A reconciliation of Level 3 items measured at fair value on a recurring basis is as follows (in thousands):
The Company has entered into indemnification agreements in the ordinary course of business with its officers and directors, and the agreement entered into with GCA Savvian in connection with the acquisition of HD Vest also contained indemnification provisions. Pursuant to these agreements, the Company may be obligated to advance payment of legal fees and costs incurred by the defendants pursuant to the Company’s obligations under these indemnification agreements and applicable Delaware law.
Note 10:9: Stockholders’ Equity
Stock-based compensation: The Company included the following amounts for stock-based compensation expense, which related to stock options, restricted stock units ("RSUs"), and the Company’s employee stock purchase plan ("ESPP"), in the following on the consolidated statements of comprehensive income (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, | | | | Six months ended June 30, | | |
| 2019 | | 2018 | | 2019 | | 2018 |
Cost of revenue | $ | 896 | | $ | 271 | | $ | 1,416 | | $ | 527 |
Engineering and technology | 156 | | 202 | | 332 | | 412 |
Sales and marketing | 180 | | 702 | | (13) | | 1,218 |
General and administrative | 2,850 | | 2,555 | | 4,790 | | 4,528 |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Total | $ | 4,082 | | $ | 3,730 | | $ | 6,525 | | $ | 6,685 |
|
| | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Cost of revenue | $ | 412 |
| | $ | 52 |
| | $ | 546 |
| | $ | 117 |
|
Engineering and technology | 225 |
| | 434 |
| | 734 |
| | 1,167 |
|
Sales and marketing | 529 |
| | 661 |
| | 1,801 |
| | 1,688 |
|
General and administrative | 1,966 |
| | 2,217 |
| | 5,353 |
| | 7,644 |
|
Restructuring | 97 |
| | — |
| | 1,078 |
| | — |
|
Total in continuing operations | 3,229 |
| | 3,364 |
| | 9,512 |
| | 10,616 |
|
Discontinued operations | — |
| | (727 | ) | | — |
| | 2,014 |
|
Total | $ | 3,229 |
| | $ | 2,637 |
| | $ | 9,512 |
| | $ | 12,630 |
|
In the second quarterAs of 2017,June 30, 2019, the Company had granted 350,000801,986 RSUs and non-qualified stock options to certain HD VestWealth Management business financial advisors. These advisors who are considered non-employees. TheseThe RSUs and stock options fully vest fully three years from the date of grant. The Company usedFollowing the Black-Scholes-Merton valuation methodCompany's early adoption of ASU 2018-07, effective January 1, 2018, these grants are accounted for similarly to calculate stock-based compensation, using assumptions for the risk-free interest rate, expected dividend yield, expected volatility, and expected life under the same methodology that is used for employee grants. Since these are non-employee grants, stock-based compensation expense will be remeasured at the end of each quarter. For the three and nine months ended September 30, 2017, stock-based compensation expense for these non-employees was $0.4 million and $0.5 million, respectively, and was recorded in "Cost of revenue" on the consolidated statements of comprehensive income.share-based payments granted to employees.
Total net shares issued to employees for stock options exercised, RSUs vested, and shares purchased pursuant toin the Company's ESPP were as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, | | | | Six months ended June 30, | | |
| 2019 | | 2018 | | 2019 | | 2018 |
Stock options exercised | 399 | | 552 | | 478 | | 872 |
RSUs vested | 79 | | 114 | | 211 | | 220 |
Shares purchased pursuant to ESPP | 46 | | (1) | | 46 | | 35 |
Total | 524 | | 665 | | 735 | | 1,127 |
Note 10: Leases
The Company's leases are primarily related to office space. For the three and six months ended June 30, 2019, the Company recognized operating lease costs of approximately $1.2 million and $2.3 million, respectively, in "General and administrative" expense on the consolidated statements of comprehensive income. For the three and six months ended June 30, 2018, the Company recognized rent expense of approximately $0.6 million and $1.2 million, respectively, in "General and administrative" expense on the consolidated statements of comprehensive income.
As of June 30, 2019, the Company's weighted-average remaining operating lease term was approximately 3.8 years, and its weighted-average operating lease discount rate was 5.4%.
The maturities of the Company's operating lease liabilities as of June 30, 2019 are below. The Company's finance lease liabilities as of June 30, 2019 were $0.1 million.
|
| | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Stock options exercised | 1,243 |
| | — |
| | 3,651 |
| | 140 |
|
RSUs vested | 91 |
| | 102 |
| | 442 |
| | 426 |
|
Shares purchased pursuant to ESPP | 62 |
| | 114 |
| | 138 |
| | 191 |
|
Total | 1,396 |
| | 216 |
| | 4,231 |
| | 757 |
|
| | | | | | | | | |
(in thousands, except percentages) | | | | | |
Undiscounted cash flows: | | | | | |
2019 (for the six months remaining in 2019) | $ | 5,218 | | | | |
2020 | 3,587 | | | | |
2021 | 1,136 | | | | |
2022 | 1,264 | | | | |
2023 | 1,292 | | | | |
2024 | 1,319 | | | | |
Thereafter | $ | 1,800 | | | | |
Total undiscounted cash flows | $ | 15,616 | | | | |
Imputed interest | (1,660) | | | | |
Present value of cash flows | $ | 13,956 | | | | |
| | | | | |
| June 30, 2019 | | | | |
Short-term operating lease liabilities | $ | 7,121 | | | | |
Long-term operating lease liabilities | 6,835 | | | | |
Total operating lease liabilities | $ | 13,956 | | | | |
| | | | | |
| | | | | |
Cash paid on operating lease liabilities was $2.1 million for the six months ended June 30, 2019. Lease liabilities from new ROU assets obtained during the six months ended June 30, 2019 were $6.7 million, primarily due to the Acquisition. In the three months ended June 30, 2019, the Company signed a new office lease, which is expected to commence in 2020.
Note 11: Segment InformationIncome Taxes
The Company recorded income tax benefit of $8.1 million and $4.1 million in the three and six months ended June 30, 2019, respectively. The Company's effective income tax rate differed from the 21% statutory rate in the three and six months ended June 30, 2019, primarily due to excess tax benefits related to stock-based compensation and the release of valuation allowances, offset by the effect of state income taxes, non-deductible compensation and acquisition costs. As part of the Acquisition, the Company recorded $78.2 million of intangible assets that resulted in an $11.6 million discrete change in the valuation allowance as intangible assets are not amortizable for tax purposes.
The Company has two reportable segments:recorded income tax expense of $0.9 million and $2.9 million in the Wealth Management segmentthree and six months ended June 30, 2018, respectively. Income taxes differed from the 21% statutory rate in three and six months ended June 30, 2018, primarily due to the release of valuation allowances and the Tax Preparation segment. The former Search and Content and E-Commerce segments are included in discontinued operations. The Company’s Chief Executive Officer is its chief operating decision maker and reviews financial information presented on a disaggregated basis. This information is used for purposeseffect of allocating resources and evaluating financial performance.state income taxes.
Information on reportable segments currently presented to the Company’s chief operating decision maker and a reconciliation to consolidated net income are presented below (in thousands):
|
| | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Revenue: | | | | | | | |
Wealth Management | $ | 86,809 |
| | $ | 80,088 |
| | $ | 254,772 |
| | $ | 233,496 |
|
Tax Preparation | 3,362 |
| | 3,149 |
| | 156,936 |
| | 135,614 |
|
Total revenue | 90,171 |
| | 83,237 |
| | 411,708 |
| | 369,110 |
|
Operating income (loss): | | | | | | | |
Wealth Management | 12,425 |
| | 11,628 |
| | 36,684 |
| | 32,458 |
|
Tax Preparation | (6,238 | ) | | (4,382 | ) | | 83,410 |
| | 72,987 |
|
Corporate-level activity | (17,513 | ) | | (17,754 | ) | | (57,536 | ) | | (54,153 | ) |
Total operating income (loss) | (11,326 | ) | | (10,508 | ) | | 62,558 |
| | 51,292 |
|
Other loss, net | (5,241 | ) | | (11,453 | ) | | (39,149 | ) | | (29,883 | ) |
Income tax benefit (expense) | (166 | ) | | 8,537 |
| | (5,952 | ) | | (8,899 | ) |
Discontinued operations, net of income taxes | — |
| | (40,528 | ) | | — |
| | (57,981 | ) |
Net income (loss) | $ | (16,733 | ) | | $ | (53,952 | ) | | $ | 17,457 |
| | $ | (45,471 | ) |
Revenues by major category within each segment are presented below (in thousands):
|
| | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Wealth Management: | | | | | | | |
Commission | $ | 39,432 |
| | $ | 38,962 |
| | $ | 117,181 |
| | $ | 111,070 |
|
Advisory | 37,588 |
| | 32,705 |
| | 107,078 |
| | 95,759 |
|
Asset-based | 6,526 |
| | 5,476 |
| | 19,276 |
| | 16,689 |
|
Transaction and fee | 3,263 |
| | 2,945 |
| | 11,237 |
| | 9,978 |
|
Total Wealth Management revenue | $ | 86,809 |
| | $ | 80,088 |
| | $ | 254,772 |
| | $ | 233,496 |
|
Tax Preparation: | | | | | | | |
Consumer | $ | 3,149 |
| | $ | 2,950 |
| | $ | 143,239 |
| | $ | 122,678 |
|
Professional | 213 |
| | 199 |
| | 13,697 |
| | 12,936 |
|
Total Tax Preparation revenue | $ | 3,362 |
| | $ | 3,149 |
| | $ | 156,936 |
| | $ | 135,614 |
|
Note 12: Net Income (Loss) Per Share
"Basic net income (loss) per share" is computed using the weighted average number of common shares outstanding during the period. "Diluted net income (loss) per share" is computed 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 RSUs. Dilutive potential common shares are excluded from the computation of earnings per share if their effect is antidilutive.
The computation of basic and diluted net income (loss) per share attributable to Blucora, Inc. is as follows (in thousands):
|
| | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Numerator: | | | | | | | |
Income (loss) from continuing operations | $ | (16,733 | ) | | $ | (13,424 | ) | | $ | 17,457 |
| | $ | 12,510 |
|
Net income attributable to noncontrolling interests | (164 | ) | | (167 | ) | | (466 | ) | | (426 | ) |
Income (loss) from continuing operations attributable to Blucora, Inc. | (16,897 | ) | | (13,591 | ) | | 16,991 |
| | 12,084 |
|
Loss from discontinued operations attributable to Blucora, Inc. | — |
| | (40,528 | ) | | — |
| | (57,981 | ) |
Net income (loss) attributable to Blucora, Inc. | $ | (16,897 | ) | | $ | (54,119 | ) | | $ | 16,991 |
| | $ | (45,897 | ) |
Denominator: | | | | | | | |
Weighted average common shares outstanding, basic | 45,459 |
| | 41,635 |
| | 43,749 |
| | 41,404 |
|
Dilutive potential common shares | — |
| | — |
| | 3,064 |
| | 925 |
|
Weighted average common shares outstanding, diluted | 45,459 |
| | 41,635 |
| | 46,813 |
| | 42,329 |
|
Net income (loss) per share attributable to Blucora, Inc. - basic: | | | | | | |
Continuing operations | $ | (0.37 | ) | | $ | (0.33 | ) | | $ | 0.39 |
| | $ | 0.29 |
|
Discontinued operations | — |
| | (0.97 | ) | | — |
| | (1.40 | ) |
Basic net income (loss) per share | $ | (0.37 | ) | | $ | (1.30 | ) | | $ | 0.39 |
| | $ | (1.11 | ) |
Net income (loss) per share attributable to Blucora, Inc. - diluted: | | | | | | |
Continuing operations | $ | (0.37 | ) | | $ | (0.33 | ) | | $ | 0.36 |
| | $ | 0.29 |
|
Discontinued operations | — |
| | (0.97 | ) | | — |
| | (1.37 | ) |
Diluted net income (loss) per share | $ | (0.37 | ) | | $ | (1.30 | ) | | $ | 0.36 |
| | $ | (1.08 | ) |
Shares excluded | 5,798 |
| | 10,246 |
| | 1,160 |
| | 6,317 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, | | | | Six months ended June 30, | | |
| 2019 | | 2018 | | 2019 | | 2018 |
Numerator: | | | | | | | |
Income | $ | 31,036 | | $ | 35,460 | | $ | 93,206 | | $ | 81,006 |
Net income attributable to noncontrolling interests | — | | (222) | | — | | (427) |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Net income attributable to Blucora, Inc. | $ | 31,036 | | $ | 35,238 | | $ | 93,206 | | $ | 80,579 |
Denominator: | | | | | | | |
Weighted average common shares outstanding, basic | 48,555 | | 47,221 | | 48,358 | | 46,931 |
Dilutive potential common shares | 1,267 | | 2,213 | | 1,323 | | 2,118 |
Weighted average common shares outstanding, diluted | 49,822 | | 49,434 | | 49,681 | | 49,049 |
Net income per share attributable to Blucora, Inc.: | | | | | | | |
Basic | $ | 0.64 | | $ | 0.75 | | $ | 1.93 | | $ | 1.72 |
Diluted | $ | 0.62 | | $ | 0.71 | | $ | 1.88 | | $ | 1.64 |
Shares excluded | 311 | | 373 | | 284 | | 637 |
Shares were excluded primarily related tofrom the anti-dilutivecomputation of diluted earnings per common share for these periods because their effect of a net loss (for the three months ended September 30, 2017 and 2016), and stock options with an exercise price greater than the average price during the applicable periods.would have been anti-dilutive.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This Quarterly Report on Form 10-Q 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 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements generally are identified by the words "anticipate," "believe," "plan," "project," "expect," "future," "intend," "may," "will," "should," "could," "would,""estimate," "predict," "potential," "continue," and similar expressions. 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 "Strategic Transformation;" 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 Part II Item 1A, "Risk Factors," and elsewhere in this report. You should not rely on forward-looking statements included herein, which speak only as of the date of this Quarterly Report on Form 10-Q or the date specified herein. We do not undertake any obligation to update publicly any forward-looking statement to reflect new information, events, or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect the occurrence of unanticipated events.
The following discussion should be read in conjunction with our consolidated financial statements and accompanying notes included under Part 1I, Item 1 of this report and the section titled "Cautionary Statement Regarding Forward-Looking Statements" in this report, as well as with our consolidated financial statements, accompanying notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2016.
2018.
Our Business
Blucora, (the Inc. (collectively, with its direct and indirect subsidiaries on a consolidated basis, the "Company," "Blucora,""we," "our" or"we" "us") operates two businesses: a Wealth Management business and an onlinea digital Tax Preparation business.
The Wealth Management business consists of HD Vest and 1st Global, (collectively, the operations of HDV Holdings, Inc. and its subsidiaries (collectively referred to as "HD Vest" or the "Wealth Management Business"business" or the "Wealth Management segment")., the latter ofwhich was acquired in May 2019 as further discussed below. HD Vest providesand 1st Global provide tax-focused wealth management solutions for financial advisors, Certified Public Accounting firms and their clients. Specifically, HD Vestthe Wealth Management business provides 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 was founded to helpclients, and/or clients of their respective firms. The Wealth Management business helps tax and accounting professionals and firms integrate financial services into their practices. HD Vest primarilyThe Wealth Management business recruits independent tax professionals with, or within, established tax practices and offers specialized training and support, which allows them to join the HD Vest platformthe Wealth Management business platforms as independent financial advisors. HD VestThe Wealth Management business generates revenue primarily through commissions, quarterly investment advisory fees based on total client assets under management and other fees.
The Tax Preparation business consists of the operations of TaxAct Inc. (collectively referred to as ("TaxAct" or TaxAct," the "Tax Preparation business"business," or the "Tax Preparation segment"). TaxAct provides digital do-it-yourself ("DDIY") tax preparation solutions for consumers, small business owners, and tax professionals. TaxAct generates revenue primarily through its onlinedigital service at www.TaxAct.com. The TaxAct website and the information contained therein or connected thereto is not intended to be incorporated by reference into this Report.report.
Strategic TransformationRecent Developments
Acquisition of 1st Global
On October 14, 2015,May 6, 2019, we announcedclosed the Acquisition of all of the issued and outstanding common stock of 1st Global, a tax-focused wealth management company, for a cash purchase price of $180.0 million. The purchase price was paid with a combination of (i) cash on hand and (ii) the proceeds from a $125.0 million increase in the term loan under the Blucora senior secured credit facilities. As a result of the Acquisition we expect to achieve costs savings and synergies as we integrate 1st Global into our plansbusiness.
Amendment to acquire HD Vest and focus on the technology-enabled financial solutions market (the "Strategic Transformation"). The Strategic Transformation refers to our transformationCredit Facilities; Incurrence of Additional Term Loan
In May 2017, we entered into a technology-enabled financial solutions company comprisedcredit agreement with a syndicate of TaxActlenders for the Blucora senior secured credit facilities. Prior to May 2019, the Blucora senior secured credit facilities provided for up to $425.0 million of borrowings, consisting of a committed $50.0 million revolving credit facility (including a letter of credit sub-facility) and HD Vesta $375.0 million term loan facility. In May 2019, we amended the Blucora senior secured credit facilities, in order to, among other things: (i) provide for a term loan increase in the aggregate principal amount of $125.0 million in the form of a fungible increase to, and on substantially the divestitures ofsame terms as, our Searchexisting senior secured term loan under the Blucora senior secured credit facilities and Content business that was operated through our former InfoSpace LLC subsidiary ("InfoSpace") and our E-Commerce business that consisted(ii) increase the total amount of the operationsrevolving credit facility under the Blucora senior secured credit facilities by $15.0 million to an aggregate of Monoprice, Inc. ("Monoprice") in 2016. As part$65.0 million. See further discussion of the Strategic Transformation and our model of operating as "One Company", we announced on October 27, 2016 plans to relocate our corporate headquarters by June 2017 from Bellevue, Washington to Irving, Texas. The transformation is intended to drive efficiencies and improve operational effectiveness.
