October 27, 2016

Blucora Announces Third Quarter 2016 Results

BELLEVUE, Wash., Oct. 27, 2016 (GLOBE NEWSWIRE) -- Blucora, Inc. (NASDAQ:BCOR), a leading provider of technology-enabled financial solutions to consumers, small businesses and tax professionals, today announced financial results for the third quarter ended September 30, 2016.

Third Quarter Highlights and Recent Developments

  • Exceeded $10.0 billion in assets under management up 9 percent in the third quarter versus prior year; third quarter net flows of $132.0 million marks best quarter of net flows since first quarter 2015
  • Achieved better than expected performance from advisor-driven revenue; transaction revenue up 18 percent sequentially
  • Closed the sale of Infospace to OpenMail for $45.2 million
  • Repaid $45.0 million of debt, bringing Blucora's total debt reduction for the nine months ended September 30, 2016 to $133.4 million
  • Strengthened executive team with appointment of Mathieu Stevenson as Chief Marketing Officer and Pamela Turay as Chief Human Resources Officer

John Clendening, president and chief executive officer of Blucora, noted that "during the third quarter, we continued to execute the strategic initiatives we outlined last quarter, including successfully divesting the Infospace business and continuing to de-lever.  We are making strong progress on our transformation strategy as we organize around our new operating model and solidify our position as a technology-enabled financial solutions company," said Clendening.  "We are taking the actions necessary to maximize the performance of our businesses, and are seeing positive results from these efforts.  We are committed to investing in our people, our capability, and our technology to enable us to capture the substantial growth opportunities ahead in both the HD Vest and TaxAct businesses," he explained.

The following presentation includes pro forma financial information and HD Vest.  In addition, it excludes the Search and Content and E-Commerce segments which have been classified as discontinued operations for all periods presented.  The Company believes that this presentation most accurately reflects the financial performance of the Company on a go-forward basis.

Summary Financial Performance: Q3 2016
($ in millions except per share amounts)
 
 Q3 Q3  
 2016 2015 Change
 As reported Pro forma  
Revenue$83.2  $82.9  %
Wealth Management$80.1  $80.0  %
Tax Preparation$3.1  $2.9  10%
Segment Income$7.2   $8.9  (19)%
Wealth Management$11.6  $11.5  1%
Tax Preparation$(4.4) $(2.5) 72%
Unallocated Corporate Operating Expenses$4.9  $4.4  11%
GAAP:     
Operating Loss$(10.5) $(10.3) 2%
Net Loss Attributable to Blucora, Inc.$(54.1) $(11.3) 381%
Diluted Net Loss Per Share Attributable to Blucora, Inc.$(1.30) $(0.27) 381%
Non-GAAP:     
Adjusted EBITDA$2.3  $4.5  (48)%
Net Loss$(10.1) $(7.0) 46%
Diluted Net Loss Per Share$(0.24) $(0.17)  41%
See reconciliations of as reported and pro forma non-GAAP to GAAP measures in tables below.

Company Restructuring

"As we continue to implement our new ‘One Company' operating model," Clendening stated, "we plan to move our corporate headquarters from Bellevue, WA to Irving, TX by June 2017.  We've moved from our prior holding company model to an operating company model, in which the corporate team adds value by directly contributing to business unit results.  The best way to foster this is by co-locating the corporate team with one of the operating units.  In addition to increasing impact, this approach will also enable us to maximize cost savings. Together, these steps will facilitate value creation for our shareholders."

Eric Emans, Chief Financial Officer and Treasurer, does not intend to move to the Irving office.  Accordingly, Blucora has retained Heidrick & Struggles, a leading executive search firm, to help identify and recruit candidates.  Eric remains fully committed to the company and its shareholders, and plans to stay on until long after a successor has been named, well into 2017, in order to ensure a smooth transition.  Clendening added, "Eric has been a terrific partner and I'm delighted that he has agreed to remain actively involved in the management of the company through this transition."

The Company expects to incur cash restructuring charges of $5.6 million to $8.7 million that primarily relate to employee severance costs and costs associated with the exit of our Bellevue facility.  We also expect to record non-cash restructuring charges of $1.9 million to $2.6 million for total restructuring charges of $7.5 million to $11.3 million.  Additionally, we expect to incur transition-related costs of $3.0 million to $4.0 million related to the transitioning of roles from Bellevue, WA to Irving, TX primarily related to overlap in staffing and recruiting search fees.  The majority of these costs will be recorded over the next three quarters.

