February 16, 2017

Blucora Reports Fourth Quarter and Full Year 2016 Results

BELLEVUE, Wash., Feb. 16, 2017 (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 fourth quarter and full year ended December 31, 2016.

"Our business results exceeded our expectations in the fourth quarter," said John Clendening, President and Chief Executive Officer of Blucora.  "HD Vest was the primary driver, as segment income was up 13 percent versus last year.  We are pleased with the focus of our teams and the significant progress we made on our multi-stage business transformation."

2016 Highlights and Recent Developments

  • Exceeded $10 billion in fee-based assets under management, up 7 percent versus prior year
  • Increased Tax Preparation revenue and segment income by 18 percent and 17 percent, respectively, versus prior year
  • Repaid $172 million in debt, in part driven by the sales of Infospace and Monoprice
  • Strengthened leadership team with the appointment of Sanjay Baskaran as President of TaxAct and Bob Oros as HD Vest chief executive officer

Clendening added, "Looking ahead, we continue to build momentum at HD Vest and are strategically investing in technology and upgrading trading platforms to enhance our capabilities.  To enable long-term growth in Tax Preparation, we are in the early stages of re-establishing TaxAct as the challenger brand in the digital space, with a strong user experience at a superior value for customers.  Blucora now consists of HD Vest and TaxAct as our operational foundation, a simplified, streamlined and synergistic business.  With new leadership and an energized team, we are taking the steps necessary to deliver value for Blucora shareholders in 2017 and beyond."

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: Q4 and Full Year 2016
($ in millions except per share amounts)
            
 Q4 Q4   Full Year Full Year  
 2016 2015 Change 2016 2015 Change
 As reported Pro forma   As reported Pro forma  
Revenue$86.8  $85.0  2% $455.9  $437.4  4%
Wealth Management$83.0  $82.1  1% $316.5  $319.7  (1)%
Tax Preparation$3.8  $2.9  31% $139.4  $117.7   18%
Segment Income (Loss)$7.7  $7.7  % $113.2  $100.0  13%
Wealth Management$13.8  $12.2  13% $46.3  $43.0  8%
Tax Preparation$(6.1) $(4.5) 35% $66.9  $57.0  17%
Unallocated Corporate Operating Expenses$4.9  $4.3  15% $19.0  $17.8  7%
GAAP:           
Operating Income (Loss)$(14.2) $(12.0) 18% $37.1  $23.2   60%
Net Loss Attributable to Blucora, Inc.$(19.3) $(48.4) (60)% $(65.2) $(38.9) 68%
Diluted Net Loss Per Share Attributable to Blucora, Inc.$(0.46) $(1.18) (61)% $(1.53) $(0.93) 65%
Non-GAAP:           
Adjusted EBITDA$2.8  $3.5  (19)% $94.2  $82.2  15%
Net Income (Loss)$(7.5) $(8.0)  (6)% $45.1  $37.0  22%
Diluted Net Income (Loss) per Share$(0.18) $(0.19) (5)% $1.06  $0.88  20%
See reconciliation of as reported and pro forma non-GAAP to GAAP measures in tables below.

First Quarter Outlook

For the first quarter of 2017, the Company expects revenues to be between $176.3 million and $181.5 million, GAAP income from continuing operations to be between $14.5 million and $15.2 million, or $0.32 to $0.34 per diluted share, Adjusted EBITDA to be between $51.0 million and $54.5 million, and Non-GAAP income from continuing operations to be between $40.2 million and $43.9 million, or $0.90 to $0.98 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 fourth quarter and full year results, its outlook for the first quarter, tax season update and other business matters.  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
December 31,
    Years ended
December 31,
 
