Blucora Announces Second Quarter 2018 Results

August 1, 2018
Continued Double-Digit Revenue Growth, Strong Cash Generation

IRVING, Texas, Aug. 01, 2018 (GLOBE NEWSWIRE) -- Blucora, Inc. (NASDAQ: BCOR), a leading provider of technology-enabled financial solutions to consumers, small businesses and tax professionals, today announced financial results for the second quarter ended June 30, 2018.

Second Quarter Highlights and Recent Developments

  • Increased revenue and operating income by 13% and 29%, respectively, year-over-year (y/y)
  • Grew TaxAct revenue by 17% y/y for the first half of 2018, with 57.3% segment margin
  • Posted record level of advisory assets (formerly referred to as assets under management) at HD Vest of $12.9 billion, or 28.8% of total client assets (formerly referred to as assets under administration)
  • Achieved 1.5x net leverage ratio on continued strong cash generation and debt reduction 

“Strong tax preparation results helped drive continued double-digit growth in revenue and earnings with healthy cash flow," said John Clendening, Blucora's President and Chief Executive Officer.  "We once again utilized that cash flow to reduce debt, further strengthen our balance sheet and accelerate earnings growth.  Our wealth management business also continued its upward momentum demonstrating strong revenue growth and record asset levels.”

Summary Financial Performance: Q2 2018
($ in millions except per share amounts)

  Q2   Q2    
  2018   2017   Change
Revenue:          
Wealth Management $ 92.0     $ 85.3     8 %
Tax Preparation $ 65.8     $ 53.9     22 %
Total Revenue $ 157.8     $ 139.2     13 %
Segment Income:          
Wealth Management $ 13.0     $ 12.4     4 %
Tax Preparation $ 44.1     $ 36.5     21 %
Total Segment Income $ 57.1     $ 48.9     17 %
Unallocated Corporate Operating Expenses $ (4.2 )   $ (6.5 )   (34 )%
GAAP:          
Operating Income $ 38.8     $ 30.0     29 %
Net Income Attributable to Blucora, Inc. $ 34.9     $ 3.3     957 %
Diluted Net Income Per Share Attributable to Blucora, Inc. (EPS) $ 0.71     $ 0.07     914 %
Non-GAAP:          
Adjusted EBITDA $ 52.8     $ 42.5     24 %
Net Income $ 47.7     $ 32.9     45 %
Diluted Net Income Per Share (EPS) $ 0.97     $ 0.70     39 %
See reconciliations of all non-GAAP to GAAP measures presented in this release in the tables below.

Third Quarter and Full Year 2018 Outlook

For the third quarter of 2018, the Company expects revenues to be between $92.0 million and $95.5 million, GAAP net loss attributable to Blucora, Inc. to be between $18.5 million and $22.5 million, or $0.39 to $0.47 per diluted share, Adjusted EBITDA loss to be between $2.0 million and $5.0 million, and Non-GAAP net loss to be between $8.0 million and $11.0 million, or $0.17 to $0.23 per diluted share.

For the full year 2018, the Company expects revenues to be between $553.5 million and $563.0 million, GAAP net income attributable to Blucora, Inc. to be between $42.5 million and $46.0 million, or $0.86 to $0.93 per diluted share, Adjusted EBITDA to be between $114.5 million and $119.5 million, and Non-GAAP net income to be between $89.0 million and $94.5 million, or $1.80 to $1.92 per diluted share.

The third quarter and fiscal 2018 outlook for GAAP net income or loss attributable to Blucora assumes an estimated tax rate of approximately 2% to 6%.

Conference Call and Webcast

A conference call and live webcast will be held today at 8:30 a.m. Eastern Time during which the Company will further discuss second quarter results, its outlook for the third quarter and full year 2018 and other business matters.  We will also provide the prepared remarks for the conference call along with supplemental financial information to our results on the Investor Relations section of the Blucora corporate website at http://www.blucora.com prior to the call.  The supplemental financial information has also been filed with the SEC on Form 8-K.  A replay of the call be available on our website.

