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Liberty Tax Service Announces Fiscal 2015 First Quarter Results

VIRGINIA BEACH, VA -- (Marketwired) -- 08/28/14 -- Liberty Tax, Inc. (NASDAQ: TAX) the parent company of Liberty Tax Service, today reported results for the first quarter ended July 31, 2014. Due to the seasonality of the business, the Company typically reports a loss in the first quarter when revenues are low and costs are ramping up to drive growth in the following season. The Company reported a net loss for the fiscal first quarter ended July 31, 2014, of $8.6 million, or $0.67 per share, compared to a net loss of $5.9 million, or $0.46 per share, in the prior year period. The Company reported an adjusted non-GAAP net loss of $0.63 per share compared to an adjusted non-GAAP net loss of $0.49 per share in the prior period.

"During our first quarter, we are primarily focused on expanding our office count, improving operations and preparing for the next tax season," said John Hewitt, CEO. "We are just kicking off our selling season so it is difficult to predict the final numbers for this year, but we expect the Affordable Care Act to help drive significant growth for the next two to three years."

The Company has been expecting a price increase of 5% due to the increased complexity of returns that will be required by the Affordable Care Act. However, a wide variety of exemptions have been issued by the government which will make it easier for taxpayers to file their returns this year without paying a penalty. Because the simpler return will cost less to prepare, the Company now expects to see a portion of this increase delayed until next year. The Company is projecting a 2 1/2-3% fee increase in 2015 related to the ACA. This increase is in addition to the standard annual increase.

Income Statement
Revenues for the three months ended July 31, 2014 decreased by 2.8% to $7.8 million, versus $8.1 million in the prior year period. Franchise fee revenue declined $0.3 million. Franchise fee revenue is recognized as cash is received, and cash payments on prior year franchise notes were lower.

Operating expenses for the three months ended July 31, 2014 increased 25.3% to $21.9 million, versus $17.4 million in the prior year period. This increase was primarily driven by investments in staff and management for the overall growth of the business, and an increase in depreciation, amortization and impairment charges due to the rollout of our NextGen software platform for online customers last year. During the prior year period the Company also recorded a $0.9 million one-time benefit due to the reclassification of stock options back to equity instruments and in the current year period, the Company incurred severance costs of $0.5 million. For the full year the Company expects revenue growth to outpace operating expense growth.

Balance Sheet
The Company had a cash balance of $8.6 million at July 31, 2014. The Company has drawn $13.8 million on its revolving credit facility as of July 31, 2014 compared to $16.5 million at the prior year's quarter end. During the first quarter we typically draw on this facility to provide for cash used in operations and for operating loans to franchisees.

Operational Results
During the first quarter of fiscal 2015, the Company was pleased to add 43 new franchisees, 26 of which purchased 28 new territories and the remaining 17 of which purchased at least one existing territory.

Conference Call
At 8:30 a.m. Eastern time on August 28, 2014, the Company will host a conference call for analysts, institutional investors and stockholders. To access the call, please dial the number below approximately 5 to 10 minutes prior to the scheduled starting time:

U.S. 855-611-0856
International 518-444-5569
Conference ID Code: 88168767

The call will also be webcast in a listen-only format. The link to the webcast can be accessed on the Company's investor relations website at www.libertytax.com.

A telephonic replay of the call will be available beginning shortly after the call continuing until Thursday, September 4, 2014, by dialing 855-859-2056 (domestic) or 404-537-3406 (international). The conference ID code is 88168767. 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., formerly known as JTH Holding, Inc., is the parent company of Liberty Tax Service. Liberty Tax is the fastest-growing tax preparation franchise and has prepared almost 18 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 35,000 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 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 and our eligibility to file a registration statement in the future. 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 effect of health care reform on tax preparation-related revenue; 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 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.

