Blucora Announces First Quarter 2017 Results and Preliminary Tax Season Results

May 4, 2017

BELLEVUE, Wash., May 04, 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 first quarter ended March 31, 2017.

First Quarter Highlights and Recent Developments

  • TaxAct revenue and segment income expected to grow approximately 15 and 14 percent respectively for the six months through June 30, 2017 compared to the same period last year
  • HD Vest exceeded $11 billion in fee-based assets under management, up 16 percent versus prior year
  • Repaid $38 million in debt and exited the quarter with a 3.3x leverage ratio down from 5.2x in the same period last year
  • Expect to close new credit facility in May 2017 that we believe will simplify capital structure, increase tenor and reduce interest expense by approximately $3.4 million in cash annually
  • Appointed two new independent directors with substantial financial services and public company board experience

"A focus on operational execution, a continued shift to profitable customers in tax preparation, and market tailwinds in wealth management have together driven double-digit revenue and segment income growth for the first quarter," said John Clendening, Blucora's President and Chief Executive Officer.  "The strong segment performance coupled with continued debt reduction resulted in strong EPS growth.  The efforts we have taken to transform and reposition our company while reducing debt are bearing fruit, which we believe will continue to become more evident as the year progresses."

Summary Financial Performance: Q1 2017
($ in millions except per share amounts)
 
 Q1 Q1  
 2017 2016 Change
Revenue$182.4  $165.8  10%
Wealth Management$82.7  $77.3  7%
Tax Preparation$99.7  $88.5  13%
Segment Income$65.0  $58.5  11%
Wealth Management$11.9  $10.9  9%
Tax Preparation$53.1  $47.6  12%
Unallocated Corporate Operating Expenses$(6.8) $(4.7) 44%
GAAP:          
Operating Income$43.9  $39.4  11%
Net Income Attributable to Blucora, Inc.$30.6  $22.7  35%
Diluted Net Income Per Share Attributable to Blucora, Inc. (EPS)$0.67  $0.54  24%
Non-GAAP:           
Adjusted EBITDA$58.2  $53.8  8%
Net Income$47.4  $39.3  21%
Diluted Net Income Per Share (EPS)$1.04  $0.94  11%
See reconciliations of all non-GAAP to GAAP measures presented in this release in the tables below.

Tax Season Update

"This is our second year in a multi-year pivot in our TaxAct business to focus on profitable customers," Clendening continued. "Our new strategy, utilizing our pricing power, enabled us to grow average revenue per user, increase our completion and retention rate, and improve paid mix.  We are encouraged by these metrics and believe that they reinforce the merits of our strategy of focusing on higher value customers despite that as expected, we lost share in DDIY e-files."

(in thousands, except %s)Tax seasons ended
 April 18, 2017 April 19, 2016 % change
Consumer:     
Online e-files3,958  4,613  (14)%
Desktop e-files184  234  (21)%
Sub-total e-files4,142  4,847  (15)%
Free File Alliance e-files164  158  4%
Total consumer e-files4,306  5,005  (14)%
Professional tax preparer:      
E-files1,717  1,630  5%
Total e-files (consumer and preparer)6,023  6,635  (9)%
Tax season begins on the first day that the IRS begins accepting e-files and ends on tax day +1.  This information includes non-financial metrics used in measuring the performance of the consumer and professional tax preparer sides of the Tax Preparation business.

Second Quarter and Full Year 2017 Outlook

For the second quarter of 2017, the Company expects revenues to be between $135.0 million and $138.5 million, GAAP net loss attributable to Blucora, Inc. to be between $4.0 million and $0.2 million, or $(0.09) to nil per diluted share, Adjusted EBITDA to be between $39.4 million and $42.0 million, and Non-GAAP net income to be between $28.5 million and $31.5 million, or $0.63 to $0.69 per diluted share.

For the full year 2017, the Company expects revenues to be between $493.0 million and $506.0 million, GAAP net income (loss) attributable to Blucora, Inc. to be between $(3.4) million and $2.9 million, or $(0.08) to $0.06 per diluted share, Adjusted EBITDA to be between $96.0 million and $103.3 million, and Non-GAAP net income to be between $59.0 million and $66.8 million, or $1.28 to $1.45 per diluted share.

