Jackson Hewitt Reports Fiscal 2009 Second Quarter Results

Jackson Hewitt Tax Service Inc. ("Jackson Hewitt") (NYSE: JTX) today reported financial results for the second quarter of fiscal 2009. Jackson Hewitt reported a net loss of $22.2 million, or $0.78 per basic and diluted share, versus a net loss of $23.7 million in the second quarter of fiscal 2008, or $0.78 per basic and diluted share. On an adjusted basis, Jackson Hewitt's net loss in the 2009 second quarter was $20.4 million, or $0.72 per basic and diluted share, versus an adjusted net loss of $18.0 million, or $0.60 per basic and diluted share, in the year ago quarter. Jackson Hewitt's reported consolidated total revenues in the 2009 second quarter were $5.1 million, versus $5.6 million in the 2008 second quarter. A schedule entitled Condensed Adjusted Results of Operations, which reconciles the reported and adjusted results, accompanies this earnings release.

Jackson Hewitt has historically generated roughly 2% of its total annual revenues in each of its first two fiscal quarters due to the seasonal nature of the tax return preparation business. As a result, Jackson Hewitt incurs a net loss during the first and second fiscal quarters. These losses have typically increased annually due to an increased number of company-owned stores primarily resulting from acquisitions, the addition of resources to support the franchise business and an increase in interest expense resulting from past common share repurchases.

"We've completed an intensive off-season of preparation for the 2009 tax season, and we have shifted into execution mode," said Michael C. Yerington, Jackson Hewitt's president and chief executive officer. "We accomplished, or are on track to accomplish, all of the initiatives we initially detailed back in June, including new product development, new marketing programs, a more efficient cost structure, and other initiatives to selectively broaden our distribution and improve same store sales."

"On the product front, I'm pleased to report that we successfully launched an early season line of credit product back on November 21st to robust interest and demand in the marketplace," continued Yerington. "We also launched an integrated advertising and marketing campaign in mid-November featuring our new national spokesperson and business partner, Earvin "Magic" Johnson. We look for the combination of "Magic" Johnson and our new advertising agency, Zimmerman, to deliver an impactful campaign to assist us in attracting new customers and retaining our core customer base as we move ahead in the 2009 tax season. Overall, our preparation for the 2009 tax season has been rigorous, and we expect to effectively execute our plans as the season unfolds. I am confident that our diligent preparation has placed us on a solid track for a successful 2009."

Franchise Operations

Reported revenues in the 2009 second quarter were $4.6 million, versus $5.2 million in the 2008 second quarter. The lower revenues versus last year's second quarter were primarily attributable to a decline in certain franchisee fees, a decline in commissions in connection with a preferred vendor program and a decrease in financial product fees related to sales of the Gold Guarantee(R) product from prior tax seasons. In the 2009 second quarter, territory sales were up modestly, as 61 new territories were sold in the quarter versus 48 in the same period a year ago. Year-to-date, 65 new territories have been sold, versus 93 in the comparable period last year. The weaker territory sales year-to-date are in part due to the more difficult economic environment for expansion. Territory sales are reported in the "Other" revenue line item.

Reported total expenses in the franchise segment were $15.7 million in the 2009 second quarter, versus $16.8 million in the 2008 second quarter. The lower expenses in the 2009 second quarter versus the comparable period a year ago reflected reduced headcount and decreased depreciation and amortization, as well as the inclusion of a $0.4 million charge in the 2008 second quarter in connection with the termination of franchise agreements related to the acquisition of a former franchisee's businesses in Atlanta, GA, Chicago, IL, and Detroit, MI. The 2009 second quarter expense reductions were partially offset by increased marketing expenses in connection with preparations for the upcoming tax season.

Company-Owned Offices Operations

As anticipated, the reported 2009 second quarter expenses in Jackson Hewitt's company-owned offices operations were higher than the 2008 second quarter due primarily to occupancy costs and related expenses associated with maintaining a significantly increased base of storefront locations resulting primarily from acquisitions. In total, the loss before income taxes in company-owned offices operations in the 2009 second quarter increased to $10.2 million, versus $8.6 million in the year ago quarter.

Corporate and Other

On a reported basis, the corporate and other loss before income taxes was $15.9 million in the 2009 second quarter, versus a reported loss before income taxes of $19.1 million in the 2008 second quarter. The 2009 second quarter reported loss included a $2.8 million expense in connection with a tentative settlement by Jackson Hewitt of the previously disclosed Hood litigation. Jackson Hewitt's tentative settlement is made in connection with an overall tentative settlement of the California Hood matter by the other defendant and the third-party bank cross-defendants in this matter. Jackson Hewitt is making this settlement in order to avoid the costs and inconvenience of continued litigation. The tentative settlement is subject to execution of a final settlement, as well as preliminary and final approval by the Court. The 2008 second quarter included $2.2 million of expenses in connection with Jackson Hewitt's internal review, as well as a $5.7 million charge primarily related to the former Chief Executive Officer's severance.