About Blucora®

Blucora, Inc. (NASDAQ: BCOR) is a leading provider of technology-enabled financial solutions to consumers, small businesses and tax professionals.  Our products and services in tax preparation and wealth management, through TaxAct and HD Vest, respectively, help consumers manage their financial lives.  TaxAct is an affordable digital tax preparation solution for individuals, business owners and tax professionals.  HD Vest Financial Services ® supports an independent network of tax professionals who provide comprehensive financial planning solutions.  For more information on Blucora or its businesses, please visit www.blucora.com.

Source: Blucora

Blucora Contact:
Bill Michalek (972) 870-6463
VP, Investor Relations

This release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. When used in this release, terms such as “believes,” “estimates,” “should,” “could,” “would,” “plans,” “expects,” “intends,” “anticipates,” “may,” “forecasts,” “projects” and similar expressions and variations as they relate to the Company or its management are intended to identify forward-looking statements. Actual results may differ significantly from management’s expectations due to various risks and uncertainties including, but not limited to: our ability to effectively implement our future business plans and growth strategy; our ability to effectively compete within our industry; our ability to attract and retain customers; the availability of financing and our ability to meet our current and future debt service obligations and comply with our debt covenants; our ability to generate strong investment performance for our customers and the impact of the financial markets on our customers’ portfolios; political and economic conditions and events that directly or indirectly impact the wealth management and tax preparation industries; our ability to attract and retain productive financial advisors; our ability to successfully make technology enhancements and introduce new and improve on existing products and services; our expectations concerning the revenues we generate from fees associated with the financial products that we distribute; our ability to comply with laws and regulations, including, among others, those related to privacy protection and consumer data; our ability to successfully transition our wealth management business to a new clearing platform and our expectations concerning the benefits that may be derived therefrom; cybersecurity risks; our ability to maintain our relationships with third party partners; the seasonality of our business; litigation risks; our ability to attract and retain qualified employees; our assessments and estimates that determine our effective tax rate; the impact of new or changing tax legislation; our ability to develop, establish and maintain strong brands; our ability to protect our intellectual property; and our ability to effectively integrate companies or assets that we acquire. A more detailed description of these and certain other factors that could affect actual results is included in the Company’s filings with the Securities and Exchange Commission. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this release. The Company undertakes no obligation to update any forward-looking statements to reflect events or circumstances after the date of this release, except as may be required by applicable law.


Blucora, Inc.
Preliminary Condensed Consolidated Statements of Operations
(Unaudited)
(Amounts in thousands, except per share data)

  Three Months Ended June 30,   Six months ended June 30,
  2018   2017   2018   2017
Revenue:              
Wealth management services revenue $ 92,015     $ 85,296     $ 184,097     $ 167,963  
Tax preparation services revenue 65,833     53,866     179,716     153,574  
Total revenue 157,848     139,162     363,813     321,537  
Operating expenses:              
Cost of revenue:              
Wealth management services cost of revenue 62,452     56,963     125,519     112,837  
Tax preparation services cost of revenue 2,459     2,411     6,812     6,229  
Amortization of acquired technology 49     47     99     95  
Total cost of revenue (1) 64,960     59,421     132,430     119,161  
Engineering and technology (1) 4,848     4,242     9,979     8,990  
Sales and marketing (1) 23,791     22,296     79,044     71,294  
General and administrative (1) 15,625     13,715     30,491     27,198  
Depreciation 993     873     2,908     1,813  
Amortization of other acquired intangible assets 8,806     8,289     17,113     16,577  
Restructuring (1) 2     331     291     2,620  
Total operating expenses 119,025     109,167     272,256     247,653  
Operating income 38,823     29,995     91,557     73,884  
Other loss, net (2) (2,759 )   (24,200 )   (7,987 )   (33,908 )
Income before income taxes 36,064     5,795     83,570     39,976  
Income tax expense (907 )   (2,315 )   (2,870 )   (5,786 )
Net income 35,157     3,480     80,700     34,190  
Net income attributable to noncontrolling interests (222 )   (176 )   (427 )   (302 )
Net income attributable to Blucora, Inc. $ 34,935     $ 3,304     $ 80,273     $ 33,888  
Net income per share attributable to Blucora, Inc.:              
Basic $ 0.74     $ 0.08     $ 1.71     $ 0.79  
Diluted $ 0.71     $ 0.07     $ 1.64     $ 0.73  
Weighted average shares outstanding:              
Basic 47,221     43,644     46,931     42,895  
Diluted 49,434     46,937     49,049     46,182  

