Jackson Hewitt Reports Second Quarter Fiscal 2007 Results

PARSIPPANY, N.J., Nov. 28 /PRNewswire-FirstCall/ -- Jackson Hewitt Tax Service Inc. today reported financial results for the second quarter and first six months of fiscal 2007. Total revenues in the current quarter were $6.2 million as compared to $9.0 million in the prior year period. Net loss in the current quarter was $15.5 million ($0.46 per share) as compared to a net loss of $11.3 million ($0.31 per share) in the prior year period. Net loss would have been $0.38 per share, adjusting for changes in the Company's financial product agreements that became effective in the 2006 tax season ($0.05 per share) and the lower share count primarily resulting from the Company's share repurchase programs ($0.03 per share). Jackson Hewitt typically generates a loss in the first and second fiscal quarters due to the seasonal nature of the tax service business.

The Company sold 151 territories during the first six months as compared to 133 territories in the prior year period, representing a 14% increase, and remains on target to sell approximately 200 territories for the year.

Jackson Hewitt expects to open 600-650 additional offices for the 2007 tax season. This will bring the office count to over 6,600 and represents 10% growth in offices over the prior year, in line with historical experience.

"Our tax season began in November with customer year-end tax planning and the Holiday Express Loan Program(R) for which we have seen a significant increase in customer traffic in advance of the filing season," said Michael Lister, Chairman and Chief Executive Officer. "This growth demonstrates the success of our strategy of improved convenience and enhanced products and services to meet consumer demand."

The Company repurchased 1.4 million shares of common stock at a total cost of $45.5 million during the quarter and 2.5 million shares of common stock at a total cost of $79.6 million during the first six months. As previously announced during the quarter, the Company completed its $75 million share repurchase program and repurchased an additional $4.6 million of stock under its recently authorized $200 million multi-year share repurchase program.

For the first six months of the year, the Company generated revenues of $12.0 million, as compared to $15.1 million in the prior year period, and a net loss of $28.2 million ($0.82 per share) as compared to a net loss of $24.5 million ($0.67 per share). The reduced share count, primarily as a result of the share repurchase programs $(0.06 per share), and changes in the financial product agreements resulting in revenues being earned in the third and fourth fiscal quarters ($0.07 per share) resulted in a $0.13 increase in loss per share for the first six months. In the first six months of the prior year, the Company incurred a $2.7 million non-cash charge ($0.04 per share) associated with debt refinancing.

Franchise Operations

Revenues in the current quarter were $5.7 million, as compared to $8.5 million in the prior year period due to the elimination of $2.8 million of other financial product revenues under the Company's financial product agreements that became effective with the 2006 tax season.

Prior to the new agreements, a portion of the financial product related revenues had been earned in the first and second quarters. Under the new agreements, financial product fees are earned during the tax season in the third and fourth fiscal quarters for providing access to Jackson Hewitt's offices and supporting the technology needs of the programs. Financial product fees earned in the first and second quarters are now primarily related to the Gold Guarantee product which is recognized in all four quarters of the fiscal year.

Other revenues included the sale of 76 territories as compared to 81 in the prior year period.

Cost of operations increased by $1.0 million largely due to costs associated with the cumulative growth over the prior three years in the Gold Guarantee program, as well as increased personnel related to expected growth in the business. Loss before income taxes was $8.6 million, as compared to $4.1 million in the prior year period.

Company Owned-Office Operations

Loss before income taxes increased by $1.5 million to $7.6 million in the quarter primarily due to higher planned off-season occupancy and personnel costs associated with operating the increased number of offices that were opened in 2006 and that are planned for 2007.

Corporate and Other

Stock-based compensation increased by $0.3 million as the Company granted additional stock options in the first quarter for which the associated cost is incurred over the four year vesting period following the grant date. Interest expense increased by $0.6 million as a result of higher average debt outstanding, primarily to fund the share repurchase programs, and higher interest rates.

Conference Call

Michael Lister, Chairman and Chief Executive Officer, and Mark Heimbouch, Chief Financial Officer, will host a live webcast over the internet later this morning at 11:00 a.m. Eastern Time to discuss the quarter's results. Please visit the Investor Relations tab of the Company's website, http://www.jacksonhewitt.com/, at least 10 minutes prior to the beginning of the call in order to access the webcast.

