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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
                   
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2021
OR
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
https://cdn.kscope.io/71ea0887117825457fd1d3eea8d80fea-bcor-20210331_g1.jpg
Blucora, Inc.
(Exact name of registrant as specified in its charter)

Delaware91-1718107
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
3200 Olympus Blvd, Suite 100, Dallas, Texas 75019
(Address of principal executive offices) (Zip Code)
(972870-6400
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.0001 per shareBCORNASDAQ Global Select Market

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. ý Yes o No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).  ý Yes o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
ý
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ý No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
As of April 28, 2021, 48,416,216 shares of the registrant’s Common Stock were outstanding.



TABLE OF CONTENTS
Page
Item 1.
Item 2.
Item 3.
Item 4.
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
This report includes some of the trademarks, trade names, and service marks of Blucora, Inc. (referred to throughout this report as “Blucora,” the “Company,” “we,” “us,” or “our”), including Blucora, Avantax Wealth Management, Avantax Planning Partners, Avantax Retirement Plan Services, HD Vest, 1st Global, HKFS, and TaxAct. Each one of these trademarks, trade names, or service marks is either (i) our registered trademark, (ii) a trademark for which we have a pending application, (iii) a trade name or service mark for which we claim common law rights, or (iv) a registered trademark or application for registration that we have been authorized by a third party to use.
Solely for convenience, the trademarks, service marks, and trade names included in this report are without the ®, ™ or other applicable symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensors to these trademarks, service marks, and trade names. This report may also include additional trademarks, service marks, and trade names of others, which are the property of their respective owners. All trademarks, service marks, and trade names included in this report are, to our knowledge, the property of their respective owners.
References to our or our subsidiaries’ website addresses or the website addresses of third parties in this report do not constitute incorporation by reference of the information contained on such websites and should not be considered part of this report.

Blucora, Inc. | Q1 2021 Form 10-Q 2


CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (“Form 10-Q”) contains forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, that involve risks and uncertainties. Many of the forward-looking statements are located in Part I, Item 2 of this Form 10-Q under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact. Forward-looking statements can also be identified by words such as “anticipates,” “believes,” “plans,” “expects,” “future,” “intends,” “may,” “will,” “would,” “could,” “should,” “estimates,” “predicts,” “potential,” “continues,” “target,” “outlook,” and similar terms and expressions, but the absence of these words does not mean that the statement is not forward-looking. Actual results may differ significantly from management’s expectations due to various risks and uncertainties including, but not limited to:
the impact of the COVID-19 pandemic on our results of operations and our business, including the impact of the resulting economic and market disruption, the extension of tax filing deadlines, and other related government actions;
our ability to effectively compete within our industries;
our ability to attract and retain financial professionals, qualified employees, clients, and customers, as well as our ability to provide strong customer/client service;
our ability to close, finance, and realize all of the anticipated benefits of acquisitions, as well as our ability to integrate the operations of recently acquired businesses, and the potential impact of such acquisitions on our existing indebtedness and leverage;
our future capital requirements and the availability of financing, if necessary;
our ability to meet our current and future debt service obligations, including our ability to maintain compliance with our debt covenants;
any downgrade of the Company’s credit ratings;
our ability to generate strong performance for our clients and the impact of the financial markets on our clients’ portfolios;
the impact of new or changing legislation and regulations (or interpretations thereof) on our business, including our ability to successfully address and comply with such legislation and regulations (or interpretations thereof) and increased costs, reductions of revenue, and potential fines, penalties, or disgorgement to which we may be subject as a result thereof;
risks, burdens, and costs, including fines, penalties, or disgorgement, associated with our business being subjected to regulatory inquiries, investigations, or initiatives, including those of the Financial Industry Regulatory Authority, Inc. and the Securities and Exchange Commission (“SEC”);
risks associated with legal proceedings, including litigation and regulatory proceedings;
our ability to manage leadership and employee transitions, including costs and time burdens on management and our board of directors related thereto;
political and economic conditions and events that directly or indirectly impact the wealth management and tax preparation software industries;
our ability to respond to rapid technological changes, including our ability to successfully release new products and services or improve upon existing products and services;
the compromising of confidentiality, availability or integrity of information, including cyberattacks;
our expectations concerning the revenues we generate from fees associated with the financial products that we distribute;
risks related to goodwill and other intangible asset impairment;
our ability to develop, establish, and maintain strong brands;
risks associated with the use and implementation of information technology and the effect of security breaches, computer viruses, and computer hacking attacks;
our ability to comply with laws and regulations regarding privacy and protection of user data;
Blucora, Inc. | Q1 2021 Form 10-Q 3


our ability to maintain our relationships with third-party partners, providers, suppliers, vendors, distributors, contractors, financial institutions, industry associations, and licensing partners, and our expectations regarding and reliance on the products, tools, platforms, systems, and services provided by these third parties;
our beliefs and expectations regarding the seasonality of our business;
our assessments and estimates that determine our effective tax rate; and
our ability to protect our intellectual property and the impact of any claim that we have infringed on the intellectual property rights of others.
Forward-looking statements are not guarantees of future performance and 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, the risk factors set forth in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, as supplemented by those identified under Part II, Item 1A, “Risk Factors” and elsewhere in this Form 10-Q, as well as in our other filings with the SEC. All forward-looking statements speak only as of the date of this Form 10-Q. We do not undertake any obligation and do not intend to update or revise any forward-looking statement to reflect new information, events, or circumstances after the date of this Form 10-Q or to reflect the occurrence of unanticipated events, except as required by law.




