SEC Filing | Blucora

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bcor-20210930

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, 2021


☐			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

Blucora, Inc.

(Exact name of registrant as specified in its charter)


Delaware			91-1718107
(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)

(972) 870-6400

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.0001 per share

BCOR

NASDAQ 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 filer	☐	Accelerated filer	ý
Non-accelerated filer	☐	Smaller 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 October 28, 2021, 48,718,718 shares of the registrant’s Common Stock were outstanding.

TABLE OF CONTENTS


PART I . FINANCIAL INFORMATION		Page
Item 1.	Financial Statements	5
	Unaudited Condensed Consolidated Balance Sheets	5
	Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss)	6
	Unaudited Condensed Consolidated Statements of Stockholders' Equity	7
	Unaudited Condensed Consolidated Statements of Cash Flows	8
	Notes to Unaudited Condensed Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	45
Item 4.	Controls and Procedures	46

PART II . OTHER INFORMATION
Item 1.	Legal Proceedings	46
Item 1A.	Risk Factors	46
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	47
Item 3.	Defaults Upon Senior Securities	47
Item 4.	Mine Safety Disclosures	47
Item 5.	Other Information	47
Item 6.	Exhibits	48

Signatures		49

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, Avantax Planning Partners, Avantax Retirement Plan Services, HD Vest, 1st Global, HKFS, and TaxAct. 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 report.

Blucora, Inc. | Q3 2021 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:

•our ability to effectively compete within our industries;

•our ability to attract and retain financial professionals, qualified employees, clients, and customers, as well as our ability to provide strong customer/client service;

•the impact of the COVID-19 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 government actions;

•our ability to retain employees and acquired client assets following acquisitions;

•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;

•any 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, Inc. and the Securities and Exchange Commission (“SEC”);

•risks associated with legal proceedings, including litigation and regulatory proceedings;

•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 ability to manage leadership and employee transitions, including costs and time burdens on management and our board of directors related thereto;

•the compromising of confidentiality, availability or integrity of information, including cyberattacks;

•political and economic conditions and events that directly or indirectly impact the wealth management and tax preparation software 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;

•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;

Blucora, Inc. | Q3 2021 Form 10-Q 3

•our ability to comply with laws and regulations regarding privacy and protection of user data;

•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;

•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, 2020, 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 2021 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, 2021		December 31, 2020
ASSETS
Current assets:
Cash and cash equivalents	$	184,926	$	150,125
Cash segregated under federal or other regulations	536		637
Accounts receivable, net of allowance	17,886		12,736
Commissions and advisory fees receivable	25,003		26,132
Other receivables	468		717
Prepaid expenses and other current assets, net	11,119		10,321
Total current assets	239,938		200,668
Long-term assets:
Property and equipment, net	68,950		58,500
Right-of-use assets, net	20,818		23,455
Goodwill	454,821		454,821
Other intangible assets, net	304,435		322,179

Other long-term assets	14,519		4,569
Total long-term assets	863,543		863,524
Total assets	$	1,103,481	$	1,064,192
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	8,932	$	9,290
Commissions and advisory fees payable	18,297		19,021
Accrued expenses and other current liabilities	75,375		56,419
Deferred revenue—current	5,469		12,298
Lease liabilities—current	4,429		2,304
Current portion of long-term debt	1,790		1,784
Total current liabilities	114,292		101,116
Long-term liabilities:
Long-term debt, net	552,987		552,553
Deferred tax liability, net	29,502		30,663
Deferred revenue—long-term	5,553		6,247
Lease liabilities—long-term	34,020		36,404
Other long-term liabilities	7,992		24,919
Total long-term liabilities	630,054		650,786
Total liabilities	744,346		751,902

Commitments and contingencies (Note 8)

Stockholders’ equity:
Common stock, par value $0.0001 per share—900,000 shares authorized; 50,025 shares issued and 48,719 shares outstanding at September 30, 2021; 49,483 shares issued and 48,177 shares outstanding at December 31, 2020	5		5
Additional paid-in capital	1,613,624		1,598,230
Accumulated deficit	(1,226,095)		(1,257,546)

Treasury stock, at cost—1,306 shares at September 30, 2021 and December 31, 2020	(28,399)		(28,399)
Total stockholders’ equity	359,135		312,290
Total liabilities and stockholders’ equity	$	1,103,481	$	1,064,192

See accompanying notes to unaudited condensed consolidated financial statements.