The second quarter and fiscal 2017 outlook for GAAP net income or loss attributable to Blucora assumes an estimated tax rate of approximately 20%.  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 first quarter results, its outlook for the second quarter and full year 2017, tax season update, 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, 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 and the closing of its proposed credit facility.  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 March 31,
 2017 2016
Revenue:   
Wealth management services revenue$82,667  $77,291 
Tax preparation services revenue99,708  88,474 
Total revenue182,375  165,765 
Operating expenses:   
Cost of revenue:   
Wealth management services cost of revenue55,874  52,269 
Tax preparation services cost of revenue3,818  3,207 
Amortization of acquired technology48  667 
Total cost of revenue (1)59,740  56,143 
Engineering and technology (1)4,748  4,295 
Sales and marketing (1)48,998  43,837 
General and administrative (1)13,483  12,753 
Depreciation940  975 
Amortization of other acquired intangible assets 8,288  8,316 
Restructuring (1)2,289   
Total operating expenses138,486  126,319 
Operating income43,889  39,446 
Other loss, net (2)(9,708) (7,514)
Income from continuing operations before income taxes34,181   31,932 
Income tax expense(3,471) (11,643)
Income from continuing operations30,710  20,289 
Discontinued operations, net of income taxes  2,522 
Net income30,710  22,811 
Net income attributable to noncontrolling interests(126) (144)
Net income attributable to Blucora, Inc.$30,584  $22,667 
Net income per share attributable to Blucora, Inc. - basic:   
Continuing operations$0.73  $0.49 
Discontinued operations  0.06 
Basic net income per share$0.73  $0.55 
Net income per share attributable to Blucora, Inc. - diluted:   
Continuing operations$0.67  $0.48 
Discontinued operations   0.06 
Diluted net income per share$0.67  $0.54 
Weighted average shares outstanding:   
Basic42,145  41,171 
Diluted45,428  41,610 
  
(1) Stock-based compensation expense was allocated among the following captions (in thousands):
  
 Three months ended March 31,
 2017 2016
Cost of revenue$46  $42 
Engineering and technology285  411 
Sales and marketing691  601 
General and administrative1,543  3,175 
Restructuring443   
Total stock-based compensation expense $3,008  $4,229 
        
(2) Other loss, net consisted of the following (in thousands):
  
 Three months ended March 31,
 2017 2016
Interest income$(20) $(25)
Interest expense6,436  9,191 
Amortization of debt issuance costs387  610 
Accretion of debt discounts1,085  1,406 
(Gain) loss on debt extinguishment and modification expense1,780  (3,843)
Other40  175 
Other loss, net$9,708  $7,514 
 

 


Blucora, Inc.
Preliminary Condensed Consolidated Balance Sheets
(Unaudited)
(Amounts in thousands)
 
 March 31,
 2017
 December 31,
 2016
ASSETS   
Current assets:   
Cash and cash equivalents$74,609  $51,713 
Cash segregated under federal or other regulations1,872  2,355 
Available-for-sale investments160   7,101 
Accounts receivable, net of allowance11,448  10,209 
Commissions receivable15,402  16,144 
Other receivables2,380  4,004 
Prepaid expenses and other current assets, net6,800  6,321 
Total current assets112,671  97,847 
Long-term assets:   
Property and equipment, net8,990  10,836 
Goodwill, net548,778  548,741 
Other intangible assets, net353,847  362,178 
Other long-term assets2,897  3,057 
Total long-term assets914,512  924,812 
Total assets$1,027,183  $1,022,659 
LIABILITIES AND STOCKHOLDERS' EQUITY   
Current liabilities:   
Accounts payable$7,223  $4,536 
Commissions and advisory fees payable16,389  16,587 
Accrued expenses and other current liabilities25,887  18,528 
Deferred revenue7,435  12,156 
Current portion of long-term debt, net2,560  2,560 
Total current liabilities59,494  54,367 
Long-term liabilities:   
Long-term debt, net212,264  248,221 
Convertible senior notes, net165,350  164,176 
Deferred tax liability, net59,102  111,126 
Deferred revenue1,145  1,849 
Other long-term liabilities8,546  10,205 
Total long-term liabilities446,407  535,577 
Total liabilities505,901  589,944 
    
Redeemable noncontrolling interests15,822   15,696 
    
Stockholders' equity:   
Common stock4  4 
Additional paid-in capital1,516,421  1,510,152 
Accumulated deficit(1,010,628)  (1,092,756)
Accumulated other comprehensive loss(337) (381)
Total stockholders' equity505,460  417,019 
Total liabilities and stockholders' equity$1,027,183  $1,022,659 