(1) Stock-based compensation expense was allocated among the following captions (in thousands):

  Three Months Ended June 30,   Six months ended June 30,
  2018   2017   2018   2017
Cost of revenue $ 574     $ 88     $ 833     $ 134  
Engineering and technology 202     224     412     509  
Sales and marketing 702     581     1,218     1,272  
General and administrative 2,555     1,844     4,528     3,387  
Restructuring     538         981  
Total stock-based compensation expense $ 4,033     $ 3,275     $ 6,991     $ 6,283  

(2) Other loss, net consisted of the following (in thousands):

  Three Months Ended June 30,   Six months ended June 30,
  2018   2017   2018   2017
Interest income $ (58 )   $ (25 )   $ (98 )   $ (45 )
Interest expense 3,847     5,529     8,028     11,965  
Amortization of debt issuance costs 284     327     487     714  
Accretion of debt discounts 40     755     87     1,840  
Loss on debt extinguishment 758     17,801     1,534     19,581  
Other (2,112 )   (187 )   (2,051 )   (147 )
Other loss, net $ 2,759     $ 24,200     $ 7,987     $ 33,908  


Blucora, Inc.
Preliminary Condensed Consolidated Balance Sheets
(Unaudited)
(Amounts in thousands)

  June 30,
2018
  December 31,
2017
ASSETS      
Current assets:      
Cash and cash equivalents $ 89,840     $ 59,965  
Cash segregated under federal or other regulations 1,117     1,371  
Accounts receivable, net of allowance 6,595     10,694  
Commissions receivable 16,820     16,822  
Other receivables 38     3,180  
Prepaid expenses and other current assets, net 6,754     7,365  
Total current assets 121,164     99,397  
Long-term assets:      
Property and equipment, net 9,308     9,831  
Goodwill, net 548,838     549,037  
Other intangible assets, net 310,983     328,205  
Other long-term assets 15,806     15,201  
Total long-term assets 884,935     902,274  
Total assets $ 1,006,099     $ 1,001,671  
LIABILITIES AND STOCKHOLDERS’ EQUITY      
Current liabilities:      
Accounts payable $ 4,472     $ 4,413  
Commissions and advisory fees payable 17,158     17,813  
Accrued expenses and other current liabilities 16,181     19,577  
Deferred revenue 2,661     9,953  
Total current liabilities 40,472     51,756  
Long-term liabilities:      
Long-term debt, net 260,029     338,081  
Deferred tax liability, net 42,652     43,433  
Deferred revenue 501     804  
Other long-term liabilities 6,871     8,177  
Total long-term liabilities 310,053     390,495  
Total liabilities 350,525     442,251  
       
Redeemable noncontrolling interests 18,460     18,033  
       
Stockholders’ equity:      
Common stock 5     5  
Additional paid-in capital 1,569,412     1,555,560  
Accumulated deficit (932,050 )   (1,014,174 )
Accumulated other comprehensive loss (253 )   (4 )
Total stockholders’ equity 637,114     541,387  
Total liabilities and stockholders’ equity $ 1,006,099     $ 1,001,671  


Blucora, Inc.
Preliminary Condensed Consolidated Statements of Cash Flows
(Unaudited)
(Amounts in thousands)

