

Liberty Tax, Inc. (OTC PINK: TAXA) (the “Company”), the parent company of Liberty Tax Service, today reported its unaudited results for fiscal year 2018. The Company reported total revenue of $174.9 million and GAAP earnings per share of $0.01. Non-GAAP earnings per share were $0.64. The Company delivered adjusted EBITDA of $35.2 million and net cash from operating activities of $27.6 million.

The average returns processed per U.S. office increased 2.8% to 445 returns compared to 433 in the prior year. Total U.S. returns of 1.49 million were lower than the 1.66 million U.S. returns in the prior year, primarily due to reductions in locations and store closings. Total returns processed in Canada increased to 0.38 million from 0.36 million.

“The Company delivered strong free cash flows and EBITDA, despite significant one-time expenses, an anticipated reduction in U.S. franchised locations, and lower performing company-owned stores,” said Chief Executive Officer, Nicole Ossenfort. “We now begin a new future direction after completion of management changes and installing new Board members. We are evaluating and implementing additional cost savings designed to drive further profitability and working with our Board to power new strategic initiatives directed towards bottom line performance. Our initiatives are focused around attracting and retaining customers as well as improving overall performance of our company-owned locations.”

Fiscal 2018 Results (unaudited)
($ in millions except per share data)	GAAP									Non - GAAP*
	2018			2017			Change			2018			2017			Change
Revenue	$	174.9		$	174.0		0.5	%		$	174.9		$	174.0		0.5	%
Operating expenses		167.3			150.7		11	%			154.1			145.9		6	%
Income before taxes		4.5			20.8		-78	%			17.6			25.5		-31	%
Net Income		0.1			13.0		-99	%			9.0			16.0		-43	%
Diluted EPS	$	0.01		$	0.94		-99	%		$	0.64		$	1.15		-44	%
*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 $35.2 million compared to $42.4 million for fiscal year 2017 (see Table D).
• Net cash provided by operating activities was $27.6 million compared to $32.4 million for fiscal year 2017.
• The Company remains in full compliance with the terms and covenants of its Credit Facility Agreement and has full availability under the facility.
• The Company ended the fiscal year with $18.5 million of cash on hand compared to $16.4 million at the end of the prior fiscal year.
• The Company reported revenue growth of 0.5% to $174.9 million.
  • Tax preparation fees in company-owned stores increased 23.4% to $26.6 million due to an increase in the number of tax returns prepared.  This increase was offset by increased operating expenses and impairment charges.
  • A new optional electronic filing fee charge for U.S. federal returns generated $10.8 million of revenue.  $8.6 million of the related rebate expense to franchisees is included in SG&A.
  • Average net fees for tax preparation services in the U.S. increased 6.0%.
  • Revenue from franchise and company-owned Canadian offices increased 12.7% in Canadian dollars.
• The Company incurred $5.0 million in restructuring expenses primarily related to company-owned store exit costs and the termination of a service provider contract.
• As a result of the underperformance in our company-owned stores, the Company recorded non-cash impairment charges totaling $3.0 million.

Effective Tax RateFor the fiscal year ended April 30, 2018, the Company’s effective tax rate was materially impacted by the following items:

• A one-time Transition Tax on cumulative earnings related to our Canadian subsidiary and the re-measurement of deferred taxes mandated by the Tax Cuts and Jobs Act (the “Tax Act”).
• Changes to the statutory federal rates mandated by the Tax Act on taxable income from 35% to 21% which became effective as of January 1, 2018.  The Company’s statutory federal rate for the year ended April 30, 2018 was 30.4% due to a blended tax rate provision in the Tax Act for non-calendar year tax filers.
• Certain stock-based compensation expenses recorded in our financial statements that were not ultimately deductible for tax purposes. 

While there may be some future impact of stock-based compensation on the Company’s effective tax rate, the Company expects the annual effective tax rate going forward to normalize between 26% and 29%.

Other Items

• The Company continues to work diligently with its auditors to complete and file its required filings with the Securities and Exchange Commission (the “SEC”) and currently expects to file its delinquent Forms 10-Q for the quarters ended October 31, 2017 and January 31, 2018 and its Form 10-K for the year ended April 30, 2018 on or before October 15, 2018.  Additionally, the Company currently expects to file its Form 10-Q for the quarter ended July 31, 2018 on or before October 31, 2018.
• The Company has submitted its appeal of the Nasdaq Hearing Panel’s determination to delist the Company’s Class A common stock to the Nasdaq Listing and Review Council.  Pending the outcome of the appeal, the Company’s Class A common stock will continue to be quoted on the OTC Market under the symbol “TAXA”.

