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Liberty Tax Service Announces Fiscal Year 2016 Results

June 14, 2016 4:05 PM

VIRGINIA BEACH, VA -- (Marketwired) -- 06/14/16 -- Liberty Tax, Inc. (NASDAQ: TAX) (the "Company"), the parent company of Liberty Tax Service, today reported its results for fiscal year 2016. The Company reported that total revenue increased 7% to $173.4 million and GAAP earnings per share of $1.38 up 126% vs prior year. Non-GAAP earnings per share were $1.41 up 4% vs prior year.

The total number of customers served in company-owned and independently-owned and operated franchise offices fell by 3.8% to 2.16 million. Tax returns prepared in U.S. offices fell 3.9%, while total returns in Canada offices fell 2.9%.

The Company is continuing to implement several new initiatives such as SiempreTax+, which is already one of the fastest growing tax preparation franchises in history, even out pacing the initial growth of Liberty Tax Service. The Company will also be focusing on customer retention and enhanced compliance efforts to address an evolving industry environment.

"Our franchisees and leadership team have worked hard to overcome challenges facing Liberty and the entire tax industry," said John Hewitt, CEO. "Liberty was founded on a principle of delivering friendly and accurate tax preparation. Improving our standards and delivering an exceptional customer experience remains our highest priority."


Fiscal 2016 Results
($ in thousands except
 per share data)                   GAAP                   Non - GAAP*
                         ------------------------  ------------------------
                           2016     2015   Change    2016     2015   Change
                         -------- -------- ------  -------- -------- ------
Revenue                  $173,429 $162,172      7% $173,429 $162,172      7%
Operating expenses        140,941  146,780     -4%  140,276  129,283      9%
Income before taxes        30,478   13,501    126%   31,143   30,998      0%
Diluted EPS                  1.38     0.61    126%     1.41     1.36      4%
*See reconciliation of GAAP to Non-GAAP measures in Table E

Highlights

Dividend

On June 10, 2016, the Board of Directors approved a quarterly dividend to shareholders of $0.16 per share. The dividend will be paid on July 22, 2016 to holders of record of common stock and common stock equivalents on the close of business on July 12, 2016.

Conference Call

At 4:30 p.m. Eastern time on June 14, 2016, 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: 24717726

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 Tuesday, June 21, 2016, by dialing 855-859-2056 (domestic) or 404-537-3406 (international). The conference ID code is 24717726. 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. Liberty Tax is one of the fastest-growing tax preparation franchises and has prepared nearly 22 million individual income tax returns in more than 4,400 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 21,000 seasonal tax preparers. Liberty Tax also supports local communities with fundraising endeavors and contributes as a national sponsor for 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 Tables E&F titled "Non-GAAP Financial Information."

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 effect of health care reform on tax preparation-related revenue; the impact of the launch of a new franchise brand; uncertainties regarding the Company's ability to meet its prepared returns targets; competitive factors; the Company's effective income tax rate; litigation defense expenses and costs of judgments or settlements; 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 Operations
     Unaudited, amounts in thousands, except per share and share data

                                     Fiscal Years ended April 30,
                          ------------------------------------------------
                              2016         2015      $ change    % change
                          -----------  -----------  ----------  ----------
Revenues:
 Franchise fees           $     5,038  $     6,246      (1,208)      (19.3%)
 Area developer fees            6,008        6,901        (893)      (12.9%)
 Royalties and
  advertising fees             80,274       80,469        (195)       (0.2%)
 Financial products            45,327       37,058       8,269        22.3%
 Interest income               13,578       14,707      (1,129)       (7.7%)
 Tax preparation fees,
  net of discounts             19,292       13,877       5,415        39.0%
 Other revenue                  3,912        2,914         998        34.2%
                          -----------  -----------  ----------  ----------
  Total revenues              173,429      162,172      11,257         6.9%
                          -----------  -----------  ----------  ----------

