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Press Release

Liberty Tax Service Announces Fiscal Year 2017 Results

VIRGINIA BEACH, Va., June 14, 2017 (GLOBE NEWSWIRE) -- Liberty Tax, Inc. (NASDAQ:TAX) (the “Company”), the parent company of Liberty Tax Service, today reported its results for fiscal year 2017. The Company reported total revenue of $174.0 million and GAAP earnings per share of $0.94. Non-GAAP earnings per share were $1.15.

The Company prepared 1.66 million tax returns in its U.S. offices compared to 1.83 million in the prior year.  Total returns processed in Canada were up 8.8% to 0.36 million from 0.33 million.

“This season’s results were clearly disappointing,” said John Hewitt, CEO.  “In addition to the reduction in overall store and return counts, we saw significant underperformance in our company-owned locations.  We are carefully evaluating changes to our operations to enable us to return to our past pattern of growth in market share, revenue and earnings.”

“As we plan for this fiscal year, I am extremely pleased to welcome Edward Brunot as our new Chief Operating Officer,” said Hewitt.  “Ed’s background in growing retail service businesses through a disciplined, processed approach is an asset that will be leveraged throughout the franchisee base and the entire organization.”

Added Brunot, “It’s great to be joining the Liberty Tax family.  I look forward to partnering with John, the management team and franchisees to continue to strengthen the brand and build upon their commitments to accurate, reliable tax preparation.”

 

Fiscal 2017 Results                        
                         
($ in millions except per share data) GAAP   Non - GAAP*  
    2017     2016   Change     2017     2016   Change  
Revenue $ 174.0   $ 173.4   0.3 %   $ 174.0   $ 173.4   0.3 %  
Operating expenses   150.7     140.9   6.9 %     145.9     140.3   4.0 %  
Income before taxes   20.8     30.5   -31.9 %     25.5     31.1   -18.0 %  
Net Income   13.0     19.4   -33.0 %     16.0     19.8   -19.2 %  
Diluted EPS   0.94     1.38   -31.9 %     1.15     1.41   -18.4 %  
*See reconciliation of non-GAAP to GAAP financial measures in Table E and additional information under "Non-GAAP Financial Information".  

Operational Update

  • The Company reported revenue growth of 0.3% to $174.0 million.
    •  Financial products revenue grew 14% to $51.8 million.
    •  Tax preparation fees in company-owned stores increased 37% to $21.6 million due to an increase in the number of stores operated.
    •  Average net fee for tax preparation services in the U.S. increased 2.2%.
    •  Average returns processed per U.S. office remained relatively flat at 433 returns compared to 434 returns in the prior year.
    •  Revenue from franchise and company-owned Canadian offices increased 4.7% in local currency.
  • As a result of the underperformance in our company-owned stores this tax season, the Company either impaired or closed multiple company-owned store locations and recorded a non-cash charge of $4.9 million.
  • GAAP diluted earnings per share decreased 32% to $0.94 from $1.38. Non-GAAP earnings per share decreased 18% to $1.15 from $1.41.
  • The Company ended the year with $16.4 million of cash on hand compared to $9.9 million at the end of the prior fiscal year.

Dividend
On June 12, 2017, the Board of Directors approved a quarterly dividend to shareholders of $0.16 per share. The dividend will be paid on July 28, 2017 to holders of record of common stock and common stock equivalents on the close of business on July 14, 2017. 

Conference Call
At 8:30 a.m. Eastern time on June 14, 2017, the Company will host a conference call for analysts, institutional investors and stockholders.  To access the call, please dial the number below approximately 10 minutes prior to the scheduled starting time:

U.S.   855-611-0856
International   518-444-5569
Conference ID code:   35412793

The call will also be webcast in a listen-only format.  The link to the webcast may be accessed on the Company’s investor relations website at www.libertytax.com, under the “About” tab.

A telephonic replay of the call will be available beginning shortly after the call continuing until Wednesday, June 21, 2017, by dialing 855-859-2056 (domestic) or 404-537-3406 (international).  The conference ID code is 35412793.  A replay of the webcast will also be available at the site listed above beginning shortly after its conclusion.

