10-K
Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 FORM 10-K
(Mark One)
ý
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended
December 31, 2015
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from                   to
 
                   
Commission File Number 000-25131
BLUCORA, INC.
(Exact name of registrant as specified in its charter)
Delaware
 
91-1718107
(State or other jurisdiction of
incorporation or organization)
 
(IRS Employer
Identification No.)
               10900 NE 8th Street, Suite 800, Bellevue, Washington 98004
(Address of principal executive offices) (Zip code)
Registrant’s telephone number, including area code:
(425) 201-6100
 
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Name of each exchange on which registered
Common Stock, par value $0.0001 per share
 
NASDAQ Global Select Market
Securities registered pursuant to Section 12(g) of the Act: None
(Title of Class)
Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes  o    No  ý
Indicate by check mark whether the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes  o    No  ý
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  ý No    o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  ý No  o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer 
ý
Accelerated filer
o
Non-accelerated filer 
o
Smaller reporting company 
o
 
 
 
 
(Do not check if a smaller reporting company)
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  o    No  ý
The aggregate market value of the Common Stock held by non-affiliates of the registrant outstanding as of June 30, 2015, based upon the closing price of Common Stock on June 30, 2015 as reported on the NASDAQ Global Select Market, was $620.8 million. Common Stock held by each officer and director (or his or her affiliate) has been excluded because such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.
As of February 16, 2016, 41,207,155 shares of the registrant’s Common Stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates certain information by reference from the definitive proxy statement to be filed by the registrant in connection with the 2016 Annual Meeting of Stockholders (the “Proxy Statement”).


Table of Contents

TABLE OF CONTENTS
 
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Item 7A.
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Item 9A.
Item 9B.
 
 
 
 
 
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This report contains forward-looking statements that involve risks and uncertainties. The statements in this report that are not purely historical are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. Words such as “anticipate,“believe,“plan,“expect,“future,“intend,“may,“will,“should,“estimate,“predict,“potential,“continue,” and similar expressions identify forward-looking statements, but the absence of these words does not mean that the statement is not forward-looking. These forward-looking statements include, but are not limited to, statements regarding projections of our future financial performance; trends in our businesses; our future business plans and growth strategy, including our plans to expand, develop, or acquire particular operations or businesses; and the sufficiency of our cash balances and cash generated from operating, investing, and financing activities for our future liquidity and capital resource needs.
Forward-looking statements are subject to known and unknown risks, uncertainties, and other factors that may cause our results, levels of activity, performance, achievements, and prospects to be materially different from those expressed or implied by such forward-looking statements. These risks, uncertainties, and other factors include, among others, those identified under Item 1A, "Risk Factors," and elsewhere in this report. You should not rely on forward-looking statements, which speak only as of the date of this Annual Report on Form 10-K. We do not undertake any obligation to update any forward-looking statement to reflect new information, events, or circumstances after the date of this Annual Report on Form 10-K or to reflect the occurrence of unanticipated events.
PART I
ITEM 1. Business
Overview
Blucora, Inc. (“Blucora”) is a leading provider of technology-enabled financial solutions to consumers, small business owners, and tax professionals. Through our operating companies, HD Vest, Inc. (“HD Vest”) and TaxAct, Inc. (“TaxAct”), we provide leading products in wealth management and tax preparation services and help millions of individuals manage their financial lives.
In addition, Blucora operates an internet search and content business through our InfoSpace LLC subsidiary (“InfoSpace”) and an e-commerce business through the operations of Monoprice, Inc. (“Monoprice”). See "Our History" below for further information related to such businesses and the classification of each within discontinued operations.
Our common stock is listed on the NASDAQ Global Select Market under the symbol “BCOR.”
All references in this report to “Blucora,” the “Company,” “we,” “our,” or “us” are to Blucora, Inc.
Our History
Blucora began in 1996 under the name InfoSpace, Inc. Over the next two decades, InfoSpace operated a number of digital businesses in search, directory, online commerce, media, and mobile infrastructure markets, with operations since 2008 focusing on search services and content (our “Search and Content business”).
In January 2012, InfoSpace, Inc. acquired TaxAct, a leading provider of digital tax preparation solutions for consumers, small business owners, and tax professionals (our “Tax Preparation business”). In connection with this acquisition, InfoSpace, Inc. changed its name to Blucora, Inc. in June 2012.
In August 2013, Blucora acquired Monoprice, Inc., which sells self-branded electronics and accessories to both consumers and businesses (our “E-Commerce business”).
On October 14, 2015, Blucora announced the acquisition of HD Vest, which closed on December 31, 2015. Through its subsidiaries, HD Vest operates the largest U.S. tax-professional-oriented independent broker-dealer, providing wealth management solutions to financial advisors nationwide (our “Wealth Management” business). As part of that announcement, we also stated our plans to divest the Search and Content and E-Commerce businesses, in order to focus more strategically on the technology-enabled financial solutions market (the “Strategic Transformation”).
As a result of the Strategic Transformation, the results of operations of the Search and Content and E-Commerce businesses have been classified as discontinued operations for all periods presented in this report. See "Note 4: Discontinued Operations" of the Notes to Consolidated Financial Statements in Part II Item 8 of this report for additional information. In

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addition, as of December 31, 2015, we have two reportable segments: the Wealth Management segment, which is comprised of the HD Vest business, and the Tax Preparation segment, which is comprised of the TaxAct business.
See "Note 2: Summary of Significant Accounting Policies" of the Notes to Consolidated Financial Statements in Part II Item 8 of this report for additional information on the Tax Preparation business and its revenue. See "Note 12: Segment Information" of the Notes to Consolidated Financial Statements in Part II Item 8 of this report for information regarding revenue, operating income, and assets for our Tax Preparation business.
Our Businesses
Wealth Management Business
Our Wealth Management business distributes products and services through financial advisors who affiliate with HD Vest’s subsidiaries as independent contractors. HD Vest provides financial advisors with an integrated platform of brokerage, investment advisory and insurance services to assist in making each financial advisor a financial service center for his/her clients. HD Vest generates revenue primarily through commissions, quarterly investment advisory fees based on assets under management, and other fees.
HD Vest has established a leading brokerage and technology platform focused on tax and accounting professionals, maintaining an independent network of approximately 4,600 financial advisors with branch offices in all 50 states. HD Vest's financial advisors provide financial solutions to more than 360,000 clients with approximately $37 billion of assets as of December 31, 2015.
HD Vest was founded to help certified public accountants (“CPAs”) and tax professionals integrate investment planning services into their practices. The company believes that tax and accounting professionals, with their existing client relationships and in-depth knowledge of their clients’ financial situations, have a competitive advantage and are better positioned than competitors to provide financial solutions. HD Vest primarily recruits independent CPAs and tax professionals with established tax practices and offers specialized training and support, which allows them to join the HD Vest platform as independent financial advisors. HD Vest's specialized model provides an open-architecture investment platform and technology tools to help financial advisors identify investment opportunities for their clients, while the long-standing tax advisory relationships provide a large source of possible investment clients. This results in an experienced and stable network of financial advisors, who have multiple revenue-generating options to diversify their earnings sources.
Tax Preparation Business
Our Tax Preparation business provides digital do-it-yourself (“DDIY”) tax preparation solutions for consumers, small business owners, and tax professionals. TaxAct generates revenue primarily through its online service at www.TaxAct.com.
TaxAct, a top-three provider of digital tax preparation solutions, has leveraged its strong brand, comprehensive suite of tax preparation solutions, and proven online lead generation capabilities to enable the filing of more than 60 million federal consumer tax returns since 2000. TaxAct operates as the value player in its market, with a mission to empower people to navigate the complexities of tax preparation with ease and accuracy at a fair price.
We had four DDIY product offerings for consumers for tax year 2014: a free federal edition that handled simple and complex returns; the free federal edition plus a paid state edition; a "deluxe" product offering that contained all of the features of the free federal edition plus taxpayer phone support, import capabilities, return preparation assistance tools, and enhanced reporting; and an "ultimate" product offering that contained all of the deluxe offering features plus the ability to file a state return. Our small business DDIY product offering consisted of easy-to-use interview-based tax filing solutions for small business owners. TaxAct offers its products with a price lock guarantee, whereby the price at the start of the tax return filing process holds until the return is filed, rather than pricing the product at the time that the tax return is filed. We believe this price lock guarantee ensures price transparency and differentiates TaxAct from its competitors. In addition to these core offerings, TaxAct also offers ancillary services such as refund payment transfer, data archive services, audit defense, stored value cards, and other add-on services. TaxAct's value proposition and established reputation attract value-conscious and unsatisfied customers away from competitor platforms and onto the TaxAct platform.
TaxAct’s professional tax preparer software allows professional tax preparers to prepare and file individual and business returns for their clients. TaxAct offers flexible pricing and packaging options that help tax professionals save money by paying only for what they need. In addition, the professional tax preparer software includes valuable features that tax professionals

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count on to maximize their efficiency and productivity, including the option of entering data directly into tax forms, utilizing the question-and-answer interview method to enter data, or easily toggling between the two data entry methods.
Discontinued Operations
As previously announced, we intend to divest our Search and Content and E-Commerce businesses in the first half of 2016 as part of the Strategic Transformation. As such, our InfoSpace and Monoprice businesses have been classified as discontinued operations.
Our Search and Content business, InfoSpace, primarily offers search services to users of our owned and operated and distribution partners’ web properties, as well as online content. Search services provided through our owned and operated web properties include services through websites such as Dogpile.com, WebCrawler.com, and HowStuffWorks.com. Search services provided to our distribution partners include services to a network of distribution partners through the respective web properties of those distribution partners, which are generally private-labeled and customized to address the unique requirements of each distribution partner. Our Search and Content revenue primarily consists of advertising revenue generated through end-users clicking on paid listings included in the search result displays, as well as from advertisements appearing on our HowStuffWorks.com website. The paid listings, as well as algorithmic search results, are primarily supplied by Google, Yahoo!, and Bing, whom we refer to as our “Search Customers.” See "Risks Related to our Discontinued Operations" in Part I Item 1A of this report for additional information regarding the risks associated with the concentration of our search customers and related revenue.
Our E-Commerce business, Monoprice, is an online retailer of self-branded electronics and accessories to both consumers and businesses. Monoprice offers its products for sale through the www.monoprice.com website, where the majority of our E-Commerce revenue is derived, and fulfills those orders from our warehouses in Rancho Cucamonga, California and Hebron, Kentucky, the latter of which commenced operations in September 2015. We also sell our products through reseller and marketplace agreements. Consumers are able to access and purchase products 24 hours a day from the convenience of a computer or a mobile device. Monoprice’s team of customer service representatives assists customers primarily by online chat or email. Nearly all sales are to customers located in the United States.
Growth Strategy
Our evolving growth strategy for HD Vest and TaxAct includes participating in favorable industry trends and executing growth strategies that we believe will result in customer and advisor retention and growth beyond that of the broader markets in which we operate.
Favorable Industry Trends
Wealth Management Industry Trends - We believe that HD Vest is and will be the beneficiary of several positive industry trends, including growth of investable assets driven by baby boomers’ retirement accounts, a continued migration to independent advisor channels, and a continued shift toward household use of financial advisors.
Tax Preparation Industry Trends - TaxAct participates in the consumer DDIY tax preparation solutions market, which is the fastest growing segment in the tax preparation industry and is bolstered by a growing millennial population that continues to adopt technology-enabled financial solutions that drive value and ease in their everyday lives.
Executing our Growth Strategies
Innovate Continuously - As emerging technology and market trends change the way people manage their financial lives, our solutions also evolve. The retention and growth of our customer and advisor base are dependent, in part, upon our ability to deliver technology-enabled financial solutions that optimize user experience and capitalize on current technology.
Offer a Comprehensive Product Suite - The products and services offered by HD Vest and TaxAct constitute a comprehensive suite of financial solutions. We believe that continued expansion of financial solutions, whether proprietary or third party, will be a source of growth for each business. In addition, the combination of HD Vest and TaxAct provides meaningful cross-selling opportunities for both businesses, further contributing to customer and advisor retention and growth.

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Continue to Provide Quality Customer Support, Education, and Training - A key element of our HD Vest business model is the ongoing education and training of tax professionals, which enables them to become financial advisors and effectively manage a growing wealth management practice. HD Vest provides these tax professionals with the resources and support to build confidence and competence, enabling them to grow assets under administration. The importance of quality customer support and education also flows through to our TaxAct business, where a seasoned tax support team provides support and education to consumers and tax professionals.
Research and Development
Our tax preparation products are delivered primarily via software and online platforms. Since the markets for software and online technology are characterized by rapid technological change, shifting customer needs and frequent new product introductions and enhancements, a continuous high level of investment is required to innovate and quickly develop new products and services as well as enhance existing offerings. Our product development efforts are becoming more important than ever as people and businesses are increasingly connected by technology and expect access to services at any place or time. Our research and development expenses from the Tax Preparation business were $4.8 million in 2015, $2.8 million in 2014, and $2.6 million in 2013. These amounts exclude any amounts spent on research and development by the HD Vest business prior to our acquisition of this business.
Seasonality
Our Tax Preparation business is highly seasonal, with a significant portion of our annual revenue for such services earned in the first four months of our fiscal year. We anticipate that the seasonal nature of that part of the businesses will continue in the foreseeable future.
Competition
We face intense competition in all markets in which our businesses operate. Many of our competitors or potential competitors have substantially greater financial, technical, and marketing resources, larger customer bases, longer operating histories, more developed infrastructures, greater brand recognition, better access to vendors, and more established relationships. Our competitors may be able to adopt more aggressive pricing policies, develop and expand their product and service offerings more rapidly, adapt to new or emerging technologies more quickly, take advantage of acquisitions and other opportunities more readily, achieve greater economies of scale, and devote greater resources to the marketing and sale of their products and services than we can. For our businesses to be successful, we must be competitive in the Wealth Management and Tax Preparation markets, as described in more detail below.
Wealth Management Competition
As a result of the HD Vest acquisition, we will face additional competition in the wealth management industry, which is a highly competitive global industry. We and our financial advisors will compete directly with a variety of financial institutions, including traditional wirehouses, independent broker-dealers, registered investment advisors, asset managers, banks and insurance companies, and direct distributors. Mergers and acquisitions have resulted in consolidation in the wealth management industry. As a result, many of our competitors may have greater financial resources, broader and deeper distribution capabilities, and a more comprehensive offering of products and services. We and our financial advisors will compete directly with those companies for the provision of products and services to clients, as well as for retention and hiring of financial advisors.
We believe that our competitive position in the wealth management industry is a function of our ability to:
offer high-quality advice and competitive product pricing;
offer a value proposition (in terms of brand recognition, reputation, and financial advisor payouts) that is
sufficient to recruit and retain financial advisors;
offer products that are attractive to financial advisors and their clients;
negotiate competitive compensation arrangements with third-parties, including vendors, suppliers, and product sponsors;
develop and react to new technology, services and regulation in the financial services industry; and
put in place a sufficient support and service network required to support our financial advisors and clients.

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Tax Preparation Competition
Our TaxAct business operates in a very competitive marketplace. There are many competing software products and online services. Intuit’s TurboTax and H&R Block's products and services have a significant percentage of the software and online service market. Our TaxAct business must also compete with alternate methods of tax preparation, including "pencil and paper" do-it-yourself return preparation by individual filers and storefront tax preparation services, including both local tax preparers and large chains such as H&R Block, Liberty, and Jackson Hewitt. Finally, our TaxAct business faces the risk that state or federal taxing agencies will offer software or systems to provide direct access for individual filers that will reduce the need for TaxAct’s software and services.
We believe that our competitive position in the market for tax preparation software and services is a function of our ability to:
offer competitive pricing;
continue to offer high-quality, easy-to-use, and accessible software and services that are compelling to consumers;
market the software and services in a cost effective way; and
offer ancillary services that are attractive to users.
Discontinued Operations
In the online search market, we face competition from multiple sources, including our Search Customers. In particular, Google, Yahoo!, and Bing (Microsoft) collectively control a significant majority of the consumer-facing online search market serviced by our owned and operated sites and those of our distribution partners. Each of these three companies provides search results to our search services in addition to competing for Internet users. Our distribution partners also compete with us for Internet users. We also compete with our Search Customers and other content providers for contracts with new and existing distribution partners. Our E-Commerce business operates in a very competitive marketplace with low barriers to entry. Our competitors that offer similar products include existing well-known brands that operate online e-commerce sites and offline retail stores, as well as new entrants to the e-commerce market.
Privacy and Security of Customer Information and Transactions
Our TaxAct business is subject to various federal, state and international laws and regulations and to financial institution and healthcare provider requirements relating to the privacy and security of the personal information of customers and employees. We are also subject to laws and regulations that apply to the Internet, behavioral tracking and advertising, mobile applications and messaging, telemarketing, email activities, data hosting and retention, financial and health information, and credit reporting. Additional laws in all of these areas are likely to be passed in the future, which could result in significant limitations on or changes to the ways in which we can collect, use, host, store, or transmit the personal information and data of our customers or employees, communicate with our customers, and deliver products and services, or may significantly increase our compliance costs. As our business expands to new industry segments and new uses of data that are regulated for privacy and security, or to countries outside the United States that have strict data protections laws, our compliance requirements and costs will increase.
Through a privacy policy framework designed to be consistent with globally recognized privacy principles, we comply with United States federal and other country guidelines and practices to help ensure that customers and employees are aware of, and can control, how we use information about them. The TaxAct.com website and its online products have been certified by TRUSTe, an independent organization that operates a website and online product privacy certification program representing industry standard practices to address users’ and regulators’ concerns about online privacy. We also use privacy statements to provide notice to customers of our privacy practices, as well as provide them the opportunity to furnish instructions with respect to use of their personal information. We participate in industry groups whose purpose is to develop or shape industry best practices, and to influence public policy for privacy and security.
To address security concerns, we use security safeguards to help protect the systems and the information customers give to us from loss, misuse and unauthorized alteration. Whenever customers transmit sensitive information, such as credit card information or tax return data, through one of our websites or products, we use industry standards to encrypt the data as it is transmitted to us. We work to protect our systems from unauthorized internal or external access using numerous commercially available computer security products as well as internally developed security procedures and practices.

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HD Vest’s subsidiaries are subject to privacy regulation under federal and state law, which has been, and will continue to be, an area of focus for regulators.
Governmental Regulation

Blucora is a publicly traded company that is subject to Securities and Exchange Commission (“SEC”) and NASDAQ Global Select Market rules and regulations regarding public disclosure, financial reporting, internal controls, and corporate governance. The adoption of the Sarbanes-Oxley Act of 2002, as well as the implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”), have significantly expanded the nature and scope of these rules and regulations.
Our Wealth Management and Tax Preparation segments are subject to federal and state government requirements, including regulations related to consumer protection, user privacy, security, pricing, taxation, intellectual property, labor, advertising, broker-dealers, securities, investment advisors, asset management, insurance, listing standards and product and services quality. In addition, our Wealth Management business is subject to certain additional financial industry regulations and supervision, including by the SEC, the Financial Industry Regulatory Authority (FINRA), state securities and insurance regulators, and other regulatory authorities. We also offer certain other products and services to small businesses and consumers, which are also subject to regulatory requirements. As we expand our products and services, both domestically and internationally, we may become subject to additional government regulation. Further, regulators may adopt new laws or regulations or their interpretation of existing laws or regulations may differ from ours or expand to cover additional products and services. These increased regulatory requirements could impose higher regulatory compliance costs, limitations on our ability to provide some services in some states or countries, and liabilities that might be incurred through lawsuits or regulatory penalties. See the section entitled "Risks Common to our Businesses" in Part I Item 1A of this report for additional information regarding the potential impact of governmental regulation on our operations and results.
We are subject to federal and state laws and government regulations concerning employee safety and health and environmental matters. The Occupational Safety and Health Administration, the Environmental Protection Agency, and other federal and state agencies have the authority to promulgate regulations that may have an impact on our operations.
Intellectual Property
Our success depends significantly upon our technology and intellectual property rights. We seek to protect such rights and the value of our corporate brands and reputation through a variety of measures, including: domain name registrations, confidentiality and intellectual property assignment agreements with employees and third parties, protective contractual provisions, and laws regarding copyrights, patents, trademarks, and trade secrets. We hold multiple issued patents and registered trademarks in the United States and in various foreign countries and we apply for additional patents and trademarks as business needs require. We may not be successful in obtaining issuance or registration for such applications or in maintaining existing patents and trademarks. In addition, issued patents and registered marks may not provide us with any competitive advantages. We may be unable to adequately or cost-effectively protect or enforce our intellectual property rights, and failure to do so could weaken our competitive position and negatively impact our business and financial results. If others claim that our products infringe their intellectual property rights, we may be forced to seek expensive licenses, re-engineer our products, engage in expensive and time-consuming litigation, or stop marketing and licensing our products. See the section entitled "Risks Common to our Businesses" in Part I Item 1A of this report for additional information regarding protecting and enforcing intellectual property rights by us and third parties against us.
Employees
As of December 31, 2015, we had 772 full-time employees, of which 298 were part of our Search and Content and E-Commerce businesses. None of our employees are represented by a labor union, and we consider employee relations to be positive. There is significant competition for qualified personnel in the industries in which we operate, particularly for software development and other technical staff. We believe that our future success will depend in part on our continued ability to hire and retain qualified personnel.
Acquisitions
Our acquisition of HD Vest closed on December 31, 2015. TaxAct acquired SimpleTax Software Inc. (“SimpleTax”) on July 2, 2015 and Balance Financial, Inc. (“Balance Financial”) on October 4, 2013. For further detail on these acquisitions, see "Note 3: Business Combinations" of the Notes to Consolidated Financial Statements in Part II Item 8 of this report.

