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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
                   
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                          to                     
Commission File Number: 000-25131
https://cdn.kscope.io/0c2ccd8d21fe903e9767364cd2156346-bcor-20200930_g1.jpg
Blucora, Inc.
(Exact name of registrant as specified in its charter)

Delaware91-1718107
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
3200 Olympus Blvd, Suite 100, Dallas, Texas 75019
(Address of principal executive offices) (Zip Code)
(972870-6400
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.0001 per shareBCORNASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. ý Yes o No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  ý Yes o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerýAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ý No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
As of November 2, 2020, 48,043,723 shares of the registrant’s Common Stock were outstanding.



TABLE OF CONTENTS
Page
Item 1.
Item 2.
Item 3.
Item 4.
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
This report includes some of the trademarks, trade names, and service marks of Blucora, Inc. (referred to throughout this report as “Blucora,” the “Company,” “we,” “us,” or “our”), including Blucora, Avantax Wealth Management, HD Vest, 1st Global, HKFS, TaxAct, Tax-Smart Investing, Capital Gains Analyzer, Tax-Loss Harvester, and Social Security Planner. Each one of these trademarks, trade names, or service marks is either (i) our registered trademark, (ii) a trademark for which we have a pending application, (iii) a trade name or service mark for which we claim common law rights, or (iv) a registered trademark or application for registration that we have been authorized by a third party to use.
Solely for convenience, the trademarks, service marks, and trade names included in this report are without the ®, ™ or other applicable symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensors to these trademarks, service marks, and trade names. This report may also include additional trademarks, service marks, and trade names of others, which are the property of their respective owners. All trademarks, service marks, and trade names included in this report are, to our knowledge, the property of their respective owners.
References to our or our subsidiaries’ website addresses or the website addresses of third parties in this report do not constitute incorporation by reference of the information contained on such websites and should not be considered part of this document.

Blucora, Inc. | Q3 2020 Form 10-Q 2


CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (“Form 10-Q”) contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, that involve risks and uncertainties. Many of the forward-looking statements are located in Part I, Item 2 of this Form 10-Q under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact. Forward-looking statements can also be identified by words such as “anticipates,” “believes,” “plans,” “expects,” “future,” “intends,” “may,” “will,” “would,” “could,” “should,” “estimates,” “predicts,” “potential,” “continues,” “target,” “outlook,” and similar terms and expressions, but the absence of these words does not mean that the statement is not forward-looking. Actual results may differ significantly from management’s expectations due to various risks and uncertainties including, but not limited to:
the impact of the coronavirus pandemic on our results of operations and our business, including the impact of the resulting economic and market disruption, the extension of tax filing deadlines, and other related relief;
our ability to effectively compete within our industry;
our ability to attract and retain financial professionals, qualified employees, clients, and customers, as well as our ability to provide strong customer/client service;
our ability to close, finance, and realize all of the anticipated benefits of acquisitions, as well as our ability to integrate the operations of recently acquired businesses, and the potential impact of such acquisitions on our existing indebtedness and leverage;
our future capital requirements and the availability of financing, if necessary;
our ability to meet our current and future debt service obligations, including our ability to maintain compliance with our debt covenants;
downgrade of the Company’s credit ratings;
our ability to generate strong performance for our clients and the impact of the financial markets on our clients’ portfolios;
the impact of new or changing legislation and regulations (or interpretations thereof) on our business, including our ability to successfully address and comply with such legislation and regulations (or interpretations thereof) and increased costs, reductions of revenue, and potential fines, penalties, or disgorgement to which we may be subject as a result thereof;
risks, burdens, and costs, including fines, penalties, or disgorgement, associated with our business being subjected to regulatory inquiries, investigations, or initiatives, including those of the Financial Industry Regulatory Authority and the Securities and Exchange Commission (the “SEC”);
risks associated with legal proceedings, including litigation and regulatory proceedings;
our ability to manage leadership and employee transitions, including costs and time burdens on management and our board of directors related thereto;
political and economic conditions and events that directly or indirectly impact the wealth management and tax preparation industries;
our ability to respond to rapid technological changes, including our ability to successfully release new products and services or improve upon existing products and services;
the compromising of confidentiality, availability or integrity of information, including cyberattacks;
our expectations concerning the revenues we generate from fees associated with the financial products that we distribute;
risks related to goodwill and other intangible asset impairment;
our ability to develop, establish, and maintain strong brands;
risks associated with the use and implementation of information technology and the effect of security breaches, computer viruses, and computer hacking attacks;
our ability to comply with laws and regulations regarding privacy and protection of user data;
Blucora, Inc. | Q3 2020 Form 10-Q 3