Fourth Quarter and Full Year 2016 Outlook

For the fourth quarter of 2016, the Company expects revenues to be between $82.2 million and $85.5 million, GAAP loss from continuing operations to be between $17.7 million and $15.6 million, or $(0.42) to $(0.37) per diluted share, Adjusted EBITDA to be between $(1.5) million and $0.8 million, and Non-GAAP loss from continuing operations to be between $12.7 million and $9.7 million, or $(0.30) to $(0.23) per diluted share.

For the full year 2016, the Company expects revenues to be between $451.3 million and $454.6 million, GAAP loss from continuing operations to be between $5.2 million and $3.1 million, or $(0.13) to $(0.07) per diluted share, Adjusted EBITDA to be between $89.9 million and $92.2 million, and Non-GAAP income from continuing operations to be between $39.9 million and $42.9 million, or $0.93 to $1.00 per diluted share.

Conference Call and Webcast

A conference call and live webcast will be held today at 5:30 a.m. Pacific Time / 8:30 a.m. Eastern Time during which the Company will further discuss third quarter results and its outlook for the fourth quarter of 2016.  We have also provided supplemental financial information to our results that can be accessed in the Investor Relations section of the Blucora corporate website at http://www.blucora.com and filed with the SEC on Form 8-K.  A replay of the call and management's prepared remarks will also be available on our website.

About Blucora®

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

This announcement 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.  Actual results may differ significantly from management's expectations due to various risks and uncertainties including, but not limited to: general economic, industry, and market sector conditions; the effect of current, pending and future legislation, regulation and regulatory actions, including the DOL rule; the availability of products to sell; the timing and extent of market acceptance of developed products and services and related costs; our dependence on companies to distribute our products and services; the successful execution of the Company's strategic initiatives, technology enhancements, operating plans, and marketing strategies; the condition of our cash investments; and the Company's ability to control operating risks, information technology system risks and cybersecurity risks.  A more detailed description of these and certain other factors that could affect actual results is included in Blucora, Inc.'s most recent Quarterly Report on Form 10-Q and subsequent reports filed with or furnished to 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.  Blucora, Inc. undertakes no obligation to update any forward-looking statements to reflect new information, events, or circumstances after the date of this release or to reflect the occurrence of unanticipated events.

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,
 2016 2015 2016 2015
Revenue:       
Wealth management services revenue$80,088  $  $233,496  $ 
Tax preparation services revenue3,149  2,875  135,614  114,843 
Total revenue83,237  2,875  369,110   114,843 
Operating expenses:       
Cost of revenue:       
Wealth management services cost of revenue54,921    158,213   
Tax preparation services cost of revenue1,319  1,170  6,549  4,680 
Amortization of acquired technology49  1,911  765  5,636 
Total cost of revenue (1)56,289  3,081  165,527  10,316 
Engineering and technology (1)4,588  1,251  12,842  3,471 
Sales and marketing (1)11,965  2,113  75,715  42,824 
General and administrative (1)11,638  8,895  35,899  23,694 
Depreciation968  394  2,906  1,101 
Amortization of other acquired intangible assets8,297  3,195  24,929  9,566 
Total operating expenses93,745  18,929  317,818  90,972 
Operating income (loss)(10,508) (16,054) 51,292  23,871 
Other loss, net (2)(11,453) (3,080) (29,883)  (9,109)
Income (loss) from continuing operations before income taxes(21,961) (19,134) 21,409  14,762 
Income tax benefit (expense)8,537  6,926  (8,899) (5,144)
Income (loss) from continuing operations(13,424) (12,208) 12,510  9,618 
Discontinued operations, net of income taxes(40,528) 1,597  (57,981) 7,122 
Net income (loss)(53,952) (10,611) (45,471) 16,740 
Net income attributable to noncontrolling interests(167)   (426)  
Net income (loss) attributable to Blucora, Inc.$(54,119) $(10,611) $(45,897) $16,740 
Net income (loss) per share attributable to Blucora, Inc. - basic:       
Continuing operations$(0.33) $(0.30) $0.29  $0.23 
Discontinued operations(0.97) 0.04  (1.40) 0.18 
Basic net income (loss) per share$(1.30) $(0.26) $(1.11) $0.41 
Net income (loss) per share attributable to Blucora, Inc. - diluted:       
Continuing operations$(0.33) $(0.30) $ 0.29  $0.23 
Discontinued operations(0.97) 0.04   (1.37) 0.17 
Diluted net income (loss) per share$(1.30) $(0.26) $(1.08) $0.40 
Weighted average shares outstanding:       
Basic41,635  40,950  41,404  40,952 
Diluted41,635  40,950  42,329  41,911 

