Jackson Hewitt Reports Fiscal 2008 Annual Results

PRNewswire-FirstCall -- Jackson Hewitt Tax Service Inc. ("Jackson Hewitt") (NYSE: JTX), today reported results for the fourth quarter and fiscal year ended April 30, 2008. Jackson Hewitt's adjusted diluted earnings per share ("EPS") for the 2008 fiscal year were $1.37, versus adjusted diluted EPS of $1.98 in the 2007 fiscal year. The adjusted diluted EPS comparison excludes expenses associated with Jackson Hewitt's internal review, severance costs and certain litigation expenses incurred during the past two fiscal years. A table reconciling reported to adjusted diluted EPS is included in the financial tables accompanying this earnings release. Jackson Hewitt's 2008 fiscal year reported diluted EPS were $1.09, versus reported diluted EPS of $1.93 for the 2007 fiscal year.

"The 2008 tax season was a challenging and disappointing one for our company," said Michael C. Yerington, president and chief executive officer of Jackson Hewitt. "Although we realized improvement in return levels in the second half of the tax season, we were unable to fully recover from the exceptionally weak January start."

"One positive we can take from this past season is that we understand the issues we need to address for the 2009 tax season," continued Yerington. "These issues include providing a compelling early season product; revamping our marketing messages and programs to achieve tighter alignment with our core customers; selectively broadening distribution and partnership arrangements; and, realization of a more efficient and flexible cost structure throughout our organization. Our new management team is already hard at work on the plans to deliver a strong 2009 tax season and beyond."

2008 Full Year Consolidated Results
Total reported revenues for the 2008 full year were $279.7 million, versus $293.2 for the 2007 full year. The decline in revenues was primarily attributable to a decline in the total number of tax returns prepared versus the prior year. Reported net income for the 2008 full year was $32.4 million, reflecting reported diluted EPS of $1.09, versus reported net income of $65.4 million for the 2007 full year, reflecting reported diluted EPS of $1.93.

Jackson Hewitt's national network of 6,763 franchised and company-owned offices prepared, as previously reported, 3.45 million tax returns in 2008, a decline of 5.3% over the prior year. Excluding the Economic Stimulus Rebate tax returns, the year-over-year decline was 7.1%. Average revenues per tax return, excluding the Economic Stimulus Rebate tax returns, were flat at $191.98 per tax return. The network facilitated 3.1 million financial products, a decrease of 8.1% versus the prior year, primarily as a result of the decline in tax returns prepared versus the prior year. Financial products facilitated include refund anticipation loans, assisted refunds and Gold Guarantee(R) products.

Royalties and Marketing and Advertising revenues for the 2008 fiscal year were $110.5 million, versus $120.2 million in the 2007 fiscal year, due to the decline in Franchise tax returns prepared and also the operation as company- owned of certain stores previously operated by a franchisee. Financial product fees for the 2008 fiscal year were $72.1 million, versus $80.0 million in the prior year. Service revenues from company-owned office operations increased by $6.3 million to $86.5 million, primarily reflecting the acquisitions of the locations from a large former franchisee and other new acquisitions in 2008.

Marketing and advertising expenses for the 2008 fiscal year were $49.0 million, versus $44.2 million in the prior year. The increased expenses, substantially fixed as the 2008 tax season began, reflected Jackson Hewitt's anticipated level of tax returns. Selling, general and administrative expenses were $49.1 million in the 2008 fiscal year, versus $35.8 million in the 2007 fiscal year. The increase includes primarily higher internal review and severance costs of $11.5 million.

Jackson Hewitt returned $120 million to shareholders in the form of dividends and share repurchases during the 2008 fiscal year. Debt outstanding at year-end was $231 million.

2008 Fourth Quarter Consolidated Results
For the 2008 fourth quarter, total revenues were $170.7 million, versus $166.7 million in 2007's fourth quarter, reflecting a growth rate of 2.4%. The results reflected, in part, a higher level of company-owned store revenue. On a reported basis, 2008 fourth quarter earnings per diluted common share were essentially flat versus the 2007 fourth quarter. 2008 fourth quarter reported net income was $57.5 million, reflecting reported diluted EPS of $2.02, versus reported net income of $66.0 million and reported diluted EPS of $2.03 in the 2007 fourth quarter. The 2007 fourth quarter diluted EPS would have been $2.04 when adjusted for expenses associated with the internal review.