Operating expenses:
 Employee compensation
  and benefits                 42,882       41,079       1,803         4.4%
 Selling, general, and
  administrative expenses      43,927       40,604       3,323         8.2%
 Area developer expense        27,686       28,497        (811)       (2.8%)
 Advertising expense           16,420       18,308      (1,888)      (10.3%)
 Depreciation,
  amortization and
  impairment charges           10,026        9,900         126         1.3%
 Impairment of online
  software and assets               -        8,392      (8,392)      100.0%
                          -----------  -----------  ----------  ----------
  Total operating
   expenses                   140,941      146,780      (5,839)       (4.0%)
                          -----------  -----------  ----------  ----------
  Income from operations       32,488       15,392      17,096       111.1%

Other income (expense):
 Foreign currency
  transaction income
  (loss)                           29           (2)         31     1,550.0%
 Interest expense              (2,039)      (1,889)       (150)       (7.9%)
                          -----------  -----------  ----------  ----------
  Income before income
   taxes                       30,478       13,501      16,977       125.7%
 Income tax expense            11,058        4,811       6,247       129.8%
                          -----------  -----------  ----------  ----------
  Net income              $    19,420  $     8,690      10,730       123.5%
                          ===========  ===========  ==========  ==========
Net income attributable
 to Class A and Class B
 common stockholders      $    18,014  $     8,057       9,957       123.6%
                          ===========  ===========  ==========  ==========

Net income per share of
 Class A and Class B
 common stock
 Basic                    $      1.41  $      0.63        0.78       123.8%
 Diluted                         1.38         0.61        0.77       126.2%
Weighted-average shares
 outstanding
 Basic                     12,814,775   12,738,887      75,888         0.6%
 Diluted                   14,024,761   14,294,773    (270,012)       (1.9%)



                                  Table B
                             Liberty Tax, Inc.
              Condensed Consolidated Statements of Operations
     Unaudited, amounts in thousands, except per share and share data

                                       Three months ended April 30,
                              --------------------------------------------
                                  2016         2015     $ change  % change
                              -----------  -----------  --------  --------
Revenues:
 Franchise fees               $     2,513  $     3,250      (737)    (22.7%)
 Area developer fees                1,517        1,835      (318)    (17.3%)
 Royalties and advertising
  fees                             51,685       52,119      (434)     (0.8%)
 Financial products                27,545       23,031     4,514      19.6%
 Interest income                    6,075        7,507    (1,432)    (19.1%)
 Tax preparation fees, net of
  discounts                        14,487       11,029     3,458      31.4%
 Other revenue                        592          148       444     300.0%
                              -----------  -----------  --------  --------
  Total revenues                  104,414       98,919     5,495       5.6%
                              -----------  -----------  --------  --------

Operating expenses:
 Employee compensation and
  benefits                         14,429       12,453     1,976      15.9%
 Selling, general, and
  administrative expenses          14,831        9,685     5,146      53.1%
 Area developer expense            16,964       17,721      (757)     (4.3%)
 Advertising expense                2,348        4,286    (1,938)    (45.2%)
 Depreciation, amortization
  and impairment charges            4,400        3,045     1,355      44.5%
 Impairment of online
  software and assets                   -        8,392    (8,392)    100.0%
                              -----------  -----------  --------  --------
  Total operating expenses         52,972       55,582    (2,610)     (4.7%)
                              -----------  -----------  --------  --------
  Income from operations           51,442       43,337     8,105      18.7%

Other income (expense):
 Foreign currency transaction
  income                               68           43        25      58.1%
 Interest expense                    (447)        (339)     (108)    (31.9%)
                              -----------  -----------  --------  --------
  Income before income taxes       51,063       43,041     8,022      18.6%
 Income tax expense                18,775       16,298     2,477      15.2%
                              -----------  -----------  --------  --------
  Net Income                  $    32,288  $    26,743     5,545      20.7%
                              ===========  ===========  ========  ========
Net income attributable to
 Class A and Class B common
 stockholders                 $    29,961  $    24,795     5,166      20.8%
                              ===========  ===========  ========  ========

Net income per share of Class
 A and Class B common stock
 Basic                        $      2.33  $      1.95      0.38      19.5%
 Diluted                             2.31         1.89      0.42      22.2%