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

 Three months ended September 30, Nine months ended September 30,
 2016  2015 2016 2015
Cost of revenue$52  $23  $117  $71 
Engineering and technology434  112  1,167  336 
Sales and marketing661  230  1,688   610 
General and administrative2,217  1,709  7,644  4,957 
Total stock-based compensation expense$3,364  $2,074  $10,616  $5,974 

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

 Three months ended September 30, Nine months ended September 30,
 2016 2015 2016 2015
Interest income$(18) $(170) $(54) $(430)
Interest expense7,824  2,203  25,396  6,833  
Amortization of debt issuance costs413  286  1,440  842 
Accretion of debt discounts1,099  975  3,599  2,873 
(Gain) loss on debt extinguishment and modification expense2,205     (641)  
Gain on third party bankruptcy settlement(84)  (224) (128) (1,066)
Other14  10  271  57 
Other loss, net$11,453  $3,080  $29,883  $9,109 
 


Blucora, Inc.
Preliminary Condensed Consolidated Balance Sheets
(Unaudited)
(Amounts in thousands)
 
 September 30,
 2016
 December 31,
 2015
ASSETS   
Current assets:   
Cash and cash equivalents$71,165  $55,473 
Cash segregated under federal or other regulations630  3,557 
Available-for-sale investments4,492  11,301 
Accounts receivable, net of allowance7,076  7,884 
Commissions receivable15,294  16,328 
Other receivables6,827  24,407 
Prepaid expenses and other current assets, net4,059  10,062 
Current assets of discontinued operations70,432  211,663 
Total current assets179,975  340,675 
Long-term assets:   
Property and equipment, net10,711  11,308 
Goodwill, net549,582  548,959 
Other intangible assets, net370,640  396,295 
Other long-term assets3,380  2,311 
Total long-term assets934,313  958,873 
Total assets$1,114,288  $1,299,548 
LIABILITIES AND STOCKHOLDERS' EQUITY   
Current liabilities:   
Accounts payable$5,840  $4,689 
Commissions and advisory fees payable15,382  16,982 
Accrued expenses and other current liabilities11,446  13,006 
Deferred revenue9,139  11,521 
Current portion of long-term debt, net3,200  31,631 
Current liabilities of discontinued operations37,539  88,275 
Total current liabilities82,546  166,104 
Long-term liabilities:   
Long-term debt, net283,801  353,850 
Convertible senior notes, net163,024  185,918 
Deferred tax liability, net104,236  103,520 
Deferred revenue2,479  1,902 
Other long-term liabilities11,233  10,932 
Total long-term liabilities564,773  656,122 
Total liabilities647,319  822,226 
    
Redeemable noncontrolling interests15,464  15,038 
    
Stockholders' equity:   
Common stock4  4 
Additional paid-in capital1,525,267  1,490,405 
Accumulated deficit(1,073,495) (1,027,598)
Accumulated other comprehensive loss(271) (527)
Total stockholders' equity 451,505  462,284 
Total liabilities and stockholders' equity$1,114,288  $1,299,548  
 


Blucora, Inc.
Preliminary Condensed Consolidated Statements of Cash Flows
(Unaudited)
(Amounts in thousands)
 