About Jackson Hewitt Tax Service Inc.

Jackson Hewitt Tax Service Inc. , with over 6,000 franchised and company-owned offices throughout the United States during the 2006 tax season, is an industry leader providing full service individual federal and state income tax preparation. Most offices are independently owned and operated. The Company is based in Parsippany, New Jersey. More information may be obtained at http://www.jacksonhewitt.com/. To locate the Jackson Hewitt Tax Service(R) office nearest to you, call 1-800-234-1040.

This press release contains statements including, without limitation, those statements relating to territory sales and office growth, that are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Because these forward looking statements involve risks and uncertainties, actual results may differ materially from those expressed or implied in the forward-looking statements due to a number of factors, including but not limited to: the Company's ability to achieve the same level of growth in revenues and profits that it has in the past; the Company's ability to maintain its quarterly dividend at the current level; government initiatives that simplify tax return preparation, improvements in the timing and efficiency of processing tax returns or a decrease in the number of tax returns filed or the size of tax refunds; government legislation and regulation of the industry and products and services, including refund anticipation loans; the success of the Company's franchise operations; changes in the Company's relationship with financial product providers and retailers; the Company's compliance with revolving credit facility covenants; the Company's exposure to litigation; the seasonality of the Company's business and its effect on the stock price; and the effect of market conditions within the tax return preparation industry.

Additional information concerning these and other risks that could impact the Company's business can be found in the Company's Annual Report on Form 10- K for the fiscal year ended April 30, 2006 and other public filings with the Securities and Exchange Commission ("SEC"). Copies are available from the SEC or the Company's website. The Company assumes no obligation, and the Company expressly disclaims any obligation, to update or alter any forward-looking statements.