our ability to maintain our relationships with third-party partners, providers, suppliers, vendors, distributors, contractors, financial institutions, industry associations, and licensing partners, and our expectations regarding and reliance on the products, tools, platforms, systems, and services provided by these third parties;
our beliefs and expectations regarding the seasonality of our business;
our assessments and estimates that determine our effective tax rate; and
our ability to protect our intellectual property and the impact of any claim that we have infringed on the intellectual property rights of others.
Forward-looking statements are not guarantees of future performance and are subject to known and unknown risks, uncertainties, and other factors that may cause our results, levels of activity, performance, achievements, and prospects to be materially different from those expressed or implied by such forward-looking statements. These risks, uncertainties, and other factors include, among others, the risk factors set forth in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, as supplemented by those identified under Part II, Item 1A, “Risk Factors” and elsewhere in this Form 10-Q, as well as in our other filings with the SEC. All forward-looking statements speak only as of the date of this Form 10-Q. We do not undertake any obligation and do not intend to update or revise any forward-looking statement to reflect new information, events, or circumstances after the date of this Form 10-Q or to reflect the occurrence of unanticipated events, except as required by law.




Blucora, Inc. | Q3 2020 Form 10-Q 4



PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
BLUCORA, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
September 30,
2020
December 31,
2019
ASSETS
Current assets:
Cash and cash equivalents$151,166 $80,820 
Cash segregated under federal or other regulations203 5,630 
Accounts receivable, net of allowance12,191 16,266 
Commissions receivable22,656 21,176 
Other receivables5,811 2,902 
Prepaid expenses and other current assets, net9,428 12,349 
Total current assets201,455 139,143 
Long-term assets:
Property and equipment, net53,940 18,706 
Right-of-use assets, net24,028 10,151 
Goodwill, net449,221 662,375 
Other intangible assets, net331,014 290,211 
Deferred tax asset, net 9,997 
Other long-term assets4,093 6,989 
Total long-term assets862,296 998,429 
Total assets$1,063,751 $1,137,572 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable$6,464 $10,969 
Commissions and advisory fees payable16,893 19,905 
Accrued expenses and other current liabilities42,815 36,144 
Deferred revenue—current4,281 12,014 
Lease liabilities—current1,552 3,272 
Current portion of long-term debt, net1,782 11,228 
Total current liabilities73,787 93,532 
Long-term liabilities:
Long-term debt, net552,417 381,485 
Deferred tax liability, net12,802  
Deferred revenue—long-term6,478 7,172 
Lease liabilities—long-term36,973 5,916 
Other long-term liabilities22,150 5,952 
Total long-term liabilities630,820 400,525 
Total liabilities704,607 494,057 
Commitments and contingencies (Note 10)
Stockholders’ equity:
Common stock, par value $0.0001 per share—900,000 authorized shares; 49,350 shares issued and 48,044 shares outstanding at September 30, 2020; 49,059 shares issued and 47,753 shares outstanding at December 31, 2019
5 5 
Additional paid-in capital1,594,384 1,586,972 
Accumulated deficit(1,206,846)(914,791)
Accumulated other comprehensive loss (272)
Treasury stock, at cost—1,306 shares at September 30, 2020 and December 31, 2019
(28,399)(28,399)
Total stockholders’ equity359,144 643,515 
Total liabilities and stockholders’ equity$1,063,751 $1,137,572 
See accompanying notes to unaudited condensed consolidated financial statements.
Blucora, Inc. | Q3 2020 Form 10-Q 5


BLUCORA, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands, except per share data)

