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Blucora Announces Second Quarter 2017 Results

IRVING, Texas, July 27, 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 second quarter ended June 30, 2017.

Second Quarter Highlights and Recent Developments

  • Increased revenue and operating income by 16% and 34%, respectively, year-over-year
  • HD Vest achieved record levels in AUA of $41.4 billion and AUM of $11.6 billion
  • Grew TaxAct revenue and segment income by 16% for the six months ending June 30, 2017 vs. prior-year period
  • Achieved 2.7x net leverage ratio following successful refinancing and $35 million in net debt reduction
  • Executed agreement with new clearing partner at HD Vest

“Blucora continued its positive momentum in the second quarter, with strong double-digit growth in revenue and segment income across both businesses, and achieved its stated net leverage goal,” said John Clendening, Blucora’s President and Chief Executive Officer. “HD Vest set new records in several categories, including total assets under administration (AUA), fee-based assets under management (AUM) and AUM as a percentage of AUA. TaxAct completed a strong tax season, as expected, and has turned its attention to enhancing its competitive positioning for next season.”

"In addition to our strong performance in the second quarter, I am pleased to announce today that HD Vest has selected Fidelity Clearing & Custody Solutions as its new clearing provider. We believe this relationship, which is expected to go into effect in mid-2018, will provide new capabilities, enable a better advisor experience, and allow us to capture significant financial benefits over the long-term.”

Summary Financial Performance: Q2 2017
($ in millions except per share amounts)
Q2 Q2
2017 2016 Change
Revenue$139.2 $120.1 16%
Wealth Management$85.3 $76.1 12%
Tax Preparation$53.9 $44.0 22%
Segment Income$48.9 $39.7 23%
Wealth Management$12.4 $9.9 25%
Tax Preparation$36.5 $29.8 23%
Unallocated Corporate Operating Expenses$(6.5) $(4.5) 45%
GAAP:
Operating Income$30.0 $22.4 34%
Net Income (Loss) Attributable to Blucora, Inc.$3.3 $(14.4) 123%
Diluted Net Income (Loss) Per Share Attributable to Blucora, Inc. (EPS) $0.07 $(0.34) 121%
Non-GAAP:
Adjusted EBITDA$42.5 $35.3 20%
Net Income$32.9 $23.4 41%
Diluted Net Income Per Share (EPS)$0.70 $0.55 27%
See reconciliations of all non-GAAP to GAAP measures presented in this release in the tables below.

Third Quarter and Full Year 2017 Outlook

For the third quarter of 2017, the Company expects revenues to be between $88.8 million and $91.3 million, GAAP net loss attributable to Blucora, Inc. to be between $18.7 million and $14.8 million, or $(0.42) to $(0.33) per diluted share, Adjusted EBITDA to be between $(2.9) million and $0.9 million, and Non-GAAP net loss to be between $10.9 million and $6.3 million, or $(0.24) to $(0.14) per diluted share.

For the full year 2017, the Company expects revenues to be between $500.0 million and $506.5 million, GAAP net income (loss) attributable to Blucora, Inc. to be between $(3.8) million and $4.6 million, or $(0.09) to $0.10 per diluted share, Adjusted EBITDA to be between $94.1 million and $102.3 million, and Non-GAAP net income to be between $58.7 million and $67.8 million, or $1.25 to $1.45 per diluted share.

The third quarter and fiscal 2017 outlook for GAAP net income or loss attributable to Blucora assumes an estimated tax rate of approximately 15%. Our actual tax rate may differ significantly from this estimated tax rate due to our projected near break even pre-tax income, and the adoption of Accounting Standards Update No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Accounting (“ASU 2016-09”). In addition, our GAAP net income or loss attributable to Blucora outlook excludes any impact to tax expense for discrete items, which are affected by ASU 2016-09, and variable stock-based compensation related to grants to non-employee advisors, and including these items in our actual results when they occur may cause our actual results to differ significantly from the outlook provided.

