UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



ý☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September~~June 30, ~~2017~~2019



o☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 000-25131

BLUCORA, INC.

(Exact name of registrant as specified in its charter)



Delaware			91-1718107
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)
6333 N. State Hwy 161, ~~6th~~4th Floor, Irving, Texas			75038
(Address of principal executive offices)			(Zip Code)

Registrant’s telephone number, including area code: (972) ~~870-6000~~870-6400

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.0001 per share

BCOR

NASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. ý Yes o No

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). ý Yes o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.



Large accelerated filer	oý	Accelerated filer	ý☐
Non-accelerated filer	o~~(Do not check if a smaller reporting company)~~ ☐	Smaller reporting company	o☐
		Emerging growth company	o☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section13(a) of the Exchange Act. o☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o☐ Yes ý No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.


		Outstanding at
Class		~~Outstanding at~~July 31, 2019
~~Class~~		~~October 19, 2017~~
Common Stock, Par Value $0.0001	~~46,125,990~~48,852,487

TABLE OF CONTENTS



PART I—FINANCIAL INFORMATION			Page
Item 1.	Financial Statements	34
	Unaudited Condensed Consolidated Balance Sheets	34
	Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss)	45
	Unaudited Condensed Consolidated Statements of Stockholders' Equity	6
	Unaudited Condensed Consolidated Statements of Cash Flows	58
	Notes to Unaudited Condensed Consolidated Financial Statements	69
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1720
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3436
Item 4.	Controls and Procedures	3536

PART II—OTHER INFORMATION
Item 1.	Legal Proceedings	3537
Item 1A.	Risk Factors	3537
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3841
Item 3.	Defaults Upon Senior Securities	3841
Item 4.	Mine Safety Disclosures	3841
Item 5.	Other Information	3841
Item 6.	Exhibits	3942

Signatures			4043

Trademarks, Trade Names and Service Marks

This report includes certain trademarks, trade names and service marks of Blucora, Inc.(referred to throughout this report as "Blucora," the "Company," "we," "us," or "our"), including Blucora, HD Vest, 1st Global and TaxAct. Each one of these trademarks, trade names or service marks is either (i) our registered trademark, (ii) a trademark for which we have a pending application, (iii) a trade name or service mark for which we claim common law rights or (iv) a registered trademark or application for registration which we have been authorized by a third party to use.

Solely for convenience, the trademarks, service marks and trade names included in this report are without the ®, ™ or other applicable symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensors to these trademarks, service marks and trade names. This report may also include additional trademarks, service marks and trade names of others, which are the property of their respective owners. All trademarks, service marks and trade names included in this report are, to our knowledge, the property of their respective owners.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements that involve risks and uncertainties. The statements in this report that are not purely historical are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. Words such as“anticipate,” “believe,” “plan,” “expect,” “future,” “intend,” “may,” “will,” “should,” “estimate,” “predict,” “potential,” “continue,” and "could" or, in each case, their negative variables and similar expressions identify forward-looking statements, but the absence of these words does not mean that the statement is not forward-looking. These forward-looking statements include, but are not limited to, statements regarding:

•our ability to effectively compete within our industry;

•our ability to attract and retain customers, as well as our ability to provide strong customer service;

•our ability to realize all of the anticipated benefits of the acquisition of 1st Global, as well as our ability to integrate the operations of 1st Global;

•our future capital requirements and the availability of financing, if necessary;

•our ability to meet our current and future debt service obligations, including our ability to maintain compliance with our debt covenants;

•our ability to generate strong investment performance for our customers and the impact of the financial markets on our customers’ portfolios;

•political and economic conditions and events that directly or indirectly impact the wealth management and tax preparation industries;

•our ability to attract and retain productive financial advisors;

•our ability to respond to rapid technological changes, including our ability to successfully release new products and services or improve upon existing products and services;

•our expectations concerning the revenues we generate from fees associated with the financial products that we distribute;

•our ability to manage leadership and employee transitions;

•risks related to goodwill and other intangible asset impairment;

•our ability to comply with regulations applicable to the wealth management and tax preparation industries, including increased costs associated with new or changing regulations;

•our expectations concerning the benefits that may be derived from our clearing platform and our investment advisory platform;

•risks associated with the use and implementation of information technology and the effect of security breaches, computer viruses and computer hacking attacks;

•our ability to comply with laws and regulations regarding privacy and protection of user data;

•our ability to maintain our relationships with third party partners, providers, suppliers, vendors, distributors, contractors, financial institutions and licensing partners;

•our beliefs and expectations regarding the seasonality of our business;

•risks associated with litigation;

•our ability to attract and retain qualified employees;

•our assessments and estimates that determine our effective tax rate;

•the impact of new or changing tax legislation on our business and our ability to attract and retain customers;

•our ability to develop, establish and maintain strong brands;

•our ability to protect our intellectual property and the impact of any claim that we have infringed on the intellectual property rights of others; and

•our ability to effectively integrate companies or assets that we acquire.

Forward-looking statements are subject to known and unknown risks, uncertainties, and other factors, many of which are beyond our control, that may cause our results, levels of activity, performance, achievements, and prospects to be materially different from those expressed or implied by such forward-looking statements. These risks, uncertainties, and other factors include, among others, the risk factors set forth in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018, as supplemented by those identified under Part II, Item 1A, "Risk Factors" and elsewhere in this report, as well as in the Company's other filings with the Securities and Exchange Commission. You should not rely on forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q. We do not undertake any obligation to update 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, except as required by law.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

BLUCORA, INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)

September 30,
2017 December 31,
2016
ASSETS
Current assets:
Cash and cash equivalents $ 78,558
$ 51,713
Cash segregated under federal or other regulations 313
2,355
Available-for-sale investments —
7,101
Accounts receivable, net of allowance 6,952
10,209
Commissions receivable 16,432
16,144
Other receivables 592
4,004
Prepaid expenses and other current assets, net 4,777
6,321
Total current assets 107,624
97,847
Long-term assets:
Property and equipment, net 9,552
10,836
Goodwill, net 549,064
548,741
Other intangible assets, net 336,872
362,178
Other long-term assets 2,557
3,057
Total long-term assets 898,045
924,812
Total assets $ 1,005,669
$ 1,022,659
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 3,161
$ 4,536
Commissions and advisory fees payable 16,564
16,587
Accrued expenses and other current liabilities 18,768
18,528
Deferred revenue 7,118
12,156
Current portion of long-term debt, net 2,560
2,560
Total current liabilities 48,171
54,367
Long-term liabilities:
Long-term debt, net 344,232
248,221
Convertible senior notes, net —
164,176
Deferred tax liability, net 59,118
111,126
Deferred revenue 1,031
1,849
Other long-term liabilities 8,530
10,205
Total long-term liabilities 412,911
535,577
Total liabilities 461,082
589,944

Redeemable noncontrolling interests 16,162
15,696

Commitments and contingencies (Note 9)

Stockholders’ equity:
Common stock, par $0.0001—authorized shares, 900,000; issued and outstanding shares,
46,077 and 41,845 5
4
Additional paid-in capital 1,552,609
1,510,152
Accumulated deficit (1,024,222 ) (1,092,756 )
Accumulated other comprehensive income (loss) 33
(381 )
Total stockholders’ equity 528,425
417,019
Total liabilities and stockholders’ equity $ 1,005,669
$ 1,022,659

~~See accompanying notes to Unaudited Condensed Consolidated Financial Statements.~~

~~BLUCORA, INC.~~

~~UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)~~

~~(In thousands, except per share data)~~

Three months ended September 30, Nine months ended September 30,
2017 2016 2017 2016
Revenue:
Wealth management services revenue $ 86,809
$ 80,088
$ 254,772
$ 233,496
Tax preparation services revenue 3,362
3,149
156,936
135,614
Total revenue 90,171
83,237
411,708
369,110
Operating expenses:
Cost of revenue:
Wealth management services cost of revenue 59,607
54,921
172,444
158,213
Tax preparation services cost of revenue 1,314
1,319
7,543
6,549
Amortization of acquired technology 50
49
145
765
Total cost of revenue 60,971
56,289
180,132
165,527
Engineering and technology 5,051
4,588
14,041
12,842
Sales and marketing 13,680
11,965
84,974
75,715
General and administrative 12,207
11,638
39,405
35,899
Depreciation 867
968
2,680
2,906
Amortization of other acquired intangible assets 8,615
8,297
25,192
24,929
Restructuring 106
—
2,726
—
Total operating expenses 101,497
93,745
349,150
317,818
Operating income (loss) (11,326 ) (10,508 ) 62,558
51,292
Other loss, net (5,241 ) (11,453 ) (39,149 ) (29,883 )
Income (loss) from continuing operations before income taxes (16,567 ) (21,961 ) 23,409
21,409
Income tax benefit (expense) (166 ) 8,537
(5,952 ) (8,899 )
Income (loss) from continuing operations (16,733 ) (13,424 ) 17,457
12,510
Discontinued operations, net of income taxes —
(40,528 ) —
(57,981 )
Net income (loss) (16,733 ) (53,952 ) 17,457
(45,471 )
Net income attributable to noncontrolling interests (164 ) (167 ) (466 ) (426 )
Net income (loss) attributable to Blucora, Inc. $ (16,897 ) $ (54,119 ) $ 16,991
$ (45,897 )
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 )
Weighted average shares outstanding:
Basic 45,459
41,635
43,749
41,404
Diluted 45,459
41,635
46,813
42,329
Other comprehensive income (loss):
Net income (loss) $ (16,733 ) $ (53,952 ) $ 17,457
$ (45,471 )
Unrealized gain on available-for-sale investments, net of tax —
—
1
10
Foreign currency translation adjustment 223
(77 ) 413
246
Other comprehensive income (loss) 223
(77 ) 414
256
Comprehensive income (loss) (16,510 ) (54,029 ) 17,871
(45,215 )
Comprehensive income attributable to noncontrolling interests (164 ) (167 ) (466 ) (426 )
Comprehensive income (loss) attributable to Blucora, Inc. $ (16,674 ) $ (54,196 ) $ 17,405
$ (45,641 )


	June 30, 2019		December 31, 2018
ASSETS
Current assets:
Cash and cash equivalents	$	109,606	$	84,524
Cash segregated under federal or other regulations	146		842

Accounts receivable, net of allowance	20,391		15,721
Commissions receivable	19,857		15,562
Other receivables	8,069		7,408
Prepaid expenses and other current assets, net	10,595		7,755

Total current assets	168,664		131,812
Long-term assets:
Property and equipment, net	15,090		12,389
Right-of-use assets, net	11,338		—
Goodwill, net	674,130		548,685
Other intangible assets, net	355,596		294,603


Other long-term assets	10,820		10,236
Total long-term assets	1,066,974		865,913
Total assets	$	1,235,638	$	997,725
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	7,945	$	3,798
Commissions and advisory fees payable	18,810		15,199
Accrued expenses and other current liabilities	43,429		18,980
Lease liabilities	7,168		46
Deferred revenue	4,158		10,257
Current portion of long-term debt, net	919		—


Total current liabilities	82,429		48,280
Long-term liabilities:
Long-term debt, net	381,579		260,390

Deferred tax liability, net	44,840		40,394
Deferred revenue	7,635		8,581

Lease liabilities	6,911		100
Other long-term liabilities	7,012		7,440
Total long-term liabilities	447,977		316,905
Total liabilities	530,406		365,185

Redeemable noncontrolling interests	—		24,945

Commitments and contingencies (Note 8)

Stockholders’ equity:
Common stock, par $0.0001—authorized shares, 900,000; issued and outstanding shares,
48,779 and 48,044, respectively	5		5
Additional paid-in capital	1,575,554		1,569,725
Accumulated deficit	(870,119)		(961,689)
Accumulated other comprehensive loss	(208)		(446)
Total stockholders’ equity	705,232		607,595
Total liabilities and stockholders’ equity	$	1,235,638	$	997,725

See accompanying notes to Unaudited Condensed Consolidated Financial Statements.