Weighted-average shares
 outstanding
 Basic                         12,877,919   12,728,341   149,578       1.2%
 Diluted                       13,967,568   14,155,818  (188,250)     (1.3%)



                                  Table C
                             Liberty Tax, Inc.
                   Condensed Consolidated Balance Sheets
                      Unaudited, amounts in thousands

                                                       April 30,  April 30,
                                                          2016       2015
                                                       ---------  ---------
Current assets:
  Cash and cash equivalents                            $   9,906  $  21,387
  Current receivables, net                                74,122     65,927
  Assets held for sale                                     9,886      5,160
  Deferred income tax asset                                3,496      6,921
  Other current assets                                     5,838      6,470
                                                       ---------  ---------
    Total current assets                                 103,248    105,865

Property, equipment, and software, net                    40,957     36,232
Notes receivable - non-current, net                       23,504     20,753
Goodwill                                                   4,228      3,377
Other intangible assets, net                              16,270     14,672
Other assets                                               7,524      3,247
                                                       ---------  ---------
    Total assets                                       $ 195,731  $ 184,146
                                                       =========  =========

Current liabilities:
  Current installments of long-term debt               $   5,947  $   3,934
  Accounts payable and accrued expenses                   14,064     17,321
  Due to area developers                                  24,977     24,340
  Income taxes payable                                     3,581      2,147
  Deferred revenue - current                               4,682      6,076
                                                       ---------  ---------
    Total current liabilities                             53,251     53,818

  Long-term debt, excluding current installments          17,601     21,463
  Revolving credit facility                                    -          -
  Deferred revenue - non-current                           7,056      7,640
  Deferred income tax liability                            6,322      2,363
                                                       ---------  ---------
    Total liabilities                                     84,230     85,284
                                                       ---------  ---------

Stockholders' equity:
  Special voting preferred stock, $0.01 par value per
   share                                                       -          -
  Class A common stock, $0.01 par value per share            120        119
  Class B common stock, $0.01 par value per share              9          9
  Exchangeable shares, $0.01 par value                        10         10
  Additional paid-in capital                               7,153      4,082
  Accumulated other comprehensive loss, net of taxes      (1,698)      (697)
  Retained earnings                                      105,907     95,339
                                                       ---------  ---------
    Total stockholders' equity                           111,501     98,862
                                                       ---------  ---------
    Total liabilities and stockholders' equity         $ 195,731  $ 184,146
                                                       ---------  ---------



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

                                                        Fiscal Years ended
                                                             April 30,
                                                          2016       2015
                                                       ---------  ---------
Cash flows from operating activities:
  Net Income                                           $  19,420  $   8,690
  Adjustments to reconcile net income to net cash
   provided by operating activities:
    Provision for doubtful accounts                        7,282      5,726
    Depreciation, amortization and impairment charges     10,026     18,292
    Stock-based compensation expense related to equity
     classified awards                                     1,863      2,477
    Gains on bargain purchases and sales of Company-
     owned offices                                          (855)      (414)
    Deferred tax expense                                   7,384     (3,545)
    Changes in accrued income taxes                        1,758     (7,491)
    Changes in other assets and liabilities              (17,061)       782
                                                       ---------  ---------
      Net cash provided by operating activities           29,817     24,517
                                                       ---------  ---------

Cash flows from investing activities:
  Issuance of operating loans to franchisees            (101,552)   (93,365)
  Payments received on operating loans to franchisees     89,786     88,776
  Purchases of Company-owned offices and area
   developer rights                                       (4,787)    (8,246)
  Proceeds from sale of Company-owned offices and area
   developer rights                                        2,934      3,687
  Purchase of available-for-sale securities               (4,999)         -
  Purchases of property, equipment, and software         (10,692)   (11,463)
                                                       ---------  ---------
      Net cash used in investing activities              (29,310)   (20,611)
                                                       ---------  ---------