Blucora, Inc. | Q1 2021 Form 10-Q 4



PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
BLUCORA, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
March 31,
2021
December 31,
2020
ASSETS
Current assets:
Cash and cash equivalents$191,803 $150,125 
Cash segregated under federal or other regulations2,241 637 
Accounts receivable, net of allowance24,348 12,736 
Commissions and advisory fees receivable26,021 26,132 
Other receivables186 717 
Prepaid expenses and other current assets, net12,015 10,321 
Total current assets256,614 200,668 
Long-term assets:
Property and equipment, net64,160 58,500 
Right-of-use assets, net22,886 23,455 
Goodwill, net454,821 454,821 
Other intangible assets, net315,294 322,179 
Other long-term assets5,342 4,569 
Total long-term assets862,503 863,524 
Total assets$1,119,117 $1,064,192 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable$22,019 $9,290 
Commissions and advisory fees payable18,762 19,021 
Accrued expenses and other current liabilities72,735 56,419 
Deferred revenue—current5,280 12,298 
Lease liabilities—current3,327 2,304 
Current portion of long-term debt, net1,786 1,784 
Total current liabilities123,909 101,116 
Long-term liabilities:
Long-term debt, net552,684 552,553 
Deferred tax liability, net30,394 30,663 
Deferred revenue—long-term6,015 6,247 
Lease liabilities—long-term35,723 36,404 
Other long-term liabilities25,738 24,919 
Total long-term liabilities650,554 650,786 
Total liabilities774,463 751,902 
Commitments and contingencies (Note 7)
Stockholders’ equity:
Common stock, par value $0.0001 per share—900,000 authorized shares; 49,615 shares issued and 48,309 shares outstanding at March 31, 2021; 49,483 shares issued and 48,177 shares outstanding at December 31, 2020
5 5 
Additional paid-in capital1,602,948 1,598,230 
Accumulated deficit(1,229,900)(1,257,546)
Treasury stock, at cost—1,306 shares at March 31, 2021 and December 31, 2020
(28,399)(28,399)
Total stockholders’ equity344,654 312,290 
Total liabilities and stockholders’ equity$1,119,117 $1,064,192 

See accompanying notes to unaudited condensed consolidated financial statements.
Blucora, Inc. | Q1 2021 Form 10-Q 5


BLUCORA, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands, except per share data)

 Three months ended
March 31,
 20212020
Revenues:
Wealth management services revenue$154,491 $144,989 
Tax software services revenue123,892 118,331 
Total revenue278,383 263,320 
Operating expenses:
Cost of revenue:
Wealth management services cost of revenue108,623 102,342 
Tax software services cost of revenue5,578 4,013 
Total cost of revenue114,201 106,355 
Engineering and technology7,128 8,515 
Sales and marketing77,562 79,710 
General and administrative24,685 24,728 
Acquisition and integration8,103 5,682 
Depreciation2,300 1,796 
Amortization of other acquired intangible assets7,175 7,748 
Impairment of goodwill 270,625 
Total operating expenses241,154 505,159 
Operating income (loss)37,229 (241,839)
Other loss, net(7,883)(6,135)
Income (loss) before income taxes29,346 (247,974)
Income tax expense(1,700)(67,520)
Net income (loss)$27,646 $(315,494)
Net income (loss) per share:
Basic$0.57 $(6.60)
Diluted$0.56 $(6.60)
Weighted average shares outstanding:
Basic48,261 47,827 
Diluted49,097 47,827 
Comprehensive income (loss):
Net income (loss)$27,646 $(315,494)
Other comprehensive income 272 
Comprehensive income (loss)$27,646 $(315,222)












See accompanying notes to unaudited condensed consolidated financial statements.
Blucora, Inc. | Q1 2021 Form 10-Q 6


BLUCORA, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)

Additional paid-in capitalAccumulated deficitAccumulated other comprehensive loss
Common stockTreasury stock
SharesAmountSharesAmountTotal
Balance as of December 31, 202049,483 $5 $1,598,230 $(1,257,546)$ (1,306)$(28,399)$312,290 
Common stock issued for stock options and restricted stock units132 — 63 — — — — 63 
Stock-based compensation— — 5,520 — — — — 5,520 
Tax payments from shares withheld for equity awards— — (865)— — — — (865)
Net income— — — 27,646 — — — 27,646 
Balance as of March 31, 202149,615 $5 $1,602,948 $(1,229,900)$ (1,306)$(28,399)$344,654 
Common stockAdditional paid-in capitalAccumulated deficitAccumulated other comprehensive lossTreasury stock
SharesAmountSharesAmountTotal
Balance as of December 31, 201949,059 $5 $1,586,972 $(914,791)$(272)(1,306)$(28,399)$643,515 
Common stock issued for stock options and restricted stock units89 — — — — — —  
Stock-based compensation— — (1,201)— — — — (1,201)
Tax payments from shares withheld for equity awards— — (917)— — — — (917)
Cumulative translation adjustment— — — — 272 — — 272 
Net loss— — — (315,494)— — — (315,494)
Balance as of March 31, 202049,148 $5 $1,584,854 $(1,230,285)$ (1,306)$(28,399)$326,175 































See accompanying notes to unaudited condensed consolidated financial statements.
Blucora, Inc. | Q1 2021 Form 10-Q 7


BLUCORA, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

 Three months ended March 31,
 20212020
Operating activities:
Net income (loss)$27,646 $(315,494)
Adjustments to reconcile net income (loss) to net cash from operating activities:
Stock-based compensation5,610 (1,201)
Depreciation and amortization of acquired intangible assets10,418 10,168 
Impairment of goodwill 270,625 
Reduction of right-of-use lease assets569 1,625 
Deferred income taxes(269)57,898 
Amortization of debt issuance costs363 313 
Accretion of debt discounts277 68 
Change in fair value of acquisition-related contingent consideration6,300  
Accretion of lease liability514 424 
Other(78)495 
Cash provided (used) by changes in operating assets and liabilities:
Accounts receivable(11,541)(9,066)
Commissions and advisory fees receivable111 3,457 
Other receivables531 (3,239)
Prepaid expenses and other current assets(1,694)(1,715)
Other long-term assets(828)2,560 
Accounts payable12,729 17,744 
Commissions and advisory fees payable(259)(1,965)
Lease liabilities(172)(1,289)
Deferred revenue(7,250)(7,820)
Accrued expenses and other current and long-term liabilities10,745 23,276 
Net cash provided by operating activities53,722 46,864 
Investing activities:
Purchases of property and equipment(8,598)(7,715)
Asset acquisitions(587) 
Net cash used by investing activities(9,185)(7,715)
Financing activities:
Proceeds from credit facilities 55,000 
Payments on credit facilities(453)(10,313)
Proceeds from stock option exercises63  
Tax payments from shares withheld for equity awards(865)(918)
Net cash provided (used) by financing activities(1,255)43,769 
Net increase in cash, cash equivalents, and restricted cash43,282 82,918 
Cash, cash equivalents, and restricted cash, beginning of period150,762 86,450 
Cash, cash equivalents, and restricted cash, end of period$194,044 $169,368 
Supplemental cash flow information:
Cash paid for income taxes$ $213 
Cash paid for interest$7,123 $5,011 
Non-cash investing activities:
Purchases of property and equipment through leasehold incentives (investing)$ $4,959 









See accompanying notes to unaudited condensed consolidated financial statements.
Blucora, Inc. | Q1 2021 Form 10-Q 8