Blucora, Inc. | Q3 2021 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,
	2021		2020		2021		2020
Revenue:
Wealth management services revenue	$	169,135	$	135,932	$	486,021	$	396,805
Tax software services revenue	5,039		39,421		220,848		202,990
Total revenue	174,174		175,353		706,869		599,795
Operating expenses:
Cost of revenue:
Wealth management services cost of revenue	120,641		96,122		343,174		282,332
Tax software services cost of revenue	2,323		2,692		12,330		9,759
Total cost of revenue	122,964		98,814		355,504		292,091
Engineering and technology	7,874		6,007		22,233		21,899
Sales and marketing	28,399		31,018		140,809		150,785
General and administrative	23,102		18,605		71,619		63,533
Acquisition and integration	2,241		10,276		28,513		18,782
Depreciation	2,867		1,874		8,371		5,345
Amortization of other acquired intangible assets	7,009		7,746		21,247		22,167
Impairment of goodwill	—		—		—		270,625
Total operating expenses	194,456		174,340		648,296		845,227
Operating income (loss)	(20,282)		1,013		58,573		(245,432)
Other loss, net	(8,295)		(11,963)		(24,202)		(23,386)
Income (loss) before income taxes	(28,577)		(10,950)		34,371		(268,818)
Income tax benefit (expense)	774		(15,256)		(2,920)		(23,237)
Net income (loss)	$	(27,803)	$	(26,206)	$	31,451	$	(292,055)
Net income (loss) per share:
Basic	$	(0.57)	$	(0.55)	$	0.65	$	(6.09)
Diluted	$	(0.57)	$	(0.55)	$	0.64	$	(6.09)
Weighted average shares outstanding:
Basic	48,707		48,039		48,492		47,936
Diluted	48,707		48,039		49,373		47,936
Comprehensive income (loss):
Net income (loss)	$	(27,803)	$	(26,206)	$	31,451	$	(292,055)
Other comprehensive income, net of income taxes	—		—		—		272
Comprehensive income (loss)	$	(27,803)	$	(26,206)	$	31,451	$	(291,783)

See accompanying notes to unaudited condensed consolidated financial statements.

Blucora, Inc. | Q3 2021 Form 10-Q 6

BLUCORA, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(In thousands)


				Additional paid-in capital		Accumulated deficit		Accumulated other comprehensive loss
	Common stock									Treasury stock
	Shares	Amount								Shares	Amount		Total
Balance as of December 31, 2020	49,483	$	5	$	1,598,230	$	(1,257,546)	$	—	(1,306)	$	(28,399)	$	312,290
Common stock issued for stock options and restricted stock units	132	—		63		—		—		—	—		63
Stock-based compensation	—	—		5,520		—		—		—	—		5,520
Tax payments from shares withheld for equity awards	—	—		(865)		—		—		—	—		(865)
Net income	—	—		—		27,646		—		—	—		27,646
Balance as of March 31, 2021	49,615	$	5	$	1,602,948	$	(1,229,900)	$	—	(1,306)	$	(28,399)	$	344,654
Common stock issued for stock options, restricted stock units, and employee stock purchase plan	347	—		1,989		—		—		—	—		1,989

Stock-based compensation	—	—		4,720		—		—		—	—		4,720
Tax payments from shares withheld for equity awards	—	—		(464)		—		—		—	—		(464)

Net income	—	—		—		31,608		—		—	—		31,608
Balance as of June 30, 2021	49,962	$	5	$	1,609,193	$	(1,198,292)	$	—	(1,306)	$	(28,399)	$	382,507
Common stock issued for stock options and restricted stock units	63	—		328		—		—		—	—		328
Stock-based compensation	—	—		4,387		—		—		—	—		4,387
Tax payments from shares withheld for equity awards	—	—		(284)		—		—		—	—		(284)
Net loss	—	—		—		(27,803)		—		—	—		(27,803)
Balance as of September 30, 2021	50,025	$	5	$	1,613,624	$	(1,226,095)	$	—	(1,306)	$	(28,399)	$	359,135


				Additional paid-in capital		Accumulated deficit		Accumulated other comprehensive loss
	Common stock									Treasury stock
	Shares	Amount								Shares	Amount		Total
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

See accompanying notes to unaudited condensed consolidated financial statements.