Blucora, Inc.
Preliminary Condensed Consolidated Statements of Cash Flows
(Unaudited)
(Amounts in thousands)
 
 Three months ended March 31,
 2017 2016
Operating Activities:   
Net income$30,710  $22,811 
Less: Discontinued operations, net of income taxes  2,522 
Net income from continuing operations30,710  20,289 
Adjustments to reconcile net income from continuing operations to net cash from operating activities:   
Stock-based compensation2,565  4,229 
Depreciation and amortization of acquired intangible assets9,470  10,105 
Restructuring (non-cash)864   
Deferred income taxes(481) (5,127)
Amortization of premium on investments, net10  79 
Amortization of debt issuance costs387  610 
Accretion of debt discounts1,085  1,406 
(Gain) loss on debt extinguishment and modification expense1,780  (3,843)
Other  13 
Cash provided (used) by changes in operating assets and liabilities:   
Accounts receivable(1,239) (2,967)
Commissions receivable742  1,266 
Other receivables2,198  20,146 
Prepaid expenses and other current assets(479) 2,709 
Other long-term assets122  95 
Accounts payable2,687  5,217 
Commissions and advisory fees payable(198) (1,705)
Deferred revenue(5,425) (2,610)
Accrued expenses and other current and long-term liabilities8,102  18,809 
Net cash provided by operating activities from continuing operations52,900  68,721 
Investing Activities:   
Purchases of property and equipment(1,165) (677)
Proceeds from sales of investments249   
Proceeds from maturities of investments7,092   
Purchases of investments(409) (403)
Net cash provided (used) by investing activities from continuing operations5,767  (1,080)
Financing Activities:   
Repurchase of convertible notes  (20,667)
Repayment of credit facility(38,000) (40,000)
Proceeds from stock option exercises4,234  1,088 
Proceeds from issuance of stock through employee stock purchase plan662  562 
Tax payments from shares withheld for equity awards(2,209) (329)
Contingent consideration payments for business acquisition(946)  
Net cash used by financing activities from continuing operations(36,259) (59,346)
Net cash provided by continuing operations22,408  8,295 
    
Net cash provided by operating activities from discontinued operations  9,795 
Net cash used by investing activities from discontinued operations  (479)
Net cash used by financing activities from discontinued operations  (5,000)
Net cash provided by discontinued operations  4,316 
     
Effect of exchange rate changes on cash, cash equivalents, and restricted cash5   
Net increase in cash, cash equivalents, and restricted cash22,413   12,611 
Cash, cash equivalents, and restricted cash, beginning of period54,868  59,830 
Cash, cash equivalents, and restricted cash, end of period$77,281  $72,441 



Blucora, Inc.
Preliminary Segment Information
(Unaudited)
(Amounts in thousands)
 
 Three months ended March 31,
 2017 2016
Revenue:   
Wealth Management (1)$82,667  $77,291 
Tax Preparation (1)99,708  88,474 
Total revenue182,375  165,765 
Operating income:   
Wealth Management11,853  10,906 
Tax Preparation53,133  47,573 
Corporate-level activity (2)(21,097) (19,033)
Total operating income43,889  39,446 
Other loss, net(9,708) (7,514)
Income tax expense(3,471) (11,643)
Discontinued operations, net of income taxes  2,522 
Net income$30,710  $22,811 
        
(1) Revenues by major category within each segment are presented below (in thousands):
  
 Three months ended March 31,
 2017 2016
Wealth Management:   
Commission$39,595  $36,856 
Advisory33,576  31,532 
Asset-based5,966  5,818 
Transaction and fee3,530  3,085 
Total Wealth Management revenue$82,667  $77,291 
Tax Preparation:   
Consumer$88,242  $77,471 
Professional11,466  11,003 
Total Tax Preparation revenue$99,708  $88,474 
        
(2) Corporate-level activity included the following (in thousands):
  
  Three months ended March 31,
 2017 2016
Operating expenses$6,773   $4,699 
Stock-based compensation2,565  4,229 
Depreciation1,134  1,122  
Amortization of acquired intangible assets8,336  8,983 
Restructuring2,289    
Total corporate-level activity$21,097  $19,033 
 

 