About Liberty Tax, Inc.
Founded in 1997 by CEO John T. Hewitt, Liberty Tax, Inc. (NASDAQ:TAX) is the parent company of Liberty Tax Service. In the U.S. and Canada, last year, Liberty Tax prepared over two million individual income tax returns in more than 4,000 offices and online. Liberty Tax's online services are available through eSmart Tax, Liberty Online and DIY Tax, and are all backed by the tax professionals at Liberty Tax locations and its nationwide network of approximately 22,000 seasonal tax preparers. Liberty Tax also supports local communities with fundraising endeavors and contributes as a national sponsor to many charitable causes. For a more in-depth look, visit Liberty Tax Service and interact with Liberty Tax on Twitter and Facebook

About Non-GAAP Financial Information
This press release and the accompanying tables include non-GAAP financial information. For a description of these non-GAAP financial measures, including the reasons management uses each measure, and reconciliations of these non-GAAP financial measures to the most directly comparable financial measures prepared in accordance with U.S. generally accepted accounting principles, please see the section of the accompanying Tables E & F titled “Reconciliation of Non-GAAP Financial Measures to the Most Directly Comparable GAAP Financial Measures.” 

Forward Looking Statements
In addition to historical information, this release may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including implied and express statements regarding future growth.  These forward-looking statements, as well as Company guidance, are based upon the Company's current expectations and there can be no assurance that such expectations will prove to be correct. Because forward-looking statements involve risks and uncertainties and speak only as of the date on which they are made, the Company's actual results could differ materially from these statements. These risks and uncertainties relate to, among other things; uncertainties regarding the Company's ability to attract and retain clients; the ability to continue to pay a quarterly dividend; the impact of the launch of a new franchise brand; uncertainties regarding the Company’s ability to meet its prepared returns targets; competitive factors; regulatory factors; the Company's effective income tax rate; litigation defense expenses and costs of judgments or settlements; costs associated with compliance efforts; and changes in market, economic, political or regulatory conditions. Information concerning these risks and uncertainties is contained in the Company’s annual report on Form 10-K and in other filings by the Company with the U.S. Securities and Exchange Commission.  The Company does not undertake any duty to update any forward-looking statements, whether as a result of new information, future events, or otherwise.

Table A  
Liberty Tax, Inc.  
Condensed Consolidated Statements of Income
Unaudited, amounts in thousands, except per share and share data
                 
  Fiscal Years ended  April 30,  
    2017       2016     $ change   % change  
Revenue:                
Franchise fees $ 2,659     $ 5,038     $ (2,379 )   -47.2 %  
AD fees   4,177       6,008       (1,831 )   -30.5 %  
Royalties and advertising fees   74,291       80,274       (5,983 )   -7.5 %  
Financial products   51,829       45,327       6,502     14.3 %  
Interest income   12,955       13,578       (623 )   -4.6 %  
Assisted tax preparation fees, net of discounts (1)   21,600       15,775       5,825     36.9 %  
Other revenue   6,474       7,429       (955 )   -12.9 %  
Total revenue   173,985       173,429       556     0.3 %  
                 
Operating expenses:                
Employee compensation and benefits   44,615       42,882       1,733     4.0 %  
Other costs and expenses   58,159       43,927       14,232     32.4 %  
AD expense   22,461       27,686       (5,225 )   -18.9 %  
Advertising expense   11,073       16,420       (5,347 )   -32.6 %  
Depreciation, amortization, and impairment charges   14,356       10,026       4,330     43.2 %  
Total operating expenses   150,664       140,941       9,723     6.9 %  
Income from operations   23,321       32,488       (9,167 )   -28.2 %  
                 
Other income (expense):                
Foreign currency transaction gain (loss)   (47 )     29       (76 )   -262.1 %  
Gain on sale of available-for-sale securities   50       -       50     n/a    
Interest expense   (2,557 )     (2,039 )     (518 )   25.4 %  
Income before income taxes   20,767       30,478       (9,711 )   -31.9 %  
Income tax expense   7,754       11,058       (3,304 )   -29.9 %  
Net Income $ 13,013     $ 19,420     $ (6,407 )   -33.0 %  
                 
                 
Net income per share of Class A and Class B                
common stock                
Basic $ 0.94     $ 1.41     $ (0.47 )   -33.3 %  
Diluted $ 0.94     $ 1.38     $ (0.44 )   -31.9 %  
                 
Weighted-average shares outstanding basic   12,895,561       12,814,775       80,786     0.6 %  
Weighted-average shares outstanding diluted   13,916,908       14,024,671       (107,763 )   -0.8 %  
                 
                 
(1)  Assisted tax preparation fees are now being reported separately and represent total revenues earned from 
company-owned stores.  2016 revenue has been adjusted for comparison purposes.
 

