Blucora Announces Third Quarter 2018 Results

October 31, 2018

IRVING, Texas, Oct. 31, 2018 (GLOBE NEWSWIRE) -- Blucora, Inc. (NASDAQ: BCOR), a leading provider of tax-smart financial solutions that empower people’s goals, today announced financial results for the third quarter ended September 30, 2018.

Third Quarter Highlights and Recent Developments

  • Increased total revenue by 6% year-over-year
  • Advisory Assets up 13% year-over-year to $13.5 billion, Total Client Assets up 9% year-over-year to $46 billion
  • Completed clearing firm conversion with expected benefit to segment income of more than $120 million over 10 years
  • Announced new President of TaxAct, Curtis Campbell and President of Tax-Smart Innovation, Mike Hogan
  • Announced Todd Mackay as Interim CEO of HD Vest, to succeed Bob Oros

“We’re pleased to report continued growth in revenue and assets while further improving our business positioning,” commented John Clendening, Blucora’s President and Chief Executive Officer.  “In wealth management we achieved record levels of Advisory and Total Client Assets, while completing a critical clearing firm conversion that will allow us to better serve our financial advisors and their clients and capture significant financial and productivity benefits.  In tax preparation, we advanced our plans to provide even more value to customers in the upcoming tax season through improved products and partner offerings. And we just announced the appointment of Curtis Campbell as the new President of TaxAct, and Mike Hogan to the newly created position of President of Tax-Smart Innovation, adding strong new talent to our company to build on our recent success across the business.”

Summary Financial Performance: Q3 2018
($ in millions except per share amounts)

  Q3   Q3    
  2018   2017   Change
Revenue:          
Wealth Management $ 91.9     $ 86.8     6  %
Tax Preparation $ 3.5     $ 3.4     4  %
Total Revenue $ 95.4     $ 90.2     6  %
Segment Income (Loss):          
Wealth Management $ 12.9     $ 12.4     4  %
Tax Preparation $ (6.9 )   $ (6.2 )   11  %
Total Segment Income $ 6.0     $ 6.2     (4 )%
Unallocated Corporate Operating Expenses $ (4.6 )   $ (4.6 )    %
GAAP:          
Operating Loss $ (10.7 )   $ (11.3 )   (6 )%
Net Loss Attributable to Blucora, Inc. $ (14.0 )   $ (16.9 )   (17 )%
Diluted Net Loss Per Share Attributable to Blucora, Inc. (EPS)* $ (0.37 )   $ (0.37 )    %
Non-GAAP:          
Adjusted EBITDA $ 1.4     $ 1.6     (14 )%
Net Loss $ (4.4 )   $ (5.5 )   (20 )%
Diluted Net Loss Per Share (EPS) $ (0.09 )   $ (0.12 )   (25 )%
* 2018 GAAP EPS includes noncontrolling interest redemption impact of $(0.08) as discussed in "Note 7: Redeemable Noncontrolling Interests" in the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2018.
See reconciliations of all non-GAAP to GAAP measures presented in this release in the tables below.

Full Year 2018 Outlook

For the full year 2018, the Company expects revenues to be between $559.0 million and $562.5 million, GAAP net income attributable to Blucora, Inc. to be between $44.5 million and $48.0 million, or $0.70 to $0.82 per diluted share (including a $0.15 impact related to the estimated redemption value of the noncontrolling interest in HD Vest), Adjusted EBITDA to be between $116.0 million and $119.0 million, and Non-GAAP net income to be between $90.5 million and $94.0 million, or $1.83 to $1.91 per diluted share.

The 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 third quarter results, its outlook for the 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 will be available on our website.