 Three months ended
September 30,
Nine months ended
September 30,
 2020201920202019
Revenue:
Wealth management services revenue$135,932 $145,428 $396,805 $362,791 
Tax preparation services revenue39,421 3,588 202,990 205,733 
Total revenue175,353 149,016 599,795 568,524 
Operating expenses:
Cost of revenue:
Wealth management services cost of revenue96,122 102,030 282,332 250,881 
Tax preparation services cost of revenue2,692 1,633 9,759 8,983 
Total cost of revenue98,814 103,663 292,091 259,864 
Engineering and technology6,007 8,635 21,899 22,323 
Sales and marketing31,018 19,976 150,785 104,804 
General and administrative18,605 19,642 63,533 55,721 
Acquisition and integration10,276 6,759 18,782 17,739 
Depreciation1,874 1,470 5,345 3,846 
Amortization of other acquired intangible assets7,746 10,082 22,167 27,295 
Impairment of goodwill and an intangible asset 50,900 270,625 50,900 
Total operating expenses174,340 221,127 845,227 542,492 
Operating income (loss)1,013 (72,111)(245,432)26,032 
Other loss, net(11,963)(2,606)(23,386)(11,682)
Income (loss) before income taxes(10,950)(74,717)(268,818)14,350 
Income tax benefit (expense)(15,256)12,331 (23,237)16,470 
Net income (loss) attributable to Blucora, Inc.$(26,206)$(62,386)$(292,055)$30,820 
Net income (loss) per share attributable to Blucora, Inc.:
Basic$(0.55)$(1.28)$(6.09)$0.64 
Diluted$(0.55)$(1.28)$(6.09)$0.62 
Weighted average shares outstanding:
Basic48,039 48,652 47,936 48,456 
Diluted48,039 48,652 47,936 49,596 
Comprehensive income (loss):
Net income (loss)$(26,206)$(62,386)$(292,055)$30,820 
Other comprehensive income (loss) (64)272 174 
Comprehensive income (loss) attributable to Blucora, Inc.$(26,206)$(62,450)$(291,783)$30,994 












See accompanying notes to unaudited condensed consolidated financial statements.
Blucora, Inc. | Q3 2020 Form 10-Q 6


BLUCORA, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
Redeemable Noncontrolling InterestsAdditional paid-in capitalAccumulated deficitAccumulated other comprehensive loss
Common stockTreasury stock
SharesAmountSharesAmountTotal
Balance as of December 31, 2019$ 49,059 $5 $1,586,972 $(914,791)$(272)(1,306)$(28,399)$643,515 
Common stock issued for stock options and restricted stock units— 89 — — — — — —  
Stock-based compensation— — — (1,201)— — — — (1,201)
Tax payments from shares withheld for equity awards— — — (917)— — — — (917)
Cumulative translation adjustment— — — — — 272 — — 272 
Net loss — — — (315,494)— — — (315,494)
Balance as of March 31, 2020$ 49,148 $5 $1,584,854 $(1,230,285)$ (1,306)$(28,399)$326,175 
Common stock issued for stock options, restricted stock units, and employee stock purchase plan— 192 — 1,226 — — — — 1,226 
Stock-based compensation— — — 3,904 — — — — 3,904 
Tax payments from shares withheld for equity awards— — — (89)— — — — (89)
Net income — — — 49,645 — — — 49,645 
Balance as of June 30, 2020$ 49,340 $5 $1,589,895 $(1,180,640)$ (1,306)$(28,399)$380,861 
Common stock issued for stock options and restricted stock units— 10 — — — — — —  
Stock-based compensation— — — 4,517 — — — — 4,517 
Tax payments from shares withheld for equity awards— — — (28)— — — — (28)
Net loss — — — (26,206)— — — (26,206)
Balance as of September 30, 2020$ 49,350 $5 $1,594,384 $(1,206,846)$ (1,306)$(28,399)$359,144 
Blucora, Inc. | Q3 2020 Form 10-Q 7


Redeemable Noncontrolling InterestsCommon stockAdditional paid-in capitalAccumulated deficitAccumulated other comprehensive lossTreasury stock
SharesAmountSharesAmountTotal
Balance as of December 31, 2018$24,945 48,044 $5 $1,569,725 $(961,689)$(446) $ $607,595 
Common stock issued for stock options and restricted stock units— 211 — 283 — — — — 283 
Stock-based compensation— — — 2,443 — — — — 2,443 
Tax payments from shares withheld for equity awards— — — (2,425)— — — — (2,425)
Reclassification of mandatorily redeemable noncontrolling interests(22,428)— — — — — — — — 
Impact of adoption of new leases accounting standard— — — — (1,636)— — — (1,636)
Cumulative translation adjustment— — — — — 107 — — 107 
Net income — — — 62,170 — — — 62,170 
Balance as of March 31, 2019$2,517 48,255 $5 $1,570,026 $(901,155)$(339) $ $668,537 
Common stock issued for stock options, restricted stock units, and employee stock purchase plan— 524 — 4,181 — — — — 4,181 
Stock-based compensation— — — 4,082 — — — — 4,082 
Tax payments from shares withheld for equity awards— — — (2,735)— — — — (2,735)
Redemption of noncontrolling interests(2,517)— — — — — — — — 
Cumulative translation adjustment— — — — — 131 — — 131 
Net income — — — 31,036 — — — 31,036 
Balance as of June 30, 2019$ 48,779 $5 $1,575,554 $(870,119)$(208) $ $705,232 
Common stock issued for stock options and restricted stock units— 116 — 491 — — — — 491 
Stock-based compensation— — — 4,639 — — — — 4,639 
Tax payments from shares withheld for equity awards— — — (348)— — — — (348)
Stock repurchases— — — — — — (561)(12,718)(12,718)
Cumulative translation adjustment— — — — — (64)— — (64)
Net income (loss) — — — (62,386)— — — (62,386)
Balance as of September 30, 2019$ 48,895 $5 $1,580,336 $(932,505)$(272)(561)$(12,718)$634,846 
