 

Table B  
Liberty Tax, Inc.  
Condensed Consolidated Statements of Income
Unaudited, amounts in thousands, except per share and share data
                 
  Three months ended
April 30,
 
    2017       2016     $ change   % change  
Revenue:                
Franchise fees $ 1,533     $ 2,513     $ (980 )   -39.0 %  
AD fees   1,059       1,517       (458 )   -30.2 %  
Royalties and advertising fees   52,431       51,685       746     1.4 %  
Financial products   32,301       27,545       4,756     17.3 %  
Interest income   4,456       6,075       (1,619 )   -26.7 %  
Assisted tax preparation fees, net of discounts (1)   16,276       11,567       4,709     40.7 %  
Other revenue   3,123       3,512       (389 )   -11.1 %  
Total revenue   111,179       104,414       6,765     6.5 %  
                 
Operating expenses:                
Employee compensation and benefits   14,778       14,429       349     2.4 %  
Other costs and expenses   22,480       14,831       7,649     51.6 %  
AD expense   15,482       16,964       (1,482 )   -8.7 %  
Advertising expense   2,236       2,348       (112 )   -4.8 %  
Depreciation, amortization, and impairment charges   8,026       4,400       3,626     82.4 %  
Total operating expenses   63,002       52,972       10,030     18.9 %  
Income from operations   48,177       51,442       (3,265 )   -6.3 %  
                 
Other income (expense):                
Foreign currency transaction gain (loss)   (37 )     68       (105 )   n/a    
Interest expense   (505 )     (447 )     (58 )   13.1 %  
Income before income taxes   47,635       51,063       (3,428 )   -6.7 %  
Income tax expense   18,306       18,775       (469 )   -2.5 %  
Net income $ 29,329     $ 32,288     $ (2,959 )   -9.2 %  
                 
                 
Net income per share of Class A and Class B                
common stock                
Basic $ 2.11     $ 2.33     $ (0.22 )   -9.4 %  
Diluted $ 2.10     $ 2.31     $ (0.21 )   -9.1 %  
                 
Weighted-average shares outstanding basic   12,882,550       12,877,919       4,631     0.0 %  
Weighted-average shares outstanding diluted   13,934,941       13,967,568       (32,627 )   -0.2 %  
                 
                 
(1)  Assisted tax preparation fees are now being reported separately and represent total revenues earned from 
company-owned stores.  2016 revenue has been adjusted for comparison purposes.
 

 

Table C
Liberty Tax, Inc.
Condensed Consolidated Balance Sheets
Amounts in thousands
       
  April 30,   April 30,
    2017       2016  
  (Unaudited)    
Current assets:      
Cash and cash equivalents $ 16,427     $ 9,906  
Current receivables, net   75,145       71,722  
Assets held for sale   11,989       9,886  
Deferred income tax asset   1,063       3,496  
Other current assets   5,813       5,838  
Total current assets   110,437       100,848  
       
Property, equipment, and software, net   39,789       40,957  
Notes receivable, non-current, net   15,583       23,504  
Goodwill   8,576       4,228  
Other intangible assets, net   21,224       16,270  
Other assets   2,767       7,416  
Total assets $ 198,376     $ 193,223  
       
Current liabilities:      
Current installments of long-term obligations $ 7,738     $ 5,947  
Accounts payable and accrued expenses   12,953       11,664  
Due to ADs   23,143       24,977  
Income taxes payable   6,392       3,581  
Deferred revenue - current   2,892       4,682  
Total current liabilities   53,118       50,851  
       
Long-term obligations, excluding current installments   18,461       17,493  
Deferred revenue and other - non-current   5,817       7,056  
Deferred income tax liability   4,525       6,322  
Total liabilities   81,921       81,722  
       
