Franchise Group, Inc. - FORM 8-K - EX-99.1 - EXHIBIT - December 9, 2013

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CONTACTS:
 
 
Investors:  Darby Schoenfeld
 
Media:  Martha O'Gorman
JTH Holding, Inc.
 
JTH Holding, Inc.
Director of Investor Relations
 
Chief Marketing Officer
(757) 453-6047
 
(757) 301-8022
darby.schoenfeld@libtax.com
 
martha@libtax.com

Liberty Tax Service Reports Fiscal 2014 Second Quarter Results

Virginia Beach, Va. (December 9, 2013) - JTH Holding, Inc. (NASDAQ:TAX) (the “Company”), the parent company of Liberty Tax Service, today reported a net loss for the second fiscal quarter ended October 31, 2013, of $8.5 million, or $0.66 per share, compared to a net loss of $6.1 million, or $0.47 per share, in the prior year period.

“Our preparation for the coming tax season is almost complete and even though the IRS will be delaying efiling again this year, we don’t believe it will have the same impact as last year,” said John Hewitt, CEO. “We don’t believe the delay will result in a decrease in filers and, in fact, we think the industry environment this year will generate an increase of one and a half to two million more filers than last year. In addition, we believe that some of the tax season 2013 tax filers simply delayed filing beyond April as a result of all the confusion, because we have seen a 12% increase in U.S. systemwide revenue during the first half of our fiscal year.”

Revenues
Revenues for the three months ended October 31, 2013 decreased 21.6% to $7.3 million compared to $9.3 million in the prior year period. The decrease in revenue was primarily due to a decrease in franchise fees because, as previously announced, the Company was unable to sell franchises for a portion of the quarter.

Revenues for the six months ended October 31, 2013 decreased 7.2% to $15.4 million compared to $16.6 million in the prior year period. The decrease in revenue was primarily due to a decrease in franchise fees because of the franchise sale issue.

Operating Expenses
Operating expenses for the three months ended October 31, 2013 increased 11.1% to $20.9 million compared to $18.8 million in the prior year period. During the three months ended October 31, 2013, the Company incurred approximately $693,000 in pre-tax costs related to the restatement. The Company also incurred approximately $614,000, pre-tax, in one-time severance costs. These items accounted for the bulk of the increase in operating expenses.

Operating expenses for the six months ended October 31, 2013 increased 6.0% to $38.3 million compared to $36.2 million in the prior year period. The increase was primarily due to costs related to the restatement of approximately $792,000, pre-tax, and the severance costs noted above, as well as an increase in supply, software, rent and utility expense. This was partially offset by a one-time pre-tax decrease in stock compensation of $872,000 that was previously announced during the first quarter of fiscal 2014.

Balance Sheet
The Company had a cash balance of $2.6 million at October 31, 2013. The Company has drawn $38.5 million on its revolving credit facility as of October 31, 2013 compared to $39.7 million as of October 31, 2012, to provide cash used for operations and operating loans to franchisees.


Page 2 of 5
December 9, 2013


Operational Results
During the first half of fiscal 2014, the Company added 106 new franchisees, 48 of which purchased 53 new territories. The Company sold a total of 65 new territories during the first half of fiscal 2014. This does not include any “rent to own” or “try before you buy” agreements which many existing franchisees utilize to expand.

Second Quarter Conference Call
At 4:30 p.m. ET on Monday, December 9, 2013, the Company will host a conference call to discuss its results from the second quarter of fiscal 2014. To listen to the call, dial 855-611-0856 (domestic) or 518-444-5569 (international), conference ID code 16508204, approximately 10 minutes prior to the start time of the call. 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.

A telephonic replay of the call will be available beginning shortly after the call on Monday, December 9, 2013 and continuing until Monday, December 16, 2013, by dialing 855-859-2056 (domestic) or 404-537-3406 (international). The conference ID code is 16508204. A replay of the webcast will also be available at the site listed above beginning shortly after its conclusion.

About JTH Holding, Inc.
Founded in 1997 by CEO John T. Hewitt, JTH Holding, Inc. is the parent company of Liberty Tax Service. As the fastest-growing tax preparation franchise, Liberty Tax Service has prepared almost 16 million individual income tax returns. Liberty Tax Service also offers an online tax service, eSmart Tax, which enables customers to do their own taxes wherever there’s a computer. eSmart Tax is backed by the tax professionals at Liberty Tax Service and its nationwide network of over 30,000 tax preparers, ready to offer their assistance at any time. For a more in-depth look at Liberty Tax Service, visit www.libertytax.com.