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

                                           July 31,    July 31,   April 30,
                                             2014        2013        2014
                                         ----------- ----------- -----------
Current assets:
  Cash and cash equivalents              $     8,649 $     8,573 $    46,080
  Receivables, net                            59,308      53,811      65,656
  Available-for-sale securities                    -       4,001           -
  Income taxes receivable                     10,946       4,017           -
  Assets held for sale                         5,425           -       4,413
  Deferred income taxes                        3,636       3,375       4,058
  Other current assets                         3,058       2,469       5,325
                                         ----------- ----------- -----------
    Total current assets                      91,022      76,246     125,532

  Property, equipment, and software, net      38,866      34,805      38,343
  Notes receivable, excluding current
   portion, net                               15,575      25,106      15,824
  Goodwill                                     3,009       6,992       2,997
  Other intangible assets, net                12,786      13,277      14,295
  Other assets                                 2,207       2,228       1,772
                                         ----------- ----------- -----------
    Total assets                         $   163,465 $   158,654 $   198,763
                                         =========== =========== ===========

Current liabilities:
  Current installments of long-term debt $     3,042 $     3,918 $     6,797
  Accounts payable and accrued expenses        8,963       6,866      15,023
  Due to area developers                       9,207       9,900      18,236
  Income taxes payable                             -           -       9,676
  Deferred revenue - short-term portion        6,796       6,822       6,051
                                         ----------- ----------- -----------
    Total current liabilities                 28,008      27,506      55,783

  Long-term debt, excluding current
   installments                               21,103      23,635      21,691
  Revolving credit facility                   13,822      16,505           -
  Deferred revenue - long-term portion         8,097       9,108       8,059
  Deferred income taxes                        4,657         600       3,045
                                         ----------- ----------- -----------
    Total liabilities                         75,687      77,354      88,578
                                         ----------- ----------- -----------

Stockholders' equity:
  Special voting preferred stock, $0.01
   par value per share                             -           -           -
  Class A common stock, $0.01 par value
   per share                                     118         120         124
  Class B common stock, $0.01 par value
   per share                                       9           9           9
  Exchangeable shares, $0.01 par value             1           1           1
  Additional paid-in capital                   6,599       7,220       9,411
  Accumulated other comprehensive
   income, net of taxes                          184       1,285          66
  Retained earnings                           80,867      72,665     100,574
                                         ----------- ----------- -----------
    Total stockholders' equity                87,778      81,300     110,185
                                         ----------- ----------- -----------
    Total liabilities and stockholders'
     equity                              $   163,465 $   158,654 $   198,763
                                         =========== =========== ===========

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

                                       Three months ended July 31,
                                  2014         2013      $ change  % change
                              -----------  -----------  ---------  --------
  Franchise fees              $       704  $     1,039  $    (335)    -32.2%
  Area developer fees               1,825        1,803         22       1.2%
  Royalties and advertising
   fees                             1,694        1,449        245      16.9%
  Financial products                  457          449          8       1.8%
  Interest income                   2,194        2,234        (40)     -1.8%
  Tax preparation fees, net
   of discounts                       515          386        129      33.4%
  Other revenue                       450          705       (255)    -36.2%
                              -----------  -----------  ---------  --------
    Total revenues                  7,839        8,065       (226)     -2.8%
                              -----------  -----------  ---------  --------

Operating expenses:
  Employee compensation and
   benefits                         8,415        6,089      2,326      38.2%
  Selling, general and
   administrative expenses          7,525        6,266      1,259      20.1%
  Area developer expense              741          828        (87)    -10.5%
  Advertising expense               2,882        2,684        198       7.4%
  Depreciation, amortization,
   and impairment charges           2,299        1,578        721      45.7%
                              -----------  -----------  ---------  --------
    Total operating expenses       21,862       17,445      4,417      25.3%
                              -----------  -----------  ---------  --------
    Loss from operations          (14,023)      (9,380)    (4,643)    -49.5%

Other expense:
  Foreign currency
   transaction loss                    (1)          (7)         6      85.7%
  Interest expense                   (301)        (245)       (56)    -22.9%
                              -----------  -----------  ---------  --------
    Loss before income taxes      (14,325)      (9,632)    (4,693)    -48.7%
  Income tax benefit               (5,681)      (3,705)    (1,976)    -53.3%
                              -----------  -----------  ---------  --------
    Net loss                  $    (8,644) $    (5,927)    (2,717)    -45.8%
                              ===========  ===========  =========  ========

Net loss per share of Class A
 and Class B common stock
  Basic and diluted           $     (0.67) $     (0.46) $   (0.21)    -45.7%

Weighted-average shares
 outstanding                   12,867,273   12,895,286    (28,013)     -0.2%