  2016   2015   2016   2015  
Revenue:                
Wealth management services revenue$83,050  $  $316,546  $ 
Tax preparation services revenue3,751  2,865  139,365  117,708 
Total revenue86,801  2,865  455,911  117,708 
Operating expenses:       
Cost of revenue:       
Wealth management services cost of revenue55,783    213,996    
Tax preparation services cost of revenue1,819  1,487  8,368  6,167 
Amortization of acquired technology47  1,910  812  7,546 
Total cost of revenue (1)57,649  3,397  223,176  13,713 
Engineering and technology (1)4,938  1,636  17,780  5,107 
Sales and marketing (1)13,645  3,030  89,360  45,854 
General and administrative (1)11,497  19,869  47,396  43,563 
Depreciation975  420  3,881  1,521 
Amortization of other acquired intangible assets8,402  3,191  33,331  12,757 
Restructuring (1)3,870    3,870   
Total operating expenses100,976  31,543  418,794  122,515 
Operating income (loss)(14,175) (28,678) 37,117  (4,807)
Other loss, net (2)(9,898) (3,433 ) (39,781) (12,542)
Loss from continuing operations before income taxes(24,073) (32,111) (2,664) (17,349)
Income tax benefit10,184  9,767  1,285  4,623 
Loss from continuing operations(13,889) (22,344 ) (1,379) (12,726)
Discontinued operations, net of income taxes (3)(5,140) (34,470) (63,121) (27,348)
Net loss(19,029) (56,814) (64,500) (40,074)
Net income attributable to noncontrolling interests(232)   (658)  
Net loss attributable to Blucora, Inc.$(19,261)  $(56,814) $(65,158) $(40,074)
Net loss per share attributable to Blucora, Inc. - basic:       
Continuing operations$(0.34) $(0.55) $(0.05) $(0.31)
Discontinued operations(0.12) (0.84) (1.52) (0.67)
Basic net loss per share$(0.46) $(1.39) $(1.57) $(0.98)
Net loss per share attributable to Blucora, Inc. - diluted:       
Continuing operations$(0.34) $(0.55) $(0.05) $(0.31)
Discontinued operations(0.12) (0.84) (1.52) (0.67)
Diluted net loss per share$(0.46) $(1.39) $(1.57) $(0.98)
Weighted average shares outstanding:       
Basic41,766  40,979  41,494  40,959 
Diluted41,766  40,979  41,494  40,959 


(1) Stock-based compensation expense was allocated among the following captions (in thousands):  
            
 Three months ended
December 31,

  Years ended
December 31,

 
 2016  2015  2016  2015 
Cost of revenue$      49  $  25  $      166  $  96 
Engineering and technology473  148  1,640  484 
Sales and marketing860  161  2,548  771 
General and administrative2,130  2,386  9,774  7,343 
Restructuring(364)   (364)  
Total stock-based compensation expense$3,148  $2,720  $13,764  $8,694 


(2) Other loss, net consisted of the following (in thousands):
 
             
 Three months ended
December 31,

  Years ended
December 31,

 
 2016   2015  2016  2015 
Interest income$      (27) $  (179)  $     (81) $  (609)
Interest expense7,028  2,211  32,424  9,044 
Amortization of debt issuance costs400  291  1,840  1,133 
Accretion of debt discounts1,091  993  4,690  3,866 
Loss on debt extinguishment and modification expense1,677  398  1,036  398 
Gain on third party bankruptcy settlement(44)  (62) (172) (1,128)
Other(227)  (219) 44  (162)
Other loss, net$9,898  $3,433  $39,781  $12,542 
 
(3) Discontinued operations included loss on sale of discontinued operations before income taxes of $73.8 million and goodwill and trade name impairments totaling $59.0 million for the years ended December 31, 2016 and 2015, respectively.