BLUCORA, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands, except per share data)


	Three months ended June 30,						Six months ended June 30,
	2019		2018		2019		2018
Revenue:
Wealth management services revenue	$	127,831	$	92,015	$	217,363	$	184,097
Tax preparation services revenue	65,909		65,833		202,145		179,716
Total revenue	193,740		157,848		419,508		363,813
Operating expenses:
Cost of revenue:
Wealth management services cost of revenue	87,477		62,149		148,851		125,213
Tax preparation services cost of revenue	3,149		2,459		7,350		6,812
Amortization of acquired technology	—		49		—		99
Total cost of revenue	90,626		64,657		156,201		132,124
Engineering and technology	7,159		4,848		13,688		9,979
Sales and marketing	29,256		23,791		84,828		79,044
General and administrative	19,002		15,625		36,079		30,491
Acquisition and integration	9,183		—		10,980		—
Depreciation	1,315		993		2,376		2,908
Amortization of other acquired intangible assets	9,169		8,806		17,213		17,113

Restructuring	—		2		—		291
Total operating expenses	165,710		118,722		321,365		271,950
Operating income	28,030		39,126		98,143		91,863
Other loss, net	(5,118)		(2,759)		(9,076)		(7,987)
Income before income taxes	22,912		36,367		89,067		83,876
Income tax benefit (expense)	8,124		(907)		4,139		(2,870)


Net 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
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




Weighted average shares outstanding:
Basic	48,555		47,221		48,358		46,931
Diluted	49,822		49,434		49,681		49,049
Other comprehensive income (loss):
Net income	$	31,036	$	35,460	$	93,206	$	81,006

Foreign currency translation adjustment	131		(112)		238		(249)



Other comprehensive income (loss)	131		(112)		238		(249)
Comprehensive income	31,167		35,348		93,444		80,757
Comprehensive income attributable to noncontrolling interests	—		(222)		—		(427)
Comprehensive income attributable to Blucora, Inc.	$	31,167	$	35,126	$	93,444	$	80,330

See accompanying notes to Unaudited Condensed Consolidated Financial Statements.

BLUCORA, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(In thousands, except per share data)


	Redeemable Noncontrolling Interests							Additional- paid-in capital		Accumulated deficit		Accumulated other comprehensive loss
				Common stock
				Shares		Amount								Total
Balance as of December 31, 2018	$	24,945	48,044	$	5	$	1,569,725	$	(961,689)	$	(446)	$	607,595
Common stock issued for stock options and restricted stock units	—		211	—		283		—		—		283
Other comprehensive income	—		—	—		—		—		107		107
Stock-based compensation	—		—	—		2,443		—		—		2,443
Tax payments from shares withheld for equity awards	—		—	—		(2,425)		—		—		(2,425)
Reclassification of mandatorily redeemable noncontrolling interests	(22,428)		—	—		—		—		—		—
Impact of adoption of new leases accounting standard	—		—	—		—		(1,636)		—		(1,636)
Net income	—		—	—		—		62,170		—		62,170
Balance as of March 31, 2019	$	2,517	48,255	$	5	$	1,570,026	$	(901,155)	$	(339)	$	668,537
Common stock issued for stock options, restricted stock units and employee stock purchase plan	—		524	—		4,181		—		—		4,181
Other comprehensive income	—		—	—		—		—		131		131
Stock-based compensation	—		—	—		4,082		—		—		4,082
Tax payments from shares withheld for equity awards	—		—	—		(2,735)		—		—		(2,735)
Redemption of noncontrolling interests	(2,517)		—	—		—		—		—		—
Net income	—		—	—		—		31,036		—		31,036
Balance as of June 30, 2019	$	—	48,779	$	5	$	1,575,554	$	(870,119)	$	(208)	$	705,232


	Redeemable Noncontrolling Interests							Additional- paid-in capital		Accumulated deficit		Accumulated other comprehensive loss
				Common stock
				Shares		Amount								Total
Balance as of December 31, 2017	$	18,033	46,367	$	5	$	1,555,560	$	(1,014,174)	$	(4)	$	541,387
Common stock issued for stock options, restricted stock units and employee stock purchase plan	—		462	—		3,237		—		—		3,237
Other comprehensive loss	—		—	—		—		—		(137)		(137)
Stock-based compensation	—		—	—		2,958		—		—		2,958
Tax payments from shares withheld for equity awards	—		—	—		(1,493)		—		—		(1,493)
Impact of adoption of new revenue recognition accounting standard	—		—	—		—		1,851		—		1,851
Net income	205		—	—		—		45,341		—		45,341
Balance as of March 31, 2018	$	18,238	46,829	$	5	$	1,560,262	$	(966,982)	$	(141)	$	593,144
Common stock issued for stock options and restricted stock units	—		665	—		7,852		—		—		7,852
Other comprehensive loss	—		—	—		—		—		(112)		(112)
Stock-based compensation	—		—	—		4,033		—		—		4,033
Tax payments from shares withheld for equity awards	—		—	—		(2,735)		—		—		(2,735)
Net income	222		—	—		—		35,238		—		35,238
Balance as of June 30, 2018	$	18,460	47,494	$	5	$	1,569,412	$	(931,744)	$	(253)	$	637,420

See accompanying notes to Unaudited Condensed Consolidated Financial Statements.

BLUCORA, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)


	Six months ended June 30,
	2019		2018
Operating Activities:
Net income	$	93,206	$	81,006


Adjustments to reconcile net income to net cash from operating activities:
Stock-based compensation	6,525		6,685
Depreciation and amortization of acquired intangible assets	20,185		20,338



Reduction of right-of-use lease assets	1,977		—
Deferred income taxes	4,446		(781)
Amortization of premium on investments, net, and debt issuance costs	547		487
Accretion of debt discounts	123		87
Loss on debt extinguishment	—		1,533





Other	260		—
Cash provided (used) by changes in operating assets and liabilities:

Accounts receivable	(3,217)		4,096
Commissions receivable	847		2
Other receivables	(661)		3,142
Prepaid expenses and other current assets	12,258		461
Other long-term assets	(355)		(764)
Accounts payable	(2,995)		59
Commissions and advisory fees payable	(663)		(655)
Lease liabilities	(2,066)		—
Deferred revenue	(24,760)		(5,746)
Accrued expenses and other current and long-term liabilities	(8,845)		(3,393)
Net cash provided by operating activities	96,812		106,557
Investing Activities:
Business acquisition, net of cash acquired	(164,461)		—
Purchases of property and equipment	(2,938)		(2,602)





Net cash used by investing activities	(167,399)		(2,602)
Financing Activities:

Proceeds from credit facilities	121,499		—
Payments on credit facilities	—		(80,000)




Payment of redeemable noncontrolling interests	(24,945)		—
Proceeds from stock option exercises	3,320		10,386
Proceeds from issuance of stock through employee stock purchase plan	1,144		704
Tax payments from shares withheld for equity awards	(5,160)		(4,229)
Contingent consideration payments for business acquisition	(943)		(1,315)
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
Cash, cash equivalents, and restricted cash, beginning of period	85,366		62,311
Cash, cash equivalents, and restricted cash, end of period	$	109,752	$	91,782




Cash paid for income taxes	$	2,566	$	767
Cash paid for interest	$	6,671	$	7,991

Nine months ended September 30,
2017 2016
Operating Activities:
Net income (loss) $ 17,457
$ (45,471 )
Less: Discontinued operations, net of income taxes —
(57,981 )
Net income from continuing operations 17,457
12,510
Adjustments to reconcile net income from continuing operations to net cash from operating activities:
Stock-based compensation 8,434
10,616
Depreciation and amortization of acquired intangible assets 28,553
29,080
Restructuring (non-cash) 1,499
—
Deferred income taxes (473 ) (12,484 )
Amortization of premium on investments, net 10
164
Amortization of debt issuance costs 891
1,440
Accretion of debt discounts 1,893
3,599
(Gain) loss on debt extinguishment 19,764
(641 )
Revaluation of acquisition-related contingent consideration liability —
391
Other —
18
Cash provided (used) by changes in operating assets and liabilities:
Accounts receivable 3,259
793
Commissions receivable (288 ) 1,034
Other receivables 2,384
19,656
Prepaid expenses and other current assets 1,720
6,003
Other long-term assets 432
(1,174 )
Accounts payable (1,375 ) 1,151
Commissions and advisory fees payable (23 ) (1,600 )
Deferred revenue (5,856 ) (1,805 )
Accrued expenses and other current and long-term liabilities 949
19,786
Net cash provided by operating activities from continuing operations 79,230
88,537
Investing Activities:
Business acquisition, net of cash acquired —
(1,788 )
Purchases of property and equipment (3,809 ) (2,648 )
Proceeds from sales of investments 249
—
Proceeds from maturities of investments 7,252
11,808
Purchases of investments (409 ) (5,147 )
Net cash provided by investing activities from continuing operations 3,283
2,225
Financing Activities:
Proceeds from credit facilities 367,212
—
Payments on convertible notes (172,827 ) (20,667 )
Payments on credit facilities (285,000 ) (105,000 )
Proceeds from stock option exercises 38,228
1,141
Proceeds from issuance of stock through employee stock purchase plan 1,428
1,402
Tax payments from shares withheld for equity awards (6,744 ) (1,447 )
Contingent consideration payments for business acquisition (946 ) —
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 operating activities from discontinued operations —
12,359
Net cash provided by investing activities from discontinued operations 1,028
43,230
Net cash used by financing activities from discontinued operations —
(9,000 )
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
Cash, cash equivalents, and restricted cash, beginning of period 54,868
59,830
Cash, cash equivalents, and restricted cash, end of period $ 79,846
$ 72,595

Cash paid for income taxes from continuing operations $ 1,013
$ 2,079
Cash paid for interest from continuing operations $ 14,205
$ 23,455

See accompanying notes to Unaudited Condensed Consolidated Financial Statements.

BLUCORA, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1: ~~The Company and Basis~~Description of ~~Presentation~~the Business

Description of the business: Blucora, Inc. (the "~~Company"~~Company,""Blucora," "we," "our," or~~"Blucora"~~ "us") operates two businesses: a Wealth Management business and ~~an online~~a digital Tax Preparation business. The Wealth Management business consists of HD Vest ("HD Vest") and, since May 6, 2019, 1st Global ("1st Global"), collectively referred to as the"Wealth Management business" or the "Wealth Management segment". The Wealth Management business provides wealth management solutions for financial advisors and their clients. Specifically, the 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. The Wealth Management business was founded to help tax and accounting professionals integrate financial services into their practices.

On May 6, 2019, the Company closed the Acquisition of all of the issued and outstanding common stock of 1st Global, (the "Acquisition"), 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 company's credit agreement. See further discussion of the term loan increase in "Note 6: Debt."

The operations of ~~HDV Holdings, Inc. and its subsidiaries ("HD Vest"). HDV Holdings, Inc. is~~1st Global are included in the ~~parent company~~Company's operating results as part of the Wealth Management ~~business and owns all outstanding shares~~segment from the date of ~~HD Vest, Inc., which serves as a holding company for~~ the various financial services subsidiaries. Those subsidiaries include HD Vest Investment Securities, Inc. (an introducing broker-dealer), HD Vest Advisory Services, Inc. (a registered investment advisor), and HD Vest Insurance Agency, LLC (an insurance broker) (collectively referred to as the Acquistion. See further discussion in "~~Wealth Management business"~~ ~~or the~~ ~~"Wealth Management segment"~~). Note 3: Business Combinations."

The Tax Preparation business consists of the operations of TaxAct, ~~Inc. ("TaxAct"~~) and provides digital tax preparation solutions for consumers, small business owners, and tax professionals through its website www.TaxAct.com (collectively referred to as the "Tax Preparation business" or the "Tax Preparation segment").

Prior to 2017, the Company also operated an internet Search and Content business and an E-Commerce business through 2016. The Search and Content business operated through the InfoSpace LLC subsidiary (~~"InfoSpace"), and the E-Commerce business consisted of the operations of Monoprice, Inc. ("Monoprice"~~).

~~On October 14, 2015, the Company announced its plans to focus on the technology-enabled financial solutions market (the~~ ~~"Strategic Transformation"~~). Strategic Transformation refers to the Company's transformation into a technology-enabled financial solutions company comprised of TaxAct and HD Vest (see "Note 3: Business Combinations") and the divestitures of the Search and Content and E-Commerce businesses in 2016 (see "Note 4: Discontinued Operations"). As part of the Strategic Transformation and "One Company" operating model, the Company announced on October 27, 2016 plans to relocate its corporate headquarters by June 2017 from Bellevue, Washington to Irving, Texas. The actions to relocate corporate headquarters were intended to drive efficiencies and improve operational effectiveness (see "Note 5: Restructuring"). The restructuring is now substantially complete and it is expected to be completed by early 2018.