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

                                                Three months ended July 31,
                                                    2014           2013
                                               -------------  -------------
Cash flows from operating activities:
  Net loss                                     $      (8,644) $      (5,927)
  Adjustments to reconcile net loss to net
   cash used in operating activities:
    Provision for doubtful accounts                    1,456          1,562
    Depreciation, amortization and impairment
     charges                                           2,299          1,578
    Stock-based compensation expense related
     to equity classified awards                         687            175
    Stock-based compensation income related to
     liability classified awards                           -           (872)
    Gain on bargain purchases and sales of
     company-owned offices                               (95)          (351)
    Deferred tax expense                               2,034            592
    Changes in accrued income taxes                  (20,622)        (9,912)
    Changes in other assets and liabilities              142         (1,390)
                                               -------------  -------------
      Net cash used in operating activities          (22,743)       (14,545)
                                               -------------  -------------

Cash flows from investing activities:
  Issuance of operating loans to franchisees          (8,505)        (7,296)
  Payments received on operating loans to
   franchisees                                         1,325            999
  Purchases of area developer rights and
   Company-owned offices                                (128)        (2,145)
  Proceeds from sale of Company-owned offices
   and area developer rights                             643              3
  Purchase of property, equipment, and
   software                                           (2,814)        (2,904)
                                               -------------  -------------
      Net cash used in investing activities           (9,479)       (11,343)
                                               -------------  -------------

Cash flows from financing activities:
  Proceeds from the exercise of stock options          4,543          1,492
  Repurchase of common stock                         (22,620)          (863)
  Repayment of amounts due to former area
   developers                                         (3,840)        (1,439)
  Repayment of other long-term debt                     (641)          (490)
  Borrowings under revolving credit facility          13,849         17,210
  Repayments under revolving credit facility             (27)          (705)
  Tax benefit of stock option exercises                3,509            258
                                               -------------  -------------
      Net cash provided by (used in) financing
       activities                                     (5,227)        15,463

Effect of exchange rate changes on cash, net              18            (15)
                                               -------------  -------------
      Net decrease in cash and cash
       equivalents                                   (37,431)       (10,440)
Cash and cash equivalents at beginning of
 period                                               46,080         19,013
                                               -------------  -------------
Cash and cash equivalents at end of period     $       8,649  $       8,573
                                               =============  =============

Supplementary cash flow data:
  Cash paid for interest, net of capitalized
   interest                                    $         231  $         172
  Cash paid for taxes, net of refunds                  9,398          5,492

                              Liberty Tax, Inc.
                       Non-GAAP Financial Information
           Unaudited, amounts in thousands, except per share data

We report our financial results in accordance with generally accepted
 accounting principles (GAAP). However, we believe certain non-GAAP
 performance measure 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.

For the
three months
ended July                    Loss from             Pretax
31, 2014    Revenues Expenses Operations  EBITDA     Loss   Net Loss   EPS
             ------- -------- --------- --------- --------- -------- -------

As Reported  $ 7,839 $ 21,862 $(14,023) $(11,725) $(14,325) $(8,644) $(0.67)

 compensation      -    (483)       483       483       483      291    0.02
 settlements     (4)        -       (4)       (4)       (4)      (2)       -
 expense           -    (494)       494       494       494      298    0.02
 loss              -        -         -         1         1        1       -
             ------- -------- --------- --------- --------- -------- -------
 adjustments     (4)    (977)       973       974       974      588    0.04
             ------- -------- --------- --------- --------- -------- -------

As Adjusted  $ 7,835 $ 20,885 $(13,050) $(10,751) $(13,351) $(8,056) $(0.63)
             ======= ======== ========= ========= ========= ======== =======

For the
three months
ended July                    Loss from             Pretax
31, 2013    Revenues Expenses Operations  EBITDA     Loss   Net Loss   EPS
             ------- -------- --------- --------- --------- -------- -------

As Reported  $ 8,065 $ 17,445 $ (9,380) $ (7,809) $ (9,632) $(5,927) $(0.46)

 costs             -     (99)        99        99        99       61       -
 settlements     (2)        -       (2)       (2)       (2)      (1)       -
 related to
 from equity
 to liability
 instruments       -      872     (872)     (872)     (872)    (536)  (0.04)
 expense           -    (175)       175       175       175      108    0.01
 loss              -        -         -         7         7        4       -
             ------- -------- --------- --------- --------- -------- -------
 adjustments     (2)      598     (600)     (593)     (593)    (364)  (0.03)
             ------- -------- --------- --------- --------- -------- -------


Kathy Donovan
Liberty Tax, Inc.
Vice President, Chief Financial Officer
(757) 493-8855
Email Contact

Martha O'Gorman
Liberty Tax, Inc.
Chief Marketing Officer
(757) 301-8022
Email Contact

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