BLUCORA, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1: Description of the Business
Blucora, Inc. (the “Company,” “Blucora,” “we,” “our,” or “us”) operates two primary businesses: the Wealth Management business and the digital Tax Software business.
Wealth Management
The Wealth Management business consists of the operations of Avantax Wealth Management and Avantax Planning Partners (collectively, the “Wealth Management business” or the “Wealth Management segment”).
Avantax Wealth Management provides tax-focused wealth management solutions for financial professionals, tax professionals, certified public accounting (“CPA”) firms, and their clients. Avantax Wealth Management offers its services through its registered broker-dealer, registered investment advisor (“RIA”), and insurance agency subsidiaries and is the leading U.S. tax-focused independent broker-dealer. Avantax Wealth Management works with a nationwide network of financial professionals that operate as independent contractors. Avantax Wealth Management provides these financial professionals with an integrated platform of technical, practice, compliance, and product support tools that enable them to offer tax-advantaged investing and wealth management services to their clients.
Avantax Planning Partners operates as an employee-based RIA and wealth management business that partners with CPA firms in order to provide their consumer and small business clients with holistic financial planning and advisory services, as well as retirement plan solutions through Avantax Retirement Plan Services. Avantax Planning Partners formerly operated as Honkamp Krueger Financial Services, Inc. (“HKFS”). On July 1, 2020, we acquired all of the issued and outstanding common stock of HKFS (the “HKFS Acquisition”). The operations of HKFS are included in our operating results as part of the Wealth Management segment from the date of the HKFS Acquisition.
Tax Software
The Tax Software business consists of the operations of TaxAct, Inc. (“TaxAct,” the “Tax Software business,” or the “Tax Software segment”) and provides digital tax preparation services, packaged tax software, and ancillary services for consumers, small business owners, and tax professionals through its website www.TaxAct.com and its mobile applications. We had referred to this business as the “Tax Preparation business” and “Tax Preparation segment” in previous filings.
The Tax Software segment is highly seasonal with a significant portion of its annual revenue typically earned in the first two quarters of the fiscal year. During the third and fourth quarters, the Tax Software segment typically reports losses because revenue from the segment is minimal while core operating expenses continue.
In March 2020 and as a result of the COVID-19 pandemic, the Internal Revenue Service (“IRS”) extended the filing deadline for federal tax returns from April 15, 2020 to July 15, 2020. This filing extension resulted in the shifting of a significant portion of Tax Software segment revenue that is usually earned in the first and second quarters of 2020 to the third quarter of 2020.
As a result of the continued impact of the COVID-19 pandemic, the IRS delayed the start of the 2021 tax season and extended the filing and payment deadline for tax year 2020 federal tax returns from April 15, 2021 to May 17, 2021. In addition, the IRS extended the federal filing and payment deadline for Texas, Louisiana, and Oklahoma to mid-June. We expect that these events will result in the shifting of a significant portion of Tax Software segment revenue that would typically have been expected to be earned in the first quarter of 2021 to the second quarter of 2021.
Segments
We have two reportable segments: (1) the Wealth Management segment and (2) the Tax Software segment.

Blucora, Inc. | Q1 2021 Form 10-Q 9


Note 2: Summary of Significant Accounting Policies
Interim financial information
The accompanying condensed consolidated financial statements have been prepared by us under the rules and regulations of the SEC for interim financial reporting. These condensed consolidated financial statements are unaudited and, in management’s opinion, include all adjustments, consisting of normal recurring adjustments and accruals, necessary for a fair presentation of the consolidated financial position, results of operations, and cash flows for the periods presented. Certain information and footnote disclosures normally included in financial statements prepared in conformity with United States generally accepted accounting principles (GAAP”) have been omitted in accordance with the rules and regulations of the SEC. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes in Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2020. Interim results are not necessarily indicative of results for a full year.
Cash, cash equivalents, and restricted cash
The following table presents cash, cash equivalents, and restricted cash as reported on the condensed consolidated balance sheets and the condensed consolidated statements of cash flows (in thousands):
March 31, 2021December 31, 2020
Cash and cash equivalents$191,803 $150,125 
Cash segregated under federal or other regulations2,241 637 
Total cash, cash equivalents, and restricted cash$194,044 $150,762 
We generally invest our available cash in high-quality marketable investments. These investments include money market funds invested in securities issued by agencies of the U.S. government. We may invest, from time-to-time, in other vehicles, such as debt instruments issued by the U.S. federal government and its agencies, international governments, municipalities, and publicly held corporations, as well as commercial paper and insured time deposits with commercial banks. Specific holdings can vary from period to period depending upon our cash requirements. Such investments are reported at fair value on the condensed consolidated balance sheets.
Cash segregated under federal and other regulations is held in a separate bank account for the exclusive benefit of our Avantax Wealth Management clients and is considered restricted cash.
Goodwill
Goodwill represents the cost of an acquisition less the fair value of the net identifiable assets of the acquired business. We evaluate goodwill for impairment annually, as of November 30, or more frequently when events or circumstances indicate it is more likely than not that the fair value of one or more of our reporting units is less than its carrying amount. To determine whether it is necessary to perform a goodwill impairment test, we first assess qualitative factors to evaluate whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. We may elect to perform a goodwill impairment test without completing a qualitative assessment.
Beginning in March 2020, the COVID-19 pandemic had a significant negative impact on the U.S. and global economy and caused substantial disruption in the U.S. and global securities markets, and as a result, negatively impacted certain key Wealth Management business drivers, such as client asset levels and interest rates. These macroeconomic and Company-specific factors, in totality, served as a triggering event that resulted in the testing of the goodwill of the Wealth Management reporting unit and the Tax Software reporting unit for potential impairment.
As part of the goodwill impairment test, we compared the estimated fair values of the Wealth Management and Tax Software reporting units to their respective carrying values. Estimated fair value was calculated using Level 3 inputs and utilized a blended valuation method that factored in the income approach and the market approach. The income approach estimated fair value by using the present value of future discounted cash flows. Significant estimates used in the discounted cash flow model included our forecasted cash flows, our long-term rates of growth, and our weighted average cost of capital. The weighted average cost of capital factors in the relevant risk associated with business-specific characteristics and the uncertainty related to the ability to achieve our projected cash flows. The market approach estimated fair value by taking income-based valuation multiples for a set of comparable companies and applying the valuation multiple to each reporting unit’s income.
Blucora, Inc. | Q1 2021 Form 10-Q 10


For the Wealth Management reporting unit, the carrying value of the reporting unit exceeded its fair value by $270.6 million. Therefore, we recorded an impairment of goodwill of $270.6 million in the first quarter of 2020. For the Tax Software reporting unit, the carrying value of the reporting unit was significantly below its fair value, and therefore, the goodwill of the Tax Software reporting unit was not considered impaired.
While no goodwill impairment triggering events were identified during the three months ended March 31, 2021, the Wealth Management reporting unit is considered to be at risk for a future impairment of its goodwill in the event of a further decline in general economic, market, or business conditions, or any significant unfavorable changes in our forecasted revenue, expenses, cash flows, weighted average cost of capital, and/or market valuation multiples. We will continue to monitor for events and circumstances that could negatively impact the key assumptions in determining the fair value of the Wealth Management reporting unit.