  Six months ended June 30,
  2018   2017
Operating Activities:      
Net income $ 80,700     $ 34,190  
Adjustments to reconcile net income to net cash from operating activities:      
Stock-based compensation 6,991     5,302  
Depreciation and amortization of acquired intangible assets 20,338     18,865  
Restructuring (non-cash)     1,402  
Deferred income taxes (781 )   (681 )
Amortization of premium on investments, net, and debt issuance costs 487     724  
Accretion of debt discounts 87     1,840  
Loss on debt extinguishment 1,533     19,581  
Cash provided (used) by changes in operating assets and liabilities:      
Accounts receivable 4,096     2,956  
Commissions receivable 2     581  
Other receivables 3,142     2,544  
Prepaid expenses and other current assets 461     (545 )
Other long-term assets (764 )   341  
Accounts payable 59     (795 )
Commissions and advisory fees payable (655 )   (444 )
Deferred revenue (5,746 )   (8,493 )
Accrued expenses and other current and long-term liabilities (3,393 )   3,768  
Net cash provided by operating activities 106,557     81,136  
Investing Activities:      
Purchases of property and equipment (2,602 )   (1,911 )
Proceeds from sales of investments     249  
Proceeds from maturities of investments     7,252  
Purchases of investments     (409 )
Net cash provided (used) by investing activities (2,602 )   5,181  
Financing Activities:      
Proceeds from credit facilities     367,212  
Payments on convertible notes     (172,827 )
Payments on credit facilities (80,000 )   (275,000 )
Proceeds from stock option exercises 10,386     23,996  
Proceeds from issuance of stock through employee stock purchase plan 704     662  
Tax payments from shares withheld for equity awards (4,229 )   (5,267 )
Contingent consideration payments for business acquisition (1,315 )   (946 )
Net cash used by financing activities (74,454 )   (62,170 )
Net cash provided by continuing operations 29,501     24,147  
       
Net cash provided by investing activities from discontinued operations     1,028  
Net cash provided by discontinued operations     1,028  
Effect of exchange rate changes on cash, cash equivalents, and restricted cash (30 )   43  
Net increase in cash, cash equivalents, and restricted cash 29,471     25,218  
Cash, cash equivalents, and restricted cash, beginning of period 62,311     54,868  
Cash, cash equivalents, and restricted cash, end of period $ 91,782     $ 80,086  


Blucora, Inc.
Preliminary Segment Information
(Unaudited)
(Amounts in thousands)

  Three months ended June 30,   Six months ended June 30,
  2018   2017   2018   2017
Revenue:              
Wealth Management (1) $ 92,015     $ 85,296     $ 184,097     $ 167,963  
Tax Preparation (1) 65,833     53,866     179,716     153,574  
Total revenue 157,848     139,162     363,813     321,537  
Operating income:              
Wealth Management 12,954     12,406     26,029     24,259  
Tax Preparation 44,121     36,515     102,927     89,648  
Corporate-level activity (2) (18,252 )   (18,926 )   (37,399 )   (40,023 )
Total operating income 38,823     29,995     91,557     73,884  
Other loss, net (2,759 )   (24,200 )   (7,987 )   (33,908 )
Income tax expense (907 )   (2,315 )   (2,870 )   (5,786 )
Net income $ 35,157     $ 3,480     $ 80,700     $ 34,190  

(1) Revenues by major category within each segment are presented below (in thousands):

  Three months ended June 30,   Six months ended June 30,
  2018   2017   2018   2017
Wealth Management:              
Commission $ 40,384     $ 38,154     $ 83,254     $ 77,749  
Advisory 40,058     35,914     79,359     69,490  
Asset-based 7,306     6,784     14,478     12,750  
Transaction and fee 4,267     4,444     7,006     7,974  
Total Wealth Management revenue $ 92,015     $ 85,296     $ 184,097     $ 167,963  
Tax Preparation:              
Consumer $ 63,137     $ 51,848     $ 165,049     $ 140,090  
Professional 2,696     2,018     14,667     13,484  
Total Tax Preparation revenue $ 65,833     $ 53,866     $ 179,716     $ 153,574  

(2) Corporate-level activity included the following (in thousands):

  Three months ended June 30,   Six months ended June 30,
  2018   2017   2018   2017
Operating expenses $ (4,238 )   $ (6,463 )   $ (9,779 )   $ (13,236 )
Stock-based compensation (4,033 )   (2,737 )   (6,991 )   (5,302 )
Depreciation (1,124 )   (1,059 )   (3,126 )   (2,193 )
Amortization of acquired intangible assets (8,855 )   (8,336 )   (17,212 )   (16,672 )
Restructuring (2 )   (331 )   (291 )   (2,620 )
Total corporate-level activity $ (18,252 )   $ (18,926 )   $ (37,399 )   $ (40,023 )