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Company Internet Site and Availability of SEC Filings
Our corporate website is located at www.blucora.com. We make available on that site, as soon as reasonably practicable, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, proxy statements, Current Reports on Form 8-K, other reports filed with or furnished to the U.S. Securities and Exchange Commission (the “SEC”), as well as any amendments to those filings. Our SEC filings, as well as our Code of Ethics and Conduct and other corporate governance documents, can be found in the Investor Relations section of our site and are available free of charge. Information on our website is not part of this Annual Report on Form 10-K. In addition, the SEC maintains a website at www.sec.gov that contains reports, proxy and information statements, and other information regarding us and other issuers that file electronically with the SEC.

ITEM 1A. Risk Factors

RISKS ASSOCIATED WITH OUR STRATEGIC TRANSFORMATION
As a result of the HD Vest Acquisition, we may face significant disruptions, business conflicts, inefficiencies, and other related risks.
On October 14, 2015, we announced that Blucora had entered into a definitive agreement to acquire HDV Holdings, Inc., the holding company for the group of companies that comprise the Wealth Management business, for $611.9 million, including cash acquired and subject to adjustments (the “HD Vest Acquisition”). For further discussion of the terms of the HD Vest Acquisition, see the "Strategic Transformation" section in Part II Item 7 and "Note 3: Business Combinations" of the Notes to Consolidated Financial Statements in Part II Item 8 of this annual report. We expect to face certain risks in connection with the HD Vest Acquisition, including the following:
Uncertainty and disruptions may negatively impact HD Vest’s relationships with its employees, its financial advisors, or those advisors’ relationships with their clients, which could materially harm HD Vest's financial condition and results of operations;
We may fail to realize the anticipated benefits of the HD Vest Acquisition (including the expected operational, revenue, and cost synergies with our Tax Preparation business and the level of revenue and profitability growth that we are expecting), whether attributable to regulatory limitations, operational realities, or otherwise;
We may face difficulties, including loss of key employees, disruptions in our ongoing operations, and diversion of our and HD Vest’s management’s attention from ongoing operations and opportunities, in integrating the operations, technologies, products, services, IT systems, controls, and policies and procedures of HD Vest and in upgrading our internal control over financial reporting and disclosure controls and procedures to incorporate the HD Vest operations;
The failure to retain key management responsible for the operations of HD Vest could materially and adversely impact those operations, particularly due to the fact that our management team at the corporate level lacks significant experience in the financial services industry;
Even if we retain HD Vest’s key management and other employees, we will need to attract and retain additional management resources to continue implementing our change in strategy to a company focused on the technology-enabled financial solutions market;
The market for the financial advisors upon whom HD Vest relies is extremely competitive, and failing to retain these individuals would undermine the anticipated benefits of the HD Vest Acquisition, and could also significantly increase our recruiting and retention costs;
Our management’s attention may be diverted from the daily operations of our existing businesses and from the execution of our plans to divest the InfoSpace and Monoprice businesses;
Our financial results may be materially and adversely impacted by cash expenses and non-cash charges incurred in connection with the HD Vest Acquisition or in the future if goodwill or other intangible assets we acquired in the HD Vest Acquisition become impaired in the future;
Notwithstanding the due diligence investigation we performed in connection with the HD Vest Acquisition, HD Vest may have liabilities, losses, or other exposures (including regulatory risks) for which we do not have adequate insurance coverage, indemnification, or other protection; and
We incurred substantial additional indebtedness to finance the HD Vest Acquisition, which will increase our vulnerability to increased debt service requirements should interest rates rise, reducing the amount of expected cash

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flow available for other purposes, including capital expenditures and acquisitions, and limiting our flexibility in planning for, or reacting to, changes in our businesses and industries.
Our financial and operating results may suffer if we are unsuccessful in integrating HD Vest, and any new businesses or technologies associated with HD Vest may not be complementary to our current operations or leverage our current infrastructure and operational experience.
The process of integrating HD Vest and technologies associated with it involves numerous risks that could materially and adversely affect our results of operations or stock price, including:
expenses related to the acquisition process and impairment charges to goodwill and other intangible assets related to the acquisition;
diversion of management’s or other key personnel’s attention from current operations and other business concerns and potential strain on financial and managerial controls and reporting systems and procedures;
disruption of our ongoing businesses, including impairment of existing relationships with employees, distributors, suppliers, or customers;
difficulties in assimilating the operations, products, technology, information systems, and management and other personnel of HD Vest that result in unanticipated allocation of resources, costs, or delays;
the dilutive effect on earnings per share as a result of issuances of stock, incurring operating losses, and the amortization of intangible assets for HD Vest;
stock volatility due to investors' uncertainty regarding the value of HD Vest;
higher debt service costs and a decline in stockholder equity in the event of poor financial performance;
diversion of capital from other uses;
failure to achieve the anticipated benefits of the acquisition in a timely manner, or at all; and
adverse outcome of litigation matters or other contingent liabilities assumed in or arising out of the acquisition.
Developing or acquiring a business or technology, and then integrating it with our other operations, is complex, time-consuming, and expensive. The successful integration of an acquisition requires, among other things, that we: retain key personnel; maintain and support preexisting supplier, distribution, and customer relationships; and integrate accounting and support functions. The complexity of the technologies and operations being integrated and the disparate corporate cultures and/or industries being combined may increase the difficulties of integrating an acquired technology or business.
We may face significant challenges in our plans to divest our InfoSpace and Monoprice businesses.
As part of our Strategic Transformation announcement, we outlined plans to divest our InfoSpace and Monoprice businesses, because they no longer align with our new strategic focus on the technology-enabled financial solutions industry. These planned divestitures pose risks and challenges that could materially and adversely impact our business, financial condition, and results of operations, including:
The uncertainty resulting from our announced plans to divest InfoSpace and Monoprice could cause significant disruptions in their businesses, including loss of key Search Customers, distribution partners, and suppliers or employees, that could harm the business, financial condition, and results of operations of our Search and Content and E-Commerce segments and make it difficult to complete the divestitures;
Efforts to divest InfoSpace and Monoprice may divert our management’s attention from our ongoing operations and the integration of HD Vest;
We may be unable to identify suitable buyers of either business on acceptable terms, or at all;
There are significant risks and uncertainties in the sales process, including the timing and uncertainty of completion of any transaction and the fulfillment of closing conditions, some of which may be outside of our control;
Any significant delay in the completion of these divestitures, or the failure to complete the divestitures, may negatively impact our ability to implement our new strategic focus, delay repayment of indebtedness, negatively impact our ability to achieve our previously announced plans to reduce corporate operating expenses, and may impact our capital allocation priorities;

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Our results of operations may be negatively impacted by cash expenses and non-cash charges incurred in connection with the planned divestitures of InfoSpace and Monoprice, including retention and severance costs, transaction expenses, and asset impairment charges, which expenses and charges could be substantial whether or not we are able to divest these businesses; and
Even if we succeed in divesting InfoSpace or Monoprice, the terms of any transaction may require us to retain certain liabilities or provide the purchaser with certain indemnification protection that could expose us to continued risks of these businesses.
RISKS ASSOCIATED WITH OUR BUSINESSES
Our financial condition and results of operations may be materially and adversely affected by market fluctuations and by economic, political, and other factors.
Our financial condition and results of operations have been, and may in the future be, materially and adversely affected by market conditions and by economic and other factors. Such factors, which can be global, national or local in nature, include: political, social, economic and market conditions; the availability and cost of capital (whether debt or equity); the level and volatility of equity prices, commodity prices and interest rates, currency values and other market indices; technological changes and events; U.S. and foreign government fiscal and tax policies; U.S. and foreign government ability, real or perceived, to avoid defaulting on government securities; inflation; investor sentiment and confidence in the financial markets; decline and stress or recession in the U.S. and global economies generally; terrorism and armed conflicts; and natural disasters such as weather catastrophes and widespread health emergencies. Furthermore, changes in consumer economic variables, such as the number and size of personal bankruptcy filings, the rate of unemployment, decreases in property values, and the level of consumer confidence and consumer debt, may substantially affect consumer loan levels and credit quality, which, in turn, could impact client activity in all of our businesses. These factors also may have an impact on our ability to achieve our strategic objectives, including our divestiture of InfoSpace and Monoprice.

In particular, because the majority of our Tax Preparation business revenue and all of our Wealth Management business revenue is derived from sales within the U.S., economic conditions in the U.S. have an even greater impact on us than companies with a more diverse international presence. Challenging economic times could cause potential new customers not to purchase or to delay purchasing of our products and services, and could cause our existing customers to discontinue purchasing or delay upgrades of our existing products and services, thereby negatively impacting our revenues and future financial results. Poor economic conditions and high unemployment have caused, and could in the future cause, a significant decrease in the number of tax returns filed, which may have a significant effect on the number of tax returns we prepare and file. In addition, weakness in the end-user consumer and small business markets could negatively affect the cash flow of our distributors and resellers who could, in turn, delay paying their obligations to us, which could increase our credit risk exposure and cause delays in our recognition of revenue or future sales to these customers. Any of these events could materially harm our business and our future financial results.

In addition, our Wealth Management business operates in the U.S. and global capital and credit markets and derives a substantial portion of its revenue from fees based on client assets. Therefore, fluctuations in the U.S. and global equity and debt markets can have a significant impact on HD Vest’s revenues and earnings. As a result, these factors could materially and adversely impact our financial condition and results of operations.

We believe that investment performance is an important factor in the success of our Wealth Management business. Poor investment performance could impair our revenues and earnings, as well as our prospects for growth. Clients do not have long-term obligations to us and can terminate their relationships with us or our financial advisors at will. Our clients can also reduce the aggregate amount of their assets managed by us or shift their funds to other types of accounts with different rate structures, for any number of reasons, including investment performance, changes in prevailing interest rates, changes in investment preferences, changes in our (or our financial advisors’) reputation in the marketplace, changes in client management or ownership, loss of key investment management personnel and financial market performance. A reduction in managed assets, and the associated decrease in revenues and earnings, could have a material adverse effect on our business, financial condition, and financial results.
Future revenue growth depends upon our ability to adapt to technological change and successfully introduce new and enhanced products and services.
The tax preparation and wealth management industries are characterized by rapidly changing technology, evolving industry standards, and frequent new product introductions. Our competitors in such industries offer new and enhanced

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products and services every year. Consequently, client expectations are constantly changing. We must successfully innovate and develop or offer new products and features to meet evolving client needs and demands, while continually updating our technology infrastructure. We must devote significant resources to continue to develop our skills, tools, and capabilities in order to capitalize on existing and emerging technologies. Our inability to quickly and effectively innovate our products, services, and infrastructure could harm our business and financial results.

Our Tax Preparation business also faces potential competition from the public sector, where we face the risk of federal and state taxing authorities developing software or other systems to facilitate tax return preparation and electronic filing at no charge to taxpayers. These or similar programs may be introduced or expanded in the future, which may cause us to lose customers and revenue. Although the Free File Alliance has kept the federal government from being a direct competitor to our tax offerings, we anticipate that governmental encroachment at both the federal and state levels may present a continued competitive threat to our business for the foreseeable future. The current agreement with the Free File Alliance is scheduled to expire in October 2020.
Our online tax preparation products and services have historically been provided through desktop computers, but the number of people who access similar offerings through mobile devices has increased dramatically in the past few years. We have limited experience to date in mobile platform development, and our existing user experience may not be compelling on mobile devices. Given the speed at which new devices and platforms are being released, it is difficult to predict the problems we may encounter in developing versions of our products and services for use on newly developed devices, and we may need to devote significant resources to the creation, support, and maintenance of new user experiences. If we are slow to develop products and services that are compatible with these new devices, particularly if we cannot do so as quickly as our competitors, our market share will decline. In addition, such new products and services may not succeed in the marketplace, resulting in lost market share, wasted development costs, and damage to our brands.
If we are unable to develop, manage, and maintain critical third party business relationships for our Tax Preparation and Wealth Management businesses, those businesses may be materially and adversely affected.
Our Tax Preparation and Wealth Management businesses are dependent on the strength of our business relationships and our ability to continue to develop, maintain, and leverage new and existing relationships. We rely on various third party partners, including software and service providers, suppliers, vendors, distributors, contractors, financial institutions, and licensing partners, among others, in many areas of these businesses to deliver our services and products. In certain instances, the products or services provided through these third party relationships may be difficult to replace or substitute, depending on the level of integration of the third party’s products or services into, or with, our offerings and/or the general availability of such third party’s products and services. In addition, there may be few or no alternative third party providers or vendors in the market. The failure of third parties to provide acceptable and high quality products, services, and technologies or to update their products, services, and technologies may result in a disruption to our business operations, which may materially reduce our revenues and profits, cause us to lose customers and clients, and damage our reputation. Alternative arrangements and services may not be available to us on commercially reasonable terms or we may experience business interruptions upon a transition to an alternative partner.
    
Our Wealth Management business distributes certain investment and insurance products through distribution agreements with third-party financial institutions, including banks, mutual funds, and insurance companies. These products are sold by our financial advisors, who are independent contractors. Maintaining and deepening relationships with these unaffiliated distributors and financial advisors is an important part of our growth strategy because strong third-party distribution arrangements enhance our ability to market our products and increase our assets under management, revenues, and profitability. There can be no assurance that the distribution and financial advisor relationships we have established will continue. Our distribution partners and financial advisors may cease to operate, consolidate, institute cost-cutting efforts, or otherwise terminate their relationship with us. Any such reduction in access to third-party distributors and financial advisors may have a material adverse effect on our ability to market our products and to generate revenue in our Wealth Management segment.

Access to investment and insurance product distribution channels is subject to intense competition due to the large number of competitors and products in the broker-dealer, investment advisory and insurance industries. Relationships with distributors are subject to periodic negotiation that may result in increased distribution costs and/or reductions in the amount of revenue we realize based on sales of particular products or client assets. In addition, regulatory changes may negatively impact our revenues and profits related to particular products or services. Any increase in the costs to distribute our products or reduction in the type or amount of products made available for sale, or revenue associated with those products, may have a material adverse effect on our revenues and profitability.

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The Tax Preparation and Wealth Management markets are very competitive, and failure to effectively compete will materially and adversely affect our financial results.
Our Tax Preparation business operates in a very competitive marketplace. There are many competing software products and online services. Intuit’s TurboTax and H&R Block’s products and services have a significant percentage of the software and online service market. Our Tax Preparation business must also compete with alternate methods of tax preparation, including "pencil and paper" do-it-yourself return preparation by individual filers and storefront tax preparation services, including both local tax preparers and large chains such as H&R Block, Liberty, and Jackson Hewitt. Finally, our Tax Preparation business faces the risk that state or federal taxing agencies will offer software or systems to provide direct access for individual filers that will reduce the need for TaxAct’s software and services. Our financial results may materially suffer if we cannot continue to offer software and services that have quality and ease-of-use that are compelling to consumers; market the software and services in a cost-effective manner; offer ancillary services that are attractive to users; and develop the software and services at a low enough cost to be able to offer them at a competitive price point.
The wealth management industry in which HD Vest operates is highly competitive, and we may not be able to maintain our clients, financial advisors, distribution network, or the terms on which we provide our products and services.  HD Vest competes based on a number of factors, including name recognition, service, the quality of investment advice, investment performance, technology, product offerings and features, price, and perceived financial strength. Competitors in the wealth management industry include broker-dealers, banks, asset managers, insurers, and other financial institutions. Many of these competitors have greater market share, offer a broader range of products and have greater financial resources. In addition, over time certain sectors of the wealth management industry have become considerably more concentrated, as financial institutions involved in a broad range of financial services have been acquired by or merged into other firms. This consolidation could result in our competitors gaining greater resources, and we may experience pressures on our pricing and market share as a result of these factors and as some of our competitors seek to increase market share by reducing prices.
Our operation systems and network infrastructure is subject to significant and constantly evolving cybersecurity or other technological risks, and the security measures that we have implemented to secure confidential and personal information may be breached; a potential breach may pose risks to the uninterrupted operation of our systems, expose us to mitigation costs, litigation, investigation and penalties by authorities, claims by persons whose information was disclosed, and damage to our reputation.
We collect and retain certain sensitive personal data. Our Tax Preparation and Wealth Management businesses collect, use, and retain large amounts of confidential personal and financial information from their customers and clients, including information regarding income, assets, family members, credit cards, tax returns, bank accounts, social security numbers, and healthcare. Maintaining the integrity of these systems and networks is critical to the success of our business operations, including the retention of our customers, clients and advisors, and to the protection of our proprietary information and our customers' and clients’ personal information. A major breach of our systems or those of our third-party service providers may have materially negative consequences for our businesses, including possible fines, penalties and damages, reduced demand for our services, harm to our reputation and brands, further regulation and oversight by federal or state agencies, and loss of our ability to provide financial transaction services or accept and process customer credit card orders or tax returns. We may detect, or we may receive notices from customers or clients or public or private agencies that they have detected, vulnerabilities in our servers, our software, or third-party software components that are distributed with our products. The existence of vulnerabilities, even if they do not result in a security breach, may harm customer and client confidence and require substantial resources to address, and we may not be able to discover or remediate such security vulnerabilities before they are exploited.
We are subject to laws, regulations, and industry rules relating to the collection, use, and security of user data. We expect regulation in this area to increase. As a result of our current data protection policies and practices may not be sufficient and thus may require modification. New regulations may require notification to customers, clients, or employees of a security breach, restrict our use of personal information, and hinder our ability to acquire new, or market to, existing customers and clients. As our business continues to expand to new industry segments that may be more highly regulated for privacy and data security, our compliance requirements and costs may increase. We have incurred, and may continue to incur, significant expenses to comply with privacy and security standards and protocols imposed by law, regulation, industry standards, and contractual obligations.
In addition, hackers may develop and deploy viruses, worms, and other malicious software programs that can be used to attack our offerings. Although we utilize network and application security measures, internal controls, and physical security procedures to safeguard our systems, there can be no assurance that a security breach, intrusion, or loss or theft of personal information will not occur. Any such incident may materially harm our business, reputation, and future financial results and may require us to expend significant resources to address these problems, including notification under data privacy regulations. In addition, our employees (including temporary and seasonal employees) and contractors may have access to sensitive and