About Blucora®
Blucora, Inc. (NASDAQ: BCOR) is on the forefront of financial technology, pioneering tax-smart financial solutions that empower people’s goals. Blucora operates through two primary businesses, HD Vest, the No.1 tax-focused broker-dealer with $46 billion in total client assets as of September 30, 2018, and TaxAct, the No. 3 tax preparation software by market share with approximately 4 million consumer and professional users. With integrated tax and wealth management, Blucora is uniquely positioned to provide better long-term outcomes for customers with holistic, tax-advantaged 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 and productive financial advisors; 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 and investment behavior; political and economic conditions and changes and events that directly or indirectly impact the wealth management and tax preparation industries; 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 expectations concerning the benefits that may be derived from our new clearing platform and investment advisory platform; 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 September 30,   Nine months ended September 30,
  2018   2017   2018   2017
Revenue:              
Wealth management services revenue $ 91,887     $ 86,809     $ 275,984     $ 254,772  
Tax preparation services revenue 3,498     3,362     183,214     156,936  
   Total revenue 95,385     90,171     459,198     411,708  
Operating expenses:              
Cost of revenue:              
Wealth management services cost of revenue 62,313     59,607     187,526     172,444  
Tax preparation services cost of revenue 1,370     1,314     8,182     7,543  
Amortization of acquired technology     50     99     145  
   Total cost of revenue (1) 63,683     60,971     195,807     180,132  
Engineering and technology (1) 4,246     5,051     14,225     14,041  
Sales and marketing (1) 15,675     13,680     94,719     84,974  
General and administrative (1) 13,404     12,207     43,895     39,405  
Depreciation 798     867     3,706     2,680  
Amortization of other acquired intangible assets 8,271     8,615     25,384     25,192  
Restructuring (1)     106     291     2,726  
   Total operating expenses 106,077     101,497     378,027     349,150  
Operating income (loss) (10,692 )   (11,326 )   81,171     62,558  
Other loss, net (2) (3,863 )   (5,241 )   (11,850 )   (39,149 )
Income (loss) before income taxes (14,555 )   (16,567 )   69,321     23,409  
Income tax benefit (expense) 818     (166 )   (2,052 )   (5,952 )
Net income (loss) (13,737 )   (16,733 )   67,269     17,457  
Net income attributable to noncontrolling interests (227 )   (164 )   (654 )   (466 )
Net income (loss) attributable to Blucora, Inc. $ (13,964 )   $ (16,897 )   $ 66,615     $ 16,991  
Net income (loss) per share attributable to Blucora, Inc.:              
Basic $ (0.37 )   $ (0.37 )   $ 1.34     $ 0.39  
Diluted $ (0.37 )   $ (0.37 )   $ 1.28     $ 0.36  
Weighted average shares outstanding:              
Basic 47,712     45,459     47,191     43,749  
Diluted 47,712     45,459     49,292     46,813  

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

  Three Months Ended September 30,   Nine months ended September 30,
  2018   2017   2018   2017
Cost of revenue $ 413     $ 412     $ 940     $ 546  
Engineering and technology 178     225     590     734  
Sales and marketing 617     529     1,835     1,801  
General and administrative 1,666     1,966     6,194     5,353  
Restructuring     97         1,078  
Total stock-based compensation expense $ 2,874     $ 3,229     $ 9,559     $ 9,512  

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

  Three Months Ended September 30,   Nine months ended September 30,
  2018   2017   2018   2017
Interest income $ (119 )   $ (31 )   $ (217 )   $ (76 )
Interest expense 3,744     4,781     11,772     16,746  
Amortization of debt issuance costs 172     177     659     891  
Accretion of debt discounts 38     53     125     1,893  
Loss on debt extinguishment     183     1,534     19,764  
Other 28     78     (2,023 )   (69 )
Other loss, net $ 3,863     $ 5,241     $ 11,850     $ 39,149  


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

  September 30,
2018
  December 31,
2017
ASSETS      
Current assets:      
Cash and cash equivalents $ 88,274     $ 59,965  
Cash segregated under federal or other regulations 317     1,371  
Accounts receivable, net of allowance 6,056     10,694  
Commissions receivable 16,762     16,822  
Other receivables 626     3,180  
Prepaid expenses and other current assets, net 5,571     7,365  
Total current assets 117,606     99,397  
Long-term assets:      
Property and equipment, net 11,111     9,831  
Goodwill, net 548,915     549,037  
Other intangible assets, net 302,715     328,205  
Other long-term assets 15,363     15,201  
Total long-term assets 878,104     902,274  
Total assets $ 995,710     $ 1,001,671  
LIABILITIES AND STOCKHOLDERS’ EQUITY      
Current liabilities:      
Accounts payable $ 2,158     $ 4,413  
Commissions and advisory fees payable 15,186     17,813  
Accrued expenses and other current liabilities 16,473     19,577  
Deferred revenue 5,997     9,953  
Total current liabilities 39,814     51,756  
Long-term liabilities:      
Long-term debt, net 260,208     338,081  
Deferred tax liability, net 42,356     43,433  
Deferred revenue 500     804  
Other long-term liabilities 6,923     8,177  
Total long-term liabilities 309,987     390,495  
Total liabilities 349,801     442,251  
       
Redeemable noncontrolling interests 22,224     18,033  
       
Stockholders’ equity:      
Common stock 5     5  
Additional paid-in capital 1,569,539     1,555,560  
Accumulated deficit (945,708 )   (1,014,174 )
Accumulated other comprehensive loss (151 )   (4 )
Total stockholders’ equity 623,685     541,387  
Total liabilities and stockholders’ equity $ 995,710     $ 1,001,671  