Segments:The Company has two reportable segments: the Wealth Management segment and the Tax Preparation segment.

Reclassification: The Company reclassified ~~certain amounts~~approximately $0.7 million from long-term assets to current assets related to loans given to several HD Vest advisors on its December 31, 2018 consolidated statements of cash flows related to excess tax benefits generated from stock-based compensation and restricted cash, both in connection with the implementation of new accounting pronouncements. See the ~~"Recent accounting pronouncements"~~ ~~section of "Note 2: Summary of Significant Accounting Policies" for additional information.~~balance sheet.

Note 2: Summary of Significant Accounting Policies

Interim financial information: The accompanying consolidated financial statements have been prepared by the Company under the rules and regulations of the Securities and Exchange Commission (the "SEC") for interim financial reporting. These consolidated financial statements are unaudited and, in management’s opinion, include all adjustments, consisting of normal recurring adjustments and accruals, necessary for a fair presentation of the consolidated financial position, results of operations, and cash flows for the periods presented. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States ("GAAP") have been omitted in accordance with the rules and regulations of the SEC. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes in Part II, Item 8 of the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2018. Interim results are not necessarily indicative of results for a full year.

Cash, cash equivalents, and restricted cash: The following table presents cash, cash equivalents, and restricted cash as reported on the consolidated balance sheets that equal the total amounts on the consolidated statements of cash flows (in thousands):


	June 30,						December 31,
	2019		2018		2018
Cash and cash equivalents	$	109,606	$	89,840	$	84,524
Cash segregated under federal or other regulations	146		1,117		842
Restricted cash included in "Prepaid expenses and other current assets, net"	—		275		—
Restricted cash included in "Other long-term assets"	—		550		—
Total cash, cash equivalents, and restricted cash	$	109,752	$	91,782	$	85,366

September 30, December 31,
2017 2016 2016 2015
Cash and cash equivalents $ 78,558
$ 71,165
$ 51,713
$ 55,473
Cash segregated under federal or other regulations 313
630
2,355
3,557
Restricted cash included in "Prepaid expenses and other current assets, net" 425
100
250
100
Restricted cash included in "Other long-term assets" 550
700
550
700
Total cash, cash equivalents, and restricted cash $ 79,846
$ 72,595
$ 54,868
$ 59,830

Cash segregated under federal and other regulations is held in a ~~segregated~~separate bank account for the exclusive benefit of the Company’s Wealth Management ~~business~~ customers. Restricted cash included in prepaid expenses and other current assets, net and other long-term assets represents amounts pledged as collateral for certain of the Company's banking and lease arrangements.

Business combinations and intangible assets including goodwill: We account for business combinations using the acquisition method.

The 1st Global purchase price has been allocated to 1st Global’s tangible assets, identifiable intangible assets, and assumed liabilities based on their estimated fair values at the time of Acquisition. This allocation involves a number of assumptions, estimates, and judgments that could materially affect the timing or amounts recognized in the Company's financial statements. The most subjective areas include determining the fair value of the following:

•intangible assets, including the valuation methodology, estimations of future cash flows, discount rates, growth rates, as well as the estimated useful life of intangible assets;

•deferred tax assets and liabilities and uncertain tax positions, which are initially estimated as of the Acquisition date;

•property, plant and equipment; pre-existing liabilities or legal claims; and deferred revenue, each as may be applicable; and

•goodwill as measured as the excess of consideration transferred over the net of the acquisition date fair values of the assets acquired and the liabilities assumed.

The Company's assumptions and estimates are based upon comparable market data and information obtained from the Company's management and the management of 1st Global.

Fair value of financial instruments: The Company measures its cash equivalents ~~available-for-sale investments, and contingent consideration liability~~ at fair value. The Company considers the carrying values of accounts receivable, commissions receivable, other receivables, prepaid expenses, other current assets, accounts payable, commissions and advisory fees payable, accrued expenses, and other current liabilities to approximate fair values primarily due to their short-term natures.

Cash equivalents and debt securities are classified within Level 2 (see "Note 6: Fair Value Measurements") of the fair value hierarchy because the Company values them utilizing market observable inputs. Unrealized gains and losses are included in "Accumulated other comprehensive income (loss)" on the consolidated balance sheets, and amounts reclassified out of comprehensive income into net income are determined on the basis of specific identification.

~~The Company has a contingent consideration liability that is related to the Company's 2015 acquisition of SimpleTax Software Inc. ("SimpleTax"~~) and is classified within Level 3 (see "Note 6: Fair Value Measurements") of the fair value hierarchy because the Company values it utilizing significant inputs not observable in the market. Specifically, the Company has determined the fair value of the contingent consideration liability based on a probability-weighted discounted cash flow analysis, which includes assumptions related to estimating revenues, the probability of payment, and the discount rate. The change in the fair value of the contingent consideration liability is recognized in "General and administrative" expense on the consolidated statements of comprehensive income for the period in which the fair value changes.

Concentration of credit risk: Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash equivalents, short-term investments, trade accounts receivable, and commissions receivable. These instruments are generally unsecured and uninsured.

For cash equivalents, short-term investments, and commissions receivable, the Company attempts to manage exposure to counterparty credit risk by only entering into agreements with major financial institutions and investment sponsors that are expected to be able to fully perform under the terms of the agreement.

Accounts receivable are typically unsecured and are derived from revenues earned from customers primarily located in the United States operating in a variety of geographic areas. The Company performs ongoing credit evaluations of its customers and maintains allowances for potential credit losses.

Recent accounting pronouncements: Changes to GAAP are established by the Financial Accounting Standards Board ("FASB") in the form of accounting standards updates ("ASUs") to the FASB’s Accounting Standards Codification ("ASC"). The Company considers the applicability and impact of all recent ASUs. ASUs and ASCs not listed below were assessed and either were determined to not be ~~either not~~ applicable or are expected to have minimal impact on the Company’s consolidated financial position and results of operations. The Company currently is evaluating, or has adopted, ASUs and ASCs that impact the following areas:

~~Revenue recognition~~Leases (ASU 2016-02) - In ~~May 2014,~~February 2016, the FASB issued guidance codified in ASC ~~606, "Revenue from Contracts with Customers,~~842, "Leases" ("ASC 842"), which ~~amends~~supersedes the guidance in ~~former~~ ASC ~~605 "Revenue Recognition.~~840 "Leases." The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This will be achieved in a five-step process. Enhanced disclosures also will be required. This guidance is effective on a retrospective basis--either to each reporting period presented or with the cumulative effect of initially applying this guidance recognized at the date of initial application--for annual reporting periods, including interim reporting periods within those annual reporting periods, beginning

~~after December 15, 2017. Early adoption is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period.~~

The Company will adopt the requirements of the new standard on January 1, 2018, utilizing the modified retrospective transition method. Upon adoption, the Company will recognize the cumulative effect of adopting this ASU as an adjustment to the opening balance of retained earnings. Prior periods will not be retrospectively adjusted. The Company expects that the adoption of this ASU will not have a material impact to its consolidated financial statements, including the presentation of revenues in the statement of comprehensive income.

~~Leases (ASU 2016-02)~~ ~~- In February 2016, the FASB issued an ASU on lease accounting, whereby~~Under ASC 842, lease assets and liabilities, whether arising from leases that are considered operating or finance (capital) ~~and have a term of twelve months or less,~~ will be recognized on the balance sheet. ~~Enhanced qualitative disclosures also will be required.~~ Lease liabilities are measured as the present value of unpaid lease payments for operating leases where the Company is the lessee, and a corresponding right-of-use ("ROU") asset is recognized for the right to use the leased assets.

This guidance isbecame effective on a modified retrospective ~~basis--with~~basis-with various practical expedients related to leases that commenced before the effective ~~date--for~~date-for annual reporting periods, including interim reporting periods within those annual reporting periods, beginning after December 15, 2018. ~~Early adoption is permitted.~~ Prior comparable periods are presented in accordance with accounting guidance under ASC 840 "Leases" and were not restated.

The Company adopted ASC 842 on January 1, 2019 for all open leases with a term greater than one year as of the adoption date, using the modified retrospective method of adoption with a cumulative effect adjustment to retained earnings. The Company elected the package of practical expedients, for which there is no requirement to reassess lease existence, classification and initial direct costs, the hindsight practical expedient, for which the Company used hindsight in determining certain lease terms, and the short-term lease expedient, for which the Company considered all open leases with a term greater than one year as of the adoption date. The adoption resulted in $6.6 million of additional operating lease assets, $9.1 million of additional operating lease liabilities, and a $1.6 million adjustment to the opening balance of retained earnings as a result of

reevaluating certain of the Company's lease terms as of the adoption date. The Company also reclassified, upon adoption, $0.9 million of other lease-related balances to reduce the measurement of lease assets.

The Company's lease terms are comprised of contractual terms but may include extension or termination options reasonably assured to be exercised at lease inception, which are included in the recognition of ROU assets and lease liabilities. The Company’s leases do not contain residual value guarantees or material variable lease payments. The Company does not have any material restrictions or covenants imposed by leases that would impact the Company’s ability to pay dividends or cause the Company to incur additional financial obligations.

The Company’s leases are not complex; therefore, there were no significant assumptions or judgments made in applying the requirements of ASC 842, including the determination of whether the contracts contained a lease, the allocation of consideration in the contracts between lease and non-lease components, and the determination of the discount rates for the leases.

Measurement of Credit Losses (ASU 2016-13) - In June 2016, the FASB issued an ASU that requires companies to measure credit losses utilizing a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. This ASU is effective for fiscal years beginning after December 15, 2019, including the interim periods within those fiscal years. The Company is currently ~~is evaluating~~assessing the impact of adopting this ASU, but based on a preliminary assessment, does not expect the adoption of this guidance to have a material impact on its consolidated financial statements and related disclosures.

~~Stock-based compensation (ASU 2016-09)~~ - In March 2016, the FASB issued an ASU on employee share-based payment accounting. The ASU requires that excess tax benefits and deficiencies be recognized as income tax benefit or expense, rather than as additional paid-in capital. In addition, the ASU requires that excess tax benefits be recorded in the period that shares vest or settle, regardless of whether the benefit reduces taxes payable in the same period. Cash flows related to excess tax benefits will be included as an operating activity, and no longer classified as a financing activity, in the statement of cash flows. This guidance was effective for annual reporting periods, including interim reporting periods within those annual reporting periods, beginning after December 15, 2016. The guidance related to the recognition of excess tax benefits and deficiencies as income tax benefit or expense was effective on a prospective basis, and the guidance related to the timing of excess tax benefit recognition was effective using a modified retrospective transition method with a cumulative-effect adjustment to equity as of the beginning of the period in which the guidance is adopted. The cash flow presentation guidance was effective on a retrospective or prospective basis.

The Company implemented this ASU on January 1, 2017 and recorded a cumulative-effect adjustment of $51.5 million to credit retained earnings for deferred tax assets related to net operating losses that arose from excess tax benefits, which the Company has deemed realizable. In addition to this:

At the time of adoption and on a prospective basis, the primary impact of adoption was the recognition of excess tax benefits and deficiencies, including deferred tax assets related to net operating losses that arose from excess tax benefits which the Company has deemed realizable, in the income tax provision (rather than in additional paid-in capital). This caused income taxes to differ from taxes at the statutory rates in 2017. For the three months ended September 30, 2017, the Company recognized an estimated $7.0 million increase to the income tax provision, which resulted in a $7.0 million decrease to income from continuing operations and net income attributable to Blucora, a $0.15 decrease to basic earnings per share, and a $0.15 decrease to diluted earnings per share. For the nine months ended September 30, 2017, the Company recognized an estimated $0.4 million increase to the income tax provision, which resulted in a $0.4 million decrease to income from continuing operations and net income attributable to Blucora, a $0.01 decrease to basic earnings per share, and a $0.01 decrease to diluted earnings per share.