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personal information of our customers, clients, and employees. While we conduct background checks of our employees and these other individuals and limit access to systems and data, it is possible that one or more of these individuals may circumvent these controls, resulting in a security breach. In addition, we rely on third party vendors to host certain of our sensitive and personal information and data. While we conduct due diligence on these third party partners with respect to their security and business controls, we may not have the ability to effectively monitor or oversee the implementation of these control measures, and, in any event, individuals or third parties may be able to circumvent and/or exploit vulnerabilities that may exist in these security and business controls, resulting in a loss of sensitive and personal customer, client, or employee information and data.
Despite the measures we have taken and may in the future take to address and mitigate cybersecurity and technology risks, we cannot assure that our systems and networks will not be subject to breaches or interference. Any such event may result in operational disruptions as well as unauthorized access to or the disclosure or loss of our proprietary information or our customers’ and clients’ personal information, which in turn may result in legal claims, regulatory scrutiny and liability, reputational damage, the incurrence of costs to eliminate or mitigate further exposure, the loss of customers, clients, or advisors, or other damage to our business. While we maintain cyber liability insurance that provides both third-party liability and first-party liability coverages, this insurance is subject to exclusions and may not be sufficient to protect us against all losses. In addition, the trend toward broad consumer and general public notification of such incidents could exacerbate the harm to our business, financial condition, or results of operations. Even if we successfully protect our technology infrastructure and the confidentiality of sensitive data, we may incur significant expenses in connection with our responses to any such attacks as well as the adoption, implementation, and maintenance of appropriate security measures. We could also suffer harm to our business and reputation if attempted security breaches are publicized. We cannot be certain that advances in criminal capabilities, discovery of new vulnerabilities, attempts to exploit vulnerabilities in our systems, data thefts, physical system or network break-ins, inappropriate access, or other developments will not compromise or breach the technology or other security measures protecting the networks and systems used in connection with our businesses.
Our website and transaction management software, data center systems, or the systems of third-party co-location facilities and cloud service providers could fail or become unavailable or otherwise be inadequate, which could materially harm our reputation and result in a material loss of revenues and current or potential customers and clients.
Any system interruptions that result in the unavailability or unreliability of our websites, transaction processing systems, or network infrastructure could materially reduce our revenue and impair our ability to properly process transactions. We use both internally developed and third-party systems, including cloud computing and storage systems, for our online services and certain aspects of transaction processing. Some of our systems are relatively new and untested and thus may be subject to failure or unreliability. Any system unavailability or unreliability may cause unanticipated system disruptions, slower response times, degradation in customer satisfaction, additional expense, or delays in reporting accurate financial information.
Our data centers and cloud service could be susceptible to damage or disruption, which could have a material adverse effect on our business, financial condition, and financial results. Our Tax Preparation and Wealth Management businesses have disaster recovery centers but if their primary data centers fail and those disaster recovery centers do not fully restore the failed environments, our business will suffer. In particular, if such interruption occurs during the tax season, the revenue of our Tax Preparation business would be materially and adversely impacted.
Our systems and operations, and those of our third-party service providers, could be damaged or interrupted by fire, flood, earthquakes, other natural disasters, power loss, telecommunications failure, internet breakdown, break-in, human error, software bugs, hardware failures, malicious attacks, computer viruses, computer denial of service attacks, terrorist attacks, or other events beyond our control. Such damage or interruption may affect internal and external systems that we rely upon to provide our services, take and fulfill customer orders, handle customer service requests, and host other products and services. During the period in which services are unavailable, we will be unable or severely limited in our ability to generate revenues, and we may also be exposed to liability from those third parties to whom we provide services. We could face significant losses as a result of these events, and our business interruption insurance may not be adequate to compensate us for all potential losses.
A drop in our investment performance could materially and adversely affect our revenues and profitability.
Investment performance is a key competitive factor for our Wealth Management segment. Strong investment performance helps to increase client retention and generate sales of products and services. There can be no assurance as to how future investment performance will compare to our competitors, and historical performance is not indicative of future returns. Any drop or perceived drop in investment performance, on an absolute or relative basis, could cause a decline in sales of mutual funds and other investment products, an increase in redemptions and the termination of asset management relationships. These

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impacts may reduce our aggregate amount of assets under management and reduce management fees. Poor investment performance could also adversely affect our ability to expand the distribution of our products through independent financial advisors.
Restrictions on or litigation regarding financial products may materially harm our financial results.
In our Tax Preparation business, we generate revenue from certain financial products related to our tax preparation software and services. These products include prepaid debit cards on which a tax filer may receive his or her tax refund and the ability of certain of our users to have the fees for our services deducted from their tax refund. Any regulation of these products by state or federal governments, or any competing products offered by state and federal tax collection agencies, could materially and adversely impact our revenue from these financial products. In addition, litigation brought by consumers or state or federal agencies relating to these products may result in additional restrictions on the offering of these products. To the extent that any such additional restrictions or legal claims restrict our ability to offer such products, our financial results may materially suffer.
Our Wealth Management business offers products sponsored by third parties, including but not limited mutual funds, insurance, annuities and alternative investments. These products are subject to complex regulations that change frequently. Although HD Vest has controls in place to facilitate compliance with such regulations, there can be no assurance that its interpretation of the regulations will be consistent with various regulators’ interpretations, that its procedures will be viewed as adequate by regulatory examiners, or that the operating subsidiaries will be deemed to be in compliance with regulatory requirements in all material respects. If products sold by the firm were not to perform as anticipated due to market factors or otherwise, or if the product sponsor became insolvent or is otherwise unable to meet its obligations, this would likely result in material litigation and regulatory action against HD Vest relating to its sales of those products.
Registered investment advisors have fiduciary obligations that require us and our advisors to act in the best interests of our clients and to disclose any material conflicts of interest. We may face liabilities for actual or alleged breaches of legal duties to clients with respect to the suitability of the financial products we make available in our open architecture product platform or the investment advice of our financial advisors.
Unanticipated changes in income tax rates, deduction types, or taxation structure may materially and adversely affect our Tax Preparation business.
Changes in the way that state and federal governments structure their taxation regimes may materially and adversely affect our financial results. The introduction of a simplified or flattened taxation structure may make our services less necessary or attractive to individual filers. We also face risk from the possibility of increased complexity in taxation structures, which may encourage some of our customers to seek professional tax advice instead of using our software or services. In the event that such changes to tax structures cause us to lose market share, our results may materially suffer.
If our Tax Preparation business fails to process transactions effectively or fails to adequately protect against disputed or potential fraudulent activities, our revenue and earnings may be materially harmed.
Our Tax Preparation business processes a significant volume and dollar value of transactions on a daily basis, particularly during tax season. Due to the size and volume of transactions that we handle, effective processing systems and controls are essential to ensure that transactions are handled appropriately. Despite our efforts, it is possible that we may make errors or that fraudulent activity may affect our services. In addition to any direct damages and fines that may result from any such problems, which may be substantial, a loss of confidence in our controls may materially harm our business and damage our brand. The systems supporting our Tax Preparation business are comprised of multiple technology platforms, some of which are difficult to scale. If we are unable to effectively manage our systems and processes, we may be unable to process customer data in an accurate, reliable, and timely manner, which may materially harm our business.

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The seasonality of our Tax Preparation business requires a precise development and release schedule and any delays or issues with accuracy or quality may damage our reputation and materially harm our future financial results.
Our tax preparation software and online service must be ready to launch in final form near the beginning of each calendar year to take advantage of the full tax season. We must update the code for our software and service on a precise schedule each year to account for annual changes in tax laws and regulations and ensure that the software and service are accurate. Delayed and unpredictable changes to federal and state tax laws and regulations can cause an already tight development cycle to become even more challenging. If we are unable to meet this precise schedule and we launch our software and service late, we risk losing customers to our competitors. If we cannot develop our software with a high degree of accuracy and quality, we risk errors in the tax returns that are generated. Such errors could result in loss of reputation, lower customer retention, or legal claims, fees, and payouts related to the warranty on our software and service.
Risk management policies and procedures for our Tax Preparation and Wealth Management business may not be fully effective in identifying or mitigating risk exposure in all market environments or against all types of risk, including employee and financial advisor misconduct.
We are subject to the risks of errors and misconduct by our employees and financial advisors, such as fraud, non-compliance with policies, recommending transactions that are not suitable, and improperly using or disclosing confidential information. Although we have internal controls in place, these issues are difficult to detect in advance and deter, and could materially harm our business, results of operations or financial condition. We are further subject to the risk of nonperformance or inadequate performance of contractual obligations by third-party vendors of products and services that are used in our businesses. Management of operational, legal and regulatory risks requires, among other things, policies and procedures to record properly and verify a large number of transactions and events, and these policies and procedures may not be fully effective in mitigating our risk exposure in all market environments or against all types of risk. Insurance and other traditional risk-shifting tools may be held by or available to us in order to manage certain exposures, but they are subject to terms such as deductibles, coinsurance, limits and policy exclusions, as well as the risk of counterparty denial of coverage, default or insolvency.
Increased government regulation of our business may harm our operating results.
We are subject to federal, state, and local laws and regulations that affect our activities, including, without limitation, areas of labor, advertising, tax, financial services, data privacy and security requirements, digital content, consumer protection, real estate, billing, promotions, quality of services, intellectual property ownership and infringement, anti-corruption, foreign exchange controls and cash repatriation restrictions, anti-competition, environmental, health, and safety. There have been significant new regulations and heightened focus by the government on many of these areas, as well as in areas such as insurance and healthcare (including, for example, the Affordable Care Act). As we complete our Strategic Transformation and expand our products and services and revise our business models, we may become subject to additional government regulation or increased regulatory scrutiny. Regulators may adopt new laws or regulations or their interpretation of existing laws or regulations may differ from ours as well as the laws of other jurisdictions in which we operate. These regulatory requirements could impose significant limitations, require changes to our business, require notification to customers, clients, or employees of a security breach, restrict our use of personal information, or cause changes in customer purchasing behavior that may make our business more costly, less efficient, or impossible to conduct, and may require us to modify our current or future products or services, which may materially harm our future financial results.
The tax preparation industry continues to receive heightened attention from federal and state governments. New legislation, regulation, public policy considerations, changes in the cybersecurity environment, litigation by the government or private entities, or new interpretations of existing laws may result in greater oversight of the tax preparation industry, restrict the types of products and services that we can offer or the prices we can charge, or otherwise cause us to change the way we operate our Tax Preparation business or offer our tax preparation products and services. We may not be able to respond quickly to such regulatory, legislative and other developments, and these changes may in turn increase our cost of doing business and limit our revenue opportunities. In addition, if our practices are not consistent with new interpretations of existing laws, we may become subject to lawsuits, penalties, and other liabilities that did not previously apply. We are also required to comply with a variety of state revenue agency standards in order to successfully operate our tax preparation and electronic filing services. Changes in state-imposed requirements by one or more of the states, including the required use of specific technologies or technology standards, may significantly increase the costs of providing those services to our customers and may prevent us from delivering a quality product to our customers in a timely manner and at an acceptable price.
Our Wealth Management business is subject to certain additional financial industry regulations and supervision, including by the SEC, FINRA, state securities and insurance regulators, and other regulatory authorities. Our failure to comply with the

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laws, rules, and regulations promulgated by federal regulatory bodies and the regulatory authorities in each of the states and other jurisdictions in which we do business could result in the restriction of the ongoing conduct or growth, or even liquidation of, parts of our business and otherwise materially impact our financial condition, results of operations, and liquidity. These regulatory authorities continuously review legislative and regulatory initiatives and may adopt new or revised laws, regulations, or interpretations, and there can also be no assurance that other federal or state agencies will not attempt to further regulate our business. The Dodd-Frank Act, enacted into law in 2010, called for sweeping changes in the supervision and regulations of the wealth management industry. Regulators implementing the Dodd-Frank Act have adopted, proposed to adopt, and will in the future adopt regulations that we expect will materially impact the manner in which we will market HD Vest products and services, manage HD Vest operations, and interact with regulators.
In addition, the Department of Labor (“DOL”) has proposed regulations seeking to change the definition of who is a fiduciary under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), and how such advice must be provided to account holders in ERISA plans and individual retirement accounts (“IRAs”). These regulations are expected to focus on conflicts of interest related to recommendations made by financial advisors to clients holding qualified accounts and also on how financial advisors are able to solicit rollovers. IRAs make up a majority of HD Vest's assets under management and administration. We cannot predict whether or when the regulations may be finalized, or how any final regulations may differ from the previously proposed regulations. DOL recently sent the regulations to the Office of Management and Budget for review, which could mean final regulations are imminent. The final regulations may negatively impact how we receive fees, how we compensate our advisors, how we are able to retain advisors, and how we design our investment products and services for accounts covered by the rule, any of which could materially and adversely impact our results of operations.
Our ability to comply with all applicable laws, rules and regulations, and interpretations is largely dependent on our establishment and maintenance of compliance, audit, and reporting systems and procedures, as well as our ability to attract and retain qualified compliance, audit, and risk management personnel. While we have adopted systems, policies, and procedures reasonably designed to comply or facilitate compliance with all applicable laws, rules and regulations, and interpretations, these systems, policies, and procedures may not be fully effective. There can be no assurance that we will not be subject to investigations, claims, or other actions or proceedings by regulators or third-parties with respect to our past or future compliance with applicable laws, rules, and regulations, the outcome of which may have a material adverse effect on our financial condition and results of operations.
HD Vest distributes its products and services through financial advisors who affiliate with the firm as independent contractors. There can be no assurance that legislative, judicial, or regulatory (including tax) authorities will not introduce proposals or assert interpretations of existing rules and regulations that would change, or at least challenge, the classification of our financial advisors as independent contractors. Although we believe we have properly classified our advisors as independent contractors, the U.S. Internal Revenue Service or other U.S. federal or state authorities or similar authorities may determine that we have misclassified our advisors as independent contractors for employment tax or other purposes and, as a result, seek additional taxes from us or attempt to impose fines and penalties, which could have a material adverse effect on our business model, financial condition, and results of operations.
Our business depends on our strong reputation and the value of our brands, which could be negatively impacted by poor performance.
Developing and maintaining awareness of our brands is critical to achieving widespread acceptance of our existing and future products and services and is an important element in attracting new customers and clients. Adverse publicity (whether or not justified) relating to regulatory proceedings or other events or activities attributed to our businesses, our employees, our vendors, or our partners may tarnish our reputation and reduce the value of our brands. In addition, if we are unable to successfully integrate HD Vest or if we are unable to develop awareness of the HD Vest brand, our reputation could be damaged. Damage to our reputation and loss of brand equity may reduce demand for our products and services and have a material adverse effect on our future financial results. Such damage also would require additional resources to rebuild our reputation and restore the value of the brands.
If others claim that our services infringe their intellectual property rights, we may be forced to seek expensive licenses, reengineer our services, engage in expensive and time-consuming litigation, or stop marketing and licensing our services.
Companies and individuals with rights relating to the technology industry have frequently resorted to litigation regarding intellectual property rights. These parties have in the past made and may in the future make claims against us alleging infringement of patents, copyrights, trademarks, trade secrets, or other intellectual property or proprietary rights, or alleging unfair competition or violations of privacy or publicity rights. Responding to any such claims could be time-consuming, result

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in costly litigation, divert management’s attention, cause product or service release delays, or require removal or redesigning of our products or services, payment of damages for infringement, or entry into royalty or licensing agreements. Our technology, services, and products may not be able to withstand any third-party claims or rights against their use. In some cases, the ownership or scope of an entity’s or person’s rights is unclear. In addition, the ownership or scope of such rights may be altered by changes in the legal landscape, such as through developments in U.S. or international intellectual property laws or regulations or through court, agency, or regulatory board decisions. If a successful claim of infringement were made against us and we could not develop non-infringing technology or content, or license the infringed or similar technology or content, on a timely and cost-effective basis, our financial condition and results of operations could be materially and adversely affected.
We do not regularly conduct patent searches to determine whether the technology used in our products or services infringes patents held by third parties. Patent searches may not return every issued patent or patent application that may be deemed relevant to a particular product or service. It is therefore difficult to determine, with any level of certainty, whether a particular product or service may be construed as infringing a current or future U.S. or foreign patent.
We rely heavily on our technology and intellectual property, but we may be unable to adequately or cost-effectively protect or enforce our intellectual property rights, thereby weakening our competitive position and negatively impacting our business and financial results. We may have to litigate to enforce our intellectual property rights, which can be time consuming, expensive, and difficult to predict.
To protect our rights in our services and technology, we rely on a combination of copyright and trademark laws, patents, trade secrets, confidentiality agreements with employees and third parties, and protective contractual provisions. We also rely on laws pertaining to trademarks and domain names to protect the value of our corporate brands and reputation. Despite our efforts to protect our proprietary rights, unauthorized parties may copy aspects of our services or technology, obtain and use information, marks, or technology that we regard as proprietary, or otherwise violate or infringe our intellectual property rights. In addition, it is possible that others could independently develop substantially equivalent intellectual property. If we do not effectively protect our intellectual property, or if others independently develop substantially equivalent intellectual property, our competitive position could be materially weakened.
Effectively policing the unauthorized use of our services and technology is time-consuming and costly, and the steps taken by us may not prevent misappropriation of our technology or other proprietary assets. The efforts we have taken to protect our proprietary rights may not be sufficient or effective, and unauthorized parties may copy aspects of our services, use similar marks or domain names, or obtain and use information, marks, or technology that we regard as proprietary. In some cases, the ownership or scope of an entity’s or person’s rights is unclear and may also change over time, including through changes in U.S. or international intellectual property laws or regulations or through court, agency, or regulatory board decisions.
We may have to litigate to enforce our intellectual property rights, to protect our trade secrets, or to determine the validity and scope of others’ proprietary rights, which are sometimes not clear or may change. Litigation can be time-consuming and expensive, and the outcome can be difficult to predict.
If we are unable to hire, retain, and motivate highly qualified employees, including our key employees, we may not be able to successfully manage our businesses.
Our future success depends on our ability to identify, attract, hire, retain, and motivate highly skilled management, technical, sales and marketing, and corporate development personnel, including personnel with experience and expertise in the wealth management, tax preparation, and technology industries to support our new strategic focus. Qualified personnel with experience relevant to our businesses are scarce, and competition to recruit them is intense. If we fail to successfully hire and retain a sufficient number of highly qualified employees, we may have difficulties in supporting or expanding our businesses. Realignments of resources, reductions in workforce, or other operational decisions have created and could continue to create an unstable work environment and may have a negative effect on our ability to hire, retain, and motivate employees.
As part of our announcement on October 14, 2015 with respect to the Strategic Transformation, we announced a leadership succession plan under which William J. Ruckelshaus will resign his position as President and Chief Executive Officer when a permanent successor has been identified. Following such announcement, our Board of Directors commenced and is currently engaged in a search process to identify, evaluate and select a new President and Chief Executive Officer to lead Blucora through the Strategic Transformation. Our business and operations are substantially dependent on the performance of our key employees. Changes of management or key employees may disrupt operations, which may materially and adversely affect our business and financial results or delay achievement of our business objectives. In addition, if we lose the services of one or more key employees and are unable to recruit and retain a suitable successor, we may not be able to successfully and