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 the restatement of the Company’s historical financial statements, the costs associated with the restatement, the filing of the Company’s periodic reports with the SEC, the Company’s anticipated growth and expansion of its business, and the completion of the Company’s franchise disclosure documents and related filings. 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, the impact of changes in our accounting practices on historical and future financial results; the consequences of any restatements of our financial statements; the timing for and results of the pending restatements, including our filings with the SEC; uncertainties regarding the Company's ability to attract and retain clients; 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.
 









Page 3 of 5
December 9, 2013


JTH Holding, Inc.
Condensed Consolidated Balance Sheets
Unaudited, amounts in thousands
 
October 31,
 
April 30,
 
2013
 
2013
Current assets:
 
 
 
Cash and cash equivalents
 $ 2,607

 
 $ 19,013

Receivables, net
         71,055

 
       71,306

Available-for-sale securities
           4,606

 
          3,619

Other current assets
         17,560

 
          9,195

Total current assets
         95,828

 
     103,133

 
 
 
 
Property, equipment, and software, net
         36,470

 
       33,037

Notes receivable, excluding current portion, net
         16,793

 
       14,352

Goodwill
           7,194

 
          5,685

Other intangible assets, net
         16,316

 
       10,921

Other assets, net
           2,160

 
          2,402

Total assets
 $ 174,761

 
 $ 169,530

 
 
 
 
Current liabilities:
 
 
 
Current installments of long-term debt
 $ 6,485

 
 $ 3,400

Accounts payable and accrued expenses
           7,851

 
       11,954

Due to area developers
           8,315

 
       18,248

Income taxes payable
-

 
          5,897

Deferred revenue - short-term portion
           6,693

 
          7,555

Total current liabilities
         29,344

 
       47,054

 
 
 
 
Long-term debt, excluding current installments
         22,987

 
       24,283

Revolving credit facility
         38,459

 
-

Deferred revenue - long-term portion
           8,092

 
       10,381

Other non-current liabilities
           2,106

 
          5,976

Total liabilities
       100,988

 
       87,694

 
 
 
 
Stockholders' Equity:
 
 
 
Special voting preferred stock, $0.01 par value per share
-

 
-

Class A common stock, $0.01 par value per share
               120

 
             120

Class B common stock, $0.01 par value per share
9

 
9

Exchangeable shares, $0.01 par value
1

 
1

Additional paid-in capital
           7,818

 
          1,920

Accumulated other comprehensive income, net of taxes
           1,639

 
          1,194

Retained earnings
         64,186

 
       78,592

Total stockholders' equity
         73,773

 
       81,836

Total liabilities and stockholders' equity
 $ 174,761

 
 $ 169,530








Page 4 of 5
December 9, 2013


JTH Holding, Inc.
Condensed Consolidated Statement of Operations
Unaudited, amounts in thousands, except per share and share data
 
 
 
 
 
 
 
 
 
Three months ended
 October 31,
 
Six months ended
October 31,
 
2013
 
2012
 
2013
 
2012
Revenues:
 
 
 
 
 
 
 
Franchise fees
$
886

 
 $ 2,138

 
 $ 1,925

 
 $ 2,805

Area developer fees
             1,880

 
             2,079

 
             3,683

 
             4,001

Royalties and advertising fees
             1,180

 
             1,049

 
             2,629

 
             2,373

Financial products
169

 
169

 
618

 
471

Interest income
             2,200

 
             2,651

 
             4,434

 
             5,199

Tax preparation fees, net of discounts
242

 
225

 
628

 
441

Other revenue
760

 
             1,027

 
             1,465

 
             1,292

Total revenues
             7,317

 
             9,338

 
           15,382

 
           16,582

 
 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
 
Employee compensation and benefits
             8,196

 
             7,615

 
           14,285

 
           14,281

General and administrative expenses
             7,744

 
             6,110

 
           14,010

 
           11,926

Area developer expense
705

 
             1,115

 
             1,533

 
             1,832

Advertising expense
             2,507

 
             2,539

 
             5,191

 
             5,099

Depreciation, amortization, and impairment charges
             1,745

 
             1,432

 
             3,323

 
             3,023

Total operating expenses
           20,897

 
           18,811

 
           38,342

 
           36,161

Loss from operations
(13,580
)
 