Board of Directors Declares 2009 Third Quarter Dividend

On December 3, 2008, Jackson Hewitt's Board of Directors declared a 2009 third quarter dividend of $0.18 per share, payable on January 15, 2009, to shareholders of record on December 29, 2008. This dividend represents Jackson Hewitt's 18th consecutive quarterly dividend since its initial public offering in June 2004.

Analysts' Day Meeting Today

Michael Yerington and Dan O'Brien, chief financial officer, along with other members of Jackson Hewitt's senior management team, will host an Analysts' Day meeting in New York this morning, Thursday, December 4, 2008, beginning at 8:30 a.m. (EST). The Analysts' Day meeting will be simulcast live on the Internet at www.jacksonhewitt.com. If you are unable to listen to the live webcast, a replay will be available on this 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. More information may be obtained at www.jacksonhewitt.com. To locate the Jackson Hewitt Tax Service(R) office nearest to you, call 1-800-234-1040.

Forward-Looking Statements

This press release contains statements 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: Jackson Hewitt's ability to timely or effectively respond to customer trends and attract new customers, develop and make new products available through Jackson Hewitt's offices, improve Jackson Hewitt's distribution system or reduce Jackson Hewitt's cost structure; Jackson Hewitt's ability to successfully attract and retain key personnel; government initiatives that simplify tax return preparation or reduce the need for a third party tax return preparer, improve the timing and efficiency of processing tax returns or decrease the number of tax returns filed; delays in the passage of tax laws and their implementation; the trend of tax payers filing their tax returns later in the tax season; the success of Jackson Hewitt's franchised offices; Jackson Hewitt's responsibility to third parties, regulators or courts for the acts of, or failures to act by, Jackson Hewitt's franchisees or their employees; government legislation and regulation of the tax return preparation industry and related financial products, including refund anticipation loans, and the failure by Jackson Hewitt, or the financial institutions which provide financial products to Jackson Hewitt's customers, to comply with such legal and regulatory requirements; the effectiveness of Jackson Hewitt's tax return preparation compliance program; increased regulation of tax return preparers; Jackson Hewitt's exposure to litigation; the failure of Jackson Hewitt's insurance to cover all the risks associated with Jackson Hewitt's business; Jackson Hewitt's ability to protect Jackson Hewitt's customers' personal and financial information; the effectiveness of Jackson Hewitt's marketing and advertising programs and franchisee support of these programs; disruptions in Jackson Hewitt's relationships with Jackson Hewitt's franchisees; changes in Jackson Hewitt's relationships with financial product providers that could reduce the revenues Jackson Hewitt derives from Jackson Hewitt's agreements with these financial institutions as well as affect Jackson Hewitt's customers' ability to obtain financial products through Jackson Hewitt's tax return preparation offices; changes in Jackson Hewitt's relationships with retailers and shopping malls that could affect Jackson Hewitt's growth and profitability; the seasonality of Jackson Hewitt's business and its effect on Jackson Hewitt's stock price; competition from tax return preparation service providers, volunteer organizations and the government; Jackson Hewitt's reliance on technology systems and electronic communications to perform the core functions of Jackson Hewitt's business; Jackson Hewitt's ability to protect Jackson Hewitt's intellectual property rights or defend against any third party allegations of infringement by Jackson Hewitt; Jackson Hewitt's reliance on cash flow from subsidiaries; Jackson Hewitt's compliance with credit facility covenants; Jackson Hewitt's exposure to increases in prevailing market interest rates; Jackson Hewitt's quarterly results not being indicative of Jackson Hewitt's performance as a result of tax season being relatively short and straddling two quarters; Jackson Hewitt's ability to pay dividends in the future; certain provisions that may hinder, delay or prevent third party takeovers; changes in accounting policies or practices and Jackson Hewitt's ability to maintain an effective system of internal controls; impairment charges related to goodwill; and the effect of market conditions, general conditions in the tax return preparation industry or general economic conditions.

Additional information concerning these and other risks that could impact Jackson Hewitt's business can be found in Jackson Hewitt's Annual Report on Form 10- K for the fiscal year ended April 30, 2008, and other public filings with the Securities and Exchange Commission ("SEC"). Copies are available from the SEC or Jackson Hewitt's website. Jackson Hewitt assumes no obligation, and Jackson Hewitt expressly disclaims any obligation, to update or alter any forward-looking statements.

A "non-GAAP financial measure" is defined as a numerical measure of a company's performance that excludes or includes amounts so as to be different than the most directly comparable measure calculated and presented in accordance with generally accepted accounting principles ("GAAP") in the United States of America. In the schedule presented above, the Company has included a comparison of such non-GAAP financial measures to the most directly comparable GAAP financial measures. Management believes the above presentation of net loss and loss per share on an "as adjusted" basis, which are non-GAAP financial measures, is necessary to reflect the impact of expenses incurred in connection with the transactions noted above in order to help investors compare, on an equivalent basis, the Company's financial results for the current periods presented to its financial results for the same periods presented last year.

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Source: Franchising