Blucora, Inc.
Preliminary Condensed Consolidated Balance Sheets
(Unaudited)
(Amounts in thousands)
    
 December 31,
 2016  2015
ASSETS   
Current assets:   
Cash and cash equivalents$51,713  $55,473 
Cash segregated under federal or other regulations2,355  3,557 
Available-for-sale investments7,101   11,301 
Accounts receivable, net of allowance10,209  7,884 
Commissions receivable16,144  16,328 
Other receivables4,004  24,407 
Prepaid expenses and other current assets, net6,321  10,062 
Current assets of discontinued operations  211,663 
Total current assets97,847  340,675  
Long-term assets:   
Property and equipment, net10,836  11,308 
Goodwill, net548,741  548,959 
Other intangible assets, net362,178  396,295 
Other long-term assets3,057  2,311 
Total long-term assets924,812  958,873 
Total assets$1,022,659  $1,299,548 
LIABILITIES AND STOCKHOLDERS' EQUITY   
Current liabilities:   
Accounts payable$4,536  $4,689 
Commissions and advisory fees payable16,587  16,982 
Accrued expenses and other current liabilities18,528  13,006 
Deferred revenue12,156  11,521 
Current portion of long-term debt, net2,560  31,631 
Current liabilities of discontinued operations  88,275 
Total current liabilities54,367  166,104 
Long-term liabilities:    
Long-term debt, net248,221  353,850 
Convertible senior notes, net164,176  185,918 
Deferred tax liability, net111,126  103,520 
Deferred revenue1,849  1,902 
Other long-term liabilities10,205  10,932 
Total long-term liabilities535,577  656,122 
Total liabilities589,944  822,226 
    
Redeemable noncontrolling interests15,696  15,038 
    
Stockholders' equity:   
Common stock4  4 
Additional paid-in capital1,510,152  1,490,405 
Accumulated deficit(1,092,756) (1,027,598)
Accumulated other comprehensive loss(381) (527)
Total stockholders' equity 417,019  462,284 
Total liabilities and stockholders' equity$1,022,659  $1,299,548 


Blucora, Inc. 
Preliminary Condensed Consolidated Statements of Cash Flows 
(Unaudited) 
(Amounts in thousands) 
        
  Years ended
December 31,
 
  2016   2015 
Operating Activities:       
Net loss$(64,500) $(40,074)
Less: Discontinued operations, net of income taxes(63,121) (27,348)
Net loss from continuing operations(1,379) (12,726)
Adjustments to reconcile net loss from continuing operations to net cash from operating activities:   
Stock-based compensation13,764  8,694 
Depreciation and amortization of acquired intangible assets 38,688  22,590 
Excess tax benefits from stock-based award activity(15,957) (7,967)
Deferred income taxes(18,055) (12,607)
Amortization of premium on investments, net174  1,589 
Amortization of debt issuance costs1,840  1,133 
Accretion of debt discounts4,690  3,866 
Loss on debt extinguishment and modification expense1,036  398 
Revaluation of acquisition-related contingent consideration liability391   
Other19  203 
Cash provided (used) by changes in operating assets and liabilities:   
Cash segregated under federal or other regulations1,202   
Accounts receivable(2,340) (1,862)
Commissions receivable184   
Other receivables22,875  651 
Prepaid expenses and other current assets3,741  (493)
Other long-term assets(887) (15)
Accounts payable(153) 369 
Commissions and advisory fees payable(395)  
Deferred revenue582  1,875 
Accrued expenses and other current and long-term liabilities21,195  10,643 
Net cash provided by operating activities from continuing operations71,215  16,341 
Investing Activities:   
Business acquisitions, net of cash acquired(1,788) (573,366)
Purchases of property and equipment(3,812) (1,512)
Change in restricted cash  150 
Proceeds from sales of investments  156,506 
Proceeds from maturities of investments12,807  296,455 
Purchases of investments(8,767) (214,257)
Net cash used by investing activities from continuing operations(1,560) (336,024)
Financing Activities:   
Proceeds from credit facility, net of debt issuance costs and debt discount of $9,730 and $12,000 in 2015  378,270 
Repurchase of convertible notes(20,667)  
Repayment of credit facility(140,000) (51,940)
Repayment of note payable with related party(3,200)  
Stock repurchases  (7,735)
Excess tax benefits from stock-based award activity15,957  7,967 
Proceeds from stock option exercises2,216   2,409 
Proceeds from issuance of stock through employee stock purchase plan1,402  1,193 
Tax payments from shares withheld for equity awards(1,752)  (1,545)
Net cash provided (used) by financing activities from continuing operations(146,044) 328,619 
Net cash provided (used) by continuing operations(76,389) 8,936 
    