Conference Call and Webcast

A conference call and live webcast will be held today at 8:30 a.m. Eastern Time during which the Company will further discuss second quarter results, its outlook for the third quarter and full year 2017 and other business matters. We will also provide the prepared remarks for the conference call along with supplemental financial information to our results on the Investor Relations section of the Blucora corporate website at http://www.blucora.com prior to the call. The supplemental financial information has also been filed with the SEC on Form 8-K. A replay of the call 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, respectively, 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 release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Actual results may differ significantly from management’s expectations due to various risks and uncertainties including, but not limited to: risks associated with the Company’s strategic transformation and the successful execution of its strategic initiatives, operating plans and marketing strategies; general economic, political, industry, and market conditions; the Company’s ability to attract and retain productive advisors; the Company’s ability to successfully make technology enhancements and introduce new products and services; information technology and cybersecurity risks; the effect of current, pending and future legislation, regulation and regulatory actions, such as the new Department of Labor rule and any changes in tax laws; dependence on third parties to distribute products and services; litigation risks; the Company’s ability to hire, retain and motivate key employees; the Company’s ability to protect its intellectual property; and financing risks, including risks related to the Company’s existing debt obligations. A more detailed description of these and certain other factors that could affect actual results is included in the Company’s filings with the Securities and Exchange Commission. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this release. The Company undertakes no obligation to update any forward-looking statements to reflect events or circumstances after the date of this release.

Blucora, Inc.
Preliminary Condensed Consolidated Statements of Operations
(Unaudited)
(Amounts in thousands, except per share data)
Three months ended June 30, Six months ended June 30,
2017 2016 2017 2016
Revenue:
Wealth management services revenue$85,296 $76,117 $167,963 $153,408
Tax preparation services revenue53,866 43,991 153,574 132,465
Total revenue139,162 120,108 321,537 285,873
Operating expenses:
Cost of revenue:
Wealth management services cost of revenue56,963 51,023 112,837 103,292
Tax preparation services cost of revenue2,411 2,023 6,229 5,230
Amortization of acquired technology47 49 95 716
Total cost of revenue (1)59,421 53,095 119,161 109,238
Engineering and technology (1)4,242 3,959 8,990 8,254
Sales and marketing (1)22,296 19,913 71,294 63,750
General and administrative (1)13,715 11,508 27,198 24,261
Depreciation873 963 1,813 1,938
Amortization of other acquired intangible assets8,289 8,316 16,577 16,632
Restructuring (1)331 2,620
Total operating expenses109,167 97,754 247,653 224,073
Operating income29,995 22,354 73,884 61,800
Other loss, net (2)(24,200) (10,916) (33,908) (18,430)
Income from continuing operations before income taxes5,795 11,438 39,976 43,370
Income tax expense(2,315) (5,793) (5,786) (17,436)
Income from continuing operations3,480 5,645 34,190 25,934
Discontinued operations, net of income taxes (19,975) (17,453)
Net income (loss)3,480 (14,330) 34,190 8,481
Net income attributable to noncontrolling interests(176) (115) (302) (259)
Net income (loss) attributable to Blucora, Inc.$3,304 $(14,445) $33,888 $8,222
Net income (loss) per share attributable to Blucora, Inc. - basic:
Continuing operations$0.08 $0.13 $0.79 $0.62
Discontinued operations (0.48) (0.42)
Basic net income (loss) per share$0.08 $(0.35) $0.79 $0.20
Net income (loss) per share attributable to Blucora, Inc. - diluted:
Continuing operations$0.07 $0.13 $0.73 $0.61
Discontinued operations (0.47) (0.41)
Diluted net income (loss) per share$0.07 $(0.34) $0.73 $0.20
Weighted average shares outstanding:
Basic43,644 41,405 42,895 41,288
Diluted46,937 42,298 46,182 41,954

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

Three months ended June 30, Six months ended June 30,
2017 2016 2017 2016
Cost of revenue$88 $23 $134 $65
Engineering and technology224 322 509 733
Sales and marketing581 426 1,272 1,027
General and administrative1,844 2,252 3,387 5,427
Restructuring538 981
Total stock-based compensation expense $3,275 $3,023 $6,283 $7,252

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

Three months ended June 30, Six months ended June 30,
2017 2016 2017 2016
Interest income$(25) $(11) $(45) $(36)
Interest expense5,529 8,381 11,965 17,572
Amortization of debt issuance costs 327 417 714 1,027
Accretion of debt discounts755 1,094 1,840 2,500
(Gain) loss on debt extinguishment17,801 997 19,581 (2,846)
Other(187) 38 (147) 213
Other loss, net$24,200 $10,916 $33,908 $18,430