Note 3: Segment Information and Revenues
We have two reportable segments: (1) the Wealth Management segment and (2) the Tax Software segment. Our Chief Executive Officer is the chief operating decision maker and reviews financial information presented on a disaggregated basis. This information is used for purposes of allocating resources and evaluating financial performance.
We do not allocate certain general and administrative costs (including personnel and overhead costs), stock-based compensation, depreciation, amortization of intangible assets, acquisition and integration costs, executive transition costs, headquarters relocation costs, contested proxy and other legal and consulting costs, or impairment of goodwill to the reportable segments. Such amounts are reflected in the table below under the heading “Corporate-level activity.” In addition, we do not allocate other loss, net, or income taxes to the reportable segments. We do not report assets or capital expenditures by segment to the chief operating decision maker.
Information on reportable segments currently presented to our chief operating decision maker and a reconciliation to consolidated net income (loss) are presented below (in thousands):
Three months ended March 31,
20212020
Revenue:
Wealth Management$154,491 $144,989 
Tax Software123,892 118,331 
Total revenue278,383 263,320 
Operating income (loss):
Wealth Management19,396 22,598 
Tax Software50,888 37,753 
Corporate-level activity(33,055)(302,190)
Total operating income (loss)37,229 (241,839)
Other loss, net(7,883)(6,135)
Income tax expense(1,700)(67,520)
Net income (loss)$27,646 $(315,494)
Blucora, Inc. | Q1 2021 Form 10-Q 11


Revenues by major category within each segment are presented below (in thousands):
Three months ended March 31,
20212020
Wealth Management:
Advisory$91,119 $78,757 
Commission52,534 50,580 
Asset-based5,329 10,579 
Transaction and fee5,509 5,073 
Total Wealth Management revenue$154,491 $144,989 
Tax Software:
Consumer$110,567 $103,821 
Professional13,325 14,510 
Total Tax Software revenue$123,892 $118,331 
Wealth Management revenue recognition
Wealth management revenue primarily consists of advisory revenue, commission revenue, asset-based revenue, and transaction and fee revenue.
The timing of Wealth Management revenue recognition was as follows (in thousands):
Three months ended March 31,
20212020
Recognized Upon TransactionRecognized Over TimeTotalRecognized Upon TransactionRecognized Over TimeTotal
Advisory revenue$ $91,119 $91,119 $ $78,757 $78,757 
Commission revenue22,367 30,167 52,534 23,381 27,199 50,580 
Asset-based revenue 5,329 5,329  10,579 10,579 
Transaction and fee revenue1,374 4,135 5,509 1,859 3,214 5,073 
Total Wealth Management revenue$23,741 $130,750 $154,491 $25,240 $119,749 $144,989 
Tax Software revenue recognition
We generate Tax Software revenue from the sale of tax preparation digital services, packaged tax preparation software, ancillary services, and multiple element arrangements that may include a combination of these items.
The timing of Tax Software revenue recognition was as follows (in thousands):
Three months ended March 31,
20212020
Recognized Upon TransactionRecognized Over TimeTotalRecognized Upon TransactionRecognized Over TimeTotal
Consumer revenue$110,567 $ $110,567 $103,821 $ $103,821 
Professional revenue12,127 1,198 13,325 12,994 1,516 14,510 
Total Tax Software revenue$122,694 $1,198 $123,892 $116,815 $1,516 $118,331 

Blucora, Inc. | Q1 2021 Form 10-Q 12


Note 4: Debt
Our debt consisted of the following as of the periods indicated in the table below (in thousands):
 March 31, 2021December 31, 2020
 Principal
amount
DiscountDebt issuance costsNet 
carrying
value
Principal
amount
DiscountDebt issuance costsNet 
carrying
value
Senior secured credit facility
$562,703 $(3,896)$(4,337)$554,470 $563,156 $(4,173)$(4,646)$554,337 
Less: Current portion of long-term debt, net(1,786)(1,784)
Long-term debt, net$552,684 $552,553 
In May 2017, we entered into a credit agreement (as the same has been amended, the “Credit Agreement”) with a syndicate of lenders, which provides for a term loan facility (the “Term Loan”) and a revolving line of credit (including a letter of credit sub-facility) (the “Revolver”) for working capital, capital expenditures, and general business purposes (the “Senior Secured Credit Facility”).
As of March 31, 2021, the Senior Secured Credit Facility provided for up to $740.0 million of borrowings and consisted of a committed $65.0 million under the Revolver and a $675.0 million Term Loan that mature on May 22, 2022 and May 22, 2024, respectively. Obligations under the Senior Secured Credit Facility are guaranteed by certain of the Company’s subsidiaries and secured by substantially all the assets of the Company and certain of its subsidiaries (including certain subsidiaries acquired in the HKFS Acquisition and certain other material subsidiaries). The Senior Secured Credit Facility includes financial and operating covenants (including a Consolidated Total Net Leverage Ratio), which are set forth in detail in the Credit Agreement.
As of March 31, 2021, we had $562.7 million in principal amount outstanding under the Term Loan and no amounts outstanding under the Revolver. Based on aggregate loan commitments as of March 31, 2021, approximately $65.0 million was available for future borrowing under the Senior Secured Credit Facility, subject to customary terms and conditions.
The interest rate on the Term Loan is variable at the London Interbank Offered Rate, plus the applicable interest rate margin of 4.00% for Eurodollar Rate Loans (as defined in the Credit Agreement) and 3.00% for ABR Loans (as defined in the Credit Agreement). As of March 31, 2021, the applicable interest rate on the Term Loan was 5.00%.
The Company is required to make mandatory annual prepayments on the Term Loan in certain circumstances, including in the event that the Company generates Excess Cash Flow (as defined in the Credit Agreement) in a given fiscal year. The Credit Agreement permits the Company to voluntarily prepay the Term Loan without premium or penalty. The Company is required to make principal amortization payments on the Term Loan quarterly on the last business day of each March, June, September, and December, in an amount equal to $0.5 million (subject to reduction for prepayments), with the remaining principal amount of the Term Loan due on the maturity date of May 22, 2024.
Depending on the Consolidated First Lien Net Leverage Ratio (as defined in the Credit Agreement), the applicable interest rate margin on the Revolver as of March 31, 2021 was from 2.75% to 3.25% for Eurodollar Rate Loans and 1.75% to 2.25% for ABR Loans. Interest is payable at the end of each interest period.
On April 26, 2021, we entered into Amendment No. 5 to the Credit Agreement (the “Credit Agreement Amendment”). For additional information, see "Note 12—Subsequent Event."