In connection with the relocation of our corporate headquarters, we have incurred restructuring costs of approximately $6.6 million. These costs are recorded within corporate-level activity for segment purposes. Seeterm loan increase in "Note 5: Restructuring"6: Debt" of the Notes to Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this report for additional information. We also have incurred costs that do not qualify for restructuring classification, such as recruiting and overlap in personnel expenses as we transition positions to Texas ("Strategic Transformation Costs"). The restructuring is now substantially complete and it is expected to be completed by early 2018.
For a discussion of the associated risks, see the sections under the heading "Risks Associated With our Strategic Transformation" in Part II Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2016.report.
Seasonality
Our Tax Preparation businesssegment 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 businesssegment typically reports losses in its operating income because revenue from the businesssegment is minimal while core operating expenses continue.
Comparability
We reclassified certain amounts on our consolidated statements of cash flows related to excess tax benefits generated from stock-based compensation and restricted cash, both in connection withanticipate that the implementation of new accounting pronouncements. See the "Recent accounting pronouncements" section of "Note 2: Summary of Significant Accounting Policies"seasonal nature of the Notes to Unaudited Condensed Consolidated Financial StatementsTax Preparation business will continue in Part I Item 1 of this report for additional information.the foreseeable future.
RESULTS OF OPERATIONS
Summary
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands, except percentages) | Three months ended June 30, | | | | | | Six months ended June 30, | | | | |
| 2019 | | 2018 | | Change | | 2019 | | 2018 | | Change |
Revenue | $ | 193,740 | | $ | 157,848 | | 23 | % | | $ | 419,508 | | $ | 363,813 | | 15 | % |
Operating income | $ | 28,030 | | $ | 39,126 | | (28) | % | | $ | 98,143 | | $ | 91,863 | | 7 | % |
|
| | | | | | | | | | | | | | | | | | | | | |
(In thousands, except percentages) | Three months ended September 30, | | Nine months ended September 30, |
| 2017 | | 2016 | | Percentage Change | | 2017 | | 2016 | | Percentage Change |
Revenue | $ | 90,171 |
| | $ | 83,237 |
| | 8 | % | | $ | 411,708 |
| | $ | 369,110 |
| | 12 | % |
Operating income (loss) | $ | (11,326 | ) | | $ | (10,508 | ) | | 8 | % | | $ | 62,558 |
| | $ | 51,292 |
| | 22 | % |
Three months ended SeptemberJune 30, 20172019 compared with three months ended SeptemberJune 30, 20162018
Revenue increased approximately $6.9$35.9 million due to increasesan increase of $6.7 million and $0.2$35.8 million in revenue related to our Wealth Management business and an increase of $0.1 million in revenue related to our Tax Preparation businesses, respectively,business, as discussed in the following "Segment Revenue/Operating Income" section.
Operating loss increasedincome decreased approximately $0.8$11.1 million, consisting of the $6.9$35.9 million increase in revenue andthat was offset by an $7.8a $47.0 million increase in operating expenses. Key changes in operating expenses were:
•$5.931.8 million increase in the Wealth Management segment’s operating expenses (including approximately $26.8 million of operating expenses from 1st Global), primarily due to higheran increase in commissions and advisory fees paid to our financial advisors, which fluctuated in proportionrelation to the change in underlying commission and advisory revenues earned on client accounts.
•$2.12.8 million increase in the Tax Preparation segment’s operating expenses, primarily due to higher maintenance fees,an increase in personnel costs supporting product development costs and personnelan increase in software development expenses, resulting from overall increased headcount supporting most functions.partially offset by lower consulting expenses primarily related to strategic initiatives.
•$0.212.4 million decreaseincrease in corporate-level expense activity, primarily duerelated to changesacquisition and integration costs and an increase in headcount across most functions.consulting expenses.
NineSix months ended SeptemberJune 30, 20172019 compared with ninesix months ended SeptemberJune 30, 20162018
Revenue increased approximately $42.6$55.7 million due to increasesan increase of $21.3$22.4 million in revenue related to our Tax Preparation business and $21.3an increase of $33.3 million in revenue related to our Wealth Management and Tax Preparation businesses, respectively,business, as discussed in the following "Segment Revenue/Operating Income" section.
Operating income increased approximately $11.3$6.3 million, consisting of the $42.6$55.7 million increase in revenue andthat was offset by a $31.3$49.4 million increase in operating expenses. Key changes in operating expenses were:
•$17.130.8 million increase in the Wealth Management segment’s operating expenses (including approximately $26.8 million of operating expenses from 1st Global), primarily due to higheran increase in commissions and advisory fees paid to our financial advisors, which fluctuated in proportionrelation to the change in underlying commission and advisory revenues earned on client accounts, and higher net personnel expenses as we continue to standardize employee benefits across our businesses.accounts.
•$10.94.7 million increase in the Tax Preparation segment’s operating expenses, primarily due to higher spending on marketing, higher professional services fees mostly related to marketingan increase in personnel costs supporting multiple functions and development projects, higher data center costs related toan increase in software support and maintenance fees, increases in growth initiative investments, and higher personnel expenses resulting from overall increased headcount supporting most functions.expenses.
•$3.413.9 million increase in corporate-level expense activity, primarily due to Strategic Transformation Costs and increased headcount supporting most functions, partially offset by lower stock-based compensation costs due to fewer grants in the current year and higher expense recognized in the prior year related to HD Vest grantsacquisition and integration costs and an increase in 2016, partially offset by activity within our Tax Preparation business due to prior forfeitures.consulting expenses.
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.United States ("GAAP") and include certain reconciling items attributable to each of the segments. Segment information appearing in "Note 11:4: Segment Information"Information and Revenues" of the Notes to Unaudited Condensed Consolidated Financial
Statements in Part I, Item 1 of this report is presented on a basis consistent with our current internal management financial reporting. We have two reportable segments: Wealth Management and Tax Preparation. We do not allocate certain general and administrative costs (including personnel and overhead costs), stock-based compensation, depreciation, amortization of acquired intangible assets, restructuring, other loss, net, and income taxes to segment operating results. WeRather, we analyze these separately.such general and administrative costsseparately under the heading "Corporate-level activity."
Wealth Management
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands, except percentages) | Three months ended June 30, | | | | | | Six months ended June 30, | | | | |
| 2019 | | 2018 | | Change | | 2019 | | 2018 | | Change |
Revenue | $ | 127,831 | | $ | 92,015 | | 39 | % | | $ | 217,363 | | $ | 184,097 | | 18 | % |
Operating income | $ | 16,979 | | $ | 12,954 | | 31 | % | | $ | 28,519 | | $ | 26,029 | | 10 | % |
Segment margin | 13 | % | | 14 | % | | | | 13 | % | | 14 | % | | |
|
| | | | | | | | | | | | | | | | | | | | | |
(In thousands, except percentages) | Three months ended September 30, | | Nine months ended September 30, |
| 2017 | | 2016 | | Percentage Change | | 2017 | | 2016 | | Percentage Change |
Revenue | $ | 86,809 |
| | $ | 80,088 |
| | 8 | % | | $ | 254,772 |
| | $ | 233,496 |
| | 9 | % |
Operating income | $ | 12,425 |
| | $ | 11,628 |
| | 7 | % | | $ | 36,684 |
| | $ | 32,458 |
| | 13 | % |
Segment margin | 14 | % | | 15 | % | | | | 14 | % | | 14 | % | |
|
|
The decrease in Wealth Management segment margin for the three months ended June 30, 2019 is primarily due to the impact of 1st Global, partially offset by higher advisory and asset-based revenues and a decrease in costs related to our 2018 clearing firm conversion. The decrease in Wealth Management segment margin for the six months ended June 30, 2019 is primarily due to the impact of 1st Global.
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. A summary of our sources of revenue and business metrics areis as follows:
Sources of revenue
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands, except percentages) | | | Three months ended June 30, | | | | | | Six months ended June 30, | | | | |
| Sources of Revenue | Primary Drivers | 2019 | | 2018 | | Change | | 2019 | | 2018 | | Change |
Advisor-driven
| Commission | - Transactions - Asset levels | $ | 48,068 | | $ | 40,384 | | 19 | % | | $ | 85,228 | | $ | 83,254 | | 2 | % |
| Advisory | - Advisory asset levels | 61,410 | | 40,058 | | 53 | % | | 101,167 | | 79,359 | | 27 | % |
Other revenue | Asset-based | - Cash balances - Interest rates - Number of accounts - Client asset levels | 13,219 | | 7,306 | | 81 | % | | 22,912 | | 14,478 | | 58 | % |
| Transaction and fee | - Account activity - Number of clients - Number of advisors - Number of accounts | 5,134 | | 4,267 | | 20 | % | | 8,056 | | 7,006 | | 15 | % |
| Total revenue | | $ | 127,831 | | $ | 92,015 | | 39 | % | | $ | 217,363 | | $ | 184,097 | | 18 | % |
| Total recurring revenue | | $ | 106,557 | | $ | 75,369 | | 41 | % | | $ | 179,798 | | $ | 148,331 | | 21 | % |
| Recurring revenue rate | | 83.4 | % | | 81.9 | % | | | | 82.7 | % | | 80.6 | % | | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
(In thousands, except percentages) | Three months ended September 30, | | Nine months ended September 30, |
| Sources of Revenue | Primary Drivers | 2017 | | 2016 | | Percentage Change | | 2017 | | 2016 | | Percentage Change |
Advisor-driven
| Commission | - Transactions - Asset levels | $ | 39,432 |
| | $ | 38,962 |
| | 1 | % | | $ | 117,181 |
| | $ | 111,070 |
| | 6 | % |
Advisory | - Advisory asset levels | 37,588 |
| | 32,705 |
| | 15 | % | | 107,078 |
| | 95,759 |
| | 12 | % |
Other revenue | Asset-based | - Cash balances - Interest rates - Number of accounts - Client asset levels | 6,526 |
| | 5,476 |
| | 19 | % | | 19,276 |
| | 16,689 |
| | 16 | % |
Transaction and fee | - Account activity - Number of clients - Number of advisors - Number of accounts | 3,263 |
| | 2,945 |
| | 11 | % | | 11,237 |
| | 9,978 |
| | 13 | % |
| Total revenue | $ | 86,809 |
| | $ | 80,088 |
| | 8 | % | | $ | 254,772 |
| | $ | 233,496 |
| | 9 | % |
| Total recurring revenue | $ | 70,539 |
| | $ | 62,543 |
| | 13 | % | | $ | 203,417 |
| | $ | 183,772 |
| | 11 | % |
| Recurring revenue rate | 81.3 | % | | 78.1 | % | | | | 79.8 | % | | 78.7 | % | | |
Recurring revenue consists of trailing commissions, advisory fees, fees from cash sweep programs, and certain transaction and fee revenue, all as described further below in Commission revenue, Advisory revenue, Asset-based revenue, and Transaction and fee revenue, respectively. Certain recurring revenues are associated with asset balances and will fluctuate depending on market values and current interest rates. Accordingly, our recurring revenue can be negatively impacted by adverse external market conditions. However, we believe recurring revenue is meaningful despite these fluctuations because it is not dependent upon transaction volumes or other activity-based revenues, which are more difficult to predict, particularly in declining or volatile markets.
Business metrics
| | | | | | | | | | | | | | | | | |
(In thousands, except percentages and as otherwise indicated) | June 30, | | | | |
| 2019 | | 2018 | | Change |
Total Client Assets | $ | 67,602,006 | | $ | 45,016,993 | | 50 | % |
Brokerage Assets | $ | 41,335,972 | | $ | 32,069,800 | | 29 | % |
Advisory Assets | $ | 26,266,034 | | $ | 12,947,193 | | 103 | % |
Percentage of Total Client Assets | 38.9 | % | | 28.8 | % | | |
Number of advisors (in ones) | 4,225 | | 3,709 | | 14 | % |
Advisor-driven revenue per advisor | $ | 25.9 | | $ | 21.7 | | 19 | % |
|
| | | | | | | | | | |
(In thousands, except percentages and as otherwise indicated) | September 30, |
| 2017 | | 2016 | | Percentage Change |
Total Assets Under Administration ("AUA") | $ | 42,696,862 |
| | $ | 38,482,620 |
| | 11 | % |
Advisory Assets Under Management ("AUM") | $ | 11,984,320 |
| | $ | 10,204,448 |
| | 17 | % |
Percentage of total AUA | 28.1 | % | | 26.5 | % | |
|
Number of advisors (in ones) | 4,392 |
| | 4,568 |
| | (4 | )% |
Advisor-driven revenue per advisor | $ | 17.5 |
| | $ | 15.7 |
| | 11 | % |
Total client assets under administration ("AUA"("total client assets") includes assets that we hold directly or indirectly on behalf of clients under a safekeeping or custody arrangement or for which we provide administrative services for clients. To the extent that we provide more than one AUAtotal client assets service for a client’s assets, the value of the asset is only counted once in the total amount of AUA. AUA
total client assets. Total client assets include Advisory Assets under Management,advisory assets, non-advisory brokerage accounts, annuities and mutual fund positions held directly with fund companies. These assets are not reported on the consolidated balance sheets.
Advisory assets under management ("AUM"("advisory assets") includes external client assets for which we provide investment advisory and management services, typically as a fiduciary under the Investment Advisers Act of 1940. Our compensation for providing such services is typically a fee based on the value of the AUMadvisory assets for each advisory client. These assets are not reported on the consolidated balance sheets.sheets.
Brokerage assets represents the difference between total client assets and advisory assets.
Total client assets acquired from 1st Global were approximately $20.0 billion.
Three months ended SeptemberJune 30, 20172019 compared with three months ended SeptemberJune 30, 20162018
Wealth Management revenue increased approximately $6.7$35.8 million as a result of the factors discussed byin the category for each source of revenue below.
Wealth Management operating income increased approximately $0.8$4.0 million, consisting of the $6.7due to a $35.8 million increase in revenue, and offset by a $5.9$31.8 million increase in operating expenses. The increase in Wealth Management operating expenses was primarily due to higherapproximately $26.8 million of operating expenses from 1st Global, and an increase in commissions and advisory fees paid to our financial advisors, which fluctuated in proportionrelation to the change in underlying commission and advisory revenues earned on client accounts.
NineSix months ended SeptemberJune 30, 20172019 compared with ninesix months ended SeptemberJune 30, 20162018
Wealth Management revenue increased approximately $21.3$33.3 million as a result of the factors discussed byin the category for each source of revenue below.
Wealth Management operating income increased approximately $4.2$2.5 million, consisting of the $21.3due to a $33.3 million increase in revenue, and offset by an $17.1a $30.8 million increase in operating expenses. The increase in Wealth Management operating expenses was primarily due to higherapproximately $26.8 million of operating expenses from 1st Global, and an increase in commissions and advisory fees paid to our financial advisors, which fluctuated in proportionrelation to the change in underlying commission and advisory revenues earned on client accounts, and higher net personnel expenses as we continue to standardize employee benefits across our businesses.accounts.