 Nine months ended September 30,
 2016 2015
Operating Activities:   
Net income (loss)$(45,471) $16,740 
Less: Discontinued operations, net of income taxes(57,981) 7,122 
Net income from continuing operations 12,510  9,618 
Adjustments to reconcile net income from continuing operations to net cash from operating activities:   
Stock-based compensation10,616  5,974 
Depreciation and amortization of acquired intangible assets29,080  16,863 
Excess tax benefits from stock-based award activity(21,369)  (28,632)
Deferred income taxes(12,484) (25,194)
Amortization of premium on investments, net164  1,250 
Amortization of debt issuance costs1,440  842 
Accretion of debt discounts3,599  2,873 
Gain on debt extinguishment and modification expense(641)  
Revaluation of acquisition-related contingent consideration liability391   
Other18  60 
Cash provided (used) by changes in operating assets and liabilities:   
Cash segregated under federal or other regulations2,927   
Accounts receivable793  136 
Commissions receivable1,034   
Other receivables19,656  1,166 
Prepaid expenses and other current assets6,003  4,665 
Other long-term assets(1,174) (63 )
Accounts payable1,151  4,930 
Commissions and advisory fees payable(1,600)  
Deferred revenue(1,805) (1,691)
Accrued expenses and other current and long-term liabilities19,786  28,149 
Net cash provided by operating activities from continuing operations70,095  20,946 
Investing Activities:   
Business acquisition, net of cash acquired(1,788) (1,740)
Purchases of property and equipment(2,648) (866)
Proceeds from sales of investments  16,507 
Proceeds from maturities of investments11,808  210,699 
Purchases of investments(5,147) (209,112)
Net cash provided by investing activities from continuing operations2,225  15,488 
Financing Activities:   
Repurchase of convertible notes(20,667)  
Repayment of credit facilities(105,000) (51,940)
Stock repurchases  (7,068 )
Excess tax benefits from stock-based award activity21,369  28,632 
Proceeds from stock option exercises1,141  2,374 
Proceeds from issuance of stock through employee stock purchase plan1,402  1,193 
Tax payments from shares withheld for equity awards(1,447) (1,193)
Net cash used by financing activities from continuing operations(103,202) (28,002)
Net cash provided (used) by continuing operations(30,882) 8,432 
Net cash provided by operating activities from discontinued operations10,836  6,138 
Net cash provided (used) by investing activities from discontinued operations43,230  (206)
Net cash used by financing activities from discontinued operations(7,477) (5,020)
Net cash provided by discontinued operations46,589  912 
Effect of exchange rate changes on cash and cash equivalents(15) (6)
Net increase in cash and cash equivalents15,692   9,338 
Cash and cash equivalents, beginning of period55,473  41,968 
Cash and cash equivalents, end of period$ 71,165  $51,306 
 


Blucora, Inc.
Preliminary Segment Information
(Unaudited)
(Amounts in thousands)
 
 Three months ended September 30, Nine months ended September 30,
 2016 2015 2016 2015
Revenue:       
Wealth Management$80,088  $  $233,496  $ 
Tax Preparation3,149  2,875  135,614  114,843 
Total revenue 83,237  2,875  369,110  114,843 
Operating income (loss):       
Wealth Management11,628    32,458   
Tax Preparation(4,382) (2,542) 72,987  61,493 
Corporate-level activity (1)(17,754) (13,512) (54,153)  (37,622)
Total operating income (loss)(10,508) (16,054) 51,292  23,871 
Other loss, net(11,453) (3,080) (29,883) (9,109)
Income tax benefit (expense)8,537  6,926  (8,899) (5,144)
Discontinued operations, net of income taxes(40,528) 1,597  (57,981) 7,122 
Net income (loss)$(53,952) $(10,611) $(45,471) $16,740 

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

 Three months ended September 30, Nine months ended September 30,
  2016 2015 2016 2015
Operating expenses$4,907  $4,433  $14,066  $13,471 
Stock-based compensation3,364  2,074  10,616  5,974 
Acquisition-related costs  1,314  391  1,314 
Depreciation1,137  585  3,386  1,661 
Amortization of acquired intangible assets8,346  5,106  25,694  15,202 
Total corporate-level activity$17,754  $13,512  $54,153  $37,622 


Blucora, Inc.
Reconciliations of Non-GAAP Financial Measures to the Nearest Comparable GAAP Measures
 
Preliminary Adjusted EBITDA Reconciliation (1)
(Unaudited)
(Amounts in thousands)
 
 Three months ended September 30,  Nine months ended September 30,
 2016 2015 2016 2015
Operating income (loss) (2)$(10,508) $(16,054) $51,292  $23,871 
Stock-based compensation3,364  2,074  10,616  5,974 
Depreciation and amortization of acquired intangible assets9,483  5,691  29,080  16,863 
Acquisition-related costs  1,314  391  1,314 
Adjusted EBITDA$2,339  $(6,975) $91,379  $48,022 


Preliminary Non-GAAP Net Income (Loss) Reconciliation (1)
(Unaudited)
(Amounts in thousands, except per share amounts)
 