Cash flows from financing activities:
  Proceeds from the exercise of stock options              2,286     11,983
  Repurchase of common stock                              (1,977)   (36,308)
  Payment of dividends                                    (8,852)    (2,205)
  Repayment of long-term debt                             (4,170)    (5,850)
  Borrowings under revolving credit facility             166,232    154,633
  Repayments under revolving credit facility            (166,232)  (154,633)
  Payment for debt issuance costs                              -       (917)
  Tax benefit of stock option exercises                      899      4,803
                                                       ---------  ---------
      Net cash used by financing activities              (11,814)   (28,494)

Effect of exchange rate changes on cash and cash
 equivalents, net                                           (174)      (105)
                                                       ---------  ---------
      Net decrease in cash and cash equivalents          (11,481)   (24,693)
Cash and cash equivalents at beginning of period          21,387     46,080
                                                       ---------  ---------
Cash and cash equivalents at end of period             $   9,906  $  21,387
                                                       ---------  ---------



                                   Table E
                              Liberty Tax, Inc.
                       Non-GAAP Financial Information
             Reconciliation of Other Non-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 certain non-GAAP
 performance measures and ratios used in managing the business may provide
 additional meaningful comparisons between current year results and prior
 periods. Reconciliations to GAAP financial measures are provided below.
 These non-GAAP financial measures should be viewed in addition to, not as
 an alternative for, our reported GAAP results.

                      Fiscal Year Ended April 30, 2016
----------------------------------------------------------------------------
                                    Income            Income
                                     from             before   Net   Diluted
               Revenues Expenses  Operations  EBITDA  Taxes   Income   EPS
               -------------------------------------------------------------

As Reported    $173,429 $140,941  $   32,488 $42,543 $30,478 $19,420 $  1.38

Adjustments:
Executive
 severance(1)         -     (413)        413     413     413     263    0.02
Executive Task
 Force and
 compliance
 related costs        -     (252)        252     252     252     161    0.01
               -------------------------------------------------------------
  Subtotal of
   adjustments        -     (665)        665     665     665     424    0.03
               =============================================================

As Adjusted    $173,429 $140,276  $   33,153 $43,208 $31,143 $19,844 $  1.41
               =============================================================

Stock-based
 compensation
 expense(2)    $      - $ (1,771) $    1,771 $ 1,771


                      Fiscal Year Ended April 30, 2015
----------------------------------------------------------------------------
                                    Income            Income   Net
                                     from             before Income  Diluted
               Revenues Expenses  Operations  EBITDA  Taxes    (3)     EPS
               -------------------------------------------------------------

As Reported    $162,172 $146,780  $   15,392 $33,682 $13,501 $ 8,690 $  0.61

Adjustments:
Executive
 severance(1)         -   (1,488)      1,488   1,488   1,488     915    0.06
Litigation
 costs                -   (7,617)      7,617   7,617   7,617   4,685    0.33
Impairment of
 online
 software and
 assets               -   (8,392)      8,392       -   8,392   5,161    0.36
               -------------------------------------------------------------
  Subtotal of
   adjustments        -  (17,497)     17,497   9,105  17,497  10,761    0.75
               -------------------------------------------------------------

As Adjusted    $162,172 $129,283  $   32,889 $42,787 $30,998 $19,451 $  1.36
               =============================================================

Stock-based
 compensation
 expense(2)    $      - $ (1,883) $    1,883 $ 1,883

(1) Includes stock-based compensation expense
(2) Excludes costs related to executive severance
(3) The non-GAAP tax rate of 38.5% used above excludes the income tax
effects of the non-GAAP income before taxes adjustments described above and
is consistent with our average and forecasted tax rate.


                                  Table F
                             Liberty Tax, Inc.
                       Non-GAAP Financial Information
            Reconciliation of Other Non-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 certain non-GAAP
 performance measures and ratios used in managing the business may provide
 additional meaningful comparisons between current year results and prior
 periods. Reconciliations to GAAP financial measures are provided below.
 These non-GAAP financial measures should be viewed in addition to, not as
 an alternative for, our reported GAAP results.