See accompanying notes to unaudited condensed consolidated financial statements.
Blucora, Inc. | Q3 2020 Form 10-Q 8


BLUCORA, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
 Nine months ended September 30,
 20202019
Operating activities:
Net income (loss)$(292,055)$30,820 
Adjustments to reconcile net income (loss) to net cash from operating activities:
Stock-based compensation7,220 11,164 
Depreciation and amortization of acquired intangible assets29,619 32,078 
Impairment of goodwill and an intangible asset270,625 50,900 
Reduction of right-of-use lease assets8,335 3,117 
Deferred income taxes23,199 (23,343)
Amortization of debt issuance costs1,006 848 
Accretion of debt discounts414 189 
Gain on sale of a business(349)(3,256)
Change in fair value of acquisition-related contingent consideration(1,000) 
Accretion of lease liability1,413 460 
Other984 48 
Cash provided (used) by changes in operating assets and liabilities:
Accounts receivable12,267 352 
Commissions receivable(1,480)(19)
Other receivables(2,909)(18)
Prepaid expenses and other current assets2,555 13,828 
Other long-term assets2,763 497 
Accounts payable(7,018)(2,346)
Commissions and advisory fees payable(3,012)(602)
Lease liabilities(3,568)(3,371)
Deferred revenue(8,582)(21,694)
Accrued expenses and other current and long-term liabilities(5,113)6,595 
Net cash provided by operating activities35,314 96,247 
Investing activities:
Business acquisition, net of cash acquired(102,425)(166,561)
Purchases of property and equipment(28,711)(6,887)
Proceeds from sale of a business, net of cash349 7,467 
Net cash used by investing activities(130,787)(165,981)
Financing activities:
Proceeds from credit facilities226,278 121,489 
Payments on credit facilities(66,078) 
Stock repurchases (11,968)
Payment of redeemable noncontrolling interests (24,945)
Proceeds from stock option exercises25 3,811 
Proceeds from issuance of stock through employee stock purchase plan1,201 1,144 
Tax payments from shares withheld for equity awards(1,034)(5,508)
Contingent consideration payments for business acquisition (943)
Net cash provided by financing activities160,392 83,080 
Effect of exchange rate changes on cash, cash equivalents, and restricted cash 38 
Net increase in cash, cash equivalents, and restricted cash64,919 13,384 
Cash, cash equivalents, and restricted cash, beginning of period86,450 85,366 
Cash, cash equivalents, and restricted cash, end of period$151,369 $98,750 
Supplemental cash flow information:
Accrued stock repurchases$ $750 
Cash paid for income taxes$1,657 $3,154 
Cash paid for interest$16,994 $13,901 
Non-cash investing activities:
Purchases of property and equipment through leasehold incentives (investing)$9,726 $ 


See accompanying notes to unaudited condensed consolidated financial statements.
Blucora, Inc. | Q3 2020 Form 10-Q 9