Commission revenue:We generateThe Wealth Management segment generates two types of commissions: transaction-based sales commissions and trailing commissions. Transaction-based sales commissions, which occur when clients trade securities or purchase investment products, represent gross commissions generated by our financial advisors. The level of transaction-based sales commissions can vary from period-to-period based on the overall economic environment, number of trading days in the reporting period, market volatility, interest rate fluctuations and investment activity of our financial advisors' clients. We earn trailing commissions (a commission or fee that is paid periodically over time) on certain mutual funds and variable annuities held by clients. Trailing commissions are recurring in nature and are based on the market value of investment holdings in trail-eligible assets. Our commission revenue, by product category and by sales-based and trailing,type of commission revenue, was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands, except percentages) | Three months ended June 30, | | | | | | Six months ended June 30, | | | | |
| 2019 | | 2018 | | Change | | 2019 | | 2018 | | Change |
By product category: | | | | | | | | | | | |
Mutual funds | $ | 23,437 | | $ | 22,329 | | 5 | % | | $ | 42,678 | | $ | 45,293 | | (6) | % |
Variable annuities | 15,145 | | 12,386 | | 22 | % | | 26,503 | | 25,850 | | 3 | % |
Insurance | 4,299 | | 3,064 | | 40 | % | | 8,029 | | 6,451 | | 24 | % |
General securities | 5,187 | | 2,605 | | 99 | % | | 8,018 | | 5,660 | | 42 | % |
| | | | | | | | | | | |
Total commission revenue | $ | 48,068 | | $ | 40,384 | | 19 | % | | $ | 85,228 | | $ | 83,254 | | 2 | % |
| | | | | | | | | | | |
By type of commission: | | | | | | | | | | | |
Sales-based | $ | 20,469 | | $ | 15,919 | | 29 | % | | $ | 36,153 | | $ | 34,264 | | 6 | % |
Trailing | 27,599 | | 24,465 | | 13 | % | | 49,075 | | 48,990 | | — | % |
Total commission revenue | $ | 48,068 | | $ | 40,384 | | 19 | % | | $ | 85,228 | | $ | 83,254 | | 2 | % |
|
| | | | | | | | | | | | | | | | | | | | | |
(In thousands, except percentages) | Three months ended September 30, | | Nine months ended September 30, |
| 2017 | | 2016 | | Percentage Change | | 2017 | | 2016 | | Percentage Change |
By product category: | | | | | | | | | | | |
Mutual funds | $ | 21,128 |
| | $ | 20,196 |
| | 5 | % | | $ | 62,371 |
| | $ | 59,021 |
| | 6 | % |
Variable annuities | 12,879 |
| | 12,395 |
| | 4 | % | | 36,820 |
| | 35,725 |
| | 3 | % |
Insurance | 3,037 |
| | 3,689 |
| | (18 | )% | | 9,715 |
| | 8,836 |
| | 10 | % |
General securities | 2,388 |
| | 2,682 |
| | (11 | )% | | 8,275 |
| | 7,488 |
| | 11 | % |
Total commission revenue | $ | 39,432 |
| | $ | 38,962 |
| | 1 | % | | $ | 117,181 |
| | $ | 111,070 |
| | 6 | % |
| | | | | | | | | | | |
By sales-based and trailing: | | | | | | | | | | | |
Sales-based | $ | 15,590 |
| | $ | 16,925 |
| | (8 | )% | | $ | 49,190 |
| | $ | 47,703 |
| | 3 | % |
Trailing | 23,842 |
| | 22,037 |
| | 8 | % | | 67,991 |
| | 63,367 |
| | 7 | % |
Total commission revenue | $ | 39,432 |
| | $ | 38,962 |
| | 1 | % | | $ | 117,181 |
| | $ | 111,070 |
| | 6 | % |
Three months ended SeptemberJune 30, 20172019 compared with three months ended SeptemberJune 30, 20162018
Sales-based commission revenue decreasedincreased approximately $1.3$4.6 million, primarily due to decreased activity in mutual funds, variable annuities, insurance and general securities resultingapproximately $4.3 million of sales-based commission revenue from overall market performance and portfolio rebalancings. General securities include equities, exchange-traded funds, bonds and alternative investments.1st Global.
Trailing commission revenue increased approximately $1.8$3.1 million, and reflects an increaseprimarily due to approximately $4.1 million of revenues from 1st Global, offset by lower trailing commission revenues due to changes in the market value of the underlying assets and, to a lesser extent, the impact of new investments.assets.
NineSix months ended SeptemberJune 30, 20172019 compared with ninesix months ended SeptemberJune 30, 20162018
Sales-based commission revenue increased approximately $1.5$1.9 million, primarily due to increased activity in mutual funds, insurance and general securities resultingapproximately $4.3 million of sales-based commission revenue from overall market performance, portfolio rebalancings, product availability and segment refocusing,1st Global, partially offset by decreased activity in variable annuities.mutual funds and insurance securities.
Trailing commission revenue increasedwas comparable to the prior period, however the six months ended June 30, 2019 consisted of approximately $4.6$4.1 million and reflects an increaseof revenues from 1st Global, offset by lower trailing commission revenues due to changes in the market value of the underlying assets and the impact of new investments.assets.
Advisory revenue:Advisory revenue primarily includes fees charged to clients in advisory accounts where HD Vest or 1st Global is the Registered Investment Advisor ("RIA"“RIA”) and is based on the value of AUM.advisory assets. Advisory fees are typically billed to clients quarterly, in advance, and are recognized as revenue ratably during the quarter. The value of the assets in an advisory account on the billing date determines the amount billed and, accordingly, the revenues earned in the following three-month period. The majority of our accounts are billed in advance using values as of the last business day of the prior calendar quarter.
The activity within our AUMadvisory assets was as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
(In thousands) | Three months ended June 30, | | | | Six months ended June 30, | | |
| 2019 | | 2018 | | 2019 | | 2018 |
Balance, beginning of the period | $ | 13,988,188 | | $ | 12,717,125 | | $ | 12,555,405 | | $ | 12,530,165 |
Net increase in new advisory assets | 308,220 | | 89,249 | | 577,372 | | 407,814 |
Inflows from the Acquisition | 11,397,301 | | — | | 11,397,301 | | — |
Market impact and other | 572,325 | | 140,819 | | 1,735,956 | | 9,214 |
Balance, end of the period | $ | 26,266,034 | | $ | 12,947,193 | | $ | 26,266,034 | | $ | 12,947,193 |
Quarterly average fee rate | 44 bps | | 31 bps | | 38 bps | | 31 bps |
|
| | | | | | | | | | | | | | | |
(In thousands) | Three months ended September 30, | | Nine months ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Balance, beginning of the period | $ | 11,551,288 |
| | $ | 9,814,232 |
| | $ | 10,397,071 |
| | $ | 9,692,244 |
|
Net increase (decrease) in new advisory assets | 94,408 |
| | 131,982 |
| | 613,848 |
| | (1,357 | ) |
Market impact and other | 338,624 |
| | 258,234 |
| | 973,401 |
| | 513,561 |
|
Balance, end of the period | $ | 11,984,320 |
| | $ | 10,204,448 |
| | $ | 11,984,320 |
| | $ | 10,204,448 |
|
Increases or decreases in advisory assets have a limited impact on advisory fee revenue in the period in which they occur. Rather, increases or decreases in advisory assets are a primary driver of future advisory fee revenue.revenue due to advisory fees being billed in advance. Advisory revenue for a particular quarter is predominately driven by the prior quarter-end AUM.advisory assets. For the three and six months ended June 30, 2019, the net increase in new advisory assets was largely due to the addition of new advisors and the timing of the Acquisition.
Three months ended SeptemberJune 30, 20172019 compared with three months ended SeptemberJune 30, 20162018
The increase in advisory revenue of approximately $4.9$21.4 million (including approximately $17.6 million from 1st Global) is primarily due to the increase in the beginning-of-period AUMadvisory assets for the three months ended SeptemberJune 30, 20172019 compared with three months ended SeptemberJune 30, 2016, and the conversion of AUA to fee-based AUM.2018.
NineSix months ended SeptemberJune 30, 20172019 compared with ninesix months ended SeptemberJune 30, 20162018
The increase in advisory revenue of approximately $11.3$21.8 million (including approximately $17.6 million from 1st Global) is consistent withprimarily due to the increase in the beginning-of-period AUMadvisory assets for the ninesix months ended SeptemberJune 30, 20172019 compared with ninesix months ended SeptemberJune 30, 2016, and the conversion of AUA to fee-based AUM.2018.
Asset-based revenue:Asset-based revenue primarily includes fees from financial product manufacturer sponsorship programs, and cash sweep programs.programs and other asset-based revenues, primarily including margin revenues.
Three months ended SeptemberJune 30, 20172019 compared with three months ended SeptemberJune 30, 20162018
Asset-based revenue increased $1.1approximately $5.9 million (including approximately $2.4 million from 1st Global), primarily from higher cash sweep revenues following increases in interest rates. Inrates and the current interest rate environment, and through our currentimpact of the 2018 clearing provider, we will not benefit from any future interest rate increases.firm transition.
NineSix months ended SeptemberJune 30, 20172019 compared with ninesix months ended SeptemberJune 30, 20162018
Asset-based revenue increased $2.6approximately $8.4 million (including approximately $2.4 million from 1st Global), primarily from higher cash sweep revenues following increases in interest rates. Inrates and the current interest rate environment, and through our currentimpact of the 2018 clearing provider, we will not benefit from any future interest rate increases.firm transition.
Transaction and fee revenue:Transaction and fee revenue primarily includes support fees charged to advisors, fees charged for executing certain transactions in client accounts, and other fees related to services provided and other account charges as generally outlined in agreements with financial advisors, clients, and financial institutions.
Three months ended SeptemberJune 30, 20172019 compared with three months ended SeptemberJune 30, 20162018
Transaction and fee revenuerevenues increased approximately $0.3$0.9 million (including approximately $0.6 of revenues from 1st Global), primarily related tofrom advisor fee increases.fees.
NineSix months ended SeptemberJune 30, 20172019 compared with ninesix months ended SeptemberJune 30, 20162018
Transaction and fee revenuerevenues increased approximately $1.3$1.1 million (including approximately $0.6 of revenues from 1st Global), primarily related tofrom advisor fee increases.fees.
Tax Preparation
| | (In thousands, except percentages) | Three months ended September 30, | | Nine months ended September 30, | (In thousands, except percentages) | Three months ended June 30, | | | Six months ended June 30, | |
| 2017 | | 2016 | | Percentage Change | | 2017 | | 2016 | | Percentage Change | | 2019 | | 2018 | | Change | | 2019 | | 2018 | | Change |
Revenue | $ | 3,362 |
| | $ | 3,149 |
| | 7 | % | | $ | 156,936 |
| | $ | 135,614 |
| | 16 | % | Revenue | $ | 65,909 | | $ | 65,833 | | — | % | | $ | 202,145 | | $ | 179,716 | | 12 | % |
Operating income (loss) | $ | (6,238 | ) | | $ | (4,382 | ) | | 42 | % | | $ | 83,410 |
| | $ | 72,987 |
| | 14 | % | |
Operating income | | Operating income | $ | 41,368 | | $ | 44,121 | | (6) | % | | $ | 120,640 | | $ | 102,927 | | 17 | % |
Segment margin | (186 | )% | | (139 | )% | | | | 53 | % | | 54 | % | | | Segment margin | 63 | % | | 67 | % | | 60 | % | | 57 | % | |
Tax Preparation revenue is derived primarily from salesthe sale of our consumertax preparation digital services, ancillary services, packaged tax preparation software, and onlinearrangements that may include a combination of these items. Ancillary services as well as other offeringsprimarily include refund payment transfer and ancillary servicesaudit defense.
We classify Tax Preparation revenue into two different categories: consumer revenue and professional revenue. Consumer revenue represents Tax Preparation revenue derived from products sold to consumerscustomers and smallbusinesses primarily for the preparation of individual or business owners. We also generatetax returns. Professional revenue through the professionalrepresents Tax Preparation revenue derived from products sold to tax preparer software that we sell to professional taxreturn preparers who use itutilize our offerings to prepare and file individual and business returns for their clients.service end-user customers.
Revenue by category was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands, except percentages) | Three months ended June 30, | | | | | | Six months ended June 30, | | | | |
| 2019 | | 2018 | | Change | | 2019 | | 2018 | | Change |
Consumer | $ | 62,686 | | $ | 63,137 | | (1) | % | | $ | 186,628 | | $ | 165,049 | | 13 | % |
Professional | 3,223 | | 2,696 | | 20 | % | | 15,517 | | 14,667 | | 6 | % |
Total revenue | $ | 65,909 | | $ | 65,833 | | — | % | | $ | 202,145 | | $ | 179,716 | | 12 | % |
We measure our consumer tax preparation customers usingconsider the numbervolume of accepted federal tax e-files made through our software and online services. We consider growth in the number of e-filesdigital services to be an important non-financial metric in measuring the performance of the consumer side of the Tax Preparation business. E-file metrics were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands, except percentages) | Six months ended June 30, | | | | | | Tax seasons ended | | | | |
| 2019 | | Change | | 2018 | | 2019 | | Change | | 2018 |
Consumer e-files | 3,179 | | (17) | % | | 3,831 | | 3,115 | | (17) | % | | 3,772 |
| | | | | | | | | | | |
| | | | | | | | | | | |
We participate in the Free File Alliance that is part of an IRS partnership that provides free electronic tax filing services to taxpayers meeting certain income-based guidelines. Approximately 163,000 Free File Alliance e-files are included within digital e-files above.
We measure our professional tax preparer customers using three metrics--themetrics: the number of accepted federal tax e-files made through our software, the number of units sold, and the number of e-files per unit sold. We consider growth in these areas to be important non-financial metrics in measuring the performance of the professional tax preparer side of the Tax Preparation business. These non-financial metrics were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands, except percentages and as otherwise indicated) | Six months ended June 30, | | | | | | Tax seasons ended | | | | |
| 2019 | | Change | | 2018 | | 2019 | | Change | | 2018 |
E-files | 1,916 | | 5 | % | | 1,833 | | 1,833 | | 4 | % | | 1,763 |
Units sold (ones) | 20,583 | | — | % | | 20,637 | | 20,502 | | — | % | | 20,588 |
E-files per unit sold (in ones) | 93.1 | | 5 | % | | 88.8 | | 89.4 | | 4 | % | | 85.6 |
Three months ended SeptemberJune 30, 20172019 compared with three months ended SeptemberJune 30, 20162018
Tax Preparation revenue was comparable to the prior period.
Tax Preparation operating lossincome decreased approximately $2.8 million due to an increase in operating expenses. The increase in Tax Preparation segment operating expenses was primarily due to an increase in personnel costs supporting product development and an increase in software development expenses, partially offset by lower consulting expenses primarily related to strategic initiatives.
Six months ended June 30, 2019 compared with six months ended June 30, 2018
Tax Preparation revenue increased approximately $1.9$22.4 million, consistingprimarily due to price increases and a shift in product mix toward higher-priced products. Revenue derived from professional tax preparers was comparable to the prior period. Revenue from ancillary services, primarily refund payment transfer, grew primarily as a result of the $0.2price increases.
Tax Preparation operating income increased approximately $17.7 million due to an increase in revenue andrevenues of approximately $22.4 million, offset by a $2.1$4.9 million increase in operating expenses. The increase in Tax Preparation segment operating expenses was primarily due to higher maintenance fees, development costs and personnel expenses resulting from overall increased headcount supporting most functions.
Nine months ended September 30, 2017 compared with nine months ended September 30, 2016
Tax Preparation revenue increased approximately $21.3 million primarily due to growth in revenue earned from online consumer users and, to a lesser extent, increased sales of our professional tax preparer software. Online consumer revenue grew, despite a decrease in e-files, due to growth in average revenue per user, primarily resulting from price increases. The decrease in e-files is consistent with our expectations as we are in the early stages of a multi-year pivot toward profitable customers. Revenue derived from professional tax preparers increased primarily due to an increase in the number of professional preparer units sold.
Tax Preparation operating income increased approximately $10.4 million, consisting of the $21.3 millionpersonnel costs supporting product development and an increase in revenue andsoftware development expenses, partially offset by a $10.9 million increase in operating expenses. The increase in Tax Preparation segment operatinglower consulting expenses was primarily due to higher spending on marketing, higher professional services fees mostly related to marketing and development projects, higher data center costs related to software support and maintenance fees, increases in growth initiative investments, and higher personnel expenses resulting from overall increased headcount supporting most functions.strategic initiatives.
Corporate-Level Activity
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands) | Three months ended June 30, | | | | | | Six months ended June 30, | | | | |
| 2019 | | 2018 | | Change | | 2019 | | 2018 | | Change |
Operating expenses | $ | 6,221 | | $ | 4,238 | | $ | 1,983 | | $ | 13,326 | | $ | 9,779 | | $ | 3,547 |
Stock-based compensation | 4,082 | | 3,730 | | 352 | | 6,525 | | 6,685 | | (160) |
Acquisition and integration costs | 9,183 | | — | | 9,183 | | 10,980 | | — | | 10,980 |
Depreciation | 1,662 | | 1,124 | | 538 | | 2,972 | | 3,126 | | (154) |
Amortization of acquired intangible assets | 9,169 | | 8,855 | | 314 | | 17,213 | | 17,212 | | 1 |
| | | | | | | | | | | |
Restructuring | — | | 2 | | (2) | | — | | 291 | | (291) |
Total corporate-level activity | $ | 30,317 | | $ | 17,949 | | $ | 12,368 | | $ | 51,016 | | $ | 37,093 | | $ | 13,923 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
(In thousands) | Three months ended September 30, | | Nine months ended September 30, |
| 2017 | | 2016 | | Change | | 2017 | | 2016 | | Change |
Operating expenses | $ | 4,587 |
| | $ | 4,907 |
| | $ | (320 | ) | | $ | 17,823 |
| | $ | 14,066 |
| | $ | 3,757 |
|
Stock-based compensation | 3,132 |
| | 3,364 |
| | (232 | ) | | 8,434 |
| | 10,616 |
| | (2,182 | ) |
Acquisition-related costs | — |
| | — |
| | — |
| | — |
| | 391 |
| | (391 | ) |
Depreciation | 1,023 |
| | 1,137 |
| | (114 | ) | | 3,216 |
| | 3,386 |
| | (170 | ) |
Amortization of acquired intangible assets | 8,665 |
| | 8,346 |
| | 319 |
| | 25,337 |
| | 25,694 |
| | (357 | ) |
Restructuring | 106 |
| | — |
| | 106 |
| | 2,726 |
| | — |
| | 2,726 |
|
Total corporate-level activity | $ | 17,513 |
| | $ | 17,754 |
| | $ | (241 | ) | | $ | 57,536 |
| | $ | 54,153 |
| | $ | 3,383 |
|
Certain corporate-level activity, is not allocated to our segments, including certain general and administrative costs (including personnel and overhead costs), stock-based compensation, acquisition-relatedacquisition and integration costs, depreciation, amortization of acquired intangible assets, and restructuring. For further detail, referrestructuring is not allocated to segment information appearing in "Note 11: Segment Information" of the Notes to Unaudited Condensed Consolidated Financial Statements in Part I Item 1 of this report.our segments.