Blucora, Inc.
Preliminary Condensed Consolidated Balance Sheets
(Unaudited)
(Amounts in thousands)
June 30,
2017
December 31,
2016
ASSETS
Current assets:
Cash and cash equivalents$78,312 $51,713
Cash segregated under federal or other regulations 799 2,355
Available-for-sale investments 7,101
Accounts receivable, net of allowance7,254 10,209
Commissions receivable15,563 16,144
Other receivables432 4,004
Prepaid expenses and other current assets, net7,041 6,321
Total current assets109,401 97,847
Long-term assets:
Property and equipment, net8,677 10,836
Goodwill, net548,890 548,741
Other intangible assets, net345,521 362,178
Other long-term assets2,677 3,057
Total long-term assets905,765 924,812
Total assets$1,015,166 $1,022,659
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable$3,741 $4,536
Commissions and advisory fees payable16,143 16,587
Accrued expenses and other current liabilities21,484 18,528
Deferred revenue4,753 12,156
Current portion of long-term debt, net2,560 2,560
Total current liabilities48,681 54,367
Long-term liabilities:
Long-term debt, net353,848 248,221
Convertible senior notes, net 164,176
Deferred tax liability, net58,905 111,126
Deferred revenue759 1,849
Other long-term liabilities8,628 10,205
Total long-term liabilities422,140 535,577
Total liabilities470,821 589,944
Redeemable noncontrolling interests15,998 15,696
Stockholders’ equity:
Common stock4 4
Additional paid-in capital1,535,858 1,510,152
Accumulated deficit(1,007,325) (1,092,756)
Accumulated other comprehensive loss(190) (381)
Total stockholders’ equity528,347 417,019
Total liabilities and stockholders’ equity$1,015,166 $1,022,659


Blucora, Inc.
Preliminary Condensed Consolidated Statements of Cash Flows
(Unaudited)
(Amounts in thousands)
Six months ended June 30,
2017 2016
Operating Activities:
Net income$34,190 $8,481
Less: Discontinued operations, net of income taxes (17,453)
Net income from continuing operations34,190 25,934
Adjustments to reconcile net income from continuing operations to net cash from operating activities:
Stock-based compensation5,302 7,252
Depreciation and amortization of acquired intangible assets18,865 19,597
Restructuring (non-cash)1,402
Deferred income taxes(681) (8,806)
Amortization of premium on investments, net10 155
Amortization of debt issuance costs714 1,027
Accretion of debt discounts1,840 2,500
(Gain) loss on debt extinguishment19,581 (2,846)
Revaluation of acquisition-related contingent consideration liability 391
Other 13
Cash provided (used) by changes in operating assets and liabilities:
Accounts receivable2,956 1,395
Commissions receivable581 1,520
Other receivables2,544 19,460
Prepaid expenses and other current assets(545) 4,870
Other long-term assets341 95
Accounts payable(795) (1,491)
Commissions and advisory fees payable(444) (1,980)
Deferred revenue(8,493) (4,257)
Accrued expenses and other current and long-term liabilities3,768 26,057
Net cash provided by operating activities from continuing operations81,136 90,886
Investing Activities:
Business acquisition, net of cash acquired (1,788)
Purchases of property and equipment(1,911) (1,528)
Proceeds from sales of investments249
Proceeds from maturities of investments7,252 4,000
Purchases of investments(409) (659)
Net cash provided by investing activities from continuing operations5,181 25
Financing Activities:
Proceeds from credit facility367,212
Payments on convertible notes(172,827) (20,667)
Payments on credit facility(275,000) (60,000)
Proceeds from stock option exercises23,996 1,142
Proceeds from issuance of stock through employee stock purchase plan662 562
Tax payments from shares withheld for equity awards(5,267) (901)
Contingent consideration payments for business acquisition(946)
Net cash used by financing activities from continuing operations(62,170) (79,864)
Net cash provided by continuing operations24,147 11,047
Net cash provided by operating activities from discontinued operations 14,198
Net cash provided (used) by investing activities from discontinued operations1,028 (970)
Net cash used by financing activities from discontinued operations (7,000)
Net cash provided by discontinued operations1,028 6,228
Effect of exchange rate changes on cash, cash equivalents, and restricted cash43 (7)
Net increase in cash, cash equivalents, and restricted cash25,218 17,268
Cash, cash equivalents, and restricted cash, beginning of period54,868 59,830
Cash, cash equivalents, and restricted cash, end of period$80,086 $77,098