The Company applied the cash flow presentation guidance on a retrospective basis, restating the consolidated statements of cash flows to present excess tax benefits as an operating activity (rather than a financing activity). For the three months ended September 30, 2016, this resulted in a decrease to cash provided by operating activities from continuing operations of $5.6 million and a corresponding decrease to cash used by financing activities from continuing operations for the amount historically presented in the "excess tax benefits from stock-based award activity" line item in the consolidated statements of cash flows. For the nine months ended September 30, 2016, this resulted in an increase to cash provided by operating activities from continuing operations of $21.4 million and a corresponding increase to cash used by financing activities from continuing operations for the amount historically presented in the "excess tax benefits from stock-based award activity" line item in the consolidated statements of cash flows. The restatement had no impact on total cash flows for the period presented.

The ASU also clarifies that payments made to tax authorities on an employee's behalf for withheld shares should be presented as a financing activity in the statement of cash flows, allows the repurchase of more of an employee's shares for tax withholding purposes without triggering liability accounting, and provides an accounting policy election to account for forfeitures as they occur. The cash flow presentation requirements for payments made to tax authorities on an employee's

behalf had no impact to any periods presented, since such cash flows historically have been presented as a financing activity. The Company is not planning to change tax withholdings and will continue to estimate forfeitures in determining the amount of compensation cost to be recognized in each period.

~~Statement of cash flows and restricted cash (ASU 2016-18)~~ - In November 2016, the FASB issued an ASU on the classification and presentation of changes in restricted cash on the statement of cash flows. The ASU requires that the statement of cash flows explains the change during the period in the total of cash, cash equivalents, and restricted cash; therefore, the amounts described as restricted cash should be included with cash and cash equivalents when reconciling the beginning and end of period total amounts on the statement of cash flows. This guidance is effective for annual reporting periods, including interim reporting periods within those annual reporting periods, beginning after December 15, 2017. Early adoption is permitted. The guidance is effective on a retrospective basis. The Company elected to early adopt this guidance as of January 1, 2017. The reclassification was not material to the periods presented and had no impact on total cash flows, income from continuing operations, or net income attributable to Blucora for the periods presented. See the ~~"Cash, cash equivalents, and restricted cash"~~ ~~section of this note for additional information.~~

Note 3: Business Combinations

~~HD Vest:~~ On December 31, 2015 and pursuant to the Purchase Agreement dated October 14, 2015, the Company acquired HD Vest for $613.7 million, after a $1.8 million final working capital adjustment in the first quarter of 2016. HD Vest provides wealth management solutions for financial advisors and their clients. In connection with the acquisition, certain members of HD Vest management rolled over a portion of the proceeds they would have otherwise received at the closing into shares of the acquisition subsidiary through which the Company consummated the purchase of HD Vest. A portion of those shares were sold to the Company in exchange for a promissory note. After giving effect to the rollover shares and related purchase of the rollover shares for the promissory note, the Company indirectly owns 95.52% of HDV Holdings, Inc., with the remaining 4.48% noncontrolling interest held collectively by the rollover management members and subject to put and call arrangements exercisable beginning in 2019.

The Purchase Agreement dictated that the Company placed into escrow $20.0 million of additional consideration that was contingent upon HD Vest's 2015 earnings performance. The contingent consideration threshold was not achieved; therefore, the amount was excluded from the purchase price and recorded as a receivable in "Other receivables" as of December 31, 2015 for the amount that was returned to the Company from the escrow agent in the first quarter of 2016.

~~Note 4: Discontinued Operations~~

~~On November 17, 2016,~~May 6, 2019, the Company closed ~~on an agreement with YFC-Boneagle Electric Co., Ltd. ("YFC"), under which YFC acquired~~ the ~~E-Commerce business for $40.5 million, which included a working capital adjustment. Of this amount, $39.5 million was received in the fourth quarter~~Acquisition of 2016 and $1.0 million was received in the second quarter of 2017--both amounts were included in investing activities from discontinued operations in the consolidated statements of cash flows. The Company used all of the ~~proceeds~~issued and outstanding common stock of 1st Global for a cash purchase price of $180.0 million. The purchase price is subject to ~~pay down debt.~~

~~On August 9, 2016,~~customary adjustment as well as certain indemnity escrows, in each case as described more fully in the ~~Company closed on an~~stock purchase agreement ~~with OpenMail LLC ("OpenMail"), under which OpenMail acquired substantially all of~~governing the Acquisition. The purchase price has been allocated to 1st Global’s tangible assets, identifiable intangible assets, and assumed ~~certain specified~~ liabilities based on their estimated fair values at the time of ~~the Search~~acquisition. The preliminary fair values of assets acquired and ~~Content business for $45.2 million, which included a working capital adjustment, and was included in investing activities from discontinued operations~~liabilities assumed in the ~~consolidated statements of cash flows. The Company used all of the proceeds to pay down debt.~~

~~Summarized financial information for discontinued operations is~~Acquisition were as follows (in thousands):


Tangible assets acquired, including cash of $12,389	$	37,153
Goodwill	125,277
Identified intangible assets	78,200
Contingent liability	(10,000)
Deferred revenues	(17,715)
Other current liabilities	(13,397)
Deferred tax liabilities and other	(19,518)
Total	$	180,000
Cash paid at acquisition date	$	176,850
Cash to be paid after acquisition date	3,150

Three months ended September 30, Nine months ended September 30,
2017 2016 2017 2016
Major classes of items in net income (loss):
Revenues $ —
$ 53,721
$ —
$ 209,108
Operating expenses —
(50,952 ) —
(192,874 )
Other loss, net —
(415 ) —
(844 )
Income from discontinued operations before income taxes —
2,354
—
15,390
Loss on sale of discontinued operations before income taxes —
(29,509 ) —
(68,034 )
Discontinued operations, before income taxes —
(27,155 ) —
(52,644 )
Income tax expense —
(13,373 ) —
(5,337 )
Discontinued operations, net of income taxes $ —
$ (40,528 ) $ —
$ (57,981 )

~~Note 5: Restructuring~~

The ~~following table summarizes~~identified intangible assets were recognized as follows (in thousands):


	Estimated Fair Value		Weighted Average Estimated Useful Life (months)
Advisor relationships	$	70,800	144
Sponsor relationships	700		120
Developed technology	3,600		60
Trade name	3,100		60
Total identified intangible assets	$	78,200	137

For the ~~activity~~three months ended June 30, 2019, the Company recognized amortization expense of approximately $1.1 million in "Amortization of other acquired intangible assets" on the consolidated statements of comprehensive income.

Goodwill consists largely of synergistic opportunities for both HD Vest and 1st Global, including increased scale, enhanced capabilities, and an integrated platform of brokerage, investment advisory and insurance services. Goodwill is not expected to be deductible for income tax purposes, and is reported in the ~~restructuring liability (in thousands), resulting from~~Company's Wealth Management segment.

As part of the ~~relocation of corporate headquarters to Irving, Texas~~Acquisition, the Company assumed, and recorded as part of the ~~Strategic Transformation:~~opening balance sheet, a contingent liability related to a regulatory inquiry. While the inquiry is still on-going, the Company evaluated a range of possible losses and recorded a reserve of $10.0 million.

The Company retained $3.2 million of the purchase price, which is to be paid to either 1st Global or former employees of 1st Global within the twelve months following the Acquisition.

Employee-Related Termination Costs Contract Termination Costs Fixed Asset Impairments Stock-Based Compensation Other Costs Total
Balance as of December 31, 2016 $ 4,234
$ —
$ —
$ —
$ —
$ 4,234
Restructuring charges (30 ) (241 ) 1,878
981
32
2,620
Payments (434 ) (161 ) —
—
(32 ) (627 )
Non-cash —
1,457
(1,878 ) (981 ) —
(1,402 )
Balance as of June 30, 2017 3,770
1,055
—
—
—
4,825
Restructuring charges (3 ) 97
12
106
Payments (2,447 ) (256 ) —
—
(12 ) (2,715 )
Non-cash —
—
—
(97 ) —
(97 )
Balance as of September 30, 2017 $ 1,320
$ 799
$ —
$ —
$ —
$ 2,119
The preliminary fair value estimates of the net assets acquired are based upon preliminary calculations and valuations, and those estimates and assumptions are subject to change as, due to the recent timing of the Acquisition, the Company obtains additional information for those estimates during the measurement period (up to one year from the Acquisition date). The excess of the total consideration over the tangible assets, identifiable intangible assets, and assumed liabilities was recorded as goodwill.

~~Employee-related termination~~The primary areas of the acquisition accounting that had not yet been finalized as of June 30, 2019 related to the fair value adjustments for fixed assets, lease obligations, intangible assets, certain contingent liability matters, deferred income taxes and residual goodwill.

The gross contractual amount of acquired accounts receivable, including commissions receivable, was $6.7 million. As an insignificant amount of these receivables was expected to be uncollectible, the acquired amount approximates fair value.

During the three and six months ended June 30, 2019, the Company incurred transaction costs ~~primarily include severance benefits, under both ongoing~~of $4.7 million and ~~one-time benefit arrangements that are payable at termination dates throughout 2017,~~$1.8 million, respectively, associated with the ~~majority paid~~Acquisition, which were recognized in "General and administrative expense" on the consolidated statements of comprehensive income.

The operations of 1st Global are included in the ~~second half~~Company's operating results as part of ~~2017. Contract termination costs~~the Wealth Management segment from the date of Acquisition. From the date of Acquisition, 1st Global contributed approximately $29.0 million of revenue and ~~fixed asset impairments were incurred~~$0.7 million of loss before income taxes to the Company.

Pro forma financial information of the 1st Global Acquisition:

The financial information in ~~connection~~the table below summarizes the combined results of operations of Blucora and 1st Global, on a pro forma basis, for the period in which the Acquisition occurred and the prior reporting period as though the companies had been combined as of the beginning of each period presented. Pro forma adjustments have been made to include amortization expense on the definite-lived intangible assets identified in the Acquisition, debt-related expenses associated with the ~~Bellevue facility's operating lease~~credit facility used to finance the Acquisition, and ~~related fixed assets, which are described further~~to remove Acquisition-related transaction costs. Income taxes also have been adjusted for the effect of these items. The following pro forma financial information is presented for informational purposes only and is not necessarily indicative of the results of operations that would have been achieved had the Acquisition occurred at the beginning of the period presented (amounts in the next two paragraphs, respectively. Stock-based compensation primarily includes the impact of equity award modifications associated with employment contracts for certain individuals impacted by the relocation, as well as forfeitures that were recorded for severed employees. Other costs include office moving costs.thousands):


	Three months ended June 30,						Six months ended June 30,
	2019		2018		2019		2018
Revenue	$	211,471	$	200,243	$	478,808	$	449,776
Net income	$	18,474	$	25,553	$	68,513	$	61,008

Note 4: Segment Information and Revenues

The Company has two reportable segments: the Wealth Management segment and the Tax Preparation segment. The Company’s Chief Executive Officer is its chief operating decision maker and reviews financial information presented on a ~~non-cancelable~~disaggregated basis. This information is used for purposes of allocating resources and evaluating financial performance. The operations of 1st Global are included in the Company's operating ~~lease that runs through 2020 for its former corporate headquarters~~results as part of the Wealth Management segment from the date of the Acquisition.

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 June 30,						Six Months Ended June 30,
	2019		2018		2019		2018
Revenue:
Wealth Management	$	127,831	$	92,015	$	217,363	$	184,097
Tax Preparation	65,909		65,833		202,145		179,716
Total revenue	193,740		157,848		419,508		363,813
Operating income (loss):
Wealth Management	16,979		12,954		28,519		26,029
Tax Preparation	41,368		44,121		120,640		102,927
Corporate-level activity	(30,317)		(17,949)		(51,016)		(37,093)
Total operating income	28,030		39,126		98,143		91,863
Other loss, net	(5,118)		(2,759)		(9,076)		(7,987)
Income tax benefit (expense)	8,124		(907)		4,139		(2,870)
Net income	$	31,036	$	35,460	$	93,206	$	81,006

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


	Three Months Ended June 30,						Six Months Ended June 30,
	2019		2018		2019		2018
Wealth Management:
Commission	$	48,068	$	40,384	$	85,228	$	83,254
Advisory	61,410		40,058		101,167		79,359
Asset-based	13,219		7,306		22,912		14,478
Transaction and fee	5,134		4,267		8,056		7,006
Total Wealth Management revenue	$	127,831	$	92,015	$	217,363	$	184,097
Tax Preparation:
Consumer	$	62,686	$	63,137	$	186,628	$	165,049
Professional	3,223		2,696		15,517		14,667
Total Tax Preparation revenue	$	65,909	$	65,833	$	202,145	$	179,716

Wealth Management revenue recognition: Wealth Management revenue consists primarily of commission revenue, advisory revenue, asset-based revenue, and transaction and fee revenue. The Company's Wealth Management revenues are earned from customers primarily located in ~~Bellevue, Washington, which~~ the Company occupied until May 2017. In March 2017, the Company agreed to a sublease for the entire Bellevue facility, which was effective June 1, 2017 and expires on September 30, 2020, consistent with the underlying operating lease. Under that sublease agreement, the Company will not recover allUnited States.