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 March 31,
 2017 2016
Operating income (loss) (2)$43,889  $39,446 
Stock-based compensation2,565  4,229 
Depreciation and amortization of acquired intangible assets9,470  10,105 
Restructuring2,289   
Adjusted EBITDA$58,213  $53,780 



Preliminary Non-GAAP Net Income Reconciliation (1)
(Unaudited)
(Amounts in thousands, except per share amounts)
 
 Three months ended March 31,
 2017 2016
Net income attributable to Blucora, Inc.(2)$30,584  $22,667 
Discontinued operations, net of income taxes  (2,522)
Stock-based compensation2,565  4,229 
Amortization of acquired intangible assets8,336  8,983 
Accretion of debt discount on Convertible Senior Notes934  963 
Accelerated accretion of debt discount on Convertible Senior Notes  1,628 
Gain on Convertible Senior Notes repurchased  (7,724)
Restructuring2,289   
Impact of noncontrolling interests126  144 
Cash tax impact of adjustments to GAAP net income(587) 339 
Non-cash income tax expense (1)3,160  10,579 
Non-GAAP net income$47,407  $39,286 
    
Per diluted share:   
Net income attributable to Blucora, Inc.$0.67  $0.54 
Discontinued operations, net of income taxes  (0.06)
Stock-based compensation0.06  0.10 
Amortization of acquired intangible assets0.18  0.23 
Accretion of debt discount on Convertible Senior Notes0.02   0.02 
Accelerated accretion of debt discount on Convertible Senior Notes  0.04 
Gain on Convertible Senior Notes repurchased  (0.19)
Restructuring0.05   
Impact of noncontrolling interests0.00  0.00 
Cash tax impact of adjustments to GAAP net income(0.01) 0.01 
Non-cash income tax expense0.07  0.25 
Non-GAAP net income$1.04  $0.94 
Weighted average shares outstanding used in computing per diluted share amounts45,428  41,610 



Preliminary Adjusted EBITDA Reconciliation for Forward-Looking Guidance
(Amounts in thousands)
 
 Ranges for the three months ending Ranges for the year ending
 June 30, 2017 December 31, 2017
Net income (loss) attributable to Blucora, Inc.$(4,000) $(200
 $(3,400) $2,900 
Stock-based compensation3,500  3,400  12,600  12,400 
Depreciation and amortization of acquired intangible assets9,600  9,400  38,100  37,900  
Restructuring700  600  3,300  3,100 
Other loss, net (3)25,600  25,300  45,800  45,400 
Impact of noncontrolling interests200  200  400  700 
Income tax (benefit) expense3,800   3,300  (800) 900 
Adjusted EBITDA$39,400  $42,000  $96,000  $103,300 



Preliminary Non-GAAP Net Income Reconciliation for Forward-Looking Guidance
(Amounts in thousands)
 
 Ranges for the three months ending  Ranges for the year ending
 June 30, 2017 December 31, 2017
Net income (loss) attributable to Blucora, Inc.$(4,000) $(200 $(3,400) $2,900 
Stock-based compensation3,500  3,400  12,600  12,400 
Amortization of acquired intangible assets8,400  8,300  33,400  33,300 
Accretion of debt discount on Convertible Senior Notes800  800  1,800  1,800 
Loss on debt extinguishment and modification expense16,100  16,100  16,100  16,100 
Restructuring700  600  3,300  3,100 
Impact of noncontrolling interests200  200  400  700 
Cash tax impact of adjustments to net income (loss)    (600) (600)
Non-cash income tax (benefit) expense2,800  2,300  (4,600) (2,900 )
Non-GAAP net income$28,500  $31,500  $59,000  $66,800 


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

(1) We define Adjusted EBITDA as operating income, determined in accordance with GAAP, excluding the effects of depreciation, amortization of acquired intangible assets (including acquired technology), stock-based compensation, and restructuring costs.  Restructuring costs relate to the upcoming move of our corporate headquarters, which was announced in the fourth 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.  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 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, restructuring costs, the impact of noncontrolling interests, the related cash tax impact of those adjustments, and non-cash income taxes.  Restructuring costs relate to the upcoming move of our corporate headquarters, which was announced in the fourth quarter of 2016.  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.  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 and modification expense.

Blucora Contact:

Bill Michalek (972) 870-6463

bill.michalek@blucora.com

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Source: Blucora, Inc.

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