Net cash provided by operating activities from discontinued operations14,047  14,108 
Net cash provided (used) by investing activities from discontinued operations83,608  (540)
Net cash provided (used) by financing activities from discontinued operations(25,000) (8,982)
Net cash provided by discontinued operations72,655  4,586 
    
Effect of exchange rate changes on cash and cash equivalents(26) (17)
Net increase (decrease) in cash and cash equivalents(3,760) 13,505 
Cash and cash equivalents, beginning of period55,473  41,968 
Cash and cash equivalents, end of period$51,713  $55,473 


Blucora, Inc. 
Preliminary Segment Information 
(Unaudited)  
(Amounts in thousands) 
                
  Three months ended
December 31,
    Years ended
December 31,
 
  2016   2015   2016   2015 
Revenue:               
Wealth Management (1)$83,050  $  $316,546  $ 
Tax Preparation (1)3,751  2,865  139,365  117,708 
Total revenue86,801  2,865  455,911   117,708 
Operating income (loss):       
Wealth Management13,838    46,296   
Tax Preparation(6,090) (4,509) 66,897  56,984 
Corporate-level activity (2)(21,923) (24,169) (76,076) (61,791)
Total operating income (loss)(14,175) (28,678) 37,117  (4,807)
Other loss, net(9,898) (3,433) (39,781) (12,542)
Income tax benefit10,184  9,767  1,285  4,623 
Discontinued operations, net of income taxes(5,140) (34,470) (63,121) (27,348)
Net loss$(19,029) $(56,814)  $(64,500) $(40,074)


(1) Revenues by major category within each segment are presented below (in thousands): 
                
 Three months ended
December 31,
  Years ended
December 31,
 
  2016   2015   2016   2015 
Wealth Management:               
Commission$39,055  $  $150,125  $ 
Advisory33,658    129,417   
Asset-based5,964    22,653   
Transaction and fee4,373    14,351   
Total Wealth Management revenue$83,050    $316,546   
Tax Preparation:       
Consumer$3,611  $2,715  $126,289  $105,367 
Professional140  150  13,076  12,341 
Total Tax Preparation revenue$3,751  $2,865  $139,365  $117,708 


            
(2) Corporate-level activity included the following (in thousands): 
            
 Three months ended
December 31,
  Years ended
December 31,
 
 2016  2015  2016  2015 
Operating expenses$      4,933  $  4,279  $       18,999  $
  17,750 
Stock-based compensation3,512  2,720  14,128  8,694 
Acquisition-related costs  9,674  391  10,988 
CEO separation-related costs  1,769    1,769 
Depreciation1,159  626  4,545  2,287 
Amortization of acquired intangible assets8,449  5,101  34,143  20,303 
Restructuring3,870     3,870   
Total corporate-level activity$21,923  $24,169  $76,076  $61,791 


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
December 31,
  Years ended
December 31,
 
 2016  2015  2016  2015 
Operating income (loss) (2)$      (14,175) $  (28,678)  $      37,117  $  (4,807)
Stock-based compensation3,512  2,720  14,128  8,694 
Depreciation and amortization of acquired intangible assets9,608  5,727  38,688  22,590 
Acquisition-related costs  9,674  391  10,988 
CEO separation-related costs  1,769    1,769 
Restructuring3,870    3,870   
Adjusted EBITDA$2,815  $(8,788) $94,194  $39,234 


Preliminary Non-GAAP Net Income (Loss) Reconciliation (1) 
(Unaudited) 
(Amounts in thousands, except per share amounts) 
            