Details of its remaining lease rental obligations (including common area maintenance costs and real estate taxes) and, therefore, recognized a loss on sublease of $1.1 million. See "Note 9: Commitments and Contingencies" for additional information on the sublease.Wealth Management revenues are (in thousands):



	Three months ended June 30,
	2019										2018
	Recognized Upon Transaction		Recognized Over Time		Total		Recognized Upon Transaction		Recognized Over Time		Total
Commission revenue	$	20,469	$	27,599	$	48,068	$	15,919	$	24,465	$	40,384
Advisory revenue	—		61,410		61,410		—		40,058		40,058
Asset-based revenue	—		13,219		13,219		—		7,306		7,306
Transaction and fee revenue	800		4,334		5,134		1,036		3,231		4,267
Total	$	21,269	$	106,562	$	127,831	$	16,955	$	75,060	$	92,015


	Six months ended June 30,
	2019										2018
	Recognized Upon Transaction		Recognized Over Time		Total		Recognized Upon Transaction		Recognized Over Time		Total
Commission revenue	$	36,153	$	49,075	$	85,228	$	34,264	$	48,990	$	83,254
Advisory revenue	—		101,167		101,167		—		79,359		79,359
Asset-based revenue	—		22,912		22,912		—		14,478		14,478
Transaction and fee revenue	1,570		6,486		8,056		1,997		5,009		7,006
Total	$	37,723	$	179,640	$	217,363	$	36,261	$	147,836	$	184,097

Tax Preparation revenue recognition: The Company ~~also wrote-off its $1.5 million deferred rent liability (a non-cash item), related to various lease incentives~~derives revenue from the sale of Tax Preparation digital services, ancillary services, packaged tax preparation software, and arrangements that ~~had been provided originally by the landlord, and incurred broker commissions related to the sublease agreement. All~~may include a combination of these ~~items were recorded as contract termination costs~~items. Ancillary services primarily include refund payment transfer and audit defense. The Company’s Tax Preparation revenues are earned from customers primarily located in the ~~first quarter~~United States.

Details of ~~2017.~~Tax Preparation revenues are (in thousands):

The Company began receiving sublease offers in the first quarter of 2017, at which point it was indicated that the remaining lease rental obligations, and the related value for the leasehold improvements and the office furniture and equipment, would not be fully recovered. As a result and given the nature of these fixed assets, the Company fully impaired the $1.9 million carrying value of those assets in the first quarter of 2017.



	Three months ended June 30,
	2019										2018
	Recognized Upon Transaction		Recognized Over Time		Total		Recognized Upon Transaction		Recognized Over Time		Total
Consumer	$	62,057	$	629	$	62,686	$	63,137	$	—	$	63,137
Professional	2,459		764		3,223		1,919		777		2,696
Total	$	64,516	$	1,393	$	65,909	$	65,056	$	777	$	65,833


	Six months ended June 30,
	2019										2018
	Recognized Upon Transaction		Recognized Over Time		Total		Recognized Upon Transaction		Recognized Over Time		Total
Consumer	$	185,072	$	1,556	$	186,628	$	165,049	$	—	$	165,049
Professional	13,301		2,216		15,517		12,315		2,352		14,667
Total	$	198,373	$	3,772	$	202,145	$	177,364	$	2,352	$	179,716

Note 6:5: Fair Value Measurements

In accordance with ASC 820, "Fair Value Measurements and ~~Disclosures",~~Disclosures," certain of the Company's assets and liabilities, which are carried at fair value, are classified in one of the following three categories:

Level 1: Quoted market prices in active markets for identical assets or liabilities.

Level 2: Observable market-based inputs, other than Level 1, or unobservable inputs that are corroborated by market data.

Level 3: Unobservable inputs that are not corroborated by market data and reflect the Company’s own assumptions.

The fair value hierarchy of the Company’s assets and liabilities carried at fair value and measured on a recurring basis was as follows (in thousands):


			Fair value measurements at the reporting date using
	June 30, 2019		Quoted prices in active markets using identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)


Cash equivalents: money market and other funds	$	23,454	$	23,454	$	—	$	—

















Total assets at fair value	$	23,454	$	23,454	$	—	$	—


												Fair value measurements at the reporting date using
										December 31, 2018		Quoted prices in active markets using identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
Cash equivalents: money market and other funds									Cash equivalents: money market and other funds	$	23,181	$	23,181	$	—	$	—

			Fair value measurements at the reporting date using
	September 30, 2017		Quoted prices in active markets using identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
Cash equivalents: money market and other funds	$	10,827	$	—	$	10,827	$	—

Total assets at fair value	$	10,827	$	—	$	10,827	$	—	Total assets at fair value	$	23,181	$	23,181	$	—	$	—

Acquisition-related contingent consideration liability	$	2,704	$	—	$	—	$	2,704	Acquisition-related contingent consideration liability	$	1,275	$	—	$	—	$	1,275
Total liabilities at fair value	$	2,704	$	—	$	—	$	2,704	Total liabilities at fair value	$	1,275	$	—	$	—	$	1,275

Fair value measurements at the reporting date using
December 31, 2016
Quoted prices in
active markets
using identical
assets
(Level 1)

Significant other
observable
inputs
(Level 2)

Significant
unobservable
inputs
(Level 3)
Cash equivalents:
U.S government securities $ 2,749
$ —
$ 2,749
$ —
Money market and other funds 4,090
—
4,090
—
Commercial paper 1,999
—
1,999
—
Taxable municipal bonds 1,301
—
1,301
—
Total cash equivalents 10,139
—
10,139
—
Available-for-sale investments:
Debt securities:
U.S. government securities 2,000
—
2,000
—
Commercial paper 1,998
—
1,998
—
Time deposits 807
—
807
—
Taxable municipal bonds 2,296
—
2,296
—
Total debt securities 7,101
—
7,101
—
Total assets at fair value $ 17,240
$ —
$ 17,240
$ —

Acquisition-related contingent consideration liability $ 3,421
$ —
$ —
$ 3,421
Total liabilities at fair value $ 3,421
$ —
$ —
$ 3,421

A reconciliation of Level 3 items measured at fair value on a recurring basis is as follows (in thousands):

Acquisition-related contingent consideration liability:
Balance as of December 31, 2016 $ 3,421
Payment (946 )
Foreign currency transaction loss 229
Balance as of September 30, 2017 $ 2,704


Acquisition-related contingent consideration liability:
Balance as of December 31, 2018	$	1,275

Payment	(1,331)

Foreign currency transaction loss	56
Balance as of June 30, 2019	$	—

~~The contingent consideration liability is related to~~

Cash equivalents are classified within Level 1 of the ~~Company's 2015 acquisition of SimpleTax. The full contractual obligation under~~fair value hierarchy because the ~~contingent consideration arrangement was accrued during the year ended December 31, 2016. Payments~~Company values them utilizing quoted prices in active markets. Unrealized gains and losses are contingent upon product availability and revenue performance over a three-year period ending December 31, 2018 and are expected to occur annually over that period. The first payment was made in the first quarter of 2017 and classified as a financing activity on the consolidated statements of cash flows. The remaining payments are expected through 2019. The foreign currency transaction loss was included in ~~"Other loss, net" on the consolidated statements of~~"Accumulated other comprehensive income. As of September 30, 2017, $1.3 million of the contingent consideration liability was included in "Accrued expenses and other current liabilities" and $1.4 million in "Other long-term liabilities"loss" on the consolidated balance ~~sheets.~~sheets, and amounts reclassified out of comprehensive income into net income are determined on the basis of specific identification.

~~The contractual maturities of the debt securities classified as available-for-sale at December 31, 2016 were less than one year.~~

~~The cost and fair value of available-for-sale investments were as follows (in thousands):~~

Amortized
cost

Gross unrealized
gains

Gross unrealized
losses

Fair
value
Balance as of December 31, 2016 $ 7,102
$ —
$ (1 ) $ 7,101

~~The Company had non-recurring Level 3 fair value measurements in 2017 and 2016 related to the redemption and repurchase of its Convertible Senior Notes. See "Note 7: Debt" for details.~~

Note 7:6: Debt

The Company’s debt consisted of the following as of the periods indicated in the table below (in thousands):


	June 30, 2019														December 31, 2018
	Principal amount		Discount		Debt issuance costs		Net carrying value		Principal amount		Discount		Debt issuance costs		Net carrying value
Senior secured credit facilities	$	390,000	$	(1,472)	$	(6,030)	$	382,498	$	265,000	$	(970)	$	(3,640)	$	260,390

September 30, 2017 December 31, 2016

Principal
amount
Discount Debt issuance costs
Net
carrying
value

Principal
amount
Discount Debt issuance costs
Net
carrying
value
Senior secured credit facility $ 350,000
$ (1,681 ) $ (4,727 ) $ 343,592
$ —
$ —
$ —
$ —
TaxAct - HD Vest 2015 credit facility —
—
—
—
260,000
(7,124 ) (5,295 ) 247,581
Convertible Senior Notes —
—
—
—
172,859
(6,913 ) (1,770 ) 164,176
Note payable, related party 3,200
—
—
3,200
3,200
—
—
3,200
Total debt $ 353,200
$ (1,681 ) $ (4,727 ) $ 346,792
$ 436,059
$ (14,037 ) $ (7,065 ) $ 414,957

Senior secured credit ~~facility:~~ Onfacilities: In May ~~22,~~ 2017, ~~Blucora~~the Company entered into ana credit agreement with a syndicate of lenders ~~for the purposes~~in order to provide a term loan and revolving line of ~~refinancing the~~ credit ~~facility previously entered into in 2015~~ for ~~the purposes of financing the HD Vest acquisition (the~~ ~~"TaxAct - HD Vest 2015 credit facility"), redeeming its Convertible Senior Notes that were outstanding at the time (the~~ ~~"Notes"), and providing future~~ working capital, capital expenditures 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 general business purposes (the "Blucora senior secured credit ~~facility consists~~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 ~~loan, which includes~~facility (including a letter of credit ~~sub-facility,~~

sub-facility) and a $375.0 million term loan facility. In May 2019, the Company amended the Blucora senior secured credit facilities, in order to, among other things: (i) provide for ana term loan increase in the aggregate ~~$425.0~~principal amount of $125.0 million in the form of a fungible increase to, and on substantially the same terms as, the Company's existing senior secured term loan under the Blucora senior secured credit ~~facility. The final maturity dates~~facilities and (ii) increase the total amount of the revolving credit ~~loan~~facility under the Blucora senior secured credit facilities by $15.0 million to an aggregate of $65.0 million.

The amended Blucora senior secured credit facilities provide for up to $565.0 million of borrowings, consisting of a committed $65.0 million revolving credit facility (including a letter of credit sub-facility) and a $500.0 million term loan ~~are~~facility that mature on May 22, 2022 and May 22, 2024, respectively. Obligations under the Blucora senior secured credit ~~facility~~facilities are guaranteed by certain of Blucora's subsidiaries and secured by substantially all of the assets of ~~Blucora~~the Company and ~~those~~certain of its subsidiaries.