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

  Nine months ended September 30,
  2018   2017
Operating Activities:      
Net income $ 67,269     $ 17,457  
Adjustments to reconcile net income to net cash from operating activities:      
Stock-based compensation 9,559     8,434  
Depreciation and amortization of acquired intangible assets 29,539     28,553  
Restructuring (non-cash)     1,499  
Deferred income taxes (1,073 )   (473 )
Amortization of premium on investments, net, and debt issuance costs 659     901  
Accretion of debt discounts 125     1,893  
Loss on debt extinguishment 1,534     19,764  
Cash provided (used) by changes in operating assets and liabilities:      
Accounts receivable 4,636     3,259  
Commissions receivable 60     (288 )
Other receivables 3,149     2,384  
Prepaid expenses and other current assets 1,369     1,720  
Other long-term assets (902 )   432  
Accounts payable (2,255 )   (1,375 )
Commissions and advisory fees payable (2,627 )   (23 )
Deferred revenue (2,411 )   (5,856 )
Accrued expenses and other current and long-term liabilities (3,048 )   949  
Net cash provided by operating activities 105,583     79,230  
Investing Activities:      
Purchases of property and equipment (5,340 )   (3,809 )
Proceeds from sales of investments     249  
Proceeds from maturities of investments     7,252  
Purchases of investments     (409 )
Net cash provided (used) by investing activities (5,340 )   3,283  
Financing Activities:      
Proceeds from credit facilities     367,212  
Payments on convertible notes     (172,827 )
Payments on credit facilities (80,000 )   (285,000 )
Proceeds from stock option exercises 11,738     38,228  
Proceeds from issuance of stock through employee stock purchase plan 1,608     1,428  
Tax payments from shares withheld for equity awards (5,983 )   (6,744 )
Contingent consideration payments for business acquisition (1,315 )   (946 )
Net cash used by financing activities (73,952 )   (58,649 )
Net cash provided by continuing operations 26,291     23,864  
       
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 (11 )   86  
Net increase in cash, cash equivalents, and restricted cash 26,280     24,978  
Cash, cash equivalents, and restricted cash, beginning of period 62,311     54,868  
Cash, cash equivalents, and restricted cash, end of period $ 88,591     $ 79,846  


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

  Three months ended September 30,   Nine months ended September 30,
  2018   2017   2018   2017
Revenue:              
Wealth Management (1) $ 91,887     $ 86,809     $ 275,984     $ 254,772  
Tax Preparation (1) 3,498     3,362     183,214     156,936  
Total revenue 95,385     90,171     459,198     411,708  
Operating income (loss):              
Wealth Management 12,891     12,425     38,920     36,684  
Tax Preparation (6,936 )   (6,238 )   95,991     83,410  
Corporate-level activity (2) (16,647 )   (17,513 )   (53,740 )   (57,536 )
Total operating income (loss) (10,692 )   (11,326 )   81,171     62,558  
Other loss, net (3,863 )   (5,241 )   (11,850 )   (39,149 )
Income tax benefit (expense) 818     (166 )   (2,052 )   (5,952 )
Net income (loss) $ (13,737 )   $ (16,733 )   $ 67,269     $ 17,457  

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

  Three months ended September 30,   Nine months ended September 30,
  2018   2017   2018   2017
Wealth Management:              
Commission $ 41,015     $ 39,432     $ 124,269     $ 117,181  
Advisory 41,443     37,588     120,802     107,078  
Asset-based 6,979     6,526     21,457     19,276  
Transaction and fee 2,450     3,263     9,456     11,237  
Total Wealth Management revenue $ 91,887     $ 86,809     $ 275,984     $ 254,772  
Tax Preparation:              
Consumer $ 3,246     $ 3,149     $ 168,295     $ 143,239  
Professional 252     213     14,919     13,697  
Total Tax Preparation revenue $ 3,498     $ 3,362     $ 183,214     $ 156,936  

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

  Three months ended September 30,   Nine months ended September 30,
  2018   2017   2018   2017
Operating expenses $ (4,572 )   $ (4,587 )   $ (14,351 )   $ (17,823 )
Stock-based compensation (2,874 )   (3,132 )   (9,559 )   (8,434 )
Depreciation (930 )   (1,023 )   (4,056 )   (3,216 )
Amortization of acquired intangible assets (8,271 )   (8,665 )   (25,483 )   (25,337 )
Restructuring     (106 )   (291 )   (2,726 )
Total corporate-level activity $ (16,647 )   $ (17,513 )   $ (53,740 )   $ (57,536 )