 Three months ended
December 31,
  Years ended
December 31,
 
 2016  2015  2016  2015 
Net loss attributable to Blucora, Inc.(2)$      (19,261) $  (56,814) $      (65,158) $  (40,074)
Discontinued operations, net of income taxes5,140  34,470  63,121  27,348 
Stock-based compensation3,512  2,720  14,128  8,694 
Amortization of acquired intangible assets8,449  5,101  34,143   20,303 
Accretion of debt discount on Convertible Senior Notes917  993  3,666  3,866 
Accelerated accretion of debt discount on Convertible Senior Notes    1,628   
Gain on Convertible Senior Notes repurchased    (7,724)  
Write-off of debt issuance costs on closed TaxAct 2013 credit facility  398    398 
Acquisition-related costs  9,674  391  10,988 
CEO separation-related costs  1,769    1,769 
Restructuring3,870    3,870   
Impact of noncontrolling interests232    658   
Cash tax impact of adjustments to GAAP net income(69) 61  175  (236)
Non-cash income tax benefit (1)(10,262) (9,827) (3,802) (4,857)
Non-GAAP net income (loss)$(7,472) $(11,455) $45,096  $28,199 
        
Per diluted share:       
Net loss attributable to Blucora, Inc.(2)$(0.46) $(1.39) $(1.53) $(0.96)
Discontinued operations, net of income taxes0.12  0.84  1.48  0.66 
Stock-based compensation0.08  0.07  0.33  0.21 
Amortization of acquired intangible assets0.21  0.13  0.80  0.49 
Accretion of debt discount on Convertible Senior Notes0.02  0.02  0.09  0.09 
Accelerated accretion of debt discount on Convertible Senior Notes    0.04   
Gain on Convertible Senior Notes repurchased    (0.18)  
Write-off of debt issuance costs on closed TaxAct 2013 credit facility  0.01    0.01 
Acquisition-related costs  0.24  0.01  0.26 
CEO separation-related costs  0.04    0.04 
Restructuring0.09    0.09   
Impact of noncontrolling interests0.01    0.02   
Cash tax impact of adjustments to GAAP net income(0.00) 0.00  0.00  (0.01)
Non-cash income tax benefit(0.25) (0.24) (0.09) (0.12)
Non-GAAP net income (loss)$(0.18) $(0.28) $1.06  $0.67 
Weighted average shares outstanding used in computing per diluted share amounts41,766  40,979  42,686  41,861 


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
December 31,
  Years ended
December 31,
 
 2016  2015  2016  2015 
 As reported  Pro forma  As reported  Pro forma 
Operating income (loss)$      (14,175) $  (11,983) $      37,117  $  23,176 
Stock-based compensation3,512  4,034  14,128  13,591 
Depreciation and amortization of acquired intangible assets9,608  11,406  38,688  45,464 
Acquisition-related costs    391   
Restructuring3,870     3,870   
Adjusted EBITDA$2,815  $3,457  $94,194  $82,231 


Preliminary Non-GAAP Net Income (Loss) Reconciliation (As Reported and Pro Forma) (1) 
(Unaudited) 
(Amounts in thousands, except per share amounts) 
            
 Three months ended
December 31,
  Years ended
December 31,
 
 2016  2015  2016  2015 
 As reported  Pro forma  As reported  Pro forma 
Net loss attributable to Blucora, Inc.$      (19,261) $  (48,363) $      (65,158) $  (38,884)
Discontinued operations, net of income taxes5,140  34,470  63,121  27,348 
Stock-based compensation3,512  4,034  14,128  13,591 
Amortization of acquired intangible assets8,449  10,238  34,143  40,851 
Accretion of debt discount on Convertible Senior Notes917  993  3,666  3,866 
Accelerated accretion of debt discount on Convertible Senior Notes    1,628   
Gain on Convertible Senior Notes repurchased     (7,724)   
Acquisition-related costs    391   
Restructuring3,870    3,870   
Impact of noncontrolling interests232    658   
Cash tax impact of adjustments to GAAP net income(69) (100) 175  (400)
Non-cash income tax benefit(10,262) (9,248) (3,802) (9,422)
Non-GAAP net income (loss)$(7,472) $(7,976) $45,096  $36,950 
        