~~Blucora borrowed $375.0 million under~~The proceeds of the increase in the term loan ~~when it entered~~were used to fund a portion of the purchase price of the Acquisition, as well as to pay the fees and expenses associated with entering into the amendment to the Blucora senior secured credit facility. Principal payments on the term loan are payable quarterly in an amount equal to 0.25% of the initial outstanding principal. 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%, payable at the end of each interest period. Through September 30, 2017, Blucora has made prepayments of $25.0 million towards the term loan.~~

Blucora may borrow under the revolving credit loan in an aggregate principal amount not less than $2.0 million or any whole multiple of $1.0 million in excess thereof. Principal payments on the revolving credit loan are payable at maturity. The interest rate on the revolving credit loan is variable, with initial draws at LIBOR plus a margin of 3.00%. Subsequent draws on the revolving credit loan also have variable interest rates, based upon LIBOR plus a margin of between 2.75% and 3.00%. In each case, the applicable margin within the range depends upon Blucora's Consolidated First Lien Net Leverage Ratio (as defined in the credit agreement for the credit facility) over the previous four quarters. Interest is payable at the end of each interest period. Blucora has not borrowed any amounts under the revolving credit loan.

Blucora has the right to permanently reduce and/or prepay, without premium or penalty (other than customary LIBOR breakage costs), the entire credit facility at any time or portions of the credit facility in an aggregate principal amount not less than $5.0 million ($2.0 million in the case of prepayments) or any whole multiple of $1.0 million in excess thereof, except for prepayments through November 22, 2017, which require a prepayment of a premium equal to 1.00% of the total principal amount prepaid. Beginning on December 31, 2018, Blucora will be required to make annual prepayments if certain levels of cash flow are achieved.facilities.

The Blucora senior secured credit ~~facility includes~~facilities include financial and operating covenants, including a consolidated total net leverage ratio, which are set forth in detail in the credit facility agreement. As of ~~September~~June 30, ~~2017, Blucora~~2019, the Company was in compliance with all of the financial and operating ~~covenants.~~covenants under the credit facility agreement.

Commencing December 31, 2019, principal payments of the term loan are due on a quarterly basis in an amount equal to $312,500 (subject to reduction for prepayments), with the remaining principal amount due on the maturity date of May 22, 2024. The Company also has the right to prepay the term loan or outstanding amounts under the revolving credit facility without any premium or penalty (other than customary Eurodollar breakage costs). Prepayments on the term loan are subject to certain prepayment minimums. The Company may be required to make annual prepayments on the term loan in an amount equal to a percentage of excess cash flow of the Company during the applicable fiscal year from 0% to 50%, depending on the Consolidated First Lien Net Leverage Ratio (as defined in the credit facility agreement) for such fiscal year.

In November 2017, the credit facility agreement was amended in order to refinance and reprice the initial term loan. The interest rate on the the term loan is variable at the London Interbank Offered Rate, plus the applicable interest rate margin of 3.00% for Eurodollar Rate loans and 2.00% for ABR loans.

Depending on the Company’s Consolidated First Lien Net Leverage Ratio (as defined in the credit facility agreement), the applicable interest rate margin on the revolving credit facility is from 2.75% to 3.25% for Eurodollar Rate loans and 1.75% to 2.25% for ABR loans. Interest is payable at the end of each interest period. As of June 30, 2019, the Company had not borrowed any amounts under the revolving credit facility.

As of ~~September~~June 30, ~~2017,~~2019, the ~~credit~~term loan facility's principal amount approximated its fair value as it is a variable rate instrument and the current applicable margin approximates current market conditions.

In connection with the refinancing, the Company performed an analysis by creditor and determined that the refinancing qualified as an extinguishment. As a result, the Company recognized a loss on debt extinguishment during the three months ended June 30, 2017, which was recorded in "Other loss, net" on the consolidated statements of comprehensive income and consisted of the following (in thousands):

Loss on debt extinguishment - TaxAct - HD Vest 2015 credit facility $ 9,593
Loss on debt extinguishment - Convertible Senior Notes 6,715
Total loss on debt extinguishment $ 16,308

The amount for the TaxAct - HD Vest 2015 credit facility included the write-off of the remaining unamortized discount and debt issuance costs. For the Notes, the Company allocated the cash paid first to the liability component of the Notes based on the fair value of the redeemed Notes. The fair value was based on a discounted cash flow analysis of the Notes' principal and related interest payments, using a discount rate that approximated the current market rate for similar debt without conversion rights. The difference between the fair value and net carrying value of the repurchased Notes was recognized as a loss and recorded in "Other loss, net" on the consolidated statements of comprehensive income. No amount was allocated to the equity component of the Notes, since the fair value of the liability component exceeded the cash paid.

~~TaxAct - HD Vest 2015 credit facility:~~ The Company had repayment activity of $64.0 million and $105.0 million during the nine months ended September 30, 2017 and 2016, respectively. These repayments resulted in the acceleration of a portion of the unamortized discount and debt issuance costs, which were recorded in "Other loss, net" on the consolidated statements of comprehensive income.

~~Convertible Senior Notes:~~ ~~In June 2017, the Company redeemed almost all of the outstanding Notes for cash with proceeds from the senior secured credit facility.~~

During the nine months ended September 30, 2016, the Company repurchased $28.4 million of the Notes for cash of $20.7 million. Similar to the analysis performed for the Notes that were redeemed in June 2017, the Company allocated the cash paid first to the liability component of the Notes based on the fair value of the repurchased Notes. The difference between the fair value and net carrying value of the repurchased Notes was recognized as a gain, since the Notes were repurchased below par value, and recorded in "Other loss, net" on the consolidated statements of comprehensive income. No amount was allocated to the equity component of the Notes, since the fair value of the liability component exceeded the cash paid.

~~The following table sets forth total interest expense, prior to the refinancing, related to the Notes (in thousands):~~

Three months ended September 30, Nine months ended September 30,
2017 2016 2017 2016
Contractual interest expense (Cash) $ —
$ 1,836
$ 3,141
$ 5,782
Amortization of debt issuance costs (Non-cash) —
231
401
704
Accretion of debt discount (Non-cash) —
901
1,567
2,749
Total interest expense $ —
$ 2,968
$ 5,109
$ 9,235

~~Note payable, related party:~~ The note payable is with the former President of HD Vest and arose in connection with the acquisition of HD Vest. Certain members of HD Vest management rolled over a portion of the proceeds they would have otherwise received at the acquisition's closing into shares of the acquisition subsidiary through which the Company consummated the purchase of HD Vest. The former President of HD Vest sold a portion of his shares to the Company in exchange for the note. The note will be paid over a three-year period, with 50% paid in year one ($3.2 million was paid in December 2016), 40% paid in year two, and 10% paid in year three. The note bears interest at a rate of 5% per year, with a principal amount that approximates its fair value.

Note 8:7: Redeemable Noncontrolling Interests

~~A reconciliation~~In connection with the 2015 acquisition of ~~redeemable noncontrolling~~HD Vest, the former management of HD Vest retained an ownership interest in that business. The Company was party to put and call arrangements that became exercisable beginning in the first quarter of 2019 with respect to those interests. These put and call arrangements allowed certain members of HD Vest management to require the Company to purchase their interests ~~is as follows (in thousands):~~or allow the Company 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, 2018, which occurred on March 1, 2019. All of these arrangements were settled in cash for $24.9 million in the second quarter of 2019.

Balance as of December 31, 2016 $ 15,696
Net income attributable to noncontrolling interests 466
Balance as of September 30, 2017 $ 16,162

~~The redemption amount at September 30, 2017 was $12.4 million.~~

Note 9:8: Commitments and Contingencies

Significant events ~~during~~since the ~~period covered by this Quarterly Report on Form 10-Q,~~year ended December 31, 2018, outside of the ordinary course of the Company’s business, include debt activity (as discussed further in "Note 7:6: Debt"), ~~payment~~purchase commitments of ~~a portion of~~approximately $3.0 million over the ~~acquisition-related contingent consideration liability (as discussed further in "Note 6: Fair Value Measurements"), estimated~~next year from 1st Global, and sublease income of ~~$3.8~~$1.6 million primarily related to the sublease agreement for the Company's former headquarters in 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 by the Company by the third quarter of 2018.Washington. Additional information on the Company’s ~~Commitments~~commitments and ~~Contingencies~~contingencies can be found in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2018.

Litigation: From time to time, the Company is subject to various legal proceedings or claims that arise in the ordinary course of business. The Company accrues a liability when management believes that it is both probable that a liability has been incurred and the amount of loss can be reasonably estimated. ~~The following is a brief description of~~Aside from the ~~more significant legal proceedings. Although~~contingent liability described in "Note 3: Business Combinations," the Company ~~believes that resolving such~~is not currently party to any legal proceedings or claims ~~individually or in aggregate, will not have~~for which it has incurred a ~~material adverse impact~~liability on its ~~financial statements, these matters are subject to inherent uncertainties.~~consolidated balance sheets.

On December 12, 2016, a shareholder derivative action was filed by Jeffrey Tilden against the Company, as a nominal defendant, Andrew Snyder, who was a director of the Company at that time, certain companies affiliated with Mr. Snyder, a former officer of the Company, GCA Savvian Advisors, LLC (~~"GCA Savvian"~~), and certain other current and former members of the Blucora Board of Directors, in the Superior Court of the State of California in and for the County of San Francisco. The complaint asserts claims for breaches of fiduciary duty against certain current and former directors of the Company related to the Company’s share repurchases and the Company’s acquisitions of HD Vest and Monoprice. The complaint asserts a claim against GCA Savvian, the Company’s financial advisor in connection with the HD Vest acquisition, for aiding and abetting breaches of fiduciary duty. The complaint also asserts a claim for insider trading against Mr. Snyder, a former officer of the Company, and certain companies affiliated with Mr. Snyder. The derivative action does not seek monetary damages from the Company. The complaint seeks corporate governance reforms, declaratory relief, monetary damages from the other defendants, attorney’s fees and prejudgment interest.

On March 10, 2017, the Company filed a motion to dismiss for improper venue as a result of a forum selection provision in the Company’s bylaws that required the plaintiff to file his derivative fiduciary duty claims in Delaware. Other defendants also filed motions to quash the summons due to a lack of personal jurisdiction over them. On July 25, 2017, the Court granted the Company's motion to dismiss. The case has been stayed by the Court until November 22, 2017, after which the case will be dismissed without further order of the Court.

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 quarter~~As of ~~2017,~~June 30, 2019, the Company had granted ~~350,000~~801,986 RSUs and non-qualified stock options to certain ~~HD Vest~~Wealth Management business financial advisors. These advisors ~~who~~ are considered non-employees. ~~These~~The RSUs and stock options fully vest ~~fully~~ three years from the date of grant. ~~The Company used~~Following the ~~Black-Scholes-Merton valuation method~~Company'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 Information~~Income 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 segment~~three 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 to~~from the ~~anti-dilutive~~computation 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 online~~a 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 ~~provides~~and 1st Global provide tax-focused wealth management solutions for financial advisors, Certified Public Accounting firms and their clients. Specifically, ~~HD Vest~~the 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 help~~clients, 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 primarily~~The 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 platform~~the Wealth Management business platforms as independent financial advisors. ~~HD Vest~~The 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 ~~online~~digital 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 Transformation~~Recent Developments

Acquisition of 1st Global

On ~~October 14, 2015,~~May 6, 2019, we ~~announced~~closed 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 ~~plans~~business.

Amendment to ~~acquire HD Vest and focus on the technology-enabled financial solutions market (the~~ ~~"Strategic Transformation"). The Strategic Transformation refers to our transformation~~Credit Facilities; Incurrence of Additional Term Loan

In May 2017, we entered into a ~~technology-enabled financial solutions company comprised~~credit agreement with a syndicate of ~~TaxAct~~lenders 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 Vest~~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 ~~divestitures of~~same terms as, our ~~Search~~existing 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 ~~operations~~revolving 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 ~~business~~segment is highly seasonal, with a significant portion of its annual revenue earned in the first four months of our fiscal year. During the third and fourth quarters, the Tax Preparation ~~business~~segment typically reports losses ~~in its operating income~~ because revenue from the ~~business~~segment 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 with~~anticipate 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 Statements~~Tax 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 ~~September~~June 30, ~~2017~~2019 compared with three months ended ~~September~~June 30, ~~2016~~2018

Revenue increased approximately ~~$6.9~~$35.9 million due to ~~increases~~an 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 increased~~income decreased approximately ~~$0.8~~$11.1 million, consisting of the ~~$6.9~~$35.9 million increase in revenue ~~and~~that was offset by ~~an $7.8~~a $47.0 million increase in operating expenses. Key changes in operating expenses were:

•$~~5.9~~31.8 million increase in the Wealth Management segment’s operating expenses (including approximately $26.8 million of operating expenses from 1st Global), primarily due to ~~higher~~an increase in commissions and advisory fees paid to our financial advisors, which fluctuated in ~~proportion~~relation to the change in underlying commission and advisory revenues earned on client accounts.