BLUCORA, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1: Description of the Business
Blucora, Inc. (the “Company,” “Blucora,” “we,” “our,” or “us”) operates two primary businesses: the Wealth Management business and the digital Tax Preparation business.
Wealth Management
The Wealth Management business consists of the operations of Avantax Wealth Management (“Avantax”) and HKFS (defined below) (collectively, the “Wealth Management business” or the “Wealth Management segment”).
Avantax provides tax-focused wealth management solutions for financial professionals, tax preparers, certified public accounting firms, and their clients. Avantax offers its services through its registered broker-dealer, registered investment advisor (“RIA”), and insurance agency subsidiaries and is the largest U.S. tax-focused independent broker-dealer. Avantax works with a nationwide network of financial professionals that operate as independent contractors. Avantax provides these financial professionals with an integrated platform of technical, practice, and product support tools to assist in making each financial professional a comprehensive financial service center for his or her clients. Avantax formerly operated under the HD Vest and 1st Global brands prior to the rebranding of the Wealth Management business to Avantax Wealth Management in 2019.
On July 1, 2020, we acquired all of the issued and outstanding common stock of Honkamp Krueger Financial Services, Inc. (“HKFS,” and such acquisition, the “HKFS Acquisition”). HKFS operates as a captive, or employee-based, RIA and wealth management business that partners with CPA firms in order to provide their consumer and small business clients with holistic planning and financial advisory services. The operations of HKFS are included in operating results as part of the Wealth Management segment from the date of the HKFS Acquisition. For additional information, see "Note 3—Acquisitions."
Tax Preparation
The Tax Preparation business consists of the operations of TaxAct, Inc. (“TaxAct,” the “Tax Preparation business,” or the “Tax Preparation segment”) and provides digital tax preparation solutions for consumers, small business owners, and tax professionals through its website www.TaxAct.com.
The Tax Preparation segment is highly seasonal, with a significant portion of its annual revenue typically earned in the first four months of the fiscal year. During the third and fourth quarters, the Tax Preparation segment typically reports losses because revenue from the segment is minimal while core operating expenses continue. In March 2020 and as a result of the coronavirus pandemic, the Internal Revenue Service (“IRS”) extended the filing deadline for federal tax returns from April 15, 2020 to July 15, 2020. This filing extension resulted in the shifting of a significant portion of Tax Preparation segment revenue that is usually earned in the first and second quarters of 2020 to the third quarter of 2020. In addition, sales and marketing expenses were elevated for the nine months ended September 30, 2020.
Segments
We have two reportable segments: (1) the Wealth Management segment and (2) the Tax Preparation segment.

Note 2: Summary of Significant Accounting Policies
Interim financial information
The accompanying condensed consolidated financial statements have been prepared by us under the rules and regulations of the Securities and Exchange Commission (the SEC”) for interim financial reporting. These condensed consolidated financial statements are unaudited and, in management’s opinion, include all adjustments, consisting of normal recurring adjustments and accruals, necessary for a fair presentation of the consolidated financial position, results of operations, and cash flows for the periods presented. Certain information and footnote disclosures normally included in financial statements prepared in conformity with United States generally accepted accounting principles (GAAP”) have been omitted in accordance with the rules and regulations of the SEC. These
Blucora, Inc. | Q3 2020 Form 10-Q 10


unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes in Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2019. Interim results are not necessarily indicative of results for a full year.
Cash, cash equivalents, and restricted cash
The following table presents cash, cash equivalents, and restricted cash as reported on the consolidated balance sheets and the consolidated statements of cash flows (in thousands):
September 30, 2020December 31, 2019
Cash and cash equivalents$151,166 $80,820 
Cash segregated under federal or other regulations203 5,630 
Total cash, cash equivalents, and restricted cash$151,369 $86,450 
We generally invest our available cash in high-quality marketable investments, which primarily consist of investments in money market funds invested in securities issued by agencies of the U.S. government. We may invest, from time-to-time, in other vehicles, such as debt instruments issued by the U.S. federal government and its agencies, international governments, municipalities and publicly held corporations, as well as commercial paper and insured time deposits with commercial banks. Specific holdings can vary from period to period depending upon our cash requirements. Such investments are reported at fair value on the consolidated balance sheets.
Cash segregated under federal and other regulations is held in a separate bank account for the exclusive benefit of our Wealth Management business clients and is considered restricted cash.
Business combinations
We account for business combinations using the acquisition method.
Under the acquisition method, the purchase price of the HKFS Acquisition has been allocated to HKFS’s acquired tangible and identifiable intangible assets and assumed liabilities based on their estimated fair values at the time of the HKFS Acquisition. This allocation involves a number of assumptions, estimates, and judgments that could materially affect the timing or amounts recognized in our financial statements. The most subjective areas of the acquisition accounting method included determining the fair value of the following:
intangible assets, including the valuation methodology, estimates of future cash flows, discount rates, growth rates, as well as the estimated useful life of intangible assets;
contingent consideration, including the valuation methodology, estimates of future advisory asset levels, discount rates, growth rates, and volatility levels; and
goodwill, as measured as the excess of consideration transferred over the acquisition date fair value of the assets acquired, including the amount assigned to identifiable intangible assets, and the liabilities assumed.
Our assumptions and estimates are based upon comparable market data and information obtained from the management of HKFS.
Goodwill is assigned to reporting units that are expected to benefit from the synergies of the business combination as of the acquisition date. Our reporting units are consistent with our reportable segments, and accordingly, the goodwill acquired from HKFS was assigned to the Wealth Management reporting unit. Identifiable intangible assets with finite lives are amortized over their useful lives on a straight-line basis. Acquisition-related costs, including advisory, legal, accounting, valuation, and other similar costs, are expensed in the periods in which the costs are incurred. The results of operations of acquired businesses are included in the consolidated financial statements from the acquisition date.
Recently adopted accounting pronouncements
Changes to GAAP are established by the Financial Accounting Standards Board (“FASB”) in the form of accounting standards updates (“ASUs”) to the FASB’s Accounting Standards Codification (“ASC”). We consider the applicability and impact of all recent ASUs. ASUs not listed below were assessed and determined to be either
Blucora, Inc. | Q3 2020 Form 10-Q 11