Three months ended SeptemberJune 30, 20172019 compared with three months ended SeptemberJune 30, 2016
Operating expenses, stock-based compensation, depreciation, amortization of acquired intangible assets and restructuring were comparable to the prior period.
Nine months ended September 30, 2017 compared with nine months ended September 30, 20162018
Operating expenses included in corporate-level activity increased primarily due to Strategic Transformation Costs and costs associated with leadership changes at HD Vest.increases in headcount.
Stock-based compensation decreasedwas comparable to the prior period.
Acquisition and integration costs in 2019 are related to the Acquisition.
Depreciation expense increased primarily due to fewer grantsinternally-developed software fixed assets capitalized in the current year and higherfourth quarter of 2018.
Amortization expense recognized inincreased primarily due to the prior year related to HD Vest grants in 2016 that were made in connection withimpact of the HD Vest acquisition,Acquisition, partially offset by activity within our Tax Preparation businesslower amortization due to prior forfeitures.
Acquisition-related costs include professional fees and other direct transaction costs and changes in the fair valueabandonment of contingent consideration liabilities related to acquired companies. The SimpleTax acquisition that was completed in 2015 included contingent consideration, for which the fair value of that liability was revaluedcertain software applications in the second quarter of 2016. The change2018.
Six months ended June 30, 2019 compared with six months ended June 30, 2018
Operating expenses included in the fair value of the contingent consideration liability is recognizedcorporate-level activity increased primarily due to increases in the period in which the fair value changes.headcount.
Amortization of acquired intangible assets wereStock-based compensation was comparable to the prior period.
Restructuring relatesAcquisition and integration costs in 2019 are related to expenses incurred duethe Acquisition.
Depreciation expense was comparable to our October 27, 2016 announcementthe prior period.
Amortization expense was comparable to relocate our corporate headquarters by June 2017 from Bellevue, Washington to Irving, Texas. Further detail is provided under the "Operating Expenses - Restructuring" section of the management's discussion and analysis of financial condition and results of operations below.prior period.
OPERATING EXPENSES
Cost of Revenue
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands, except percentages) | Three months ended June 30, | | | | | | Six months ended June 30, | | | | |
| 2019 | | 2018 | | Change | | 2019 | | 2018 | | Change |
Wealth Management services cost of revenue | $ | 87,477 | | $ | 62,149 | | $ | 25,328 | | $ | 148,851 | | $ | 125,213 | | $ | 23,638 |
Tax Preparation services cost of revenue | 3,149 | | 2,459 | | 690 | | 7,350 | | 6,812 | | 538 |
Amortization of acquired technology | — | | 49 | | (49) | | — | | 99 | | (99) |
Total cost of revenue | $ | 90,626 | | $ | 64,657 | | $ | 25,969 | | $ | 156,201 | | $ | 132,124 | | $ | 24,077 |
Percentage of revenue | 47 | % | | 41 | % | | | | 37 | % | | 36 | % | | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
(In thousands, except percentages) | Three months ended September 30, | | Nine months ended September 30, |
| 2017 | | 2016 | | Change | | 2017 | | 2016 | | Change |
Wealth management services cost of revenue | $ | 59,607 |
| | $ | 54,921 |
| | $ | 4,686 |
| | $ | 172,444 |
| | $ | 158,213 |
| | $ | 14,231 |
|
Tax preparation services cost of revenue | 1,314 |
| | 1,319 |
| | (5 | ) | | 7,543 |
| | 6,549 |
| | 994 |
|
Amortization of acquired technology | 50 |
| | 49 |
| | 1 |
| | 145 |
| | 765 |
| | (620 | ) |
Total cost of revenue | $ | 60,971 |
| | $ | 56,289 |
| | $ | 4,682 |
| | $ | 180,132 |
| | $ | 165,527 |
| | $ | 14,605 |
|
Percentage of revenue | 68 | % | | 68 | % | | | | 44 | % | | 45 | % | | |
We record the cost of revenue for sales of services when the related revenue is recognized. Cost of revenue consists of costs related to our Wealth Management and Tax Preparation businesses, which include commissions paid to financial advisors, third-party costs, and costs associated with the technical support team and the operation of our data centers. Data center costs include personnel expenses (salaries, stock-based compensation, benefits, and other employee-related costs), the cost of temporary help and contractors, professional services fees (which include technology project consulting fees), software support and maintenance, bandwidth and hosting costs, and depreciation. Cost of revenue also includes the amortization of acquired technology.
Three months ended SeptemberJune 30, 20172019 compared with three months ended SeptemberJune 30, 20162018
Wealth managementManagement services cost of revenue increased primarily due to higheran increase in commissions and advisory fees paid to our financial advisors (including approximately $20.4 million of commissions paid to 1st Global advisors), which fluctuated in proportionrelation to the change in underlying commission and advisory revenues earned on client accounts, and higher stock-based compensation costs related to grants to certain HD Vest financial advisors.accounts.
Tax preparationPreparation services cost of revenue was comparableincreased primarily due to the prior period.data center costs.
NineSix months ended SeptemberJune 30, 20172019 compared with ninesix months ended SeptemberJune 30, 20162018
Wealth managementManagement services cost of revenue increased primarily due to an increase in commissions and advisory fees paid to our financial advisors (including approximately $20.4 million of commissions paid to 1st Global advisors), which fluctuated in proportionrelation to the change in underlying commission and advisory revenues earned on client accounts, and higher stock-based compensation costs related to grants to certain HD Vest financial advisors.accounts.
Tax preparationPreparation services cost of revenue increased primarily due to an increase in data center costs related to software support and maintenance fees.
Amortization of acquired technology decreased due to amortization expense associated with concluding the useful life of certain TaxAct acquisition-related intangible assets during 2016.costs.
Engineering and Technology
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands, except percentages) | Three months ended June 30, | | | | | | Six months ended June 30, | | | | |
| 2019 | | 2018 | | Change | | 2019 | | 2018 | | Change |
Engineering and technology | $ | 7,159 | | $ | 4,848 | | $ | 2,311 | | $ | 13,688 | | $ | 9,979 | | $ | 3,709 |
Percentage of revenue | 4 | % | | 3 | % | | | | 3 | % | | 3 | % | | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
(In thousands, except percentages) | Three months ended September 30, | | Nine months ended September 30, |
| 2017 | | 2016 | | Change | | 2017 | | 2016 | | Change |
Engineering and technology | $ | 5,051 |
| | $ | 4,588 |
| | $ | 463 |
| | $ | 14,041 |
| | $ | 12,842 |
| | $ | 1,199 |
|
Percentage of revenue | 6 | % | | 6 | % | | | | 3 | % | | 3 | % | | |
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, software support and maintenance, bandwidth and hosting, and professional services fees.
Three months ended SeptemberJune 30, 20172019 compared with three months ended SeptemberJune 30, 2016
Engineering and technology expenses were comparable to the prior period.
Nine months ended September 30, 2017 compared with nine months ended September 30, 20162018
Engineering and technology expenses increased primarily due to an increasehigher headcount in professional services fees mostlyour Tax Preparation business, higher software expenses and approximately $0.6 million of costs from 1st Global, offset by a decrease in costs related to our 2018 clearing firm conversion.
Six months ended June 30, 2019 compared with six months ended June 30, 2018
Engineering and technology expenses increased primarily due to higher headcount in our Tax Preparation development projects.business, higher software expenses and approximately $0.6 million of costs from 1st Global, offset by a decrease in costs related to our 2018 clearing firm conversion.
Sales and Marketing
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands, except percentages) | Three months ended June 30, | | | | | | Six months ended June 30, | | | | |
| 2019 | | 2018 | | Change | | 2019 | | 2018 | | Change |
Sales and marketing | $ | 29,256 | | $ | 23,791 | | $ | 5,465 | | $ | 84,828 | | $ | 79,044 | | $ | 5,784 |
Percentage of revenue | 15 | % | | 15 | % | | | | 20 | % | | 22 | % | | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
(In thousands, except percentages) | Three months ended September 30, |
| Nine months ended September 30, |
| 2017 |
| 2016 |
| Change |
| 2017 |
| 2016 |
| Change |
Sales and marketing | $ | 13,680 |
|
| $ | 11,965 |
|
| $ | 1,715 |
|
| $ | 84,974 |
|
| $ | 75,715 |
|
| $ | 9,259 |
|
Percentage of revenue | 15 | % |
| 14 | % |
|
|
| 21 | % |
| 21 | % |
|
|
|
Sales and marketing expenses consist principally of personnel expenses (salaries, stock-based compensation, benefits, and other employee-related costs) and the cost of temporary help and contractors for those engaged in marketing, selling, and sales support operations activities, as well as marketing expenses associated with our HD VestWealth Management and TaxActTax Preparation businesses (which primarily include television, radio, online, text, email, and sponsorship channels), and back office processing support expenses associated with our HD VestWealth Management business (occupancy and general office expenses, regulatory fees, and license fees).
Three months ended SeptemberJune 30, 20172019 compared with three months ended SeptemberJune 30, 20162018
Sales and marketing expenses increased primarily due to a $0.6 million increase in marketing expenseshigher headcount and a $1.0 million increase in personnel expenses. The increase in marketing expenses was driven by increased marketing and software supportconsulting efforts in our Tax Preparation business. Personnel expenses increased primarily in our Wealth Management business due to higher headcount.and approximately $3.3 million of costs from 1st Global.
NineSix months ended SeptemberJune 30, 20172019 compared with ninesix months ended SeptemberJune 30, 20162018
Sales and marketing expenses increased primarily due to a $5.8 million increase in marketing expenseshigher headcount and a $2.6 million increase in personnel expenses. The increase in marketing expenses was driven by increased marketingconsulting efforts in our Tax Preparation business. Personnel expenses increased primarily as we continue to standardize employee benefits across our businesses,business and higher headcount across our businesses.approximately $3.3 million of costs from 1st Global.
General and Administrative
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands, except percentages) | Three months ended June 30, | | | | | | Six months ended June 30, | | | | |
| 2019 | | 2018 | | Change | | 2019 | | 2018 | | Change |
General and administrative | $ | 19,002 | | $ | 15,625 | | $ | 3,377 | | $ | 36,079 | | $ | 30,491 | | $ | 5,588 |
Percentage of revenue | 10 | % | | 10 | % | | | | 9 | % | | 8 | % | | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
(In thousands, except percentages) | Three months ended September 30, | | Nine months ended September 30, |
| 2017 | | 2016 | | Change | | 2017 | | 2016 | | Change |
General and administrative | $ | 12,207 |
| | $ | 11,638 |
| | $ | 569 |
| | $ | 39,405 |
| | $ | 35,899 |
| | $ | 3,506 |
|
Percentage of revenue | 14 | % | | 14 | % | | | | 10 | % | | 10 | % | | |
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, 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.
Three months ended SeptemberJune 30, 20172019 compared with three months ended SeptemberJune 30, 20162018
G&A expenses increased primarily due to a $0.8 millionan increase in personnel expenses, mainlycosts primarily related to Strategic Transformation Costs, offset by lower stock-based compensation due to fewer grantsincreases in the current year and higher expense recognizedheadcount, a decrease in the prior yearperiod consulting expenses primarily related to the timingstrategic initiatives, and approximately $2.5 million of grants.costs from 1st Global.
NineSix months ended SeptemberJune 30, 20172019 compared with ninesix months ended SeptemberJune 30, 20162018
G&A expenses increased primarily due to a $5.6 million netan increase in personnel expenses, mainlycosts primarily related to Strategic Transformation Costsincreases in headcount, a decrease in prior period consulting expenses primarily related to strategic initiatives, and approximately $2.5 million of costs associated with leadership changes at HD Vest, offset by lower stock-based compensation due to fewer grants in the current yearfrom 1st Global.
Acquistion and higher expense recognized in the prior yearIntegration
| | | | | | | | | | | | | | | | | | | |
(In thousands, except percentages) | Three months ended June 30, | | | | | | Six months ended June 30, | | | | |
| 2019 | | | | | | 2019 | | | | |
Employee-related expenses | $ | 2,613 | | | | | | $ | 2,830 | | | | |
Professional services | 5,978 | | | | | | 7,558 | | | | |
Other | 592 | | | | | | 592 | | | | |
Total | $ | 9,183 | | | | | | $ | 10,980 | | | | |
Percentage of revenue | 5 | % | | | | | | 3 | % | | | | |
| | | | | | | | | | | |
Acquisition and integration expenses are related to the timingAcquisition, and primarily consist of grants.
employee-related expenses (benefits and other employee-related costs), professional services fees (which primarily includes consulting and legal fees), and other expenses, which primarily includes insurance expenses.
Depreciation and Amortization of Acquired Intangible Assets
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands, except percentages) | Three months ended June 30, | | | | | | Six months ended June 30, | | | | |
| 2019 | | 2018 | | Change | | 2019 | | 2018 | | Change |
Depreciation | $ | 1,315 | | $ | 993 | | $ | 322 | | $ | 2,376 | | $ | 2,908 | | $ | (532) |
Amortization of acquired intangible assets | 9,169 | | 8,806 | | 363 | | 17,213 | | 17,113 | | 100 |
Total | $ | 10,484 | | $ | 9,799 | | $ | 685 | | $ | 19,589 | | $ | 20,021 | | $ | (432) |
Percentage of revenue | 5 | % | | 6 | % | | | | 5 | % | | 6 | % | | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
(In thousands, except percentages) | Three months ended September 30, | | Nine months ended September 30, |
| 2017 | | 2016 | | Change | | 2017 | | 2016 | | Change |
Depreciation | $ | 867 |
| | $ | 968 |
| | $ | (101 | ) | | $ | 2,680 |
| | $ | 2,906 |
| | $ | (226 | ) |
Amortization of acquired intangible assets | 8,615 |
| | 8,297 |
| | 318 |
| | 25,192 |
| | 24,929 |
| | 263 |
|
Total | $ | 9,482 |
| | $ | 9,265 |
| | $ | 217 |
| | $ | 27,872 |
| | $ | 27,835 |
| | $ | 37 |
|
Percentage of revenue | 11 | % | | 11 | % | | | | 7 | % | | 8 | % | | |
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, advisor and sponsor relationships, which are amortized over their estimated lives. DepreciationA portion of depreciation and amortization expenses were comparable to the prior periods.is included in segment operating expenses.
Restructuring
|
| | | | | | | | | | | | | | | | | | | | | | | |
(In thousands, except percentages) | Three months ended September 30, | | Nine months ended September 30, |
| 2017 | | 2016 | | Change | | 2017 | | 2016 | | Change |
Restructuring | $ | 106 |
| | $ | — |
| | $ | 106 |
| | $ | 2,726 |
| | $ | — |
| | $ | 2,726 |
|
Percentage of revenue | — | % | | — | % | | | | 1 | % | | — | % | | |
In connection with the Strategic Transformation, including the relocation of our headquarters, we have incurred restructuring costs of approximately $6.6 million, which includes all costs associated with our non-cancelable operating lease. While the relocation and the related costs were substantially completed by June 2017, the Company expects some costs through early 2018, primarily related to employees who will continue to provide service through that time period.
See "Note 5: Restructuring" of the Notes to Unaudited Condensed Consolidated Financial Statements in Part I Item 1 of this report.
Other Loss, Net
|
| | | | | | | | | | | | | | | | | | | | | | | |
(In thousands) | Three months ended September 30, | | Nine months ended September 30, |
| 2017 | | 2016 | | Change | | 2017 | | 2016 | | Change |
Interest income | $ | (31 | ) | | $ | (18 | ) | | $ | (13 | ) | | $ | (76 | ) | | $ | (54 | ) | | $ | (22 | ) |
Interest expense | 4,781 |
| | 7,824 |
| | (3,043 | ) | | 16,746 |
| | 25,396 |
| | (8,650 | ) |
Amortization of debt issuance costs | 177 |
| | 413 |
| | (236 | ) | | 891 |
| | 1,440 |
| | (549 | ) |
Accretion of debt discounts | 53 |
| | 1,099 |
| | (1,046 | ) | | 1,893 |
| | 3,599 |
| | (1,706 | ) |
(Gain) loss on debt extinguishment | 183 |
| | 2,205 |
| | (2,022 | ) | | 19,764 |
| | (641 | ) | | 20,405 |
|
Other | 78 |
| | (70 | ) | | 148 |
| | (69 | ) | | 143 |
| | (212 | ) |
Other loss, net | $ | 5,241 |
| | $ | 11,453 |
| | $ | (6,212 | ) | | $ | 39,149 |
| | $ | 29,883 |
| | $ | 9,332 |
|
Three months ended SeptemberJune 30, 20172019 compared with three months ended SeptemberJune 30, 20162018
Depreciation expense increased primarily due to internally-developed software fixed assets capitalized in the fourth quarter of 2018.
Amortization expense increased primarily due to the impact of the Acquisition, partially offset by lower amortization due to the abandonment of certain software applications in the second quarter of 2018.
Six months ended June 30, 2019 compared with six months ended June 30, 2018
Depreciation expense decreased primarily due to the abandonment of certain internally-developed software fixed assets in the first quarter of 2018.
Amortization expense was comparable to the prior period.