•$~~2.1~~2.8 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 ~~personnel~~an increase in software development expenses, ~~resulting from overall increased headcount supporting most functions.~~partially offset by lower consulting expenses primarily related to strategic initiatives.

•$~~0.2~~12.4 million ~~decrease~~increase in corporate-level expense activity, primarily ~~due~~related to ~~changes~~acquisition and integration costs and an increase in ~~headcount across most functions.~~consulting expenses.

~~Nine~~Six months ended ~~September~~June 30, ~~2017~~2019 compared with ~~nine~~six months ended ~~September~~June 30, ~~2016~~2018

Revenue increased approximately ~~$42.6~~$55.7 million due to ~~increases~~an increase of ~~$21.3~~$22.4 million in revenue related to our Tax Preparation business and ~~$21.3~~an 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 ~~and~~that was offset by a ~~$31.3~~$49.4 million increase in operating expenses. Key changes in operating expenses were:

•$~~17.1~~30.8 million increase in the Wealth Management segment’s operating expenses (including approximately $26.8 million of operating expenses from 1st Global), primarily due to ~~higher~~an increase in commissions and advisory fees paid to our financial advisors, which fluctuated in ~~proportion~~relation 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.

•$~~10.9~~4.7 million increase in the Tax Preparation segment’s operating expenses, primarily due to ~~higher spending on marketing, higher professional services fees mostly related to marketing~~an increase in personnel costs supporting multiple functions and ~~development projects, higher data center costs related to~~an 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.

•$~~3.4~~13.9 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 grants~~acquisition 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 ~~are~~is 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 ~~AUA~~total 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 ~~AUM~~advisory 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 ~~September~~June 30, ~~2017~~2019 compared with three months ended ~~September~~June 30, ~~2016~~2018

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 $6.7~~due 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 ~~higher~~approximately $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 ~~proportion~~relation to the change in underlying commission and advisory revenues earned on client accounts.

~~Nine~~Six months ended ~~September~~June 30, ~~2017~~2019 compared with ~~nine~~six months ended ~~September~~June 30, ~~2016~~2018

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 $21.3~~due to a $33.3 million increase in revenue, ~~and~~ offset by ~~an $17.1~~a $30.8 million increase in operating expenses. The increase in Wealth Management operating expenses was primarily due to ~~higher~~approximately $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 ~~proportion~~relation 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 generate~~The 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 ~~September~~June 30, ~~2017~~2019 compared with three months ended ~~September~~June 30, ~~2016~~2018

Sales-based commission revenue ~~decreased~~increased approximately ~~$1.3~~$4.6 million, primarily due to ~~decreased activity in mutual funds, variable annuities, insurance and general securities resulting~~approximately $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 increase~~primarily 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.

~~Nine~~Six months ended ~~September~~June 30, ~~2017~~2019 compared with ~~nine~~six months ended ~~September~~June 30, ~~2016~~2018

Sales-based commission revenue increased approximately ~~$1.5~~$1.9 million, primarily due to ~~increased activity in mutual funds, insurance and general securities resulting~~approximately $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 ~~increased~~was comparable to the prior period, however the six months ended June 30, 2019 consisted of approximately ~~$4.6~~$4.1 million ~~and reflects an increase~~of 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 ~~AUM~~advisory 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 ~~September~~June 30, ~~2017~~2019 compared with three months ended ~~September~~June 30, ~~2016~~2018

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 ~~AUM~~advisory assets for the three months ended ~~September~~June 30, ~~2017~~2019 compared with three months ended ~~September~~June 30, ~~2016, and the conversion of AUA to fee-based AUM.~~2018.

~~Nine~~Six months ended ~~September~~June 30, ~~2017~~2019 compared with ~~nine~~six months ended ~~September~~June 30, ~~2016~~2018

The increase in advisory revenue of approximately ~~$11.3~~$21.8 million (including approximately $17.6 million from 1st Global) is ~~consistent with~~primarily due to the increase in the beginning-of-period ~~AUM~~advisory assets for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 compared with ~~nine~~six months ended ~~September~~June 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 ~~September~~June 30, ~~2017~~2019 compared with three months ended ~~September~~June 30, ~~2016~~2018

Asset-based revenue increased ~~$1.1~~approximately $5.9 million (including approximately $2.4 million from 1st Global), primarily from higher cash sweep revenues following increases in interest ~~rates. In~~rates and the ~~current interest rate environment, and through our current~~impact of the 2018 clearing ~~provider, we will not benefit from any future interest rate increases.~~firm transition.

~~Nine~~Six months ended ~~September~~June 30, ~~2017~~2019 compared with ~~nine~~six months ended ~~September~~June 30, ~~2016~~2018

Asset-based revenue increased ~~$2.6~~approximately $8.4 million (including approximately $2.4 million from 1st Global), primarily from higher cash sweep revenues following increases in interest ~~rates. In~~rates and the ~~current interest rate environment, and through our current~~impact 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 ~~September~~June 30, ~~2017~~2019 compared with three months ended ~~September~~June 30, ~~2016~~2018

Transaction and fee ~~revenue~~revenues increased approximately ~~$0.3~~$0.9 million (including approximately $0.6 of revenues from 1st Global), primarily ~~related to~~from advisor ~~fee increases.~~fees.

~~Nine~~Six months ended ~~September~~June 30, ~~2017~~2019 compared with ~~nine~~six months ended ~~September~~June 30, ~~2016~~2018

Transaction and fee ~~revenue~~revenues increased approximately ~~$1.3~~$1.1 million (including approximately $0.6 of revenues from 1st Global), primarily ~~related to~~from 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 ~~sales~~the sale of ~~our consumer~~tax preparation digital services, ancillary services, packaged tax preparation software, and ~~online~~arrangements that may include a combination of these items. Ancillary services ~~as well as other offerings~~primarily include refund payment transfer and ~~ancillary services~~audit 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 ~~consumers~~customers and ~~small~~businesses primarily for the preparation of individual or business ~~owners. We also generate~~tax returns. Professional revenue ~~through the professional~~represents Tax Preparation revenue derived from products sold to tax ~~preparer software that we sell to professional tax~~return preparers who ~~use it~~utilize 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 using~~consider the ~~number~~volume of accepted federal tax e-files made through our software and ~~online services. We consider growth in the number of e-files~~digital 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--the~~metrics: 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 ~~September~~June 30, ~~2017~~2019 compared with three months ended ~~September~~June 30, ~~2016~~2018

Tax Preparation revenue was comparable to the prior period.

Tax Preparation operating ~~loss~~income 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, ~~consisting~~primarily 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 $0.2~~price increases.

Tax Preparation operating income increased approximately $17.7 million due to an increase in ~~revenue and~~revenues 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 million~~personnel costs supporting product development and an increase in ~~revenue and~~software development expenses, partially offset by ~~a $10.9 million increase in operating expenses. The increase in Tax Preparation segment operating~~lower 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-related~~acquisition and integration costs, depreciation, amortization of acquired intangible assets, and ~~restructuring. For further detail, refer~~restructuring 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 ~~September~~June 30, ~~2017~~2019 compared with three months ended ~~September~~June 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, 2016~~2018

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 ~~decreased~~was comparable to the prior period.

Acquisition and integration costs in 2019 are related to the Acquisition.

Depreciation expense increased primarily due to ~~fewer grants~~internally-developed software fixed assets capitalized in the ~~current year and higher~~fourth quarter of 2018.

Amortization expense ~~recognized in~~increased primarily due to the ~~prior year related to HD Vest grants in 2016 that were made in connection with~~impact of the ~~HD Vest acquisition,~~Acquisition, partially offset by ~~activity within our Tax Preparation business~~lower amortization due to ~~prior forfeitures.~~

~~Acquisition-related costs include professional fees and other direct transaction costs and changes in~~ the ~~fair value~~abandonment 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 change~~2018.

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 recognized~~corporate-level activity increased primarily due to increases in ~~the period in which the fair value changes.~~headcount.

~~Amortization of acquired intangible assets were~~Stock-based compensation was comparable to the prior period.

~~Restructuring relates~~Acquisition and integration costs in 2019 are related to ~~expenses incurred due~~the Acquisition.

Depreciation expense was comparable to ~~our October 27, 2016 announcement~~the 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 ~~September~~June 30, ~~2017~~2019 compared with three months ended ~~September~~June 30, ~~2016~~2018

Wealth ~~management~~Management services cost of revenue increased primarily due to ~~higher~~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 ~~proportion~~relation 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 ~~preparation~~Preparation services cost of revenue ~~was comparable~~increased primarily due to ~~the prior period.~~data center costs.

~~Nine~~Six months ended ~~September~~June 30, ~~2017~~2019 compared with ~~nine~~six months ended ~~September~~June 30, ~~2016~~2018

Wealth ~~management~~Management 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 ~~proportion~~relation 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 ~~preparation~~Preparation 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 ~~September~~June 30, ~~2017~~2019 compared with three months ended ~~September~~June 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, 2016~~2018

Engineering and technology expenses increased primarily due to ~~an increase~~higher headcount in ~~professional services fees mostly~~our 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 Vest~~Wealth Management and ~~TaxAct~~Tax Preparation businesses (which primarily include television, radio, online, text, email, and sponsorship channels), and back office processing support expenses associated with our ~~HD Vest~~Wealth Management business (occupancy and general office expenses, regulatory fees, and license fees).

Three months ended ~~September~~June 30, ~~2017~~2019 compared with three months ended ~~September~~June 30, ~~2016~~2018

Sales and marketing expenses increased primarily due to ~~a $0.6 million increase in marketing expenses~~higher headcount and ~~a $1.0 million increase in personnel expenses. The increase in marketing expenses was driven by increased marketing and software support~~consulting 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.

~~Nine~~Six months ended ~~September~~June 30, ~~2017~~2019 compared with ~~nine~~six months ended ~~September~~June 30, ~~2016~~2018

Sales and marketing expenses increased primarily due to ~~a $5.8 million increase in marketing expenses~~higher headcount and ~~a $2.6 million increase in personnel expenses. The increase in marketing expenses was driven by increased marketing~~consulting 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 ~~September~~June 30, ~~2017~~2019 compared with three months ended ~~September~~June 30, ~~2016~~2018

G&A expenses increased primarily due to ~~a $0.8 million~~an increase in personnel ~~expenses, mainly~~costs primarily related to ~~Strategic Transformation Costs, offset by lower stock-based compensation due to fewer grants~~increases in ~~the current year and higher expense recognized~~headcount, a decrease in ~~the~~ prior ~~year~~period consulting expenses primarily related to ~~the timing~~strategic initiatives, and approximately $2.5 million of ~~grants.~~costs from 1st Global.

~~Nine~~Six months ended ~~September~~June 30, ~~2017~~2019 compared with ~~nine~~six months ended ~~September~~June 30, ~~2016~~2018

G&A expenses increased primarily due to ~~a $5.6 million net~~an increase in personnel ~~expenses, mainly~~costs primarily related to ~~Strategic Transformation Costs~~increases 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 year~~from 1st Global.

Acquistion and ~~higher expense recognized in the prior year~~Integration


(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 ~~timing~~Acquisition, 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. ~~Depreciation~~A 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 ~~September~~June 30, ~~2017~~2019 compared with three months ended ~~September~~June 30, ~~2016~~2018

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 ~~2017~~2018 we had a loss on debt extinguishment related to ~~prepayments~~debt prepayments.

In the second quarter of 2018 we had a ~~portion~~gain 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 ~~half~~and 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 in~~In the second quarter of ~~2017.~~

~~Detail~~2018 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 Taxes

~~Nine~~We recorded income tax benefit of $8.1 million and $4.1 million in the three and six months ended ~~September~~June 30, ~~2017 compared with nine months ended September 30, 2016~~

~~Interest expense, amortization~~2019, 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 affected~~valuation allowances, offset by the ~~same factors described above~~effect of state income taxes, non-deductible compensation and acquisition costs. As part of the Acquisition, we recorded $78.2 million of intangible assets that ~~impacted~~resulted in an $11.6 million discrete change in the ~~quarterly period.~~

~~In the first quarter of 2016, we repurchased~~valuation 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 a~~our 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 ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, respectively. ~~Income taxes~~Our effective income tax rate differed from ~~taxes at~~ the 21% statutory ~~rates~~rate in ~~2017~~2018 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 1~~current portion of ~~this report for additional information). We recorded income tax benefit of $8.5 million and income~~valuation allowances.