Stockholders' equity:      
Special voting preferred stock, $0.01 par value per share   -       -  
Class A common stock, $0.01 par value per share   127       120  
Class B common stock, $0.01 par value per share   2       9  
Exchangeable shares, $0.01 par value per share   10       10  
Additional paid-in capital   8,371       7,153  
Accumulated other comprehensive loss, net of taxes   (2,084 )     (1,698 )
Retained earnings   110,029       105,907  
Total stockholders' equity   116,455       111,501  
Total liabilities and stockholders' equity $ 198,376     $ 193,223  
       
       
Note: Effective May 1, 2016, we adopted Accounting Standards Update (“ASU”) 2015-03, Simplifying the Presentation of Debt Issuance Costs, and ASU 2015-15, Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements, on a retrospective basis. Accordingly, debt issuance costs associated with our long term debt are now included in the long term obligations line in the consolidated balance sheets. And, amounts for prior periods have been retrospectively adjusted to conform to the current period presentation.

 

Table D  
Liberty Tax, Inc.  
Condensed Consolidated Statements of Cash Flows  
Unaudited, amounts in thousands  
  Fiscal Years ended April 30,  
    2017       2016    
Cash flows from operating activities:        
Net Income $ 13,013     $ 19,420    
Adjustments to reconcile net income to net cash used in operating activities:        
Provision for doubtful accounts   10,378       7,282    
Depreciation, amortization, and impairment charges   14,356       10,026    
Stock-based compensation expense related to equity classified awards   2,016       1,863    
Gain on sale of available-for-sale securities   (50 )     -    
Gain on bargain purchases and sales of Company-owned offices   (1,100 )     (855 )  
Deferred tax expense   179       7,384    
Changes in accrued income taxes   2,437       1,758    
Changes in other assets and liabilities   (8,783 )     (17,061 )  
Net cash provided by operating activities   32,446       29,817    
         
Cash flows from investing activities:        
Issuance of operating loans to franchisees and ADs   (94,133 )     (101,552 )  
Payments received on operating loans to franchisees and ADs   89,562       89,786    
Purchases of Company-owned offices, AD rights, and acquired customer lists   (10,049 )     (4,787 )  
Proceeds from sale of Company-owned offices and AD rights   1,339       2,934    
Purchase of available-for-sale securities   -       (4,999 )  
Proceeds from sale of available-for-sale securities   5,049       -    
Purchases of property, equipment and software   (5,022 )     (10,692 )  
Net cash used in investing activities   (13,254 )     (29,310 )  
         
Cash flows from financing activities:        
Proceeds from the exercise of stock options   -       2,286    
Repurchase of common stock   (420 )     (1,977 )  
Dividends paid   (8,891 )     (8,852 )  
Repayment of amounts due to former ADs and franchisees   (1,303 )     (2,429 )  
Repayment of long-term obligations   (3,978 )     (1,742 )  
Borrowings under revolving credit facility   151,400       166,232    
Repayments under revolving credit facility   (151,400 )     (166,232 )  
Proceeds from mortgage debt   2,200       -    
Payment for debt issue costs   (35 )     -    
Tax benefit of stock option exercises   60       900    
Net cash used in financing activities   (12,367 )     (11,814 )  
         
Effect of exchange rate changes on cash, net   (304 )     (174 )  
Net increase (decrease) in cash and cash equivalents   6,521       (11,481 )  
Cash and cash equivalents at beginning of year   9,906       21,387    
Cash and cash equivalents at end of year $ 16,427     $ 9,906    
         
         

 

Table E  
Liberty Tax, Inc.  
Fiscal Year Reconciliation of Non-GAAP Financial Measures to the Most Directly Comparable GAAP Financial Measures  
Unaudited, amounts in thousands, except per share data  
                   
We report our financial results in accordance with U.S. generally accepted accounting principles (GAAP); however, we believe that earnings before interest, taxes, depreciation, amortization and impairment ("EBITDA") and non-GAAP results should be evaluated, in addition to, and not as an alternative for, net income as determined in accordance with GAAP.  We consider our non-GAAP financial results to be a useful metric for management and investors to evaluate and compare current year results with prior periods.  Because not all companies use the same calculations, our definition of EBITDA may not be comparable to similarly titled figures from other companies.  In addition, when evaluating non-GAAP results, we exclude certain items that are not considered to be part of future operating results.  
   
The following is a reconciliation of GAAP Net income to EBITDA.  
                   