Other Loss, Net
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands) | Three months ended June 30, | | | | | | Six months ended June 30, | | | | |
| 2019 | | 2018 | | Change | | 2019 | | 2018 | | Change |
Interest income | $ | (149) | | $ | (58) | | $ | (91) | | $ | (289) | | $ | (98) | | $ | (191) |
Interest expense | 4,770 | | 3,847 | | 923 | | 8,546 | | 8,028 | | 518 |
Amortization of debt issuance costs | 375 | | 284 | | 91 | | 547 | | 487 | | 60 |
Accretion of debt discounts | 85 | | 40 | | 45 | | 123 | | 87 | | 36 |
Loss on debt extinguishment | — | | 758 | | (758) | | — | | 1,534 | | (1,534) |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Other | 37 | | (2,112) | | 2,149 | | 149 | | (2,051) | | 2,200 |
Other loss, net | $ | 5,118 | | $ | 2,759 | | $ | 2,359 | | $ | 9,076 | | $ | 7,987 | | $ | 1,089 |
Three months ended June 30, 2019 compared with three months ended June 30, 2018
The increase in interest expense relates to higher outstanding debt balances as a result of the $125.0 million increase in the term loan under the Blucora senior secured credit facilities in the second quarter of 2019. In the second and third quarter of 20172018 we had a loss on debt extinguishment related to prepaymentsdebt prepayments.
In the second quarter of 2018 we had a portiongain on the sale of an investment.
Six months ended June 30, 2019 compared with six months ended June 30, 2018
The increase in interest expense relates to higher outstanding debt balances as a result of the $125.0 million increase in the term loan under the Blucora senior secured credit facility entered into on May 22, 2017.facilities in the second quarter of 2019. In the first halfand second quarters of 2017, the third quarter of 2016 and the nine months ended September 30, 2016,2018 we had a loss on debt extinguishment related to the credit facility previously entered into in 2015 for the purpose of financing the HD Vest acquisition (the "TaxAct - HD Vest 2015 credit facility"). In 2016, we made prepayments on a portion of the TaxAct - HD Vest 2015 credit facility, which resulted in the acceleration of a portion of the unamortized debt discount and issuance costs. In connection with the refinancing through the senior secured credit facility that was entered into in May 2017, we paid-off the remaining TaxAct - HD Vest 2015 credit facility and wrote-off the remaining unamortized debt discount and issuance costs. Consequently, the TaxAct - HD Vest 2015 credit facility was terminated. For further detail, see "Note 7: Debt" of the Notes to Unaudited Condensed Consolidated Financial Statements in Part I Item 1 of this report.prepayments.
The decrease in interest expense, amortization of debt issuance costs, and accretion of debt discounts primarily related to lower balances in the TaxAct - HD Vest 2015 credit facility and the Convertible Senior Notes (the "Notes") due to prepayments
on a portion of the TaxAct - HD Vest 2015 credit facility in 2016 and the redemption of all of the Notes inIn the second quarter of 2017.
Detail2018 we had a gain on the "(gain) loss on debt extinguishment" is as follows:sale of an investment.
|
| | | | | | | | | | | | | | | | | | | | | | | |
(In thousands) | Three months ended September 30, | | Nine months ended September 30, |
| 2017 | | 2016 | | Change | | 2017 | | 2016 | | Change |
Write-off of debt discount and debt issuance costs on TaxAct - HD Vest 2015 credit facility (related to closure) | $ | — |
| | $ | — |
| | $ | — |
| | $ | 9,593 |
| | $ | — |
| | $ | 9,593 |
|
Write-off of debt discount and debt issuance costs on the Notes (related to termination) | — |
| | — |
| | — |
| | 6,715 |
| | — |
| | 6,715 |
|
Accelerated accretion of debt discount and amortization of debt issuance costs on credit facilities (related to prepayments) | 183 |
| | 2,205 |
| | (2,022 | ) | | 3,456 |
| | 5,039 |
| | (1,583 | ) |
Gain on the Notes repurchased | — |
| | — |
| | — |
| | — |
| | (7,724 | ) | | 7,724 |
|
Accelerated accretion of debt discount on the Notes (related to repurchase) | — |
| | — |
| | — |
| | — |
| | 1,628 |
| | (1,628 | ) |
Accelerated amortization of debt issuance costs on the Notes (related to repurchase) | — |
| | — |
| | — |
| | — |
| | 416 |
| | (416 | ) |
Total (gain) loss on debt extinguishment | $ | 183 |
| | $ | 2,205 |
| | $ | (2,022 | ) | | $ | 19,764 |
| | $ | (641 | ) | | $ | 20,405 |
|
Income TaxesNineWe recorded income tax benefit of $8.1 million and $4.1 million in the three and six months ended SeptemberJune 30, 2017 compared with nine months ended September 30, 2016
Interest expense, amortization2019, respectively. Our effective income tax rate differed from the 21% statutory rate in 2019 primarily due to excess tax benefits related to stock-based compensation and the release of debt issuance costs, accretion of debt discounts, and (gain) loss on debt extinguishment were affectedvaluation allowances, offset by the same factors described aboveeffect of state income taxes, non-deductible compensation and acquisition costs. As part of the Acquisition, we recorded $78.2 million of intangible assets that impactedresulted in an $11.6 million discrete change in the quarterly period.
In the first quarter of 2016, we repurchasedvaluation allowance as intangible assets are not amortizable for tax purposes; this will create future taxable income to utilize a portion of the Notes, which resulted in aour net gain on debt extinguishment, consisting of a gain related to the repurchase of the Notes below par value and offset by the acceleration of a portion of the unamortized debt discount and issuance costs. In connection with the refinancing through the senior secured credit facility, we redeemed all of the Notes in the second quarter of 2017, which resulted in the write-off of the remaining unamortized debt discount and issuance costs as a loss on debt extinguishment.operating losses.
Income Taxes
We recorded income tax expense of $0.2$0.9 million and $6.0$2.9 million in the three and ninesix months ended SeptemberJune 30, 2017,2018, respectively. Income taxesOur effective income tax rate differed from taxes at the 21% statutory ratesrate in 20172018 primarily due to the January 1, 2017 implementation of Accounting Standards Update ("ASU") 2016-09 on stock-based compensation (see "Note 2: Summary of Significant Accounting Policies"release of the Notes to Unaudited Condensed Consolidated Financial Statements in Part I Item 1current portion of this report for additional information). We recorded income tax benefit of $8.5 million and incomevaluation allowances.
Income tax expense of $8.9 million infor the three and ninesix months ended SeptemberJune 30, 2016, respectively. Income taxes2019 differed from taxes at the statutory rates in 2016comparable prior period, primarily due to the domestic manufacturing deduction, offset by non-deductible compensation andeffect of state income taxes.taxes, excess tax benefits related to stock-based compensation, and acquisition and integration costs.
Discontinued Operations, Net of Income Taxes
|
| | | | | | | | | | | | | | | | | | | | | | | |
(In thousands) | Three months ended September 30, | | Nine months ended September 30, |
| 2017 | | 2016 | | Change | | 2017 | | 2016 | | Change |
Discontinued operations, net of income taxes | $ | — |
| | $ | (40,528 | ) | | $ | 40,528 |
| | $ | — |
| | $ | (57,981 | ) | | $ | 57,981 |
|
On October 14, 2015, we announced our Strategic Transformation, which included 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. We completed both divestitures in 2016--specifically, Search and Content in the third quarter of 2016 and E-Commerce in the fourth quarter of 2016. See "Note 4: Discontinued Operations" of the Notes to Unaudited Condensed Consolidated Financial Statements in Part I Item 1 of this report for additional information on discontinued operations.
NON-GAAP FINANCIAL MEASURES
Adjusted EBITDA: We define Adjusted EBITDA as net income (loss) attributable to Blucora, Inc., determined in accordance with GAAP, excluding the effects of stock-based compensation, depreciation and amortization of acquired intangible assets, (including acquired technology), restructuring, other loss, net, the impact of noncontrolling interests, acquisition and integration costs and income tax expense, the effects of discontinued operations, and acquisition-related costs.(benefit) expense. Restructuring costs relate to the moverelocation of our corporate headquarters which was announced in the fourth quarter of 2016. Acquisition-related costs include professional services fees and other direct transaction costs and changes in the fair value of contingent consideration liabilities related to acquired companies. The SimpleTax acquisition that waswere completed in 2015 included contingent consideration, for which2018. Acquisition and integration costs relate to the fair value of that liability was revalued in the second quarter of 2016. For further detail, see "Note 7: Debt" of the Notes to Unaudited Condensed Consolidated Financial Statements in Part I Item 1 of this report.Acquisition.
We believe that Adjusted EBITDA provides meaningful supplemental information regarding our performance. We use this non-GAAP financial measure for internal management and compensation purposes, when publicly providing guidance on possible future results, and as a means to evaluate period-to-period comparisons. We believe that Adjusted EBITDA is a common measure used by investors and analysts to evaluate our performance, that it provides a more complete understanding of the results of operations and trends affecting our business when viewed together with GAAP results, and that management and investors benefit from referring to this non-GAAP financial measure. Items excluded from Adjusted EBITDA are significant and necessary components to the operations of our business and, therefore, Adjusted EBITDA should be considered as a supplement to, and not as a substitute for or superior to, GAAP net income (loss).income. 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 net income (loss) attributable to Blucora, Inc., which we believe to be the most comparable GAAP measure, is presented below:
| | | | | | | | | | | | | | | | | | | | | | | |
(In thousands) | Three months ended June 30, | | | | Six months ended June 30, | | |
| 2019 | | 2018 | | 2019 | | 2018 |
Net income attributable to Blucora, Inc. | $ | 31,036 | | $ | 35,238 | | $ | 93,206 | | $ | 80,579 |
Stock-based compensation | 4,082 | | 3,730 | | 6,525 | | 6,685 |
Depreciation and amortization of acquired intangible assets | 10,831 | | 9,979 | | 20,185 | | 20,338 |
Restructuring | — | | 2 | | — | | 291 |
Other loss, net | 5,118 | | 2,759 | | 9,076 | | 7,987 |
Net income attributable to noncontrolling interests | — | | 222 | | — | | 427 |
Acquisition and integration costs | 9,183 | | — | | 10,980 | | — |
Income tax (benefit) expense | (8,124) | | 907 | | (4,139) | | 2,870 |
| | | | | | | |
| | | | | | | |
Adjusted EBITDA | $ | 52,126 | | $ | 52,837 | | $ | 135,833 | | $ | 119,177 |
|
| | | | | | | | | | | | | | | |
(In thousands) | Three months ended September 30, | | Nine months ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Net income (loss) attributable to Blucora, Inc. | $ | (16,897 | ) | | $ | (54,119 | ) | | $ | 16,991 |
| | $ | (45,897 | ) |
Stock-based compensation | 3,132 |
| | 3,364 |
| | 8,434 |
| | 10,616 |
|
Depreciation and amortization of acquired intangible assets | 9,688 |
| | 9,483 |
| | 28,553 |
| | 29,080 |
|
Restructuring | 106 |
| | — |
| | 2,726 |
| | — |
|
Other loss, net | 5,241 |
| | 11,453 |
| | 39,149 |
| | 29,883 |
|
Net income attributable to noncontrolling interests | 164 |
| | 167 |
| | 466 |
| | 426 |
|
Income tax expense (benefit) | 166 |
| | (8,537 | ) | | 5,952 |
| | 8,899 |
|
Discontinued operations, net of income taxes | — |
| | 40,528 |
| | — |
| | 57,981 |
|
Acquisition-related costs | — |
| | — |
| | — |
| | 391 |
|
Adjusted EBITDA | $ | 1,600 |
| | $ | 2,339 |
| | $ | 102,271 |
| | $ | 91,379 |
|
Three months ended SeptemberJune 30, 20172019 compared with three months ended SeptemberJune 30, 20162018
The decrease in Adjusted EBITDA was primarily due to an increase in segment operating lossincome of $1.9$4.0 million related to our Wealth Management segment, offset by a decrease in segment operating income of $2.8 million related to our Tax Preparation segment and an increase in segment operating income of $0.8 million related to our Wealth Management segment, and a $0.3 million decrease in corporate operating expenses not allocated to the segments primarily due to changes in headcount across most functions.of $2.0 million.
NineSix months ended SeptemberJune 30, 20172019 compared with ninesix months ended SeptemberJune 30, 20162018
The increase in Adjusted EBITDA was primarily due to increasesan increase in segment operating income of $10.4 million and $4.2$17.7 million related to our Tax Preparation segment and an increase in segment operating income of $2.5 million related to our Wealth Management segments, respectively,segment, offset by a $3.8 millionan increase in
corporate operating expenses not allocated to the segments primarily due to Strategic Transformation Costs and increased headcount supporting most functions, partially offset by lower stock-based compensation costs.of $3.5 million.
Non-GAAP net income (loss):income: We define non-GAAP net income (loss) as net income (loss) attributable to Blucora, Inc., determined in accordance with GAAP, excluding the effects of discontinued operations, stock-based compensation, amortization of acquired intangible assets, (including acquired technology), accretion of debt discount and accelerated accretion of debt discount on the Convertible Senior Notes (the "Notes"), gain on the Notes repurchased, write-off of debt discount and debt issuance costs on the Notes that were redeemed and the terminated TaxAct - HD Vest 2015 credit facility, acquisition-related costs (described further under Adjusted EBITDA above), restructuring costs (described further under Adjusted EBITDA above), the impact of noncontrolling interests, acquisition and integration costs (described further under Adjusted EBITDA above), the related cash tax impact of those adjustments, and non-cash income taxes. The write-off of debt discount and debt issuance costs on the terminated Notes and the closed TaxAct - HD Vest 2015 credit facility relates to the debt refinancing that occurred in the second quarter of 2017. We exclude the non-cash portion of income taxes because of our ability to offset a substantial portion of our cash tax liabilities by using deferred tax assets, which primarily consist of U.S. federal net operating losses. The majority of these net operating losses will expire, if unutilized, between 2020 and 2024.
Non-GAAP net income per share: We define non-GAAP net income per share as non-GAAP net income divided by weighted average diluted share count.