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timely manage our business or achieve our business objectives. There can be no assurance that any retention program we initiate will be successful at retaining employees, including key employees.
We use stock options, restricted stock units, and other equity-based awards to recruit and retain senior level employees. With respect to those employees to whom we issue such equity-based awards, we face a significant challenge in retaining them if the value of equity-based awards in aggregate or individually is either not deemed by the employee to be substantial enough or deemed so substantial that the employee leaves after their equity-based awards vest. If our stock price does not increase significantly above the exercise prices of our options, we may need to issue new equity-based awards in order to motivate and retain our key employees. We may undertake or seek stockholder approval to undertake other equity-based programs to retain our employees, which may be viewed as dilutive to our stockholders or may increase our compensation costs. There can be no assurance that any such programs, if approved by stockholders, or any other incentive programs, would be successful in motivating and retaining our employees.
Restructuring and streamlining our business, including implementing reductions in workforce, discretionary spending, and other expense reductions, may materially harm our businesses.
We have in the past found and may in the future find it advisable to take measures to streamline operations and reduce expenses, including, without limitation, reducing our workforce or discontinuing products or businesses. For example, in connection with our Strategic Transformation (as described in the "Strategic Transformation" section in Part II Item 7 of this annual report), we have effected and will in the future effect significant reductions-in-force. Such measures may place significant strains on our management and employees. We may also incur liabilities from these measures, including liabilities from early termination or assignment of contracts, potential failure to meet obligations due to loss of employees or resources, and resulting litigation. Such effects from restructuring and streamlining could have a materially negative impact on our business, financial condition, and financial results.
We may seek to acquire companies or assets that complement our Wealth Management and Tax Preparation businesses, and our financial and operating results may materially suffer if we are unsuccessful in completing any such acquisitions on favorable terms.
We may seek to acquire companies or assets that complement our Wealth Management and Tax Preparation businesses. There can be no guarantee that any of the opportunities that we evaluate will result in the purchase by us of any business or asset being evaluated, or that, if acquired, we will be able to successfully integrate such acquisition.
If we are successful in our pursuit of any complementary acquisition opportunities, we intend to use available cash, debt and/or equity financing, and/or other capital or ownership structures designed to diversify our capital sources and attract a competitive cost of capital, all of which may change our leverage profile. There are a number of factors that impact our ability to succeed in acquiring the companies and assets we identify, including competition for these companies and assets, sometimes from larger or better-funded competitors. As a result, our success in completing acquisitions is not guaranteed. Our expectation is that, to the extent we are successful, any acquisitions will be additive to our businesses, taking into account potential benefits of operational synergies. However, these new business additions and acquisitions, if any, involve a number of risks and may not achieve our expectations, and, therefore, we could be materially and adversely affected by any such new business additions or acquisitions. There can be no assurance that the short or long-term value of any business or technology that we develop or acquire will be equal to the value of the cash and other consideration that we pay or expenses we incur.
RISKS RELATED TO OUR FINANCING ARRANGEMENTS
We incurred debt in connection with our acquisitions of Monoprice and HD Vest and may incur future debt related to other complementary acquisitions, which may materially and adversely affect our financial condition and future financial results.
In connection with our acquisition of Monoprice, that company incurred debt under a November 2013 credit facility, of which $25.0 million was outstanding as of December 31, 2015. In connection with our acquisition of HD Vest, TaxAct and HD Vest incurred debt under a December 2015 credit facility, of which $400.0 million was outstanding as of December 31, 2015. The Monoprice and TaxAct-HD Vest credit facilities are non-recourse debts. The Monoprice credit facility is guaranteed by Monoprice Holdings, Inc., and the TaxAct-HD Vest credit facility is guaranteed by TaxAct Holdings, Inc. and HD Vest Holdings, Inc., all of which are Blucora’s direct subsidiaries. These debts may materially and adversely affect our financial condition and future financial results by, among other things:


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increasing Monoprice’s, TaxAct’s, or HD Vest's vulnerability to downturns in their businesses, to competitive pressures, and to adverse economic and industry conditions;
requiring the dedication of a portion of our expected cash from Monoprice’s, TaxAct’s, and HD Vest's operations to service the indebtedness, thereby reducing the amount of expected cash flow available for other purposes, including capital expenditures and complementary acquisitions;
requiring cash infusions from Blucora to Monoprice, TaxAct, or HD Vest if any or all are unable to meet their payment or other obligations under the applicable credit facilities;
increasing our interest payment obligations in the event that interest rates rise dramatically; and
limiting our flexibility in planning for, or reacting to, changes in our businesses and our industries.
These credit facilities impose restrictions on Monoprice, TaxAct, and HD Vest, including restrictions on their ability to create liens on their assets and on our ability to incur indebtedness, and require Monoprice, TaxAct, and HD Vest to maintain compliance with specified financial ratios. Their ability to comply with these ratios may be affected by events beyond their control. In addition, these credit facilities include covenants, the breach of which may cause the outstanding indebtedness to be declared immediately due and payable. These debts, and our ability to repay them, may also negatively impact our ability to obtain additional financing in the future and may affect the terms of any such financing.
In addition, we or our subsidiaries may incur additional debt in the future to finance complementary acquisitions or for other purposes. Any additional debt may result in risks similar to those discussed above related to the Monoprice and TaxAct-HD Vest debts or in other risks specific to the credit agreements entered into for those debts.
We sold $201.25 million of Convertible Senior Notes in 2013, which may impact our financial results, result in the dilution of existing stockholders, and restrict our ability to take advantage of future opportunities.
In March 2013, we sold $201.25 million aggregate principal amount of 4.25% Convertible Senior Notes (the “Notes”) due 2019. The accounting for the Notes results in the recognition of interest expense significantly more than the stated interest rate of the Notes and may result in volatility to our financial results. The Notes may be settled in a combination of cash or shares of common stock, indicating that the Notes contain liability and equity components. Upon issuance of the Notes, we were required to establish a separate initial value for the conversion option, the equity component, and bifurcate this value from the value attributable to the debt component of the Notes. As a result, for accounting purposes, we were required to treat the Notes as having been issued with a debt discount to their principal amount. We are accreting the debt discount to interest expense ratably over the term of the Notes, which amounts to an effective interest rate in our financial results that exceeds the stated interest rate of the Notes. This will reduce our earnings and could adversely affect the price at which our common stock trades but will have no effect on the amount of cash interest paid to holders or on our cash flows.
Our intent is to settle conversions of the Notes with cash for the principal amount of the debt and shares of common stock for any related conversion premium. Shares associated with the conversion premium will be included in diluted earnings per share when the average stock price exceeds the conversion price of the Notes and could adversely affect our diluted earnings per share and the price at which our common stock trades.
The conditional conversion feature of the Notes, if triggered, and the requirement to repurchase the Notes upon a fundamental change, may adversely affect our financial condition and financial results. In the event the conditional conversion feature of the Notes is triggered, holders of the Notes will be entitled, at their option, to convert the Notes at any time during specified periods. If we undergo a fundamental change (as described in the applicable Indenture), subject to certain conditions, holders of the Notes may require us to repurchase all or part of their Notes for cash at a price equal to 100% of the principal amount of the Notes, plus accrued and unpaid interest.
The payment of the interest and the repayment of principal at maturity, conversion, or under a fundamental change will require the use of a substantial amount of our cash. If such cash is not available, we may be required to sell other assets or enter into alternate financing arrangements at terms that may or may not be desirable. The existence of the Notes and the obligations we incurred by issuing them may hinder our ability to take advantage of certain future opportunities, such as engaging in future debt or equity financing activities, which may in turn reduce or impair our ability to acquire new businesses or invest in our existing businesses.

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Existing cash and cash equivalents, short-term investments, and cash generated from operations may not be sufficient to meet our anticipated cash needs for servicing debt, working capital, and capital expenditures.
Although we believe that existing cash and cash equivalents, short-term investments, and cash generated from operations will be sufficient to meet our anticipated cash needs for servicing debt, working capital, and capital expenditures for at least the next 12 months, the underlying levels of revenues and expenses that we project may not prove to be accurate. In March 2013, we sold $201.25 million aggregate principal amount of 4.25% Convertible Senior Notes due 2019. In addition, as of December 31, 2015, Monoprice had $25.0 million outstanding under the credit facility entered into in November 2013, and HD Vest and TaxAct had $400.0 million outstanding under the credit facility entered into in December 2015. Servicing these debts will require the dedication of a portion of our expected cash flow from operations, thereby reducing the amount of our cash flow available for other purposes. In addition, our ability to make scheduled payments of the principal of, to pay interest on, or to refinance our indebtedness depends on our future performance, which is subject to economic, financial, competitive, and other factors beyond our control. Our businesses may not continue to generate cash flow from operations in the future sufficient to service our debt and make necessary capital expenditures. If we are unable to generate such cash flow, we may be required to adopt one or more alternatives, such as selling assets, restructuring debt, or obtaining additional equity capital on terms that may be onerous or highly dilutive. Our ability to refinance our indebtedness will depend on the capital markets and our financial condition and results at such time. We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on our debt obligations.
In addition, we may evaluate complementary acquisitions of businesses, products, or technologies from time to time. Any such transactions, if completed, may use a significant portion of our cash balances and marketable investments. If we are unable to liquidate our investments when we need liquidity for complementary acquisitions or for other business purposes, we may need to change or postpone such acquisitions or find alternative financing for them. We may seek additional funding through public or private financings, through sales of equity, or through other arrangements. Our ability to raise funds may be materially and adversely affected by a number of factors, including factors beyond our control, such as economic conditions in the markets in which we operate and increased uncertainty in the financial, capital, and credit markets. Adequate funds may not be available when needed or may not be available on favorable terms. If we raise additional funds by issuing equity securities, dilution to existing stockholders may result. If funding is insufficient at any time in the future, we may be unable, or delayed in our ability, to develop or enhance our products or services, take advantage of business opportunities, or respond to competitive pressures, any of which could materially harm our business.
RISKS RELATED TO OUR DISCONTINUED OPERATIONS
The current challenges in the Search and Content business may continue.
Our Search and Content business has faced significant challenges, beginning in early 2014 and continuing to the present. These challenges have resulted in significant declines in the financial results for this business, and if current trends cannot be reversed, the ability of this business to operate profitably will be significantly challenged in future periods. The continuing challenges include, among other things, limitations in InfoSpace's ability to monetize its mobile advertising offering as a result of changes in our agreement with Google, losses of distribution partners, and suspended or limited access to its services for certain distribution partners and our own sites due to regular monitoring of policy and compliance requirements. Although InfoSpace has addressed, to varying degrees, some of these challenges, it has been unable to address all of them, and additional issues have emerged, leading to continued and significant pressure on our Search and Content business. These challenges may be exacerbated by our announcement that we intend to divest the Search and Content business. If InfoSpace is unable to successfully address its current challenges, or if new issues emerge, it is likely to see a continued material adverse effect on its Search and Content business, and our efforts to divest the business at a price we deem adequate, or at all, may be impaired.
InfoSpace may be unable to compete successfully in the search market.
InfoSpace faces intense competition in the search market. Many of its competitors have substantially greater financial, technical, and marketing resources, larger customer bases, longer operating histories, more developed infrastructures, greater brand recognition, better access to vendors, or more established relationships in the industry than it has. Some of the companies that it competes with in the search market are currently Search Customers of InfoSpace, the loss of any of which could harm its business. In addition, it may face increasing competition for search market share from new search startups, mobile search providers, and social media sites and applications. If InfoSpace is unable to match or exceed its competitors’ marketing reach and customer service experience, its business may not be successful and our ability to divest the business at a price we deem adequate, or at all, may be impaired.

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In addition, InfoSpace's search business, and that of most of its distribution partners, is primarily based on searches conducted from browsers and other applications on desktop and laptop computers. As mobile phones, tablets, and other mobile devices increase in popularity, functionality, and usage, mobile searches will constitute an increasing percentage of the search market. Because InfoSpace's search business has been primarily focused on the desktop and laptop markets, it may have less experience and capability in offering and monetizing mobile search services than its competitors. In addition, because it relies on its Search Customers to provide it with search results and advertisements, its ability to innovate for mobile search and to expand in that market is dependent on the cooperation of, and collaboration with, those Search Customers. Under the terms of its current agreement with Google, which took effect on April 1, 2014 and was subsequently amended, InfoSpace's revenue share rate with respect to Google's mobile search advertisements is significantly lower than the revenue share rate for desktop advertisements. As a result, InfoSpace has increased its usage of its other current advertising solutions for mobile and/or found additional mobile advertising solutions and partners. Nonetheless, if InfoSpace cannot develop services and partners that allow it to sufficiently innovate for the mobile search market and if its mobile advertising solutions monetize at a significantly lower level than its desktop advertising solutions, its ability to participate in the market shift to mobile search will be impaired, which will likely have a material adverse effect on its search business, its financial results, and our ability to divest the business at a price we deem adequate, or at all.
Most of InfoSpace's search services revenue is attributable to Google, and the loss or termination of its relationship, or a payment dispute with, Google or any other significant Search Customer would materially harm its business and financial results.
If any existing or future significant Search Customer, such as Google, Yahoo!, or Bing, were to substantially reduce InfoSpace's revenue share rates or substantially reduce, eliminate, or increase the cost of the content it provides to InfoSpace or to its distribution partners, or if InfoSpace was to terminate or substantially reduce the extent of its relationship with any existing or future significant Search Customer, its business results could materially suffer and our ability to divest the business at a price we deem adequate, or at all, may be impaired.
Failure by InfoSpace or its search distribution partners to comply with the policies promulgated by Google, Yahoo!, and Bing may cause that Search Customer to temporarily or permanently suspend the use of its content or terminate its agreement with InfoSpace, or may require it to modify or terminate certain distribution relationships.
If InfoSpace or its search distribution partners fail to meet the policies promulgated by Google, Yahoo!, or Bing for the use of their content, it may not be able to continue to use their content or provide the content to such distribution partners. InfoSpace's agreements with Google, Yahoo!, and Bing give them the ability to suspend the use and the distribution of their content for non-compliance with their requirements and policies and, in the case of breaches of certain other provisions of their agreements, to terminate their agreements with InfoSpace immediately, regardless of whether such breaches could be cured. If InfoSpace's Search Customers were to suspend or terminate their agreements with us, it would not receive any revenue from any property of its or its distribution partner that is affected by the suspended content, and the loss of such revenue could materially harm its business, financial condition and financial results.
InfoSpace may be subject to liability for its use or distribution of information that it gathers or receives from third parties and indemnity protections or insurance coverage may be inadequate to cover such liability.
InfoSpace's search services obtain content and commerce information from third parties and link users, either directly through its own websites or indirectly through the web properties of its distribution partners, to third-party webpages and content in response to search queries and other requests. These services could expose InfoSpace to legal liability from claims relating to such third-party content and sites, the manner in which these services are distributed and displayed by InfoSpace or its distribution partners, or how the content provided by its Search Customers was obtained or provided by its Search Customers. This could subject InfoSpace to legal liability for such things as defamation, negligence, intellectual property infringement, violation of privacy or publicity rights, and product or service liability, among others. The laws or regulations of certain jurisdictions may also deem some content illegal, which also may expose it to liability. Regardless of the legal merits of any such claims, they could result in costly litigation, be time-consuming to defend, and divert management’s attention and resources. If there were a determination that InfoSpace had violated third-party rights or applicable law, it could incur substantial monetary liability, be required to enter into costly royalty or licensing arrangements (if available), or be required to change its business practices. InfoSpace is also subject to laws and regulations, both in the United States and abroad, regarding the collection and use of end user information and search-related data. If it does not comply with these laws and regulations, it may be exposed to legal liability, which could negatively impact its financial results and our ability to divest the business at a price we deem adequate, or at all, may be impaired.

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Our efforts to transition our Search and Content business may not be successful.
As a result of the challenges discussed above, we have invested in initiatives to transition our Search and Content business to methods of monetization that can be more viable long term. These initiatives are targeted at business opportunities that we believe are promising, but the initiatives are still in their early stages, and there can be no assurance that we will identify viable alternate monetization methods, that we will successfully execute the changes necessary for this transition, that this transition will occur on a time line sufficient to offset declines in the business, that we will identify and attract partners needed for this transition, or that our Search Customers will permit the changes necessary for this transition. Our transition efforts may be set back by our announcement that we intend to divest our Search and Content business. If the current challenges continue and this transition is not successful, our Search and Content business will likely experience continued declines in its financial results, the ability of this business to operate profitably will be significantly challenged in future periods, and our ability to divest the business at a price we deem adequate, or at all, may be impaired.
The electronics and accessories market is highly competitive, and failure to effectively compete will adversely affect our financial results.
The electronics and accessories market in which our Monoprice business sells products is highly competitive. All of Monoprice’s products face competition from many sellers of similar products, of which some sellers are much larger and more well-known than Monoprice. Monoprice attempts to offer products that provide similar quality and technology as those offered by its competitors, but at a lower price, and it attempts to do so with customer service and support that equals or exceeds that of many of its competitors. Many of its competitors have significant competitive advantages over it that may materially and adversely affect its ability to successfully compete on price, quality, technology, service, or support, including larger scale, advanced research facilities, extensive experience in the industry, proprietary intellectual property, greater financial resources, more advanced and extensive supply chain and distribution capacity, better service and support capability, and stronger relationships with suppliers and resellers. If Monoprice is unable to successfully compete on price, quality, technology, service, or support, it may not be able to attract and retain customers which would materially impact our financial results and our ability to divest the business at a price we deem adequate, or at all.
If Monoprice fails to accurately forecast customer demand, its inventory may either exceed demand or be insufficient to meet demand, which could materially harm our financial results.
Monoprice relies on its supplier network to manufacture its products, and as a result, it must forecast demand for its products well in advance of the sale of those products when placing orders from our suppliers. If its orders exceed eventual demand, it will have excess inventory, which will increase its inventory carrying costs, may increase risk that those products will become obsolete prior to sale, and may result in write-offs and/or significant price reductions of that inventory. If orders are insufficient to meet demand, Monoprice may not be able to adequately replace that inventory to meet all customer orders in a timely manner, resulting in back-orders, potential lost sales, and negative customer experiences. Significant failure to accurately forecast customer demand may thus materially impact our short-term financial results and our ability to divest the business at a price we deem adequate, or at all.
Monoprice depends on international third-party manufacturers to supply its electronics and accessories, and risks related to the manufacture and shipping of its products could materially and adversely affect its operations and financial results.
Monoprice outsources most of the manufacturing of its electronics and accessories to suppliers in Asia. It relies on the performance of these suppliers, and any problems with such performance could result in cost overruns, delayed deliveries, shortages, poor quality control, intellectual property issues (both theft of its intellectual property and infringement by its suppliers of the intellectual property of others), and compliance issues. Performance problems by its suppliers could result from many events, including the following: suppliers’ willful or unintentional breach of supply agreements; their failure to comply with applicable laws and regulations; labor unrest at their facilities; civil unrest; natural or human disasters at production or shipping facilities; equipment or other facility failures; their inability to acquire sufficient quantities or qualities of components or raw materials at expected prices; infrastructure problems in their countries (e.g., power or transportation infrastructure problems); their bankruptcy, insolvency, or other financial problems; and requests or requirements by their other customers that may conflict with its requirements. In addition, because most of Monoprice's products are shipped from Asia, the company faces risks related to such shipping, including performance failures by its shipping partners and those of its suppliers, natural disasters, shipping equipment failure, and export and import regulation compliance issues. In late 2014 and early 2015, Monoprice's ability to maintain adequate inventory was impacted by slowdowns in offloading container ships resulting from