Blucora, Inc. | Q3 2021 Form 10-Q 7

BLUCORA, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)


	Nine months ended September 30,
	2021		2020
Operating activities:
Net income (loss)	$	31,451	$	(292,055)
Adjustments to reconcile net income (loss) to net cash from operating activities:
Stock-based compensation	15,499		7,220
Depreciation and amortization of acquired intangible assets	32,498		29,619
Impairment of goodwill	—		270,625

Reduction of right-of-use lease assets	2,694		8,335
Deferred income taxes	(1,161)		23,199
Amortization of debt issuance costs	1,128		1,006
Accretion of debt discounts	851		414
Gain on the sale of a business	—		(349)
Change in the fair value of acquisition-related contingent consideration	19,500		(1,000)
Accretion of lease liability	731		1,413
Other	1,371		984
Cash provided (used) by changes in operating assets and liabilities:

Accounts receivable	(5,008)		12,267
Commissions and advisory fees receivable	1,129		(1,480)
Other receivables	249		(2,909)
Prepaid expenses and other current assets	(798)		2,555
Other long-term assets	(10,898)		2,763
Accounts payable	(358)		(7,018)
Commissions and advisory fees payable	(500)		(3,012)
Lease liabilities	(1,047)		(3,568)
Deferred revenue	(7,523)		(8,582)
Accrued expenses and other current and long-term liabilities	(5,417)		(5,113)
Net cash provided by operating activities	74,391		35,314
Investing activities:
Purchases of property and equipment	(21,624)		(28,711)
Business acquisitions, net of cash acquired	—		(102,425)

Asset acquisitions, net of cash acquired	(3,823)		—

Proceeds from sale of a business	—		349
Net cash used by investing activities	(25,447)		(130,787)
Financing activities:
Proceeds from credit facilities, net of debt issuance costs and debt discounts	(502)		226,278
Payments on credit facilities	(1,359)		(66,078)





Proceeds from stock option exercises	535		25
Proceeds from issuance of stock through employee stock purchase plan	1,845		1,201
Tax payments from shares withheld for equity awards	(1,613)		(1,034)
Acquisition-related contingent consideration payments	(13,150)		—
Net cash provided (used) by financing activities	(14,244)		160,392








Net increase in cash, cash equivalents, and restricted cash	34,700		64,919
Cash, cash equivalents, and restricted cash, beginning of period	150,762		86,450
Cash, cash equivalents, and restricted cash, end of period	$	185,462	$	151,369
Supplemental cash flow information:


Cash paid for income taxes	$	2,864	$	1,657
Cash paid for interest	$	21,626	$	16,994
Non-cash investing activities:
Purchases of property and equipment through leasehold incentives	$	—	$	9,726

See accompanying notes to unaudited condensed consolidated financial statements.

Blucora, Inc. | Q3 2021 Form 10-Q 8

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 Software business.

Wealth Management

Our wealth management business consists of the operations of Avantax Wealth Management and Avantax Planning Partners (collectively, the “Wealth Management business” or the “Wealth Management segment”).

Avantax Wealth Management provides tax-focused wealth management solutions for financial professionals, tax professionals, certified public accounting (“CPA”) firms, and their clients. Avantax Wealth Management offers its services through its registered broker-dealer, registered investment advisor (“RIA”), and insurance agency subsidiaries and is the leading U.S. tax-focused independent broker-dealer. Avantax Wealth Management works with a nationwide network of financial professionals that operate as independent contractors. Avantax Wealth Management provides these financial professionals with an integrated platform of technical, practice, compliance, operations, sales, and product support tools that enable them to offer tax-advantaged investing and wealth management services to their clients.