Blucora, Inc.
Reconciliations of Non-GAAP Financial Measures to the Nearest Comparable GAAP Measures

Preliminary Adjusted EBITDA Reconciliation(1)
(Unaudited)
(Amounts in thousands)

(In thousands) Three Months Ended June 30,   Six months ended June 30,
  2018   2017   2018   2017
Net income attributable to Blucora, Inc.(2) $ 34,935     $ 3,304     $ 80,273     $ 33,888  
Stock-based compensation 4,033     2,737     6,991     5,302  
Depreciation and amortization of acquired intangible assets 9,979     9,395     20,338     18,865  
Restructuring 2     331     291     2,620  
Other loss, net (3) 2,759     24,200     7,987     33,908  
Net income attributable to noncontrolling interests 222     176     427     302  
Income tax expense 907     2,315     2,870     5,786  
Adjusted EBITDA $ 52,837     $ 42,458     $ 119,177     $ 100,671  



Preliminary Non-GAAP Net Income and Non-GAAP Net Income Per Share Reconciliation(1)
(Unaudited)
(Amounts in thousands, except per share amounts)

  Three months ended June 30,   Six months ended June 30,
  2018   2017   2018   2017
Net income attributable to Blucora, Inc.(2) $ 34,935     $ 3,304     $ 80,273     $ 33,888  
Stock-based compensation 4,033     2,737     6,991     5,302  
Amortization of acquired intangible assets 8,855     8,336     17,212     16,672  
Accretion of debt discount on the Notes     633         1,567  
Write-off of debt discount and debt issuance costs on terminated Notes     6,715         6,715  
Write-off of debt discount and debt issuance costs on terminated TaxAct - HD Vest 2015 credit facility     9,593         9,593  
Restructuring 2     331     291     2,620  
Impact of noncontrolling interests 222     176     427     302  
Cash tax impact of adjustments to GAAP net income (903 )   (1,819 )   (1,216 )   (2,406 )
Non-cash income tax expense (1) 582     2,941     1,980     6,101  
Non-GAAP net income $ 47,726     $ 32,947     $ 105,958     $ 80,354  
Per diluted share:              
Net income attributable to Blucora, Inc. $ 0.71     $ 0.07     $ 1.64     $ 0.73  
Stock-based compensation 0.08     0.06     0.14     0.11  
Amortization of acquired intangible assets 0.19     0.19     0.34     0.36  
Accretion of debt discount on the Notes     0.01         0.03  
Write-off of debt discount and debt issuance costs on terminated Notes     0.14         0.15  
Write-off of debt discount and debt issuance costs on terminated TaxAct - HD Vest 2015 credit facility     0.20         0.21  
Restructuring     0.01     0.01     0.06  
Impact of noncontrolling interests 0.00     0.00     0.01     0.01  
Cash tax impact of adjustments to GAAP net income (0.02 )   (0.04 )   (0.02 )   (0.05 )
Non-cash income tax expense 0.01     0.06     0.04     0.13  
Non-GAAP net income per share $ 0.97     $ 0.70     $ 2.16     $ 1.74  
Weighted average shares outstanding used in computing per diluted share amounts 49,434     46,937     49,049     46,182  


Preliminary Adjusted EBITDA Reconciliation for Forward-Looking Guidance
(Amounts in thousands)

  Ranges for the three months ending   Ranges for the year ending
  September 30, 2018   December 31, 2018
  Low   High   Low   High
Net income (loss) attributable to Blucora, Inc. $ (22,500 )   $ (18,500 )   $ 42,500     $ 46,000  
Stock-based compensation 3,800     3,700     14,400     14,300  
Depreciation and amortization of acquired intangible assets 9,500     9,400     39,300     39,200  
Restructuring         300     300  
Other loss, net (3) 4,000     3,900     16,200     15,700  
Impact of noncontrolling interests 200     200     700     700  
Income tax (benefit) expense     (700 )   1,100     3,300  
Adjusted EBITDA $ (5,000 )   $ (2,000 )   $ 114,500     $ 119,500  