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labor disputes. These slowdowns could recur, with the result that the impact on Monoprice's ability to maintain inventory could be impaired.
The performance of Monoprice's manufacturers, suppliers, and shippers is largely outside of its control. As the result of any performance failures, Monoprice may lose sales, or it may be required to adjust product designs, change production schedules, or develop suitable alternative contract manufacturers, suppliers, or shippers, which could result in delays in the delivery of products to its customers and/or increased costs. Any such delays, disruptions, or quality problems could adversely impact its ability to sell its products, harm its reputation, impair its customer relationships, and materially and adversely affect our financial condition and results of operations.
Monoprice's electronics and accessories could experience quality or safety defects that could result in damage to our reputation, require it to provide replacement products, or cause it to institute product recalls.
We expect that all of Monoprice's electronics and accessories will meet or exceed all applicable standards for quality and safety. Monoprice monitors and attempts to address any quality or safety issues during the design and manufacturing processes, but some problems or defects may not be identified until after introduction and shipment of products to consumers. Resolving such problems or defects may result in increased costs related to production and shipment of replacement parts or products, increased customer support requirements, and redesign and manufacture of products. If Monoprice is unable to fix defects in a timely manner or adequately address quality control issues, its relationships with its customers may be impaired, its reputation may suffer, and it may lose customers. If the problems or defects result in a significant safety hazard, Monoprice may be forced to institute a product recall, resulting in negative publicity, loss of reputation, administrative costs, distraction of personnel from regular duties, and recall, refund, and replacement expenses. In addition, such product recalls may result in disputes with suppliers and customers or lead to adverse proceedings such as arbitration or litigation, which can be costly and expensive and could have a negative impact on our ability to divest the business at a price we deem adequate, or at all.
Product liability claims or regulatory actions could materially and adversely affect Monoprice's financial results or harm its reputation.
As the seller of consumer products, Monoprice faces the possibility that there will be claims for losses or injuries caused by some of its products. In addition to the risk of substantial monetary judgments and penalties that could have a material effect on its financial condition and results of operations, product liability claims or regulatory actions could result in negative publicity that could harm its reputation in the marketplace. Monoprice also could be required to recall and possibly discontinue the sale of possible defective or unsafe products, which could result in adverse publicity and significant expenses. Although Monoprice maintains product liability insurance coverage, potential product liability claims may exceed the amount of coverage or could be excluded under the terms of the policy.
OTHER RISKS
Our stock price has been highly volatile and such volatility may continue.
The trading price of our common stock has been highly volatile. Between January 1, 2014 and December 31, 2015, our closing stock price ranged from $9.55 to $28.73. On February 16, 2016, the closing price of our common stock was $6.61. Our stock price could decline or fluctuate significantly in response to many factors, including the other risks discussed in this report and the following:
actual or anticipated variations in quarterly and annual results of operations;
impairment charges, changes in or loss of material contracts and relationships, dispositions or announcements of complementary acquisitions, or other business developments by us, our partners, or our competitors;
conditions or trends in the tax preparation, wealth management, search and content services, or e-commerce markets;
changes in general conditions in the U.S. and global economies or financial markets;
announcements of technological innovations or new services by us or our competitors;
changes in financial estimates or recommendations by securities analysts;
disclosures of any accounting issues, such as restatements or material weaknesses in internal control over financial reporting;

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equity issuances resulting in the dilution of stockholders;
the adoption of new regulations or accounting standards;
adverse publicity (whether justified or not) with respect to our business; and
announcements or publicity relating to litigation or governmental enforcement actions.
In addition, the equities market has experienced extreme price and volume fluctuations, and our stock has been particularly susceptible to such fluctuations. Often, class action litigation has been instituted against companies after periods of volatility in the price of such companies’ stock. We have been defendants in such class action litigation in prior periods and could be subject to future litigation, potentially resulting in substantial cost and diversion of management’s attention and resources.
Our financial results may fluctuate, which could cause our stock price to be volatile or decline.
Our financial results have varied on a quarterly basis and are likely to continue to fluctuate in the future. These fluctuations could cause our stock price to be volatile or decline. Many factors could cause our quarterly results to fluctuate materially, including but not limited to:
the inability of any of our businesses to meet our expectations;
the seasonality of our Tax Preparation business and the resulting large quarterly fluctuations in our revenues;
the success or failure of our Strategic Transformation and our ability to implement those initiatives in a cost effective manner;
the mix of revenues generated by existing businesses, discontinued operations or other businesses that we develop or acquire;
gains or losses driven by fair value accounting;
litigation expenses and settlement costs;
misconduct by employees and HD Vest financial advisors, which is difficult to detect and deter;
expenses incurred in finding, evaluating, negotiating, consummating, and integrating acquisitions;
impairment or negative performance of the many different industries and counterparties we rely on and are exposed to;
variable demand for our services, rapidly evolving technologies and markets, and consumer preferences;
any restructuring charges we may incur;
any economic downturn, which could result in lower acceptance rates on premium products and services offered by our Wealth Management business and impact the commissions and fee revenues of our financial advisory services;
the level and mix of assets we have under management and administration, which are subject to fluctuation based on market conditions and client activity;
new court rulings, or the adoption of new laws, rules, or regulations, that adversely affect our tax preparation products and services, or our wealth management offerings or that otherwise increase our potential liability or compliance costs;
impairment in the value of long-lived assets or the value of acquired assets, including goodwill, technology, and acquired contracts and relationships; and
the effect of changes in accounting principles or standards or in our accounting treatment of revenues or expenses.
For these reasons, among others, you should not rely on period-to-period comparisons of our financial results to forecast our future performance. Furthermore, our fluctuating operating results may fall below the expectations of securities analysts or investors and financial results volatility could make us less attractive to investors, either of which could cause the trading price of our stock to decline.

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If there is a change in our ownership within the meaning of Section 382 of the Internal Revenue Code, our ability to use our net operating loss carryforwards (“NOLs”) may be severely limited or potentially eliminated.
As of December 31, 2015, we had federal NOLs of $521.1 million that will expire primarily between 2020 and 2024. If we were to have a change of ownership within the meaning of Section 382 of the Internal Revenue Code (defined as a cumulative change of 50 percentage points or more in the ownership positions of certain stockholders owning five percent or more of a company’s common stock over a three-year rolling period), then under certain conditions, the amount of NOLs we could use in any one year could be limited. Our certificate of incorporation imposes certain limited transfer restrictions on our common stock that we expect will assist us in preventing a change of ownership and preserving our NOLs, but there can be no assurance that these restrictions will be sufficient. In addition, other restrictions on our ability to use the NOLs may be triggered by a merger or acquisition, depending on the structure of such a transaction. It is our intention to limit the potential impact of these restrictions, but there can be no guarantee that such efforts will be successful. If we are unable to use our NOLs before they expire, or if the use of this tax benefit is severely limited or eliminated, there could be a material reduction in the amount of after-tax income and cash flow from operations, and it could have an effect on our ability to engage in certain transactions.
Delaware law and our charter documents may impede or discourage a takeover, which could cause the market price of our shares to decline.
We are a Delaware corporation and the anti-takeover provisions of Delaware law impose various impediments to the ability of a third party to acquire us, even if a change of control would be beneficial to our existing stockholders. For example, Section 203 of the Delaware General Corporation Law may discourage, delay, or prevent a change in control by prohibiting us from engaging in a business combination with an interested stockholder for a period of three years after the person becomes an interested stockholder. In addition, our certificate of incorporation and bylaws contain provisions that may discourage, delay, or prevent a third party from acquiring us without the consent of our board of directors, even if doing so would be beneficial to our stockholders. Provisions of our charter documents that could have an anti-takeover effect include:
the classification of our board of directors into three groups so that directors serve staggered three-year terms, which may make it difficult for a potential acquirer to gain control of our board of directors;
the requirement for super majority approval by stockholders for certain business combinations;
the ability of our board of directors to authorize the issuance of shares of undesignated preferred stock without a vote by stockholders;
the ability of our board of directors to amend or repeal our bylaws;
limitations on the removal of directors;
limitations on stockholders’ ability to call special stockholder meetings;
advance notice requirements for nominating candidates for election to our board of directors or for proposing matters that can be acted upon by stockholders at stockholder meetings; and
certain restrictions in our charter on transfers of our common stock designed to preserve our federal NOLs.
At our 2009 annual meeting, our stockholders approved an amendment to our certificate of incorporation that restricts any person or entity from attempting to transfer our stock, without prior permission from the Board of Directors, to the extent that such transfer would (i) create or result in an individual or entity becoming a five-percent stockholder of our stock, or (ii) increase the stock ownership percentage of any existing five-percent stockholder. This amendment provides that any transfer that violates its provisions shall be null and void and would require the purported transferee to, upon our demand, transfer the shares that exceed the five percent limit to an agent designated by us for the purpose of conducting a sale of such excess shares. This provision in our certificate of incorporation may make the acquisition of Blucora more expensive to the acquirer and could significantly delay, discourage, or prevent third parties from acquiring Blucora without the approval of our board of directors.

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ITEM 1B. Unresolved Staff Comments
None.
ITEM 2. Properties 
All of our facilities are leased.  We believe our properties are suitable and adequate for our present and anticipated near-term needs.
Continuing operations: Our principal corporate office is located in Bellevue, Washington. The headquarters and data center facility for our HD Vest business are in Irving, Texas, and we have a backup data center for our HD Vest business in Elk Grove, Illinois, along with multiple disaster recovery data center locations across the country through a third party vendor. The headquarters and data center facility for our TaxAct business are in Cedar Rapids, Iowa, and we have a disaster recovery data center for our TaxAct business in Waukee, Iowa.
Discontinued operations: The primary operations for our InfoSpace business are located in Bellevue, Washington, with the exception of the HSW operations, which are located in Atlanta, Georgia. The headquarters and distribution facility for our E-Commerce business are in Rancho Cucamonga, California, with an additional distribution facility located in Hebron, Kentucky.
ITEM 3. Legal Proceedings
See "Note 9: Commitments and Contingencies" of the Notes to Consolidated Financial Statements in Part II Item 8 of this report for information regarding legal proceedings.
ITEM 4. Mine Safety Disclosures
None.

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PART II
ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market for Our Common Stock
Our common stock trades on the NASDAQ Global Select Market under the symbol “BCOR.” The following table sets forth, for the periods indicated, the high and low sales prices for our common stock as reported by the NASDAQ Global Select Market.
 
High
 
Low
Year ended December 31, 2015
 
 
 
First Quarter
$
15.04

 
$
12.88

Second Quarter
$
16.60

 
$
13.65

Third Quarter
$
16.20

 
$
13.14

Fourth Quarter
$
14.81

 
$
9.55

Year ended December 31, 2014
 
 
 
First Quarter
$
28.73

 
$
19.11

Second Quarter
$
19.85

 
$
17.07

Third Quarter
$
18.96

 
$
15.24

Fourth Quarter
$
17.04

 
$
13.12

On February 16, 2016, the last reported sale price for our common stock on the NASDAQ Global Select Market was $6.61 per share.
Holders
As of February 16, 2016, there were 413 holders of record of our common stock. A substantially greater number of holders are beneficial owners whose shares are held of record by banks, brokers, and other financial institutions.
Dividends
There were no dividends paid in 2015 and 2014.
Share Repurchases
See "Note 10: Stockholders' Equity" of the Notes to Consolidated Financial Statements in Part II Item 8 of this report for additional information regarding the Company’s stock repurchase program. Share repurchase activity during the fourth quarter 2015 was as follows (in thousands, except per share data):
Period
Total Number of Shares Purchased
 
Average Price Paid per Share
 
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
 
Approximate Dollar Value of Shares that May Yet be Purchased under the Plans or Programs
October 1-31, 2015

 
$

 

 
$
29,404

November 1-30, 2015
10

 
$
10.25

 
10

 
$
29,299

December 1-31, 2015
53

 
$
10.58

 
53

 
$
28,739

Total
63

 
$
10.52

 
63

 
 

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ITEM 6. Selected Financial Data
The following data are derived from our audited consolidated financial statements and should be read along with "Management’s Discussion and Analysis of Financial Condition and Results of Operations" in Part II Item 7, our consolidated financial statements and notes in Part II Item 8, and other financial information included elsewhere in this report.
 
 
Years ended December 31,
 
 
2015
 
2014
 
2013
 
2012
 
2011
Consolidated Statements of Operations Data:
(In thousands, except per share data)
Revenue
(1) (2) 
$
117,708

 
$
103,719

 
$
91,213

 
$
62,105

 
$

Operating income (loss)
(1) (2) 
(4,807
)
 
4,603

 
(3,478
)
 
(13,138
)
 
(17,190
)
Other income (loss), net
(1) 
(12,542
)
 
(13,489
)
 
(29,568
)
 
(6,630
)
 
1,780

Loss from continuing operations before income taxes
 
(17,349
)
 
(8,886
)
 
(33,046
)
 
(19,768
)
 
(15,410
)
Income tax benefit
(1) (3) 
4,623

 
3,342

 
7,385

 
5,184

 
24,035

Income (loss) from continuing operations
 
(12,726
)
 
(5,544
)
 
(25,661
)
 
(14,584
)
 
8,625

Discontinued operations, net of income taxes
(1) (5) 
(27,348
)
 
(30,003
)
 
50,060

 
37,110

 
12,969

Net income (loss)
 
$
(40,074
)
 
$
(35,547
)
 
$
24,399

 
$
22,526

 
$
21,594

Net income (loss) per share - basic:
 
 
 
 
 
 
 
 
 
 
Continuing operations
 
$
(0.31
)
 
$
(0.13
)
 
$
(0.62
)
 
$
(0.36
)
 
$
0.23

Discontinued operations
 
(0.67
)
 
(0.73
)
 
1.21

 
0.92

 
0.34

Basic net income (loss) per share
 
$
(0.98
)
 
$
(0.86
)
 
$
0.59

 
$
0.56

 
$
0.57

Weighted average shares outstanding, basic
 
40,959

 
41,396

 
41,201

 
40,279

 
37,954

Net income (loss) per share - diluted:
 
 
 
 
 
 
 
 
 
 
Continuing operations
 
$
(0.31
)
 
$
(0.13
)
 
$
(0.62
)
 
$
(0.36
)
 
$
0.22

Discontinued operations
 
(0.67
)
 
(0.73
)
 
1.21

 
0.92

 
0.34

Diluted net income (loss) per share
 
$
(0.98
)
 
$
(0.86
)
 
$
0.59

 
$
0.56

 
$
0.56

Weighted average shares outstanding, diluted
 
40,959

 
41,396

 
41,201

 
40,279

 
38,621

Consolidated Balance Sheet Data (4):
 
Cash, cash equivalents, and investments
 
$
66,774

 
$
293,588

 
$
323,429

 
$
162,295

 
$
293,551

Working capital
(5) (6) (7) 
174,571

 
299,431

 
140,100

 
142,311

 
282,102

Total assets
 
1,299,548

 
865,775

 
969,677

 
581,699

 
394,809

Total long-term liabilities
(5) (6) (7) (8) 
656,122

 
311,692

 
171,268

 
98,945

 
816

Total stockholders’ equity
 
462,284

 
479,025

 
514,070

 
415,450

 
355,105

(1) 
For a discussion of activity in 2013 through 2015, see "Management’s Discussion and Analysis of Financial Condition and Results of Operations" in Part II Item 7 of this report.
(2) 
On January 31, 2012, we acquired TaxAct.
(3) 
In 2011, we recorded a reversal of $18.9 million of the valuation allowance related to our deferred tax assets.
(4) 
On December 31, 2015, we acquired HD Vest. See "Note 3: Business Combinations" of the Notes to Consolidated Financial Statements in Part II Item 8 of this report.
(5) 
On October 14, 2015, we announced plans to divest the Search and Content and E-Commerce businesses. Accordingly, the operating results of these businesses have been presented as discontinued operations for all periods presented, and the related balance sheet data have been classified in their entirety within current assets and current liabilities as of December 31, 2015 but classified within current and long-term assets and liabilities, as appropriate, for prior periods. In addition, we completed the sale of Mercantila on June 22, 2011. The operating results of this business have been presented as discontinued operations for 2011.
(6) 
During 2015 and 2014, the Notes were classified as a long-term liability with an outstanding balance, net of discount and issuance costs, of $185.9 million and $181.1 million, respectively. The Notes were classified as a current liability in 2013. See "Note 8: Debt" of the Notes to Consolidated Financial Statements in Part II Item 8 of this report.
(7) 
We had the following debt activity. See "Note 4: Discontinued Operations" and "Note 8: Debt" of the Notes to Consolidated Financial Statements in Part II Item 8 of this report.

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In 2015, TaxAct and HD Vest entered into a credit facility agreement, which had an outstanding balance, net of any discount and issuance costs and including any short-term portion, of $379.1 million as of December 31, 2015.
In 2013, Monoprice entered into a credit facility agreement, and TaxAct entered into a new credit facility agreement (to replace the one entered into in 2012). These arrangements had total outstanding balances, net of any discounts and including any short-term portions, of $25.0 million and nil, respectively, as of December 31, 2015, $41.8 million and $51.9 million, respectively, as of December 31, 2014, and $49.7 million and $71.4 million, respectively, as of December 31, 2013. The TaxAct credit facility was closed in 2015.
During 2012, TaxAct entered into a credit facility agreement, under which $73.9 million, net of discount and including the short-term portion, was outstanding as of December 31, 2012.
(8) 
During 2013, the Monoprice acquisition resulted in a $27.7 million deferred tax liability related to intangible assets.
ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis in conjunction with the Selected Financial Data and our consolidated financial statements and notes thereto included elsewhere in this report. 
Introduction
Blucora operates two primary businesses: a Wealth Management business and an online Tax Preparation business. The Wealth Management business consists of the operations of HD Vest, which we acquired on December 31, 2015, and, accordingly, has no operating activities in Blucora's 2015 results of operations. HD Vest will be included in Blucora's results of operations beginning on January 1, 2016. HD Vest provides wealth management solutions for financial advisors. The Tax Preparation business consists of the operations of TaxAct and provides digital tax preparation solutions for consumers, small business owners, and tax professionals.
Blucora also operates an internet Search and Content business and an E-Commerce business. The Search and Content business, InfoSpace, provides search services to users of our owned and operated and distribution partners' web properties, as well as online content through HSW. The E-Commerce business consists of the operations of Monoprice and sells self-branded electronics and accessories to both consumers and businesses.
Strategic Transformation
On October 14, 2015, we announced our plans to focus on the technology-enabled financial solutions market, which we refer to as the “Strategic Transformation.” The Strategic Transformation consists of the acquisition of HD Vest, which closed on December 31, 2015, and our intention to divest our Search and Content and E-Commerce businesses in the first half of 2016. The transformation will result in fewer support requirements and, therefore, reduced corporate operating expenses. We also expect to shift our capital allocation priority in the near-term to pay down debt, which includes using at least 50% of the net divestiture proceeds to pay down the new TaxAct - HD Vest 2015 credit facility per the debt agreement. The elements of our Strategic Transformation are described in more detail below. For a discussion of the associated risks, see the section in our Risk Factors (Part I Item 1A. of this report) under the heading "Risks Associated With our Strategic Transformation."
Acquisition: On December 31, 2015, we acquired HD Vest for $611.9 million, including cash acquired and subject to a final working capital adjustment in the first quarter of 2016. HD Vest provides wealth management solutions for financial advisors and is expected to be synergistic with TaxAct as a result of cross-selling opportunities and an expanded addressable market for both HD Vest and TaxAct. The acquisition was funded by a combination of cash on hand and the new TaxAct - HD Vest 2015 credit facility, under which we borrowed $400.0 million. During 2015, we incurred transaction costs of $11.0 million.
See "Note 3: Business Combinations" and "Note 8: Debt" of the Notes to Consolidated Financial Statements in Part II Item 8 of this report for additional information on the HD Vest acquisition and the new credit facility, respectively.
Business divestitures and chief executive officer departure: On October 14, 2015, we announced plans to divest the Search and Content and E-Commerce businesses. Accordingly, our financial condition, results of operations, and cash flows reflect the Search and Content and E-Commerce businesses as discontinued operations for all periods presented. Unless otherwise specified, disclosures in "Management's Discussion and Analysis of Financial Condition and Results of Operations" reflect continuing operations. We expect to incur employee-related business exit costs of approximately $3.0 million, with the majority of these costs recorded in discontinued operations in the fourth quarter of 2015 and in the first quarter of 2016. Some of these costs are contingent or are accelerated upon the sale of the Search and Content and E-Commerce businesses and will