Avantax Planning Partners is an in-house/employee based RIA and wealth management business that partners with CPA firms in order to provide their consumer and small business clients with holistic financial planning and advisory services, as well as retirement plan solutions through Avantax Retirement Plan Services. Avantax Planning Partners formerly operated as Honkamp Krueger Financial Services, Inc. (“HKFS”). Our employee-based RIA model, which we refer to as “Avantax Planning Partners,” also includes Avantax Wealth Management total client assets that have been acquired from Avantax Wealth Management financial professionals.

On July 1, 2020, we acquired all of the issued and outstanding common stock of HKFS (the “HKFS Acquisition”). The operations of HKFS are included in our operating results as part of the Wealth Management segment from the date of the HKFS Acquisition. On January 4, 2021, we announced the rebranding of HKFS to Avantax Planning Partners (the “Rebranding”). The Rebranding was designed to create tighter brand alignment, bringing the Wealth Management business under one common and recognizable brand.

Tax Software

The Tax Software business consists of the operations of TaxAct, Inc. (“TaxAct,” the “Tax Software business,” or the “Tax Software segment”) and provides digital tax preparation services, packaged tax software, and ancillary services for consumers, small business owners, and tax professionals through its website www.TaxAct.com and its mobile applications. We had referred to this business as the “Tax Preparation business” and “Tax Preparation segment” in previous filings.

The Tax Software segment is highly seasonal with a significant portion of its annual revenue typically earned in the first two quarters of the fiscal year. During the third and fourth quarters, the Tax Software 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 COVID-19 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 Software segment revenue that would typically be earned in the first and second quarters of 2020 to the third quarter of 2020.

As a result of the continued impact of the COVID-19 pandemic, the IRS delayed the start of the 2021 tax season and extended the filing and payment deadline for tax year 2020 federal tax returns from April 15, 2021 to May 17, 2021. In addition, the IRS further extended the federal filing and payment deadline for Texas, Louisiana, and Oklahoma to June 15, 2021. This extension resulted in the shifting of a significant portion of Tax Software segment revenue that would typically have been expected to be earned in the first quarter of 2021 to the second quarter of 2021.

Blucora, Inc. | Q3 2021 Form 10-Q 9

Segments

We have two reportable segments: (1) the Wealth Management segment and (2) the Tax Software 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 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 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, 2020. 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 condensed consolidated balance sheets and the condensed consolidated statements of cash flows (in thousands):


	September 30, 2021		December 31, 2020
Cash and cash equivalents	$	184,926	$	150,125
Cash segregated under federal or other regulations	536		637
Total cash, cash equivalents, and restricted cash	$	185,462	$	150,762

We generally invest our available cash in high-quality marketable investments. These investments include 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 condensed consolidated balance sheets.

Cash segregated under federal and other regulations is held in a separate bank account for the exclusive benefit of our Avantax Wealth Management clients and is recognized as restricted cash on the condensed consolidated balance sheets.

Asset Acquisitions

Acquisitions that do not meet the criteria to be accounted for as a business combination are accounted for as an asset acquisition. Using a cost accumulation model, the purchase price, including acquisition costs and any contingent consideration, if the contingencies are met for such contingent consideration at or near the acquisition date, is allocated to the acquired assets and assumed liabilities based upon their relative fair values as of the acquisition date and no goodwill is contemplated in the allocation process. Contingent consideration that is not earned at or near the acquisition date is capitalized as part of the cost of the assets acquired and is allocated to increase the eligible assets on a relative fair value basis.

We include the operations of an asset acquisition in our consolidated operating results beginning on the date of acquisition. The allocation of the purchase price to the assets acquired and liabilities assumed may require estimates, including but not limited to ones related to expected long-term revenues, future expected operating expenses, cost of capital, assumed attrition rates, and discount rates.