                     Three Months Ended April 30, 2016
----------------------------------------------------------------------------
                                 Income
                                  from             Income
                                Operat-            before    Net    Diluted
              Revenues Expenses   ions    EBITDA   Taxes    Income    EPS
              --------------------------------------------------------------

As Reported   $104,414 $52,972  $51,442  $55,910  $51,063  $32,288  $  2.31

Adjustments:
Executive
 Task Force
 and
 compliance
 related
 costs               -    (252)     252      252      252      159     0.01
              --------------------------------------------------------------
 Subtotal of
  adjustments        -    (252)     252      252      252      159     0.01
              ==============================================================

As Adjusted   $104,414 $52,720  $51,694  $56,162  $51,315  $32,447  $  2.32
              ==============================================================

Stock-based
 compensation
 expense      $      - $  (515) $   515  $   515


                     Three Months Ended April 30, 2015
----------------------------------------------------------------------------
                                 Income
                                  from             Income    Net
                                Operat-            before  Income   Diluted
              Revenues Expenses   ions    EBITDA   Taxes     (1)      EPS
              --------------------------------------------------------------

As Reported   $ 98,919 $55,582  $43,337  $54,817  $43,041  $26,743  $  1.89

Adjustments:
Executive
 severance           -     129     (129)    (129)    (129)     (79)   (0.01)
Litigation
 costs               -  (1,421)   1,421    1,421    1,421      874     0.06
Impairment of
 online
 software and
 assets              -  (8,392)   8,392        -    8,392    5,161     0.37
              --------------------------------------------------------------
 Subtotal of
  adjustments        -  (9,684)   9,684    1,292    9,684    5,956     0.42
              ==============================================================

As Adjusted   $ 98,919 $45,898  $53,021  $56,109  $52,725  $32,699  $  2.31
              ==============================================================

Stock-based
 compensation
 expense      $      - $  (475) $   475  $   475

(1) The non-GAAP tax rate of 38.5% used above excludes the income tax
effects of the non-GAAP income before taxes adjustments described above and
is consistent with our average and forecasted tax rate.



                                   Table G
                              Liberty Tax, Inc.
                              Operational Data
                                  Unaudited

                                                    Fiscal years ended April
                                                              30,
                                                       2016         2015
                                                   ------------ ------------
Franchisees
 U.S.                                                     1,856        1,907
 Canada                                                     130          125
                                                   ------------ ------------
  Total Franchisees                                       1,986        2,032
                                                   ============ ============

Offices
 U.S.
  Franchised                                              3,967        3,944
  Company-Owned                                             258          125
                                                   ------------ ------------
   Total U.S.                                             4,225        4,069

 Canada
  Franchised                                                210          202
  Company-Owned                                              52           57
                                                   ------------ ------------
   Total Canada                                             262          259

 Total
  Franchised                                              4,177        4,146
  Company-Owned                                             310          182
                                                   ------------ ------------
   Total Offices                                          4,487        4,328
                                                   ============ ============

Tax Returns Processed
 U.S.                                                 1,832,000    1,907,000
 Canada                                                 330,000      340,000
                                                   ------------ ------------
  Total Returns Processed in Offices                  2,162,000    2,247,000
                                                   ------------ ------------

 Online                                                 145,000      167,000
                                                   ------------ ------------
  Total Tax Returns Processed                         2,307,000    2,414,000
                                                   ============ ============

Systemwide Revenue(1)
 U.S.                                              $417,600,000 $413,200,000

 Canada (CDN $)                                      27,400,000   26,400,000
 Canada (USD $)                                      21,200,000   21,800,000

US Average Net Fee Per Return(2)                   $        228 $        217

(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 growth in systemwide revenue to
be an important measurement.
(2) The net average fee per tax return prepared reflects amounts for our
franchised and company-owned offices.

CONTACTS:
Investors:
Kathy Donovan
Liberty Tax, Inc.
Vice President, Chief Financial Officer
(757) 493-8855
[email protected]

Media:
Martha O'Gorman
Liberty Tax, Inc.
Chief Marketing Officer
(757) 301-8022
[email protected]

Source: Liberty Tax, Inc

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