Per diluted share:       
Net loss attributable to Blucora, Inc.$(0.46) $(1.18) $(1.53 ) $(0.93)
Discontinued operations, net of income taxes0.12  0.84  1.48  $0.65 
Stock-based compensation0.08  0.10  0.33  $0.32 
Amortization of acquired intangible assets0.21  0.25  0.80  $0.98 
Accretion of debt discount on Convertible Senior Notes0.02  0.02  0.09  $0.09 
Accelerated accretion of debt discount on Convertible Senior Notes    0.04  $ 
Gain on Convertible Senior Notes repurchased    (0.18) $ 
Acquisition-related costs    0.01  $ 
Restructuring0.09    0.09  $ 
Impact of noncontrolling interests0.01    0.02  $ 
Cash tax impact of adjustments to GAAP net income(0.00) (0.00) 0.00  $(0.01)
Non-cash income tax benefit(0.25) (0.22) (0.09) $(0.22)
Non-GAAP net income (loss)$(0.18) $(0.19) $1.06  $0.88 
Weighted average shares outstanding used
in computing per diluted share amounts
41,766  40,979  42,686  41,861 


Preliminary Adjusted EBITDA Reconciliation for Forward-Looking Guidance 
(Amounts in thousands) 
      
 Ranges for the three months ending 
 March 31, 2017 
Income from continuing operations$      14,500  $ 15,200 
Stock-based compensation3,200  3,100 
Depreciation and amortization of acquired intangible assets9,800  9,600 
Restructuring700  600 
Other loss, net (3)9,400  9,500 
Income tax expense13,400  16,500 
Adjusted EBITDA$51,000  $54,500 


Preliminary Non-GAAP Income from Continuing Operations Reconciliation for Forward-Looking Guidance 
(Amounts in thousands)  
      
 Ranges for the three months ending 
 March 31, 2017 
Income from continuing operations$      14,500  $  15,200 
Stock-based compensation3,200  3,100 
Amortization of acquired intangible assets8,500  8,400 
Accretion of debt discount on Convertible Senior Notes900  900 
Restructuring700  600 
Non-cash income tax expense12,400  15,700 
Non-GAAP income from continuing operations$40,200  $43,900 

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: (i) restructuring costs related to the upcoming move of our corporate headquarters which was announced in the fourth quarter of 2016, (ii) the impact of noncontrolling interests from the HD Vest acquisition that we began recognizing in the first quarter of 2016, (iii) the discontinued operations treatment of our Search and Content and E-Commerce businesses as determined in the fourth quarter of 2015, (iv) separation-related costs in connection with the departure of our former chief executive office which was announced in the fourth quarter of 2015, and (v) 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 services 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, acquisition-related costs, CEO separation-related costs, and restructuring 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 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 differently for this report than we have defined it in the past, due to: (i) restructuring costs related to the upcoming move of our corporate headquarters which was announced in the fourth quarter of 2016, (ii) the impact of noncontrolling interests from the HD Vest acquisition that we began recognizing in the first quarter of 2016, (iii) the discontinued operations treatment of our Search and Content and E-Commerce businesses as determined in the fourth quarter of 2015, (iv) separation-related costs in connection with the departure of our former chief executive office which was announced in the fourth quarter of 2015, and (v) 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 as net loss attributable to Blucora, Inc., determined in accordance with GAAP, excluding the effects of discontinued operations, 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, write-off of debt issuance costs on closed TaxAct 2013 credit facility, acquisition-related costs, CEO separation-related costs, restructuring costs, 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 and non-GAAP net income per share provide meaningful supplemental information to management, investors, and analysts regarding our performance and the valuation of our business by excluding items in the statement of operations that we do not consider part of our ongoing operations or have not been, or are not expected to be, settled in cash.  Additionally, we believe that non-GAAP net income and non-GAAP net income per share are common measures used by investors and analysts to evaluate our performance and the valuation of our business.  Non-GAAP net income 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 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).  Any difference in "per diluted share" between the Preliminary Condensed Consolidated Statements of Operations (unaudited) and non-GAAP table is due to using different weighted average shares outstanding in the event that there is GAAP net loss but non-GAAP net income and vice versa.

(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

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Source: Blucora, Inc.

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