Goodwill

We assess goodwill for impairment at the reporting unit level, which consists of the Wealth Management reporting unit and the Tax Software reporting unit. We evaluate goodwill for impairment annually, as of November 30, or more frequently when events or circumstances indicate it is more likely than not that the estimated fair value

Blucora, Inc. | Q3 2021 Form 10-Q 10

of one or more of our reporting units is less than its carrying amount. To determine whether it is necessary to perform a goodwill impairment test, we first assess qualitative factors to evaluate whether it is more likely than not that the estimated fair value of a reporting unit is less than its carrying amount. We may elect to perform a goodwill impairment test without completing a qualitative assessment.

Beginning in March 2020, the COVID-19 pandemic had a significant negative impact on the U.S. and global economy and caused substantial disruption in the U.S. and global securities markets, and as a result, negatively impacted certain key Wealth Management business drivers, such as client asset levels and interest rates. These macroeconomic and Company-specific factors, in totality, served as a triggering event that resulted in the testing of the goodwill of the Wealth Management reporting unit and the Tax Software reporting unit for potential impairment.

As part of the goodwill impairment tests, we compared the estimated fair values of the Wealth Management and Tax Software reporting units to their respective carrying values. Estimated fair value was calculated using Level 3 inputs and utilized a blended valuation method that factored in the income approach and the market approach. The income approach is an estimate of fair value that uses the present value of future discounted cash flows. Significant estimates used in the discounted cash flow model included our forecasted cash flows, our long-term rates of growth, and our weighted average cost of capital. The weighted average cost of capital factors in the relevant risk associated with business-specific characteristics and the uncertainty related to the ability to achieve our projected cash flows related to the reporting unit or overall business. The market approach is an estimate of fair value that takes income-based valuation multiples for a set of comparable companies and applies the valuation multiple to each reporting unit’s income.

For the Wealth Management reporting unit, the carrying value of the reporting unit exceeded its estimated fair value by $270.6 million. Therefore, we recorded an impairment of goodwill of $270.6 million as of March 31, 2020. For the Tax Software reporting unit, the carrying value of the reporting unit was significantly below its estimated fair value, and therefore, the goodwill of the Tax Software reporting unit was not considered impaired.

While no goodwill impairment triggering events were identified during the nine months ended September 30, 2021, the Wealth Management reporting unit is considered to be at risk for a future impairment of its goodwill in the event of a further decline in general economic, market, or business conditions, or any significant unfavorable changes in our forecasted revenue, expenses, cash flows, weighted average cost of capital, and/or market valuation multiples. We will continue to monitor for events and circumstances that could negatively impact the key assumptions in determining the estimated fair value of the Wealth Management reporting unit.

Note 3: Segment Information and Revenue

We have two reportable operating segments: (1) the Wealth Management segment and (2) the Tax Software 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 acquired intangible assets, acquisition and integration costs, executive transition costs, headquarters relocation costs, contested proxy and other legal and consulting costs, or impairment of goodwill 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 2021 Form 10-Q 11

Information on reportable operating segments currently presented to our chief operating decision maker and a reconciliation of operating income (loss) to consolidated net income (loss) are presented below (in thousands):


	Three months ended September 30,				Nine months ended September 30,
	2021		2020		2021		2020
Revenue:
Wealth Management revenue	$	169,135	$	135,932	$	486,021	$	396,805
Tax Software revenue	5,039		39,421		220,848		202,990
Total revenue	$	174,174	$	175,353	$	706,869	$	599,795
Operating income (loss):
Wealth Management	$	19,564	$	17,498	$	60,356	$	51,827
Tax Software	(13,864)		16,234		100,472		60,646
Corporate-level activity	(25,982)		(32,719)		(102,255)		(357,905)
Total operating income (loss)	(20,282)		1,013		58,573		(245,432)
Other loss, net	(8,295)		(11,963)		(24,202)		(23,386)
Income tax benefit (expense)	774		(15,256)		(2,920)		(23,237)
Net income (loss)	$	(27,803)	$	(26,206)	$	31,451	$	(292,055)

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


	Three months ended September 30,				Nine months ended September 30,
	2021		2020		2021		2020
Wealth Management:
Advisory revenue	$	103,540	$	82,612	$	291,167	$	227,672
Commission revenue	52,961		44,921		157,197		135,337
Asset-based revenue	5,659		4,351		16,514		18,911
Transaction and fee revenue	6,975		4,048		21,143		14,885
Total Wealth Management revenue	$	169,135	$	135,932	$	486,021	$	396,805
Tax Software:
Consumer revenue	$	4,479	$	38,482	$	203,891	$	186,724
Professional revenue	560		939		16,957		16,266
Total Tax Software revenue	$	5,039	$	39,421	$	220,848	$	202,990

Wealth Management revenue recognition

Wealth management revenue primarily consists of advisory revenue, commission revenue, asset-based revenue, and transaction and fee revenue.