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be recorded or adjusted, as appropriate, at the time of sale. See "Note 4: Discontinued Operations" of the Notes to Consolidated Financial Statements in Part II Item 8 of this report for additional information on discontinued operations.
We also announced the upcoming departure of our chief executive officer once a permanent successor has been identified. We incurred $1.8 million of separation-related costs, most of which were pursuant to the chief executive officer's employment agreement and are to be paid within 60 days of his last day of employment.
Our Continuing Businesses
Wealth Management
The HD Vest business provides wealth management solutions for financial advisors. Specifically, HD Vest provides an integrated platform of brokerage and investment advisory services to assist in making each financial advisor a financial service center for his/her clients. HD Vest generates revenue primarily through commissions, quarterly investment advisory fees based on assets under management, and other fees.
HD Vest was founded to help tax and accounting professionals integrate financial services into their practices. The company recruits independent tax professionals with established tax practices and offers specialized training and support, which allows them to join the HD Vest platform as independent financial advisors. HD Vest's specialist model provides an open-architecture investment platform and technology tools to help financial advisors identify investment opportunities for their clients, while the long-standing tax advisory relationships provide a large client base of possible investment clients. This results in an experienced and stable network of financial advisors, who have multiple revenue-generating options to diversify their earnings sources, thereby eliminating the need for sales quotas.
Our Wealth Management business is subject to certain additional financial industry regulations and supervision, including by the SEC, FINRA, state securities and insurance regulators, and other regulatory authorities. For additional information regarding the potential impact of governmental regulation on our operations and results, see the Risk Factor "Increased government regulation of our business may harm our operating results." in Part I Item 1A of this report.
Tax Preparation
Our TaxAct business provides digital tax preparation solutions for consumers, small business owners, and tax professionals. TaxAct generates revenue primarily through its online service at www.TaxAct.com.
We had four product offerings for consumers for tax year 2014: a free federal edition that handled simple and complex returns; the free federal edition plus a paid state edition; a "deluxe" product offering that contained all of the features of the free federal edition plus taxpayer phone support, import capabilities, return preparation assistance tools, and enhanced reporting; and an "ultimate" product offering that contained all of the deluxe offering features plus the ability to file a state return. We also had a small business product offering for small business owners. TaxAct offers its products with a price lock guarantee, whereby the price at the start of the tax return filing process holds until the return is filed, rather than pricing the product at the time that the tax return is filed. In addition to these core offerings, TaxAct also offers ancillary services such as refund payment transfer, data archive services, audit defense, stored value cards, and other add-on services.
TaxAct’s professional tax preparer software allows professional tax preparers to file individual and business returns for their clients. TaxAct offers flexible pricing and packaging options that help tax professionals save money by paying only for what they need.
Acquisitions
On December 31, 2015, we acquired HD Vest, as described further under "Strategic Transformation" above. On July 2, 2015, TaxAct acquired SimpleTax, a provider of online tax preparation services for individuals in Canada through its website www.simpletax.ca, for C$2.4 million (with C$ indicating Canadian dollars and amounting to approximately $1.9 million based on the acquisition-date exchange rate) in cash and additional consideration of up to C$4.6 million ($3.7 million) that is contingent upon product availability and revenue performance over a three-year period. SimpleTax is included in our financial results beginning on July 2, 2015. In addition, on October 4, 2013, TaxAct acquired Balance Financial, a provider of web and mobile-based financial management software through its website www.balancefinancial.com.
Seasonality

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Our Tax Preparation segment is highly seasonal, with a significant portion of its annual revenue earned in the first four months of our fiscal year. During the third and fourth quarters, the Tax Preparation segment typically reports losses because revenue from the segment is minimal while core operating expenses continue at relatively consistent levels.
Comparability
We reclassified certain amounts related to discontinued operations for all periods presented, including quarterly periods within the years ended December 31, 2015 and 2014, from the amounts previously reported in the annual reports on Form 10-K and quarterly reports on Form 10-Q for those periods. See "Note 4: Discontinued Operations" of the Notes to Consolidated Financial Statements in Part II Item 8 of this report for additional information.
RESULTS OF OPERATIONS
Summary
(In thousands, except percentages)
Years ended December 31,
 
2015
 
Percentage
Change
 
2014
 
Percentage
Change
 
2013
Revenue
$
117,708

 
13
 %
 
$
103,719

 
14
 %
 
$
91,213

Operating income (loss)
$
(4,807
)
 
(204
)%
 
$
4,603

 
(232
)%
 
$
(3,478
)
Year ended December 31, 2015 compared with year ended December 31, 2014
Revenue increased approximately $14.0 million due to an increase in revenue related to our Tax Preparation business.
Operating income decreased approximately $9.4 million, consisting of the $14.0 million increase in revenue and offset by a $23.4 million increase in operating expenses. Key changes in operating expenses were:
$6.7 million increase in the Tax Preparation segment’s operating expenses, primarily due to higher personnel expenses resulting from increased average headcount, higher spending on marketing campaigns for the current tax season, and, to a lesser extent, higher data center costs related to software support and maintenance fees.
$16.7 million increase in corporate-level expense activity, primarily due to higher professional services fees, mainly from transaction costs related to the HD Vest acquisition, and higher personnel expenses, mainly due to increased average headcount to support operations and separation-related costs in connection with the upcoming departure of our chief executive officer. As part of the Strategic Transformation, we announced the upcoming departure of our chief executive officer once a permanent successor has been identified.
Segment results are discussed in the next section.
Year ended December 31, 2014 compared with year ended December 31, 2013
Revenue increased approximately $12.5 million due to an increase in revenue related to our Tax Preparation business.
Operating income increased approximately $8.1 million, consisting of the $12.5 million increase in revenue and offset by a $4.4 million increase in operating expenses. Key changes in operating expenses were:
$3.4 million increase in the Tax Preparation segment’s operating expenses, primarily due to higher personnel expenses resulting from increased average headcount and, to a lesser extent, higher spending on marketing campaigns for the related tax season.
$1.0 million increase in corporate-level expense activity, primarily due to higher corporate business insurance expenses mainly related to the timing of policy premiums in connection with our acquisitions, offset by lower net personnel expenses. Personnel expenses were impacted by decreased bonus amounts consistent with company performance in 2014, offset by increased average headcount to support operations and increased employee separation costs mainly related to leadership changes.
Segment results are discussed in the next section.

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SEGMENT REVENUE/OPERATING INCOME
The revenue and operating income amounts in this section are presented on a basis consistent with accounting principles generally accepted in the U.S. (“GAAP”) and include certain reconciling items attributable to the segments. Segment information appearing in "Note 12: Segment Information" of the Notes to Consolidated Financial Statements in Part II Item 8 of this report is presented on a basis consistent with our current internal management financial reporting. We do not allocate certain general and administrative costs (including personnel and overhead costs), stock-based compensation, depreciation, amortization of acquired intangible assets, other loss, net, and income taxes to segment operating results. We analyzed these separately.
Following the acquisition of HD Vest and the discontinued operations treatment of Search and Content and E-Commerce, we determined that we have two reportable segments: Wealth Management and Tax Preparation. Since the acquisition of HD Vest closed on December 31, 2015, it has no operating activities in Blucora's 2015 results of operations.
Tax Preparation
(In thousands, except percentages)
Years ended December 31,
 
2015

Percentage
Change

2014
 
Percentage
Change
 
2013
Revenue
$
117,708

 
13
%
 
$
103,719

 
14
%
 
$
91,213

Operating income
$
56,984

 
15
%
 
$
49,696

 
22
%
 
$
40,599

Segment margin
48
%
 
 
 
48
%
 
 
 
45
%
Our ability to generate tax preparation revenue largely is driven by our ability to effectively market our tax preparation software and online services (thereby acquiring new users and retaining existing users) and our ability to sell other offerings and ancillary services to consumers and small business owners. We also generate revenue through the professional tax preparer software that we sell to professional tax preparers who use it to prepare and file individual and business returns for their clients. Revenue from the professional tax preparation software is derived in two ways: from per-unit licensing fees for the software and from amounts that we charge to e-file through the software.
We measure our consumer tax preparation customers using the number of accepted federal tax e-files made through our software and services. We consider growth in the number of e-files to be the most important non-financial metric in measuring the performance of the Tax Preparation business. E-file metrics were as follows:
(In thousands, except percentages)
Years ended December 31,
 
2015
 
Percentage
Change
 
2014
 
Percentage
Change
 
2013
Online e-files
5,235

 
(1
)%
 
5,262

 
4
 %
 
5,037

Desktop e-files
273

 
6
 %
 
258

 
(9
)%
 
282

Sub-total e-files
5,508

 
 %
 
5,520

 
4
 %
 
5,319

Free File Alliance e-files (1)
181

 
(18
)%
 
222

 
43
 %
 
155

Total e-files
5,689

 
(1
)%
 
5,742

 
5
 %
 
5,474

(1) 
Free File Alliance e-files are provided as part of an IRS partnership that provides free electronic tax filing services to taxpayers meeting certain income-based guidelines.
Year ended December 31, 2015 compared with year ended December 31, 2014
Tax Preparation revenue increased approximately $14.0 million primarily due to growth in revenue earned from online consumer users, increased sales of ancillary services (mostly related to bank services), and increased sales of our professional tax preparer software. Online consumer revenue grew, despite a slight decrease in e-files, due to growth in average revenue per user, primarily resulting from pricing actions and their related timing when compared to the prior year. Revenue derived from professional tax preparers also contributed to the increase, with an increase in the number of professional preparer units sold and growth in average revenue per user.
Tax Preparation operating income increased approximately $7.3 million, consisting of the $14.0 million increase in revenue and offset by an increase of $6.7 million in operating expenses. The increase in Tax Preparation segment operating expenses primarily was due to an increase in personnel expenses resulting from higher average headcount supporting all

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functions, increased spending on marketing campaigns for the current tax season, and, to a lesser extent, increased data center costs related to software support and maintenance fees.
Year ended December 31, 2014 compared with year ended December 31, 2013
Tax Preparation revenue increased approximately $12.5 million primarily due to a 4% increase in consumer e-files, growth in average revenue per user, increased sales of bank services in the current year, and increasing payments over the past couple years related to data archive services that are recognized as revenue over the related contractual term. Revenue derived from professional tax preparers also contributed to the increase, with a 12% increase in preparer e-files coupled with an increase in the number of professional preparer units sold.
Tax Preparation operating income increased approximately $9.1 million, consisting of the $12.5 million increase in revenue and offset by an increase of $3.4 million in operating expenses. The increase in Tax Preparation segment operating expenses primarily was due to an increase in personnel expenses resulting from higher average headcount supporting all functions and, to a lesser extent, increased spending on marketing campaigns for the related tax season.
Corporate-Level Activity
(In thousands)
Years ended December 31,
 
2015
 
Change
 
2014
 
Change
 
2013
Operating expenses
$
30,507

 
$
16,272

 
$
14,235

 
$
630

 
$
13,605

Stock-based compensation
8,694

 
0

 
8,694

 
195

 
8,499

Depreciation
2,287

 
315

 
1,972

 
141

 
1,831

Amortization of acquired intangible assets
20,303

 
111

 
20,192

 
50

 
20,142

Total corporate-level activity
$
61,791

 
$
16,698

 
$
45,093

 
$
1,016

 
$
44,077

Certain corporate-level activity is not allocated to our segments, including certain general and administrative costs (including personnel and overhead costs), stock-based compensation, depreciation, and amortization of acquired intangible assets. For further detail, refer to segment information appearing in "Note 12: Segment Information" of the Notes to Consolidated Financial Statements in Part II Item 8 of this report.
Year ended December 31, 2015 compared with year ended December 31, 2014
Operating expenses included in corporate-level activity increased primarily due to $11.0 million of transaction costs related to the HD Vest acquisition and a $4.2 million increase in personnel expenses, mainly from higher average headcount to support operations and $1.8 million of separation-related costs in connection with the upcoming departure of our chief executive officer.
Stock-based compensation was unchanged but consisted of the following--a net increase in stock award grants, offset by stock-based compensation on stock options that vested upon the completion of the HSW acquisition in the second quarter of 2014. The Company granted stock options to certain Blucora employees who performed acquisition-related services. The vesting of such options were predicated on completing “qualified acquisitions” under the terms of the options. The completion of the HSW acquisition constituted a qualified acquisition.
Depreciation increased primarily due to depreciation expense on fixed assets attributable to TaxAct.
Amortization of acquired intangible assets was comparable to the prior period.
Year ended December 31, 2014 compared with year ended December 31, 2013
Operating expenses included in corporate-level activity increased primarily due to a $0.5 million increase in corporate business insurance expenses mainly related to the timing of policy premiums in connection with our acquisitions, offset by a $0.1 million net decrease in personnel expenses. The net decrease in personnel expenses consisted of lower bonus amounts consistent with company performance in 2014, offset by higher average headcount to support operations and higher employee separation costs mainly related to leadership changes.

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Stock-based compensation, depreciation, and amortization of acquired intangible assets were comparable to the prior period.
OPERATING EXPENSES 
Cost of Revenue
(In thousands, except percentages)
Years ended December 31,
 
2015

Change

2014

Change

2013
Services cost of revenue
$
6,167

 
$
287

 
$
5,880

 
$
(664
)
 
$
6,544

Amortization of acquired technology
7,546

 
96

 
7,450

 

 
7,450

Total cost of revenue
$
13,713

 
$
383

 
$
13,330

 
$
(664
)
 
$
13,994

Percentage of revenue
12
%
 
 
 
13
%
 
 
 
15
%
We record the cost of revenue for sales of services when the related revenue is recognized. Services cost of revenue consists of costs related to our Tax Preparation business, which include royalties, bank product services fees, and costs associated with the operation of its data centers. Data center costs include personnel expenses (salaries, stock-based compensation, benefits, and other employee-related costs), software support and maintenance, bandwidth and hosting costs, and depreciation. Cost of revenue also includes the amortization of acquired technology.
Year ended December 31, 2015 compared with year ended December 31, 2014
Services cost of revenue increased primarily due to higher data center costs related to software support and maintenance fees.
Amortization of acquired technology was comparable to the prior period.
Year ended December 31, 2014 compared with year ended December 31, 2013
Services cost of revenue decreased primarily due to lower data center operating costs and lower bank product service fees.
Amortization of acquired technology was comparable to the prior period.
Engineering and Technology
(In thousands, except percentages)
Years ended December 31,
 
2015

Change

2014

Change

2013
Engineering and technology
$
5,107

 
$
1,349

 
$
3,758

 
$
509

 
$
3,249

Percentage of revenue
4
%
 
 
 
4
%
 
 
 
4
%
Engineering and technology expenses are associated with the research, development, support, and ongoing enhancements of our offerings, which include personnel expenses (salaries, stock-based compensation, benefits, and other employee-related costs), the cost of temporary help and contractors to augment our staffing, software support and maintenance, and professional services fees.
Year ended December 31, 2015 compared with year ended December 31, 2014
Engineering and technology expenses increased primarily due to a $1.0 million increase in personnel expenses, primarily due to higher average headcount in our Tax Preparation business.
Year ended December 31, 2014 compared with year ended December 31, 2013
Engineering and technology expenses increased primarily due to a $0.4 million increase in personnel expenses, primarily due to higher average headcount in our Tax Preparation business.

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Sales and Marketing
(In thousands, except percentages)
Years ended December 31,
 
2015
 
Change
 
2014
 
Change
 
2013
Sales and marketing
$
45,854

 
$
3,183

 
$
42,671

 
$
2,499

 
$
40,172

Percentage of revenue
39
%
 
 
 
41
%
 
 
 
44
%
Sales and marketing expenses consist principally of marketing expenses associated with our TaxAct business (which include television, radio, online, text, email, and sponsorship channels) and personnel expenses (salaries, stock-based compensation, benefits, and other employee-related costs) for personnel engaged in marketing and selling activities.
Year ended December 31, 2015 compared with year ended December 31, 2014
Sales and marketing expenses increased primarily due to a $2.0 million increase in marketing expenses and a $0.8 million increase in personnel expenses. The increase in marketing expenses was driven by increased marketing campaign activity for the current tax season in our Tax Preparation business. Personnel expenses increased primarily due to higher average headcount in our Tax Preparation business.
Year ended December 31, 2014 compared with year ended December 31, 2013
Sales and marketing expenses increased primarily due to a $1.4 million increase in personnel expenses and a $0.5 million increase in marketing expenses. Personnel expenses increased primarily due to higher average headcount in our Tax Preparation business. The increase in marketing expenses was driven by increased marketing campaign activity for the related tax season in our Tax Preparation business.
General and Administrative
(In thousands, except percentages)
Years ended December 31,
 
2015
 
Change
 
2014
 
Change
 
2013
General and administrative
$
43,563

 
$
18,248

 
$
25,315

 
$
1,969

 
$
23,346

Percentage of revenue
37
%
 
 
 
24
%
 
 
 
26
%
General and administrative (“G&A”) expenses consist primarily of personnel expenses (salaries, stock-based compensation, benefits, and other employee-related costs), the cost of temporary help and contractors to augment our staffing, professional services fees (which include legal, audit, and tax fees), general business development and management expenses, occupancy and general office expenses, business taxes, and insurance expenses.
Year ended December 31, 2015 compared with year ended December 31, 2014
G&A expenses increased primarily due to $11.0 million in transaction costs related to the HD Vest acquisition and a $6.0 million increase in personnel expenses, resulting from higher average headcount to support operations and $1.8 million of separation-related costs in connection with the upcoming departure of our chief executive officer.
Year ended December 31, 2014 compared with year ended December 31, 2013
G&A expenses increased primarily due to a $1.0 million net increase in personnel expenses, resulting from higher average headcount to support operations and higher employee separation costs mainly related to leadership changes, offset by lower bonus amounts consistent with company performance in 2014. The remaining increase in G&A expenses primarily related to a $0.5 million increase in corporate business insurance expenses mainly related to the timing of policy premiums in connection with our acquisitions.

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Depreciation and Amortization of Acquired Intangible Assets
(In thousands, except percentages)
Years ended December 31,
 
2015
 
Change
 
2014
 
Change
 
2013
Depreciation
$
1,521

 
$
221

 
$
1,300

 
$
62

 
$
1,238

Amortization of acquired intangible assets
12,757

 
15

 
12,742

 
50

 
12,692

Total
$
14,278

 
$
236

 
$
14,042

 
$
112

 
$
13,930

Percentage of revenue
12
%
 
 
 
14
%
 
 
 
15
%
Depreciation of property and equipment includes depreciation of computer equipment and software, office equipment and furniture, and leasehold improvements not recognized in cost of revenue. Amortization of acquired intangible assets primarily includes the amortization of customer relationships, which are amortized over their estimated lives.
Year ended December 31, 2015 compared with year ended December 31, 2014
Depreciation and amortization of acquired intangible assets were comparable to the prior period.
Year ended December 31, 2014 compared with year ended December 31, 2013
Depreciation and amortization of acquired intangible assets were comparable to the prior period.
Other Loss, Net
(In thousands)
Years ended December 31,
 
2015
 
Change
 
2014
 
Change
 
2013
Interest income
$
(609
)
 
$
(254
)
 
$
(355
)
 
$
(55
)
 
$
(300
)
Interest expense
9,044

 
(432
)
 
9,476

 
210

 
9,266

Amortization of debt issuance costs
1,133

 
74

 
1,059

 
(40
)
 
1,099

Accretion of debt discounts
3,866

 
272

 
3,594

 
768

 
2,826

Loss on debt extinguishment and modification expense
398

 
398

 

 
(1,593
)
 
1,593

Loss on derivative instrument

 

 

 
(11,652
)
 
11,652

Impairment of equity investment in privately-held company

 

 

 
(3,711
)
 
3,711

Gain on third party bankruptcy settlement
(1,128
)
 
(842
)
 
(286
)
 
253

 
(539
)
Other
(162
)
 
(163
)
 
1

 
(259
)
 
260

Other loss, net
$
12,542

 
$
(947
)
 
$
13,489

 
$
(16,079
)
 
$
29,568

Year ended December 31, 2015 compared with year ended December 31, 2014
The decrease in interest expense primarily related to a lower balance on the TaxAct 2013 credit facility.
The increase in loss on debt extinguishment and modification expense related to the closure of the TaxAct 2013 credit facility in December 2015, at which point the remaining related unamortized debt issuance costs were written off.
The gain on third party bankruptcy settlement related to amounts received in connection with ongoing distributions from the Lehman Brothers estate, of which we are a creditor.
Year ended December 31, 2014 compared with year ended December 31, 2013
The increases in interest expense and accretion of debt discounts primarily related to the Convertible Senior Notes issued in March 2013, offset by decreases in the same categories due to the TaxAct credit facility refinancing in August 2013 and payments of the related principal balance in 2014.