          Fiscal Year  Ended April 30,    
            2017       2016      
          (in thousands)    
Net Income - as reported         $ 13,013     $ 19,420      
Add back:                   
Interest expense           2,557       2,039      
Income tax expense           7,754       11,058      
Depreciation, amortization, and impairment charges       14,356       10,026      
Total Adjustments           24,667       23,123      
EBITDA         $ 37,680     $ 42,543      
                   
The following is a reconciliation of our non-GAAP financial measures to the most comparable GAAP financial measures.  
Amounts may not add or recalculate due to rounding.  
                   
For the Fiscal Year ended April 30, 2017  
    Operating Income from   Pretax   Net Diluted  
  Revenues Expenses Operations EBITDA Income   Income EPS   
                   
As Reported $ 173,985 $ 150,664   $ 23,321 $ 37,680   $ 20,767     $ 13,013   $ 0.94  
                   
Adjustments: (1)                  
Executive severance, including stock-based compensation   -   (877 )   877   877     877       550     0.04  
Compliance Task Force and related costs   -   (1,197 )   1,197   1,197     1,197       750     0.05  
Gain on available-for-sale securities   -   -     -   (50 )   (50 )     (31 )   -  
Accrued judgment   -   (2,700 )   2,700   2,700     2,700       1,692     0.12  
Total Adjustments   -   (4,774 )   4,774   4,724     4,724       2,961     0.21  
Non-GAAP $ 173,985 $ 145,890   $ 28,095 $ 42,404   $ 25,491     $ 15,974   $ 1.15  
                   
                   
For the Fiscal Year ended April 30, 2016  
    Operating Income from   Pretax   Net Diluted  
  Revenues Expenses Operations EBITDA Income   Income EPS   
                   
As Reported $ 173,429 $ 140,941   $ 32,488 $ 42,543   $ 30,478     $ 19,420   $ 1.38  
                   
Adjustments: (1)                  
Executive severance, including stock-based compensation   -   (413 )   413   413     413       263     0.02  
Compliance Task Force and related costs   -   (252 )   252   252     252       161     0.01  
Total Adjustments   -   (665 )   665   665     665       424     0.03  
Non-GAAP $ 173,429 $ 140,276   $ 33,153 $ 43,208   $ 31,143     $ 19,844   $ 1.41  
                   
(1)  The net income impact of the adjustments is calculated using the effective tax rate for the period.  

 

Table F  
Liberty Tax, Inc.  
Fourth Quarter Reconciliation of Non-GAAP Financial Measures to the Most Directly Comparable GAAP Financial Measures  
Unaudited, amounts in thousands, except per share data  
                   
We report our financial results in accordance with GAAP; however, we believe that EBITDA and non-GAAP results should be evaluated, in addition to, and not as an alternative for, net income as determined in accordance with GAAP.  We consider our non-GAAP financial results to be a useful metric for management and investors to evaluate and compare current year results with prior periods.  Because not all companies use the same calculations, our definition of EBITDA may not be comparable to similarly titled figures from other companies.  In addition, when evaluating non-GAAP results, we exclude certain items that are not considered to be part of future operating results.  
   
The following is a reconciliation of GAAP Net Income to EBITDA.  
                   
          Three Months  Ended April 30,    
            2017     2016    
          (in thousands)    
Net Income - as reported          $ 29,329   $ 32,288    
Add back:                   
Interest expense           505     447    
Income tax expense           18,306     18,775    
Depreciation, amortization, and impairment charges       8,026     4,400    
Total Adjustments           26,837     23,622    
EBITDA         $ 56,166   $ 55,910    
                   
The following is a reconciliation of our non-GAAP financial measures to the most comparable GAAP financial measures.  
Amounts may not add or recalculate due to rounding.  
                   