Income tax expense ~~of $8.9 million in~~for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016, respectively. Income taxes~~2019 differed from ~~taxes at~~ the ~~statutory rates in 2016~~comparable prior period, primarily due to the ~~domestic manufacturing deduction, offset by non-deductible compensation and~~effect 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 ~~move~~relocation of our corporate headquarters which was announced in the fourth quarter of 2016. Acquisition-related costs include professional services fees and other direct transaction costs and changes in the fair value of contingent consideration liabilities related to acquired companies. The SimpleTax acquisition that ~~was~~were completed in ~~2015 included contingent consideration, for which~~2018. 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 ~~September~~June 30, ~~2017~~2019 compared with three months ended ~~September~~June 30, ~~2016~~2018

The decrease in Adjusted EBITDA was primarily due to an increase in segment operating ~~loss~~income 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.

~~Nine~~Six months ended ~~September~~June 30, ~~2017~~2019 compared with ~~nine~~six months ended ~~September~~June 30, ~~2016~~2018

The increase in Adjusted EBITDA was primarily due to ~~increases~~an 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 million~~an 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 ~~September~~June 30, ~~2017~~2019 compared with three months ended ~~September~~June 30, ~~2016~~2018

The decrease in non-GAAP net ~~loss~~income 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 the~~segment, a $1.5 million decrease in ~~non-GAAP net~~ loss ~~was~~on 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 ~~September~~June 30, ~~2017,~~2019, we had cash and ~~marketable investments~~cash 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 operates~~our 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 ~~September~~June 30, ~~2017, HD Vest~~2019, our Wealth Management business met all capital adequacy requirements to which it was subject.

We generally invest our excess cash in ~~high quality~~high-quality marketable investments. These investments generally include debt instruments issued by the U.S. federal government and its agencies, international governments, municipalities and publicly-held corporations, as well as commercial paper, insured time deposits with commercial banks, and money market funds invested in securities issued by agencies of the U.S., although specific holdings can vary from period to period depending upon our cash requirements. ~~Our~~We believe our financial instrument investments held at ~~September~~June 30, ~~2017~~2019 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 Factor~~risk 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 ~~for~~with a ~~new senior secured credit facility~~syndicate 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 consists~~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 ~~loan, which includes~~facility (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 ~~$425.0~~of $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. ~~The~~In November 2017, the credit facility agreement was amended in order to refinance and reprice the initial term loan, such that the applicable interest ~~rates~~rate 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 ~~loan~~facility is from 2.75% to 3.25% for Eurodollar Rate loans and ~~term loan~~1.75% 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 includes~~facilities 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 ~~September~~June 30, ~~2017.~~2019. We ~~initially~~have borrowed ~~$375.0~~$500.0 million under the term ~~loan. Through the third quarter of 2017, we~~loan 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 ~~Notes~~term 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 ~~are~~were contingent upon product availability and revenue performance over a three-year period and ~~are expected~~were to ~~occur~~be paid annually over that period. The ~~first~~third 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 payments~~first 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 Notes~~HD 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 our~~Company 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 ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 and ~~2016,~~2018, respectively. The activity in the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 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 ~~provided~~used by investing activities was ~~$3.3~~$167.4 million and $2.6 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 and ~~net cash from investing activities was $2.3 million for the nine months ended September 30, 2016.~~2018, respectively. The activity in the ~~nine~~six months ended ~~September~~June 30, ~~2017 primarily~~2019 consisted of ~~net cash inflows on our available-for-sale investments of $7.1 million offset by~~the Acquisition and approximately ~~$3.8~~$2.9 million in purchases of property and equipment. The activity in the ~~nine~~six months ended ~~September~~June 30, ~~2016~~2018 consisted of ~~a $1.8 million final working capital adjustment on the HD Vest acquisition and~~approximately $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 $124.6~~of $74.5 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017 and 2016, respectively.~~2018. The activity for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 primarily consisted of ~~payments~~$121.5 million of ~~$285.0~~borrowings under the Blucora senior secured credit facilities and approximately $4.5 million in ~~connection with~~combined proceeds from the ~~termination~~issuance 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 ~~nine~~six months ended ~~September~~June 30, ~~2016~~2018 primarily consisted of payments of ~~$105.0~~$80.0 million ontowards the ~~TaxAct - HD Vest~~term loan under the Blucora senior secured credit ~~facility, the $20.7 million repurchase of the Notes, and $1.4~~facilities, $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 those~~as 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 ~~nine~~six months ended ~~September~~June 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 into~~of the Blucora senior secured credit ~~facility,~~facilities, and ~~the~~as 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 ~~September~~June 30, ~~2017~~2019 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 ~~September~~June 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 ~~September~~June 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 ~~third~~second quarter of ~~2017~~2019 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 to~~Our 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 to~~2018 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 regulation~~set 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 ~~technologies~~business 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 ~~increase~~to 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 services~~revenue (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 us~~not be successful in dissuading such advisors from ~~delivering~~forming their own RIAs, which could cause a ~~quality product~~material volume of customer assets to leave our ~~customers in~~platform, 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 industry~~extensive 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 failure~~Failure to comply with ~~the~~these 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 impact~~cause 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 Vest~~our Wealth Management business operations, and interact with regulators. ~~As noted above,~~In addition, the Trump Administration has ~~called for~~initiated 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 ~~such~~significant 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 impact~~Material 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 Rule~~States 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 Act~~New 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 will~~these 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 representations~~sales 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 Vest~~Wealth Management business distributes its products and services through financial advisors who affiliate with ~~the firm~~us as independent contractors. There can be no assurance that legislative, judicial, or regulatory (including tax) authorities will not

introduce proposals or assert interpretations of existing rules and regulations that would change, or at least challenge, the classification of our financial advisors as independent contractors. Although we believe we have properly classified our advisors as independent contractors, the ~~U.S. Internal Revenue Service~~IRS or other U.S. federal or state authorities or similar authorities may determine that we have misclassified our advisors as independent contractors for employment tax or other purposes and, as a result, seek additional taxes from us or attempt to impose fines and penalties, which could have a ~~material adverse effect~~Material Adverse Effect on our business model, financial condition, and results of operations.

~~Risks Related~~In addition, the SEC and FINRA have extensive rules and regulations with respect to capital requirements. As a registered broker-dealer, our ~~Financing Arrangements~~Wealth 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 repayment~~a 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 in~~We are party to the ~~form~~Blucora 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 which~~the 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 proceeds~~Under the terms of the ~~term loan were used to repay in full the~~revolving credit facility, ~~used for the acquisition of HD Vest and to redeem in full our convertible senior notes. We~~we 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 borrowing~~Our 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 imposes~~The 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 includes~~the 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.

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

Blucora, Inc. Non-Employee Director Compensation Policy

10.3

Employment Agreement by and between Blucora, Inc. and Enrique Vasquez dated May 31, 2019

31.1

Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Exchange Act rules 13a-14(a) and 15d-14(a))

31.2

Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Exchange Act rules 13a-14(a) and 15d-14(a))

32.1*

Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. section 1350)

32.2*

Certification of Principal Financial Officer pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. section 1350)

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

# 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
First Amendment to Employment Agreement dated September 5, 2017 between Blucora, Inc. and John S. Clendening
8-K September 5, 2017 10.1
10.2
Consulting Agreement Dated October 25, 2017 between Blucora, Inc, and Eric M. Emans
X
31.1
Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
X
31.2
Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
X
32.1
Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
X
32.2
Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
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, 2017~~August 8, 2019

~~- 40 -~~



	September 30, 2017			December 31, 2016
ASSETS
Current assets:
Cash and cash equivalents	$	78,558		$	51,713
Cash segregated under federal or other regulations	313			2,355
Available-for-sale investments	—			7,101
Accounts receivable, net of allowance	6,952			10,209
Commissions receivable	16,432			16,144
Other receivables	592			4,004
Prepaid expenses and other current assets, net	4,777			6,321
Total current assets	107,624			97,847
Long-term assets:
Property and equipment, net	9,552			10,836
Goodwill, net	549,064			548,741
Other intangible assets, net	336,872			362,178
Other long-term assets	2,557			3,057
Total long-term assets	898,045			924,812
Total assets	$	1,005,669		$	1,022,659
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	3,161		$	4,536
Commissions and advisory fees payable	16,564			16,587
Accrued expenses and other current liabilities	18,768			18,528
Deferred revenue	7,118			12,156
Current portion of long-term debt, net	2,560			2,560
Total current liabilities	48,171			54,367
Long-term liabilities:
Long-term debt, net	344,232			248,221
Convertible senior notes, net	—			164,176
Deferred tax liability, net	59,118			111,126
Deferred revenue	1,031			1,849
Other long-term liabilities	8,530			10,205
Total long-term liabilities	412,911			535,577
Total liabilities	461,082			589,944

Redeemable noncontrolling interests	16,162			15,696

Commitments and contingencies (Note 9)

Stockholders’ equity:
Common stock, par $0.0001—authorized shares, 900,000; issued and outstanding shares,
46,077 and 41,845	5			4
Additional paid-in capital	1,552,609			1,510,152
Accumulated deficit	(1,024,222		)	(1,092,756		)
Accumulated other comprehensive income (loss)	33			(381		)
Total stockholders’ equity	528,425			417,019
Total liabilities and stockholders’ equity	$	1,005,669		$	1,022,659



	September 30,				December 31,
	2017		2016		2016		2015
Cash and cash equivalents	$	78,558	$	71,165	$	51,713	$	55,473
Cash segregated under federal or other regulations	313		630		2,355		3,557
Restricted cash included in "Prepaid expenses and other current assets, net"	425		100		250		100
Restricted cash included in "Other long-term assets"	550		700		550		700
Total cash, cash equivalents, and restricted cash	$	79,846	$	72,595	$	54,868	$	59,830



	Employee-Related Termination Costs			Contract Termination Costs			Fixed Asset Impairments			Stock-Based Compensation			Other Costs			Total
Balance as of December 31, 2016	$	4,234		$	—		$	—		$	—		$	—		$	4,234
Restructuring charges	(30		)	(241		)	1,878			981			32			2,620
Payments	(434		)	(161		)	—			—			(32		)	(627		)
Non-cash	—			1,457			(1,878		)	(981		)	—			(1,402		)
Balance as of June 30, 2017	3,770			1,055			—			—			—			4,825
Restructuring charges	(3		)							97			12			106
Payments	(2,447		)	(256		)	—			—			(12		)	(2,715		)
Non-cash	—			—			—			(97		)	—			(97		)
Balance as of September 30, 2017	$	1,320		$	799		$	—		$	—		$	—		$	2,119



			Fair value measurements at the reporting date using
	December 31, 2016		Quoted prices in active markets using identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
Cash equivalents:
U.S government securities	$	2,749	$	—	$	2,749	$	—
Money market and other funds	4,090		—		4,090		—
Commercial paper	1,999		—		1,999		—
Taxable municipal bonds	1,301		—		1,301		—
Total cash equivalents	10,139		—		10,139		—
Available-for-sale investments:
Debt securities:
U.S. government securities	2,000		—		2,000		—
Commercial paper	1,998		—		1,998		—
Time deposits	807		—		807		—
Taxable municipal bonds	2,296		—		2,296		—
Total debt securities	7,101		—		7,101		—
Total assets at fair value	$	17,240	$	—	$	17,240	$	—

Acquisition-related contingent consideration liability	$	3,421	$	—	$	—	$	3,421
Total liabilities at fair value	$	3,421	$	—	$	—	$	3,421



	Amortized cost		Gross unrealized gains		Gross unrealized losses			Fair value
Balance as of December 31, 2016	$	7,102	$	—	$	(1	)	$	7,101



Loss on debt extinguishment - TaxAct - HD Vest 2015 credit facility	$	9,593
Loss on debt extinguishment - Convertible Senior Notes	6,715
Total loss on debt extinguishment	$	16,308