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Switches at top for Jackson Hewitt


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Item 1

Jackson Hewitt, with over 6,000 franchised tax preparation centers, is now owned by Bayside Capital. The company operates from individual tax centers and from over 3,000 tax preparation kiosks in Walmart stores.  These kiosks, called national account locations, may be operated by franchisees or Jackson Hewitt corporate.

Item 2

David Prokupek, president and CEO until January 2017, joined the company in 2014 and two more of the top six executives joined in 2016. In an emailed response to our question about management continuity, Duane Mora, SVP of franchise relations & development, said Prokupek had spent three years at Jackson Hewitt “refocusing and transforming” the company, including expanding its leadership team. This January, Alan Ferber (the previous CEO of ADT Residential) replaced Prokupek as CEO. Prokupek was set to remain as co-CEO until the end of the tax season.

Jackson Hewitt Tax Service

Item 4

In 2011, Jackson Hewitt’s parent company, JHTS, filed for Chapter 11 bankruptcy.  According to Mora, Jackson Hewitt “was purchased by Bayside Capital (a division of HIG, a $17B international private equity firm) to effectuate a restructuring and provide capital to grow the business. The company’s cash flow is strong and is well within its financial covenants.”  

Item 6

In its list of other fees, the Jackson Hewitt franchise disclosure document includes something unusual: a fee of 300 percent of the annual salary of any employee a franchisee hires who has been employed within the preceding 24 months by Jackson Hewitt corporate or any of its franchisees.  Mora said, “This fee is designed to protect existing franchisees from having their best tax preparers hired away from them. It represents a disincentive for new franchisees.”

Item 7

The total investment is $72,351 to $105,375 to open a tax preparation center in leased space and $44,721 to $64,175 to operate a kiosk. Estimated expenses include the cost of two tax preparers who earn $8.50 an hour, a rate that seems low. Mora said, “Our local franchisees set their own wages and pay scales. Our average corporate tax preparer is making $14 to $20 an hour, including bonuses.”

Item 12

Each franchisee is given a specific territory, determined by factors that include population, the number of tax returns filed and gross income of individuals living there. Territories are not exclusive, because those individuals may choose to get their taxes done in any Jackson Hewitt office.

Item 19

The Jackson Hewitt FDD contains a bare bones financial performance representation, based on information filed by 464 franchise entities that operated 4,196 franchised units in fiscal year 2015, or 82 percent of all franchises.  A simple chart lists their average reported revenue, EBITDA or gross earnings (excluding owner compensation) and margin, again excluding owner compensation.

Item 20

Jackson Hewitt opened 58 new franchised units in 2016, but lost 264 to terminations, reacquisition or transfer, for a turnover rate of 5.7 percent. The company began 2014 with 5,278 units and ended 2016 with 4,148. Mora attributed the unit decline to the company’s canceling its contract to provide tax preparation kiosks within Sears stores. “The company’s footprint has been stable over the last three years,” he said.    

Item 21

Mora said, “Like most private companies, Jackson Hewitt manages to EBITDA/cash flow and on those measures we are profitable, healthy and well within our financial covenants. The net losses stem from high depreciation and amortization associated with the fresh start accounting (after the 2011 restructuring), interest expense that has been reduced, and one-time costs associated with the brand transformation.”

More item 21

Jackson Hewitt’s financials show the company operated at a loss of $3 million in 2015 and $9.65 million in 2016. It cost $600,000 more to operate about 1,900 corporate tax centers last year than they generated in revenue, but the company’s largest expense was $24.7 million in interest expense due on a $230-million secured credit facility. The company’s main sources of income in 2016 were royalties, at about $43 million, and financial product fees at $54 million. Item 21’s notes explain these are payments from financial institutions that offer “assisted refund products” to Jackson Hewitt tax offices for clients who want access to their tax refunds early. The 2016 loss would have been larger, had not the company included $78.4 million in goodwill among its assets.

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