Note 5: Leases
Our leases are primarily related to office space and are classified as operating leases. Operating lease expense, net of sublease income, is recognized in “General and administrative” expense (for net lease expense related to leases used in our operations) and “Acquisition and integration” expense (for net lease expense related to the unoccupied lease resulting from the acquisition of 1st Global, Inc. and 1st Global Insurance Services, Inc.
Blucora, Inc. | Q1 2021 Form 10-Q 13


(together, “1st Global”) in 2019 (the “1st Global Acquisition”)) on the condensed consolidated statements of comprehensive income (loss).
Lease expense, cash paid on operating lease liabilities, and lease liabilities obtained from new right-of-use assets for the three months ended March 31, 2021 and 2020 were as follows (in thousands):
Three months ended March 31,
20212020
Fixed lease expense$1,154 $2,036 
Variable lease expense143 301 
Lease expense, before sublease income1,297 2,337 
Sublease income(116)(326)
Total lease expense, net of sublease income$1,181 $2,011 
Additional lease information:
Cash paid on operating lease liabilities$217 $1,190 
Lease liabilities obtained from new right-of-use assets (1)
$ $20,414 
__________________________
(1)Lease liabilities obtained from new right-of-use assets for the three months ended March 31, 2020 resulted from the new corporate headquarters lease that commenced in January 2020.
As of March 31, 2021, our weighted-average remaining operating lease term was approximately 10.8 years, and our weighted-average operating lease discount rate was 5.4%.
Operating leases were recorded on the condensed consolidated balance sheets as follows (in thousands):
March 31, 2021December 31, 2020
Lease liabilities—current$3,327 $2,304 
Lease liabilities—long-term35,723 36,404 
Total operating lease liabilities$39,050 $38,708 
The scheduled maturities of our operating lease liabilities as of March 31, 2021 are as follows (in thousands):
(in thousands)
Undiscounted cash flows:
Remainder of 2021$2,450 
20225,056 
20235,138 
20245,077 
20255,013 
Thereafter30,324 
Total undiscounted cash flows53,058 
Imputed interest(14,008)
 Present value of cash flows$39,050 

Note 6: Balance Sheet Components
Prepaid expenses and other current assets, net, consisted of the following (in thousands):
March 31, 2021December 31, 2020
Prepaid expenses$11,472 $9,643 
Other current assets543 678 
Total prepaid expenses and other current assets, net$12,015 $10,321 
Blucora, Inc. | Q1 2021 Form 10-Q 14


Accrued expenses and other current liabilities consisted of the following (in thousands):
March 31, 2021December 31, 2020
Salaries and related expenses$14,606 $19,317 
HKFS Contingent Consideration liability (1)(2)
23,000 17,900 
Contingent liability from 1st Global Acquisition (2)
11,328 11,328 
Accrued vendor and advertising costs12,922 2,606 
Accrued taxes3,068 240 
Other current liabilities7,811 5,028 
Total accrued expenses and other current liabilities$72,735 $56,419 
__________________________
(1)Represents the short-term portion of the HKFS Contingent Consideration liability. The long-term portion of the HKFS Contingent Consideration liability was classified in “Other long-term liabilities” on the condensed consolidated balance sheets.
(2)For more information on contingent liabilities, see "Note 7—Commitments and Contingencies."

Note 7: Commitments and Contingencies
Contingent liability from 1st Global Acquisition
On May 6, 2019, we closed the 1st Global Acquisition. As part of the 1st Global Acquisition, we assumed a contingent liability related to a regulatory inquiry and recorded the contingent liability as part of the opening balance sheet. While the inquiry is still on-going, we evaluated a range of possible losses, resulting in a contingent liability reserve balance (including accrued interest) of $11.3 million at March 31, 2021.
Contingent consideration liability from HKFS Acquisition
On July 1, 2020, we closed the HKFS Acquisition for an upfront cash purchase price of $104.4 million. The purchase price is subject to two potential post-closing earn-out payments (the “HKFS Contingent Consideration”) by us.
The amount of the HKFS Contingent Consideration is determined based on advisory asset levels and the achievement of certain performance goals (i) for the period beginning on July 1, 2020 and ending on July 1, 2021 and (ii) for the period beginning on July 1, 2021 and ending on July 1, 2022. Pursuant to the Stock Purchase Agreement, dated as of January 6, 2020, by and among the Company, HKFS, the selling stockholders named therein (the “Sellers”), and JRD Seller Representative, LLC, as the Sellers’ representative, as amended, the maximum aggregate amount that we would be required to pay for each earn-out period is $30.0 million, provided that any unearned amounts during the first earn-out period may also be earned during the second earn-out period. If the asset values on the applicable measurement date fall below certain specified thresholds, we would not be required to make any earn-out payment to the Sellers for such period. The HKFS Contingent Consideration liability was valued at $42.2 million on the condensed consolidated balance sheets as of March 31, 2021. For additional information on the HKFS Contingent Consideration, see "Note 8—Fair Value Measurements."
Litigation
From time to time, we are subject to various legal proceedings, regulatory matters or fines, or claims that arise in the ordinary course of business. We accrue a liability when management believes both that it is probable that a liability has been incurred and that the amount of loss can be reasonably estimated.
Aside from the contingent liability related to the 1st Global Acquisition and the HKFS Contingent Consideration liability, we are not currently party to any such matters for which we have incurred a material liability on our condensed consolidated balance sheets.