We believe that non-GAAP net income (loss) and non-GAAP net income (loss) per share provide meaningful supplemental information to management, investors, and analysts regarding our performance and the valuation of our business by excluding items in the statement of operations that we do not consider part of our ongoing operations or have not been, or are not expected to be, settled in cash. Additionally, we believe that non-GAAP net income (loss) and non-GAAP net income (loss) per share are common measures used by investors and analysts to evaluate our performance and the valuation of our business. Non-GAAP net income (loss)
and non-GAAP net income per share should be evaluated in light of our financial results prepared in accordance with GAAP and should be considered as a supplement to, and not as a substitute for or superior to, GAAP net income (loss).and net income per share. Other companies may calculate non-GAAP net income and non-GAAP net income per share differently, and, therefore, our non-GAAP net income and non-GAAP net income per share may not be comparable to similarly titled measures of other companies. A reconciliation of our non-GAAP net income to net income attributable to Blucora, Inc., and non-GAAP net income per share to net income per share, which we believe to be the most comparable GAAP measure,measures, is presented below:
| | | | | | | | | | | | | | | | | | | | | | | |
(In thousands, except per share amounts) | Three months ended June 30, | | | | Six months ended June 30, | | |
| 2019 | | 2018 | | 2019 | | 2018 |
Net income attributable to Blucora, Inc. | $ | 31,036 | | $ | 35,238 | | $ | 93,206 | | $ | 80,579 |
| | | | | | | |
Stock-based compensation | 4,082 | | 3,730 | | 6,525 | | 6,685 |
Amortization of acquired intangible assets | 9,169 | | 8,855 | | 17,213 | | 17,212 |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Restructuring | — | | 2 | | — | | 291 |
Impact of noncontrolling interests | — | | 222 | | — | | 427 |
Acquisition and integration costs | 9,183 | | — | | 10,980 | | — |
Cash tax impact of adjustments to GAAP net income | (771) | | (903) | | (1,182) | | (1,216) |
Non-cash income tax (benefit) expense | (11,317) | | 582 | | (8,166) | | 1,980 |
Non-GAAP net income | $ | 41,382 | | $ | 47,726 | | $ | 118,576 | | $ | 105,958 |
Per diluted share: | | | | | | | |
Net income attributable to Blucora, Inc. | $ | 0.62 | | $ | 0.71 | | $ | 1.88 | | $ | 1.64 |
| | | | | | | |
Stock-based compensation | 0.08 | | 0.08 | | 0.13 | | 0.14 |
Amortization of acquired intangible assets | 0.20 | | 0.19 | | 0.34 | | 0.34 |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Restructuring | — | | — | | — | | 0.01 |
Impact of noncontrolling interests | — | | 0.00 | | 0.00 | | 0.01 |
Acquisition and integration costs | 0.18 | | — | | 0.22 | | 0.00 |
Cash tax impact of adjustments to GAAP net income | (0.02) | | (0.02) | | (0.02) | | (0.02) |
Non-cash income tax (benefit) expense | (0.23) | | 0.01 | | (0.16) | | 0.04 |
Non-GAAP net income per share | $ | 0.83 | | $ | 0.97 | | $ | 2.39 | | $ | 2.16 |
Weighted average shares outstanding used in computing per diluted share amounts | 49,822 | | 49,434 | | 49,681 | | 49,049 |
|
| | | | | | | | | | | | | | | |
(In thousands, except per share amounts) | Three months ended September 30, | | Nine months ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Net income (loss) attributable to Blucora, Inc. | $ | (16,897 | ) | | $ | (54,119 | ) | | $ | 16,991 |
| | $ | (45,897 | ) |
Discontinued operations, net of income taxes | — |
| | 40,528 |
| | — |
| | 57,981 |
|
Stock-based compensation | 3,132 |
| | 3,364 |
| | 8,434 |
| | 10,616 |
|
Amortization of acquired intangible assets | 8,665 |
| | 8,346 |
| | 25,337 |
| | 25,694 |
|
Impairment of goodwill and intangible assets | — |
| | — |
| | — |
| | — |
|
Accretion of debt discount on the Notes | — |
| | 901 |
| | 1,567 |
| | 2,749 |
|
Accelerated accretion of debt discount on the Notes repurchased | — |
| | — |
| | — |
| | 1,628 |
|
Gain on the Notes repurchased | — |
| | — |
| | — |
| | (7,724 | ) |
Write-off of debt discount and debt issuance costs on terminated Notes | — |
| | — |
| | 6,715 |
| | — |
|
Write-off of debt discount and debt issuance costs on terminated TaxAct - HD Vest 2015 credit facility | — |
| | — |
| | 9,593 |
| | — |
|
Acquisition-related costs | — |
| | — |
| | — |
| | 391 |
|
Restructuring | 106 |
| | — |
| | 2,726 |
| | — |
|
Impact of noncontrolling interests | 164 |
| | 167 |
| | 466 |
| | 426 |
|
Cash tax impact of adjustments to GAAP net income | (928 | ) | | (17 | ) | | (3,334 | ) | | 244 |
|
Non-cash income tax (benefit) expense | 224 |
| | (9,312 | ) | | 6,325 |
| | 6,460 |
|
Non-GAAP net income (loss) | $ | (5,534 | ) | | $ | (10,142 | ) | | $ | 74,820 |
| | $ | 52,568 |
|
Per diluted share: | | | | | | | |
Net income (loss) attributable to Blucora, Inc. | $ | (0.37 | ) | | $ | (1.30 | ) | | $ | 0.36 |
| | $ | (1.08 | ) |
Discontinued operations, net of income taxes | — |
| | 0.97 |
| | — |
| | 1.37 |
|
Stock-based compensation | 0.07 |
| | 0.08 |
| | 0.18 |
| | 0.25 |
|
Amortization of acquired intangible assets | 0.20 |
| | 0.21 |
| | 0.55 |
| | 0.60 |
|
Accretion of debt discount on the Notes | — |
| | 0.02 |
| | 0.03 |
| | 0.06 |
|
Accelerated accretion of debt discount on the Notes repurchased | — |
| | — |
| | — |
| | 0.04 |
|
Gain on the Notes repurchased | — |
| | — |
| | — |
| | (0.18 | ) |
Write-off of debt discount and debt issuance costs on terminated Notes | — |
| | — |
| | 0.14 |
| | — |
|
Write-off of debt discount and debt issuance costs on closed TaxAct - HD Vest 2015 credit facility | — |
| | — |
| | 0.20 |
| | — |
|
Acquisition-related costs | — |
| | — |
| | — |
| | 0.01 |
|
Restructuring | — |
| | — |
| | 0.06 |
| | — |
|
Impact of noncontrolling interests | 0.00 |
| | 0.00 |
| | 0.01 |
| | 0.01 |
|
Cash tax impact of adjustments to GAAP net income | (0.02 | ) | | (0.00 | ) | | (0.07 | ) | | 0.01 |
|
Non-cash income tax (benefit) expense | 0.00 |
| | (0.22 | ) | | 0.14 |
| | 0.15 |
|
Non-GAAP net income (loss) | $ | (0.12 | ) | | $ | (0.24 | ) | | $ | 1.60 |
| | $ | 1.24 |
|
Weighted average shares outstanding used in computing per diluted share amounts | 45,459 |
| | 41,635 |
| | 46,813 |
| | 42,329 |
|
Three months ended SeptemberJune 30, 20172019 compared with three months ended SeptemberJune 30, 20162018
The decrease in non-GAAP net lossincome was primarily due to an increase in segment operating income of $4.0 million related to our Wealth Management segment and a $0.8 million decrease in loss on debt extinguishment on the Blucora senior secured credit facilities, offset by a decrease in segment operating income of $1.9$2.8 million related to our Tax Preparation segment, a $2.0 million increase in corporate operating expenses not allocated to the segments and a $1.1 million increase in interest expense, amortization of debt issuance costs and accretion of debt discounts.
Six months ended June 30, 2019 compared with six months ended June 30, 2018
The increase in non-GAAP net income was primarily due to an increase in segment operating income of $0.8$17.7 million related to our Tax Preparation segment, an increase in segment operating income of $2.5 million related to our Wealth Management segment. Further contributing to thesegment, a $1.5 million decrease in non-GAAP net loss wason debt extinguishment on the Blucora senior secured credit facilities, offset by a $3.4$0.6 million decrease in interest expense, amortization of debt issuance costs and accretion of debt discounts, primarily related to lower balances in the TaxAct - HD Vest 2015 credit facility and the Notes due to pay-off of the entire TaxAct - HD Vest 2015 credit facility and redemption of all of the Notes, respectively, in the second quarter of 2017, and a $2.0 million decrease in loss on debt extinguishment related to the TaxAct - HD Vest 2015 credit facility. The decreases in non-GAAP net loss were offset by a $0.3 million decrease in corporate operating expenses not allocated to the segments primarily due to changes in headcount across most functions.
Nine months ended September 30, 2017 compared with nine months ended September 30, 2016
The increase in non-GAAP net income was primarily due to increases in segment operating income of $10.4 million and $4.2 million related to our Tax Preparation and Wealth Management segments, respectively. Further contributing to the
increase in non-GAAP net income was a $9.7 million decrease in interest expense, amortization of debt issuance costs, and accretion of debt discounts, primarily related to lower balances in the TaxAct - HD Vest 2015 credit facility and the Notes due to pay-off of the entire credit facility and redemption of all of the Notes, respectively, in the second quarter of 2017, and a $2.3 million decrease in loss on debt extinguishment related to the TaxAct - HD Vest 2015 credit facility. The increases in non-GAAP net income were offset by a $3.8$3.5 million increase in corporate operating expenses not allocated to the segments primarily due to Strategic Transformation Costs and increased headcount supporting most functions, partially offset by lower stock-based compensation costs, and a $0.8 million increase in taxes due to an increase in non-GAAP income.segments.
LIQUIDITY AND CAPITAL RESOURCES
Cash and Cash Equivalents and Short-Term Investments
Our principal source of liquidity is our cash and cash equivalents, and short-term investments.equivalents. As of SeptemberJune 30, 2017,2019, we had cash and marketable investmentscash equivalents of approximately $78.6 million, consisting entirely$109.6 million. Broker-dealer subsidiaries of cash and cash equivalents. Our HD Vest broker-dealer subsidiary operatesour Wealth Management business operate in a highly regulated industry and isare subject to various regulatory capital requirements. Failure to meet minimum capital requirements can initiate certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have substantial monetary and non-monetary impacts to HD Vest's operations.operations of our Wealth Management business. As of SeptemberJune 30, 2017, HD Vest2019, our Wealth Management business met all capital adequacy requirements to which it was subject.
We generally invest our excess cash in high qualityhigh-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. OurWe believe our financial instrument investments held at SeptemberJune 30, 20172019 had minimal default risk and short-term maturities.
WeHistorically, 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, regulatory capital requirements of our broker-dealer subsidiaries, 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.accurate, and we may be required to draw on our $65.0 million revolving credit facility to meet our capital requirements. For further discussion of the risks to our business related to liquidity, see the Risk Factorrisk factor titled "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" in Part III, Item 81A of our Annual Report on Form 10-K for the year ended December 31, 2016.2018, and the risk factors under the caption "Risks Related to our Financing Arrangements" in Part II, Item 1A in this Quarterly Report on Form 10-Q.
Use of Cash
We may use our cash and cash equivalents and short-term investments balance in the future on investment in our current businesses, for repayment of debt, for acquiring companies or assets that complement our Wealth Management and Tax Preparation businesses, orfor stock buybacks, for returning capital to shareholders.stockholders, or for other utilization which we deem to be in the best interests of stockholders.
OnIn May 22, 2017, we entered into ana credit agreement forwith a new senior secured credit facilitysyndicate of lenders for the purposes of refinancing the TaxAct - HD Vest 2015 credit facility, redeeming the Notes, and providing future working capital and capital expenditure flexibility. Consequently, the TaxAct - HD Vest 2015 credit facility was repaid in full and the commitments under the TaxAct - HD Vest revolving credit facility were terminated. The Blucora senior secured credit facility consistsfacilities. Prior to May 2019, the Blucora senior secured credit facilities provided for up to $425.0 million of borrowings, consisting of a committed $50.0 million revolving credit loan, which includesfacility (including a letter of credit sub-facility,sub-facility) and a $375.0 million term loan facility. In May 2019, we amended the Blucora senior secured credit facilities, in order to, among other things: (i) provide for a term loan increase in the aggregate principal amount of $125.0 million in the form of a fungible increase to, and on substantially the same terms as, our existing senior secured term loan under the Blucora senior secured credit facilities and (ii) increase the total amount of the revolving credit facility under the Blucora senior secured credit facilities by $15.0 million to an aggregate $425.0of $65.0 million.
The Blucora senior secured credit facilities in the aggregate committed amount of $565.0 million consist of a committed $65.0 million revolving credit facility (including a letter of credit sub-facility), and a $500.0 million term loan facility. The final maturity dates of the revolving credit loan and term loan are May 22, 2022 and May 22, 2024, respectively. TheIn November 2017, the credit facility agreement was amended in order to refinance and reprice the initial term loan, such that the applicable interest ratesrate margin is 3.00% for Eurodollar Rate loans and 2.00% for ABR loans. Depending on Blucora’s Consolidated First Lien Net Leverage Ratio (as defined in the credit facility agreement), the applicable interest rate margin on the revolving credit loanfacility is from 2.75% to 3.25% for Eurodollar Rate loans and term loan1.75% to 2.25% for ABR loans. Obligations under the Blucora senior secured credit facilities are variable. guaranteed by certain of Blucora's subsidiaries and secured by substantially all of the assets of Blucora and those subsidiaries.
The Blucora senior secured credit facility includesfacilities include financial and operating covenants with respect to certain ratios, including a net leverage ratio, which are defined further in the credit facility agreement. We were in compliance with these covenants as of SeptemberJune 30, 2017.2019. We initiallyhave borrowed $375.0$500.0 million under the term loan. Through the third quarter of 2017, weloan and have made prepayments of $25.0 million$110.0 million towards the term loan.loan since entering into the agreement, such that $390.0 million was outstanding under the term loan at June 30, 2019. We have not borrowed any amounts under the revolving credit loan. For further detail, see "Note 7: Debt"loan and did not have any other debt outstanding. Commencing December 31, 2019, principal payments of the Notesterm loan are due on a quarterly basis in an amount equal to Unaudited Condensed Consolidated Financial Statements in Part I Item 1$312,500 (subject to reduction for prepayments), with the remaining principal amount due on the maturity date of this report.May 22, 2024.
Related to the TaxAct - HD Vest 2015 credit facility, we had repayment activity of $64.0 million and $105.0 million during the nine months ended September 30, 2017 and 2016, respectively. Related to the Notes, we repurchased $28.4 million of the Notes' for cash of $20.7 million during the nine months ended September 30, 2016. For further detail, see "Note 7: Debt" of the Notes to Unaudited Condensed Consolidated Financial Statements in Part I Item 1 of this report.
On July 2, 2015, TaxAct acquired SimpleTax, which included additional consideration of up to C$4.6 million (with C$ indicating Canadian dollars and amounting to approximately $3.7 million based on the acquisition-date exchange rate). The related payments arewere contingent upon product availability and revenue performance over a three-year period and are expectedwere to occurbe paid annually over that period. The firstthird and final payment of $1.3 million was made in the first quarter of 2017,2019.
In connection with our 2015 acquisition of HD Vest, former management of that business has retained an ownership interest in HD Vest. We were party to put and call arrangements that became exercisable beginning in the remaining paymentsfirst quarter of $2.7 million are expected through 2019. For further detail, see "Note 6: Fair Value Measurements"2019 with respect to these interests. These put and call arrangements allow certain members of the NotesHD Vest management to Unaudited Condensed Consolidated Financial Statements in Part I Item 1 of this report.
Contractual Obligations and Commitments
The material events during 2017, outside of the ordinary course of our business, include debt activity (as discussed further in "Note 7: Debt"), payment of a portion of the acquisition-related contingent consideration liability (as discussed further in "Note 6: Fair Value Measurements"), estimated sublease income of $3.8 million primarily related to the sublease agreement for the Bellevue facility (as discussed further in "Note 5: Restructuring"), purchase commitments with a vendor to provide cloud computation services of $11.3 million over the next four years, and a commitment to switch to a new clearing firm provider that has been selected byrequire the Company byto purchase their interests or allow the third quarter of 2018. Additional information on our Commitments and Contingencies can be found in ourCompany to acquire such interests for cash, respectively, within ninety days after the Company filed its Annual Report on Form 10-K for the year ended December 31, 2016.2018, which occurred on March 1, 2019. These arrangements were settled in cash for $24.9 million in the second quarter of 2019.
On March 19, 2019, we announced that our board of directors authorized a stock repurchase plan pursuant to which we may repurchase up to $100.0 million of our common stock. Pursuant to the plan, share repurchases may be made through a variety of methods, including open market or privately negotiated transactions. The timing and number of shares repurchased will depend on a variety of factors, including price, general business and market conditions, and alternative investment opportunities. Our repurchase program does not obligate us to repurchase any specific number of shares and may be suspended or discontinued at any time. As a result, we may not repurchase a material number of shares, or any shares at all, under our stock repurchase plan. In addition, any repurchases of our stock pursuant to the stock repurchase plan may materially reduce the amount of cash we have available and may not materially enhance the long-term value of our business or our stock.
On May 6, 2019, we completed the Acquisition, which was paid with a combination of (i) $55.0 million of cash on hand and (ii) the proceeds from a $125.0 million increase in the term loan under the Blucora senior secured credit facilities.
Contractual Obligations and Commitments
The material changes in our contractual obligations and commitments through the second quarter of 2019, outside of the ordinary course of our business, include debt activity (as described above under "Use of cash"), payment of the final portion of the SimpleTax acquisition-related contingent consideration liability, a new office lease, which is expected to commence in 2020, purchase commitments of approximately $3.0 million over the next year from 1st Global, and sublease income of $1.6 million, primarily related to the sublease of the Bellevue facility. Additional information on the Company’s Commitments and Contingencies can be found in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.
Off-balance Sheet Arrangements
We have no off-balance sheet arrangements other than operating leases.arrangements.
Cash Flows
Our cash flows were comprised of the following:
| | | | | | | | | | | |
(In thousands) | Six months ended June 30, | | |
| 2019 | | 2018 |
Net cash provided by operating activities | $ | 96,812 | | $ | 106,557 |
Net cash used by investing activities | (167,399) | | (2,602) |
Net cash provided (used) by financing activities | 94,915 | | (74,454) |
| | | |
| | | |
Effect of exchange rate changes on cash, cash equivalents, and restricted cash | 58 | | (30) |
Net increase in cash, cash equivalents, and restricted cash | $ | 24,386 | | $ | 29,471 |
|
| | | | | | | |
(In thousands) | Nine months ended September 30, |
| 2017 | | 2016 |
Net cash provided by operating activities from continuing operations | $ | 79,230 |
| | $ | 88,537 |
|
Net cash provided by investing activities from continuing operations | 3,283 |
| | 2,225 |
|
Net cash used by financing activities from continuing operations | (58,649 | ) | | (124,571 | ) |
Net cash provided (used) by continuing operations | 23,864 |
| | (33,809 | ) |
Net cash provided by discontinued operations | 1,028 |
| | 46,589 |
|
Effect of exchange rate changes on cash, cash equivalents, and restricted cash | 86 |
| | (15 | ) |
Net increase in cash, cash equivalents, and restricted cash | $ | 24,978 |
| | $ | 12,765 |
|
Net cash from the operating activities of continuing operations:activities: Net cash from the operating activities of continuing operations consists of income, from continuing operations, offset by certain non-cash adjustments, and changes in our working capital.
Net cash provided by operating activities was $79.2$96.8 million and $88.5$106.6 million for the ninesix months ended SeptemberJune 30, 20172019 and 2016,2018, respectively. The activity in the ninesix months ended SeptemberJune 30, 20172019 included a $1.2$(30.5) million working capital contribution and approximately $78.0$127.3 million of income from continuing operations (offset by non-cash adjustments). The working capital contribution primarily related to the impact of TaxAct's seasonality, HD Vest 2016 prepayments, recognition of deferred revenues in our Tax Preparation segment and restructuring activities.
The activity in the nine months ended September 30, 2016 included a $43.8 million working capital contribution and approximately $44.7 million of income from continuing operations (offset by non-cash adjustments). The working capital contribution was primarily driven by the Acquisition.
The activity in the six months ended June 30, 2018 included a $(2.8) million working capital contribution and approximately $109.4 million of income (offset by non-cash adjustments). The working capital contribution was primarily driven by accrued expenses and the impact of excess tax benefits from stock-based activity primarily due to utilizing net operating loss carryforwards from prior years. In addition, in connection with the acquisition of HD Vest, we had placed into escrow $20.0 million of additional consideration that was contingent upon HD Vest's 2015 earnings performance, and that amount was returned to us in the first quarter of 2016 since it was not achieved (see "Note 3: Business Combinations" of the Notes to Unaudited Condensed Consolidated Financial Statements in Part I Item 1 of this report for additional information).TaxAct's seasonality.