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 September 30,   Nine months ended September 30,
  2018   2017   2018   2017
Net income (loss) attributable to Blucora, Inc.(2) $ (13,964 )   $ (16,897 )   $ 66,615     $ 16,991  
Stock-based compensation 2,874     3,132     9,559     8,434  
Depreciation and amortization of acquired intangible assets 9,201     9,688     29,539     28,553  
Restructuring     106     291     2,726  
Other loss, net (3) 3,863     5,241     11,850     39,149  
Net income attributable to noncontrolling interests 227     164     654     466  
Income tax (benefit) expense (818 )   166     2,052     5,952  
Adjusted EBITDA $ 1,383     $ 1,600     $ 120,560     $ 102,271  



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

  Three months ended September 30,   Nine months ended September 30,
  2018   2017   2018   2017
Net income (loss) attributable to Blucora, Inc.(2) $ (13,964 )   $ (16,897 )   $ 66,615     $ 16,991  
Stock-based compensation 2,874     3,132     9,559     8,434  
Amortization of acquired intangible assets 8,271     8,665     25,483     25,337  
Accretion of debt discount on the Notes             1,567  
Write-off of debt discount and debt issuance costs on terminated Notes             6,715  
Write-off of debt discount and debt issuance costs on terminated TaxAct - HD Vest 2015 credit facility             9,593  
Restructuring     106     291     2,726  
Impact of noncontrolling interests 227     164     654     466  
Cash tax impact of adjustments to GAAP net income (505 )   (928 )   (1,721 )   (3,334 )
Non-cash income tax (benefit) expense (1) (1,333 )   224     647     6,325  
Non-GAAP net income (loss) $ (4,430 )   $ (5,534 )   $ 101,528     $ 74,820  
Per diluted share:              
Net income (loss) attributable to Blucora, Inc. $ (0.37 )   $ (0.37 )   $ 1.28     $ 0.36  
Stock-based compensation 0.06     0.07     0.19     0.18  
Amortization of acquired intangible assets 0.18     0.20     0.52     0.55  
Accretion of debt discount on the Notes             0.03  
Write-off of debt discount and debt issuance costs on terminated Notes             0.14  
Write-off of debt discount and debt issuance costs on terminated TaxAct - HD Vest 2015 credit facility             0.20  
Restructuring         0.01     0.06  
Impact of noncontrolling interests 0.08     0.00     0.08     0.01  
Cash tax impact of adjustments to GAAP net income (0.01 )   (0.02 )   (0.03 )   (0.07 )
Non-cash income tax (benefit) expense (0.03 )   0.00     0.01     0.14  
Non-GAAP net income (loss) per share $ (0.09 )   $ (0.12 )   $ 2.06     $ 1.60  
Weighted average shares outstanding used in computing per diluted share amounts 47,712     45,459     49,292     46,813  


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

  Ranges for the year ending
  December 31, 2018
  Low   High
Net income (loss) attributable to Blucora, Inc. $ 44,500     $ 48,000  
Stock-based compensation 13,200     13,100  
Depreciation and amortization of acquired intangible assets 39,300     39,100  
Restructuring 300     300  
Other loss, net (3) 16,000     15,800  
Impact of noncontrolling interests 1,100     1,100  
Income tax (benefit) expense 1,600     1,600  
Adjusted EBITDA $ 116,000     $ 119,000  


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

  Ranges for the year ending
  December 31, 2018
  Low   High
Net income (loss) attributable to Blucora, Inc. $ 44,500     $ 48,000  
Stock-based compensation 13,200     13,100  
Amortization of acquired intangible assets 33,800     33,800  
Restructuring 300     300  
Impact of noncontrolling interests 1,100     1,100  
Cash tax impact of adjustments to net income (loss) (2,100 )   (2,100 )
Non-cash income tax benefit (300 )   (200 )
Non-GAAP net income (loss) $ 90,500     $ 94,000  


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

(1) We define Adjusted EBITDA as net income (loss) 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 (benefit) 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 (loss) as net income (loss) 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. The aforementioned items are only included in non-GAAP net income (loss) in the periods they occurred.

We believe that non-GAAP net income (loss) and non-GAAP net income (loss) 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 (loss) and non-GAAP net income (loss) per share are common measures used by investors and analysts to evaluate our performance and the valuation of our business.  Non-GAAP net income (loss) 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 (loss) and net income per share.  Other companies may calculate non-GAAP net income (loss) and non-GAAP net income (loss) per share differently, and, therefore, our non-GAAP net income (loss) and non-GAAP net income (loss) 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.

Blucora.jpg

Source: Blucora, Inc.