Liberty Tax files plans to go public

VIRGINIA BEACH

The parent of Liberty Tax Service, whose tax-preparers mimic Lady Liberty on street corners during filing season, is turning to the stock market for capital to expand.

The Virginia Beach-based company, JTH Holding Inc., has filed to raise as much as $90 million from an initial public offering. Some of its existing shareholders may sell some of their shares as part of the offering, JTH said in a filing with the Securities and Exchange Commission.

The money that it raises would be used for general corporate purposes, JTH said in the preliminary prospectus. The filing did not disclose the number of shares it plans to offer or their price.

JTH said it will seek a listing for these Class A common shares on the New York Stock Exchange under the ticker symbol TAX. The company has a separate class of B shares that are controlled by its founder, chairman and CEO, John T. Hewitt.

Two investment banking firms, Jefferies & Co. and SunTrust Robinson Humphrey, are scheduled to underwrite the JTH offering.

Hewitt, known for his brash marketing, launched Liberty in 1996 after working for several years at H&R Block and then building Jackson Hewitt from a tiny Portsmouth company into a multi-state franchisor of tax-preparation offices.

JTH has grown rapidly during the past decade by selling Liberty franchises. At the end of April, the company and its 1,941 franchisees had 3,845 offices, more than seven times the total in 2001.

Liberty, which ranks third in size behind H&R Block and Jackson Hewitt, had a 2 percent share of the market for paid preparation of tax returns in 2011, JTH said in the Sept. 2 filing. That compared with 3 percent for Jackson Hewitt, and 18 percent for H&R Block, said JTH, citing IRS data. The balance was held by independent tax preparers.

For the fiscal year ended April 30, JTH reported net income of nearly $15.8 million on revenue of $95.5 million. Its net income jumped 43 percent from fiscal 2010 largely because of a spike in certain franchise fees.

JTH generates revenue from franchise fees, royalties, advertising fees and fees from refund-anticipation loans and other financial products.

In its SEC filing, JTH said the industry expects a consolidation among independent preparers because of increasing costs and more stringent regulation. A consolidation, it said, would provide JTH with greater opportunity to expand.

The company noted that heightened regulation by the IRS and financial regulators could put pressure on the availability of trained tax preparers and the opportunity to offer refund-anticipation loans and other financial products. Refund-anticipation loans are promoted to customers seeking to collect their refunds quickly, but the loans have come under fire from consumer advocates for the high fees borrowers must pay.

Because of the regulatory pressure on banks that financed refund-anticipation loans, JTH said it created pilot projects with a non-bank lender to provide "Instant Cash Advances" to Liberty customers in a handful of states.

"We receive income from the provision of these products through the payment of fees for services by our financial product partners, but we also take additional risk because we guarantee the repayment of these loans," JTH said.

A robust stock market earlier this year fueled investor demand for initial public offerings, but market turbulence in recent months dampened that demand.

In July, ADS Tactical Inc., a Virginia Beach-based supplier of military equipment, called off an IPO that would have raised more than $200 million for the company and a handful of existing shareholders who planned to sell some of their stock. ADS said it took the action "due to unfavorable market conditions."

Tom Shean, (757) 446-2379, tom.shean@pilotonline.com