Net cash from the investing activities of continuing operations: activities: Net cash from the investing activities of continuing operations primarily consists of cash outlays for business acquisitions, transactions (purchases of and proceeds from sales and
maturities) related to our investments, and purchases of
property and equipment. Our investing activities can fluctuate from period-to-period primarily based upon the level of acquisition activity.
Net cash providedused by investing activities was $3.3$167.4 million and $2.6 million for the ninesix months ended SeptemberJune 30, 20172019 and net cash from investing activities was $2.3 million for the nine months ended September 30, 2016.2018, respectively. The activity in the ninesix months ended SeptemberJune 30, 2017 primarily2019 consisted of net cash inflows on our available-for-sale investments of $7.1 million offset bythe Acquisition and approximately $3.8$2.9 million in purchases of property and equipment. The activity in the ninesix months ended SeptemberJune 30, 20162018 consisted of a $1.8 million final working capital adjustment on the HD Vest acquisition andapproximately $2.6 million in purchases of property and equipment, offset by net cash inflows on our available-for-sale investments of $6.7 million.equipment.
Net cash from the financing activities of continuing operations: activities: Net cash from the financing activities of continuing operations primarily consists of transactions related to the issuance of debt and stock. Our financing activities can fluctuate from period-to-period based upon our financing needs and market conditions that present favorable financing opportunities.
Net cash provided by financing activities was $94.9 million for the six months ended June 30, 2019 compared to net cash used by financing activities was $58.6 million and $124.6of $74.5 million for the ninesix months ended SeptemberJune 30, 2017 and 2016, respectively.2018. The activity for the ninesix months ended SeptemberJune 30, 20172019 primarily consisted of payments$121.5 million of $285.0borrowings under the Blucora senior secured credit facilities and approximately $4.5 million in connection withcombined proceeds from the terminationissuance of common stock related to stock option exercises and the TaxAct -employee stock purchase plan. These cash inflows were offset by $24.9 million to settle redeemable noncontrolling interests related to the 2015 acquisition of HD Vest, credit facility, $172.8 million for redemption in full of the outstanding Notes, $6.7$5.2 million in tax payments from shares withheld for equity awards and $0.9 million in contingent consideration paid related to the 2015 acquisition of SimpleTax. These cash outflows were offset by approximately $367.2 million in proceeds from the senior secured credit facility that was entered into in May 2017 and $39.7 million in combined proceeds from the issuance of common stock related to stock option exercises and the employee stock purchase plan.
The activity for the ninesix months ended SeptemberJune 30, 20162018 primarily consisted of payments of $105.0$80.0 million ontowards the TaxAct - HD Vestterm loan under the Blucora senior secured credit facility, the $20.7 million repurchase of the Notes, and $1.4facilities, $4.2 million in tax payments from shares withheld for equity awards.awards, and $1.3 million in contingent consideration paid related to the 2015 acquisition of SimpleTax. These cash outflows were offset by approximately $2.5$11.1 million in combined proceeds from the issuance of common stock related to stock option exercises and the employee stock purchase plan.
Critical Accounting Policies and Estimates
Business Combinations
The application of the purchase method of accounting for business combinations requires the use of significant estimates and assumptions in the determination of the fair value of assets acquired and liabilities assumed in order to properly allocate purchase price consideration between assets that are depreciated and those that are amortized from goodwill. Our estimates of the fair values of assets and liabilities acquired are based upon assumptions believed to be reasonable, and when appropriate, include assistance from independent third-party appraisal firms.
See the remainder of our critical accounting policies, estimates, and methodologies for the nine months ended September 30, 2017 are consistent with thoseas described in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2016.2018.
Recent Accounting Pronouncements
See "Note 2: Summary of Significant Accounting Policies" of the Notes to Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this report.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes to our market risk during the ninesix months ended SeptemberJune 30, 2017, other than related to borrowings under the senior secured credit facility entered into on May 22, 2017.2019. We have borrowed $375.0$500.0 million under the term loan when we entered intoof the Blucora senior secured credit facility,facilities, and theas of June 30, 2019, we had $390.0 million outstanding. The interest rate on the term loan is variable at the London Interbank Offered Rate ("LIBOR"), subject to a floor of 1.00%, plus a margin of 3.75%3.00%. A hypothetical 100 basis point increase in LIBOR would result in a $3.5$3.9 million increase, based upon our SeptemberJune 30, 20172019 principal amount, in our annual interest expense until the scheduled maturity date in 2024. For additional information, see Part II, Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2016.2018.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, has evaluated (pursuant to Rule 13a-15(b) of the Securities Exchange Act of 1934), the effectiveness of our disclosure controls and procedures as of SeptemberJune 30, 2017.2019. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures (as defined in Rule 13a-15(e)) were effective as of SeptemberJune 30, 2017.2019.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting that occurred during the thirdsecond quarter of 20172019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II—OTHER INFORMATION
Item 1. Legal Proceedings
See "Note 9: Commitments and Contingencies"There are no material pending legal proceedings to which we are a party or of which any of our property is the Notes to Unaudited Condensed Consolidated Financial Statements in Part I Item 1 of this report.subject.
Item 1A. Risk Factors
Refer toOur business and future results may be affected by a number of risks and uncertainties that should be considered carefully. In addition, this report also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in such forward-looking statements as a result of certain factors, including the risks described in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 for a discussion of risk factors relating to2018 and the Company’s business. risks set forth below.
The Company believes that there has been no material change in its risk factors as previously disclosed in the Form 10-K other than as follows:
Increased government regulationset forth below. The occurrence 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. The Trump Administration has called for a broad review of, and potentially significant changes to, U.S. fiscal and tax laws and regulations. These changes may include comprehensive tax reform as well as the rolling back or repeal of various financial regulations, including the Department of Labor (the "DOL") fiduciary rule (the "Fiduciary Rule") and the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act"). We cannot predict whether, when or to what extent new U.S. federal laws, regulations, interpretations or rulings will be issued, nor is the impact of such changes on our Tax Preparation or Wealth Management businesses clear. It is possible that some policies adopted by the Trump administration will negatively affect us.
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,events listed below could have a material adverse effect on the Company’s business, prospects, results of operations, reputation, financial condition, cash flows or ability to continue current operations without any direct or indirect impairment or disruption, which is referred to throughout these Risk Factors as a “Material Adverse Effect.”
RISKS ASSOCIATED WITH OUR BUSINESSES
We may fail to realize all of the anticipated benefits of the Acquisition of 1st Global or those benefits may take longer to realize than expected. We may also encounter significant difficulties in integrating the operations of 1st Global.
Our ability to realize the anticipated benefits of the Acquisition of 1st Global will depend, to a large extent, on our ability to integrate 1st Global’s business with ours, which will be a complex, costly and time-consuming process. As a result, we have been devoting and will continue to devote significant management attention and resources to integrate our business practices and operations with those of 1st Global. The integration process may disrupt our business and, if implemented ineffectively, could restrict the realization of the full expected benefits of the Acquisition. The failure to meet the challenges involved in the integration process and to realize the anticipated benefits of the Acquisition could cause an interruption of, or a loss of momentum in, our operations and could result in a Material Adverse Effect.
As we integrate 1st Global’s business, we are likely to incur costs relating to selection and implementation of uniform procedures, systems, vendors and platforms for our Wealth Management business, as well as costs associated with exiting certain relationships and agreements. These costs could be material.
In addition, the integration of 1st Global’s business may result in material unanticipated problems, expenses, liabilities, competitive responses and loss of advisors, customers and other business relationships. Additional integration challenges could include:
•diversion of management’s and our employees' attention to integration matters;
•difficulties in achieving anticipated cost savings, synergies, business opportunities and growth prospects from the Acquisition;
•difficulties in the integration of operations and systems, including the required use of our new clearing platform;
•difficulties in conforming standards, controls, procedures and accounting and other policies, business cultures and compensation structures;
•difficulties in keeping advisors and clients who may have changing products or services;
•difficulties in the assimilation of employees;
•difficulties in managing the expanded operations of a significantly larger and more complex company;
•challenges in attracting and retaining key personnel; and
•the impact of potential liabilities we may be inheriting from 1st Global.
Additionally, following the integration of 1st Global, we may also receive greater regulatory scrutiny and could incur additional compliance costs. Many of these factors will be outside of our control and any one of them could result in increased costs, decreases in the amount of expected revenues and diversion of management’s time and energy, which could result in a Material Adverse Effect and result in us becoming subject to additional litigation.
In addition, even if 1st Global’s business is integrated successfully, the full anticipated benefits of the Acquisition may not be realized, including the synergies, cost savings or sales or growth opportunities that are anticipated. These benefits may not be
achieved within the anticipated time frame, or at all. Further, additional unanticipated costs may be incurred in the integration process. All of these factors could cause reductions in our earnings per share, decrease or delay the expected accretive effect of the Acquisition and negatively impact the price of shares of our common stock. As a result, it cannot be assured that the Acquisition will result in the realization of the full anticipated benefits and potential synergies.
We have incurred significant transaction costs and will continue to incur integration costs, which could also be significant, in connection with the Acquisition of 1st Global that could cause a Material Adverse Effect.
We have incurred significant transaction costs in connection with the Acquisition of 1st Global, including payment of certain fees and expenses incurred in connection with the Acquisition and the financing of the Acquisition. In addition, we expect to incur additional integration costs, which could be significant. These costs could adversely affect our results of operations in the period in which such expenses are recorded or our cash flow in the period in which any related costs are actually paid.
If our goodwill or other intangible assets become impaired, we may be required to record a significant impairment charge, which could result in a Material Adverse Effect.
We are required to test goodwill for impairment at least annually or more frequently if there are indicators that the carrying amount of our goodwill and other intangible assets, which consist primarily of our advisor, customer and sponsor relationships, our technology and our trade names, exceed their carried value. For these impairment tests, we use various valuation methods to estimate the fair value of our goodwill and intangible assets. If the fair value of an asset is less than its carrying value, we would recognize an impairment charge for the difference. As of June 30, 2019, we had recorded a total of $674.1 million of goodwill and $355.6 million of other intangible assets.
It is possible that we could have an impairment charge for goodwill or other intangible assets in future periods if, among other things, (i) overall economic conditions in current or future years decline, (ii) business conditions or our strategies for a specific technologiesbusiness unit or technology standards,our trade names change from our current strategies or assumptions or (iii) we sufferfrom an event that impacts our reputation or brand. If we divest or discontinue businesses or products that we previously acquired, or if the value of those parts of our business become impaired, we also may need to evaluate the carrying value of our goodwill. Any such charges could negatively impact our operating results and could cause a Material Adverse Effect.
If we are unable to attract and retain productive advisors, our financial results will be negatively impacted.
Our Wealth Management business derives a large portion of its revenues from commissions and fees generated by its advisors. Our ability to attract and retain productive advisors has contributed significantly increaseto our growth and success. If we fail to attract new advisors or to retain and motivate our advisors (including our HD Vest advisors or 1st Global's advisors), our business may suffer.
The market for productive advisors is highly competitive, and we devote significant resources to attracting and retaining the most qualified advisors. In attracting and retaining advisors, we compete directly with a variety of financial institutions such as wirehouses, regional broker-dealers, banks, insurance companies and other independent broker-dealers. Financial industry competitors are increasingly offering guaranteed contracts, upfront payments, and greater compensation to attract successful financial advisors. These can be important factors in a current advisor’s decision to leave us as well as in a prospective advisor’s decision to join us. We may also experience difficulty retaining advisors following the Acquisition as our HD Vest advisors and 1st Global advisors may not like the products or services we offer as a combined company, may not like our compensation structure or they may not like the combined business. There can be no assurance that we will be successful in our efforts to attract and retain the advisors needed to achieve our growth objectives.
Moreover, the costs associated with successfully attracting and retaining advisors could be significant, and there is no assurance that we will generate sufficient revenues from those advisors’ business to offset such costs. Designing and implementing new or modified compensation arrangements and equity structures to successfully attract and retain advisors is complicated. Changes to these arrangements could themselves cause instability within our existing investment teams and negatively impact our financial results and ability to grow. In addition, our compensation arrangements with our financial advisors are primarily commission-based, which we believe drives advisor performance and assists in attracting and retaining successful advisors. Our cost of providing those servicesrevenue (which includes commissions paid to advisors) may fluctuate from quarter-to-quarter depending on the amount of commissions we are required to pay to our financial advisors, and if the amounts we are required to pay are different than our expectations, our operating results may be adversely impacted.
We have in the past issued and may in the future issue shares of common stock or other securities convertible into or exchangeable for shares of common stock to our advisors in order to attract and retain such individuals. In connection with the Acquisition of 1st Global, we issued a substantial number of equity awards to our HD Vest and 1st Global advisors. The issuance of additional shares of our common stock upon vesting or conversion of these awards may substantially dilute the ownership interests of our existing stockholders and reduce the number of shares of common stock available for issuance under our equity incentive plans.
In addition, the wealth management industry in general is experiencing a decline in the number of younger financial advisors entering the industry. We are not immune to that industry trend. If we are unable to replace advisors as they retire, or to assist retiring advisors with transitioning their practices to existing advisors, we could experience a decline in revenue and earnings.
In addition, as some of our advisors grow their advisory assets, they may decide to disassociate from us to establish their own RIAs and take customers and associated assets into those businesses. We seek to deter advisors from taking this route by continuously evaluating our technology, product offerings, and service, as well as our advisor compensation, fees, and pay-out policies, to ensure that we are competitive in the market and attractive to successful advisors. We may prevent usnot be successful in dissuading such advisors from deliveringforming their own RIAs, which could cause a quality productmaterial volume of customer assets to leave our customers inplatform, which would reduce our revenues and could cause a timely manner and at an acceptable price.Material Adverse Effect.
Our Wealth Management business is subject to certain additional financial industryextensive regulation, and failure to comply with these regulations and supervision,could have a Material Adverse Effect.
Our Wealth Management business is heavily regulated by multiple agencies, including by the Securities and Exchange Commission the DOL,(“SEC”), the Financial Industry Regulatory Authority (“FINRA”), state securities and insurance regulators, and other regulatory authorities. Our failureFailure to comply with thethese regulators’ 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 impactcause a Material Adverse Effect. The regulatory environment in which our Wealth Management business operates is continually evolving, and the level of financial condition, results of operations,regulation to which we are subject has generally increased in recent years. Among the most significant regulatory changes affecting our Wealth Management business is the Dodd-Frank Wall Street Reform 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 Consumer Protection Act (the “Dodd-Frank Act enacted into law in 2010, called for sweeping”), which mandates broad changes in the supervision and regulations of the wealth management industry. Regulators implementing the Dodd-Frank Act have adopted, proposed to adopt, and may in the future adopt regulations that could impact the manner in which we will market HD Vest products and services in our Wealth Management business, manage HD Vestour Wealth Management business operations, and interact with regulators. As noted above,In addition, the Trump Administration has called forinitiated and in some cases completed a broad review of and potentially significant changes to, U.S. fiscal laws and regulations which may include the rolling back or even repeal of certain financial regulations, including but not limited to the Dodd-Frank Act.regulations. If suchsignificant changes are enacted as a result of this review, they could negatively impact our Wealth Management business and cause a Material Adverse Effect.
On June 5, the SEC adopted Regulation Best Interest (“Reg. BI”), elevating the standard of care for broker-dealers from the current “suitability” requirement to a “best interest” standard when making a recommendation of any securities transaction to a retail customer. The “best interest” standard requires a broker-dealer to make recommendations without putting its financial interests ahead of the interests of a retail customer. The SEC also adopted Form CRS Relationship Summary (“Form CRS”), which requires registered investment advisers (“RIAs”) and broker-dealers to deliver to retail investors a succinct, plain English summary about the relationship and services provided by the firm and the required standard of conduct associated with the relationship and services. In connection with adopting Reg. BI, the SEC added new record-making and recordkeeping rules. The compliance date for Reg. BI and the related rules is June 30, 2020.
Reg. BI heightens the standard of care for broker-dealers when making investment recommendations and would impose disclosure and policy and procedural obligations that could impact the compensation our Wealth Management business and its representatives receive for selling certain types of products, particularly those that offer different compensation across different share classes (such as mutual funds and variable annuities).
In addition, Reg. BI prohibits a broker-dealer and its associated persons from using the term “adviser” or “advisor” if the broker-dealer is not an RIA or the associated person is not a supervised person of an RIA. This prohibition may require us to change the titles of certain of our advisors, which could lead to confusion or distraction of management’s time and attention.
Reg. BI’s new standards of conduct and other requirements that heighten the duties of broker-dealers and investment advisers could result in additional compliance costs, lesser compensation, and management distraction, all of which could have a negative impactMaterial Adverse Effect on our business. Because our brokerage business comprises a significant portion of our business, our failure to successfully conform to these standards could negatively impact our results.
In April 2016,Legislatures and securities regulators in certain states in which we do business have enacted (or have considered enacting) their own standard of conduct rules for broker-dealers, insurance agents and investment advisers. To date, the DOL published the Fiduciary RuleStates of Nevada, Connecticut, New Jersey and two new administrative class exemptions from the prohibited transaction exemptions, as well as amendments to previously granted exemptions under Employee Retirement Income Security ActNew Yorkhave passed legislation or proposed regulations of 1974, as amended ("ERISA"), which redefines the term "fiduciary"this sort. The requirements and who may be considered a fiduciary under ERISA, i.e., financial institutions and financial advisors, and specifies how such fiduciaries must provide investment advice to individual retirement accounts or other accounts, the assets of which are subject to section 4975 of the Internal Revenue Code (collectively, the "Covered Accounts"). Over the past several quarters, Covered Accounts made up approximately half of HD Vest's assets under administration. The new Fiduciary Rule focuses on conflicts of interest related to investment recommendations made by financial institutions and financial advisors to clients holding Covered Accounts. The rules bring virtually all of the investment products and services HD Vest currently provides to Covered Account owners within the scope of ERISA.