(9,473
)
 
(22,960
)
 
(19,579
)
 
 
 
 
 
 
 
 
Other income (expense):
 
 
 
 
 
 
 
Foreign currency transaction gains (losses)
(5
)
 
2

 
(12
)
 
4

Gain on sale of available-for-sale securities
188

 
-

 
188

 
-

Interest expense
(357
)
 
(512
)
 
(602
)
 
(804
)
Loss before income taxes
(13,754
)
 
(9,983
)
 
(23,386
)
 
(20,379
)
Income tax benefit
(5,276
)
 
(3,872
)
 
(8,981
)
 
(7,905
)
Net loss
$
(8,478
)
 
 $ (6,111)

 
 $ (14,405)

 
 $ (12,474)

 
 
 
 
 
 
 
 
Net loss per share of Class A and Class B common stock
 
 
 
 
 
 
 
Basic and diluted
$
(0.66
)
 
$
(0.47
)
 
$
(1.12
)
 
$
(0.99
)
 
 
 
 
 
 
 
 
Weighted-average shares outstanding
 
 
 
 
 
 
 
Basic and diluted
   12,926,060

 
   13,027,179

 
   12,910,673

 
   12,601,417











Page 5 of 5
December 9, 2013


JTH Holding, Inc.
Condensed Consolidated Statements of Cash Flows
Unaudited, amounts in thousands
 
Six months ended October 31,
 
2013
 
2012
Cash flows from operating activities:
 
 
 
Net loss
$
(14,405
)
 
$
(12,474
)
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
 
Provision for doubtful accounts
                3,430

 
                3,264

Depreciation, amortization and impairment charges
                3,323

 
                3,023

Amortization of deferred financing costs
                    167

 
                    139

Stock-based compensation expense related to equity classified awards
                    741

 
                    892

Stock-based compensation expense related to liability classified awards
                 (872)

 
-

Gain on bargain purchases and sales of company-owned offices
                 (518)

 
                 (226)

Equity in loss of affiliate
                    101

 
                      69

Deferred tax expense
                2,598

 
                3,770

Gain on sale of available-for-sale securities
                 (188)

 
-

Changes in assets and liabilities decreasing cash flows from operating activities
           (22,258)

 
           (26,098)

Net cash used in operating activities
(27,881)

 
(27,641)

 
 
 
 
Cash flows from investing activities:
 
 
 
Issuance of operating loans to franchisees
           (17,420)

 
           (20,855)

Payments received on operating loans from franchisees
                1,230

 
                1,227

Purchases of area developer rights and company-owned offices
              (4,436)

 
              (2,352)

Proceeds from sale of company-owned offices and area developer rights
                    205

 
                1,386

Purchase of marketable equity securities
-

 
              (2,980)

Proceeds from sale of available-for-sale securities
                    456

 
-

Purchase of property and equipment
              (5,463)

 
              (5,673)

Net cash used in investing activities
           (25,428)

 
           (29,247)

 
 
 
 
Cash flows from financing activities:
 
 
 
Proceeds from the exercise of stock options
                2,998

 
                1,592

Repurchase of common stock
              (2,495)

 
              (1,413)

Repayment of long-term debt
              (2,418)

 
              (1,894)

Borrowings under revolving credit facility
              43,104

 
              40,147

Repayments under revolving credit facility
              (4,645)

 
                 (475)

Payment for debt issue costs
-

 
                      (8)

Tax benefit of stock option exercises
                    416

 
                    269

Net cash provided by financing activities
              36,960

 
              38,218

 
 
 
 
Effect of exchange rate changes on cash, net
                    (57)

 
                    (20)

Net decrease in cash and cash equivalents
           (16,406)

 
           (18,690)

Cash and cash equivalents at beginning of period
              19,013

 
              19,848

Cash and cash equivalents at end of period
 $ 2,607

 
 $ 1,158

 
 
 
 
Supplementary cash flow data:
 
 
 
Cash paid for interest, net of capitalized interest
 $ 455

 
 $ 605

Cash paid for taxes, net of refunds
                6,143

 
                6,837


Franchise Group, Inc. Reports