Note 8—Fair Value Measurements
In accordance with Accounting Standards Codification 820, Fair Value Measurements and Disclosures, certain of our assets and liabilities are carried at fair value and are valued using inputs that are classified in one of the following three categories:
Level 1: Quoted market prices in active markets for identical assets or liabilities.
Blucora, Inc. | Q1 2021 Form 10-Q 15


Level 2: Observable market-based inputs, other than Level 1, or unobservable inputs that are corroborated by market data.
Level 3: Unobservable inputs that are not corroborated by market data and reflect our own assumptions.
Assets and liabilities measured on a recurring basis
The fair value hierarchy of our financial assets and liabilities carried at fair value and measured on a recurring basis was as follows (in thousands):
  Fair value measurements at the reporting date using
 March 31, 2021Quoted prices in
active markets
using identical 
assets
(Level 1)
Significant other
observable
inputs
(Level 2)
Significant
unobservable
inputs
(Level 3)
Cash equivalents: money market and other funds
$4,292 $4,292 $ $ 
Total assets at fair value$4,292 $4,292 $ $ 
HKFS Contingent Consideration
$42,200 $ $ $42,200 
Total liabilities at fair value$42,200 $ $ $42,200 
  Fair value measurements at the reporting date using
 December 31, 2020Quoted prices in
active markets
using identical 
assets
(Level 1)
Significant other
observable
inputs
(Level 2)
Significant
unobservable
inputs
(Level 3)
Cash equivalents: money market and other funds
$4,290 $4,290 $ $ 
Total assets at fair value$4,290 $4,290 $ $— 
HKFS Contingent Consideration
$35,900 $ $ $35,900 
Total liabilities at fair value$35,900 $ $ $35,900 
Cash equivalents are classified within Level 1 of the fair value hierarchy because we value cash equivalents utilizing quoted prices in active markets.
The HKFS Contingent Consideration liability relates to the potential earn-out payments resulting from the HKFS Acquisition (see "Note 7—Commitments and Contingencies"). As of March 31, 2021, the fair value of the HKFS Contingent Consideration was $42.2 million. The estimated fair value of the HKFS Contingent Consideration was determined using a Monte Carlo simulation model in a risk neutral framework with the underlying simulated variable of advisory asset levels and the related achievement of certain advisory asset growth levels. The Monte Carlo simulation model utilized Level 3 inputs, which included forecasted advisory asset levels at July 1, 2021 and July 1, 2022, a risk-adjusted discount rate (which reflects the risk in the advisory asset projection) of 12.8%, volatility of 36.7%, and a credit spread of 2.4%. Significant increases to the discount rate, volatility, or credit spread inputs would have resulted in a significantly lower fair value measurement, with a similar inverse relationship existing for significant decreases to these inputs. A significant increase to the forecasted advisory assets levels would have resulted in a significantly higher fair value measurement, while a significant decrease to the forecasted advisory asset levels would have resulted in a significantly lower fair value measurement.
Blucora, Inc. | Q1 2021 Form 10-Q 16


A reconciliation of the HKFS Contingent Consideration liability was as follows (in thousands):
HKFS Contingent Consideration Liability
Balance as of December 31, 2020 (1)
$35,900 
Valuation change recognized as expense (2)
6,300 
Balance as of March 31, 2021 (1)
$42,200 
_________________________
(1)The short-term and long-term portions of the HKFS Contingent Consideration are recorded in “Accrued expenses and other current liabilities” and “Other long-term liabilities,” respectively, on the condensed consolidated balance sheets.
(2)Recognized in “Acquisition and integration” expense on the condensed consolidated statement of comprehensive income (loss) for the three months ended March 31, 2021.

Fair value of financial instruments
We consider the carrying values of accounts receivable, commissions and advisory fees receivable, other receivables, prepaid expenses, other current assets, accounts payable, commissions and advisory fees payable, accrued expenses, and other current liabilities to approximate fair values primarily due to their short-term natures.
As of March 31, 2021, the Term Loan’s principal amount was $562.7 million, and the fair value of the Term Loan’s principal amount was $561.3 million. As of December 31, 2020, the Term Loan’s principal amount was $563.2 million, and the fair value of the Term Loan’s principal amount was $561.7 million. The fair value of the Term Loan’s principal amount was based on Level 2 inputs from a third-party market quotation.
As of March 31, 2021 and December 31, 2020, we had no amounts outstanding under the Revolver.

Note 9: Other Loss, Net
“Other loss, net” on the condensed consolidated statements of comprehensive income (loss) consisted of the following (in thousands):
Three months ended March 31,
20212020
Interest expense$7,183 $5,316 
Amortization of debt issuance costs363 313 
Accretion of debt discounts277 68 
Total interest expense7,823 5,697 
Interest income(2)(14)
Other62 452 
Other loss, net$7,883 $6,135 

Note 10: Income Taxes
Three months ended March 31,
 20212020
Income tax expense$(1,700)$(67,520)

The Company recorded income tax expense of $1.7 million for the three months ended March 31, 2021. The Company has prepared its interim tax provision by applying a year-to-date effective tax rate as it represents the best estimate of the annual effective tax rate.
The Company’s effective income tax rate for the three months ended March 31, 2021 differed from the 21% statutory rate primarily due to the release of valuation allowances and the effect of state income taxes. We currently expect to continue to release portions of valuation allowances, which were previously recorded in connection with our net operating losses, to offset future federal income tax liabilities. The majority of these net operating losses will either be utilized or expire between 2021 and 2024.
Blucora, Inc. | Q1 2021 Form 10-Q 17


The Company recorded income tax expense of $67.5 million for the three months ended March 31, 2020. The Company’s effective income tax rate for the three months ended March 31, 2020 differed from the 21% statutory rate primarily due to expiring net operating loss tax benefits, an adjustment to the valuation allowance against deferred tax assets for net operating losses expected to expire in future years, and non-deductible officer compensation expense.