On February 3, 2017, President Trump issued a memorandum directing the Secretary of Labor to prepare an updated analysis of the likely impact of the Fiduciary Rule on investors’ access to retirement information and financial advice. As a result of the President’s memorandum, the DOL issued a final rule extending the applicability date of the Fiduciary Rule by 60 days, from April 10, 2017 to June 9, 2017, and requiring investment advice fiduciaries relying on certain prohibited transaction exemptions to adhere only to the Impartial Conduct Standards as conditions of those exemptions during a transition period from June 9, 2017 to January 1, 2018 (the "Transition Period").
On May 22, 2017, the DOL issued a temporary enforcement policy covering the Transition Period, during which the DOL willthese state rules are not pursue claims against investment advice fiduciaries who are working diligently and in good faith to comply with their fiduciary duties and to meet the conditions of the prohibited transaction exemptions, or otherwise treat investment advice fiduciaries as being in violation of their fiduciary duties. The Treasury Department and IRS confirmed a similar enforcement policy covering excise taxes and related reporting obligations with respect to transactions covered by the DOL’s enforcement policy.
On August 31, 2017, the DOL issued a proposed rule to delay the effective date of the Fiduciary Rule’s transaction exemptions to July 1, 2019. The purpose of the proposed delay is to permit the DOL to complete the analysis required by the President’s memorandum. The comment period for the proposed rule closed on September 15, 2017 but the DOL had not issued a final rule as of the date of this report. In the proposed rule, the DOL solicited comments on whether this delay should be extended beyond July 1, 2019 or made contingent upon other events, such as the conclusion of any additional substantive rulemaking affecting the Fiduciary Rule or the transaction exemptions. The proposed rule would also extend the Transition Period, and continue the DOL’s previously announced temporary enforcement policy, through the pendency of any delay. The DOL also solicited comments about whether application of the enforcement policy should be made contingent on any particular factors, such as a firm’s continued good faith efforts to comply with the Fiduciary Rule. We cannot predict what the DOL’s final rule will provide on these matters.
The Fiduciary Rule, should it remain unchanged, will require HD Vest to either: (1) subject Covered Accounts to a level fee arrangement under which (a) the firm and affiliates receive a fee based on a fixed percentage of the value of assets in the account and (b) no ERISA prohibited transactions are otherwise implicated; or (2) comply with one of the DOL prohibited
transaction exemptions that impose significant new and additional compliance and disclosure requirements, and restrict the manner in which HD Vest can earn revenue and pay its financial advisors.
uniform. Accordingly, it is uncertain whether the Fiduciary Rule will become applicable, when it will be applicable, and what form any final rule might take after the required review is completed. If the Fiduciary Rule is applied in its current form, it will impact how HD Vest (i) designs investment products and services for Covered Accounts, (ii) receives fees, (iii) compensates its financial advisors, and (iv) recruits and retains financial advisors. Additionally, the Fiduciary Rule will require HD Vest to change systems and implement new compliance programs and client disclosures. In addition, if HD Vest relies on the new Best Interest Contract prohibited transaction exemption, the firm will be requiredwe may have to adopt new "impartial conduct"different policies and procedures in different states, which could create added compliance, supervision and make contractual representationssales costs for our Wealth Management business. Should more states enact similar legislation or regulation, it could result in material additional compliance costs and warranties to clients that HD Vest will comply with such policies and procedures and abide by fiduciary standards. These requirements, coupled with ambiguity inherent in the Fiduciary Rule, will likely lead to increased regulatory scrutiny and litigation related to the provision of investment advice to Covered Accounts and ERISA investors. Our management has devoted and, if the Fiduciary Rule is applied in its current form, expects to continue to devote substantial time and resources to assess the new rule, implement required policies and procedures, and develop and execute a business strategy in light of the rule, diminishing the firm’s ability to focus on other initiatives. Depending on the scope of required changes, if HD Vest is not able to complete necessary modifications to its business practices and operational systems by the applicability date, its ability to process business for Covered Accounts will be negatively impacted. As a result, the Fiduciary Rule and related litigation and regulatory scrutiny could materially and adversely impact our financial condition and results of operations. In addition, investigations, claims, or other actions or proceedings by regulators or third-parties with respect to our compliance with the Fiduciary Rule may also have a material adverse effect on our financial condition and results of operations.
Material Adverse Effect.
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 VestWealth Management business distributes its products and services through financial advisors who affiliate with the firmus 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 ServiceIRS 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 effectMaterial Adverse Effect on our business model, financial condition, and results of operations.
Risks RelatedIn addition, the SEC and FINRA have extensive rules and regulations with respect to capital requirements. As a registered broker-dealer, our Financing ArrangementsWealth Management business is subject to Rule 15c3-1 (the “Net Capital Rule”) under the Securities Exchange Act of 1934, as amended, and related requirements of self-regulatory organizations, which specify minimum capital requirements that are intended to ensure the general soundness and liquidity of broker-dealers. As a result of the Net Capital Rule, our ability to withdraw capital from our subsidiaries that comprise our Wealth Management business could be restricted, which in turn could limit our ability to repay debt, redeem or purchase shares of our outstanding stock, or pay dividends, which could have a Material Adverse Effect. A large operating loss or charge against net capital could adversely affect our ability to expand or even maintain our present levels of business.
Our Wealth Management business offers products sponsored by third parties, including, but not limited to, mutual funds, insurance, annuities and alternative investments. These products are subject to complex regulations that change frequently. Although we have controls in place to facilitate compliance with such regulations, there can be no assurance that our interpretation of the regulations will be consistent with various regulators’ interpretations, that our 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 our Wealth Management business do not perform as anticipated due to market factors or otherwise, or if product sponsors become insolvent or are otherwise unable to meet their obligations, this could result in material litigation and regulatory action against us. In addition, we could face liabilities for actual or alleged breaches of legal duties to customers 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.
RISKS RELATED TO OUR FINANCING ARRANGEMENTS
We have incurred debt in connection with the repaymenta significant amount of our credit facility used for the acquisition of HD Vest and the redemption of our convertible senior notes and may incur future debt,indebtedness, which may materially and adversely affect our financial condition and future financial results.
On May 22, 2017, we borrowed $375.0 million inWe are party to the formBlucora senior secured credit facilities, which consist of a term loan and revolving line of credit for future working capital, capital expenditures and general business purposes. As of June 30, 2019, we had $390.0 million of outstanding indebtedness under a Credit Agreement to whichthe term loan, and we and most of our direct and indirect domestic subsidiaries (in their capacity as guarantors), are parties.had not borrowed any amounts under the revolving credit facility. The final maturity date of the term loan is May 22, 2024. The proceedsUnder the terms of the term loan were used to repay in full therevolving credit facility, used for the acquisition of HD Vest and to redeem in full our convertible senior notes. Wewe may also borrow an additional amount under this Credit Agreement of up to $50.0 million under a revolving credit arrangement.$65.0 million.
This borrowingOur level of indebtedness may materially and adversely affect our financial condition and future financial results by, among other things:
•increasing our vulnerability to downturns in our businesses, to competitive pressures, and to adverse economic and industry conditions;
•requiring the dedication of a portion of our expected cash from operations to service the indebtedness, thereby reducing the amount of expected cash flow available for other purposes, including capital expenditures and complementary acquisitions;
•increasing our interest payment obligations in the event that interest rates rise; and
•limiting our flexibility in planning for, or reacting to, changes in our businesses and our industries.
Our Credit Agreement imposesThe Blucora senior secured credit facilities impose certain restrictions on us, including restrictions on our ability to create liens, incur indebtedness and make investments. In addition, our Credit Agreement includesthe Blucora senior secured credit facilities include covenants, the breach of which may cause the outstanding indebtedness to be declared immediately due and payable. This borrowing, and our ability to repay it, 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. Any additional debt may result in risks similar to those discussed above or in other risks specific to the credit agreements entered into for those debts.
Our level of indebtedness has increased substantially as a result of the Acquisition of 1st Global. We incurred approximately $125.0 million of additional indebtedness to fund a portion of the purchase price of the Acquisition of 1st Global. The increase in our indebtedness will have the effect of, among other things, reducing our flexibility to respond to changing business and economic conditions. In addition, the amount of cash required to make principal and
interest payments on our outstanding debt has increased by approximately $8.0 million on an annual basis as a result of the increase in our indebtedness, and thus the demands on our cash resources are significantly greater than prior to the Acquisition. Our increased indebtedness may reduce funds available for capital expenditures, stock repurchases and other activities and may create competitive disadvantages for us relative to other companies with lower debt levels.
Ultimately, our ability to service our debt obligations will depend on our future performance, which will be affected by financial, business, economic and other factors, including our ability to achieve the expected benefits and cost savings from the Acquisition of 1st Global. There is no guarantee that we will be able to generate sufficient cash flow to pay our debt service obligations when due. If we are unable to meet our debt service obligations or we fail to comply with our financial and other restrictive covenants contained in the agreements governing our indebtedness, we may be required to refinance all or part of our debt, sell important strategic assets at unfavorable prices or borrow more money. We may not be able to, at any given time, refinance our debt, sell assets or borrow more money on terms acceptable to us or at all. Our inability to refinance our debt could result in a Material Adverse Effect.
OTHER RISKS
We cannot assure you we will repurchase any shares of our common stock pursuant to our stock repurchase plan.
On March 19, 2019, we announced that our board of directors authorized a stock repurchase plan pursuant to which we may repurchase up to $100.0 million of our common stock. Pursuant to the plan, share repurchases may be made through a variety of methods, including open market or privately negotiated transactions. The timing and number of shares repurchased will depend on a variety of factors, including price, general business and market conditions, and alternative investment opportunities. Our repurchase program does not obligate us to repurchase any specific number of shares and may be suspended or discontinued at any time. As a result, we may not repurchase a material number of shares, or any shares at all, under our stock repurchase plan. In addition, any repurchases of our stock pursuant to the stock repurchase plan may materially reduce the amount of cash we have available and may not materially enhance the long-term value of our business or our stock.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.The following table details our repurchases of common stock for the three months ended June 30, 2019:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Period | | Total Number of Shares Purchased | | Average Price Paid Per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Maximum Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (in millions) (1) |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
April 1, 2019 - April 30, 2019 | | — | | — | | — | | $ | 100.0 |
May 1, 2019 - May 31, 2019 | | — | | — | | — | | $ | 100.0 |
June 1, 2019 - June 30, 2019 | | — | | — | | — | | $ | 100.0 |
Total | | — | | $ | — | | — | | |
(1) On March 19, 2019, we announced that our board of directors authorized the repurchase of up to $100.0 million of our common stock. The authorization does not have a specified expiration date and no shares have been repurchased under this authorization.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
The Company moved its headquarters moved to Irving, Texas from Bellevue, Washington in June 2017, and Eric M. Emans, the Company's Chief Financial Officer, has decided not to relocate with the Company. Consequently, on October 23, 2017, Mr. Emans informed the Company that he intends to resign effective as of November 1, 2017. Upon his termination of employment, Mr. Emans will receive severance compensation in accordance with his Amended and Restated Employment Agreement, which was filed as Exhibit 10.4 to the Company’s Form 10-Q on October 27, 2016.None.
In connection with this announcement, on October 25, 2017 the Company entered into a Consulting Agreement with Mr. Emans that will become effective on November 2, 2017. Pursuant to the Consulting Agreement, Mr. Emans will serve as a consultant to the Company to assist with the Chief Financial Officer transition and other matters that may be requested by the Company and will receive $50,500 per month through February 28, 2018 when the Consulting Agreement terminates. In addition, Mr. Emans will receive $550,000 upon termination or expiration of the Consulting Agreement. The Consulting Agreement also contains a customary confidentiality provision and customary covenants regarding non-competition, non-recruitment, non-solicitation and non-disparagement. The foregoing description of Mr. Emans’ Consulting Agreement does not purport to be complete and is qualified in its entirety by the Consulting Agreement, a copy of which is filed as Exhibit 10.2 to this Quarterly Report on Form 10-Q and is incorporated by reference herein.
Following Mr. Emans’ notice of resignation, on October 23, 2017, the Board of Directors of the Company appointed John Palmer, the Company's Vice President - Accounting, to serve as its Principal Accounting Officer and its Principal Financial Officer, effective as of Mr. Emans’ departure from the Company on November 1, 2017 and continuing until a new Chief Financial Officer has been hired. In connection with Mr. Palmer’s appointment as Principal Accounting and Financial Officer, Mr. Palmer will receive a cash bonus of $50,000 that will be paid upon the earlier of (i) the hiring of a new Chief Financial Officer or (ii) March 31, 2018. If a new Chief Financial Officer is not hired prior to March 31, 2018, Mr. Palmer will receive an additional $10,000 per month until the new Chief Financial Officer is hired.There is no family relationship between Mr. Palmer and any director, executive officer, or person chosen by the Company to become a director or executive officer. There are no transactions to which the Company or any of its subsidiaries is a party and in which Mr. Palmer has a direct or indirect material interest subject to disclosure under Item 404(a) of Regulation S-K, and there are no arrangements or understandings between Mr. Palmer and any other persons pursuant to which he was selected to serve as the Company’s Principal Accounting and Financial Officer.
Mr. Palmer, 51, has served as the Company’s Vice President - Accounting since February 2017. Prior to joining the Company, Mr. Palmer served as Vice President and Chief Accounting Officer at Sizmek, Inc., a global technology company that provides technology-enabled advertising services, from the time it was spun-off from Digital Generation, Inc. in February 2014 until February 2017. Mr. Palmer served as Vice President and Controller at Digital Generation, Inc. from March 2003 to February 2014. Prior to that, Mr. Palmer held a variety of controller positions for technology companies, including Entrust Technologies, Inc. and Nortel Networks, Inc. He began his career working at each of KPMG and Ernst & Young.
Item 6. Exhibits
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Exhibit Number | | Exhibit Description | | Form | | Date of First Filing | | Exhibit Number | | Filed Herewith |
2.1# | | Stock Purchase Agreement, dated as of March 18, 2019, by and among 1G Acquisitions, LLC, 1st Global, Inc., 1st Global Insurance Services, Inc., the sellers named therein and joinder sellers, SAB Representative, LLC, as the sellers’ representative, and Blucora, Inc., as guarantor | | 8-K | | March 19, 2019 | | 2.1 | | |
10.1 | | Second Amendment to Credit Agreement, dated May 6, 2019, among Blucora, Inc., as borrower, most of its direct and indirect domestic subsidiaries, as guarantors, and JPMorgan Chase Bank, N.A., as successor administrative agent and successor collateral agent, and each lender party to the Second Amendment | | 8-K | | May 6, 2019 | | 10.1 | | |
10.2 | | | | | | | | | | X |
10.3 | | | | | | | | | | X |
31.1 | | | | | | | | | | X |
31.2 | | | | | | | | | | X |
32.1* | | | | | | | | | | X |
32.2* | | | | | | | | | | X |
101 | | The following financial statements from the Company's 10-Q for the fiscal quarter ended June 30, 2019, formatted in inline XBRL: (i) Unaudited Condensed Consolidated Balance Sheets, (ii) Unaudited Condensed Consolidated Statements of Operations, (iii) Unaudited Condensed Consolidated Statements of Cash Flows, and (iv) Notes to Unaudited Condensed Consolidated Financial Statements | | | | | | | | X |
| | | | | | | | | | |
| | | | | | | | | | |
# Schedules and exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K. Blucora, Inc. hereby undertakes to furnish supplemental copies of any of the omitted schedules and exhibits upon request by the Securities and Exchange Commission.
* The certifications attached as Exhibits 32.1 and 32.2 are not deemed filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of Blucora, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Quarterly Report on Form 10-Q, irrespective of any general incorporation language contained in such filing.
|
| | | | | | | | | | |
Exhibit Number | | Exhibit Description | | Form | | Date of First Filing | | Exhibit Number | | Filed Herewith |
10.1 | | | | 8-K | | September 5, 2017 | | 10.1 | | |
10.2 | | | | | | | | | | X |
31.1 | | | | | | | | | | X |
31.2 | | | | | | | | | | X |
32.1 | | | | | | | | | | X |
32.2 | | | | | | | | | | X |
101 | | The following financial statements from the Company's 10-Q for the fiscal quarter ended September 30, 2017, formatted in XBRL: (i) Unaudited Condensed Consolidated Balance Sheets, (ii) Unaudited Condensed Consolidated Statements of Operations, (iii) Unaudited Condensed Consolidated Statements of Cash Flows, and (iv) Notes to Unaudited Condensed Consolidated Financial Statements | | | | | | | | X |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | | | | | | |
| BLUCORA, INC. | |
| | |
| BLUCORA, INC.By: | /s/ Davinder Athwal |
| | |
| By: | /s/ Eric M. Emans |
| | Eric M. Emans
Davinder Athwal Chief Financial Officer (On behalf of the Registrant and as Principal Financial Officer)
|
| | |
| Date: | October 26, 2017August 8, 2019 |