 Three months ended September 30, Nine months ended September 30,
 2016 2015 2016  2015
Net income (loss) attributable to Blucora, Inc.(2)$(54,119) $(10,611) $(45,897) $16,740 
Discontinued operations, net of income taxes40,528  (1,597) 57,981  (7,122)
Stock-based compensation3,364  2,074  10,616  5,974 
Amortization of acquired intangible assets8,346  5,106  25,694  15,202 
Accretion of debt discount on Convertible Senior Notes901  975  2,749  2,873 
Accelerated accretion of debt discount on Convertible Senior Notes    1,628   
Gain on Convertible Senior Notes repurchased    (7,724)  
Acquisition-related costs  1,314  391  1,314 
Impact of noncontrolling interests167    426   
Cash tax impact of adjustments to GAAP net income(17) (196) 244  (297 )
Non-cash income tax (benefit) expense (1)(9,312) (6,984) 6,460  4,970 
Non-GAAP net income (loss)$(10,142) $(9,919) $52,568  $39,654 
        
Per diluted share:       
Net income (loss) attributable to Blucora, Inc.$(1.30) $(0.26) $(1.08) $0.40 
Discontinued operations, net of income taxes0.97  (0.04) 1.37  (0.17)
Stock-based compensation0.08  0.05  0.25  0.14 
Amortization of acquired intangible assets0.21  0.13  0.60  0.37 
Accretion of debt discount on Convertible Senior Notes0.02  0.02  0.06  0.07 
Accelerated accretion of debt discount on Convertible Senior Notes    0.04   
Gain on Convertible Senior Notes repurchased    (0.18)  
Acquisition-related costs  0.03  0.01  0.03 
Impact of noncontrolling interests0.00    0.01   
Cash tax impact of adjustments to GAAP net income(0.00) (0.00) 0.01  (0.01)
Non-cash income tax (benefit) expense(0.22) (0.17) 0.15  0.12 
Non-GAAP net income (loss)$(0.24) $(0.24) $1.24  $0.95 
Weighted average shares outstanding used in computing per diluted share amounts41,635  40,950  42,329  41,911 
 


Blucora, Inc.
Reconciliations of Non-GAAP Financial Measures to the Nearest Comparable GAAP Measures
(As Reported and Pro Forma)
 
Preliminary Adjusted EBITDA Reconciliation (As Reported and Pro Forma) (1)
(Unaudited)
(Amounts in thousands)
 
 Three months ended September 30, Nine months ended September 30,
 2016 2015 2016 2015
 As reported Pro forma As reported Pro forma
Operating income (loss)$(10,508) $(10,277) $51,292  $35,159 
Stock-based compensation3,364  3,379  10,616  9,557 
Depreciation and amortization of acquired intangible assets9,483  11,411  29,080  34,058 
Acquisition-related costs    391   
Adjusted EBITDA$2,339  $4,513  $91,379  $78,774 


Preliminary Non-GAAP Net Income (Loss) Reconciliation (As Reported and Pro Forma) (1)
(Unaudited)
(Amounts in thousands, except per share amounts)
 
 Three months ended September 30, Nine months ended September 30,
 2016 2015 2016 2015
 As reported Pro forma As reported Pro forma
Net income (loss) attributable to Blucora, Inc.$(54,119) $(11,261) $(45,897) $9,479 
Discontinued operations, net of income taxes40,528  (1,597) 57,981  (7,122)
Stock-based compensation3,364  3,379  10,616  9,557 
Amortization of acquired intangible assets8,346  10,243  25,694  30,613 
Accretion of debt discount on Convertible Senior Notes901   975  2,749  2,873 
Accelerated accretion of debt discount on Convertible Senior Notes     1,628   
Gain on Convertible Senior Notes repurchased    (7,724 )  
Acquisition-related costs    391   
Impact of noncontrolling interests167    426   
Cash tax impact of adjustments to GAAP net income(17) (100) 244  (300)
Non-cash income tax (benefit) expense(9,312) (8,600) 6,460  (174)
Non-GAAP net income (loss)$(10,142) $(6,961) $52,568  $44,926 
        
Per diluted share:       
Net income (loss) attributable to Blucora, Inc.$(1.30) $(0.27) $(1.08) $0.23 
Discontinued operations, net of income taxes0.97  (0.04) 1.37  (0.17)
Stock-based compensation0.08  0.08  0.25  0.23 
Amortization of acquired intangible assets0.21  0.25  0.60  0.73 
Accretion of debt discount on Convertible Senior Notes0.02  0.02  0.06  0.07 
Accelerated accretion of debt discount on Convertible Senior Notes    0.04   
Gain on Convertible Senior Notes repurchased     (0.18)  
Acquisition-related costs    0.01   
Impact of noncontrolling interests0.00    0.01   
Cash tax impact of adjustments to GAAP net income(0.00) (0.00) 0.01  (0.01)
Non-cash income tax (benefit) expense(0.22) (0.21) 0.15  (0.01)
Non-GAAP net income (loss)$(0.24) $(0.17) $1.24  $1.07 
Weighted average shares outstanding used in computing per diluted share amounts 41,635  40,950  42,329  41,911 