Note 11: Net Income Per Share
“Basic net income (loss) per share” is calculated using the weighted average number of common shares outstanding during the period. “Diluted net income (loss) per share” is calculated using the weighted average number of common shares outstanding plus the number of dilutive potential common shares outstanding during the period. Dilutive potential common shares consist of the incremental common shares issuable upon the exercise of outstanding stock options and the vesting of unvested restricted stock units. Dilutive potential common shares are excluded from the calculation of diluted net income (loss) per share if their effect is antidilutive.
The calculation of basic and diluted net income (loss) per share is as follows (in thousands):
 Three months ended March 31,
 20212020
Numerator:
Net income (loss)$27,646 $(315,494)
Denominator:
Weighted average common shares outstanding—basic48,261 47,827 
Dilutive potential common shares (1)
836  
Weighted average common shares outstanding—diluted49,097 47,827 
Net income (loss) per share:
Basic$0.57 $(6.60)
Diluted$0.56 $(6.60)
Shares excluded (1)
1,289 3,093 
_________________________
(1)Potential common shares were excluded from the calculation of diluted net income (loss) per share for these periods because their effect would have been anti-dilutive. For the three months ended March 31, 2020, all potential common shares were excluded from the calculation of diluted net loss per share as their effect would have been anti-dilutive due to the net loss recognized for the period.
Note 12: Subsequent Event
On April 26, 2021, to ensure adequate liquidity and flexibility to support growth, the Company entered into the Credit Agreement Amendment. Pursuant to the Credit Agreement Amendment, the Credit Agreement was amended to, among other things, refinance the existing $65.0 million Revolver and add $25.0 million of additional revolving credit commitments, for an aggregate principal amount of $90.0 million in revolving credit commitments (the “New Revolver”). The New Revolver has a maturity date of February 21, 2024 (the “Maturity Date”). As of May 5, 2021, the Company had no amounts outstanding under the New Revolver and had no plans to draw available funds under the New Revolver.
The outstanding principal balance of the New Revolver bears interest at the applicable margin plus, at the Company’s election, either (i) the Eurodollar Rate (as defined in the Credit Agreement) or (ii) the ABR (as defined in the Credit Agreement). The applicable margin for the New Revolver is dependent on the Consolidated First Lien Net Leverage Ratio (as defined in the Credit Agreement) and ranges (a) for Eurodollar Rate loans, from 2.0% to 2.5% and (b) for ABR loans, from 1.0% to 1.5%. The Company is required to pay a commitment fee on the undrawn commitment under the New Revolver in a percentage that is dependent on the Consolidated First Lien Net Leverage Ratio that ranges from 0.35% to 0.4%.
Pursuant to the Credit Agreement Amendment, if the Company’s usage of the New Revolver exceeds 30% of the aggregate commitments under the New Revolver on the last day of any calendar quarter, the Company shall not permit the Consolidated Total Net Leverage Ratio (as defined in the Credit Agreement) to exceed (i) 4.75 to 1.00 for the period beginning on April 1, 2021 and ending on December 31, 2021, (ii) 4.25 to 1.00 for the period beginning on January 1, 2022 and ending on September 30, 2022, (iii) 4.00 to 1.00 for the period beginning on October 1,
Blucora, Inc. | Q1 2021 Form 10-Q 18


2022 and ending on December 31, 2022 and (iv) 3.50 to 1.00 for the period beginning on January 1, 2023 and ending on the Maturity Date.
Except as described above, the New Revolver has substantially the same terms as the existing Revolver, including certain covenants and events of default. For additional information on the Credit Agreement and Revolver, see "Note 4—Debt."




Blucora, Inc. | Q1 2021 Form 10-Q 19


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with our condensed consolidated financial statements and accompanying notes thereto included under Part I, Item 1 and the section titled “Cautionary Statement Regarding Forward-Looking Statements” in this Form 10-Q, as well as with our consolidated financial statements, accompanying notes thereto, and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Form 10-K for the year ended December 31, 2020.
Overview
Blucora, Inc. (the “Company,” “Blucora,” “we,” “our,” or “us”) is a leading provider of integrated tax-focused wealth management services and software, assisting consumers, small business owners, tax professionals, financial professionals, and certified public accounting (“CPA”) firms in achieving better long-term outcomes via holistic, tax-advantaged solutions. Our mission is to empower people to improve their financial wellness through data and technology-driven solutions. We conduct our operations through two primary businesses: (1) the Wealth Management business and (2) the Tax Software business. Our common stock is listed on the NASDAQ Global Select Market under the symbol “BCOR.”
Wealth Management
The Wealth Management business consists of the operations of Avantax Wealth Management and Avantax Planning Partners (collectively, the “Wealth Management business” or the “Wealth Management segment”).
Avantax Wealth Management provides tax-focused wealth management solutions for financial professionals, tax professionals, CPA firms, and their clients. Avantax Wealth Management offers its services through its registered broker-dealer, registered investment advisor (“RIA”), and insurance agency subsidiaries and is the leading U.S. tax-focused independent broker-dealer. Avantax Wealth Management works with a nationwide network of financial professionals that operate as independent contractors. Avantax Wealth Management provides these financial professionals with an integrated platform of technical, practice, compliance, and product support tools that enable them to offer tax-advantaged investing and wealth management services to their clients.
Avantax Planning Partners operates as an employee-based RIA and wealth management business that partners with CPA firms in order to provide their consumer and small business clients with holistic financial planning and advisory services, as well as retirement plan solutions through Avantax Retirement Plan Services. Avantax Planning Partners formerly operated as Honkamp Krueger Financial Services, Inc. (“HKFS”). On July 1, 2020, we acquired all of the issued and outstanding common stock of HKFS (the “HKFS Acquisition”). The operations of HKFS are included in our operating results as part of the Wealth Management segment from the date of the HKFS Acquisition. On January 4, 2021, we announced the rebranding of HKFS to Avantax Planning Partners (the “Rebranding”). The Rebranding was designed to create tighter brand alignment, bringing the Wealth Management business under one common and recognizable brand.
As of March 31, 2021, the Wealth Management business worked with a nationwide network of 3,718 financial professionals and supported $84.8 billion of total client assets, including $36.8 billion of advisory assets.
Tax Software
The Tax Software business consists of the operations of TaxAct, Inc. (“TaxAct,” the “Tax Software business,” or the “Tax Software segment”) and provides digital tax preparation services, packaged tax software, and ancillary services for consumers, small business owners, and tax professionals through its website www.TaxAct.com and its mobile applications. We had referred to this business as the “Tax Preparation business” and “Tax Preparation segment” in previous filings.
COVID-19 Pandemic
Beginning in March 2020, the COVID-19 pandemic has had a significant negative impact on the U.S. and global economy, caused substantial disruption in the U.S. and global securities markets, and as a result, negatively impacted both our Wealth Management and Tax Software businesses. In addition, the various precautionary measures and accommodations taken by many governmental authorities in the United States and around the world in order to limit the spread of COVID-19, as well as the societal response, have had, and could continue to have, an adverse effect on the U.S. and global markets and economy.
Blucora, Inc. | Q1 2021 Form 10-Q 20