The timing of Wealth Management revenue recognition was as follows (in thousands):



	Three months ended September 30,
	2021						2020
	Recognized Upon Transaction		Recognized Over Time		Total		Recognized Upon Transaction		Recognized Over Time		Total
Advisory revenue	$	—	$	103,540	$	103,540	$	—	$	82,612	$	82,612
Commission revenue	22,372		30,589		52,961		16,884		28,037		44,921
Asset-based revenue	—		5,659		5,659		—		4,351		4,351
Transaction and fee revenue	1,213		5,762		6,975		1,067		2,981		4,048
Total Wealth Management revenue	$	23,585	$	145,550	$	169,135	$	17,951	$	117,981	$	135,932

Blucora, Inc. | Q3 2021 Form 10-Q 12



	Nine months ended September 30,
	2021						2020
	Recognized Upon Transaction		Recognized Over Time		Total		Recognized Upon Transaction		Recognized Over Time		Total
Advisory revenue	$	—	$	291,167	$	291,167	$	—	$	227,672	$	227,672
Commission revenue	65,815		91,382		157,197		55,068		80,269		135,337
Asset-based revenue	—		16,514		16,514		—		18,911		18,911
Transaction and fee revenue	3,779		17,364		21,143		4,063		10,822		14,885
Total Wealth Management revenue	$	69,594	$	416,427	$	486,021	$	59,131	$	337,674	$	396,805

Tax Software revenue recognition

We generate Tax Software revenue from the sale of digital tax preparation services, packaged tax preparation software, ancillary services, and multiple element arrangements that may include a combination of these items.

The timing of Tax Software revenue recognition was as follows (in thousands):



	Three months ended September 30,
	2021						2020
	Recognized Upon Transaction		Recognized Over Time		Total		Recognized Upon Transaction		Recognized Over Time		Total
Consumer revenue	$	4,479	$	—	$	4,479	$	38,480	$	2	$	38,482
Professional revenue	370		190		560		641		298		939
Total Tax Software revenue	$	4,849	$	190	$	5,039	$	39,121	$	300	$	39,421



	Nine months ended September 30,
	2021						2020
	Recognized Upon Transaction		Recognized Over Time		Total		Recognized Upon Transaction		Recognized Over Time		Total
Consumer revenue	$	203,891	$	—	$	203,891	$	186,721	$	3	$	186,724
Professional revenue	14,626		2,331		16,957		13,822		2,444		16,266
Total Tax Software revenue	$	218,517	$	2,331	$	220,848	$	200,543	$	2,447	$	202,990

Note 4: Asset Acquisitions

During the nine months ended September 30, 2021, we completed several acquisitions in our Wealth Management business that met the criteria to be accounted for as asset acquisitions. We paid $3.8 million in total consideration, including acquisition costs, which was allocated to the acquired assets and assumed liabilities, and primarily consisted of customer relationship intangibles. We are subject to additional contingent consideration payments on these acquisitions in 2021 up to a maximum of $5.2 million over a four-year period that are contingent upon meeting certain revenue thresholds related to the respective asset acquisitions.

Blucora, Inc. | Q3 2021 Form 10-Q 13

Note 5: Debt

Our debt consisted of the following as of the periods indicated in the table below (in thousands):


	September 30, 2021								December 31, 2020
	Principal amount		Discount		Debt issuance costs		Net carrying value		Principal amount		Discount	Debt issuance costs	Net carrying value
Senior Secured Credit Facility	$	561,797	$	(3,322)	$	(3,698)	$	554,777	$	563,156