Preliminary Non-GAAP Net Income (Loss) Reconciliation for Forward-Looking Guidance
(Amounts in thousands)

  Ranges for the three months ending   Ranges for the year ending
  September 30, 2018   March 31, 2018
  Low   High   Low   High
Net income (loss) attributable to Blucora, Inc. $ (22,500 )   $ (18,500 )   $ 42,500     $ 46,000  
Stock-based compensation 3,800     3,700     14,400     14,300  
Amortization of acquired intangible assets 8,300     8,300     33,700     33,700  
Restructuring         300     300  
Impact of noncontrolling interests 200     200     700     700  
Cash tax impact of adjustments to net income (loss) (300 )   (300 )   (1,600 )   (1,600 )
Non-cash income tax benefit (500 )   (1,400 )   (1,000 )   1,100  
Non-GAAP net income (loss) $ (11,000 )   $ (8,000 )   $ 89,000     $ 94,500  


Notes to Reconciliations of Non-GAAP Financial Measures to the Nearest Comparable GAAP Measures

(1) We define Adjusted EBITDA as net income attributable to Blucora, Inc., determined in accordance with GAAP, excluding the effects of stock-based compensation, depreciation and amortization of acquired intangible assets (including acquired technology), restructuring, other loss, net, the impact of noncontrolling interests and income tax expense. Restructuring costs relate to the relocation of our corporate headquarters during 2017.

We believe that Adjusted EBITDA provides meaningful supplemental information regarding our performance.  We use this non-GAAP financial measure for internal management and compensation purposes, when publicly providing guidance on possible future results, and as a means to evaluate period-to-period comparisons.  We believe that Adjusted EBITDA is a common measure used by investors and analysts to evaluate our performance, that it provides a more complete understanding of the results of operations and trends affecting our business when viewed together with GAAP results, and that management and investors benefit from referring to this non-GAAP financial measure.  Items excluded from Adjusted EBITDA are significant and necessary components to the operations of our business and, therefore, Adjusted EBITDA should be considered as a supplement to, and not as a substitute for or superior to, GAAP net income.  Other companies may calculate Adjusted EBITDA differently and, therefore, our Adjusted EBITDA may not be comparable to similarly titled measures of other companies.

We define non-GAAP net income as net income attributable to Blucora, Inc., determined in accordance with GAAP, excluding the effects of stock-based compensation, amortization of acquired intangible assets (including acquired technology), accelerated accretion of debt discount on our Convertible Senior Notes that were outstanding for a portion of 2017 (the "Notes"), write-off of debt discount and debt issuance costs on terminated Notes and terminated TaxAct - HD Vest 2015 credit facility, restructuring costs (described further under Adjusted EBITDA above), the impact of noncontrolling interests, the related cash tax impact of those adjustments, and non-cash income taxes.  We exclude the non-cash portion of income taxes because of our ability to offset a substantial portion of our cash tax liabilities by using deferred tax assets, which primarily consist of U.S. federal net operating losses.  The majority of these net operating losses will expire, if unutilized, between 2020 and 2024.

We believe that non-GAAP net income and non-GAAP net income per share provide meaningful supplemental information to management, investors, and analysts regarding our performance and the valuation of our business by excluding items in the statement of operations that we do not consider part of our ongoing operations or have not been, or are not expected to be, settled in cash.  Additionally, we believe that non-GAAP net income and non-GAAP net income per share are common measures used by investors and analysts to evaluate our performance and the valuation of our business.  Non-GAAP net income and non-GAAP net income per share should be evaluated in light of our financial results prepared in accordance with GAAP and should be considered as a supplement to, and not as a substitute for or superior to, GAAP net income and net income per share.  Other companies may calculate non-GAAP net income and non-GAAP net income per share differently, and, therefore, our non-GAAP net income and non-GAAP net income per share may not be comparable to similarly titled measures of other companies.

(2) As presented in the Preliminary Condensed Consolidated Statements of Operations (unaudited).

(3) Other loss, net primarily includes items such as interest income, interest expense, amortization of debt issuance costs, accretion of debt discounts, and gain/loss on debt extinguishment.

 

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Source: Blucora, Inc.