Contact: Investor Relations: Media Relations: David Kraut Sheila Cort Vice President, Vice President, Treasury & Investor Relations Corporate Communications 973-630-0821 973-630-0680 JACKSON HEWITT TAX SERVICE INC. CONSOLIDATED BALANCE SHEETS (Unaudited) (Dollars in thousands, except per share amounts) As of As of October 31, 2006 April 30, 2006 Assets Current assets: Cash and cash equivalents $457 $15,150 Accounts receivable, net of allowance for doubtful accounts of $1,577 and $1,168, respectively 2,864 20,184 Notes receivable, net 5,355 4,830 Prepaid expenses and other 7,800 8,755 Deferred income taxes 4,996 4,583 Total current assets 21,472 53,502 Property and equipment, net 36,406 35,808 Goodwill 393,122 392,700 Other intangible assets, net 84,994 86,085 Notes receivable, net 6,415 3,453 Other non-current assets, net 15,669 16,534 Total assets $558,078 $588,082 Liabilities and Stockholders' Equity Current liabilities: Accounts payable and accrued liabilities $22,832 $44,001 Income taxes payable 13,139 47,974 Deferred revenues 7,983 9,304 Total current liabilities 43,954 101,279 Long-term debt 193,000 50,000 Deferred income taxes 37,097 36,526 Other non-current liabilities 8,826 12,354 Total liabilities 282,877 200,159 Stockholders' equity: Common stock, par value $0.01; Authorized: 200,000,000 shares; Issued: 37,918,391 and 37,843,898 shares, respectively 379 378 Additional paid-in capital 354,132 350,526 Retained earnings 61,134 97,413 Accumulated other comprehensive income 491 933 Less: Treasury stock, at cost: 5,005,256 and 2,538,197 shares, respectively (140,935) (61,327) Total stockholders' equity 275,201 387,923 Total liabilities and stockholders' equity $558,078 $588,082 JACKSON HEWITT TAX SERVICE INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In thousands, except per share amounts) Three Months Ended Six Months Ended October 31, October 31, 2006 2005 2006 2005 Revenues Franchise operations revenues: Royalty $719 $872 $1,342 $1,327 Marketing and advertising 316 402 596 612 Financial product fees (a) 2,269 2,136 4,487 3,982 Other financial product revenues(a) - 2,799 - 4,109 Other 2,397 2,279 4,732 4,261 Service revenues from company- owned office operations 454 538 859 842 Total revenues 6,155 9,026 12,016 15,133 Expenses Cost of franchise operations 7,993 6,991 15,953 14,503 Marketing and advertising 3,463 3,172 6,297 5,855 Cost of company-owned office operations 5,907 4,964 10,699 9,143 Selling, general and administrative 9,233 8,283 16,804 15,120 Depreciation and amortization 2,994 2,724 5,966 5,383 Total expenses 29,590 26,134 55,719 50,004 Loss from operations (23,435) (17,108) (43,703) (34,871) Other income/(expense): Interest income 253 195 666 925 Interest expense (2,495) (1,883) (3,732) (3,917) Write-off of deferred financing costs (108) - (108) (2,677) Gain on sale of assets, net - 216 - 216 Loss before income taxes (25,785) (18,580) (46,877) (40,324) Benefit from income taxes 10,296 7,292 18,718 15,829 Net loss $(15,489) $(11,288) $(28,159) $(24,495) Loss per share: Basic and diluted $(0.46) $(0.31) $(0.82) $(0.67) Weighted average shares outstanding: Basic and diluted 33,628 36,218 34,258 36,818 Note to Consolidated Statements of Operations: (a) Due to the current agreements with the providers of financial products to the Company's customers, which became effective January 2006, the Company no longer earns other financial products revenues on refund anticipation loans facilitated by its network. The Company now earns financial product fees under such agreements primarily over the course of the tax season during the Company's third and fourth fiscal quarters. JACKSON HEWITT TAX SERVICE INC. FRANCHISE RESULTS OF OPERATIONS (Unaudited) (In thousands) Three Months Ended Six Months Ended October 31, October 31, 2006 2005 2006 2005 Revenues Royalty $719 $872 $1,342 $1,327 Marketing and advertising 316 402 596 612 Financial product fees (a) 2,269 2,136 4,487 3,982 Other financial product revenues(a) - 2,799 - 4,109 Other 2,397 2,279 4,732 4,261 Total revenues 5,701 8,488 11,157 14,291 Expenses Cost of operations 7,993 6,991 15,953 14,503 Marketing and advertising 3,043 2,774 5,735 5,273 Selling, general and administrative 1,163 958 2,249 1,839 Depreciation and amortization 2,268 2,064 4,531 4,047 Total expenses 14,467 12,787 28,468 25,662 Loss from operations (8,766) (4,299) (17,311) (11,371) Other income/(expense): Interest income 161 183 432 455 Loss before income taxes $(8,605) $(4,116) $(16,879) $(10,916) Note to Franchise Results of Operations: (a) Due to the current agreements with the providers of financial products to the Company's customers, which became effective January 2006, the Company no longer earns other financial products revenues on refund anticipation loans facilitated by its network. The Company now earns financial product fees under such agreements primarily over the course of the tax season during the Company's third and fourth fiscal quarters. JACKSON HEWITT TAX SERVICE INC. COMPANY-OWNED OFFICE RESULTS OF OPERATIONS (Unaudited) (In thousands) Three Months Ended Six Months Ended October 31, October 31, 2006 2005 2006 2005 Revenues Service revenues from operations $454 $538 $859 $842 Expenses Cost of operations 5,907 4,964 10,699 9,143 Marketing and advertising 420 398 562 582 Selling, general and administrative 1,004 874 1,725 1,486 Depreciation and amortization 726 660 1,435 1,336 Total expenses 8,057 6,896 14,421 12,547 Loss from operations (7,603) (6,358) (13,562) (11,705) Other income/(expense): Gain on sale of assets, net - 216 - 216 Loss before income taxes $(7,603) $(6,142) $(13,562) $(11,489) JACKSON HEWITT TAX SERVICE INC. CORPORATE AND OTHER (Unaudited) (In thousands) Three Months Ended Six Months Ended October 31, October 31, 2006 2005 2006 2005 Expenses (a) General and administrative $5,997 $5,681 $10,838 $10,519 Stock-based compensation 1,069 770 1,992 1,276 Total expenses 7,066 6,451 12,830 11,795 Loss from operations (7,066) (6,451) (12,830) (11,795) Other income/(expense): Interest income 92 12 234 470 Interest expense (2,495) (1,883) (3,732) (3,917) Write-off of deferred financing costs (108) - (108) (2,677) Loss before income taxes $(9,577) $(8,322) $(16,436) $(17,919) Note to Corporate and Other: (a) Included in selling, general and administrative in the Consolidated Statements of Operations.