Liberty Tax, Inc. (TAX) reported second-quarter fiscal 2015 adjusted net loss of 74 cents per share, wider than the Zacks Consensus Estimate of a loss of 72 cents per share and 60 cents incurred in the year ago quarter. Higher losses were largely attributable to seasonality of the business as well as increase in expenses.
Including gain on available-for-sale securities, executive severance of 5 cents and litigation settlements of 10 cents, the GAAP net loss came in at 89 cents per share, wider than net loss of 66 cents in the year ago quarter.
Behind the Headlines
Revenues of Liberty Tax increased 5.7% to $7.7 million year over year. Results also outperformed the Zacks Consensus Estimate of $7 million. The upside came on the back of a rise in franchise and transfer fees.
Operating expenses increased 24.2% to $26.0 million year over year in the reported quarter. Increase in employee compensation and benefits, selling, general, and administrative expenses, area developer expense, advertising expense and depreciation, amortization, and impairment charges resulted in the rise.
A higher magnitude of increase in expenses offset the increase in revenues, resulting in an operating loss of $18.2 million, wider than the year-ago loss of $13.6 million.
Financial Update
Liberty Tax exited the second quarter of fiscal 2015 with cash and cash equivalents of $4.6 million, up 76.6% year over year.
Total assets increased 6.8% to $186.6 million from the year-ago quarter.
Total long-term debt amounted to $22.1 million, as on Oct 31, reflecting an improvement of about 3.8% from $22.9 million at prior-year quarter end.
Total shareholders' equity for Liberty Tax was $70.2 million, as of Oct 31, 2014, down 4.7% year over year.
Liberty Tax’ cash used in operations totaled $40.4 million in the quarter, higher than $27.9 million used in the year-ago quarter.
As of Oct 31, 2014 Liberty Tax had drawn $51.7 million on its revolving credit facility, compared with $38.5 million at prior year quarter end. This increase was due to the decision pertaining to higher repurchases and higher cash tax payments on prior-year results.
Looking Forward
Management anticipates a tailwind of 2.5% from the Affordable Care Act (ACA) this season and another 2.5% the following season. Additionally, it expects fees to go up by 7% to 8% in each of the next couple of years.
Zacks Rank
Liberty Tax currently holds Zacks Rank #5 (Strong Sell).
Other Stocks to Consider
Better-ranked stocks in the business services sector include Core-Mark Holding Company, Inc. (CORE), Rentrak Corporation (RENT) and WageWorks, Inc. (WAGE). All of these hold Zacks Rank #2 (Buy).
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