not applicable or are expected to have minimal impact on our consolidated financial position and results of operations. We have recently adopted the ASUs described below.
Measurement of Credit Losses. In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which changes how entities account for credit losses of financial assets measured at amortized cost. ASU 2016-13 requires financial assets measured at amortized cost to be presented on the balance sheet at the net amount expected to be collected.
The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset to present the net carrying value at the amount expected to be collected on the financial asset. ASU 2016-13 replaces the previous “incurred loss” model with a “current expected credit loss” model that requires consideration of a broader range of information to estimate expected credit losses over the lifetime of the financial asset. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, including the interim periods within those fiscal years. Entities must apply ASU 2016-13 using a modified-retrospective approach by recording a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which ASU 2016-13 is effective.
We adopted ASU 2016-13 effective January 1, 2020. Our financial assets within the scope of ASU 2016-13 primarily consisted of our commissions receivable and accounts receivable. While we have implemented the current expected credit loss model and assessed the impact of this new model on our in-scope financial assets, the adoption of ASU 2016-13 did not have a material impact on our consolidated financial statements and did not result in a cumulative-effect adjustment to retained earnings as of January 1, 2020.
Goodwill. In January 2017, the FASB issued ASU 2017-04, Intangibles—Goodwill and Other (Topic 350): Accounting for Goodwill (“ASU 2017-04”), which simplifies the subsequent measurement of goodwill by eliminating the previously applicable step two from the goodwill impairment test. Under the amended guidance of ASU 2017-04, when required to test goodwill for recoverability, an entity will perform its goodwill impairment test by comparing the fair value of the reporting unit to its carrying value and recognizing an impairment charge for the amount by which the carrying value exceeds the fair value of the reporting unit. ASU 2017-04 is effective for fiscal years beginning after December 15, 2019, and entities must apply ASU 2017-04 on a prospective basis.
We adopted ASU 2017-04 effective January 1, 2020 and applied this new guidance to the goodwill impairment test we performed as of March 31, 2020. For more information on this impairment test, see “Note 5—Goodwill and Other Intangible Assets.”

Note 3: Acquisitions
HKFS Acquisition
On July 1, 2020, we closed the HKFS Acquisition for an upfront cash purchase price of $104.4 million, which was paid with a portion of the proceeds from the $175.0 million increase in the Term Loan (as defined in "Note 6—Debt"). The purchase price is subject to customary adjustment and two potential post-closing earn-out payments (the “HKFS Contingent Consideration”) by us.
The amount of the HKFS Contingent Consideration is determined based on advisory asset levels and the achievement of certain performance goals (i) for the period beginning on July 1, 2020 and ending on July 1, 2021 and (ii) for the period beginning on July 1, 2021 and ending on July 1, 2022. Pursuant to the Stock Purchase Agreement, dated as of January 6, 2020, by and among the Company, HKFS, the selling stockholders named therein (the “Sellers”), and JRD Seller Representative, LLC, as the Sellers’ representative, as amended, the maximum aggregate amount that we would be required to pay for each earn-out period is $30.0 million, provided that any unearned amounts during the first earn-out period may also be earned during the second earn-out period. If the asset values on the applicable measurement date fall below certain specified thresholds, we would not be required to make any earn-out payment to the Sellers for such period. On the HKFS Acquisition date, the fair value of the HKFS Contingent Consideration was $27.6 million. We recorded the short-term and long-term portions of the HKFS Contingent Consideration in “Accrued expenses and other current liabilities” and “Other long-term liabilities,” respectively, on the consolidated balance sheet. Subsequent to the HKFS Acquisition date, the HKFS Contingent Consideration is remeasured to an estimated fair value at each reporting date until the contingency is resolved. As of September 30, 2020, the fair value of the HKFS Contingent Consideration was $26.6 million. Changes in estimated fair value are recognized in “Acquisition and integration” expenses on the condensed consolidated
Blucora, Inc. | Q3 2020 Form 10-Q 12