Blucora, Inc.
Preliminary Segment Information
(Unaudited)
(Amounts in thousands)
Three months ended June 30, Six months ended June 30,
2017 2016 2017 2016
Revenue:
Wealth Management (1)$85,296 $76,117 $167,963 $153,408
Tax Preparation (1)53,866 43,991 153,574 132,465
Total revenue139,162 120,108 321,537 285,873
Operating income:
Wealth Management12,406 9,924 24,259 20,830
Tax Preparation36,515 29,796 89,648 77,369
Corporate-level activity (2)(18,926) (17,366) (40,023) (36,399)
Total operating income29,995 22,354 73,884 61,800
Other loss, net(24,200) (10,916) (33,908) (18,430)
Income tax expense(2,315) (5,793) (5,786) (17,436)
Discontinued operations, net of income taxes (19,975) (17,453)
Net income (loss)$3,480 $(14,330) $34,190 $8,481

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

Three months ended June 30, Six months ended June 30,
2017 2016 2017 2016
Wealth Management:
Commission$38,154 $35,252 $77,749 $72,108
Advisory35,914 31,522 $69,490 63,054
Asset-based6,784 5,395 $12,750 11,213
Transaction and fee4,444 3,948 $7,974 7,033
Total Wealth Management revenue $85,296 $76,117 $167,963 $153,408
Tax Preparation:
Consumer$51,848 $42,257 $140,090 $119,728
Professional2,018 1,734 13,484 12,737
Total Tax Preparation revenue$53,866 $43,991 $153,574 $132,465

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

Three months ended June 30, Six months ended June 30,
2017 2016 2017 2016
Operating expenses$6,463 $4,460 $13,236 $9,159
Stock-based compensation2,737 3,023 5,302 7,252
Acquisition-related costs 391 391
Depreciation1,059 1,127 2,193 2,249
Amortization of acquired intangible assets 8,336 8,365 16,672 17,348
Restructuring331 2,620
Total corporate-level activity$18,926 $17,366 $40,023 $36,399


Blucora, Inc.
Reconciliations of Non-GAAP Financial Measures to the Nearest Comparable GAAP Measures
Preliminary Adjusted EBITDA Reconciliation (1)
(Unaudited)
(Amounts in thousands)
(In thousands)Three months ended June 30, Six months ended June 30,
2017 2016 2017 2016
Net income (loss) attributable to Blucora, Inc.(2)
$3,304 $(14,445) $33,888 $8,222
Stock-based compensation2,737 3,023 5,302 7,252
Depreciation and amortization of acquired intangible assets 9,395 9,492 18,865 19,597
Restructuring331 2,620
Other loss, net (3)24,200 10,916 33,908 18,430
Net income attributable to noncontrolling interests176 115 302 259
Income tax expense2,315 5,793 5,786 17,436
Discontinued operations, net of income taxes 19,975 17,453
Acquisition-related costs 391 391
Adjusted EBITDA$42,458 $35,260 $100,671 $89,040



Preliminary Non-GAAP Net Income Reconciliation (1)
(Unaudited)
(Amounts in thousands, except per share amounts)
Three months ended June 30, Six months ended June 30,
2017 2016 2017 2016
Net income (loss) attributable to Blucora, Inc.(2)$3,304 $(14,445) $33,888 $8,481
Discontinued operations, net of income taxes 19,975 17,453
Stock-based compensation2,737 3,023 5,302 7,252
Amortization of acquired intangible assets8,336 8,365 16,672 17,348
Accretion of debt discount on Convertible Senior Notes633 885 1,567 1,848
Accelerated accretion of debt discount on Convertible Senior Notes repurchased 1,628
Gain on Convertible Senior Notes repurchased (7,724)
Write-off of debt discount and debt issuance costs on terminated Convertible Senior Notes6,715 6,715
Write-off of debt discount and debt issuance costs on closed TaxAct - HD Vest 2015 credit facility 9,593 9,593
Acquisition-related costs 391 391
Restructuring331 2,620
Impact of noncontrolling interests176 115 302 259
Cash tax impact of adjustments to GAAP net income(1,819) (78) (2,406) 261
Non-cash income tax expense (1)2,941 5,193 6,101 15,772
Non-GAAP net income$32,947 $23,424 $80,354 $62,710
Per diluted share:
Net income (loss) attributable to Blucora, Inc.$0.07 $(0.34) $0.73 $0.20
Discontinued operations, net of income taxes 0.47 0.41
Stock-based compensation0.06 0.07 0.11 0.17
Amortization of acquired intangible assets0.19 0.20 0.36 0.40
Accretion of debt discount on Convertible Senior Notes0.01 0.02 0.03 0.04
Accelerated accretion of debt discount on Convertible Senior Notes repurchased 0.04
Gain on Convertible Senior Notes repurchased (0.18)
Write-off of debt discount and debt issuance costs on terminated Convertible Senior Notes0.14 0.15
Write-off of debt discount and debt issuance costs on closed TaxAct - HD Vest 2015 credit facility0.20 0.21
Acquisition-related costs 0.01 0.01
Restructuring0.01 0.06
Impact of noncontrolling interests0.00 0.00 0.01 0.01
Cash tax impact of adjustments to GAAP net income(0.04) (0.00) (0.05) 0.01
Non-cash income tax expense0.06 0.12 0.13 0.38
Non-GAAP net income$0.70 $0.55 $1.74 $1.49
Weighted average shares outstanding used in computing per diluted share amounts46,937 42,298 46,182 41,954