Board of Directors Declares 2009 First Quarter Dividend
On June 3, 2008, Jackson Hewitt's Board of Directors declared a 2009 first quarter dividend of $0.18 per share, payable on July 15, 2008, to shareholders of record on June 30, 2008. This dividend represents Jackson Hewitt's 16th consecutive quarterly dividend since its initial public offering in June 2004.

Franchise Operations
Revenues for the 2008 fiscal year were $193.2 million, versus $213.0 million in the prior year, reflecting the decline in tax returns prepared versus the prior year and the conversion of certain franchise operations to company-owned during the year. Royalty revenues decreased by $6.5 million to $76.5 million and Marketing and Advertising revenues decreased by $3.2 million to $34.0 million. The average royalty, marketing and advertising rate was 19.53% in the 2008 fiscal year, versus 19.41% in the prior year.

Financial product fees were $72.1 million, versus $80.0 million in the prior year. Revenue from the Gold Guarantee product, which are included in Financial product fees, was $10.2 million, as compared to $9.8 million in the prior year.

Other revenues declined by $2.2 million, reflecting lower electronic filing fees collected from franchisees on the lower number of tax returns filed and fees generated from the sale of 130 territories during the year, as compared to 205 in the 2007 fiscal year. Jackson Hewitt believes the decline in territory sales versus the prior year was primarily related to negative publicity surrounding last year's Department of Justice ("DOJ") matter involving a former franchisee.

Cost of franchise operations expenses increased by $2.0 million, to $35.4 million. Marketing and advertising expenses were $41.1 million, versus $37.2 million in the prior year. Income before income taxes declined to $104.5 million, versus $130.4 million in the 2007 fiscal year.

Company-Owned Office Operations
Service revenues from operations increased by $6.3 million to $86.5 million, reflecting the acquisition of certain stores from a former franchisee who had been named in last year's DOJ matter, and other 2008 acquisitions, offset in part by lower tax returns prepared. Jackson Hewitt experienced more weakness in the acquired stores and surrounding markets than anticipated during the 2008 tax season. Income before income taxes decreased to $5.1 million, versus $15.1 million in the 2007 fiscal year.

Corporate and Other
Reported loss before income taxes was $55.5 million, versus $38.0 million in the 2007 fiscal year. Costs related to the internal review were $5.8 million for the 2008 fiscal year, versus $0.5 million in the 2007 fiscal year, while severance related expenses were $6.1 million in the 2008 fiscal year, versus none in the prior year.

Interest expense increased from $10.1 million in the 2007 fiscal year to $14.4 million in the 2008 fiscal year, primarily due to an increased debt level in connection with share repurchases that took place during the year.

Credit Facility Amendment
On May 21, 2008, Jackson Hewitt completed an amendment to its existing $450 million credit facility. The amendment provided for additional flexibility in connection with the allowable maximum consolidated leverage ratio under the credit facility covenants. The maximum consolidated leverage ratio was amended to be 3.5x for the fiscal quarters ending July 31, 2008, through January 31, 2009, 3.15x for the fiscal quarters ending April 30, 2009, through October 31, 2009, and 3.0x for the fiscal quarters thereafter. The amendment also contains limitations with regard to share repurchases and acquisitions.

Forward-Looking Guidance Withdrawn
In view of various initiatives Jackson Hewitt is undertaking in preparation for the 2009 tax season, along with related planning and budget development activities, all forward-looking guidance previously communicated by Jackson Hewitt is hereby withdrawn. This includes the withdrawal of previously stated long-term target ranges reflecting Jackson Hewitt's revenue and earnings growth expectations. Jackson Hewitt will consider providing select guidance, as appropriate, in the future.

Analyst Conference Call
Michael Yerington, president and chief executive officer, and Dan O'Brien, executive vice president, chief financial officer and treasurer, will host an analyst conference call this morning, Thursday, June 5, 2008, at 8:30 a.m. (EDT), to discuss the results from the current fiscal year and the initiatives already underway for next tax season. Please visit the investor relations tab of the Company's website at least 10 minutes prior to the beginning of the call in order to access the webcast. The conference call will be simulcast live and a replay will be available on the Internet through the same website.

About Jackson Hewitt Tax Service Inc.
Jackson Hewitt Tax Service Inc. (NYSE: JTX), with approximately 6,800 franchised and company-owned offices throughout the United States during the 2008 tax season, is an industry leader providing full service individual federal and state income tax return preparation. Most offices are independently owned and operated. Jackson Hewitt is based in Parsippany, New Jersey.