statements of comprehensive income (loss) in the period in which they occur. For additional information on the HKFS Contingent Consideration, see "Note 9—Fair Value Measurements."
The purchase price of the HKFS Acquisition was allocated to HKFS’s tangible assets, identifiable intangible assets, and assumed liabilities based on their estimated fair values at the time of the HKFS Acquisition. The preliminary fair value of assets acquired and liabilities assumed in the HKFS Acquisition were as follows (in thousands):
Purchase Price Allocation at
HKFS Acquisition Date
Assets acquired:
Tangible assets acquired, including cash of $1,980 (1)
15,517 
Identifiable intangible assets62,970 
Goodwill58,137 
Liabilities assumed(5,134)
Total assets acquired and liabilities assumed$131,490 
Cash paid at HKFS Acquisition date$104,404 
Adjustment receivable(514)
HKFS Contingent Consideration27,600 
Total purchase price$131,490 
__________________________
(1)Included in tangible assets acquired were accounts receivable of $7.8 million, which primarily consisted of advisory fees receivable. As an insignificant amount of these receivables was expected to be uncollectible, the acquired amount approximates the fair value of the accounts receivable.
The identifiable intangible assets were as follows (in thousands, except as otherwise indicated):
Estimated Fair ValueAccumulated Amortization through September 30, 2020Useful Life at HKFS Acquisition Date (in months)
Customer relationships$58,400 $973 180
CPA firm relationships4,070 68 180
Trade name500 42 36
Total identified intangible assets$62,970 $1,083 179
For both the three and nine months ended September 30, 2020, we recognized amortization expenses related to acquired intangible assets of HKFS of $1.1 million in “Amortization of other acquired intangible assets” on the consolidated statements of comprehensive income (loss).
The excess of the total consideration over the tangible assets, identifiable intangible assets, and assumed liabilities was recorded as goodwill in the amount of $58.1 million. Goodwill consists largely of the cost, revenue, and marketing synergies expected from incorporating HKFS into our existing Wealth Management business. These synergies include, but are not limited to, increased scale, enhanced capabilities, and an integrated platform. All of the acquired goodwill recognized is expected to be deductible for income tax purposes.
The preliminary estimates of the net assets acquired were based upon preliminary calculations and valuations. Due to the recent timing of the HKFS Acquisition, those estimates and assumptions are subject to change as we obtain additional information for those estimates during the measurement period (up to one year from the HKFS Acquisition date).
Blucora, Inc. | Q3 2020 Form 10-Q 13


We have incurred inception-to-date transaction costs related to the HKFS Acquisition of $10.6 million, of which $4.7 million and $7.5 million were recognized for the three and nine months ended September 30, 2020, respectively. In addition, we have incurred inception-to-date integration costs of $1.7 million, of which $0.8 million and $1.7 million were recognized for the three and nine months ended September 30, 2020, respectively. In addition, we recognized a $1.0 million gain related to the fair value change of the HKFS Contingent Consideration liability for the three and nine months ended September 30, 2020. These transaction and integration costs were recognized as “Acquisition and integration” expense on the consolidated statements of comprehensive income (loss).
The operations of HKFS are included in operating results as part of the Wealth Management segment from the date of the HKFS Acquisition. From the date of the HKFS Acquisition, HKFS contributed $9.2 million of revenue and $2.0 million of income before income taxes to our consolidated results.
Pro forma financial information of the HKFS Acquisition
The financial information in the table below summarizes the combined results of operations of Blucora and HKFS, on a pro forma basis, for the three and nine months ended September 30, 2020 and 2019. The pro forma results are presented as if the HKFS Acquisition had occurred on January 1, 2019 and includes adjustments for amortization expense on the definite-lived intangible assets identified in the HKFS Acquisition, debt-related expenses associated with the Term Loan increase used to finance the HKFS Acquisition, acquisition and integration costs related to the HKFS Acquisition, the removal of historic interest expense for debt issuances of HKFS that were not assumed in the HKFS Acquisition, and the reduction of historic cost of revenue associated with fee-sharing arrangements that did not continue after the HKFS Acquisition. In addition, income taxes were also adjusted for the pro forma results of the combined entity.
The following pro forma financial information is presented for informational purposes only and is not necessarily indicative of the results of operations that would have been achieved had the HKFS Acquisition occurred on January 1, 2019 (amounts in thousands):
Three months ended
September 30,
Nine months ended
September 30,
2020201920202019
Revenue$175,353 $157,358 $615,934 $592,375 
Net income (loss)(18,114)(63,510)(282,551)18,761 
1st Global Acquisition
On May 6, 2019, we closed the acquisition of all of the issued and outstanding common stock of 1st Global, Inc. and 1st Global Insurance Services, Inc. (together, “1st Global”), a tax-focused wealth management company, for a cash purchase price of $180.0 million (the “1st Global Acquisition”). The operations of 1st Global are included in our operating results as part of the Wealth Management segment from the date of the 1st Global Acquisition.
The purchase price was allocated to 1st Global’s tangible assets, identifiable intangible assets, and assumed liabilities based on their estimated fair values at the time of the 1st Global Acquisition.
Blucora, Inc. | Q3 2020 Form 10-Q 14