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Loss on debt extinguishment and modification expense related to the TaxAct credit facility refinancing in August 2013. Refer to "Note 8: Debt" of the Notes to Consolidated Financial Statements in Part II Item 8 of this report.
On November 21, 2013, the Warrant to purchase 1.0 million shares of Blucora common stock was exercised in full. The change in the fair value of the Warrant, driven by the change in the value of our common stock, resulted in an $11.7 million loss on derivative instrument during 2013. Refer to "Note 2: Summary of Significant Accounting Policies" and "Note 10: Stockholders' Equity" of the Notes to Consolidated Financial Statements in Part II Item 8 of this report.
In 2013, in connection with a review of our equity method investments for other-than-temporary impairment, we determined that our equity investment in a privately-held company had experienced an other-than-temporary decline in value, due to recurring losses from operations, significant personnel reductions, and a change in the underlying business model. Accordingly, we wrote down the $3.7 million carrying value of the investment to zero, resulting in a loss.
Income Taxes
During 2015, we recorded an income tax benefit of $4.6 million. Income tax differed from taxes at the statutory rates primarily due to the non-deductible acquisition-related transaction costs.
During 2014, we recorded an income tax benefit of $3.3 million. Income taxes did not differ materially from taxes at the statutory rate
During 2013, we recorded an income tax benefit of $7.4 million. Income tax differed from taxes at the statutory rates primarily due to the non-deductible loss on the Warrant derivative (see "Note 10: Stockholders' Equity" of the Notes to Consolidated Financial Statements in Part II Item 8 of this report).
At December 31, 2015, we had gross temporary differences representing future tax deductions of $687.2 million, which represented deferred tax assets primarily comprised of $521.1 million of federal net operating loss carryforwards. We applied a valuation allowance against the net operating loss carryforwards and certain other deferred tax assets. If in the future, we determine that any additional portion of the deferred tax assets is more likely than not to be realized, we will record a benefit to the income statement or additional paid-in-capital, as appropriate.
Discontinued Operations, Net of Income Taxes
(In thousands)
Years ended December 31,
 
2015
 
Change
 
2014
 
Change
 
2013
Discontinued operations, net of income taxes
$
(27,348
)
 
$
2,655

 
$
(30,003
)
 
$
(80,063
)
 
$
50,060

On October 14, 2015, we announced our plans to focus on the technology-enabled financial solutions market, which we refer to as the “Strategic Transformation.” The Strategic Transformation includes plans to divest the Search and Content and E-Commerce businesses. Our results of operations reflect the Search and Content and E-Commerce businesses as discontinued operations for all periods presented. Amounts in discontinued operations include previously unallocated depreciation, amortization, stock-based compensation, income taxes, and other corporate expenses that were attributable to the Search and Content and E-Commerce businesses. In addition, discontinued operations included impairments of goodwill and intangible assets of $15.1 million and $5.9 million related to Search and Content goodwill and the HSW trade name, respectively, and impairments of goodwill and intangible assets of $33.8 million and $4.2 million related to E-Commerce goodwill and the Monoprice trade name, respectively, all recognized in the fourth quarter of 2015. Impairments of goodwill and intangible assets of $59.4 million and $3.2 million related to E-Commerce goodwill and the Monoprice trade name, respectively, also were recognized in the fourth quarter of 2014.
See "Note 4: Discontinued Operations" of the Notes to Consolidated Financial Statements in Part II Item 8 of this report for additional information on discontinued operations. For a discussion of the risks associated with these pending divestitures, see the section in our Risk Factors (Part I Item 1A. of this report) under the heading "Risks Associated With our Strategic Transformation."
NON-GAAP FINANCIAL MEASURES
Adjusted EBITDA: We define Adjusted EBITDA differently for this report than we have defined it in the past, due to the discontinued operations treatment of our Search and Content and E-Commerce businesses as determined in the fourth quarter

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of 2015, as well as transaction costs related to the HD Vest acquisition and separation-related costs in connection with the upcoming departure of our chief executive officer both of which were announced in the fourth quarter of 2015. We define Adjusted EBITDA as income (loss) from continuing operations, determined in accordance with GAAP, excluding the effects of income taxes, depreciation, amortization of acquired intangible assets (including acquired technology), stock-based compensation, acquisition-related transaction costs, CEO separation-related costs, and other loss, net (which primarily includes items such as interest income, interest expense, amortization of debt issuance costs, accretion of debt discounts, loss on debt extinguishment and modification expense, loss on derivative instrument, other-than-temporary impairment loss on equity investment, and gain on third party bankruptcy settlement).
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 income (loss) from continuing operations. Other companies may calculate Adjusted EBITDA differently and, therefore, our Adjusted EBITDA may not be comparable to similarly titled measures of other companies. A reconciliation of our Adjusted EBITDA to income (loss) from continuing operations, which we believe to be the most comparable GAAP measure, is presented below:
(In thousands)
Years ended December 31,
 
2015

2014

2013
Loss from continuing operations
$
(12,726
)
 
$
(5,544
)
 
$
(25,661
)
Stock-based compensation
8,694

 
8,694

 
8,499

Depreciation and amortization of acquired intangible assets
22,590

 
22,164

 
21,973

Acquisition-related transaction costs
10,988

 

 

CEO separation-related costs
1,769

 

 

Other loss, net
12,542

 
13,489

 
29,568

Income tax benefit
(4,623
)
 
(3,342
)
 
(7,385
)
Adjusted EBITDA
$
39,234

 
$
35,461

 
$
26,994

Year ended December 31, 2015 compared with year ended December 31, 2014
The increase in Adjusted EBITDA was due to an increase in segment operating income of $7.3 million related to growth in our Tax Preparation segment, offset by a $3.5 million increase in corporate operating expenses not allocated to the segments primarily related to an increase in personnel expenses (mainly due to higher average headcount to support operations).
Year ended December 31, 2014 compared with year ended December 31, 2013
The increase in Adjusted EBITDA was due to an increase in segment operating income of $9.1 million related to growth in our Tax Preparation segment, offset by a $0.6 million increase in corporate operating expenses not allocated to the segments primarily related to an increase in corporate business insurance expenses (mainly due to the timing of policy premiums in connection with our acquisitions).
Non-GAAP income from continuing operations: We define non-GAAP income from continuing operations differently for this report than we have defined it in the past, due to the discontinued operations treatment of our Search and Content and E-Commerce businesses as determined in the fourth quarter of 2015, as well as transaction costs related to the HD Vest acquisition and separation-related costs in connection with the upcoming departure of our chief executive officer both of which were announced in the fourth quarter of 2015. For this report, we define non-GAAP income from continuing operations as income (loss) from continuing operations, determined in accordance with GAAP, excluding the effects of stock-based compensation, amortization of acquired intangible assets (included acquired technology), accretion of debt discount on the Convertible Senior Notes, loss on debt extinguishment and modification expense, loss on derivative instrument, other-than-temporary impairment loss on equity investment, acquisition-related transaction costs, CEO separation-related costs, 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.

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We believe that non-GAAP income from continuing operations and non-GAAP income from continuing operations 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 income from continuing operations and non-GAAP income from continuing operations per share are common measures used by investors and analysts to evaluate our performance and the valuation of our business. Non-GAAP income from continuing operations 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 income (loss) from continuing operations. Other companies may calculate non-GAAP income from continuing operations differently, and, therefore, our non-GAAP income from continuing operations may not be comparable to similarly titled measures of other companies. A reconciliation of our non-GAAP income from continuing operations to income (loss) from continuing operations, which we believe to be the most comparable GAAP measure, is presented below:
(In thousands, except per share amounts)
Years ended December 31,
 
2015
 
2014
 
2013
Loss from continuing operations
$
(12,726
)
 
$
(5,544
)
 
$
(25,661
)
Stock-based compensation
8,694

 
8,694

 
8,499

Amortization of acquired intangible assets
20,303

 
20,192

 
20,142

Accretion of debt discount on Convertible Senior Notes
3,866

 
3,594

 
2,674

Loss on debt extinguishment and modification expense
398

 

 
1,593

Loss on derivative instrument

 

 
11,652

Impairment of equity investment in privately-held company

 

 
3,711

Acquisition-related transaction costs
10,988

 

 

CEO separation-related costs
1,769

 

 

Cash tax impact of adjustments to GAAP net income
(236
)
 
(151
)
 
(209
)
Non-cash income tax benefit
(4,857
)
 
(3,459
)
 
(7,441
)
Non-GAAP income from continuing operations
$
28,199

 
$
23,326

 
$
14,960

Per diluted share:
 
 
 
 
 
Loss from continuing operations
(0.30
)
 
(0.13
)
 
(0.59
)
Stock-based compensation
0.21

 
0.20

 
0.19

Amortization of acquired intangible assets
0.49

 
0.47

 
0.46

Accretion of debt discount on Convertible Senior Notes
0.09

 
0.08

 
0.06

Loss on debt extinguishment and modification expense
0.01

 

 
0.04

Loss on derivative instrument

 

 
0.27

Impairment of equity investment in privately-held company

 

 
0.08

Acquisition-related transaction costs
0.26

 

 

CEO separation-related costs
0.04

 

 

Cash tax impact of adjustments to GAAP net income
(0.01
)
 
0.00

 
0.00

Non-cash income tax benefit
(0.12
)
 
(0.08
)
 
(0.17
)
Non-GAAP income from continuing operations
$
0.67

 
$
0.54

 
$
0.34

Weighted average shares outstanding used in computing per diluted share amounts, including the "Loss from continuing operations" amount
41,861

 
42,946

 
43,480

Year ended December 31, 2015 compared with year ended December 31, 2014
The increase in non-GAAP income from continuing operations primarily was due an increase in segment operating income of $7.3 million related to growth in our Tax Preparation segment, offset by a $3.5 million increase in corporate operating expenses not allocated to the segments primarily related to an increase in personnel expenses (mainly due to higher average headcount to support operations).

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Year ended December 31, 2014 compared with year ended December 31, 2013
The increase in non-GAAP income from continuing operations primarily was due to an increase in segment operating income of $9.1 million related to growth in our Tax Preparation segment, offset by a $0.6 million increase in corporate operating expenses not allocated to the segments primarily related to an increase in corporate business insurance expenses (mainly due to the timing of policy premiums in connection with our acquisitions).
LIQUIDITY AND CAPITAL RESOURCES
Cash, Cash Equivalents, and Short-Term Investments
Our principal source of liquidity is our cash, cash equivalents, and short-term investments. As of December 31, 2015, we had cash and marketable investments of $66.8 million, consisting of cash and cash equivalents of $55.5 million and available-for-sale investments of $11.3 million. We generally invest our excess cash in high quality marketable investments. These investments generally include debt instruments issued by the U.S. federal government and its agencies, international governments, municipalities and publicly-held corporations, as well as commercial paper, insured time deposits with commercial banks, and money market funds invested in securities issued by agencies of the U.S., although specific holdings can vary from period to period depending upon our cash requirements. Our financial instrument investments held at December 31, 2015 had minimal default risk and short-term maturities.
We have financed our operations primarily from cash provided by operating activities. Accordingly, we believe that the cash generated from our operations and the cash and cash equivalents we have on hand will be sufficient to meet our operating, working capital, and capital expenditure requirements for at least the next 12 months. However, the underlying levels of revenues and expenses that we project may not prove to be accurate. For further discussion of the risks to our business related to liquidity, see the paragraph in our Risk Factors (Part I Item 1A of this report) under the heading "Existing cash and cash equivalents, short-term investments, and cash generated from operations may not be sufficient to meet our anticipated cash needs for servicing debt, working capital, and capital expenditures."
Use of Cash
We may use our cash, cash equivalents, and short-term investments balance in the future on investment in our current businesses, for repayment of debt, for stock repurchases and/or the payment of ordinary dividends, or for acquiring companies or assets that complement our Wealth Management and Tax Preparation businesses. We currently are focused on the following areas: product innovation and offering expansion, as well as customer support, education, and training.
On October 14, 2015, we announced our plans to focus on the technology-enabled financial solutions market, which we refer to as the “Strategic Transformation.” Our Strategic Transformation consists of the acquisition of HD Vest, which closed on December 31, 2015, plans to divest our Search and Content and E-Commerce businesses, and plans to reduce corporate operating expenses. We also expect to shift our capital allocation priority in the near-term to pay down debt, which includes using at least 50% of the net divestiture proceeds to pay down the new TaxAct - HD Vest 2015 credit facility per the debt agreement. See the "Strategic Transformation" subsection above for additional detail regarding the related use of cash. Related to the acquisition of HD Vest, we paid $610.5 million in cash, which was funded by a combination of cash on hand and the new TaxAct - HD Vest 2015 credit facility. The TaxAct - HD Vest 2015 credit facility agreement includes a revolving credit loan and a term loan and amounts to $425.0 million. The final maturity dates of the revolving credit loan and term loan are December 31, 2020 and December 31, 2022, respectively. The interest rate is variable, based on LIBOR plus a margin that depends upon TaxAct and HD Vest's combined net leverage to EBITDA ratio. The credit facility includes financial and operating covenants, including a net leverage to EBITDA ratio, which are defined further in the agreement. We borrowed $400.0 million on the credit facility in 2015.
On July 2, 2015, TaxACT acquired SimpleTax for C$2.4 million (with C$ indicating Canadian dollars and amounting to approximately $1.9 million based on the acquisition-date exchange rate) in cash and additional consideration of up to C$4.6 million ($3.7 million) that is contingent upon product availability and revenue performance over a three-year period.
On August 30, 2013, TaxAct entered into an agreement to refinance a 2012 credit facility on more favorable terms. Under that 2012 credit facility, TaxAct borrowed $100.0 million, of which $25.5 million was repaid in 2012, $10.0 million in April 2013, and the remaining $64.5 million in August 2013, the latter amount in connection with the refinancing of this credit agreement. TaxAct initially borrowed $71.4 million under the 2013 credit facility and had net repayment activity of approximately $51.9 million and $19.4 million in 2015 and 2014, respectively. TaxAct had the right to permanently reduce, without premium or penalty, the entire credit facility at any time. In accordance with this provision, TaxAct repaid the

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outstanding amount under the credit facility in full in 2015, at which point the credit facility was closed and the remaining related debt issuance costs were written off. For further detail, see "Note 8: Debt" of the Notes to Consolidated Financial Statements in Part II Item 8 of this report.
On March 15, 2013, we issued $201.25 million principal amount of 4.25% Convertible Senior Notes (the “Notes”). The Notes mature April 1, 2019, unless earlier purchased, redeemed, or converted in accordance with their terms. The Notes bear interest at a rate of 4.25% per year, payable semi-annually in arrears beginning on October 1, 2013. We received net proceeds from the offering of approximately $194.8 million. There are no financial or operating covenants relating to the Notes. As of May 2013, we are permitted to settle conversions in cash, shares of our common stock, or a combination of cash and shares of our common stock, at our election. We intend to satisfy any conversion premium by issuing shares of our common stock. For further detail, see "Note 8: Debt" of the Notes to Consolidated Financial Statements in Part II Item 8 of this report.
Our Board of Directors approved a stock repurchase program whereby we may purchase our common stock in open-market transactions. In May 2014, our Board of Directors increased the repurchase authorization, such that we may repurchase up to $85.0 million of our common stock, and extended the repurchase period through May 2016. We had the following open-market share purchase activity, exclusive of purchase and administrative costs:
(In thousands, except per share data)
Total Number of Shares Purchased
 
Average Price Paid per Share
 
Total Cost
Year ended December 31, 2015
551

 
$
14.01

 
$
7,713

Year ended December 31, 2014
2,289

 
$
16.85

 
$
38,558

Year ended December 31, 2013
418

 
$
23.95

 
$
9,990

As of December 31, 2015, we may repurchase up to an additional $28.7 million of our common stock under the repurchase program. For further detail, see "Note 10: Stockholders' Equity" of the Notes to Consolidated Financial Statements in Part II Item 8 of this report.
Contractual Obligations and Commitments
Our contractual obligations and commitments are as follows for years ending December 31:
(In thousands)
2016
 
2017
 
2018
 
2019
 
2020
 
Thereafter
 
Total
Operating lease commitments
$
3,871

 
$
3,945

 
$
4,026

 
$
4,105

 
$
3,795

 
$
6,098

 
$
25,840

Purchase commitments
3,082

 
3,002

 
2,530

 

 

 

 
8,614

Debt commitments
33,200

 
32,560

 
20,640

 
221,250

 
10,000

 
290,000

 
607,650

Interest on Notes
8,553

 
8,553

 
8,553

 
4,277

 

 

 
29,936

Acquisition-related contingent consideration liability

 
723

 
962

 
1,266

 

 

 
2,951

Total
$
48,706

 
$
48,783

 
$
36,711

 
$
230,898

 
$
13,795

 
$
296,098

 
$
674,991

For further detail see "Note 9: Commitments and Contingencies" of the Notes to Consolidated Financial Statements in Part II Item 8 of this report.
Off-balance Sheet Arrangements
We have no off-balance sheet arrangements other than operating leases.
Unrecognized Tax Benefits
The above table does not reflect unrecognized tax benefits of approximately $3.4 million, the timing of which is uncertain. For additional discussion on unrecognized tax benefits see "Note 14: Income Taxes" of the Notes to Consolidated Financial Statements in Part II Item 8 of this report.