 

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 3,600 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 InformationThis 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 StatementsIn 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 the Company’s anticipated timing with respect to the filing of its delinquent periodic reports.  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: the risk that the Company’s appeal to Nasdaq will not be successful; uncertainties relating to the ability of the Company to file its delinquent periodic filings with the SEC; 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,
			2018				2017			$ change				% change
	Revenues:
	Franchise fees	$	1,793			$	2,659				(866)			-32.6	%
	Area Developer fees		2,751				4,177				(1,426)			-34.1	%
	Royalties and advertising fees		68,559				74,291				(5,732)			-7.7	%
	Financial products		47,225				51,829				(4,604)			-8.9	%
	Interest income		9,895				12,955				(3,060)			-23.6	%
	Assisted tax preparation fees, net of discounts		26,645				21,600				5,045			23.4	%
	Electronic Filing Fee		10,772				-				10,772			100.0	%
	Other revenue		7,232				6,474				758			11.7	%
	Total revenue		174,872				173,985				887			0.5	%
	Operating expenses:
	Employee compensation and benefits		50,003				44,615				5,388			12.1	%
	Selling, general, and administrative expenses		69,012				58,159				10,853			18.7	%
	Area Developer expense		16,564				22,461				(5,897)			-26.3	%
	Advertising expense		12,326				11,073				1,253			11.3	%
	Depreciation, amortization, and impairment charges		14,416				14,356				60			0.4	%
	Restructuring expense		4,952				-				4,952			100.0	%
	Total operating expenses		167,273				150,664				16,609			11.0	%
	Income from operations		7,599				23,321				(15,722)			-67.4	%
	Other income (expense):
	Foreign currency transaction gain (loss)		63				(47)				110			-234.0	%
	Gain on sale of available-for-sale securities		-				50				(50)			-100.0	%
	Interest expense		(3,181)				(2,557)				(624)			24.4	%
	Income before income taxes		4,481				20,767				(16,286)			-78.4	%
	Income tax expense		4,346				7,754				(3,408)			-44.0	%
	Net Income	$	135			$	13,013			$	(12,878)			-99.0	%
	Net Income per share of Class A and Class B
	common stock:
	Basic	$	0.01			$	0.94			$	(0.93)			-98.9	%
	Diluted	$	0.01			$	0.94			$	(0.93)			-98.9	%
	Weighted-average shares outstanding basic		12,928,762				12,895,561				33,201			0.3	%
	Weighted-average shares outstanding diluted		13,977,748				13,916,908				60,840			0.4	%

	Table B
	Liberty Tax, Inc.
	Consolidated Balance Sheets
	Unaudited, amounts in thousands
		April 30,				April 30,
			2018				2017
	Current assets:
	Cash and cash equivalents	$	18,522			$	16,427
	Current receivables, net		66,816				74,483
	Assets held for sale		8,941				11,989
	Deferred income tax asset		-				6,956
	Other current assets		5,429				5,812
	Total current assets		99,708				115,667
	Property, equipment, and software, net		38,636				39,789
	Notes receivable, non-current, net		5,589				16,245
	Deferred tax asset		343				-
	Goodwill		8,640				8,576
	Other intangible assets, net		22,837				21,224
	Other assets		2,250				2,767
	Total assets	$	178,003			$	204,268
	Current liabilities:
	Current installments of long-term obligations	$	18,113			$	7,738
	Accounts payable and accrued expenses		14,521				12,953
	Due to Area Developers		17,906				23,143
	Income taxes payable		4,511				6,442
	Deferred revenue - current		2,021				2,892
	Total current liabilities		57,072				53,168
	Long-term obligations, excluding current installments, net		2,270				18,461
	Deferred revenue and other - non-current		4,692				5,817
	Deferred income tax liability		1,397				10,367
	Long-term income taxes payable		1,070				-
	Total liabilities		66,501				87,813
	Stockholders' equity:
	Special voting preferred stock, $0.01 par value per share		-				-
	Class A common stock, $0.01 par value per share		128				127
	Class B common stock, $0.01 par value per share		2				2
	Exchangeable shares, $0.01 par value per share		10				10
	Additional paid-in capital		11,570				8,371
	Accumulated other comprehensive loss, net of taxes		(1,347)				(2,084)
	Retained earnings		101,139				110,029
	Total stockholders' equity		111,502				116,455
	Total liabilities and stockholders' equity	$	178,003			$	204,268