The fair values of assets acquired and liabilities assumed in the 1st Global Acquisition were as follows (in thousands):
Purchase Price Allocation at
December 31, 2019
Purchase Price Allocation Adjustments Since
December 31, 2019
Final Purchase Price Allocation
Assets acquired:
Tangible assets acquired, including cash of $12,389
$38,413 $— $38,413 
Goodwill117,792 (666)117,126 
Identifiable intangible assets83,980 — 83,980 
Liabilities assumed:
Contingent liability(11,052)— (11,052)
Deferred revenues(17,715)— (17,715)
Other current liabilities(12,956)281 (12,675)
Deferred tax liabilities, net(18,462)385 (18,077)
Total assets acquired and liabilities assumed$180,000 $— $180,000 
Subsequent to December 31, 2019, we adjusted the fair values of goodwill, other current liabilities, and deferred tax liabilities, net, due to the pre-acquisition 1st Global tax returns that were filed in the first quarter of 2020. As one year has elapsed since the 1st Global Acquisition date, the measurement period for the 1st Global Acquisition has ended, and the purchase price allocation is considered final.
As part of the 1st Global Acquisition, we assumed a contingent liability related to a regulatory inquiry and recorded the contingent liability as part of the opening balance sheet. While the inquiry is still on-going, we evaluated a range of possible losses, resulting in a contingent liability reserve balance (including accrued interest) of $11.3 million at September 30, 2020.

Note 4: Segment Information and Revenues
We have two reportable segments: (1) the Wealth Management segment and (2) the Tax Preparation segment. Our Chief Executive Officer is the chief operating decision maker and reviews financial information presented on a disaggregated basis. This information is used for purposes of allocating resources and evaluating financial performance.
We do not allocate certain general and administrative costs (including personnel and overhead costs), stock-based compensation, depreciation, amortization of intangible assets, acquisition and integration costs, executive transition costs, headquarters relocation costs, or impairment of goodwill and an intangible asset to the reportable segments. Such amounts are reflected in the table below under the heading “Corporate-level activity.” In addition, we do not allocate other loss, net, or income taxes to the reportable segments. We do not report assets or capital expenditures by segment to the chief operating decision maker.
Blucora, Inc. | Q3 2020 Form 10-Q 15


Information on reportable segments currently presented to our chief operating decision maker and a reconciliation to consolidated net income (loss) are presented below (in thousands):
Three months ended
September 30,
Nine months ended
September 30,
2020201920202019
Revenue:
Wealth Management$135,932 $145,428 $396,805 $362,791 
Tax Preparation39,421 3,588 202,990 205,733 
Total revenue175,353 149,016 599,795 568,524 
Operating income (loss):
Wealth Management17,498 20,631 51,827 49,150 
Tax Preparation16,234 (12,075)60,646 108,565 
Corporate-level activity(32,719)(80,667)(357,905)(131,683)
Total operating income (loss)1,013 (72,111)(245,432)26,032 
Other loss, net(11,963)(2,606)(23,386)(11,682)
Income tax benefit (expense)(15,256)12,331 (23,237)16,470 
Net income (loss) attributable to Blucora, Inc.$(26,206)$(62,386)$(292,055)$30,820 
Revenues by major category within each segment are presented below (in thousands):
Three months ended
September 30,
Nine months ended
September 30,
2020201920202019
Wealth Management:
Advisory$82,612 $75,579 $227,672 $176,746 
Commission44,921 52,623 135,337 137,851 
Asset-based4,351 13,618 18,911 36,530 
Transaction and fee4,048 3,608 14,885 11,664 
Total Wealth Management revenue$135,932 $145,428 $396,805 $362,791 
Tax Preparation:
Consumer$38,482 $4,280 $186,724 $190,908