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Cash Flows
Our cash flows were comprised of the following:
(In thousands)
Years ended December 31,
 
2015
 
2014
 
2013
Net cash provided by operating activities from continuing operations
$
16,341

 
$
20,128

 
$
28,011

Net cash used by investing activities from continuing operations
(336,024
)
 
(54,003
)
 
(121,208
)
Net cash provided (used) by financing activities from continuing operations
328,619

 
(46,465
)
 
196,203

Net cash provided (used) by continuing operations
8,936

 
(80,340
)
 
103,006

Net cash provided (used) by discontinued operations
4,586

 
2,359

 
(51,341
)
Effect of exchange rate changes on cash and cash equivalents
(17
)
 

 

Net increase (decrease) in cash and cash equivalents
$
13,505

 
$
(77,981
)
 
$
51,665

Net cash from the operating activities of continuing operations: Net cash from the operating activities of continuing operations consists of income (loss) from continuing operations, offset by certain non-cash adjustments, and changes in our working capital.
Net cash provided by operating activities was $16.3 million, $20.1 million, and $28.0 million for the years ended December 31, 2015, 2014, and 2013, respectively. The activity in 2015 included an $11.2 million working capital contribution and approximately $5.2 million of non-cash adjustments and a loss from continuing operations. The working capital contribution continued to be driven by accrued expenses and the impact of excess tax benefits from stock-based activity primarily due to utilizing equity net operating loss carryforwards from prior years, and also included separation-related costs accrued in connection with the upcoming departure of our chief executive officer.
The activity in 2014 included a $2.6 million working capital contribution and approximately $17.6 million of non-cash adjustments and a loss from continuing operations. The working capital contribution was driven by accrued expenses and the impact of excess tax benefits from stock-based activity, offset by increased prepaid expense balances related to the timing of TaxAct's spending on marketing campaigns for the related tax season.
The activity in 2013 included a $14.6 million working capital contribution and approximately $13.4 million of non-cash adjustments and a loss from continuing operations. The working capital contribution was driven by accrued expenses and the impact of excess tax benefits from stock-based activity, as well as decreased prepaid expense balances related to the timing of TaxAct's spending on marketing campaigns for the related tax season. The contribution from deferred revenue was attributable to TaxAct revenue arrangements.
Net cash from the investing activities of continuing operations: Net cash from the investing activities of continuing operations primarily consists of cash outlays for business acquisitions, transactions (purchases, as well as proceeds from sales and maturities) related to our investments, and purchases of property and equipment. Our investing activities tend to fluctuate from period to period primarily based upon the level of acquisition activity.
Net cash used by investing activities was $336.0 million, $54.0 million, and $121.2 million for the years ended December 31, 2015, 2014, and 2013, respectively. The activity in 2015 primarily consisted of the acquisitions of HD Vest and SimpleTax for a combined $573.4 million and $1.5 million in purchases of property and equipment, offset by net cash inflows on our available-for-sale investments of $238.7 million. The activity in 2014 primarily consisted of net cash outlays on our available-for-sale investments of $52.0 million and $2.0 million in purchases of property and equipment. The activity in 2013 primarily consisted of net cash outlays on our available-for-sale investments of $112.5 million, the acquisition of Balance Financial for $4.9 million, and $2.4 million in purchases of property and equipment.
Net cash from the financing activities of continuing operations: Net cash from the financing activities of continuing operations primarily consists of transactions related to the issuance of debt and stock. Our financing activities tend to fluctuate from period to period based upon our financing needs due to the level of acquisition activity and market conditions that present favorable financing opportunities.
Net cash provided by financing activities was $328.6 million for the year ended December 31, 2015. The activity in 2015 primarily consisted of $378.3 million in proceeds from the TaxAct - HD Vest credit facility, $8.0 million in excess tax benefits from stock-based activity primarily due to utilizing equity net operating loss carryforwards from prior years, and $3.6 million

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in combined proceeds from the issuance of common stock related to stock option exercises and the employee stock purchase plan. These cash inflows were offset by payments of $51.9 million on the TaxAct 2013 credit facility, stock repurchases of $7.7 million, and $1.5 million in tax payments from shares withheld upon vesting of restricted stock units.
Net cash used by financing activities was $46.5 million for the year ended December 31, 2014. The activity for 2014 primarily consisted of payments of $56.0 million on the TaxAct 2013 credit facility, stock repurchases of $38.7 million, and $2.9 million in tax payments from shares withheld upon vesting of restricted stock units. These cash outflows were offset by approximately $36.6 million in proceeds from the TaxAct 2013 credit facility, $8.1 million in combined proceeds from the issuance of common stock related to stock option exercises and the employee stock purchase plan, and $6.4 million in excess tax benefits from stock-based activity primarily due to utilizing equity net operating loss carryforwards from prior years.
Net cash provided by financing activities was $196.2 million for the year ended December 31, 2013. The activity for 2013 consisted of $200.8 million in combined net proceeds from the Notes and the TaxAct 2013 credit facility, $13.5 million in combined proceeds from the issuance of common stock related to stock option exercises, the employee stock purchase plan, and the Warrant exercise, and $4.3 million in excess tax benefits from stock-based activity primarily due to utilizing equity net operating loss carryforwards from prior years. These cash inflows were offset by a $10.0 million payment on the TaxAct 2012 credit facility, stock repurchases of $10.0 million, and $2.4 million in tax payments from shares withheld upon vesting of restricted stock units.
Critical Accounting Policies and Estimates
This Management’s Discussion and Analysis of Financial Condition and Results of Operations and the disclosures included elsewhere in this Annual Report on Form 10-K are based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, and disclosure of contingencies. In some cases, we could have reasonably used different accounting policies and estimates.
The SEC has defined a company’s most critical accounting policies as the ones that are the most important to the portrayal of the company’s financial condition and results of operations and which require the company to make its most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. On an ongoing basis, we evaluate the estimates used. We base our estimates on historical experience, current conditions, and on various other assumptions that we believe to be reasonable under the circumstances and, based on information available to us at that time, we make judgments about the carrying values of assets and liabilities that are not readily apparent from other sources as well as identify and assess our accounting treatment with respect to commitments and contingencies. Actual results may differ significantly from these estimates under different assumptions, judgments, or conditions. We believe the following critical accounting policies involve the more significant judgments and estimates used in the preparation of our consolidated financial statements. We also have other accounting policies that involve the use of estimates, judgments, and assumptions that are significant to understanding our results. For additional information, see "Note 2: Summary of Significant Accounting Policies" of the Notes to Consolidated Financial Statements in Part II Item 8 of this report.
Tax preparation revenue recognition: We derive service revenue from the sale of tax preparation online services, ancillary service offerings, packaged tax preparation software, and multiple element arrangements that may include a combination of these items. Ancillary service offerings include tax preparation support services, data archive services, e-filing services, bank or reloadable pre-paid debit card services, and other value-added services. This revenue is recorded in the Tax Preparation segment.
Our Tax Preparation segment revenue consists primarily of hosted tax preparation online services, tax preparation support services, data archive services, and e-filing services. We recognize revenue from these services as the services are performed and the four revenue recognition criteria as described in "Note 2: Summary of Significant Accounting Policies" of the Notes to Consolidated Financial Statements in Part II Item 8 of this report are met.
We recognize revenue from the sale of our packaged software when legal title transfers. This is generally when our customers download the software from the Internet or when the software ships.
The bank or reloadable prepaid debit card services are offered to taxpayers as an option to receive their tax refunds in the form of a prepaid bank card or to have the fees for the software and/or services purchased by the customers deducted from their refunds. Other value-added service revenue consists of revenue from revenue sharing and royalty arrangements with third party partners. Revenue for these transactions is recognized when the four revenue recognition criteria described above are

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met; for some arrangements that is upon filing and for other arrangements that is upon our determination of when collectibility is probable.
For software and/or services that consist of multiple elements, we must: (1) determine whether and when each element has been delivered; (2) determine the fair value of each element using the selling price hierarchy of vendor-specific objective evidence (“VSOE”) of fair value if available, third-party evidence (“TPE”) of fair value if VSOE is not available, and estimated selling price (“ESP”) if neither VSOE nor TPE is available; and (3) allocate the total price among the various elements based on the relative selling price method. Once we have allocated the total price among the various elements, we recognize revenue when the revenue recognition criteria described above are met for each element.
VSOE generally exists when we sell the deliverable separately. When VSOE cannot be established, we attempt to establish a selling price for each element based on TPE. TPE is determined based on competitor prices for similar deliverables when sold separately. When we are unable to establish selling price using VSOE or TPE, we use ESP in our allocation of arrangement consideration. ESP is the estimated price at which we would sell the software or service if it were sold on a stand-alone basis. We determine ESP for the software or service by considering multiple factors including, but not limited to, historical stand-alone sales, pricing practices, market conditions, competitive landscape, internal costs, and gross margin objectives.
In some situations, we receive advance payments from our customers. We defer revenue associated with these advance payments and recognize the consideration for each element when we ship the software or perform the services, as appropriate. Advance payments related to data archive services are deferred and recognized over the related contractual term.
Cost of revenue: We record the cost of revenue for sales of services when the related revenue is recognized. "Services cost of revenue" consists of costs related to the Tax Preparation business, which include royalties, bank product service fees, and costs associated with the operation of its data centers. Data center costs include personnel expenses (salaries, stock-based compensation, benefits, and other employee-related costs), software support and maintenance, bandwidth and hosting costs, and depreciation. Cost of revenue also includes the amortization of acquired technology.
Sales and marketing expenses: Sales and marketing expenses consist principally of marketing expenses associated with our TaxAct business (which include television, radio, online, text, email, and sponsorship channels) and personnel expenses (salaries, stock-based compensation, benefits, and other employee-related costs) for personnel engaged in marketing and selling activities.
Stock-based compensation: We measure stock-based compensation at the grant date based on the fair value of the award and recognize it as expense, net of estimated forfeitures, over the vesting or service period, as applicable, of the stock award using the straight-line method. We recognize stock-based compensation over the vesting period for each separately vesting portion of a share-based award as if they were individual share-based awards. We estimate forfeitures at the time of grant and revise those estimates, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
Calculating stock-based compensation relies upon certain assumptions, including the expected term of the stock-based awards, expected stock price volatility, expected interest rate, number and types of stock-based awards, and the pre-vesting forfeiture rate.  If we use different assumptions due to changes in our business or other factors, our stock-based compensation could vary materially in the future.
Income taxes: We account for income taxes under the asset and liability method, under which deferred tax assets, including net operating loss carryforwards, and liabilities are determined based on temporary differences between the book and tax bases of assets and liabilities. We periodically evaluate the likelihood of the realization of deferred tax assets and reduce the carrying amount of the deferred tax assets by a valuation allowance to the extent we believe a portion will not be realized. We consider many factors when assessing the likelihood of future realization of the deferred tax assets, including expectations of future taxable income, recent cumulative earnings experience by taxing jurisdiction, and other relevant factors. There is a wide range of possible judgments relating to the valuation of our deferred tax assets.
We record liabilities to address uncertain tax positions that have been taken in previously filed tax returns or that are expected to be taken in a future tax return. The determination for required liabilities is based upon an analysis of each individual tax position, taking into consideration whether it is more likely than not that the tax position, based on technical merits, will be sustained upon examination. The tax benefit to be recognized in the financial statements from such a position is measured as the largest amount of benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the taxing authority. The difference between the amount recognized and the total tax position is recorded as a liability. The ultimate resolution of these tax positions may be greater or less than the liabilities recorded.

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For additional information about the realization of our deferred tax assets and our valuation allowance, see "Note 14: Income Taxes" of the Notes to Consolidated Financial Statements in Part II Item 8 of this report. For additional information about our net operating loss carryforwards, see the Risk Factor "If there is a change in our ownership within the meaning of Section 382 of the Internal Revenue Code, our ability to use our net operating loss carryforwards (“NOLs”) may be severely limited or potentially eliminated." in Part I Item 1A of this report. For additional information about expectations of future taxable income, see the Risk Factor "Our financial results may fluctuate, which could cause our stock price to be volatile or decline." in Part I Item 1A of this report.
Business combinations and intangible assets including goodwill: We account for business combinations using the acquisition method. The acquisition-date fair value of total consideration includes cash and contingent consideration. Since we are contractually obligated to pay contingent consideration upon the achievement of specified objectives, a contingent consideration liability is recorded at the acquisition date and is classified within Level 3 of the fair value hierarchy because we value the liability utilizing significant inputs not observable in the market. Specifically, we have determined the fair value of the contingent consideration liability based on a probability-weighted discounted cash flow analysis, which includes assumptions related to estimating revenues, the probability of payment, and the discount rate. We review our assumptions related to the fair value of the contingent consideration liability each reporting period and, if there are material changes, revalue the contingent consideration liability based on the revised assumptions, until such contingency is satisfied through payment upon the achievement of the specific objectives. The change in the fair value of the contingent consideration liability is recognized in the consolidated statements of comprehensive income for the period in which the fair value changes. If we use different assumptions due to changes in our business or other factors, the fair value of the contingent consideration liability could vary materially in the future.
Goodwill is calculated as the excess of the acquisition-date fair value of total consideration over the acquisition-date fair value of net assets, including the amount assigned to identifiable intangible assets, and is assigned to reporting units that are expected to benefit from the synergies of the business combination as of the acquisition date. Reporting units are consistent with reportable segments and include the former Search and Content and E-Commerce segments. Identifiable intangible assets with finite lives are amortized over their useful lives on a straight-line basis. Acquisition-related costs, including advisory, legal, accounting, valuation, and other similar costs, are expensed in the periods in which the costs are incurred. The results of operations of acquired businesses are included in the consolidated financial statements from the acquisition date.
Goodwill and intangible assets impairment: We evaluate goodwill and indefinite-lived intangible assets for impairment annually, as of November 30, or more frequently when events or circumstances indicate that impairment may have occurred. As part of the impairment evaluation, we may elect to perform an assessment of qualitative factors. If this qualitative assessment indicates that it is more likely than not that the fair value of a reporting unit (for goodwill) or an indefinite-lived intangible asset is less than its carrying value, or if we elect to bypass the qualitative assessment, we then would proceed with the quantitative impairment test.
The goodwill quantitative impairment test is a two-step process that first compares the carrying values of reporting units to their fair values. If the carrying value of a reporting unit exceeds the fair value, a second step is performed to compute the amount of impairment. This second step determines the current fair values of all assets and liabilities of a reporting unit and then compares the implied fair value of the reporting unit's goodwill to the carrying value of that goodwill. If the carrying value of the reporting unit's goodwill exceeds the implied fair value of the goodwill, an impairment loss is recognized in an amount equal to the excess.
The indefinite-lived intangible asset quantitative impairment test compares the carrying value of the intangible asset to its fair value. If the carrying value of the intangible asset exceeds the fair value, an impairment loss is recognized in an amount equal to the excess.
Fair value typically is estimated using the present value of future discounted cash flows, an income approach. The significant estimates in the discounted cash flow model include the weighted-average cost of capital, long-term rates of revenue growth and/or profitability of our businesses, and working capital effects. The weighted-average cost of capital considers the relevant risk associated with business-specific characteristics and the uncertainty related to each business's ability to achieve the projected cash flows. To validate the reasonableness of the reporting unit fair values, we reconcile the aggregate fair values of our reporting units to the aggregate market value of our common stock on the date of valuation, while considering a reasonable acquisition premium. These estimates and the resulting valuations require significant judgment.
Definite-lived intangible assets are reviewed for impairment when events or circumstances indicate that the carrying value of an asset or group of assets may not be recoverable. The determination of recoverability is based on an estimate of pre-tax undiscounted future cash flows, using our best estimates of future net sales and operating expenses, expected to result from

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the use and eventual disposition of the asset or group of assets over the remaining economic life of the primary asset in the asset group. We measure the amount of the impairment as the excess of the asset's carrying value over its fair value.
In 2015, we performed quantitative assessments for our Search and Content and E-Commerce reporting units as of October 31, due to the October announcement of our plans to divest these businesses, and performed a qualitative assessment for our Tax Preparation reporting unit as of November 30. In 2014, we performed quantitative assessments for each of our reporting units as of November 30. As a result of these assessments, we recorded impairments of goodwill and intangible assets of $15.1 million and $5.9 million related to the Search and Content goodwill and the HSW trade name, respectively. and impairments of goodwill and intangible assets of $33.8 million and $4.2 million related to E-Commerce goodwill and the Monoprice trade name, respectively, all in the fourth quarter of 2015. We also recorded impairments of goodwill and intangible assets of $59.4 million and $3.2 million in the fourth quarter of 2014 related to E-Commerce goodwill and the Monoprice trade name, respectively. Impairments for both periods were recorded in discontinued operations. We also determined that the impairments related to the Search and Content and E-Commerce reporting units were indicators requiring the review of Search and Content and E-Commerce long-lived assets for recoverability. The results of this review indicated that their carrying values were recoverable.
A deterioration in the assumptions used in determining fair value or in other unforeseen events--such as market disruptions and deterioration of the macroeconomic environment or internal challenges related to reorganizations, employee and management turnover, and other trends--could have material negative impacts on our estimates and the resulting valuations, which could lead to a decision to impair goodwill and/or intangible assets in future periods.
For additional information about our goodwill and intangible assets, see "Note 4: Discontinued Operations" and "Note 5: Goodwill and Other Intangible Assets" of the Notes to Consolidated Financial Statements in Part II Item 8 of this report.
Equity method investments: We currently hold equity securities and warrants to purchase equity securities in companies whose securities are not publicly-traded. The equity method is used to account for investments in these companies, if the investment provides us with the ability to exercise significant influence over operating and financial policies of the investees. We record our proportionate share of the net earnings or losses of equity method investees and a corresponding increase or decrease to the investment balances. We evaluate our equity method investments for impairment whenever events or changes in circumstances indicate, in management’s judgment, that the carrying value of such investment may have experienced a decline in value. See "Note 13: Other Loss, Net" of the Notes to Consolidated Financial Statements in Part II Item 8 of this report.
Debt issuance costs and debt discounts: Debt issuance costs and debt discounts are deferred and amortized as interest expense under the effective interest method over the contractual term of the related debt, adjusted for prepayments in the case of our credit facilities.
Debt issuance costs related to the Convertible Senior Notes issued in 2013 were allocated to the liability and equity components of the instrument. The debt issuance costs allocated to the liability component are amortized to interest expense through the earlier of the maturity date of the Notes or the date of conversion, if any. The debt issuance costs allocated to the equity component of the Notes were recorded as an offset to "Additional paid-in capital."
Derivative instruments and hedging: We recognized derivative instruments as either assets or liabilities at their fair value. We recorded changes in the fair value of the derivative instruments as gains or losses either in "Other loss, net" on the consolidated statements of comprehensive income, for those not designated as a hedging instrument (the Warrant - see "Note 10: Stockholders' Equity" of the Notes to Consolidated Financial Statements in Part II Item 8 of this report), or in "Accumulated other comprehensive loss" on the consolidated balance sheets, for those used in a hedging relationship (the interest rate swap - see "Note 8: Debt" of the Notes to Consolidated Financial Statements in Part II Item 8 of this report). The Warrant and interest rate swap were settled in the last half of 2013. We had no derivatives outstanding as of December 31, 2015.
Recent Accounting Pronouncements
See "Note 2: Summary of Significant Accounting Policies" of the Notes to Consolidated Financial Statements in Part II Item 8 of this report.

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Quarterly Results of Operations (Unaudited)
The following table presents a summary of our unaudited consolidated results of operations for the eight quarters ended December 31, 2015. The information for each of these quarters has been prepared on a basis consistent with our annual audited consolidated financial statements. You should read this information in conjunction with our consolidated financial statements and notes thereto in Part II Item 8. The operating results for any quarter are not necessarily indicative of results for any future period.
 
March 31, 2014
 
June 30, 2014
 
September 30, 2014
 
December 31, 2014
 
March 31, 2015
 
June 30, 2015
 
September 30, 2015
 
December 31, 2015
 
(In thousands except per share data and percentages)
Services revenue
$
72,279

 
$
26,452


$
2,469


$
2,519


$
81,068


$
30,900


$
2,875


$
2,865

Operating expenses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cost of revenue:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Services cost of revenue
2,305

 
1,477

 
922

 
1,176

 
2,137

 
1,373

 
1,170

 
1,487

Amortization of acquired technology
1,863

 
1,862

 
1,863

 
1,862

 
1,862

 
1,863

 
1,911

 
1,910

Total cost of revenue
4,168

 
3,339


2,785


3,038


3,999


3,236


3,081


3,397

Engineering and technology
897

 
893

 
940

 
1,028

 
1,090

 
1,130

 
1,251

 
1,636

Sales and marketing
31,352

 
6,451

 
2,011

 
2,857

 
33,018

 
7,693

 
2,113

 
3,030

General and administrative
5,898

 
6,218

 
6,086

 
7,113

 
7,146

 
7,653

 
8,895

 
19,869

Depreciation
318

 
322

 
326

 
334

 
351

 
356

 
394

 
420

Amortization of other acquired intangible assets
3,185

 
3,186

 
3,185

 
3,186

 
3,186

 
3,185

 
3,195

 
3,191

Total operating expenses
45,818

 
20,409


15,333


17,556


48,790


23,253


18,929


31,543

Operating income (loss)
26,461

 
6,043


(12,864
)

(15,037
)

32,278


7,647


(16,054
)

(28,678
)
Other loss, net
(3,524
)
 
(3,229
)
 
(3,403
)
 
(3,333
)
 
(2,995
)
 
(3,034
)
 
(3,080
)
 
(3,433
)
Income (loss) from continuing operations before income taxes
22,937

 
2,814


(16,267
)

(18,370
)

29,283


4,613


(19,134
)

(32,111
)
Income tax benefit (expense)
(8,710
)
 
(660
)
 
6,037

 
6,675

 
(9,868
)
 
(2,202
)
 
6,926

 
9,767

Income (loss) from continuing operations
14,227

 
2,154

 
(10,230
)
 
(11,695
)
 
19,415

 
2,411

 
(12,208
)
 
(22,344
)
Discontinued operations, net of income taxes
11,760

 
6,583

 
7,992

 
(56,338
)
 
3,685

 
1,840

 
1,597

 
(34,470
)
Net income (loss)
$
25,987

 
$
8,737


$
(2,238
)

$
(68,033
)

$
23,100


$
4,251


$
(10,611
)

$
(56,814
)
Net income (loss) per share - basic:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Continuing operations
$
0.34

 
$
0.05

 
$
(0.25
)
 
$
(0.29
)
 
$
0.47

 
$
0.06

 
$
(0.30