Table C
Liberty Tax, Inc.
Consolidated Statements of Cash Flows
Unaudited, amounts in thousands
	Twelve months ended April 30,
		2018				2017
Cash flows from operating activities:
Net Income	$	135			$	13,013
Adjustments to reconcile net loss to net cash used in operating activities:
Provision for doubtful accounts		12,396				10,378
Depreciation and amortization		11,454				8,325
Impairment of goodwill and other assets		2,962				6,031
Other loss (gain) including sale of property, equipment and software		5,261				(387)
Stock-based compensation expense		3,680				2,016
Deferred tax expense (benefit)		(2,369)				129
Gain on bargain purchase and sales of company-owned offices		(2,401)				(1,100)
Change in income taxes payable (receivable)		(798)				2,487
Gain on sale of available-for-sale securities		-				(50)
Changes in other assets and liabilities		(2,675)				(8,396)
Net cash provided by operating activities		27,645				32,446
Cash flows from investing activities:
Issuance of operating loans to franchisees and Area Developers (ADs)		(73,796)				(94,133)
Payments received on operation loans to franchises and ADs		72,647				89,562
Purchases of AD rights, company-owned offices, and other intangible assets		(2,926)				(10,049)
Proceeds from sale of AD rights and company-owned offices		451				1,339
Proceeds from sale of available-for-sale securities		-				5,049
Purchases of property, equipment and software		(5,388)				(5,022)
Net cash used in investing activities		(9,012)				(13,254)
Cash flows from financing activities:
Proceeds from the exercise of stock options		95				-
Tax inpact of stock compensation and repurchase of common stock		1				(420)
Dividends paid		(8,922)				(8,891)
Repayment of long-term obligations		(7,432)				(5,281)
Borrowings under revolving credit facility		178,251				151,400
Repayments under revolving credit facility		(178,251)				(151,400)
Proceeds from mortgage debt		-				2,200
Payment for debt issue costs		-				(35)
Cash paid for taxes on exercises/vesting of stock-based compensation		(576)				-
Tax benefit of stock option exercises		-				60
Net cash used in financing activities		(16,834)				(12,367)
Effect of exchange rate changes on cash, net		296				(304)
Net increase in cash and cash equivalents		2,095				6,521
Cash and cash equivalents at beginning of period		16,427				9,906
Cash and cash equivalents at end of period	$	18,522			$	16,427
Cash paid for taxes, net of refunds	$	7,393			$	5,058

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 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 as shown in Table A to EBITDA.
							Twelve months ended April 30,
							2018			2017
							(in thousands)
Net Income - as reported							135			13,013
Add back:
Interest expense							3,181			2,557
Income tax expense							4,346			7,754
Depreciation, amortization, and impairment charges:
As Reported							14,416			14,356
Included in restructuring expense*							2,415			-
Total Adjustments							24,358			24,667
EBITDA							24,493			37,680
*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, 2018
				Income from			Pre-tax			Net			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)
Executive severance and related costs including stock-based compensation		(6,468)		6,468	6,468		6,468			4,114				0.29
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
Tax Cuts and Jobs Act Adjustments		-		-	-		-			528				0.04
Restructuring expense		(4,952)		4,952	2,537		4,952			3,149				0.23
Total Adjustments	-	(13,155)		13,155	10,740		13,155			8,895				0.63
Non-GAAP	174,872	154,118		20,754	35,233		17,636			9,030			$	0.64
For the twelve months ended April 30, 2017
				Income from			Pre-tax			Net			Diluted
	Revenues	Expenses		Operations	EBITDA		Income			Income			EPS
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
(1) The net income impact of the adjustments is calculated using the incremental tax rate for the period.

Table E
Liberty Tax, Inc.
Operational Data
Unaudited
		Twelve months ended April 30,
			2018			2017
Franchisees
U.S.			1,582			1,753
Canada			138			133
Total Franchisees			1,720			1,886
Offices
U.S.
Franchised			3,047			3,505
Company-Owned			296			318
Total U.S.			3,343			3,823
Canada
Franchised			219			210
Company-Owned			48			44
Total Canada			267			254
Total
Franchised			3,266			3,715
Company-Owned			344			362
Total Offices			3,610			4,077
Tax Returns Processed
U.S.			1,487,000			1,657,000
Canada			377,000			359,000
Total Returns Processed in Offices			1,864,000			2,016,000
Online			125,000			138,000
Total Tax Returns Processed			1,989,000			2,154,000
Systemwide Revenue1
U.S.		$366,900,000			$386,000,000
Canada (CDN $)			31,000,000			28,700,000
Canada (USD $)			24,100,000			21,500,000
U.S. Average Net Fee Per Return2		$247			$233
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 InformationThe Company believes that EBITDA and non-GAAP net income 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.

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.

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

Tax Cuts and Jobs Act adjustments:  We exclude from our non-GAAP financial measures one-time tax adjustments for Transition Taxes related to our Canadian subsidiary and the re-measurement of deferred taxes.

Restructuring:  We exclude from our non-GAAP financial measures cash and non-cash expenses of restructuring activities.  These expenses include contract termination costs related to licensing, support and impairment, property and intangible impairments and exit costs as well as employee termination costs.

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. 

CONTACT:Michael S. PiperLiberty Tax, Inc.Vice President and Chief Financial Officer(757) [e-mail]