Preliminary Adjusted EBITDA Reconciliation for Forward-Looking Guidance
(Amounts in thousands)
Ranges for the three months ending Ranges for the year ending
September 30, 2017 December 31, 2017
Low High Low High
Net income (loss) attributable to Blucora, Inc.$(18,700) $(14,800) $(3,800) $4,600
Stock-based compensation3,400 3,300 12,100 11,900
Depreciation and amortization of acquired intangible assets 9,400 9,400 37,700 37,700
Restructuring200 100 3,000 2,800
Other loss, net (3)5,300 4,900 44,600 43,800
Impact of noncontrolling interests200 200 400 700
Income tax (benefit) expense(2,700) (2,200) 100 800
Adjusted EBITDA$(2,900) $900 $94,100 $102,300


Preliminary Non-GAAP Net Income (Loss) Reconciliation for Forward-Looking Guidance
(Amounts in thousands)
Ranges for the three months ending Ranges for the year ending
September 30, 2017 December 31, 2017
Low High Low High
Net income (loss) attributable to Blucora, Inc.$(18,700) $(14,800) $(3,800) $4,600
Stock-based compensation3,400 3,300 12,100 11,900
Amortization of acquired intangible assets8,300 8,300 33,300 33,300
Accretion of debt discount on Convertible Senior Notes 1,400 1,400
Loss on debt extinguishment 16,500 16,400
Restructuring200 100 3,000 2,800
Impact of noncontrolling interests200 200 400 700
Cash tax impact of adjustments to net income (loss)(300) (200) (2,400) (2,400)
Non-cash income tax benefit(4,000) (3,200) (1,800) (900)
Non-GAAP net income (loss)$(10,900) $(6,300) $58,700 $67,800


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

(1) We define Adjusted EBITDA as net income (loss) attributable to Blucora, Inc., determined in accordance with GAAP, excluding the effects of stock-based compensation, depreciation, amortization of acquired intangible assets (including acquired technology), restructuring, other loss, net, the impact of noncontrolling interests, income tax expense, the effects of discontinued operations, and acquisition-related costs. Restructuring costs relate to the move of our corporate headquarters, which was announced in the fourth quarter of 2016. 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 SimpleTax acquisition that was completed in 2015 included contingent consideration, for which the fair value of that liability was revalued in the second quarter of 2016.

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 as net income (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 (the "Notes"), gain on the Notes repurchased, write-off of debt discount and debt issuance costs on the Notes that were redeemed and the terminated TaxAct - HD Vest 2015 credit facility, acquisition-related costs (described further under Adjusted EBITDA above), restructuring costs (described further under Adjusted EBITDA above), the impact of noncontrolling interests, the related cash tax impact of those adjustments, and non-cash income taxes. The write-off of debt discount and debt issuance costs on the terminated Notes and the closed TaxAct - HD Vest 2015 credit facility relates to the debt refinancing that occurred in the second quarter of 2017. 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 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, and gain/loss on debt extinguishment.

Blucora Contact: Bill Michalek (972) 870-6463 VP, Investor Relations

Source:Blucora, Inc.