In our Wealth Management business, the amount of cash sweep revenue we generate continues to be affected by the low interest rate environment. In March 2020, the Federal Reserve lowered its target range for the federal funds rate to 0.00-0.25%. As our cash sweep revenue is based on a rate derived from the federal funds rate, cash sweep revenue in all quarters subsequent to the first quarter of 2020 has been materially reduced. We expect continued low levels of cash sweep revenue in future periods in which the federal funds rate is at reduced levels, although we may experience an increase in cash sweep revenue should the federal funds rate increase.
In our Tax Software segment, our revenue and operating income generation is highly seasonal, with a significant portion of our annual revenue typically earned in the first two quarters of our fiscal year. During the third and fourth quarters, the Tax Software segment typically reports losses because revenue from the segment is minimal while core operating expenses continue.
As a result of the COVID-19 pandemic, the Internal Revenue Service (“IRS”) extended the filing and payment deadline for tax year 2019 federal tax returns to July 15, 2020. This extension resulted in the shifting of a significant portion of Tax Software segment revenue that would typically have been expected to be earned in the first and second quarters of 2020 to the third quarter of 2020. In addition, sales and marketing expenses were elevated in 2020 due to incremental investment in March 2020 to address weak performance through the first two months of the tax season, as well as increased marketing required due to the extended tax season. Additionally, the IRS was selected by the U.S Congress as the vehicle for distribution of the first round of Economic Impact Payments (“EIP1”), which caused significant disruption to the 2020 tax season. As a result of the extension of the 2020 tax season and the EIP1 disruption, our results of operations for our Tax Software segment were negatively impacted in 2020 compared to prior years.
As a result of the continued impact of the COVID-19 pandemic, including disruptions associated with the distribution of the second and third rounds of Economic Impact Payments, the IRS delayed the start of the 2021 tax season and extended the filing and payment deadline for tax year 2020 federal tax returns from April 15, 2021 to May 17, 2021. In addition, the IRS extended the federal filing and payment deadline for Texas, Louisiana, and Oklahoma to mid-June. Beyond federal filings, the majority of states have also extended their filing and payment deadlines for tax year 2020 state tax returns. We expect that these events will result in the shifting of a significant portion of Tax Software segment revenue that would typically have been expected to be earned in the first quarter of 2021 to the second quarter of 2021, as well as a corresponding shift in sales and marketing expenses. It is possible that the IRS could further extend the deadline, which could result in a further shift in the timing of revenue and/or sales and marketing expenses for the Tax Software segment in 2021.
For additional information on the effects of the COVID-19 pandemic on our results of operations, see “Results of Operations” below. For more information on the risks related to the COVID-19 pandemic, see Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2020 under the subheading, “The current COVID-19 pandemic could have a Material Adverse Effect.”

Blucora, Inc. | Q1 2021 Form 10-Q 21



RESULTS OF OPERATIONS
Summary
(In thousands, except percentages)Three months ended March 31,Change
 20212020$%
Revenue:
Wealth Management$154,491 $144,989 $9,502 %
Tax Software123,892 118,331 5,561 %
Total revenue$278,383 $263,320 $15,063 %
Operating income (loss):
Wealth Management$19,396 $22,598 $(3,202)(14)%
Tax Software50,888 37,753 13,135 35 %
Corporate-level activity(33,055)(302,190)269,135 89 %
Operating income (loss)37,229 (241,839)279,068 115 %
Other loss, net(7,883)(6,135)(1,748)(28)%
Income (loss) before income taxes29,346 (247,974)277,320 112 %
Income tax expense(1,700)(67,520)65,820 97 %
Net income (loss)$27,646 $(315,494)$343,140 109 %
For the three months ended March 31, 2021 compared to the three months ended March 31, 2020, net income increased $343.1 million primarily due to the following factors:
Wealth Management segment operating income decreased $3.2 million primarily due to a $6.3 million decrease in cash sweep revenue, partially offset by incremental operating income following the HKFS Acquisition.
Tax Software segment operating income increased $13.1 million primarily due to a $7.6 million decrease in operating expenses resulting from reduced marketing expenses, in addition to a $5.6 million increase in revenue primarily resulting from increased consumer revenue.
Corporate-level activity decreased $269.1 million primarily due to a $270.6 million goodwill impairment and $9.2 million in executive transition costs recognized in the first quarter of 2020. This decrease was partially offset by a $6.8 million increase in stock-based compensation expense, as well as $3.2 million of expenses recognized in the first quarter of 2021 associated with contested proxy and other legal and consulting costs.
The Company recorded income tax expense of $1.7 million for the three months ended March 31, 2021, which represented the Company’s state taxes on current period income. This compared to income tax expense of $67.5 million for the three months ended March 31, 2020 primarily related to expiring net operating loss tax benefits and an adjustment to the valuation allowance against deferred tax assets for net operating losses expected to expire in future years.

Blucora, Inc. | Q1 2021 Form 10-Q 22


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 United States (“GAAP”) and include certain reconciling items attributable to our segments. We have two reportable segments: (1) the Wealth Management segment and (2) the Tax Software segment. Segment information 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, acquisition and integration costs, executive transition costs, headquarters relocation costs, contested proxy and other legal and consulting costs, or impairment of goodwill to the reportable segments. Such amounts are reflected under the heading “Corporate-level activity.” In addition, we do not allocate other loss, net, or income taxes to the reportable segments.
Wealth Management
(In thousands, except percentages)Three months ended March 31,Change
 20212020$%
Revenue$154,491 $144,989 $9,502 %
Operating income$19,396 $22,598 $(3,202)(14)%
Segment margin13 %16 %
For the three months ended March 31, 2021 compared to the three months ended March 31, 2020, Wealth Management operating income decreased $3.2 million primarily due to a $6.3 million decrease in cash sweep revenue, partially offset by incremental operating income following the HKFS Acquisition. In analyzing revenue and operating expenses for our Wealth Management segment:
Wealth Management revenue increased $9.5 million primarily due to a $12.4 million increase in advisory revenue, a $2.0 million increase in commission revenue, and a $0.8 million increase in asset-based retirement plan service fees following the HKFS Acquisition. The increase in advisory revenue was primarily due to advisory assets obtained in the HKFS Acquisition, as well as an increase in advisory assets in our legacy Avantax Wealth Management business. These increases were partially offset by a $6.3 million decrease in cash sweep revenue due to a decline in interest rates at the end of the first quarter of 2020.
Wealth Management operating expenses increased $12.7 million primarily due to incremental expenses resulting from the HKFS Acquisition, as well as increases in cost of revenue and sales and marketing expenses in our legacy Avantax Wealth Management business.
Sources of revenue
Wealth Management revenue is derived from multiple sources. We track sources of revenue, primary drivers of each revenue source, and recurring revenue. In addition, we focus on several business and key financial metrics in evaluating the success of our business relationships, our resulting financial position, and operating performance.
Blucora, Inc. | Q1 2021 Form 10-Q 23


A summary of our sources of revenue and business metrics is as follows:
(In thousands, except percentages)Three months ended March 31,Change
Sources of RevenuePrimary Drivers20212020$%
Financial professional-drivenAdvisory- Advisory asset levels$91,119 $78,757 $12,362