For the three months ended April 30, 2017  
    Operating Income from   Pretax   Net Diluted  
  Revenues Expenses Operations EBITDA Income   Income EPS   
                   
As Reported $ 111,179 $ 63,002   $ 48,177 $ 56,166 $ 47,635   $ 29,329 $ 2.11  
                   
Adjustments: (1)                  
Compliance Task Force and related costs   -   (134 )   134   134   134     83   0.01  
Accrued judgment   -   (2,700 )   2,700   2,700   2,700     1,662   0.12  
Total Adjustments   -   (2,834 )   2,834   2,834   2,834     1,745   0.13  
Non-GAAP $ 111,179 $ 60,168   $ 51,011 $ 59,000 $ 50,469   $ 31,074 $ 2.23  
                   
                   
For the three months ended April 30, 2016  
    Operating Income from   Pretax   Net Diluted  
  Revenues Expenses Operations EBITDA Income   Income EPS   
                   
As Reported $ 104,414 $ 52,972   $ 51,442 $ 55,910 $ 51,063   $ 32,288 $ 2.31  
                   
Adjustments: (1)                  
Compliance Task Force and related costs   -   (252 )   252   252   252     159   0.01  
Total Adjustments   -   (252 )   252   252   252     159   0.01  
Non-GAAP $ 104,414 $ 52,720   $ 51,694 $ 56,162 $ 51,315   $ 32,447 $ 2.32  
                   
(1)  The net income impact of the adjustments is calculated using the effective tax rate for the period.  
                   

 

Table G  
Liberty Tax, Inc.  
Operational Data  
Unaudited  
           
    Fiscal years ended April 30,  
      2017     2016  
Franchisees          
U.S.     1,753     1,856  
Canada     133     130  
Total Franchisees     1,886     1,986  
           
Offices          
U.S.          
Franchised     3,505     3,967  
Company-Owned     318     258  
Total U.S.     3,823     4,225  
           
Canada          
Franchised     210     210  
Company-Owned     44     52  
Total Canada     254     262  
           
Total          
Franchised     3,715     4,177  
Company-Owned     362     310  
Total Offices     4,077     4,487  
           
Tax Returns Processed          
U.S.     1,657,000     1,832,000  
Canada     359,000     330,000  
Total Returns Processed in Offices     2,016,000     2,162,000  
           
Online     138,000     145,000  
Total Tax Returns Processed     2,154,000     2,307,000  
           
Systemwide Revenue1          
U.S.   $ 386,000,000   $ 417,600,000  
           
Canada (CDN $)     28,700,000     27,400,000  
Canada (USD $)     21,500,000     21,200,000  
           
U.S. Average Net Fee Per Return2   $ 233   $ 228  
           
1 Our systemwide revenue represents the total tax preparation revenue generated by our franchised
and company-owned offices.  It does not represent our revenue. But because franchise royalties are
derived from the operations of our franchisees, and because we maintain an infrastructure to support
systemwide operations, we consider systemwide revenue to be an important measurement.
 
   
2 The average net fee per tax return prepared reflects amounts for our franchised and company-owned
offices.
 
 

Non-GAAP Financial Information
The Company believes that EBITDA and non-GAAP net income (loss) should be evaluated, in addition to, and not as an alternative for, net income as determined in accordance with GAAP.  Both metrics are used by management when evaluating the performance of the Company.  Because not all companies use the same calculations, our definition of EBITDA may not be comparable to similarly titled figures from other companies.  In addition, when evaluating non-GAAP financial information, we exclude certain items that are not considered to be part of future operating results and which management excludes when evaluating the performance of the Company.  Descriptions of the items which are excluded are as follows:

Executive severance, including stock-based compensation:  We exclude from our non-GAAP financial measures cash and non-cash stock-based compensation and perquisites associated with the separation of employment with executives of the Company.

Compliance Task Force and related costs:  We exclude from our non-GAAP financial measures third-party expenses we incur related to our Compliance Task Force, which we established in fiscal 2016 to examine and prevent non-compliance, fraud and other misconduct among our franchisees and employees.  These expenses include professional and legal fees.

Gain on available-for-sale securities:  We exclude from our non-GAAP financial measures gains and losses we record when we sell equity securities and other investments.

Accrued judgment:  We exclude from our non-GAAP financial measures an accrued judgment recorded in the period ended April 30, 2017.  We intend to vigorously defend our position and pursue an appeal.

CONTACTS:
Investors:  Kathy Donovan
Liberty Tax, Inc.
Vice President, Chief Financial Officer
(757) 493-8855
investorrelations@libtax.com

Media:  Martha O’Gorman
Liberty Tax, Inc.
Chief Marketing Officer
(757) 301-8022
martha@libtax.com

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Liberty Tax, Inc.