Preliminary Adjusted EBITDA Reconciliation for Forward-Looking Guidance
(Amounts in thousands)
 
 Ranges for the three months ending Ranges for the year ending
 December 31, 2016  December 31, 2016
Loss from continuing operations$(17,700) $(15,600) $(5,200) $(3,100)
Stock-based compensation3,400  3,300  14,000  13,900 
Depreciation and amortization of acquired intangible assets9,600  9,500  38,700  38,600 
Restructuring costs5,200  4,400  5,200  4,400 
Acquisition-related costs    400  400 
Other loss, net (3)9,800  9,500  39,700  39,400 
Income tax benefit(11,800) (10,300) (2,900) (1,400)
Adjusted EBITDA$(1,500) $800  $89,900  $92,200 


Preliminary Non-GAAP Income (Loss) from Continuing Operations Reconciliation for Forward-Looking Guidance
(Amounts in thousands)
 
 Ranges for the three months ending Ranges for the year ending
 December 31, 2016 December 31, 2016
Loss from continuing operations$(17,700) $(15,600) $(5,200)  $(3,100)
Stock-based compensation3,400  3,300  14,000  13,900 
Amortization of acquired intangible assets8,400  8,400  34,100  34,100 
Accretion of debt discount on Convertible Senior Notes900  900  3,700  3,700 
Accelerated accretion of debt discount on Convertible Senior Notes     1,600  1,600 
Gain on Convertible Senior Notes repurchased    (7,700) (7,700)
Restructuring costs5,200  4,400   5,200  4,400 
Acquisition-related costs    400  400 
Cash tax impact of adjustments to loss from continuing operations    200  200 
Non-cash income tax benefit(12,900) (11,100) (6,400) (4,600)
Non-GAAP income (loss) from continuing operations$(12,700) $(9,700)  $39,900  $42,900 
 

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

(1) We define Adjusted EBITDA differently for this report than we have defined it in the past, due to the impact of noncontrolling interests from the HD Vest acquisition that we began recognizing in the first quarter of 2016, the discontinued operations treatment of our Search and Content and E-Commerce businesses as determined in the fourth quarter of 2015, and acquisition-related costs in connection with the HD Vest and SimpleTax acquisitions that we would not have otherwise incurred as part of our business operations.  Acquisition-related costs include professional fees and other direct transaction costs and changes in the fair value of contingent consideration liabilities related to acquired companies.  The HD Vest acquisition closed in the fourth quarter of 2015 and resulted in significant transaction costs.  The SimpleTax acquisition included contingent consideration, for which the fair value of that liability was revalued in the second quarter of 2016.  We define Adjusted EBITDA as operating income (loss), determined in accordance with GAAP, excluding the effects of depreciation, amortization of acquired intangible assets (including acquired technology), stock-based compensation, and acquisition-related costs.

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 (loss).  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) differently for this report than we have defined it in the past, due to the impact of noncontrolling interests from the HD Vest acquisition that we began recognizing in the first quarter of 2016, the discontinued operations treatment of our Search and Content and E-Commerce businesses as determined in the fourth quarter of 2015, and acquisition-related costs in connection with the HD Vest and SimpleTax acquisitions that we would not have otherwise incurred as part of our business operations.  Acquisition-related costs are described further under the first paragraph in this note (1).  For this report, 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), accretion of debt discount and accelerated accretion of debt discount on the Convertible Senior Notes, gain on Convertible Senior Notes repurchased, acquisition-related costs, discontinued operations, the impact of noncontrolling interests, and the related cash tax impact of those adjustments, and non-cash income taxes.  We exclude the non-cash portion of income taxes because of our ability to offset a substantial portion of our cash tax liabilities by using deferred tax assets, which primarily consist of U.S. federal net operating losses.  The majority of these net operating losses will expire, if unutilized, between 2020 and 2024.

We believe that non-GAAP net income (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) 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).  Other companies may calculate non-GAAP net income differently, and, therefore, our non-GAAP net income 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, gain/loss on debt extinguishment and modification expense, and gain on third party bankruptcy settlement.

Blucora Contact:

Stacy Ybarra, 425-709-8127

stacy.ybarra@blucora.com

Source: Blucora, Inc.

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